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Executives

Steven Khail -- Director, IR and Corporate Communications

Glen Tellock -- Chairman and CEO

Carl Laurino -- SVP and CFO

Eric Etchart -- President and General Manager, Manitowoc Crane Group

Mike Kachmer -- President and General Manager, Manitowoc Foodservice Group

Analysts

Charlie Brady -- BMO Capital Markets

Chip Miller -- J.P. Morgan

Meredith Taylor -- Barclays Capital

Henry Kirn – UBS

Nicole [ph] -- Deutsche Bank

Paul Bodnar – Longbow Research

Joel Tiss -- Buckingham Research

Charlie Rentschler -- Wall Street Access

Robert McCarthy -- Robert W. Baird

Michael Boam -- Blue Bay Assets

Ben Elias -- Sterne Agee

The Manitowoc Company, Inc. (MTW) Q2 2009 Earnings Call Transcript July 28, 2009 10:00 AM ET

Operator

Good day everyone and welcome to the Manitowoc Company Incorporated Second Quarter earnings 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. Khail. Please go ahead, sir.

Steven Khail

Good morning, everyone; and thank you for joining Manitowoc's second quarter earnings conference call.

Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by reviewing our business outlook; and Carl will discuss our financial results for the second quarter.

Also participating in today's call are Eric Etchart, President of Manitowoc Cranes; and Mike Kachmer, President of Manitowoc Foodservice, both of whom will be available for our question-and-answer session.

For anyone who is not able to listen to today's entire call, a replay will be available beginning at 12 noon Central Time today until 12 midnight Central Time on August 4. The number to dial for the reply is area code 719-457-0820. Please use confirmation code 4647656. You may also access an archived version of today's call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on July 28, 2009. During the course of today's call, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such statements are based on the company's current assessment 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, which are also available on our website.

The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or other circumstances.

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

Glen Tellock

Thanks, Steve; and good morning everyone.

Obviously, demand across our businesses continues to be weak, especially in the Cranes segment, which is causing us to operate at production levels well below our capacity. Over the past year, we have experienced one of the most dramatic cyclical swings in demand in our long history in the crane industry. In the second quarter of last year, the entire industry was capacity constrained. Now, of course, the industry is demand constrained. Our challenge is to manage the business for optimal results throughout this volatile market cycle. So the question is, how are we meeting this challenge?

We are following strategic plans and proven strategies that we have employed during prior market contractions, although the speed and severity of this particular downturn is requiring quicker and more aggressive cost control and asset management. The fact that the cycle is hampered by a global credit crisis also introduces new challenges for us and our customers. Nevertheless, we have implemented specific actions that will eliminate approximately $365 million of costs from our businesses annually, with approximately $240 million of those cost reductions to be realized this year.

Some specific actions include elimination of temporary labor and outsourced work, as well as other steps to reduce variable costs. We have undertaken actions to reduce our workforce by 40% in the Cranes segment, 15% in Foodservice, and 10% in the corporate office. We have reduced SG&A spending in the first half of 2009 by $51 million versus 2008. We have realized $14 million, roughly half of the 2009-targeted Enodis acquisition synergies. We are aggressively implementing quality improvement initiatives in the Cranes segment worldwide to improve product reliability, reduce our internal costs and quality, and enhance customer satisfaction.

And we are benefiting from the continued development of the Manitowoc finance organization. Manitowoc Finance has proven to be an effective tool for our customers to mitigate limited credit availability.

It is important to note that these are not just actions for short-term benefit. Instead, we are taking this opportunity to make long-term structural changes that will permanently improve our cost structure.

Our initiatives are guided by three central elements; first, providing our customers with products that are some of the most technically-advanced and innovative in the industry. Second, providing the highest quality, both in terms of our products as well as our customer service, and aftermarket support programs. And third, assuring that we have the right capacity in the right locations to optimize the cyclical and geographic swings in demand.

So, while we are making necessary reductions across the business, our objective is to achieve permanent cost efficiencies and operational improvements, not just temporary fixes.

In our view, these cyclical swings create windows of opportunity, strengthen our competitive position, and build market share. This includes allocating resources to areas where there are growth opportunities, while minimizing investment and reducing resources in areas where we anticipate a longer period of lower end-market demand. As I said, we take a long-term perspective. While our spending has been reduced, we continue to prudently invest in our specific R&D projects that will keep us at the forefront of our markets.

An example is our CraneSTAR asset management system. This advanced crane tracking system gives customers real-time information on their crane speeds [ph] anywhere in the world. It was a Gold award recipient at the recent Value Chain Annual Conference, which recognizes the best uses of machine to machine technology.

In the Foodservice segment, we are also investing in our exclusive approach to total kitchen solutions, known as Kitchenology. This effort recently garnered three kitchen innovation awards for Frymaster, Garland, and Lincoln at this year's National Restaurant Association trade show.

Furthermore, we continue in our long-term commitment to customer service. Our experience from past cycles showed us that we cannot compromise in areas such as product support and new product development. Our customers can be assured that the quality of our service will remain unmatched, even in difficult times.

As you know, our crane carrier aftermarket business is a key resource that truly differentiates Manitowoc from the competition. It is a comprehensive and technical resource that customers rely upon to maintain their equipment and trained their operators and mechanics. Other crane care services include lift planning solutions and crane rebuilding services.

So what is the outlook going forward? We expect the Foodservice industry to recover sooner than the crane industry. Of course, differentiated business cycles was a fundamental reason behind our strategy to expand our Foodservice operations. That strategy is proving to be successful, as the relative stability of Foodservice is helping to mitigate the impact of the more volatile Cranes cycle.

We have begun to see some sequential quarterly growth in revenue in the Foodservice segment. While some of that is due to normal seasonal impacts, it also appears that demand is stabilizing. In the crane business, demand continues to be weak as numerous infrastructure and energy projects have been delayed, or in some cases, canceled. We believe that it will be a number of quarters before a meaningful increase in crane demand occurs, although there are pockets of growth. Our operations in Asia, Africa, and Latin America posted growth during the quarter. In addition, although business in the Middle East is down year over year, it is down much lesser than other parts of the world.

Going forward, we will continue to make cost reductions to optimize our operations. Our intention is to build upon our industry-leading positions by becoming even stronger, more efficient and more innovative when the markets improve.

Before closing, I would like to reiterate that through all of this market turmoil, Manitowoc's ongoing operations will generate positive cash flow, consistent with our past trends. This will enable us to continue reducing debt, which Carl will discuss in greater detail.

As you know, we have also successfully negotiated an amendment to our credit agreement, including new financial covenant ratios, giving us added flexibility to manage through this current down cycle.

So now, let me turn the call over to Carl to discuss our second quarter financial results. Carl?

Carl Laurino

Thanks, Glen; and good morning, everyone.

For the second quarter, we reported net sales of $1 billion. This is a decline of $156 million or 13% from the second quarter of 2008, with six percentage points of this decline due to currency. On a sequential quarter basis, which includes Enodis in both periods, net sales have leveled off in the second quarter, with the increase in Foodservice exceeding the decline in Cranes.

Second-quarter operating earnings were $52 million, down from $175 million in the second quarter of 2008. Excluding amortization, restructuring charges and other special items, operating earnings were $84 million, up 18% from $71 million in the first quarter of this year.

As Glen discussed earlier, we have been aggressive in taking costs out of our business, with an annualized cost savings of approximately $365 million since the second half of 2008. Of the $240 million savings now expected in 2009, about $150 million will be realized in the second half of the year. The Cranes portion of those reductions is 65%; the Foodservice portion, which includes Enodis acquisition synergies, is 30%; and the remainder represents various corporate headquarters cost reductions and efficiencies.

On a per-share basis, we experienced a GAAP loss of $0.14 per diluted share in the second quarter, compared to net income of $1.01 per share in the second quarter of 2008. Excluding restructuring charges and other special items, earnings per diluted share totaled $0.19, a slight increase from $0.18 per share in the first quarter.

The special items, as shown in the reconciliation table of our press release, included a $23 million loss resulting from the sale of the Enodis Ice business, $14 million in restructuring expenses, and a $3 million loss from discontinued operations, all on an after-tax basis.

Moving onto our segment results, Cranes sales in the second quarter totaled $652 million, down 39% from $1.1 billion in the second quarter of 2008 and down 3% from $673 million in the first quarter of this year. Eight percentage points of the year-over-year decline in Cranes was due to currency.

Operating earnings in the second quarter were $50 million versus $167 million in 2008 and $57 million in the first quarter this year. This resulted in Cranes segment operating margins of 7.6% versus 15.7% last year and 8.4% in the first quarter.

Cranes backlog at the end of the second quarter was $901 million, down from $1.4 billion at the end of the first quarter. The decline was driven by order delivery, as net order flow, defined as orders net of cancellations, was modestly positive in the quarter.

In the Foodservice segment, sales in the second quarter totaled $383 million, up from $127 million in the second quarter of 2008, and up 8% from the first quarter of this year. On a pro forma basis, including Enodis in both periods, Foodservice revenues were down 19% year-over-year. Four percentage points of this decline was due to currency.

Second-quarter operating earnings in Foodservice were $46 million versus $23 million in the second quarter last year and $28 million in the first quarter of this year. This resulted in Foodservice segment operating margins of 12.1% versus 18% last year. The 12.1% operating margin is a significant increase from the 7.8% in the first quarter, showing the benefits of some of our integration activity, as well as some positive seasonal impact. On a pro forma basis, Foodservice operating earnings were down 12%, although the operating margin was 90 basis points higher than last year.

Year-to-date, we have realized nearly half of our targeted 2009 synergies of $29 million. This is well on our way to the $80 million-plus in savings and revenue synergies we expect to realize by 2011. Despite the slow start to the year, we expect to generate double-digit full-year operating margins in Foodservice.

Cash flow from operations totaled $15.3 million in the second quarter, and we reduced our debt by $161 million.

During the second quarter, we reduced total inventory by $148 million. Year-to-date, that reduction totaled $120 million in spite of a one-time, $72 million final settlement of a legacy Enodis legal matter and $17 million in one-time fees related to the amendment of our credit agreement. Given the company's expectations for continued second-half cash generation, we are reaffirming our full-year target for $450 million of debt reduction in 2009. This expectation is consistent with our normally strong second-half cash generation characteristics.

We were pleased with the outcome of the amended credit agreement. It should provide us with the ability to manage our business and comply with our new financial covenants, even with an expectation for difficult crane markets over the next several quarters. We negotiated the amended financial covenant package in the context of a cyclical downturn in the crane business, coupled with unprecedented reductions in Foodservice.

Our current projection for total leverage and interest coverage, which is based on cash interest as the denominator, give us comfort that we will maintain covenant compliance into the foreseeable future. We are managing our business to navigate this difficult crane market and to be ready to take full advantage of our market-leading position when it recovers. In the meantime, we will benefit from the relative stability of our Foodservice business, which should recover sooner than the crane end markets. This will (inaudible) our performance to the bottom of the crane cycle.

In closing, we believe that our diversification strategy is working, as we build a sustainable business for the long term.

Now, we will open the call for your questions. Karen?

Question-and-Answer Session

Operator

(Operator instructions) We will take our first question from Charlie Brady with BMO Capital Markets.

Charlie Brady -- BMO Capital Markets

Good morning, guys.

Glen Tellock

Hey, Charles.

Charlie Brady -- BMO Capital Markets

With respect to margins, first on Cranes, you know, you have talked previously about margins, this down cycle not getting to the level of the last cycle, when we were down to very low-single digits. Give your comments on sort of the unprecedented speed and how down things are going. Do you still -- is that payment still in effect, do you expect it to still be above that and you know, are we -- have we kind of bottomed out from a margin standpoint, if we are going to have more of these cost savings kicking in?

Carl Laurino

Hey, Charlie, I think obviously a difficult question to ask in the context of where we stand from a guidance standpoint, but I think there should be an ability to improve how we perform at the bottom of the costs bill. Obviously, the speed and magnitude of this downturn has made it difficult to adjust quickly -- as quickly as you could, if it was maybe a little less abrupt. But as we look at the -- kind of the levers that we can pull, the global manufacturing opportunities that we have, coupled with our reasonable expectations of where these markets take us, we still believe we can perform better than that low single-digit margin in Cranes than we did in the last trough.

Charlie Brady -- BMO Capital Markets

Has the velocity of the downturn in Cranes subsided at all in the past three months?

Glen Tellock

Charlie, this is Glen. I think we see a little bit of that. I mean, I think the first, when you go back to November, December of last year and on the first three or four months of this year, I think that is where the majority, you saw that speed of the downturn.

Now I think it is managing that, but to also answer your last question, I think when you look at it strategically, many of the investments that we made during the upturn, whether it be in Italy or Portugal or Slovakia or China, I mean many of those things were done with the anticipation that the crane markets are cyclical; and so the strategies that we have in place, it is just a matter of employing those -- whether it is moving products to different factories or bringing things from that were outsourced insourced, we have to do it faster. I mean, we knew we were going to do these things, we have plans for them, it is just a matter of when do you pull the trigger on those plans. So, comfortable that we're doing all those things, but yes, you have the volumes going down faster than the benefits that we have out there. So that is why we are a little bit comfortable on some of the things that you see in the back half of the year, but again, the volumes are the key, as you can imagine.

Charlie Brady -- BMO Capital Markets

Okay. One more and I will get back on the queue. On Foodservice margins, how much of that increase in Foodservice margin is due to seasonality?

Carl Laurino

You are talking about the sequential increase, Charlie?

Charlie Brady -- BMO Capital Markets

Yes, sorry.

Carl Laurino

I would say probably -- a little less than half of the overall increase will be just pure seasonality.

Charlie Brady -- BMO Capital Markets

Thanks.

Operator

Our next question comes from Chip Miller with J.P. Morgan.

Chip Miller -- J.P. Morgan

Hey, guys. It is Chip Miller for Ann Duignan at J.P. Morgan.

When thinking about cash flow in the back half of the year, you know, if I looked at what happened in the quarter, basically net get changed in line with the proceeds you got from the Scotsman sale. So I know seasonally the second half of the year tends to be better, but what really gives you confidence you can take out the $450 million and how do you think that rolls out between 3Q and 4Q?

Glen Tellock

Well I think -- you know, it really is answered in part by something what we talked about earlier, when you look at how abrupt some of the impact was from this downturn, the fact that it was driven by finance was (inaudible). So pretty significant order cancellations, which obviously puts pressure where you stand from an inventory standpoint. And all of that I think -- you know, probably exacerbates the normal seasonal pattern that we would typically see, but we certainly as we -- with the luxury of being able to rationalize the manufacturing, I think we have already seen some of those benefits that have helped us stay about even to your point from a net debt perspective. But there is further opportunities with the luxury of a little bit more time on rationalizing some of this inventory. As we look at it, in total, from overall working capital, we certainly would expect to be able to generate at least a couple of hundred million dollars in working capital reductions for the balance of the year.

Chip Miller -- J.P. Morgan

Okay, and so most of that will come out of inventory?

Glen Tellock

Correct.

Chip Miller -- J.P. Morgan

Okay. And if I look at where the crane backlog is right now, crane backlog is about a quarter-and-a-half of production right now. So, as you are thinking about production rates through the back half of the year, I mean, are we coming down significantly from where we were in the second quarter?

Glen Tellock

Yes, there is no doubt that -- we were working off the backlog from the first part of the year on inventories that -- projects that are still out there, but it is going to be certainly less than what it was in the first half.

Chip Miller -- J.P. Morgan

Okay, and just one more quick one, and then I will get back in line. What are you seeing in the larger crane markets, where demand had been holding up pretty well? Are you seeing any softness there as well?

Eric Etchart

Well, it is Eric, Charlie. Yes, we believe there is some sign of softening, but certainly not comparable to the magnitude of what is happening in the lower end of our products. Our demand is also -- there are some packets of positive demand coming from obviously China, which is very (inaudible), but also India right now after the election, you see a lot of things happening on infrastructures and power, and obviously, some broad results in Latin America. So overall, I mean the demand is still strong, but a little bit softening, considering what is happening in the US market.

Chip Miller -- J.P. Morgan

Okay, thanks a lot.

Operator

Our next question comes from Barclays Capital's Meredith Taylor.

Meredith Taylor -- Barclays Capital

Hi, good morning. Can you talk a little bit about the increase in the run rate for cost savings from the $270 million you were talking about last quarter to the $365 million that you are talking about now? Maybe if you could don’t fill that with the comments that you made around having the right capacity in the right location. Do some of the step-ups here include footprint reductions anywhere that have been planned since last quarter?

Glen Tellock

Good morning, Meredith. It is all the above that you mentioned. When you look at the changes, I think it is -- as we talked at the end of the first quarter, you know you have your expectations of some of the things that you are doing and you have to finish some of the actions that you have taken, before in certain parts of the world are reeking out additional actions. That is just the way; it has to go from a government regulation and things like that. So, what you have now in the second quarter, is that you do have a second round of -- in certain parts of the world, where we are taking additional actions to right-size the operations to where we believe the markets are going to go. And we are trying to get ahead of that, but as we said, the volumes certainly fall a lot faster than what we can take the actions and the costs out of the business.

Now, your other part of the question was, are we -- when we talk about putting the right locations to manufacture in other areas, there is some of that. And that is why I go back to -- there are strategies to move products out of certain locations, when the volumes went down and minimize the footprint of any one area and put it in the other areas where we have the additional capacity. So there is some of that going on and you have got to remember, back in 2002, 2003, we went through this before. We took a lot out at that point in time, so there wasn't a lot of excess capacity, even in a normal time, but here we can I think it is more at the footprint from a product standpoint, more than a factory standpoint, not that we couldn't do that but some of the factories just don't have the flexibility to manufacture a lot of different products, but we can certainly maximize those that can.

Meredith Taylor -- Barclays Capital

Just to clarify, I mean when you talk about the footprint in product standpoint, should we take that to mean that there are some products that you are just pulling back from at this point?

Glen Tellock

Well, I mean if the demand isn’t there, sure, we are going to look at what we can do from a -- I would say a rationalization -- whether it be in Foodservice or Cranes. I mean, we're constantly looking at what we call the captain dogs or you can call them whatever you want to do, but we are constantly looking at product lines that don't meet some of the criteria, whether it is taking away some of the various models and combining certain models, or just completely getting out of some things. But I think you always have to look at that. And this certainly forces your hand at any given time to find out just what is the level of volumes during the downturn.

Meredith Taylor -- Barclays Capital

That is helpful. And then just a quick follow-up. You know, can you give us what the cancellations were in the quarter?

Carl Laurino

I don't have that number right in front of me, Meredith, but obviously the imputed net order flow would be in the mid-150s, which would be net of the cancellation activity. I can tell you that really the cancellation activity is really nonexistent for any orders that we have taken this year. And anything that would have been canceled would have been things that were ordered in the 2008 timeframe.

Meredith Taylor -- Barclays Capital

Okay, that is great. Thanks so much.

Operator

(Operator instructions) Next, we will go to Henry Kirn with UBS.

Henry Kirn -- UBS

Hey, good morning guys.

Glen Tellock

Good morning.

Henry Kirn -- UBS

Hey, wondering if you could chat a little about price discipline in the market and what you are seeing from your competitors and the type of headwinds you are seeing out of the used market there.

Glen Tellock

Well, let me -- I will start and if I say something -- because I want to hit both Cranes and Foodservice on that. So, I think anytime you have these markets, you are always going to hear about the “strategic deals”. So I think there is some of that that happens out there anytime, Henry, and whether it is a good market or a bad market. But I -- from what I can tell, I mean there are -- generally, the pricing has been okay, I wouldn't -- you know, you don't hear about as much in certain respects, but I think there is always pockets of areas where when somebody has inventory, they want to move it. Yes, you are going to get that and I can certainly cite examples, I am not going to cite any specific areas on the call and call out anybody, I don't think that -- it doesn't do us any good to do that.

But I think for the most part, the prices have held, but again, you are going to see deals where things get a little goofy and you shake your head and it is what it is because of the market. And I think that is consistent both in Cranes and in Foodservice. I think when you have a competitive position and somebody wants to go into that and hit you between the eyes in that competitive area, sometimes the only thing they can do is with price; and now they have the inventory and that is before what people had with availability, now they have price and availability. So you have both of those factors. I don't know if Michael or Eric would want to add anything to that.

Mike Kachmer

Glen, from a Foodservice perspective, I think you are spot on. I mean, we will see situations where it could be a big rollout opportunity with a large chain, you know that may have some dynamics different than other general market opportunities. In the general market, we will have pockets in certain categories, where if capacity utilization is lower in that space, there will be more pressures. But on the whole, the organization is managing in a very disciplined, unified fashion right now.

Eric Etchart

Well, for the Cranes business, there is nothing new to what Glen has mentioned. You -- I think the first tier manufacturers keep the pricing at a very reasonable level. You would have some strategic deals in some countries once in a while, but overall, there is a lot of (inaudible) in pricing. I think – used price is probably more fragile at this point of time.

Glen Tellock

And then I would say the used prices have -- on the Cranes side, have softened a bit, but I would say they softened from some pretty high levels, where they probably were over-inflated a little bit, 12 to 18 months ago, which were probably abnormal for a peak. So to softness in that level, it is really, yes, they have come down and are tied to a more normal level.

Henry Kirn -- UBS

That is helpful. And with respect to a recovery in Foodservice, what indicators are you looking at that would tell you that the turnaround is around the corner?

Mike Kachmer

Well, we keep our eyes on the CapEx spending that is occurring at the restaurants. We keep focused on food traffic at restaurants, which tends to be a leading indicator. We talk to our customers and our channel partners frequently. It was stated earlier on in the presentation that we hope and expect that Foodservice will recover sooner than Cranes. We are still managing the business cautiously from a cost control standpoint, but we are starting to see some blips of additional CapEx spending. So CapEx, discussions with customers, and food traffic tend to be good leading indicators for us.

Henry Kirn -- UBS

Thanks a lot.

Operator

Next we will go to Nigel Coe with Deutsche Bank.

Nicole -- Deutsche Bank

Yes, this is actually Nicole [ph] asking questions on Nigel’s behalf. If you could go into a little bit more depth in China, are you guys actually seeing any kind of order of toleration that you can attribute to the stimulus? And then, are we actually seeing year-over-year growth in orders or is China just holding out better relative to your other markets?

Eric Etchart

Well, obviously the stimulus package in China had an immediate impact right after the Chinese New Year. As you should probably know, we produce tower cranes and mobile cranes in China; and we have seen our mobile cranes business, that goes more to the infrastructure business, actually picking up significantly. The tower crane business is also on the upsurge. However, in China, we are more carefully on tower cranes, we are growing but at a slower pace, because the recovery of obviously (inaudible) in China is always a challenge. It is being said there are a lot of other tenders from other large (inaudible), large GMK where we are seeing some benefits. So overall, as we move forward, we expect ourselves in China to continue to grow.

Glen Tellock

And I would say also to that, believe it or not, there are pockets of opportunity in the very minimal U.S. stimulus package for our Foodservice opportunities. Believe it or not, on the institutional, when you get to the schools, we are seeing good order activity as the schools are being asked for the hot lunch programs and their breakfast programs to upgrade some of the equipment. So it is kind of ironic that we may end up with a bigger stimulus for Foodservice in the United States than perhaps we will see on the crane side, just because it is not -- it just hasn't taken hold on the crane side right now.

Carl Laurino

Just a comment also from me on the Asia issue on the Cranes side, while we wouldn't say that we have seen year-over-year growth in Asia Pacific, we saw some pretty extraordinary sequential work there that I think had a lot to do with the stimulus.

Nicole -- Deutsche Bank

Okay, great. That makes sense. And then, going back to pricing, if we could dig in just a little bit more, can you talk about maybe possibly quantify the pricing on raw materials impact in the second quarter, both in Crane and Foodservice?

Glen Tellock

Sure. I think -- as we would look at it versus our pricing, it is certainly -- I think it is in line. I would say that in the Cranes side, the manufacturing process has certainly come off, but not as much as you might you expect as you would look at some of the broad categories of steel, the high tensile, I think has not come off to the same extent as some of those other categories.

On the Foodservice side, we tend to be a little bit more muted from an impact from commodity price movement, because some of the key consumptions that we have in Foodservice is in areas where we hedge, the categories like aluminum and copper. So we don't necessarily see real-time changes in the costs that are aligned with the market per se.

Nicole -- Deutsche Bank

Okay, but at the margin line you are seeing a positive impact from net pricing -- pricing net of raws.

Glen Tellock

Correct.

Nicole -- Deutsche Bank

Okay. And then one last one, if I may. What is a good number to use for run rate cash interest expense?

Carl Laurino

Well, (inaudible) so the amount in the quarter was $39 million and we will some -- because you look at the total year between the impact from interest expense, which was the amendment, was an increase that came pretty late in the quarter, coupled with our expectations for debt reduction. I think that is still probably a pretty reasonable run rate.

Nicole -- Deutsche Bank

Okay, great. Thanks.

Operator

Next we will go to Longbow research’s Paul Bodnar.

Paul Bodnar -- Longbow Research

Yes, hi, good morning. Just a follow-up on the I guess the used market both in Crane as well as in Foodservice and kind of some of the impacts that has had on new equipment sales –

Glen Tellock

Well, I don’t think it is any different than any other time in the cycle. I mean, whether the cycle is good, people bought the used because it was available and you had people that are trying to upgrade their fleets, maintain the average lives of their fleets and so on the Cranes side, I mean, I'm not sure I would say that it is taking away a lot of the new crane sales. Certainly, there is that opportunity as you pick and choose across the world on a global basis.

On the Foodservice side, the used equipment market is a market, but when it comes to -- you are going to see that market as -- not the smaller regional change or a (inaudible) pop on and struggled through this part. But then yes to find the right buyer for that equipment and it is not always going to just go to some of the rollouts of change. It is going to have an impact I think on your ones and two sales. But you have got to remember, it is going to impact it at the distributor level, where we go through that as opposed to a direct sale. So I think it is something that we always watch, but I haven't had particular conversations with anybody that says, hey, we are just getting beat up over the used market, because of the current situation in the market.

Paul Bodnar -- Longbow Research

Okay. And also, just in crane, I guess, talking about challenges in Europe versus North America you are facing in cost reduction efforts or if you (inaudible) and your Manitowoc brand separately, because they break down I guess as well.

Glen Tellock

Well, the challenge is simple cultural and certainly, you look at -- you look at the speed that you can changes, whether it be in Asia or the Americas and then the process that you go through, whether it is Western Europe or the mature markets of Europe. So that is just a -- you can do all the same things, it is just what is the timing or what is the cost.

And then at the same time when you look at the markets themselves, the mature markets of Europe, you look at Spain and Italy and Western Europe, that is the largest tower crane market in the world; and you can include China in there if you want to argue and that is on the lower end; but the markets that we serve, you put those in there and so it becomes a mix issue from whether its margins for us or whether it is top line and that all kind of things. You marry all those up and those are the forces that we are trying to deal with is the lowering volumes and then the speed that you can take some of the actions.

But, again, it is not something that is new to us. It is just something that we have to manage, and I would say if you -- when we compare some of the things that we are doing throughout the world and in the reductions that we are making, I give our management team a hell lot of credit for the way they have managed some of the processes in a very difficult market.

Paul Bodnar -- Longbow Research

Okay. And if I’m thinking in Europe, what kind of timing do you think it takes or to wind that or start winding that down versus North America when it’s compared?

Glen Tellock

Well, I mean for instance, and I’m not saying this is how our goals or anybody else’s, but I think if you talk to anybody that is in the construction equipment business that is going through the same process, it can take anywhere from 4 to 6 months to go through your retrenchment. I mean, you discuss it. You have to identify how many. You give numbers. You negotiate with the Works Council. You go back and forth. And so, it is a protracted process and that is just the way it has always been; versus in North America, if you want to make a change, you look at it, you identify who you think -- I mean, the numbers that you are going to have to do and you put the necessary service packages together, and it can be done in less than a month. So – I mean it is a difficult process but it is, again, it is not something we have not been through and in any of the way that manufacturers in the mature markets of Europe is going through the same thing.

Paul Bodnar -- Longbow Research

Okay.

Glen Tellock

There is -- recently, you have heard instances where employees have threatened to blow up product. They have taken people hostage. I mean, those are tactics you just have to deal with.

Eric Etchart

But I’m to say -- comment that we -- our employees, they process only and in France typically it takes 6 months but we are displaying what course they also understood, and we have not been taking that reaction and that others have been facing.

Paul Bodnar -- Longbow Research

So we’re not going to worry about Glen visiting and him being held hostage?

Eric Etchart

Hope not.

Paul Bodnar -- Longbow Researches

Thanks a lot.

Glen Tellock

Yes.

Operator

For our next question, we will go to Joel Tiss with Buckingham Research.

Joel Tiss -- Buckingham Research

Hey guys. How is it going?

Glen Tellock

Hey Joel.

Joel Tiss -- Buckingham Research

I just – I don’t know if you talked about the crane backlog that you expect to ship in the next 12 months or not.

Carl Laurino

It is essentially a current backlog, Joel.

Joel Tiss -- Buckingham Research

Okay. So you should be – and then, is there more working capital to take out in 2010 beyond what you expect to get in 2009?

Carl Laurino

Yes.

Joel Tiss -- Buckingham Research

Okay. Yes, that would seem to stay with past cycles.

Carl Laurino

Right.

Joel Tiss -- Buckingham Research

And then just a little color on the Foodservice business is the -- what you are seeing in the market, is that driven by your new product introductions or is there really some pent up demand in the market, and guys looking to upgrade their kitchens?

Mike Kachmer

Joel, it’s really a little bit of both. We will see lots of blips of opportunity surfacing through the general market, but we have also got a number of key initiatives that are driven through innovation focused on chain accounts, so we are seeing both.

Joel Tiss -- Buckingham Research

Okay.

Mike Kachmer

And consciously optimistic.

Joel Tiss -- Buckingham Research

And just last that is a pre – can you give us the charges on pre-tax basis? You gave us the net numbers, but it is hard to back into the tax rate.

Carl Laurino

Joel, the tax rate assumption would be 35% on those.

Joel Tiss -- Buckingham Research

Okay. Thank you.

Operator

Next we’ll go to Wall Street Access’ Charlie Rentschler.

Charlie Rentschler -- Wall Street Access

Hi. Carl, in connection with your reiteration of full-year debt reduction goal of $450 million, how much is there left to go, and can you give us a preliminary idea of what you think you can accomplish in 2010?

Carl Laurino

Well, I think in -- what is left to go would really be the balance of about $300 million roughly. So as far as -- you are asking about 2010, Charlie, was it? I could not quite --

Charlie Rentschler -- Wall Street Access

Yes. Well, $300 million left to go this year in the third and fourth quarters is what you are saying?

Carl Laurino

Right.

Charlie Rentschler -- Wall Street Access

And then, can you give us your thoughts about 2010? I realize it is preliminary.

Carl Laurino

Certainly is. Yes, we are not really giving guidance for 2009 at this point in time, but to the earlier question that Joel asked and with an expectation that we will continue to see some benefits of a little bit more resilient Foodservice market, and considering the activity that will go on there, and we certainly expect that we will be in a position to continue to focus and aggressively pay down debt.

Charlie Rentschler -- Wall Street Access

Okay. And for Mike, I guess. Where do we stand with the rollout of the smoothie machine this summer? Is that going to happen?

Mike Kachmer

Well, Charlie, let me answer it in an even broader sense. The goals and objectives and programs that we have laid out for the smoothie category, both the initial version that I believe you saw and our second product style are moving along positively, and the expectations that we laid out for the year we believe are on pace.

Charlie Rentschler -- Wall Street Access

Good.

Operator

For our next question, we will go to Robert McCarty with Robert W. Baird.

Robert McCarthy -- Robert W. Baird

Good morning, guys.

Glen Tellock

Hey Rob.

Robert McCarthy -- Robert W. Baird

I wonder if you could -- in regards to what are the numbers, $240 million and $365 million? Could you allocate both of those numbers between the two segments? Roughly.

Carl Laurino

We should probably have 65% in Cranes and 30% Foodservice and the balance in corporate.

Robert McCarthy -- Robert W. Baird

Okay. And I want to make sure that I understand exactly what this number is. These numbers are based on cost levels at last year’s level, is that what we are talking about?

Carl Laurino

Correct.

Robert McCarthy -- Robert W. Baird

Okay. And then, I don’t think anybody would have -- given the dramatic speed of the decline in the crane business that you guys have been challenged with. I don’t think would have been shock to hear you back off of your prior say forecast for trough, cyclical trough margin performance in that business. So I just want to test that a little bit. You have talked about order flow stabilizing around the levels it is at now, so if we assume a $200 million per quarter crane business, is it your expectation that -- I mean, if you are faced with that, is it your expectation you are going to be able to deliver at least a 4% or 5% operating margin in that environment?

Carl Laurino

No. I would say not, Charlie -- I mean, Rob. That $800 million level would obviously -- we have added capacity around the world -- now that -- under that scenario, the ability to continue to do a low-single digit, improve upon the low-single digit operating margin would not be there.

Glen Tellock

I think, Rob, you have a lot of things that would play into that. Let us factor, and I’m speaking with pretty good knowledge of where it was in 2002 and 2003, you are back to those levels; and what would happen at that, if you just take inflation, you are going to get a number that is going to eat into that. You take some of the investments we have made. You take -- even if you look at crane carrier and you have globalized this business -- I mean, you take the call centers you have in different places and you -- that would be very difficult to get to; and so, I think that is a different wild card.

Now if -- the other thing that plays into that is the mix of business. If you look at if it is a reduction of tower cranes and crawler cranes together, that’s a very different mix and as it’s the mobile hydraulics and some lower-end products. So I think that whole thing plays into it, and that’s why I think it would be a very difficult proposition that -- to say it’s going to be double what it was or something better than that.

Robert McCarthy -- Robert W. Baird

Yes. And so, recognizing that this is a very difficult-to-forecast industry, have you been working on contingency plans for just such an event?

Glen Tellock

Well, I think that comes into exactly -- the question earlier is, what change from your first quarter to your second quarter in the run rate of the cost that we are taking out, and that is the next set of questions. And even -- I think, even when things were going well, we have always had 25% and 50 % contingency cuts. What if this business all of a sudden stops? What you would do, you pull that out of the drawer and you have that.

Now, the question is, if it gets down to $1 billion business or it gets down -- to use your number, $800 million, that is this where you say, what are the next things you are going to do to protect the bottom line? And yes, we do work on those all the time.

Glen Tellock

And not only in cranes. We have same contingency plans that were focused on in the Foodservice business. What they have going right now is the immigration, so that’s where they have the opportunities to rationalize that business right now.

Robert McCarthy -- Robert W. Baird & Company

Yes. And as we -- I just wanted to ask one more question as relates to the price, a follow-up to that price versus cost question earlier. As you look in to the third quarter, because at this point you should have pretty good visibility based on production rate of what Cranes will look like, even if you don’t have a real good idea of Foodservice. Would it be your expectation that in the third quarter, price would also be a net positive, net of raw material cost changes?

Carl Laurino

Yes.

Robert McCarthy -- Robert W. Baird & Company

Yes? And probably by a diminishing amount relative to second quarter?

Carl Laurino

No. I would say it would be probably similar.

Robert McCarthy -- Robert W. Baird & Company

Probably similar? Okay, very helpful. Thank you.

Operator

Our next question comes from Michael Boam with Blue Bay Assets.

Michael Boam -- Blue Bay Assets

Hi. I want to say you already answered a lot of questions, but I just want to ask a couple of others that haven’t maybe been asked. Can you just tell me, how much of the term X is left to be paid and what is the payment date on that, if it hasn’t already paid in total? And have you taken out hedges with respect to the bank debt in terms of liable?

Glen Tellock

What is remaining on the term loan X which matures in April of 2010 is about a little over $30 million.

Michael Boam -- Blue Bay Assets

Okay.

Glen Tellock

And we do have LIBOR hedges in place.

Michael Boam -- Blue Bay Assets

Okay. And then, just to help me get a better feeling for how bad things got, sort of the last time around, your backlog, as you have already -- as it has already been said has come down dramatically. How does this compare to history? The deceleration in the second quarter seems -- well it seems it was accelerating rather than slowing down. On that order, I’m sure you in that quarter it looked to be about $154 million against a $172 million in the first quarter.

Glen Tellock

Well, I think if you go back to 2002 and 2003, which is the last downturn we had, the backlogs were significant less than where they are today. That was just as we brought the combination of the businesses together. So we didn’t have the globalization efforts that we went through in the last six or seven years, so the backlog was in fact lower back then than it is today.

Carl Laurino

And I’m not quite sure where the calculation came on the order, but the first quarter orders actually I think were -- the net orders were actually a little less than they were in the second quarter.

Michael Boam -- Blue Bay Assets

I was just thinking the movement on the backlog. And I’m looking at the revenue and basically the difference between the two, in fact.

Carl Laurino

I think that should come to something less than $154 million.

Michael Boam -- Blue Bay Assets

Okay, then I will take another look at that. Thank you very much.

Operator

In the interest of time, we will now take our last question from Ben Elias with Sterne Agee.

Ben Elias -- Sterne Agee

Thank you. Good morning, gentlemen.

Glen Tellock

Hello.

Ben Elias -- Sterne Agee

I have a question for Eric. Eric, I was wondering if you could comment on the services and short-cycle business on the Cranes side. I think historically, the Cranes Canada services has been anywhere from 15% to 20% of margin of revenues, and I was wondering if that was holding in relative terms or does that hold as a percentage, and also the margins going in to the back half of the year?

Eric Etchart

Well, Ben, obviously the aftermarket is definitely less than (inaudible) as you probably know and for (inaudible), and since we have grown Crane Care (inaudible), that’s really helping. Obviously, as you see, the whole goods are declining. The Crane Care importance obviously of our total sales will mathematically be included.

Carl Laurino

There is some erosion of the aftermarket that comes from the set-up side of that business that does get hurt in the typical downturn, but much of the parts and service business has some decent stability to it.

Eric Etchart

Yes, Ben. Where we see definitely some services being significantly down is in Europe, because as you know, we are very active in the erection of tower cranes or we are sending a lot of tower cranes attachments and that portion of the business of Crane Care is 50/50 down, but the rest of the normal part is down, but to low-digit.

Ben Elias -- Sterne Agee

Okay. So if I just go back to the previous question or comment of incoming orders of -- for simplicity sake, of about $200 million a quarter, are we to assume that is just $200 million in that backlog a quarter and maybe that is $800 million a year, but do we attack on another $400 million for short-cycle as well as services, or how are we suppose to sort of build that out going forward?

Glen Tellock

You know what? We do not really provide the specific product line information on the backlog, but just anecdotally, what you described and there certainly some things that are in Crane Care business that would be in-truck order activity, but I do not think it is to the magnitude that you described.

Ben Elias -- Sterne Agee

Okay. And one last follow-up, just on the pay down of debts, $300 million from working capital you have paid down, which you got from Scotsman. Are there any other assets that you could sell that’s possibly going to be a back stop if you do not get some of those inventory reductions, and how big is that portfolio?

Glen Tellock

You know what? I think what you have to look at, Ben, is -- And certainly we don’t talk about acquisitions and on a flip side where certainly I can’t talk about the investitures, but if you look at portions of our portfolio, we asked ourselves that all the time. What is the candidate for abandonment? And we look at those and -- but I can tell you that your comment was -- if we don’t get those other things, what do we have to do to get there? I don’t look at it as, if we don’t get those others, what will we do in addition to what we are going to have? And so that -- it’s not an effort, we are going to get the working capital reductions, we will go after those and there are great opportunities in working capital. Those are the over and above in any projections we have.

Ben Elias -- Sterne Agee

Thank you.

Operator

We do have time for one more question. We go now to Charlie Brady with BMO Capital Markets.

Charlie Brady -- BMO Capital Markets

Hey thanks. Just a quick follow-up on Foodservice and your comments on the stimulus impact to that. Is that likely to change in the seasonality particularly into Q4 for the Foodservice segment that you get maybe an unusual boost? If you don’t get the depth, you don’t know what you’re getting in the fourth quarter on food.

Glen Tellock

No. It would not have a significant impact one quarter to the next.

Charlie Brady -- BMO Capital Markets

Okay, thanks. That is all I had.

Operator

That does conclude our question-and-answer session for today. I would now like to turn the conference back over to Mr. Tellock for any additional or closing remarks.

Glen Tellock

Thanks, Karen. Before, we recognized that the past year has been difficult for our investors, as well as for our employees. However, it should be clear to all that we are taking responsive and decisive actions to adjust to the current economic reality, and we are prepared to take further actions as circumstances warrant. Thank you.

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