Columbus McKinnon Corp (CMCO) 2004 Q4 法說會逐字稿

Welcome to Columbus McKinnon's fiscal 2004 fourth quarter investor conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. (OPERATOR INSTRUCTIONS). Today's conference is being recorded; if you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Timothy Tevens, President and CEO.

Thank you, Michelle. Good morning, all, and welcome to our conference call. Earlier this morning we did issue a press release with our fourth quarter and fiscal '04 results, and hopefully you have that in front of you as a basis to follow the call on.

With me today is Bob Friedl, our new CFO. Bob joined us in March. Welcome, Bob, formally. Karen Howard, our VP Controller is with us here as well; Joe Owen our VP of Strategic Integration; and Ned Librock our VP of Sales.

We do want to remind you all that the press release and 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 CM files 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 in the fourth quarter exceeded same quarter last year by about 2 percent and exceeded this year's third quarter by almost 10 percent, with all of our improvement coming from our more profitable product segment sales. Our evaluation of the market share data shows that we continue to lead the U.S. hoist and chain markets and have a very strong position in other areas, such as forgings and indoor industrial cranes.

Sales for the year (indiscernible) ended about 445 million, with about 90 percent or so coming from our more profitable product segments business. This was about 2 percent lower than last year, driven by, predominantly, divestitures that happened this past quarter. Sales in the products segment for the fourth quarter were up about 9 percent compared to the same quarter last year, and up over 15 percent over the third quarter of this fiscal year '04.

The products segment gross profit was up 14 percent over the same quarter last year and the margin was up to 26 percent -- the margin rate was up to 26.2 percent, or 130 basis points over the same time period. As you can see, our prior quarter's cautious optimism that we spoke about has finally reached the financial results of the quarter. And sales, you should also know, for the year ended at about 394 million in the products segment, or up about 2 percent, with gross profit up slightly.

Our solutions segment had kind of the opposite effect that our products segment had; our sales were down 41 percent over the same quarter last year and down also on a consecutive quarter basis. Our gross profit did follow with similar trends in this area. Our sales for the year ended at about $50 million, or 23 percent lower than last year, with again, gross profit following a similar trends. Just as a reminder to you all, and I know we have spoken on this topic many times, we plan on divesting ourselves of most of the businesses that comprise our solutions segment.

Our funded debt net of cash with was down about 32 million in the year. Inventories ended at about $69 million, or down about $9.5 million for the year. This represents a 5.3 inventory turns for CM, which is a pretty big number for us, and actually it's a milestone that we've reached. Increased volume and the work in our lean initiatives continues to drive this improvement.

At this time, Bob Friedl will lead us through some of the more detailed financial results.

Thank you, Tim, and good morning everyone. As Tim mentioned, I'll provide an overview of the financial highlights for the fourth quarter of fiscal 2004, as well as those for the year as a whole.

Starting with the income statement. In the fourth quarter, as Tim mentioned, sales continued its upward trend, really driven by the strength in our products segment. Products segment sales showed a 9 percent increase in the fourth quarter of this year versus the fourth quarter of last year, and was up 2 percent on a full year comparative basis. Solutions segment sales offset much of this revenue gain in the fourth quarter of this year. On a year-over-year comparison, the decline in the solutions segment sales resulted in an overall consolidated decline of 2 percent.

Comparing quarterly revenues on a sequential basis year-over-year, in fiscal 2004 the solutions segment had been lagging 2003 each quarter of this year. The products segment, however, shows a much different trend. While products started fiscal 2004 with a first quarter decline of 6 percent year-over-year, it quickly picked up pace each quarter, surpassing 2003's quarterly level in the third quarter of this year of 2004 by 6 percent.

As those of you who know Columbus McKinnon, the number of shipping days varies slightly from quarter-to-quarter during the fiscal year, and may vary from the comparable prior year quarter. For the fourth quarter of fiscal 2004, there were 66 shipping days for accounting purposes. This compares to 64 days in fiscal 2003. Gross profit was up over 9 percent in the quarter of compared to the fourth quarter of fiscal '03. Gross profit margins were also up quarter-over-quarter, with the fourth quarter margin this year coming in at 24.2 percent versus 22.6 percent last year.

Looking at each segment, we saw nearly a 15 percent growth in gross profits from the products segment fourth quarter to fourth quarter, as margins grew from 24.9 percent in the fourth quarter of last year to 26.2 percent in the recent quarter. On a consolidated basis, the gross profit gain and the margin pickup in the products segment was largely offset by the decline in the solutions segment.

For the full year, consolidated gross profit was down about 2 percent, in line with the decline in revenues. Gross profit margins declined slightly from 23.7 percent in fiscal '03 to 23.6 percent in fiscal '04. Selling expenses were up slightly in the fourth quarter compared to fiscal '03, 10.7 percent versus 10.4 percent. Fixed selling expenses in the solutions segment offset the relative improvement experienced in the products segment. For the full year, selling expenses as a percentage of sales increased in fiscal '04 compared to fiscal '03, again being influenced by the level of fixed expenses in the solutions segment and declining sales environment.

General and administrative expenses declined in the fourth quarter of fiscal '04 compared to '03 levels in both dollars and as a percentage of sales. The products segment recorded the greatest improvement, showing a dollar reduction and a percentage reduction -- percentage of sales reduction on strong growth in sales. Full fiscal year 2004 general and administrative expenses were lower in both the products and solutions segments, both in dollars on an absolute basis and as a percentage of sales.

Restructuring charges for the fourth quarter actually shows a credit, reflecting the fact that our actual costs associated with certain restructuring efforts came in at less than originally expected levels. On a full year basis, restructuring costs are down this fiscal year, fiscal '04, compared to fiscal '03 levels, as we get further down the list of targeted areas.

Interest and other income and expense for the quarter shows an expense of $2.5 million. Included in this amount is $3.9 million of loss on divestitures, offset by $1.6 million in income from our insurance company's investments and a gain on the termination of an interest rate swap. The full year income shown on this line of $4.2 million was the result of gains on the insurance company's investments, income from the swap, and a gain on the sale of real estate -- the total of which was only partially offset by the loss on divestitures.

Depreciation for the quarter was 2.064 million and for the year was 9.743 million. Capital expenditures for the quarter were 523,000 and 3,619,000 for the year. Cash flow was strong in the fourth quarter with $26.4 million generated from full year fiscal '04 operating activities compared to last year's 14.2 million, an 86 percent increase. Consequently, debt net of cash at year end declined by over $12 million.

And with that, I thank you for listening and turn it over to Ned Librock, Columbus McKinnon's Vice President of Sales, who will review the quarter and year's activity.

Thanks, Bob, and good morning to everybody. Let's start by taking a quick look at our domestic sales through our distribution channels here, in the states.

Our general distribution was up a solid 13 percent over the same quarter last year. This is the group of distributors that is comprised of our industrial distributors, our rigging shops and our crane builders. And we're happy to report that all three of these distribution channels had solid double-digit growth in the fourth quarter.

Our specialty distribution, made up of catalog houses and primarily the entertainment business, was up 1 percent. And although our catalog houses were up 6 percent, the number is not as high as the general distribution due to some timing issues on the entertainment side of the business which I've reported in years past, or quarter's past.

International sales continue to grow, and they're up a solid 3 percent over the same quarter last year. That's good news -- all of our -- for all intents and purposes, all of our distribution channels are up over last year, except the entertainment business, which is a timing issue in terms of large orders and timing of shows, and our retail and consumer business, which was just off two percentage points from last year. This is essentially our hardware business.

In the fourth quarter we did add some surcharges and price increases that I can report on. We did have surcharges on our chain business and forging business -- I'm sorry -- on our chain business in March. And then April 5th, we had a price increase of 7 percent on our chain and forging business. And while I'm on price increases I'll go outside the fourth quarter just for a second. We had a hoist price increase on May 3, for all of our hoist businesses for units and for parts.

What is interesting in terms of the price increases and surcharges is that we are out in front of the competition. We are leading the industry in that, and we are realizing a relatively high percentage in terms of implementing the surcharges. And I'm happy to say that our price increases have been accepted by the industry.

Summarizing the bright spots of the fourth quarter -- we had our domestic products segment -- our orders remained very strong, as Bob had mentioned. Price increases have been implemented. We're happy to say that this is the second consecutive growth quarter for our products segment domestically. It's our fourth quarter in a row that we have been able to grow our international business. Our government business remains strong, and I'm happy to announce that the largest distributor in the world, Granger, awarded Columbus McKinnon a CFQ One award, which is the second time in four years we have won this award. This is for outstanding performance by a vendor, which is given to less than 1 percent of their entire vendor base. And we're very pleased and honored by the hard work all of our associates have put in to win this very distinguished award.

So with that said, I'll turn the program back over to Tim.

Thanks, Ned; nice overview. Let me just give you a couple of updates on our operations and then we'll open it up to questions.

Just as a reminder to you all, we continue to focus on generating cash and repaying debt as quickly as possible, and as you can tell from this quarterly report as well as the year, that has been our focus and we have had some success, clearly. In a couple of specific areas, we continue to work on the sale of properties of the previously closed facilities. We have closed on a couple of smaller properties in the last several months, but you should know that we continue to actively market the remaining ones. We are optimistic that they will sell, but I think we have -- we're facing a bit of a timing problem. Just not sure when they will be sold.

We continue to analyze our facilities and look for opportunities to rationalize our production. That, as you know, has been going on for the last three years in a very serious way. It's not stopped; it's becoming a little more difficult getting down to some facilities that are already fairly full. It's difficult to put anymore products in some of them. But we will, as we have done in the past, keep you appraised of our progress.

We're also pleased with the continuing trend of inventory reduction. For those of you that have followed us for a while, you'll notice that the debt has been our focus for the last several years. We finished strong this quarter, closing the year with about -- with a 5.3 inventory turn ratio; actually, that's the best number we've seen at CM, at least in my 10 years here with the Company.

Our lean progress continues, and we expect to see continuous improvement in the lean area, especially as it relates to inventory, product flow and customer delivery and customer service. We'll also be working in other areas of working capital reductions, making sure that we be focused in that area.

As I mentioned, lean manufacturing continues, and it is the driving force for improvement here at CM. This past year we did about 150 lean rapid improvement events, and we would expect to actually grow that next year as we expand to other of our facilities around the world. We continue to market our less synergistic businesses of the family of companies that we have in our portfolio.

As you know, and as Bob said mostly, the solutions segment is in that process. As we have previously reported, we were successful in selling two smaller businesses this past year, Positech can Lister, and -- actually it was this past quarter. And we'll be working towards conclusions on the other businesses just as soon as we can work out the details of some agreements that are in process.

As Ned reported, we like other manufacturers around the world have seen increases in our purchased materials, especially in steel. We have developed a robust process, I would call it, that identifies and tracks these increases. We then study our selling prices to our channel partners, and have, as Ned has reported, increased prices or added surcharges where appropriate. You should also that it is our intent to pass these increases onto the channels that we participate in. We have been successful in doing it so far, and I would expect that to continue at least in the short-term here.

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. market. As we expand our global presence, our market share growth will be built on new products designed specifically for the various market needs, incorporating our high quality standards and service support.

And with that Michelle, let's open it up to questions.

(OPERATOR INSTRUCTIONS). Tom Klamka, Credit Suisse First Boston.

Can you talk about on the product side, it looks like year-over-year were revenues up about 10 million, and almost 2/3 of that fell to the bottom line. It looks like operating income went up by 6.7 million. What else is in there or was there any sort of year-end true-ups, or was this last year unnecessarily low?

I think it's to a degree an easy comp, as they say. I'm trying to remember exactly -- last year we had a difficult fourth quarter; I think it's fair to say that. I think from a comparable basis that's, number one, true. I also think that, as you know, Tom, (inaudible) parent in our businesses, there's operating leverage that we speak about. And that is we see uptick in sales or any increase in sales, a fair amount of that should fall to the operating income line. It's tough for me to tell you what the breakout is. I don't have that analysis.

(indiscernible) there were some -- there are always some year-end things, just kind of part of the process. And there were some last year, but generally speaking it's a function of our operating leverage.

So that operating margin you had in that product's business of 12.4 percent, this is just straight out of the press release, is a sustainable margin than? I just wasn't sure if there was any other sort of reversals or anything going through that product's line?

No. I would say that if we continue to have -- just to correct you here -- I think the -- I'm not sure I need to correct you, but let me just tell you what I am reading. For the quarter ended March 31l, '04, product segment operating income was 10 percent. Gross margin was 26 percent. But at this level of sales, I guess we would expect that it would continue in that area.

Can you give us the -- I think you started to go through what was in other expense; how much of that was actually interest expense in the quarter?

In the other expense line?

Yes.

The interest expense is on a separate line, Tom. For the quarter it was 6 to 9 million compared to last year's quarter of 8.6.

Other deferred financing fees in that 6 9.

There's amortization of deferred financing costs. I don't happen to have that number right offhand. If there is some amortization in there (indiscernible).

It's not a very large number.

The availability on a revolver, if you have that, and where you stand versus the covenants?

At the end of March our availability was 40 million, and basically we have nothing drawn on our revolver. (indiscernible) we have a total commitment of 50 million, and we had about 10 million letters of credit outstanding, leaving the 40 million available. And our borrowing base also supports that. With respect to covenants, we are in compliance with all of our covenants.

John Walthausen (ph), Paradigm.

Congratulations on a good quarter here. I wanted to understand the situation with the solutions business a little bit more. There was a sharp drop; now, some of that in the reported number is due to the sale of the two small operations? And if so, can we get a more apples to apples understanding?

Certainly -- we sold two businesses in the fourth quarter, as you know, John -- Positech and Lister. Positech was part of the solutions business, Lister was part of our products segment. And the -- staying with solutions for a moment here, Positech would have had -- certainly did have losses in the quarter that affected the results that you see here. In terms of the right off, that's separate from these.

The losses on the sales, John, are recorded below the operating income. They're on the interest and other income line.

So most of the sales deterioration is an issue with the ongoing businesses that we have there. Can we talk about where the backlog stands? (multiple speakers) -- okay.

Let me also mention, John, there is -- last year, you may or not recall, we had another business in that segment, our Lycos (ph) Steel business, that was sold as of 3/31/03, and that business had about 2.5 million of revenues in the quarter. So kind of the decline is a result of that divestiture.

Right. But looking sequentially, I think we've kind of (indiscernible) 14 12, 14 10 (ph). So it is -- and of course the gross margins have pretty much disappeared. So I'm just trying to understand what the outlook could be, and I guess given that this is a part of the business that in March we're looking back and seeing whether it's salable and what the investment that we have on the books on this.

Let me just give you an overview, and then Karen will read you the backlog numbers. From a business standpoint, the predominant issue that we have in the solutions segment is our division innovator, our power roller conveyor business, which probably accounts for 50 percent of the sales or so. They had a particularly rough quarter, actually have had a very difficult year, in fact. We have restructured that business. We spent a lot of time in the last year actually downsizing it quite a bit. The fundamental reason for that business having difficulty is there lack of bookings, and it's not because of our hit rate going down in terms of their ability to book an order, but really as a result of just the capital spending in Europe and around the world has really -- still continues to be soft. I will say that this past quarter they have indeed recognized and seen some business come their way in terms of additional bookings, but it's been a particularly rough one for them this past year; and in fact, there backlog stands at -- Karen will have that number.

John, the end of (indiscernible) backlog at the end of March was 6.9 million compared to the end of December, it was 3.9. It had been declining throughout the year, and then started picking up in March. And as Tim described, (indiscernible) had a lot of quoting activity.

Good. I'm trying to understand -- with it having some near-term difficulties, I guess, are we still convinced that there is value in the business and it's a salable business?

I'm convinced this is a valuable business and the business is salable. The real question is when.

Right. Is hat why it's not characterized on the balance sheet as a discontinued op; because there's a question of whether this is going to be sold in the coming 12 months, or --

Timing is the question there.

Joseph VonMeister, Jeffries.

Tom asked most of my questions, but I guess I could try one more out. Do you have any visibility for 2004 that you would be willing to share with us in terms of -- I'm sorry -- your fiscal 2005, in terms of EBITDA guidance in sort of a ballpark range?

Sorry, Joe. We don't provide that. I can give you some general comments relative to what we're seeing and feeling, but we don't -- we have not given guidance for our '05 year. In fact --

We used to be looking at a 50, 60 million EBITDA business. And I know the structure of the business has changed quite a bit, but the economy is picking up, the dollar has declined, which helps you guys in terms of competition from overseas. Should we expect to see some of your old earnings power materialize here?

I would expect that as the economy continues to roll in a positive fashion, not only here but around the world -- because about 2/3 of our sales are here but a third of them are outside the United States -- we could -- we would expect to see positive growth in EBITDA, obviously, directly linked to the sales. Whether or not we can get back to some of those numbers that you had mentioned in fiscal '05, I think, is a stretch. I am not as convinced that the economy is -- I think it's positive, and I think it's much better than it has been in the last three years; however, just a couple of warnings -- we have some global issues going around the world relative to terrorists and oil price increases, as well as volatility in our raw materials that we buy, that certainly could and will most likely have an impact on our results. So I'm still cautious here. I think that we're running our business that way and looking at cash generation and debt repayment, because we're not as, let's say, totally optimistic; we are cautiously optimistic.

I appreciate that. And CapEx for the next 12 months?

Our CapEx, as you have seen, Joe, this past year was pretty low at $3.6 million or so. We have purposefully kept it there; in fact, though, with all the closures we have done we have moved a fair amount of equipment around our businesses, which has helped our plants become more productive, but yet not spending the money because we've closed facilities and moved in equipment to the remaining facilities. But looking down the road, I would expect the CapEx to a bit higher than the $3.6 million; maybe in the let's say 4 to 6 range.

I guess lastly, I look in some of these discount catalogs like Harbor Freight, I guess, is one. There's a ton of Chinese product in there, including hoists, very relatively low-end stuff. But I'd like you to remind me and the rest of us on the call why you guys expect to be able to maintain your dominant position despite low-cost manufacturing locations like China beginning to make some of these products.

Good point. Let me just take a shot at this, and I'll ask Ned to add to it. Harbor Freight is not new and Chinese imports are not new; we have seen them and felt them for 20 years, 30 years. As a matter of fact, CM was one of the first hoist manufactures back in the '70s to design a product and have it made in China and shipped back into the states. And that's what we do today by the way; many of our hand hoist products -- this is what you're looking at in the Harbor Freight catalog -- are made in our Chinese facilities; are sourced in China under our design and our watch; and sold under the CM brand names. The thing that is a little different than the products you're seeing there is -- first and foremost is probably the quarter quality of the product. Ned will speak to this in a moment in a lot more detail. Second thing is, the brand-name strength that you're looking at when I use the word CM, Yale, Coffing, Duff-Norton, Shaw-Box, Budgit, it is the strength of our portfolio of products as well as our distributor partner relationships that we have that give us the strengths to combat anybody coming into this economy. Now, is it a challenge? It is every single day a challenge. But I think that given the number of strengths that we have in terms of distributor relationships, the brand names, who is who in the hoist industry, as well as the quality of our products and our ability to produce the product in a low-cost market, it bodes well for the corporation on a go-forward basis. Ned, do you want to add to that?

Sure. That was a pretty good summary. In addition, it boils down to how they are designed and where they are sold. All the CM hoists as well as our good competitors around the world in the industrial marketplace are designed, at least in North America, to ANC standards, which have rigorous testing requirements and performance characteristics that our good customers in industrial production require. Many of these products that you see like the Harbor Freights and others that have been around for decades are sold to deer hunters or sold to garages; it really isn't the industrial marketplace that we sell into. Quite honestly, even in our retail business we sell a fair number of hoists, industrial hoists through the consumer side of our business. So these are not what you would consider to be high-quality production pieces of equipment that have not only like, as Tim said, the brand-name, but also the reliability and warranty that we have behind our products. We don't really consider them competitors.

I appreciate that color, guys.

Maneesh Samiya (ph), J.P. Morgan.

A couple of questions. One, Tim, I don't know if you have mentioned trends that you are seeing in April and first half of May -- could you sort of give us a sense for the business momentum you have?

Sure. Thanks for that question, in fact, because I did miss it, I think. One of the things that we track weekly is our bookings, and this is our bookings in our key businesses around the world. And if you take a step back and you look at April, actually I might have reported you might have heard me talk about as back as far September that we were feeling some lift at the bookings line, which drives revenues very quickly, you know, 1, 2 percent -- very small but positive, clearly positive. And that trend -- we can trace it all the way back into that time tree at last fall. And it actually felt very good, because it had been down for so long, three years before that, that this even ever so slightly it felt good to have some additional orders. That trend continued into this past quarter, the fourth quarter, actually with a fairly robust March, which is -- we actually had a lot of sales in March as a result of those bookings in March. And the single, low-single digit number I mentioned in the fall was eclipsed with some double-digit growth that we saw in March. And in fact, continue to see in April and into May at least through last week Friday, which was the last numbers I looked at, that the bookings numbers are in the double-digit area right now. So we haven't seen any slowdown between March, April and so far in May and that actually feels even a lot better looking down the road.

The other questions I have are as follows. One, I think you mentioned price increases that you have implemented. Can you give us a sense for whether or not you're getting the price increases, or is it too early to tell? And then two is, what percentage of your sales kind of represent the products that you implemented price increases on?

Good question. I think there's two elements here; Ned did report on price increases for our chain and forging products which we implemented in April, the beginning of April. And generally speaking, this is a list price increase that we put in place. And we have done this annually, Maneesh, as you well know, for a while now. And then our distributors use that list price to sell to the end users of course. So historically speaking, we have not kept much of that price increase on the chain. I think we've kept a fair amount, maybe half or more on the forgings. And then also this past May, beginning of May, we put a price increase for most of the hoists -- say all of the hoist brand names that we sell, depending on the specific type of hoist -- whether it's an electric chain hoist or a wire rope (ph) hoist or some manual hand products -- it varied from zero to 5 percent. In terms of the overall percentage of what products that covers, that probably covers 2/3 or so of our sales, somewhere in that vicinity. And you also asked whether we're getting it. As you well know, price increases are kind of a tough thing to get your arm around; how much do you get and how much is unit increase? And I think in this case, Ned did report -- and I think correctly so -- that we have not gotten a lot of push back; we're getting most of that price increase today. Historically speaking, on the hoist business we do retain about half of it or so. And on the chain business it's a lot less, maybe even give some back. And on the forging business it's probably about half. And I would say at this point in time it's in that vicinity. We do have some contracts in place that we can't raise prices or even surcharge on just yet. (indiscernible) we have more of a timing problem with those is when those contracts come due with our channel partners, who are then able to adjust the pricing and or surcharges as the case may be and push that on even further.

Okay, great. Just lastly, what was the D&A in the fourth quarter?

Depreciation and amortization?

Yes.

I think Bob Friedl reported it was in the fourth quarter.

The fourth quarter depreciation was 2.1 million, amortization was less than 100,000. If I could just quickly take an opportunity, a question Tom Clancy asked earlier was the amount of amortization, deferred financing costs included in net interest expense number. There was about 300,000 for the quarter and 1.5 million for the year.

300,000 on the $6.9 million total number for the quarter?

Right.

John Walthausen, Paradigm.

I had a couple of quick follow on. On the international side, you gave some numbers, I think, of about 3 percent in the quarter. What was the impact of foreign exchange on that?

The impact of foreign exchange on our consolidated sales for the quarter compared to the same quarter last year was about $3.8 million. 2.9 in the products segment and 900,000 in the solutions segment.

Right. Try to work it backwards. If we just looked at the marketing data that Ned gave us on international sales from products, would we be in the negative territory instead of the modest positive?

I don't happen to have those numbers with me.

The other thing I wanted to follow-up, Tim -- in answer to an earlier question, and I think someone with probably a shorter memory than I have talked about can you get back to the 50 to 60 million EBITDA range? Of course, you've been higher than that in the past. But you called it a stretch. But it seems to me that when I look at the fourth quarter numbers, you're really running -- excluding the problems and solutions -- at a 50 million EBITDA type rate. Why would it be a stretch if business continues to be good as your reporting to be in that range in the new year?

That's very, good, John. And you're memory is much longer, maybe, than others. We were in the $90 million range, as you recall, back in the late '90s, early 2000. That was the stretch I was referring to, getting back to those days. I think the 50 to 60 million range -- you're right; if you annualize our fourth quarter, which was a very good quarter, by the way.

Sure. And I guess it seasonally is a good quarter generally.

It's got a lot more shipping days in it than our typical other quarters do. So, you know, I think it's the wrong thing to do to annualize it. I still think it's -- well if the economy continues it's not a stretch, but if there's any hiccups or any problems down the road here that we don't foresee today, it will become problematic to stay at this level.

The last -- two other questions. One, now that we are seeing some real tickups, how is the lean system working? Are you able to maintain high levels of service to the customers?

It is a challenge -- to be perfectly honest with you. I think for the most part we're doing fairly well. We have had some steel shortages in our chain side of our business, which has caused some hiccups in deliveries to our customers. I do think that some of our distribution is buying some product in anticipation of some either allocations or of potential shortages, but really hasn't impact them the much because they might be inventorying more than today than they have in the past. But it certainly has been a challenge for us to keep up. I would say if lean is not the problem, I think that just getting our suppliers to deliver in a timely fashion is the predominant problem. Actually, lean has helped us with flow, product flow in the plants. The thing we're challenged with now is really reaching back to the supplier base to get them in tune with our flow systems. And that's what out fashion is going to for the next couple of years or so.

I guess the final question I had was what happened in the fourth quarter that caused us to report an income tax charge? Of 1.9 million?

Sure. John, I will try to cover that. When we are in a combination of things -- probably single (technical difficulty) site on is part of the loss on the divestiture of the businesses that we had in the quarter. Part of the losses were nondeductible, so that resulted in a charge. And that we have some -- given the different jurisdictions that we do business in and the different tax rates in those jurisdictions, we may have (indiscernible) -- basically a cost is an unusual effective tax rate. It's really a function of that. For example, in our Canadian operations, because of the way some things were charged we had losses for which we didn't provide a tax benefit on.

Right. So in regard to the loss on the sales of the operations, basically it's created a non recognized tax less carryforward?

Yes. It's a permanent difference.

Okay, great. Then, in the new year there's every reason to expect that even if we are profitable, we're not going to be paying federal taxes?

That's correct (multiple speakers)

(OPERATOR INSTRUCTIONS). At this time, there are no further questions.

Thank you, Michelle. Let me just summarize. We had some pretty lofty goals for ourselves this past fiscal year, and although we didn't meet all of those goals, we certainly were successful in continuing to create value for our shareholders in many areas. As you know, we continue to reduce debt, have paid down over 32 million this year. Our repayment of debt in the past three years has been, in my opinion, extraordinary $114 million. This is in spite of a very severe industrial recession in the U.S. and in many other parts of the world as well.

We were also successful in achieving our internal goals of inventory reduction. We maintain our strong market position in the domestic markets and have penetrated some new markets around the world for Columbus McKinnon. We continue to reduce our operating costs. And as you can see from this past quarter's performance, we can leverage this new cost structure to create even higher operating profits. We'll continue to drive lean concepts across our businesses; this process has clearly proven that we can continuously improve our operations around the world.

We'll also invest prudently in new markets and products to protect our market share in the U.S., and grow sales internationally to keep CM positioned as the leader in material handling industry. We want to thank and recognize all of our CM associates around the world for all of their efforts and work to make CM the leader that it is. And is always we appreciate your time today. Thank you, and have a great day.

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