Manitowoc Company Inc (MTW) 2002 Q4 法說會逐字稿

Good day, everyone. Welcome to the Manitowoc Company Incorporated fourth and year-end earnings results conference call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Steve Kyle. Please go ahead sir.

Good morning, everyone. Thank you for joining us today. Participating in today’s call is Terry Growcock, our Chairman and Chief Executive Officer, Tim Wood, our Vice President and Chief Financial Officer, Glen Tellock, President of Manitowoc’s Crane Group, Tim Kraus, President of Manitowoc’s Foodservice Group, and Dennis McCloskey, President of Manitowoc’s Marine Group. Tim Wood will open the call with an overview of our financial results, including a brief report on each operating segment. Then, each of our segment presidents will provide an overview and outlook for their businesses before Terry concludes with a strategic update for the coming year. Following this, we will open the call for 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 our call by visiting our website at www.manitowoc.com.

Before we get started, I would like to review our Safe Harbor Statement. This call is taking place on February 10, 2003. 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 and Exchange Commission, including, but not limited to, the company's annual report in form 10-K for the year ended December 31, 2001 and forms 10-Q for the fiscal quarters in the year ended December 31, 2002. With that, I'll turn the call over to Tim Wood.

Thank you, Steve. Good morning, everybody. Overall, Manitowoc has accomplished a lot in 2002, and we are pleased with our financial performance. We achieved record revenues for the eighth straight year, posting $1.4m in net sales. We also generated strong operating cash flow of $98m from our continuing operations. For the fourth quarter, sales increased 47%, to $400m compared with $272m last year. Growth contributed $130m in the fourth quarter. Foodservice and marine also registered strong gains. These were offset, however, in part by a sharp decline in U.S. Crawler crane sales. Earnings, excluding special items were $5.3m or 20 cents per diluted share. This was down from 35 cents in 2001, again, primarily due to the Crawler crane sales decline. Special items affecting our fourth quarter results include $25.5m after tax provision for losses on the sale of discontinued operations. This related mainly to the sale of Manitowoc boom trucks. We also recorded a charge of $7.7m for restructuring within our crane operations following the Grove acquisition. This was $4.4m after tax.

Again for the year, net sales increased 34% to $1.4m driven by the acquisition of Grove and the full year of [inaudible] results. On an apples to apples basis we were up 3%. Earnings before special items for the year were $49.2m. This was about even with 2001. The comparable EPS was $1.91 this year versus $1.99 last year because we had more outstanding shares this year. We include the special charges; we had a net loss of $25m or 80 cents per diluted share for the year. In addition to the fourth quarter special items I just mentioned, the full year includes a $36.8m after tax charge related to the change of accounting for goodwill and a $3.9m provision for the closing and consolidation of our multiplex operation, which was $2.5m at a tax.

I have a couple of brief comments on our segments, starting with cranes. Cranes reported fourth quarter 2002 sales of $233m, an increase of 70% over the same quarter last year. Excluding acquisition sales declined about 25%. Operating earnings declined to $8.2m for $17.7m this year, in the fourth quarter. Of this, $3.3m did result from expenses in Grove inventory of market value on the acquisition date, which was in excess of our actual production costs. The remaining decline was primarily lost absorption in the crawler crane unit.

As many of you know, the department of justice required us to sell one of our boom truck units in order to complete the acquisition of Grove in 2002. As I mentioned earlier, we recorded a substantial loss on this sale. The department of justice requirement, combined with a poor market environment were certainly contributing factors. We aren't happy with this loss, but we're still quite happy with the Grove acquisition. Total crane backlog at the end of the year was $134m with Grove and [inaudible] accounting for the lion’s share of this.

Switching to foodservice. Our foodservice business continued to be strong in the fourth quarter. Sales increased 16%, to $105m and operating earnings rose about 4% to nearly $12m over the same period in 2001. The ice and beverage businesses reported strong results. New products helped sales, while plant consolidations and productivity enhancements helped those margins. We also signed an amended contract that revolved the principal issues faced by our Diversified Refrigeration unit during 2002. Tim Kraus is going to talk to you in a couple minutes and provide more background into this. New construction projects in our marine segment were key to strong improvement in both sales and operating earnings this year.

In the marine segment, net sales rose 40% to $62.4m for the quarter versus last year. Operating earnings increased 10% to $3.9m. The reason the sales out paced earnings is the new construction margins are not quite as high as repair margins. Dennis McCloskey will provide more insight into this.

A couple comments on the balance sheet; Total net debt at year end was $635m. This was up $173m from 2001. Debt increased about $200m from the acquisition of Grove, and about $30m from Euro currency translation. Strong operating cash flow allowed us to offset these increases by $57m, and our debt to capital ratio at the end of the year was 69.2%. Due to softness in our crane business, we needed to obtain a waiver from our senior lenders and certain financial covenance for the fourth quarter. We did receive approval for the waiver, as well as a new covenant package going forward, which better reflects economic conditions in 2002, and our expectations going forward. We'll file an 8K later today with the details on the new package.

To wrap up, a couple comments on the way of guidance. First of all, U.S. commercial construction market difficulties are persisting in 2003, and this is hurting demand in our traditional Crawler crane business. This, in turn, tempers our out-look for the first half, despite continuing gains we anticipate in the foodservice operations. [Inaudible] and operating sufficiency’s continue to take hold. We see steady improvement during the year. Overall, 2003 EPS is expected to range from even to 10% ahead of 2002, excluding special items, and we do expect to end the year on an upswing. Of equal importance, we will continue to target cash flow from operations at or slightly above $100m. With that, I'll turn you over to Glen Tellock who will lead off the segment presentations.

Thank you, Tim. Good morning, everyone. The Manitowoc Crane Group had its ups and downs this year. On the upside, we acquired Grove worldwide to strategically round out our product offering. We benefited from strong worldwide demand for tower cranes and we made substantial progress in realizing the synergies created with the acquisition of Grove. On the down side, the continued decline in the Crawler crane market in the second half of the year required us to take actions to right size our business to match this demand and, as Tim mentioned, we took a loss on the sale of Manitowoc boom trucks in order to complete the acquisition of Grove. Nevertheless, gains within some product lines in geographic regions helped to offset losses in others. Our net sales for the year increased 60% to $724m, and operate earnings declined 5% to $60m. Operating margins dropped approximately 6 percentage points compared to 2001 for the reasons Tim mentioned earlier. Looking ahead, we expect soft market conditions to continue throughout 2003 in the construction industry as a whole. Therefore, we have taken a number of actions to ensure that our crane business will remain competitive and profitable.

First, we have implemented our reorganization plans in the Americas and laid a solid foundation for performance improvement. Second, we have completed a significant portion of our cost reduction efforts related to the Grove acquisition, which should begin generating substantial cost savings in 2003. In addition, we can now begin our integration of National Crane, a task that should be completed within the next month. Third, we'll continue to focus on new product development to drive demand and increase market share in each of our product lines. For example, late last year we launched a new 660 U.S. ton Crawler crane model 18,000 as well as new 550 U.S. ton GMKL crane product, model 7550. Both of these additions should help drive sales in 2003. Other new products in store for 2003 include the TMS 900 E hydraulic truck crane and several tower cranes. What is significant about the TMS 900 E, is that is the first marriage of the European and American technology for the truck crane market. In essence, this model combines European all train technology for the upper works, with American truck crane technology for the carrier.

Finally, and most significant, we are enhancing the way we do business in our crane segment to better serve our customers worldwide creating one unified crane organization will allow us to truly capitalize on our acquisitions in Grove and [inaudible]. We will be able to manufacture and distribute our products closer to our end markets. We'll cross market our complete product line to a broad geographic area, and we'll take advantage of both purchasing opportunities to enhance our position as a high quality, low-cost manufacturer. In sum, we are not counting on any significant near-term recovery in our end markets. However, with our key initiatives previously discussed, we will continue to focus on the customer, on product support, operations, while also maximizing cash flow. These are not new strategies for our businesses. In short, we are positioning our crane segment to take off when the industry does recover. I'll now turn the call over to Tim Kraus to discuss the foodservice segment. Tim.

Thanks, Glen. 2002 was a good year for foodservice, full year earnings were up 4.7% on a 12.5% increase in sales. Without DRI, our contract manufacturing business in Tennessee, we posted an 8% increase in earnings on a 5.8% increase in sales. The demand for ice and beverage products increased throughout the second half of the year, while refrigeration remained flat. We attribute this to refrigeration’s dependency on new store construction, which has been slower to recover compared with replacement, expansion, and remodeling activity that boosted ice and beverage equipment sales. In the fourth quarter, industry shipments of ice machines were up nearly 14% over last year, but still 2% behind 2000. For the full year, the ice machine industry shipped more than 5% over the prior year.

New products played a key roll in our growth. Manitowoc ice, McCall, Coldpack, Servant and DRI all had major new product introductions in 2002. In many cases we can tie our gain in sales and market share directly to those new products and product line extensions. We continue to invest in R&D and will introduce several new ice and beverage products in the first half of 2003, along with a new major new product introduction toward the end of the year.

Our focus on productivity and cost reductions, coupled with the consolidations in beverage and refrigeration manufacturing businesses contributed to improved bottom line performance. And our investments and demand flow manufacturing that were made in 2000-2001, paid dividends throughout the year.

As stated earlier, we were able to resolve the contract issues with DRI without going to arbitration. We saw some of that benefit in the fourth quarter. While we are not at liberty to disclose the terms of the settlement, we are pleased with the results and look forward to much improved performance from that business unit going forward. We expect our markets will continue to improve in 2003 but at a slow pace. There is still enough uncertainty to prevent a rapid recovery. Capacity in the hotel segments still exceed current demand and the quick service segment is struggling to re-invent itself. On the other hand, activity in the fast growing quick casual segment of the restaurant industry, the convenience store segment and entertainment segments are all strong. As our new products gained a stronger foot hold on the market, we will continue to gain share and in 2003 we will see the full-year benefit from the cost reduction effort and productivity improvement initiated in 2001 and 2002. In light of the challenges over these past 3 years, we are pleased with our [inaudible] ability to navigate the difficult times. Given the initiatives we have in place, we expect to realize continued improvement in 2003. I'll now turn the call over to Dennis McCloskey for discussion of the marine segment

Thank you, Tim. Good morning, everybody. We are certainly pleased with the performance of our marine segment during 2002. Full-year revenues increased 21% to $219m and operating earnings increased 5% to $20m. Margins dropped approximately 1.3 percentage points compared to 2001, primarily due to a decline in demand for repair work compared with new construction. This is not a new trend. We've experienced a decline in demand for a higher margin repair work for more than two years now; primarily due to issues affecting the steel industry, low lake levels and the general health of the economy. We had expected additional repair work to occur during the fourth quarter. However, several ships that had planned to lay up for the winter continued to sail in the great lakes and only recently tied up for winter repairs. We currently have a full sleight of vessels in our repair yards, excursion bay and Toledo. We are cautiously optimistic that the repair market will continue to improve in 2003 and into 2004.

The steel industry conditions have somewhat improved during 2002 due to consolidation, but we're not completely out of the woods yet. Demand for new construction services remain healthy throughout the year. Our current projects include several [inaudible] tenders and great lakes ice breaker for the U.S. coast guard plus three Staten Island ferries for the city of New York. Our current project backlog extends into 2005. While we believe that demand for new construction should remain healthy throughout 2003, we are seeing some difficulty in our customers' ability to secure financing. Essentially, many commercial and government customers want ships but not everyone can get the money needed to build them. Despite these industry and economic conditions, we see plenty of opportunity for growth in the coming years, especially since [inaudible] legislation will require double holds for all vessels hauling petroleum products in US waters by the year 2015. To take advantage of these opportunities we are streamlining our manufacturing procedures to lower inventories and operate as efficiently as possible. In addition, we are actively bidding on numerous contracts to keep our new construction pipeline full. Some of which may close as early as the first quarter 2003. We are also pursuing different kinds of construction projects, such as sea going vessels that are not limited to the great lakes area. We are partnering with other ship-yards if needed to accomplish this. We believe these efforts will help us continue our track record in revenue and earnings growth. I will now turn the call over to Terry Growcock for some strategy.

Thank you, Dennis. We are very optimistic about the long-term future of Manitowoc. We have successfully positioned the company as a diversified manufacturer of capital goods and a market leader in all of our segments. The strategy and actions we have taken in recent years will show you where we're headed and why we're optimistic. We are following a proven strategy in our crane segment. In the last two years, we filled major product voids and geographic voids by acquiring [inaudible] and Grove making Manitowoc the world's largest provider of lifting equipment for the global construction industry. We have the number one brands in Crawler Cranes, in tower cranes, in mobile telescopic cranes, and in boom trucks. As Glen noted, we have integrated our acquisitions and are now taking the necessary steps to reduce costs and increase margins. We are instituting cross-selling to increase our global growth, and we are introducing new products to drive additional growth. We are in the sweet spot in the global crane industry, and when the business turns around, we will jump further ahead of our competitors. Let me comment briefly on my earlier statement that this is a proven strategy.

From the mid-1990s and into 2000, we made a series of acquisitions in the foodservice segment, strategically positioning Manitowoc as a leader in that market. Not only do we now offer the broadest line of coal focused equipment in the foodservice industry, we're number one in revenues and market share. As we integrated each of these acquisitions, we have taken the necessary steps to improve our operating margins. We have capitalized on cross selling opportunities for global growth, and we've aggressively introduced new products to spur further growth. Our results, even during a poor business environment in the foodservice sector, speak for themselves. Higher top line and bottom line growth plus improved margins. When the foodservice market recovers, we're in a position to excel. Our strategic acquisition of Marinette Marine in 2000 positioned the company as the largest shipbuilding and ship repair organization in the U.S. Great lakes. Once again, we have increased sales and operating earnings, even though economic conditions are relatively poor today, we are undertaking several cost saving efforts that will help improve our shipbuilding and ship repair margins. Our marine segment is extremely well positioned with the people, facilities, and capabilities to take advantage of the upcoming wave of shipbuilding opportunities. Our strategy has made us a leader in all of our businesses and as we continue to follow it, it will ensure a bright future as a diversified manufacturer of capital goods. I'm looking forward to reporting on our continuing progress to you and now we would like to open the call to your questions. Wanda?

Thank you. The question and answer section will be conducted electronically today. If you want to ask a question, you can do so by pressing star 1 on your touchtone telephone. If you are using a speaker phone, we ask that you make sure your mute function is turned off to allow your signal to reach our equipment. In the interest of time, we ask you limit yourself to one question and one follow-up question. We will proceed in the order you signal us and take as many questions as time permits. Once again, that is star 1 to ask a question. Our first question from Aaron Ravenscroft with Janney Montgomery Scott

Good morning, gentlemen.

Good morning.

Regarding the guidance, how much of the work stoppage at Marinette has been factored in? Do you expect any pick-up in the operating income in the foodservice business from the resolution of the DRI situation?

Aaron, I think what I have to do is leave our guidance as is. And not get into that level of detail. There's a lot of things that are going to impact our ability to achieve the levels we're coming out with in 2003, and I am just afraid I can't go into that level of detail

Okay. If I could focus on the crane business for a second. Could you elaborate on the restructuring situation? Is this a situation where there is a bigger decline than expected or was there a lot more to do than you expected originally?

I'll take the first pass at that. I think we've communicated to everybody that we've had strategic restructuring and synergistic opportunities that can save this company $20m or more going forward. We're still comfortable with that. We do, of course, have to be vigilant of our markets, and if we determine, given the state of the markets, further action is required, we'll take it. It will be shorter term in nature.

Okay. And looking at the mobile hydraulic market, what was the pro forma growth rate for the fourth quarter, if you can provide detail on that?

It was flat and not material to our operations either way

Okay. Thank you very much.

Sure.

Up next from CS First Boston, we’ll hear from Tom Klemka (ph).

Good morning.

Good morning, Tom

Glen, maybe you could talk a little bit on the crane side, among the -- between mobile hydraulic and national and towers and Crawlers, all the four sectors. Directionally, where do they go? Overall you're down 25%. How was Grove on a stand alone basis and in your own business, what were the extents of the declines?

Well, Tom, I'll just give you more so of a general market overview than anything else. [inaudible] If you look at the Crawler crane market, everything that's out there, that's in the high double digit declines over the entire course of the year, Tom, and the majority for us was felt in the last six months, primarily, you know, August through December. Tower crane markets worldwide, there's good spots and there's bad spots. Germany still hasn't picked up. There are opportunities in the other markets for us to offset those. I think, you know, going forward, that's more of a, again, a flat market for us just because of some of the pluses and minuses. The mobile hydraulics, we -- I think we've seen that flatten out. I'm not saying it couldn't decline a little bit more, but, certainly, not to the level of the Crawler crane business. So, actually, we've seen that one on a more steady basis just the past couple months. Certainly, two months doesn't constitute a trend. Finally, on the national side of the business, there's -- you know, now that all the stuff is behind us with the sale of boom trucks and whatnot, you know, that's -- I don't think the market will grow. I think we have the opportunity to compete more effectively and take the market share that maybe had slipped a little bit in 2002. That's the opportunities we have. Overall, again, we're not looking at improvements in markets. The new products and market share gains certainly keep us on track for 2003

Tom, I would add to that. I believe that you can see the diversification that we now have within the whole crane sector and being able to address this on a global basis and with the cross selling give us some advantages we did not have in the past

When you mention the reorganization plan and the Americas to address the slow markets, what is that? What are you looking at doing that's different than when you planned on doing when you bought Grove?

Tom, to say it is a reorganization, I think, is a good word for the accounting and finance side of it. The reason being is when we go into this, we looked at -- we're doing exactly what we thought was going to happen, but the problem is the way you have to account for the changes that have been made and the way things go down the path, some is accounting, some isn't. It is really the sizing, maybe the crane business to a little more of the market than we thought. Still, a lot of is the combination of all three businesses on a global basis that are leading up to having to account for some as reorganization and some as purchase accounting. There's not a big difference in what we expect to happen. When we put everything together, we said here is what we think the market is going to be. That's what we size the business to be. I think that was the right decision

Right. And then the direction of that business isn't surprising given construction numbers, but when you pull together the Manitowoc numbers and the outlook for the year when you look at being soft, it's hard to see how crane is going to have any kind of recovery this year. Terry, what are your broad assumptions when you look at flat to up earnings for the full year? I assume that is not pro forma?

That is not pro forma. That's actual year-over-year, and, again, keep in mind that we have a very solid, diversified business model. We have the ability to sell globally on the crane side, cross sell some of the products where we were not selling before. We have the foodservice business that has a number of new products that were introduced in 2002 that we will be pulling through and getting the full year benefit in 2003, plus we have a pipeline of more new products coming through there, and then we have the current back log at marine and the repair business that we believe will be slightly better than in the past year

Okay. I'll let someone else in queue. Thank you.

Up next we'll hear from Michael Harris from Deutsche Banc.

Good morning, gentlemen

Good morning, Mike

I'm not sure if this is a question for Tim Wood or Glen. Can one of you guys comment on the [inaudible] and Grove contributions to earning? I know at one time we were looking for maybe 10 to 15 cents from [inaudible] in '02 and growth to be neutral?

This is Tim Wood responding. If I could, I would ask you to shift your perspective to look at us again as an integrated worldwide crane business and expand on what Glen said a minute ago. We have reorganized in the U.S. to focus on three businesses, not just the Crawler crane business, but the Crawler crane business, together with opportunities in tower crane and hydraulic. In order to do that effectively, we had to lock at all three organizations and take what measures were appropriate. I think what Glen was saying a little while ago was if part of the charge or the cost or the issue that we were dealing with in this reorganization was Grove, then it went to purchase accounting. If it were either of the other businesses, [inaudible] or MCC, then we had to pick a special restructuring charge for the impact on those operations because that's what the accounting rules require. But the key point to remember is, and it goes back to what Terry was saying, we have the broadest product line and the broadest geographic coverage that anybody in the business has. That's how we're going to manage the business going forward. If I tell you we're going to get $20 million in synergies next year, that applies to our crane business. We can't break that down individually because all three of the businesses are impacted. We expect the benefits to be spread through the three. [inaudible]

I'm sorry

It's still the same number. It's just that the perspective has to clearly focus on the crane business as integrated

Okay. I think I can live with that one. Quick question for Tim Kraus. New products introduced in 2002. Did we hit that 50 target, or were you better, worse? Can you help me with that one?

We hit almost everyone. The line of the European ice machines we planned to introduce at the end of last year was delayed due to technical reasons until the first part of 2003. Otherwise, all of our products came off on time

Okay. Good. If I could, one last question for Dennis. I saw the press release about the work stoppage, and the very last sentence, I'm not sure if I understood. I was hoping you could help me with it. I'm paraphrasing this. It said something to the effect that operations were continuing with management personnel. Now, does that mean you've put on your hard hat and safety glasses and you're welding steel, or are you keeping the lights on and the coffee hot? Could you help me with that one?

Yeah. We launched a ship on the 25th with management personnel and we are going to deliver 12, 13, 14 on time to the coast guard. We will not be building any more ships.

Okay. I'll get back in queue. Thanks.

Up next from Lehman brothers, we'll hear from Chuck Peterson

Good morning, guys. We talked briefly before about the Crawler Cranes. Can you throw more color on that in terms of some of the detail you gave in the third quarter call in terms of what you're seeing there and what we're seeing now? Are things in the industry getting worse? Are the comparisons becoming more negative? Can you talk about that?

I think what we saw in the third quarter carried forward in the fourth quarter. We had said in the third quarter that while the business -- there was still a lot of work out there that the ability for the customers to make the investment on a new Crawler crane had slipped. They just were not confident enough to make the purchases as they have in the past. I don't think that's changed any, but I'm going to does Glen if he's got more to update you on that.

I think that sums it up. Also, Chuck, you're right. The comparisons are tougher. The acquisitions of Grove, when you put it in for the five months we had it, that, comparatively speaking, the mobile hydraulic margins are lower than what we’ve had in the past. That's why you're seeing, from an overall number standpoint, margin percentages come down. You'll continue to see that, you know, as we come through our -- get the costs out of the business and start ramping up what we had. I think that's the only thing I would add to that

A competitor on a recent call was talking all in kind of crane industry down 10% to 15% in 2003 relative to 2002. Of course, there was some issues with mix and the light. Can you speak to what your expectations are, vis-à-vis numbers consistent with that?

Yeah. I don't know that I would challenge that or change anything. I think that's probably consistent with what we're seeing

Okay. Just a couple housekeeping items. Do you have available the crane segment revenues from continuing operations from each of the first, second, third, quarters of 2002?

Okay. The first quarter was $129 million. The second quarter was $142 million. The third quarter is $220 million.

Last thing. What was your EBITDA number for the fourth quarter?

I've got it for the year.

That would work. It would just be --

Our EBITDA for the year is $181 million. Let me circle back to you in a couple minutes with the fourth quarter number, okay?

Okay. That's all I have. Thanks.

Up next we'll hear from Glen Olson (ph) from Deutsche Banc

Yes. On the marine segment, do you have any expectation as to when you think the strike will be resolved?

Unfortunately because of the nature of the negotiations we're not able to provide any information about the latest situation with Marinette or its impact on the marine group. That's about all I can say about that

In the crane business, in terms of the rental market, have you seen any -- from your rental customers on the Crawler crane side, have you seen a significant decline in rental rates? What's the outlook from those customer that you're hearing?

We have seen the rental rates slip some. I think some reduction in utilization, yet utilization is still fairly strong. Glen, do you have any specifics?

That's about all that we can say. Yes, there has been some erosion in the rental rates.

Can you give us an indication in terms of you mentioned you redid the covenants. Obviously, the details will be in a forth coming 8K. It says the minimum EBITDA covenant. Have you got rid of that all together or readjusted it and if so what is it for 2003?

I'm going to let Carl Laurino give you the specific. The short answer is we have readjusted them to levels that we think are appropriate. Carl, why don't you help him with the details. You all know Carl.

We have adjusted a number. We have an EBITDA covenant. It has been lowered to $155 million.

155?

Right

Okay.

Total leverage and interest coverage have been lowered by one turn and a half a turn respectively, depending what quarter you are you are looking at.

Where do you need to be by the end of '03 in terms of leverage?

Total leverage at the end of the year is still at the covenant level at four times.

Four times. Okay. And interest coverage at the end of 03?

Two and three-quarters

You believe these covenants give you sufficient headroom going forward?

Yes.

Okay. And then in terms of -- you mention your cash flow from operations target is about a $100 million. With you're cap ex number be somewhere in the range of $30 to $35 million that you're anticipating to repay somewhere in the neighborhood of $60 million in debt this year?

Yes. There is a dividend. We have a small dividend we pay as well that comes out of the operating cash flow. I would certainly say that $60 million would be in the ballpark.

Okay. On one of your --

from operations

Okay. Exactly. In terms of the foodservice segment, you mentioned you thought you were gaining market share in the ice machine segment. Who are you gaining market share from because one of your competitors indicated they thought they were growing market share as well? I was wondering, obviously, there are a few major ones. Who are you taking market share from in that segment?

I don't think we would be in a position to analyze that. We do get data on the total universe of the machines, and we know how many machines we sold. Anything that we would say that where the share gain is coming from would be sheer speculation. We do know the number of total machines that are shipped and the number of machines that we built, that's where we make that assessment from

All right. Great. Thank you very much.

Fourth quarter EBITDA is about $31 million.

Moving on from Salomon Smith Barney we'll hear from Mike Kinder.

Can you give the EBITDA number pro forma with Grove for the whole year?

We gave you a pro forma number with Grove for the whole year

That’s the $181?

Yes. And then Grove, the pre acquisition impact of Grove, you guys will figure this out anyway. The impact to Grove was about $19 million

Okay. The other question I had was on the Crawler crane segment. How much is pricing off year-over-year? You mentioned margins being down. Could you give us a ballpark for what you're seeing in terms of pricing pressure?

We don't want to comment on margins for our businesses below the segment level. It just isn't something we're comfortable with. I think that directionally you're right. We do see pricing pressure, as you would expect in any market that is under pressure like this. I don't think it's appropriate for us to comment on the impact at this level

Okay. Last question, one accounting question. You mentioned purchase accounting adjust -- the purchase accounting impact of Grove and fourth quarter. Is there any carry over into '03 as you expect?

Into what?

Into `03 on purchase accounting in terms of having to mark Grove's inventory up to market?

No. Specifically, the inventory markup to market is behind us. That went to cost of sales in the fourth quarter. As I mentioned, that did hurt our fourth quarter margins. That mark-up was more than $3 million, more than the cost to manufacture this stuff. There are a few items that we're still looking at strategically that could have some impact on purchase accounting, but I don't think we could label those as material in light of what you've seen. We've got the bulk of it behind us. We have done the reallocation, the patents, straight names and we think we've dealt with the bulk of the strategic restructuring issues. That isn't to say there won't be something that trails coming through. I think you've seen the bulk of it

Great. Thank you.

Sure.

Up next we'll hear from Robert McCarthy from Robert W. Baird

Good morning, gentlemen

Good morning, Robert

Tim, could you give us the operating income numbers for the first through third quarter for cranes to match up the revenue numbers you gave us?

Okay. On the first quarter, $12.7 million. Second quarter, $20.8 million, and the third quarter $19.3 million.

And your tax rate ends up finishing the year at 36% on continuing operations. Is that what you expect for the coming year? That ended up being significantly different than what you accrued through the first three quarters. Is that a reflection of the impact of reclassifying boom as discontinued?

No, it isn't. Thank you for asking that question. I think as a result of becoming a more global organization, we have been able to develop tax strategies that allowed our effective rate to come down from 39% to 36%. We were also somewhat helped by the fact you don't have to amortize goodwill on a nondeductible basis anymore. I would venture that we're not through in this area. It is an area we're working very hard. The 3% is real. It is not something that is impacted by anything artificial in our accounting

Okay. What are you assuming in your 10% forecast for the coming year earnings?

I have to stick on my answer on that. We're looking for EPS to flat up to 10%. There's lots of things we're going to shoot for to get there. I'm not comfortable getting into a level of detail beyond this point

Okay. Thanks.

Up next from sage asset management we'll hear from Barry Haynes (ph).

Good morning. I had a question on the crane restructuring. Are you restructuring the sale force as part of that and if so are you organizing it by product geography? Can you give us a sense of what you're doing on the sale force? Thanks.

As we stated we have established a total global crane strategy. The sales structure is part of that strategy. What you have to look at are the three global regions that we have put in place; Europe and Africa, the Americas, and Asia. That, I think, is more effective with we will market it at this point in time. Glen, is there anything to add to that?

I don't think it's any different than any of the other functions, be it operations or anything else. It's really -- that's just an area that we looked at and came up with. Here's how the organization needed to look. We put the best people we had into those positions. That's really the way it came about, like everything else.

Just by way of follow up, from a customer point of view, how many customers will be looking at a changed sales person compared to whoever they were dealing with before?

I don't think you're going to see a lot of differences in Asia. What they're going to do is probably get a little more focused. The fact that they have a mobile hydraulic and the Crawler crane person doing that together, it should be a greater focus than -- in the United States, what you have is a significant amount of our sales go through the organization and through distribution. That was the beauty of the combination of growth in Manitowoc was the overlap in distribution. What you're seeing is these guys knew the customers before. Again, it is a better focus on the same people. The reason for the regional focus was what happens in the U.S. and the Americas. When we go to market is a little different than you go in Europe or Asia. So we kept it the same but didn't try to standardize it throughout the world.

Thanks.

Moving on, we'll hear from Barry Vogel from Barry Vogel and associates.

Good morning. Glen, the backlog for Crane you mentioned at the end of December was $134 million and the quote was, the lion's share is Grove and[inaudible]. Can you give us the Grove backlog at the end of the year, the [inaudible] backlog at the end of the year and the MCC backlog at the end of the year. In addition, can you give us orders and dollars for each of those operations in the fourth quarter?

This is Tim Wood. I'm afraid not. I'll tell you what I can tell you. This may help. Of the $134 million in backlog, the thing that's new is about half of it is from outside the U.S. Beyond that, what we typically disclose is our operations are capable of fulfilling roughly two-thirds of this within a quarter. So I think we have to leave it with that. Again, our segment really is cranes

Okay. I have a question for you, since you're on this case. Can you give us the actual capital expenditures that you're projecting for 2003 and depreciation and amortization for 2003 as well as 2002?

I will give it to you for 2002 exactly. Capital spending for 2002 was $32,996,000. Depreciation is roughly $33 million, $33,100,000. We see our capital expenditures and depreciation for 2003 to be in that ballpark. They will tend to be cash neutral.

So around $30 million for each?

Perhaps a little bit more than that, but, again, the key is they will be cash neutral.

Terry, I have a question for you. Now that you are facing difficult conditions in the crane business, after you have expanded dramatically with the acquisitions of [inaudible] and Grove, you're, obviously, in a very leveraged position. Would you be considering additional acquisitions or would you be focusing on digesting these acquisitions and reducing debt over the next year or two?

Barry, I don't think we've been -- we've been straightforward. Our number one priority is to pay down debt. That has not changed. The good news is, I would point out, we do generate a significant amount of cash. We did this last year under tough circumstances, and we expect to do it this coming year. But I would also point out to you again the position that we find ourselves in with the number one position in lift solutions around the world and the strong number one position we found ourselves in foodservice. That wasn't an accident. That was strategically laid out. We can't time the acquisitions. We feel good about positioning ourselves. Go back to what I said. Over the last several years after we got the acquisitions done and integrated them and the performance we're seeing, we're seeing the same thing with the crane segment.

Would this debt reduction priority hold for the next several years with a certain level of debt to capital? Not making anymore acquisitions, per se?

Carl, would you try to answer that.

I would say that, certainly, the strategy on acquisitions does not put us completely on the sideline as it relates to acquisition. The priority will continue to be debt reduction until that point in time that we have something that we view as the compelling to round out the strategy. But at this moment we're, certainly, looking at debt reduction as a key priority for us.

So if you made any acquisition, they would be small compared to the [inaudible] and Grove?

Again, I will go back and say that our focus is going to be on paying down debt, but I think you could assume any scenario in that end that you would want to.

Thank you very much.

At this time, there appears to be time for one more question. That question will come from [unidentified] from Deutsche Banc.

I don't think the company disclosed yet. What did the company get from the boom truck business? I'm assuming that's a 2003 cash source.

There was -- wait a minute. It was a 2002 transaction, and we'll provide all the details to you in the footnotes to the financials.

Okay.

The break down of the $25 million provision for discontinued operations included $23 million loss on that business and a $2 million provision for a repair operation, a machinery repair operation we're going to sell as well.

Okay. Let me ask the question another way. The $100 million plus you're expecting, that's cash flow from operations. That does not include any proceeds of this transaction?

That's correct. It does doesn't include the proceeds of any investment activity.

Okay. Just looking at your engineering, selling, administrative line. It looks like it was higher than I would anticipate. I know you have a full quarter of Grove. I would expect it to be as high as $62 million. Is there anything in that number that would be one-time in nature? Better yet, what is the dollar level or percentage of revenue level we should be looking for throughout 2003?

One of the bigger reasons for the increase in that line is the focus we put on engineering, particularly in 2002. The factors that will impact 2003, clearly, include some impact from the integration activities. That's going to impact both the cost of sales and the selling and administrative line, but as far as an individual percentage, I'm afraid I have to beg off and stick with the EPS guidance we've given you at this point in time. As the year unfolds and the quarters unfold, we'll be able to speak more definitively to this type of issue.

One final question back to the free cash flow or the cash flow from operations. In 2002 we, basically, saw the total $98 million from cash flow operations come in the second half of the year. Is that a dynamic we should expect in '03, a significant source of cash in the second half of the year and maybe a use of cash in the first half of the year?

From operations, that's typically what you see here. You see a build-up of working capital in the first quarter, levels off in the second, and it's working its way down in the second half. So you can probably expect the same type of trend line to continue given the nature of our businesses.

Okay. Thank you very much.

That's all the time we have for questions. I'll turn the conference back over to you, Mr. Kyle, for any remarks.

Before we conclude today’s conference call, I would like to remind our listeners that you can access a replay of today’s call by visiting our website at www.manitowoc.com. This concludes the Manitowoc conference call. Thank you everyone. Have a good day.

That does conclude our teleconference for today. Thank you all for your participation.