Manitowoc Company Inc (MTW) 2004 Q4 法說會逐字稿

Good day, everyone. Welcome to the Manitowoc Company, Incorporated, Fourth Quarter Earnings Results Conference Call. Today's call is being recorded. Now 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. Thank you for joining us today for the Manitowoc's fourth 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; Glen Tellock, President of Manitowoc Crane Group; Tim Kraus, President of Manitowoc Foodservice Group; and Dennis McCloskey, President of Manitowoc Marine Group. Carl will open today's call with an overview of our financial results for the quarter, including a brief report on each operating segment. Next, we'll ask each of our segment Presidents to provide an update on their respective businesses. Terry will then conclude our opening remarks with the strategic update. Following our remarks, we'll open the call for 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 P.M. Eastern Time today until 1:00 A.M. Eastern Time on February 16. The number to dial for the replay is area code (719) 457-0820. Please use confirmation code 274270. You can also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.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 February 8, 2005. 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 speakers'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 as explained in Manitowoc's filings with the Securities and Exchange Commission, including but not limited to the Company's annual report on Form 10-K for the year ended December 31, 2003.

With that, I'll now turn the call over to Carl Laurino.

Thank you, Steve.

Yesterday we reported fourth quarter sales of $535 million, a 38 percent increase over the fourth quarter of 2003. Our net earnings were $5.4 million or $.19 per diluted share compared with last year's loss of $5.5 million which was a loss of $.20 per diluted share. Earnings from continuing operations were $.19, compared with $.12 last year. Earnings from continuing operations in both 2004 and 2003 included special charges. Excluding these special charges, earnings from continuing operations for the quarter were $.19, up from $.13 last year. Once again, high commodity prices added a net of $.17 to our cost.

For the full year 2004, our net sales increased 25 percent to $1.96 billion from $1.57 billion during 2003. Net earnings were $39.1 million or $1.43 per diluted share, compared with year ago earnings of $3.5 million or $.13 per share. Earnings from continuing operations before special items were $1.45 per diluted share compared with $.68 per diluted share in 2003.

Now I'll take a moment to review the fourth quarter financial highlights from each segment.

Crane sales were $358 million, an increase of 45 percent compared with the same quarter last year and our total backlog stands at $327 million, up 48 percent from one year ago. Worldwide demand for our crawlers, tower and mobile telescopic cranes continues to grow, but the high capacity crawler crane market in North America is still weak. Operating earnings were $16 million, up substantially from the $5.5 million reported last year. Operating margins were 4.4 percent, up about 2 percentage points over year ago levels. It is clear that the globalization of our Crane business has helped us to take advantage of growing worldwide demand while our cost reduction initiatives and price increases have helped to offset rising steel prices, which had a $3.4 million impact net of pricing actions for the fourth quarter and $8.6 million for the full year.

Fourth quarter sales in the Foodservice segment increased slightly to $107 million, while operating earnings declined to $11.5 million. This was due primarily to increased prices for steel and other commodities, which added $1.5 million to our costs in the quarter, and $3.8 million for the full year. In addition, the Foodservice segment incurred expenses of $1.1 million in 2004, related to its ongoing ERP implementation.

Although net sales for the Marine segment were $69.6 million, up 79 percent from the same period last year, we experienced an operating loss of $917,000, compared to a fourth quarter operating profit of $698,000 in 2003. Profitability decreased in the quarter primarily due to greater than anticipated start-up costs on one of our commercial projects which Dennis will touch on later in this call. We were also affected by rising steel prices, which had a net impact of $2.2 million for the fourth quarter and $4.3 million for the full year, and a delayed winter repair season on the Great Lakes.

Looking at the balance sheet, we achieved a net debt reduction of $166 million, of which $61 million represented net debt reduction from operating activities for the year. This performance exceeded our net debt reduction goal of $60 million. Our successful equity offering and our strong cash from operations enabled us to reach a net debt to equity ratio of 44 percent, exceeding our near-term target of 55 percent.

Our full year effective tax rate was 19 percent for continuing operations, bolstered by two specific planning strategies in 2004. First, our global restructuring improved our cost structure by approximately $5 million, which is sustainable over the long-term. Second, we were able to work with a particular state tax entity that enabled us to use previously unutilized state tax credits, which resulted in a one-time improvement of approximately $3 million.

Overall, we're pleased with our sales growth, earnings performance and market share gain, as well as our ability to weather increased commodity cost through pricing and cost containment.

Before I turn the call over to Glen Tellock, I'd like to comment on our FAS 52 adjustment. After a discussion with our auditors, we determined that the accounting treatment of our goodwill and other intangibles from foreign acquisitions did not satisfy the requirements of FAS 52, which relates to foreign currency translation. At the time these foreign acquisitions were made in 2001 and 2002, we determined the appropriate accounting treatment was to hold the value of these intangible assets at their historical exchange rate at the date of the respective acquisitions. We've consistently applied this accounting treatment in all reporting periods since the acquisitions were made. We've now concluded that we should have translated these intangible assets each period to reflect changes in the foreign currency exchange rate. The cumulative impact of the change has increased our intangible asset balance, currency translation adjusted balance within shareholder's equity by $77.6 million and $57.6 million as of December 31, 2004 and 2003, respectively. This change has no impact on our historical consolidated income statements or statements of cash flow or debt covenants in prior years or our intangible asset impairment analyses under FAS 142. The cumulative effect of this change on our debt to cap ratio as of December 31, 2004, is a 4 percent reduction.

I'll now turn the call over to our three business segment Presidents for an update on each of their businesses. We'll start with Glen Tellock who will comment on the Crane segment. Glen?

Thank you, Carl. Good morning. The Crane segment had an outstanding year. We achieved significant improvement in earnings and margins despite facing higher commodity prices this year. We were able to offset some of the cost increases by selective price increases and cost reduction efforts and we believe our actions in 2004 will help mitigate continued high steel prices in 2005. In general, steel prices have stabilized in Europe and Asia but are still climbing in North America.

During the year, we launched 15 new products that spanned each of the primary categories in our product lines. Not only was this a record tying number of new product introductions for Manitowoc's Crane Group, it also enabled us to gain market share in several of our core markets. Included among our new products were five new crawler cranes, five mobile telescopic cranes, three tower cranes, and two boom trucks.

In North America, utilization rates in the rental market are climbing and quoting activity for new crawler cranes is higher than it had been in recent years. This leads us to believe that the crawler crane market may begin to improve in 2005, however, these early indications have not yet resulted in any increase in business and our outlook is not based upon a crawler recovery. We also expect continued growth in emerging markets such as China and the Middle East. The new crane manufacturing facility that we're building in China should help us better meet demand in these areas, and we will continue to drive growth through the introduction of 11 new products in 2005 that meet the needs of our global markets. This will include Manitowoc's Model 16000 crawler crane, Groves GMK 5130 all terrain crane and Potain MDT 178 tower crane.

In 2005, we expect to achieve top-line growth in the high single digit range in the Crane segment. As you know, the Crane group structurally aligned itself to achieve these levels of growth so we expect any increased revenue will have a significant impact on our earnings growth. Equally important, we also expect to be EVA positive in 2005, which is consistent with our stated acquisition strategies. To conclude, we're proud of our accomplishments this year and we expect our new global positioning to enable us to post strong results next year, despite minimal improvement in the North American crawler crane market.

With that, I'll turn the call over to Tim Kraus to discuss our Foodservice segment. Tim?

Thanks, Glen.

Overall, Foodservice performed well this year. Net sales increased modestly while the overall market remained flat. Our slightly lower earnings were due to the increased steel and commodity prices and our investment in ERP. Our ice machine segment performed well all year, once again outpacing the industry and posting the highest market share in our history. As the F-series gains traction in the marketplace, we would expect these positive trends to continue.

Following a slow start in the first half of the year, our beverage business gained momentum and concluded 2004 with strong sales. Remodeling activity in the C-store [ph] and quick service segments contributed to those gains. Refrigeration, primarily in the walk-ins segment, remained flat reflecting moderate activity in the new store construction area.

As mentioned earlier, our slightly lower earnings and margins were largely due to the increased steel and commodity prices. During the year we took several actions to minimize the impact, including price increases on most products and cost reduction initiatives. These actions should minimize the effect of commodities going forward and we expect margin improvement in 2005.

Our Foodservice group had several other notable achievements during the year. We met our goal of 50 new products, which contributed to the increase in sales and market share. And after breaking ground on our new manufacturing design center in China in April of this year, construction is underway and we expect to occupy the new facility in the second quarter of 2005. This 180,000 square feet of manufacturing space will help us meet the growing demand in that region of the world.

We've also completed the global design phase for our new ERP system which was announced earlier in 2004. This new Oracle application will centralize accounts receivable, accounts payable and supply chain management for all of the Foodservice businesses. It will also facilitate cross selling, as each business unit will have capability to accept orders and invoice multiple brands of products from a single customer order. We'll begin implementing the new system this year and complete the project in 2006.

Market conditions in the Foodservice industry are improving, with particular strength in the lodging, convenience store and quick service segments. As business and leisure travel expands, we look for continuing strengthening in these markets. In 2005, we expect the Foodservice industry to grow from 3 to 4 percent, and our revenue growth target to be in the mid to high single digit range. As always, new products are integral to our growth strategy and we currently plan to launch over 20 new products from all three segments, ice, beverage and refrigeration, during the course of the year. Coupled with our productivity improvements, global sourcing, and price actions, these sales gains will improve our bottom line as well.

With that, I'll turn the call over to Dennis McCloskey to discuss our Marine segment.

Thank you, Tim. Good morning. Our Marine segment finished the year well ahead of 2003 performance thanks to a full slate of new construction work during the year. We completed our multi-year contract for a fleet of Seagoing Buoy Tenders for the United States Coast Guard launching its fifteenth vessel in February. As we delivered two Staten Island Ferries for the City of New York along with two double hulled tank barges and an ocean going tug for its commercial customers.

Our slate of new construction work for 2005 looks much like 2004. We are currently building double hulled tank barges for several commercial customers, a new Great Lakes icebreaker for the United States Coast Guard, a floating causeway for the United States Navy to name a few. The Navy also awarded us with a contract to build prototype patrol combat ships and construction has already begun.

We also were looking - - also looking forward to a strong winter repair season this year. Warm weather kept the ships sailing for an additional week during the fourth quarter, and delayed the start of the repair season. So we anticipate a healthy slate of repair work for our yard during the first quarter of 2005.

Like our Crane and Foodservice segments, increased steel costs continue to affect our margins during the fourth quarter. Our current contract did not allow us to pass these costs through to our commercial customers, so we did our best to manage them during the year for better procurement efforts.

As Carl mentioned, we also faced unusually high start-up costs from one of our commercial projects during the fourth quarter. These costs were associated with commercial vessels we were building in our Toledo shipyard. Bringing this project to Toledo created significant inefficiencies we had not anticipated. These setbacks not only created production costs issues, but also triggered some delivery costs. We expensed all of these costs in the fourth quarter and moved the vessel to Marinette for final fit out and completion. Without the unusually high start-up cost that we encountered in Toledo for this project during the quarter, Marine operating margins would have been well ahead of Q4, 2003.

As we look ahead to 2005, steel prices will continue to be high, but as we finalize new contracts, we can better account for these higher prices and share the impact with our customers. Although some existing external contracts is required in our business mix in 2005, we'll do everything we can to ensure our shipyards and our procuring efforts are as efficient as possible in 2005 in order to improve operating margins from 2004 levels. Bidding activity has greatly improved since 2003 and remains crisp. Economic indicators look good. Lake traffic remains high. And OPA 90 legislation still requires that ocean going vessels are double hulled in the next 10 years. So we anticipate continued demand for new construction and repair work. We are leveraging the strength of each of our shipyards and building vessels as the best facility for the scope of the work. Our strong combination of new construction and repair facilities will help us maximize our opportunities in 2005.

With that, I'll turn the call over to Terry Growcock for some final thoughts.

Thank you, Dennis. As you've heard, we're extremely pleased with our performance this year. Our diversified business model, as well as our focus on new product development, global expansion, strategic acquisitions, and lean operations enabled us to achieve strong improvement in sales, earnings, and market share compared to one year ago. Our three businesses continue to be strong generators of cash, which played a vital role in our ability to exceed our net debt reduction goals.

We also completed a successful equity offering in the fourth quarter which not only helped us to reduce our debt, but also gave us additional resources to invest in growing our businesses. The new Crane and Foodservice manufacturing facilities that we are building in China are two examples.

In addition, we made substantial progress against our four strategic priorities on which we have been focusing the past two years. First, our strategies of global expansion, facility rationalizations and new product development have helped us to increase crane sales and market penetration around the world. Most of our exceptional gains in crane revenue and backlog came from increased demand in Asia and other high-growth areas around the world. 62 percent of our 2004 crane revenue came from regions outside of the United States, compared with only 9 percent in 2000.

We will continue seeking emerging markets. And we'll continue to develop innovative products to capture these markets. As Glen mentioned, we are on track to launch 11 more new products in 2005.

Our new product efforts have really helped us to strengthen our Foodservice business and drive its market share, which is our second strategic objective, and we expect that new products and our emphasis on global expansion will enable us to maintain our momentum in 2005.

Third, leveraging the strengths and capabilities of our multiple shipyards played a strong role in our Marine segment improvement over 2003 levels. As Dennis mentioned, our efforts in this area have won us a full slate of new construction work that carries us into 2006, as well as a healthy repair season this winter. Our strong combination of new construction yards at Base Ship Building in Marinette Marine and repair facilities at Toledo and Cleveland will help us take advantage of opportunities to serve government and commercial customers.

Fourth is our emphasis on strengthening our financial structure by focusing on cash flow and net debt reduction. We've exceeded our net debt reduction goals for the past two years, and as Carl mentioned, our current net debt to capital ratio is well below our near-term target. This will continue to be a priority for us as we leverage our strong cash generation to further decrease our net debt and invest in our businesses.

We enter 2005 with a great deal of confidence in our ability to produce outstanding results. Let me tell you why. First, we have a robust Foodservice business that continues to expand at rates more than double the industry's growth. In 2005 we expect that our ice machines will continue to enhance their number one market share position; that our beverage equipment business will benefit from a recovery within the beverage industry; and that our commercial refrigeration business will capture new business from aggressive cross-selling initiatives.

Our Crane businesses entered 2005 with the largest year-end backlog we've ever had, a comprehensive slate of 11 new products and continuing benefits from our globalization strategy. On top of all of that, we're seeing directional improvement in crane - - crawler crane utilization and rental rates. Should these trends continue, a revival of the North American crawler crane business could materialize later this year.

In Marine, we've addressed the issues at our Toledo yard. We've taken definitive steps to ensure that they don't recur. We enter 2005 with a strong and manageable slate of business spanning both the government and commercial sectors. Our winter repair season is shaping up to be one of the best ever and our project bidding prospects have never been stronger.

As a result, we're targeting net sales growth in the mid single digits, net debt reduction of at least $50 million, and earnings per share of $2 to $2.20. This represents an EPS improvement of 35 to 49 percent over the past year. As we noted in yesterday's press release, this EPS range reflects the additional shares from the equity offering completed during the fourth quarter.

With that, I'll turn the call over to our operator to answer your questions. Kim?

Thank you, sir. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. If you're using a speaker phone, please ensure that your mute function is turned off to allow your signal to reach our equipment. We'll proceed in the order you signal us and take as many questions as time permits. Again, that is star 1 to ask a question or make a comment. And we'll take our first question from Gary McManus with JP Morgan.

Good morning, everybody.

Good morning, Gary.

Just kind of a general question on your '05 guidance, are you assuming that price increases offset higher steel costs in general?

Generally speaking, we certainly believe that we'll be much closer to par. We've had a little bit more of an issue in the first quarter because of the issue hitting us in 2004, with much more of a second quarter forward. But overall we expect a plateauing of the costs in general. And once we get beyond the first quarter, we should be in pretty good shape, based upon the pricing actions that we've taken.

Okay. I think I heard Glen say that he expects crane revenues to be up high single digits. I'm wondering, given the backlog is up 40 some percent and given if I just take your fourth quarter revenues and annualize it, that would be more like 15 percent growth. Tell me why you have - - what I think is a relatively conservative revenue outlook for cranes.

Gary, it's Glen. I think there's - - what you have around the world is there are some markets that are not - - that are not growing. I think when you look at some of the main markets in Europe, the Spain and Germany certainly no recover there, France, some of the main markets there, I think we're seeing a little bit of weakening there. But you do have some of the emerging markets that we talked about. And I think when you put it all together and you throw in the new product introductions, I think that's how we're seeing it come out right now. And again, I'm not so sure what the latter half of 2005 holds out for us.

But I agree with you, the backlog is good right now. Availabilities are starting to be relatively good for us. And I think when you look towards the latter half of the year,year; I think that's really the wild card for us. So you put all that together and I think the high single digit is a reasonable expectation for us right now.

Okay. Last question. You expect the crane business to be EVA positive in '05? I assume it wasn't in '04. What kind of margins are necessary for the crane business to be EVA positive? Roughly?

If you get to the, roughly the - - about a 1 percentage point improvement in the op margin, we should be solidly EVA positive.

Okay. Great. Thank you.

For our callers, please limit yourself to one question and one follow-up. Thank you. We will move next to Robert McCarthy with Robert W. Baird.

Good morning, everybody.

Good morning, Rob.

I just want to make sure that I got the message clearly on the outlook for each of the segments. Gary just asked, was talking about cranes high single digit growth, and I think Glen made a comment about expecting to see faster earnings growth. In other words, some decent operating leverage, right?

Yes.

Okay. Foodservice, Tim, was even a little more clear I think. Marine, I gather if we're going to end up at mid single digits for the entire company, Marine has to be roughly flat for the year? But you think your profitability will be improved. Did I get that right? Do I understand that correctly?

I think that overall for the year we're probably looking at fairly flat for Marine.

With improved profitability? I'm just trying to establish what's in your forecast?

That's correct.

Okay. Okay. Then I gather from Dennis's statement about, - - I think it was Dennis. The comment about Marine margins in the fourth quarter would have been up year to year. The implication here is that the - - this fourth quarter issue was worth in excess of $2 million in terms of operating earnings. Is that a reasonable guestimate or approximation of how big the effect was? Or was it materially larger than that?

Rob, I'm going to let Carl address anything with regard to specifics on it. But let me just point out that we had a combination of material costs and the - - that did hit us in the Marine side in the month, during the quarter, as well as the inefficiencies that we had and the additional costs on the one vessel. We had five vessels to deliver in the fourth quarter. We delivered four of those vessels and we had the one miss. That's what has caused the issues. We understand what caused those issues and I believe that we can say with a high level of confidence that we've addressed that. So now I'll let Carl try to answer the size.

You're pretty close in the order of magnitude, Rob.

All right. Very good. Thank you.

Moving next to Seth Webber [ph] with UBS.

Great. Thanks. I'd like to expand a little bit on the Foodservice. Maybe if you could just give a little bit more color on what's going on there with the margin and whether your expectations are for that business to still reach kind of a high-teens margin? Whether there is something going on with pricing in the quarter or something with the S-series rollout? Thanks.

Seth, relative to where - - obviously we've put an objective out there publicly without putting a time frame on it. Getting up into a high-teens level for Foodservice. Obviously, the initiatives that go into that include things like getting the benefits down the road of the ERP implementation that we're going through. They're actually hurting our margins as we're going through the process today. Coupled with our long-term strategy of, you know, product innovation and what that does for us to drive continual margin. From a qualitative standpoint, I'll let Tim talk to some other things that he has going on.

Yeah, the impact - - speaking specifically to the impact of the commodities, we obviously took price actions. Some of those price actions, there is a lag to recognize them due to contracts or whatever. Also allow the cost reduction activity had just partial impact in the fourth quarter. As we go into next year, we're not expecting the commodities to be the issue they were in the prior year. There's no change to our long-term goals for operating performance and while we saw this year as a difficult year, it doesn't change our outlook.

Okay. Can you give us any color on the S-series rollout and how's that going? Whether that's cannibalizing any other sales or anything with that?

Actually, most of the growth this year came from CVD and IV products that were introduced in the prior year. It takes about a year to get traction. Very little - - we had tremendous market share growth this year. We're pleased with it, but very little of that was truly S-series impact. The S-series was introduced throughout the year. We're expecting that now, as it gains traction, to drive that next phase of growth, both in sales and in market share. The reception has been very positive. We still have two models left that are not replacing existing models in the queue.

They're sort of category killers, play in between different models at a different price point, production, capacity, and size. The first one of those is out this month, that's the S-1200, the S-1600 is out next month. We're very optimistic about what that's going to do for the business overall.

Okay. Thank you.

Thank you, Seth.

Moving next to Charlie Rentschler with Langenberg & Company.

Good morning, everybody.

Good morning, Charlie.

Can I go back to the material price increase issue again. I hate to keep whipping on that but it is a big issue. It sounded as you went through the math, that 40 to 50 percent of the problem occurred in the fourth quarter. So, you know the wave is sort of crashing over us. It cost, if I did the math right, $16.7 million for the full year or about, I guess, $.55 a share. Now I guess Carl said he thought it would ameliorate as the year went by, but can you give us a little bit more help on that?

I mean, are we looking at $.25 maybe for the year or $.15 or $.30 compared to that $.55? What do we see?

I guess I'd prefer not to try to separate that specific issue to our overall guidance. Obviously, we're taking into account the pricing actions that we've taken as it relates to the number that you threw out for the overall kind of gross impact to us, or net impact. That sounded a bit high, Charlie. I think we're probably, kind of in the high $.40 range, mid to high $.40 range on the EPS impact to us, net of our pricing actions for the full year in 2004.

Again, we believe we're going to get through the toughest comparative for 2005 in the first quarter. Then going forward, you know, a much smaller impact. Overall, obviously it weighs into our overall guidance for the year. But it becomes a much smaller issue for us because of the pricing actions that we took throughout 2004 and the fact that we believe that the costs, although are certainly rising in certain categories, overall, we would characterize commodities as a general category to be in kind of a plateau.

Charlie, we're also not - - we're just not addressing this with pricing. We're very aggressive in the cost containment side. We have - - we've really strengthened our global procurement side. We're going to further strengthen that side with some other changes. Additionally, I think we've been very aggressive in material substitution and other engineering efforts. I just don't want to leave this that we're working just with one phase to address the commodity issue. We are working at -- from both a cost containment side as well as from a pricing side.

As a second question, another sort of non-recurring item you might call it, is the ERP program although I realize it's multi-year. How will the impact of that be in '05 relative to '04? Are those costs going to grow or be about the same or what?

We think that they actually will increase a little bit versus what they've been this year. We really get into the full flower of rolling through the implementation.

Okay.

And so it's not a huge increase but some incremental increase in the costs from ERP in 05.

Finally, a quickie. I don't think you gave us capital expenditures in your guidance, did you? Can you tell us what that might be for '05?

High 40s, low 50s.

Thank you.

Our next question will come from Joel Tiss with Lehman Brothers.

Hi, guys. How are you doing?

Good morning, Joel.

One thing that might help all of us is if you could give us a sense of how your overall revenue growth estimates break down between, you know, underlying volume, currency and pricing.

On the underlying volume side, I think we're probably in the mid single digit range Foodservice, probably similar for Crane, and Marine is pretty flat.

Okay. And then the follow-up would be can you talk a little bit about free cash flow? You know, what happened in 2004. I know you paid down a lot of debt. But I think that was mostly from selling stock. Can you talk about what happened with the free cash flow generation out of the Company and give us a sense of what the outlook is for 2005?

Well I think we were pretty consistent with the expectations that we had laid out at the beginning of the year relative to the overall cash from operations that we generated. We'd indicated that we expected to reduce our net debt levels and obviously this did not anticipate the equity offering of $60 million. We actually reduced the debt from our cash flow from Ops just slightly in excess of that.

Obviously there was a little bit more pressure on working capital given the very robust year that we had in Cranes than we anticipated. We did a good job in some of the other areas, particularly as it relates to our - - some of the turn statistics that we have, but overall we were pretty pleased with the way we came out in 2004. Obviously 2003 was an extraordinary year as related to cash from Ops. But that was under a pretty significant contractionary mode in the Crane business which gave us some working capital opportunities.

Thank you.

Our next will come from John McGinty with Credit Suisse First Boston.

Good morning.

Good morning, John.

Carl, I'm just trying to - - as first just a clarification, not even a question, but I'm looking at the fourth quarter versus expectations and your guidance was for the year, so we kind of back into the fourth quarter. But the $3 million tax settlement, which is about $.11 a share, if I do the math. I'm assuming that's an after- tax - - that is in fact of a net number, if you will. That was not in anybody - - that was not in the guidance before. Or were you - - when you were saying $1.40, $1.50, were you assuming you that you were going to get that $.11?

We were working on the initiatives. It was all part and parcel of what we were thinking about in our range. But - -

Because the guidance for the tax rate had not been zero or negative in the fourth quarter.

Right.

Wasn't the guidance for the tax rate 25, 26, 27 percent?

High 20s, right.

In other words, that $.11 wasn't in the number. So the question is, that's better than expected. Relative to expectations, can you just help us understand how - - what was worse than expected because, I mean, the number came in kind of at or, in fact, only, you know, slightly - - right around where the consensus was, if you will. So, in other words, that's $.11 that wasn't in the numbers. What was the offset in the other way because the number came out about right? Was it the steel, was it the ship?

I mean we talked about the ship being a couple million, 2.2 million. That's a pre-tax number. So, you know, where was the other relative to, again, the expectation. I'm just trying to understand.

You may recall that we had guided, you know, based upon our third quarter announcement to a $.12 issue on commodities for the fourth quarter.

Yes.

So there's a nickel there.

So, that was for the fourth quarter because we kept - - I'm sorry to be dumb but we kept switching between dollars and cents. So you had guided to $.12 and the actual was $.17?

That's correct.

Thank you. Okay.

The other big one you referenced as well. Marine was, you know, we ended up in a situation that was obviously ongoing throughout the fourth quarter. As we took a look at where we needed to be from a financial perspective, you know, we ended up having a pretty significant hit that was not in our expectations.

So you knew some of it was there, but obviously not the order of magnitude that you got?

Yes. I think that - - we talked about a $2 million number with Rob. I think, you know, fully all of that was a surprise.

All of that was a surprise? Okay.

And then just one other clarification. When we - - one of the questions in the third quarter Q&A was, you know, you kept talking about the pieces in the Foodservice and everything seemed to be going well. And the Foodservice didn't quite do as well as it was supposed to and the answer was the private label stuff that you did. Was it more negative in the third quarter than you had expected? That wasn't even mentioned in the fourth quarter. So have we zeroed that problem out? Or was that still a negative? Or what happened there?

It's the same situation it was in the third quarter.

Still disappointing?

Yes. We have contractual pricing and no capability of passing cost increases through, so all of our focus is on cost reduction.

Does that go through '05? In other words, is the contract an annual one?

The contract continues but in past years there were stipulations for our automatic price reductions which don't exist going forward. We'll start to gain traction on cost reduction effort. And frankly, the commodity prices are not - - we're not seeing the acceleration in commodity prices we saw in the past. They seem to be stable, maybe even lessening just a little bit. We'll have to fight through that one.

Absolutely. Then the one question I have is I could get back to - - I think, Terry, it was your number. And it's really an interesting number. I'm wondering if we just kind of could get a little more apples to apples. You talked about the Crane business being 62 percent outside of - - I don't know if it was U.S. or North America, but I think it was U.S.

That's correct.

Versus 9 percent in 2000. But the 9 percent in 2000 was before Potain, was before growth. So I guess one way to look at that is in 2000, 9 percent of the crawlers were outside of the U.S. and probably a chunk of those actually went to Canada as well. If we look at crawlers, where is that outside the U.S. versus - - in other words because Potain was largely overseas, Grove had a healthy chunk overseas, the crawlers were mostly U.S. Where are the crawlers today?

I'm going to turn it over to Carl to try to get us some specifics here. What I would tell you is that the globalization strategy has worked for us. We've been talking since the crane downturn about how the ability for us with the footprint around the world that we now have to help us to penetrate markets that we were not in before. That has helped growth in markets they were not in before. It has helped Manitowoc Crawler Cranes in markets they were not in before. As well as helping Potain penetrate some of the markets they were not in. So the overall portion of that strategy of globalization has really allowed us to increase our sales. And we do have a a lot higher percentage of the crawler business outside of the U.S. But, Carl, I don't know if you've got anything on that?

It gets skewed a little bit, John, from the perspective of the joint venture alliance that we have. As we look at just kind of the legacy, Manitowoc Crawler Cranes, it's probably about half going outside of the U.S. today.

Wow. If you - - is that 60/40 outside of North America? I mean because a lot of the Canadian tends to run 5-10 percent, 20 percent. Do you have that? You don't have that probably.

That's fair. That's fair, John.

Okay. Thank you very much.

Moving next to Emily Shanks [ph] with Lehman Brothers.

Hi. Good morning. I have a quick question. What was the depreciation and amortization for the fourth quarter?

For the fourth quarter about $15 million.

Great. Thank you.

Michael Harris with Black Diamond Research has the next question.

Good morning guys. Hey Terry, just a quick clarification, in the press release you referenced pockets of weak demand within some of the businesses, and I know I heard Glen say North American crawlers and a couple of end markets in Europe. Are there any others or was that comment specific for cranes?

Well, you know, I think when you're looking at as diversified a product offering as we have, you know, that's probably one of the real strong advantages that we do have. But we've seen, obviously we've said that the refrigeration side of the business was - - which is heavily dependent on new store construction, particularly in restaurants and convenience stores, that that was relatively flat. I would say that that's one of those areas that we would say that's been one of the weaker demands, particularly in the Foodservice side. In the Crane side, I think Glen did allude to the fact not only has the North American market been weaker than - - in the crawler side, but we've also seen some pockets in Europe, in southern Europe, I believe, that have had some of those weaknesses as well. I would point out, again, the diversification of our product offering within our groups as well as within the entire Corporation allows us some real strong advantages in overcoming that around the world.

Okay. And one question for Tim. Tim, with the 50 new products you brought out last year and the 20 that are coming out this year, can you give me an idea of what the mix is between ice/beverage versus refrigeration?

By the end of the S-Series rollout, well over 90 percent of ice's sales will be from products introduced between this year and last year. We have products, new products that are being built in China as well - - new product line in China that will serve Europe and Asia.

In beverage, we've got a major - - the Legacy products; that introduction will be this year which is their standard products for ice beverage dispensers. In refrigeration, we introduced a new line of reach-ins last year in just two models, one and two door refrigerator/freezer. That's expanding now for the full array of products during the course of this coming year. And then walk-ins, we introduced the R-series two years ago. So, by the end of this year - - I haven't done the math, but I think it's fairly safe to say that well over 80 and probably 90 percent of sales will come from products introduced in the last three years.

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

Thanks, Mike.

Mike Kender with CitiGroup has the next question.

Yes. Most of my questions have been answered. Just one question on the cash flow guidance for '05. What's your assumption on working capital, are you assuming that the source or use of cash in '05?

I'm sorry, I missed the question?

On, for your '05 guidance, you talk about, you know, your free cash flow guidance. I'm wondering what is your assumption in terms of working capital in 2005? Are you assuming that that's a source or use of cash?

Slight use.

Okay. And what are you assuming for cash taxes, roughly?

About 30 percent.

Okay. Great. Thank you.

I also want to clarify the D&A question I had. I translated the full year A in that. I had said $15 million. It's actually a little under $13 million for the quarter on D&A.

We'll take the next question from Ken Mortenson [ph] with Trident Investment Management.

Hi, guys.

Good morning, Ken.

Tim, I want to ask you a little bit about pricing. You know, especially on the ice side, you're by far the market leader there. It's mainly a replacement business. So I was surprised that you gained share there. I thought you would have probably boosted price to kind of get some more margin, just maintain share. Or is that actually happening and it's just being swamped by pricing issues in this - - in the private label business?

The - - I'm not connecting the two questions. At ice, we had three price increases throughout the year.

Right. But you still gained share, right?

Right. Yes. So at the end of the year, our rate of growth of shares certainly slowed as we pushed the envelope. But, first of the year our competitors also raised prices so we're back in parity, or closer to parity. But we're still a little higher, we're the price leader. The issues on the contract manufacturing side that is a significant issue and we're working through that.

So - - [overlapping speakers] I'm sorry.

I just wanted to add a little bit to that, Ken. One of the things that I think you see from the strategies that we have in Foodservice is that we're counting on our new products to drive our sales and drive market share and penetrate new markets and grow existing markets. We're also much more aggressive, as we've talked about in the past, on a really strong cross selling effort. Because of the fact that we are so focused on the cold side of the product offering, it does allow us some leveraging and using where our strengths are. I think what you're seeing is is that those strategies are continuing to play out.

I understand. I just thought your margins would have been kind of stronger. I know that the fourth quarter is seasonally a weaker quarter. I just thought - - I was just wondering if there was something that kind of incrementally happened from Q3 to Q4 that kind of offset your pricing.

I think it was just what Tim had mentioned earlier. With regard - - a lot of it with regard to the contract side.

Okay. Great.

And the cost side. It continued to increase throughout the quarter.

Okay. Great. Thank you.

At this time we have time for one question. Greg Hide with Wachovia Securities will have our final question.

Thanks very much. You guys are showing about $180 million in cash. What is the long run target for how much cash you want to have around?

We don't necessarily target the cash level. Obviously we've got a balance sheet today that doesn't enable us to continue to pay down debt, part of the rationale behind the equity offering was utilizing the clawback feature on the bonds and that's essentially all we're left with on the debt side. So, we tend to be a second half of year cash generator. We've got a lot of things that may absorb some of that cash. We talked about some of the strains on working capital. But we'll expect 2005, all things equal, to be a cash build in the second half of the year has been our normal seasonal characteristic.

So, you know, from wherever we are mid-year, we'll build to the end of the year. And then we get through the non-call structure in the first half of 2006 on the Euro bonds that we issued, where we can continue the debt reduction once again.

Just a related question, I guess. Other current assets increased by about $15 million year-over-year. Other assets, just looking at the balance sheet, other assets increased about 27 million. Put together for those two accounts, you had a $42 million use or thereabouts. Could you just provide a little bit color as to what's in there?

We've got some deferred receivables that drive a lot - - some of that; pretty significant portion of it. Also a tax asset would comprise of a piece of it. But - -

So those are timing differences that will likely reverse out over time?

That's correct.

Okay. Great. Thanks very much.

At this time I'd like to turn the conference back to you, Mr. Khail.

Before we conclude today's call, I'd like to remind our listening audience that a replay of today's conference call will be available beginning at 1:00 P.M. Eastern Time today until 1:00 A.M. Eastern Time on February 15. The number to dial for the replay is area code (719) 457-0820. When calling for the replay, please use confirmation code 274270. You may also access an archived version of today's call on our website at www.manitowoc.com. Thanks again for joining us. Have a good day.

That concludes today's conference. Thank you for joining us.