Manitowoc Company Inc (MTW) 2004 Q2 法說會逐字稿

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

Good morning, everyone, and thank you for joining us for today's Manitowoc's second-quarter earnings conference call. Participating in today's call will be Terry Growcock, our Chairman and Chief Executive Officer, Carl Laurino, Senior Vice President and Chief Financial Officer, and Tim Gross, President of Manitowoc Foodservice Group. In addition, Glen Tellock, President of Manitowoc Crane Group, and Dennis McCloskey, President of Manitowoc Marine Group, are on hand to answer questions relating to their respective businesses.

Carl will open today's call with an overview of our financial results for the quarter, including a brief report on each operating segment. Our featured speaker for today's call is Tim Kraus, who will provide an update on our Foodservice operations. You will recall that Glen Tellock was our guest speaker last quarter and Dennis McCloskey will be our guest speaker next quarter. Terry will then conclude our opening remarks with a strategy update. Following these comments, we will open the call to your questions.

If you're not able to stay on the line for the entire conference call, you can listen to a replay beginning at 1;00 PM Eastern time today until 12 midnight Eastern time on August 10th. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 191074. You can also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.Manitowoc.com.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 Carl, I would like to review our Safe Harbor statement. This call is taking place on August 3rd, 2004. 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 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 SEC, including but not limited to the Company's annual report on Form 10-K for the year ended December 31, 2003. With that, I will now turn the call over to Carl Laurino.

Thank you, Steve, and good morning, everyone. Yesterday, we reported second-quarter sales of $526 million, a 27 percent increase over the second quarter of 2003, thanks to a strong sales performance in each of our three business segments. Our net earnings were $15.3 million or 56 cents per diluted share compared with $1.3 million or 5 cents per diluted share last year and earnings from continuing operations were 54 cents compared with 21 cents last year. Earnings from continuing operations in both 2004 and 2003 included special charges, primarily related to restructuring and plant consolidation. Excluding these special charges, earnings from continuing operations were 56 cents, up 50 percent from 35 cents last year. For the 6 months ending June 30th, our net sales increased 21 percent to $938 million from 775 million during the same period last year. Net earnings were $21 million or 77 cents per diluted share compared with year-go earnings of $1.8 million or 7 cents per share and earnings from continuing operations before special items were 78 cents, double the 39 cents in the first half of 2003.

Now I will take a moment to review the second-quarter financial highlights from each segment. Cranes sales were $332 million, up 34 percent from the same quarter last year. These strong sales were driven by increased demand for mobile telescopic and tower cranes in all regions, as well as crawler cranes in Asia. However the crawler crane market in North America continues to be soft.

Operating earnings were $18 million, nearly doubling from $9.3 million last year, and our recent acquisitions contributed to positive EBITDA during the quarter. Operating margins were 5.4 percent, up about 1.5 points over last year. Our recent consolidation and reorganization efforts to better position our crane segment for current demand levels enabled us to better support increasing steel prices. The commodity costs did affect our results by $4.3 million in the second quarter and will be a continuing challenge throughout the remainder of the year.

Foodservice sales were up 3 percent to $131 million, but operating earnings decreased 1 percent to $20.8 million, and operating margins decreased by nearly 1 percentage point. The effective commodity cost increases on our Foodservice segment earnings was $1.5 million net of pricing actions. Excluding those increases and corresponding price increases, our operating earnings and margins would have continued their long track record of the year-over-year improvement.

Net sales for the Marine segment were $63.5 million, increasing 59 percent from the second quarter of 2003, when we still felt the effects of the work stoppage at Marinette Marine. During the quarter, our Marine segment, as part of the Lockheed Martin team, was awarded a contract for the U.S. Navy's prototype with Littoral Combat ship. This will be the Navy's first focused mission ship used for anti-submarine warfare, surface warfare and mine warfare. We also received an order from Hornbeck Offshore Transportation for a second double-hull tank barge, as the Company exercised the first of three options to its existing contract during the quarter. As announced yesterday, Hornbeck has exercised its second option for an additional double-hull vessel. Marine operating earnings of $2.7 million decreased slightly from the $2.9 million reported last year, and margins dropped 3 percentage points from the year-ago period. Our earnings release provides details on the factors that caused these declining margins, which include a change in business mix toward lower margins, single-unit contracts, expenses from our investments in developing opportunities, multiple changes to an existing vessel with one of our large customers and increased fuel prices. We expect significant net impact from steel prices in the third and fourth quarters due to orders for additional materials that will be made in the second half of the year. For these reasons, we believe our Marine margins will be in the mid-single digit range for the year down from our usual level of high-single digits.

Our cash from operations was breakeven during the quarter, given higher working capital demand due to our seasonality and improved market conditions. Our third and fourth quarters are historically strong in cash generation, so we feel confident that we will meet or exceed our debt reduction objectives. We received net reduction of $28 million in the quarter, which helps us towards our year-end goal of $60 million, and our near-term net-debt-to-capital objectives of 55 percent.

Overall, we are pleased with our performance this quarter in terms of sales growth, marketshare gains, positive EBITDA and cash generation in each of our businesses. We're also continuing to watch steel and commodity price increases as we believe they will affect margins and earnings more than we originally anticipated at the beginning of the year. In the second quarter, we anticipated that the major impact from increases in commodity prices would be realized in the second quarter. While the impact this quarter was significantly, we are now expecting an even greater impact in the third quarter due primarily to longer leadtime production and pricing commitments in the crane segment. For the total Company, we expect third-quarter impact from commodity costs, net of pricing actions, to negatively affect earnings per share by 10 cents, and ease (ph) to close to breakeven in the fourth quarter. Despite this issue, we're reiterating our full-year earnings per share guidance of $1.30 to $1.50. I'll now turn the call over to Tim Kraus for an update on the Foodservice segment. Tim?

Thanks, Carl. As you already heard, sales in the Foodservice segment increased 3 percent, but operating earnings decreased slightly, a reverse of the trend we set over the past several orders. All of the shortfall in earnings occurred at the gross margin line, and were due to the higher prices for steel and other mill commodities. Without the increased commodity prices, our operating earnings would have been up 5 percent on a slightly smaller sales increase. To address these higher metal costs, we adjusted our selling prices at the end of the first and second quarters. The issue is widely understood by our customers, and our new price levels appear to be holding. Some of our products have long leadtimes between quote, purchase and delivery, which means there is a lag between when we raise the price and when we realize the revenue impact. As our price adjustments gain traction, we should begin to see some recovery in our gross margins.

Despite those challenges, Foodservice made excellent progress on a number of fronts during the quarter. We had a very successful national restaurant association trade show in May, the largest restaurant show in our industry. At the NRA show, we launched a premium line of reaching (ph) refrigerators under the Kolpak label, the new EC (ph) series line of European ice machines and the latest models in the new S-Series line of ice machines. Our products were well received by the customers. This was reflected in a solid order activity, which is not typical for this show. Traffic in our booth throughout the four-day event was the heaviest in 5 years.

We are still on track to meet our goal of 50 products this year. Additional products that will launch later in the year include the largest capacity S-series ice machines, which will complete that line, as well as some additional new beverage, refrigeration and private-label products. These products will help us to continue to drive organic growth and gain share in our core businesses.

Our end markets also continue to improve. Hotel occupancy levels are at the highest level since before 9/11. May was the 11th consecutive month of improving RevPAR or revenue per available room, and occupancy levels in the U.S. The lodging industry is now beginning to talk about the next round of expansion for this industry's sector. The national Restaurant Association Activity Index, which tracks same-store sales at restaurants, was at 104 in May, up from 100 in June of 2002. According to the recent NRA capital expenditures study, 55 percent of restaurants had to expand or renovate in the next 6 months, which bodes well for many of our products. In the ice machines segment, where we have hard data, the industry was up 9 percent year-to-date on what we believe is pent-up demand for replacement, as well as some adding capacity. Our shipments were nearly double that, which puts Manitowoc product's marketshare at an all-time high. In our other markets, refrigeration, which is heavily dependent on construction, was essentially flat but recent quoting activity and order activity leads us to believe that new construction is also on the strong rebound. Our beverage segment experienced unusually soft demand in the second quarter compared with a particularly strong second quarter in 2003.

For quick update on our other key initiatives this year, we're still on track to transfer all of our Foodservice businesses to a single-database, single-database software platform. This will improve our customer service. It will give us the ability to process one order for multiple brands of products, including orders for third-party suppliers and to generate a single invoice. Manitowoc ice will be the first to go live on the new system, which we expect to happen in early 2005.

We're also making progress on a new facility in China, designed to help us capitalize on the surging demand we see in that region. Construction of the new facility is under way and we hope to be in full production early next year.

In closing, I would like to reiterate that we're optimistic about the health of our markets, our market position and the advantages of our lean, efficient cost structure as we execute the strategies and capitalize on our growth opportunities. While we, along with the rest of the industry are dealing with higher steel and commodity prices, we are addressing those increases as they occur. We look forward to continued strong performance and with that, I'll turn the call over to Terry.

Thank you, Tim. We are truly pleased with our performance this quarter, especially given the challenging conditions in some of our supply chains. We believe our key growth strategies of new product development, global expansion and strategic acquisitions, coupled with our strong management focus on lean operations and value creation, are taking hold.

Our Cranes segment is generating sales and earnings growth despite the fact that the crawler crane market in North America has not yet recovered. Foodservice continues to gain market share and introduce new products to fuel additional growth. Our Marine segment is marine contracts and bidding on jobs to fill its slate of work for 2005 and 2006. And as Carl mentioned, all 3 of our business segments posted positive EBITDA this quarter.

In addition, we have made substantial progress against our 5 strategic priorities. First, our efforts to increase global crane sales and market penetration are paying off, as shown by our crane segment performance this quarter. Our backlog of $331 million is twice what it was last year. Our strong sales performance and market share gains in Europe and Asia are helping to offset weaker demand for crawler cranes in North America. And we are continuing the momentum with the launch of 16 new products this year.

Second, we have completed our efforts to streamline crane operations, which means we will retire this priority. Our Potain and Grove acquisitions are now fully integrated with our existing businesses. Our efforts to consolidate operations to better match up with current demand levels and to reorganize our business geographically rather than by product line, are showing results. We have divested non-core operations so we can focus completely on our key product lines. Going forward, we will concentrate on expanding our crane market share and run our business as efficiently as possible.

Third, we're strengthening our Foodservice business and marketshare through a strong new product development strategy. As Tim stated, our Foodservice business is on track to launch 50 new products this year and our success at the National Restaurant Association trade show confirms this strategy is on target.

Fourth, we're leveraging the strengths and capabilities of our multiple shipyards to service commercial and government customers. Combining the strengths of our shipyards and working with complementary yards in other parts of the country is helping us win contracts such as the Navy's Littoral Combat Ship prototype that Carl mentioned earlier.

Fifth, we are continuing to strengthen our financial structure through cash flow generation and net debt reduction. Despite stronger sales and seasonal working capital requirements, we are on our way to reaching our targeted net debt reduction of $60 million by year-end.

In closing, we believe our businesses are positioned to perform well in current conditions and to take off when market conditions improve. While price increases and steel and other commodities may affect earnings and margins more than we originally anticipated, we are mitigating the impact through price increases where possible as well as other procurement strategies. We are very optimistic about the strength of our strategies and our long-term growth prospects. With that, I'll now turn the call over to the operator for a question-and-answer session. Tracy.

(Operator Instructions). Robert McCarthy, Robert W. Baird.

Good morning, gentlemen. In terms of the mitigation that you're talking about, being able to cover the incremental downside, I guess, would be the right word, that you see in materials costs, upside in costs, what drives that? My perception would be that maybe volume is turning out to be a little bit better, particularly in the crane business than you thought. Could you comment?

Could you rephrase that because you caught me a little bit off guard with the question on the volume versus (multiple speakers)?

I'm sorry. If steel is going to have a more negative impact this year than you'd been anticipating a quarter ago, but you are putting through price increases, I am guessing that there are other sources of offsets that you're finding to the higher steel costs to be able to leave your full-year forecast the same. And it could be operating efficiencies; it is not -- maybe it's purchasing in other areas. But I was speculating that it might be that you're seeing better overall global demand in the crane business than you were expecting a quarter ago. Now that might be what gives you the confidence that you can offset the steel cost impact?

The actions that we take, obviously, are what you would expect relative to our engineering efforts and trying to find alternative materials to use. Obviously, the pricing activities that we take and what we work on on the procurement efforts, and we are attacking that as a global company initiative, which is relatively new for us, something that obviously became more of a sense of urgency as these prices really started to ramp up in the beginning of the year.

Obviously, the one that has the biggest effect as far as churn (ph) is the pricing activity. However, in the crane segment, there is a fairly significant delay that takes place. And I think in the first-quarter announcement that we made, we expected that we would be able to get through a lot of this issue because of the pricing activity by the end of the second quarter such that the actions that we took would cover the cost issue as we looked at the realized results in the second quarter.

As we're looking at it today, and certainly volume is part of that, but the bigger issue for us is just the delay in working through some of the commitments we have out in the marketplace as well as the longer throughput in the crane segment. And that's where I was trying to communicate the impact actually hitting us in the third quarter, net off all of our activities, to the tune of -- in a sense on an earnings-per-share basis in the third quarter. But we expect to get back to essentially breakeven net of our actions in the fourth quarter.

Does that mean that in the Crane business that when you put through price increases that the initial price increases that you were trying to get turned out to be insufficient to cover the costs -- the size of the cost increase, which may have outstripped your expectations then? Or is it a function of resistance in the marketplace?

I think the initial -- if you go back to what we said in the first quarter, we talked about pricing actions that were being taken as of the end of April, the beginning of April, I'm sorry, in most of our products, regardless if there was going to be price increases in commodities or anything like that, if you call that conversation.

Yes.

One of the other things is, one of the expectations we had was, we weren't so sure that this was going to be a long-term impact on the steel pricing, and we were wondering if it was going to be the bubble effect that we have seen in previous increases in commodities or if it was long term, it would go more throughout the year. And some of what we did is we kind of took an expectation that some commodities were long-term and some were short-term. And I think with the impact of people jumping on the bandwagon to make it a long-term impact, we probably have seen some of our expectations go up. But with respect to the holding of the prices, I think our price increases are holding pretty well. I still think there is some competitiveness in certain areas by some competitors that have not declared price increases. But I think in our business, the majority of the competitors have in fact announced price increases over the last 3, 4 months.

Rob, just one more point on that issue, also, we have unfortunately had some long-term contracts in certain areas of the world where there have been some suppliers that have not honored what they had put in place. And obviously, we don't like that, but that's not something we can turn on a dime. And over the longer-term, obviously, we can take some actions that will alleviate the situation, but it takes a little while.

That's not a unique problem. Thanks. I'll get back in line.

Don Jose (ph), J.P. Morgan.

Good morning. Just keeping on the theme of the impact of steel and commodity prices, I'm just trying to figure out, in the third quarter, you mentioned it was a 10-cent impact. In the second quarter, I guess Crane was impacted by 4.5 million, Marine by 1.5 million, roughly. From your answer to Rob's question, should I take that most of the impact in the third quarter relative to the second happens in the Crane segment?

That's right. The biggest impact is in the Crane (indiscernible). I want to just correct one number that you threw out, that's $1.5 million in Marine; that 1.5 million was net of our pricing actions in the Foodservice side for the second quarter.

Okay. And then just as far as on the top line, especially looking at Cranes, it looked like the quarter was much better than we expected and especially relative to the competition. Could you just break out the currency impact on Crane revenues?

Currency effect (ph) is revenue by about 2 percent.

Just 2 percent?

Right.

And then you mentioned then I guess the demand that you saw in the quarter was better internationally across the board. But then I think you also mentioned that domestically in North America, you're also seeing a pickup in non-crawler cranes. Is that true, and it is to the same extent as what you are seeing in non-crawler activity oversees?

Just one clarification there. I think the (indiscernible) that we referenced in crawlers was in Asia. And I'll let Glen --

(Indiscernible). The (indiscernible) hydraulic business is -- has picked up over the past 6 months. So those increases are consistent with overseas in Europe and the rest of the world.

Okay, and so that's also in North America. And is that driven by any change in sentiment you're seeing from crane rental companies? Is it just a pickup I guess in project work? Just kind of comment a little bit more in North America, kind of the trends you'd expect in the second half?

What we're seeing a pickup in is probably just in general construction. I think when you also have is we have people that are investing in their fleets on a very strategic basis. We think people in the past 3, 4 years -- a lot of people have been selling off their older assets. And I think they look at the average age of what they want to have in their fleet. And I think you see some of that trade out. We have some statistics that we follow on the mobile hydraulics where some of the dealer inventories are as low as they have been since the early 1990's. So if you are sensing (indiscernible) a lot of it is that consume confidence. Some of it is the tax bill you saw at the end of last year, and you're seeing -- some people are saying, I'm going to take advantage; it runs out at the end of the year; and if you buy this year, you have that tax advantage from the depreciation. And you're seeing a lot of people I think anticipating some things on the highway bill. The work is there. It's a lot of repair and maintenance type of work. It is not the general and construction you see, and I think we are seeing some good signs to be on (indiscernible) the auto market. The under 150 ton, there is a pretty good utilization on their crawlers in the under 150 ton. So there's hints of optimism, but I certainly don't call it any recovery.

Ken Mortenson (ph), Private (ph) Financial.

Good morning, gentlemen, great quarter. A couple of questions on the Crane side. You had mentioned that the crawlers in Asia were strong. You know given the actions that China has taken to kind of slow down our economy, do you expect that to continue?

And then also on the Crane segment, I was curious if part shortages at all suppressed your deliveries to any extent? I had heard there was shortages in wheels as an example.

With respect to the part shortages, nothing significant, Kent, that would impact anything. We work with the customers on a regular basis; they know what's happening out there. Tires, there is a certain tire that there are some shortages. But what's impacted that is the availability of the tires there. If you search around hard enough, it's just a matter of what you pay for them. And at the end, the purchase price variance on that really is not all that significant in the whole grand scheme of things.

We're watching the China market very closely. I think you have to watch what happens there. But I would say that the bad news is maybe you're hearing of hints of slowdowns -- fortunately you are seeing a pickup for us, it's not that significant a part of our business, so the slowdown is not all that great when you put it into the whole Crane Group perspective. I think there are some competitors that are probably going to watch a lot more closely than we are when you compare our marketshares to theirs. So we are watching it. But a lot of the things the cranes are going into, those projects, the infrastructure projects and that type of stuff, that's still going to go forward and that's where we see the -- I think their general economy can slow down, but they still need the infrastructure work. So I think it should not impact our business all that greatly.

Great, thanks, Glen. And then just on the Marine side, just a couple of things. Number one, can you quantify at all how much the Littoral combat ship bidding activities impacted your quarter? And also if you could comment a little bit more on these changes to the existing vessel that these change issues that you are having, is that something that is kind of contained into Q2, or is that something that could drift into the balance of the year as well?

I got much more statistics relative to what we felt the impacts were going to be for Marine and how it's going to impact them financially -- these issues will impact them financially going forward, much more than we normally do. I guess I would like to leave it at that as we quantify -- much prefer that to trying to get down to a dollar amount by each one of these issues.

I can understand with the existing customer. What about with LCS? Is that something you can quantify a little bit more for us or choose not to?

LCS is probably in excess of a half $1 million impact for the first half of the year.

John McKenzie, C.S. First Boston.

On the Marine, let me follow up this way -- I look at your 4 reasons and I understand the 4 reasons, but the first 3 of them don't make sense to me in terms of being a negative surprise. In other words, there's nothing in the first -- 3 in other words, you should have known, obviously, what your business mix was in commercial signal unit, you would've known what the LCS investment was. And the steel, obviously, was there, but as you said, most of the impact I think is going to be in Cranes. So is all of the shortfall then relative to kind of expectations related to that fourth item, or is there something else going on there?

I guess the issue that we were trying to communicate, John, was not so much that it was a surprise from our perspective, but I think something that maybe we had not really made understood from a more bullish perspective relative to those other issues. And that was really the gap that we were trying to bridge as we talked about the issues in Marine. They did not particularly surprise us, and they certainly went into our overall communications. But we didn't get anywhere near specific on it, and that was the reason for that.

I'm not trying to -- let me ask the question a different way. Your Marine business 2 years ago earned 20 million, last year, with the strike and everything else, we were down to 5 million; the first quarter was 4 plus and it looked like we're on the way to coming close back to 2002's 15 to 20 million. I have the impression from what you're saying, given the margins and everything else, that it looks like earnings are going to be less than you had thought in Marine for '04, I'm sorry in the current year. Am I wrong or is it just simply that we were perhaps too optimistic about the numbers that we had in our Marine? I'm trying to understand if there is a change in the full-year Marine forecast versus what you had said last quarter. That's really the question.

I would say the biggest departure from our own expectations was certainly the issue of -- issues on the change orders, as you referenced. Relative to what other folks expected out of the Marine business, and especially when you look at that 2002 as a comparative. The mix of business is much different with all of the (indiscernible) tender work that we were producing in 2002 where you are highly efficient on those types of projects versus the type of -- much more one-off type production schedules that we have today on these individual (multiple speakers). You don't have the same advantages of gaining the efficiencies from multi-vessel production activity.

I understand that. And I am not -- I'm asking a much simpler question. And the problem is that Tim gave the guidance last time; this is a different team. So there is no anything anywhere. My question is a very simplistic one. Is the Marine outlook less for '04 -- that you've just given us -- is that now less than the outlook you were giving us a quarter ago for '04?

I would say yes, it is a little lower. And again, the key reason would've been the --

Change orders.

Yes.

Okay. Then let me come back and hit Rob's question because I think it's the critical one. You haven't changed the guidance, okay, but we are 10 cents lower than we were before on steel and Marine is lower. So does that mean A, that you were sandbagging on the guidance before, which is always fine, or that we're really at the lower -- that it has not changed but we're at the lower end of the guidance, the $1.30 versus the $1.50? In other words, how do we stay in the range when we have got arguably 20 cents lower expectations? Where are the offsets in the other directions? Or are we just at the low end of the range? Or you actually had a lot of cushion built-in before?

Well, I certainly would not use the word sandbagged, John.

Okay, well, conservatism, how about that?

That's better. I think certainly that plays into -- obviously, there are a lot of elements that go into producing our guidance. There was a little less certainty as to where we were in the crane side (indiscernible) when we developed our guidance at the beginning of the year. And I think that things are probably a little bit more robust there than the outlook was initially. Obviously, you have got the offsets that are taking place in the Marine side of the business and on the commodity issue. So when you take everything in the mix, we are certainly not trying to say that we are going to have a all-out negative impact below the higher end of the range and take everything into effect. I think that the fact of the matter is we have fought through this commodity issue and we're still able to reiterate the range level that we have put out there.

John, I would like to go just a little bit further on that. We are feeling, at this time, this is kind of one of the strengths that we have with the diversity that we have in the business. And what we're seeing a significant impact from their commodity prices and some shifts within each of our segments, we're still feeling that all in all, it all balances out on the year to about what we projected when we sat down at the beginning of the year and where we are at this point in time less, plus at the end of the first quarter. So while we have had mixes -- mix changes in that whole process, we really haven't changed any of our the way we view the entire year. And I think that's the strength of the mix that we have in the Manitowoc company.

Stan Olson (ph), Deutsche Bank.

Can you give us an indication of the amount of off balance sheet securitization financing that you were using during Q2?

Not significantly different than what we had in the first quarter, roughly $19 million.

19 million. Because on the cash-flow statement, you basically received receivables financing of 11 million. So would that not indicate that you were up to about 30 now?

The 11 million actually is a little bit different issue than the normal securitization that we have. And if you remember back a few announcements ago, relative to some financing that we did with a crane opportunity and that particular item is essentially monetizing that transaction.

Is it in the form of off balance sheet debt, or is it --? I'm not sure I am clear on what the transaction is.

It's on balance sheet.

Okay. And given the fact that you have roughly 30 million of bank debt and 14 million I guess of leases and combined with basically 19 million of off balance sheet, once you kind of repay the payable on balance sheet, would you foresee yourself using additional cash to pay some of the off balance sheet liabilities, as obviously you are expected to build cash going into next year?

Yes, that all goes to our overall strategy on the cap structure. And obviously at the point in time that we have got a lot of bank commitments paid in full, we have to look to other things that provide us with a better return and that is certainly on the radar screen.

Okay, and is there any significant underfunding on the pension plan?

No.

Great, thank you.

Charlie Rentschler, Langenberg & Co.

Good morning, everybody. Against, obviously, a pretty darned strong performance in the quarter, I was struck -- I guess this is for Tim Kraus -- I was struck by the flattish sales and profits through 6 months in the Foodservice segment, despite the rollout of the 50 new products. And I guess, Tim, you gave us a bit more understanding when you said ice was up 9 percent year to date, refrigeration was flat, but you had some optimism there. But it seemed like the real culprit is the beverage dispenser division, where you said there was unusually soft demand. Can you paint a little bit more color on that picture, and more importantly tell us what you guys are doing about that please?

Okay, no problem. In the beverage dispensing equipment business, there are really 2 parts of the business; one is (indiscernible) commercial is a standard, like national account sales, that part of the business is actually quite strong. The other part is dependent upon a rollout from one of the major beverage companies, a rollout of products into changes (ph). And last year, in the first and second quarter, we had very strong rollouts going on; and this year those have not occurred. And so we are not only soft in that part of the business, but we're comparing ourselves against a very strong first half last year. So you're correct, that's where the softness is; other businesses are enjoying the expansion of the Foodservice industry.

Okay, and can I ask Glen a question? With the reorganization and consolidation activities, I am basically behind you -- tremendous job. What's going to drive margin improvement in the Crane segment looking ahead? And can you kind of give us some sense of priority, if there's 3 or 4 things, what is most significant than the others?

One thing that I would say, Charlie, is as we have been talking and we talk about where we are in the cycle in the Crane business, where we have seen the more firm demand levels is on the mobile hydraulic and on the power side of the business as well as (indiscernible) trucks. Where we have not really seen it is on the crawler crane side; and the areas where you have traditional strength in crawler, i.e. North America, we have not been seeing it, and we have not been seeing the recovery at the levels that we have seen in the other parts of the segment. So in my mind, that certainly -- when you look at the types of margin there, the (indiscernible) opportunities that we have on the crawler of the business, that's where I can see really being able to see some nice margin improvement in crane.

Okay, for the beast to wake up. And a question for Dennis, do you still expect to get -- that the government will award the response boat medium (ph) prototype contract this month, August?

No. They have just delayed it -- they have just delayed this thing (ph) back until about November, which is when the RFP will come out. 60 days later they will award it, so you're now in the first quarter of 2005. It's basically related to financial issues in Washington and reassigning priorities.

The (indiscernible) of the project is still on, but it's just being delayed.

Tom Klanta, C.S. First Boston.

Good morning. Carl, can you walk through for us the components of your capitalization now? And then also, I kind of lost you on the 2 off balance sheet issues. The 11 million on the cash-flow statement, is that a usage of your A/R line or a monetization of your A/R line? And what are sort of the ins and outs there?

On the cap table, the bank debt is as it was -- essentially everything is as it was in the first quarter. Thermal (ph) and D (ph) is still at $10 million. And then we have got the sub note, U.S., of 175 million; the senior unsecured is at 150; and the euro U.S. dollar equivalent is up a little bit, it's at 213.1 million. And then we've got other debt of about 36, $37 million. On the modernization, it was a reduction in our receivables that we had. And source (ph) of cash that came from monetizing that (inaudible).

Is there a draw on your receivables line today? Or as of the end of the quarter?

I'm not sure what you mean by that, Tom.

You used to have an A/R line which has not been used in I guess quite some time.

I'm sorry, on the revolver, on our bank facility. I beg your pardon. No. We have got no use of that as of the end of the quarter.

That's your revolver itself?

Right.

Okay. And then the 19 million off balance sheet number you spoke about, what is that?

That is the Foodservice factoring.

I'm sorry, Carl, you're breaking up. Foodservice what?

Foodservice factoring. We've had it since the late '90s.

Okay. And the availability on your revolver?

Well we have a little bit of usage for letters of credit that's a little under $30 million. So it's $125 million facility so we have got about 95 million available.

Okay, great. Thank you.

Tom Demore (ph), State of Wisconsin (ph).

Good morning. This question is for Terry and for Glen. Could you comment on your pricing policy in the Crane segment as well as in the Marne vessel business? I would think that with such a large amount of your costs coming from raw material like steel that you would allow for pass-throughs of price changes for that commodity?

Well, Tom, it absolutely depends on the product and on the contract that we have. In some of the contracts that we have, we do have the ability to the pass through; and other contracts, because of the nature of the contracts themselves, we elected to go forward without that. And at the same time of course, that just allows us the flexibility or forces us the flexibility of being a lot more efficient and in other ways to offset that impact. And I think that from what you have heard us say hear, you can see that that is taking place in many respects. With regard to some of the crane pricing, I don't know if there is anything else that we can say other than that.

The other thing that I would point out on cranes is that the throughput that we're realizing today is pretty quick as it relates to our production. And we expect that we have had some pricing commitments out there (indiscernible) coming. We did estimate some arrangements on our cost side and we did have some suppliers remain (ph).

Do you believe that you may change your policy to allow for a cost adjustment if the steel prices change dramatically in the future? Is that something you're considering, or do you want to still keep it very flexible?

Tom, we would constantly look at all of our policies and all of our agreements to make sure that they are the most prudent for the times that we're facing. So I would say that that is always under evaluation.

Okay, thank you very much.

Hillel Olshon (ph), Deutsche Bank.

Hi, good morning. Carl, if you could just clear up the steel question for me, the steel cost increase -- I have got $4.3 million increase in steel costs in the Crane segment; 1.5 from Foodservice. What was the number in Marine?

Marine was about $600,000.

600,000. And then you said the impact in the third quarter will be 10 cents a share; is that 10 cents a share greater than the impact in the second quarter?

That is correct.

Okay. And that's mostly, as you said, coming -- the delta is coming from the Crane segment?

Crane segment. The biggest issue is in Crane.

Okay, thank you.

That is all the time we have for questions today. Mr. Khail, I'll turn it back to you for any closing comments.

Before we 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 12 midnight Eastern time August 10th. The number to dial for the replay is area code 719-457-0820. When calling in for the replay, please use confirmation code 191074. You may also access an archived version of today's call on our website at www.Manitowoc.com.

In addition I'd like to mention that Manitowoc's third-quarter earnings will be announced after the market closes on October 27th. And our third-quarter conference call is scheduled for 10 AM Eastern time October 28th. During that call, Dennis McCloskey will be our featured speaker. This concludes Manitowoc's second-quarter conference call. Thanks for joining us. Have a good day.