Columbus McKinnon Corp (CMCO) 2007 Q4 法說會逐字稿

Good morning, and welcome to Columbus McKinnon's fiscal 2007 fourth 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, Bridget. Welcome all to the Columbus McKinnon conference call to review the results for our fourth quarter and full fiscal year of 2007. Earlier this morning, we did issue the press release and corresponding financials. With me here in Amherst, New York, today is Karen Howard, our Chief Financial Officer; Derwin Gilbreath, our Chief Operating Officer; and Joe Owen, our Vice President of the Hoist Group. 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 you understand these risks.

Overall, our revenue for the fourth quarter exceeded same quarter last year by 6.7%, the bulk of this being volume related. Our revenue was driven by a continued strong global industrial economy. Our bookings in the fourth quarter were in the mid single digit area over last year. Gross profit was up 9% and operating income increased about 16.7% leading to an operating leverage of 29%. Actual net income was down a considerable amount but, when considering certain one-time benefits in costs in both last year and this year, the pro forma was up $2.8 million or 32.5% over the fourth quarter of fiscal 2006. A very solid quarter for Columbus McKinnon.

Let's turn to the year for a moment. Revenue for the year exceeded last year by 6.1%. Gross profit increased 11.5% and operating income increased 13.8%, reaching 11.6% operating income margin. The operating leverage for the year was 31%. Net income on a pro forma basis, considering those one-time items as detailed in the release, increased almost 50% over last year, a very good year for Columbus McKinnon, as well.

Turning to the product segment, the revenue in this segment for the fourth quarter was up 8.8% compared to the same quarter last year and up significantly over our third quarter. The increase from last year was primarily driven from increased demand from end users through our various distribution channels as well as price increases and some foreign currency translation. International sales were up over 30% over last year driven by a strong Pan European economy and from investments in products and markets -- and a market presence we made over the last several years. The product segment gross profit was up over 13% over the same quarter last year and the gross margin was strong at 30.9%.

The operating income was up 28.2% and the margin was very strong at 15%. The operating leverage continues to be very positive for our product segment and is at 41%. This is an excellent result, especially when considering the investments we have made in new products and markets for our Company. We should also note and you might recall that we did divest ourselves of a company by the name of Larco, a highly engineered crane builder in Ontario, Canada in this past quarter, as well, fourth quarter, as well.

Revenue for the product segment for the year increased 6.7%. Our gross profit was up 15.3%. Operating income increased 28% all compared to last year. This resulted in an operating leverage of 47% for the year in the product segment. Bookings for the product segment continued to be positive in the quarter and overall we're up several percentage points over the same quarter last year. Backlog was reasonably flat compared with the third quarter. The cycle time on most of the products in this segment is days or weeks, therefore the number of backlog represents about 5 week's worth of shipments. We are booking at a reasonable rate but have noticed that some more capital intensive orders like cranes and [wire-rub] hoists have deliveries that are out into the fall.

The solution segment sales were down considerably from the same quarter last year and the third quarter of the fiscal year. As you may recall, we have refocused Univeyor -- excuse m, the largest business of the segment on profitable revenue. And you are beginning to see the results on the revenue. Unfortunately, we have yet to flush out the negative projects from our backlog which have given rise to this very poor quarter for this business and as a result the entire solutions segment. Gross profits were down a significant amount compared to last year and to the third quarter of '07. Operating income was down substantially in both comparisons and backlog is up slightly.

Year-to-date comparisons are equally abominable. The segment results are the result of continued poor performance of Univeyor, which represents about 68% of this segment. The rest of the businesses in this segment performed very well. We're very happy with those. We have accelerated our effort to correct this business and have assigned an experienced business director to oversee this change. He has relocated from the states into Denmark and has been there for the last four weeks or so. The previous managing director has resigned his position and we're working with local management team to turn around the situation.

We are aggressively pursuing changing Univeyor, the Univeyor operating model, migrating from a material handling systems provider to more of a standard proprietary products and maintenance contracts and only focusing on those projects where we can demonstrate and be paid for our unique value added abilities. We are also reducing our operating costs. And as we have said in the past, as we transform this business we are also considering all strategic alternatives. As I'm sure you know, our long time focus for the Company has been the reduction of debt. I'm proud to say that funded debt net of cash is down to $123 million at the end of the year. And we have achieved 33.8% net debt to total capitalization. Now let me just turn it over to Karen who will lead us through more details of the results of the quarter and the year.

Thank you, Tim, and good morning, everyone. I'm pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon's fiscal 2007 fourth quarter and fiscal year that ended on March 31, 2007. Consolidated sales increased by 6.7% to $156.9 million in the fourth quarter of this year, compared with last year's fourth quarter. Product segment sales, which accounted for approximately 91% of total sales in the quarter, increased by $11.6 million or 8.8%, with strong double digit sales increases reported by our Columbus McKinnon Europe Group and solid increases in several other major core product groups including domestic hoist and chain. Accordingly, volume, including one less shipping day, contributed a 6.5 percentage point increase for this segment over last year. Further, pricing and foreign currency translation favorably impacted the change by 1.8 and 0.5 percentage points respectively.

Solution segment sales decreased $1.8 million or 11.3% compared with the fourth quarter of fiscal '06, with decreases in our material handling systems business offsetting increases realized by the other businesses in the segment. As Tim indicated, we are transforming the material handling systems business to be more products and service maintenance oriented with future growth and profit expectations.

For the fiscal year, consolidated sales increased $33.8 million or 6.1% over last year. Product segment sales were up 6.7% and solution segment sales were up 1%. 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. The recent quarter had 64 shipping days, one fewer than the same quarter of fiscal '06. 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 as well as for our recently started fiscal year 2008. Overall, fourth quarter consolidated gross profit increased $3.7 million or 9%, with the product segment contributing $5.1 million and realizing gross profit margin expansion of 120 basis points year-over-year to 30.9%.

Product segment gross profit as a percent of sales was higher than last year's fourth quarter due to better product mix, productivity improvements, and volume absorbing fixed costs. The gross profit margin in the solution segment of 3.6% in the fiscal 2007 quarter compared with 12.5% in the fiscal 2006 quarter reflects continued weakness in Univeyor, our material handling systems business resulting from performance issues on some projects, a challenging pricing environment, and an unfavorable sales mix. Restructuring activities, which began in the third quarter and continued into the fourth quarter, have not produced sufficient improvements to complete the change in Univeyor's business model, which is to increase its focus on offering products as packaged solutions rather than engineered to order systems. As a result, additional restructuring costs are expected to be $200,000 to $300,000 in the first quarter of fiscal '08.

As we progress with this process, we are also evaluating strategic alternatives with respect to this business. For the fiscal year, consolidated gross profit is up $17 million with gross profit expansion of 130 basis points to 27.9%. Consolidated earnings leverage added $0.38 and $0.50 to gross profit for every dollar of incremental sales this quarter and for the full year respectively as compared with the prior year period. Consolidated selling expense as a percent of sales was 10.6% in the fourth quarter, up from 9.7% last year, due to increased investments in both our domestic and international markets in accordance with our strategic growth initiative. For the full fiscal year, consolidated selling expense followed a similar pattern at 10.5% of fiscal '07 sales compared with 9.8% for fiscal 2006.

Consolidated G&A expense was 5.0% of sales in the fourth quarter compared with last year's 5.8%. This year's decrease is primarily due to lower variable compensation expense. Fiscal 2007 full year G&A expenses were 5.8% compared with 6.1% of fiscal '06 sales. Restructuring charges for the fourth quarter of fiscal '07 included $200,000 associated with our Denmark based material handling solutions business, Univeyor. With operating income increasing by $2.8 million or 16.7%, our operating margin improved to 12.5% for this year's quarter compared with 11.5% last year. For the full fiscal year, operating margin expanded 120 basis points to 11.6%. The consolidated operating leverage contributed 29% and 31% to income from operations for each incremental sales dollar in the quarter and full year respectively, within or exceeding our goal. With steady revenue growth, our goal is for sustainable operating leverage in the 20% to 30% range.

Interest and debt expense was down $1.3 million or 26.6% over the prior year quarter and $8.2 million or 33.4% for the fiscal year due to the lower debt levels, including $3 million of open market purchases of our 10% notes during this past quarter. We incurred bond redemption costs of about $200,000 in this year's quarter and $900,000 in last year's quarter associated with debt reduction activities that are generating those ongoing interest savings. For the respective years, we incurred $5.2 million in fiscal 2007 and $9.2 million in fiscal 2006 for such bond redemption activities. We realized $700,000 of investment income on our captive insurance company assets this quarter as compared $400,000 in last year's quarter. Fiscal 2007 has realized investment income of $5.3 million compared with $2 million in fiscal '06. With the fiscal '07 increase primarily due to a third quarter portfolio reallocation to be more heavily weighted on fixed income securities as opposed to equities.

Regarding income taxes, the effective tax rates for the fiscal 2007 fourth quarter and fiscal year were 34.9% and 38.1% respectively. The quarterly rate was favorably impacted by some usual (sic -- see Press Release) nontaxable income items. 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 US federal net operating losses or NOL. The NOL carry forward currently amounts to approximately $38.6 million, representing approximately $13.5 million of future cash tax savings. Therefore, the cash tax payment savings for US federal tax will continue to be available until the NOL is fully utilized, which will likely be around the end of fiscal 2008.

The fiscal 2006 fourth quarter included a $38.6 million income tax benefit as a result of the reversal of a valuation allowance against deferred tax assets, primarily US, federal, NOL carry forwards. Accordingly, the effective tax rates for the fiscal 2006 periods are not meaningful.

Earnings per share for the fourth quarter of fiscal 2007 were $0.58 versus $2.53 in the fourth quarter of fiscal '06. After applying a comparable tax rate and offsetting the impact of a 2006 deferred tax valuation allowance reversal as well as adjusting for bond financing costs in both periods, pro forma non-GAAP EPS for the fiscal 2007 fourth quarter of $0.59 compares with $0.45 for the fiscal 2006 fourth quarter reflecting a 31.1% improvement. Fiscal 2007 earnings per share were $1.80 versus $3.60 for fiscal 2006. Upon adjusting for unusual items in both years and applying a comparable tax rate to fiscal '06 in a similar manner as the fourth quarter, pro forma non-GAAP EPS for fiscal 2007 of $1.90 compares with $1.45 for fiscal 2006 reflecting a 31% improvement.

Depreciation for fiscal '07 and '06 fourth quarters was $1.9 million and $2 million respectively. For the full years, it was $8.1 million in fiscal '07 compared with $8.6 million last year. Capital expenditures for the fiscal 2007 fourth quarter were $3.8 million compared with $3.7 million in the fiscal 2006 quarter. Fiscal '07 CapEx was $10.7 million with last year being $8.4 million. The spending included investments in our new product development activities, our growing low cost international facilities, productivity improvement equipment as well as normal maintenance CapEx. Looking forward, we expect capital expenditures for fiscal 2008 to be in the $10 million to $12 million range.

Net cash provided by operating activities was 8. -- excuse me, $18.3 million in the quarter with earnings contributing $12.5 million and operating assets and liabilities contributing an additional $5.8 million. We continue to focus attention on our working capital utilization. Our long-term target remains 15% working capital as a percent of revenues. At quarter's end, debt net of cash was $123.4 million and total gross debt was $172.1 million. At quarter end, availability on a $75 million revolver provided for under our senior credit agreement was $64.8 million, representing $10.2 million of outstanding letters of credit and nothing 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 with international expansion, it continues to include focus on debt and interest expense reduction to further improve our profitability and provide capital structure stability. During the quarter, net debt decreased by $17.7 million, reflecting continued improvement in our net debt to total capitalization percentage to 33.8%. Gross debt to total capitalization improved to 41.6% at the end of the fiscal 2007 fourth quarter down from 50.6% a year ago. As previously indicated, we intend to call the $22.1 million of our 10% notes currently outstanding when they're first callable on August 1, 2007 with a 105 premium. We're next targeting a corporate debt rating of BB or better. Ultimately we're targeting a sustained 30% to 40% debt to total capitalization ratio with an investment grade rating to give us flexibility to support our growth strategy, which will include strategic bolt-on acquisitions. With that, I thank you and turn it over to Derwin.

Thank you, Karen. And good morning to everyone. The fourth quarter completed a solid year for Columbus McKinnon with sales for the quarter up 6.7% compared to last year. Domestically, sales of cranes and wire-rub hoists grew 20% and represent 22% of our domestic sales. Continued strong capital spending in the construction of energy infrastructure is fueling this growth. By channel, sales to rigging shops, crane builders, and the entertainment industry were up a combined 9% representing a third of domestic sales.

Internationally, sales were up 15% with exchange effects accounting for a third of the growth. European growth was 8.7%, the majority due to exchange rates. Strong growth in our product segment more than offset the weakness at Univeyor. European product segment growth of over 30% is due to investments in sales and marketing, which generated increased market share as well as strong economies. Latin America softened somewhat in the fourth quarter with 6% growth due to increased competitive pressures. Canada remains soft with a decline of 13% largely due to the softness of the automotive industry and Ontario.

Energy and public works infrastructure construction and maintenance activities are expected to remain strong through FY '08 and Columbus McKinnon will continue to invest in sales and marketing resources in these key markets. Comprehensive target marketing programs for these industries include -- one, new products optimized for these specific applications. Two, extensive technical training for both end users and channel partners. And three, systematic leveraging of successes both domestically and internationally. Combined with our continuing international expansion activities, fiscal '08 is expected to be another strong year for Columbus McKinnon.

Relative to operations, we continue to focus on superior customer service. This is supported with detailed initiatives and operational excellence, people development, as well as new products and services. As discussed last quarter, our new Columbus McKinnon Europe products organization has an enhanced plans for emerging markets as well as multi-branding in Europe. Sales and profits were strong in this group for the last two quarters and the outlook, given our investments in sales and marketing, continues to be strong. Along with the strong growth, delivery performance remains solid through the diligent efforts of our European products team. Operating leverage for the products group continues to be strong at 41% in the quarter.

Although inventory turns improved year-over-year from 5.8 to 5.7, we are in place to improve the inventory turns. This includes a more intense focus on Lean, as well as improvements in the planning process. Backlog is down only slightly because we continue to have a strong order stream on large capacity hoist and cranes for the large infrastructure projects where customers do not want the product for several quarters when required by the particular project they're working on. Finally, this quarter we announced the sale of Larco Industrial Limited, the sales of $9 million this year at near break even will not have a significant impact on earnings, but will improve our profit metrics moving forward. Now I'll turn it over to Tim.

Thanks, Derwin. Okay, Bridget, we're ready for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question will be from Joe Giamichael of Rodman & Renshaw. Your line is open. You may ask your question.

Good morning, everyone.

Hi, Joe.

I just want to touch upon a couple things. First, on the raw material side, have you seen any real volatility there lately? And if there is a softening, is there an opportunity there for you to hold pricing and get some margin expansion?

Good question. Most of our commodities as you may recall, Joe, are under contract. So from that cost perspective, they're relatively stable. That's true for everything except for steel. Most of our steel purchases are a lot shorter term and somewhat more tied to the spot. I think it depends on the grade and the structure of the steel. It's kind of all over the map. Some are up, some are down. If we see a trend either upward or downward, let's say upward for example, so cost is going up, we will act as we have in the past and surcharge our products going forward into the marketplace and ask our distributors to pass on those cost increases to the end user market. At this point in time, we don't feel like we need to do that.

Got it. Okay. And just to touch on margins again. You've spoke in the past to 20 to 30% incremental margins. Is that a range that you're still comfortable with? Or do you think you are reaching the higher end of that?

Well, as you can see from the year, the quarter and the year, we were above that. As we look to multiple quarters, I think that we're still saying 20 to 30% is reasonable, sustainable operating leverage for the next several quarters. We're still in that range on a forward-looking basis.

Great. And just last, I want to focus on the products business and the progress you've made there internationally. Can you just sort of briefly talk about how Columbus really is a different business here in Q4 '07 versus Q4 '06 as a result of the international expansion and what you're seeing in these new markets?

I'd love to. The international growth for us has been, Joe, quite honestly very robust, very favorable. Starting with Europe, we reorganized our European business and named Wolfgang Wegener an executive, put him on our executive committee of the Company. He's based in Germany, covers all of Europe for our product segment. He has extended the reach into multiple markets there now by actually exporting to the market initially, then eventually putting a managing director in that market, hiring a sales force in the particular markets and expanding that way. We also leverage that with the warehouse in the local markets. It's worked very well from us -- for us. It's not the cheapest or less expensive way to go about it. But it has added very nicely for us in some new markets like Spain. We just named a Managing Director in Italy, as well. You'll see us in the Eastern Bloc with an operation in Hungary, which is producing very well. And I would suspect other European, Eastern European countries, we would also be naming some new folks as soon as we can find the right people, which is critical to this process. That's going very well.

So the expansion through the emerging markets and established markets but new to us is walking down the road quite nicely. I would also add that under Wolfgang's guidance in Europe as well, he's taken the full breath of the Columbus McKinnon product offering that we sell in North America and we're bringing it into Europe, as well. He's named one of his direct reports, a fellow out of Great Britain to oversee this effort, to actually take all of the products or as many as make sense into the European market. That's going quite well even though it's in its infancy in the beginning portion of it. And that's helped some of the revenue growth, and will I suspect in 2008 as well.

Latin America's very strong. Mexico on down south seems to be very positive. We opened up our Brazilian office back, 4 or 5 years ago maybe now. It's going very well for us. We have a number of salesmen in the road, on the road covering the southern cone -- mostly Brazil, but down into Argentina and Chile, et cetera. That business is going very well for us, as well. We have new markets for us would be the Asia Pacific region. And we have a sales force there. It's growing, we expect to add to it. We just were fortunate enough to find a very experienced industrial sales leader for that region. And he started with us this week. So literally he's getting up to speed with Columbus McKinnon. He's a Chinese fellow, actually he's an American, but has lived in China for 20 some odd years or so. His ancestry is Taiwanese. He's very familiar with the markets. And we're very hopeful he's going to accelerate that growth for us. Very small for us today, but we're looking to the future and saying that that's going to be our growth engine as we talk about in the next several years. Hopefully that's a good enough background.

No, no. That's great. And then one last thing and I'll jump back in queue. Have you talked about just a breakout of your revenues the amount of revenue attributed to sales outside of the US?

We do report that in our presentation. We haven't actually said what that was for this quarter. It normally is somewhere in the high 30%.

For the year, Joe, it was 34%. Which is down a touch from what it was since we have scaled back our Univeyor impacting that percentage.

Got it. Okay. Great. Thank you very much. Excellent quarter.

Thanks, Joe.

Thank you, our next question is from James Bank with Sidoti and Company. Your line is open, you may ask your question.

Hi, good morning.

James.

Karen, if you could just quickly help me with this reconciliation on the non-GAAP pro forma. I seem to always have a problem with this every quarter. I'm coming up with $0.57 and $1.82. Even if it was $0.59 cents, I'm a little curious where the $1.90 is coming from as opposed to $1.84.

Bear with me. Let me just pull the numbers out here for you, James. We show a table. I guess I'll point to the full year where we come up with non-GAAP pro forma net income of [36.039 And if you divide by the diluted shares outstanding of [18.951], I get $1.90.

Right. I guess I'm just -- the only thing -- my net income on an adjusted basis is 10.934 million. I'm pulling out the income from discontinued operations, the 1,39, other than that I'm leaving it as is. But you all are excluding the finance costs for the notes repurchased?

We did. I guess it's -- I think everybody generally, or different people sometimes take a different take on--.

Okay.

What they'll pro forma out. That's why we thought we'd be explicit like we've laid out in the release here. And what we have simply called out here to isolate for you for the group, for the readers is the financing costs. Because those have had a tendency to fluctuate from quarter to quarter over the years. And then, of course, last year's income tax situation. So if you look at the numbers for the quarter, that is specifically all that we have isolated.

Okay. And you did pull it out in the first quarter too, actually, I think, right, the 3 million?

Yes. We have -- this is consistent with prior quarters.

Right of this year.

And then I guess to quickly finish that thought. With respect to the full year, in addition to the financing costs and adjusting for the taxes, so they'd be on a comparable basis, we also reflected in the fiscal '07 year-to-date numbers stock option expense. And that dated back to the first quarter. That was for the adoption of the new accounting pronouncement, FAS 123R. So there was a bump up there. And then the next line in the table we show here is securities gains and our captive insurance company. That dated back to the third quarter. So there are details in that. We have done a portfolio reallocation in the third quarter.

Okay. How much -- I'll come back to you later on that, Karen. I'm sorry.

Sure. That's fine.

Now, solutions. Tim, you discussed a lot of this on your prepared remarks. What really are the next steps? It seems like you're going to try and make it work? But you might end up selling it after all?

Yes. We don't have much to sell right now, quite honestly. And we started down this road to transform this business from more of a solutions provider where they bid on projects and really don't have -- have not been able to overcome the price pressures. So we're going to migrate it to proprietary products, which they have several very interesting proprietary products. One is a container unloader. Semiautomatic, which takes ocean going containers and unloads boxes from them in a very safe and ergonomic way. We're very hopeful, as a matter of fact, just sold our first one after just launching the item, the product. We're very hopeful that's going to take off. There's a tremendous amount of interest in it.

That's the kind of product -- by the way it has much better margins than the systems projects that I've mentioned. And oh, by the way, it's patented so we have some proprietary nature of this product and it's incredibly beneficial to the end user community. We're going to really push to sell more of those kinds of products into the market. And I think consistent with that, we have taken one of our guys -- I won't say off the bench -- but out of a role that he was in that we had some bench strength behind him and have relocated him there to oversee this transition in a faster way in a much more prudent way in terms of timing. And we're going to see how that works. I think consistent with that, quite honestly, James, we're going to look around and see if there's any potential acquirers of this business and see if this business better fits with someone else.

Okay. Terrific. And I'm sorry to kind of focus on the negative here. I don't want to take anything away from what you guys just accomplished this year. Is there any kind of a time frame on potentially the turnaround of the solutions business, or do you have to con the business that you just mentioned?

I've said in prior calls that it was -- we were hoping for a couple of quarters. That was a couple of quarters ago and obviously we're not there. So it's -- I would much rather go through the exercise and hopefully some time in the fall maybe by our third quarter either give you a very clear pointed direction as to which way we're going to head if we have a buyer, if the business turns around. It'd be nice to give you some hard core dates. But it's very difficult at this point as we're in the middle of this turn around.

Okay, but it seems to be more near term than longer term, I would assume?

I would absolutely say it's more near term.

Terrific. And if I heard you correctly, the products division, that operating leverage was 41%?

Yes.

Wow, so solutions was actually -- overall I think you were at 31%, that was really a big drain.

No question about it.

Terrific. Very good. Just a couple more questions I'll jump back in queue. Let's see, could we assume the remaining debt not in the $136 million notes but the 10% notes. Could that potentially be paid down to fiscal year fiscal '08?

That's our plan. They're callable to August 1. So it's our plan to call them at the 105 premium as Karen mentioned taking that back.

Okay. And I remember you were hiring, you were increasing your hourly workers by 4 to 8% a couple conference calls ago.

Yes.

What did they do in terms of pulling some of that backlog down? Do you have those numbers broken out?

I don't have that in front of me. But I do know we did add the workforce. We did decrease the backlog in the particular business where we had the issue that we reported on. And that backlog isn't at exactly where we want it, but it is relatively close. So it's really improved dramatically from a customer service and backlog standpoint.

Okay. Terrific. I'll jump back in line. Thank you, Tim, Karen.

Thank you.

Thank you. Our next question is from Mark Grzymski of RBC Capital Markets. Your line is open, you may ask your question.

Good morning.

Hi, Mark.

How are you?

How are you?

Doing well. On the international business, is there -- could you kind of give more detail, the margins that you're getting there? Are they better on the operating margin, better than US products business?

In the products segment. Let's remove Univeyor, okay?

Yes.

Just the products business, but operating income in our European business is comparable to the US.

Okay. Okay. And you mentioned that you'retaking market share where and again why and how?

Well, I think that the model that we've proven works, which is export to a market and then locate people there and support them with a warehouse in a given country in Europe has demonstrated that, a couple things. Number one is we can take advantage of the growing economy there, which everybody is, of course. Given the growth that we've seeing, we're growing faster than the economy. Generally speaking, it's emerging markets, I would say would be the first and foremost where we've taken share. That's probably marked from the local competitors in that market.

Right.

Then I think that also in the more mature markets where we'd have established presence for 20 or 30 years now like Germany and France and the UK, we're doing a very good job in customer service and being responsive of the market as well as bringing in new and innovative products, that the end user would want. So that helped in that regard as well.

Right. So the multi-branding, is that helping you get more diversified clientele in Europe?

Yes. I would say that it's right at the beginning.

Okay.

That really hasn't -- it might have started in the fourth quarter, but not to any great degree. And I would say that's really more a fiscal '08 impact where we can have a broader array of products, which would, you're right open it up to different clientele in the power hoist side. So that would be -- that would be interesting for us in '08.

Okay. Okay great. And just year-over-year, did those -- how significant of an improvement did you have on the operating margins for the products excluding Univeyor? Was it substantial?

Yes. As you know we don't report those specific numbers, but it was substantial as well as -- similar to the whole company.

Okay. And then finally, the weekend markets, what are they?

The weakest markets?

Yes, just kind of run through those for me.

Well, we don't do a lot in the automotive sector, but the distributors that supply the automotive piece seem to be the ones that are most distressed. Those in the greater Detroit area still are reeling from very difficult markets. We're in commercial construction, which is going strong, energy's still strong. All the oil work and oil supporting activities down in the southern portion of the country and around the world seems to be strong. I look to Derwin, is there anything else besides automotive that looks weak?

It's mainly automotive, you didn't mention Canada. It's really down in Canada because of automotive.

So the Canadian market is probably by most hardest hit by that.

But oil is up, the other side of the country.

In Alberta.

Okay. Okay. All right. Let me see here. The improvements, the spending that you had, the restructuring cost for Univeyor, how long do you expect that to go on, for these charges to go on?

Well, I think Karen mentioned we're going to have another charge in the first quarter.

Right. And what about--?

If our plans are executed, there probably would be very little thereafter. If this business does not turn around, and we have to make more changes then obviously you'll see more. We'll have more in the quarters in fiscal '08.

But you think that the margins you can get by changing from package solutions to more engineered to order kind of business is kind of comparable to the products margins?

The other way around. We're moving from the end to more packaged solutions. And they may not get as great as the products operating income, but they'll be relatively decent.

Right. Okay. Thanks, guys.

Thanks, Mark.

Thank you. Our next question will come from [Archma Yelimitelli] of Credit Suisse, your line is open.

Hi, good morning, this is Archma Yelimitelli in for Jamie Cook today.

Hi, how are you?

Hi, I'm good, how are you?

That's a name we don't know.

I actually just had one question. You mentioned that you plan to continue pursuing bolt-on acquisitions in the future. And I was just wondering if you could elaborate a little more strategically on which areas you're planning these acquisitions and also in terms of North American internationally if you could speak about that in which areas?

Sure. First of all they're generally modest in size. We're saying that under 50 million is kind of the sweet spot. Generally speaking, if I can frame for you the thought process, the criteria that we're using, it would, an acquisition would give us a, they would have presence in a market where we have little or no presence in terms of selling into that market. So, for example, we certainly sell into the Chinese market today, but it's limited. We want to grow there, we're growing organically, we're adding a sales team to address that market. If we could find someone who has a presence there. And by a presence, I mean feet on the street. Salesmen in various markets selling similar products to Columbus McKinnon's products that we could add our products to that sales force that would be great.

Additionally, if that acquisition candidate potential acquisition company has a series of products that is akin to our products that we could take and sell into our North American and European markets where we have a great presence and broaden the product portfolio that we currently sell into those markets where we have a very strong position, that would be great, as well. And I would say that generally speaking it's a very synergistic acquisition as a result of those activities. We might actually have an opportunity to combine operations if that makes sense. And also be synergistic our goal would be in the first year of operation. Hopefully that gives you a sense of kind of where we're pointed.

Okay. Thanks so much.

By the way, we would ignore the North American market. There may be some additional acquisitions here that would add to the product portfolio, which would be helpful.

Okay. Thank you.

Thank you. Our next question is from [Keith Goodhaus] from [Guggenheim]. Your line is open. You may ask your question.

Hi, good morning.

Hi.

Quick question on your depreciation and amortization. Of the 8.3 million in 2007, how much of that was in the fourth quarter?

8.3 million?

Yes. I'm just looking for the year.

For the year. And depreciation for the quarter was 1.9 million and amortization was 52,000.

52,000. Okay. And how did that compare -- I don't know if you have the fourth quarter 2006 numbers in front of you.

It was about the same.

About the same. Great. Thanks so much.

Thank you.

Thank you. Our next question is from Peter Lisnic from Robert W. Baird. Your line is open. You may ask your question.

Good morning, everyone.

Hi, Peter.

Tim, if I could just continue on the European side of the equation. Could you maybe give us a sense. You mention being the infancy. So there's more traction here. And I understand the growth prospects. But can you the give us a sense as to what sorts of incremental costs you might need to incur to continue to ramp the business over the next year or 18 months or however you look at it?

Yes. As you might imagine, we do have a plan. And that plan details out our expectations for incremental sales. And it's for products that the European folks aren't necessarily used to selling. So we have -- we have a training cost. We would have also some demo products that we would have produce in getting to that market. Which to some degree we started and we're there. There's also some possibly some changes to the designs of the products make them more acceptable into the European markets, which all said and done, these are not big costs what I'm speaking about here or big changes. There's also brochures and literature in the various languages that each individual country would sell the products into. And we expect to add probably some of the sales force common to what we would normally do as we enter a market in any event. However, having said all of that, those are all variable costs. And the real fixed portion of it is already in place. With the presence of the structure, the managing directors, the business support people are all there. And really doesn't have to be added to.

Okay. So like you said earlier, it sounds like, these are relatively I don't want to call them immaterial, but at the end of the day they're not significant enough to detract from your incremental operating margin targets, I guess. But do you foresee, maybe, I don't know as that business grows or scales even more significantly the necessity to incur maybe a Greenfield plant out there, or some facility cost that might be more significant than what you're currently incurring?

Pete, that's a good point. First of all to answer your first portion, yes, the 20 to 30% operating leverage considers all those additional investments. That's already in the number if you will.

Okay.

Basically to ramp up, what I'm envisioning, and this may not be in the next year probably would be a little longer term. We may have a different operating characteristic. We already have a nice facility in Germany. We have a nice facility in Hungary. And the Hungarian operation has lots of room to grow. And they have a very strong workforce. A very capable industrial base workforce. And for us to add a product line there to assemble to order or even to do machining for the European market is kind of the area that we're thinking of in an investment. And I would be honest with you and tell you that these investments that we're thinking about aren't really huge. We leased the facility. It's probably more machine capabilities. That kind of thing.

Okay. All right. Fair enough on that one. And then, you've historically talked about an operating margin number of 11 to 12%. Do you have any sort of updated guidance there? Clearly the numbers have been running a bit above that. And it sounds like with some of these growth initiatives and the leverage that you can put through the bottom line that that 12% number's probably the low end of the range now. Kind of what do you think in terms of, as you take more working capital out and as some of these businesses overseas grow, what do you think sort of the top end of kind the margin spectrum might be?

You're right. We ended the year at 11.6%. So we're kind of smack dab in the middle of our 11 to 12% operating income. And we said when we got back into the $600 million area, that we'd be in this 11 to 12%. I think in 2007 we did 11.8% to give you a sense of where we've come from. I'm still in the 11 to 12% area. I think with the investments we're making. But if you add the operating leverage in for the next fiscal year and I haven't done this math, but it seems that you might get better than the 12%, north of the 12% if you even consider some modest growth for the rest of the year. We haven't come out with any numbers yet, Pete. So I'm going to hold off until I do that and then we can talk about it more particularly.

That's fair enough. And then one last question if I could, again on Europe, in terms of kind of what's going on with the dollar and the dollar weakening relative to the euro, how big of an advantage is that relative to your competitors if at all?

Well, our Chinese competitors, by the way there's a number of importers in China into Europe.

All right.

The (inaudible) is still for all intents and purposes dollar based.

Yes.

So that -- that's not a competitive advantage. To the European manufacturers, yes. I think today we do have a bit of a cost advantage. We still have to get the product to the market. It should be helpful for '08. I would think that our products would be reasonably priced. The key here is executing our plan in terms of our training our people, having the right literature, finding the right situations and begin to get some traction in terms of selling the products there.

Okay. And then, I'm sorry, I do have one more. Memorial Day rust, I guess. The multi-branding and introducing all the brands into Europe, can you just kind of run through what's there already and kind of what's online for 2008?

Sure. The Yale brand name is there and they are very strong. The CM brand name is the one we're going to -- that's the primary one we're going to introduce. CM has been there for 50 years. It's known in the marketplace. What we're trying to do, though, is make sure that we introduce it a little more deeply and a little more broadly into the European market to make sure that we can get that brand broadly introduced into Europe. That would be the primary one. And then there's other ancillary ones which maybe wouldn't attract anybody's attention. Coffing would be one, but we're actually not going to introduce that one for a while. We're going to hold off just now. Think about Yale and CM as the two major brands into the European market.

And those are both positioned the same, the same sort of way they are domestically.

CM would be much power voice activated. Yale in Europe, at least is much more manual hoist related. That's the way they're positioned and will be positioned in Europe.

Okay. And what about from a price or quality perspective? Same kind of profiles here in the states?

They'll be right at the price levels. We'll still be as we are in the states and Europe be a leading price getter if you will, we'll be leading the price charge.

Okay. All right. Thank you very much.

Okay, Pete.

Thank you. Our next question is from Ted Kundtz with Needham & Company. Your line is open. You may ask your question.

Great. Thank you, hello, everyone.

Hi, Ted.

Couple of quick questions. Just to go back to the Univeyor business, again. Do you expect the same losses to continue for the next couple of quarters or do you think those losses will start being pared down? I guess you lost, what, $1.8 million in the quarter in that business?

Yes, we -- our expectation for the quarter is that would come down. It may not hit zero, but we would expect it to be less.

And then sequentially less in the next quarter after that? Is it just one of these things that are going to gradually you hope to get to profitability. Or you expect to break even by Q3, I think you mentioned your time frame.

Yes, Ted, the key is for us to launch those products like this [Emptycon] machine that I mentioned earlier that empties containers. Get them into the market, get them sold, and that's going to be the turning point.

Given what you see now, you think we could see some nice progress on those.

I would expect to see progress in this fiscal year.

Well, I was specifically wondering what quarters you'd start to see that. You are thinking in this next, this current quarter you'll see these losses reduced significantly and then again hopefully in the next quarter after that? Is that really if game plan?

That's the plan.

Terrific. Another question. Can you comment really what you're seeing in the US business? What kind of growth rates do you expect for the business here? You didn't comment specifically on it. You mentioned orders -- bookings were solid in mid single digits in the fourth quarter.

That's an excellent point. We should have spent a little more time on the US. That's a great market for us as you know. And I would say that everything we read and everything we talk to distributors about and our channel partners and even end users, things still seem to be fairly solid. Generally speaking very broadly, pretty solid. I think that some of the project oriented work, the major construction projects seem to be out into the fall time period. So we might have -- you were booking the orders today, but instead of shipping them in the next month or two, they seem to be out in the September-October time period. And I think that's more tied to scheduling of products as opposed to lack of demand. It's more of a timing issue than anything else.

I think all of the markets that we sell into still seem to be solid. I just came back from a convention last week and everybody there was kind of singing the same tune. Relatively stable, solid growth, nothing earth shaking. This low to mid single digit area seems to be at everybody's sweet spot. And it seems to be a very good time. And the US I suspect for '08 will be that way. We read the same economic reports that you read and people are talking about a slowing in the back half of the year, but that's not what we're feeling just yet.

Okay. Good. Thanks very much for that color.

Thank you.

Your next question will come from Holden Lewis of BB&T, your line is open. You may ask your question.

Great. Thank you.

Hi.

The -- if I heard you correctly, did you say that in Europe, which you spent a fair amount of time talking here, Europe was up about 8.7 %. Then I think you said that was mostly 4X which would suggest that there wasn't much in the way of volume improvement. Is that right? Or did I mishear that?

That's what was said, but it's mainly Univeyor that offset it.

If you look at Europe in the products business.

The products business was up 30%.

And that was mostly unit growth.

That's right.

Probably a third of that was exchange.

A third was exchange.

Okay. So it's probably up 20% in terms of units?

Yes.

Got it. Okay. And that is without the benefit right of any of the FEM product being pushed in there? Can you give an update of where you are in getting that third traunch rolled out and introducing that into Europe?

You're right. First of all the answer to your question, that does not include any of the FEM rated wire rope hoists. Right now that's part of the rollout of the CM brand into Europe.

Yes.

That's a portion of it. There's some minor modifications to the product that I believe we're in the midst of making or redesigning so it can be more apt to be sold into that market. And we would expect to see some sales this coming fiscal year of that product. So that's the front end, the fiscal '08 growth that we're expecting.

Okay. I think last time you were still sort of targeting summer, which is really kind of upon us now. Is that still good or have we had a little bit more of a pushout?

No, I think that's about right. I think that product will be rolled out sometime this summer.

As that rolls out, does that augment this 30% growth? Does it sustain it? How should we look at that?

First of all, I think the 30% number is as you can probably guess absolutely huge.

Right.

And I'd love to sustain it. I'm not sure that Europe can sustain it and I'm not sure that the German market can do what it's done and the French market and the UK market, et cetera. They're just very, very solid right now. We don't see it, necessarily slowing dramatically, but back to back year-over-year 30% growth is kind of huge. I don't see that happening.

Now, Europe was up 30% in products in the quarter. What was it for the year?

I don't have that number at my fingertips, but it was let's say double digit, low double digit.

Accelerated as the year sort of went on. What sort of industry drove that acceleration. Is there anything sort of one time or something that doesn't look sustainable to that?

Very broad, construction related, industrial Germany and the rest of mature Europe kind of woke up from their 10-year slumber. And I think that we were there to take advantage of that. We have some very new, well, new, a couple of years ago we launched some new products that have really kind of taken off now. That's helped, as well. I think it's very broad economic plus some new products plus some new locations. We just added Spain several years ago which is doing very well. That kind of thing has really helped. The UK is robust. It's just everything is pointed in the right direction. It's kind of like everything's on all 8 cylinders right now.

Maybe I missed this. But just talking about products. Obviously Europe was up 30% in the quarter. What was the US up just in products? And then what were the other markets up just in products?

Yes. We don't have that data to provide. We generally don't give you that level of detail.

Okay.

We just happen to be focused on Europe, I think because somebody asked very early on what was going on in Europe.

No, fair enough. And now Europe looks scalable so now maybe it's time to take advantage of the margin side of things that's sort of the message, right?

Even though the margins are very solid there. But certainly we've -- we like to have margins.

Okay. And then the -- certainly it looks like your interest expense profile is beginning to shift, particularly as you look forward to retiring some of this debt. Can you talk to us for fiscal '08 kind of what you're expecting out of the level of interest expense for the year sort of the cost of debt that you're anticipating versus fiscal '07?

Sure. Let me take a stab at it and then I'll ask Karen to chime in. First of all sometime in August the $22 million of 10% notes will be taken out. You'll have 10% up until that time plus you'll have the premium of 5 percentage points premium to take that taper out. For the full fiscal year we have $136 million piece of paper, the subordinated notes. That's at 8 7/8. Then we have a sprinkling of senior debt around the world which is probably somewhere in the 6% area 7% area. And I would say that that's 10 million or under on average something in that vicinity. So I haven't done that math. But if you do that, you're probably in the $14 million area 15 million, I don't know.

If you do the math, our cost of debt's probably in the like 8.75% area. Obviously the largest chunk as Tim has just described is the 136 million of 8 7/8 paper.

And do you envision doing anything strategic with the 8 7/8 paper once you sort so of take care of the 105 paper?

Not at this point.

Okay.

We'll consider that when we get by this hurdle.

And then lastly, Larco, I know you only sold it in very early March, but was the sort of the revenues taken out during the quarter?

It was probably $1 million or so thereabouts. It's about a $10 million a year business.

Okay.

And we sold it in February.

Okay. So probably 800,000 or something in revenue.

(Inaudible)

All right. Great. Thank you.

Thank you.

Thank you. Our next question will come from Beth Lilly of Woodland Partners, your line is open. You may ask your question.

Good morning, Tim and Karen.

Morning.

I wanted to follow-up on a question that was asked earlier about operating margins. You I think a little while back you talked about at some point you'll unveil a year next kind of margin goals and what Columbus McKinnon's going to look like over the next 3 to 5 years. I was wondering now that we're entering the next fiscal year, is that something that you anticipate doing some over the next couple quarters? What's your thinking about when you're going to lay out your next set of goals?

Great question, Beth. One of the things that we do annually is we update our strategic plan throughout the summer and we actually have a convening of our top management from around the world in September. And then I actually involve our Board of Directors and get their thinking on our strategic direction at our October Board meeting. I'd like to go through those two major steps for this coming year. And then think through how we want to report that to the market probably sometime after that. So the timing would be obviously the, either the third or fourth quarter kind of timing.

Third or fourth quarter of this coming year?

Yes.

And that's when you'll -- do you anticipate having an analyst day or what's your thinking about that?

Ideally, we'd like to have an analyst day and invite everyone to partake in that discussion and lay out the road map as we see it.

That's very helpful. Thank you very much.

Thank you. Our next question is from James Bank of Sidoti and Company. Your line is open. You may ask your question.

Just one quick follow-up question. What's the tax rate we should be looking for next year?

Generally, James, we expect to be in about the 38 to 39% area.

Okay. Despite that 13 million in net cash for the NOLs?

Right. Yes.

Okay. And I believe that's all I have.

Great.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) I show no further questions.

Thank you. Just in summary, we are poised to grow profitably with the stronger balance sheets, solid and growing markets, a strong market position in North America and excellent cash flows. Our use of free cash flow will continue to be applied to reducing debt. But we are also focusing our attention on modest products oriented bolt-on acquisitions that can add market presence where we have a small or no presence and add to our product portfolio where we can leverage our existing distribution channels and brand name strength. Combine this with our Lean initiatives, cost reduction activities, investments in new products and market as well as addressing nonperforming businesses such as Univeyor, as we talked about, and I think we're well positioned to have a wonderful and solid 2008. I'd like to thank all of the Columbus McKinnon associates around the world for their hard work and ultimate success in making this quarter and year a success. And as always, we certainly appreciate your time today. Have a good day.

To listen to a replay of today's conference, please dial 1-800-873-2068. Thank you for attending today's conference and have a great day. You may disconnect at this time.