Columbus McKinnon Corp (CMCO) 2004 Q3 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Hello and welcome to the Columbus McKinnon fiscal year 2004 third-quarter conference call. Following today's presentation, there will be a formal question-and-answer session and instructions will be given at that time. Until then, all lines will remain in a listen-only mode. At the request of Columbus McKinnon, today's conference is being recorded. If you have any objections, you must disconnect at this time. I would now like to introduce today's conference host, President and Chief Executive Officer, Mr. Tim Tevens. Sir, you may begin when ready.

  • Tim Tevens - President, CEO

  • Thank you. Welcome to the Columbus McKinnon conference call. Earlier this morning we issued the press release with our third-quarter results and hopefully you have received those and have them with you. With me today in Amherst, New York is Bob Montgomery, our Executive Vice President and Chief Financial Officer; Karen Howard, our VP-Controller; Joe Owens, our VP of Strategic Integration; and Ned Librock, our VP of Sales. We do want to remind you that the press release in this 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 we file with the SEC to be sure you understand these risks.

  • I will give a brief overview and then turn it over to Bob. Our sales for the third quarter exceeded same quarter last year by 2.7 percent and exceeded this year's second quarter by 3.4 percent, most of this improvement coming from our products segment. And our evaluation continues to show that we lead the U.S. hoist chain markets very well in North America and have a very strong position in forgings and indoor industrial crane. Sales in our products segment for the third quarter were up 5.5 percent compared to the same quarter last year and up 2.5 percent over the second quarter of this fiscal year. The products segment gross profit margin would have exceeded the second quarter of this fiscal year if it not been for a reserve booked in December for product liability, which I am sure we will talk about in a moment here. One point does not make a trend, but we are becoming more optimistic that we have hit the bottom of the economic cycle and are seeing a slight upturn in our products segment sales, as you can see in this quarter's report.

  • The solutions segment sales were down 13.7 percent over the same quarter last year, but up on a consecutive quarter basis 14.3 percent. Gross profit margin was up slightly over last year in the same quarter on a percentage basis, but (indiscernible) 110 basis points over the second quarter of this fiscal year. That, as you know, has been one of our strategic focuses in terms of reducing it. It was up about $7 million this quarter, but that is predominantly because of a bond payment we made of about $7 million, as well as a $6 million pension payment made this quarter. Inventories grew slightly, $1.7 million, driven by increased business activity in our crane, chain and forging business. And at this time, I would like to ask Bob to lead us through the financial results.

  • Bob Montgomery - CFO

  • Thank you Tim and good morning everybody. Tim gave you the sales comparisons -- up for the quarter from last year by 2.7 percent and up for the quarter from the second quarter of fiscal '04 by 3.4 percent. Most of that is in the product segment area, which is up about 5.5 percent from same quarter last year and 2.1 percent or so from the second quarter of this year. There's a little bit of color on that in that in the products segment, days shipping available to us in the quarter is an important factor. The number of days in the third quarter this year were 60 days; in the same quarter last year, it was 61. So we actually had one less day this year and three less days than the -- or fewer days, I guess I should say, than the second quarter of '04. So with fewer shipping days and sales up, we feel that that's good news, and it may be indicative of an economic improvement here. We certainly hope that's true.

  • Gross profit. Tim mentioned that there was a product liability provision booked at the end. We do that normally because of a captive insurance company that has to be audited on a calendar year basis, and so we booked an extra 2.5 million in the third quarter, which brought the reserves into compliance with the actuarial analysis. And had it not been for that, we would have held margins basically last year to this year and been up a little from the second quarter. And I think that's pretty good news -- sales going up a little bit and gross margins actually holding or improving a little.

  • Selling expense is basically flat, and Ed will talk about sales and perhaps selling expense in a minute. But in terms of percent of sales, selling expense was 11.2 percent last year same quarter and down to 10.8 percent this year. G&A expense was up a little bit this year over last year as a percent of sales, being just under 5 percent last year and about 6 percent this year. Last year, there was a reduction in CM Equity Insurance Company reserves, which really brought G&A expense down a little bit from last year. It's a little bit more realistic this year. There are some other things in it. Currency accounts for about 300,000 or thereabouts. But nothing that is alarming at this point.

  • The restructuring charges are reported and they are small at this point. They have to do with projects that are already underway. Interest and debt expense we report separately -- interest and debt expense and interest and other income. There are some interesting numbers in some of those. The interest and debt expense for this quarter was 6.5 million, and that's about what we would expect. It's down substantially from last year of 8.9. In the 8.9 is some deferred finance write-off of about 1.2 million, but that would only bring it down to 7.6. So the lower interest this year is certainly due to roughly $36 million worth of debt that's been paid off in the meantime.

  • Interest and other income -- let me see, there is 2.2 million in income this year. That's due to a swap contract gain that got recorded of about $1 million, some investment gains in the investment portfolio of about $1 million, and that number typically is pretty small. In last year's, there are some investment losses in the same quarter last year of about 2.7 million in total -- some realized, some unrealized -- that again brings it to a fairly low number.

  • Depreciation for this quarter was 2.5 million. Depreciation in the same quarter last quarter was 2.6 million. CAPEX was 1 million and 1.4 million in those two quarters. We usually report on that. In terms of debt, I look at it from the perspective of debt net of cash, and it's up about 4.3 million from the second quarter, and that's after payment of about 13 million in I'll say larger items, some semi-annual interest of 7 million and the pension payment of 6 million that had to be paid. And from the same -- based on the same numbers last year, we were down about 36.5 million. So the cash flow continues; there are no divestitures in those numbers. That's all from operations and not from divestitures. The divestitures are all in progress and still continuing. Let me see, there are about three or four of them that will be closing hopefully imminently. They always take longer than we wish they would, but the load run is continuing.

  • Basically we are happy with this quarter's performance, and look forward to a continuation of upward trends. With that, I'll turn it over to Ned Librock to talk about sales.

  • Ned Librock - VP-Sales

  • Thanks Bob and good morning to everybody. Now I would like to add a little color behind the numbers, and I will start off by talking about our distribution channels in the United States on the product segment side of our business. We had, as you have heard, a good quarter. Our general distributors were up 7 percent over last year. This was led by our industrial distribution network, which are the traditional mill supply houses, were up 11 percent; our rigging shops were up 6 percent and our crane builders we up 3 percent. And just another note here that the crane builders have been either flat or up the last two quarters in a row, which is a good sign for us. Let's hope that it continues.

  • Our specialty distribution, however, was down. This is primarily our catalog houses and our entertainment distributors. Our entertainment business was up 3 percent, but our catalog houses consolidated were down 12 percent. And this was more of a timing issue. I can account for over half of that. We have some discontinued product that was being bled down over the course of the third quarter that will be replaced in the fourth quarter. So it's more of a timing issue than anything else with a couple of our larger distributors.

  • Our international sales consolidated for products and solutions was up 11 percent, and this is another positive trend within the corporation. We were up a little over 7 percent in the second quarter, so our strategic focus on growing international sales is continuing and we are seeing good results. Overall, in summary of the channels, our industrial distributors, rigging shops, crane builders, entertainment and international business remained strong, with the catalogs remaining soft in the third quarter and our consumer business down just a little bit, about 3 percentage points -- this is our retail business.

  • Shifting gears to the market share side of our business, our hoist business through 10 months of calendar year 2003 remains relatively stable. In fact, in two of the five categories that we report in, we saw small incremental percentage gains, both on dollars and unit sales, through ten months. The reporting lags roughly 90 days. The same holds true for our chain and forging business. What we are seeing is our market share is stable, and this includes where we factor in a percentage for imports coming in, which as you know and I've reported in previous calls, creates tremendous pricing pressure. So I think we are doing a pretty good job in that arena.

  • On the competitive landscape, certainly the weakening of the U.S. dollar continues to help us in two ways. It helps us defend our domestic business, as well as giving as a long-awaited edge to help grow our international sales. We are certainly trying to take advantage of that. But I caution everybody, pricing in these economic times, while they are getting better, is still very aggressive, both from our European competitors as well as our Asian competitors. To this point, we continue to leverage our strong product mix in the United States of chain, hoist, forgings and cranes, and our distribution channel, obviously from the numbers, is responding to our continued leveraging of these product lines, showing value to all of our distribution channels. We are continuing to gain market share with the products that we manufacture in our wholly-owned facility in China for the very, very competitive contractor markets for hand hoists and lever tools. And we continue on our course of having a logical pricing policy but being extremely aggressive where it makes sense for our customers and we can make some money.

  • In conclusion, there are five bright spots that I see. One, the numbers are showing the results of hard efforts and continued focus on the basics of our business by many CM associates and our distributor networks. And this has resulted in increased revenues. Our continued international focus is gaining momentum with increased revenues. Most of our distribution channels over the last six to nine months have stabilized or are growing. There is a renewed confidence by most of our distribution channels that business is starting to recover. It's anecdotal, but the doom and gloom has been replaced by cautious optimism and many of our distribution channels are starting to see slight increases in their businesses. And, as Bob alluded to earlier, we continue to manage our selling expense prudently and invest where we think we can get both short-term and long-term results. So with that said, Tim, I will turn the program back to you.

  • Tim Tevens - President, CEO

  • Thanks, Ned. I will give you a brief operations review and then we will open it up to questions. As you know, one of our targets and focuses has been debt reduction and we continue to make strides in that regard this quarter -- a little different in that we had a couple of payments that we had to make. But nevertheless, the operations continue to generate cash trade and as Bob mentioned we have CAPEX well under control, so there is a fair amount free cash flow continuing to come from our Company.

  • We have completed all of our previously reported facility rationalization projects. We continue to await the closure on sale of some of these properties that we have for sale. Some seem to be getting closer than some who are still awaiting interest from the marketplace. And so as some of these major ones come up, we will keep you informed of that. Planning continues for additional facility and product rationalization. We have some efforts underway to study how we manufacture hoists around the globe and will report to you on those activities at the appropriate time. Inventory continues to be on our radar screen. Our corporate inventories are up slightly this quarter, but that predominantly is in response to an increase in our businesses -- in certain of our businesses.

  • As you know, we have embarked in lean manufacturing several years ago. That process continues to be the driving force for improvement here at Columbus McKinnon. We've done about 130 lean rapid improvement events across our Company so far this fiscal year, and those continue to improve the basics and the fundamentals of how we manufacture and how we do business. Bob mentioned the strategic alternatives process that we started back probably nine months ago or so for less synergistic business continues. We actually had hoped to have some new to report to you by now, but unfortunately we do not. We do not want you to read this news as a lack of will or effort on anyone's part, because rest assured that there's a lot of that going on. But as you may imagine, these processes sometimes take on a bit of a life of their own, and we certainly want to make sure that all the steps we take are in the best interest of our shareholders.

  • Just as a quick reminder, our strategy is to leverage our superior material handling design and engineering know-how to continue our dominance in the U.S. markets as we expand our global presence. Our market share growth will be built upon new products designed specifically for various market needs, incorporating our high quality standards and service support. With that, I will open it up to any questions.

  • Operator

  • (OPERATOR INSTRUCTIONS) John Walthausen of Paradigm.

  • John Walthausen - Analyst

  • Good morning. A couple of quick questions. I guess the more complicated one is, on the $2.5 million against cost of goods sold for products liability, how is the reserve determined, and would it be correct to say that something changed in the assumptions or is this a true-up that we only do once a year?

  • Bob Montgomery - CFO

  • That's a true-up we do. We have the captive insurance company, as you know. And it has to report to New York state formally at the end of the calendar year. We typically have not had to adjust reserves at the end of a year. But this time, the actuaries in their wisdom decided that our reserves had to be a little bit higher than they were. But there is nothing very special in it, as we had some payouts this year, a settlement of some cases, but not large amounts that really change anything.

  • John Walthausen - Analyst

  • But did those payouts cause them to change the assumptions in the rate of going (multiple speakers)?

  • Bob Montgomery - CFO

  • No, the assumptions are the same.

  • John Walthausen - Analyst

  • That's real helpful. You talked about selling and general, administrative expenses on a consolidated basis. When I kind of do the subtraction, kind of figure out what SG&A is on the segment basis, it looks like in products, which is of course the key part, we were running about $15.5 million a quarter in the first two quarters, and then it picked up by about $1 million in the third quarter. Was there some pickup in expenses or were things a little bit better; are we starting to make some additional incentive compensation improvements or accruals or things of that nature?

  • Karen Howard - VP, Controller

  • It was a combination of things. Probably the largest actually is currency fluctuation. That was probably half of it. With the fluctuation in the Euro relative to the dollar, primarily. And the rest is really just normal timing things. We continued to spend some money to invest in new geographic areas -- there's a little bit of that. Really there isn't any significant things that stick out.

  • John Walthausen - Analyst

  • My last question was, on the operations which have been -- were thinking about selling or getting out of, you had a fairly specific list, I think, in the 10-K. Has there been any of those operations which have been taken off the list or any new operations that have been added to the list?

  • Unidentified Company Representative

  • No, they would remain the same, John.

  • Operator

  • Joseph von Meister of Jefferies.

  • Joseph von Meister - Analyst

  • Could you outline the debt balances on your revolver and term loan at the end of the period, and also give us the available additional borrowing capacity on your revolving credit agreement?

  • Karen Howard - VP, Controller

  • The revolving loan balance at the end of the period was about $5.5 million. The term loan balance was just under $9 million and the revolver availability was about 23.7.

  • Joseph von Meister - Analyst

  • I'm still a little bit high. Did you pay off some of the mortgages or IDRs (ph)? You have other debt on the books, I guess. I group them together in my model as various other, but --.

  • Karen Howard - VP, Controller

  • The rest is some international debt. And debt of our European (multiple speakers) --

  • Joseph von Meister - Analyst

  • And that is about $4 million now?

  • Karen Howard - VP, Controller

  • Yes.

  • Joseph von Meister - Analyst

  • So that was paid down.

  • Karen Howard - VP, Controller

  • It fluctuated in the quarter (indiscernible).

  • Joseph von Meister - Analyst

  • And 27 million is your borrowing capacity, so about the same as last quarter?

  • Karen Howard - VP, Controller

  • 23.7.

  • Joseph von Meister - Analyst

  • Sorry. Great job. Can you quantify the impact of the currency decline? Did we see any of that benefit your results this quarter?

  • Karen Howard - VP, Controller

  • By the time you get to operating income, it's a very small number. I mean, it has grown some. For the quarter -- oh, I (indiscernible) that number. Bear with me just a second.

  • Joseph von Meister - Analyst

  • While you're working on that, the only charge to cost of sales in the quarter was the true-up of the product liability reserve, correct -- the 2.5 million?

  • Unidentified Company Representative

  • Yes, that is correct.

  • Joseph von Meister - Analyst

  • Everything else was outlined separately on the income statement?

  • Karen Howard - VP, Controller

  • Yes.

  • Unidentified Company Representative

  • That's right.

  • Karen Howard - VP, Controller

  • Joseph, by the time you get down to operating income, it has a favorable impact of about $150,000.

  • Joseph von Meister - Analyst

  • Right. And do you have a backlog figure? We've been getting that at the end of the quarter. I didn't see it in this last press release.

  • Unidentified Company Representative

  • I thought it was the last sheet, maybe.

  • Karen Howard - VP, Controller

  • Yes, it's in the end of the press release. Product segment was about $45.3 million and solutions segment about 6.9.

  • Joseph von Meister - Analyst

  • Great job, guys. Thank you very much.

  • Operator

  • Cathy Nolan of Salomon Associates.

  • Cathy Nolan - Analyst

  • I would just like to verify the $2.5 million product liability reserve adjustment. Was their any adjustment made in the December '02 quarter by means of comparison?

  • Karen Howard - VP, Controller

  • Not of the same nature, no.

  • Cathy Nolan - Analyst

  • Was there any amount?

  • Karen Howard - VP, Controller

  • It's a little bit confusing, but December of '02 quarter, we had about $2.7 million of investment losses that are reported on the other income and expense line. Of that, I think it was about 1 million of that was realized losses. And the way we account for the bookkeeping for that, it requires us to reduce the G&A expense relating to these reserves by an equivalent amount. So in December of '02, G&A was actually lower by $1 million because of that. And we did not have that type of a thing this year.

  • Cathy Nolan - Analyst

  • So net-net year-over-year, on an EBIT basis, this would have impacted the Company negatively by 1.5 million. Is that accurate?

  • Karen Howard - VP, Controller

  • No, it's actually 3.5 year-over-year, because last year --

  • Cathy Nolan - Analyst

  • I thought you said you reduced your G&A by 1 million.

  • Karen Howard - VP, Controller

  • Last year. So when you compare last year's G&A to this year's G&A, this year's G&A expenses are higher by 1 million, and this year's cost of products sold is higher by 2.5 million.

  • Cathy Nolan - Analyst

  • Okay. And the other two items, the investment gains and the interest rate hedge, where are those on the P&L?

  • Karen Howard - VP, Controller

  • They are on the other income and expense line.

  • Cathy Nolan - Analyst

  • Okay. In terms of the contribution to the pension plan, is the 6 million -- does that represent the total amount that you expect to contribute this year, this fiscal year?

  • Karen Howard - VP, Controller

  • There was a little bit in the prior quarter. There is a schedule that the actuaries determine, and there are quarterly payments, and based on the timing of our plans, our largest payments end up being in December. So that is the majority of it. We don't have any significant payments in the fourth quarter.

  • Cathy Nolan - Analyst

  • Thank you.

  • Operator

  • Jeffrey Brown (ph) of Credit Suisse First Boston.

  • Jeffrey Brown - Analyst

  • Just a couple quick questions. The currency -- just (indiscernible) back to the currency for just one second. How much did that -- how much of international now is a portion of your sales and how much did it impact the top line? Obviously, net-net when you hit the operating earnings, it's not a big impact. But would sales not be up year-over-year in the third quarter if currency did not impact the top line -- I'm sorry, stripping currency out of the top line?

  • Karen Howard - VP, Controller

  • By segment, it varies. In total, Jeff, the currency impacted the top line for the quarter by about $4.5 million. So on a consolidated basis, it would have been down. However, when you break it down by segment, the product segment dollars versus dollars was up $5 million, as you know, of which about 3.3 is currency. So it would have been up anyway. The solutions segment is down 2.2 million, as you know, but currency is actually up 1.2. In same currencies, the solutions segment would actually be down further.

  • Jeffrey Brown - Analyst

  • What about -- does license deal (ph) prices impact you guys at all or not really?

  • Unidentified Company Representative

  • Yes. Well, Joe -- you want to talk about that, Joe?

  • Joe Owens - VP of Strategic Integration

  • We are just beginning to see some increases in steel. I would not say that it's reflected much in our current numbers, but it's a little bit more on the horizon and something that we are going to see a little more impact in going forward. They are just starting to put pressure on it now.

  • Unidentified Company Representative

  • We have some contracts that are maturing that we have to re-up, and steel is moving, as you may know.

  • Joe Owens - VP of Strategic Integration

  • Most of -- all of our major commodity groups are under contract. Steel prices are looked at in those contracts generally. Some are looked at every six months. They are on different intervals, anywhere from six months to two years. We've got some that are coming due this spring, so we are going to take a hard look at that and obviously evaluate our supplier base to minimize the impact.

  • Jeffrey Brown - Analyst

  • What percentage of the cost of the steel (indiscernible) and is there any sense as to a dollar -- $50 million or maybe more? Obviously, you can't predict where steel is going to be when you renegotiate these products -- these contracts. But is there any sense as to the impact that it might have over the next few quarters?

  • Tim Tevens - President, CEO

  • I think, Jeff, that is hard to predict (ph) just yet until we go through these negotiations. Obviously, it's going to have some impact, but we are going to try to mitigate as much as we can through hard negotiation.

  • Jeffrey Brown - Analyst

  • On the pricing side, are prices still coming down or are you able to -- I know annually you have -- I think it's in July or April -- you put through price increases. Do you think you are going to continue to be able to do that or is it maybe just smaller increases? What is really happening on the pricing front?

  • Tim Tevens - President, CEO

  • For most of our products -- Ned can add to this -- for most of our products in the hoist group, we would -- and of course they vary by type of hoist, so bear with me on this. Some go from 0 to 3 or 4 percent, and we would expect to put that in again this spring. Chain and forgings, probably forgings would follow a similar pattern and chain may be a little on the low end. But the same time frame -- it would be April-May kind of time frame.

  • Jeffrey Brown - Analyst

  • As far as the asset sales, is there -- I know the numbers you were originally talking about -- the numbers and the timing, I would just -- I know it was kind of in March-April, and somewhere in 20 million for the solutions and 20, 25 million for the actuator business. Are the numbers that you had out there historically, are those around where they are now or are you going to change -- and/or the timing, has that kind of evolved since the last quarter or is it kind of just where it is, everything is the same at this point?

  • Tim Tevens - President, CEO

  • I can't see much change here at this point, but as you know we are going through negotiations, so -- .

  • Jeffrey Brown - Analyst

  • I had to throw out the question --.

  • Tim Tevens - President, CEO

  • There is nobody more frustrated in this room probably than all of us. Because it just takes a lot longer and we are negotiating hard, as the buyers are, and those things take longer. We would expect to have something done, I would hope, in the next couple of months.

  • Jeffrey Brown - Analyst

  • Hopefully before or maybe just after fiscal year end?

  • Tim Tevens - President, CEO

  • Correct.

  • Jeffrey Brown - Analyst

  • Lastly, is there any sense as to which -- are there any products that are selling more -- I mean, you have kind of after market doing well; maybe the hoists aren't selling as well because they're more kind of driven by capital expansion. Is there any kind of product breakdown is far as what parts, what products are kind of selling better than other, maybe that's indicative of the parts comes back first and then you start selling more hoists and chain products. Any sense on products, how things are selling right now?

  • Tim Tevens - President, CEO

  • I've reported now that actually our crane business, which is much more capital intensive than the rest of the parts of our business, for the third quarter in a row continues to be up. It's kind of backwards to what you think it would be. But that's the reality. I don't understand the recovery that hopefully we are seeing. Ned, you can comment on the rest of the products.

  • Ned Librock - VP-Sales

  • On the hoist side of the business, the more commodity-like products, the hand hoists and the lever tools, we have seen an increase in sales quarter-over-quarter. A lot of this has to do with our competitive nature and where we manufacture the products. We are starting in the third quarter to see more interest in electric chain hoists, which are a little more capital but not as capital intense as cranes. Certainly we are seeing that with our catalog houses, as well as the entertainment side of the business. So it's starting to, if I can use the expression, free up a little bit. It seems like some monies are being spent. It's a small positive trend that we hope will continue.

  • Jeffrey Brown - Analyst

  • Thanks a lot.

  • Tim Tevens - President, CEO

  • Thank you, Jeff.

  • Operator

  • (OPERATOR INSTRUCTIONS) At this time, Mr. Tevens, we have no questions registered, sir.

  • Tim Tevens - President, CEO

  • Thanks all for taking your time this morning to listen in on our conference call.

  • Operator

  • We have questions if you want to take them. (Indiscernible) of Bay Harbor.

  • Unidentified Speaker

  • Just another quick question on steel. I just wanted to get an annual number in terms of how much tonnage is used during the course of a year.

  • Tim Tevens - President, CEO

  • Tonnage in a year. If I said a lot, would that help? Maybe I can give you an estimate here from a dollar standpoint. Joe, why don't you go ahead?

  • Joe Owens - VP of Strategic Integration

  • Obviously with the fluctuating economy, but we spend probably 15 to $20 million a year on steel in our primary commodities.

  • Unidentified Speaker

  • And you are seeing more of the increase in terms of -- like what type of steel product are you using -- bars, strips, plates, sheet?

  • Unidentified Speaker

  • We use a lot of different types of steel. We used tool steel, we use structural steel, we use rod wire, forging bar, steel rail and pipe and tube. And obviously they are different commodities, they are under different contracts. Some we don't expect to have any price pressure on and others we might have some in the more general use categories.

  • Unidentified Speaker

  • Thank you.

  • Operator

  • Gizelle Guzman of Gabelli.

  • Gizelle Guzman - Analyst

  • I was wondering if you could comment on your new product introduction, typically what is the percent of sales due to new products introduced in that quarter and what is your outlook for the next couple of quarters regarding your new product introduction?

  • Tim Tevens - President, CEO

  • That is a great question, since one of our focuses has been the development of new products, appreciate that. I don't think I will be able to tell you what it was in the quarter, but I can tell you it's about 8 percent. That is what it has been historically -- 8 percent of sales in the quarter, so maybe I can tell you that, since Karen has that number. So 8 percent of sales is from new products. We have a team of people that are dedicated in the various businesses that we have that go through the development process. And most of these are dedicated folks. So there is a steady stream of them coming out.

  • Some are, as I say, product enhancements/product extensions, and some are clearly new-to-the-market products. We just launched a brand new piece of software for example, that helps our crane builder distributor channel partners perform maintenance and inspections on cranes with a handheld computer, if you will, and we keep the data for them and all they need to do is enter it remotely, and that's just being launched as we speak. That's kind of a new venture for us, and typically it's more hoists and forgings type of products.

  • Gizelle Guzman - Analyst

  • Is this the only software product of the type that you have?

  • Tim Tevens - President, CEO

  • Yes, that's new to us. Yes, that is correct -- new to the market.

  • Gizelle Guzman - Analyst

  • Right. So there are no similar products available in the market?

  • Tim Tevens - President, CEO

  • Not that are widely distributed. We are going to sell these to independent crane builders and I'm not aware of anybody selling anything similar to it to independent crane builders, no.

  • Gizelle Guzman - Analyst

  • Are you bundling this with other crane products?

  • Tim Tevens - President, CEO

  • We would want to expand it to all products that need to be maintained and/or inspected.

  • Gizelle Guzman - Analyst

  • And do you anticipate any changes to this historical rate of 8 percent in the next quarter or two -- hopefully, upward adjustments to that rate?

  • Tim Tevens - President, CEO

  • In the next quarter or two?

  • Gizelle Guzman - Analyst

  • You can take the whole next fiscal year if you want.

  • Tim Tevens - President, CEO

  • Thanks. We have a new wire rope hoist line coming out sometime this summer, which we would expect to impact that number, I would think, in a favorable fashion. I don't have those numbers in front of me in terms of what our expectations are, but I would think it would be positive.

  • Gizelle Guzman - Analyst

  • Could you repeat what type of hoist line it is again?

  • Tim Tevens - President, CEO

  • A wire rope hoist.

  • Gizelle Guzman - Analyst

  • Anything else planned?

  • Tim Tevens - President, CEO

  • We have a myriad of product line extensions and we have a couple of other projects under development right now that I would prefer not to talk about on a public telephone call. But we're focusing on this, and we honestly hope that the percentage will go higher. I like to look at it in windows of two to three years, because typically the first year is a ramp-up period. As a percentage, I'm hoping that we can outstrip the sales revenue growth on traditional products, but at the same time, I'm hoping our traditional revenue products continue to grow. So the percentage may vary but the dollars, we will put in and try to report that on the next call.

  • Gizelle Guzman - Analyst

  • Thanks.

  • Tim Tevens - President, CEO

  • Thank you.

  • Operator

  • Julia Gerte (ph) of Bank of New York.

  • Julia Gerte - Analyst

  • I was wondering if you could expand a little bit on results in the solutions segment and give us an outlook for the next quarter. Particularly, I was looking at the backlog number, which appeared fairly low compared to the previous quarter and the previous year. I was wondering what we can read from that number going into the fourth quarter.

  • Tim Tevens - President, CEO

  • I'll take a stab at that and I'll look around the room for my colleagues to add to that. The solutions business, the largest piece of that is a Company by the name of Univeyor, which is our Danish power (indiscernible) conveyor system company. They are a fine organization. This past couple of months I would say, especially in the November-December time frame, their bookings have been depressed. But they have a lot in the what they call "hot quotation" category; in other words they are working on generating those bookings, which would drive their backlog in this case. And January seems to be the time frame where they were hoping that those would come into play; actually they were hoping for December; things have been pushed out to January. That is what has caused the December quarter backlog to go down in the solutions, predominately.

  • Julia Gerte - Analyst

  • Were there products that had rolled off that haven't been replaced by new business?

  • Tim Tevens - President, CEO

  • That is exactly what happens. As they degenerate work, generate revenue, ship their solutions, implement them, the backlog comes down. And if there's not any new bookings to hit that backlog, to add to it, the backlog does indeed drop. That is the predominant area where it's dropped, is at Univeyor.

  • Julia Gerte - Analyst

  • What is the outlook -- what is management saying about outlook for just general business activity in that segment?

  • Tim Tevens - President, CEO

  • I think they are fairly optimistic, even though they had a difficult quarter in terms of booking. I think looking to the projects that they are quoting on and the ones they are close to, they feel optimistic that this business in the fourth quarter will turn, they will book some jobs and add to the backlog.

  • Julia Gerte - Analyst

  • Is there an increased amount of competitive activity there?

  • Tim Tevens - President, CEO

  • No, I think that is consistent.

  • Julia Gerte - Analyst

  • And just another question on your SG&A costs, if I may. The number has increased a little bit from the first and second quarter. In your fourth quarter of '03, the number was a little bit higher than the previous three quarters. I am wondering if there are costs that we can expect in the fourth quarter of this year that would move this number up sequentially in the fourth quarter.

  • Tim Tevens - President, CEO

  • Fourth quarter SG&A that would move it from the third quarter results. Well, Karen talked about some of the impact on the third quarter. Why don't you just --?

  • Karen Howard - VP, Controller

  • The largest single-item impact in the third quarter compared to the first two is actually currency, that translation effect, primarily of Euros to the U.S. dollar. There were some other things there that are kind of normal -- our traveling commissions were up a little, and some administrative things. But looking out to the fourth quarter, we are not looking for anything unusual. We can't control currency, obviously, so if the dollar continues to weaken --

  • Tim Tevens - President, CEO

  • That could have an impact.

  • Karen Howard - VP, Controller

  • It will continue to have an impact, which we just can't envision necessarily at this time.

  • Julia Gerte - Analyst

  • Are there any one-time costs that usually fall into the fourth quarter?

  • Karen Howard - VP, Controller

  • Sometimes our expenses relating to trade shows are a little bit higher in the fourth quarter, but they can be offset by other things. At this point in time, there isn't anything significant that sticks out that we are anticipating in the fourth quarter to be different.

  • Julia Gerte - Analyst

  • Thank you.

  • Operator

  • Thank you, and this does complete our question-and-answer session. I'm turning the call back over to Mr. Tim Tevens.

  • Tim Tevens - President, CEO

  • Thanks very much. In summary, our debt reduction continues to be the focus of this Company. As Bob reported, we paid down about $36 million in the last year. This trend will continue as we generate free cash flow from our businesses, enhanced by a modest upward trend in sales. We continue to feel positive, albeit cautious, that bookings will continue to grow modestly through the rest of the fiscal year. With our new cost structure created from our facility rationalization work, as well as our lean manufacturing processes, any uptick in sales will have a positive effect on our operating income. We will also continue to invest prudently in new markets and new products to protect our market share in the U.S. and grow sales internationally to keep CM positioned as the leader in the material handling industry. I want to thank all of our CM associates for their efforts to make CM that leader. As always, we appreciate your time today. Thanks and have a great day.

  • Operator

  • Thank you, participants. This does conclude today's conference call. To listen to a replay of today's conference, you may do so by dialing 1-800-925-0870. I will repeat -- 1-800-925-0870. And thank you for attending today's conference call. Have a good day.