Manitowoc Company Inc (MTW) 2002 Q1 法說會逐字稿

Good day, everyone and welcome to this Manitowoc Company Incorporated first quarter earnings results conference call.

Today's call is being recorded.

And now at this time for opening remarks and introductions, I would like to turn the call over to Mr. . Please go ahead, sir.

Good morning, everyone and thank you for joining us today. participating in today's call will be Terry Growcock, our president and chief executive officer, Glen Tellock, Senior Vice President and chief financial officer and Rob Giebel, President of Manitowoc's Crane Group, Tom Byrne, President of Manitowoc Marine Group and Tim Kraus, President of Manitowoc Food Service Group are also on the call to answer your questions about their respective operations.

Terry will open the call with a brief overview of the quarter. Glen will then review all the financial results for the quarter and will update guidance for the full year. Rob will then review our Crane segment operations and afterwards we will open the call for your questions.

I want to mention that if any of you are not able to stay on the line for the entire conference call, you can hear a replay of the call beginning at 2:00 p.m. Eastern Time this afternoon until 1:00 a.m. Eastern Time April 24. The number to dial for the Manitowoc replay is area code 719-457-0820. Please use confirmation code 687807. You can also access and archived version of today's call at our Web site, which is www.nanitowoc.com.

Before we get started, I would like to review our Safe Harbor Statement. This call is taking place on April 17, 2002. During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 may be made during each speaker's remarks and during our question-and-answer session.

Such comments are based on the company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities & Exchange Commission, including but not limited to, the company's annual report and form 10-K for the year ended December 31, 2001.

With that I'll now turn the call over to Terry Growcock.

Thank you, and good morning, everyone. Undoubtedly the key event of the first quarter was last month's announcement of our pending acquisition of Grove Worldwide. As we said the Grove acquisition will be good for our customers, good for our shareholders and good for the industry overall.

Glen will provide an update on the status of this acquisition later in the call. We are very pleased with our performance for the quarter. Our financial results were in line with our expectations. Even though our consolidation efforts affected our results in the short-term, we are very confident in the long-term benefits.

We are on target to attain our full-year projections. I'll briefly review each our segments beginning with Cranes. We had an outstanding response at the full trade show in Las Vegas where we introduced a number of new products, which Rob will talk about later in this call.

One of the new products we are very excited about is the Model , the first product jointly designed by Manitowoc, Cranes and . In addition, the formal introduction of the Model 555 coupled with our definitive agreement to acquire Grove Worldwide generated widespread interest and discussion among our customers, distributors and the Crane industry in general.

In the food service segment, we are happy to report additional strength from our new ice beverage products. We plan to introduce some 50 new food service products in 2002 as part of our continuing push for growth through innovation. We also continue to see the benefits of our costs and productivity improvements during the quarter, particularly in the ice beverage portion of the business.

We've also purchased the remaining 50 percent interest in our Italian ice machine partnership. The legal name of this business will change to Manitowoc Food Service Europe and at our global distributor conference scheduled for this October, we will introduce a new line of European style ice machines replacing the models currently produced in Italy.

We now manufacture ice-making equipment on three continents through wholly-owned subsidiaries. Finally, we are very pleased with the performance of our marine segment despite the difficult situation in the ship repair business on the Great Lakes. The improvements we've made at each of our shipyards has resulted in stronger sales, higher margins and improved earnings.

In addition, there are several excellent opportunities for new vessel construction, which would compliment our existing slate of work. The quarter's results demonstrate again the strength of our diversified business model, which balances the strengths and weaknesses in our various markets as well as our market leadership in all three businesses and the strength of our management team.

I'll now turn the call over to Glen for a review of the financial and a more detailed look at the business segments. Glen.

Thanks Terry and good morning, everyone. I'll begin by saying that we achieved very good cash flow in the quarter, especially considering that we historically used more working capital in the first quarter than in the other three.

Sources and uses of cash from operations in the first quarter was nearly break-even and our total cash position at the quarter end was about $30 million. Our cash flow results were achieved in an environment in which our original projections for the first quarter anticipated a significant use of cash.

By focusing on improvements in working capital in all three of our segments during the quarter, we were able to beat this internal estimate. Our sales of $301 million represent a 31 percent increase over first quarter sales last year. acquisition and the continued strength in our marine business accounted for the increased sales.

Net income for the quarter was $6.6 million or 27 cents per diluted share. Excluding the $3.9 million non-recurring charge, we earned approximately $9 million or 36 cents per share equal to the consensus estimate. We reported EBITDA for the quarter of a negative $881,000 due to negative EBITDA results from . Without , EBITDA for the quarter would have been $3.2 million, up 36 percent over the same quarter last year.

It is important to know that the first quarter is typically slowest quarter from this perspective. We expect EBITDA to significantly improvement the rest of the year, but not enough to offset the negative EBITDA of the first quarter. We expect to report positive EBITDA in 2003, which meets the projections we made when acquired the company last May.

Let's look at each segment individually beginning with Crane. Internal sales and operating earnings were down 9.3 percent and 11.3 percent respectively. This is a significant improvement over last year's first quarter when sales were down 16 percent and earnings were up 34 percent.

Operating margins, excluding were comparable to last year, which represents a solid performance considering the pricing pressures in this segment. resales helped push sales to $147.7 million, up 75 percent over the first quarter of 2001 and operating earnings rose 18 percent to $13.5 million.

Crane backlog ended the quarter at $81.5 million, which is $17 million greater than at yearend. The incoming order rate for Crane products increased 55 percent over the prior quarter and on an internal basis increased 45 percent over the first quarter of 2001. In addition, approximately 48 percent of our first quarter shipments came from orders received during the quarter.

This compares to 62 percent last quarter to 51 percent in the same quarter last year. In food service, the results of DRI, which makes residential refrigerator freezers on a private label basis negatively affected the segment's performance. Sales for the first quarter were up one-and-a-half percent to $102.8 million.

Operating earnings were down 1.7 percent to $9.4 million and margins were down slightly. Excluding the results of DRI, food service sales would have been down one-and-a-half percent, but operating earnings would have been up 14.5 percent as we continued to benefit from last year's cost reductions and efficiency gains.

It is encouraging to note that our ice beverage business had strong sales and margins compared to the first quarter of 2001. Looking ahead, the cost containment initiatives that are now in place in DRI will result in improving performance for the remainder of the year.

The $3.9 million charge for the quarter was due to the consolidation of into other food service operations. The demand flow manufacturing processes we installed has made it possible to put all of our beverage equipment manufacturing operations under one roof providing new efficiencies as we move forward.

Plant closing and severance costs for account for the majority of the charge. Excluding the costs associated with the termination of the our lease for the facility, we expect that the savings generated from this consolidation will offset the other costs making this earnings neutral in 2002.

Turning to the marine segment, it had another strong quarter with sales up 16 percent and operating earnings up 29.7 percent while operating margins climbed to 11.7 percent. These margin improvements were realized despite the increase in project work as a percent of the marine segment's total revenues.

In the first quarter of 2002 project revenues approximated 85 percent of total marine revenues versus 76 percent last year. As I mentioned at the beginning of my comments, cash flows in the first quarter were very good. Again, the first quarter is typically our heaviest use of working capital, which was compounded by the acquisitions of Marine and .

The fact that cash from operations was nearly break-even for the quarter is a testament of manager's ability to understand the balance sheet. As a result, additional borrowings for the quarter were about $20 million more than anticipated. Thus our debt to capital ratio at the end of the quarter, 65 percent, was only slightly higher than at yearend.

As we look forward, we are not changing the guidance we gave you in January. The consensus EPS estimates for the year range from $2.35 to $2.60 per share and those estimates continue to appear reasonable at this time. Depreciation and amortization for the year should total about $27 million.

We are well on our way towards meeting our cash from operations goal of over $100 million while capital expenditures should approximate 25 to $30 million. Despite the economic - uncertain economic - period that we are in, there are many positive events taking place in the company.

The marine business continues to have tremendous potential shipbuilding opportunities over the next several years. Our food service segment continued its steady improvement and has an aggressive lineup of new products this year and the Grove acquisition will significantly strengthen our global Crane position.

With respect to the Grove acquisition as we said in our conference call last month, this transaction is valued at approximately $270 million and will be funded by a combination of cash and stock. We will issue Manitowoc stock with a value of about $71 million at the close of the transaction with the balance paid in cash to retire most of the existing Grove debt.

We made the regulatory filings related to the acquisition, including a filing under the Act and F-4 registration statement to register the shares being issued to acquire Grove. Of course these filings may be reviewed by the applicable governmental agencies.

As stated previously, we expect Grove to be neutral to earnings in 2002 and accretive to earnings by 20 to 30 cents in 2003. We expect Grove will be EBITDA positive within 18 to 24 months. In January, I mentioned that our EBITDA and cash management are tremendous advantages that give us the flexibility to be opportunistic in today's economy. I believe we are leveraging those opportunities to the best of our ability.

With that, we'll turn the call over to Rob Giebel for additional comments on the Crane business.

Thank you, Glen. The Crane Group finished the quarter about where we expected. Although the market conditions have remained essentially unchanged, we're pleased that we've outperformed the industry and increased market share in each of our businesses.

As Terry said, the most significant event during the quarter was our announcement of the planned acquisition of Globe Worldwide. So far we've been pleased with the positive reaction in the marketplace, which suggests that the market recognizes the value created by this acquisition. We're anxious to move forward in completing the process.

And as Glen mentioned earlier, we've filed all the necessary regulatory papers and so we'll continue to move full speed ahead. Now let me discuss some of the market conditions, share gains and outlooks for each of our major product areas, heavy equipment and light equipment. Heavy equipment, which includes our crawler cranes and large tower cranes, remained strong throughout the quarter.

Thanks to the synergies between the Manitowoc Crane's business unit and , our tower crane share in the United States is growing very rapidly. Our share of the crawler crane market remained flat during the quarter in spite of the strong competitive pricing pressures that we're facing worldwide.

Our model , which was launched in February and formally released at Expo has already exceeded our early sales expectations. In terms of outlook for heavy equipment as we've said before, we believe that the market will continue to be relatively stable with a full-year outlook showing the industry declining about 10 percent versus 2001.

Light equipment, which includes our self-erecting tower cranes and boom trucks, continue to face difficult market conditions throughout the quarter. This is really consistent with all of the light equipment in our industry. Nevertheless, we increased our global share of self-erecting tower cranes by about 10 percent thanks to the first of 18 new product introductions in Europe and the new , which was introduced at Expo.

For the rest of the year, we expect these market conditions to continue. Our boom truck business continued to face difficult market conditions. However, the consolidation of our York and Georgetown production facilities is paying off. Our more focused product line is also working.

And we've moved from about 48 product platforms down to less than a dozen. In addition, we've also improved our product quality and put more resources into product support. Product support continues to differentiate us. Speaking of new products, we've launched eight so far this year.

These new products were very well received at the Expo Trade Show last month. Sales and customer interest at Expo exceeded our expectations. So we're confident in our ability of our businesses to perform despite the tough current economic environment.

In closing, we're pleased with our results as we've outperformed the industry and gained share during a very challenging period. While we can't predict when the economy will turn or when certain demand for lifting equipment will resume normal levels, we have demonstrated our ability to control costs, boost product quality and create innovative products during this down time.

For the remainder of the year, we will continue to lay the groundwork for long-term success by developing even more new products and services to meet our customer's needs.

With that, I'll turn the call back to Terry.

Thanks Rob. We were pleased with our strong cash flow results and our revenue growth for the quarter. We remain focused on our key growth strategies of innovation, acquisitions and global expansion.

Before taking your questions, I would like to address our acquisition strategy in light of the recent Grove announcement. We believe Grove is a great fit for us. We've identified many synergies between Manitowoc and Grove. In addition with Grove, we will become the leading provider of global lift solutions.

Obviously with the Grove acquisition, a greater majority of our revenues will come from our Crane segment as the year progresses. However, I would once again like to emphasize that we cannot predict when a strategic acquisition opportunity will present itself.

We will continue to evaluate companies that fit our disciplined criteria and when we find such opportunities at the right price, we will act on them. Our diversified business model has proven to be a strength and we remain committed to each of our three segments.

With that, I would like to open it up to your questions. Debbie.

Thank you, gentlemen. Today's question-and-answer session will be conducted electronically. If you'd like to pose a question, please press the star key, followed by the digit one on your touch-tone phone. Again star, one to ask a question. We ask that you limit your questions today to one question and one follow-up and we will take as many questions as time allows.

We'll go first today to at Deutsche Bank.

Good morning, guys.

Good morning.

Good morning.

Question for Rob. Looking at the Crane margins, they were down, you know significantly and I assume that reflects the acquisition as well as perhaps some pricing pressure. Guess the question I have would be have we seen the bottom here at roughly nine percent and can you give us an idea of what kind of efforts you have underway or either plan to improve the margin situation and idea of when you expect to start seeing some results?

And the follow-up would be, you know how will Grove alter this margin improvement picture?

OK Mike you really have three questions. First one was are we at the bottom?

Right.

I think we're if not at the bottom we're very close and the reason we say that is there seems to be a lot more stability in the type of quotations that we're providing and sort of the work backlog that we see from our - from our - end users. So you know without a crystal ball, I think we're OK there.

In terms of what happened with the margins at the quarter, let me give that Glen. He can talk more specifically to the - to the - mix there.

Good morning, Mike.

Hey Glen.

I think we have, you know this quarter in the Crane segment is exactly what we had last year in the first quarter with the food service. This is because of and the mix that you have in there, this is their slowest quarter and so you see a drop in the gross - or I'm sorry the operating margins.

If you remember what we said in January, that we expected the entire Crane segment margins to be up anywhere from 50 to a hundred basis points at yearend. You're going to see improvement quarter-over-quarter in the second, third and fourth quarters and some of that is because of, you know most of it's because of .

But at the same time, you have all the cost cutting things we did last year. You have all of the operational efficiencies that we talked about from synergies last year. If you remember, we said synergies first for the sales and marketing and the distribution. Now you're going to see some of the other things that we talked about.

So as you - as you - look over the rest of the year, they're going to improve quarter-over-quarter. I think I said in my comments that, if you took , that the margins in the Crane segment would have been pretty much flat year-over-year.

Right. OK. And the follow-up is, you know how does Grove alter the improvement picture here? Does it take you back to block one or does it slow you down a bit? Can you help me with that?

I don't think it - it doesn't slow us down a bit. We still have the things that, you know I think we expect to close that until June and it's going to, you know as you look at it going out over the first quarter, I think their margins certainly are a little bit lower than our blended margins on the Crane side and that's an opportunity.

If you look back at where some of the margins were in the Grove business back in '96 and '96, they rivaled the margins we had in our - in our - original Crane businesses. So I think you're going to see the first quarter we have amended the blending's going to be a little bit lower, but at the same time that's how we get to the 20/30 cents a share accretion next year in 2003 because of the improvements that we see in the - on the - horizon.

OK, I'll be a sport and get back in the queue.

And we'll go next to at Credit Suisse First Boston.

Good morning.

How are you, John?

Hi John.

Glen, I'm not sure I'm doing the math here correctly, but if your earnings would have been up 14.5 percent ex DRI, does that mean that DRI cost you about four cents in the - in the - quarter because I'm not sure what it was last year. So all I did was take it up four cents and look at what it actually was and the difference is about 1.6 million pretax.

It's probably - it's pretty close to that, probably a little bit less, but it's probably not that much.

And I guess the question is why? Not why did it do it, but why do you still have it? Why are you still allowing it to do that to you? This is, what, the third year in a row that at one point or another it's kind of blown up on us? Maybe that's a little harsh, but we did the same thing a year or so ago?

I'm going to - I'm going to let Tim address that.

Well obviously strategically it's outside the what we define as the scope of our business, but it is - it is - earnings accretive. It is still a profitable operation and ...

Wait, but didn't it cost you three or four cents?

It still generated - it still generated - a profit for the period though. It's still EBITDA accretive. So to answer your question directly it doesn't - it doesn't - fit within the scope of the business, but it has been a contributor to the company.

This first quarter is unique because we had virtually every product that they produced is new and was introduced in the last two months of last year and rolled out during the first quarter of this year. So we did incur a lot of expenses in the first quarter or non-recurring type of expenses as we ramped up production, et cetera.

John, this is Terry. And you know we as a management team continually evaluate all of our alternatives and I would - I would - say that a lot of things are looked at. But this whole - this whole - process in the - in the - DRI issue is really a result of the expansion to the new product that our customer introduced this year.

And we do feel that the steps that we have taken are the proper steps and I don't think that you will see - you will see - a reoccurrence of this.

As a - as a - follow-up on the food service business overall, how are we doing in terms of the customer level of activity and therefore the, not orders because they haven't come, but the inquiries, the tone the market? Are we seeing anything, any greater level of improvement than we had anticipated or are we about where we were on the overall level of business?

OK that's a really good question. I guess is probably our business unit that's most focused on new construction and they're order intake is up significantly for the quarter. Now granted a lot of these orders are - have a substantial lead-time because they're tied to projects and their quote activity is also up good compared to the same period last year.

So to that end it's very positive. I don't know if you read any of the recent reports on the hotel industry, but March was, although not quite up to last year's level, it showed significant recovery in the hotel segment. So that was encouraging as well. is still a - is still a - challenge in terms of new store construction.

Replacement market it was down in the last quarter of last year and the first quarter of this year, but that's simply people are postponing expenses. That will come. I mean if a piece of equipment's not operating, you can only put that off so long before you have to - before you have to - do that.

So we're, you know as we said, with the we were basically flat or just down slightly. We're encouraged by that. That's what our business plan showed, our projections showed flat for the first couple of quarters and some growth due to new products. So overall I would say we're about where we expected to be.

Thank you very much.

Sure, thank you John.

And we'll go next - we'll go next - to at Robert W. Baird.

Good morning, gentlemen.

Good morning, Rob.

Good morning, Rob.

Let me follow-up on - let me follow-up on - John's question on food service. With so much new product being introduced this year, could you talk about how that affects the business? In other words, it seems to me that, when you're this close to flat in terms of top line growth, that there's at least the possibility that what you have going on in new product is actually creating a situation that obscures perhaps a little healthier underlying demand trend.

Do you - do you - get an interruption in business as you roll out new products or are you able to bring product - new product - on with, you know absolutely no effect on filling orders?

Well I would say absolutely no effect, but to be honest it's kind of testament to the opposite of that. That was a real challenge, DRI, so taking that out of it, of course we're not going to talk about specific product introductions, but two that were mentioned in the conference call are the new product line for our European operation that will be introduced in October.

And that will actually - that is probably designed to be easier to produce and cost less overall so we're expecting some good improvement from that. We also talked about some of the new products that we're introducing in the ice and beverage side of the business and those also are products - some of those product line expansion, which is - doesn't interrupt anything.

So typically we're able to introduce new products without any major disruption to the business.

OK.

The other thing to remember is that most of our investment in those new products was incurred in the last two years. So we're really going into the harvest mode of those efforts.

And don't I remember that DRI, despite volatility, is among the higher return product lines at food service.

It has been and it certainly is a steady performer. I think, you know what's happened is the same thing that happened last year in the first quarter. As Tim mentioned, we had the ramp up of some new products and I think everybody, including the ultimate OEM, were surprised by the order activity that - in filling the pipeline of the new product and that really was where we stubbed our toe.

Chris one other thing that is in there that we haven't mentioned and because of the new energy related items that are on the product there are some things that we have as a - as a - pass through cost to GE and those go - those go - through that on the invoice as a cost of the producing the new model. So those have diluted the margins kind of like when before when we had chassis in the boom truck area.

And instead of just netting it as really a zero margin type item, you have to now under the accounting rules you have to break out the sales and the cost of the sale and that has diluted the margins by probably 40, 50, 60 basis points in the quarter. So you don't see that either, but that - but that's going to happen as we go forward the rest of the year.

OK. All right. OK thanks I'll get back in line.

And we'll go next - we'll go next - to at .

Glen, could you give me a breakdown of the Crane backlog broken down by and the balance of the company?

The backlog's about, well as we said, it's 81.5 million and about half of it is and about half is the rest of the company.

OK so the backlog for the rest of the company have - basically have - stabilized. I'm just trying to make sure I got this correct. At the end of December, I believe they were about 40 million for the non backlog.

Yeah.

So that means the backlog is about where it was the end of December. Now does that include - does that backlog at the end of March include - the Expo show?

You know what happened is where it was very close to the end of the quarter you end up working on a lot of deals and some purchase orders arrive and some don't. So the first quarter backlog reflects a portion of that where the purchase orders were actually in hand at the end of the month.

All right so generally speaking the backlogs are still, you know again based on the $40 million versus 40 million at the end of December again excluding , they're still flattish.

Yeah I think that's - I think that's - accurate.

OK. Now as far as the breakdown of the backlog geographically, including , can you give us some idea of the percentages at the end of March geographically?

Well the majority of the - other than , the - majority of it is - the majority of it is - in the - is domestic and then is probably 50 percent is rest of world and then the other 50 percent is in the United States.

All right so 20 million of the 40 million for might be U.S. and the 20 million balance would be the rest of the world.

Right.

OK. Thank you very much.

No problem.

We'll go next to at Bear Stearns.

Good morning. I was just wondering can you give a forecast for margins for the full year? It looks like they were about four-and-a-half percent this quarter.

Yeah, I think our - if you looked at it when we brought in May of last year, other than the fact of the breakdown of the German market, you know we're looking at those being a little bit - a little bit - better than last year. I would say you're probably looking at, you know just a little bit better than double-digit margins on a - on a - annual basis.

OK and then maybe this is a question for Ron. I was just wondering if you could give us a little bit more color on Crane sales, maybe break it light versus heavy?

You have to help a little more what do you want me to break up light versus heavy?

By product just the light products versus the heavy products. If you want to do it by, you know boom truck versus the large cranes or . . .

Well the way we look at that is we look at as heavy equipment is the traditional Manitowoc crawler crane business.

Right.

Plus the heavy - the large tower cranes from . And the light equipment side of the business is boom trucks and the GMA product or self-erecting.

Right, so . . .

So are you asking for the clear how did those come - how did those break out or shake out from the quarter before?

Yes.

I would say that yeah the - as we - the internal - the internal - sales from overall without were really down about nine percent. What we're seeing is some of that - a portion of that - as we said, without the new products, we projected the market to be down between five and 10 percent and that - some of that - is in the high end.

The large cranes, but you know the boom trucks have held steady and because of the consolidation that we had at last year in the facilities, we're seeing some good things there. And then obviously is the smaller piece of everybody's puzzle, and you know that's pretty much flat year-over-year.

So but the other one is - the other one that has held and really no change that we've seen from previous quarters would be the triple ones and the triple twos. That's pretty much been steady for the past, you know six or seven quarters.

OK, so the weakness was largely focused on the heavy side.

I think - I think - it's more - yes more - on just one or two. What you had last year in the first quarter there were - there was one big order that went out in the first quarter, but it's in dollar wise it's the nine percent, but in units wise it's probably about the same.

OK, thank you.

: Again ladies and gentlemen to ask a question, it is star, one. We'll now take a follow-up from at Deutsche Bank.

Hey just a quick marine ops question. Can you give us a sense of whether roughly 12 percent is as good as it gets from a margin perspective without a, you know significant pickup in your repair business?

Yeah I would - I would - say we've been working very hard on improving margins and I would say that, you know relatively speaking that probably is, you know and I never like to say it's as good as it gets, but that's - those are pretty good margins for the marine business. And yeah we obviously would like to see the repair business pick up some to improve the blended margins.

But at the same time, Mike it can also be the mix on the project work that we have also. Right now a lot of it is in fact the and the government type work and we said the commercial work on a project basis a little bit better than that. So if you improve the mix there you're going to get the pickup in the margins.

OK, that's all I have.

Thanks.

We'll go next to at .

Good morning. Could you please go through the operating cash flow projection as to what are the working capital generation or uses in the hundred million?

With - for the year?

Right.

The plan for the year?

Yes please.

It's primarily inventory and receivables.

That's the generation right drawing those down?

Yeah bringing them down. I think and the opportunities are probably mainly in the - in the - Crane segment from an inventory standpoint. From the - and the food service and then with respect to the receivables a little bit and the marine Crane that's pretty much spread across everybody.

Now are we thinking of as much as 30 to 40 million?

Yes.

And just does not include Grove does it?

This does not include Grove.

Because Grove's going to make it a pretty complicated statement when you acquire working capital and all that.

Well that's one of the, you know that's one of the synergies that doesn't show up in a - in the, you know the 20 to 30 cents accretion, but it certainly is a benefit in paying down any of the debt that we incur. And we, as we look at the way we manage our business from a balance sheet standpoint, the way they have managed their balance sheet in the past, we believe it could be probably one of the biggest synergies that we have.

What are your assumptions for the operating cash flow of Grove for this year and next year in those earnings contributions?

What are the - well in the - in the - first year we're looking at working capital changes of maybe 10 to 15 million, but if you go out . . .

Is that positive or negative?

That's a reduction in working capital.

OK.

But in that shift I'm talking just Grove by itself.

Right.

And then if you go out into 2003, you're looking at, you know easily, you know 30 to $40 million.

What, operating cash flow?

Well just reduction of working capital.

OK.

The operating cash flow immediately take that and I mean we've really said that once we close the transaction we will give a lot more financial guidance than we give in the - originally on those types of things.

Thank you.

We'll go next to at Deutsche Bank.

Good afternoon, gentlemen. I just wanted to touch on I had a question regarding, Rob, I think you'd indicated that self-erecting cranes had been difficult. Is that one of the products that I think at least up until a year ago had relatively good demand. What's behind the falloff in demand for self-erecting cranes?

Germany. Germany's a huge market for self-erecting cranes and it's, you know it's absolutely flat on its back.

OK. And has there been any competition, I mean does have a competing product in that segment or is it just the ultimate - the unleveled demand?

Well it's mostly the unleveled demand. The players that are in the market that are of any significance have been players for a couple of years. So it's not like there are new big players that we're up against. It's really more a reflection of the marketplace.

OK, and how long has it been down for? I mean is this like the last couple quarters or has it been down for longer than that?

This is probably - we're probably - well into the second year of Germany being off significantly. Started to fall off beginning of 2001.

And then - OK that's great. And then secondly the general corporate expenses I guess Glen this one is for you, it basically took like a $600,000 increase in the most recent quarter. What was behind that?

The majority of it are - there's some additional headcount from people that have been added, you know since the first quarter of last year with the acquisition of and some of the things that now we have acquisition of Grove and we've just - it's certainly not a lot, but the other thing is that some of the employee related type costs with respect to insurance and profit sharing and bonus type accruals.

OK so there's - and - but it looks like it took, even from the fourth quarter to the first quarter, it looks like it increased about 600,000. Is there any quarter-on-quarter reason or anything in particular you're working on like project related?

No. I think what, you know when you get to the fourth quarter, the fourth quarter probably was a little bit under a normalized run rate just because of the fact as you get into November and December and you look at it and you have to face the reality of what the yearend bonuses are going to be and what not, you can reverse some of those things.

And I think as we build it back up knowing what we're looking at this year. So I don't think it - I don't think the fourth quarter's a normal run rate. We have projected some increases in corporate expenses this year for the things we're talking about, but I don't think it's certainly not anything that we did and it's not - it's not - anything that we did and it's not anything unplanned.

OK. All right great. Thank you very much.

We'll go next to at Salomon Smith Barney.

Quick question on the distribution with Manitowoc from Grove. I guess roughly about half of the Grove dealers already carry Manitowoc. What's in the strategy with the other 18 or so that don't carry Manitowoc and when do you expect maybe to get some pipeline sale into those distributors?

That's - David that's - those are good questions and as we continue through the regulatory process we haven't been able to really have those conversations yet. So once the regulatory process is cleared then we'll sit down and start to develop that strategy with the team at Grove and the team at Manitowoc Cranes and we'll figure out what all that looks like.

So we really don't have an outcome right now.

If you had your - if you had your - druthers what's the - what's the approach, I mean especially in Europe I don't think there's any overlap where there's any Grove, , or Manitowoc or vice versa, what is the strategy on product, you know product build? do you try to protect the individual territories?

What we try to do is . . .

Or ...

what we try to do, David is we try to service the customer in the most effective way we can. Sometimes as you saw with that means that distributors become Manitowoc and sometimes Manitowoc become and sometimes we leave it alone and there are two in the marketplace.

Again, we haven't had those conversations and can't have those conversations yet with the team at Grove, but I suspect the process will be the same and at the end we'll have some that are both, some that are one or the other and some that are neither. So that's likely to be the outcome, but we're probably a couple of months away from being able to really start on that in earnest.

OK, not to try to keep pushing you for an answer, but obviously when you do an acquisition like this, you think before the synergies before you pay the price that you do. Can you at least give me an idea of the - another end your own distributors, what percent do you think in the states might - if you own Grove you would Grove product in there instead of whatever competing product they carry?

David, I'm getting a funny look from our general counsel that . . .

OK, all right.

...we better not go in that direction.

That's fine. OK. Thank you guys.

And we'll go now to a follow-up from at Credit Suisse First Boston.

Yeah I just want to get over to shipbuilding for a second. Could you - I'm not sure I understand exactly what the OPA-90 legislation is. Quotation activity is brisk. What is it - what do you expect and could you just overall look at kind of the orders that you anticipate and what that would mean for revenues overall in the marine business from that, from the Coast Guard, from whatever else you have out there?

Yeah. Very briefly the OPA-90 regulations require all petroleum carrying vessels to be double hold.

OK.

And the end of that is 2015. Obviously the industry has delayed capital investment into these vessels for a long time and the time-frame is growing short. The Coast Guard has said that they will not extend the deadline. So there is an enormous amount of work out there available to build these vessels whether they're tankers or tug barge combinations.

And we see that as a - as probably a - the most significant opportunity over the next kind of 15 years for shipbuilding in this country, the largest single opportunity. There are lots of other opportunities in dredging and general purpose and service and support vessels and military products and so the next 10 to 15 or 20 years for the shipbuilding industry should be very good with the opportunities that are out there.

We're currently looking at two pages worth of significant opportunities that will occur between now and 2005. And our interest in prioritizing those, which we think fit our niche. We're excited about the - about the - marine business and you know we see the marine group at Manitowoc, you know at 225 to $250 million this year and the ability to grow that over the next three to five years to maybe $350 million.

And what kind of a margin if we do the 225 to 250 this year, what kind of a margin would the - because so much is a function of mix obviously?

This year's margins?

On the 225, yeah.

This year blended margins are about I want to say closer to about 10 percent.

Ten percent yeah I think . . .

Yeah.

Ten percent on - 10 percent on the 225 to 250, right, OK.

Right.

Right.

And then could I come back to the unrelated follow-up question onto the Crane business, get back to the original question about if the markets were ex and the market's down nine percent was it in heavy or light and in essence the answer it was nowhere. It was because basically you had one very large order year ago or one large crane a year ago that you didn't have this year.

If you kind of normalize it and the problem is that the whole - the whole - revenue stream is a series of large, clumpy, you know units. Where are we in the Crane business in your mind in going over the balance of the year because of you know comparisons and so on? Are we looking at the large market in fact holding flat so revenue's holding flat and the small market holding - showing some improvement or down?

I'm just trying to differentiate between sales where you can say, but there was one, you know one large shipment that affected something and kind of how you see the overall market and so because we don't obviously see the sales broken down by these lumpy shipments historically.

Yeah John I think we look throughout, you know our vision of the whole year is that it's going to be pretty flat. And what we mean by that is that we're going to see some mix differences on the high end of the business, triple lines and 2250s, you know quarter-to-quarter you may trade a unit back and forth.

And on the smaller end of the business we're going to see some of the softness in the very small cranes offset by the new product introduction and maybe a tradeoff of a triple seven to a triple five. So net/net the mix is going to be a little bit different, but it's going to be pretty flat.

And could you just remind us what we get and on flat revenues with a full, I mean we didn't have for the full year last year, did we?

No we did not.

No.

What do we get - what do we therefore get - at - on an as if basis?

Excluding ?

No, no in . . .

In a full, yeah including everything.

Yeah.

You know in the Crane segments our projections are for the - for the - margins to improve from last year anywhere from 50 to a hundred basis points.

I'm trying to get to revenue Glen.

The revenue . . .

I'll be flat, but it'll - but you'll have a full year of .

It's in the - it's in the - mid teens the year-over-year top line growth.

In the mid teens, OK.

Yeah.

OK, thank you.

And we'll go again to at Robert W. Baird.

Maybe I can help clarify for John a quarter ago you all were talking about, about a hundred million dollar carryover increment from . You still comfortable with that?

Yes.

OK. When is the - when's the - expiration on the HSR filing?

Yeah I mean three days from the day we filed it.

Was?

I mean I know the date, you know we did that. It was - it will come up on the 26th of April.

April 26, OK. And a separate clarification, Glen earlier you were talking about Crane margins and I think heard you say that you expect to have year-to-year improvement in margins in each of the next three quarters for the segment as a whole.

Yes.

Thank you.

And we'll go to again at Deutsche Bank.

Hey Glen just one housekeeping item and if you've got this and I missed it I apologize, but if we look at the tax rate in the first quarter roughly 45 percent. And if memory serves me, you guided I think 39 to 40 percent for the full year, did that change?

Hang on one second. Mike it's at 39 percent that's why I wanted to - the effective rate that we have is 39 percent on the - I don't know what number are you looking at, but we - but it's pretty much where we said it would be.

OK, I guess I'll check the math. Thanks Glen.

Thanks.

We'll go next to at ING Asset Management.

Good morning if this question came up in the beginning I apologize, but it took about 15 minutes to get through to the call, which was kind of surprising. Upon the acquisition or the announcement of the acquisition of Grove, one of the rating agencies put your ratings on credit watch negative. Wondering if that came as a surprise to you?

No, you know we - before we - announced the transaction we had some conversations with our rating agency people and they said this is - until we can understand it better and until you come in with your meeting, which they said, you know we will do this and then really this is what we're going to do for now but we want you to come in and meet with us, which we had every intention.

We've had conversations with them and that's really what it was. I mean it's in a sector that, you know it makes the Crane side of, you know 65 percent of our business, it changes the landscape of what we look like and they just want to understand it a little bit better than what we just gave them over the phone and that's really what that's all about.

They mentioned that one of the concerns they have is that the company will have more leverage at a certainly point - at this point - in the cycle. Are you committed to these ratings or is the acquisition just too important for you to pass on and is the - that market just too attractive?

Let me, you know and in fairness to again the rating agencies, you know we didn't - we talked about a lot of th8ings, but we didn't show them how all the numbers would come out, but when we did our conference call on the transaction, if you look at what's going to happen because of the use of stock and how we're going to do this, the senior leverage ratios improve.

Our total debt to EBITDA goes up a little bit, but at the same time our total debt to cap ratio is probably a little bit lower than what it was when we did the transaction in May of last year. And you are correct the markets certainly are a little bit better from a credit standpoint now than they were when we did the transaction last year. So I mean we - you're correct in a lot of ways.

The acquisition is in fact very strategic to us, but at the same time, you know those ratings are important to us too and we want to make sure that we address all the issues that they possibly have.

Thank you very much.

And we'll take our last question today another follow-up from at Robert W. Baird.

I just wanted to take advantage of having Rob here with us. Rob when you were talking about - I think it was in your remarks - about market share gains in the U.S. tower crane market, can you talk a little bit about what's going on that market? Is it - is it - running flat?

Do you expect some growth there just on penetration? If it is flat, you know what needs to happen to spark it so they can start growing again? And what kind of, you know have you booked some orders yet for - you introduced Manitowoc branded product at the show wondering if you were able to book some orders for that product? So call it a - call it an update on the fundamentals of the U.S. tower crane opportunity.

OK. Update on U.S. tower crane. The market, Rob, looks to be about where we expected it to be. The global market's going to be off about five percent overall. We think that there's - and that really reflects some downward trend in the rest of the world and some upward in the U.S.

The U.S. growth is single-digit kind of growth so it's not like it's going to blow the doors down or anything, but there's going to be some upward growth there. What's happen with us right now is we were getting the benefit of the acquisition. Certainly the excitement of having another tower crane competitor really firmly rooted in the U.S., the benefit of our distribution network is helping us.

Our reputation and capability for product support, all of those things come together. And what's happening in the market is that - is that - we're really the guys who have introduced tower cranes, but we also provide the product support to support them. Traditionally, that business has been through sort of large pseudo distributor rental companies or direct. And in both of those instances neither one of those were sort of full-service environments.

Right.

So we're able to slip in the middle and provide full service in that market at a time that there's some upward pressure and power cranes are just going to flat out be more popular in the future in the United States than they are today. So our timing is good and then sort of painting them red doesn't hurt.

And did - have you booked some initial orders on the new models?

Yes we have as a matter of fact. The new models are going very, very well.

A follow-up in self-erecting share your comment about that being up 10 percent. I assume that means 10 points, right?

Actually the tower - actually it does not, Rob. The - our GMA for self-erecting share is just under 40 percent now worldwide, up about three-and-a-half percentage points from a year ago.

So you meant - you really meant - a 10 percentage ...

Yes right.

...a 10 percent gain in share. And I got to assume though that the biggest explanation for that would be a relatively lower share position for you guys in Germany.

Relatively lower. Well we still have some good activity in the U.S. You know you saw some of the products there at the Expo Show and it's starting to - the concept of the self-erecting crane is starting to sink in the U.S. So we're getting again the upward pressure in the U.S. offset by continued weakness in Germany.

OK, so that was - the share comment was a worldwide comment.

Yes.

OK, I misunderstood.

Right.

Thanks a lot.

Mr. I'll now turn the call back to you for additional or closing remarks.

Thank you, Debbie. Before we conclude today's call, I would like to remind everyone that a replay of today's call will be available beginning at 2:00 p.m. Eastern Time today until 1:00 a.m. Eastern Time April 24. The number to dial for the Manitowoc replay is area code 719-457-0820 using confirmation code 687807. You may also access an archived version of today's call on our Web site at www.manitowoc.com.

Thanks everyone for joining us today. Have a good day.

Thank you, ladies and gentlemen that does conclude our conference call. You may disconnect at this time.