Columbus McKinnon Corp (CMCO) 2006 Q1 法說會逐字稿

Good morning and welcome to today's Columbus McKinnon Fiscal 2006, First Quarter Investment Conference Call. [OPERATOR INSTRUCTIONS].

Now, I would like to turn the meeting over to today's host Mr. Timothy Tevens, President and CEO.

Sir, you may begin.

Good morning everyone and welcome to the CM conference call.

Earlier this morning, we issued a press release on our first quarter FY '06 results.

Hopefully you've received it and have corresponding financial statements with you.

With me today here in Amherst, New York is Karen Howard, our VP and Treasurer;

Joe Owen, our VP, Strategic Integration and Hoist Group leader;

Ned Librock, our VP of Sales; and Derwin Gilbreath, our Chief Operating Officer.

Bob Friedl, our Chief Financial Officer is not with us today.

I 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 CMCO files with the SEC to be sure you understand these risks.

Overall, our revenue for the first quarter exceeded the same quarter in fiscal '05 by over 15.8%, about 2% or so lower than our normally best fourth quarter of fiscal '05.

Net income was up about $4 million, about 118% higher than last year in the same quarter.

And our evaluation of market share data shows that we continue to lead the hoist and chain markets in the US, and we have a very strong position in forgings and indoor industrial frames.

Speaking about our product segments for a moment, sales in this segment in the first quarter were up 14.1% compared to the same quarter last year, down to about 2% compared to the fourth quarter of '05.

The increase from last year's first quarter is primarily driven from increased demand in our end user markets, that's about 8% that goes predominantly through our distribution channels.

A variety of distribution channels, which Ned Librock will speak to in a moment.

The revenue increase is also driven by fuel surcharges and price increases about 6%, and currency translation of about 2%.

International sales, one of our strategic initiatives, were up about 26%, led by Europe and Mexico.

Products segment gross profit was up 16.2% over the same quarter of last year and the operating income was up 31.1%.

As you can see the operating leverage that we have been speaking about now for a while is showing through very nicely.

Bookings in the products segment continued to be good in the quarter and overall we're up almost double digit over the same quarter last year.

Although, as we said before the comps, that's the last year, are becoming more and more difficult and we are beginning to see more moderate growth.

The backlog ended at $42.8 million flat with the backlog at the end of our fourth quarter in fiscal '05.

As a reminder for you all the cycle time on these items in our product segment is usually days or weeks and therefore this backlog number represents about 4 weeks or so worth of shipments.

Speaking about our Solutions segment just for a moment.

Sales were up about 29.7% over the same quarter last year, down about 6.7% on a consecutive quarter basis.

Gross profits increased slightly over last year and are up about 15.5% from the fourth quarter of '05.

Backlog stands at 17.3 million especially even with last year and up about 81% over the fourth quarter of '05.

You may recall that we did report in May that our Danish Powered Roller Conveyor business booked a substantial order in this quarter therefore raising the backlog up quite a bit.

On the debt net of cash, another one of our goals is to reduce debt, as you may know, down to about $253 million at the end of this quarter.

That's down $28.5 million from the first quarter of '05, down $8.5 million in this quarter alone.

Our inventories ended at about 79.5 million or so, up slightly from March of '05.

We continued to focus on inventory turns through our manufacturing principles and we would expect over the course of time for the turns to continue to improve.

At this time, I would like to ask Karen Howard, our VP, Treasurer, to lead us through the financial results.

Thanks, Tim and good morning, everyone.

I'm pleased to take a few minutes to review some of the financial highlights of Columbus McKinnon's first quarter of fiscal 2006, which ended on July 3.

Consolidated sales increased by 15.8% in the first quarter this year, compared to last year's first quarter.

Product segment sales, which accounted for about 88% of the total sales in the quarter, increased by $15.3 million or 14.1% with strong double-digit sales increases from the Hoist and Chain builder product line.

Solutions segment sales increased by $3.9 million or about 30%, compared to the first quarter of last year, driven by our European Conveyor system sale.

Foreign currency translation continued to have a positive impact on revenues in the quarter, principally from our European operations, adding 1.6% to sales, compared to the prior year quarter.

In a steady economic climate, our typical quarterly sales pattern in the US historically shows sale is strongest in the fourth quarter and weakest in the third quarter, with either the first or second quarter placing second and third.

As US demand continued to increase for our products, this pattern has been driven by the improved economy.

And in sequential quarter-over-quarter basis, we have now reported increasing sales in each of the last eight quarters, that is, since the first quarter of fiscal 2004.

The quarter we just ended has 65 shipping days, the same as the first quarter of last year.

Included in the press release, is a table showing the number of shipping days in each of the quarters of fiscal 2006 and fiscal 2005.

In the current year fiscal '06, we will see the same number of shipping days in each of the first three quarters, as in fiscal '05, with two additional shipping days in the fourth quarter of fiscal '06.

Turning to gross profit, consolidated earnings leverage added about $0.26 to gross profit for every dollar of incremental sales.

The Products segment gross profit margin increased to 70 basis points quarter-over-quarter, partially offset by the Solutions segment gross profit margin, 310 basis point decline, drove overall consolidated gross profit dollars up 16.2%.

Products segment gross profit margin was higher than last year's first quarter, due to the earnings leverage from higher sales level, that is, 27.6% gross profit margin in the fiscal '06 quarter, compared to 26.9% in last year's quarter.

The gross profit margin decrease in the Solutions segment from 16.8% last year to 13.7% this year was primarily due to a less favorable sales mix, in our Denmark based Univeyor Conveyor business.

Consolidated selling expense as a percent of sales improved to 9.7% in this year's first quarter, versus, 10.4% in last year's first quarter.

Even though increased investment in international markets drove expenses up about a $0.5 million, the Exchange rate impact in the quarter added an addition of $200,000 of expense on that line.

General and administrative expenses were 5.8% of sales this quarter, compared with 6.2% in the first quarter of last year.

This year's expense numbers included compensation increases of about 200,000 along with a 100,000 increase from exchange rate translation changes.

Interest and debt expense was down about $300,000 this quarter compared to last year's quarter due to lower debt levels.

The other income and expense of $800,000 include CM insurance Company investment income.

Beginning with the first quarter of fiscal 2005, no US Federal income tax expense has been recorded for our US entities through the use of fully reserved net operating loss carry forward.

We began this year, fiscal '06, with $98 million of fully reserved US federal and carry forwards, available to offset future US taxable income, of these approximately $8 million was used in the first quarter.

The overall worldwide effective tax rate for the first quarter of this year was 18.3%, compared with 17.8% in the first quarter of last year.

Going forward, we expect to see an overall tax rate for fiscal '06, approximating 20%, depending on the mix in US taxable income to foreign taxable income.

Depreciation for the quarter was about $2.2 million compared to last year's depreciation of $2.2 million.

Net capital expenditures for the first quarter of this year were $1.7 million.

Further, we expect capital expenditures for the year to be in the $5 to $7 million range, as we have previously stated.

Net cash provided by operating activities were $10.6 million in the quarter with 9.4 million generated from earning.

Working capital components increased about 400,000, as inventories increased by 2.6 million.

Accounts receivable and unbilled revenues increased 3.9 million partially offset by increases in accounts payable and accruals of $2.1 and $4.2 million respectively due to the higher sales level.

At the end of the quarter, as Tim mentioned net debt were $253 million and total gross debt was about 267 million.

During the quarter, total debt decreased by about $4.3 million, as we reduced same debt by 1.8 million and repurchased in addition of $2.3 million of our 2008 subordinated note, which carry an 8.5% coupon.

As a reminder, in fiscal '05, we repurchased $19.6 million of the 8.5% subnotes.

With the current year's repurchases as well as last years, the total amounts to $21.9 million of subnotes repurchased and that amounts to annual cash interest savings of about $1.9 million.

At the end of the quarter, availability on our $65 million revolver under our senior credit facility was about $48 million.

The $3.8 million outstanding on the revolver and about $13.6 million of letters of credit outstanding.

We were comfortably in full compliance with all of our financial covenants under this credit facility.

We will continue to focus on debt and interest expense reduction in the future and just to note our deficit of capitalization at the end of the quarter was 75.6% down from 76.8% at the beginning of the year.

Longer term, we are targeting a 50-50 debt equity ratio, and a senior subordinated debt reading of BB or better.

With that, I thank you and turn it over to Ned.

Thanks Karen, and good morning to everyone.

The first quarter sales of fiscal year 2006 have continued the strong pace, experienced calendar year to date.

All major brand names and distribution channels have equaled or exceeded revenues of the same quarter last year, despite the tougher comparables.

Level distribution product sales in North America increased by 11% or 35% of total revenue.

Our specialty distribution group product sales in North America increased 15% or 8% of total revenue.

Consolidated international sales increased 26% or 36% of total revenue.

Finally, total aftermarket part sales increased 22% over the prior year.

Effective July 5th, all surcharges were eliminated and new list pricing went into effect for chain attachments, which included various surcharges and a price increase.

Also as previously mentioned, the price increase was implemented May 1st, for all Hoist products approximately 4% and all Hoist parts approximately 5%.

Columbus McKinnon continues to lead the industry in implementing surcharges and price increases to help offset steel energy and other cost increases.

The industry outlook remains positive in North America and all indications are that distribution will continue to reflect positive sales growth despite the tougher comparisons to last year.

International sales growth is expected to remain strong in most markets.

All in all, another good quarter for revenue growth worldwide.

Thanks, and now I will turn the program over to Derwin.

Thank you, Ned.

Our focus is to continue to generate cash to repay debt as quickly as possible.

Along these lines the operating leverage continues to be evident.

Each incremental sales dollar over prior year's quarter generated $0.18 of income from operations.

We also continue to market real estate, although no properties were sold during the quarter, our facility in Canada was sold for 1.69 million in mid-July.

Several other properties have current interest from potential buyers.

Working capital as a percent of sales continues to have a very positive trend and was 19.4% at the end of the quarter compared to 20.2% last quarter.

We are in the process of developing long-term inventory targets beyond our current long-term plan.

Lean principles would be a key part of achieving these targets.

Accounts payable and receivable projects are also underway.

Steel prices have stabilized and in most cases it has been reduced, however freight cost continue to increase.

Modifications have been made to our customer freight policy that should partially offset these price increases.

Additionally, lean events are planned to make sure we're minimizing our freight cost.

I will turn it over to Tim.

Thanks Derwin.

Okay Merin (ph) we are ready for questions at this point.

[OPERATOR INSTRUCTIONS].

Steve Wise, Midfloat Capital Investment (ph)

I had a couple of questions.

Over the past year a lot of competitors have recently been implementing some new strategic initiatives, future raw materials and overhead cost by establishing better line of communication collaboration with the supplier base, I am interested if you could apply some color to us on the call today as when you guys are planning on doing in the future to reduce the raw material cost by establishing better line of communication with the supplier?

Sure, we can touch on that.

I will start and ask Joe to add some color if he would.

Back -- Oh my goodness five, six years ago or so now -- seven years ago, we put in place a commodity-oriented buying and basically buying commodities of raw materials as a company.

We combined all of the buying power of the acquisitions that we did basically in the '90s.

We have a pretty robust process to communicate our specifications and our needs to a variety of suppliers, we pre-qualify suppliers with a variety of functions including engineering quality and purchasing and then we ask them to bid on those commodities and we are now through, I would estimate about 50% of our purchases are covered by commodity agreements today.

We have wonderful relationships with our suppliers in a general sense and long-term relationships with many of them.

So, I think we probably been doing that now for quite a while and feel pretty comfortable about their process.

Joe, is there anything you'd like to add to that?

Yes.

We probably put about 45 commodities through this process.

Not only raw materials such as steel and bearings and motors, but also some of our service contracts as well.

Some of our supplier agreements are as long as, say four-and-a-half years and they have price controls in them, as well some are maybe only a year -- a year long, certainly in the last 18 months we have seen some significant inflation in the steel area and then any other commodities that are linked to primary metals.

So, motors and with the link to copper there.

So, we are confident that our process is one -- keeping us at markets or certainly better in many cases and we did take some fairly significant price increases over the last 18 months in steel.

Steel has stabilized and has started coming down and we continue to use our commodity management process to make sure that we are buying cost effectively and certainly we're always working for to further our supplier base with quality suppliers throughout the globe.

I think I've noticed over the past couple of years (indiscernible) your Company and why is that you are able to achieve great earnings and (indiscernible) quality has always been a huge network of your Company and you talked about how you work with your commodity suppliers pretty often -- are you score carding them or you are talking in quarterly, and if there are conferences, what are you guys doing to make sure they are providing you the right quality components?

Well, many of our suppliers we have had relationships with for a number of years and if you know our company history -- we grew significantly through acquisitions back in the mid '90s and as a result that created leverage for the company to consolidate the supplier base.

So, we felt in some cases we had strong suppliers in certain divisions and by consolidating that supplier base we created a win-win.

One, we're able to in some cases double, triple the volume and then through that leverage create more economies of scale and lower pricing and improve terms and conditions for the company.

We don't have necessarily have a lot of emphasis on a Sport Card, I think that on a monthly Sport Card, we do measure them with on time delivery, that is critical, certainly in the last 18 months, we have had more issues, I would say with on time delivery with suppliers, and certainly with the spike in demand, that's been critical for us to manage that.

Like anyone else, we do have quality problems with certain suppliers and they tend to be when we are moving business to a new supplier and where both of us are kind of working through the learning process and getting through some of the specifications, that's usually a start-up activity, but that's about the external problems we have.

Pete Lisnic, Robert W. Baird.

Just wondering, if we could maybe peel back the onion, I guess, on some of the SG&A improvement that you saw in the quarter, and we all know that you're targeting healthcare cost decreases and SarbOx decreases.

Can you maybe break out what the cost improvements were in the quarter from those two initiatives versus things like lean and restructuring?

So, specifically dealing with the Sarbanes-Oxley cost, comparisons would be...?

Yes.

Do you have a SarbOx year-over-year number, and then just kind of what you have seen in terms of order of magnitude and, what I will call sustainable or maybe not sustainable, but non-recurring types of things you have done to the cost structure that are more structural in nature?

Actually, I think from a Sarbanes-Oxley standpoint, last year you know was our first year going through for it, preparation for it and I would like to say that that novice period is behind us, and we are a little bit smarter today.

So in fact, I think we are more aptly accounting for those costs and actually Sarbanes-Oxley costs are up about a $100,000 this year as compared to last year.

I think we might have been a little naive expecting what the cost would be for the whole project.

We probably didn't account for any of those increases in Q1 of '05, but actually that went the other way on us.

We are still anticipating having said that and targeting about a 50% reduction in the $1.4 million number that we saw in fiscal '05.

So, I think that would probably straighten the cost out a little more accurately today than we did last year.

I think relative to other expenses and selling expenses, we did see some increases this quarter.

As you know Pete, when we talked about our strategy to grow internationally, we invest in the market by putting a sales office, warehouse, put salesmen on the street, so to speak, in those local markets, and then investment takes some time to grow and give us returns as a Company.

And we probably had an extra $200,000 this year over last year that we didn't see last year because of those new markets that we have entered into.

I am actually looking for -- actually I am sorry that's about $500,000 in total, if you add up our export presence as well.

I can't comment specifically on what other selling expenses there might be headed in a positive direction.

I think that the volume is up with maybe a relatively flat although modestly up selling expense, which gives us a better percentage of sales for selling.

And I would say G&A probably follows a similar trend.

We're not seeing anything come down out of this anticipated Sarbanes-Oxley cost that we talked about.

I think healthcare, let me just comment on it quickly, and this is by the way not just SG&A because you know what's in cost of sales as well, it appears to have flattened and not a dramatic increase in cost that we have seen in the prior three years or so.

It's -- we have put in place some new programs, new healthcare programs for all of our associates in the States.

We think that to a degree that is working, some of that are consumer driven, and I think our folks are more cautious and focused on cost as they use medical facilities and other expenses in their personal life, so I think that's helping a bit.

But other than that, I think the G&A costs are relatively flat and sales are up to offset that.

Okay, fair enough on that one.

And then in terms of pricing you had 6% or 6 points I guess of pricing realization on the quarter.

Can you break out what piece of that was surcharge versus sustainable or not sustainable, but how ever you want to classify that, the standard price increase?

Yes, you heard Ned talk about the price increases on the Hoists that we went through, and they are usually about 4% on units, 5% on carts and that would hold through as well in the 6%, so probably about three quarters of that would be price.

Yes, that's about right.

We only have the surcharges on the chain and the attachment side of our business, where we had firm price increases on the hoist side of the business, I would say its probably a 1.5 to 2 points on surcharges on average.

Okay, and then historically your realization of price increases, is it safe to assume that you pretty much realize everything that you have passed through in the catalog price?

As far as our selling to the markets, I would say no.

Ned will clarify this in a moment I'm sure but basically speaking for some of our products, we would get 75% or 50% of hoists and maybe in the chain and forgings, we will get only 25% to 50% of the price increase, historically speaking.

That's accurate, much -- a lot of our business is tied up on contracts and catalogs, the timing of catalogs for instance, where we have price increases, it's a blend, but I think Tim's 2% of that, maybe three quarters on the hoist, and 25% to 50% on chain and forgings is accurate.

Okay, great, thank you guys.

Mark Grzymski (ph), Needham & Co.

Good morning guys.

Hi Mark.

Great quarter.

Just quickly to follow up on Peter's question on pricing, How much of that did you think is going to stick?

I means things are stabilizing or is there going to be any push back from the other end?

Over and above the normal push back?

yes, of course.

Well, as I said, a good portion of our business is tied up on contracts and that helps.

I think we are going to see most of it stick.

We are -- we haven't tried (indiscernible) industry, we've tried -- our philosophy is try to be margin neutral to offset some of these increases that we have received and all indications are so far that there is a lot of verbal push back but our order book still remains relatively strong.

I don't anticipate any major problems.

Okay, great.

Could you guys comment on the new product?

I mean how is that -- where are you guys there?

How did that do in the quarter, and also if you could touch on that in Europe, because I know -- you know I'd imagine that there is, the growth there you are seeing new products obviously helping?

Yes, I don't have that number in front of me Mark, relative to new products introduced and how those are actually penetrating, but I do know that there is a number of them pushing through many of our distribution channels today, where you might have heard us talk about design of our new hoist line rated on international standards as opposed to the ANSI standards here in the States, and that hoist line actually has not even been launched yet, it will be launched in our fourth quarter.

This is what the current thinking and planning is right now.

There is also some fair number of new forgings that we have designed and developed that we are introducing into the world market, probably more North American, I would say, than anything.

We've got some new tools coming out of our Chinese facilities that we are cross branding worldwide.

And also a good, an interesting segment of our international sales growth is that we are taking -- what I'm going to say is establish products to new markets also under our cross branding or multi branding strategy, which complements the introduction of brand new unique products.

Is the -- specifically, within Europe, s the weakness in certain markets, is that still consistent with the past, or are we seeing any turnarounds in some of the Western European countries?

Well, that's a good question, and you know we've talked about some of the major economies in Europe being flat or down, and specifically Germany and France.

This past quarter that trend has reversed, reversed slightly both in those two major economies and we saw some -- I call it decent growth, it's low single-digit kind of growth, when you are expecting a minus number and you see a positive number, that's a plus, big plus.

So, that was very helpful.

Our Danish Power, relative to their businesses, they had a wonderful quarter as well from the volume standpoint, and that has helped out, that most of their businesses in the UK and in Western Europe as well as in Scandinavia, so that helped as well.

But, I think actually Europe -- let me give a phrase, it turned upward slightly and it makes us feel little bit better about that economy as we sit here today.

How robust that is and how long it will stay Mark, is anybody's guess at this point.

It will be nice, if you guys are a leading indicator.

And finally guys, and this might be more difficult to answer, but the end markets, I think people are looking at the industrial markets and figuring, maybe last quarter was a peak, but is there anyway you could touch on the specific end markets that are doing well and those that might not be domestically, specifically?

It's probably easier to say, which ones aren't doing well, most of them -- we sell to so many different NAICS Codes, most -- all the industries we are calling, in the mobile home business, the automobiles support market, the paper mill bard market, the mining, petroleum, entertainment, they are all doing extremely well, they are all -- it's hard to isolate any one industry that's off, and it just seems to be, this an eight cylinder machine and they are clicking right now, including the international markets, and again I think a key of this is a lot of products going into multiple channels and the average sale price is not extremely high for most our products, typical an expense item, they are typically expensed.

And that's great, just one final follow up, I think you mentioned the tax rate, you said, did I hear you right, 20% in fiscal '06?

Yes, that's right Mark.

It's our estimate about 20%, it will fluctuate depending the mix, US source pretax income versus foreign income, which is tax.

[OPERATOR INSTRUCTIONS].

Tom Klamka, Credit Suisse First Boston.

On the revenues, when you take out the pricing, any effects you're still closed at 8% revenue growth, which is pretty strong.

Have you guys been able to discern whether this is sort of sustainable reinvestment growth or is a big chunk of this, guys invested in our plans for a last couple of years, and now they are coming back and sort of catching up with that Popsicle (ph) way going forward?

As you know our thesis is that anything under 80% or so, capacity utilization, at least in the states, is more of a maintenance oriented kind of activity for us, so, it's more replacement business.

That is clearly not a perfect world, and it's becoming more of a blend.

Ned would say that some of our channels like the entertainment channel is truly growth and probably not very much replacement because there seems to be more entertainment venues going up, there seems to be more shows going on, and as that activity continues to, by the way, grow around the world, as we sell under the Moscow ballet, as an example or go into the Beijing Olympics as an example.

Now, we're seeing this phenomena happening around the world, not just in North America any longer.

So, those are probably more incremental things and quite honestly, we don't see those necessarily slowing at this point.

I would say that, the trough, if you will, the bottom was right after 9/11, and ever since then, it took a while by the way, many, many months, but has slowly eaten is way back and now it has surpassed what we've seen, historically speaking, and I think its because of our world and the focus of our people and where dollars are spent from the disposable standpoint.

So, what you are saying both in your backlog, your orders and from your customers is, this present rate of growth on revenues should be sustainable going forward?

I would guess that.

One of our barometers that we look at is bookings, especially in the products business.

Bookings drive revenue in a very short order and we kind of measure that rate against last year and for the longest time we were flipping along in the double digit here, very nicely, month in and month out.

In the quarter, that pace continued and I think in the summer month now we are sitting here in July, it is low-to-single digit, the mid-single digit growth over last year.

Last year is a little tougher comp.

So, I don't Know if that's summer, generally speaking just a summer low and it will pick up in the fall again or at this point in time if that is going to be the kind of growth we are going to see pushing forward.

So maybe 8% might be, as I sit here today, a little on the high side, but in the 4 to 8 range probably would not be out of line.

And what is the status on the solution side?

It looks like revenues were up and the quarter profitability operating income basis is still pretty low, what do you see happening there going forward?

What's up with the asset sales?

The asset sales have not kicked in as of yet, while some of them we pulled from the market like our shredder business which falls over there.

The shredder business is doing very well, booking a fair amount of their Liberator, it's called which is a pulverizing machine, they did take a warranty hit in the quarter, which I think reduced that gross margin that you see.

We don't expect that to continue in the future.

So, we would expect profitability at least in that business to return to more normal level.

The Univeyor business, which is 70% of that or so of that segment, this is a mixed issue for them.

The kind of jobs that they have going through right now have less manufacturing content and more resale content and that resale content has lower margins on it, which is why you have seen that margin dip a little bit.

I would suspect as I look down the road and look at sort of backlog, this is a backlog-driven business.

The debt should rebound to a more normal level for the Univeyor business.

Okay.

And just last question.

We saw that Ernie Verebelyi is taking over as Chairman, I guess.

Has he shared his views yet as to his plans for the Company going forward?

Yes.

Ernie and I have spent some time together.

Obviously, the last two-and-a-half years he's been on our board, he's been a wonderful director and added his insight and guidance over that time period.

I think that he will continue in the mode of (indiscernible) of being a great leader and helping us on the strategic side, maybe to a greater degree actually, and in terms of what our corporate direction would be.

And quite honestly he will take over after the shareholders elect him a director in August and I am sure we will lay out some more detailed plans shortly thereafter.

Greg Heigh (ph), Wachovia Securities.

Yes, good morning.

I think most of my things have been answered but I guess just the remaining item might be you all mentioned that as your redoubled effort, if you will, to focus on working capital reduction and you mentioned efforts directed toward inventories.

Can you give us some sense of size, are we talking about couple of million dollar inventory reduction or 5 million or 10 million, just give us some sense of scale on what you might think you might be targeting in that area?

Sure.

We ended fiscal '05 at about 5.7 inventory turns as taking the fourth quarter and annualizing it.

We think that if you look forward we would, overtime by the way, we would clearly point toward a 7 or 8 turn kind of Company, generally speaking.

Now that is going to take years to get to that level.

We have come a long way, but we have a long way to go.

So, I would expect to see not a perfect straight line of improvement quarter after quarter, but more of a general trend line of improving and I guess we would be tickle

if we can see somewhere around a 10-15% kind of improvement annually, time in and time out.

So, if we can see something in the, let's say $5-7 million kind of area for this fiscal year that would be, we would be very happy with that.

As you can see that that would continue than overtime to have eventually reached to this, let's call it magical eight number.

And that is a tremendous improvement if you guys can achieve that -- would you have to change the business in some way i.e., rely more heavily on third party manufacturers to make more of your things or I know that you are pursuing more of a lean or have pursued upon the lean manufacturing approach which is to accomplish a lot so far -- but something the magnitude of the change that you are taking about a significant.

How is that going to come about?

Definitely it would be a lean focus.

We would subcontract a few things.

I mean that goes -- that's an ongoing process but the key core of the matter is we are going as in factories so that we reduce our lead times very dramatically.

Also tying in with our suppliers having more

systems from suppliers instead of ordering large quantities and stocking things like we have spent on in the past.

Let me just add if I can, that number that I gave you 10% area would be absolutely kind of like knock the cover off the ball scenario.

I think, we're actually budgeting somewhere around $3 to $4 million reduction in this fiscal year, just to give you a sense of what -- what we think we can actually do.

And then I guess, the only other thing was just if you can refresh my memory, I don't recall where you guys stand, what's your leverage covenant is right now.

You can obviously see what you're doing, but what's your covenant, I don't recall that?

It's got plenty of room.

We only have a senior leverage covenant.

We don't have a total leverage covenant right now, and we currently have a plenty of room under our covenant.

Unfortunately, I don't have many of that number in front of me, but we have plenty of room under that covenant and it's just a senior leverage covenant.

Joseph VonMeister, Jefferies & Co.

Could you give me a quick outline of what the debt balances are at the end of the first quarter?

Sure.

At the end of June, we had -- I mentioned $3.8 million outstanding on our revolver, which is under our bank senior credit facility.

In addition to that, we had about 5.6 million of foreign debt which is senior and we had on a larger scale $115 million outstanding against our 2010 notes (ph) which carry a 10% coupon, those are our senior secured notes and about a $142.3 million outstanding on our 2008 notes (ph) which is senior subordinated debt carrying a 8.5% coupon.

And do you guys publish a borrowing capacity on your revolver?

I did mention -- it's a $65 million facility and at the end of the quarter we had about $48 million of availability.

Pretty much like last quarter.

Right, approximately.

And at this time, I show no further questions, and I would like to turn the meeting back over to you, Mr. Tevens.

Let me just summarize by saying that our strategy is to leverage our superior material earning design and engineering mill house to continue our dominance in the US markets as we expand our global presence.

Our market share growth will be built upon new products design specifically for the various markets needs incorporating our high quality standards and service support.

I do want to thank all of the associates around the world for their hard work and ultimate success in making this quarter a success.

As you can see, we continue to experience the growth in bookings and revenue as most of our distribution channels have experienced significant growth.

Combined this revenue increase with the cost reduction we've accomplished in the company in the last several years and you see the results, wonderful operating leverage.

We maintain our strong market position in the domestic markets and then penetrate the new markets around the world.

Specifically, we continue to have success in Europe, Latin America and the Far East.

We believe, we will continue to perform well but we all need to recognize there are some issues in the world markets that could have an impact on these improvements that we have seen to date.

Specifically, energy costs, interest rate increases, center for healthcare and product liability cost as well as other regulatory cost that had an impact on CM and certainly it might in the future.

We continue to drive the lean concepts across our business as this process has proved that we can continuously improve our operations around the world.

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

Again, I want to thank all of our CM associates for their efforts to make CM that leader and as always we certainly appreciate your time today.

Thanks very much and have a good day.

And if you would like to listen to today's conference in replay please dial 866-442-1602.

Thank you for attending today's teleconference and have a great day.