Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 

FORM 10-K
 
FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2008
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number 1-10702

TEREX CORPORATION
(Exact Name of Registrant as Specified in Charter)
DELAWARE
34-1531521
(State of incorporation)
(I.R.S. Employer Identification No.)

200 NYALA FARM ROAD, WESTPORT, CONNECTICUT
06880
(Address of principal executive offices)
(Zip Code)

Registrant’s Telephone Number, including area code: (203) 222-7170

Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)

NEW YORK STOCK EXCHANGE
(Name of Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES  x                NO  ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.
YES  ¨                 NO  x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
YES  x                 NO  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer  x     Accelerated Filer  ¨     Non-accelerated Filer  ¨       Smaller Reporting Company  ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  ¨                 NO  x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $4,987 million based on the last sale price on June 30, 2008.

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS
95.0 MILLION AS OF FEBRUARY 19, 2009.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the 2009 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
 


TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 2008

   
PAGE
 
PART I
 
     
Item 1.
Business
4
Item 1A.
Risk Factors
23
Item 1B.
Unresolved Staff Comments
27
Item 2.
Properties
28
Item 3.
Legal Proceedings
30
Item 4.
Submission of Matters to a Vote of Security Holders
30
     
 
PART II
 
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
31
Item 6.
Selected Financial Data
34
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
63
Item 8.
Financial Statements and Supplementary Data
64
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
65
Item 9A.
Controls and Procedures
65
Item 9B.
Other Information
66
     
 
PART III
 
     
Item 10.
Directors, Executive Officers and Corporate Governance
66
Item 11.
Executive Compensation
66
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
66
Item 13.
Certain Relationships and Related Transactions, and Director Independence
66
Item 14.
Principal Accountant Fees and Services
67
     
 
PART IV
 
     
Item 15.
Exhibits and Financial Statement Schedules
67
 
-2-

 
As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.”  This Annual Report on Form 10-K generally speaks as of December 31, 2008, unless specifically noted otherwise.

Forward-Looking Information

Certain information in this Annual Report includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding future events or our future financial performance that involve certain contingencies and uncertainties, including those discussed below in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contingencies and Uncertainties.”  In addition, when included in this Annual Report or in documents incorporated herein by reference, the words “may,” “expects,” “intends,” “anticipates,” “plans,” “projects,” “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:

 
·
Our business is cyclical and weak general economic conditions may affect the sales of our products and financial results;
 
·
our ability to access the capital markets to raise funds and provide liquidity;
 
·
our business is sensitive to fluctuations in government spending;
 
·
our business is very competitive and may be affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
 
·
a material disruption to one of our significant facilities;
 
·
our retention of key management personnel;
 
·
the financial condition of suppliers and customers, and their continued access to capital;
 
·
our ability to obtain parts and components from suppliers on a timely basis at competitive prices;
 
·
our ability to timely manufacture and deliver products to customers;
 
·
the need to comply with restrictive covenants contained in our debt agreements;
 
·
our business is global and subject to changes in exchange rates between currencies, as well as international politics, particularly in developing markets;
 
·
the effects of changes in laws and regulations;
 
·
possible work stoppages and other labor matters;
 
·
compliance with applicable environmental laws and regulations;
 
·
litigation and product liability claims and other liabilities;
 
·
investigations by the United States Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”);
 
·
our implementation of a global enterprise system and its performance; and
 
·
other factors.

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Annual Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Annual Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
 
-3-


PART I

ITEM 1.             BUSINESS

GENERAL

Terex is a diversified global manufacturer of capital equipment focused on delivering reliable, customer relevant solutions for the construction, infrastructure, quarrying, surface mining, shipping, transportation, power and energy industries.  Through December 31, 2008, we operated in five reportable segments: (i) Terex Aerial Work Platforms, (ii) Terex Construction, (iii) Terex Cranes, (iv) Terex Materials Processing & Mining and (v) Terex Roadbuilding, Utility Products and Other.

We view our purpose as making products that will be used to improve the lives of people around the world.  Our mission is to delight our current and future customers with value added offerings that exceed their current and future needs.  Our vision focuses on our commitments to our core constituencies of customers, stakeholders and team members by providing our customers with a superior ownership experience, our stakeholders with a profitable enterprise that increases value, and our team members with a preferred place to work.

Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc.  We have grown tremendously since that time, achieving $9.9 billion of net sales in 2008, up from $9.1 billion of net sales in 2007.  While much of our historic growth had been achieved through acquisitions, a majority of our recent growth has been generated from existing operations.  Since 2004, we have focused on becoming a superb operating company under the Terex franchise.

As we have grown, our business has become increasingly international in scope, with products manufactured in North and South America, Europe, Australia and Asia and sold worldwide.  We are focusing on expanding our business globally, with an increased emphasis on developing markets such as China, India, Russia, the Middle East and Latin America.

Effective January 1, 2009, we realigned certain operations in an effort to capture market synergies and streamline our cost structure.  Our Roadbuilding businesses, formerly part of our Roadbuilding, Utility Products and Other segment, will now be consolidated within our Construction segment.  Our Utility Products businesses, formerly part of our Roadbuilding, Utility Products and Other segment, will now be consolidated within our Aerial Work Platforms segment.  Certain other businesses that were included in the Roadbuilding, Utility Products and Other segment will now be reported in Corporate and Other, which includes eliminations among our segments.  Additionally, our truck-mounted articulated hydraulic crane line of business produced in Delmenhorst and Vechta, Germany, formerly part of our Construction segment, will now be consolidated within our Cranes segment.  The segment disclosures included herein do not reflect these realignments.  We will give effect to these realignments in our segment reporting for financial reporting periods beginning January 1, 2009, at which point the Roadbuilding, Utility Products and Other segment will cease to be a reportable segment.

For financial information about our industry and geographic segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note B - “Business Segment Information” in the Notes to the Consolidated Financial Statements.

AERIAL WORK PLATFORMS

Our Aerial Work Platforms segment designs, manufactures, refurbishes and markets aerial work platform equipment, telehandlers, power products and construction trailers. Products include material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers, construction trailers, trailer-mounted light towers, power buggies, portable generators, related components and replacement parts, and other products. Customers use our products to construct and maintain industrial, commercial and residential buildings and facilities, as well as in a wide range of infrastructure projects.  We market our Aerial Work Platforms products principally under the Terex® and Genie® brand names and the Terex® name in conjunction with certain historic brand names.

Aerial Work Platforms has the following significant manufacturing operations:

 
·
Aerial work platform equipment is manufactured in Redmond and Moses Lake, Washington, Perugia, Italy and Coventry, England;
 
 
·
Construction trailers are manufactured in Elk Point, South Dakota;
 
 
·
Telehandlers are manufactured in Baraga, Michigan and Perugia, Italy; and
 
 
·
Trailer-mounted light towers, trailer-mounted articulated booms, power buggies and generators are manufactured in Rock Hill, South Carolina.
 
-4-

 
We have aerial work platform refurbishment facilities located in Waco, Texas and Modesto, California.

We are in the process of developing a facility in Changzhou, China for the manufacture of aerial work platform equipment.

CONSTRUCTION

Our Construction segment designs, manufactures and markets two primary categories of construction equipment and their related components and replacement parts:

 
·
Heavy construction equipment, including off-highway trucks, scrapers, hydraulic excavators, large wheel loaders and material handlers; and
 
·
Compact construction equipment, including loader backhoes, truck-mounted articulated hydraulic cranes, compaction equipment, mini and midi excavators, site dumpers, compact track loaders, skid steer loaders and wheel loaders.

Construction, forestry, rental, mining, industrial and government customers use these products in construction and infrastructure projects and in coal, minerals, sand and gravel operations. We market our Construction products principally under the Terex® brand name and the Terex® name in conjunction with certain historic brand names.

Construction has the following significant manufacturing operations:

Heavy Construction Equipment

 
·
Off-highway rigid haul trucks and articulated haul trucks and scrapers are manufactured in Motherwell, Scotland;
 
 
·
Wheel loaders are manufactured in Crailsheim, Germany;
 
 
·
Excavators and material handlers are manufactured in Ganderkesee, Germany; and
 
 
·
Material handlers are manufactured in Bad Schoenborn, Germany.

Compact Construction Equipment

 
·
Compact track loaders are manufactured in Grand Rapids, Minnesota, chassis components for compact track loaders are manufactured in Cohasset, Minnesota and crawler conversion parts for compact track loaders and aerial work platform products are manufactured in Casselton, North Dakota;
 
 
·
Site dumpers, compaction equipment and loader backhoes, as well as equipment for the Terex Aerial Work Platforms segment, are manufactured in Coventry, England;
 
 
·
Small and midsized wheel loaders, mini excavators and midi excavators are manufactured in Langenburg, Gerabronn, Rothenburg, Crailsheim and Clausnitz, Germany;
 
 
·
Truck-mounted articulated hydraulic cranes are manufactured in Delmenhorst and Vechta, Germany;
 
 
·
Loader backhoes and skid steer loaders are manufactured for the Indian market in Greater Noida, Utter Pradesh, India; and
 
 
·
Mini excavators are manufactured for the Chinese market in Sanhe, China.
 
Construction’s North American distribution center is in Southaven, Mississippi and serves as a parts center for Construction and other Terex operations.

We have a minority interest in Inner Mongolia North Hauler Joint Stock Company Limited (“North Hauler”), a company incorporated under the laws of China, which manufactures rigid and articulated haulers in China.  Trucks manufactured by North Hauler, which is located in Baotou, Inner Mongolia, are principally used in China under the Terex® brand name.  We also have a minority interest in Atlas Construction Machinery Company Ltd., a company incorporated under the laws of China, which manufactures excavators in China.
 
-5-


CRANES

Our Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacement parts and components.  These products are used primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities and infrastructure.  We market our Cranes products principally under the Terex® brand name and the Terex® name in conjunction with certain historic brand names.

Cranes has the following significant manufacturing operations:

 
·
Rough terrain cranes are manufactured in Crespellano, Italy;
 
 
·
All terrain cranes, truck cranes and telescopic container stackers are manufactured in Montceau-les-Mines, France;
 
 
·
Rough terrain cranes, truck cranes and truck-mounted cranes are manufactured in Waverly, Iowa;
 
 
·
Truck cranes are manufactured in Luzhou, China;
 
 
·
Lift and carry cranes are manufactured in Brisbane, Australia;
 
 
·
Tower cranes are manufactured in Fontanafredda and Cusano Milanino, Italy;
 
 
·
Lattice boom crawler cranes and tower cranes are manufactured in Wilmington, North Carolina; and
 
 
·
Lattice boom crawler and wheel-mounted cranes, as well as all terrain cranes, are manufactured in Zweibruecken, Wallerscheid and Bierbach, Germany and Pecs, Hungary.
 
We plan to begin the manufacture of tower crane components at our facility in Tianjin, China.

MATERIALS PROCESSING & MINING

Our Materials Processing & Mining segment designs, manufactures and markets materials processing equipment (including crushers, impactors, washing systems, screens and feeders), hydraulic mining excavators, highwall mining equipment, high capacity surface mining trucks, drilling equipment, related components and replacement parts, and other products.  Construction, mining, quarrying and government customers use these products in construction and infrastructure projects and commodity mining.  We market our Materials Processing & Mining products principally under the Terex® and Powerscreen® brand names and the Terex® name in conjunction with certain historic brand names.

Materials Processing & Mining has the following significant manufacturing operations:

 
·
Hydraulic mining excavators are manufactured in Dortmund, Germany;
 
 
·
Drilling equipment and tools are manufactured in Denison, Texas and Halifax, England;
 
 
·
High capacity surface mining trucks are manufactured, and components for other Terex businesses are fabricated, in Acuña, Mexico;
 
 
·
Highwall mining equipment is manufactured in Beckley, West Virginia;
 
 
·
Materials processing equipment is manufactured in Melbourne, Australia, Subang Jaya, Malaysia, Chomburi, Thailand, Durand, Michigan, Coalville, England, Omagh, Northern Ireland, and Dungannon, Northern Ireland; and
 
 
·
Materials processing equipment, along with asphalt pavers for the Terex Roadbuilding, Utility Products and Other segment, are manufactured in Cedar Rapids, Iowa.
 
We have a North American distribution center for materials processing products in Louisville, Kentucky.
 
We own a controlling 50% interest in Terex NHL Equipment Co., Ltd., a company incorporated under the laws of China, which was formed to provide manufacturing capability for surface mining trucks in China.

We also participate in joint ventures in China under the names Wieland International Trading (Shanghai) Co. Ltd. and Shanghai Wieland Engineering Co. Ltd., which manufacture replacement and wear parts for crushing equipment.

We are in the process of developing a facility in Hosur, India for the manufacture of crushing and screening equipment.  We plan to begin the manufacture of hydraulic mining excavators at our facility in Tianjin, China.
 
-6-


ROADBUILDING, UTILITY PRODUCTS AND OTHER

Our Roadbuilding, Utility Products and Other segment designs, manufactures and markets asphalt and concrete equipment (including pavers, transfer devices, plants, mixers, reclaimers/stabilizers, placers and cold planers), landfill compactors, bridge inspection and utility equipment (including digger derricks, aerial devices and cable placers), as well as related components and replacement parts.  Government, utility, infrastructure and construction customers use these products to build roads and bridges, construct and maintain utility lines, trim trees and for other commercial operations.  We market our Roadbuilding, Utility Products and Other products principally under the Terex® brand name and the Terex® name in conjunction with certain historic brand names.

Roadbuilding, Utility Products and Other has the following significant manufacturing operations:

 
·
Cold planers, reclaimers/stabilizers, asphalt plants, concrete plants, concrete pavers, concrete placers and landfill compactors are manufactured in Oklahoma City, Oklahoma;
 
 
·
Asphalt pavers and transfer devices are manufactured in Cedar Rapids, Iowa;
 
 
·
Asphalt pavers and asphalt plants are manufactured in Cachoeirinha, Brazil;
 
 
·
Concrete pavers are manufactured in Canton, South Dakota and Opglabbeek, Belgium;
 
 
·
Bridge inspection equipment is manufactured in Rock Hill, South Carolina;
 
 
·
Front and rear discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana; and
 
 
·
Utility aerial devices and digger derricks are manufactured in Watertown, South Dakota.
 
We also own much of the North American distribution channel for the utility products group.  These operations sell, service and rent our utility aerial devices and digger derricks as well as other products that service the utility industry.  They also provide parts and service support for a variety of other Terex® products, including concrete mixers and aerial devices.  We also operate a fleet of rental utility products in the United States and Canada.

We also assist customers in their rental, leasing and acquisition of our products.  We facilitate loans and leases between our customers and various financial institutions under the name Terex Financial Services (“TFS”) in the United States, Europe and elsewhere.

BUSINESS STRATEGY

Successful companies in challenging times balance the short-term needs of cash generation and reducing costs with the long-term needs of investing in and strengthening their core businesses.  This will continue to be our focus throughout this demanding economic environment.

Short-Term

We believe that the coming year will be challenging.  In an environment of tight credit, declining economic activity and constrained access to investment capital, disciplined management of cash flow will be critical to our business success.  While we do not anticipate significant difficulties with overall liquidity, we do believe that sound management of day-to-day operations and sound decision-making about business investments will improve our overall liquidity and increase our flexibility to make value-adding investments in our future.  While cash management is always a focus for our Company, it will be even more so in the current environment.

We believe that the present environment may offer opportunities to strengthen and improve on our business positions around the world.  Disciplined cash management and our continued, although more limited, access to external capital during these challenging times could provide opportunities to invest in our businesses in ways that will strengthen us for the market recovery.  We continually manage a pipeline of both internal and external investment opportunities and, although our investment thresholds will be higher, we will continue to act when the right opportunities present themselves.

Long-Term

Despite these challenging times, our purpose remains to improve the lives of people around the world.  Our mission is to delight our current and future construction, infrastructure, mining and other customers with value added offerings that exceed their current and future needs.  To achieve our mission we must attract the best people by creating a Terex culture that is safe, exciting, creative, fun and embraces continuous improvement.
 
-7-


Our vision focuses on the Company’s core constituencies of customers, stakeholders and team members:

 
·
Customers:  We aim to be the most customer responsive company in the industry as determined by our customers.
 
·
Stakeholders:  We aim to be the most profitable company in the industry as measured by return on invested capital.
 
·
Team Members:  We aim to be the best place to work in the industry as determined by our team members.

We operate our business based on our value system, “The Terex Way,” that helps define our culture.  The Terex Way is based on six key values:

 
·
Integrity: Integrity reflects honesty, ethics, transparency and accountability.  We are committed to maintaining high ethical standards in all of our business dealings.
 
·
Respect:  Respect incorporates concern for safety, health, teamwork, diversity, inclusion and performance.  We treat all our team members, customers and suppliers with respect and dignity.
 
·
Improvement:  Improvement encompasses quality, problem-solving systems, continuous improvement culture and collaboration.  We continuously search for new and better ways of doing things, focusing on the elimination of waste and continuous improvement.
 
·
Servant Leadership:  Servant leadership requires service to others, humility, authenticity and leading by example.  We work to serve the needs of our customers, investors and team members.
 
·
Courage:  Courage entails willingness to take risks, responsibility, action and empowerment.  We have the courage to make a difference even when it is difficult.
 
·
Citizenship:  Citizenship means social responsibility and environmental stewardship.  We respect all people’s values and cultures and are good global, national and local citizens.

One example of how The Terex Way improves our business is our commitment to safety both for our team members in the workplace and for the operators of our equipment.  We strive to design and manufacture quality products that are safe to use and operate in an environmentally conscious manner.  We are dedicated to ensuring that the safety and health of our team members is protected through appropriate work practices, training and procedures.  In 2008, we implemented a new process to investigate accidents and put into place corrective measures to help ensure that similar accidents do not occur anywhere else in our Company.  As a result of this and other safety initiatives, we reduced Terex lost time injuries in 2007 and 2008 by approximately 25% each year and our goal in 2009 is to further reduce Terex lost time injuries by another 25%.

Our operational principles are based on the “Terex Business System,” or “TBS.”  The Terex Business System is the framework around which we are building our capabilities as a superb operating company to achieve our long-term goals.  The key elements of the Terex Business System are illustrated by the following “TBS House” diagram:
 
 
-8-

 
The three foundational elements of the Terex Business System are:

 
·
Leadership Commitment for Competitive Advantage;
 
·
Superb Human Resource Practices; and
 
·
Customer Driven Business Processes, evidenced by continuous improvement in quality, speed and simplicity.

Leadership Commitment for Competitive Advantage is the first foundational element for the Terex Business System.  The commitment of our leaders to the Terex Business System and its principles is the best way to increase our chances of success going forward.  Our leaders set a compelling vision about an exciting, shared future and work to foster trust and teamwork among our team members.

Superb Human Resource Practices is the second foundational element in the Terex Business System.  Our team members are the Company’s most valuable asset.  We are committed to making Terex a preferred place to work filled with energized people who share the Terex values and culture.  We aim to acquire, develop and retain diverse and agile team members.

Customer Driven Business Processes is the third foundational element in the Terex Business System and deals with how we conduct our business by focusing on our customer.  We endeavor to engage in activities across Terex, which deliver value to our customers and constantly work to eliminate the waste of non-value added activities.  We strive to create and improve our business processes in a way that is organized around the customer.  Our process initiatives focus on continuous improvement, quality, speed and simplicity.

The foundation of the TBS House supports the four pillars of the Terex Business System:

 
·
Achieving Intense Customer Focus;
 
·
Planning Excellence and Annual Deployment;
 
·
Developing Operational Excellence Across the Entire Value Chain; and
 
·
Rapidly Delivering New Products and Services.

Achieving Intense Customer Focus represents the importance of our customer to our business success.  Terex is committed to being customer-centric, to meet or exceed customer needs in all aspects of our products and services.  This requires an intense understanding of what our customers need and striving to satisfy them.  We aim to build relationships with our customers that they can depend on and that makes it easier for our customers to do their jobs.  We understand that our success will flow from our customers’ success, and that the value of our products is defined and determined by our customers.

Planning Excellence and Annual Deployment recognizes that we must have well defined initiatives and action plans in order to achieve our objectives.  This requires dedication to planning to achieve the strategic intent of our business, based on quality information about our customers, competitors, markets, economic trends and technological developments.  We must deploy our assets appropriately to align our business performance with our objectives.  In the spirit of continuous improvement, we are committed to reviewing our performance based on critical metrics and improving our planning based on our progress.

Developing Operational Excellence Across the Entire Value Chain is vital to our delivering high quality, reliable products on time and at a low cost to our customers.  This means working with our suppliers to cut lead times and increase inventory turnover, improving the quality of our existing and new products, improving our order entry and scheduling activities, and developing effective management systems for all of our processes, products and people.  To achieve operational excellence in the supply chain, in design and in manufacturing, we apply lean principles and lean thinking to every aspect of our business.  The core applications of the lean approach involve our promoting a culture of continuous improvement and removing waste (anything that does not add value) at every organizational level of the Company.

Rapidly Delivering New Products and Services means acting on the voice of the customer and quickly moving to develop products and services that better meet and exceed customer expectations.  It involves listening to the customer’s needs and wants, understanding them, and then optimizing design and production efforts to best deliver new products.  This requires innovation and efficiency, and a commitment beyond providing products to also providing the services that are an important part of the overall customer experience.

With our purpose, mission and vision in mind, using the Terex Business System as our framework, and operating based on the values of The Terex Way, we have launched key strategic initiatives to drive our future success.  Some of these initiatives on which we will focus in the coming year include:
 
-9-


Strategic Sourcing.  We are in the process of developing and implementing best in class capability in supply chain management, logistics and global purchasing.  We are focused on gaining efficiencies with suppliers based on our global purchasing power and resources.  These efforts, if successful, will result in material savings across the entire Terex organization.  We are developing a world-class global supply base, with better delivery, improved quality and net cost savings for Terex.  Through mid-2008, our sourcing efforts helped to mitigate, to some extent, rising costs in commodities and components.  Over the coming years, we see an opportunity to reduce costs through a combination of improved pricing, consolidated spending, and changes in internal processes and practices.

Customer Satisfaction.  We have implemented a customer satisfaction measurement and improvement process to understand the current level of our customer’s satisfaction.  Through this process, which is based on the Net Promoter Score methodology, we have gained significant insights regarding customer priorities and customer perceptions.  Numerous actions are underway or planned for 2009, as a direct result of the input received from our customers, including implementing changes to improve initial product quality and after market support of our products.  We believe these actions will significantly improve the effectiveness of our businesses, as we continue on our journey of continuous improvement in delighting our customers and providing our customers with the value they desire in the products they purchase.

Developing Markets.  We remain focused on expanding the geographic reach of our businesses, emphasizing developing areas, including China, Russia, India, the Middle East, Africa and Latin America, which accounted for more than 23% of our sales in 2008.  While no market is immune to the effects of the current global financial and economic situation, we believe that developing markets will prove to be attractive places in which to operate and do business in the decades to come.  In 2008, we established plans for each major developing market and have put team members in place to facilitate and support the execution of these plans.  These efforts will evolve over the next several years as we look to grow our business, sales and profits in some of the world’s most important long-term equipment markets.

While we have developed a geographically diverse revenue base with approximately 38% of our revenues derived from the Americas, 42% from Europe, Africa and the Middle East and 20% from Asia and Australia, our long-term goal is a revenue base of 1/3 of revenue from the Americas, 1/3 from Europe, Africa and the Middle East and 1/3 from Asia and Australia.

New Product Identification and Development Process.  We introduced a new common product development process across all of our businesses in 2008.  This process is focused on ensuring that we design our new products to best meet customer needs and that the quality, cost and delivery of our new products meet customer and our expectations.  The process starts with the voice of the customer and will help ensure that we identify and develop the right products and launch them successfully to retain existing and attract new customers.  We anticipate improved productivity and reduced engineering costs through the implementation of this process.  More than 1,200 team members have been trained as part of this new process and there are over 60 significant projects currently being managed.

Terex Management System (“TMS”).  We are in the early stages of a multi-year implementation of a worldwide enterprise resource-planning system.  In 2008, we implemented TMS at three businesses in three different countries.  TMS has already produced tangible benefits by eliminating duplicate data entry and providing near real-time information.  We believe these improvements will result in long-term cost savings and increased productivity.  As we further implement TMS, we believe the magnitude of realized benefits will increase.  We expect TMS to drive significant integration within our Company, improving information for decision support, reducing complexity and improving accuracy, thereby improving the customer experience and realizing improved supply chain economies through the greater visibility into our business that this system will provide.  In 2009, TMS will be implemented at several additional businesses as part of a multi-year implementation program.

Diversity and Inclusion.  We are committed to having a diverse and inclusive work force that will help us consistently achieve our business results in culturally conscious, ethical and appropriate ways.  Increased diversity and inclusion will allow us to respond to rapidly changing global demographics and a global market for talent, aid us in opening new markets, improve our ability to innovate and to solve problems and make our organization more productive.  In 2008, we trained over 800 of our top leaders about the importance of diversity and inclusion, with a particular focus on developing a workforce that understands, appreciates and leverages the unique skills and experiences of people from different cultures.  We also created diversity and inclusion plans at 10 of our largest facilities around the world, and in 2009, we will continue to enhance our focus on diversifying our leadership teams and increasing diversity training throughout the Company.
 
-10-


TBS Assessment and Education.  In 2008, we introduced an operational diagnostic tool to measure and assess how well we are implementing our TBS lean manufacturing program, with an aim of identifying our current situation and the gaps we need to address in order to create a mature enterprise-wide operating system at Terex.  In addition, we aim to establish and nurture a problem solving culture within Terex, focused on development of leaders who promote learning, business process thinking by all team members and a continuous improvement mindset.  Assessments were performed in over 75% of our businesses in 2008 and a multi-phased training program was launched to reinforce TBS principles in our Company.  In 2009, we will, based on the results of our assessment, begin to address the critical areas for improvement and will continue to deploy TBS training to advance the understanding and capabilities of all team members in key TBS concepts.

PRODUCTS

AERIAL WORK PLATFORMS

AERIAL WORK PLATFORMS.  Aerial work platform equipment safely positions workers and materials easily and quickly to elevated work areas to enhance productivity. These products have developed as alternatives to scaffolding and ladders. We offer a variety of aerial lifts that are categorized into six product families: material lifts; portable aerial work platforms; trailer-mounted articulating booms; self-propelled articulating booms; self-propelled telescopic booms; and scissor lifts.

 
·
Material lifts are used primarily indoors in the construction, industrial and theatrical markets.
 
·
Portable aerial work platforms are used primarily indoors in a variety of markets to perform overhead maintenance.
 
·
Trailer-mounted articulating booms are used both indoors and outdoors.  They provide versatile reach, and have the ability to be towed between job sites.
 
·
Self-propelled articulating booms are primarily used in construction and industrial applications, both indoors and outdoors.  They feature lifting versatility with up, out and over position capabilities to access difficult to reach overhead areas.
 
·
Self-propelled telescopic booms are used outdoors in commercial and industrial construction, as well as highway and bridge maintenance projects.
 
·
Scissor lifts are used in outdoor and indoor applications in a variety of construction, industrial and commercial settings.

CONSTRUCTION TRAILERS.  Construction trailers are used in the construction and rental industries to haul materials and equipment.  We also produce trailers used by the United States military for critical hauling applications.  Bottom dump material trailers are used to transport raw aggregates, crushed aggregates and finished hot mix asphalt paving material.  Lowbed trailers are used primarily to transport construction equipment.

TELEHANDLERS.  Telehandlers are used to move and place materials on residential and commercial job sites and are used in the landscaping, recycling and agricultural industries.

POWER PRODUCTS. We produce equipment for delivering power, including trailer-mounted light towers, power buggies and portable generators.

 
·
Trailer-mounted light towers are used primarily to light work areas for night construction activity.
 
·
Power buggies are used primarily to transport concrete from the mixer to the pouring site.
 
·
Generators are used to provide electric power on construction sites and other remote locations.
 
-11-

 
CONSTRUCTION

HEAVY CONSTRUCTION EQUIPMENT.  We manufacture and/or market off-highway trucks, scrapers, excavators, wheel loaders and material handlers.

 
·
Articulated off-highway trucks are three-axle, six-wheel drive machines with an articulating connection between the cab and body that allows the cab and body to move independently, enabling all six tires to maintain ground contact for traction on rough terrain.
 
·
Rigid off-highway trucks are two-axle machines, which generally have larger capacities than articulated off-highway trucks, but can operate only on improved or graded surfaces, and are used in large construction or infrastructure projects, aggregates and smaller surface mines.
 
·
Scrapers move dirt by elevating it from the ground to a bowl located between the two axles of the machine. Scrapers are used most often in relatively dry, flat terrains.
 
·
Excavators are used for a wide variety of construction applications, including non-residential construction (such as commercial sites and road construction) and residential construction.
 
·
Wheel loaders are used for loading and unloading materials.  Applications include mining and quarrying, non-residential construction, airport and industrial snow removal, waste management and general construction.
 
·
Material handlers are designed for handling logs, scrap and other bulky materials with clamshell, magnet or grapple attachments.

COMPACT CONSTRUCTION EQUIPMENT.  We manufacture a wide variety of compact construction equipment used primarily in the construction and rental industries. Products include compact track loaders, loader backhoes, compaction equipment, excavators, site dumpers, skid steer loaders, wheel loaders and truck-mounted articulated hydraulic cranes.

 
·
Loader backhoes incorporate a front-end loader and rear excavator arm. They are used for loading, excavating and lifting in many construction and agricultural related applications.
 
·
Our compaction equipment ranges from small portable plates to heavy duty ride-on rollers.
 
·
Excavators in the compact equipment category include mini and midi excavators used in the general construction, landscaping and rental businesses.
 
·
Site dumpers are used to move smaller quantities of materials from one location to another, and are primarily used for construction applications.
 
·
Compact track loaders, skid steer loaders and wheel loaders are used for loading and unloading materials in construction, industrial, rental, agricultural and landscaping businesses.
 
·
Truck-mounted articulated hydraulic cranes are available in two product categories. The “knuckle boom” crane can be mounted on either the front or the rear of commercial trucks and is folded within the width of the truck while in transport.  The “V-boom” crane is also mounted on the front or the rear of the truck and spans the length of the truck while folded.

CRANES

We offer a wide variety of cranes, including mobile telescopic cranes, tower cranes, lattice boom crawler cranes, boom trucks and telescopic container stackers.

MOBILE TELESCOPIC CRANES.  Mobile telescopic cranes are used primarily for industrial applications, in commercial and public works construction and in maintenance applications to lift equipment or material.  We offer a complete line of mobile telescopic cranes, including rough terrain cranes, truck cranes, all terrain cranes and lift and carry cranes.

 
·
Rough terrain cranes move materials and equipment on rough or uneven terrain, and are often located on a single construction or work site such as a building site, a highway or a utility project for long periods.  Rough terrain cranes cannot be driven on highways and accordingly must be transported by truck to the work site.
 
·
Truck cranes have two cabs and can travel rapidly from job site to job site at highway speeds. Truck cranes are often used for multiple local jobs, primarily in urban or suburban areas.
 
·
All terrain cranes were developed in Europe as a cross between rough terrain and truck cranes, and are designed to travel across both rough terrain and highways.
 
·
Lift and carry cranes are designed primarily for site work, such as at mine sites, large fabrication yards and building and construction sites, and combine high road speed and all terrain capability without the need for outriggers.
 
-12-

 
TOWER CRANES.  Tower cranes are often used in urban areas where space is constrained and in long-term or very high building sites.  Tower cranes lift construction material and place the material at the point where it is being used.  We produce the following types of tower cranes:

 
·
Self-erecting tower cranes are trailer-mounted and unfold from four sections (two for the tower and two for the jib); certain larger models have a telescopic tower and folding jib. These cranes can be assembled on site in a few hours.  Applications include residential and small commercial construction.
 
·
Hammerhead tower cranes have a tower and a horizontal jib assembled from sections. The tower extends above the jib to which suspension cables supporting the jib are attached.  These cranes are assembled on-site in one to three days depending on height, and can increase in height with the project.
 
·
Flat top tower cranes have a tower and a horizontal jib assembled from sections. There is no A-frame above the jib, which is self-supporting and consists of reinforced jib sections. These cranes are assembled on site in one to two days, and can increase in height with the project.
 
·
Luffing jib tower cranes have a tower and an angled jib assembled from sections. There is one A-frame above the jib to which suspension cables supporting the jib are attached.  Unlike other tower cranes, there is no trolley to control lateral movement of the load, which is accomplished by changing the jib angle.  These cranes are assembled on site in two to three days, and can increase in height with the project.

LATTICE BOOM CRAWLER AND WHEEL-MOUNTED CRANES.  Lattice boom crawler and wheel-mounted cranes are designed to lift material on rough terrain and can maneuver while bearing a load.  The boom is made of tubular steel sections, which, together with the base unit, are transported to and erected at a construction site.

TRUCK-MOUNTED CRANES (BOOM TRUCKS).  We manufacture telescopic boom cranes for mounting on commercial truck chassis. Truck-mounted cranes are used primarily in the construction industry to lift equipment or materials to various heights. Boom trucks are generally lighter and have less lifting capacity than truck cranes, and are used for many of the same applications when lower lifting capabilities are sufficient.  An advantage of a boom truck is that the equipment or material to be lifted by the crane can be transported by the truck, which can travel at highway speeds.  Applications include the installation of commercial air conditioners and other roof-mounted equipment.

TELESCOPIC CONTAINER STACKERS.  Telescopic container stackers are used to pick up and stack containers at dock and terminal facilities.  At the end of a telescopic container stacker’s boom is a spreader, which enables it to attach to containers of varying lengths and weights and to rotate the container.

MATERIALS PROCESSING & MINING

MINING EQUIPMENT.  We offer high capacity surface mining trucks, hydraulic mining excavators and highwall mining equipment used in the surface mining industry.

 
·
High capacity surface mining trucks are off-road dump trucks. They are powered by a diesel engine driving an electric alternator that provides power to individual electric motors in each of the rear wheels.  Our product line consists of a series of rear dump trucks ranging in size from 150 tons to 400 tons.
 
·
Hydraulic mining excavators in shovel or backhoe versions are primarily used to dig overburden and minerals and load them into trucks.  These excavators are utilized in surface mines, quarries and large construction sites around the world.
 
·
Highwall mining equipment is a self-contained coal mining system that remotely mines underground coal from the surface of a strip mining operation to predetermined depths.

DRILLING EQUIPMENT.  We offer a wide selection of drilling equipment and tools for surface and underground mining, quarrying, construction and utility applications. Our drilling equipment includes jumbo drills used in underground hard rock mining and tunneling, hydraulic track drills for quarrying, construction, and mining, rotary drills for open pit mining and auger drills used in construction and foundation applications.  Drilling tools also include a broad line of auger tools.  We also design, manufacture and distribute down-the-hole drill bits and hammers for drills.

MATERIALS PROCESSING EQUIPMENT.  Materials processing equipment is used in processing aggregate materials for roadbuilding applications and is also used in the quarrying, demolition and recycling industries.  Our materials processing equipment includes crushers, screens and feeders.
 
-13-


We manufacture a range of track-mounted jaw, impactor and cone crushers as well as base crushers for integration within static plants.  Our crushing equipment also includes horizontal and vertical shaft impactors.

 
·
Jaw crushers are used for crushing larger rock, primarily at the quarry face or on recycling duties.  Applications include hard rock, sand and gravel and recycled materials.
 
·
Impactor crushers are used in quarries for primary and secondary applications as well as in recycling.  Generally, they are better suited for larger reduction on materials with low to medium abrasiveness.
 
·
Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel.
 
·
Horizontal shaft impactors are primary and secondary crushers, which utilize rotor impact bars and breaker plates to achieve high production tonnages and improved aggregate particle shape.  They are typically applied to reduce soft to medium hard materials, as well as recycled materials.
 
·
Vertical shaft impactors are secondary and tertiary crushers that reduce material utilizing various rotor configurations and are highly adaptable to any application.  Vertical shaft impactors can be customized to material conditions and desired product size/shape.
 
Our screening equipment includes:

 
·
Heavy duty inclined screens and feeders are used in high tonnage applications.  These units are typically custom designed to meet the needs of each customer. Although primarily found in stationary installations, we supply a variety of screens and feeders for use on heavy-duty portable crushing and screening spreads.
 
·
Inclined screens are used in all phases of plant design from handling quarried material to fine screening.  Capable of handling much larger capacity than a flat screen, inclined screens are most commonly found in large stationary installations where maximum output is required.
 
·
Dry screening is used to process materials such as sand, gravel, quarry rock, coal, construction and demolition waste, soil, compost and wood chips.
 
·
Washing screens are used to separate, wash, scrub, dewater and stockpile sand and gravel.  Our products include a completely mobile single chassis washing plant incorporating separation, washing, dewatering and stockpiling.  We also manufacture mobile and stationary screening rinsers, bucket-wheel dewaterers, scrubbing devices for aggregate, a mobile cyclone for maximum retention of sand particles, silt extraction systems, stockpiling conveyors and a sand screw system as an alternative to bucket-wheel dewaterers.
 
·
Horizontal screens combine high efficiency with the capacity, bearing life and low maintenance of an inclined screen. They are adaptable for heavy scalping, standard duty and fine screening applications.

Feeders are generally situated at the primary end of the processing facility, and have a rugged design in order to handle the impact of the material being fed from front-end loaders and excavators.  The feeder moves material to the crushing and screening equipment in a controlled fashion.
 
-14-


ROADBUILDING, UTILITY PRODUCTS AND OTHER

We offer a diverse range of products for the roadbuilding, utility and construction industries and governments.

ROADBUILDING EQUIPMENT.  We manufacture asphalt pavers, transfer devices, asphalt plants, concrete production plants, concrete mixers, concrete pavers, concrete placers, cold planers, reclaimers/stabilizers, bridge inspection equipment and landfill compactors.

 
·
Asphalt pavers are available in a variety of sizes and designs. Smaller units are used for commercial work such as parking lots, development streets and construction overlay projects.  Mid-sized pavers are used for mainline and commercial projects.  High production pavers are engineered and built for heavy-duty, mainline paving.
 
·
Asphalt transfer devices are available in both self-propelled and paver pushed designs and are intended to reduce segregation in the paver to create a smoother roadway.
 
·
Asphalt plants are used to produce hot mix asphalt and are available in portable, relocatable and stationary configurations.
 
·
Concrete production plants are used in residential, commercial, highway, airport and other markets.  Our products include a full range of portable and stationary transit mix and central mix production facilities.
 
·
Concrete mixers are machines with a large revolving drum in which cement is mixed with other materials to make concrete.  We offer models mounted on trucks with three, four, five, six or seven axles and other front and rear discharge models.
 
·
Our concrete pavers are used to place and finish concrete streets, highways and airport surfaces.
 
·
Concrete placers transfer materials from trucks in preparation for paving.
 
·
Cold planers mill and reclaim deteriorated asphalt pavement, leaving a level, textured surface upon which new paving material is placed.
 
·
Our reclaimers/stabilizers are used to add load-bearing strength to the base structures of new highways and new building sites.  They are also used for in-place reclaiming of deteriorated asphalt pavement.
 
·
Our bridge inspection equipment allows access to many under bridge related tasks, including inspections, painting, sandblasting, repairs, general maintenance, installation and maintenance of under bridge pipe and cables, stripping operations and replacement and maintenance of bearings.
 
·
We produce landfill compactors used to compact refuse at landfill sites.

UTILITY EQUIPMENT.  Our utility products include digger derricks, insulated aerial devices and cable placers. These products are used by electric utilities, tree care companies, telecommunications and cable companies and the related construction industries, as well as by government organizations.

 
·
Digger derricks are used to dig holes, hoist and set utility poles, as well as lift transformers and other materials at job sites.
 
·
Insulated aerial devices are used to elevate workers and material to work areas at the top of utility poles, energized transmission lines and for trimming trees away from energized electrical lines, as well as for miscellaneous purposes such as sign maintenance.
 
·
Cable placers are used to install fiber optic, copper and strand telephone and cable lines.

The following table lists our main product categories and their percentage of our total sales.

   
PERCENTAGE OF SALES
 
PRODUCT CATEGORY
 
2008
   
2007
   
2006
 
Mobile Telescopic & Truck Cranes
    20 %     17 %     16 %
Aerial Work Platforms
    18       21       21  
Mining & Drilling Equipment
    14       12       9  
Heavy Construction Equipment
    11       12       11  
Lattice Boom Crawler & Tower Cranes and Telescopic Container Stackers
    11       9       8  
Materials Processing Equipment
    10       11       10  
Compact Construction Equipment
    6       6       8  
Telehandlers, Construction Trailers & Light Construction Equipment
    3       4       7  
Roadbuilding Equipment
    3       3       5  
Utility Equipment
    3       2       4  
Other
    1       3       1  
TOTAL
    100 %     100 %     100 %
 
-15-

 
BACKLOG

Our backlog as of December 31, 2008 and 2007 was as follows:

   
December 31,
 
   
2008
   
2007
 
   
(in millions)
 
Aerial Work Platforms
  $ 83.1     $ 652.4  
Construction
    240.2       682.2  
Cranes
    1,925.3       2,005.5  
Materials Processing & Mining
    595.7       692.9  
Roadbuilding, Utility Products and Other
    111.3       147.9  
Total
  $ 2,955.6     $ 4,180.9  
 
Substantially all of our backlog orders are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time. Our backlog orders represent primarily new equipment orders.  Parts orders are generally filled on an as-ordered basis.

Our management views backlog as one of many indicators of the performance of our business.  Because many variables can cause changes in backlog, and these changes may or may not be of any significance, we consequently view backlog as an important, but not necessarily determinative, indicator of future results.  High backlogs can indicate a high level of future sales; however, when backlogs are high, this may also reflect a high level of production delays, which may result in future order cancellations from disappointed customers.  Small backlogs may indicate a low level of future sales; however, they may also reflect a rapid ability to fill orders that is appreciated by our customers.

Our overall backlog amounts at December 31, 2008 decreased by $1,225.3 million from our backlog amounts at December 31, 2007.  However, the U.S. dollar strengthened relative to many other foreign currencies during 2008.  The translation effect of foreign currency exchange rate changes accounted for approximately $366 million of the decrease in backlog from December 31, 2007.

Our Aerial Work Platforms segment backlog decreased $569.3 million to $83.1 million at December 31, 2008 from $652.4 million at December 31, 2007, primarily due to softening demand, particularly in North America and Western Europe. Our customers for aerial work platforms are primarily rental companies.  Historically, these customers have placed annual orders early in the New Year to prepare for their busy season during the Northern Hemisphere summer.  At December 31, 2007, demand was strong in Europe and our customers there placed their annual orders earlier than they have historically.  Backlog at December 31, 2008 is lower because construction activity has dramatically slowed, with many of our end markets experiencing 40%-50% declines in demand.  As a result, our customers are waiting to place orders until there is greater clarity regarding demand during this unsettled economic period.  The translation effect of foreign currency exchange rate changes accounted for approximately $118 million of the decrease from December 31, 2007.

Our Construction segment backlog at December 31, 2008 decreased $442.0 million to $240.2 million, as compared to $682.2 million at December 31, 2007.  Backlog at December 31, 2008 was lower primarily due to a significant reduction in construction activity in most end markets for the segment’s products. The translation effect of foreign currency exchange rate changes accounted for approximately $79 million of the decrease in backlog from December 31, 2007.

The backlog at our Cranes segment decreased $80.2 million to $1,925.3 million at December 31, 2008 from $2,005.5 million at December 31, 2007.  Backlog at December 31, 2008 was slightly lower because, although global demand continued for crawler and all-terrain cranes, demand slowed considerably in the fourth quarter of 2008 for rough terrain cranes.  Demand for tower cranes, as well as smaller capacity cranes, particularly boom trucks and truck cranes, has also weakened.  We have also begun to recover from supplier constraints, which has converted previously reported backlog into sales.  The translation effect of foreign currency exchange rate changes accounted for approximately $67 million of the decrease in backlog from December 31, 2007.

Our Materials Processing & Mining segment backlog at December 31, 2008 decreased $97.2 million to $595.7 million compared to $692.9 million at December 31, 2007.  Backlog at December 31, 2008 was lower primarily due to the translation effect of foreign currency exchange rates changes, which accounted for approximately $101 million of the decrease from December 31, 2007.  Weak demand for materials processing products was partially a driver of lower backlog.  However, global commodity demand continued to support mining equipment backlog, although there are signs of increasing weakness due to the recent softening of commodity prices.
 
-16-


The backlog at our Roadbuilding, Utility Products and Other segment decreased $36.6 million to $111.3 million at December 31, 2008 from $147.9 million at December 31, 2007, mainly due to reduced demand for North American asphalt plants and concrete mixer trucks.

DISTRIBUTION

We distribute our products through a global network of dealers, rental companies, major accounts and direct sales to customers.

AERIAL WORK PLATFORMS

Our aerial work platform, telehandler and power products are distributed principally through a global network of rental companies, independent dealers and, to a lesser extent, strategic accounts.  We employ sales representatives who service these channel partners from offices located throughout the world.

Construction trailers are distributed primarily through dealers in the United States and are sold directly to users when local dealers are not available.

CONSTRUCTION

We distribute heavy construction equipment and replacement parts primarily through a network of independent dealers and distributors throughout the world. Our dealers are independent businesses, which generally serve the construction, mining, forestry and/or scrap industries. Although these dealers may carry products from a variety of manufacturers, they generally carry only one manufacturer’s “brand” of each particular type of product.

We distribute compact construction equipment primarily through a network of independent dealers and distributors throughout the world.  Although some dealers represent only one of our product lines, we have recently focused on developing the dealer network to represent our complete range of compact equipment.

We distribute loader backhoes and skid steer loaders manufactured in India through a network of approximately forty dealers located in India, Nepal and neighboring countries.

CRANES

We market our crane products globally, optimizing assorted channel marketing systems including a distribution network and a direct sales force.  We have direct sales, primarily to specialized crane rental companies, in certain crane markets such as the United Kingdom, Germany, Spain, Belgium, Italy, France and Scandinavia to offer comprehensive service and support to customers.  Distribution via a dealer network is often utilized in other geographic areas, including the United States.

MATERIALS PROCESSING & MINING

We distribute surface mining products and services through a global network of wholly owned subsidiaries, regional sales and support offices, joint venture partners and through independent dealership networks.  In addition, our excavators may be sold and serviced through authorized Caterpillar dealers.

Highwall mining systems are sold through independent dealers and directly to end user customers.

Materials processing equipment is distributed principally through a worldwide network of independent distributors and dealers.

ROADBUILDING, UTILITY PRODUCTS AND OTHER

We sell asphalt pavers, transfer devices, reclaimers/stabilizers, cold planers, concrete pavers, concrete placers, concrete plants and landfill compactors to end user customers principally through independent dealers and distributors and, to a lesser extent, on a direct basis in areas where distributors are not established.  We sell asphalt plants and concrete roller pavers primarily direct to end user customers.

We sell bridge inspection equipment and concrete mixers primarily direct to customers, but concrete mixers are also available through distributors in certain regions of the United States.

We sell utility equipment to the utility and municipal markets through a network of both company-owned and independent distributors in North America.
 
-17-

 
RESEARCH AND DEVELOPMENT

We maintain engineering staff at most of our locations.  Our engineering expenses are primarily incurred in connection with enhancements of existing products, cost improvements of existing products and, in certain cases, the development of additional applications or extensions of our existing product lines.

We are adjusting our engineering initiatives commensurate with the business priorities of expanding into global markets, product standardization, component rationalization and strategic alignment with global suppliers, while remaining customer focused. Product change driven by regulations requiring Tier 4 emission compliant engines in most of our machinery starting in 2010 is an important part of our engineering priorities.

We have targeted greater effectiveness and efficiency in our engineering spending by improving our processes, upgrading our capabilities and leveraging more readily available engineering resources in lower cost countries. For example, we are establishing engineering capabilities in India to support our engineering organization worldwide and to develop products for the local market.

Our costs incurred in the development of new products, cost reductions, or improvements to existing products of continuing operations amounted to $71.2 million, $69.5 million and $52.6 million in 2008, 2007 and 2006, respectively. The increase from 2007 to 2008 was primarily due to our expanded product portfolio and investments in the engineering priorities described above.  The increase from 2006 to 2007 was mainly due to new product development and quality control of our sourced materials in our Cranes and Materials Processing & Mining segments.

MATERIALS

Principal materials and components that we use in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, and a variety of other commodities and fabricated or manufactured items.  Extreme movements in the cost and availability of these materials and components may affect our performance.  Worldwide steel prices rose for most of 2008 in response to higher demand caused by continued higher consumption in developing market countries such as China.  Due to the continued high demand for steel in 2008, many suppliers of steel, castings and other products increased prices or added surcharges to the price of their products.  A weakening of steel prices at the end of 2008, particularly in the commodity grades, will likely result in lower steel costs in 2009.  However, we will not realize a significant improvement in our steel costs until later in 2009, when we will have utilized material already in our inventory.

In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers.  However, certain of our businesses receive materials and components from a sole supplier, although alternative suppliers of such materials are generally available.  Current and potential suppliers are evaluated on a regular basis on their ability to meet our requirements and standards.  We actively manage our material supply sourcing, and may employ various methods to limit risk associated with commodity cost fluctuations and availability.  The inability of suppliers, especially any sole suppliers for a particular business, to deliver materials and components promptly could result in production delays and increased costs to manufacture our products.  As a result of the macro-economic challenges currently affecting the economy of the U.S. and other parts of the world, our suppliers may experience serious cash flow problems, and as a result, could seek to significantly and quickly increase their prices or reduce their output.  We have designed and implemented plans to mitigate the impact of these risks by using alternate suppliers, leveraging our overall purchasing volumes to obtain favorable quantities and developing a closer working relationship with key suppliers.  We continue to search for acceptable alternative supply sources and less expensive supply options on a regular basis, including by improving the globalization of our supply base and using suppliers in China and India.  One key Terex Business System initiative has been developing and implementing world-class capability in supply chain management, logistics and global purchasing.  We are focusing on gaining efficiencies with suppliers based on our global purchasing power and resources.
 
-18-


COMPETITION

We face a competitive global manufacturing market for all of our products.  We compete with other manufacturers based on many factors, particularly price, performance and product reliability.  We generally operate under a best value strategy, where we attempt to offer our customers products that are designed to improve the customer’s return on invested capital.  However, in some instances, customers may prefer the pricing, performance or reliability aspects of a competitor’s product despite our product pricing or performance.  We do not have a single competitor across all business segments.  The following table shows the primary competitors for our products in the following categories:

BUSINESS SEGMENT
PRODUCTS
PRIMARY COMPETITORS
Aerial Work Platforms
Boom Lifts
Oshkosh (JLG), Haulotte, Linamar (Skyjack), Tanfield (Snorkel and Upright) and Aichi
     
 
Scissor Lifts
Oshkosh (JLG), Linamar (Skyjack), Haulotte, Tanfield (Snorkel and Upright)
     
 
Construction Trailers
Trail King, Talbert, Fontaine, Rogers, Etnyre, Ranco, Clement, CPS, as well as regional suppliers
     
 
Telehandlers
Oshkosh (JLG, Skytrak, Caterpillar, Gradall and Lull brands), JCB, CNH, Merlo and Manitou (Gehl)
     
 
Trailer-mounted Light Towers
Allmand Bros., Magnum and Doosan (Ingersoll-Rand)
     
 
Power Buggies
Multiquip and Stone
     
 
Generators
Doosan (Ingersoll-Rand), Multiquip, Magnum, Wacker and Caterpillar
     
Construction
Articulated Off-highway Trucks & Rigid Off-highway Trucks
Volvo, Caterpillar, Moxy, John Deere, Bell and Komatsu
     
 
Scrapers
Caterpillar
     
 
Excavators
Caterpillar, Komatsu, Volvo, John Deere, Hitachi, CNH, Sumitomo (Link-Belt),  Doosan, Hyundai and Liebherr
     
 
Truck-mounted Articulated Hydraulic Cranes
Palfinger, HIAB, HMF, Effer and Fassi
     
 
Material Handlers
Liebherr, Sennebogen and Caterpillar
     
 
Wheel Loaders
Caterpillar, Volvo, Kubota, Kawasaki, John Deere, Komatsu, Hitachi, CNH, Liebherr and Doosan
     
 
Loader Backhoes
Caterpillar, CNH, JCB, Komatsu, Volvo and John Deere
     
 
Compaction Equipment
Doosan (Ingersoll-Rand), Caterpillar, Bomag, Amman, Dynapac and Hamm
     
 
Mini Excavators
Doosan (Bobcat), Yanmar, Volvo, Takeuchi, IHI, CNH, Caterpillar, John Deere, Neuson and Kubota
     
 
Midi Excavators
Komatsu, Hitachi, Volvo and Yanmar
     
 
Site Dumpers
Thwaites and AUSA
     
 
Skid Steer Loaders
Doosan (Bobcat), CNH and JCB
     
 
Compact Track Loaders
Doosan (Bobcat), Caterpillar, CNH, John Deere, Takeuchi and Gehl
 
-19-

 
BUSINESS SEGMENT
PRODUCTS
PRIMARY COMPETITORS
Cranes
Mobile Telescopic Cranes
Liebherr, Manitowoc (Grove), Tadano-Faun, Sumitomo (Link-Belt), Kato, XCMG and Sany
     
 
Tower Cranes
Liebherr, Manitowoc (Potain), Comansa and MAN Wolff
     
 
Lattice Boom Crawler Cranes
Manitowoc, Sumitomo (Link-Belt), Liebherr, Hitachi, Kobelco, XCMG and Sany
     
 
Boom Trucks
Manitowoc (National Crane), Palfinger, Hiab, Altec, Fassi, Manitex and PM
     
 
Telescopic Container Stackers
Kalmar, SMV, CVS Ferrari, Fantuzzi, Liebherr and Linde
     
Materials Processing & Mining
Hydraulic Mining Excavators
Hitachi, Komatsu and Liebherr
     
 
High Capacity Surface Mining Trucks
Caterpillar, Komatsu, Liebherr and Euclid/Hitachi
     
 
Highwall Mining Equipment
ICG Addcar Systems and American Highwall Systems
     
 
Drilling Equipment
Sandvik, Atlas Copco, Furukawa and Altec
     
 
Materials Processing Equipment
Metso, Astec Industries, Sandvik, Komatsu, Deister Machine and McCloskey Brothers
     
Roadbuilding, Utility Products & Other
Asphalt Pavers and Transfer Devices
Volvo (Blaw-Knox), Fayat (Bomag), Caterpillar, Wirtgen (Ciber), Atlas Copco (Dynapac), Astec (Roadtec) and Wirtgen (Vogele)
     
 
Asphalt Plants
Astec Industries, Gencor Corporation, All-Mix, Ciber  and ADM
     
 
Bridge Inspection Equipment
Moog USA and Barin
     
 
Cold Planers
Fayat (Bomag), Caterpillar, Atlas Copco (Dynapac), Wirtgen and Astec (Roadtec)
     
 
Concrete Production Plants
Con-E-Co, Erie Strayer, Helco, Hagen and Stephens
     
 
Concrete Pavers
Gomaco, Wirtgen, Power Curbers and Guntert & Zimmerman
     
 
Concrete Placers
Gomaco, Wirtgen and Guntert & Zimmerman
     
 
Concrete Mixers
McNeilus, Oshkosh, London and Continental Manufacturing
     
 
Landfill Compactors
Al-Jon, Fayat (Bomag) and Caterpillar
     
 
Reclaimers/Stabilizers
Caterpillar, Wirtgen and Fayat (Bomag),
     
 
Utility Equipment
Altec and Time Manufacturing
 
-20-

 
MAJOR CUSTOMERS

None of our customers accounted for more than 10% of our consolidated sales in 2008.  We are not dependent upon any single customer.

EMPLOYEES

As of December 31, 2008, we had approximately 20,000 employees, including approximately 7,000 employees in the U.S.  Approximately 12% of our employees in the U.S. are represented by labor unions.  Outside of the U.S., we enter into employment contracts and collective agreements in those countries in which such relationships are mandatory or customary.  The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.  We generally consider our relations with our employees to be good.

PATENTS, LICENSES AND TRADEMARKS

We use proprietary materials such as patents, trademarks, trade secrets and trade names in our operations and take actions to protect these rights.

We use several significant trademarks and trade names, most notably the Terex®, Bid-Well®, Genie® and Powerscreen® trademarks.  The P&H trademark is a registered trademark of Joy Global Inc. that a subsidiary of the Company has the right to use for certain products until 2011 pursuant to a license agreement.  We also have the right to use the O&K and Orenstein & Koppel names (which are registered trademarks of O&K Orenstein & Koppel AG) for most applications in the mining business for an unlimited period.  The other trademarks and trade names of the Company referred to in this Annual Report include registered trademarks of Terex Corporation or its subsidiaries.

We have many patents that we use in connection with our operations, and most of our products contain some proprietary components.  Many of these patents and related proprietary technology are important to the production of particular products; however, overall, our patents, taken together, are not material to our business or our financial results, nor does our proprietary technology provide us with a competitive advantage over our competitors.

We protect our proprietary rights through registration, agreements and litigation to the extent we deem appropriate.  We own and maintain trademark registrations and patents in countries where we conduct business, and monitor the status of our trademark registrations and patents to maintain them in force and renew them as appropriate.  The duration of active registrations varies based upon the relevant statutes in the applicable jurisdiction.  We also take further actions to protect our proprietary rights when circumstances warrant, including the initiation of legal proceedings if necessary.

Currently, we are engaged in various legal proceedings with respect to intellectual property rights, both as a plaintiff and as a defendant.  While the final outcome of these matters cannot be predicted with certainty, we believe the outcome of such matters will not have a material adverse effect, individually or in the aggregate, on our business or operating performance.

SAFETY AND ENVIRONMENTAL CONSIDERATIONS

As part of The Terex Way, we are committed to provide a safe and healthy environment for our team members, and strive to provide quality products that are safe to use and operate in an environmentally conscious and respectful manner.

All of our employees are required to obey all applicable national, local or other health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations.  We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards.  We are dedicated to seeing that safety and health hazards are adequately addressed through appropriate work practices, training and procedures.
 
-21-


We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations.  As a result, we are subject to a wide range of federal, state, local and foreign environmental laws and regulations.  These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes.  These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur.  No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.

Compliance with laws and regulations regarding safety and the environment has required, and will continue to require, us to make expenditures.  We do not expect that these expenditures will have a material adverse effect on our business or profitability.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, GEOGRAPHIC AREAS AND EXPORT SALES

Information regarding foreign and domestic operations, export sales and segment information is included in Note B - “Business Segment Information” in the Notes to the Consolidated Financial Statements.

SEASONAL FACTORS

Over the past several years, our business has become less seasonal.  As we have grown, diversified our product offerings and expanded the geographic reach of our products, our sales have become less dependent on construction products and sales in the United States and Europe.  As we enter 2009, the negative economic environment will be more of a factor on our sales than historical seasonal trends, depressing sales in most of our businesses, and will likely dampen demand until credit markets improve.

WORKING CAPITAL

Our businesses are working capital intensive and require funding for purchases of production and replacement parts inventories, capital expenditures for repair, replacement and upgrading of existing facilities, as well as trade financing for receivables from customers and dealers.  We have debt service requirements, including semi-annual interest payments on our senior subordinated notes and monthly interest payments on our bank credit facility.  We believe that cash generated from operations, together with availability under our bank credit facility and cash on hand, provide us with adequate liquidity to meet our operating and debt service requirements.  We have increased our focus on internal cash flow generation to facilitate execution of operating strategies in a time when access to external capital markets is less certain.  Our actions include delaying certain capital spending projects, suspending our share repurchase program, reducing production levels and working with our strategic supply partners to reschedule incoming raw materials in an effort to maintain liquidity in view of current conditions in the economy and credit markets.  For more detail on working capital matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

AVAILABLE INFORMATION

We maintain a website at www.terex.com.  We make available on our website under “About Terex” - “Investor Relations” - “SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission (“SEC”).  In addition, we make available on our website under “About Terex” - “Investor Relations” - “Corporate Governance,” free of charge, our Audit Committee Charter, Compensation Committee Charter, Corporate Responsibility and Strategy Committee Charter, Governance and Nominating Committee Charter, Corporate Governance Guidelines and Code of Ethics and Conduct.  In addition, the foregoing information is available in print, without charge, to any stockholder who requests these materials from us.

NYSE AND SEC CERTIFICATIONS

Our Chief Executive Officer certified to the New York Stock Exchange (“NYSE”) in 2008 that he was not aware of any violation by the Company of NYSE corporate governance listing standards.  Furthermore, our Chief Executive Officer and Chief Financial Officer filed with the SEC, as an exhibit to this Annual Report on Form 10-K, the certification required under Section 302 of the Sarbanes Oxley Act.  In addition, our Chief Executive Officer and Chief Financial Officer filed with the SEC, as an exhibit to our 2007 Annual Report on Form 10-K, the certification required under Section 302 of the Sarbanes Oxley Act.
 
-22-


ITEM 1A.             RISK FACTORS

You should carefully consider the following risks, together with the cautionary statement under the caption “Forward-Looking Information” above and the other information included in this report.  The risks described below are not the only ones we face.  Additional risks that are currently unknown to us or that we currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.  If any of the following risks actually occurs, our business, financial condition or results of operation could be adversely affected.

Our business is affected by the cyclical nature of the markets we serve.

Demand for our products depends upon general economic conditions in the markets in which we compete.  Our sales depend in part upon our customers’ replacement or repair cycles.  Adverse economic conditions, including a decrease in commodity prices, the recent deterioration in the worldwide financial markets and decreasing global economic activity, have caused and may continue to cause customers to forego or postpone new purchases in favor of repairing existing machinery.  If our customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current and/or potential customers to pay us for our products will adversely affect our earnings and cash flow.

We are in a period in which global economic conditions and key commodity prices have continued to decline significantly, and if economic conditions in the U.S. and other key markets deteriorate further or do not show improvement, we may experience negative impacts to our financial condition, profitability and/or cash flows.  Given the uncertainty around the depth and duration of the current recession, we may experience continued reductions in sales of our products and/or the carrying value of our assets, which may reduce our profits.  We have taken a number of steps and will continually review our operations to reduce our costs, including but not limited to downsizing our employee base, exiting certain facilities and diversifying our business to decrease the negative impact of these cycles.  There can be no assurance, however, that these steps will mitigate the negative impact of the recent deterioration in economic conditions.

Our access to borrowing capacity has been and could continue to be affected by the uncertainty impacting credit markets generally.

Our ability to access the capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions.  As a result of current economic conditions, including turmoil and uncertainty in the capital markets, credit markets have tightened significantly, which makes obtaining new capital more challenging and more expensive.  The current conditions of the financial markets have adversely affected the availability of credit and liquidity resources and our access to capital markets is limited and subject to increased costs until stability re-emerges.

In addition, several large financial institutions have either recently failed or been dependent on the assistance of the U.S. federal government to continue to operate as a going concern. Although we believe that the banks participating in our credit facility have adequate capital and resources, we can provide no assurance that all of these banks will continue to operate as a going concern in the future. If any of the banks in our lending group were to fail, it is possible that the borrowing capacity under our credit facility would be reduced. In the event that the availability under our credit facility was reduced significantly, we could be required to obtain capital from alternate sources in order to finance our capital needs. Our options for addressing such capital constraints would include, but not be limited to (i) obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of our credit facility, or (ii) accessing the public capital markets. If it becomes necessary to access additional capital, it is likely that any such alternatives in the current market would be on terms less favorable than under our existing credit facility terms, which could have a negative impact on our consolidated financial position, results of operations, or cash flows.

Our business is sensitive to government spending.

Many of our customers depend substantially on government funding of highway construction, maintenance and other infrastructure projects.  In addition, we sell products to governments and government agencies in the U.S. and other nations.  Any decrease or delay in government funding of highway construction and maintenance, other infrastructure projects and overall government spending could cause our revenues and profits to decrease.

Many governments around the world, including the U.S., are proposing various stimulus packages that are intended to increase business activity and in particular infrastructure spending.  There is no guarantee that any such programs will be enacted, and if enacted, that they will have a material positive impact on our revenues and profits.
 
-23-


We operate in a highly competitive industry.

Our industry is highly competitive.  To compete successfully, our products must excel in terms of quality, price, features, ease of use, safety and comfort, and we must also provide excellent customer service.  The greater financial resources of certain of our competitors may put us at a competitive disadvantage.  If competition in our industry intensifies or if our current competitors enhance their products or lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products.  This may reduce revenue from our products and services, lower our gross margins or cause us to lose market share.

A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.

We produce most of our machines and aftermarket parts for each product type at one manufacturing facility. If operations at a significant facility were to be disrupted as a result of equipment failures, natural disasters, work stoppages, power outages or other reasons, our business, financial conditions and results of operations could be adversely affected. Interruptions in production could increase costs and delay delivery of units in production. Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.

We rely on key management.

We rely on the management and leadership skills of Ronald M. DeFeo, our Chairman of the Board and Chief Executive Officer.  Mr. DeFeo has been with us since 1992, serving as Chief Executive Officer since 1995 and Chairman since 1998, guiding the transformation of Terex during that time.  We have an employment agreement with Mr. DeFeo, which expires on December 31, 2012.  The loss of his services could have a significant, negative impact on our business.  In addition, we rely on the management and leadership skills of our other senior executives who are not bound by employment agreements.  We could be harmed by the loss of any of these senior executives or other key personnel in the future.

Some of our customers rely on financing with third parties to purchase our products.

We rely on sales of our products to generate cash from operations.  A significant portion of our sales are financed by third party finance companies on behalf of our customers.  The availability of financing by third parties is affected by general economic conditions, the credit worthiness of our customers and the estimated residual value of our equipment.  Deterioration in the credit quality of our customers or the estimated residual value of our equipment could negatively impact the ability of our customers to obtain the resources they need to make purchases of our equipment.  Given the current economic conditions and the lack of liquidity in the global credit markets, there can be no assurance third party finance companies will continue to extend credit to our customers.

Due to the significant global economic decline and the resulting widening credit spreads, as well as significant declines in the availability of credit, some of our customers have been unable to obtain the credit they need to buy our equipment.  As a result, we have begun to experience an increase in customer order cancellations.  Given the lack of liquidity, our customers may be compelled to sell their equipment at less than fair value to raise cash, which could have a negative impact on residual values of our equipment.  These economic conditions could have a material adverse effect on demand for our products and on our financial condition and operating results.

We provide financing for some of our customers.

We provide financing for some of our customers, primarily in the U.S., to purchase our equipment.  For the most part, this financing represents sales type leases and operating leases.  It has been our policy to provide such financing to our customers in situations where we anticipate that we will be able to sell the financing obligations to a third party financial institution within a short period.  However, until such financing obligations are sold to a third party or if we are unable to sell such obligations to a third party, we retain the risks resulting from such customer financing.  Our results could be adversely affected if such customers default on their contractual obligations to us.  Our results also could be adversely affected if the residual values of such leased equipment decline below their original estimated values and we subsequently sell such equipment at a loss.

We insure and sell a portion of our accounts receivable to third party finance companies.  These third party finance companies are not obligated to purchase accounts receivable from us, and may choose to limit or discontinue further purchases from us at any time.  Changes in our customers’ credit worthiness, the market for credit insurance or the willingness of third party finance companies to purchase accounts receivable from us could impact our cash flow from operations.
 
-24-


We are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases.

We obtain materials and manufactured components from third-party suppliers.  In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers.  However, certain of our businesses receive materials and components from a sole supplier, although alternative suppliers of such materials are generally available.  Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources.  Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, labor disputes, impaired supplier financial condition, suppliers’ allocations to other purchasers, weather emergencies or acts of war or terrorism.  Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

As a result of the macro-economic challenges currently affecting the economy of the U.S. and other parts of the world, our suppliers may experience serious cash flow problems, and as a result, could seek to significantly and quickly increase their prices or reduce their output.  Worldwide steel prices rose for most of 2008 in response to higher demand caused by continued higher consumption in developing market countries such as China.  Due to the continued high demand for steel in 2008, many suppliers of steel, castings and other products increased prices or added surcharges to the price of their products.  While we have been able to pass a portion of such increased costs to our customers by way of surcharges and price increases, there is no assurance that increasing costs can continue to be addressed by increases in pricing.  Continued increases in material prices could negatively impact our gross margins and financial results.

In addition, we purchase material and services from our suppliers on terms extended based on our overall credit rating.  Deterioration in our credit rating may impact suppliers’ willingness to extend terms and in turn increase the cash requirements of our business.

We have debt outstanding and must comply with restrictive covenants in our debt agreements.

Our existing debt agreements contain a number of significant covenants, which limit our ability to, among other things, borrow additional money, make capital expenditures, pay dividends, dispose of assets and acquire new businesses.  These covenants also require us to meet certain financial tests, specifically a consolidated leverage ratio test and a consolidated fixed charge coverage ratio test, as such tests are defined in our debt agreements.  While we were in compliance with both of the foregoing tests as of December 31, 2008, we sought and received an amendment to our credit agreement on February 24, 2009.  This amendment was necessary because of continued deteriorating business conditions in certain of our operating segments and the impact of historical fixed charges incurred on a trailing twelve months basis (for example, interest expense, cash taxes, share repurchases and capital expenditures) causing us to believe there was a likelihood that we would be in violation of the consolidated fixed charge coverage ratio covenant under our credit agreement as early as the end of the first quarter of 2009 without such an amendment.   Increases in our debt, increases in our fixed charges, decreases in our earnings or any combination of the above, could cause us to be in default of our amended financial covenants during 2009 or beyond.  If we are unable to comply with these covenants, there would be a default under these debt agreements.  In addition, changes in economic or business conditions, results of operations or other factors could cause us to default under our debt agreements.  A default, if not waived by our lenders, could result in acceleration of our debt and possibly bankruptcy.

We are subject to currency fluctuations.

Our products are sold in over 100 countries around the world.  Our revenues are generated in U.S. dollars and foreign currencies, including the Euro and British Pound Sterling, while costs incurred to generate our revenues are only partly incurred in the same currencies.  Since our financial statements are denominated in U.S. Dollars, changes in currency exchange rates between the U.S. Dollar and other currencies, such as the Euro and British Pound Sterling, have had, and will continue to have, an impact on our earnings. To reduce this currency exchange risk, we may buy protecting or offsetting positions (known as “hedges”) in certain currencies to reduce the risk of an adverse currency exchange movement. We have not engaged in any speculative hedging activities. Although we partially hedge our revenues and costs, currency fluctuations may impact our financial performance in the future.
 
-25-


We are exposed to political, economic and other risks that arise from operating a multinational business.

Our international operations are subject to a number of potential risks. Such risks principally include:

 
·
trade protection measures and currency exchange controls;
 
·
labor unrest;
 
·
regional economic conditions;
 
·
political instability;
 
·
terrorist activities and the U.S. and international response thereto;
 
·
restrictions on the transfer of funds into or out of a country;
 
·
export duties and quotas;
 
·
domestic and foreign customs and tariffs;
 
·
current and changing regulatory environments;
 
·
difficulties protecting our intellectual property;
 
·
costs and difficulties in integrating, staffing and managing international operations, especially in developing markets such as China, India, Russia, the Middle East, Africa and Latin America;
 
·
difficulty in obtaining distribution support; and
 
·
current and changing tax laws.

In addition, many of the nations in which we operate have developing legal and economic systems, adding greater uncertainty to our operations in those countries than would be expected in North America and Western Europe.  These factors may have an adverse effect on our international operations in the future.

Difficulties in managing and expanding into developing markets could divert management's attention from our existing operations.

We plan to increase our presence in developing markets such as China, India, Russia, the Middle East and Latin America. Increasing these sales efforts will require us to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist. Any difficulties in expanding our sales in developing markets may divert management's attention from our existing operations.

We may be adversely impacted by work stoppages and other labor matters.

As of December 31, 2008, we employed approximately 20,000 people worldwide, including approximately 7,000 employees in the U.S.  Approximately 12% of our employees in the U.S. are represented by labor unions.  Outside of the U.S., we enter into employment contracts and collective agreements in those countries in which such relationships are mandatory or customary.  The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.  While we have no reason to believe that we will be impacted by work stoppages or other labor matters, we cannot assure that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, further unionization efforts or other types of conflicts with labor unions or our employees.  Any of these factors may have an adverse effect on us or may limit our flexibility in dealing with our workforce.

Compliance with environmental regulations could be costly and require us to make significant expenditures.

We generate hazardous and nonhazardous wastes in the normal course of our manufacturing operations.  As a result, we are subject to a wide range of federal, state, local and foreign environmental laws and regulations.  These laws and regulations govern actions that may have adverse environmental effects and require compliance with certain practices when handling and disposing of hazardous and nonhazardous wastes.  These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur.  No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.

Compliance with these laws and regulations has required, and will continue to require, us to make expenditures that we do not expect to have a material adverse effect on our business or profitability.
 
-26-


We face litigation and product liability claims and other liabilities.

In our lines of business, numerous suits have been filed alleging damages for accidents that have occurred during the use or operation of our products.  We are self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers’ compensation and automobile liability.  Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract.  We do not believe that the outcome of such matters will have a material adverse effect on our consolidated financial position; however, any significant liabilities not covered by insurance could have an adverse effect on our financial condition.  We are involved in various other legal proceedings, including an arbitration proceeding initiated by Fantuzzi Industries S.a.r.l. (“Fantuzzi”) in Italy on December 24, 2008 claiming that we improperly terminated the agreements to purchase the port equipment businesses of Fantuzzi.  While we believe we have a valid position, the risks of arbitration in Italy are uncertain and, if determined adversely, could ultimately result in us incurring significant liabilities.

We are currently the subject of government investigations.

We have received a Formal Order of Private Investigation from the SEC advising us that they have commenced an investigation of our accounting.  We also received subpoenas and requests for information from the SEC and the U.S. Attorney’s office in an investigation entitled “In the Matter of United Rentals, Inc.”  The requested information generally relates to four transactions during 2000 and 2001 involving United Rentals, on the one hand, and us and our subsidiaries, on the other.  We have been cooperating with the requests of the SEC and the U.S. Attorney in these matters to provide the information needed to complete their investigations.  The Company is in settlement discussions with the SEC.  We are not able to predict the outcome of the SEC’s investigation at this time, and such outcome could be material to our operating results.

We have also received subpoenas and requests for information from the DOJ, with respect to an investigation by the DOJ into pricing practices in the rock crushing and screening equipment industry.  In connection with this investigation, the DOJ has convened a grand jury.  We have been cooperating with the DOJ to furnish information needed to complete its investigation.  Until the DOJ investigation is complete, we are not able to predict its outcome.

We are in the process of implementing a global enterprise system.

We are implementing a global enterprise resource planning system to replace many of our existing operating and financial systems.  Such an implementation is a major undertaking both financially and from a management and personnel perspective.  Should the system not be implemented successfully and within budget, or if the system does not perform in a satisfactory manner, it could disrupt and might adversely affect our operations and results of operations, including our ability to report accurate and timely financial results.

ITEM 1B.             UNRESOLVED STAFF COMMENTS

Not applicable.
 
-27-

 
ITEM 2.                PROPERTIES

The following table outlines the principal manufacturing, warehouse and office facilities owned or leased (as indicated below) by the Company and its subsidiaries as of December 31, 2008:

BUSINESS UNIT
FACILITY LOCATION
TYPE AND APPROXIMATE SIZE OF FACILITY
Terex (Corporate Offices)
Westport, Connecticut (1)
Office;
   
174,000 sq. ft.
Aerial Work Platforms
Redmond, Washington (1)
Office, manufacturing and warehouse;
   
750,000 sq. ft.
 
Moses Lake, Washington (1)
Office, manufacturing and warehouse;
   
422,000 sq. ft.
 
Elk Point, South Dakota
Office, manufacturing and warehouse;
   
93,000 sq. ft.
 
Baraga, Michigan
Office, manufacturing and warehouse;
   
54,000 sq. ft.
 
Rock Hill, South Carolina
Office, manufacturing and warehouse;
   
121,000 sq. ft.
 
Perugia, Italy
Office, manufacturing and warehouse;
   
114,000 sq. ft.
 
Grantham, England (1)
Warehouse;
   
136,000 sq. ft.
 
Newark, England (1)
Office and warehouse;
   
61,000 sq. ft.
 
Darra, Australia (1)
Warehouse;
   
56,000 sq. ft.
 
Maddington, Australia (1)
Warehouse;
   
54,000 sq. ft.
Construction
Motherwell, Scotland (1)
Office, manufacturing and warehouse;
   
473,000 sq. ft.
 
Delmenhorst, Germany
Office, manufacturing and warehouse;
   
216,000 sq. ft.
 
Ganderkesee, Germany
Office, manufacturing and warehouse;
   
362,000 sq. ft.
 
Vechta, Germany
Manufacturing and warehouse;
   
267,000 sq. ft.
 
Bad Schoenborn, Germany
Office, manufacturing and warehouse;
   
238,000 sq. ft.
 
Grand Rapids, Minnesota
Office, manufacturing and warehouse;
   
199,000 sq. ft.
 
Cohasset, Minnesota
Manufacturing and warehouse;
   
102,000 sq. ft.
 
Casselton, North Dakota
Office, manufacturing and warehouse;
   
42,000 sq. ft.
 
Coventry, England (1)
Office, manufacturing and warehouse;
   
326,000 sq. ft.
 
Langenburg, Germany
Office, manufacturing and warehouse;
   
102,000 sq. ft.
 
Gerabronn, Germany
Office and manufacturing;
   
147,000 sq. ft.
 
Rothenburg, Germany (2)
Office, manufacturing and warehouse;
   
97,000 sq. ft.
 
Crailsheim, Germany
Office and manufacturing;
   
185,000 sq. ft.
 
Clausnitz, Germany
Office and manufacturing;
   
84,000 sq. ft.
 
Sanhe, China
Office and manufacturing;
   
60,000 sq. ft.
 
Southaven, Mississippi (1)
Office and warehouse;
   
505,000 sq. ft.
 
Greater Noida, Utter Pradesh, India (1)
Office, manufacturing and warehouse;
   
155,000 sq. ft.
 
-28-

 
BUSINESS UNIT
FACILITY LOCATION
TYPE AND APPROXIMATE SIZE OF FACILITY
Cranes
Crespellano, Italy
Office, manufacturing and warehouse;
   
66,000 sq. ft.
 
Montceau-les-Mines, France
Office, manufacturing and warehouse;
   
418,000 sq. ft.
 
Waverly, Iowa
Office, manufacturing and warehouse;
   
312,000 sq. ft.
 
Brisbane, Australia (1)
Office, manufacturing and warehouse;
   
42,000 sq. ft.
 
Fontanafredda, Italy
Office, manufacturing and warehouse;
   
101,000 sq. ft.
 
Cusano Milanino, Italy (1)
Office, manufacturing and warehouse;
   
175,000 sq. ft.
 
Wilmington, North Carolina
Office, manufacturing and warehouse;
   
559,000 sq. ft.
 
Zweibruecken, Germany
Office, manufacturing and warehouse;
   
483,000 sq. ft.
 
Wallerscheid, Germany (1)
Office, manufacturing and warehouse;
   
336,000 sq. ft.
 
Bierbach, Germany (1)
Warehouse and manufacturing;
   
198,000 sq. ft.
 
Pecs, Hungary (1)
Office and manufacturing;
   
82,000 sq. ft.
 
Luzhou, China
Office, manufacturing and warehouse;
   
1,100,000 sq. ft.
 
Tianjin, China
Office and manufacturing;
   
50,000 sq. ft.
 
Long Crendon, England
Office and warehouse
   
140,000 sq. ft.
Materials Processing & Mining
Dortmund, Germany (1)
Office, manufacturing and warehouse;
   
775,000 sq. ft.
 
Cedar Rapids, Iowa
Office, manufacturing and warehouse;
   
608,000 sq. ft.
 
Denison, Texas
Office, manufacturing and warehouse;
   
244,000 sq. ft.
 
Acuña, Mexico
Office, manufacturing and warehouse;
   
225,000 sq. ft.
 
Melbourne, Australia (1)
Office, manufacturing and warehouse;
   
29,000 sq. ft.
 
Subang Jaya, Malaysia (1)
Manufacturing and warehouse;
   
111,000 sq. ft.
 
Chomburi, Thailand
Manufacturing;
   
80,000 sq. ft.
 
Durand, Michigan
Office, manufacturing and warehouse;
   
114,000 sq. ft.
 
Coalville, England
Office, manufacturing and warehouse;
   
204,000 sq. ft.
 
Omagh, Northern Ireland (1)
Office, manufacturing and warehouse;
   
153,000 sq. ft.
 
Dungannon, Northern Ireland (1)
Office, manufacturing and warehouse;
   
330,000 sq. ft.
 
Halifax, England
Office, manufacturing and warehouse;
   
70,000 sq. ft.
 
Beckley, West Virginia
Office, manufacturing and warehouse;
   
113,500 sq. ft
 
-29-

 
BUSINESS UNIT
FACILITY LOCATION
TYPE AND APPROXIMATE SIZE OF FACILITY
Roadbuilding, Utility Products and Other
Cachoeirinha, Brazil
Office, manufacturing and warehouse;
   
78,000 sq. ft.
 
Oklahoma City, Oklahoma
Office, manufacturing and warehouse;
   
620,000 sq. ft.
 
Canton, South Dakota
Office, manufacturing and warehouse;
   
71,000 sq. ft.
 
Opglabbeek, Belgium
Office, manufacturing and warehouse;
   
54,000 sq. ft.
 
Rock Hill, South Carolina
Office, manufacturing and warehouse;
   
46,900 sq. ft.
 
Fort Wayne, Indiana
Office, manufacturing and warehouse;
   
178,000 sq. ft.
 
Watertown, South Dakota
Office, manufacturing and warehouse;
   
261,000 sq. ft.
 
Huron, South Dakota
Office and manufacturing;
   
 88,000 sq. ft.
 
(1)
These facilities are either leased or subleased.
(2)
Includes approximately 54,000 sq. ft., which are leased.

We also have numerous owned or leased locations for new machine and parts sales and distribution and rebuilding of components located worldwide. Our Terex Utilities distribution network has sales locations throughout the southern and western United States.

We believe that the properties listed above are suitable and adequate for our use. From time to time, we may determine that certain of our properties exceed our requirements. Such properties may be sold, leased or utilized in another manner.

ITEM 3.                LEGAL PROCEEDINGS

As described in Note T - “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements, we are involved in various legal proceedings, including product liability, workers’ compensation liability and intellectual property litigation, which have arisen in the normal course of operations.  We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract with retained liability to us or deductibles.  We believe that the outcome of such matters will not have a material adverse effect on our consolidated financial position.

As disclosed in our prior filings, the SEC has been conducting a private investigation with respect to our accounting.  We received a copy of a written order of this private investigation from the SEC on February 1, 2006, and we have been cooperating with the SEC and furnishing the SEC staff with information needed to complete their investigation. We have also received subpoenas and requests for information from the SEC and the U.S. Attorney’s office commencing on May 9, 2005 with respect to a matter entitled “In the Matter of United Rentals, Inc.”  The requested information generally relates to four transactions involving us and our subsidiaries, on the one hand, and United Rentals, Inc., on the other, in 2000 and 2001. We have been cooperating with the requests of the SEC and the U.S. Attorney in this matter. The Company is in settlement discussions with the SEC.  We are not able to predict the outcome of the SEC’s investigation at this time, and such outcome could be material to our operating results.
 
As disclosed in our prior filings, commencing on November 2, 2006, we have received subpoenas from the DOJ with respect to its investigation into pricing practices in the rock crushing and screening equipment industry.  In connection with this investigation, the DOJ has convened a grand jury.  We have been cooperating with the DOJ in this investigation.  Until the DOJ investigation is complete, we are not able to predict its outcome.

As disclosed earlier, Fantuzzi initiated an arbitration proceeding against us in Italy on December 24, 2008.  While we believe we have a valid position, the risks of arbitration in Italy are uncertain and, if determined adversely, could ultimately result in us incurring significant liabilities.

For information concerning other contingencies and uncertainties, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contingencies and Uncertainties.”

ITEM 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.
 
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PART II

ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 

(a) Our common stock, par value $.01 per share (“Common Stock”) is listed on the NYSE under the symbol “TEX.”  On December 19, 2006, our Common Stock was added to the Standard & Poor’s (“S&P”) 500 Index.  On November 5, 2008, our Common Stock was removed from the S&P 500 Index and was added to the S&P MidCap 400 Index.  The high and low stock prices for our Common Stock on the NYSE Composite Tape (for the last two completed years) are as follows:

   
2008
   
2007
 
   
Fourth
   
Third
   
Second
   
First
   
Fourth
   
Third
   
Second
   
First
 
High
  $ 30.44     $ 54.19     $ 76.25     $ 72.15     $ 90.75     $ 96.94     $ 86.99     $ 73.25  
Low
  $ 8.97     $ 28.22     $ 50.46     $ 46.50     $ 56.20     $ 66.24     $ 70.60     $ 54.75  

No dividends were declared or paid in 2008 or 2007.  Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware law limits payment of dividends.  We intend generally to retain earnings, if any, to fund the development and growth of our business, pay down debt or repurchase stock. We may consider paying dividends on the Common Stock at some point in the future, subject to the limitations described above. Any future payments of cash dividends will depend upon our financial condition, capital requirements and earnings, as well as other factors that the Board of Directors may deem relevant.

As of February 19, 2009, there were 1,112 stockholders of record of our Common Stock.
 
-31-


Performance Graph

The following stock performance graph is intended to show our stock performance compared with that of comparable companies.  The stock performance graph shows the change in market value of $100 invested in our Common Stock, the Standard & Poor’s 500 Stock Index and a peer group of comparable companies (“Peer Group”) for the period commencing December 31, 2003 through December 31, 2008.  The cumulative total stockholder return assumes dividends are reinvested.  The stockholder return shown on the graph below is not indicative of future performance.

The Peer Group consists of the following companies, which are in similar lines of business to Terex:  Astec Industries, Inc., Caterpillar Inc., CNH Global N.V., Deere & Co., JLG Industries, Inc. (ending December 6, 2006), Joy Global Inc., Manitowoc Co. and Oshkosh Corporation (since December 7, 2006).  The companies in the Peer Group are weighted by market capitalization.
 
 
      12/03       12/04       12/05       12/06       12/07       12/08  
Terex Corporation
    100.00       167.31       208.57       453.51       460.46       121.63  
S&P 500
    100.00       110.88       116.33       134.70       142.10       89.53  
Peer Group
    100.00       120.05       140.25       165.10       247.09       112.83  
Copyright © 2009 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)
 

(b) Not applicable.

(c) The following table provides information about our purchases during the quarter ended December 31, 2008 of Common Stock that is registered by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 
-32-

 
 
   
Issuer Purchases of Equity Securities
 
Period
 
(a) Total Number of Shares Purchased
   
(b) Average Price Paid per Share
   
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
   
(d) Approximate Dollar Value of Shares that May Yet be Purchased
Under the Plans or Programs (in thousands) (1)
 
October 1, 2008 - October 31, 2008
    -       -       -     $ 637,974  
                                 
November 1, 2008 - November 30, 2008
    -       -       -     $ 637,974  
                                 
December 1, 2008 - December 31, 2008
    -       -       -     $ 637,974  
                                 
                                 
Total
    -       -       -     $ 637,974  
                                 

(1)
In December 2006, our Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding common shares through June 30, 2008.  In December 2007, our Board of Directors increased the authorization for repurchase of the Company’s outstanding common shares by $500 million for a total at that time of $700 million.  The program was also extended to allow for repurchases through June 30, 2009.  In July 2008, our Board of Directors increased the share repurchase program by $500 million, bringing the total amount that may be repurchased under the program to $1,200 million.  The expiration date for the program remains June 30, 2009.
 
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ITEM 6.                SELECTED FINANCIAL DATA

FIVE-YEAR SELECTED FINANCIAL DATA

The following table summarizes our selected financial data and should be read in conjunction with the more detailed Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operation.

(in millions, except per share amounts and employees)

   
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
 
   
2008
   
2007
   
2006
   
2005
   
2004
 
SUMMARY OF OPERATIONS
                             
Net sales
  $ 9,889.6     $ 9,137.7     $ 7,647.6     $ 6,156.5     $ 4,799.3  
Goodwill impairment
    459.9                   3.3        
Income from operations
    402.6       961.4       709.5       370.4       211.6  
Income from continuing operations
    71.9       613.9       396.5       187.6       320.6  
Income from discontinued operations – net of tax
                11.1       0.9       3.5  
Loss on disposition of discontinued operations – net of tax
                (7.7 )            
Net income
    71.9       613.9       399.9       188.5       324.1  
Per Common and Common Equivalent Share:
                                       
Basic
                                       
Income from continuing operations
    0.73     $ 6.00     $ 3.94     $ 1.89     $ 3.26  
Income from discontinued operations – net of tax
                0.11       0.01       0.04  
Loss on disposition of discontinued operations – net of tax
                (0.08 )            
Net income
    0.73       6.00       3.97       1.90       3.30  
Diluted
                                       
Income from continuing operations
    0.72     $ 5.85     $ 3.85     $ 1.84     $ 3.14  
Income from discontinued operations – net of tax
                0.10             0.03  
Loss on disposition of discontinued operations – net of tax
                (0.07 )            
Net income
    0.72       5.85       3.88       1.84       3.17  
                                         
CURRENT ASSETS AND LIABILITIES
                                       
Current assets
  $ 4,040.9     $ 4,776.9     $ 3,432.8     $ 2,903.5     $ 2,647.1  
Current liabilities
    1,824.6       2,175.3       2,027.2       1,524.6       1,529.5  
PROPERTY, PLANT AND EQUIPMENT
                                       
Net property, plant and equipment
  $ 481.5     $ 419.4     $ 338.5     $ 329.9     $ 362.6  
Capital expenditures
    120.8       111.5       78.9       48.6       35.5  
Depreciation
    75.0       63.4       61.2       61.4       60.1  
TOTAL ASSETS
  $ 5,445.4     $ 6,316.3     $ 4,785.9     $ 4,200.3     $ 4,179.1  
                                         
CAPITALIZATION
                                       
Long-term debt and notes payable (includes capital leases)
  $ 1,396.4     $ 1,319.5     $ 536.1     $ 1,075.8     $ 1,114.2  
Stockholders’ equity
    1,721.7       2,343.2       1,751.0       1,161.0       1,135.2  
Dividends per share of Common Stock
                             
Shares of Common Stock outstanding at year end
    94.0       100.3       101.1       99.8       98.8  
EMPLOYEES
    20,400       20,600       18,200       17,600       16,800  

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to the Consolidated Financial Statements for a discussion of “Acquisitions,” “Goodwill,” “Long-Term Obligations” and “Stockholders’ Equity.”
 
-34-

 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS DESCRIPTION

Terex is a diversified global manufacturer of capital equipment focused on delivering reliable, customer relevant solutions for the construction, infrastructure, quarrying, surface mining, shipping, transportation, power and energy industries.  Through December 31, 2008, we operated in five reportable segments: (i) Terex Aerial Work Platforms; (ii) Terex Construction; (iii) Terex Cranes; (iv) Terex Materials Processing & Mining; and (v) Terex Roadbuilding, Utility Products and Other.

Our Aerial Work Platforms segment designs, manufactures, refurbishes and markets aerial work platform equipment, telehandlers, power equipment and construction trailers.  Customers in the construction and building maintenance industries use these products to build and/or maintain large physical assets and structures.

Our Construction segment designs, manufactures and markets two primary categories of construction equipment: heavy construction and compact construction equipment.  Construction, logging, mining, industrial and government customers use these products in construction and infrastructure projects and in coal, minerals, sand and gravel operations.  We acquired A.S.V., Inc. (“ASV”) on February 26, 2008. The results of ASV are included in the Construction segment from its date of acquisition.

Our Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks) and telescopic container stackers.  These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities.  We acquired Power Legend International Limited (“Power Legend”) and its affiliates, including a controlling 50% ownership interest in Sichuan Changjiang Engineering Crane Co., Ltd. (“Sichuan Crane”), on April 4, 2006.  The results of Power Legend and Sichuan Crane are included in the Cranes segment from their date of acquisition.

Our Materials Processing & Mining segment designs, manufactures and markets crushing and screening equipment, hydraulic mining excavators, highwall mining equipment, high capacity surface mining trucks, drilling equipment and other products.  Construction, mining, quarrying and government customers use these products in construction and infrastructure projects and commodity mining.  We acquired Halco Holdings Limited and its affiliates (“Halco”) on January 24, 2006, established the Terex NHL Mining Equipment Company Ltd. (“Terex NHL”) joint venture on March 9, 2006, and acquired Superior Highwall Miners Inc. and its affiliates (“SHM”) on November 6, 2007.  The results of Halco, Terex NHL and SHM are included in the Materials Processing & Mining segment from their respective dates of acquisition or formation.

Our Roadbuilding, Utility Products and Other segment designs, manufactures and markets asphalt and concrete equipment, landfill compactors, bridge inspection and utility equipment.  Government, utility and construction customers use these products to build roads, construct and maintain utility lines, trim trees and for other commercial operations.  Additionally, we own a majority of the North American distribution channel for our utility products group, operate a fleet of rental utility products in the United States and Canada and own a distributor of our equipment and other products.  We also assist customers in their rental, leasing and acquisition of our products through TFS.

Effective January 1, 2009, we realigned certain operations in an effort to capture market synergies and streamline our cost structure.  Our Roadbuilding businesses, formerly part of our Roadbuilding, Utility Products and Other segment, will now be consolidated within our Construction segment.  Our Utility Products businesses, formerly part of our Roadbuilding, Utility Products and Other segment, will now be consolidated within our Aerial Work Platforms segment.  Certain other businesses that were included in the Roadbuilding, Utility Products and Other segment will now be reported in Corporate and Other, which includes eliminations among our segments.  Additionally, our truck-mounted articulated hydraulic crane line of business produced in Delmenhorst and Vechta, Germany, formerly part of our Construction segment, will now be consolidated within our Cranes segment.   The segment disclosures included herein do not reflect these realignments.  We will give effect to these realignments in our segment reporting for financial reporting periods beginning January 1, 2009, at which point the Roadbuilding, Utility Products and Other segment will cease to be a reportable segment.

Included in Eliminations/Corporate are the eliminations among the five segments, as well as certain general and corporate expenses that have not been allocated to the segments.
 
-35-


Overview

Our overall financial performance during 2008 was mixed.  Very strong performance in the first half of 2008 gave way to significantly weaker performance in the second half of the year, as the deterioration in the fundamentals of the global economy took an increasing toll on our business.  For the full year, favorable results in our Cranes and Materials Processing & Mining (“MPM”) segments were more than offset by unfavorable results in our Aerial Work Platforms (“AWP”), Construction and Roadbuilding, Utility Products and Other (“RBUO”) segments.  The challenges in the current operating environment, particularly in the U.S. and Western Europe, have been compounded by the unprecedented levels of instability in the financial markets that have resulted from the ongoing global credit crisis.  The AWP and Construction segments and the materials processing business have all experienced weakness for many of their products in these markets.  Construction activity has dramatically slowed and many of our end markets have seen significant declines.

We have seen a credit crisis that initially appeared limited to the U.S. intensify into a worldwide financial crisis in the second half of 2008.  The causes of this financial and economic turbulence differ from past downturns, thus there is no historical precedent with which to compare.  The global economy remains under stress and our expectations for 2009 have deteriorated.  The depth and duration of the global economic decline are not known; however, we expect 2009 to be a very challenging year.  The current environment is one of a global slowdown, where the product and geographic diversity we have built has little ability to mitigate the market pressure we are experiencing at the moment.  While we remain confident that our strategy of product and geographic diversity is the right one to deliver positive shareholder returns in the long term, we know that the current environment presents unique challenges.

In response to the present economic environment, we have taken and will continue to take aggressive actions to reduce costs and preserve cash in all of our businesses.  These actions include the following:

 
·
since June 2008, reducing our workforce, including temporary and contract workers;
·      the AWP global workforce has been reduced by approximately 34%;
·      the Construction global workforce has been reduced by approximately 8%;
·      the Materials Processing global workforce has been reduced by approximately 22%;
·      the Roadbuilding global workforce has been reduced by approximately 18%;
·      additional reductions in our workforce will continue across all segments in 2009;
 
·
temporary shutdowns of manufacturing facilities and shortened work weeks were implemented and will continue to be used to reduce production output as necessary;
 
·
review of existing facilities for potential consolidation, transfer or sale;
 
·
cutting production levels;
 
·
eliminating salary increases in 2009 for management-level team members and significantly reducing executive long-term compensation from 10% to 50%;
 
·
delaying or cutting capital expenditures;
 
·
reducing discretionary spending; and
 
·
identifying and improving process and system efficiencies.

The marketplace for each of our businesses is somewhat different, but there is a common approach we are taking throughout the Company.  In 2009, we will be managing our business even more aggressively than normal for cash.  Most of our businesses are experiencing continued reductions in incoming orders, with orders in backlog being cancelled or deferred.  We are intensely focused in each of our businesses in managing our sales, inventory and operations planning process to quickly adjust our production rate and material ordering in line with this rapidly changing market.

Our Construction and Roadbuilding businesses are experiencing a number of significant challenges in this very difficult environment and we need to make changes to build and improve these businesses to meet these challenges.  While we would prefer to implement the necessary changes to overcome these obstacles, if different ownership would grow one or more of these businesses faster than we could, then we will consider those alternatives.

Although we continued to see reasonable demand for cranes and mining equipment, we are now experiencing increasing cancellations in our backlog for crane and mining products, as well as delays in acceptance of deliveries, as our customers for these products are not immune to the effects of the economic downturn.  Demand in these businesses has been driven by global infrastructure development and maintenance, as well as commodity and energy prices that were at levels which supported continued investment in capital equipment.  Commodities and energy pricing generally have been weakening, so we are cautious in our expectations of future demand.
 
-36-


We are making select capital investments in our AWP, Cranes and MPM segments to more effectively and efficiently respond to anticipated market demand.  For example, we are developing new facilities in India for material processing equipment and in China for cranes, hydraulic excavators, portable products and scissor and boom lifts to reduce manufacturing costs and to meet the demand for these products in these developing regions.

Year-over-year backlog for all of our segments is down, with AWP and Construction backlogs down significantly.  We have also seen recent softening demand for our materials processing, cranes and mining products.  During 2008, the AWP and Construction segments experienced declines in net sales and operating income due to continued weakness in the U.S. and Western European markets.

The RBUO segment showed modest improvements in sales, as well as profitability, when compared to the prior year period.  Stronger demand for utility products, coupled with cost reduction efforts in the roadbuilding business, resulted in improved profits.

Input costs affected operating results in 2008, but were in part offset by higher pricing to our customers.  Input costs continue to present challenges, although they have recently moderated.  At this time, our price increases have not yet fully offset our total input cost increases.  Rising input costs have had the most effect on the AWP segment, with a lesser impact on the Cranes and MPM segments, as these businesses tend to have longer supply contracts as well as cost escalation clauses in certain contracts with our customers.  Most of our steel and other input costs have fallen from recent peak levels, but we are still experiencing higher material costs than last year.  We will not see a significant improvement in cost until later in 2009, when we will have utilized material already in our inventory.

Uncertainty around the depth and duration of the current economic decline makes it difficult to forecast our expectations for 2009 with a reasonable degree of certainty.  However, we are planning for continued softness in demand.  We expect that Western European and U.S. markets will remain soft for our aerial work platforms, construction and materials processing businesses well into 2009.  We expect that for 2009, net sales for our AWP segment will be down 35%-45%, net sales for our Construction segment will be down 25%-35%, net sales for our Cranes segment will be down 25%-35%, and net sales for our MPM segment will be down 25%-35%, versus 2008 results.  We expect our overall 2009 net sales to decline in the range of 30%-35% as compared to 2008, approximately 13% of which is the estimated translation effect of foreign currency exchange rate changes.

Given that external access to credit remains uncertain in the current financial environment, we are focusing on improving liquidity by aggressively reducing costs and working capital and slowing capital spending.  We are currently not purchasing shares under our previously announced share repurchase program.  However, during 2008, we repurchased $395.5 million, or 7.4 million shares, of our common stock.

TFS provides assistance to our customers in financing purchases of our equipment, largely through the use of financial partners.  We have used the flexibility, expertise and capacity of multiple sources to secure financing in this difficult market.  In certain cases, TFS will also originate and sell financing transactions to these same financial institutions to increase velocity of transaction processing and maintain our customer linkage.  As of December 31, 2008, TFS retained approximately $3 million of these assets on our balance sheet.

We have also accelerated several internal initiatives to reduce inventory, including significantly limiting raw material receipts, particularly in the aerial work platforms, construction and materials processing businesses, while carefully managing incoming inventory in our cranes and mining businesses.  We are adjusting production levels as appropriate in relation to slowing end market demand for our products.  With the actions we are taking to reduce costs and increase liquidity, we expect to have sufficient flexibility to execute our key business plans.

After tax Return on Invested Capital (“ROIC”) continues to be the unifying metric we use to measure our operating performance.  ROIC measures how effectively we utilize the capital invested in our operations.  After tax ROIC is determined by dividing the sum of Net Operating Profit After Tax (as defined below) for each of the previous four quarters by the average of the sum of Total stockholders’ equity plus Debt (as defined below) less Cash and cash equivalents for the previous five quarters.  Net Operating Profit After Tax (“NOPAT”), which is a non-GAAP measure, for each quarter is calculated by multiplying Income from operations by a figure equal to one minus the effective tax rate of the Company.  The effective tax rate is equal to the (Provision for) benefit from income taxes divided by Income before income taxes for the respective quarter.  Debt is calculated using the amounts for Notes payable and current portion of long-term debt plus Long-term debt, less current portion.  We calculate ROIC using the last four quarters’ NOPAT as this represents the most recent twelve month period at any given point of determination.  In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarter’s ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) over the same time period as the numerator (four quarters of average invested capital).
 
-37-


We use ROIC as a unifying metric because we feel that it measures how effectively we invest our capital and provides a better measure to compare ourselves to peer companies to assist in assessing how we drive operational improvement.  We believe that ROIC measures return on the full enterprise-wide amount of capital invested in our business, as opposed to another metric such as return on shareholder’s equity that only incorporates book equity, and is thus a more accurate and descriptive measure of our performance.  We also believe that adding Debt less Cash and cash equivalents to Total stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights the level of value creation as a percentage of capital invested.  Consistent with this belief, we use ROIC in evaluating executive performance and compensation, as we have disclosed in the Compensation Discussion and Analysis in our proxy statement for the 2008 annual meeting of stockholders.  As of October 1, 2008, we performed our annual goodwill impairment test, which resulted in a non-cash impairment charge for goodwill of $459.9 million, which represented all of the goodwill recorded in the Construction and RBUO segments.  However, we do not believe that non-cash impairment charges are indicative of returns on our invested capital.  Therefore, we have excluded the effect of these impairment charges from the metrics used in our calculation of ROIC.  As the tables below show, our ROIC at December 31, 2008 was 19.2%, down from 28.9% at December 31, 2007.  The decrease reflects reduced NOPAT performance from approximately $641 million to approximately $601 million and the increased invested capital impact of recent acquisitions of approximately $482 million.

The amounts described below are reported in millions of U.S. dollars, except for the effective tax rates.

   
Dec ‘08
   
Sep ‘08
   
Jun ‘08
   
Mar ‘08
   
Dec ‘07
 
(Benefit from) Provision for income taxes as adjusted
  $ (1.0 )   $ 44.9     $ 116.8     $ 83.2        
Divided by: Income before income taxes as adjusted
    35.7       138.7       353.1       246.5        
Effective tax rate as adjusted
    (2.8 )%     32.4 %     33.1 %     33.8 %      
                                       
Income from operations as adjusted
  $ 68.1     $ 167.2     $ 370.9     $ 256.3        
Multiplied by: 1 minus Effective tax rate as adjusted
    102.8 %     67.6 %     66.9 %     66.2 %      
Adjusted net operating profit after tax
  $ 70.0     $ 113.0     $ 248.1     $ 169.7        
                                       
Debt (as defined above)
  $ 1,435.8     $ 1,568.2     $ 1,355.9     $ 1,373.4     $ 1,352.0  
Less: Cash and cash equivalents
    (484.4 )     (487.9 )     (590.0 )     (604.2 )     (1,272.4 )
Debt less Cash and cash equivalents
  $ 951.4     $ 1,080.3     $ 765.9     $ 769.2     $ 79.6  
                                         
Total stockholders’ equity as adjusted
  $ 2,179.9     $ 2,302.9     $ 2,664.6     $ 2,538.1     $ 2,343.2  
                                         
Debt less Cash and cash equivalents plus Total stockholders’ equity as adjusted
  $ 3,131.3     $ 3,383.2     $ 3,430.5     $ 3,307.3     $ 2,422.8  

2008 ROIC
    19.2 %
Adjusted net operating profit after tax (last 4 quarters)
  $ 600.8  
Average Debt less Cash and cash equivalents plus Total stockholders’ equity as adjusted (5 quarters)
  $ 3,135.0  
 
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Reconciliation of ROIC table amounts adjusted for impairment
     
   
Three months ended 12/31/08
 
Loss before income taxes as reported
  $ (424.2 )
Less: Goodwill impairment
    (459.9 )
Income before income taxes as adjusted
  $ 35.7  
         
Benefit from income taxes as reported
  $ 2.7  
Less: Benefit from income taxes on impairment
    1.7  
Benefit from income taxes as adjusted
  $ 1.0  
         
Income before income taxes as adjusted
  $ 35.7  
Plus: Benefit from income taxes as adjusted
    1.0  
Net income as adjusted
  $ 36.7  
         
Loss from operations as reported
  $ (391.8 )
Less: Goodwill impairment
    (459.9 )
Income from operations as adjusted
  $ 68.1  
         
Total stockholders' equity as reported
  $ 1,721.7  
Less: Net loss as reported
    (421.5 )
Add: Net income as adjusted
    36.7  
Total stockholders' equity as adjusted
  $ 2,179.9  

Effective tax rate reconciliation excluding impairment
             
   
Three months ended 12/31/08
 
   
As reported
   
Impairment
   
As adjusted
 
(Loss) income before income taxes
  $ (424.2 )   $ (459.9 )   $ 35.7  
Benefit from income taxes
    2.7       1.7       1.0  
Net (loss) income
  $ (421.5 )           $ 36.7  
                         
Effective tax rate
    0.6 %     0.4 %     (2.8 )%
 
   
Dec ‘07
   
Sep ‘07
   
Jun ‘07
   
Mar ‘07
   
Dec ‘06
 
Provision for income taxes
  $ 62.0     $ 78.5     $ 96.7     $ 68.2        
Divided by: Income before income taxes
    236.0       230.0       271.3       182.0        
Effective tax rate
    26.3 %     34.1 %     35.6 %     37.5 %      
                                       
Income from operations
  $ 239.9     $ 236.3     $ 284.5     $ 200.7        
Multiplied by: 1 minus Effective tax rate
    73.7 %     65.9 %     64.4 %     62.5 %      
Net operating profit after tax
  $ 176.8     $ 155.7     $ 183.2     $ 125.4        
                                       
Debt (as defined above)
  $ 1,352.0     $ 705.6     $ 651.7     $ 678.4     $ 763.1  
Less: Cash and cash equivalents
    (1,272.4 )     (516.6 )     (453.4 )     (405.2 )     (676.7 )
Debt less Cash and cash equivalents
  $ 79.6     $ 189.0     $ 198.3     $ 273.2     $ 86.4  
                                         
Total stockholders’ equity
  $ 2,343.2     $ 2,254.4     $ 2,073.4     $ 1,851.9     $ 1,751.0  
                                         
Debt less Cash and cash equivalents plus Total stockholders’ equity
  $ 2,422.8     $ 2,443.4     $ 2,271.7     $ 2,125.1     $ 1,837.4  

2007 ROIC
    28.9 %
Net operating profit after tax (last 4 quarters)
  $ 641.1  
Average Debt less Cash and cash equivalents plus Total stockholders’ equity (5 quarters)
  $ 2,220.1  
 
-39-

 
RESULTS OF OPERATIONS

2008 COMPARED WITH 2007

Terex Consolidated

   
2008
   
2007
       
         
% of
Sales
         
% of
Sales
   
% Change In
Reported Amounts
 
   
($ amounts in millions)
       
Net sales
  $ 9,889.6       -     $ 9,137.7       -       8.2 %
Gross profit
  $ 1,927.7       19.5 %   $ 1,882.0       20.6 %     2.4 %
SG&A
  $ 1,065.2       10.8 %   $ 920.6       10.1 %     15.7 %
Goodwill impairment
  $ 459.9       4.7 %   $ -       -       -  
Income from operations
  $ 402.6       4.1 %   $ 961.4       10.5 %     (58.1 )%

Net sales for the year ended December 31, 2008 increased $751.9 million when compared to the same period in 2007.  The favorable translation effect of foreign currency exchange rate changes contributed approximately $234 million of the net sales increase.  Acquisitions, particularly ASV and SHM, contributed approximately $265 million to the increase in net sales.  Excluding the favorable translation effect of foreign currency exchange rate changes and acquisitions, our MPM and Cranes segments were the primary drivers of the remaining increase in net sales and, combined, contributed approximately $806 million to the increase, as worldwide infrastructure and commodity needs continued to provide significant demand for our products.  Excluding the favorable translation effect of foreign currency exchange rate changes and acquisitions, our AWP and Construction segments declined by approximately $557 million from the prior year.  We had moderate net sales growth in the RBUO segment.  While we experienced growth in net sales in the first half of 2008 of approximately 22% over the same period in 2007, during the second half of 2008, net sales decreased approximately 4% over the same period in 2007.  This sharp decline was due to the significant weakening of many of our end markets in the second half of 2008.

Gross profit for the year ended December 31, 2008 increased $45.7 million when compared to the same period in 2007.  The favorable translation effect of foreign currency exchange rate changes contributed approximately $98 million to gross profit.  The increase in gross profit in 2008 was driven by the strong sales in the MPM and Cranes segments, which, excluding the favorable translation effect of foreign currency exchange rate changes, combined to increase gross profit by approximately $246 million over the prior year.  However, the AWP and Construction segments had lower combined gross profit of approximately $305 million, excluding the favorable translation effect of foreign currency exchange rate changes.  The RBUO segment did not provide significant contribution to the increase in gross profit due to increasing costs.

Selling, general and administrative (“SG&A”) costs increased for the year ended December 31, 2008 by $144.6 million when compared to the same period in 2007.  The unfavorable translation effect of foreign currency exchange rate changes accounted for approximately $19 million of the SG&A increase.  Most of the rise in SG&A costs was due to our continued investment in operational improvement initiatives, including supply chain management, global sales and service capabilities in developing markets, marketing, implementation of our enterprise resource management system, and strategic sourcing initiatives.

As of October 1, 2008, we performed our annual goodwill impairment test, which resulted in a non-cash impairment charge for goodwill of $459.9 million and represented all of the goodwill recorded in the Construction and RBUO segments.  This goodwill impairment charge was necessary, as the fair value of the reporting units within these segments had significantly declined, reflecting reduced estimated future cash flows for these businesses based on lower expectations for growth and profitability, primarily as a result of the current global economic downturn.

Income from operations decreased by $558.8 million for the year ended December 31, 2008 over the comparable period in 2007.  The decrease was primarily due to $459.9 million of impairment charges.  Although, we experienced improvement in operating profit due to higher volume, pricing actions and the favorable translation effect of foreign currency exchange rate changes, these were more than offset by transactional foreign currency losses and higher SG&A costs.  While we experienced an increase in operating profit in the first half of 2008 of approximately 29% over the same period in 2007, during the second half of 2008, excluding the impairment charges, operating profit decreased approximately 51% over the same period in 2007.  This sharp deterioration was primarily due to the significant declines in many of our end markets and higher input costs incurred in the second half of 2008.
 
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Aerial Work Platforms

   
2008
   
2007
       
         
% of
Sales
         
% of
Sales
   
% Change In
Reported Amounts
 
   
($ amounts in millions)
       
Net sales
  $ 2,074.1       -     $ 2,337.8       -       (11.3 )%
Gross profit
  $ 475.0       22.9 %   $ 647.9       27.7 %     (26.7 )%
SG&A
  $ 228.6       11.0 %   $ 194.8       8.3 %     17.4 %
Income from operations
  $ 246.4       11.9 %   $ 453.1       19.4 %     (45.6 )%
 
Net sales for the AWP segment for the year ended December 31, 2008 decreased $263.7 million when compared to the same period in 2007.  The favorable translation effect of foreign currency exchange rate changes increased net sales by approximately $45 million.  This increase in net sales was offset by approximately $274 million due to lower volume for most products.  Additionally, approximately $40 million of the decrease was due to an increased sales mix to high volume customers and competition in certain markets, which negatively affected average pricing.

Gross profit for the year ended December 31, 2008 decreased $172.9 million from the comparable period in 2007.  The favorable translation effect of foreign currency exchange rate changes positively affected gross profit by approximately $29 million.  The impact of lower sales volumes decreased gross profit by approximately $76 million.  Gross profit decreased approximately $40 million due to an increased sales mix to high volume customers and competition in certain markets, which negatively affected average pricing.  Higher input costs, primarily for steel, negatively affected gross profit by approximately $70 million.  Costs related to headcount reductions decreased gross profit by approximately $5 million.  Other costs, primarily associated with warranty, product liability and distribution, decreased gross profit by approximately $13 million.

SG&A costs for the year ended December 31, 2008 increased $33.8 million when compared to the same period in 2007.  The increase resulted from expansion of our international sales distribution infrastructure, higher marketing costs associated with trade show activities, and increased product line management, consulting and engineering costs, which combined to increase SG&A costs by approximately $10 million.  Additionally, corporate cost allocation increased approximately $13 million over the prior year.   Higher bad debt expenses of approximately $4 million were incurred in the current year. Approximately $4 million of the increase was due to costs related to headcount reductions.

Income from operations for the year ended December 31, 2008 decreased $206.7 million when compared to the same period in 2007.  The decrease was due to the items noted above, particularly lower net sales volume, continued higher input costs not recovered in pricing and higher SG&A costs.

Construction

   
2008
   
2007
       
         
% of
Sales
         
% of
Sales
   
% Change In
Reported Amounts
 
   
($ amounts in millions)
       
Net sales
  $ 1,887.3       -     $ 1,908.5       -       (1.1 )%
Gross profit
  $ 165.7       8.8 %   $ 250.3       13.1 %     (33.8 )%
SG&A
  $ 240.2       12.7 %   $ 194.2       10.2 %     23.7 %
Goodwill impairment
  $ 364.4       19.3 %   $ -       -       -  
(Loss) income from operations
  $ (438.9 )     (23.3 )%   $ 56.1       2.9 %     (882.4 )%

Net sales in the Construction segment decreased by $21.2 million for the year ended December 31, 2008 when compared to the same period in 2007.  The favorable translation effect of foreign currency exchange rate changes increased net sales by approximately $49 million.  Acquisitions, primarily ASV, increased net sales by approximately $166 million.  These increases were more than offset by lower net sales volume of approximately $240 million in the Americas and the Europe, Middle East and Africa regions across most product lines.
 
-41-


Gross profit for the year ended December 31, 2008 decreased $84.6 million when compared to 2007 results for the same period.  Lower net sales volume decreased gross profit by approximately $41 million.  Higher input costs, particularly for steel, as well as transactional foreign currency losses, decreased gross profit by approximately $63 million.  Additionally, due to lower production levels, manufacturing overhead represented a greater percentage of production costs, resulting in a reduction to gross profit of approximately $23 million.  Costs related to headcount reductions decreased gross profit by approximately $4 million.  These decreases were partially offset by the favorable translation effect of foreign currency exchange rate changes of approximately $19 million, which had a positive effect on gross profit.  Acquisitions, primarily ASV, improved gross profit by approximately $14 million.  Higher parts sales and decreased other costs of sales improved gross profit by approximately $16 million.

SG&A costs for the year ended December 31, 2008 increased $46.0 million from the comparable period in 2007.  Approximately $3 million of the increase was due to the unfavorable translation effect of foreign currency exchange rate changes.  Approximately $18 million of the increase was due to acquisitions, primarily ASV.  Approximately $15 million of higher SG&A costs were related to selling, engineering and other manufacturing initiatives.  Additionally, corporate cost allocation increased approximately $10 million over the prior year period.

As of October 1, 2008, we performed our annual goodwill impairment test, which resulted in a non-cash impairment charge for goodwill of $364.4 million and represented all of the goodwill recorded in this segment.  This goodwill impairment charge was necessary, as the fair value of the reporting unit within this segment significantly declined, reflecting reduced estimated future cash flows for this business based on lower expectations for growth and profitability, primarily as a result of the current global economic downturn.

Income from operations for the year ended December 31, 2008 decreased $495.0 million when compared to the same period in 2007, resulting primarily from impairment charges and lower net sales volume combined with higher production and SG&A costs.

Cranes
   
2008