Terex Corp (TEX) 2009 Q3 法說會逐字稿

Good morning. My name is Brandi and I will be your conference operator today. At this time, I would like to welcome everyone to Terex Corporation's 2009 third 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). Thank you.

I would now like to turn the call over to Ron DeFeo, Chairman and CEO of Terex Corporation. Please go ahead, sir.

Yes, good morning, ladies and gentlemen, and thank you for your interest in Terex today. On the call with me this morning is Phil Widman, our Senior Vice President and Chief Financial Officer, along with Tom Riordan, the Company's President and Chief Operative Officer; Tom Gelston, Vice President of Investor Relations. Also participating on the call and available for your questions will be Rick Nichols for our Crane segment; Tim Ford for Aerial Work Platforms; George Ellis for the Construction business; and Steve Filipov for Developing Markets. A replay of the call will be on the Company's website, www.Terex.com, under audio archives in the investor relations section.

I would like to begin with some opening commentary and then of course Phil will follow and provide a more detailed financial report and Tom Riordan will discuss operations by segment. Then we'll open it up to your questions as the operator has indicated. The presentation we will be referring to is accessible on the Company's website and we will start with that.

On page 2, I would 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, governmental actions, and other factors. A fuller description of these factors that affect future expectations is included in the presentation on page 2 as indicated and is available in our public filings. I encourage you to read them.

Turning to page 3, from an overview standpoint, we have just completed one of the most difficult quarters in my 17 plus years with Terex. And as some of you know, there have been some very challenging periods for us. But even in those early years, we did not see the vast swings in industry demand that we've experienced over the past 12 months and the resulting challenges to adjust costs, manpower, and structure for an uncertain future. Fortunately, we have finally seen signs of stabilization and in some cases modest ways to return to positive performance.

The attitude among our customers and our team members is clearly more positive today than it has been and hopeful, and so we are looking excitedly in some respects to getting into 2010 and beyond. Certainly the feeling of positive momentum is not yet seen in our results and many of our customers continue to suffer from a lack of work and for our dealers and rental companies, a lack of financing. Furthermore, we continue to face challenges of pricing pressure, bad debt, inventory write-downs, and idle equipment. However, the corner we think is being turned and there is a sense that in places away from the United States that business is clearly returning. This is the case in India, China, and in South America. These markets are important, but for us cannot offset the steep declines we've seen in Europe and the United States. We do see some positive signs in Europe and if conditions remain stable, we would expect to be growing again in the United States in 2010.

So to summarize on page 3, this was a challenging quarter but we do feel we've turned a corner. We have been managing the business for cash and we really feel this has been appropriate. That means focusing on the things that will keep us alive and get ourselves organized for growth in the future, but now we think it's time to focus on growth while keeping those costs in check. We have about $1.5 billion in liquidity and no near-term debt maturities, so that is what gives us the sense that we have improved prospects for 2010.

I remember visiting a portfolio manager and he asked me about nine months ago if we were prepared for the 100-year flood. I was a little shocked at that question, but we were formulating our plans to address some of these issues, but I was hopeful he was being dramatic. Nevertheless, what if he wasn't? And that is why Terex took some pretty aggressive actions in the second quarter. We are more fragile than some of our bigger institutional competitors and we had fewer resources from which to draw our strength, so we did set a course to manage for cash and not focus on earnings. Survival of the enterprise was primary. Knowing the strong franchises that we have will come back to life as the flood tides ebb.

I expect this is what we will experience in 2010 and we will see a blossoming of our business in 2011. To perform well, we have to convert our defensive posture to a growth mode. This process has started inside the Company. We will do this while being tightfisted with costs. Now is the time for growth. It is the time for new product development again and it is a time for progress. This is the context within which we report our third-quarter 2009. The results in absolute terms are clearly disappointing, but we are on the course we laid out.

Let me now turn it over to Phil and Tom for more details and I will summarize and open it up for your questions later.

Thanks, Ron, and good morning. The key figures table on page 4 displays the quarterly year-over-year and sequential performance of the Company. Net sales were down 51% from the prior year quarter or 49% when adjusting for the translation impact of foreign currency exchange rate changes, which more than offset the addition of the port equipment business acquired in late July.

On a year-over-year basis, third-quarter net sales continued to be negatively impacted by declines in industry demand for the short cycle equipment in our product range although we have reached a level of stability over the last six months, net sales for larger cranes and mining equipment tend to fluctuate due to the timing of deliveries and order intake, as evidenced in the third-quarter decline in mining equipment deliveries sequentially of approximately $100 million. We are becoming more confident of future prospects in these product lines given recent order and quotation activity.

On a consolidated basis, Terex incurred a loss from operations in the third quarter of $95 million compared to operating income of $167 million in the prior year quarter, mainly due to the net sales reduction. We continued to make good progress on cash generation, particularly from working capital reductions, which contributed $199 million in the third quarter. In the third quarter, we reflect a use of cash in the other line on the cash flow statement mainly related to restructuring payments, the SEC settlement, and delivery of orders where revenue had been previously deferred.

Our backlog is down 8% sequentially and 58% from the third quarter of 2008. The increase in our net sequentially to $970 million in the third quarter reflects the acquisition of the port equipment business.

Before I move on to the bridges relative to the prior year, let me address the sequential change in operating loss for the second quarter as we have received several questions after we released last night.

Our net sales declined from Q2 almost $100 million, largely in the mining and crane equipment, offset by some modest moves in the other segments due to the timing of orders and deliveries. Assume a 20% margin loss in this volume change or $20 million. Relative to Q2, we completed the acquisition of the port equipment businesses, which had a roughly $7 million negative operating result in the quarter coupled with an additional $4 million of acquisition-related expenses.

In the release, we outlined charges totaling $[60] million related to various discrete items in the quarter between Construction and AWP. Overhead under absorption and capacity variance was approximately $7 million worse in Q2 given increased shutdown activity in the third quarter. Providing some offset to these items were reduced restructuring related charges of $23 million and another $22 million of net spending and other changes.

Let me move to page 5, which outlines the net sales bridge from last year's third quarter, where the comparable volume declines are significant in all segments with AWP down 66%; Construction down 56%; Cranes down 38%; and Materials Processing & Mining down 49%. The good news is that the short cycle businesses has been relatively flat over the last six months, indicating a potential floor. The larger equipment and cranes continues to perform well particularly with ongoing strength in China. Mining deliveries are lumpy and contributed to a sequential sales decline, as I mentioned, in the third quarter.

Page 6 bridges the $262 million change in operating profit from last year's quarter to the operating loss in Q3 2009. The margin impact on the net sales decline for new equipment contributed $329 million while parts, service, and used equipment margin declined approximately $50 million from the prior year period.

Net restructuring and other costs mainly associated with the reduction of production levels in headcount was $3 million higher this quarter; however, we had favorable negotiations in the Construction segment that reduced the costs related to our prior expectations. Capacity variance increased by $20 million compared to the prior year and was somewhat offset by reduced under absorption particularly in AWP and Construction, as a higher proportion of temporary manufacturing facilities shut downs in this period.

SG&A and other cost of sales had a net positive effect given cost reductions, profit released as inventory was delivered to third parties, positive transactional foreign currency impacts, and reduced input costs. These were partially offset by approximately $16 million in charges related to inventory valuation, bad debt, a distributor litigation, asset impairments, and a field repair program. Overall, foreign currency translation impact was insignificant but had some impact on the individual segments. The segment reconciliations have been provided for complete visibility.

Let me refer to page 7. During the second quarter, we generated cash -- excuse me -- during the third quarter, we generated cash from working capital improvements of $199 million. The cash change from accounts receivable and payable tended to follow the changes in volume and largely offset each other while cash from inventory reductions is $193 million. This brings us to $497 million in cash from inventory reductions year-to-date, substantially obtaining the $500 million threshold we had indicated earlier in the year we would likely exceed. We continue to focus on our processes here to sustain further improvement.

In reviewing the capital structure on page 8, you will see that we ended the second quarter with over $1 billion in cash and $471 million in availability on our credit facility or $1.5 billion in liquidity. As I discussed in the second-quarter conference call, we had negotiated covenant revisions to use a liquidity test to determine covenant compliance, thereby removing concern over the impact of earnings on covenants during these difficult times. However, we do have some limitations regarding our cash utilization options based on our current net leverage.

With no near-term debt maturities, strong liquidity position, and expectations of additional cash flow generation, we are well positioned to capitalize on the future recovery. As conditions improve, we will look to put this liquidity to work earning higher returns. I'll turn it over to Tom to provide an operational update.

Thanks, Phil, and good morning, everyone. As Ron and Phil just covered, we believe we are seeing an inflection point for Terex. While it is premature to suggest that our businesses will be dramatically better tomorrow, we have seen some signs in quarter three that are positive indicators for the future. We've been focused for well over a year on cost reduction and cash generation. In this quarter, we began the shift in mindset to revenue growth while maintaining diligence on cash and costs.

Let me start with a quick comment on safety. Despite all the changes we have gone through including reductions in force of over 8000 people, short workweeks and plant closures, we have continued to significantly improve our safety record. Each of our businesses has contributed to the 63% reduction in lost time accidents since the beginning of 2007. Our teams have done a great job and we are very proud of the progress made. That said, there is always more to do until we get to zero accidents.

Moving on to slide 9, we continue to stay focused on cost reduction and cash generation and I think we have made excellent progress. So far this year we have taken significant structural costs out of Terex, evidenced by 13 different manufacturing or distribution sites that have been announced for closure, many of which are complete. Other facility actions were taken last year.

Additionally, we have exited several product lines. Each of these decisions has short-term costs and a longer-term benefit. Often the precise costs are impossible to aggregate in the Company's consolidated results.

Material cost reductions continued to trend positively and we are filling up our cost reduction target list for next year. As our plants ramp up and run on a more continuous basis, overall material costs will continue to reduce as lower-cost material is pulled through the supply chain system. As Phil discussed, our inventory reductions have shown significant results with nearly $500 million in cash extracted from inventory this year. Despite many of our products being back to normal finished goods levels, we feel we will continue to make reductions in raw material inventories as the plants return to regular assembly schedules.

But perhaps most importantly, as Ron mentioned, we have begun to shift our attention back to growth. Based on the over 40 customers we had in Westport last week over two days to discuss the state of the business with our senior leaders and to get their feedback, along with other clear signs we are seeing in the marketplace, Terex is moving back to business the old-fashioned way. That is a strong emphasis on customer service, improving our quality, and accelerating our new product developments. We expect to hear similar signs from the other customer meetings we have scheduled.

While no one is quite sure when there will be an overall trend upwards, everyone is confident it is a matter of time.

Coming back to page 10, we are running a $265 million reduction on a quarterly basis for manufacturing and SG&A spending and we are working to get to a $300 million rate for Q4, as Phil mentioned. With net sales reduced 59% compared to the peak 2008 second-quarter results, the 52% reduction in manufacturing cost is clearly keeping pace with this dramatic drop in revenue.

Our SG&A has also dropped 30% from prior year. While we are continuing to work on non-value-added spending, there are some areas we will continue to invest in, including our Terex-wide ERP system implementation, which will enable us to work together more effectively, share customer and supplier information seamlessly, develop shared service centers to reduce back-office costs, and numerous other benefits.

We've had several other businesses added to this system in Q3. Our engineering spend will be moving up as we prepare for all the product requirements for tier 4 emission changes along with improving our product development.

Despite the challenge in finding engineering talent, we now have 100 people in our Terex India engineering and R&D center near Bangalore. This was all done in the last nine months of very significant achievement.

Let me cover some updates and insights for each of our segments. Our Aerial Work Platform business has really been hit hard by the downturn, with most of our product lines experienced global reductions of 70% to over 80% in volume since the downturn started in mid-2008. Tim Ford and his team have of taken very dramatic actions to right size this business as customers have significantly depleted during this time frame. As I mentioned on the last quarterly call, we have seen stable order rates and in September, we actually built backlog for the first time in over a year. Many of our assembly lines in particular booms are running on a daily basis now, although at low levels of output.

With the challenging financing environment our customers are seeing, we have been very focused on credit and risk rather than gaining market share. Our used equipment is very moderate and under control. We have significantly streamlined our distribution logistics centers in Europe and the US and are already seeing very good performance at significantly less cost.

With inventory being reduced every month since June 2008, we are poised to deliver fresh competitive product when the market needs it.

As you may know, one of our key indicators of customer satisfaction we use at Terex is net promoter score and our Genie brand again demonstrated why we are well positioned with customers. We had a score of 38 percentage points better than the competition. This is a terrific indicator of how we are using our customer service approach to our advantage. We are comfortable that this business has a cost structure in place to be profit-neutral next year with no fundamental recovery of the business.

Moving onto Construction, despite a challenged marketplace, you will note the slight uptick in sales for the quarter compared to prior quarter, along with a significant improvement of reducing our operating losses compared to the last two quarters. Net inventory is down over $200 million in the last year and most of our compact product lines is back to very reasonable levels. Used inventory has been reducing all year and is also very much under control.

While much work has been done including eliminating product lines and reducing our manufacturing footprint, we have more to do to get this business back to profitability. The full impact of our restructuring efforts have not shown up on the bottom line yet and we will likely need some recovery of the market to get to our goal.

We have a few businesses and product lines that are more challenge than others and those will be getting the focus of George Ellis and leadership team. I'm happy George recently accepted the role of President of Terex Construction and I will still continue to spend a substantial amount of time with him and others that we have enlisted to fix this situation.

As I mentioned on our last call, in times of significant challenge to the credit and M&A markets, fixing these businesses provides Terex with future portfolio options along with long-term value creation.

Our Cranes business is performing pretty much as expected. Earnings were somewhat depressed by the completion of the Fantuzzi acquisition, as Phil mentioned. Early indications are as we expected with very impressive products and good people. The Terex Port Equipment business, as it will be known, continues to have challenging markets but has a reasonable backlog. The rest of our midsized and smaller cranes that are still very much scrambling for orders with our larger capacity cranes seeing some positive signs for the balance of this year and next.

On an overall basis, we are still seeing some slight positive indications. However, we are still struggling to reduce inventory in this segment and Rick Nichols and his team are working this hard.

Our Materials Processing & Mining segment had a tough quarter with drop in mining orders from earlier this year affecting sales in this quarter. Eric Nielsen and our mining team are also seeing positive indications such as a much reduced order cancellation rate and positive parts trends reflecting machines that were once parked are now back to work. This business has large orders, long lead times, and has always been lumpy in nature. We expect to rebound in Q4.

We have a significant amount of new product development going on which will impact next year. The recent rebound in commodity pricing is giving confidence to many of our customers, which we expect to translate into orders over time. And despite a very tough market for material processing products, we have continued to right size this business as well as work on six new products for launch in the next six months while achieving a 21% net promoter score compared to 11% for the competition, which is very positive.

With all the cost structural changes that have been made, this business will be a positive profit contributor in the near future. And I am very proud to announce we have shipped our first material processing products out of our new Hosur plant in India and hope to be shipping cranes products out of the same facility in the near future.

Our Developing Markets team, led by Steve Filipov, continues to do a very nice job despite challenges in some markets. Our business in China is up double-digit growth year-to-date and Brazil and South America are having a very solid year. Russia and Eastern Europe in particular continue to be challenged with the financial credit crisis.

We are happy with the progress from growing our revenue footprint, as over 28% of our net sales have come from developing markets in the last six months and the trend continues to be positive.

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

In summary, turning to page 11, we believe there is a better outlook for Terex. This has been a year of massive downward adjustments and we have acted as quickly and as aggressively as we knew how. As we look to the future, we have strong franchises that Tom has highlighted. We have been -- we have seen stabilization along with some positive signs. Clearly this is true for Aerial Work Platforms, Material Processing, Mining, and our large Crawler Cranes.

Furthermore, the developing markets are recovering, as he just mentioned, with China continuing to grow along with some other markets and they now represent that 28% figure Tom just said.

Commodity prices will continue with positive trends in line with global GDP progress. This is a nice and positive story for our mining business, as well as it will assist improvements with the balance of our operations. They will improve as the economies improve.

As I said in our last call, Terex will end 2009 a smaller Company with significantly less cost and ample cash and liquidity. This will be a good place to be entering 2010. It is time for growth. We've been in tough times. We've made some tough choices. Now we have to grow again.

I continue to believe that we can and will be breakeven to slightly profitable in 2010 with 2011 showing broader and more dramatic progress almost across the board.

So now I would like to open it up for your questions.

(Operator Instructions) Henry Kirn, UBS.

Could you talk a little bit more about the restructuring in the construction business? What are you thinking about the various businesses within the segments? And when would you expect to make a decision on which businesses you may choose to either sell or shutter?

Let me start, Tom, and you can continue. I think the Construction team has been pretty much under siege most of this past year. The end markets particularly given our concentration in Europe, which represents about 60% plus our total business have been down 70% to 80%. So sometimes it's difficult to see the forest for the trees when you're in the middle of those trees.

We do have some substantial differences between operations. Our compact equipment business has been quite challenged. That business is typically more oriented toward residential construction. However, we think we have a pretty strong lineup in that product category. We're working on a number of new product development initiatives including a skid steer for introduction in late 2010. And we expect to have a strong business portfolio and be competitive on that business.

The heavier equipment is a little bit more complicated for us. We have an excellent articulated truck. We're introducing a brand-new articulated truck this October or right now and in the 40-ton size class. It has been broadly and deeply tested. It has been stressed tested and we think will be a highly competitive product. Frankly we've been growing market share in these product categories even though the markets are down probably 60% to 70% globally.

And so the real test for the truck business for us is how well they can get through this new product introduction, and I think that will be a telling aspect of this business. But frankly we're pretty strongly committed to the Tel truck business.

The Fuchs business for us, which is a material handler business, has gone through tremendous change. For a while, the entire scrap handling business just dried up. But we have probably the number one or number two brand name in scrap handling. And so while this business is losing a substantial amount of money at this moment in time, we do see some really positive signs that scrap prices are improving and while we don't have a lot of orders in the backlog at this moment and we still have a bunch of inventory, losses will remain pretty meaningful for a little while. We think by the middle of next year we're going to see a turn in that business.

That leaves the Atlas excavator business in Germany and what we have decided to do on that business is to focus that business on regional markets. And so we think we've got a plan for each and every one of the businesses to get those businesses to a positive contributor.

But backing off of that, we have always been a believer in this Company that if these businesses could be better owned by somebody else or that they better fit with somebody else or that we couldn't see our way clear to returning a profitability, we would consider any and all alternatives. I said that in the spring of 2010 we would take a real strategic relook at these businesses and I expect to do it at that time, as previously said.

That's helpful. Could you talk a little about the inquiry levels that you are getting out of the rental channel for aerials and other small equipment?

Yes, I would like to turn that over to Tim, because I think he's probably closest to that.

Sure, thanks, Ron. Henry, we have seen obviously this year a very low level of inquiries through the first half of the year. I would say in the last 60 days or so, many of the customers both in the US and in Europe, the larger rental companies, have begun to start saying, okay, we're going to be in business in 2010. The fleets that we have are getting older. We need to start thinking about what that fleet plan looks like for 2010.

Has that translated into very specific concrete buying plans at this point? No, but there is a lot more inquiry and activity today than we have seen in frankly a year.

I would say, Henry, that the shock that we have been through has now worn off and people are back to planning and analyzing their businesses and trying to figure out how they can get a competitive advantage again in the marketplace and rental companies have been very reluctant to take on any fleet planning aspects for 2010 yet. But it's their business. So as time progresses and as they examine what they have, where they have it, the age that they have it and the characteristics of their competitive position relative to others, they are going to need to buy some equipment, probably not a tremendous amount, more in 2010 than they did in 2009. But for us, we are going to be building a whole lot more equipment because we had a tremendous amount of downtime in our operations particularly in Aerial Work Platforms. So they don't need to buy a lot more for us to have a meaningfully better 2010.

That's great, thanks.

Meredith Taylor, Barclays Capital.

Good morning. You addressed in earlier comments the sequential margin decline for the Company as a whole, but I'm hoping that you can give some more color on a business-to-business basis. Particularly I'm interested in the AWP and Construction businesses, if you could address any role that pricing may have played there. And then on the MPM side of the business, if you can talk about mix?

Okay, maybe Tim will comment a little bit on pricing on AWP. But in terms of margin quarter-over-quarter, we had in AWP some decline in equipment about a moderation in parts volume, but pretty flat in terms of expectations there. We did have some mix in terms of parts in particular that impacted our margin negatively, sequentially and again, it's more or less the mix related to what was in the parts margin. Tim will talk about the equipment pricing in a second.

The timing of further reductions in AWP which we did in October actually, we did have some additional costs associated with the manufacturing overhead and direct overhead that really didn't start to come out until the fourth quarter. So that caused some overhang in terms of the quarter.

Tim, do you want to comment on pricing on the AWP and I will come back on the other questions?

Just quickly, Phil -- Meredith, the first-half pricing in the aerials business was largely influenced by trade and the number of deals that were out there were big fleet trade. We have seen a leveling out of that in the third quarter, much more rational behavior and less panic trading, if you will, more thoughtful activity. So I think we're actually at a point where the market is stable and frankly many of the rental companies and our competitors are acting in a much more thoughtful and rational behavior. Phil?

Okay, on construction, you asked about the margin sequentially, again quarter-over-quarter. So in total we have actually improved roughly $12 million, but some of that is related to restructuring that we had charges in the second quarter that we actually had some pickup in the third quarter. So that is a fairly positive swing on the margin impact.

However at the same time, we did have charges related to, as Tom mentioned, some of the product continuations that we had relative to product lines, which was about again, a reasonably significant number that offset a large portion of that restructuring benefit. We did have some pickups related to warranty quarter-over-quarter and other nonspecific standard margin-related costs that we had quarter-over-quarter.

Meredith, you asked about Materials Processing & Mining also and in the mining area, sequentially we had about $100 million less new equipment sold from the second quarter to the third quarter, which we knew because we had fewer orders for delivery in that quarter, but as we've mentioned the business is a little bit lumpy so we expect the fourth quarter to be quite a bit stronger than that.

But we did see meaningfully a big pickup in our parts business in the mining category. Our average run rate for parts is up quite dramatically from the second and first quarters, where a lot of the equipment was parked, to be honest with you. So it's a very good sign.

Not only have we seen the parts revenue grow, but we have also had substantially new inquiries and a number of letters of intent for new business for 2010. So, you know, there has been some concern that 2010 for some mining businesses will be a down year. We are not seeing it that way at this moment in time.

It may be a little bit down for new equipment, but substantially up for parts and parts and services. So our outlook for 2010 has actually been strengthened from the last quarter.

Okay, that's great. Just one last question and then I will turn it -- pass it along. With respect to Fantuzzi, I understand that margins would have been relatively flat to modestly up sequentially ex-Fantuzzi. Can you talk a little bit about the timeline for getting this business to profitability?

I'm going to turn that over to our Fantuzzi integration leader, Mr. Nichols. I will say that I think the Fantuzzi acquisition took us a while to get to. I think we've got a great plan, but it's a business that is challenged at this moment in time. But I think it will be a good business for us. Rick?

Yes, Meredith. From an integration standpoint, we have already begun taking measured steps and pulling the organization together and begin to integrate it with the existing crane business. We have a timeline that really runs over about a 9-month period to completely integrate the business.

Certainly taking some actions in Europe are a little different than taking actions in the US from a restructuring standpoint. We have begun the process with discussions with the unions in Europe, so we are beginning to make the appropriate steps.

But we see about a nine-month window that we are going to aggressively work through the restructuring, and I think we're going to have some benefit really from Terex ownership with regaining some customer confidence and growing the business from how it was operated in the past.

I think our customers have been very positive. The customers have been very positive about Terex owning this business. There are a bunch of customers that were disappointed. They weren't getting deliveries on time. There's reasonable levels of dissatisfaction that I think we are allaying some of their fears.

We were in the SuperStacker business, a similar business to what Fantuzzi is in. So there's clear integration benefits available for us from that product category.

But Fantuzzi, or as we are now calling it the Terex Port Crane Equipment Company, gives us access to the Chinese market, which is we think going to be a really good business and it brings a strong level of technology from the German operation. So while restructuring in Italy is going to be challenging and costly, the balance of the business I think is going to end up pulling it through.

Okay, thanks so much.

Charlie Brady, BMO Capital Markets.

Can you just -- in your comments or your prepared comments in the press release, you talked about areas where you see inventory might be too low. Can you just expand on that a little bit?

Then second to that, when you talk about positive signs in Europe, can you give us a little more granularity on where that's coming from geographically and maybe kind of by the product line as well?

Tom, do you want to take the inventory question?

Yes, I'd be happy to, Charlie. On an inventory side, we are seeing continued demand at a lower level, but frankly with our lean activities and the reduction in supply chain as well as moving out basically all of the 2008 product that we had in addition to very limited production in 2009, we've got a number of product lines in our Aerial Work Platform business, in our compact construction equipment business. And frankly in some of our material processing lines that we are seeing albeit at a very low level of demand but we are seeing within ourselves extended lead times which we are working diligently with our plants as well as our supply chain partners to pull that back in again. Because we want to be responsive and actually need to be responsive on short lead times in this kind of the market. So that's -- those are key areas from an inventory standpoint. Do you want to --?

I will start. We are seeing positive signs in Europe in a couple of places. First of all, I think Tim's comment earlier on aerial work platforms was both for Europe and North America. So that is encouraging just to see some rental company planning and participation. A lot of our rental company business would be Pan-European with somewhat of a concentration in the United Kingdom. I think as we get closer to the real project work starting for the 2012 Olympics in the UK, that will be a help for the equipment business categories.

We've seen some stabilization in order rates and I think this is what you would comment on, Tom, in the construction business, not at high levels but at low levels, but some stabilization of those orders, so the declines aren't going on anymore. And those would be our core markets like Germany and France.

Spain and UK, as you might expect, continue to be both pretty challenging markets that are --

-- for construction (multiple speakers)

-- very concerning.

From the standpoint of seeing any kinds of uptick.

And of course our large crawler crane business is out of Europe, but a lot of that production is going to the developing markets.

Right.

Just dovetailing on the large crawler side, that is an area that seems to be holding up okay, but is it weakening at all or is it kind of sort of flattish in terms of demand, where it was, say, in second quarter?

I think it's weakening a little bit, but relative to the other product categories, it's holding up a lot better. Rick?

I would actually comment it is staying fairly flattish as you commented. Actually there's a bit of shift within the crawler, the larger crawler cranes to even larger crawler cranes for us, which we have a good market position in those products. So --

But it's lumpy.

But it is a bit of a lumpy business but I think we are cautiously optimistic that we have a good demand pattern not only for the fourth quarter but for 2010.

Thanks very much.

Jamie Cook, Credit Suisse.

Good morning. I guess my first question, Ron, you mentioned in response to someone else's question you talked about aerials and that you've underproduced dramatically. So even in a flat year next year theoretically you have to overproduce. So can you just walk me through the other segments where you feel like you've potentially underproduced so we could see some meaningful earnings leverage there?

And then the second question is you also commented about 2010 and you said you think you'll be breakeven to slightly better. The Street is at a loss. So I just want to get a little more color on under what scenario are we breakeven to loss and does that assume dramatic losses in the first half of the year and then things get dramatically better in the second half of the year? I'm just trying to figure out under what scenario you guys sort of get there.

Okay, I will take that second question but I'll let Tom handle the first.

Jamie, good morning. I think the answer to your question on where we expect to see some leverage based on reduced inventory is similar to some of the comments we've touched on a little bit but let me give you a little more color. Our Aerial Work Platform business has been reducing inventory every month since last June and we are at a point now with a number of different products in that segment that frankly we are at -- either at or frankly a little bit below where we would like to be at from a finished goods standpoint. So in some cases, we've got booms as an example that we are manufacturing every day at a much lower level than where we were at 15 months ago.

But that being said, a much more positive sign than where we were at in most of the first three quarters of this year. Similarly on our construction compact business both in terms of the [ASB] brand units here at the states in addition to the compact business in -- primarily out of Germany. We are seeing much longer backlogs in some of our plants as it relates to again a more normal operating pattern where we are running product on a routine basis compared to where we were at earlier. And again, our finished goods inventory is at a good place relative to where it's been at for most of this past year.

I think there's a couple other product lines that very substantially -- our rough terrain crane business as an example. I know we are still working down dealer inventory. We're not quite back to a routine order, or a routine manufacturing pattern as of yet, but we expect that to happen in the not-too-distant future. And frankly as you go through the rest of our product lines, it is a little more hit and miss.

Relative to my confidence in 2010, Jamie, this is I think a bit of my experience talking a little bit with our business and how I see us patterning out of the existing downturn. But also a little bit more thoughtfulness relative to each one of our segments. I want to emphasize that we haven't completed our 2010 business planning cycle yet, so this is a fairly premature view. But I think we have had some substantial work done on our 2010 outlook.

If you think about each one of our segments, let me just start with Aerial Work Platforms. This is a business that from my point of view I think can at least break even at the operating profit line in 2010, if not make a little bit of money. Probably will make a little bit of money with our utilities business included in that. In large part, this depends upon some level of product being ordered in 2010, perhaps a little bit of an increase, but not a lot.

Turning to the Construction business, unless we get an economic recovery from -- of substance, that business is going to be challenged to break even at the operating profit line because the revenue is way below even what our more negative views at the beginning of the year were. So if you assume that's going to lose a little bit of money, then that is money I have got to pick up in other segments. But I think I can pick that up in other segments.

Turning to the Materials Processing & Mining segment, I am very bullish about our mining prospects in 2010. Mining alone would be enough mining to get me to breakeven if everything else netted itself out and I've got to earn about $140 million of operating profit to pay for my interest costs. So just to give you a sense of the hurdle that we've got to overcome.

And the Materials Processing segment I think is well positioned, the crushing and screening piece well positioned to break even next year. It has been a big loser this year, but it has gone from over $1 billion in business to $350 million in business in terms of size, size change. So we have really, really scrambled to get that product line cost structure straightened out.

That we don't talk about a lot, but there has been factory closures, product movements, closures in different parts of the world, opening up a new facility in India. So a lot of work has been done to get us with that line of sight to profitability or minimally breakeven.

That gets me to my Cranes business and the Crane business has suffered pretty dramatically in 2009, the North American business. But we think we've done the right things in North America by not pushing a lot of inventory into the channel and adjusting our production schedules. I think we will see a little bit of progress in North America in 2010 there and I think we'll see the real pull through of our profitability from our overseas operations and we are also seeing a little bit of signs of life in our tower crane business with some real orders for delivery later this year and early next year.

So net-net, my hurdle is $140 million. I am committed to get that or better and that's how we're going to manage the Company.

But I guess my question -- I appreciate the color by segment, but I guess my question is how we get there. The third quarter the losses were much bigger than anyone expected and you went through sequentially and we appreciate that. But I guess my question is, is it we are going to continue to have -- should we expect the losses to continue to narrow and by year-end we get to breakeven? Is it big losses or less losses in the second half, but then profitability? Sorry, less losses in the first half and then a swing in profitability in the second half?

I'm just trying to figure out, is it a hockey stick or gradual improvement?

No, it is not going to be a complete hockey stick. It cannot be a complete hockey stick. What I would characterize it as, the fourth quarter we are not going to make money in the fourth quarter. I think we will be challenged to make money in the first quarter but I think we should make money in the second quarter. As my experience would suggest, third quarter will be a little bit more challenging and then in the fourth quarter we will make money again.

So I think if you net all that stuff out, we probably end up with the first year -- first half being a tad bit weaker than maybe the second half, but not a lot different. We have got to earn what we need to earn in the second quarter of the Company.

Okay, that's very helpful. I appreciate it.

Robert Wertheimer, Morgan Stanley.

Good morning, everyone. I just wanted to ask two clean up questions and I apologize if I missed them. On the inventory front, you've reduced $497 million. You are year -- your sort of 4Q to 3Q inventory is down by $216 million. So does that mean Fantuzzi was $281 million in additional inventory? Or did I miss something?

No, Fantuzzi is not that level of inventory. I'm not going to give all the details on Fantuzzi, but the $497 million bakes out the exchange effect. When you look at the balance sheet, that's got the impact of currency in there, so that's part of the noise between the two.

Okay, and the second thing, did you give an overall pricing -- what the pricing was in the quarter? I'm going to work through the manufacturing variances. I'm still trying to understand how much was maybe some opportunistic sales versus the gross margin weakness.

No, we didn't give a specific number. I would say certainly Construction, we had margin pressure regarding some inventory liquidation and product line discontinuation. And I think Tim had mentioned some pressure in AWP.

Okay, and then a slightly bigger question. You've mentioned a couple times new product development, which is -- you all have focused on the right product at the right price, I guess. So I wanted to ask is this a little bit of a philosophical shift and how much of the new product development is related to tier 4 interim and stage 3 being in Europe versus just straight up innovation?

Rob, Tom Riordan, it's a combination of both. We've got a number of areas where we have had product development under way that we have alluded to both in terms of construction, material processing -- AWP has got a number of pretty interesting programs going on. I am not going to get into details of that mostly from a competitive standpoint because most of this we've frankly not announced. We are using tier 4 as kind of the catalyst for a fundamental relook at all of our product lines and that's also part of the culling process here. Some products where we think were -- may not be competitive and/or can't afford the engineering costs, we are dropping off. That's a fairly small or limited number of products.

The vast majority of our products we're busy at work with the Indian R&D center as a bit of a backup, but frankly our engineering teams globally are extremely engaged on using tier 4 as a driver. But also a lot of this doesn't come into play until 2011. So as a result on an interim basis, there's a number of things we think we can bring to market reasonably quickly.

Okay, and can I ask a last one? Can you give -- I don't know whether you are willing to or not -- your inventory by division?

No, not really. What I will give you is out of the $497 million, I will tell you where we got the reductions from. AWP, this is year-to-date, so AWP was $97 million. Construction was $171 million. Cranes was $69 million and MP&M was $160 million.

Okay, I'll stop there. Thank you.

Alex Blanton, Ingles Snyder.

Good morning. Could you just quickly give us an overall sales level which you would breakeven in the next year? Is -- I'm trying to get at whether it's a margin improvement or sales improvement that you are looking for.

I really can't give you that, Alex, at this point in time other than to reemphasize what we said, and that is we are not assuming a large amount of increase in revenue in 2010. I think -- we believe there will be some revenue improvement in a couple of selected segments. But I would say, the vast majority of our progress is going to be cost reduction-driven. But we know that to capitalize on the opportunities in 2011, we've got to turn the barge right now to focus on growth.

So we are focused on growth again and that will pay dividends for us later in 2010 and 2011.

Okay, fine. On the AWP side, you mentioned pricing pressure and you really only have one competitor there that's meaningful, JLG. So it would have to have come from them. But their plant in McConnellsburg recently took on a huge amount of new defense business, the MATV contract that Oshkosh won. And so they have filled up a lot of the plant with that.

So do you think that that is what is contributing to the lower pricing pressure in the industry, just the fact that they've got a higher capacity utilization from other products there?

I don't think so. I will turn this over to Tim in a second. But what I really think is causing the pricing pressure is the huge quantity of inventory that they are sitting with. I think there's a sea of orange and beige, but I think our sea has now been put out to pasture.

Yes, but you mentioned the pricing pressure has gone down. I'm saying is there a connection between that and the fact that they've recently filled up a lot of their plant with defense business?

I can only guess. Tim, do you have a point of view?

I don't know what drives their behavior, but I think your point is right. It was --I think there's more orange and beige equipment sitting out there and that's -- if there is pricing pressure, it's because there is equipment that needs to be moved.

I don't think, Alex, that we really said that we saw less pricing pressure. I mean maybe in --

I thought you said that.

What I said was the first half was largely influenced by trades. We've seen a leveling out or less pricing pressure in the third quarter largely because a lot of those trades that were heavy defleeting and excessive inventory being put -- or used equipment being pushed into the marketplace, really depressed pricing. That is has been less influential in the third quarter.

Okay, thank you. On the ASV business, how is that doing? This is an acquisition you made a couple years ago.

Sure. ASV is struggling right now. The business is -- the industry, the product category is down to about one-third the size it was a couple years back. So consequently it is having a hard time, but what we are doing is we're integrating it with our other compact equipment product line so we have a product portfolio within which to sell.

But I think we feel good about the products we have and the new product development schedules that are in front of us. George, do you want to comment any more on that?

To Ron's point, we have continued softness in that business, but have really been focusing on new product development and also particularly spent a lot of effort, the factory in preparation for the -- by implementing a lot of the Terex business system tools and processes that we have seen to work very well in our other facilities. Still struggling. Inventory levels are down and just getting ourselves positioned.

You mentioned you were introducing a skid steer in the compact. That is a new thing for you, isn't it?

It will be. You know, if you think that this skid steer line has essentially been comprised of both the tired line as well as the track loader line and we have been in the CTL business, we think if our distribution is to be competitive, we've got to give them both the rubber tired version as well as the track version and let the customer choose between the preferred ride versus the nonpreferred ride. But one of the two different customer price points and we think we can develop a pretty competitive product.

Okay, you passed up the opportunity to buy Bobcat, so now you are doing it internally?

Well, we intentionally passed on that.

I know.

And I'm certainly glad we did, but I think there's business out there for us particularly positioning ourselves for a recovery.

Okay, finally the supplier question. You mentioned those big inventory reductions that you have had in your factory inventory means that your production went down a lot more than your sales and then you probably reduced some dealer inventory as well. So your suppliers -- and Caterpillar mentioned this the other day. They said when the business turns up, we have suppliers that will have to increase their production 70% or 80% because of the inventory swing they have been subject to. So we are working with our suppliers they said to make sure that they can -- they know that and that they can meet those requirements. Are you doing the same thing?

Alex, Tom Riordan. The short answer is yes. We're not going to get into the numbers. We've also seem Cat's announcements, but frankly I would not say that's an unusual process at this point in time of the business cycle. We have had a lot of patience, good interchange with our supply partners and obviously they clearly have a lot of inventory waiting for us. And frankly, we still have a fair amount of raw material that we need to pull through the system. So again, as they get unclogged and we begin to pull material through, some suppliers are going to see a significant change in their demand on a year-over-year basis.

Ann Duignan, JPMorgan.

Good morning, guys. Ron, I just wanted to take a step back and ask you a little bit about your comments about being at an inflection point and focused on growth. A, should we be concerned that as part of growth there may be acquisitions out there for you?

And B, as you look to growth and you look to new positive introductions, what does that do to your liquidity position and will there be any risk as you go through next year of violation of any of your new covenants?

I will let Phil answer the covenant question, but then I will come back to the growth point. Phil?

On the question on covenants, again our covenant is $250 million of cash or excess to our revolver. So that's comparable to the $1.5 billion that we mentioned in the quarter. These introductions should not have any material effect regarding that. And in terms of covenant restrictions that I mentioned based on our current leverage, those tend to relate to things like share repurchases or acquisitions which we do have some limitations on in our agreements, which is again a public document that people can look at.

And what I would say, Ann, is growth that I am talking about is going back into the marketplace and getting our market share and focusing on using our new product introductions, our distribution partners, and our own ingenuity to actually go out and build our business. I'm not really focused on M&A at this point in time. I think there will be a point in time for acquisition activity. I don't quite see it yet. I probably won't see it until sometime in the middle of 2010 but that is not what I mean.

When I talk about growth, I am not talking about acquisitions. I am talking about blocking and tackling, fundamental -- let's go out and build the business kind of approach.

I appreciate that, but can you just comment then on as you focus on growth, what you believe the impact will be next year on working capital?

Oh, okay. I think there will be virtually no change in our working capital. There might be a little bit of usage during the periods of our revenue strength. I will turn it over to Phil.

Again, I think when you talk about working capital, there are different pieces, you will see as we buy more material, our accounts payable will be a source of cash because we will start bringing in inventory and obviously receivables are going to grow with the revenue which we haven't counted on a major growth in receivables or revenue there. So I wouldn't expect that to grow.

Then the question is can the inventory if there is some for new products or new geographies be offset by the payables? So I don't think we will see any significant change in working capital on the upside, and we continue to work for improvements in efficiency to reduce it. So I am not worried about significant growth there.

And then just on the same vein, I don't mean to beat a dead horse here, but can you talk about what you think your SG&A will be next year versus this year, just given the amount of investment you're going to have to make in things like tier 4 interim and new products?

I would expect our SG&A to actually continue to drop a little bit in 2010. The currency effect for us is hard to handicap at this point in time. I think we have embedded the cost structure required for the tier 4 pretty much already. There is some level of uncertainty in our compensation planning at this stage that we are working through, and that is the amount of reserves we have for compensation plans.

Just let me assure everyone that my job is to make sure the shareholders win before the management does and we're going to take that attitude in our bonus and stock plans. So we want to keep our management. We want to keep them properly focused and incentivized, but I do think that the shareholders have to win before the management does.

Okay, I appreciate the color. Thanks. I'll take my other questions off-line.

Andy Casey, Wells Fargo Securities.

Good morning, everybody. First off in the revenue guidance, have you changed any of your currency expectations?

Just if -- it's not significant, Andy, in terms of what we have said for this year in terms of the impact that it would have. We've taken it down maybe 1 or 2 percentage points but not significant.

Okay. And then kind of a broader question, just more -- a lot has been covered already, but your observation of customer behavior, specifically in AWP, if you compare it -- and I understand this downturn is very severe -- but if you compare how they are talking now that you are kind of at the bottom versus the bottom of the last cycle before demand increased significantly, is the discussion any different today than it was back then?

I'm going to make a comment, then pass it off to Tim because Tim is going to be able to reflect what the current discussion is. I probably have a little bit better handle as to what it was historically.

Historically, we haven't seen a downturn like this downturn, where we were going all-out in terms of growth and then essentially hit a pretty severe wall. So in previous downturns, and I can reference the 1990 to 1992 periods, both the 2000 to 2002 period, and then in the middle of the '90s, there was a moderate downturn in our industry.

We were looking at 30% to 40% declines and the rental companies would stop buying, but they would continue to plan. And they would plan for growth. The rental companies today have been very much focused looking backward on how do they get their fleet utilized or sold off, particularly their old fleet? And that is what has caused the first half of the year discussions on trade packages because they're just looking for any and all ways to exit some of their old fleet. That has always been the case, but it was particularly pronounced in this downturn.

I think as the market stabilizes, I think the rental companies are going to be very hesitant to venture out too quickly into buying fleet. So I think we will be looking at in the first year or so only replacement fleet, whereas historically coming out of a downturn, a lot of the rental companies I think would have looked at both replacement and growth CapEx.

So I would say more caution than has historically been the case, but that's one man's view. Tim, you may have a different view for all I know.

No, I think you are right on, Ron. You're right. I wasn't here. I haven't been here through the prior cycles, so hopefully next cycle isn't anything like this one. But the real emphasis that I'm seeing with the customers today is utilizations in rental rates are still lower than they would like to see. Obviously we are in a seasonally low period or going into a seasonally low period here in the fourth quarter.

I think many of our customers are managing credit concerns combined with utilization in rental rates. Many know that they have aged fleets extensively and maintenance costs are going up as a result. You made the point and I think it's right on, Ron, that we don't think we will see growth CapEx. If anything, in 2010, we will begin the season replacement CapEx. And I think the goal for many of our customers will be to keep the fleet age flat, not necessarily trying to improve it.

Okay, thank you very much.

David Wells, Thompson Research Group.

Good morning, everyone. I just wanted to dig a little bit further on the materials processing side and some of the stability that you are seeing there. And I was curious how that broke out by geography. It is even within products, if it varied relative to mobile versus static products?

Okay, the materials processing side, do you want to take that, Phil?

No, I don't have the answer yet (inaudible).

Well, the short answer is most of our products are on the mobile side. We think we are positioned very nicely on a global basis for mobile products. And frankly, we are seeing probably flattish in Europe, down a little bit in the US, and I think Phil has got a couple of those numbers now.

Yes. I looked up the numbers on this, David. We've been pretty flat at roughly two-thirds in developed parts of the world in terms of revenue, and one-third in developing areas. And I would say the geography, Middle East is a pretty strong market there as well as Eastern Europe and a little bit in Asia in terms of where we are getting it. And actually Africa. So given our product is largely mobile, is the concentration we have, it tends to be largely in developed areas.

Another reason for I think our sense of the change is that we have really worked hard not to put excess inventory into our customer base. In some developing markets, I know we have had large quantities of inventory that we have actually worked off during the course of this year. And that will be a positive opportunity for 2010.

All right, that's helpful. And then in the press release, you referenced parts and service business on the mining side being a little bit slower in September relative to earlier in the quarter. I was curious if that trend had continued into Q4 or any update on that.

We don't have much in the way of information on Q4 at this point in time, other than to say that we think that we are going to continue to see an uptrend in our parts and service business in the mining areas. We know we have a lot more fleet in terms of population in the world than we did but a few years ago. We watched our parts. I've got some graphs on our mining parts business. We watched our parts business slow in the latter part of last year and the early part of this year and we now see that trend line clearly on the way up.

September was just a tad slower than July and August, and I wouldn't call that any major change. I just think that the whole quarter was just so much better than the prior two quarters that it represents the machines back at work.

All right, great, thank you. And then lastly, just any concerns about the health of your dealer base at this point kind of coming into the slower months?

You know, unlike some of the bigger companies, we typically sell our products to a broad array of customer types. And yes, there are dealers that we sell to that have financial difficulties and we are managing through those every day. But a large portion of our business goes direct to rental companies, direct to crane rental specialists, to very small and multi-line dealers. So we don't have the Terex dealer that represents our entire product portfolio.

In large, in a large -- in the main, I guess I would say it is not a huge issue for us. It has cost us some money in the short term, but it's probably not that big of an issue. Phil, do you have any additional --?

No.

Okay.

Great, thank you very much.

David Raso, ISI Group.

Good morning. First a clarification on the cash flow. The other item in the cash flow for the quarter appeared to be a significant use of cash, over $90 million. Could you please clarify what that is?

David, I mentioned in my prepared remarks that we had mainly the items in there related to the SEC settlement, cash associated with restructuring activities, and deferred revenue, where we would obviously have recognized the cash effect earlier than in the third quarter as we deliver mainly in mining and cranes activities. Those were the largest pieces.

Okay, it still seems like a big number. Obviously the restructuring this quarter was only $3.3 million. It must be cash from prior?

Exactly.

Okay, and also I appreciate the comments about more positive going forward on your production schedules and so forth, but if you look at the full-year sales guidance, it's been implied the fourth-quarter sales are down 10% sequentially. Can you square that up?

Just a second.

I'm just doing the basic down 50% full-year and backing out the first nine months.

I think you are attributing a level of precision to that guidance that we don't feel we have. I think --

Again, if you look at our sales, David, over every quarter this year, we have been at about $1.3 billion and $1.2 billion this quarter. We are going to be in kind of the average range or that order of magnitude. I don't see a dramatic (inaudible).

Okay and regarding the mining commentary, on the completes, the finished goods, not the parts, are you seeing a pick up more on the shovels for the trucks? Just given the discrepancy and profitability for you, I think it is relatively meaningful?

It has been, David, but I think we are seeing a pick up in both of those product categories. And -- but I would also say that we have -- we expect to end 2010 with actually a stronger profit year in trucks than we had last year and we are beginning to really make some -- a big difference in our truck business because we have a plan to get better control of our wheel motor product line. In other words, we have a higher content that is our own production than we have ever had historically.

So we have a very effective manufacturing operation in Mexico for our truck business that has been one of our most successful lean factories that's made a big difference in our costs to produce our trucks. So the discrepancy between shovels and trucks isn't as great as it used to be, with our truck business coming on.

Just so I'm clear, the comment you made earlier going through the segments, if I heard it correctly, you said something to the extent just my improvement in mining can get me back to breakeven. Was that -- it couldn't have been a comment about the whole division, because you are still profitable. Were you talking about overall Company in '10, the improvement you see just in mining should get you back to breakeven for the whole Company.

No, what I said was that mining's ability to produce a profit, where I see mining in 2010, if everything else broke even, I think I would still be able to breakeven at that level. We have got to produce about $140 million of EBIT and so if my mining business did $140 million -- that is a theoretical number -- Every thing else could break even and I would still be able to break even as a company.

So basically mining alone can cover your interest expense. Everything else break even?

If everything else broke even, right. (multiple speakers) The cranes netted against the construction and AWP.

I appreciate that, thank you.

Seth Weber, RBC.

Good morning, everybody. Just looking at the crane business, if we back out the Fantuzzi bookings, it looks like the crane orders are actually down sequentially. Is that correct -- pretty meaningfully?

No. I think from the crane business bookings would be -- backlog would be down sequentially. Fantuzzi or Terex Support Equipment contributed about $215 million of the backlog. (multiple speakers)

Right, so if you take that out, doesn't that translate into a lower booking number for the crane business, or is that incorrect?

That's incorrect.

Yes, we had -- I think we had $400 million in bookings less Fantuzzi.

A couple hundred million in order activity.

Yes, a couple hundred million.

Right, but it was almost $250 million in the second quarter of bookings? Or is that --?

The guys are gathering their numbers here.

No, it wasn't that high.

No, second quarter wasn't that high, about $150 million.

Actually we had incremental bookings in the third quarter. It's the highest bookings quarter we've had all year.

And for the first time, we are actually -- our book to bill ratio has actually turned positive and the amount of cancellations we have had has finally started to slow. That is a general comment I would make almost across the board.

Okay, I will check that. And then just following up on Ann's question, how much -- as you go back into growth mode, how much of the cost savings that you have seen -- you know, the $300 million run rate that you are aiming towards -- how much do you think -- how much will that -- how much of that will be permanent do you think as you go forward into -- get back into growth mode?

The way I've characterized that because it's a very fair question is that I would say about 70% roughly is variable. About 30%, 25% to 30% more fixed related structural things that we've taken out.

Okay, so maybe $100 million if you are targeting like a $300 million sale?

Order of magnitude.

Great, thanks very much.

Charlie Rentschler, Wall Street Access.

Ron, I wondered if you could give us your unalloyed views on the stimulus spending in the United States, both at the federal and the state level?

Yes, I think it's a bit of a sobering comment on our industry. I think a lot of the stimulus, the American Recovery and -- what is the act called? The American Recovery and Reinvestment Act I think is what it's called, a.k.a. Stimulus -- that at one point in time was to have been a major infrastructure act has been a pretty disappointing act.

I think there's been about $47 billion allocated for roads and bridges. Of that $47 billion, only $18 billion has actually been allocated at this -- particularly specified at this point in time and substantially much less of the $18 billion has actually been spent. And a lot of it has been spent to replace the state's prior spending on roads and bridges.

The states, 22 states as I know it has specifically said that they have replaced what they normally would have spent with the stimulus building spending -- stimulus funding spending. This means that there really hasn't been the kind of stimulus for our industry that our industry might have expected.

The current issue is really are we going to get the highway funds -- the highway trust fund reauthorized? The existing administration would like to see that be pushed out for 18 months. I think it has become politicized. Chairman Oberstar has a bill that he would like to see get passed the $450 billion and a $50 billion for high-speed rail, which is nearly twice what the existing SAFETEA-LU legislation is -- spend rate is.

In order to do that, you need to have a gasoline tax. In order to have a gasoline tax, you need to have broad-based political support. You have the support of the US Chamber of Commerce, the US Truckers Association, AAA, National Association of Manufacturers, but what you don't have is the support of the politicians. And it's been highly politicized.

So there's some real uncertainty around whether or not that reauthorization bill will takes place. And net-net for our industry is uncertainty. Uncertainty doesn't help anybody's business.

You know, I think everybody on this call needs to understand that our infrastructure does impact our economy. So the ability to move goods and services and people around efficiently will determine the strength of the US economy. Fortunately for us, there are other places in the world to look for business and 70% of our business has historically come from outside the United States. So that is what we are going to continue to do and hope that the US politicians can get their act together and put together a stimulus package that through the Highway Trust Fund, that can actually be spent quickly.

I am not encouraged, but we are working on it. We have an aggressive industry program to lobby in Washington. In fact, some of our leadership will be in Washington calling on Senators. We are going to talk to some Senators where we've seen our employment dropped from 4000 to 1000. We're going to tell them this is what happens when you have in effect a stimulus program. This is what happens when you pay -- when you repair potholes whereas other leaders in prior generations have built dams and built roads, instead of repairing potholes.

So Charlie, it's a little bit difficult environment, but we're going to do our best as an industry.

As a follow-up, and I know we are really running over here, but Ron, I know over time you've expressed concern about the Chinese construction equipment industry getting always bigger, tougher, and maybe possibly taking advantage of this terrible recession in Europe and the Americas. And can you give us an update? Do you see any activity of the Chinese people exporting or coming over to these markets?

I think China is an industry and a market that we globally are going to have to compete with and deal with. The Chinese market is the number one construction equipment market in the world. You have strengthening manufacturing that is taking place in China. Product quality isn't what it is in the rest of the world on all product lines, but in some, they clearly got world-class or approaching world-class type products.

I think this is the globalization that we are going to face. I think as an industry, we face the Japanese coming into our business, the Koreans coming into our business. And now it will be the Chinese.

Long-term, there's a couple of issues that have to be overcome. One, logistics never will be overcome. It is still a long way to ship equipment both from China to the United States and China to Europe, and that adds 10% to 15% in cost. Secondly, you have the world-class component requirements. To sell in the United States, you need tier 4 engines and you need first-class hydraulic systems. That's -- those are products that are available on a high cost basis from the Japanese market and the German markets.

And thirdly, eventually we will see the strengthening of the Chinese currency and as the Chinese currency strengthens, their competitive position diminishes. So this will be an ever-changing environment and I don't think we ought to fear competition with the Chinese, but I don't think we ought to dismiss them either.

Okay.

Steve Barger, KeyBanc Capital Markets.

Good morning, just one quick question. CNX, or I should say Console Energy indicated that increased financial safety and permitting risk could permanently reduce production in Central Appalachia. How much exposure do you traditionally have there? And does this have any positive or negative effect on your highwall mining products?

I don't think it has any real negative effect on our highwall mining product in the immediate term because we are trying to take that highwall mining product to a lot of different places in the world.

Highwall mining at this point in time is down because US coal prices are down. So we are not going to see much business from highwall mining in the short term. That's the main thing that is impacting that business. Highwall mining works well when people are looking to get that incremental amount of coal out, but when prices are where they are in the United States, they are not.

Okay, great. And overall, if Central Appalachia were to become impaired over time, that doesn't affect you that much traditionally vis-a-vis your geographic footprint?

On highwall mining, yes, it will affect us, but I really -- I'm not --

I don't think material line on any of the other segments.

Joel Tiss, Buckingham Research.

I will make it fast. You've done a great job answering everything. The large jump in accounts payable, I don't know if you addressed that or not on the cash flow statement.

Well, if you are looking at the balance sheet, Joel, picking up Fantuzzi, their payables were fairly high relative to our other businesses. In the base businesses, we have continued to be fairly flat or use of cash on payables. (multiple speakers) On the balance sheet, you will see Fantuzzi picking up.

Yes, there was a pretty big impact from Fantuzzi.

All right, thank you.

Robert McCarthy, Robert W. Baird.

Thanks for taking my question, guys. What I would like to do is I have two little follow-ups and then I had a real question. I will just give them all to you at one time. The follow-ups were one, there was a comment made about tier 4 prompting you to select exit as a strategic alternative for certain small product lines. Is that process complete or do you have larger decisions ahead of you? That's that follow-up.

The second follow-up was, Tom, you made some comments -- I think a couple times about getting raw materials unclogged. After all the work you guys have done on process, why do they need to be unclogged? Maybe this is a function of the restructuring efforts you are going through.

And then my real question is, I'm trying to understand what really has been happening in the large crane business. A lot of euphemisms around the idea of relatively better, but I'm not sure I understand what you're trying to communicate. Does that mean that order activity is down less than other types of cranes, that your backlog hasn't seen cancellations? Or are you telling us that you are actually seeing an improvement in some kind of leading indicators like inquiry levels or something like that?

So confusion about what's happening on the demand side in large crane crawlers.

Okay, we will let Rick answer that real question first, and then Tom will deal with the follow-ups.

Okay, I think and I tried to say it a little bit earlier, we see it as flattish. I think we were somewhat pessimistic early in this year and thought we would see this product category trend down like we've seen the other categories within the crane business trend down, although not as severe. Really over the course of the year through bookings and order inquiries and firm orders, we are back really close to the level we produced in 2009. And it's fairly close to 2008.

So we are very confident with our order pattern and we continue to have good negotiations with customers to continue to grow that in '10, because we still have opportunity to build.

We have a pretty unique product line in our demag large crawler crane business, which maybe some competitors in China are trying to get close to but they are really not there yet with -- and I think that has been very helpful to us.

And I would also say that that philosophy and order pattern and inquiry pattern is evident also in the larger -- over 500 ton AC class. So the larger class over 500 tons continues to be a strong product for us.

Robert, back to your question, tier 4 prompting exit in some product lines, most of the products lines have gone through review. There's a couple other products that we are still -- we want to call internally debating, but I would say the vast majority of the decisions have been made strategically. That doesn't mean we will be announcing them for an extended period of time based on obviously having to communicate appropriately with our dealer and distribution partners there.

These are also products that are immaterial to your total volume?

I would say on balance, they are relatively immaterial. These are clearly very much more niche products that are -- and/or product extensions that frankly were just I will say doing some minor pruning here, I think is another of putting it.

On the raw material comment, we have had -- while I've said we have had good cooperation from our supplier partners in general, we've had a couple of them that we have had some challenged discussions with relative to taking inventory or not. We've had a couple of them that frankly have got into significant financial distress that we have been working through, which part of that work through has involved in a few cases bringing material on board that we would normally not like to do.

And again, recognizing the order of magnitude of the drop that we have had in some of our businesses particularly where we have got different areas of manufacturing has caused us to have a significant amount of raw material. Our raw material balances are not dropping the way we would like to see that, and I'm very comfortable that it is not an E&O issue or a mix issue per se. I think it's really more a question of volume and getting them pulled through appropriately.

So I don't see anything unusual here that's going on other than recognizing the order of magnitude of when you've got drops in retail sales of 60% to 80% and then on top of that, as Phil went through, you've had some pretty dramatic inventory reductions on actually manufactured piece of this, when you work through that math, it's not easy to -- it would be relatively easy to see that we have got in some cases order of magnitude drops of 80% to 90% plus reductions in manufacturing on a year-over-year basis.

Thanks, that helps.

Matt Vittorioso, Barclays Capital.

Thanks, so in Q3, you guys were basically free cash flow neutral. Real quick, do you expect that to change at all in Q4 or as we look out into 2010 at any meaningful move up or down in free cash flow?

No, we're not going to give anything on 2010 because we're still working through our plans, but as we mentioned and I think of cash flow including working capital movements. And our working capital has been able to offset our profitability loss. I would expect we're going to see that continue in the fourth quarter is basically how I would leave that one.

So cash from ops less CapEx will be kind of similar to Q3?

Cash from ops is what I'm talking about. We are going to spend a lot in CapEx in Q4.

Okay, thanks very much.

Thank you. We appreciate everybody's interest in Terex today and I know we kept a lot of people on the call for a long period of time, so thank you very much.

This concludes today's Terex Corporation's 2009 third-quarter earnings release conference call. You may now disconnect.