Columbus McKinnon Corp (CMCO) 2005 Q1 法說會逐字稿

Good morning and welcome to the Columbus McKinnon fiscal 2005 first-quarter investor conference call. (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.

Sir, you may begin.

Good morning all and welcome to the Columbus McKinnon conference call.

Earlier today we issued a press release and -- with our first quarter results and you should receive this, and hopefully you have that document with you.

We have delayed our normal earnings announcement from the third Tuesday following the end of the quarter to the fourth Tuesday.

And that basically adds to cover all of our internal certifications and reviews that we need to do.

And we certainly appreciate you understanding that and thank you for your patience.

With me today here in Amherst, New York is Bob Friedl, our Chief Financial Officer, Karen Howard, our Vice President and Controller, and Ned Librock, our Vice President of Sales.

We do want to remind you 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.

Overall our sales for the first quarter of fiscal year '05, hard to say that sometimes, '05, exceeded the same quarter last year by over 14 percent, and essentially flat with last quarter.

Our evaluation of market share data shows we continue to lead the U.S. hoist and chain markets, a very strong position in forgings and indoor industrial cranes as well.

Sales in the quarter ended at 121.7 million, with about 90 percent of this volume coming from our Products segment, and the balance from our smaller segment, the Solutions business.

Think about the Products segment for just a moment.

Sales for this segment in the first quarter were up over 18 percent compared to the same quarter last year, and down about 2 percent compared to the fourth quarter of last fiscal year.

That is typically -- that is driven by just a lower number of shipping days.

The increase in business clearly was increased demand from our distribution channel partners who in turn are experiencing increased demand from the end-user markets.

The inventory levels in the various channels that we supply have been very low.

Our channel partners clearly are seeing end-user demand increasing, and they are also increasing their stocking levels of our products.

We also had a price increase this past spring which covered a variety of our products.

This generally increases our bookings and shipments prior to the increase.

These influenced the bulk of the revenue increases for this past quarter.

That was offset slightly by the divestiture of Positech and Lister in the fourth quarter, about 2.2 percent or so.

The revenue increase is also driven by three more available shipping days this quarter than last year, which was about almost 5 percent or so, and a little bit the currency translation, about 1.6 percent.

One of our key strategies is international sales growth, and that was up about 10.5 percent in this segment, led by Europe and our Latin American businesses.

The Products segment gross profit was up about 23 percent over the same quarter last year.

This is the operating leverage that we have been speaking about for this segment.

As you may know, we spent a considerable amount of time and resources on removing costs across this business.

And with this uptick in sales and revenue we can certainly generate a fair amount of additional profit, as you can see from this quarterly result.

The gross profit margin was up to 26.9 percent, or 110 basis points, over the same time period last year.

Our bookings for the Products segment were robust in the quarter, and were up in the high single digit over last year.

Our backlog in this business ended at about $45 million, essentially unchanged from the end of the first quarter last year, but up 14 percent when you consider the Lister divestiture, which obviously Lister had a fair amount of backlog as well.

Please keep in mind that in the Products segment our cycle time on most of the items in this literally days from order receipt until shipment.

So the backlog number actually represents about 4 or 5 weeks worth of shipments.

Moving into the Solutions segment, sales were down about 10.4 percent over the same quarter last year, but up almost 30 percent on a consecutive quarter basis.

Our gross profits increased about 1 percent from last year and up a whopping 850 percent or so from the last quarter.

And this was following a concerted effort to reduce our costs to be more in line at the sales volume that they are experiencing.

Sales for the quarter ended about 13.1 million.

Now the backlog is up a considerable amount to about 18.2 million from 9.2 last quarter, and 9.4 million the same quarter last year.

So that is quite a bit.

This was followed by some increased bookings that drove this improvement in the backlog.

And this is a business that does produce some backlog, so clearly a longer cycle lead time kind of product.

We are beginning to see not only increased quoting activity in this segment, but also increase in orders being placed, which is the good news.

The mix obviously was driving the backlog as well.

And as a reminder, we plan on divesting ourselves of most of businesses that comprise the Solutions segment.

A little bit about funded debt, since you know that is one of our strategies that we continue to work on reducing that.

Funded debt net of cash was down about $0.8 million in the quarter.

Inventory in the quarter ended about 71 million, up about 2 million from last quarter.

It still represents a 5.1 inventory turn, which is pretty good for Columbus McKinnon.

And I will be reporting a little bit more on our lean activities later on in this presentation.

At this time, I would like to turn it over to Bob Friedl who will lead us through the financial results.

Good morning everyone.

I'll take a few minutes to review some additional financial highlights of the first quarter of our fiscal year 2005 which ended on July 4.

Consolidated sales increased by 14.2 percent in the first quarter of this year compared to the first quarter of last year.

The 18.1 percent sales increase in the Products segment more than offset the 10.3 percent decline in the Solutions segment sales recorded in the first quarter of this year.

Removing the sales of the Positech business, which was sold in the fourth quarter of last year, or February of 2004, the Solutions segment sales were at the same level as last year's first quarter.

As Tim mentioned, the sales were also positively impacted in the quarterly comparison from currency translations related to our foreign operations, mostly our European operations, as the U.S. dollar continued to weaken against the euro.

Revenues of $121.7 million in the quarter were the highest quarterly revenues recorded in any quarter since the second quarter of fiscal '02 when sales were 122.5 million, restated for discontinued operations.

Sales were boosted in this first quarter of fiscal '05 as the number of shipping days in the recent quarter was 65 compared to 62 in the first quarter of last year.

That's a 5 percent increase.

Going forward the number of shipping days in each of the quarters for fiscal 2005 versus last year, fiscal 2004, are in the second quarter.

We're going to show 63 days for this year.

It is the same as last year.

In the third quarter we will have 58 shipping days this year versus 60 shipping days last year.

And in the fourth quarter of this year we will have 63 shipping days versus 66 shipping days last year.

In other words, the second quarter will be an even comparison with last year, but both the third and fourth quarters will be a little more difficult comparisons.

Although the Company's business as a whole is not considered to be seasonal, typically sales are strongest in the fourth quarter, followed by the -- either the first or second quarter, depending on changing from year to year, followed in fourth place by the weaker third quarter.

On higher sales consolidated gross profit dollars were up 21.4 percent quarter-over-quarter, driven by a 23.3 percent increase in gross profit in the Products segment and a 1.2 percent increase in the Solutions segment.

The gross profit margin improvement in the Solutions segment from 15 percent to 17 percent was generated from improved profitability in our Univeyor business.

The Company's operating earnings leverage created through facility rationalization and lean manufacturing initiatives pushed the operating income up over 37 percent on a 14 percent increase in revenues.

In addition to the strong showing in the Products segment, a significant improvement in operating earnings for the quarter was recorded in the Univeyor business.

Interest and debt expense in the first quarter of this year is down from the first quarter of last year, due to the senior debt refinancing accomplished by the Company in July of 2003 when $115 million of 10 percent notes were issued to replace certain debt in the capital structure, including $70 million of higher senior secured term loans.

And a $20 million reduction in average outstanding funded debt in the quarter also contributed to the lower interest cost this quarter versus last year's first quarter.

Recorded income taxes were 17.8 percent of income before taxes.

This provision for income taxes was reduced through the use of a portion of the Company's $112 million net operating loss carryforward.

This loss was generated with the filing of the March 31, '03, U.S.

Federal Income Tax Return and related to the deduction taken for the loss on the sale of the ASI business in May of 2002.

In the future this tax loss carryforward is available for use against U.S. generated taxable income.

Outside the U.S. the Company will continue to be subject to taxation in foreign tax jurisdictions.

Depreciation for the quarter was 2,248,000, compared to last year's depreciation of 2,593,000.

Capital expenditures for the first quarter were 838,000, and are tracking to our target range of 4 to $6 million for this fiscal year.

Net cash provided by operating activities was 1.1 million, compared to 7 million in the first quarter of last year.

In the first quarter of this year inventories increased, requiring an additional $2.1 million in cash compared to an inventory reduction of 4.8 million in the first quarter of last year, even though we saw inventory turns increase this year by -- to 5.1 times from 4.2 times last year.

This increase in inventories in the first quarter is due to two reasons.

First and primary, the increased level of business the Company is experiencing, and, second, the Company entered the first quarter of this year, fiscal '05, with $9.5 million less inventory than had entered the first quarter of fiscal 2004.

In the first quarter of last year the $7.9 million of cash generated from the reduction of accrued and non-current liabilities was due to the receipt of a $10.6 million federal income tax refund.

At the quarter end, net debt was 281.5 million, and funded debt was 293.6 million.

The Company has a senior credit agreement with the five (ph) bank group providing a revolver and term debt.

Availability on the revolver at the end of the quarter was $36 million, with 1.3 million outstanding.

The term debt was $6.8 million at quarter end.

And the Company is in full compliance with all financial covenants related to this agreement.

And with that I thank you and turn it over to Ned Librock.

Good morning to everyone.

Reviewing our distribution channels in North America for our Products segment we're very encouraged to report that practically all distribution channels achieved double-digit growth in the first quarter.

Our consolidated general distribution channels increased in excess of 25 percent, which represents approximately 36 percent of our revenues.

Our consolidated specialty distribution channels also increased in excess of 25 percent, representing approximately 9 percent of our revenues.

Overall, international sales recorded another strong quarter with sales -- with the sales increase of 8 percent representing approximately 35 percent of revenue.

Additionally, most distribution channels outperformed the previous quarter also.

Well, everything seems to be pointed in the right direction quarter to quarter.

Feedback from distribution is positive for a sustained recovery.

And they believe that industrial spending will continue to expand gradually throughout the remainder of the year.

An important point to remember here is that Columbus McKinnon's business is spread out over a number of different distribution channels, and all channels are reporting good numbers which substantiate this position of our distributors looking forward.

Columbus McKinnon's market share has either remained constant or grown depending on the product category, with the overall market expansion as reported by various associations.

So we are taking advantage and gaining share in certain product categories as we continue through this recovery.

List price increases were successfully implemented for chain, hoist and forged products in April and in May.

Increases ranged from 4 to 7 percent depending on the product category.

Then the expectation is to realize approximately 30 percent of this increase, and this varies by product category, of course.

Freight charges were also successfully implemented due primarily to steel and energy price increases.

And these ranged from 5 to 13 percent depending on the product.

We monitor and adjust as needed on a monthly basis.

We continue to lead the industry in terms of being aggressive with surcharges, and customer reactions remain understanding to date.

Orders are expected to remain steady as we enter the summer months.

All indications are that business should remain good from our additional distribution channels, and as we continue to expand our markets internationally.

I want to thank everybody for your support.

And I will turn the program back over to Tim.

To give you quick operations overview here, and then we can certainly open it up to questions.

As you well now, our focus continues to be on generating cash to repay debt as quickly as possible.

And along those lines we have number of things going on that we certainly have reported in the past and will continue to work on.

But let me just give you an overview.

The operating leverage that we have spoken about and began to see actually last quarter has really shown itself this quarter.

For every incremental dollar in sales over last year we generated about 37 -- 37 cents in gross profit in the quarter.

We continue to market the real estate of the properties we have closed.

We have had a fair amount of activity here, but unfortunately nothing to report as of yet.

We continue to be hopeful that we can move some of those properties and generate cash.

Continuing annualizing -- analyzing our facilities for opportunities to rationalize our production.

And as we have done in the past we will keep you appraised of our progress.

Although inventories rose slightly this past quarter, we are pleased with the continued trend of inventory reductions.

Our lean process continues, and we expect to see continuous improvement in this area, as well as in the area of overall working capital reductions.

The lean manufacturing practices are continuing across the Company and we're seeing results of this work.

We continue to market the less synergistic businesses of our family of companies, which you know is mostly in the Solutions segment.

The mergers and acquisition market seems to have a life of its own, and something that we certainly don't control.

But we are continuing to be diligent in our efforts and our processes to market these individual companies.

And we will report to you when there is something indeed to report.

As reported last quarter, we've instituted a plan to track steel surcharges, and for the most part we're passing them onto the channel.

That steel surcharge from our supply base continues to be rocky -- have ups and downs.

We thought it was actually lessening sometime last May or June, and in fact now in July we've seen another uptick in scrap steel prices.

Just as a 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 the various market needs, incorporating our high quality standards and service support.

And, Julie, with that operations overview I would like to open it up to questions.

(OPERATOR INSTRUCTIONS).

Tom Klamka with Credit Suisse.

You talked about two things on pricing, I guess some announced price increases and then some surcharges.

Can you talk about maybe I guess your net realization on that?

On the pricing it sounded like you expected to get net a little over maybe 1 to 2 percent.

Is there any room in there to get additional increases?

And how does that balance out against the surcharges?

And is it possible to get those surcharges pushed over it into price increases so you get to keep them when steel starts to maybe firm up?

Let me see if I can take a shot at that, Ned, and then I would ask you to comment with any other color you think is appropriate.

You're right.

Tom, as you know we generally have annual price increases.

And based upon products and where we are at in the marketplace we think that the price increase this year was very robust and a fairly good one.

And it was basically offsetting some cost increases for the most part, maybe even some steel surcharges.

So baked into that price increase is some of these cost things that we have talked about.

Now we have had, depending on the product group, some substantial surcharges for steel, which is nothing more than us passing on those costs to the channel.

It is hard to say where this thing is going to end up.

And I guess it would be our hope that steel prices would indeed lessen over time.

We're not seeing that at this point.

And I would say that sometime -- and Ned can comment on this -- maybe this fall we would take and analyze the steel markets a lot more detailed then we have maybe so far today and see where this is going to end up.

At some point I would suspect that those surcharges would roll into a price increase if we don't see them lessening to any great degree.

If they're going to be bouncing around a bit that probably won't happen.

But I think sometime this fall we will have to analyze those and determine what we're going to do with them as opposed just leaving them as a surcharge.

Ned?

We have a very diligent process, as I mentioned, where we have weekly meetings and a monthly final review to see if we are going to be changing them.

We had a very aggressive price increase.

And what we have to be cognizant of is that we don't price ourselves out of the market and lose significant volume and share that might not be recovered.

As I said we are aggressive.

We have more aggressive than any of our competitors.

And to date we have not reversed any surcharges because of this volatility that Tim is talking about.

And being aggressive has helped us remain for most product categories margin neutral.

So I would say that if this trend continues, like Tim said, for another 3 or 4 months these will probably end up rolling into a price increase.

Again, with the caveat that we have to very careful that we don't price ourselves out of the marketplace.

And when you look at the products business this quarter, the margins are up substantially from a year ago.

They were based -- I guess they were exactly flat with the fourth quarter on about the same revenues.

Excluding when you look at on the pricing side what do you see as the potential upside in your margin in Products given you had it pretty good each quarter, but you were essentially flat sequentially?

Is that the level you expect to be at now, the low 10 percent kind of margin?

I would say that about a year ago, Tom, as you know when we floated the bonds we talked about a range in our total business in the 10 to 12 percent area.

Now we obviously hit the bottom of the range at this point.

I would say that if we continue to see our top lines grow, maybe not as rapidly as we've seen it grow the last quarter, but continuing a nice upward trend that we would also see that this operating income line would grow as well and get further into that range of 10 to 12.

What do you see today -- the backlog in Products today is I guess the same as it was at 3/31 and 12/31.

Would that imply sort of a second-quarter coming up here that looks about the same as the quarter you just finished?

Or what do you see sort of momentum-wise during the quarter?

The way to answer that question as opposed to talking about backlog, Tom, if I can talk about bookings.

The bookings that we're seeing, which basically are at the back end of June if you will and through July, are coming in at the high single digit kind of range, especially for the Products segment which is what we track very closely because that is what is going to drive revenue very shortly.

So I would say that it is a little lower than what we have seen in the March, April time frame, but still very good numbers, and continues to grow in this high single digit area.

And so therefore I would say that the backlog probably is going to remain reasonably flat, but the revenues I would expect to be up along those same lines.

And then a quick question on the Solutions business as that get -- and hopefully you make more progress on selling that -- how much corporate overhead is allocated to Solutions and absorbed those numbers that when you sell those businesses you lose that absorption, and what is the impact?

Can you get rid of SG&A dollars when you sell that, or will there be a hit to the remaining businesses because of that?

Good question.

Most of the businesses in that Solutions segment are stand-alone business, and there is very little corporate involvement or overhead with associated with them.

So as we sell a business in that Solutions segment SG&A costs would go with it.

Was there any contribution -- the two businesses that you sold at the end of the last year, was there any contribution in the year ago quarter?

I think you get a revenue number.

I'm not sure if there any operating income with those companies or not -- Positech and the other one?

Positech would have been a negative contributor at that time frame.

And Lister would have been positive.

Karen is giving me an indication that they're pretty much offset.

It was kind of no impact.

Neutral impact.

Mike Harris with Robert W. Baird.

Tim, I apologize.

I think I missed you opening comments.

And I just wanted you to review once again both segments what the sales from divested businesses were last year as well as the foreign currency.

Thank you.

I'm going to refer to Karen has got a cheat sheet in front of her, and she is going to give you those.

I can read my text here if you would like.

(multiple speakers) I will share that information.

The Lister business in last year's quarter was at about 900,000 in revenues.

And the Positech business had about 1.4 million in revenues in last year's quarter.

The Lister business is in the Products segment and the Positech business was in the Solutions segment.

The impact of the currency translation for comparable quarters was about $1.7 million in total, of about -- which about 1.2 million was in Products segment and .5 million in Solutions segment.

Great.

Sorry to have to have you repeat that.

I missed that.

Okay, and then within the Products group I think you talked about obviously selling price increases.

How much of the quarter's revenues within Products benefited from year-over-year sales price benefit?

We estimate that to be around 2 million.

For the quarter, okay.

And within the Solutions segment a nice positive upside surprise here relative to the previous quarter.

You mentioned you had backlog at the end of fiscal Q1 of about 18 million.

I guess I'm going to be a little bit more nosy here.

What percentage of that backlog at July 4 is shippable within the next 3 months?

I don't have that number in front of me specifically -- the aging of the backlog.

But I would -- if I could give you a concept and maybe you can take it from there.

Generally speaking it is a 3 to 6 month cycle for most of this business, which is by the way Univeyor.

So my estimate would be somewhere around 50 percent of it.

But there are businesses into their much shorter cycle time, so maybe it is a little offset.

Let's stay with the 50 percent number as an estimate.

Fair enough.

And the gross margin here of 17 percent in this segment for the quarter.

The gross margin has been volatile in recent quarters.

This is a longer cycle group of businesses I realize, and it is a backlog business.

Is that 17 percent gross margin -- do you see that as sustainable in the near-term?

Yes, and you really have to take that in the context with the restructuring that we have gone through in those businesses.

There has been a fair amount of charges that we had taken to get the costs in line with this lower operating volume.

But looking forward I would expect that the gross profit margin would remain in this area.

Fair enough.

That's good news.

Just to talk about this steel material issue a little bit more here and just approach it from a different angle.

Can you quantify in dollar terms the negative raw material variance seen in the quarter versus last year, either on gross basis or on a net basis, meaning recovery through price increases?

It is our intent, and I believe the numbers could prove it out, even though I don't have them in front of me, is that we would receive price increases from our steel suppliers, and in turn would pass them along to the channels that we sell to.

The timing difference between when we receive and when we pass along is monitored weekly.

There might be a slight timing difference from receipt to issuance through the channel, but very low amount of days in timing.

But generally speaking, Mike, it should be offset and neutral for the Company.

Basically you didn't have a net negative impact, so the surcharge mechanism that you have, it is pretty much real-time.

It is there.

I am looking at Ned now and he has a meeting once a week.

Our intent is to remain margin neutral and that is why we have been as aggressive as we have with these surcharges.

The two businesses, Mike as you might know, that really are impacted by this are our chain and our forging business.

And those two group leaders who run all of those businesses meet with Ned and his sales team and they review where the costs are and where the prices are.

That's good news.

And just staying on the topic of steel here, we have addressed the inflation side of it.

We have been hearing of multiple instances thus far in this earning season of manufacturers, other industrials, receiving a timely and adequate supply of steel material.

And what have you been seeing regarding this recently?

And do you think this is manageable for Columbus McKinnon in the near-term?

Today it is very tight.

We have seen delays in shipments, inbound raw material, in some instances to the point where it hits the receiving dock and is immediately put into process, because we need to make product.

We have not run out, but it has been that close.

And I would say that that is a bigger concern going forward than the surcharges that we have received and are passing on.

Sure.

So I think you're right on with that comment, and we are experiencing that.

Our guys are really on top of the situation with our supplier base just to make sure we don't run out, but it is sometimes hand to mouth.

That is interesting.

And to the point where if you didn't incur these delays in receiving an adequate and timely supply of steel that you maybe could have had even higher revenues in the Products segment?

Or does your comment about it has been close mean that you have pretty much had been able to manage it in the current quarter?

I think it is under the management category now.

And if there was an impact it is a minimal timing impact so far.

Has this shortage situation -- has this gotten worse in the last let say 2, 3, 4 weeks?

No.

It's been this way for 3 or 4 months.

Okay.

And just on the topic of the tax rate.

Obviously there's a lot of moving parts here in determining what the tax provision is going to be for the full year.

You booked an 18 percent rate for this quarter.

I am aware of the NOL and the reserving of the NOL.

Should we use for our models 18 percent for the rest of the three quarters of fiscal '05?

Is that reasonable?

Sounds like it to me.

I would say, Mike, depending on the assumptions that you're using with respect to your profitability and how much you would determine would come from the U.S. versus outside the U.S., I would approach it that way.

I think it is real difficult to say a flat percentage (indiscernible).

Fair enough.

That's why I kind of hedged my question that there's a lot of moving parts here.

Yes, international sales are growing.

That's for sure.

Well we will do a little work there.

And I think that is it for now.

Very nice progress this quarter.

John Walthausen with Paradigm Capital Management.

Congratulations on a good quarter.

In terms on the Solution side of the business, the growth in the backlog you comment in our press release that there was one big order there.

Can you talk a little bit about that and whether the margin potential in there is better or inferior to the usual booked business?

That is in order that Univeyor booked on the power roller conveyor business.

It is a substantial order with a customer that they have had a long-term relationship with -- years quite honestly.

And the margin on that order is consistent with the normal book of business that they would receive.

It is not inferior or better.

And then in terms of SG&A, obviously you have done a great job in sales and gross margin, but some of that is being given back in SG&A.

Can we talk about the increase in SG&A and was driving it year-over-year?

Yes.

Good question.

Unfortunately we've got some fixed expenses there that are eating away at us to some degree, such as Sarbanes-Oxley compliance costs which will continue, by the way and I am sure all companies are seeing.

We formed a hoist R&D group last year.

We pulled some engineers who previously were dedicated more to manufacturing processing and now are more dedicated to R&D.

And we have done classified now in SG&A, opposed to last year they were doing more cost of goods sold type work.

We've got just some other minor miscellaneous things from our timing that hit this quarter that weren't in last year's quarter and can flop around from period to period.

Nothing really significantly unusual that I would say that would stick out.

That being said, the accumulation of that stuff looks like it will continue.

It looks like this $2.5 million.

Yes, I would guess it is Sarbanes-Oxley is maybe a quarter of that or something like that.

A few engineers wouldn't seem like that is $1 million charge.

From a dollar standpoint, it depends if you're looking at it from a rate or a dollar standpoint.

From a dollar standpoint there is increased commissions driven by the higher sales, as you might imagine.

From a dollar standpoint there is also the effect of currency translation.

So those things are adding to the dollar comparison as well.

That's helpful.

And that in terms of expectations in debt reduction this year, obviously the first quarter while we were cash positive we weren't very significantly.

Do we expect to really be not a significant generator of cash from operations this year or will that change in subsequent quarters?

Our expectation on the cash generation side is that we will continue to have a trend as we have in the last three or four years, John.

It may not be as large as what we have been able to do over the last 3 or 4 years, but we would expect it to continue to be positive and meaningful.

A nice way to say it will be little bit lower than last year, but still a good year.

Meaning I take it -- well in excess of $10 million or --?

Yes.

Jeff Petro (ph) with Strawley & Co. (ph).

Nice quarter.

Congratulations.

Just a quick question, you went over the incremental margin -- the incremental gross margin of around 37 percent.

And it looks like the incremental operating margin is around the mid-20s.

If I go back to what you have guided through where on a comparable revenue basis compared to a couple of years back where you get to 19 percent EBITDA margin, it would suggest that there was still some pretty meaningful upside to that incremental margin.

Am I still looking at that the right way?

Would you agree with that?

And you can just give me a little bit more guidance as to how I should be looking at that margin?

This is one of the dots on the trend line from the trough to the peak.

The peak that we have talked about publicly and is in our public documents is that about a $586 -- I think a number is -- million year.

This is, as you know -- we're kind of on the way pointed toward that.

So this would be one of those incremental steps moving upward toward that rate.

And I still believe that that rate of the 18 to 19 percent EBITDA kind of number is achievable at those higher volumes.

Great.

On the Solution side, given the fact now that it seems like you have made some pretty solid progress towards profitability on an annual basis, anything there that changes your mind as far as what there is to divest?

Or maybe you can just kind of go through it and tell us what percentage of those revenues, kind of on the $50 million in revenues you did last year, how much of that you're still looking to divest?

On the 50 million, probably it would be in the three/quarters of it or so.

There's one business that we could not sell at a reasonable return, and I think we have made that public as well, and that is the Shredder Division.

A small company but extremely profitable and very good positive cash flow.

We did not get meaningful offers for it.

So that one is removed.

So that would really mean the rest of it is up for grabs.

And the bulk by far and away is the Univeyor business.

Univeyor is in the process of recovering after the restructuring.

And we're going to decide to let's say re-enter it into the marketplace here shortly, because we did pull it for a period time as we're going through our recovery in that business.

And then just in your comments you said how typically the second quarter is pretty much flat with the first quarter in terms of revenues as it was last year.

Anything right now that would suggest it should be -- fall short of that estimate?

Or should we still be looking at it as pretty much flat quarter over quarter?

Or maybe given the fact that we are emerging from this trough that maybe even second quarter would exceed the top line from the first quarter?

I can't say at this point in time, it is way too early.

Our bookings for the first couple of weeks are decent.

So -- it is pretty difficult to say what it is going to do.

I would remain hopeful that it is going to be on the even side.

David Kurdman (ph) with Needham & Company.

A couple of quick questions here.

In terms of the mix of product, sales business, how much of that is what I would call intelligent systems versus manual systems?

And can you put that in terms of what your profitability on the more intelligent hoists and forgings are versus the less -- more manual, less intelligent systems?

Could you help me define what you -- when you say intelligent what you mean by that?

Some of your systems I know are more manual, particularly those sold internationally versus systems that have more electronics and intelligence in them.

Is it safe to say first of all that the intelligent systems tend to have higher margins?

And if so, can you break out how your mix of that product business is, and how you say that trending?

It is difficult to do in any degree of detail at this point.

I don't have all of those numbers in front of me.

But we do -- if you look at the hoist business, for example, it is broken into several major categories, one being powered, which you could classify as intelligent.

It does have some ability to link to computer systems and be driven by them.

And then there is nonpower or manual hoist products or lifting tools that are controlled by humans -- the operator basically.

And most of the volume comes from the electric side, or air-powered for that matter on the hoist business, probably in the vicinity of two-thirds of the volume or three-quarters of it, somewhere in that neck of the woods.

And then the balance of it would be more manual products.

For chain and forgings there is not much intelligence in a piece of steel that is formed like a hook, or a chain that is welded together.

So I would call both of those, although they are put together in the form of systems sometimes for lifting systems, there's very little intelligence there.

So most of that would be in my mind on the nonintelligent side.

Got it.

And can you let us know what the marketable securities on the balance sheet are?

Sure.

That is pretty much our captive insurance company, Cemant (ph) McKinnon Insurance Company.

And basically that is our product liability for the two -- for the first $2 million of coverage -- product liability.

And that is what those securities are.

Excellent.

And finally your international business, how much of that is done in local currency versus US dollars?

The bulk of it is in local currencies, which obviously gets translated back into dollars when we do our consolidation.

So when we are selling into Europe it is typically in euros, and when we're in Mexico it is pesos, in Canada it is Canadian dollars, so typically it is local currency.

Derek Nim (ph) with Nomura (ph).

I was just wondering if you guys have broken out what percentage of -- or what effect steel surcharges had on revenues this quarter compared to last year's quarter?

Yes, steel surcharges certainly were here this year and not here last year.

And it was somewhere in the vicinity of about $500,000 or so effect on revenue.

So it is not significant.

Not in the grand scheme of things, no.

It is for certain businesses, but not in the big picture.

At this time we have no further questions.

Thank you, Julie.

Thank you all.

Just let me summarize.

This is a very solid quarter for Columbus McKinnon.

We have seen double-digit growth in most of our distribution channels.

And this combined with the a significant cost reductions we have accomplished in the last several years has generated improved profits.

Also the restructuring we have done in the Solutions segment has generated value and a decent turnaround in this segment, at least in my opinion.

Our operating leverage is significant as we generate more profit on even the smallest of sales increases.

We have maintained our strong market position in the domestic markets, and have penetrated new markets around the world.

We have seen some nice international sales growth of several million dollars this past quarter, led by European and Latin American markets after a fairly significant increase in the U.S. industrialization over the last 12 months or so.

And those of you that follow us may know that we're somewhat linked to that gross trend line.

It has moved from about 72 up to about 75 percent.

We have seen it take a bit of a breather in June, down slightly.

We continue to have good indications from the overall market, even though the summer months are not usually busy for us necessarily.

The inventory build that I mentioned that is in the channel seems to have subsided based on the news that there would most likely not be allocations of steel.

There also remains some uncertainty in the markets with the threat of rising interest rates, continued scrap steel increases, terrorism alerts and election ambiguity.

We believe we will continue to perform well, but possibly not at the same pace we have seen this past quarter.

We continue to drive lean concepts across our businesses.

This process has proven that we can continuously improve our operations around the world.

We will also continue to invest prudently in new markets and products to protect our market share in the U.S. and grow sales internationally to keep Columbus McKinnon positioned as the leader in the material handling industry.

We want to thank all of our CM associates around world for their efforts to make CM that leader.

As always, we appreciated your time today.

Have a god day.

Thank you.