Columbus McKinnon Corp (CMCO) 2007 Q1 法說會逐字稿

Good morning and welcome to the Columbus McKinnon fiscal 2007 first-quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Thank you, Rosie. Welcome to the Columbus McKinnon conference call. Earlier this morning we did issue a press release with our first-quarter of FY '07 results. With me here today is Karen Howard, our Vice President of Finance, CFO, and Treasurer; and Derwin Gilbreath, our Chief Operating Officer.

I do want to remind you that the press release and this conference call may contain from 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 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 last year by about 4%. This continued to be driven by a very strong general industrial economy around the world. Our biggest challenge in fact is to keep pace with the level of bookings that we are seeing today. Our bookings continue to be in the mid to high single digit area and in fact this past quarter we're about 9% over last year. But our shipment growth is at 4%, as you can see. As a result, our backlog continues to rise.

Revenue for the quarter was negatively affected by a couple of fewer shipping days this quarter also as compared to the same quarter of last year. As you might have noticed, our gross margin and operating income were up substantially compared to last year. Gross margin was up almost 16% and operating income increased almost 22%, leading to a very strong operating leverage of 54%. And earnings before -- earnings per share excluding any unusual items was about $0.49 per share.

Sales for the products segment, which as you know is our largest one, in the first quarter were up 3.4% compared to the same quarter last year and down 2.5% compared to our very strong, our strongest in fact fourth quarter of fiscal '06. The increase from last year is driven primarily from increased demand from end-users to our various distribution channels as well as some price increases.

The products segment gross profit was up 15% over the same quarter last year and the gross margin was very strong at 30.8%. Operating income was up 19% and the operating margin was also very strong at 13.1%. Again the operating leverage for this business continues to be very positive at 63%. Bookings in the products segment were very positive in the quarter and overall were up about 9% over the same quarter last year. Backlog was up $15.6 million compared with last year and up about $4.8 million to $58.4 million for this past quarter.

The cycle time on most of the items in our products segment is days or weeks and therefore the backlog number that you're looking at here represents about six weeks worth of shipments.

Relative to the smaller segment we have our solutions segment, our sales were up 9.2% for the same quarter last year and up 19% compared to the fourth quarter of fiscal '06. This was led by some very strong sales in our shredder division. Recall if you would for me that this segment can be and is in fact very volatile in terms of quarterly revenue. Our gross profits for the quarter were up 23.4% compared to last year and are up 47% compared to the fourth quarter of fiscal '06.

Operating income almost doubled over last year and is up substantially over the fourth quarter of fiscal '06. Backlog is down as we have in fact shipped a lot of our backlog that was present in this business. This segment continues to experience just the normal ebbs and flows of bookings and production of large projects.

One critical focus that I am sure you are aware of for our Company has been the reduction of debt. Our funded debt net of cash is down to $163.4 million at the end of the first quarter and as Karen will report in a moment we've been able to repurchase an additional $38.5 million of the 10% notes from the market. We have in fact achieved a 43% net debt to total capitalization.

At this time, I would like to ask Karen to lead us through more details on the financials.

Thank you, Tim. Good morning, everyone. I am pleased to have the opportunity to review some of the financial highlights for Columbus McKinnon's fiscal '07 first quarter that ended on July 2. Consolidated sales increased by 4.1% to $146.7 million in the first quarter of this year, compared with last year's first quarter. Products segment sales, which accounted for approximately 87% of total sales in the quarter, increased by $4.2 million or 3.4% with strong double-digit sales increases in several major core product groups including hoists and chains.

Orders were strong in nearly all categories, but an increase in backlog at some of our operations held the shipments volume to approximately a 4 percentage point increase for this segment. This year's quarter had two fewer shipping days than the year ago quarter, unfavorably impacting the comparison by 3 percentage points. Finally, pricing and foreign currency translation favorably impacted the change by approximately 2 percentage points and 1 percentage point respectively.

Solutions segment sales increased $1.6 million or 9.2% compared with the first quarter of fiscal '06. Nearly all of which was driven by increases in tire shredder sales this quarter complemented by increased sales of lift tables.

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 and third generally depending on the number of shipping days in them. The recent quarter had 63 shipping days, two fewer than both the first quarter of last year and also the fourth quarter of fiscal '06, thinking sequentially.

Thinking forward of the upcoming second quarter, it will have the same number of shipping days at 63 as the quarter that just ended and the same as the year-ago quarter. Included in the press release is a table showing the number of shipping days in each of the quarters of fiscal '07 and fiscal '06 for your reference.

To highlight the continued strength in our sales activity is 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 11 quarters, that is since the third quarter of fiscal '04.

Turning to gross profit, consolidated earnings leverage added $0.99 to gross profit for every dollar of incremental sales this quarter compared with the prior year. Both of our segments realized margin expansion. The products segment quarterly gross profit margin increased to 320 basis point year-over-year and the solutions segment gross profit margin increase of 170 basis points drove overall consolidated gross profit dollars up $5.7 million or 15.7%.

Products segment gross profit as a percent of sales was higher than last year's first quarter due to better product mix, pricing, and productivity improvements. The gross profit margin increased in the solutions segment to 15.4% this year from 13.7% last year was primarily due to better product mix.

Consolidated selling expense as a percent of sales was 10.5% in the first quarter, up from 9.7% last year due to increased investments in both our domestic and international markets. Consolidated general and administrative expense was 6.2% of sales in the first quarter, compared with last year's 5.8%. This year's expenses include the impact of adopting FASB statement of 123(R), share-based payments. In total, adoption of that pronouncement amounted to $800,000 this quarter, impacting various financial statement lines with $400,000 impacting the G&A line. Additionally G&A reflects additional costs for our international expansion activities, new product development, and personnel training.

With operating income increasing by $3.2 million or 21.6%, our operating margin improved to 12.1% for this year's quarter compared with 10.4% last year. The operating leverage contributed $0.54 to income from operations for each incremental sales dollar. With steady revenue growth, we see further sustainable opportunity for operating leverage in the 20 to 30% range.

Interest and debt expense was down $2.2 million due to the lower debt levels. Noting that we continue to focus on debt reduction, we further reduced our 2010 notes by $38.5 million this quarter, which will save us an additional $3.85 million of annual pretax interest expense or approximately $1 million per quarter going forward.

Other income and expense of $3.6 million expensed this quarter includes several items. It includes $4.6 million of charges, of which $800,000 was non-cash relating to our open market refinancing activities. That is partially offset by $900,000 of investment returns in our captive insurance company assets and on excess cash. The fiscal 2006 quarter included $600,000 of investment returns in our captive insurance company assets.

Regarding income taxes, the effective tax rate for the first quarter is 44.0%, unfavorably impacted by the nondeductibility of incentive stock options expense associated with the adoption of FAS 123(R). On a go-forward basis, our expectations are for an effective tax rate in the 38 to 39% range, which will include a non-cash portion relating to the utilization of U.S. federal net operating losses or NOLs. The NOL carryforward currently amounts to approximately $77 million. The effective tax rate for the first quarter fiscal of '06 was 18.3%, favorably impacted by the reduction in reserve for utilization of our NOL carryforward, which was fully reserved at that time.

At the end of fiscal '06, we reversed the valuation allowance against deferred tax assets including the NOL. Accordingly while the NOL still remains, it no longer impacts the resulting effective tax rate. Furthermore, the cash tax payment savings will continue to be available until the NOL is fully utilized.

Depreciation for the quarter was $2.1 million, while last year's was $2.3 million. Capital expenditures for the first quarter were $1.9 million compared with $1.7 million in the fiscal '06 quarter. They included investments in our new product development activities, our growing low-cost international facilities, productivity improvement equipment, as well as normal maintenance CapEx. We continue to expect capital expenditures to be in the $8 million to $10 million range for fiscal '07.

Net cash provided by operating activities was $4.8 million in the quarter, with earnings contributing $15 million offset by operating assets and liabilities utilizing $10.2 million. Inventories used $5.6 million of cash primarily due to timing of purchases and production related activities. Receivables and unbilled revenues used $4.4 million of cash due primarily to timing of billings and collections from international customers.

We have continued to focus attention on our working capital management and believe these working capital increases to be temporary in nature. Our utilization of working capital at the end of the first quarter relative to the latest 12 months revenues was consistent with the year ago at 19.4%.

Sticking with the balance sheet, at quarter's end, net debt was $163.5 million and total debt was $183.4 million. During the quarter, net debt decreased by only $700,000, unfavorably impacted by increases in inventories and receivables, as previously noted. At quarter end, availability on our $75 million revolver provided for under the senior credit agreement was $52.6 million with $11.6 million drawn against the revolver and $10.8 million of outstanding letters of credit. We were comfortably in full compliance with all financial covenants related to this agreement.

While our strategy emphasizes profitable sales growth with international expansion, it continues to include focus on debt and interest expense reduction to further improve our profitability. Debt to total capitalization improved to 46.1% at the end of the fiscal 2007 first quarter, surpassing our previously stated near-term goal of 50%, down from 75.6% a year ago. With the attainment of this goal, we are next targeting a corporate debt rating of BB or better. Ultimately we're targeting a 30% to 40% debt to total capitalization ratio with an investment-grade rating to give us flexibility to support our growth strategy.

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

Thank you, Karen. Good morning to everyone. The first quarter proved to be another solid quarter for Columbus McKinnon both domestically and internationally with bookings up 9% and sales up 4% compared to last year. General distribution sales represent 41% of total revenues in North America and were up 6%. Growth in this segment was driven by sales to crane builders and rigging shops, each increasing 14% compared to the first quarter of fiscal '06. The continued expansion of new construction and maintenance activities in the energy and power generation industries is largely responsible for the growth in these two distribution channels and is expected to remain strong throughout the remainder of the year.

Internationally, ongoing building of our organizational infrastructure continues to bear fruit. Growth in the first quarter was especially strong in South America, with sales up 30% compared to last year. Our core in Europe product sales was particularly strong at 8.8%, but was offset by Univeyor.

On May 15, a value-based price increase averaging 3% to 5% was implemented for all (indiscernible) chain and forged products with general acceptance in the industrial marketplace. Our industrial customers are acutely aware of increases in the cost of raw materials driven by continued strong global demand for these commodities as well as substantially higher energy costs, which impact both transferring transportation and processing costs for those raw materials.

With strategic global sales and marketing plans focused on the energy and nonresidential construction sectors, we are well-positioned to leverage the strong growth that is expected to continue in both these markets throughout the fiscal year. Combined with a number of other growth initiatives and reductions in the current backlog, the outlook for the remainder of the fiscal year remains positive for Columbus McKinnon despite persistently higher energy prices and a question mark on interest rates.

Relative to operations, bookings are strong. Our focus is shipments. Backlog is up $3.2 million from last quarter and up $9.7 million from last year. This is not a result of lack of plant and equipment. In fact, in our expanded capital program this year, there is not a single project related to capacity. The projects are all related to new products, maintenance, or productivity.

The primary issue is adding direct labor people and training them. Last quarter about 3.4% new direct labor people were hired in North America. In key plants requiring reduction in backlog, the increase ranged from 4% to 7.5%. The hiring progress has been steady and as rapid as people can be trained and absorbed into the organization. Additionally subcontract activity is being utilized where appropriate to reduce backlog. In almost all business units, we expect to have the backlog to an acceptable level within several months.

This quarter we reorganized most of our product segment from a matrix organization to a business unit structure. The new structure will allow us to more adequately address our companywide strategic plan by allowing our entire business to focus on customers, both channel partners and end-users. One example is we have combined our chain and forging under one leader to focus more attention on both overhead lifting and load securement rigging applications. The new organization also allows for alignment of sales, marketing, engineering, manufacturing, and new product development with market opportunities to ensure continued strong, profitable growth of the organization.

Our operating leverage continues to be strong at 54%. Operational excellence is the key to support our never-ending pursuit of superior customer service. Lean is a key component to our continued ability to deliver improved profitability.

Finally our new wire rope hoist reported on last quarter continues to be a great success. Sales this quarter were 49% higher than the old product the same quarter last year. Backlog is also about twice the old product at the same quarter last year, reflecting its continued order entry strength. Thank you, and now I will turn it over to Tim.

Thanks, Derwin. Rosie, can we open it up to questions now please?

(OPERATOR INSTRUCTIONS) Joe Giamichael.

Congratulations on the quarter. Just a couple quick questions for you. The surges, despite the surge in bookings that you had seen in March, I believe you mentioned that backlog still showed sequential growth. Is that correct?

That's right. It is up $4.8 million from the fourth quarter to this first quarter.

Got it, okay. Then just sort of trying to get some handle on pricing versus volume growth on the topline, you are anniversarying -- I'm trying to get an idea rather of where you are in terms of anniversarying some of these price increases that are being passed through. Can you just give us some idea of what you're seeing on the top line in that 4% growth on a prices versus volume?

In the press release specifically in the product segment, we tried to identify the revenue growth and there's four elements, two fewer shipping days is a negative 3.1%. Increased pricing is 1.9%. Foreign currency translation is 0.8%. Then volume is 3.8, and I think that should foot to a positive 3.4% for the product segment. In the solutions side, it is predominantly all volume.

Got it, okay. That's great. I'll jump back in the queue.

Peter Lisnic, Robert W. Baird.

Tim, I guess a quick question if you could maybe clarify some of these shipping issues or lack of or I guess the need for labor. Can you maybe tell us how much that has cost you on the sales line?

Yes, the backlog growth from Q4 to Q1 was about $4.8 million.

Okay, so presumably you would have shipped that all this quarter?

The plan would have been to ship all of that this quarter. I would say that we would have -- in an idea world if we could have ramped up shipping quicker, we would have shipped even more than the 4.8 because we would have eaten into the backlog that was already large.

Okay, that's what I was getting at.

We would expect, as Derwin mentioned earlier, that in the next quarter or two that that to be washed through. Some of our businesses, specifically the ones that are in that wire rope hoist line that we launched this past March are extremely busy and it is probably going to take a bit longer. The bookings are extremely robust to get things through the shop and out into the marketplace.

All right, I just want clarify, are you referring to the FEM product when you say that?

Yes.

So that is one part of the equation. The other part of the equation if I remember back to last quarter was that there were some sales that you basically took out of the catalog, if you will, that were relatively lower margin. Did that have an impact -- I assume that had an impact on this quarter's growth comparisons as well.

They are very small though.

Very small?

It was not even measurable I would say.

That's good to know. I'm sorry, I didn't mean to interrupt.

Yes, the mechanical jack business and our crane business were the two product lines that we had done that with and this quarter we are seeing that those are rebounding nicely and actually doing quite well in this quarter even with that impact of lets say walking away from lower profit business.

Okay, so I just want to make sure now, have you walked away from that business permanently or is this was just -- you have gotten price back now and so have gotten back into the business? It that --?

Yes.

All right. Then if I could go back to your 11% to 12% operating margin target, I guess, it looks like you beat that this quarter and the incremental look very, very strong. Any update on what you're thinking in terms of profitability potential for the franchise?

I think the 11% to 12% and obviously probably pushing toward the top end of that range still looks good for us for the foreseeable future. We're going to have normal ups and downs. The next two quarters, the summer quarter which ends September and the December quarter you know are generally speaking two weaker quarters, though I would expect to have the operating income maybe not be as strong as it is in the first quarter. Then the fourth quarter rebound would be our expectations to end up still in that 11% to 12% area. That of course assumes, as you well know, that our revenue is in the $60 million area or so -- or 600 revenue, sorry.

That's okay. Karen, one quick question if I could. The option expense that you are recording, can you tell us where that is on the income segment and by segment?

Sure. It is all in the product segment and $400,000 of it is in G&A and $200,000 of it is in selling and the remaining $200,000 is in cost of sales.

Excellent, thank you very much.

Mark Grzymski, Needham.

Just a question. I think I missed it. You said 3% to 5% increase in hoist and chain, and pricing in hoist and chains. When was that implemented?

May 15.

May 15, and how much -- I just want to get a sense of how much -- you said you're still turning down the lower margin business, correct?

With the crane business we have actually been very successful in shifting the model away from the lower margin business to higher margin. We've changed our model and our approach, and that has been at this stage of the game fully successful. So that is at this point history. So I think that our margins in that business will continue to the very strong.

Okay, so I can then extrapolate from that that you think gross margins are going to be -- you had a great quarter here for gross margins. Are we going to see gross margins at 28% plus going forward unless commodity prices and energy costs continue to rise?

I think if you back from the 11% to 12% operating income number, you could probably get into the high 20% quite easily in gross margins by adding back about 15% or 16% at the SG&A line. So you are there quite easily. But I think you're right. Of course that is assuming that energy and commodity metals don't do things more crazy than they are already doing.

Right. As far as maybe sourcing -- is there any talk within the Company of maybe sourcing more to Asia or is there really no need for that at this point in time?

No, I think that it is fair to say that that continues to be one of our strategic elements is sourcing from lower-cost economies, so our Mexican operation, our Chinese operation, commodities or components in China continue to be on our radar screen of activities that we would and are doing right now.

Okay, and then, Tim, if you could just give us a sense of how the nondomestic markets are looking for you guys right now and what you're looking for as far as growth and you mentioned South America being very strong. How about Europe right now?

Great question, Mark. Europe continues to be very strong for us. I think actually surprisingly strong. From Germany, France, UK, even into the western part of Europe into the Eastern Bloc, where we have an operation in Hungary which is growing 50%. Granted it is not a low number, but the growth is huge into the Eastern Bloc. So I would expect that trend to continue.

We don't see any weakening in Western Europe and we see continued pretty robust growth in the Eastern Bloc of Europe, as well as South America. So international sales should continue to outpace domestic growth sales. The Far East, we are investing there. It is relatively new for us. We're certainly selling into that market. We're seeing similar growth but again, on lower numbers. So we are seeing strong industrial economies around the world if you want to draw a bottom line here.

Okay. Lastly, Karen, just looking at the debt, if we assume that you don't, say, make an acquisition this year and you have all the free cash to pay down debt, can you get to that 36% by the end of the year? Assuming that there is liquidity there for your notes?

I would say, Mark, that is probably aggressive. Our longer-term target is 30% to 40%. We said we would love to be at 30% to give us maximum flexibility to support our strategic growth, so that is our goal. But we do have that flexibility to lever up if we need to for an acquisition, but we have not stated a definite expectation within this year. That would probably be a little aggressive.

Okay. I can't figure out why your stocks down, but you don't have to answer that.

I can't figure it out either, Mark.

Okay, thanks.

John McGinty, Credit Suisse.

I wonder if we could start on price first. When you raised prices I think on the 3% to 5% on the hoist and chain, could you kind of generalize on that? In other words for the quarter you talked about overall prices being up 2%. What does this 3% to 5% represent of the total or how should we translate that to total Columbus McKinnon?

Hoists in general are somewhere around 45% of revenue and chains and forgings are somewhere around 25% of revenue. 3% to 5% is kind of like I would view that as a normal annual price increase for us and quite honestly, it takes a little bit of time to take effect. So for this quarter for example, first of all we did not hit all of the revenue with the price increase this quarter, as you can see. We hit the bulk of it, 70% or so, but not all of it.

Secondly, we have certain contracts in place with distribution channel partners that have a term to them so this price increase that we just issued in May that Derwin mentioned may not have hit those contracts and probably won't until next year. So we have some timing issues within the chain forging and hoist businesses because of this contractual relationship that we have. But generally speaking the bulk of the normal relationships with partners, it went into effect -- the list price went up 3% to 5%, as Derwin mentioned, and the revenue in the quarter for those purchase orders after May 15 would have received that price increase. Of course as you can see from this quarter, overall for the whole Company it's about 2%.

But how much of that -- I would've assumed that the bulk of this 2% price increase would have reflected the year-ago price increases. I would have thought that the May price increase given timing delays and everything else really would not come into effect or would not have hit this quarter very much.

Yes, that's true as well. To this quarter probably the May increase would not have had as much impact as last year's increase.

Another way to ask what I -- let me put it slightly differently. As we look at the next two to three quarters and the 3 to 5 price increase comes into effect, should we be looking at at least the same 2% that you saw in this quarter or should we be looking at a little bit more in terms of the effective price increase?

I would expect it to be in the range of the 2%, slightly ahead, slightly -- in that ballpark. That is normally what we see quarter in and quarter out.

But if we go back to a year ago, isn't the 3% to 5% more than what you put in the year ago?

I don't think so.

All right.

The other variable is we notify our customers 30 days in advance. So some customers advance buy to avoid that price increase. And so we had customers doing that. So there is a factor there. It is hard to get your hands around. We even have some business units like our Duff-Norton business unit, they put their price increase into effect on January 1 and the --.

So in other words in terms of modeling, you would advise to assume that we maintain the 2% year-over-year price increase?

I think that's fair.

Second question, if we go, say, in that products area where you are running high single digits or in fact orders at the 9% level, as you bring these people on, if orders stay where they are and that is a big if, but if that is the assumption that I want to make, should you not see your shipments rising to that level plus the catch-up of at least the $4.8 billion plus eating into some of the other backlog? I assume that is what we should be looking for?

Yes, that would be our plan. Absolutely.

You have not really discussed at all or mentioned the outlook for the solutions business other than to say that in most of the backlog and it is a very lumpy business, does one draw the conclusion that things don't look very good there going forward or could you talk about what the rest of the year looks like on that side of the equation?

Let me see if I can paint a picture for you, John. The solutions business is predominantly comprised of Univeyor, our Danish power roller conveyor business. Probably 60% or 70% of the solutions business is Univeyor. They are in the process of signing up some orders. Their backlog has shrunk though quite a bit in that they have processed a lot of their work but have not received new orders to the degree they had expected. They are expecting them to come through this quarter and next quarter in terms of bookings, so we might see a bit of a delay or lag in revenue for the next couple quarters coming out of Univeyor until they book these orders and get them processed, turn them into revenue, if you will.

The rest of the solutions business, the 30% to 40% which is comprised of smaller businesses like shredder, the tire shredder business, our American Lifts business and our LodeRail are doing very well, quite honestly. They are booking quite well. They are shipping well. Their gross margin is up and even though they are a smaller segment of the solutions business, they're looking very positive.

So when you balance the two together, I think the next couple of quarters are going to be relatively flat to what you see here, the 5% operating income area. Maybe revenues in the similar size that we are seeing here, although some downward pressure from Univeyor because they haven't booked anything this past couple of months that would give them revenue this quarter or two. So I am not painting a very rosy picture, nor am I painting a very negative picture, but I think if you balance all of the components, you see a fairly flat couple of quarters coming at us.

I'm sorry, what was the 5% you were referring to?

I think operating income for the solutions segment this past -- this quarter of 5.2%, and that would be kind of a normal quarter for that business, 4% to 5%.

All right. And then finally on the interest, Karen, the savings from the repurchasing was $3.8 million or $1 million a quarter, but what I am trying to understand is how much of that savings if any was felt in the first quarter? In other words, you had $4.5 million. Is that before the savings, with some of the savings, or in other words what would be the run rate if you don't repurchase any more?

Sure. I can appreciate it. It has been a moving target, hard to keep track of. I would say on average we have realized about half of it in this quarter. If I think of the timing of when we purchased those notes, we would have realized about half of the savings.

So in other words, the interest and debt expense number would run at basically $4 million a quarter going forward?

That would be reasonable.

Now are you anticipating buying back anymore of the notes?

No, what we have said we will continue to watch the market and opportunistically purchase them. If they are available and if the pricing is appropriate for us.

And so at essentially the same kind of cost?

It moves, John. As we get closer to the call date -- they become callable in the August of '07, the 105, and so as time goes by, that is a factor that impacts our decision as well as what we would use to take them out. If we have available cash versus if we have to incur bank debt to take them out. So there are a few different factors that we would consider there.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS) Sarah Thompson, Lehman Brothers.

It's actually Laurence on behalf of Sarah. I just wanted to get a little bit more color on what you are seeing in the domestic economy. Obviously the equity markets are beginning to suggest some weakness. Maybe later in '06 into '07, I know you've commented a bit on some of your end markets, but just hoping to get a bit more color as we think about '06 but especially '07 as it relates to the broader U.S. economy.

Okay, at this point in time we are not seeing or feeling what I think the equity markets are fearing. We continue to see pretty strong end-user markets in a broad array. I think it is fair to say all of them are strong to different degrees of course. And all of the distribution channels that we sell through to get to those end-user markets are feeling that as well. A good example of this as Derwin mentioned the price increase in May and typically we get orders in advance of a May price increase. This year we had substantial orders and I mean the word substantial in advance of the price increase because our channel partners, our distributors are feeling very good about the economy and what they see from the end-user markets, they are willing to stock up. That gives us a pretty good feel.

Trade association conventions, trade association meetings that we have with colleagues in the industry report to us they are seeing the same and having the same feeling of bookings that the economy is very strong and very robust and people are feeling very good about that. So I think the rest of '06 and probably into '07 kind of has that feel around it, if I can give you a bit of a general economic forecast.

Beyond that, who knows? If our friends at the Fed stop raising next month, that would be great. So maybe we can continue the growth for a little while longer. We also, as you well know, have concerns around metals and energy. Healthcare not as big a concern as it once was but certainly there and a very large cost for our Company. But those kinds of things still remain out there in the general economy and certainly are concerns about slowing things down a bit.

But I think it's fair to say no matter which market or channel that we look at, we are seeing pretty strong domestic demand from mines. Derwin mentioned the oil exploration and oil processing businesses, very strong. We continue to see strength in the construction markets, especially commercial and road, where our hand hoists are used. So I think it is very positive, very upbeat at this point.

I appreciate all the color. Thanks very much.

We have no further questions at this time.

Thanks, Rosie. Just in summary, our strategy is to continue to leverage our superior material handling, design, and engineering know-how to be a leader 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.

I would like to thank all of the CM associates around the world for their hard work and ultimate success in making this quarter a very strong success for us. We continue to experience strong growth in bookings and revenue from our distribution channel partners, who have in turn experienced growth from the broad end-user markets that they serve. With the increase in revenue, we continue to see strong operating leverage driven by the cost restructuring we have done in the last several years.

We maintained our strong market position in domestic markets and have certainly penetrated new markets around the world. We believe we will continue to perform well, but we need to recognize there are some issues in the world markets that could have an impact on the improvements, specifically geopolitical instability, energy costs, interest rate increases, healthcare product liability, and regulatory costs have certainly had an impact and might in the future for Columbus McKinnon.

We continue to drive lean concepts across our businesses as this process has proven that we can continuously improve our operations around the world. We'll also continue to invest prudently in new markets and products to protect our market share in the U.S. and gross sales internationally to keep Columbus McKinnon's position as the leader in the material handling industry.

Again I would like thank all of our associates around the world and as always we certainly appreciated all of your time today. Thanks very much and have a good day.

To listen to a replay of today's conference, please dial 866-363-4002. Thank you for attending today's conference and have a great day. You may disconnect at this time.