Columbus McKinnon Corp (CMCO) 2003 Q4 法說會逐字稿

Good morning and welcome to the Columbus McKinnon first quarter and fiscal 2003 investor conference call. All participants will be able to listen only until the question and answer session of the conference. This conference is being recorded. If you have any objections you may disconnect at this time. I'd like to introduce your conference leader for today, Mr. Tim Tevens, president and CEO of Mr. Tevens, you may begin.

Thank you, Rebecca. Good morning all and welcome to the Columbus McKinnon conference call. This morning you should have received our press release that we issued for our fourth quarter results as well as our FY results. Hopefully you have this material along with our corresponding financial statement. With me today here in Amherst is Bob Montgomery, our EVP and Chief Financial Officer, Karen Howard, our VP and comptroller, our VP of strategic integration, and Ned Librock, our VP of sales who is on the phone, not in Amherst but a remote location dialing into this conference this morning.

Just a brief update here. I want to remind you that the press release and the conference call may contain some forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. These statements contain known and unknown risks and other factors that could cause the actual results to vary. You should in fact read the periodic reports that CM files with the SEC to be sure you understand these risks.

Let me just give you a brief overview and I will then turn it over to Bob for a more detailed review of the financials. Our sales for the fourth quarter were higher than last quarter by about 10.5% and higher than the same quarter last year by 3.8%. Overall our bookings in this quarter for most of our businesses were better than last year and our evaluation of the market share data shows that we continue to lead the U.S. hoist and chain markets. Sales in the products segment for the fourth quarter were up 5.6% compared to the same quarter last year and, as you can follow on our financials, gross profit and operating income came up nicely as a result of these sales and cost reductions that we've been working on.

The capital goods portion of this segment does remain depressed as demand for capital goods items in the general marketplace has not returned to normal levels. I should tell you that, and Ned will speak to this in a little more detail that there are some signs of revival in this sector. European business continues to do well and produce good results with increased sales and margins. Industrial solutions segment sales continue to struggle as higher costs, capital equipment sales worldwide are very low. Sales in this segment were down 6% compared to the same quarter last year as you can also follow in our financials, GM and operating income follow that depressed sales to negative operating income. Univeyor the Danish [inaudible] conveyor and systems integrator businesses did have some performance [inaudible] in the past quarter. We are implementing new controls to make sure those problems do not occur in the future. As you will hear from Bob momentarily, we have reduced our debt by about $34 million this past FY which is clearly good news to all of us.

At this time I will ask Bob to lead us through the financials.

Okay. Thank you, Tim. Taking a look at some of the changes in this quarter versus a year earlier and in some cases in the third quarter which is I think constructive, we look at the product segment sales. On a net basis they were up this quarter versus the same quarter last year by 5.6%. They were actually up versus the third quarter about 11.3% which is a little tougher comparison because there are some seasonal things that affect us in the third quarter but still that's a reasonably good indicator that things may be beginning to tick up just a little bit in the products segment. Still for the year those sales for product were down about 4% year over year. So it went down a little early in the year and then it crept back up later in the year, third and fourth quarters.

For the solutions business, the sales were down quarter, this quarter to last quarter, same quarter last year about 6% and year over year about 13%. This is a segment of our business that is probably not as synergistic as we may have thought at one point. Overall, sales were up almost 4% this quarter versus same quarter last year and that's I think probably not an indicator of a great uptick yet but I think we can fairly safely say that sales levels at least at this point appear to have stabilized. Yale Europe is up some and part of that is due to a stronger Euro but part of it is due to better business. Capital products, part of our company, our business lags some and that's not at all unusual. Capital equipment typically lags with the economic cycle.

In terms of gross profit, the products segment had gross profit of almost 25% in this quarter, fourth quarter in '03 versus 23.9%, a little bit less, about a point less for the same quarter last year. That's due to a little bit better sales level but also due to an awful lot of work that's going on in operations across this company. For the year to year, the gross profit margin for products was 27% a year ago and 25.4% this year, reflecting the lower sales revenue early in the year which got ahead of the cost cutting efforts unfortunately.

Solutions suffered 15%, 15.7% gross profit over the same quarter last year versus 8.6% this year. For the year it was only 14.9% versus 13.2% this year, which isn't too bad a deterioration. Part of that is due to a change in focus in the Univeyor business that they are taking on bigger, more complex contracts and the profit margin in that area, temporarily at least, are a little lower than the other kinds of business that they are more used to. In terms of total, gross profit margins were exactly the same this year as last year, 22.6% all together and I think that's a good indicator that things are going well in terms of the cost reduction process.

Turning to selling expense, as a percent of sales this quarter came up a little bit, is 10.4% of sales versus 9.7% last year, but in the third quarter it was 11.2%. So it's down a little from the third quarter, up a little from the same quarter last year and it doesn't vary too much. Some of the annual and quarterly increase is certainly due to the foreign exchange translation rate with a stronger Euro. We are certainly focused on further reductions in this particular area as well as all areas for the company. Univeyor also has invested in some new markets particularly in the United States that have yet to bear much fruit and so that investment is included in the selling expense category. G&A went from 7.9% of sales last year to 7.1% this year, down a little bit as we work so hard to control all of the costs in this particular area. And it turned out to be 5.9% year over year, percent of sales.

There was a reclass, I guess I have to talk about the reclassification of about $900,000 in the quarter and $3.4 million for the year from G&A to cost of sales and selling expense. That doesn’t impact operating income, it just [inaudible] models a comparison year over year to year a little bit. Processing charges $2.9 million in the fourth quarter and $3.7 million for the year. Most of that is the Canadian chain business that is being phased out, restructured, a temporary effect I think five smaller ones that are part of those numbers. So the restructuring process most assuredly goes on, the write off amortization line includes in this year we are used to now having lower amortization numbers because after FAS 142 came out nobody amortizes goodwill. But in this particular quarter there is a $3.8 million number and that includes a write-off of goodwill in connection with the ongoing efforts to evaluate our goodwill and intangible assets in accordance with the new FAS 142 bullet. So we took a write-off of goodwill of $8 million when we adopted FAS 142, back at the beginning of the year and then we took another approximately $4 million write-off at the end of the year which shows up in the fourth quarter.

Interest and other income line, this is the first quarter that we've had, the first full quarter on a new debt structure that was put in place last November, late November. So interest rates that are a little higher than we've been used to. There are some other things in the other income area. We did receive those assets held for resale, about $2.5 million this year, this quarter, and that's in there. And also we had a loss on a sale of LICO Steel which was one our subsidiaries that came along with the ASI, the last of the ASI group of companies to go and that loss was $1.3m Those were recognized in this particular fourth quarter.

EBITDA for the fourth quarter '03 was about, this is after or not including restructuring charges, was about $8.5 million versus the same quarter last year, about $8 million. So progress is being made even though sometimes it's very hard to discern it from some of the crazy numbers but definitely progress is being made.

Cash flow from operations in the fourth quarter of '03 were $16.6 million versus $14.1 million last years same quarter and the debt pay down was a little over $20 million. That we feel is indicative of the main focus here, to reduce debt, bring in cash and reduce debt. A couple of items on the BS, the DSO receivables at March were 61.3, in December, 69.1. So lots of work has been, has gone into bringing the receivables and reduce the DSO investment. Inventory turns are up from the December number of 3.6 times to 4.1. And that reflects lower inventories in the United States and better control as we work so hard in that area.

Our total inventories are $87.5 million versus $89 last year, a reduction of $2.2. But some of the European inventories are up for specific project related purposes and actually the inventory in the U.S. is down quite considerably more than that.

I'll give you quickly the CAPEX and depreciation numbers. Depreciation in the fourth quarter was $2.4 million, this year $2.2 million, last year, CAPEX was $1.3 million in the fourth quarter this year, $800,000 in the same quarter last year. So very, very low levels for this company but sustainable. Depreciation for the year was 10.5, this year 11.5, 11.4 last year, CAPEX this year for the year was $5 million and $4.8 million last year.

With that I will turn it over to Ned.

Thanks, Bob, and good morning to everybody. I am going to be talking a little bit about our industrial distribution channels as well as some trends and observations in the marketplace. Let's start by looking at our distribution channels in the fourth quarter. Our general distribution channels which consist of our industrial distribution, our rigging chops and our crane builders were up over last year. They were 1% higher than the fourth quarter of last year. Getting into some of the details our industrial distributors were even which I see as a good sign. These are the distributors that sell a wide variety of MROP products and are pretty indicative or a good barometer of our overall industrial business.

Our rigging chops which primarily manufactured in [inaudible] for lifting and industrial applications were up 9% and our crane builders were 2% down from last year. And while you may hear a little bit of optimism in my voice at 2% down, first quarter of this FY our crane builders were off 28%. So even in a tough capital spending market the crane builders seem to be doing pretty good comparatively.

Our specialty distributors were up 5% over last year. These consist of our catalog houses, material handling specialists and our entertainment division. Our catalog houses were down 3%, again much like our industrial distributors are a pretty good barometer of the general MROP market. Again, even though they were down I compare this channel to 11 months ago or nine months ago and they were down 18%. So, again, we see this channel rebounding slowly but nicely. Our entertainment business as I've reported in previous calls bounces a little bit as you know and we had a good quarter this quarter.

We were up 59% over last year. I recognize that last year was a particularly tough quarter for the entertainment industry. Other channels are interest our OEM and government business were up nicely, just under 50% compared to last year but on some relatively small dollars. We have some good initiatives going on with domestic OEMs to produce private parts for them as well as we saw a small uptick in business due to the Iraq conflict but nothing of great significance. Our parts business was up 8%. We look at this [inaudible] given that the units in the field are starting to be repaired. They are being used and hopefully this will lead to eventually more replacement with new units. So overall our domestic product channels were up 1% over last year and our international channels for the product segment were up 13% over last year which is encouraging. And Tim touched a little bit on that earlier and specifically North America, our Canadian market is doing as well as well as we've got some very strong sales initiatives going on in Mexico, the Caribbean and Latin America.

Before I go on to trends and observation just a note regarding the distribution channels over the last four quarters of our FY '03, what is interesting for both our general and specialty distributor channels is that every quarter they are getting better on a comparative basis compared to the previous years quarter. And, again, I am not sitting here saying we are in the midst of a strong industrial recovery but we are seeing with our product line and the mix of our distribution business getting better every quarter and I am encouraged by that fact.

Now just a couple of observations and trends that I'd like to report to the group on. Over the last month I've traveled to a number of major industrial distributor conventions as well as sitting on both the supplier advisory board and a distributor advisory board and I've come to six conclusions that seem to be pretty indicative through all of these organizations. The first is that inventory in the field is and remains at an all time low. Inventory management seems to be a key factor for all vendors as well as for all distributors. It doesn't mean business is going away. It means that inventories are at an all time low. And companies are looking to companies like CM to have excellent on time delivery and I can state that our largest customers are receiving 99 and 100% on time delivery measured by their requested date, and I was informed yesterday that overall our corporate average is at an all time high for on time performance which should differentiate us from the competition as business continues to increase slowly.

Price pressures continue, not only price pressures but margin pressures for all of our distributors. We continue to see a number of competitors from Europe and Asia but we are very comfortable that we are meeting these price pressures because we are flexing our manufacturing capabilities in both Mexico and China for chain and hoist products that gives us a competitive advantage. Which leads me to the third point that as the dollar continues to weaken we should be able to strengthen our position, flexing both our international and domestic manufacturing facilities to maintain and hopefully gain more market share, not only here in the United States and North America but worldwide.

Tim touched on another trend, capital spending continues to be very, very tight. We see this more with the, in businesses such as cranes, wire rope hoists, electric chain hoists, basically products that cost over $1,000. But we are seeing with the less capital intensive products such as our lever hoists chain hoists forgings we are doing much better and in many cases gaining market share on the less capital intense projects and products that are available. I mentioned earlier that parts and service continues to increase. We are seeing this in all of our businesses, repair works seems to be up at most distribution levels. Service work continues to be up, safety seminars and training seem to be up. So this is again an indicator that there seems to be a grounds swell that things are starting to happen albeit on the slow side. And last but not least as I travel to our crane builds and our rigging shops it seems that quotations are very, very active. I've been to a number of crane builder that is have file drawers filled of active open quotations and these are capital intensive projects and the money is not being cut at this time for a large number of orders on a very, very regular basis.

Okay. Moving on to just a couple of events that I think everybody should know about it. Columbus McKinnon in the fourth quarter was awarded a very significant status with an organization called Affiliated Distributors. This is an organization of 100 prime Who's Who of industrial distributors in North America and we were awarded key supplier status for material handling for chain, hoist and forge I didn't know products. This is a great opportunity for us to consolidate and convert a number of competitive contracts to CM through these distributorships. We are very proud of this distinction.

In other areas that we continue to introduce new products, we have a number of new Chinese lever tool hoist and chain hoist that are coming out as well as new air hoist equipment coming out of our Virginia facility which is being sold by all of our divisions. We also have introduced recently a number of new forged products and we continue to keep the leading position in the forge industry in North America. Last on the event lift is that we have now up and running is our three major hoist divisions, a telesales program where, which complements all of our field sales activity, the fellow sales folks have designated distributor lists and they contact all of our smaller distributors so at the end of the month all of our distributors on a regular basis are either being contacted by phone or in person by our field sales force.

Point of interest going forward, not pertaining necessarily to the fourth quarter but we were successful in implementing a price increase that went into effect last week. This was a select price increase on hoist, chain and forgings for our industrial products divisions, Coffing, Yale, CM and [Livtech] have met with very little price resistance. It was select and on average it would range between one and 4% depending on the product categories. We continue to monitor and control our selling expense in the fields. It is crucial at this time period and we are investing our dollars wisely. We have aggressive sales and marketing programs in place and we have a continued focus on promoting our brands identity at the end user level. We have a record number of end user training seminars this year and planned as well as distributor seminars.

So in conclusion, we see the markets are still very competitive. It's very tough. I am not going to sugar coat anything. We are in a battle but we are gaining market share. We have preferred suppliers to most distributors and our status remains strong. Our distributors, it's kind of interesting, remain optimistic in a very tough time period. And I guess most of them have summed up to me they are having more better weeks than bad weeks but it is not a pattern where they are seeing one, two, three months in a row that are good but they are seeing more good times than bad times as business continues to get a little bit better. I honestly believe that we are very, very well-positioned not only with product mix but with the distributor mix to capitalize on this recovery that is taking sometime but seems to be pointed in the right direction.

Tim with that I will turn the program back to you.

Thanks, Ned, great update. Just I will give you a brief operations review and update and we can open it up to questions. We accelerated the pace of improvement focused to generate cash and repay debt as quickly as possible this past quarter and you probably are seeing the results of that effort. Still rationalizations continue as Bob reported the past quarter with near completion with the CM limited and [inaudible]. We do expect annual pretax savings of about $2.6 million our implementation costs are about $1.6 million. As previously announced we will also be closing the manufacturing portion of the Abell Howe crane business in Chicago and move that to other crane building facilities we have in middle Illinois and Texas.

The project is well under way, scheduled for completion in this quarter of '04. We have estimate the pretax cost savings to be about $.7 million with an implementation cost of about $1.1 million, which is about half a million as we reported in the restructuring charge in the fourth quarter. Inventory, Bob did touch on this, it continues to be reduced he is specialty until facilities that are implementing lean manufacturing. You heard us talk about that. Before cooperate wide inventories are down only 2.2 but under further investigation when you take out the currency translation from the Euro and the large increase in Univeyor inventory to support large projects inventories from the company, the remaining portions of the company are down $10 million or almost 14% of inventory and really this is good news and evidence that our Lean Manufacturing program is working and is continuing to work as it had in prior years. That process, that Lean Manufacturing process is the driving force for improvement in our facilities. We've completed over 200 lean rapid improvements events in 15 facilities this past FY. Additionally, we have aggressively pursued a complete review of our operations. This review has resulted in some significant and additional cost reductions that we will see the results of in fiscal '04. To accomplish these reductions where he experience some additional restructuring charges in the first and second quarters of '04. This review is not complete. It continues, by the way, just like Lean Manufacturing is a continuing improvement, this review also continues and we will search for ways to generate cash and repay debt over and above what we have already done.

We are considering all options to reduce debt including divestiture of certain less synergistic businesses that we currently own. At this time we are not ready yet to discuss those potential divestitures in detail but I want to make sure though there was a process going on with more to come in the future. As a reminder our strategy is to lesser our superior design and engineering know how to continues our dominance in the U.S. market as we expand our global presence. Our market share growth is built upon new product designs specifically for various market needs incorporating our high quality standards and service approach.

And at this time, Rebecca, let's open it up to questions, if you would.

Thank you. At this time we are ready to begin the question and answer session. If you would like to ask a question you may press star one. You will be announced prior to asking your question. To withdraw your question you may press star two. Once again, to ask a question please press star one. Our first question comes from Mr. Tom Klanka with Credit Suisse First Boston.

Good morning.

Good morning, Tom.

Back on the third quarter call, I think you guys were a little bit more optimistic about the outlook going forward and pointed towards a better fourth quarter. It looks like products did a little bit better, solutions did a little bit worse. What turned out differently than you thought? And can you also talk about what's the game plan for solutions given the operating losses there?

Let me take a shot at that, Tom, and I can certainly look around the room here and sea if anybody would like to add anything. I think that when we go back to the third quarter call discussions we had, we did expect to see a more marketed improvement. I think we saw the bulk of that in the product segment. A lot of that hard work came to fruition. There has been some, although Ned reported on the markets the sales are getting a little bit better in the quarter they actually did and they increased slightly. But I would say maybe toward the tail end of March and into April they tailed off a little bit from a bookings standpoint which had a bit of a negative effect on the quarter. The solutions business, that's basically where we had our problems and I mentioned in my brief report that we had some issues at Univeyor, some projects that they are now wrapping up, some costs that they had identified and the percent complete method of accounting that they employ, they estimated that they were a little further ahead than they actually were and that actually surprised us at the back end of the fourth quarter. And that had the biggest negative impact in that quarter. This is a capital equipment section of our business and it continues to suffer in a lot of ways, lower volume, lower quotes, lower activity just generally in the marketplace, number one, I think, and the second thing we are seeing is the quotes that are out there and the business activity that is present in the marketplace is extremely competitive from a cost, a selling price standpoint. So we have to get into the lower bracket of margin if you will to within some of these bids.

Going forward, what's our plan? I think that the product segment will continue to improve as many of the integration strategies like facility rationalization, like Lean Manufacturing begin to plug in. So those margins I would expect assuming that volumes remain constant or hopefully continue their slight upward trends I would expect that those margins will continues to move upward, and I am very cautious, when I say that, I am cautiously optimistic in fact that that's going to continue

I think in your comments you said that that business is tending towards larger contracts, slightly less profitable contracts and I think you said your inventory for the company as a whole declined because there were more inventories being directed there. Does that whole strategy make sense, that capital dollars are being directed towards the operations that are probably somewhat riskier and lower margin?

That's an excellent point, Tom, and that is one that we are rethinking entirely as we speak, that's right. We have invested capital in the form of inventory in that business. Their strategy to grow quite honestly was to enlarge their service capability and move into this integrated solutions business as opposed to just making conveyors, if you will, as a supplier to an integrated supplier. And that is under question right now and under review. I would, in addition to that, I really don't want to spend a lot of time talking about it nor will I answer any specific questions on it relative to potential divestitures but clearly it is under review right now.

Quick housekeeping, interest expense for the quarter you have it lumped into other expense, if you can separate out what's in there?

Okay. $8.6 million in this quarter and $6.4 last year.

That's cash interest expense?

Not entirely.

Of that about 650 is non-cash.

Tom Klanka That's a pick on new notes.

I think the pick is cash but it's deferred. About 650 of it is amortization for financing costs, on the [inaudible], on the new note would be about 220.

Okay. And then the loss on the asset sale, that also ran through here?

Yes, on the LICO deal, that was about 1.3 million the income from the [inaudible] development, that was more than that, that was about 2.5.

What is that number, can you refresh my memory?

What, Spreckles?

Yes.

It was some land out in California that we inherited when we bought Yale. It's been underdevelopment, we've tried to divest ourselves of that since we bought Yale. It's going well. It is actually in the final stages of that development right now. We are not doing it, someone else is doing it. But we would expect to have that wound up sometime this year which is good news. But that's the asset held for sales.

Thank you.

Thank you, Tom.

Our next question comes from Joseph Vonmeister with Jeffries.

Hi Joseph.

It's actually Joseph Vonmeister. What was the availability on your revolver at the end of the quarter?

About 30 million.

And the amendments that were disclosed in the press release, what covenant was that that you expected to be triggered?

We have a belated twelve-month EBITDA number that is covered each month.

And the covenant required EBITDA of what in the first quarter of '03?

I think I have it here somewhere.

Yeah, 42 something.

The issue is our April, April timing, and the covenant requirement was 42,000,620.

And it's measured on a monthly basis, on an LTM basis and you didn't think you were going to be able to make that April number.

That's correct as a result of the late problems that arose with the Univeyor business.

How has that been relaxed?

We have an agreement in principal with the lenders who reduced the net amount requirement, I think it's down to about 40 million.

So the minimum required is being reduced to 40 million?

Yes.

Is that going to be from March through November of 2003 which is the way it was written previously?

Hopefully it will be for the entire FY.

For the entire year? I guess you are going to have a press release or something when you get that done?

Yes.

What is, what marketable securities do you carry in the long term portion of your BS?

We have a captive insurance subsidiary that provides the first layer of product liability insurance to the corporation, and that's only to this corporation, and it is fully funded and that's the funds. So it's, it's a portfolio of marketable securities that, that insurance covers.

So that would be in a nonguarantor subsidiary? Is that like a [inaudible] corporation or something like that?

That's correct.

And there was an absolutely humongous increase in other current liabilities particularly in the accrued liabilities section. I'm wondering whether you could tell us what was in there, it looks like it was over $20 million increase in accrued liabilities.

The single largest increase in that line is relating to go our pension and minimum pension liability requirement under the FAS B. calculation as of year end. It's the single largest item.

That's going to require you to make a cash payment of how much this year?

Our cash payment for fiscal '04 are about $4 million.

Why is that being carried in the current section of the BS? It's a $20 million increase. What was the size of the pension liability? Are you there?

I am showing, I am not sure what you are referring to as a $20 million increase. Accrued liabilities, I show about a $5 million increase and that, of that, about $10 million related to pension.

Our next question comes from Alexi Capgore with bear turns.

Hi, thank you, a couple quick questions if I may. I just want to confirm. I think earlier you mentioned what the restructuring charges going forward would be and what the benefits would be, I think, and you were talking about something like 2.6 plus 0.7 for benefit of 2.1. I was just wondering, can you just confirm that those are the numbers and in fact if you could just tell us what is the applicable for 2004 in terms of restructuring, how does Lean Manufacturing, how do those initiatives tie into that restructuring and how should we look at the cost improvements that you are looking at in terms of magnitude keeping in mind that you haven't finalized those plans and if I could follow up that would be great?

Alexi, the numbers that I quoted was for last FY, '03, I did not mention any numbers going forward. That's currently being calculated so I don't have that for you at this time.

How does Lean Manufacturing tie into that?

Well, as far as restructuring charges are concerned, very little. Lean Manufacturing typically is the process we go through to study the various processes, the manufacture, design or administrative processes to make our products. Looking for productivity gain on the shop floor, looking for inventory reductions bringing up square footage and typically our history of doing this for over two years now is no restructuring charges associates with that restructuring charges that I'm referring to typically are termination or severances or most of that by far and away the large bulk of them are facility rationalizations where we combine facilities together.

In terms of the actual restructuring I know you are trying to finalize them right now. Any sense of magnitude or when you will be able to communicate what those charges will be like or[inaudible] at this stage?

They are not going to be as meaningful as the facility rationalization once that we've been reporting historically. I think they would be much smaller in the first quarter, second quarter.

In terms of top line comparisons it was nice to see the year over year posted comparisons. Is there any senses you can give us as to weather these comparisons will look favorable going forward assuming the market has stabilized over the next couple of quarters?

Our view is at this point and, again, you heard a very optimistic Ned talk a little while ago and he can comment on this but our view is that we are very cautious with the market today. We are not seeing a continued trend line going up. In fact as I mentioned earlier our bookings took a little dip in the March month and continued through April. But I think that our experience now is that the marketplace demand is really coming directly from the end user to the various distribution channels right to us. We are feeling that firsthand, and this is really a maintenance level kind of environment that we are in. There's very little capital expenses. I get worried when I look at the U.S. capital utilization chart and I see it fall off this past month to the lowest month in 20 years. And that is mind boggling to me but industrial America is still reeling. So I am very cautious. And we are planning for not a very large or quick trend upward at this point in time from a cost and budgeting standpoint we are really being very, very cautious. So I would say we are hopeful that it's going to be flat.

Thank you. I mean, in terms of working capital obviously provide agonize source of cash inflow this quarter and I think accounts payable was 6.1 million source. How do you expect that to trend going forward? Is that something which you can continue to manage aggressively or is that literally a one quarter event and also maybe Bob if you can give us a sense of what the impact from the Euro appreciation year over year would have been in terms of the top line benefit?

Yeah, you want to look that up? Euro? Year over year comparison for the Euro, the working capital piece, I think that payables had to remain stable throughout the year. I don't see them being stretched much further at this point in time. But I would say that one element of working capital, there's actually two elements of working capital I think we have an opportunity with is the continuation of the inventory reduction which our Lean Manufacturing is certainly driving the benefits there, especially in the U.S. I would say that that will continue, I would expect to see a, let's say another increase going forward of around the same magnitude of about $10 million in the U.S. facilities or so.

The thing that we can't control is the swing in the U.S. dollar with the currency which affects us over seas. And I would expect that Univeyor would indeed ship those projects and that inventory will come down and we will see that as cash. So I would expect that we would have another meaningful reduction in inventory for fiscal '04. The other one on the working capital side are receivables. I mean our receivables are doing fairly well. We are probably the best positioned that we've been in a long time. 61 DSO is a good number for us I would say we had a little bit of opportunities for us to go after receivables and try to do a little bit better job in driving some receivables into cash for fiscal '04. We are not planning anything huge here but I just want to let you know that's what we are working on.

And the Euro effects year over year….

About 4.6 million.

Okay. Great. Just one last question if I may, gross margins, I mean on the product side they were down sequentially up year over year and then obviously you have the poor performance in the solutions business. How do we look at this going forward? Are we going to see year over year improvements on the product side, I'm sorry, on the product side or is it pretty much already harvested and really on the solutions side which really is the issue right now? How can we look at that going forward?

I think that we would expect that the product segment to continue to have some improvement. The work that we are doing and have done in the past FY should bear some fruit in fiscal '04. So that should continue to have and by the way this is assuming that sales remain flat as well. If we do have any pick up in sales it will be much, we would expect to see a much larger improvement in GM. But I would the product segment you should see some slight improvement in the GM. The solutions business is going to remain a problem for us, the economics are not in favor today and I think we have to as Tom asked earlier, think about some strategies going forward for certain segments of that business, the Univeyor being the one that I am thinking of when I say that. So I am going to sense that that business will continue to be problematic for awhile.

I mean as a corollary of that is there any market you can say there is for these type of integrated large custom made products systems out there or anything you can shed on that front?

No, not at this time I think it would be premature to speak about that.

Well, thank you very much.

Next question comes from Sarah Thompson with Lehman Brothers.

Hi, good morning. I think I may have missed this in your comments or else you haven't talked about it but it looks likes your top line is hanging in on products, pricing is okay, cost savings have kind of kicked into help the gross profit margin but I'm not sure what's going on in SG&A. Is there something that's one time in the fourth quarter that bumped that number up or is that what we are looking at going forward?

There's some unusually items in SG&A in the fourth quarter, Sarah. First of all our fourth quarter it's not unusual for us to have the highest expenses in the fourth quarter. From the selling side, that's the time when we have more cost related to shows and commissions from sales. We also have some translation effect in there relative to the Euro. About 200 on each the selling and the G&A side. More significantly on the G&A side in the fourth quarter there are some unusual items, one about what relating to an inter-company exchange, currency exchange loss, recurring or non-recurring situation. We had done a joint venture on our books that we decide to do write off at this time. And that's in there, non-recurring.

How much was that?

It was about a half million.

Okay.

And also we had incurred some higher professional fees during this part of the year. Those were the unusual things in the fourth quarter that [inaudible] comparable to the prior quarter.

If you added those up what would that number equal?

I didn't isolate, I didn't pull out the effects, if I were to pull out the joint venture and the inter-company exchange loss and the professional fees and the translation those total about $2.2 million.

Okay. And so those are numbers so if we were to assume everything else phased out which I realize doesn't work because this is usually your strongest quarter but for June we would be looking for a number of closer to 10 million of EBITDA or 11 million of EBITDA?

If you were to look at it that simply, yes, given that the EBITDA is for this quarter.

Okay. And then if you can just, people have been trying to get at this but just give us a little bit of help on your cash sources and uses for this year because the numbers I'm looking at are kind of barely getting to you break even on a cash flow basis. I'm assuming cash interest expense is going to be somewhere around 30, 31 million, CAPEX was around 5 million, pension is around 4 million. Do you have any more restructuring cash payouts?

Are you referring to the future, Sarah?

Yeah, or charges you've already taken where the cash hasn't been paid out yet?

I guess I don't quite follow what you're asking.

Do you have any reserves where cash needs to be paid out this year?

Any accruals?

What the accruals are? It's part of normal on going business.

Do you have any relating to restructuring charges you took last year?

We took in fiscal '03 at the end of fiscal '03 on our we have restructuring charges of 2.3 million, BS.

So those would be need to be paid out?

Those would need to be paid out in fiscal '04.

Are there any other cash uses that I am missing?

I'm not sure what you are getting at Sarah.

I know you guys haven't given any EBITDA guidance but gave a minimal EBITDA of 40 million. I am just trying to figure out where you are generating the cash from to cover all the cash outflows you have? And one of the questions is what are all the cash outflows. So I have restructuring cash payments, pension, interest expense, CAPEX. I'm wondering if there is anything else you need to pay cash out for this year.

If you are looking for specifics, nothing unusual or out of the ordinary. And the pension payment also is relatively norm, a little higher than it has been but we made a significant payment you may recall, in the third quarter of this year under the pension calculations to catch up a little bit from our funding requirements. But with respect to going forward there isn't anything else unusual there.

Just how much is your pension expense? How much of it will be in the P&L next year?

They are looking for it. We'll get that.

That's fine.

That was actually my last question so if you just want to give it back to me, that's fine.

Our P&L expense in fiscal '04 we have budgeted 6.8 million.

So your cash payments are actually less than your expense?

Yes.

Okay. Great. That's helpful. That's all I had. Thank you.

Next question comes from Julie Eggert with the Bank of New York.

Hi, my question was the LICO Steel business that you sold in the fourth quarter, could you give me the annual sales and EBITDA numbers for that?

Sure. The fiscal '03 sales for that business were 7.8 million they were about break even at the EBITDA.

Just to confirm, you sold that business for $17 million?

We wish.

No, we sold that business for $1.2m.

$1.2m. So the sale proceeds on the cash flow statement, how does that breakdown?

Most of that was, about a year ago last May we sold ASI business for about 16 million then the rest of that remaining 1.2 was the LICO Steel business sold as of March 31.

Thank you.

Next question comes from Mark Tyler with Priority Capital Management.

Yes, could you just remind us, do you have any additional planned asset sales coming up in the next couple of quarters?

Planned asset sales? We have buildings and such on the market for sale relative to facilities that we have closed or are in the process of closing. Those are in process.

Could you give a rough estimate of what you might expect to receive for those?

I guess from a timing standpoint those take some time but I don't have the total number right in front of me at this time but we aren’t counting on any specific thing, any specific time other than one building that we currently have under contract.

I take it that's probably not a significant amount of money you would expect from that?

That would be around 3 million.

Okay.

And then you heard Bob talk about the Spreckles property as well that we inherited from [inaudible] and we expect around two from that, Bob?

Around three.

Three, and that as well. Then we have a host of other properties that are currently on the market but you need to know that they are on the market. We don't have any signed agreements with them and we are certainly trying to sell them but we have really no clear valuations or timing of those and those relate to the facility rationalizations and the closing we've done over the last year or so.

Okay. Second question is, it sounds like for several of your segments that orders and shipments both are maybe rebounding just a little bit. Would you characterize this as your customers feeling a little bit better about their own business or just out of pure necessity that they are having to make orders?

I think the latter of that would be the case. My sense is that Ned reported on this a little bit earlier, people are not necessarily feeling good today but they are looking for signs that they will be good. I think that the demand that we are seeing today is coming direct from the end user marketplace that must by our products to keep operating to the degree that they are operating at today and these are not what you would consider to be stocking orders that our distribution channels would be buying and putting on the shelf in anticipation of a turn around.

Last question is, assuming we do get back to sort of a normalized business conditions at some point would you expect there to be an inventory build in the channel again or has there been a shift in the way your customers do business and with regard to just in time inventory?

That's an excellent question a very thoughtful one and it's one that we talk about a lot. I think that there will be a mix. The sense that I get from talking to our guys in the field and our customers, partners, is that some rely on inventory in the local locations to service a market and we would expect them to be stocking up at as they normally would. But there is a segment of these channels out here that is recognizing the fact that we as a company can deliver much more quickly a product to them so we can respond more quick to the their demands and therefore I would expect that some of this will not be going into their inventory but they will be ordering as need from their end user markets. So I think we are going to see a different kind of an operating environment going forward.

Okay. Great. Thanks for your thoughts.

Thank you.

Next question comes from John Walhausen with Paradigm Capital Management.

Yes, good morning. It's gratifying to see a little bit of life in the top line products. My question was on Univeyor and the solutions, can you give us some understanding of what the full size of these long term contracts are that they have and when they would expect to be wrapped up and whether they are in the process of engaging in contracts or whether that was an experiment?

Well, we would like to engage in new contracts but the market doesn't seem to be wants to go give out any new contracts at this time. And it's not because of them, it's the economy. They sell predominantly to the European [inaudible] and that seems to be from a capital standpoint slowing as we see here in the States earlier. But I would say that the strategies they embarked on two years ago to become more of an integrator, John, and they still do manufacture our roller conveyor systems and sell to others but they also sell to themselves in this integration process, that's still a very nice business and that's fairly profitable for them at least in the five years that we've owned them.

This integration strategy that they embarked on really did grow to the top line and became more of a tier one supplier has worked. I would say that the last maybe six months it's fallen on to some problems and issues. Most of those projects that they have had issues with where they have either understated profits, excuse me, [inaudible] which has given us this surprise the fourth quarter are at the end of their life, are toward the back end of it. Most of them are in the wrap up phases, as a matter of fact. There is one project that's probably two-thirds done. But the rest of them are pretty much behind us. And as we talked about earlier, this is the strategy that we are going to take a step back from and revisit it. As a matter of fact this month with them to better understand, or next month, to better understand exactly what it's going to do to us long term. It's something that will be under review and we kicked around I would say fairly hard.

Do I understand that you expect the significant integration contracts to be completed this quarter or the next quarter?

Yes.

Okay.

That would be true, yes.

Okay. That's very helpful, thanks.

Once again, to ask a question please press star one. Our next question comes from Brad Rosenberg with Bear Stearns.

Just out of curiosity what is the cost of the covenant amendment?

We don't know that one just yet.

How about heading into the new year, do you have any new product introductions that you can speak of.

I think there's a couple and I would like to turn it over to the expert, maybe have Ned talk about a couple of those. Good question.

Sure, I don't have all the information in front of me, Brad. With track that very closely. We are entering into an area called air hoists that we have had about 20% market share on. We are introducing a new one through our largest hoist division. We have three new products that are within 12 months old that we are introducing or continuing to introduce from our Chinese hoist facility. We are introducing a number of new attachments out of our forged division. Any one product that is not hugely significant but the point is we are one of the few people in the material handling business that is constantly infusing new products that are either brand new or expanded products. For instance, a year and a half ago we introduced a new wire rope hoist that gave us approximately five percentage points new market share in the United States. So this is a key target for us on a regular basis. If you want more details, give me a call and I can get into the specifics. I would love to share it with you.

Good, thanks.

Next question Joseph Vonmeister with Jeffries.

Hi, guys.

Hi, Joe.

There is working capital requirements are pretty seasonal. Where do you see your revolver draw at the end of the June quarter?

We have to pull out a piece of paper out here. Hang on one second, Joe.

Joe, at the end, first of all take into consideration at the end of April [inaudible] we have our semi-annual interest payment that we made, eight and a half interest on our bonds we also had a 1.2 million quarterly installment and on our term A. debt. So at the end of June, we are looking at, you asked about what we think our revolver draw to be, that can fluctuate you mean or do you understand it also has interplay with the rest of the debt and availability. At the end of March the draw for the year that just ended our draw was about 10 million we had about 30 million of availability. At the end of June, we are projecting about 11 million or so draw with 28 availability. It's a little bit less given that we just made a $8.5 million interest payment, we are making that up.

Thanks, that's very helpful. And in terms of projecting a year ahead and I know that you're not, I mean, do I hear that I should be looking for low 40s in 2004, fiscal 2004 in EBITDA?

That's something we really haven't given any guidance on at this point.

So much depends on what happens to the economy.

Right.

John [inaudible] asked the question earlier about our optimism in the third quarter for the fourth quarter and at that point the capacity utilization statistics were going up, industrial production index was good and in March both of those turned down and this is the kind of recovery that's going to limp along, I think our basic optimism is directed at the fundamentals of this company which are really in much, much better shape than they've ever been. But the economy continues to bump up and down and up and down and hopefully it's going to go up one of these days.

It can't stay down forever.

I hope not, I hope you're right.

Plus Mr. Bush is going to try to get elected next year.

There's another group of folks that don't want him to.

Hopefully there will be some divine intervention. What percentage of your products are made in China now?

That's a very good question. I can tell you that our Chinese facility is approaching $8 million in sales but that goes into Europe and it also goes into the states, some is sold in the Far East as well. I don't have that number in front of me. But I know that, I can tell you that there's a fair number of manual hoist products, hand chain products that we buy from our Chinese operation and ratchet [inaudible] and there are textile things that go into Europe. I am going to give you a guess and that's all it is, is a guess but it's probably somewhere in the ten to 15% range at this point.

Where do you expect that to go to over the next say three years?

Upward.

All right, guys. Have a great year.

Thank you.

Thanks.

At this time there are no further questions.

Thanks. Those were great questions. We appreciate the dialogue. Let me just summarize by saying we continue to execute the strategic plans that we talked to you all about and focus our efforts on this debt reduction through cost controlling and managing our working capital, plant rationalization and lean initiatives along with operational effective this is should generate significant free cash flow along with our generally low CAPEX and we will have another year of debt repayment in fiscal '04. We also continue to invest prudently in new markets, develop new products and we will protect that market share in the U.S. and grow our sales internationally to the keep CM positioned as the leader in product handling industry. I just want to thank all our associates across the country for the efforts that makes CM the leader and we certainly appreciate your time today. Thanks very much and have a good day.