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Title: Terex Q3 2010 Earnings Call Transcript

Symbol: TEX

Call Start: 10:00

Call End: 11:24

Terex (NYSE:TEX)

Q3 2010 Earnings Call

October 21, 2010 8:30 am ET

Executives

Ron DeFeo - CEO

Phil Widman - SVP and CFO

Tom Riordan - President and COO

Tim Ford - President, Aerial Work Platforms

Tom Gelston - VP, Investor Relations

Rick Nichols - President, Cranes

George Ellis - President, Construction

Analysts

Jamie Cook - Credit Suisse

Meredith Taylor - Barclays Capital

Jerry Revich - Goldman Sachs

Henry Kirn - UBS

Charlie Brady - BMO Capital Markets

Ann Duignan - JPMorgan

Andrew Obin - Merrill Lynch

Robert Wertheimer - Morgan Stanley

Seth Weber - RBC

David Wells - Thompson Research Group

Robert McCarthy - Robert W. Baird and Company

Matt Vittorioso - Barclays Capital

Joel Tiss - Buckingham Research Group Inc

Operator

Welcome everyone to the Terex Corporation's 2010 Third Quarter Financial Results Conference Call. (Operator Instructions).

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

Ron DeFeo

Good morning ladies and gentlemen, and thank you for your interest in Terex today. On the call with me this morning is Phil Widman, Senior Vice President and Chief Financial Officer; Tom Riordan, the company's President and Chief Operating Officer; as well as Tom Gelston, Vice President of Investor Relations. Also participating on the call and available for your questions and the follow-up period will be Rick Nichols for our Crane segment; Tim Ford for Aerial Work Platforms; George Ellis for the Construction business; Kieran Hegarty for Materials Processing and [Steve Filipov] for Developing Markets.

A replay of the call will be archived on the company's website www.terex.com under audio archives in the Investor Relations section. I would like to begin with few opening comments followed by Phil, who will provide more detailed financial report and Tom, who will discuss operations by segment. Then we will follow it up with your questions during the Q&A portion, please ask one question and a follow-up. The presentation we will be referring to is accessible on the company's website. Let me begin by referring to the forward-looking statement on Page 2, which I encourage you to review and to read.

Turning to Page 3, which is marked overview. Our third quarter operating performance was mostly in line with our expectations although our Crane revenue deteriorated faster than we have expected. Net sales for the quarter were flat versus the sequential second quarter period and up approximately 15% with prior year. The results were quiet mixed with stronger revenue performances in three segments AWP, Constructions and Materials Processing, the Cranes actually declined both from Q2 and last year.

We experienced solid backlog growth in all segments expect Cranes versus the prior year and most of the Crane weakness came from our All-Terrain and Crawler products that we produced in Europe and we will discuss this further in the call. We had continued strong quotation activity in Port Equipment, but as you know most of the quotations we make today are for delivery in late 2011 and 2012.

Our production schedules overall in the company continue to increase in most of our businesses and this has been the primary contributor to the year-over-year operating profit change, as we returned to a more stable production environment. Some additional restructuring activities are expected in Construction and Cranes, but these should be relatively small.

Looking forward, we expect the fourth quarter to reflect strengthening order trends in Aerial Work Platforms, Construction and Materials Processing, but with the weaker Cranes business than we had previously anticipated. Given the backlog in Cranes, however, we do expect a meaningful sequential net sales increase in the fourth quarter. Overall, we expect net sales to increase approximately 10% to 15% sequentially and to generate an operating profit of roughly $15 million in the fourth quarter excluding unusual items.

The mid and longer term expectations for Terex remain unchanged and we are encouraged with our prospects. We will continue to invest in developing markets and in the systems required to run our business better.

Our AWP, Construction and Materials Processing customers are frankly quiet upbeat for 2011 and we expect Cranes to be relatively flat versus 2010. We are not in position to set overall expectations for 2011, but we do expect it will be a profitable year. A further more, we expect to reinvest our cash in the business, repay additional debt or a combination of both in 2011.

Now, I would like to turn it over to Phil, who will cover the numbers and debt. Phil?

Phil Widman

The table on Page 4 displays the quarterly year-over-year and sequential performance for the continuing operations of the company. Net sales increased 15% from the prior year quarter and were flat sequentially. Excluding the translation effect of foreign currency exchange rates changes, net sales increased 19%, compared to the prior year quarter. However, sequentially there was no significant impact.

Generally, the increases included all segments except Cranes, which continue to experience softening demand in certain product areas mainly All-Terrain and Crawler Cranes. We had income from operations of $3 million in the third quarter compared to a loss of $100 million in the prior year quarter.

Increased production levels, cost reductions and volume increases favorably impacted the comparisons to the prior year quarter. Sequentially, the three recovering segments of AWP, Materials Processing and Construction provided the uplifted volume to more than offset the Cranes decline.

Working capital increased in the third quarter by $246 million more than the third of this relates to the translation effect of foreign currency exchange rates changes, with remainders spread across the segments that was the in Cranes majority of the impact.

The recovering segments are increasingly building to higher expect demand. Cranes on the other hand experienced customer cancellation and shipment delays, which pushed the working capital higher than our expectations. We expect to reduce working capital in our Cranes segment as production and demand get more in line. Balancing this with some increase in the recovering segments should improve our working capital of the sales ratio as Cranes typically as the higher ratio than the other segments.

Net debt increased to $619 million mainly due to working capital build in the period and capital spending partially offset by the positive translation effect of foreign denominated cash balances. Overall, liquidity remains strong at $1.86 billion with cash balances of $1.35 billion and availability under our revolving facility of slightly over $500 million.

During October we repaid approximately $270 million of term debt consistent with the terms of bank amendment, we recently completed. We have also launched offers to purchase at par the outstanding 10 and 7/8 senior notes and 7 and 3/8 senior subordinated notes with net available cash from the sale of the mining business. To the extent these offers are not accepted by November 3rd when they expire the remaining cash will be available for general corporate purposes.

Page 5 displays other financial items for comparison purposes. The other expense in the period, which consistent with prior periods includes the marking to market of our derivative instruments intended to partially mitigated price risk associated with the Bucyrus international shares we received for the mining sale earlier this year. This amounted to expense of approximately $21 million in the quarter, as the Bucyrus share price rose during the period.

Tax expense for the period included several discreet items, which are displayed on Page 6, where you can see the approximate earnings per share impact for the third quarter. First the derivative instrument impact an EPS is approximately $0.12 per share. Next we identified that we were likely not to realize the benefit of certain deferred tax assets given current projections of profitability related to the timeframe for its expiration.

We recorded a valuation allowance on these assets of $21 million or approximately $0.19 per share. A review of uncertain tax positions resulted in discreet tax expense of approximately $12 million or $0.11 per share. Lastly, we elected to carry back the net operating losses on our US tax return, which caused an additional expense in the current period of approximately $6 million or $0.06 per share. This decision were result in a cash refund a roughly $100 million, which we should receive in the next 60 to 90 days. In total these four items account for roughly $0.48 of the $0.82 per share loss for the period.

Turning to Page 7, we have outlined the bridge between the last year’s operating loss from operations of approximately $100 million to the income from operations of $3 million with segment details as well. The most significant changes are as expected in the largely favorable volume effect from the recovering segments, partially offset by the Cranes decline.

The positive effect of manufacturing absorption of building more to retail demand this year continues to provide the most significant leverage, as approximately $66 million of our year-over-year profitability improvement in this area in the third quarter. Year-to-date this absorption benefit has resulted in an improvement of approximately $140 million in operating performance over 2009.

When thinking of incremental margin improvement as businesses transition to recovery, the first significant impact is absorption, the impact will decline over time, as we begin to reach production levels close to retail demand. For the three recovering segments, Aerial Work Platform, Construction and Material Processing we are basically at that point now. This is evident in our third quarter, where sequentially absorption and capacity variance only provided roughly $10 million of pickup in operating income from the second quarter of 2010.

The next stage is the hold cost growth to significantly less than volume increases and last to recover is outright price leverage coupled with the decline in trading volume. This occurs when demand outstrips the readily available supply, which is unexpected and this is not expected to current in the near term. For certain Cranes products, we still need to decrease our production levels to match the declining demand, mainly All-Terrain and Crawler cranes. Our overall incremental margin results in the near-term will reflect all of these factors.

Let me refer to Page 8. Overall working capital statistics have slipped from our expectations for the third quarter, as we have started to produce at higher levels of demand in the recovering segments, while the crane slowdown in demand has contributed to higher working capital levels in the short-term.

I will turn it over to Tom to provide an operational update.

Tom Riordan

I cover the current views of our markets and current performance and then go through a few Terex slide update. As you can see from the chart on Page 9, three of our businesses were recovering nicely with very good year-over-year performance gains in revenue and incremental margins. As you would expect and as Phil discussed briefly, the rate of revenue increase in three of our businesses is driving working capital increases. That said, over a third of the increase was from foreign exchange. The balance is somewhat equally spread between our four business segments. We expect working capital to begin to come out of Cranes and the other three businesses we will continue to see moderate increases at a rate less than revenue growth.

Let’s begin with our Aerial’s business. We had a very strong order rate for the quarter with backlog up 45% sequentially and almost doubling from last year. Brazil and Australia are strong markets. The US market is solid and Europe continues to be weak. As I mentioned in our last call, the larger rental companies are engaged with us on planning their 2011 requirements. Used equipment pricing continues to firm up and while many transactions still involve trade-ins, deflating is slowing rapidly.

Our net sales were up nicely compared to prior year and we expect this trend to continue. As part of our channel diversity strategy, we have received an $18.9 million order for specially designed telehandlers for the US Marine Corps to be delivered primarily in 2011. Part of this order is now in the backlog. We see this is a very positive strategic step for our Aerials business. Additionally, we have started up our Changzhou facility in China on time and had a budget.

Moving onto Construction, net sales continue to show strong growth over prior year and even up a little bit from the second quarter, which traditionally is our strongest quarter per sales. We continue to move closer to reaching profitability. The Construction team has seen solid growth in orders for Heavy Equipment, Rigid Trucks and Material Handlers, which we expect to carry into 2011. Our Compact business is seeing good order rates throughout Europe and Latin America, with a little softness in North America. As we expect, we are seeing seasonal softness in our road building product line.

Overall for the Construction segment, we should see good sales performance in Q4, which is traditionally one of our softer revenue periods. We are still very excited about the upcoming new product launches of the next-generation of loader backhoe and a new skid steer product line, which will show revenue impact in 2011.

Our Cranes business had a challenging quarter. Sales were down 15% compared to prior year and while we have been communicating throughout this year, we would see a decline this quarter’s drop was steeper than what we had expected. Part of this reduction was deferred deliveries into Q4. Order rates were okay for the quarter and backlog basically was flat compared with Q2. We are expecting a rebound in revenue in Q4, the vast majority of which is due to existing orders in place rather than an uptick in orders.

We are keeping a very close contact with customers to ensure we are accurately assessing the market condition. As I mentioned in our Q2 call, we are likely to see a volume reduction in over 300 tonne mobile cranes in 2011, rebounding in 2012. Our Port Equipment business continues to slowly rebound in performance, while we are seeing container traffic pick up and requests for quotes continue to be up, we are still in position and working hard for orders to fill our plans.

Moving on to Material Processing, our Crushing and Screening businesses also had a solid quarter compared to Q2 and substantial improvement versus last year, up nearly 50% in net sales. We are back to what we consider to be normal seasonality with dealer inventories very much in line with our expectations and backlog declining at this time of the year.

North America and Europe are recovering as expected with strong markets in Australia and Southern Africa. New product launches in Q3 targeting mining applications with larger capacity equipment have been very well received from initial customer reaction.

With Terex overall emerging markets continue to perform well with for us. China continues to be solid market with Brazil, India and other markets are very significantly year-over-year. Over 30% of our net sales continue to come from markets with above average growth rates and strong needs for infrastructure.

Moving on to Page 10, you can see the progression of our backlog trends by quarters since 2005. At that point in time we had an excessive $5 billion in net sales. Well, I am not suggesting a future recovery will follow a similar pattern to the last five years, I do believe our overall backlog is basically leveled out and you will see a change in backlog mix trends between segments with cranes reducing as a percent of the total and our other three segments continuing to recover nicely.

Lastly, let me touch on material cost trends. We continue to see moderation in commodity pricing trends in steel and other commodities in general. Well, we are seeing pressure on tire pricing and some other categories, we expect relative price stability into Q1. Our supply chain team is done has had great success in driving our cost performance.

Our key corporate initiatives remain on track. Our Terex Management System is working well and we have an aggressive implementation scheduled for 2011, when enhancing approach with our business Terex business system, our lean initiative, where the core group of leaders working to expand our scope to the whole enterprise including customers and suppliers. Our Tier 4 program for engine changes to comply with machine regulations is very much on track. All and all we are making very good progress in positioning Terex for a much brighter future.

At this point of time, I will turn it back to Ron.

Ron DeFeo

Let me summarize and go to the slight number 12. This has been and will continue to be a challenging year for us. When we sold the mining business, we expected our other product categories would be slow to recover. Unfortunately this is proven to be the case, as a broad base recovery has not really materialized. However, there are clear performance improvements underway and orders that support our expectation that we will see a substantially stronger 2011 through 2013 period.

The investments we have made in developing markets as well as the aggressive pursuit of several large orders, will contribute significantly to our future performance. We paid down $270 million of our term debt and we have offers to purchase at par 10-7/8 and 7-3/8 bonds. We had difficult in finding appropriately priced acquisitions and while we continue to consider strategic and financially interesting deals, there are more limited prospects than we had expected.

The fourth quarter will show improvements, but not yet a net income. In conclusion we are about, where we expected except that our crane decline was a little bit steeper than we expected, being offset with a little bit better performance in some of our other businesses, somewhat for delivery in early part of 2011.

There are a lot of encouraging signs are reflect upon the business, even in Cranes frankly. Today, in Germany, we have 1,120 customers visiting us from 50 countries all over the world and they are not visiting us to have just a beer, they are visiting us to discuss their crane needs next year and the years after. Frankly, there are more upbeat in our leadership team expected and we have gotten a great turnout.

Our last week we had the largest fleet managers in the United States for all equipment at our corporate headquarters for a session that involve, our senior management for two days. It was a great meeting and Terex prospects look excellent with these fleet managers. We have more new products ready for introduction completing our testing right now and ready for introduction in 2011. Then I have seen in my many years at Terex.

Our revenue has diversified, we have been able to grow our revenue in the developing markets, but the developed markets revenues we have frankly still not come back that strongly, but that will begin to change in 2011 and in particular with Aerial Work Platforms leading the way in the United States.

In general we had a tough quarter. We are above where we expected and we are looking forward to completing this year strongly as we possibly can and moving in to next year to deliver that level of profit that we need to achieve.

Let me open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jamie Cook of Credit Suisse.

Jamie Cook - Credit Suisse

Ron my first question, you made some comments about 2011 that you hope to be profitable and I guess what I want to clarify its on an EPS basis, but can you give us a little more color in that. Do you expect to be profitable across all segments and will 2011 be a normal seasonal year-over-year profitability deep back and loaded. My follow-up question is on acquisitions, and how you balance that paying down debt, there has been obviously lot of speculation that you guys were interested in Demag and I’m just trying to get a sense of, I understand you want to buy a business that gives you cyclical leverage, but how do you balance that with making sure your businesses are well cyclical that they somewhat counterbalance one another and crane doesn’t seem to do that, so if you could comment on that?

Ron DeFeo

Well, there are a lot of questions in that Jamie and I’ll do my best. First, let me start and say, by saying I expect 2011 to be profitable. It is on an income basis then its not one penny, okay. I expected to have a meaningful level of profitability. I expect all of our segments to be profitable at the operating profit line. I expect us to still have a little bit too much overhead as we implement our Terex Management Systems and continue building the Terex Management System that we think are critical to achieve the longer term profitability that we have laid out.

I don’t want to set expectations at this point in time because we haven’t completed our budget reviews and there is obviously a lot of tradeoffs that we will be looking at in the short-term. Overall, we said in the last quarter that we expect to be had an inflection point. We are at that inflection point. The Cranes business with a little bit more disappointing than I was hoping for, particularly in the third quarter in that we had a number of order cancellations and pushouts and we will recover a little bit in the fourth quarter, but we don’t expect Cranes to deteriorate much more than it is right now, next year, but we don’t see a tremendous uplift if anything it will happen in the back half of the year in Cranes.

Overall, that will mean that 2011 is solidly profitable, 2012 is much better, and 2013 will be close to the expectation that I have laid out if not on them, that’s what we are driving toward. By 2013, we will be in a growth capital mode for many of our customers, which will give us even some pricing leverage frankly that we don’t have right now.

Let me comment on your question about acquisitions. We don’t comment on rumors or speculation and so your point of Demag Cranes, I just can’t comment on that. I don’t think it would be appropriate and the [press rumor mill] certainly for some reasons gotten a bit out of hand. I’d say we don’t just look at our business by what the external world calls, our Crane business is a huge mix of different products today. We have Tower Cranes that operate differently than Lattice Booms that operate differently than our Port Equipment and obviously we are going to look for those opportunities that improve the company’s financial performance characteristics.

Let me assure people that whatever we do or if we do anything and we are going to be price disciplined and I want to emphasize the word ‘if’ will be because we are confident that the financial returns will be better and less cyclical than the businesses that we have.

Operator

Your next question comes from the line of Meredith Taylor of Barclays Capital.

Meredith Taylor - Barclays Capital

First of all you could give us a little more color around how you are thinking about the fourth quarter from a profitability standpoint I mean as I look at even the low end of your sequential topline growth rate that would imply sequential incremental margins of something only slightly better than 10%. Can you talk about what you are looking for maybe about production standpoint, how about business-by-business basis and then just how much of a headwind should we think about cranes in the fourth quarter and how much of a spring factor is that in this $50 million that you are talking about?

Phil Widman

Let me answer that Meredith. As I mentioned in my discussion points earlier, the incremental margin has several components to it, so if you look at our fourth quarter relative to the fourth quarter of last year, you'll still see a very meaningful improvement in absorption, order of magnitude probably close to $50 million in total company.

However, when you look at it from third quarter to fourth quarter, that number is probably still in the $10 million dollar range, so it depends on when you talk incremental margin year-over-year or quarter-to-quarter, so smaller from an the absorption standpoint as the facilities are still operating pretty well relative to their third quarter levels.

I’m talking overall, I'll get a little bit (inaudible) in a second, so I wouldn't expect major shifts in the absorption, but what I expect is continued cost control relative to what we have.

The other factor relative to incremental margins that's most significant would be pricing and volume, obviously. For nearly all businesses, we'll expect the level of volume increase in the fourth quarter, cranes would likely be the most significant due to some of the delays we had from the third to pickup, but remember our margins at this stage are very competitive in terms of price level, so it's not with trade-ins involved largely in cranes and AWP that tends to have a depressing effect on what you normally think is incremental margin situation.

In a regular steady state, our company would tend to have about a 25% kind of incremental margin when all the factors are equalized, so segment-by-segment you need to consider some of those factors.

Meredith, we also want to be somewhat cautious in our fourth quarter outlook, because we just were in a situation where going into September our crane business was quite a bit stronger than we thought it was going to be than it ended up being in part, because many of our big customers delayed receipt or in fact cancelled some orders.

Now, we've been able to reschedule and/or actually resell some of that equipment, which is what's giving us some positives in the fourth quarter, but not always at the same margin level. If I go and buy the other businesses, I think our Aerial Work Platform business is doing quite well from a production plan point of view, but it is the fourth quarter and many of our customers don't want delivery of their product in the fourth quarter, so we may be producing, but not shipping all of what we produce in that business.

As I go to the construction business, it's kind of a mixed bag. Some of our customers actually do want delivery of their products in the fourth quarter, but yet we have also gotten some fairly substantial orders on our larger rigid-frame trucks and material handlers for delivery in early 2011, and then lastly in the Materials Processing business what I'd basically say is that business is moving along as expected with normal seasonal trends, which is quite encouraging.

The team led out of Northern Ireland has got a number of new products and the mix as they always do and I think we are going to see kind of normalized trend. We were hoping to have net income in the fourth quarter as I had previously indicated and perhaps to achieve that we would have to pay down a little more debt that we've actually paid down and a little better operating profits.

We are not as far away from that as would appear, okay? That was our strategy to pay down more debts and/or have an acquisition that actually added operating profit or/and have a little bit more operating profit. I just think it is a matter of a quarter or so away.

Meredith Taylor - Barclays Capital

As a follow-up on the Cranes business, it certainly sounds like you are looking for some incremental pricing pressure 4Q relative to 3Q. How long do you anticipate this will persist? Is this a case of some temporary pressure as a competitor tries to work through inventory in the region, how you really see the pricing environment taking shape for 2011 for responding maybe impact on our margins for the Crane business?

Ron DeFeo

Rick, you want to comment on that?

Rick Nichols

I think pricing is still pretty disciplined within the marketplace. We are certainly seeing a lot more trade in as really an element of pricing that we haven't seen in the past, but I think across the board North America, Europe even in the developing markets certainly everyone is competitive, but we really haven’t seen price erosion and certainly with where we are sitting with backlog and our expectations for the fourth quarter, we will expect to be significantly different in the fourth quarter.

Operator

Your next question comes from the line of Jerry Revich of Goldman Sachs.

Jerry Revich - Goldman Sachs

Ron, you mentioned high M&A prices in your prepared remarks, would you consider some stock buyback if you can find the right (inaudible) over the next year is that an option?

Ron DeFeo

I would not anticipate say stock buyback is on our horizon given some of the ventures that we have and the covenants that we have. We will get our balance sheet back in line, get our business performing and then we will evaluate that down the road.

Jerry Revich - Goldman Sachs

I’m not sure Tim is on the line, I want if someone can comment for the Aerials business, how much of a contribution from pricing you saw this quarter because we have improved residual values on trades ins and given continued use their equipment value improvement should we expect greater pricing tailwind in the coming quarters.

Tim Ford

Jerry what I would say is, many of the deals we’re doing still come with trades, not all of them, but many of them do. Earlier this year, our customer might want to trade in a $1 of use for a $1 of new, now that they are saying I’ll take $2 of new per dollar of trade or three for one. When you use equipment pricing to your point and stabilize and that’s giving us breathing room when it comes to do doing the deal. I’d say however there is still an imbalance between manufacturer capacity and customer demand, but that gap is closing pretty rapidly. With the exception of one European manufacturer there is not really any excess inventory in the system that environment being worked through from that Europe manufacturer. All that together I’d say pricing is competitive, but firming and as the demand grows over the next few quarter we will see less discounting and improving pricing.

Ron DeFeo

I would not expect margins to just rocket shift up this will be progressive and discipline because of our customers understand particularly the more sophisticated customers understand where a pricing has been. They understand the trajectories and that will be hard press to take a 10% or 15% price increase anytime soon. This will be progressive.

Jerry Revich - Goldman Sachs

Lastly Tim can you say more about revenue by region this quarter, which regions were up significantly more than the segment average and was Europe in positive territory year-over-year?

Tim Ford

Yes, I won’t get that granular Jerry, but I’d say North America is in a much better state than it has been. Europe continues to be a channel many of the Europe customers we do business with are still struggling with both time utilization and dollar utilization, but so on balance of the US is probably six to nine months ahead of Europe. We had a very good quarter in the Americas, Latin America in particular and expect that will continue in to 2011. Australia has been pretty strong for us over the past several months as well.

Operator

Your next question comes from the line of Henry Kirn of UBS.

Henry Kirn - UBS

Wondering if you could chat a little bit about what you are seeing with your parts business aftermarket of (inaudible) so what you see in there and how big is it today?

Ron DeFeo

Overall in the aftermarket business?

Henry Kirn - UBS

Right.

Phil Widman

I missed doing some math and I year-to-date we got about 600 million of parts sales out of the 4.4.

Henry Kirn - UBS

How was that trending versus the rest of your businesses that somewhat of lead indicator?

Phil Widman

450 year-to-date and trend wise slightly up I’d say quarter-to-quarter. Our parts business has improved faster than our other business in general.

Henry Kirn - UBS

Are there any spots in the portfolio that are doing better on the part side that would give you better visibility, yes to a recovery on the new side.

Phil Widman

I’m not sure we can fine tune it that much in our business, Henry. I mean we clearly saw our parts business drop off in the economic crisis that told us we have a lot of equipment that was part. We clearly saw our parts business start to improve ahead of our new machinery business. I’m not sure we could give you a precise correlation that would be the kind of regression analysis you might want to say that would cause you to be able to be forecast better.

Henry Kirn - UBS

That’s helpful. One more, if I may, could you talk about anymore restructuring opportunities across the portfolio and we could see from that?

Phil Widman

Well, I think we’ve got a few places where we know we’ve got to look at our work force and some consolidation and I don’t want to make any announcements here on the call or frighten anybody. I just think there is some pockets of improvement as I had indicated in both our train business and in our construction business in particular.

Operator

Your next question comes from the line of Charlie Brady of BMO Capital Markets

Charlie Brady - BMO Capital Markets

Just focus on the Crane business for just a minute, can you quantify the extent of the cancellations and/or the delays. I guess as you look into October, has that trend continued or have you seen more people coming back and putting additional push outs and what’s really the reason behind, is it a financing issue, is it a reevaluation of projects or what’s the driver there?

Ron DeFeo

I don’t. I turn it over to Phil and then Rick.

Phil Widman

Yes, specifically on the cancellations, I think we had order of magnitude (inaudible) million in September and Rick can comment on the current pattern. I would say that the issues relate to all the above. Certainly financing can be a challenge in Europe in particular. Sometimes it’s really the timing of the project and when the customer wants to take delivery is probably a more significant impact than that one.

Ron DeFeo

$the financial health of the customers.

Phil Widman

Right, that’s right.

Rick Nichols

It tended to be episodic as compared to a broad based channel trend.

Phil Widman

That’s right.

Ron DeFeo

Rick, why don’t you comment on that.

Rick Nichols

Okay. The cancellations were principally around ability to finance the equipment and the projects and projects were principally located in Europe and we saw some delays in project timing and startups. So, it was more a push. From my perspective, the cancellations we really saw in late August, September. We actually had a fairly healthy booking month in September. So, and, we haven’t seen the level of these types of levels of cancellations consistently through the quarter, it was more episodic in the quarter. That gives you some color.

Charlie Brady - BMO Capital Markets

It’s helpful. Can you give us a sense of the mix of the cranes and the crawlers or the AT cranes today relative to what it looked like, saying going back a year, two years ago, has it changed materially?

Ron DeFeo

Rick?

Rick Nichols

From a revenue standpoint, the mix is fairly consistent. So, revenue on revenue, we would still have our slight broken business being the leading business or our largest business in the portfolio and it’s still the largest contributor from a profitability standpoint.

Phil Widman

Let me also put you, give you some perspective, Charlie, in 2007, our US business was almost 4, 5 times what it is today, okay, and was nicely profitable. Now, it is less than 10% of our total Cranes business and only making a little bit of money, but it’s making a little bit of money because we have a fairly lean process in place in our North American operations. That gives you the potential that exists in the Crane business once the North American operations starts to improve, which we are not saying we expect in 2011, maybe we are hoping, but I don’t think we are expecting in the 2011.

That business was down 70, 80% and has kind of stayed there. Then turning to the tower crane which for us was, at its peak probably a $300 million plus business and that business is down 90%. So, Rick’s comment is true over the past year or two [why broken] is remaining, so we've got these other size of our crane business that will begin to grow and will begin to get some initiatives moving, particularly in the developing markets. We just had a big Powertrain order in Brazil. I think, we've got some other activity in developing market, so the investments we made to put people on the ground to build capability in developing market while expenses, when you don't have revenue, when the revenue starts to come in, plus you get recapture the revenue back in your developed markets. That's when it will really repay and pay dividends for Terex overall.\

Charlie Brady - BMO Capital Markets

That color is helpful. I appreciate it.

Operator

The next question comes from the line of Ann Duignan of JPMorgan.

Ann Duignan - JPMorgan

Maybe, one of you could talk a little bit about the rollout of Tier 4 Interim Stage IIIB, and how that's going to impact each of your different segments as we roll through 2011 and into 2014, and should we anticipate higher costs because they are more complex engines.

Ron DeFeo

Ann, I'm going to let Tom give you some details of that, but we made a presentation to the biggest fleet manager in United States on Tier 4 engines and the Tier 4 Interim, the conversion and their comment back to us to amend was, "You guys have made the clearest, the simplest, the most straightforward for us to understand, of any of the companies we have visited with and we visited with all in the industry." , but not to say it won't be a challenging transition but I think we've got our act together and I'm going to let Tom give you some more depth on that.

Tom Riordan

We've just gone through program reviews over the last month of each of our business. They have been harder work at this for two years, they are on track, the implementation schedule has staggered based on the size of the engine and a number of other factors, but I'm comfortable that, one, we are on track. Secondly, that we are not going to see significant increase or incremental cost as we go forward based on additional engineering cost or new program testing or anything else or we are at a run rate today that I'm comfortable with, we're going to be very successful.

Ron DeFeo

We will see material.

Tom Riordan

We will see material cost, we are working harder to offset that as part of a rationalization process, we are going through with our engine suppliers to significantly reduce the number of suppliers we are dealing with and frankly enhance our ability to control cost and work with them from a technology standpoint. That being said, the entire market is in that same position, so you will see price pressure across the board, across the industry in almost every market that's requiring Tier 4, which is specifically US and EU over the next couple of years.

Ron DeFeo

Having said what Tom just said, we are going to be different than a lot of others and that we are not getting a lot of pre-buying. People aren't pre-buying from us, engines for [gens] and for all of these other things to get their Tier 3 engine purchases done. It's not happening with us. Customers will buy our equipment when they need the equipment, and I think we have buy business a transition plan, which is both, in line with the [loss], in line with our suppliers' capabilities, we've announced engine changeovers for example we're moving Scania in some of our products, which will give us profitability on some of the parts that we've had before, so we've used this as an opportunity to improve the company not as an opportunity and to tailor engine applications to the requirements of our customers and I think that's been well-received.

Ann Duignan - JPMorgan

Just as a follow-up to that, because I was going through my follow-up question. I was just curious that some of your building production above retail sales, the third quarter and going into the fourth quarter was a kind of a building buffer of inventories there that will be pre-Tier 4 interment, is that the wrong way to interpret what's going on, or are you just building in anticipation of demand because you need the absorption.

Ron DeFeo

Ann, that is the wrong way to look at it. We are building in advance with we expect to be a reasonably solid Q1. Frankly, we want to make sure, we are in a position in our recovering businesses to keep lead times to minimum and be responsive to costumers, so we're going to continue to see inventory slowly moving up. Clearly not the same rate as revenue increases, but we need to be responsive to costumers. That is, at this point in time, there is no factor that relates to Tier 4 has hurdled inventory changes.

Tim Ford

Yeah, and Tier 4 is not the issue. Simply stated, AWP expects strong business in the first part of next year, we want to have the product from. Construction expect some strong consumer order if you want to the product from and then MP is a building kind of normally. We need to get inventory out of our Crane business. The crane emanatory is too high.

Ann Duignan - JPMorgan

Then just one real quick follow-up, Ron, on the acquisition front. Could you just comment on, is there plenty out there in the pipeline, there is just too much competition? We heard from ITW the other day that private equities aggressively bidding up valuations for business is $100 million and above. Are you seeing that out there, or is there just a lack of businesses that fit the kind of profile that you are looking for?

Ron DeFeo

I'd say it's a little bit of both, Ann. I'd say that it's difficult for people to value expectations are still, in my opinion, too high. In part it's because of the easy excess to capital. That's really kind of, we're in an odd place. We have cash, but until our basic operating performance improves, we had some constrains on our ability to get capital.

I really don't want to give anyone the wrong impression that we feel compelled to make an acquisition. On the other hand, I don't want to give anybody the wrong impression that we don't think there is some things that can be done at the right price and management teams tend to think that their valuation exceptions are of another era, and when they think that they are only hurting themselves and their existing shareholders and so we are not going to participate like that.

Operator

Your next question comes from the line of Andrew Obin of Merrill Lynch.

Andrew Obin - Merrill Lynch

One of your key customers, I think, yesterday commented on the fact that they want a sort of ship their business, make slightly. Well, not slightly, but ship type business makes a way from (inaudible) to earthmoving and HVAC. The question I had for you are, are we seeing a structural shift away from AWPs in this cycle. Is there something different in your customer's purchasing behavior when it comes to AWP in this cycle versus what we would have expected or seen in the prior cycle?

The customer you are referring to probably had too high concentration in aerials in their historical business, and through a series of acquisitions that customer have focused on buying aerial customers, so I think it's totally appropriate for that customer to try and diversify their revenue, and I think the dirt business presents them with some good opportunities.

Having said that, the age of their fleet is huge in aerial and they are going to need to buy equipment and this is going to play into our hands, because over time we want our customers to have a level of diversification and we are going to be there saying, "Hey, we've got dirt equipment too. We can help you out". While that might be a hard to sell immediately to some of the large rental companies, we are going to be there trying, particularly when we've got our backhoe, skid steer and aggressive programs to support that.

Tim, you want to comment about, or add anything to that?

Tim Ford

The only thing I would add, Ron, is. I think, Andrew, our customers are going to follow the revenue and the opportunity that's out there and you know you got to dig a hole before you put the siding up, so I think as the customers look to rebalance their fleet mix, dirt, more than aerials in the near-term make sense, but as you saw yesterday the ABI, the architects building index crossed 50 for the first time in the two plus years, almost three and that is going to drive demand. That's a great leading indicator of our business 9 to 12 months out and when I see that, it starts to get me excited about where this business can go.

Ron DeFeo

Andrew, let me just make one further point. One of the historical facts, and then I guess this is what happens when you have no more hair, and been around the industry long time is that non residential construction has been helpful for cranes and aerial products, but residential construction has been very important to the smaller compact size dirt products.

Residential construction started to fall off the table in 2006, as did the dirt product categories that are now beginning to respond loader backhoes, skits steered, mini excavators, those kind of products, and so it's very natural for them to want to buy that product now in 2010. I have never seen a decline in the marketplace that lasted four years, so we have been through one of the most severe decline in that compact dirt equipment business in my lifetime in the industry. I think it's beginning to recover.

Andrew Obin - Merrill Lynch

Just a follow-up on your construction business, when do you think this business will start posting positive operating profit and how good could it get next year given that we are starting to hear from your customers about increased purchases?

Ron DeFeo

Sure. I am going to turn it over to the leader of the construction business who by nature is conservative, so let's see what he has to say.

George Ellis

Andrew, thank you for the question. We are seeing very positive trends, particularly on the heavier end of our product line. Still bit of a mix on the smaller end of our business and we are in a fight for every deal that is out there. There is still pricing pressure in the marketplace, but the key thing that we are seeing in the increased activity is similar to as Tim described less pressure on the trade side, which also creates margin erosion for us at times and seeing stability in the used equipment much faster than we expected for this time of year.

We are seeing continued normal activity around the road building side of our business. I believe that there is some strength coming for Q1 for us in that part of the business, so I am starting to feel very confident as Ron said I am generally very conservative as of view, but I am seeing very positive signs.

Andrew Obin - Merrill Lynch

Can we break even in the near-term, particular given what the currencies are doing and given your manufacturing base?

George Ellis

Currency is a wildcard. I will definitely admit, but fortunately for us, where we are seeing the market growth and coming back for us is generally not in North America and we are seeing our Latin American, Indian and middle Europe, Russia, North Africa coming on much quicker, so there is some offset there for us.

Ron DeFeo

To answer your question, Andrew, yes. Okay? To be definitive about it.

George Ellis

The Champagne is not quite on an ice yet, but it will be shortly.

Ron DeFeo

Yeah. George and his team have gone through a lot of lumpy issues that they had to deal with over the past couple of quarters. I am highly confident this business will be profitable. It won't be strongly profitable for a little while yet, but the real wildcard for me is how high is high when some of the new products that we are introducing, and I think we want to be a little cautious on that, we got some introductory expense associated with that, but I think we are virtually there in terms of breaking even where we will make progress in this business.

Andrew Obin - Merrill Lynch

Well, you guys have done a lot of hard work and I hope to see good results soon. Thank you very much.

Operator

Your next question comes from the line of Robert Wertheimer of Morgan Stanley

Robert Wertheimer - Morgan Stanley

I have two questions. The first one is just on the crane, but you could speak a little bit to share position and competitiveness. I gather the cancellations are one-off and I assume you didn’t lose any of the competition or the push backs, but do you feel like you are still winning your fair share in bids that are up and is your pricing equivalent to competition?

Ron DeFeo

Rick?

Rick Nichols

I do think we are winning our share back certainly that we had a little bit of our share erosion through the clearing of channels that took place in most of the businesses in 2009, but we are actually picking up share as we are looking at 2010 in the marketplace, so I think we are winning our fair share of battles relative to pricing. I think as I stated before, we're pretty disciplined in the marketplace still. It is aggressive and trade-ins are really the key to winning deals right now.

I just left the 1,100 customers to take this call from around the world, and they are more upbeat, not very upbeat. They’re more upbeat on 2011 in their market. That doesn't mean this is going to have a direct correlation to our business in 2011, but I certainly think they are looking to replacing equipment not necessarily growing capacity and they are pretty optimistic about rental rates and utilization within the marketplace, so it's more positive than it really has been from a customer standpoint in the last 12 months or so.

Ron DeFeo

Robert, let me be more specific. Okay? We track our products and market shares, product-by-product, market-by-market. Okay? In 2009, we knew we lost some market share in a number of product categories. We believe, we were less aggressive in the marketplace, because there was a lot of channel clearing as Rick mentioned.

We also know that we had a couple of product holds that we spent the money in the downturn to come up with new products. These products will be introduced in 2011 to fix those product holds. In 2010, we've seen our share rebound, not entirely back to where it was in 2007 and 2008, but it's rebounding and we expect to get that share back.

We just hired a new leader of the North American business, he was a CEO of a big crane rental company in the United States, he knows the crane rental business and we are going to compete and get that business back in the US, which is where our business softened a lot.

Robert Wertheimer - Morgan Stanley

Perfect. Those are crane comments you just made right, Ron?

Ron DeFeo

Those are only crane comments.

Robert Wertheimer - Morgan Stanley

Perfect, and if I can only discuss one follow-up on the engine changeover, I think you talked about consolidating and you just mentioned again by consolidating engine suppliers is almost entirely or maybe most offsetting the increased cost of the engine and you mentioned that's happening somewhat. Is that as good as you thought it might be when you started the negotiations with those engine suppliers, better or worse?

Tom Riordan

Rob, let me clear that up a little bit. If I give you impression we’re going to offset the price increase, that’s not the case. I think we are mitigating it somewhat simply based on rationalizing the supply base and putting ourselves in better competitive position. Our end customers will see price increases as a direct result of the Tier 4 interim and Tier 4 final engines that are coming out in the marketplace over the next several years.

In addition to that, they are going to see operating challenges in moving equipment from market-to-market and that was a big piece of the discussion we have with the fleet managers that Ron alluded to, because you will no longer be able to take engines and move their men to effectively a lower Tier market, because of the sulfur content in the fuel, so there will be price increases coming through from engine suppliers to us that we're not able to offset or reduce completely by negotiating and there will be price increases that we will have to pass through to our end-customers as a result of that over the next several years.

Ron DeFeo

Just to avoid confusion, I think what Tom was referring to is, we were able to get support from a lot of our engine manufacturers on the engineering costs.

Tom Riordan

Engineering technology, the other piece of this, we'll not go in too far in the details. There's fundamentally two different technology platforms and there is different cost and operating cost and maintenance cost and performance curve that go with each of those, so as far as this all activity, we are fine-tuning our engine strategy to make sure we’ve got the right technology on the right product platform and we're able to demonstrate that to customers.

That's frankly a big advantage we've got as compared to some of the integrated suppliers who typically take down one technology and they are going to try and sell that to their customers basically regardless of the performance that may or may not be advantageous to customers compared to the other technology.

Operator

Your next question comes from Seth Weber of RBC.

Seth Weber - RBC

Just going back to the age of repeat discussion for a second, so given your this customer commentary or whether to pass rental or what have you, but should we assume that most of the growth for 2011 will come from emerging markets and is there any margin indication from sales from emerging markets versus US may be could you characterize yourself that you referenced in South America? Is that something new or is that something we should be excited about?

Tom Riordan

I do not think you should expect any growth we have in 2011 that come only from developing or emerging markets. We expect the North American customers who frankly have not bought up any fleet speak up for two plus years will begin buying fleets. We have been engaged in fleet conversation with virtually every large rental company since mid summer I would say, in the US. In Europe we have been engaged in the same conversation though I think there is a bit further behind that they have noted.

I am confident we are going to start to see many of the US rental companies being fleet buying in 2011 and frankly may be even being placing some of those orders late here in 2010.

When you look at the business and the growth we had in South America we did in fact secure several orders from a few new customers, couple of note that were significant. We’re pretty confident that market is going to continue to grow for as we move ahead.

Another point I would make from a Chinese standpoint, Tom made reference to this in his comment. We began production in our new chain hill facility and very limited qualities that we begin production in September. We’re pretty excited about the opportunities that is going to create for us to help build that market. We’ve added a lot of sales people. We are adding dealers and rental companies and China is going to be a place for us as we go forward.

Ron DeFeo

In addition adding a lot of engineering sounds a new product of element in that market.

Seth Weber - RBC

Is it safe today with the local production that the margin should be about the same across the board then?

Phil Widman

I do not know you can count if you are specifically referring this to china. I do not know you can specifically refer to china having a material effect on over all on a over all margin basis. I think we will be competitive. We need to be competitive. We do not have the full range of products in china so we still be producing in the US in exporting to China. On balance, the margin have historically been relatively similar around the world. I think we see that you know, the trend continues.

Ron DeFeo

China is the multi US strategy. We are just dipping our toe in the water at this moment for over time we expect to be (inaudible).

Phil Widman

There will be a small impact on 2011.

Seth Weber - RBC

As a follow up on that on china you guys enhance these Chinese crane acquisition I think over the summer. Was it any thing that you could there with leveraging that as far as expanding? I mean do you expect that to be a near term benefit to you or how long do you think that will take it to contribute?

Ron DeFeo

Yes. This is going to take us time. In the near time I do not expect this to be meaningful what so ever. It is going to take a couple of years. There is several models of cranes that just this particular operation has and we expect to standardize and operationalize those models eventually with he idea that would be able to produce them and sell both in China and else where.

Operator

The next question comes from the David Wells of Thompson Research Group

David Wells - Thompson Research Group

On the last call you would outline some kind of flow of products as expectations for the crane business where you expect to see some of the smaller capacity equipment begin to ramp up more meaningfully in 2011. Given what we saw in the quarter have your expectations changed materially with regards to what you would expect in terms of product category?

Ron DeFeo

I do not think so they would I just think may be a quarter or two push up, a little bit slower burn.

David Wells of Thompson Research Group

It is secondly looks like you continue to, to use your balance sheet selectively for financing opportunities, you know, is that a business refill you could use some of the cash on the balance sheet and then to go into the more meaningful way or is it does it make more sense to continue with kind of smaller pace here.

Phil Widman

David its Phil. We had it about $13 million in the quarter in finance and receivables. I’d characterize it in the current market that certain partners not as willing to lend into our industry. Certainly, so we’re trying to fill gaps, we’re trying to create opportunities but we understand the residual values, we understand the customer risk are lot better than some of the financial institutions. So, we’re trying to create incremental sales for our business in the near term. We’ll be pretty judicious in our under writing. It’s an opportunity for us to expand. You’ll see modest growth as we continue and you’ll see it in other parts in the world, not just in the US, in Europe as well as in Asia as we going forward. We’re not going to become the size of a CAT finance for example, but I think we’ll certainly fill the gaps that are out there in terms of what we have. So it’s a good positive contributor to sales activities.

David Wells of Thompson Research Group

As we look at the tender offers that are outstanding that assuming that the full balance of those isn’t completed, is there other still restrictions that exist on that cash order that then become available for whatever you want to do with that, that in terms of acquisitions or investments in the business?

Ron DeFeo

Yeah, it’s available for general corporate purposes. As we mentioned earlier in the call we have restrictions on doing things like share repurchase for example, but yes its available for basic grant of deals.

Operator

Your next question comes Robert McCarthy of Robert W. Baird.

Robert McCarthy - Robert W. Baird and Company

I wanted to pursue a little bit further what you’re seeing in the North American Crane market. The release includes some language about improving backlog. I’m wondering if that’s early deal orders for 2011 in rough terrain perhaps. Given how low that business has gone, I’m curious as to why you don’t seem to have greater expectations for 2011?

Ron DeFeo

As a general comment Robert I would say, we’re just we’re just being cautious. We know the crane business will improve in North America. We just aren’t absolutely sure when and at what point of time it will it will come back. Rick, you want to answer that?

Richard Nichols

I would also would say that that most of the improvements in the backlog from a US perspective is really coming from not dealer stocking but from more direct sales to major national accounts that are looking at replacing fleet that for several years they have they have and have the ability to do that. So, its not going into the channel. So, we don’t see a channel inventory build. It’s more directly oriented to some projects and good solid business decisions on replacing fleet.

Robert McCarthy - Robert W. Baird and Company, Inc.

You’re telling is not too extrapolate from a small positive signal in the third quarter. I’m getting this right?

Richard Nichols

We may be may be a little conservative, but I think we’re also little bit optimistic in saying we hope its better. We’re right now we’re looking at the fairly flat forward looking view of the market with potentially some comeback in some of the lower end products with the residential constructions starting to show some improvements etcetera, later half for the year.

Ron DeFeo

Yeah, Robert, the North American business is such a small base right now, that we get we get a little bit of improvement is not going to be that needful in the overall cranes segments. My view we’ll get little bit more positive and 2012 would be a strong year.

Robert McCarthy - Robert W. Baird and Company

To make sure that we have got our near term expectations calibrated correctly, I heard that in the fourth quarter the Crane business revenue should go up a bit as you ship some of those deferred business, but that profitability could be challenged because of competitive pricing and the concessions that you might have needed to make to move some of that product, did I get that right?

Ron DeFeo

We are taking about Cranes correct?

Robert McCarthy - Robert W. Baird and Company

Cranes in the fourth quarter?

Ron DeFeo

Yeah, that is what we said.

Robert McCarthy - Robert W. Baird and Company

Lastly, Tom those of us who have been around the company for a long time have been very excited about the potential of Terex business system and what it could mean. Of course in the early days of implementation, these calls were filled with exactly where we at, what commodities have you resourced and those kinds of things. We’ve lost all that of course in giant cyclical downturns. I am wondering is there a way for us to characterize at this point at what stage of implementation we are at. I mean if volume starts to come back in a meaningful way in mid 2011, do we see better than historic leverage because a lot of the work is done or have you had to postpone number of initiatives because of how far down we went and are we still middle innings on this process, recognizing that it never ends of course.

Tom Riordan

Right, you got a couple of things mixed together relative to how we look at it rather than one on the supply chain side, we have kept the team intact and frankly we got over 50 professionals on a global basis including teams in India and China working as hard. So I think that’s under control. We are going to keep managing as best we can. Moving forward I think we have made very good progress this year and short term we are clearly seeing cost moderation as a result of their efforts. I am happy with how that is progressing.

The broader Terex business system, our lean initiative, we have just had a group of 10 people, 7 of which are clear lean practitioners, business leaders in our businesses, spend several weeks over the last three months trying to come up with a next generation if you will, how are we going to advance this. The key mission that we have charged them with is how do we extent this into the customer base and how do we extent this into the supplier base on a much more meaningful level as well continuing to make sure that it does not fall into the trap of being called a manufacturing process improvement. I think our team has done a great job during this downturn sustaining lean activities and improvement at the manufacturing, engineering levels, but we need to extend that into the supply chain side and into our sales team and into our customers, if we are really going to make this kind of jump to the next level of performance.

Robert McCarthy - Robert W. Baird and Company

The IT side of things, Tom?

Tom Riordan

The IT side of things actually is going well. We’ve got, little too briefly a very robust, in fact we will accelerate our schedule for 2011 and the big piece of that frankly will be moving our aerial business on a global basis into the system over the course of the next 12 months which frankly I am very excited about, and I know Tim Ford and his team will be simply based on the amount of intelligence and analysis capability we will have for them to see the world on an instantaneous basis.

Ron DeFeo

Well, it drives discipline business process and it’s hard, it’s complicated. It’s not always what we like, but it is going to provide us with much better cross processes across the range of the company’s activities.

Tom Riordan

Last but not least, and I was negligent down my comments earlier, but I also want to put in yet another plug for safety process improvement programs, we continue to be very much on track for our goals 25% annual year over year reduction in injury and frankly I am very proud of the team and the efforts they have done despite the downturn and then the recent rebound that we have seen which has caused a lot of churn in different activities in our plants, but I think our team has done a great job in keeping our team members safe.

Operator

Ladies and gentleman we have time for two final questions. Your next question will come from the line of Matt Vittorioso of Barclays Capital.

Matt Vittorioso - Barclays Capital

Phil, I was hoping you could just touch on a few cash flow items as we head into the fourth quarter. Do you have any high level targets for where inventory might go, I think you were talking about working capital builds in three out of the four businesses, CapEx for the full year, any update on the guidance for that. Then additionally, it looks like you paid a bunch of cash tax probably related to the mining asset sale, any update on future cash tax payments over the next few quarters, that would be helpful, thanks

Phil Widman

Yeah, the, let me go kind of reverse order. The tax on the mining sale, cash wise will go out until next year. I think, if you read the cash flow statement that’s really next in terms of the actual cash. Also, we have the use of NOLs which affects some of that activity in chain (inaudible) side. CapEx for the year, I'd say we're consistently going with the run rate we've doing per quarter order of magnitude. We're starting up our CapEx on the Brazilian manufacturing facility pretty much.

China is done with Changzhou and Hosur in India is pretty well done. So, we are starting to build related to that. Again, CapEx is still very modest for us in the grand scheme of things. I would say on the inventory levels in the fourth quarter. While the three recovery segments will show some very modest level of increase I am expecting a pretty significant decrease in the cranes business achieving the production schedules and delivery schedules that we have. So, I expect free cash flow positive in the fourth quarter and certainly we're keeping the pressure on the cash side. Going into next year as I mentioned earlier working capital in cash in cranes is there a smaller mix of the total. They use more relative to the other segments. So, overall I think we will see continually improvement trends in that segment.

Matt Vittorioso - Barclays Capital

Just a real quick follow up on cash usage. You talk about 2011 there being a mix of continued pay down and certain a possible M&A. on the debt pay down front you probably won't get any tenders for 7-3/8th and 10-7/8th where they trade in the market today. As far as pre-payable debt that you have in the balance sheet I guess you could go after some of this other bank debt sitting there or call the 7-3/8th. What are your thoughts on those 7-3/8th notes? Is that what you would be targeting in 2011 for debt repayment?

Ron DeFeo

Certainly they are the ones that would have the least frictional cost going forward in terms of upfront nature. Buying the other notes that are out there in the open market certainly would have more frictional cost in terms of the premium at par, certainly on the 10-7/8th. The small debt that we have that’s not in our bank facility is usually for local needs, typically reasonably priced out there that’s not so much a US issue and pretty low cost relative to what we have. So, we are looking at all the options and at this stage we would pay down debt if we can have an acquisition opportunity so to speak.

Matt Vittorioso - Barclays Capital

You talked about a small rebound in the crane business for the fourth quarter. Is that rebounding to second quarter levels? I mean, it has moved around quite a bit and I understand you probably can't be too specific. Is there any way you can give us an order of magnitude on the rebounded sales for the fourth quarter for the crane segment given some of the delay you saw in the third quarter?

Ron DeFeo

What I would say on that is that the third quarter is almost always difficult to handicap because of European holidays. So, you get a little bit of a push between one quarter and the quarter that’s almost always natural. There is a pretty big increase in revenue. Phil?

Phil Widman

Yeah, I'd say that relative to the second quarter level we're probably like close to the second quarter level to give you a feel for that (inaudible) roughly.

Operator

Your final question comes from the line of Joel Tiss of Buckingham.

Joel Tiss - Buckingham Research Group Inc

Can you give us a sense of the size of some of the opportunity say by 2012 or 2013 for the backhoe, the (inaudible), the China, AWPs and some of the other things you are working on?

Ron DeFeo

Why do you say that wasn’t a tough question, Joel? I think its difficult for us to handicap just how high is. When you are coming out with a brand new product in a big product category like (inaudible) with entrenched competition (inaudible) we want to be moderate in our expectations. On the other hand, we have good customer intimacy in a lot of places and our customers are egging us on to see if we can help them out.

China in Aerial Work Platforms is very much unknown by that I mean we know what the big ship building booms are going to be, but the opportunity to develop a China for China product which we hope we want to do is still very much in a thoroughly stages and (inaudible). In theory the China market for Aerial Work Platforms 10 years from now simply as biggest not bigger than the United States, but there is no guarantee we can get from here today. That’s the aspiration we have. It’s hard to quantify, Joe, but these are big issues with big opportunities.

Joel Tiss - Buckingham Research Group Inc

Yes, I was just thinking then you guys have done a lot of work and outline the sizes of the market and the potentials and could you just give us the sense of even the low end of those?

Ron DeFeo

Well, thank you everyone and we appreciate everybody’s interest in Terex today. We remain optimistic about our prospects and we are going to continue to work hard and deliver you a better company tomorrow than yesterday. Thank you.

Operator

Thank you for participating in the Terex Corporation 2010 third quarter financial results conference call. You may now disconnect.

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Source: Terex Corp. CEO Discusses Q3 2010 Results - Earnings Call Transcript
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