Terex Corp (TEX) 2009 Q2 法說會逐字稿

Good morning. My name is Brooke, and I will be your conference operator today. At this time I would like to welcome everyone to the Terex Corporation 2009 second-quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

I will now turn the conference over to Ron DeFeo, Chairman and CEO of Terex Corporation. Mr. DeFeo, you may begin your conference.

Good morning, thank you for your interest in Terex Corporation today.

For your information, 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 Tom Gelston, Vice President of Investor Relations. Also participating on the call remotely and available for your questions are Rick Nichols, for the cranes segment, Tim Ford for aerial work platforms, Eric Nielsen for materials processing and mining businesses, and Steve Filipov, for our developing markets.

A replay of this call will be archived on the company's website, www.Terex.com, under audio archives in the investor relations section of the website.

I'd like to begin with some opening commentary, followed by Phil Widman, who will provide a more detailed financial report, and Tom Riordan, who will discuss our operations by segment. We will then open it up to your questions. During the Q&A portion, please ask only one question and a follow-up.

We will be referring to a presentation, which is accessible on the company's website. We will be going through this presentation on a page by page basis.

So if I can direct your attention to page two, I'd like to remind you that we will discuss expectations of future events and performance of the company on today's call and that such expectations are subject to uncertainties related to macroeconomic factors, interest rates, government actions and other factors. A fuller description of the factors that could affect future expectations is included in the presentation, our press release and other public filings, and I encourage you to read them.

So let me now begin with the overview of our presentation on page three.

We, as well as our industry, are in challenging times. We benefited from a number of years of very positive growth. And now we are suffering from a severe contraction in demand and inventory adjustments across a broad range of geographies and product lines. We have seen markets and industries for our products decline as much as 85% on a year-over-year basis for six months or so.

However, we have not lost our confidence. We do remain focused on the future, and we believe we have a leaner, more competitive, and perhaps even stronger company today, and we do believe this will be the case tomorrow.

For the balance of 2009, we expect to continue to manage for cash as we have during the first half of this year, and I indicated we would late last year. Reporting losses are certainly not easy. But we feel at this stage they have been unavoidable with the dramatic industry swings we have experienced. You will see that our cash and liquidity are good and that we are doing generally what we said we would do.

Net sales and profits for the remaining of the year are expected to be worse than we originally thought. But during the last quarterly results conference call, we indicated we had little to no visibility and were managing based upon less-than-perfect information from the market. This is why adequate liquidity was and is so important, and the fact that we have no near-term debt maturities or covenant issues was fundamental. This allows the entire management team to continue our focus on operations and cash iteration.

However, we must look forward, and we are. Net sales, looking forward, appear to have stabilized somewhat at these low levels, giving us an opportunity to lay the foundation for better operating performance in 2010. Our philosophy has to be and will be to expect little market help, if any, in 2010, but to make progress within the context of the things that we can control. This will be expense management, cash generation, and returning our factories to steady, planned production levels. This can make a very large difference, as you might imagine.

In our aerial work platforms business alone we sold about $215 million more of equipment than we manufactured in the first six months of this year. This was good for inventory reduction but certainly not for earnings.

Once inventory returns to a more balanced position, then earnings will improve. This is doing what we can control.

Now Phil and Tom will walk you through the specifics of the quarter.

Good morning. The key figures table on page four displays the quarterly year-over-year and sequential performance of the company.

Net sales were down 55% from the prior-year quarter, or 49% excluding the impact of foreign exchange rate changes. Second-quarter net sales continued to be negatively impacted by significant declines in industry demand for the short cycle equipment in our product range. A relative level of stability still exists for our larger crane and mining products.

We incurred a loss from operations in the second quarter of $86 million compared to operating income of $371 million, mainly due to the net sales reduction. But I will discuss this in more detail on another slide.

Our focus on cash generation resulted in good progress in the second quarter with cash provided from working capital of $219 million.

Our backlog is down 17% sequentially and 61% from the second quarter of 2008. We are responding with cost and production level reductions to size our organization for the lower demand.

Our net debt balance showed sequential improvement to $798 million, reflecting our capital market activity and cash flow generation in the quarter.

Page five outlines the net sales bridge from last year's second quarter, where the significant declines in volume have been felt in all segments, but most notably in AWP and construction, down 72% and 68%, respectively.

In the cranes segment, which declined 41% overall, the most significant decline continues to be in the tower and rough terrain businesses, while all-terrain and crawler cranes are more stable.

In the materials processing & mining group, which is down 39%, the materials processing businesses account for the vast majority of the reduction year-over-year, with mining drill products being the remainder of the segment decline.

Page six bridges the operating profit from the prior year's quarter to the operating loss for Q2 2009. You'll note the margin impact on net sales decline for new equipment contributed $442 million of the $456 million deterioration in operating profit for the company.

All parts, service and used equipment margins declined approximately $59 million from the prior year period.

Restructuring and other costs mainly associated with the reduction in production levels and headcount contributed approximately $27 million of this decline, of which $17 million is reflected in cost of sales and $10 million is reflected in SG&A.

Capacity variants increased by $17 million compared to the prior year due to the significant number of temporary manufacturing and facility shutdowns in the period. And although we've reduced manufacturing spending by 49% over the prior-year period, net manufacturing underabsorption increased by $42 million, as we could not cut costs as quickly as the volume declined.

SG&A and other cost of sales had a net positive effect given cost reductions, [property] released as inventory was delivered to third parties, positive transactional foreign currency impacts, and other items.

Overall, foreign currency translation impact was insignificant but had some impact on the individual segments.

I don't plan to review each of the segment reconciliations, but we have provided them for complete visibility.

Let me refer to page seven. During the second quarter we generated cash from working capital improvements of $219 million. Continued vigilance and accounts receivable collections and credit issuance contributed $122 million, while cash from inventory reached $278 million.

Accounts payable was $181 million use of cash given the reduction in incoming material. The accounts payable days calculation is reflective of the increased draw from inventory compared to new material purchases. It's not an acceleration of terms. With $304 million cash from inventory reductions year-to-date, we are well-positioned to meet or exceed our target of $500 million for 2009.

In reviewing the capital structure on page eight, you'll see that we ended the second quarter was $939 million in cash and $486 million in availability on our credit facility, or $1.4 billion in liquidity, compared to $899 million in the first quarter of 2009. This is reflective of our capital markets activity in the second quarter and the positive operating cash flow performance.

We secured an amendment to our credit facility to use a liquidity test to determine covenant compliance, thereby removing concern over the impact of earnings on covenants during these difficult times.

With no near-term debt maturities in our liquidity position, and expectations of additional cash flow generation, we are well-positioned to weather the current downturn.

I'll turn it over to Tom to provide an operational perspective.

Good morning everyone. As Ron and Phil discussed, we continue to live in very challenging markets. Despite these challenges, there are several key positive points I want to touch on before I continue with the presentation.

In Q2, despite the low level of business, we are experiencing relatively stable order patterns. For our crushing and screening products in our construction business, order rates were up slightly from Q1 and incoming orders effectively equaled our net sales for the quarter. In our aerial work platforms business, order rates were flat quarter-to-quarter and net sales were still slightly exceeding orders.

We continue to generally manufacture a level below retail demand in AWP, construction and material processing. Our finished goods inventories are down, both new and used equipment, and quoted lead times are starting to extend in some product lines.

Accounts receivable are reducing as expected, and as importantly, our past-due receivables are down this quarter as well, both in dollars and aging percentage. We continue to closely monitor the health of our customers and take action as required.

As Phil mentioned, we are making very good progress in inventory reduction. With over $300 million year-to-date cash impact, this is a significant accomplishment.

Back to page nine of the presentation. We are continuing to have temporary closures and/or curtailment in most of the operations for the above businesses, along with many of the light and medium capacity crane plants. These range from a few days per week up to complete closure for four to six weeks at a time. Overhead reductions will continue for the balance of this year.

We had $27 million in restructuring charges in Q2, mostly in the construction segment.

And despite the dramatic drop in raw material receipts, down approximately 75% in Q2 compared with Q2 2008, I'm also pleased with the progress and trends on the reduction of material costs. Most of our steel costs are back to 2007 levels, and component costs are heading in the right direction. As raw material receipts pick up again, the cost reductions will accelerate.

On page 10, you can see the dramatic improvements in spending around Terex. Manufacturing spend is down nearly 50% and SG&A down 27% compared to a year ago. As we work down inventory to acceptable levels and the plants start to run again on a routine basis, some of this manufacturing spend will begin to increase. In this environment that will be a very positive sign of recovery.

That said, we still are targeting to reduce manufacturing spend by $300 million quarterly run-rate by year end. And in any case, we will continue to focus on SG&A reductions.

Moving on to page 11, our aerial work platform business was hit first with the economic crisis and has been hit the hardest. With net sales down over 70% in the last 12 months, very dramatic actions have taken place. With headcount reductions of over 40% in addition to all the temporary shutdowns, the flexible business model of AWP has been sorely tested. We have reduced our manufacturing spend by 59% compared to Q2 last year.

We have remained focused on our customers and meeting their needs, making sure we take quick action to reduce capacity and not add to the oversupply position in the channel. Net inventory is down over 45% since the downturn in this business started, and we have reduced working capital by nearly $300 million in the last year. I would expect to be back to running the plants on a more regular basis during the last half of this year.

Moving on to page 12 and our construction segment, we have made significant progress in the last quarter in restructuring. We now have all the appropriate social plans in place for our German facilities. Also note that the manufacturing spend in this business is down 58% in the last 12 months, and we are moving forward with additional reductions tied to our original restructuring plans.

Net inventory is down $185 million from prior year, and this downward trend will continue for at least the balance of this year. Dealer channel inventory levels also continue to reduce.

As you know, I became the Interim President of this segment in February. I still have no plans to relinquish this role anytime soon until we are comfortable that this can be a profitable, cash-positive business. Fixing this business provides Terex with future portfolio options along with long-term value creation for stakeholders.

Cranes, on page 13, continues to be effectively two different business situations. Our larger German crawler crane and all-terrain crane business markets continue in line with our expectations. Conversely, most of the rest of the crane products in tower and rough terrain cranes have been struggling with order rates since late last year.

We have addressed the cost structures in these businesses aggressively, and continue to manage for cash. Channel inventories are now at reasonable levels, and we expect significant inventory to come out of all of these businesses this year.

On the next page, our material processing & mining segment is also a much different story between the two businesses. With sales up 12% and manufacturing spending down 23% compared to Q1 for the segment, you can tell we have continued to be aggressive in reducing inventory.

In general our mining business continues to perform as expected with a solid Q2 performance. Last quarter we said this business will likely slow for the balance of this year after Q2. That said, our Q2 net sales and order rates were up from Q1, and quotation activity remains strong. We are also seeing opportunistic buying from customers as well.

Our truck business had a great quarter, and our parts business saw a rebound in orders in June.

While we are still cautious about the second half, there are some optimistic signs. Our material processing business is down in net sales, over 70% from prior year, and we have been very aggressive in fundamentally restructuring our business. While there is more work to be done, this team in particular deserves credit for what they have accomplished. Order rates have been stable and basically equal to net sales for the quarter. Channel inventories continue to reduce. Working capital and inventory continue to reduce nicely. I would expect most of the material processing plants to operate again on a more routine basis in the second half of the year.

One last overall comment. Economic times like today clearly challenge leadership teams to maintain a balance of what is really important compared to -- quote -- let's just cut everything out -- unquote. It also demonstrates the true underlying character of a company. We consider business practices in today's world a crucial part of Terex, an area we spend significant time on as a team.

As one example, on June 24 we had a webcast attended by over 600 top global leaders of the company reviewing ethical and legal policies and practices. We continue to be aggressive but balanced on reducing costs and activities that are not of value to our customers but without compromise to our core values.

Throughout Terex we continue to be very focused on providing a safe work environment. Our lost time accident rate has dropped by about two thirds since the beginning of 2007.

We have made terrific progress on aligning our product quality and customer service, and demonstrating the value of our equipment and services every day in the marketplace. On behalf of the management team we very much appreciate the hard work and results of the thousands of Terex team members around the world.

At this point I'll turn it back to Ron.

So turning to page 15, in summary, the industry and Terex's revenue outlook remains challenging. This year, frankly, has recalibrated many of us in the industry. Expectations have clearly been reset.

As I previously stated, we are going to manage for cash generation throughout 2009 and most likely, well into 2010. Cost reduction initiatives will continue as we realign our business cost structure for the lower demand levels.

Our team members have been personally impacted from the top to the bottom of the organization. As you know, we have taken substantial reductions in pay across the board for team members throughout the world. I'm proud to report that they remain committed and supportive of the changes that are underway within the company.

We have made adequate liquidity -- we do have adequate liquidity, rather, and no near-term debt maturities as we are focused on operations and strengthening the company for the recovery that will come.

Last point, merger and acquisition activity will continue for both selling and buying assets. But in my view, it is not yet time to be on the offensive in terms of acquisitions.

So a summary comment. If I could say it simply, Terex will end 2009 a smaller company with significantly less cost and ample cash and liquidity. Taking into account the current conditions of our industry, I think this is going to be a good place to be as we enter 2010.

With that, I would now like to open it up for questions.

(Operator Instructions). Andrew Obin, Merrill Lynch.

Just a question in terms of inventory reduction. Could you comment a little bit on the composition of inventory reduction, sort of finished goods and versus work in progress, and if you could give some color by segment.

I'll answer -- it's Phil. Overall, looking at the cash effect of the inventory reductions, the most significant sequentially happened in the material processing & mining group, mainly in the mining group, because we had significant finished goods inventory reductions.

In the other segments, I would say it was pretty equal across the cranes and construction group, and AWP was a little bit less. But they were pretty close to equal to each other. But close to -- more than $100 million, actually, came from the MPM segment -- to give you a flavor of the cash impact of $278 million.

In terms of -- now, I am quoting -- in terms of the inventory, this will be the balance sheet figure, so it has a little bit of FX in it. But our raw material did come down a order of magnitude $20 million in the second quarter. Work in process was down about $45 million to $50 million; parts were about the same; finished goods was down about $80 million or $90 million, roughly.

And just the follow-up question, if you could give us some color, what is the absolute level at which payables will stabilize by the end of the year? Any sort of idea what you think receivables will be by the end of the year?

On a dollar basis?

Yes.

I think I would characterize receivables as pretty close to the days number that we would have -- the receivables.

The issue on payables will be, as we start to produce again, we will increase our payable balance. So the key there is going to be incoming material. We are still reducing our incoming material relative to the outflow that we have. So I would expect -- if you assume that we are close to a bottom in most of our businesses, the value of payables should start to creep back up in the businesses that are at the bottom.

It's hard to give you an exact number per se, but I think that it's going to be a relative to the production levels.

And that being said, the inbound material showing up at our docs has been flat at a pretty low level the last three months with no sign of uptick. So any uptick in payables would likely to be much later this year.

So in a way, payables and receivables will be tied to your manufacturing levels there pretty directly?

I would say generally that's right. If anything, over a 12-month period, payables is probably a source of cash, but we'll see how we go. We are also going to look quite carefully at the -- at how we pay the payables, because there's also an opportunity to generate income, since we are sitting with $939 million of cash on the balance sheet earning virtually zero from an interest income point of view. And if there are any discounting a receivables, that's also another opportunity for us to eliminate over time as a way to generate income -- probably not the second half of this year, but as an opportunity for 2010.

I appreciate the answers. Thank you very much.

Jamie Cook, Credit Suisse.

Good morning. Two questions. One, the margins sequentially in the materials process & mining business were quite a bit lower than what I had anticipated. So could you just give me some color surrounding what impacted the margins on a cyclical basis?

And then the other thing I was struck by in your press releases is you made the comment that you don't expect to achieve profitability in the aerial work platform business in the next 12 months. So what are your assumptions in this business of not achieving profitability -- assumptions on the sales side? And I guess I'm sort of struck just because this was the business that was sort of the poster child for Six Sigma, lean, etc. So why aren't we being more aggressive, I guess, on lowering our breakeven costs?

There's obviously a couple of questions in there on two very important segments for us. First with regard to margins in the materials processing & mining segment, what I'd like to say is that there's really two activities. It's really two businesses in there operating at (technical difficulty) under two different circumstances.

The materials processing segment -- the materials processing business, or crushing and screening. That revenue is down 70%, and we continue to draw down channel inventory. We do believe we can get that business operating, producing and operating at current demand, which is low, but that will begin to return ourselves to profitability in the second half of the year.

So as we look at that piece of our business, tremendous amount of change took place. Second quarter was kind of a watershed quarter for us as we consolidated some operations. So I think, back half of this year we are going to begin to see some improvement, and 2010 I think will be even better in that business. Even though that business isn't going to be super strong, it's not going to go through the kind of disruption of 70% reduction that happened.

The mining business, on another hand, is in a little bit different place, in that as Tom indicated, we continue to get good order inquiries. We had positive performance in the second quarter. Our mix in the mining business in the second quarter was a little bit to our less profitable businesses, causing some margin compression. Frankly, we sold a couple of large shovels at a lower margin rate than we would normally sell because those shovels were sitting in inventory and we had an opportunity to sell them to a customer who was normally a fairly priced buyer anyway. So we made that decision.

So let me then turn to the AWP question, and then I'll let Eric first and then Tim, if they want to comment more to your question.

Aerial work platforms is at this moment in time a bit of an enigma in terms of predicting what tomorrow will be. We think we have taken cost out quite dramatically in that we have taken more than 40% of the people, as indicated in information, 59% of the manufacturing spend out, and this is a business that has the potential to come back and come back quickly.

But predicting when it comes back is impossible at this moment in time. So I think we want to be cautious, we want to plan for the possibility that this takes a little bit longer, but we don't want to rip out the engines of profitability that sit in this enterprise that allowed us to achieve a 20% operating profit not so long ago.

So I think it's a bit delicate for us in terms of trying to find the right message. I certainly wouldn't interpret it that we are unwilling to get the cost structure in line. What we are trying to do is make sure we are able to maximize profitability when the markets are better -- not great, but better -- and I don't think we are going to see tremendous losses in this business, but I think we just want to be cautionary.

So Eric, do you want to comment anything more? Do I have it pretty close to right?

Yes. I could just add on the -- in the materials processing side that here in the first half we have seen fairly intensive price competition from some of our other competitors in the market. But we see that also curtailing now as they've flushed out a lot of their inventory. And while I don't think margins will go back to the peaks of the 2008 level, they will firm now going forward.

Mining continues to have relatively stable margins at the gross margin level.

But Ron, just to be clear, on that aerial work platforms side it's not -- is there any price (technical difficulty) you mentioned price discounting in materials processing. Are we seeing anything on aerial side? Isn't that contributing to the losses at all?

Let me try and paint the picture here. We have, as Ron mentioned, taken out a lot of costs. We've taken out SG&A, we have taken out overhead -- manufacturing overhead, as noted, and we are running our factories at around half time at this stage.

We are also seeing some material cost reductions. But the problem we have today is we don't have enough volume to run it through the factory as we are trying to manage the business for cash. So we're more on the cash side than we are of the profit side.

This does continue to be a challenging environment for us. We don't think the second half of this year is going to change materially from the first half. As we talk to our customers, we see the impact of the aging of the fleet that is going on in the industry really having an impact sometime midyear next year. That will be about a two-year period. And that's when we think we will start to see our customers having to begin to replace their fleet. That's why you hear the messaging that you're hearing about the profitability of the business. We need to move some volume through the factories to get back there.

On pricing, there is -- there has been some increased intensity in pricing, but at this point the price intensity is much more on the used equipment side than it is on the [new side] (technical difficulty)

Thanks a lot. I'll get back in queue.

David Raso, ISI.

On the inventory reduction target, you're saying you're well on your way to essentially even exceeding the $500 million goal. You used to speak of ideally having inventory as a percent a trailing sale, 20%, 25%. Given your sales target for the year is roughly $5 billion, should we be thinking about that as still kind of the DMO for where you're trying to get the inventory towards? Because if that's the case, there's still another $750 million plus of inventory that you would need to take out. Can you handicap for us the inventory target and then how that dovetails into a free cash flow or a operating cash flow target for the year?

On the target as a percent of revenue, that's a little more difficult in the downturn that we have right now. Our -- several years ago I set an ambition to be at 15% of quarterly annualized (multiple speakers) working capital -- yes. Receivables and payables included in that.

I'm not going to give you a percentage target. I think we still have -- the businesses that consume more inventory relative to revenue are the mining and cranes businesses. So those are still relatively stable. So we will, on average, have consumed more than the targets that you mentioned. That's part of the differential that we would have.

Construction still needs to improve to get to where we expect by the end of the year as well, which is contingent on order intake mainly in that business.

AWP -- again, kind of stabilized. I think at the very low revenue levels that they are at, they're probably not going to hit the percentages that you mentioned.

So we think we've got a good shot at the $500 million and potentially exceeding it, but I'm not going to go into a specific number there. You can do math, but I think you have to caution yourself on the timing of the cranes, and the mining in particular, reductions relative to the revenue. It's reasonably stable.

What I would say to add to that is certainly there's opportunities on the balance sheet. Those things are very obvious to us. And what's most challenging is to handicap the revenue trajectory. So as we get a little bit more time and distance into the year and a better handle on what 2010 may be, I think we will be able to address the size of the inventory reduction opportunity more precisely.

But clearly we've got substantial movements in receivables, inventory, and payables happening, and I want to get back to a point where they come back in balance. And I think that will be driven by a revenue line that's not falling at the 50% or 55% level that it did in the second quarter.

So you're right, there's a lot of opportunity on the balance sheet still, but I'm not ready to make the target number public yet.

The cash flow target, is that something you would put some parameters around?

Well, I think our cash flow again is going to be driven by the balance sheet as opposed to the P&L, obviously. I think we would be positive in each of the quarters as we go through (multiple speakers)

Exactly. As I said, we want to manage the company for cash, which means that we think we can still generate more cash to offset the short-term losses that appear.

What we are doing, what we are trying to do is we're going to take the losses down, the relative size of the losses are going to come down, and the relative size of the contribution from the working capital is going to go up. So consequently the cash flow should actually increase. But since there's a number of moving pieces, most notably what will the revenue be, we are not ready to give a precise cash flow target.

Related to that, looking at the mix of businesses that it sounds like some of the say larger equipment, the -- some of the mining trucks and some of the larger cranes, while they're inventory intensive, you seem to be at least feeling those are at the moment more stable compared to the others. Your confidence in those businesses remaining stable or maybe even being the ones that would lead you out is going to be reflected in how you manage your inventory, because of basically your confidence in those businesses looking into '10.

How would you handicap those businesses that are now being described as at least more stable, having confidence we've hit bottom in them? Because in a way, they have been down the shortest period of time. I know they are down sharply, but they are down the shortest period of time, and officially you could describe them as longer cycle businesses. How should I handicap what you're thinking about going into '10, which businesses you have confidence in that we've bottomed and it's sideways to up from here?

One way of looking at this is, last quarter we had said we expected our long cycle businesses, the large mining equipment and the large cranes, to have a slow decline over a period of time. There was some suggestion that frankly we weren't being aggressive enough addressing that.

One quarter has gone by, and frankly the trends are very much in line with what our expectations have been. So although we think there is still going to be a slowdown in the second half and potentially into next year for both cranes and mining, at the same time, relative to being aggressive on cost reduction and inventory, we need to also capitalize upon what business is out there.

At the moment, again, I think we are pleased with the kind of quotation rates and orders that we are seeing at the moment. So it's a delicate balancing act of -- and the path we are on is what I would call the -- a slow glide to optimize the balance between customer orders and what sales are out there versus reducing inventory and reducing overhead that goes with it.

But we think we've got the proper balance on both those businesses. The rest of our businesses for the most part, again, we think are seeing stable order patterns, albeit at a very low level. We are not declaring victory in any of them, and again we are sizing our businesses to be profitable and at least cash positive at those low levels for the foreseeable future.

I guess that's one of the ways.

If you look out three to six months, do you have a better order book for those long cycle businesses, the large cranes, the mining equipment, than you do in -- and I know those are some of your stronger franchises, but obviously Genie is a strong franchise as well. Do you have more quote activity looking out in those other businesses than say in aerial business? Or was it (multiple speakers) I know you had some big RH shovels that you had to move.

Was it in a -- in a way cherry pick to try to run the business for cash? Selling some of those large shovels was the prudent thing to do. But the order book is looking a little soft in the next six months in those businesses, and it's the other ones that right now are weak. You're a little more optimistic the order book is showing at least some signs that things are at least stable to getting better.

I'm just trying to figure these businesses that are okay now. So do we just cherry pick some sales, and they're looking weaker six months from now? Or they truly have bottomed?

That's a great question. I think the way I would characterize it is to put a couple of facts on the table first. Our order rates for our European crane business, relatively flat sequentially quarter-to-quarter. Down just a very small amount. And Rick could confirm that in a second, so I think as we look at order rates, factually quarter-to-quarter, we don't have an indication that relative to let's say the AWP and construction, declines of 70% to 80%, we are not seeing that all. So -- and these are big units that are long projects and have long lead times in the crane business.

With regard to mining, mining is a -- and always has been a lumpy business. And what we are seeing is a lot more quote activity. We do believe commodity prices have stabilized, and we have booked a number of sizable orders in particular on some of our trust business. So the truck business has actually picked up a little bit more, and I think we even are approaching double-digit margins on some of our truck business orders now, nowheres near what the almost 20% margins we had on some of our shovels over a period of time, but it's still a pretty good indication that that mining business is not going away.

On the other hand, an unanticipated event in the financial markets could cause commodity prices to go back down. We are in an unstable macroeconomic environment, so we are a little bit hesitant.

So I hope you get the sense that we are positive but still cautious with concerns from a macro point of view more than concerns from what we are doing.

No, that's helpful. Just those big margin crane and mining businesses -- it would be nice to see there isn't a leg down from here because you're filling some old orders or cherry picked a few orders. Sounds like your quote activities -- is a little more legitimate in the sense of -- this might be as low as we have to go on some of these segment's revenues sequentially.

Well, the optimistic case is that these don't go down as much and are kind of hitting where they are hitting now, and then materials processing comes up quickly and AWP comes up.

The pessimistic case is, AWP takes longer, materials processing takes longer, and these go down more. (multiple speakers)

Yes. That's what I've been driving at. Yes, sure.

And that's exactly where we are, trying to figure that out. I am a little bit more optimistic than I was last quarter, but I am not ready to say optimism abounds here.

Thank you very much.

Alex Blanton, Ingalls & Snyder.

(technical difficulty) asked on the aerial work platforms, I'm going to ask Tim, how much the fleets have been reduced in their buying? How much aging has been going on? What are the -- give us some examples of average ages, because typically it's 35 to 40 months is what the larger fleets shoot for. Where are they right now? And if they are quite a bit above that, wouldn't that mean they have to stop doing that sometime soon?

The numbers that are published by most of our customers that are public represent their entire fleet. And most of the customers that publish that data are aerial customers as well as general rental. So deriving the age of the rental -- of the aerial fleet from that is a little bit suspect. You got to kind of look at that.

Our belief is that the rental companies started aging their aerial fleet about this time last year. That's really when the aging began. And that's been consistent -- that was consistent both in Europe as well as in the US. We think that the fleets have been reduced, and again it depends on which customer, but we think the fleets have been reduced anywhere between 5% and 10%. And so what's happened is the net age of the fleet may or may not have moved, depending on the age of the equipment that the customer sold off.

So we, like you, are trying to figure out what is the age of the aerial fleet? And obviously that's a piece of data that not all customers are willing to share in detail. So we're working through that trying to get our best handle on that.

Our sense is that -- is that the fleets have aged and that they will continue to age, but the de-fleeting that's gone on in the first half of this year will come -- has reached its apex and over the next two or three months will begin to flatten out. So the aging of the fleet will really be evident in the first quarter or second quarter of next year. That's when, as I said earlier, that's when I think we feel that you're going to start to see a material change in volume patterns.

Yes. But typically in the seasonality of this business, when there are no constraints on delivery -- they don't order in the fall. They order starting around February. So if there were going to be a change, you wouldn't really see it until then.

I think we are not seeing anything that I would call as typical at this stage. So we didn't see a typical seasonal uptick in the second quarter, nor did anybody else in the industry --

Correct.

-- by the way. So I don't think we can say what is typical right now. I guess I would characterize the second half of 2009 as it's going to be an interesting barometer on AWP to see whether or not the business stays relatively flat with what we've experienced in the first half of this year, or actually declines relative to what it might have done in a more normal year -- where in a more normal year of AWP, first quarter is moderate, second quarter is huge, third quarter is good, and fourth quarter is not so good.

So anyway, that's what we're going to see, and it will be driven by the overall economic view of our customers and how aggressive they want to be.

Did you have any -- in the inventory reduction, did that generate any significant LIFO gains, or are you on that?

No, we are not on LIFO. We have a combination of FIFO and average cost.

Okay, thank you very much.

Ann Duignan, JPMorgan.

Good morning guys. Ron or whomever wants to take this question, if I look at your absolute inventories at about $2 billion versus your backlog of about $1.6 billion, I can appreciate and understand the pressure that you're under to liquidate inventories at any price. It scares me a little bit when you start talking about selectively using pricing to get rid of some inventories. Can you be more specific by segment and tell us specifically what impact pricing had on revenues of margins?

Probably not to give you an impact on pricing by segment revenues and margins. Generally, I will tell you that our pricing has been fairly firm on machinery. So if you had the impression that we were using pricing as a tool to liquidate inventory, it's really not the correct impression. Maybe on a particular customer in mining where we knew that customer was a price buyer and that they were going to put the unit out to bid, we were pretty sharp in our pricing. And also maybe in some of our construction product areas where we may in fact be backing out of a market and no longer selling a particular product, we may be liquidating the inventory of that product in a particular market.

But in general, I think we are holding our pricing pretty well, on machinery.

I think the major area where there is pricing pressure is in used equipment, and that's more of our customers' problem than our problem, but it periodically becomes our problem.

And I don't know, any one of the guys want to add a comment (multiple speakers)

Again, I think the teams collectively have been very disciplined on pricing parts. In particular I think continue to maintain pricing that's out there, obviously particularly for proprietary parts. And the inventory reductions we have seen for the most part have been without a lot of significant pricing pressure, with the exceptions Ron had mentioned, based on -- again, particularly in the construction market where we are seeing a lot of competition with a lot of inventory getting into price discounting, we are meeting the market.

But that being said, we are not doing floor planning activities to speak of that's unusual. In fact we've got very little of that anyway in the construction market with our dealers. And we are being very cautious relative to monitoring receivables and occasionally taking equipment back such that we don't have the sense of we are just -- we're pumping inventory out at any cost.

So if that's the impression, that shouldn't be there.

I just think it's always a temptation when you are running the business for cash.

On a follow-up separate question then, on mining, can you be more specific on any color you can give us on who that -- not necessarily who that actual buyer was, but what commodity or what region of the world did you see a buyer come in?

And then the same question on the aftermarket, is it sustained aftermarket demand in a specific commodity like copper? Or is it coal in North America? If you could just elaborate a little bit on where you're seeing the demand on mining.

The one customer we are referring to is in Asia, and in particular in India, which tends to be a fairly price-oriented, bid-oriented market.

And Eric, why don't you handle the parts question?

Sure. It's basically been in June that we saw an uptick. I wouldn't necessarily characterize it as a trend. Parts inventories have generally been drawn down by dealers and customers over the last six months and they have managed for cash. We are monitoring the situation. We believe, though, as fleets continue to be utilized as they have been, that we will see increased parts consumption.

I am not yet willing to say that we have a long-term sustainable trend.

So you'd characterize it more as potentially restocking as opposed to really driven by an increase in activity?

It's a mix of issues. They have drawn down existing parts inventories based on consumption. And activity has been ongoing over the last several months. So we would expect as consumption picks up, as it will, and as the fleets have aged, that there will be more parts consumed. And we stand positioned to take advantage of that.

And I can give you a perspective from a mine I visited at the beginning of the year. I visited this mine and it was mining a material used in the automotive area, platinum. And at the beginning of the year they had set a plan for the mine of 120 million tons of production. A couple of months into the year they were looking at 28 million tons as an adjusted -- and what that caused them to do, of course, is to put a lot of their fleet kind of on idle, sitting around unused. And that's what drives down parts consumption.

I think as the automotive industry is now beginning to stabilize, we are going to begin to see platinum again come up. So the equipment will begin to get used again, which will drive parts consumption. I think that's a classic trend that is going on in the mining industry right now.

I think the good news is that we are probably at a more stable place than we were six months ago, and we are not going to see the kind of dramatic shift that we did back then.

That's a great example, and I guess it's too bad they don't use aggregates or stone in automotive, for your processing business too.

We agree. Maybe there is an idea in there someplace that we can work on. We'll figure (multiple speakers)

Yes, yes, yes. Put a little -- maybe the seats could be made out of cement or something.

We have a very creative management team sitting in Northern Ireland, so we'll give them a challenge.

Okay. I'll get back in line, thanks. That was good color, appreciate it.

Robert Wertheimer, Morgan Stanley.

I had a quick question first on inventories again. Could you please address the aging of the inventory, particularly in finished goods, but maybe across it. Is what is sitting in finished goods things you're seeing and in line to selling it, and you're manufacturing it and you're selling it? Or is there a substantial portion that's let's say stranded or getting older? And maybe the same thing applies to some of the componentry, I don't know.

Some of it is aged inventory that we on a very routine basis -- speaking for construction as an example, there is a weekly update for any and all aged equipment that has been more than three months since manufacture that we don't have a specific order for. And we go through that in detail on a weekly basis.

But most of the equipment is what I would call current production, and across the company, current production and/or staged inventory, because recognizing as the -- what business that is out there in most of our markets, customers are looking for extremely quick turnaround time. And we've talked a little bit about the opportunistic sale on shovels in mining, but frankly, we are finding in a lot of areas, whether it's on trucks, whether it's on some cranes, whether it's on -- clearly on AWP side, if we have the inventory on short-notice basis, we are more likely to get the order.

So it's a balance on the inventory reduction side of balancing out customer availability versus just kind of continuing down the path relative to keeping inventory in bounds with sales.

Over time, there has been tremendous progress in cleaning up what I would describe as slower moving finished goods inventory and being much more in the [plant full stage con bon] on a product that we need to have in order to be responsive to the customers in a short cycle order environment.

I know this is going to be asking too much, but are you willing to say how much is above that three-month market company-wide?

You're right, it is too much for us to say.

I'll let 'er go. Second, you seem more negative on used equipment than others in the industry we have heard. Most people are saying it's been down 15% or maybe a little bit more, but your comment sounded a bit more negative. Similarly, you sounded actually a little bit more positive on mining truck orders. I guess I'm curious on the first, on used equipment, what you think it's down, and on the mining trucks, is it sort of Terex-specific, share-gain-specific, commodity-specific, or where are you seeing the orders?

On the used equipment, maybe Tim, you could comment on that, because I think that is probably the area where we are most negative. And I think it relates to our customers just trying to convert some of their older fleet to cash.

But Tim, go ahead.

Yes. I think the comment specifically about used in aerials is largely a function of our larger customers trying to size their fleet to the volume of business they have. That's put a lot of pressure on used equipment pricing. We see it in the open market, we also see it with the impact on trade opportunities.

So if you look at kind of the older equipment, the '99 through 2003, 2004, it's very hard to move that. There is actually a pretty decent market still today for '04 to '07, '08, largely booms. And that equipment is actually moving fairly well. But the older the equipment gets, obviously the harder it is to move. And that's the stuff that we are seeing a lot in trade packages or that's being put into auctions and those sorts of things.

So I think that's really the essence of maybe the negativity that you might have sensed.

Specifically the aerials then?

Yes.

One other comment is that in general we're very cautious about taking used equipment in trade. I think we've been very aggressive in managing that, because frankly, our view is, doing that simply delays the headache, particularly in a used equipment market that is depreciating the way most of our products have been across the board, not necessarily specific to AWP. So that's part of the reason for our comments of we are trying to manage used equipment very closely, being very prudent in terms of valuation and any kind of trade activity and being very quick to move it on to an ultimate end user.

There was a second part of your question.

Yes. It was just the mining truck comments, and I'm sorry to go on so long, but the mining trucks, you sounded like you are still getting some orders. That's good.

Eric, do you want to comment on that?

Sure. Just generally, we are seeing relatively robust quoting activity across mining, and trucks is very much benefiting from that.

In terms of the actual orders, though, we are seeing some I'll say robust activity in the Asia-Pacific area, primarily from our existing installed base, but also from new customers as well. And it very much goes back to the fact that from a cost per ton viewpoint, we believe that our AC drive trucks offered the best value on the market, and customers in the right type of mine application recognize that as well. And we are benefiting from it accordingly.

Thanks.

Henry Kirn, UBS.

Good morning guys. Wondering if you could chat a little about the customer ability to finance purchases. Have you seen any changes over the last quarter? You mentioned it's still constrained, but is it getting better or worse?

As it relates to specific financing on our equipment, I would say it's about the same. Good deals are getting done quick -- or quick relatively speaking for today.

Not as quick as they used (multiple speakers)

Yes -- as they used to. But everybody is being cautious. It's a scrutiny, it's an underwriting effort that's continued to be the key to the financing.

From a company financing for our customer base, again that has presented some challenges for what's out there. But I don't see it deteriorating from what it was in the first quarter. It's about the same.

Okay. And are you seeing any pockets of regional strength? Are you seeing any benefits from the Chinese stimulus package or anywhere else in the world where things may be a little better?

Well, there's only one real stimulus package in the world, and it's happened to be located in China. And it is benefiting us, and it's the one market in our developing markets portfolio that's actually up on a year-over-year basis. So while that's good, we don't sell as much as we'd like to China. And clearly the Chinese government is promoting their own domestic agenda, which is directly including their domestic manufacturers. So long-term, it's a strategic threat to the industry because there's real China stimulus, there's real investment, there's real economic change taking place, and there's a strengthening Chinese manufacturing base for construction equipment manufacturers overall.

So we are benefiting some. We are trying to benefit more, and as we come out of this downturn, those companies that can continue to strengthen their presence in China will be rewarded, which is why our AWP team and our crane team are working aggressively -- and our material processing team -- are working aggressively to get their footprints more deeply established in China.

And the materials processing team has got a brand-new factory starting up in India, in Hosur, and as you may have read, the Indian government has announced massive infrastructure spending, which we believe will be related to roads and bridges, which we believe they will have financing for. And if you are building roads and bridges, you're going to need crushing and screening equipment. And our new factory is going to be in a good place to service that market.

That's helpful, thanks a lot.

Meredith Taylor, Barclays.

Good morning. Could you talk a little bit about the path to profitability for the construction business? You discussed that AWP could be unprofitable for the next 12 months, absent and end market pickup. I realize you want AWP to be ready to address the end market pickup when it does occur, but it doesn't sound like you are expecting a pickup in the construction market anytime soon. So how should we think about the timing for getting this business back to breakeven and what the steps are that you're taking?

Candidly, similar to what the conversations has been, we are being very aggressive on fundamentally reducing our overhead structure in that business. We now have in-place agreements with all our works councils, so while there has been some challenge relative to being quick to respond to reducing our cost structure, you'll see a significant acceleration of that in the second half. I think that will be noticeable on the P&L.

We continue to have some specifically challenged product lines, but in general I'm very pleased with the inventory reductions on our end, in addition to what we are seeing in the dealer side, so we continue to under run retail as a number that we monitor with a fair amount of frequency, and make sure that we are reducing channel inventory to make sure our dealers don't have a problem. Some of them are struggling with the financing side, which is a bit of a complication, but we are again collectively managing through that.

In general, I'm still personally confident that we will see a profitable business next year in construction. Now, is it going to be Q1? Time will tell. Is it going to be a significant profit? Maybe not. But that being said, with the actions being taken and assuming there is not further deterioration in order rates in the broader market, recognizing that as an example, in Q2 construction the market itself is down 81% quarter-to-quarter this year to last year -- compared to last year. So assuming there is not further deterioration, I think we are on the right trajectory.

Okay, that's helpful. Could you just give us a sense of what the dollar amount might be in terms of the swing you're going to get from the rollout of the work -- of the headcount reductions that you have agreed on with the works councils?

Now, I'm not sure certain we are going to be in a position to share that. But like I said, I think it's a very meaningful part of the reductions in terms of how we're reducing and frankly eliminating the losses in that business.

What I would say is in the presentation we provided, we provided on page 12 of the presentation a construction trend down of both manufacturing and SG&A spending. And if you take out one-time restructuring costs and continue this trend and stabilize the revenue line, you will be able to get there reasonably confidently. You'll see the delta that's required to get this business to breakeven, because we are not really forecasting a major revenue uptick from where we are.

So I think we've given you kind of the pathway to get there. But to absolutely characterize it as headcounts versus manufacturing versus other is -- we are not ready to do that.

Now, versus absorption and so on, because again, recognizing we are under-running retail rates, and as a result the factories are significantly underutilized at the moment. Many of them are on extended shutdowns, maybe more so than some of the rest of our businesses.

Yes. And we cannot forget the fact that material costs have come down dramatically. And we haven't seen that yet in any of our businesses of any consequence because we have been using up inventory that was in our factories at a very higher price.

So that material cost reduction is starting to percolate through the P&L at this point in time.

That's helpful, thanks so much.

Andy Casey, Wells Fargo.

Good morning. A couple quick questions. Ron on your comment about not yet time to be aggressive on acquisitions, I understand it. But I wanted to clarify the drivers of the comment. Is it due to capital structure, prevailing asset valuations, kind of uncertainty about when the recovery will occur, or just plain management capacity versus everything you have going on internally?

Yes. Good question. Well, first of all, it gives me an opportunity to say that our first job will be to make sure we get Fantuzzi, and Fantuzzi done correctly. We believe that that will close soon, and very soon. And so that is something the crane team will be focused on. We have a complete game plan, we know what we are going to do there. We understand that very precisely.

But my comment was more around two factors. One, I don't think the asset base has -- the valuations in the market have deteriorated sufficiently. And secondly, until I have more confidence in our own core franchises, I'm going to be a little bit more cautious to take that risk.

So what I see happening is I believe we will begin to get signs of a recovery, and we will see it ourselves, and we will know what businesses we have that will drive our profitability. But the financial markets and several of the companies in our sector will remain vulnerable for a while. And they will have difficulty getting access to capital. And those will be the targets that we think where great values can be achieved.

So I think it's important to keep your powder dry, it's important to stay focused on your existing business, but it's also important to keep your hooks in the water. And I think we have done that over the years in these kinds of periods particularly well, and I see us looking to do it again.

It's impossible to handicap, but this is where great values can be achieved and good opportunities can be made. And I don't think that's going to happen in the next six months, but I believe the time will be sometime in 2010, so if you reflect upon it as we end 2009, that's why I said Terex will be a smaller company but will have ample liquidity, and we will have taken tremendous cost out of the company in 2009, which really puts us in a good place as we enter 2010, to watch the signs and then act appropriately.

Thanks for that clarity. And then just I guess a follow-up. Excluding aerial work platforms, what product areas do you think in talking to your customers have the largest existing excess capacity that would kind of put a delay in recovery between equipment versus end market demand?

When you say excess capacity, you mean inventory in the marketplace?

Yes, just machines potentially sitting around not doing anything versus (multiple speakers)

Unused fleet.

Yes, unused fleet. I think that it's going to be a combination of tower cranes and rough terrain cranes that have gone through a tremendous downturn, particularly in North America for the rough terrain, and tower cranes worldwide. But not for Terex. We believe that our fleets and our customers' fleets are in very good shape, but we don't believe our competitors' fleets are in nearly as good a shape.

Rick, do you want to add to that?

Yes. Sure. I certainly think the tower crane business, really more so just than a North American phenomena, but really across the globe has been significantly affected. We are a small player in the tower crane market, about 12% market share. But I think in general you're seeing utilizations down very significantly in North America and parts of Europe and in the Middle East. But at the same time, we are beginning to see some signs of life in these markets with quote and quote activity.

I would also say the RT business, most specifically in the US, is off significantly. But I think we are better positioned in that marketplace because we have a much smaller channel inventory, and we measure that very -- monthly to make sure that we are not over-producing for the channel, and I would say our distributors are much more ready and aggressive to hit the marketplace running and not using their capital to fund large inventories that are being driven in the market by OEMs.

So I think we are in a good position to capitalize on the marketplace with some of the lean activities we have done in our North American factories to rapidly deploy machines, but at the same time we are not tying up capital and our distributors' capital in the marketplace.

Thank you very much.

Charlie Rentschler, Wall Street Access.

Ron, AWP is clearly so important to Terex, both in the past and future. You mentioned that you can't predict when the AWP business is going to pick up. But what will it take? A couple people have talked about aging fleets, but there's got to be a lot more to it than that for a rental shop to want to start buying these things. Can you give us some background on that please?

Well, let me give you some background, and maybe Tim can add to it too.

Fundamentally, our customers have to believe they can make money on the aerial work platforms. That's the key. And they have historically made reasonable returns on capital, and I think they can look to the future and make reasonable returns on capital in the AWP fleet.

Having said that, we've got to have an industry in both North America and Europe that -- where work is being done, which means that the AWP business is a very, very diversified business. It's not just construction. It's manufacturing, it is specialty applications, it's airports, it's a whole host of things.

And what's happened in today's economy is that we have seen a decline all at once in all of our business segments. So our customers are no longer making the kinds of money they once did on that product category. I don't believe that is an ongoing issue. I think that issue will change. And I think our customers, when the economies begin improving, will see that they can make a decent return on their business.

So Tim, I'm going to try to move some of these questions along. But did I get that pretty close?

Yes, you did. It's really the balance between rental rates and time utilization, and that's been out of whack. And as it becomes more back into whack with the de-fleeting, we will see the industry pick up.

Thank you.

Jerry Revich, Goldman Sachs.

Good morning. First, a clarification. Eric, you mentioned strong multi-bid activity in India. Is that in addition to the 20 truck order you just booked in China and Africa?

No, it's just more broadly in the Asia-Pacific area that we are seeing good inquiries and fairly strong order intake for trucks -- in the broader area.

Eric, are you seeing that mostly in coal applications, or are you seeing some copper as well? Also can you talk about what you are seeing in Australia coal and maybe what you're seeing in some other regions for base metals as well?

It's -- for us it's across the board, just given the predominance of coal in our portfolio. That is a big part of it. (multiple speakers) other base metals are also involved.

And Eric, you obviously had very strong bookings this quarter. I'm wondering based on inquiries, do you feel comfortable that next quarter you might have a similar level of bookings, or do you expect it to be lumpier in that?

As Ron pointed out, it's a very lumpy business by nature. It's hard to predict. All I can say is that based on the inquiry levels and outstanding quotes, there is activity out there. And we are going to get our fair share of it.

On these 20 trucks that you booked in the quarter, can you just describe the delivery times that you've committed to, roughly?

Yes. It's spread out over the second half of this year and going into the first quarter of next year.

This is kind of normal commercial transactions we are running through here, so --

And on the parts side, you mentioned some improved activity in June. Was it approved to the extent that it was up year over year, or was it just improved sequentially?

Improved sequentially.

Steve Barger, KeyBanc Capital Markets.

Good morning. One question. Before the downturn, you had a big focus on supplier consolidation and really trying to leverage purchasing. Now that you are buying a lot less, have you really become more aggressive on that consolidation push to put more volume through, who will be your favorite suppliers on the other side of this? Or have you had to slow that down as you focused internally?

I think there has been a little bit of a slowdown simply in terms of just making sure we effectively manage the reduction of inventory, raw material coming in, order patterns, and so on. But I think at our supply-chain team is continuing to be increasingly effective working with the businesses on rationalizing our supply base.

That being said, recognizing that we've got a fair amount of pent-up inventory at the supply base, based on the downturn in schedules, it's going to take an extended time to work through that. But the focus and the intent is clearly -- has not changed in terms of rationalizing our supply base.

That investment has made us better, not worse. And it will make us better in terms of consolidation of purchasing, leveraging purchasing, for both better quality and lower prices as we come out of this downturn. It's a strained situation in -- for some suppliers because they over built or we over ordered. But at the end of the day, we are really happy that that investment is now in place for us.

Very good, thanks.

Charles Brady, BMO Capital Markets.

This is actually Tom Brinkmann standing in for Charlie Brady. One quick question. Wanted to know about the distribution in the market by size of equipments, whether -- you talked about larger cranes being a little softer. I'm curious about on the low end, compact construction equipment, can you talk about the trends you are seeing across product sizes?

Compact equipment has been devastated. Let's be straightforward about it. No matter where you are in the world, you're looking at anywhere between 60% to 80% of reductions in the industry in the developed markets, let's call it that way. Whether you're looking at loader backhoes or mini excavators or skid steer loaders, compact track loaders, those things have been really difficult businesses for the past nine months.

If I could just kind of roll off the construction market trends quarterly, starting in 2007 in North America, the industry was down 10% in the first quarter of 2008, rather -- I said 2010. It was 2008, it was down 10% first quarter -- but I'm going to go quarterly -- minus 14%, minus 27%, minus 31% in the fourth quarter, minus 51% in the first quarter, and minus 69% in the second quarter in North America -- as an industry.

So you see that the industry has really had a negative time. The good news is, these numbers get so low, you've got the law of small numbers that next year it's almost inevitable that we are going to see some growth.

Thank you.

Joel Tiss, Buckingham.

Any -- on the future free cash flow, can you talk a little bit about if you're just going to pile up the cash, or are you going to start to pay down debt?

Our plan right now is to pile up the cash. And then look around and see what the best application and use of that cash will be. At this point in time, it's not clear what exactly the best application or use of that cash will be in early 2010. Our priorities will be to get the highest return for our shareholders, so that is unlikely to be in a stock repurchase. But it is possible that we can get decent returns on debt pay-downs and acquisitions.

Just one clarification too. Is the -- sort of the implication that second-half 2010 aerial work platforms gets better, is that taking into account the inventories that are in the auction channel and all the different channels as well? Or is that just more how you are seeing it?

That's our sense of the business right now. I think it really depends on how this year ends. And we know our customers can't go forever without repurchasing equipment. So by the middle of 2010, that will have been two full years with almost buying nothing. And eventually they are going to have to replace some of their fleets.

We are already seeing signs of their maintenance costs going up over time, so I think there is a very clear understanding on our customers' part as well as the implications of the aging fleets.

Okay, thank you.

Paul Bodnar, Longbow Research.

Just a quick question on the crane side. I know we're not even sure how far the trough will go this time, but I guess my question is just, what are your thoughts on peak to trough revenues in that business now? And I don't know if you have any ideas on the range of that, and can you really remain possible at the trough this time?

I think the jury is out on our ability to remain profitable at the trough. We believe we can, and in part because of the breadth of our product line. And I think usually the peak to trough is pretty severe in the crane business. And the cycle is typically a couple of years down, which would suggest that 2010 will be a difficult year also.

But I think there is enough major infrastructure projects continuing to mitigate some of that decline, which is why our European crane business, or our bigger lattice boom, crawler crane business, is hanging in there.

So I think we will be profitable through the trough, and that is certainly what we are driving for. There might be a quarter or two where that isn't the case, but right now I think that's our view.

Rick, do I have that pretty close?

I think you do.

All righty. Well, then, I think we're at 10 o'clock, and I want to thank everybody for their participation. It's been an hour and a half of good dialogue, but I encourage you to call the company if you have additional questions and/or comments.

We look forward to working with you. Thank you very much.

This concludes today's conference call. You may now disconnect.