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Terex Corporation (NYSE:TEX)

Q2 2009 Earnings Call Transcript

July 23, 2009 8:30 am ET

Executives

Ron DeFeo – Chairman and CEO

Phil Widman – SVP and CFO

Tom Riordan – President and COO

Eric Nielsen – President, Terex Materials Processing & Mining

Tim Ford – President, Terex Aerial Work Platforms

Rick Nichols – President, Terex Cranes

Analysts

Andrew Obin – Merrill Lynch

Jamie Cook – Credit Suisse

David Raso – ISI

Alex Blanton – Ingalls & Snyder

Ann Duignan – JPMorgan

Robert Wertheimer – Morgan Stanley

Henry Kirn – UBS

Meredith Taylor – Barclays

Andy Casey – Wells Fargo

Charlie Rentschler – Wall Street Access

Jerry Revich – Goldman Sachs

Steve Barger – KeyBanc Capital Markets

Tom Brinkmann – BMO Capital Markets

Joel Tiss – Buckingham

Paul Bodnar – Longbow Research

Operator

Good morning, my name is Brooke, and I'll 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).

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

Ron DeFeo

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 & 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’ll then open it up to your questions. And 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 and we will be going through this presentation on a page-by-page basis. So if I can direct your attention to page 2, 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. For 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 3. 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've 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 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've 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 remainder 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 we are 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 generation. However, we must look forward and we are. Net sales, looking forward, appear to have stabilized at least 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 Platform 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. Phil?

Phil Widman

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 55% from the prior-year quarter or 49% excluding the impact of foreign currency 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 costs 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 5 outlines the net sales bridge from last year's second quarter. And the significant declines in volume have been felt at 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 on 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 6 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 margin 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 the 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 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 [ph] 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 segment reconciliations, but we provided them for a complete visibility.

Let me refer to page 7. During the second quarter, we generated cash from working capital improvements of $219 million. Continued vigilance of accounts receivable collections and credit issuance contributed $122 million while cash through inventory reached $278 million.

Accounts payable was $181 million use of cash, given the reduction in incoming material. The accounts payable base 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 reduction 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 8, you'll see that we ended the second quarter with $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 and 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.

Tom Riordan

Thanks, Phil and good morning, everyone. As Ron and Phil discussed, we continue to live the 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 screen 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 Platform business, order rates were flat quarter-over-quarter and net sales were still slightly exceeding orders.

We continue to generally manufacture at 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 receivables 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. And as Phil mentioned, we are making a very good progress in inventory reduction. With over $300 million year-to-date cash impact, this is a significant accomplishment.

Back to page 9 of the presentation. We are continuing to have temporary closures and/or curtailments 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 in 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 now 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 at 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, Aerial Work Platform business was hit first with the economic crisis and it's been hit the hardest. With net sales down over 70% in 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 in 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 facility.

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 plan. 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 with 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've 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 these businesses this year.

On the next page, our Materials 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 flow for the balance of this year after Q2. That said, our Q2 net sales and order rates were up from Q1 and quotation activity remained strong. We are also seeing opportunistic buying from customers as well.

Our truck business had a great quarter; 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 the 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 24th 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.

Ron DeFeo

Thanks, Tom. So turning to page 15 and summary, the industry and Terex's revenue outlook remain 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, I can 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, Brooke, I would now like to open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Andrew Obin with Merrill Lynch.

Andrew Obin – Merrill Lynch

Hey, Ron, can you hear me?

Ron DeFeo

Yes, Andrew. How are you?

Andrew Obin – Merrill Lynch

Hi, how are you? 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?

Phil Widman

Andrew – I'll answer, it's Phil. Overall, looking at the cash effect of inventory reductions, the most significantly 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'd 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'm 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, 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.

Andrew Obin – Merrill Lynch

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? I mean, any sort of idea what do you think receivables will be by the end of the year?

Phil Widman

On a dollar basis, Andy?

Andrew Obin – Merrill Lynch

Yes.

Phil Widman

I think I would characterize receivables pretty close to the days number that we would have receivables. The issue on payables will be as we start to produce again, we will increase our payable. 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 payable 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 it’s going to be relative to the production levels.

Ron DeFeo

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

Andrew Obin – Merrill Lynch

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

Phil Widman

I would say generally that's right. If anything over a 12 month period, payables are 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 is 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 of 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 there is an opportunity for 2010.

Andrew Obin – Merrill Lynch

Okay. I appreciate your answers. Thank you very much.

Ron DeFeo

Okay. Thank you, Andrew.

Operator

Your next question comes from Jamie Cook with Credit Suisse.

Jamie Cook – Credit Suisse

Hi, good morning.

Phil Widman

Good morning, Jamie.

Jamie Cook – Credit Suisse

Two questions. One, the margins sequentially in the Materials Processing & 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 sequential basis? And then I guess the other thing I was struck by in your press release is you made the comment that you don’t expect to achieve profitability in 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'm sort of struck just because this was the business that was sort of the poster child for Six Sigma, lean, et cetera. So why aren’t we being more aggressive, I guess, lowering our breakeven costs?

Ron DeFeo

Okay, the couple of – there is obviously a couple of questions in there on two very important segments for us. First, with regard to margins in Materials Processing & Mining segment. What I'd like to say is that there is really two activities; it's really two businesses in there operating at 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 consolidate some operations. So I think back half of this year, we are going to begin to see some improvement and in 2010, I think we'll 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 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 and frankly, we sold a couple of large shovels at a lower-margin rate than we would normally sell because these shovels were sitting in inventory and we had an opportunity to sell them to a customer who was normally a fairly price buyer anyway and so we made that decision.

Let me then turn to the AWP questions and then I'll let Eric first and then Tim, if they want to comment more attending to your question. Aerial Work Platforms is, at this moment in time, a bit of an enigma in terms of predicting what the model will be. We think we have taken cost out quite dramatically and that we have taken more than 40% of the people as indicated in the 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 our 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 to trying to find the right message.

I shouldn’t – 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 then anything more? Do I have it pretty close to right?

Eric Nielsen

Yes, I could just add on 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 well, I don’t think margins will go back to the peaks of the 2008 level. They are – will firm now going forward. Mining continues to have relatively stable margins at the gross margin level.

Jamie Cook – Credit Suisse

Ron, just to be clear on the Aerial Work Platform side, it's not – is there any price – you mentioned price discounting in materials processing. Are we seeing anything on the Aerial side? Isn't that contributing to the losses at all?

Ron DeFeo

Tim, why don’t you address that?

Tim Ford

Yes. Jamie, let me try and paint the picture here. We have, as Ron mentioned, taken out a lot of cost, we've taken out SG&A, we've taken out overhead – manufacturing overhead as noted and we are running our factories at around halftime 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 are more on the cash side than we are on the profit side. And 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 about 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 and 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.

And that's why you hear the messaging that you are 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.

Jamie Cook – Credit Suisse

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

Operator

Your next question comes from David Raso with ISI.

David Raso – ISI

Hi, good morning. On the inventory reduction target, you are saying you are well on your way to essentially even exceeding the $500 million goal. You used to speak of ideally having inventory as a percent of trailing sales, 20%, 25%. Given your sales target for the year is roughly $5 billion, should we be thinking about that as still kind of a DMO for where you are trying to get the inventory toward? Because if that's the case, there is 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 operating cash flow target for the year?

Phil Widman

David, it's Phil. 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 level of 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 and 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 are 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 could do math, but I think you have to caution yourself on the timing of the cranes and mining in particular, reductions relative to the revenue. It's reasonably stable.

Ron DeFeo

What I would say to add to that is certainly there is 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 maybe, I think we will be able to address the size of the inventory reduction opportunity more precisely.

But clearly, we've got substantial movement 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 are right, there is a lot of opportunity on the balance sheet still, but I’m not ready to make the target number public yet.

David Raso – ISI

The cash flow target? Is that something you'd put some parameters around?

Phil Widman

Well, I think our cash flow; again it's going to be driven by the balance sheet as opposed to P&L obviously. And I think we'd be positive in each of the quarters as we go through the –

Ron DeFeo

Exactly. And 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 – we are trying to do is we are 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 is a number of moving pieces, most notably what will the revenue be, we are not ready to give a precise cash flow target.

David Raso – ISI

Related to that, looking at the mix of businesses, it sounds like some of the say larger equipment, the – some of the mining trucks and some of the larger cranes, while they are 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 one that would lead you out is going to be reflected in how you manage your inventory.

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?

Ron DeFeo

David, Tom Riordan.

Tom Riordan

I think one way of looking at this is last quarter we had said we expected the – our long cycle businesses, the large mining equipment and the large cranes, to have a slow decline over a period of time. And there was some suggestion that frankly we weren't being aggressive enough addressing this. A quarter has gone by and frankly the trends are very much in line with what our expectations have been.

So although we think there's still going to be a slowdown in the second half and potentially in the 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 and at the moment, again I think we are pleased with the kind of quotation rate 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.

So 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 on 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.

David Raso – ISI

I guess that's one other way. If you look out three to six months, do you have a better order book for those long cycle businesses, the large crane, 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 – I know you had some big RH shovels and – that you had to move.

And was it in a – in a way cherry pick to try to run the business for cash, selling some of those 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 are a little more optimistic your 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 are looking weaker six months from now? Or they truly have bottomed?

Ron DeFeo

Well, that's a great question and I think what I – the way I characterize is to put a couple of facts on the table. First, our orders rates for our European cranes 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 at 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 the 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 truck 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, no way as near what the – almost 20% margins we had some of our shovels over a period of time. But it's still a pretty good indication that that mining business is going away. On the other hand, a – 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.

David Raso – ISI

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

Ron DeFeo

Yes. 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 goes down – these go down more.

David Raso – ISI

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

Ron DeFeo

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 ready to say optimism will bounce here.

David Raso – ISI

Thank you very much.

Ron DeFeo

Thanks.

Operator

Your next question comes from Alex Blanton with Ingalls & Snyder.

Alex Blanton – Ingalls & Snyder

(inaudible) ask on the Aerial Work Platforms. I want to ask Tim, how much the fleets have been reduced in their buying. How aging has been going on? What are the – give us some examples of average ages, because typically 35 to 40 months is what the largest fleet suite for. Where are they right now and if they are quite a bit above that, wouldn’t that mean that they have to stop doing that sometime soon?

Ron DeFeo

Go ahead, Tim.

Tim Ford

Ron, thank you. 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 – the net age of the fleet may or may not have moved depending on the age of the equipment that the customers sold off. So we like you are trying to figure out what is the age of the aerial fleet and obviously that’s the piece of data that not all customers are willing to share in detail. So we are working through that, trying to get our best handle on that.

Our sense is that, is that the fleets are 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, we will begin to find now. And so that the aging of the fleet will really be evident in the first quarter or second quarter of next year and that’s when, as I said earlier, that’s when I think that we feel that you’re going to start to see a material change in volume patterns.

Alex Blanton – Ingalls & Snyder

Yes. But typically and 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 – and say, we are going to be a change, it wouldn’t really see it until then.

Ron DeFeo

Alex, I think, we are not saying 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.

Alex Blanton – Ingalls & Snyder

Correct.

Ron DeFeo

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 AWC to see whether or not the business stays relatively flat with what we have experienced in the first of this year or actually declines relatively 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 are going to see and it will be driven by the overall economic view of our customers and how aggressive they want to be.

Alex Blanton – Ingalls & Snyder

Okay. Did you have any inventory reduction? Did that generate any significant LIFO gains? Where are you on that?

Phil Widman

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

Alex Blanton – Ingalls & Snyder

Yes. Okay. Thank you very much.

Phil Widman

All right.

Operator

Your next question comes from Ann Duignan with JPMorgan.

Ann Duignan – JPMorgan

Hi, good morning, guys.

Phil Widman

Hi, Ann.

Ann Duignan – JPMorgan

Ron or whomever wants to take this question. If I look at your absolute inventories, they are about 2 billion versus your backlog of about 1.6 billion. I appreciate and understand the pressure that you are 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 segments and tell us specifically what impact pricing had on revenues and margins?

Ron DeFeo

Well, probably not to give you an impact on pricing by segment revenues and margin. Generally, I will tell you that our pricing has been fairly firm on machinery, okay? 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 priced buyer and that they were going to put that 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, pretty well on machinery. I think the major area where there is pricing pressure is in used equipment and you know that’s more of our customer’s problem than our problem, but it periodically becomes our problem. And I don’t know anyone of the guys want to add comments.

Phil Widman

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 a lot of significant pricing pressure with the exceptions the 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 pointing activities to speak that’s unusual.

In fact, we have 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 pumping inventory out at any cost. So if that's the impression, that shouldn't be there, Ann.

Ann Duignan – JPMorgan

Okay. I just think it's always a temptation when you are running the business for cash. And 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 worlds did you see a buyer come in? And then the same question on the aftermarket, is it sustained aftermarket demand in its 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.

Ron DeFeo

Well, the one customer we are referring to is in Asia and in particular in India, okay? Which tends to be a fairly price oriented, bid oriented market. And Eric, why don’t you handle the parts question.

Eric Nielsen

Sure Ann. I mean 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 as they have managed for gas. 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.

Ann Duignan – JPMorgan

So you would characterize it more as potentially restocking as opposed to really driven by an increased in activity.

Eric Nielsen

Well, 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 to as consumption picks off as it will and as the fleets have aged that there will be more parts consumed and we can’t position to take advantage of that.

Ron DeFeo

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 of platinum. And at the beginning of the year, they had said 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 run 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. And 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 it back then. All right?

Ann Duignan – JPMorgan

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

Ron DeFeo

We agree. Maybe there is an idea in there someplace that we can work on. We will figure it out.

Ann Duignan – JPMorgan

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

Ron DeFeo

Well, we have a very creative management that’s sitting in Northern Ireland. So we will give –

Ann Duignan – JPMorgan

Yes. Okay. I will get back in line. Thanks. That was good color. I appreciate it.

Operator

Your next question comes from Robert Wertheimer at Morgan Stanley.

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? I mean 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 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 component tree I don’t know.

Ron DeFeo

Rob, some of it is aged inventory that we are very routine basis, speaking for construction. An example, there is a weekly update for any and all aged equipment that’s been more than three months since manufactured that we don’t have a specific order for and we go through that in detail in 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 what business that is out there.

In most of our markets, customers were looking for extremely quick turnaround time and we had talked a little bit about the opportunistic sale on shovels in mining. But frankly, we are finding a lot of areas whether it’s on trucks, whether it’s on some frames, whether it’s on clearly on the AWP side. If we have the inventory on a short notice basis, we are more likely to get the ores. So it’s a balance on the inventory reduction side of balancing our customer availability versus just kind of continuing down the path growth as to keeping inventory and bound with sales.

Overtime, there has been tremendous progress in cleaning up, what I would describe as slower moving finished goods inventory and being much more in the – a plan full stage con bon amount of product that we need to have in order to responsive to customers and a short cycle order environment.

Robert Wertheimer – Morgan Stanley

I know this is going to be asking too much, but are you willing to say how much is above that three month mark companywide?

Ron DeFeo

You are right. It is too much.

Robert Wertheimer – Morgan Stanley

I will let her go. Second, you see more negative on used equipment than others in the industry we have heard. I mean most people are saying it’s been down 15% or maybe a little bit more, but your comments sounded a bit more negative. And similarly, you sounded actually a little bit more positive on mining truck orders and I guess I am curious on the first on used equipment, why you think is down? And then on the mining trucks, is it sort of Terex-specific, share-gain-specific, commodity-specific, or where are you seeing the orders?

Ron DeFeo

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 fleets to cash. But, Tim, go ahead.

Tim Ford

And I think the comment specifically about the used in aerials is largely a function of our larger customers trying to size their fleet to the volume of business they have and that’s put a lot of pressure 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 to 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 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 been put into auctions and those sorts of things. I think that’s really going to be essence of maybe the negativity that you might sense.

Robert Wertheimer – Morgan Stanley

Specifically the aerials then?

Tim Ford

Yes.

Robert Wertheimer – Morgan Stanley

Okay.

Tom Riordan

One other comment, Rob, is that in general, we are very cautious about taking used equipment in trade. I think we have been very aggressive in managing that, because frankly, our view is doing that simply delays the headache particularly on used equipment market is depreciating the way most of our products had been and across the board, not necessarily specific AWP. So I think 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 evaluation and any kind of trade activity and being very quick to move it on to an ultimate end user.

Ron DeFeo

Okay. Those were second part of your question.

Robert Wertheimer – Morgan Stanley

Yes, it was just the mining truck comments. I am sorry to go on so long. With the mining trucks, you sounded like you are still getting some orders.

Ron DeFeo

Eric, do you want to comment on that.

Eric Nielsen

Sure. Just generally, we are seeing relatively robust quoting activity across activity across mining, and trucks is very much benefiting from that. In terms of the actual orders though, we are seeing some, I will 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 view point, we believe that our AC drive trucks offer the best value on the market and customers in the right type of mine application, recognizing that as well and we are benefiting from it accordingly.

Robert Wertheimer – Morgan Stanley

Thanks.

Operator

Your next question comes from Henry Kirn with UBS.

Henry Kirn – UBS

All right. Good morning, guys.

Ron DeFeo

Good morning.

Henry Kirn – UBS

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 that it’s still constrained. But is it getting better or worse?

Ron DeFeo

As it relates to specific financing our equipment, I would say it’s about the same. Good deals we’re getting done quick, are quick relatively speaking for the – but everybody is being cautious. It’s a scrutiny; it’s an underwriting effort that’s continued to be the key to 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.

Henry Kirn – UBS

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 maybe a little better?

Ron DeFeo

Well, there is only real, one real stimulus package in the world and it’s happened to be located in China. And it is benefiting out and it’s the one market and our developing markets portfolio that's actually up on year-over-year basis. So while that’s good, we don’t sell as much as we would like to China.

And clearly, the Chinese Government is promoting their own domestic agenda which is directly including the domestic manufacturers. So long-term it’s a strategic threat to the industry, because the – there is real China stimulus, there is real investment, there is real economic change taking place and there is 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 they are – and materials 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, Henry, 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 are going to need pressing and screening equipment and our new factory is going to be in a good place to service that market.

Henry Kirn – UBS

It’s helpful. Thanks a lot.

Ron DeFeo

Okay.

Operator

Your next question comes from Meredith Taylor with Barclays.

Meredith Taylor – Barclays

Hi, good morning.

Ron DeFeo

Good morning, Meredith.

Meredith Taylor – Barclays

Could you talk a little bit about the paths to profitability for the construction business? You discussed that AWP could be unprofitable for the next 12 months end market pickup. And I realized that 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 are taking?

Tom Riordan

Meredith, it’s Tom Riordan. Similarly to what the conservations have 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 will see in 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 am very pleased with the inventory reductions on our and in addition to what we are seeing on the dealer side till we continue to under run retail, that’s a number of the we monitor with a fair amount of frequency to make sure that we are reducing channeled 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 am still personally confident that we will see a profitable business next year in construction. Now is it going to be 1Q? Time will tell. Is it going to be a significant profit? Maybe not. But that being said, with the actions that we have taken and assuming there is not further deterioration in order rates and 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 it’s not further deterioration, I think we are on the right trajectory.

Meredith Taylor – Barclays

Okay. That’s helpful. Could you just give us a sense of what the dollar amount might be in terms of the swing that you are going to get from the rollout of works account – of the headcount reductions that you have agreed on with the Works Council?

Ron DeFeo

Now, I am not certain we are going to be a position to share that Meredith. But I think it’s a very meaningful part of the reductions in terms of how we are reducing and frankly eliminating the losses in that business.

Phil Widman

What I would say, Meredith, is in the presentation we provided that we provided there on page 12 of the presentation a construction trends 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 will see the delta is required to get this business to breakeven, because we are not really forecasting a major revenue uptick from where we are.

Ron DeFeo

Correct.

Phil Widman

So I think we’ve given you a kind of the pathway to get there, but I absolutely characterize it as headcount versus manufacturing versus other. We are not ready –

Ron DeFeo

Versus absorption and so on, because again, recognizing, we are under running retail rates and as result, the factories are significantly under utilized at the moment. Many of them are on extended shutdowns maybe more or so in some of the rest of our businesses.

Phil Widman

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 inventories that was at in our factories at a higher price. So that material cost reduction is starting to percolate through the P&L at this point in time. Okay?

Meredith Taylor – Barclays

That’s helpful. Thanks so much.

Operator

Your next question comes from Andy Casey with Wells Fargo.

Ron DeFeo

Hello Andy.

Andy Casey – Wells Fargo

Good morning. Couple of 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 for bailing asset value evaluations, kind of uncertainty about when the recovery will occur and just play management capacity versus everything you have going on internally?

Ron DeFeo

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’s 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, very precisely. But my comment was more around two factors.

One, I don’t think the asset base has – the evaluations in the markets have deteriorated sufficiently. And secondly, until I have more confidence in our core franchises, I am 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 our – of the companies in our sector will remain vulnerable for a while and they will have difficult in getting access to capital. And those will be the targets that we think where great values can be achieved.

And 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 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 then really 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.

Andy Casey – Wells Fargo

Okay. 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?

Ron DeFeo

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

Andy Casey – Wells Fargo

Yes, just, machines potentially sitting around, not doing any thing versus – ?

Ron DeFeo

Unused fleet. I think that that it’s going to be a combination of tower cranes and rough terrain cranes that have gone through tremendous downturn particularly in North America for the rough terrain and power 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?

Rick Nichols

Yes, sure. I certainly think the power crane business really more so just in the North American phenomena, but really across the globe has been significantly affected. We are a small player in the power crane market, about 12% market share. But I think in general, you are 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 quotes and quotes activity and 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 smaller channel inventory and we measure that very monthly to make sure that we are in overproducing 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 will be driven in the market by OEMs. But I think we are in a very 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 now tying up the capital and our distributors’ capital in the marketplace.

Andy Casey – Wells Fargo

Okay.

Ron DeFeo

Thanks. Thanks Rick.

Andy Casey – Wells Fargo

Thank you very much.

Operator

Your next question comes from Charlie Rentschler with Wall Street Access.

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 pickup. But what will it take and a couple of people have talked about aging fleets, but there’s got be a lot more to it than that for rental shop to one that starts buying these things. Can you give us some background on that please?

Ron DeFeo

Well, let me give you some background and maybe Tim is going to add to it too. Fundamentally, our customers have to believe they can make money on Aerial Work Platforms. That’s the key. And they have historically made a reasonable returns on the capital and I think they can look to future – 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 are very, very diversified business. It’s just not 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’s an ongoing issue. I think that issue will change. And I think our customers when the economies begin improving, we will see if they can make a decent return on their business. So Tim, I am going to move try to move some of these questions along. But did I get that pretty close, Tim?

Tim Ford

Yes, you did. It’s really the balance between metal rates and time utilization and you know that’s been out of whack. And as it comes more back into whack with the de-fleeting, we will see the industry pickup.

Ron DeFeo

Okay.

Charlie Rentschler – Wall Street Access

Thank you.

Ron DeFeo

Yes, thanks, Charlie.

Operator

Your next question comes from Jerry Revich with Goldman Sachs.

Jerry Revich – Goldman Sachs

Good morning.

Ron DeFeo

Good morning.

Jerry Revich – Goldman Sachs

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?

Eric Nielsen

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

Jerry Revich – Goldman Sachs

And 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 are seeing in some other regions for base metals as well?

Eric Nielsen

Yes. 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. Other base metals are also involved.

Jerry Revich – Goldman Sachs

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

Eric Nielsen

Well, 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.

Jerry Revich – Goldman Sachs

Right. And Eric, on these 20 trucks that you booked in the quarter, can you just describe the delivery times that you have permitted to roughly?

Eric Nielsen

Yes, it’s spread out over the second half of this hearing going into the first quarter of next year.

Ron DeFeo

This is kind of normal, normal commercial transactions we are running through here. So –

Eric Nielsen

Yes.

Jerry Revich – Goldman Sachs

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

Eric Nielsen

It improved sequentially.

Ron DeFeo

Yes. We got to move on now, Jerry.

Jerry Revich – Goldman Sachs

Thank you.

Ron DeFeo

All right. I am going to try to close this call at 10 o’clock and there is a few more people to get to this. So let’s go.

Operator

Your next question comes from Steve Barger with KeyBanc Capital Markets.

Steve Barger – KeyBanc Capital Markets

Hi good morning.

Ron DeFeo

Good morning, Steve.

Steve Barger – KeyBanc Capital Markets

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 pushed 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?

Phil Widman

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

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

Ron DeFeo

That investment’s 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 the downturn. It’s a strained situation and in for some suppliers, because they overbuilt or we over ordered. But at the end of day, we are really happy that that investment is now in place for us.

Steve Barger – KeyBanc Capital Markets

Very good. Thanks.

Operator

Your next question comes from Charles Brady with BMO Capital Markets.

Tom Brinkmann – BMO Capital Markets

Good morning, this is actually Tom Brinkmann standing in for Charlie Brady. Just one quick question, wanted to know about sort of the distribution to the market by size of equipments, whether you talked about larger cranes being little bit softer. I am curious with on the low end, compact construction equipment you talk about the trends you are seeing across product sizes?

Ron DeFeo

Yes compact equipment has been devastated, let’s be straightforward about it. I mean no matter where you are in the world, you are looking at anywhere between 60% to 80% reductions in the industry in the developed markets, so 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 2007, it was 2008 was down 10% first quarter, but I want 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 have got the large and small numbers that next year it’s almost inevitable that we are going to see some growth.

Tom Brinkmann – BMO Capital Markets

Okay, thank you.

Operator

Your next question comes from Joel Tiss with Buckingham.

Joel Tiss – Buckingham

Hi guys, how you’re doing?

Ron DeFeo

Good Joel.

Joel Tiss – Buckingham

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

Ron DeFeo

Well, 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, okay? At this point in time, that’s not clear where exactly the best application or uses of that cash will be in early 2010. Our priorities will be to get the highest return for our shareholder. So that is unlikely to be in a stock repurchase, but it’s possible that we can decent returns on debt pay downs and acquisitions.

Joel Tiss – Buckingham

Okay. And just one clarification too is the sort of implication with second half 2010 Aerial Work Platforms gets better, is that taking into account the inventories that are in the option channel and all the different channels as well or is that just more of how you’re seeing it?

Ron DeFeo

That’s how we. 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 you know by the middle of 2010, that will have been two full years with almost buying nothing and eventually they are going to have replace some of them.

Phil Widman

And we are already seeing some signs of their maintenance cost going up. So I think there is a very clear understanding on our customers part as well, the implications of the aging fleet.

Ron DeFeo

Okay.

Joel Tiss – Buckingham

Okay, thank you.

Ron DeFeo

All right.

Operator

Our last question comes from Paul Bodnar with Longbow Research.

Paul Bodnar – Longbow Research

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

Ron DeFeo

I think the jury is out on our ability to remain profitable at the trough. We believe we can and part, 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, 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’s 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?

Rick Nichols

I think you do.

Ron DeFeo

All right. Well, then, I think we are at 10 o’clock and I want to thank everybody for their participation. There has been an hour and a half of good dialog. 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.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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