Manitowoc Company Inc (MTW) 2003 Q3 法說會逐字稿

Good day everyone and welcome to the Manitowoc Company third-quarter earnings results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Steve Khail. Please going ahead server.

Good morning, everyone, and thank you for joining us today. Participating in today's call will be Terry Growcock, our Chairman and Chief Executive Officer; Tim Wood, Vice President and Chief Financial Officer; and Tim Krause, President of Manitowoc Foodservice Group. Glen Tellock, President of Manitowoc Crane Group, and Dennis McCloskey, President of Manitowoc Marine Group are also on the line to participate in our question and answer session. Tim Wood will open the call with an overview of our financial results for the quarter, including a brief report on each operating segment. Tim Krause will follow with an update of our foodservice operations. And Terry will conclude with the strategic commentary. Following these remarks, we will open the call for your questions. For any of you who are not able to stay on the line for the entire conference call, you can hear a replay beginning at 1 PM Eastern time today until 1 AM Eastern time November 11th. The number to dial for the replay is area code 719-457-0820. Please use the confirmation code 590528. You can also access an archived version of this call by visiting the investor relations section of our corporate website at www.Manitowoc.com. Before I turn the call over to our first speaker, I would like to review our Safe Harbor Statement.

This call is taking place on November 3rd, 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 the speakers' remarks and during our question and answer session. Such comments are based on the company's current assessments of its market 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 on form 10k for the year ended December 31, 2002.

With that, I'll now turn the call over to Tim Wood.

Thanks Steve, and good morning everyone. Today we reported third-quarter revenues of $422 million, a 7 percent increase over the third quarter of 2002. The increase reflects the acquisition of Grove Worldwide in August of 2002. Excluding this acquisition, sales were down 9 percent, principally due to continued weakness in North America crawler cranes and delays in new shipbuilding contracts.

We reported net earnings of 7.2 million, or 27 cents per diluted share for the quarter, compared with net earnings of 14.7 million, or 57 cents per diluted share, of this same period last year. Excluding special charges related principally to restructuring in the crane group and early debt payoffs, earnings in this year's third-quarter were 33 cents per share, which is 2 cents above Wall Street analyst consensus estimates.

We achieved our standing cash generation from operations in the quarter of about $70 million, which was used to reduce net debt by $60 million. For the first 9 months, we reduced net debt by 84 million. By this, I mean we reduced our debt by 57 million and increased our cash by 27 million. This is well-ahead of our target for the full year, with a quarter left to go. We will continue to emphasize cash flow in the fourth quarter, focusing particularly on lowering our inventories, with an eye towards further reducing our own term debt, as well.

Crane segment sales for the quarter were 263 million, an increase of about 20 percent, compared to the third-quarter of, 2002 -- due, again, to the acquisition of Grove. Excluding Grove, sales were down 8 percent, while crane operating earnings declined from 19 million to 9 million. The crane industry in North America, particularly crawler cranes, is not yet showing any signs of a rebound, which, unfortunately, is not surprising. We continue to see this business remaining at a low level well into next year.

We are seeing strength and market opportunities in Eastern Europe, Asia, the Middle East, and Australia. These opportunities are spread across our crawler tower and mobile telescopic crane businesses. Through our product and geographic diversification, it is helping to offset the ongoing challenges that we're facing in North America. We have also made substantial progress in rationalizing cranes manufacturing facility. In particular, the consolidation of three of National Crane into our (indiscernible) growth facility continues on track. And these actions will continue to improve our cost and boost efficiency.

In addition, we will continue to take actions required to size our operations, temporarily, to match current market conditions. Although these efforts are currently masked by tough competitive pricing and lower volume, we remain certain that they will contribute to strong margin gains as markets recover.

Foodservice sales were up 1 percent to 23 million for the quarter, while operating earnings rose more than 10 percent. This impressive gain in operating earnings clearly reflects our successful cost- control and consolidated projects, which have resulted in higher operating margins in this group. Our food service markets have been under pressure too, but we are starting to see some signs of improvement, as Tim Krause will discuss shortly.

Marine sales for the quarter were down 32 percent to 37 million, compared to the third-quarter of last year, because major contractor works were deferred in the latter part of the year. The operating earnings also declined sharply, due to the lower volume and loss absorption. The good news is that contracts are now being awarded in a big way. For example, we were selected to build the improved Navy wiring system and the ocean clasps tug and barge (ph) for (indiscernible) Maritime, and two ocean clasp double-hold tank barges for (indiscernible). These new contracts won't have a major impact on the remainder of 2003, but as Terry will discuss with you later, Marine is now positioned for strong a 2004 and 2005.

As I noted earlier, we improved our net debt-to-cash in the quarter by a remarkable $60 million and 84 million year-to-date, putting it at $571 million. We have generated nearly 94 million in cash from operation year-to-date. We're still expecting to generate in excess of 100 million in cash for operations for the full year, and we'll continue to focus on debt reduction. Net debt-to-capitalization, as of the end of September, was 64.6 percent, down from 68 percent at the end of June, and moving towards our long-term goal, which is still 55 percent.

As we announced in our press release earlier this morning, we're reducing our full-year 2003 earnings per share expectations to the 70 to 75 cents range before net special charges. The reason for this revision is primarily due to our decision to defer income recognition of certain crane sales into new markets where we're likely to guarantee long-term receivables. The impact of this decision will defer about 6 cents per share from the fourth quarter 2003 earnings to future periods as the receivables are collected. While this is a conservative approach, it does not change the underlying economics of the anticipated sales. Furthermore, the decision is not a reflection of our cash flow performance and potential.

We've all seen that we plan to issue 125 million in ten-year senior unsecured notes this week. We will acquire the proceeds to reduce senior term debt, which matures over the next 3 to 4 years. This issuance, together with our strong cash generating profile, allows us to improve our liquidity and extend our debt amortization requirements at a very adventitious cost. Given today's competitive landscape, we think it's a prudent thing to do, and we also expect us to enhance our ability to build cash reserves for strategic opportunities during this time frame. So with that, I'll turn the call over to Tim Krause to cover food service.

Thanks Tim. Foodservice posted a 10.5 percent increase in operating earnings on a 1.5 percent increase in sales in the third-quarter. Year-to-date, earnings in the foodservice group were up 10 percent on a slight decrease in sales of about 1 percent. Our markets remain soft through the first 9 months. Aside from the general economy, the Iraqi war, and SARS in the first half, we had an unusually cool and wet summer, which reduced demand for replacement products and slowed new store construction.

In ice machine segment, industry unit shipments were down 5.5 percent through September, compared to the same period last year. Manitowoc Ice was able to mitigate the decline by gaining some additional market share. Our strategy in 2003 is a continuation of the strategies that we've employed throughout the recent recession. We're focused on growing market share, improving operational efficiencies, and managing working capital. We have been able to maintain our top line in a down market through an aggressive, new product introduction schedule.

Continuing that strategy, at the National Association of Foodservice Equipment Manufacturers Conference in September, we unveiled the new S-series ice machine. The S-series replaces our highly-successful Q-series, which was introduced just 5 years ago. This new line reduces energy consumption by as much as 30 percent. It's easier to service and maintaining, and is designed to enhance sanitation and improve cleanability. The S-series was the first ice machine designed to meet the new and more astringent National Sanitation Foundation standards. Response to the new line was overwhelming.

At Expo Milan in November, we will introduce another new line of ice machines designed specifically for the European and certain Asian markets, where smaller capacity, but larger cubes are required. By the end of 2004, we will have replaced our entire line-up of ice-making, dispensing, and storage products. We have similar efforts underway in our refrigeration and beverage division. On the bottom line, we're recognizing the benefits of our manufacturing and rationalization strategies.

Gross margins were up a full percentage point in the third-quarter, and up nearly 2 points year-to-date. Even more impressive, operating profits are up 10 percent. In spite of the significant investments in tooling from new products and efficiency improvements, our efforts to manage capital, including working capital, contributed to the consolidated cash flow that Tim spoke of earlier in the call.

Looking forward, there are some signs of improvement in our primary markets. Casual dining continues to outperform the industry and same-store sales in the leading Quickservice (ph) chains has improved in recent months. The National Restaurant Association's performance index, which benchmarks same-store sales, traffic, labor, and capital expenditures -- against June of 2002, has increased 3 months in a row. The index is above the 100 percent mark.

In the lodging segment, some recent studies projected an improvement in RevPar in 2004, and a decrease in available rooms, which should lead to some new construction. Institutional construction, on the other hand, is still soft, due to lack of federal and state funding support. At this point, barring any unforeseen events, like those experienced in '03, we're comfortable that we will not see any further deteriorations in the markets over all, and expect moderate growth in 2004.

In the meantime, we'll continue to focus on our 3 basic strategies to grow the top line through market share, to manage our business for optimum efficiencies, and to focus on cash. With that, I'll turn the call over to Terry.

Thank you Tim, the highlight of the quarter was certainly the outstanding generation of cash from operations of $70 million, and the resulting ability to reduce net debt by 60 million. We're well on our way to achieving cash flow of more than $100 million for the year and we expect to significantly exceed our debt reduction goal for the year. These accomplishments reflect the excellent efforts of our management and all 3 segments to focus on managing working capital.

The performance this quarter also reflects the success of our focus on innovative, new product development, acquisition assimilation, and operational excellence. The launch of the new S-series ice machines at Napham (ph) highlights our new product development. At the beginning of the recent economic recession, we decided to maintain our R&D spending during the downturn, and that decision is beginning to pay off. These new ice machines, in particular, will help us boost top line sales and increase our market share, both inside and outside of North America. But I should also remind you that in the second quarter, our crane group launched 8 new products at the Intermat Trade Show in Paris.

Strategic acquisitions also played a positive role in the quarter. The strength of our crane business outside of North America is a direct result of the acquisitions of (indiscernible) and Grove Worldwide in the last two-and-a-half years. Sales of market share gains in Eastern Europe, Asia, and Australia were made possible, in large part, by the manufacturing infrastructure we gained from our (indiscernible) acquisition and the marketing capabilities that Grove brought to the table.

The focus on operational excellence is really paying off for the foodservice group this year. The strength foodservice is showing in operating margins reflects the consolidation of operations and the implementation of manufacturing strategies, such as demand flow, lean manufacturing, and six Sigma. Likewise, our crane business continues its focus on managing through the market downturn by aggressively sizing its operations to meet current market conditions and undertaking consolidations, such as the move of National Crane into the Shady Grave facility.

We would all already be seeing the positive impact of these actions if the market were better. But, as Tim Wood noted, the tough pricing environment and lower volumes are overshadowing the cost savings achieved so far. When the crane business turns around, we are confident that our operating margins will show dramatic improvement.

The marine group is well-positioned for 2004 and 2005, as it continues to build its backlog. In addition to contract wins announced during the quarter, we are still very much in the hunt for several other projects. We are on schedule in preparing our final proposal and design for the (indiscernible) combat ship, which is due in January. And we have launched our prototype response boat medium vessel, and it is performing in line with the U.S. Coast Guard specifications. In addition, OPA-90 opportunities continue to show solid promise as ship-owners are showing greater interest in replacing their nonconforming tonnage.

Before opening the call for your questions, I would like to review our strategic priorities. First, we will continue to focus on improving operating efficiencies in our frame segment, which will generate $30 million in cost savings for the full year. Our global positioning, our product lineup, which is the broadest in the business, and our brand strength provide us outstanding opportunities going forward.

Second, we will continue to execute our successful foodservice strategy, which is focused on new product introductions and improved operating systems. The successful launch of the S-series and the continued margin improvement in this segment are results of this initiative.

Third, we will expand our marine operations by continuing to capitalize on the strengths and capabilities of our multiple shipyards, to serve commercial and government customers. The numerous contracts awarded in the third-quarter illustrate that this initiative is having positive results.

Fourth, we will continue to consider divesting non-core operations and facilities. To this end, a worldwide property management team has been retained to assist us with real estate divestiture and we will continue to monitor all other opportunities.

Fifth, we were managing our business for optimum cash flow generation and debt reduction. Our third-quarter performance in this area is ample proof of our success with this initiative. With that, I will now turn the call over to the operator for our question and answer session. Eric?

Thank you, Sir. (OPERATOR INSTRUCTIONS) Robert McCarthy, Robert W. Baird.

It's actually Pete Lisnick sitting in for Rob here. Tim, a quick question on this deferred income from cranes -- can you tell us -- it sounds like the sales have been booked. So, can you tell us what the sales were and give us some more feedback or more color on, I guess, A -- whether the sales were made to one customer in particular, one region in particular -- just some more feedback on what exactly is going on here.

First of all, the sales have not been booked. This has to do with sales that have been made, but not shipped. We are anticipating to go out in the fourth quarter of this year, and also carry into next year as well. I will not give any specific information on customers or contracts because I just can't do that. But, they are outside the United States. They do represent penetrations into new markets that we think are going to be very good for the company longer-term. We spent a lot of time trying to evaluate the most appropriate way to account for these sales, whether or not they will just be recognized as a normal in the normal course of things and recognize a gross profit all upfront, or whether or not the nature of the guarantees on the receivables that will be provided to the customers are such that we should take the more-conservative approach and essentially record these sales as capital leases.

We have opted for the latter. And this is a decision that was made fairly recently after a lot of discussion, a lot of evaluation with our accountants, PWC, given the nature of the contracts and the nature of the relationship we're going to have going forward. So this isn't anything that we are changing, retroactively. This is a prospective decision, and it only affects the, guidance. It doesn't affect any reported results.

I just want to make sure I heard you correctly -- they're being accounted for as a capital lease? Did I catch that correctly?

That's how it ends up, yes.

Fair enough. A then a follow-up -- you kind of hinted at there with the guidance. You're going to 70 to 75, you were 80 to a dollar. And it looks like the tax rate might be a little bit lower than, at least, we were thinking. Debt reduction is well-ahead of where you wear and you're getting the 6 cents of deferral. So it sounds like there might be something that is incrementally weaker in your new forecast. Am I reading the numbers right? Is that correct? And if so, where is that incremental weakness?

I think there is a couple of things. One is that we would've liked to have been able to speed up a little bit more work in the shipbuilding business into the fourth quarter. And then, two, we think that caution is probably to prudent course of action in our forecasting in the domestic crane business. Both, the shipbuilding thing is a deferral (ph) think -- it's just something that the timing was a little too difficult for us to call precisely. But we will get that in the first quarter of the first half of next year, for sure. So, it is not a huge write-down, Pete --

I know. I just wanted (multiple speakers) in the margin -- (multiple speakers)

I think that, again, we're trying to be as cautious as possible, given the outlook in some of these markets.

Okay. Fair enough. Thanks for your answers.

Joel Tiss, Lehman Brothers.

I wonder if you could talk a little bit about the level of inventories in the crane industry. And also, the outlook for Western Europe? You kind of danced around the rest of the world and didn't talk about Western Europe at all.

Joel, I am going to take the first answer on this and then turn it over to Glen. But historically, our crane inventory would be moving down in the second half of the year as we see it somewhere tread in the foodservice industry. And we have projected that and that is why I think Tim, in his response, he said we will be focusing primarily on inventory reduction in the fourth quarter. So, with that, I'm going Glen give you a little bit more detail on that, as well as the Western Europe question.

With respect to Western Europe, I don't think anybody dances around that; I just think it is, again, like a lot of the other things. It's more of the same. The markets are -- when you look at the politics, you look at what would really make those markets move. For us to be optimistic, I think would not be in our best interest from a planning standpoint. We do have a question, Joel, when you asked about the inventory, were you asking about crane market inventory?

Yes. I was just trying to get a sense of if the industry is finally back in line with where it ought to be. And also on Europe, I am really -- that is kind of what I was thinking is what you guys are saying. But, one of your principal competitors thinks that it's going to be a source of strength in 2004. So that seemed a little curious.

Certainly I wouldn't -- okay, I hear what you're saying. I'm not going to comment on that. But, I will comment on the inventory. In the crane industry, I think it depends on what market you're in, Joel. If you look at the light construction business, the rental companies and some of the (indiscernible) within the United States -- a lot of the things that I read, a lot of the things that I hear -- the inventories are starting to get back to a more-normal level that they have been in the prior years. But it comes to, I think, some of the bigger units, and I would specifically say North American crawler cranes. I still think there is a capacity issue we have to fight through next year. Just generally, overall in the market, if you don't see utilization rates go back up, that is a sign that the inventories are still a little too big. But, on the other stuff, the smaller light construction equipment -- you know, those have a much-shorter life span and economic life, and you need to turn those a little bit quick than you do some of the heavier lattice boom (ph) or the bigger AT or RT (ph) units.

Okay. Thank you.

Charlie Rentschler (ph), Langenberg.

With respect to the North American crawler crane market -- what is it going to take to turn this thing around? You mentioned utilization rates. What's it going to take to drive that up?

Charlie, this is Terry. First off, I think what Glen said is probably the most important item. And that is to continue to watch the utilization rates. What we find ourselves with today, though, is the fact that we are no longer just dependent on the North American market. Our ability to sell crawler cranes around the world has been enhanced dramatically with the acquisition of both Grove and Potain. And with the distribution, with manufacturing global capabilities that that has given us. And, as we said in our conference call earlier, that we are seeing some strength beginning to emerge in other parts of the world, and in particular in Eastern Europe, in Asia, the Middle East. And so, I think that is where we're really focusing our efforts on. Glen, would you like to add anything to that.

The only thing I would add, Terry, is -- certainly, Charlie, the construction markets in North America, the nonresidential construction will pick up there -- certainly helps. But, the other thing that I think I would like to add is the credit availability to our end-users. I think the perception in the lending institutions that are giving credit into the industry -- the construction, anybody construction-related to the industry -- is still a little hesitant now, and I think until people can work through those issues -- maybe certain balance sheet issues and the comfort of not only the end-users, but the lending institutions. I think that needs to situate itself also.

Thank you.

Charlie, if I could just add one more to that also. The construction side, as Glen points out with both highways and bridges and the added infrastructure plus power -- the power side of the business -- whether it is in power generation or transmission -- I think those are the kinds of areas we're going to start seeing driving the crawler cranes and the larger mobile telescopic crane business in the North American market as we go forward.

Thank you. May I ask a follow-up question on the foodservice side. The S-series -- how much S-series sales were booked in the third quarter? Were you shipping to distributors? Was there some sales -- I suppose there were some sales in there?

There were no sales in the S-series at this point. The S-series was introduced at the trade show in New Orleans, and the rollout on that will begin taking place in December as we start shipping. And we will have everything with all of our product lines included on the rollout on that by the middle of next year. I think in the May to June timeframe. Tim, would you like to elaborate on that?

That is correct.

Those third-quarter nice-looking foodservice results really didn't reflect any of that. But looking ahead, will the S replace the Q? Will there be any growth in sales? Or do you see that as just kind of a replacement?

The S-series will replace the Q entirely, and we fully expect to gain decent market share as a result of it. The early response from current customers and customers who are not currently buying our product was very encouraging. I would say better than expected.

Thank you.

Joel Tiss.

Just two more -- you mentioned that you took some share in the ice machine business. Can you give us a sense of who, or even if you don't want to name specifics, just give us a sense of behind-the-scenes, who is really paying attention to that product line. Who might be more vulnerable, etc.

I really don't want to speculate on the competitors. I know that the industry is down 5.5 percent. We have hard data, through ARI (ph). so we know industry the industry unit shipments are down 5.5 percent. Ice was down slightly, but not nearly 5.5 percent, and (indiscernible) our revenue line, because of mix, we actually saw some improvement during the quarter. But, I would hate to speculate on my competitors. I hope all of them.

I wonder just can you give us a sense of the margin deterioration in the crane business? How much of that is from mix? How much from Grove? And just, kind of, behind-the-scenes, what is going on?

Joel, why don't I -- I guess the best perspective to start from on that question is what our operating margins were in 2002, before the Grove acquisition -- the business (indiscernible) about 10 percent. When we purchased Grove, Grove added to the size of the business dramatically. But, at the time we bought Grove, their gross business margins were running about 10 percent lower than our legacy business. So in buying that business, we reduced probably our achievable margins, going in, by about 4 percent -- it takes it down to the 6 percent range.

At the same time, we have lost a lot of absorption in the crawler crane business, and this probably cost us another 3 percent from a margin standpoint. This is a little bit harder to get a feel for, but we think, probably, we've lost in the neighborhood of 3 percent, as a result of the pricing environment that is out there. If you throw everything together, like the currency translation, the impact on our imports from Europe, and mix -- smaller cranes versus the higher-margin larger cranes, and things of that nature -- you can easily come up with another percent of margin pressure.

So again, I think what we would be looking at, in the face of everything that's out there is the possibility of breakeven or slight losses in this business. But the cost savings that we have gotten in this business have been dramatic. They continue to be dramatic, and they will probably be even more dramatic next year. And we think that we've gotten a full 4 percent improvement in the margin base of the company, and that's why we're at 3 percent this year. And that's why Terry made such strong comments earlier about what this bodes for the future.

That's exactly what I needed. And I lied, I've got one more question. On the marine in 2004, can you give us a sense of the mix between OEM and repair?

Glen, why don't you -- about 85-15, something like that?

About 85 percent OE in new contract shipbuilding and about 15 percent of repairs (ph).

Robert McCarthy.

It's Pete again with a follow-up. Glen, you talked about crane utilization rates -- can you give us a sense as to where those are and where they need to go to maybe see demand pick up?

I would say -- the current rates right now are -- again, it depends on the size of the crane and it depends on what type of crane. But, I would say, in some applications, there are uses and product lines that rental utilization is down around 60, 65 percent. Some of the larger crawler cranes, it is up around 80, 85 percent. And I would say, overall, for maybe the whole market, you see anywhere from the 70 to 75 percent.

I think the other thing you have to throw in -- and Pete, I think in a normal, on an ongoing-type basis, that 75 percent -- maybe closer to 80 -- people are buying equipment. I think the thing you have to look at also is the rental rate. They may be utilized, but the rates we haven't seen strengthen throughout the industry. So things may be rented, but the rates are still a little bit down. And I would like to see that pick up, and my guess is it would have to pick up before people really start jumping in to buy more frequently.

How far down are those rates? A couple percent maybe?

Anywhere between 5 to maybe 10 percent.

Tom Clamka (ph), Credit Suisse First Boston.

Yes, can you just go through, Tim, the cap table at this point? The revolver term loan balances and all?

Yes, give me one second. Okay, Tom, nothing on the revolver. And we've got 45 million outstanding on the term loan A (ph); 171 on the term loan B; 175 on the senior subnotes dollar-denominated; 201 million on the Eurobonds; 36 million in capital leases and other (indiscernible) to get the total debt of 629 million. And, of course, we've got the cash offsetting it -- of $57 million.

Okay. Tim Krause -- on the foodservice margins, you used to have the whole contract -- that private-label contract that went away. How much of your margin improvement is due to that going away? And how much is due to operational improvements? And is there additional room in errors, so that you are sort of maxed out at that level?

Tom, could you ask that one more time?

Yes, on the foodservice side, the margins are up substantially year-over-year. I believe a year ago, you had a private-label contract that was, if not underwater, it was, low-margin. And that went away. Does that account for the majority of that margin increased? Or is it cost savings? Or what is it going (multiple speakers)

It's all of the above. It's not just cost savings; it's consolidation, distribution, operations, and a lot of things that they have done in that business to get cost out. And the other thing too, which is a good thing -- I think we tried to make that clear last year -- was that the margins that we have on the private-label businesses are more in-line with the rest of the foodservice group. So I think I have conveyed fairly-consistent that 14 percent is an expected rate that we can expect for a while for foodservice overall.

That business did not go away. We are still doing that business. So it reflects margin improvement in that business as well as others.

Great. Thank you.

Maniesh Simeyer, JP Morgan.

Most of my questions have been answered, but I did have a follow-up -- (indiscernible)

Maniesh, we cannot hear you.

(indiscernible)

Maniesh, we cannot hear you on that. Could you try that again?

Eric Brovig (ph), UBS.

A couple of quick questions -- first, I was wondering if you could help us translate EPS guidance of 70 to 75 cents to EBITDA. And then, secondly, (indiscernible) at the end of the prepared remarks, (indiscernible) the comments on non-core real estate asset (indiscernible) talk about that?

The guidance translates to EBITDA in the $140 million range. What was your second question?

At the end of the prepared remarks, I think there was a comment relating to real estate assets that were for sale.

(multiple speakers) what we have been saying -- this is Terry. What we have said since the start of the year is that we would be looking at non-core businesses, as well as real estate. And we have some real estate that, obviously, through the consolidation effort, has become real estate that we would like to market it. And with that being the case, we have retained a global firm to assist us in that process.

Could you help us to put a number on that?

No, but I can give you a little more -- what we're talking about, basically, is the plants that are available for sale and the surrounding real estate that is a result of the consolidation efforts we have had. It's difficult to put a number on it. Obviously, we've got the stuff out in Waverly in Nebraska, that will be freed up when that boom truck, the national production is completely absorbed out in Shady Grove. And then, we have got the facilities over in Europe -- the result from the European consolidation. And it is just too soon to call.

Okay. Thank you.

Maniesh Simeyer.

I just had a couple of follow-up questions on the crane business. In the press release, you mentioned that international activity has been picking up. Can you just kind of give us a sensible of where you are seeing the pick up? And, in terms of international sales on the crane side, what has been that number historically? I think in the press release, you mentioned 70 percent of total crane sales? Could you just give a sense of what that number has been in the past?

If we would go back to two years ago, our international sales were in the single digits for the whole corporation. So, we have been able to expand that dramatically with the ability to (indiscernible) our products with growth and with Potain. And with the strength of our brands on a global basis, this is what we're capitalizing on. As we said in our call earlier, the growth has really been across the board in towers, crawler cranes, and mobile telescopics for us in Eastern Europe, in Asia, the Middle East, predominately. Glen, would you have any more to add to that?

No, I think you summed it up very well.

Just as a follow-up question for Tim, in terms of the cash flow from operations side, I think we're pretty close to 100 million for the 9 months. Can you sort of give us more sense of what we should be looking for in terms of working capital in the fourth quarter? Obviously, you guys did a good job in 3Q, but -- how much more additional savings can we get from working capital?

Before I answer that question, let me apologize and correct -- that 140 million figure is probably closer to hundred 135 for EBITDA. And that kind of leads into your question. As far as working capital is concerned, our inventory is at about $275 million, and that is up from 255 million last year. I think that -- 10 million is due to foreign exchange, but our inventories are actually up just a little bit. I think we have tremendous opportunity in the fourth quarter from an operating standpoint, and as Terry says, from a seasonal standpoint, as well, to dig into that inventory.

I would just want to put a couple notes of caution out there. We do have some fairly-sizable transactions that we're building cranes for going to Asia in the first quarter of next year. And we are building a very large crane for another order hear in the Americas. So, there will be the need to carry some inventory through the end of the year as a result of a couple of large orders going out early next year. But we have a big opportunity to reduce inventory. If you take a look at our third-quarter results, you'll see that we did an awfully good job with receivables in the third quarter, and that was probably the biggest driver in the cash flow -- biggest single driver in the cash flow for the quarter.

In the first half, the working capital support we got was largely from payables. So it really boils down to how well we do with inventory. And, I will echo what Terry said, we're going to try very hard to beat this $60 million (indiscernible) We are already way ahead of it, and we're going to try to do better. I'm talking there about the $60 million net debt reduction that, historically, you'd get from 100 million operating cash flow.

Hillel Olshen, Deutsche Bank.

Terry or Tim, just on this non-core divestiture opportunity. Away from the real estate sales, are there certain businesses that you have identified as non-core and are looking to sell? And if so, what type of revenues are assigned to this business and what type of cash generation can we expect from those types of sales?

We're still talking actively about a couple of potentially non-core businesses that -- we may make a decision on them as early as the fourth quarter of this year. But, we just aren't far enough along for me to expand on that. And if and when we do make those final decisions, we will get it out there right away.

Are they in one particular segment of the business or spread across?

I have to keep my answer real broad at this point.

All right. Thank you.

Kent Mortensen (ph), Flagman (ph) Financial.

A couple of quick questions -- one, I just wanted to -- I was just curious on the large crane side in North America. If you are starting to see some improvement in your oil and gas markets or not? And secondly, I was wondering if we could get an update on the (indiscernible) combat ship. And if that program is remaining on schedule and any other comments you can give.

Kent, first off, let me say that from the overall perspectives on the cranes, the real strength of our product is -- would be in the higher capacity cranes. And we have been able to continue to maintain or actually grow our market share on a global basis on a good portion of this business. But at the same time, the sales that have been taking place in North America have been probably more toward the smaller size of cranes and that, of course, is not typically one of the niche markets that Manitowoc is effectively pursuing. So, we have not seen a real strong turn in the larger cranes; they're kind of holding just kind of where we had projected them. But Glen, if you want to add a little bit more to do?

I guess I would say that in the oil and gas business in North America, we have not seen any pickup in that segment at all. Overseas, or internationally, there is that opportunity, but certainly not in North America.

Fair enough.

And you had asked a question on the (indiscernible) combat ship? You know, the team that we are on -- the team is headed by Lockheed Martin with Gibson Cox (ph), Bollinger (ph), and ourselves. And we are continuing to move forward on that project. And I'm going to ask Dennis if he has any update he could give you at this point.

There has been no schedule change. In response to the RP (ph), it is due in by the end of January by the three selected teams. And that will occur from that standpoint -- I believe flight zero has been funded. It's now just a matter of them selecting it to ship. Actually it won't be built until sometime in 2005.

You said the RP was due the end of January, when would you expect the selection to be made, approximately? I know that can change.

Six months from there.

Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS) Bill Doyle, PPN.

Could you give us a little more clarity on the change in the accounting defer income recognition on certain contemplated crane sales? So, you are guaranteeing receivables is that it?

Beyond my earlier comments, could you please be more specific? You want me to take you through the actual accounting, or -- ?

That might be helpful.

Okay. If you book crane sales or regular sale, you debit receivables, you credit sales; you debit cross to sales, you credit inventory. And the difference between the sales and the cross to sales goes straight through to profit. So, say you got a million dollar crane sale and you got a 20 percent gross profit, you end up with a receivable and a sale of sales 100; cost of sales of 800,000; and a profit of 200,000. When you defer the recognition on the crane -- on this particular crane sale -- you debit fixed sales assets -- it is a capital expenditure, and you hold the crane -- (multiple speakers)

I guess what I missed is what is different about these sales? Are you deferring longer than you typically differ? Or is there something different about the receivables?

In this particular case, the receivables could be longer-term, but that would not affect our cash. The thing that really would -- is affecting the accounting -- is our decision to be conservative on any anticipated guarantees that we might have involving the financing companies that are financing these receivables.

So, you are -- Manitowoc is guaranteeing the receivables.

We anticipating that, yes. We haven't done anything yet, but this is what we're anticipating doing this.

And would you get paid in full on delivery?

Yes. That is why I made the comment about the cash. What you end up with is deferred income on your balance sheet and a fixed assets. And the difference between the two in my example is 200,000. You just recognized that over the it takes to collect the receivables, as opposed to recognizing it all at once. But, you do get the cash upfront when you sell the receivable.

I see. Okay. Thanks.

Michael Harris, Black Diamond Research.

Tim Wood, earlier when you were talking about the need to perhaps build inventory because you had two large crane orders -- when you said large, were you referring to two orders with several cranes or were you saying two -- like, maybe 18,000 or 21,000 -- cranes you had coming out.

We were talking about large tower cranes -- more than one, but not a lot of them. And then, I was also talking about one very large crawler crane. Both of them outside the United States.

I wasn't sure if you were referring to large as in the crane size or large as -- (multiple speakers)

I was referring more to size then I was -- these are the kinds of things we use on damp (ph) projects and such.

Right. Okay. Thanks a lot.

With that gentleman, I will turn it back over to you for any closing comments or remarks.

Before I conclude today's call, I'd like to remind everyone that a replay of our call will be available, beginning at 1 PM Eastern time today until 1 AM Eastern time November 11. The number to dial for the replay is area code 719, 457-0820. When calling in for the replay, please use confirmation code 590528. You may also access an archived version of today's call on our web site at www.Manitowoc.com. Thanks again for joining us everyone. Have a good day.

That concludes today's conference. We thank everyone for your participation.