The Daily Magic Formula Stock for 09/07/2008 is Terex Corp. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is 25-50 %.
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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, refining and utility industries. We operate 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 $9.1 billion of net sales in 2007, up from $7.6 billion of net sales in 2006. While much of our historic growth had been achieved through acquisitions, a majority of our growth has been generated from existing operations since 2003. 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.
For financial information about our industry and geographic segments, see â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operationsâ€ť and Note B - â€śBusiness Segment Informationâ€ť in the Notes to the Consolidated Financial Statements.
TEREX AERIAL WORK PLATFORMS
Our Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment, telehandlers, power equipment 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, generators, related components and replacement parts, and other products. Customers in the construction and building maintenance industries use these products to build and/or maintain large physical assets and structures. We market our Aerial Work Platforms products principally under the TerexÂ® and GenieÂ® brand names and the TerexÂ® name in conjunction with the historic Load King brand name.
Aerial Work Platforms has seven 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, power buggies and generators are manufactured in Rock Hill, South Carolina.
On January 8, 2008, we acquired Phoenix Equipment, a Waco, Texas company specializing in the refurbishment of aerial work platform equipment.
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, material handlers and truck-mounted articulated hydraulic cranes; and
Compact construction equipment, including loader backhoes, compaction equipment, mini and midi excavators, site dumpers, skid steer loaders and wheel loaders.
Construction, logging, 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 TerexÂ® brand name and the TerexÂ® name in conjunction with the historic Fuchs brand name.
Construction has thirteen 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;
E xcavators, material handlers and truck-mounted articulated hydraulic cranes are manufactured in Delmenhorst, Ganderkesee and Vechta, Germany; and
Material handlers are manufactured in Bad Schoenborn, Germany.
Compact Construction Equipment
Site dumpers, compaction equipment, material handlers 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; and
Loader backhoes and skid steer loaders are manufactured for the Indian market in Greater Noida, Utter Pradesh, India.
Constructionâ€™s North American distribution center is in Southaven, Mississippi and serves as a parts center for Construction and other Terex operations.
We plan to begin the manufacture of compact construction equipment in Sanhe, China by mid-2008.
We have a minority interest in Inner Mongolia North Hauler Joint Stock Company Limited (â€śNorth Haulerâ€ť), 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 TerexÂ® 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.
On January 14, 2008, we announced that we have reached a definitive agreement to acquire A.S.V., Inc. (â€śASVâ€ť), with headquarters in Grand Rapids, Minnesota. ASV designs, manufactures and sells rubber track machines and related components, accessories, and attachments. ASV purpose-built chassis and patented rubber track undercarriage technology enable ASV products to traverse nearly any terrain with minimal damage to the ground, making them useful in markets such as construction, landscaping, forestry and agriculture. ASVâ€™s wholly-owned subsidiary Loegering Mfg., Inc. designs, manufactures and sells traction products and attachments for the skid-steer industry. On February 26, 2008, we successfully completed our cash tender offer for ASV common stock, at which time a total of approximately 98% of the outstanding shares of ASV common stock were tendered.
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 infrastructure, building and manufacturing facilities. We market our Cranes products principally under the TerexÂ® brand name and the TerexÂ® name in conjunction with these historic brand names: American, Bendini, Changjiang, Comedil, Demag, Franna, Peiner and PPM.
Cranes has twelve 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 Milan, Italy;
Lattice boom crawler cranes and tower cranes are manufactured in Wilmington, North Carolina; and
Lattice boom crawler cranes, all terrain cranes and tower 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.
TEREX MATERIALS PROCESSING & MINING
Our Materials Processing & Mining segment designs, manufactures and markets crushing and screening equipment (including crushers, impactors, washing systems, screens, trommels 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 commodity mining. We market our Materials Processing & Mining products principally under the TerexÂ® and PowerscreenÂ® brand names and the TerexÂ® name in conjunction with these historic brand names: Canica, Cedarapids, Finlay, Halco, Jaques, O&K, Pegson, Reedrill, SHM, Simplicity and Unit Rig.
Materials Processing & Mining has thirteen 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 AcuĂ±a, Mexico;
Highwall mining equipment is manufactured in Beckley, West Virginia;
Crushing and screening equipment is manufactured in Melbourne, Australia; Subang Jaya, Malaysia; Chomburi, Thailand; Durand, Michigan; Coalville, England; Omagh, Northern Ireland; and Dungannon, Northern Ireland; and
Crushing and screening 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 India for the manufacture of crushing and screening equipment.
TEREX 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, 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 TerexÂ® and Bid-WellÂ® brand names and the TerexÂ® name in conjunction with these historic brand names: Cedarapids, Cifali and CMI.
Terex Roadbuilding, Utility Products and Other has seven 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;
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 distribute, install 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 TerexÂ® products, including concrete mixers and aerial devices. We also operate a fleet of rental utility products in the United States and Canada. We own Duvalpilot Equipment Outfitters, LLC, a distributor of the Companyâ€™s products and other light construction equipment.
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 (â€śTFSâ€ť) in the United States, Europe and elsewhere. In Europe, as discussed in Note K - â€śInvestment in Joint Ventureâ€ť in the Notes to the Consolidated Financial Statements, we have a 40% ownership interest in a joint venture, Terex Financial Services Holding B.V. (â€śTFSHâ€ť). A European financial institution owns the remaining 60% interest in TFSH. TFSH facilitates the financing of our products sold in certain areas of Europe. TFSH is a direct lender and makes its loans with funds obtained from equity contributions made by the European financial institution and the Company and a debt facility made available to TFSH by the European financial institution.
At Terex, our purpose is 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.
Our vision focuses on the Companyâ€™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 a value system we call â€śThe Terex Wayâ€ť 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 peoplesâ€™ values and cultures and are good global, national and local citizens.
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 in the TBS House. The commitment of our leaders to the TBS House and its underlying values and principles is the best way to increase our chances of success going forward. It means using a compelling vision about an exciting, shared future and fostering trust and teamwork among our team members.
Superb Human Resource Practices is the second step in the TBS House. Our team members are the Companyâ€™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, and we aim to acquire, develop and retain diverse and agile team members.
Customer Driven Business Processes is the third step in the TBS House and deals with how we conduct our business by focusing on our customer. We endeavor to engage in only value added activities across the Company and constantly work to eliminate waste. We strive to create and improve our business processes in a way that is organized around the customer, and our process initiatives focus on four key attributes for the customer interface: 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 centered on the customer, and meeting or exceeding 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 on all occasions. We aim to build relationships that our customers can depend on and make it easier for our customers to do their jobs. We understand that our success will flow from our customersâ€™ 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 strategic metrics and improving our planning based on our conclusions.
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 customer preferences. It involves listening to the customerâ€™s needs and wants, understanding them, and then focusing design and production efforts around these core factors. This requires innovation and efficiency, and a commitment beyond providing products to also providing the services that our customers require.
With our purpose, mission and vision in mind, using the TBS House as a framework, and operating based on the values of The Terex Way, we have launched numerous strategic initiatives to move us forward. Some of the initiatives on which we will focus in the coming year include:
Diversity and Inclusion . We are committed to having a diverse and inclusive work force that will give us the ability to consistently achieve our business results in culturally conscious, ethical and appropriate ways. Diversity and inclusion allows us to respond to rapidly changing global demographics and a global market for talent, and aids us in opening new markets, innovating, problem solving, productivity and recognizing opportunities.
Strategic Sourcing . We seek to develop and implement best in 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, which would result in material savings across the entire Terex organization. We seek to develop a world-class global supply base, with better delivery, improved quality and net cost savings for Terex. We have identified our key areas of focus as steel and fabrications, mechanical components, electrical components, hydraulic components, castings, and power systems.
Customer Satisfaction . We are beginning to implement a customer satisfaction research process to understand our level of current customer satisfaction using the net promoter score approach across all our businesses. We will identify areas for improvement across our businesses and geographies to continue our journey of continuous improvement in delighting our customers.
TBS Assessment and Education . We intend to introduce an operational diagnostic tool to measure and assess how well we are implementing our TBS lean manufacturing road map, with an aim of creating a mature enterprise-wide operating system at Terex. 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.
New Product Identification and Development Process . We are focused on introducing an improved common new product process across all of our businesses. We want to implement a new product and process development method to identify and develop the right products and launch them successfully in order to retain existing and attract new customers. This will start with the voice of the customer and incorporate management engagement at all phases of the new product development process.
Terex Management System . To facilitate our transition to being a unified operating company, we are in the early stages of a multi-year implementation of a worldwide enterprise resource-planning system. Our operations will implement this system in a staged process, concentrating on a few operations initially, and incorporating every location eventually. We expect this system to further our objectives of integrating the Company, improving reporting for decision support, reducing complexity and improving accuracy, improving the customer experience and realizing supply chain economies through the greater visibility into our business that this system will provide.
Aftermarket Service and Logistics . We have listened as our customers have told us that they want improved aftermarket service and support from Terex. Given the importance of aftermarket care to our customers, we are engaged in an assessment of opportunity areas to improve our provision of aftermarket support, including service engineering, competitive benchmarking and parts ordering, pricing and logistics.
Developing Markets . We are focused on expanding the geographic reach of our products, emphasizing developing areas such as China, Russia, India, the Middle East and Latin America. We plan to increase our sales and manufacturing operations in these regions to meet the growing demands of these markets and to utilize the resources of these regions to supply cost effective products to our customers around the globe. We believe that these initiatives help to offset the effect of potential cyclical changes in any one product category or geographic market. These initiatives have also expanded our product lines and geographic reach, added new technology and improved our distribution network.
As a result, we have developed a geographically diverse revenue base with approximately 38% of our revenues derived from the Americas, 48% from Europe, Africa and the Middle East and 14% 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.
TEREX AERIAL WORK PLATFORMS
AERIAL WORK PLATFORMS. Aerial work platform equipment positions workers and materials easily and quickly to elevated work areas. 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, theatrical and homeowner 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, 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 out. 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 EQUIPMENT. We produce equipment for delivering power, including trailer-mounted light towers, power buggies and 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.
HEAVY CONSTRUCTION EQUIPMENT. We manufacture and/or market off-highway trucks, scrapers, excavators, wheel loaders, material handlers and truck-mounted articulated hydraulic cranes.
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.
Truck-mounted articulated hydraulic cranes are available in two product categories. The â€śknuckle boomâ€ť 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 â€śV-boomâ€ť crane is also mounted on the front or the rear of the truck and spans the length of the truck while folded.
COMPACT CONSTRUCTION EQUIPMENT. We manufacture a wide variety of compact construction equipment used primarily in the construction and rental industries. Products include loader backhoes, compaction equipment, excavators, site dumpers, skid steer loaders and wheel loaders.
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.
Skid steer loaders and wheel loaders are used for loading and unloading materials in construction, industrial, rental and landscaping businesses.
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, big fabrication yards and building and construction sites, and combine high road speed and all terrain capability without the need for outriggers.
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 CRANES. Lattice boom crawler 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 are transported to and erected, together with the base unit, 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 equipment.
Ronald M. DeFeo was appointed President and Chief Operating Officer of the Company on October 4, 1993, Chief Executive Officer (â€śCEOâ€ť) of the Company on March 24, 1995 and Chairman of the Board on March 4, 1998. Mr. DeFeo relinquished the titles of President and Chief Operating Officer of the Company on January 3, 2007. Pursuant to an Employment and Compensation Agreement between Mr. DeFeo and the Company, dated as of July 1, 2005 (the â€śDeFeo Agreementâ€ť), Mr. DeFeo is to remain Chief Executive Officer of the Company through December 31, 2012 and the Company will use its best efforts, consistent with generally accepted best corporate governance standards, to have Mr. DeFeo elected Chairman of the Board during this time. Mr. DeFeo joined the Company in May 1992 as President of the Companyâ€™s then Heavy Equipment Group. A year later, he also assumed the responsibility of serving as the President of the Companyâ€™s former Clark Material Handling Company subsidiary. Prior to joining the Company on May 1, 1992, Mr. DeFeo was a Senior Vice President of J.I. Case Company, the former Tenneco farm and construction equipment division, and also served as a Managing Director of Case Construction Equipment throughout Europe. While at J.I. Case, Mr. DeFeo was also a Vice President of North American Construction Equipment Sales and General Manager of Retail Operations. Mr. DeFeo serves as a director of Kennametal Inc. (a supplier of the Company).
G. Chris Andersen has been a merchant banker since 1996 and is currently a partner of G.C. Andersen Partners, LLC, a private merchant banking and advisory firm, and also serves as the non-executive Chairman of the Board of Directors of Millennium Cell Inc.
Paula H. J. Cholmondeley is currently a private consultant on strategic planning. Ms. Cholmondeley served as Vice President and General Manager of Sappi Fine Paper, North America from 2000 through 2004, where she was responsible for their Specialty Products division. Ms. Cholmondeley held senior positions with various other companies from 1980 through 1998, including Owens Corning, The Faxon Company, Blue Cross of Greater Philadelphia, and Westinghouse Elevator Company, and also served as a White House Fellow assisting the U.S. Trade Representative during the Reagan administration. Ms. Cholmondeley, a former certified public accountant, is an alumnus of Howard University and received a Masters Degree in Accounting from the University of Pennsylvania, Wharton School of Finance. Ms. Cholmondeley is also a director of Dentsply International Inc., Ultralife Batteries, Inc., Albany International Corp. and Minerals Technologies Inc., and is an independent trustee of Nationwide Mutual Funds.
Don DeFosset retired in November 2005 as Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified company with principal operating businesses in homebuilding and home financing, water transmission products and energy services. Mr. DeFosset had served since November 2000 as President and CEO, and since March 2002 as Chairman, of Walter Industries. Previously, he was Executive Vice President and Chief Operating Officer of Dura Automotive Systems, Inc., a global supplier of engineered systems, from October 1999 through June 2000. Before joining Dura, Mr. DeFosset served as a Corporate Executive Vice President, President of the Truck Group and a member of the Office of Chief Executive Officer of Navistar International Corporation from October 1996 to August 1999. Mr. DeFosset also serves as a director of Regions Financial Corporation and James Hardie Industries NV.
William H. Fike has been President of Fike & Associates, a consulting firm, since January 2000. Mr. Fike retired as the Vice Chairman and Executive Vice President of Magna International Inc., an automotive parts manufacturer based in Ontario, Canada, in February 1999. Prior to joining Magna International in August 1994, Mr. Fike was employed by Ford Motor Company from 1965 to 1994, where he served most recently as a Corporate Vice President and as President of Ford Europe.
Thomas J. Hansen is Vice Chairman of Illinois Tool Works Inc. (â€śITWâ€ť), a manufacturer of fasteners and components, consumable systems and a variety of specialty products and equipment, and is responsible for ITWâ€™s worldwide Automotive Components and Fastener, Fluids and Polymers, Industrial Metal and Plastic and Construction businesses. From 1998 until May 2006 Mr. Hansen served as Executive Vice President of ITW. Mr. Hansen joined ITW in 1980 as sales and marketing manager of the Shakeproof Industrial Products businesses and held several other positions with the company. Mr. Hansen is a member of the Northern Illinois Universityâ€™s Executive Club, a member of the Economics Club of Chicago, is Chairman of the ITW Better Government Council, and is a former member of the Board of Trustees of MAPI (Manufacturers Alliance).
Dr. Donald P. Jacobs is Dean Emeritus and the Gaylord Freeman Distinguished Professor of Banking of the J.L. Kellogg School of Management at Northwestern University, positions he has held since 2001. Prior to that, Dr. Jacobs was Dean of the Kellogg School from 1975 through 2001. He presently teaches government, strategy and international business. Dr. Jacobs also serves as a director of ProLogis Trust.
David A. Sachs is the Co-Chairman of the Capital Markets Group Investment Committee of Ares Management LLC, an investment management firm of which he was a founder in 1997. Mr. Sachs has been an investment banker and investment manager since 1981.
Oren G. Shaffer was the Vice Chairman and Chief Financial Officer of Qwest Communications International Inc. from 2002 to 2007. Prior to joining Qwest, Mr. Shaffer was President and Chief Operating Officer of Sorrento Networks, a maker of optical products, beginning in 2000. From 1994 to 1999, he was Chief Financial Officer of Ameritech Corporation, a telecommunications provider that was acquired by SBC Communications Inc. in 1999. Mr. Shaffer also serves as a director of Belgacom SA and Intermec, Inc.
David C. Wang is President of Boeing China Inc. and Vice President of International Relations of The Boeing Company, a large aerospace company and a manufacturer of commercial jetliners and military aircraft, and has held these positions since November 2002. Prior to joining Boeing, Mr. Wang served as Chairman and CEO of General Electric China from 1997 to 2001. Prior to that, Mr. Wang served in various positions of increasing responsibility with General Electric since 1980. Mr. Wang is also a director of KLA-Tencor Corporation.
Helge H. Wehmeier retired in December 2004 as Vice-Chairman of Bayer Corporation, a post he held since July 1, 2002. Prior to that, Mr. Wehmeier served as President and Chief Executive Officer of Bayer Corporation from 1991 through June 2002. Mr. Wehmeier spent more than 35 years with Bayer AG, a diversified, international chemicals and health care group, in various positions of increasing responsibility, including senior management positions in both Europe and the United States. Mr. Wehmeier is an alumnus of the International Management Development Institute, Lausanne, Switzerland and Institut European dâ€™Administration des Affaires, Fontainebleau, France. Mr. Wehmeier also serves as a director of PNC Financial Services Group, Inc., a diversified banking and financial services company, and Owens Illinois, Inc., a manufacturer of glass containers.
MANAGEMENT DISCUSSION FROM LATEST 10K
2007 was another year of solid performance for Terex, as we continued to benefit from global economic growth driving strong end market demand. We focused on numerous internal initiatives to grow sales and profitability as we transform from a holding company to an integrated operating company. We have also benefited from global growth driven by strong economies in North America and Western Europe and improving standards of living around the world. Although we expect slower economic growth in 2008 in North America, and to a lesser extent in Western Europe, our strategy of product and geographic diversity is expected to drive sales growth that will allow us to remain on pace to achieve our goal of $12 billion in sales with a 12% operating margin by 2010. Demand for infrastructure and energy has resulted in extraordinary demand for our cranes. Strong commodity demand driven by developing economies has increased demand for our mining equipment. Increasing labor rates that require productivity enhancing solutions combined with improving global safety standards is driving demand for our aerial work platforms products. Our construction products faced a mixed year in 2007, with weakness in North America partially offset by strength in other geographies, particularly in Western Europe, for certain types of heavy equipment, and in both Western and Eastern Europe for compact construction equipment. Our roadbuilding and utility businesses, which are primarily North American focused, remained weak, as a result of continued low levels of governmental spending on infrastructure.
A key to our continued strong performance is that our product portfolio contains a mix of early, mid and late cycle products combined with mining products that are tied to global commodity demand. For example, compact construction equipment is an early cycle product, aerial work platforms and heavy construction equipment are mid-cycle equipment, and cranes and roadbuilding equipment are late cycle equipment. This relatively balanced mix of product types helps to moderate cyclical sales movements for Terex as a whole, as demand for one product may weaken, but be offset by demand for products in a different cycle. A balanced geographic sales mix also helps moderate demand swings for our products, as demand in one region may strengthen or weaken over different times as compared to economies in other geographies. 2007 events demonstrated the value of geographic diversity, as construction equipment sales slowed in North America but were strong in Europe. In 2007, 45% of our sales were to customers located in the USA, United Kingdom and Germany. To further our geographic sales mix, we are intent on growing our presence in developing markets as we work towards our goal of generating approximately 1/3 of our sales from the Americas, 1/3 from Europe, Africa and the Middle East and the remaining 1/3 from Asia and Australia.
Global dynamics expected to continue to drive demand for our equipment include creating infrastructure in developing economies, repairing/replacing infrastructure in North America and Western Europe, increasing labor costs and strengthening safety standards globally. Developing economies are building infrastructure at a rapid pace, as demonstrated in countries and regions around the world such as the Middle East, and particularly Dubai, cities in Eastern China such as Shanghai and Beijing, and Eastern Europe. This growth is expected to continue as profits from oil exports are invested by exporting countries such as Russia and the Middle East and as western Chinese cities develop. Decaying infrastructure and historical under-investment in infrastructure to support population growth are expected to continue to drive demand for equipment in North America and Western Europe. This global infrastructure demand favorably impacts all five of our segments, particularly Cranes and Materials Processing & Mining. Aerial work platforms and compact construction equipment such as mini excavators are benefiting from higher labor costs that drive demand for productivity enhancing solutions. Stricter safety standards are also driving demand for equipment such as aerial work platforms as countries recognize the inherent risks of working at height on ladders and scaffolding.
We also continued to improve our financial position and long-term strategic plans in 2007. In January 2007, we completed our previously announced redemption of $200 million principal amount of 9-1/4% Senior Subordinated Notes due 2011. This transaction allowed us to repay high cost debt with cash generated from operations. In November 2007, we acquired SHM, a leading manufacturer of highwall mining equipment. The total consideration for the transaction was approximately $146 million paid in cash. We recognized that the softening North American economy combined with credit market concerns offered both a potential opportunity for finding acquisitions but also a challenge for raising capital. In November 2007, we took pre-emptive action by raising approximately $800 million by issuing Senior Subordinated Notes with a coupon of 8.00% that mature in November 2017. The note issuance was undertaken in anticipation of increasing acquisition opportunities for the Company as economic trends worsened. Subsequent to year-end 2007, we announced the acquisition of ASV, which was valued at approximately $488 million. ASV designs and manufactures rubber track loaders and undercarriages. In December 2007, we increased and extended our share repurchase program by $500 million. This brings the total dollar amount that may be repurchased under the share repurchase program to $700 million, and extends the program period from its original expiration date of June 30, 2008 through June 30, 2009. During 2007, we repurchased approximately 2.3 million shares for $166.6 million.
Return on Invested Capital, or 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. In 2007, we achieved an ROIC of 43.3%, compared to 38.4% ROIC in 2006 and our 2007 ROIC target of 41.9%. ROIC is determined by dividing the last four quartersâ€™ Income from operations (including operating income from discontinued operations) by the average of the sum of Total stockholdersâ€™ equity plus Debt less Cash and cash equivalents for the last five quarters. 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 quartersâ€™ Income from operations 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 quarterâ€™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). In 2006, we included operating income from discontinued operations in the numerator of our calculation of ROIC because the ROIC metric is intended to compare total enterprise operational return to a total enterprise denominator that is based on amounts that include invested capital of discontinued operations in the balances. We believe that this total enterprise ROIC calculation, including operating income from discontinued operations, provides a more complete performance metric.
We utilize 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 shareholderâ€™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 stockholdersâ€™ equity provides a better comparison across similar businesses regarding total capitalization, and that 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 previously disclosed in the Compensation Discussion and Analysis in our proxy statement for the 2007 annual meeting of stockholders.
RESULTS OF OPERATIONS
2007 COMPARED WITH 2006
Net sales for the year ended December 31, 2007 increased $1,490.1 million when compared to the same period in 2006. Our sales increased across all segments, with the exception of Roadbuilding, Utility Products and Other, due to strong global demand across many product categories. Increased sales volume and pricing actions contributed approximately $818 million of the increase. Additionally, the favorable translation effect of foreign currency exchange rate changes contributed approximately 32% of the net sales increase.
Gross profit for the year ended December 31, 2007 increased $438.9 million when compared to the same period in 2006. Gross profit increased across all segments, with the exception of Roadbuilding, Utility Products and Other. Approximately $320 million of the increase in gross profit was the result of the combination of increased volume, particularly international sales, a more favorable product mix in certain businesses and the positive impact of pricing initiatives. Additionally, the favorable translation effect of foreign currency exchange rate changes contributed approximately 21% of the increase.
Selling, general and administrative costs (â€śSG&Aâ€ť) increased for the year ended December 31, 2007 by $187.0 million when compared to the same period in 2006. Each segmentâ€™s SG&A costs rose due to its portion of the increased selling, engineering and administrative infrastructure investment of approximately $105 million Company-wide. The unfavorable translation effect of foreign currency exchange rate changes also accounted for approximately 24% of the increase.
Income from operations increased by $251.9 million for the year ended December 31, 2007 over the comparable period in 2006. We experienced improvement in operating profit due to the higher volume and pricing actions and the favorable translation effect of foreign currency exchange rate changes, offset by the higher SG&A costs described above.
Net sales for the Aerial Work Platforms segment for the year ended December 31, 2007 increased $247.5 million when compared to the same period in 2006. Markets in Europe, Latin America and Asia/Pacific continued to drive the increase in net sales, with sales in these regions increasing by approximately 47%, while sales in North America decreased approximately 6%, primarily in our telehandler product line. Included in our increased net sales is approximately $58 million resulting from price increases as well as approximately $79 million due to the favorable translation effect of foreign currency exchange rate changes.
Gross profit for the year ended December 31, 2007 increased $122.4 million from the comparable period in 2006. Gross profit improved approximately $58 million due to price increases. Additionally, approximately $35 million of the gross profit increase was due to the increased sales noted above. This improvement was partially offset by approximately $17 million in higher costs for material used in production. Approximately 9% of the increase in gross profit resulted from the favorable translation effect of foreign currency exchange rate changes on products made in the U.S. and sold into markets elsewhere throughout the world.
SG&A costs for the year ended December 31, 2007 increased $41.9 million when compared to the same period in 2006. The expansion of our international sales and distribution infrastructure accounted for approximately $14 million of the increase. Additionally, due to our significant growth, we had approximately $16 million higher costs for other sales and marketing, engineering, information technology and personnel related expenses. Corporate cost allocation increased approximately $7 million over the prior year and approximately 13% of the increase was due to the favorable translation effect of foreign currency exchange rate changes.
Income from operations for the year ended December 31, 2007 increased $80.5 million when compared to the same period in 2006. The increase was due to the items noted above, particularly continued higher volume in European and other international markets and the favorable translation effect of foreign currency exchange rate changes, partially offset by costs related to our investment in new markets.
Net sales in the Construction segment increased by $326.1 million for the year ended December 31, 2007 when compared to the same period in 2006. Approximately $200 million of the increase was due to increased product volume, particularly loader backhoes, material handlers, mini and midi excavators and large trucks. Regionally, growth was predominantly in Europe due to continued strong demand, partially offset by lower U.S. sales due to the downturn in the U.S. economy. Additionally, the favorable translation effect of foreign currency exchange rate changes accounted for approximately 41% of the net sales increase.
Gross profit increased $71.2 million when compared to 2006 results for the same period. This improvement was driven primarily by the combination of higher sales volume and increased pricing of approximately $53 million. The favorable translation effect of foreign currency exchange rate changes also added approximately 26% of the increase.
SG&A costs for the year ended December 31, 2007 increased $31.1 million from the comparable period in 2006. The increase was due to higher selling costs of approximately $8 million associated with improving our global sales network and certain promotional programs and trade show activities, while increased engineering costs of approximately $3 million for product improvements also contributed to the increase. Additionally, the unfavorable translation effect of foreign currency exchange rate changes accounted for approximately 48% of the increase.
Income from operations for the year ended December 31, 2007 increased $40.1 million when compared to the same period in 2006, resulting primarily from the items noted above, particularly improved sales and the translation effect of foreign currency exchange rate changes, offset in part by higher SG&A costs.
Net sales for the Cranes segment for the year ended December 31, 2007 increased by $494.8 million when compared to the same period in 2006. The increase in net sales was due to higher unit volume, which accounted for approximately $100 million of the increase. Approximately $121 million of the increase resulted from improvement in our product mix due to higher sales of crawler and rough-terrain cranes. These offset lower sales of boom trucks in the U.S. market. Increased pricing at certain facilities and sales of products with enhanced features added approximately $113 million to the increase. The favorable translation effect of foreign currency exchange rate changes on Euro denominated sales contributed approximately 28% of the net sales increase.
Gross profit for the year ended December 31, 2007 increased $155.2 million relative to the same period in 2006. Gross profit benefited approximately $30 million from the effect of prior pricing actions flowing through our order backlog, coupled with a higher mix of crawler and rough terrain cranes, which added approximately $77 million. The favorable translation effect of foreign currency exchange rate changes on Euro denominated sales improved gross margin by approximately 12% from the prior year.
SG&A costs for the year ended December 31, 2007 increased $53.0 million over the same period in 2006. The increase was driven by higher sales costs of approximately $14 million due to increased volume and increased allocation of corporate costs of approximately $18 million. Approximately 24% of the increase was due to the unfavorable translation effect of foreign currency exchange rate changes.
Income from operations for the year ended December 31, 2007 increased $102.2 million over the comparable period in 2006. Income from operations in 2007 benefited from higher sales volume and product mix, the translation effect of foreign currency exchange rate changes and the impact of prior pricing actions, offset in part by higher SG&A expenses.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
RESULTS OF OPERATIONS
Three Months Ended June 30, 2008 Compared with Three Months Ended June 30, 2007
Net sales for the three months ended June 30, 2008 increased $593.7 million when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes contributed approximately $184 million of the net sales increase. Excluding the favorable translation effect of foreign currency exchange rate changes, our Materials Processing & Mining and Cranes segments were the primary drivers of the increase in net sales, which combined contributed approximately $317 million to the increase, as worldwide infrastructure and commodity needs continued to provide significant demand for our products. Acquisitions contributed approximately $79 million to the increase. The remaining net sales growth was from the Aerial Work Platforms, Construction and Roadbuilding, Utility Products and Other segments.
Gross profit for the three months ended June 30, 2008 increased $144.1 million when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes added approximately $43 million of the increase. The remaining increase in gross profit was primarily driven by the strong sales in the Materials Processing & Mining and Cranes segments, which combined to contribute approximately $108 million of the increase. The Construction and Roadbuilding, Utility Products and Other segments did not provide significant contribution to the increase in gross profit due to increased costs and lower net sales in certain regions. Additionally, the Aerial Work Platforms segment had lower gross profit for the three months ended June 30, 2008, as compared to the prior year period.
Selling, general and administrative (â€śSG&Aâ€ť) costs increased by $57.7 million for the three months ended June 30, 2008 when compared to the same period in 2007, but did not increase as a percentage of net sales. The unfavorable translation effect of foreign currency exchange rate changes accounted for approximately $16 million of the SG&A increase. In addition, each segmentâ€™s SG&A costs rose due to our continued investment in operational improvement initiatives, including supply chain management, global sales and service capabilities in developing markets, marketing, implementation of TMS, and strategic sourcing initiatives.
Income from operations increased by $86.4 million for the three months ended June 30, 2008 when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes contributed approximately $27 million of the increase. We experienced improvement in operating profit due to higher sales volume and pricing actions, offset by transactional foreign currency losses and higher SG&A costs.
Net sales for the Aerial Work Platforms segment for the three months ended June 30, 2008 increased $32.4 million when compared to the same period in 2007. Approximately $23 million of the increase was due to the favorable translation effect of foreign currency exchange rate changes. The remaining increase was due to higher sales volume, particularly for our boom products in North America, the Middle East, Russia and Eastern Europe.
Gross profit for the three months ended June 30, 2008 decreased $12.2 million when compared to the same period in 2007. Approximately $10 million of the decrease in gross profit was due to higher material costs, primarily steel and iron. Gross profit was also negatively impacted by approximately $17 million compared to the prior year period due to a change in sales mix to high volume customers at lower margins. Transactional foreign currency losses lowered gross profit by approximately $12 million. Higher warranty costs primarily associated with a retrofit program contributed approximately $7 million to the decrease. These higher costs were partially offset by approximately $16 million from increased sales volume and improved product mix. Additionally, the favorable translation effect of foreign currency exchange rate changes affected gross profit by approximately $4 million.
SG&A costs for the three months ended June 30, 2008 increased $9.5 million when compared to the same period in 2007. The increase resulted from expansion of our international sales distribution infrastructure, increased product line management, consulting and engineering costs, which in the aggregate, increased costs by approximately $6 million. Additionally, corporate cost allocation increased approximately $3 million over the prior year.
Income from operations for the three months ended June 30, 2008 decreased $21.7 million when compared to the same period in 2007. The decrease was due to the items noted above, particularly continued higher material costs and investment in infrastructure.
Net sales in the Construction segment increased by $118.4 million for the three months ended June 30, 2008 when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes accounted for approximately $44 million of the net sales increase. Acquisitions contributed approximately $58 million to the increase. Net sales were higher by approximately $50 million in the Europe, Middle East and Africa (â€śEMEAâ€ť) region, primarily for rigid frame off-highway trucks, wheel loaders and material handlers. These increases were offset by lower net sales in the Americas of approximately $37 million across most product lines.
Gross profit increased $10.8 million for the three months ended June 30, 2008 when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes added approximately $7 million of the increase. Acquisitions added approximately $8 million of the increase in gross profit. Higher EMEA net sales improved gross profit by approximately $18 million. These improvements were partially offset by approximately $8 million for higher material costs, approximately $6 million due to lower net sales in the Americas and approximately increased $9 million due to other items, primarily related to transactional foreign exchange losses.
SG&A costs for the three months ended June 30, 2008 increased $16.9 million when compared to the same period in 2007. Approximately $4 million of the increase was due to the unfavorable translation effect of foreign currency exchange rate changes. Approximately $5 million of the increase was due to acquisitions. We incurred approximately $5 million of higher costs related to selling, engineering and other infrastructure initiatives. Additionally, corporate cost allocation increased approximately $3 million over the prior year period.
Income from operations for the three months ended June 30, 2008 decreased $6.1 million when compared to the same period in 2007, primarily resulting from higher SG&A costs, offset in part by improved sales and the translation effect of foreign currency exchange rate changes.
Net sales for the Cranes segment for the three months ended June 30, 2008 increased by $265.3 million when compared to the same period in 2007 as global infrastructure and energy demand continues to drive strong sales of cranes. The favorable translation effect of foreign currency exchange rate changes on sales contributed approximately $81 million of the net sales increase. Approximately $145 million of the increase resulted from improvement in our product mix due to higher sales of crawler, rough-terrain and tower cranes. Higher pricing added approximately $39 million to the increase.
Gross profit for the three months ended June 30, 2008 increased by $81.8 million when compared to the same period in 2007. The favorable translation effect of foreign currency exchange rate changes on Euro denominated sales improved gross profit by approximately $20 million from the prior year period. Gross profit increased approximately $39 million from the effect of pricing actions. An advantageous mix of larger crawler, rough-terrain and tower cranes added approximately $37 million to the increase. These favorable impacts were partially offset by higher material and warranty costs of approximately $22 million.
SG&A costs for the three months ended June 30, 2008 increased $12.0 million over the same period in 2007. Approximately $7 million of the increase was due to the unfavorable translation effect of foreign currency exchange rate changes. We also incurred higher engineering costs for product development and certain bad debt costs, which combined, increased SG&A costs by approximately $4 million. However, as a percentage of sales, our SG&A costs decreased as compared to the same period in 2007.
Income from operations for the three months ended June 30, 2008 increased $69.8 million over the same period in 2007. Income from operations in the second quarter of 2008 increased because of favorable product mix, the positive translation effect of foreign currency exchange rate changes and the impact of pricing actions.
Ronald M. DeFeo - Chairman and Chief Executive Officer
Thank you, and good morning ladies and gentlemen and thank you for your interest in Terex Corporation today. On the call with me this morning is Phil Widman, our Senior Vice President and Chief Financial Officer; Tom Riordan, the company's President and Chief Operating Officer; and Laura Kiernan our Director of Investor Relations.
Also participating on this call and available for your questions are Rick Nichols for the Cranes segment, Tim Ford for Aerial Work Platforms, Eric Nielsen for the Materials Processing & Mining business, Steve Filipov for Developing Markets and George Ellis for the Road building and Utility business.
Housekeeping note to accommodate our audiences in earlier time zones or anyone not able to listen, a replay is available shortly after the live call and can be accessed until Thursday, the 31 of July at 5:00 p.m. eastern daylight time. To access this replay, dial 1-800-642-1687 and international participants should dial 1-706-645-9291 with a conference ID number 54790569.
So let me begin. At Terex we feel we're building a better machinery company for customers, team members and investors. Terex had an outstanding quarter and first half. For prospective, net income in the January through June 2008 period was about $400 million. This is equal to net income for all of 2006. We've had, we've come a long way in 18 months. We continue to see strength in several of our businesses and believe that the strength in cranes plus materials processing and mining will offset the obvious slow downs in construction and aerial work platforms.
The Terex portfolio is sufficiently diverse to balance a wide variety of change in any individual segment with offsetting affects in other segments. During the quarter, earnings per share grew about 40% compared with a year-ago period and net income with up 35% for the quarter and 39% for the first half relative to last year. These are very good numbers.
So financially, the company is strong. We do expect the back half of this year, the earnings to be about inline with last year. As Phil will explain, this is a more traditional income split between half years. The full year EPS outlook represents about a 17% to 22% income growth compared with 2007.
We are on track or ahead of the rate required to achieve our 2010 targets. We are importantly committed to our share repurchase program which recently increased to $1.2 billion through next June. There are reasons for this. We have solid cash flow and a strong belief that this will continue. We have grown our earnings meaningfully over the past several years and believe we will achieve the 12 by 12 and 10 financial goals. That is $12 billion in revenues with 12% operating margin by 2010.
Our balance sheet is very strong. And of course, the stock price is way down making this a great time to buy. We have not lost sight of making investments in our own global support structure, capital expenditures and pursuing acquisitions on an opportunistic basis. We do realize that our end markets are varied and choppy, but the fact is that we are rapidly growing in developing countries and that our crane and mining businesses are also growing nicely with excellent margins. And this gives us confidence with the outlook.
We're proud of what we've accomplished at Terex over the past several years. Since 2002 the company has grown revenue from about $3 billion to nearly the $11 billion we expect in 2008. And approximately, 90% of this growth has been organic. This reflects the operating company profile that we're looking for.
Investing in our own business remains a priority. We have numerous factory and improvement investments underway which Tom will explain. Terex has just moved forward, in my view, one additional year and we're entering our sophomore year in high school as we still remain a young company. But we may take some advanced courses.
I'll hand it now over to Phil and Tom and then I'll add some comments on our outlook before taking your questions. Phil?
Phillip C. Widman - Senior Vice President and Chief Financial Officer
Thanks, Ron and good morning hello everyone. We will make certain expectations on this call. Related to macro economic factors, interest rates, governmental interactions and other factors. A full description of the factors that impact future expectations is included in the press release and our other public filings. I encourage you to read them.
Our second quarter performance surpassed historic levels in several areas. Net sales was a record for 7.4% in the prior year period. With regard to backlog levels, we continue to experience significant overall growth, up to $4.2 billion from $3.8 billion in the prior year period. Backlog represents orders that are deliverable in the next 12 months.
The main contributors to the backlog growth are the cranes and mining businesses, consistent with the strengthening demand discussed earlier. This quarter we have not included approximately $484 million in potential backlog related mainly to rough terrain crane products until we finalize pricing for 2009 deliveries in the third quarter.
Considering our strong year-to-date performance, the challenges and opportunities in some of our end markets anticipated input cost pressures and our response to these factors. We are maintaining our full year 2008 guidance with a net sales level of $10.5 billion to $10.9 billion and earnings per share $6.85 to $7.15.
The pattern implied by this would indicate a more traditional distribution of our earnings throughout the year, with roughly 56% generated in the first half. The full year earnings per share mid-point in our guidance would represent a 20% increase over 2007 levels.
With that, let me turn it over to Tom.
Thomas J. Riordan - President and Chief Operating Officer
Thanks, Phil and good morning everyone. I'll cover our current views of end markets and business conditions as part of reviewing our business segment performance and then ramp up with a quick overview of some our key initiatives.
Our Aerial Work Platform business had a very solid Q2 performance in spite of challenges of choppy markets and inflationary steel pricing. As we discussed earlier this year, we expected to see this business grow moderately in 2008 which it's doing, up 5% from last year Q2.
We're happy with the 18.6% operating margin in Q2, against a very tough comparison from Q2 last year. Revenue in the US and Europe were both up compared to a year-ago. In fact, we had a record revenue quarter in the US. The AWP market in Europe has slower order rates during Q2 and we expect that situation to continue for the balance of the year.
The US markets have remained fairly stable, our belief is the order rates will be reduced for the balance of this year. With a slower order rate expected in the second half, we're taking appropriate judicious actions to reduce build rates and overhead spending while keeping inventory in line.
Overall, we expect revenue for AWP to be flat, to slightly up for the full year 2008 versus 2007 results. The operating margin for AWP in the second half is expected to be reduced based on input costs, primarily steel and a time lag for product pricing increases to take effect. We have announced a 7.7% average price increase on orders after September 1 and shipments after December 31.
Overall, we still believe we are well positioned competitively and are continuing with our previously announced plans for expansion in Europe and China.
Our construction business has done a nice job in growing its top line. Eastern Europe, Middle East, Africa and Russia and other areas continue to be strong as compared to softness that we see in Western Europe and US.
Even when you take out acquisitions in foreign exchange, we are up single-digit revenue growth year-to-date versus. A construction operating margin is being compressed due to cost pressures, primarily steel pricing, along with the increase in SG&A spending on initiatives to improve our global competitiveness.
We've had reasonable success to date in passing through equipment of parched pricing increases, and we're very happy that ASV continues to perform as expected and the integration process is right on track.
Our Cranes business had a truly remarkable quarter with revenue up over 48% and operating income more than doubling to $126 million. The Cranes segment is now our largest business. While the smaller products are showing some softness in orders, the mid and larger sized cranes continue to have a strong order book globally, and many of the supply chain restraints are significantly improving.
Backlogs are up to over $2 billion and continue to climb. We continue to improve capacities and throughput based on talent and tools from our lean Terex business system processes.
For those of you who are able to attend the Waverly, Iowa, rough-terrain crane planned open house recently, you saw the results firsthand. Similar transformations are underway elsewhere.
The mining, excuse me, the material processing and mining segment also had a great quarter, revenue up 32% and operating income up 75%. Mining orders continue to accelerate and we are seeing increased interest in longer term partnerships agreements with customers. This reflects the strong end markets we're participating in.
Similar to Cranes, our higher end products, such as larger hydraulic shovels and ultra capacity trucks are seeing robust demand. Material processing is seeing continued strong order rates outside the US and Western Europe. Backlogs for this segment are over $950 million, up 24% from a year-ago.
We're continuing our plans to increase capacities in both businesses through lean Terex business system improvements and footprint expansions. Our road building utility segment had solid quarter with revenues and operating margin up nicely. The road building business remains challenged with tough end markets in the US and solid markets in South America. We expect the US market to remain soft, and we are continuing to stay focused on cost reductions and pricing to offset cost inflation.
Utilities had a nice quarter and we're expecting the underlying trends of gradual revenue and margin improvement to continue.
Moving onto a quick review of some of our key initiatives, we're happy about the Terex management system start-up in three of our businesses. Phil and I are excited about the enthusiasm of the results since the implementation started, not only as the businesses has affected, but throughout the rest of Terex.
Now that the ERP system is up and running, we're getting plenty of businesses looking to move up on the schedule for implementation. Our success was based on a great job by all the various business and IT teams that made this happen.
Our Terex Business System activities are playing an increasingly important part of how we run our business. We had examples around the globe of setting up lines during the tag time to drive throughput, reduce cost, ease transfer of lines between plants for flexibility, standard work processes and so on. All of this makes it easy to ramp up production as needed or ramp down with less disruption.
And as you might guess, our supply management team has been very busy lately. We've grown this group from starting up last June to currently over 50 talented people throughout the US, Europe, India and China, working to mitigate the cost inflation that steel and energy prices are causing. While there is a significant impact we are not seeing the overall price increases that some media publications would suggest.
Our corporate and business sourcing teams are working very closely together to leverage the size of our total Terex commodity spend pretty effectively, in addition the significant efforts to develop new supply partners in lower cost regions. These actions along the targeted spending and overhead reductions taking place throughout Terex give us reasonable confidence in understanding our current cost structure, while aggressively passing through price increases in all of our businesses and expect to be successful overall and offsetting these cost increases over the near future.
At this point, I'll turn it back to Ron.
Ronald M. DeFeo - Chairman and Chief Executive Officer
Thanks, Tom. As you can hear, we had challenges, but significant opportunities remain in our business. Obviously, things have evolved and the market conditions for us are different today than a few years back. Frankly I think this performance should be instructive to investors as the diversification of our portfolio is illustrated in this challenging economic environment.
We are less dependent on the earnings of one segment, though Arial Work Platforms remains the strong and excellent business for us. Incremental margins from cranes and material processing and mining are expected to make up for the shortfalls with construction in AWP, though the match-off won't be perfect. We believe that overtime our strange and goals will prove out.
The 2010 goals we set for ourselves look like they are within our reach, remembering of course that we set them when our revenue was only around $7 billion about 24 months ago. Stretch goals were set and we continue to stretch. This is not going to stop at Terex no matter what the economic environment.
We are holding our full year outlook and remain confident about the future. We are not forecasting 2009 at this point but believe that cranes and MP&M will remain strong and that we will see AWP have a steady year. Construction will stay on course to improve in a challenging Western European environment. Plus, road building and improvements will continue. We feel still that the best is yet to come.
Now I would like to open it up for your questions and I would like to encourage one question and only one follow up. So Les, could you open it