Columbus McKinnon Corp (CMCO) 2006 Q3 法說會逐字稿

Good morning and welcome to Columbus McKinnon’s Fiscal 2006 Third Quarter Investor Conference Call. [OPERATOR INSTRUCTIONS]. Now I will turn the meeting over to Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Thank you, Jen. Good morning and welcome to the Columbus McKinnon Conference Call. Early this morning we issued a press release with our Third Quarter Fiscal ’06 results. With me here today is Karen Howard our Vice President, Treasurer, Interim Chief Financial Officer, Derwin Gilbreath our Chief Operating Officer, Joe Owen Vice President of our Hoist Group and Ned Librock VP 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 CMCO files with the SEC to be sure that you understand these risks.

Overall, our revenue for the third quarter exceeded same quarter last year by about 6% driven by our Product segment and offset somewhat by our Solutions business which was primarily down as a result of currency translation.

Excluding a $5 million previously disclosed refinancing charge, our net income was up about $4 million or 167% higher than last year in the same quarter. Sales for the Product segment in the third quarter were up about 8% compared to the same quarter last year; down about 2.4% compared to the second quarter of fiscal ’06 primarily because of five fewer shipping days in Q3. The increase from last year is primarily driven from increased demand from end-users through our various distribution channels as well as some price increases.

International sales were up about 4.4%, led by Europe and Latin America. Removing a negative currency translation in the quarter, our International Product segment sales would have improved about 7.7%.

Product segment gross profit was up 16.7% over the same quarter last year and our operating income was very nice; up 37.2%. As you can see, the operating leverage continues to be very positive for this business.

Bookings in our Product segment were very good in the quarter and overall were up single-digit to low double-digit range over the same quarter last year. Backlog was flat with last year but up 16% to $46.5 million compared to the backlog at the end of our second quarter of fiscal ’06.

Just as a reminder to you all, the cycle time on most of these items in our Product segment is in days or weeks; therefore, the backlog number represents somewhere in the four to five week shipment area.

Relative to our Solutions segment, sales were down 6.8% from the same quarter of last year but up 10.5% on a consecutive quarter basis primarily driven by the timing of some projects at Univeyor, our Danish Power Conveyor business. Gross profits increased 13.1% over last year and are up about 11.6% from the second quarter of fiscal ’06.

Operating income is up nicely, 62.5% over last year. Backlog is at 12.8 down from last year and it’s down from the second quarter of fiscal ’06.

Univeyor, again the largest business in our Solutions segment, is a project driven business and is experiencing normal ebs- and flows of booking and production of these projects and that’s why you see some of these deviations on a quarter-to-quarter basis.

Point of debt which has been one of our targets to reduce it, net of cash is down to $172.6 million at the end of this quarter; down nicely $88.8 million at the beginning of the year and down about $65.5 million in the third quarter mostly as a result of the previously announced equity offering we closed on in the quarter.

It was a fairly busy quarter for us here at Columbus McKinnon. We sold and closed on a sale of $3 million shares of stock and redeemed approximately $40 million of outstanding 10% Senior Secured Notes. This will have a positive effect on Columbus McKinnon going forward as we will now save about $1 million per quarter in interest expense; and we’ve also improved our debt-to-total cap rate to 58.6%.

With that overview, I’d like to turn it over to Karen Howard who will lead us through some more details on the financials.

Thank you Tim, good morning everyone. I’m pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon’s third quarter of fiscal 2006 which ended on January 1st.

Consolidated sales increased by 5.9% in the third quarter of this year compared with last year’s third quarter. Volume increases accounted for 5 percentage points of the increase with pricing accounting for 3 percentage points and foreign currency translation negatively impacting the change by 2 percentage points.

Product segment sales which accounted for approximately 88% of total sales in the quarter increased by $8.5 million or 7.8% with strong double-digit sales increases from our Hoist Group.

Solution segment sales decreased $1.1 million or 6.8% compared to the third quarter of fiscal ’05 of which $900,000 of the decrease was due to a negative impact of foreign currency translation. The remainder of the decrease is driven by project timing changes in our European conveyor business which accounted for approximately 63% of that segment’s revenues in this year’s quarter.

The Company’s quarterly sales pattern assuming a period of consistent economic conditions, typically shows sales strongest in the fourth quarter and weakest in the third quarter with either the first or second placing second or third, generally depending on the number of shipping days in them.

As the U.S. industrial economy has recovered since the middle of 2003, the Company has now reported year-over-year sales growth in each of the last nine quarters since the third quarter of fiscal 2004.

The recent quarter had 58 shipping days, the same as the third quarter of last year. This is a decrease of 55 days or 7.9% compared to the second quarter speaking sequentially.

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. For the current year of fiscal ’06, we have 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.

[Inaudible] gross profit – Consolidated earnings leverage added $0.67 to gross profit for every dollar of incremental sales this quarter compared with the prior year. The sales growth realized by both of our segments was complimented by margin expansion.

The Product segment quarterly gross profit margin increase of 210 bp year-over-year as well as the Solution segment gross profit margin increase of 310 bp show overall consolidated gross profit dollars up 16.4%.

Product segment gross profit as a percent of sales was higher than last year’s third quarter due to better product mix with higher hoist sales, pricing, lower actuarial product liability costs and the earnings leverage from higher sales levels. Gross margins were 27.3% in fiscal ’06 versus 25.2% in fiscal ’05.

The gross profit margin increase in the Solution segment to 18% this year from 14.9% last year was primarily due to favorable sales mix at our Denmark-based conveyor business - there are more product type sales as opposed to systems - as well as operating leverage from the other businesses in that segment.

Consolidated selling expense as a percent of sales is down to 10% in the third quarter versus 10.6% last year. Even though increased investment in international markets drove the consensus up about $200,000 this quarter.

Consolidated G&A expense was 6.3% of sales in the third quarter compared with last year’s 5.5%. This year’s expenses included $1.2 million of higher compensation expense partially offset by $300,000 lower Sarbanes-Oxley compliance costs.

Our operating margin improved to 9.8% for this year’s quarter compared with 7.5% last year. The operating leverage contributed $0.49 to income from operation for each incremental sales dollar. As previously disclosed, we continue to drive revenues toward the annualized $600 million level. We are targeting operating margins in the 11 and 12% range.

Interest and debt expense was down $600,000 due to lower debt levels. Other income and expenses of $4.2 million expense this quarter include several items. It includes $5 million of charges of which $1 million was non-cash relating to the redemption of $40.25 million of our Senior Secured Notes that occurred near the end of the quarter. That is partially offset by $600,000 of investment returns on our Captive Insurance Company assets and excess cash.

Regarding income taxes, beginning with the first quarter of fiscal 2005, no U.S. federal income taxes have been recorded for our U.S. operating entities due to the use of fully reserved net operating loss or NOL carry-forward.

The Company began the year with $98 million of fully reserved U.S. Federal NOL carry-forwards and utilized approximately $5 million thus far year-to-date leaving $93 million available for future use.

While the cash tax payment savings will continue to be available until fully utilized, we will be working closely with our auditors to determine when it will be appropriate to reverse the reserves against those assets for financial statement reporting purposes.

The overall world-wide effective tax rate for the third quarter was high at 55.1% compared with a 35.1% in the third quarter of last year. This year’s third quarter was unfavorably impacted by the $5 million of partial redemption costs offsetting U.S. taxable income and, therefore, reducing the impact of the NOL.

Going forward, we expect to see an overall tax rate for fiscal ’06 approximating 22 to 23% depending on a mix of U.S. taxable income to foreign taxable income. Excluding the impact of the fully reserved NOL, a more normal effective tax rate would be in the 38 to 39% range.

Depreciation for the quarter was $2.1 million while last year’s was $2.5 million. Capital expenditures for the third quarter were $1 million and included investments in our new product development activities, our growing lost-cost international facilities, productivity improvement equipment as well as normal maintenance CapEx. We continue to expect capital expenditures to be in the $6 to $7 million range for fiscal ’06.

Net cash provided by operating activities were $14.3 million in the quarter with $8.3 million generated from earnings and $6 million from working capital. Within working capital accounts receivable, net of unbilled revenues contributed $3.1 million and inventories contributed $2.4 million during the quarter.

We have continued to focus attention on our working capital management knowing that our utilization of working capital at the end of the quarter relative to the latest 12 month’s revenues improved to 16.8% compared with 22.1% a year ago.

Sticking with the balance sheet, at quarter’s end net debt was $172.6 million and total debt was $214.4 million. As previously announced, we closed on a secondary equity offering in mid-November resulting in net proceeds of approximately $57 million. The majority of the proceeds from the offering were applied to reduced debt.

During the quarter net debt decreased by $65.5 million. At quarter end, availability on a $65 million revolver provided for under the Senior Credit Agreement was $65 million with outstanding letters of credit only and nothing actually drawn against the revolver. We were comfortably in full compliance with all financial covenants related to this agreement. While our strategy emphasizes profitable sales growth and international expansion, it continues to include focus on debt and interest expense reduction.

Debt to total capitalization improved to 58.6% driven by application of our equity offering proceeds, down from 76.8% at the beginning of the year.

We are currently targeting a 50/50 debt to equity ratio and a corporate debt rating of double D or better. Ultimately, we are targeting a 30 to 40% debt to total capitalization ratio with an investment grade rating to give us flexibility to support our growth strategy.

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

Thanks, Karen and good morning to everyone on the call. The third quarter continued to be positive for Columbus McKinnon’s brand name and distribution channels in North America compared to last year; although the comparables have become more challenging having seen positive momentum for the past eight quarters.

General distribution sales in North America were up 6% representing 33% of total revenues. Specialty Distribution Sales in North America were also up 6% or 9% of total revenues. Local currencies consolidated international revenues were up 6% on a very strong quarter last year and represented 37% of total revenues.

Currency translation had a $1.1 million unfavorable impact on the product segment for the quarter as compared to last year primarily due to the strengthening of the dollar relative to the Euro.

No new price increases were implemented in this quarter. All product surcharges that were rolled into new pricing earlier in the year remain in place. The outlook remains positive entering the new year; no one market, product or geography is dominating revenue growth. Distribution in North America continues to be optimistic for sales growth in 2006.

Our initiative for growth outside of North America remains a key focus as we implement our multi-branding strategy in key international markets such as Europe, Brazil and Asia.

Overall, we are pleased with the results of the third quarter and look forward to a solid fourth quarter in fiscal year-end.

Thank you and now I will turn the call over to Derwin.

Thank you, Ned. Good morning, everyone. Our operating leverage continues to be strong. Year-to-date through fiscal December, every incremental dollar in sales has generated an incremental $0.27 of operating profit over last year. We are using lean as a foundation for change throughout the business.

The project reported on last quarter used an example of lean and this project is progressing on schedule. The project was to outsource about half the machine parts in the factory, re-lay-out the factory floor using lean principles, reduce floor-space by half and improve the operating income on all product offerings at this plant to the mid- to high-teens. Again, this is just one example of a number of projects that will impact customer service and the financials in future quarters.

Our focus on inventory reduction is both short-term and long-term. Our long-term plans for inventory reduction is to create a master plan for key plants to reduce lead time by re-laying out the process flow and to make some investments in improving machine processes that will lower costs. In addition to the improved financials, of course, customer service will improve.

In the short-term we will continue to review our operations to lower inventory without lowering customer service and this also is going to be done in conjunction with aligning our shipments from our suppliers to our requirements.

We continue to review all product lines to lower costs using an assortment of approaches depending on the situation. These include current projects on subcontracting, moving certain parts to our lower cost plants, value engineering, raising quality levels and making capital investments to name a few.

Our capital continues to be for new products like the Thin Wire Rope Hoist, for product cost reduction and lead time reduction. Additionally, we are also investing in our human resources with a comprehensive management training program for all management, and, where appropriate, upgrading management. Our facilities have human resource action plans in place based on an employee survey taken last year.

In summary, there are many opportunities and operations and we aggressively pursue them. These efforts will continue to strengthen our ability to maintain and enhance our revenue stream, profits, cash-flow and return on assets employed.

I’ll turn it over to Tim.

Okay, Jeanette. We’re ready for questions.

Thank you. We will now begin the question and answer session. [OPERATOR INSTRUCTIONS]. Our first question comes from Peter Lisnic of Robert W. Baird. You may ask your question.

Questions just on the new product front – there wasn’t a lot of mention about it – but the transition between [Amsee] and [Thumb] product. Could you just go through that, Tim?

Sure. I think we’ve announced previously and you know, Pete, certainly that we are in the process of designing a brand new line of railroad hoists and that is complete. It actually has been tested and is ready for launch this quarter so we’ll be seeing some revenue-- actually it’s toward the end of the quarter so I would suspect we’d see some bookings this quarter but really future Q1 of ’07 kind of revenue stream for that line.

And then can you remind us, again, of what that means from a profitability standpoint?

Our view is that the SEM rated hoist, the international hoist provided us with some opportunities to grow volume – really – to grow some sales. To compete around the world, the Amsee product is too costly of a product and we would expect this new line of FEM rated [inaudible] to be able to actually sell more robustly around the world; so we see a little more volume. It’s going to take some time because we really have to build up the infrastructure around the world to be able to sell this unit which is what Ned and his team have been working on.

From a profitability standpoint, it’s hard to say exactly just yet without the volume figures but let’s call it a bit of a wash until we see it get launched and see how it looks in fiscal ’07.

Okay. Fair enough on that one. If we could talk about pricing a little bit? It looks like you’ve got three points of price this quarter which I think is maybe a little bit above what you’ve historically realized price-wise. And it seems like all of that is dropping to the bottom line. To the extent that some of that pricing is surcharged, can you maybe help us with understanding how much growth you expect going forward from a price perspective?

I think the 3% is maybe a little high; 2 to 3% is a more normal range. It’s a touch high. From a surcharge standpoint, we don’t have any more of those steel surcharges, Pete. As Ned reported, we actually rolled them into the price this past summer.

So they are rolled in and they are not coming out is what that means?

That’s correct.

So 2 to 3% is kind of a historic number.

I would say that’s a reasonable range.

Tom Klamka of Credit Suisse. You may ask your question.

This is Steven [Carpo]. You talked a bit in the past about acquisitions-- obviously been historically being somewhat active. You haven’t given much of an update recently. Can you fill us in on what you guys are thinking?

Acquisitions-- for the longest time our cash-flow and our focus has been on debt reduction so we’ve applied pretty much everything we’ve done pre-cash-flow wise to debt reduction and that’s worked out quite well for us over the years. You’ve seen the last couple of years our debt has come down nicely. Now we issued some equity here and we applied most of those proceeds to that as well.

As we look to the future, Karen mentioned some targets. We’d like to be short-term here in the 50 debt/50 equity area. A longer term 30 to 40% debt and let’s say 70% equity or so. That would give us a lot of flexibility for acquisitions around the world; but if you think about that strategy and how we look at it, we do look for and are constantly evaluating, by the way, acquisitions that make sense to our Company that would give us a deeper penetration into an international market and/or provide us with new products or services that we could take from that company and push through our wonderful distribution networks that we have here in North America.

We typically think of them relatively in small or modest size. I think I’m on record to say somewhere between $5 and $50 million kind of ballpark side. And having said all of that, basically laying out conceptually what our strategy is we have nothing imminent right now to announce or to even speak about.

So you’ve had more of a function of your focus has still been on debt reduction or more what valuations have been in terms of on the acquisition side or just nothing all that interesting to you?

We have to find the acquisitions that really make good strategic sense for the Company and will work for us long-term. And I’m sure, as you are well aware Steven, that takes time and effort and energy. In addition to that, we have not met our debt reduction targets yet. So we’re not in that 50/50 range just yet and as I said earlier, ideally 30/70.

And then secondly, talking about the growth-- obviously your numbers have been pretty strong in the last handful of quarters. There was a bit of choppiness obviously in Solutions this quarter. Is that going to work itself out going forward and you bounce back there-- just trying to get an idea of what potentially margins look on a consolidated basis. Obviously Solutions’ gross margins were strong despite the struggling on the top-line.

The Solutions business-- You are right on it. It’s a bit choppy business. Univeyor, our power roller conveyor business which does business predominately in Western Europe - although they are actually coming here to the States as part of their strategy as well - it really depends on how they book projects. Some of these projects are fairly large and how they produce them over time. And that could be up and down, quarter-to-quarter.

This quarter happened to be a little down. Their business, I will tell you, is strong. A lot of quote activity and they’ve actually made some pretty strong bookings in this month, January, which should bring them back up and the revenue line may be more normal what we’ve seen recently and not reflective of this quarter. And I would expect that their operating leverage and their gross margins to probably be in the area that it’s at right now for the foreseeable future.

And then the last question, in terms of where you’ve seen stuff like hoists and cranes in factories and such, you’ve talked a lot about the 80% number on capacity utilization. Where are we anecdotally in terms of expansion versus replacement?

Great question. This recovery, first of all, as you know was long in coming for industrial America. We took several years to move and it’s been-- cash utilization has really improved nicely over the last year and one-half to two years or so. We’re up to the 79% area right now. So we’re within a stones throw of that magical 80% number.

I’d like to say that once we go over the 80%, we immediately see a bump in revenue. I don’t think it’s that clean; but conceptually what we think of is that when industrial America pushes to that 80% level and stays above it – hits it and goes above it for a period of time – we generally see an additional bump in revenue because that’s when the expansion kicks in. We’re not there yet.

Anecdotally we’re seeing some elements of the market expand. I know that we’ve taken some orders for hoist and cranes on oil platforms as recent as last quarter. And that’s an expansion business. That part of the segment of the market seems to be growing very nicely and I would call that due to that expansion; but we haven’t seen that in a broad-based way across all of our entities and markets or even much beyond the oil and energy platforms as yet.

Ned, do you have anything to add to that?

Modular home manufacturing has been strong primarily driven by the catastrophes along the Gulf Coast with hurricanes and we’re seeing – and again related to this geographical area – products that service the utilities and power transmission when they’re rewiring the cities with new phone and electrical lines. You are right in terms of generally speaking. It’s just a couple of segments that seem to be really popping right now.

Shannon Mikus of Credit Suisse you may now ask your question.

My question’s on the tax for the quarter. What was the tax rate excluding the two charges associated with the partial redemption of the 10% notes which I believe were both pre-tax? And how did the NOL impact the cash for the quarter?

If we didn’t have the $5 million in charges associated with the debt redemption, we would have had $5 million more in pre-tax income. So therefore the effective tax rate would have been about 19.2%. And normal basis, excluding the impact of the NOL that’s still in reserves it would have been more in the 38 to 39% range.

Mark Grzymski at Needham and Company, you may ask your question.

Looking at gross margins going into the fourth quarter with the Solutions business kind of being a little bit more stable and with the pricing environment in the steel environment and the two extra days, how much higher can you go on the gross margin line without answering it, obviously.

As you know, Mark, we don’t give that level of guidance.

Right. But how about not quantitatively, but qualitatively, are you feeling like you are getting through a ceiling or--?

I think generally speaking-- let me see if I can do this and I’ll look to my colleagues to add to it. This is a very good quarter. The 26% level is a fairly good number for us. We’ve been on record to say that if we look back to fiscal year 2000 which was our peak year at $610-- 9 million, we did about 28% as far as gross margin. There is still no reason to believe that we can’t get back into that range at a reasonable level and a reasonable amount of time. It’s not going to be in the fourth quarter.

I think there is also the opportunity that we’ve talked about lean and outsourcing and moving products around and value engineering that we will work away at the standard gross margin and that will improve over time. There are so many projects to do we don’t have enough resources to work on all of them.

So it’s not capped. We don’t feel like we’ve hit the ceiling with a gun. There’s more room to come, it’s just going to take some time and energy and effort on the part of all of the corporation.

Specifically in the fourth quarter, I probably didn’t answer your questions--

No. That was good. Thank you. But I’d also-- would you also say that looking at the past where the economy wasn’t as strong that you’re less vulnerable now to weaker gross margins than the ones you saw back then?

There has been, as you well know, a lot of costs taken out of the system with the closing of the ten plants and a lot of fixed costs going away; but of course it’s been replaced with different kinds of costs like health care increases, product liability, [inaudible] although we offset some of their pension costs that are up substantially especially in the last six months or so; but there’s really no reason to believe that we can’t ever come down with reasonable price increases going forward to offset those cost increases.

And, really, the question is how much time is there going to be before we get back up to that 28% area. And that one I have a hard time putting an exact number on it but it should be in a reasonable time-frame.

Thank you. And, Tim, looking at the international business you had mentioned a couple months ago or maybe a month ago that you’re seeing signs of strength both in Europe and in parts that have typically been weaker over the last couple of years. How is that looking now?

I think it continues to look strong. We don’t see-- well, even though you think about Western Europe and you think about some economies that may be in the doldrums and the basic economy isn’t growing, I think we might be uniquely positioned in those economies where we can continue to outpace that quite nicely. And our Yale Europe business as well as some export on the CM brand name going into that market has been doing quite nicely; doing quite well.

We are expanding into the Eastern Block which is helping the European Foundation as well with getting us a bit of a boost. Brazil in all of its ups and downs seems to be doing quite nicely. We’re very happy with the results there and have a great team of people on the ground selling our products in that economy and we’re actually expanding into Uruguay right now so I think we’re well positioned for continued growth there; and Mexico is doing quite well even though I’ll note there’s been some rumblings down there with the election coming up that there’s some uncertainty. But we seem to be doing quite well there, as well.

The Far East is the wildcard. I think we’re making some investments now that will bear fruit in the future; not tomorrow or in the really near-term but out in the future with the right kind of people technological salesmen on the ground that can sell our kind of product. And I think Ned’s spent a lot of time there investing time and energy and that’s going to bode well for the future in the Far East.

Pricing good in Europe? Are you having success there?

It’s okay. I would say it’s not as good as it would be here in the States; but I would call it okay.

Once again, if you would like to ask a question please press star, one. Our next question comes from Ken [Schlemel] of Focal Point Capital. You may now ask your question.

You mentioned the strong areas. Are there any weak areas that you are seeing as far as the sectors?

End-user market sectors?

Yes.

Not really. It continues to be robust across all levels of the economy.

A good measurement of that is all of our distribution channels are up and they tend to touch all segments of the industry segments of the industry and the specialty channels are up as well as the broad based channels that cover general manufacturing. We don’t get any indication that any one segment is down.

And if you took out the steel surcharges they rolled into the pricing, if you took that out or looked at that year-over-year, is that where most of the price increase came from this year or is there other general pricing?

There’s other general price increases as well.

How much was the steel surcharges that were rolled?

So the steel was in there actually at the same time so the 2 to 3% number is price increase.

You haven’t increased any surcharges this year?

No.

And then in terms of cost pressures, energy or steel or any other areas you’re seeing any pressures there?

Fuel is doing crazy things. Some are up and some are down. Things are heating up again, is my feel, from talking to our guys. Certainly energy is up, kerosene seems to have flattened out, product liability seems to have flattened out. I’m looking around the table; I think that’s probably it.

And then where they are coming – I know you’re not giving specifics – but in terms of capital expenditures what can we expect in 2000--?

Well, for this fiscal year we’re saying 6 to 7-- for fiscal ’06 which ends in two months here. Fiscal ’07, might be a touch higher. We haven’t even put that together just yet. We’re in the process of doing it; but I would say it’s going to be slightly north of the 6 to 7 range that we’re giving for ’06.

Slightly higher?

Yes.

And then in terms of debt reduction you have a target all the way down in the 30% range plus you’re looking at eventually acquisitions. Do you plan on issuing equity to reduce that further or to make acquisitions?

There are no plans today. I think it really depends on the situation as it presents itself in the future. But having just sold 3 million shares that was very successful for our Company, there’s really no plans to do that right now.

The one thing just to follow-up on that-- you issued it actually below the close of the market price that day. And I was just wondering what the philosophy was in terms of if you did another one, how you would go about pricing that because that seemed to – at least at that time – roiled the market a little bit in terms of--

Well, it’s always a situation that exists at the time that you’re selling the equity and it really depends on the book that you’re building and where you stand at that point in time. So it’s very difficult to speculate on what would happen in the future.

Yes. I’m just trying to understand-- Was it difficult to build that book of 3 million?

No.

No? Just not at the price that they closed at that day?

We were short of the close.

At this time we are showing no further questions. I will turn the call back to our host.

Jeanette, thank you. Just let me summarize our strategy as 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 upon new products designed specifically for the various market needs incorporating our high quality standards and service support. I want to thank all of our CM Associates around the world for their hard work and ultimate success in making this quarter a success.

We continue to experience growth in bookings and revenue; albeit at a slower growth rate. Most of our distribution channels have experienced significant growth but that is slowing a bit. Combine the revenue increase with our significant cost reductions we have accomplished in the Company in the last several years and you see the results. A very wonderful operating leverage.

We maintained our strong market position in domestic markets and have penetrated 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 the improvements we have seen to date.

Energy costs, interest rate increases, healthcare, product liability costs and regulatory costs have all had an impact on CM in the past and certainly might in the future. We continue to drive lean concepts across our business as 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 a 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 appreciate all of your time today.