Columbus McKinnon Corp (CMCO) 2008 Q1 法說會逐字稿

Good morning, and welcome to the Columbus McKinnon's fiscal 2008 first quarter earnings conference call. At this time all participants will be in a listen only mode. Following the presentation we will conduct a question and answer session. (OPERATOR INSTRUCTIONS). I will now turn the call over to your conference host Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Thank you, Kathryn. This is Tim Tevens, and welcome to the Columbus McKinnon conference call to review our results of our first quarter fiscal '08. Earlier this morning we did issue a press release with our financials and hopefully you have them with you. With me here today is Karen Howard, our Chief Financial Officer; Derwin Gilbreath, our Chief Operating Officer; Joe Owen, our Vice President of our Hoist Group. I do want to remind you that the press release and this conference call may contain some forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. These statements contain known and unknown risks and other factors that could cause the actual results to vary. You should in fact read the periodic reports that CMCO files with the SEC to be sure you understand these risks.

First of all, I think overall our revenue for the first quarter exceeded the same quarter by 1%, a little bit misleading. The revenue growth is in fact lower than normal as it was affected by a large decrease in our Solutions segment, specifically Univeyor and also the sale of Larco that we had last quarter and reported to you that we sold that crane builder up in Canada.

The Products segment revenue was up a very strong 6.7% over last year. You should know that we continue to experience a very strong global industrial economy, and it is very helpful in our bookings right now. Gross profit is up almost 4%. Operating income increased about 3%, and this led to an operating leverage of 34%. Actual net income was up 71% over last year and is a very solid quarter for Columbus McKinnon.

Relative to our product segment, the revenue for this segment in the first quarter, as I mentioned was up almost 7% compared to the same quarter last year and down 4% from a very strong fourth quarter of last year. And as you might recall, our fourth quarter is our best quarter of the year. So it is not uncommon for the first quarter to be down slightly.

The increase in this quarter from last year is primarily driven from an increased demand from our end-user through all of our distribution channels and actually you'll hear from Derwin in a moment that the only one that is a little soft is the consumer channel that we have, which is very small for Columbus McKinnon.

We've also seen some foreign currency translation and some price increase. And as I mentioned, it was offset by the Larco divestiture but still up a very solid 6.7%.

International sales were up almost 15% over last year, and this continues to be driven by a very strong pan-European and Latin American economies. This is also driven by the investments in new Products and the market presence that we made over the last several years. Product segment gross profit up almost 7% over the same quarter last year; gross margin was very strong at 30.8%, and our operating income was up about 12%. And the margin was at 13.8%. And again, the operating leverage here in this segment continues to be very positive at 24%.

Bookings for our product segment continued to be very robust in the quarter, and were up mid single digit over the same quarter last year. And backlog was up compared to the fourth quarter representing very strong bookings. Unfortunately, they are due in the future months. This cycle time on most of these items in our segment is in days or weeks, and the backlog number right now that we have represents about six weeks' worth of shipments.

Switching to our solution segment, sales were down considerably from the same quarter last year and from the fourth quarter of last fiscal year. You may recall we have refocused Univeyor, the largest business in this segment's unprofitable revenue. This is negatively affecting the revenue for the segment in this quarter. You should also know that we are just beginning now to see some improvement in gross margin and operating income. Clearly the losses at the operating income line have been reduced. Gross profit was down a significant amount compared to last year but up considerably compared to the fourth quarter of last year.

Our backlog is down, again reflecting the focus on Univeyor unprofitable business. And on selling products rather than systems. Besides Univeyor in this segment, the rest of the business is relatively small, continued to perform very well. Just as a reminder, and I know we've talked about this in the past, we are aggressively pursuing changing this operating model at Univeyor, migrating from a material handling systems provider to more of a standard proprietary products and maintenance contract business. And only on those products where we can demonstrate and be paid for our unique value added capabilities.

We are also reducing our operating costs, and as we said in the past, as we transform this business we are also considering all strategic alternatives for Univeyor. Cash flow from operations for the whole business was very strong at $9.7 million, and our funded debt net of cash is down to $112.8 million at the end of this quarter. So we continue to whittle away at that debt. We have achieved a 30.8% net debt to total capitalization rate, which is very strong for Columbus McKinnon.

And at this point in time let me turn it over to Karen who will lead us through more details on the results of the quarter.

Thank you, Tim. Good morning, everyone. I am pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon's fiscal 2008 first quarter that ended on July first, 2007. Consolidated sales increased by 1% to $148.1 million in the first quarter of this year compared with last year's first quarter. Product segment sales which accounted for approximately 92% of total sales in the quarter increased by $8.6 million or 6.7% with strong double-digit sales increases reported by our Columbus McKinnon Europe and our domestic Hoist Group.

Our Larco Canadian Crane business which contributed $2.7 million in revenues to last year's quarter was divested on March first of this year resulting in a 2.1% reduction in segment revenues. Accordingly, volume contributed a 7.2 percentage point increase for this segment over last year. Further, pricing and foreign currency translation favorably impacted the change by 0.5 and 1.2 percentage points, respectively.

Solution segment sales decreased $7.2 million or 38.9% compared with the first quarter of fiscal '07 driven by the decision to transition the business model of our Univeyor operation. As previously indicated, we are transforming this materials handling systems business to be more products and service maintenance oriented with future growth and profit expectations. 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 and will be impacted during fiscal 2008 by the March '07 Larco divestiture.

The recent quarter had 63 shipping days, 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 2008 and fiscal '07 for your reference. Overall, first quarter consolidated gross profit increased $1.6 million or 3.8% with the Product segment contributing an incremental $2.7 million and realizing gross margin of 30.8% in both periods.

Our steel intensive operations have been seeing a fairly constant increase in steel prices. In response, we are in the process of implementing a price increase that will impact most of our rigging products and will be effective September fourth. The gross profit margin in the Solution segment, at 15.8% in the fiscal 2008 quarter compares favorably with 15.4% in the fiscal '07 quarter but reflects continued weakness in Univeyor as we work our way through problem projects that are nearing completion.

Restructuring activities which began in the third quarter of fiscal '07 and continued with $0.3 million in the first quarter of fiscal '08, were focused on measurably reducing costs and changing Univeyor's business model to increase its focus on offering products as package solutions rather than engineered to order systems. We have made progress, and we also continue to evaluate strategic alternatives relative to the eventual resolution of this issue.

Consolidated earnings leverage added more incremental gross profit and incremental sales this quarter as compared with the prior year quarter at the rate of 113%. Consolidated selling expense as a percent of sales was 10.9% in the first quarter, up from 10.5% last year, due to continued investments in both our domestic and international markets in accordance with our strategic growth initiative.

Consolidated G&A expense was 6.2% of sales in both years' first quarter. Operating income increasing by $0.5 million or 2.7%, our operating margin improved to 12.3% for this year's quarter compared with last year's strong showing of 12.1%. The consolidated operating leverage contributed 34% to income from operations for each incremental sales dollar in the quarter 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 $0.3 million or 7.4% over the prior year's quarter due to lower debt levels. We incurred bond redemption costs of $4.6 million in last year's quarter associated with the debt reduction activities that are generating those ongoing interest savings. As previously announced, we will be calling our 10% notes effective August first, and settling them with available cash, saving $2.2 million or $0.07 per diluted share of annual interest cost. We will incur a $1.4 million charge or $0.04 per diluted share in our second quarter to execute the redemption and generate those ongoing savings. We realized $0.3 million of investment income on our captive insurance company assets this quarter as compared with $0.5 million in last year's quarter.

Regarding income taxes, the effective tax rates for the fiscal 2008 and fiscal 2007 first quarter were 38.8% and 44%, respectively. The fiscal 2007 rate was unfavorably impacted by some unusual non-deductible 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 NOLs. The NOL carryforward currently amounts to approximately $27.5 million, representing approximately $9.6 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.

Earnings per diluted share for the first quarter of fiscal 2008 were $0.50 versus $0.29 in the first quarter of fiscal 2007. After adjusting for bond financing costs in fiscal '07 the actual EPS for the fiscal '08 first quarter of $0.50 compares with the pro forma non-GAAP EPS for the fiscal 2007 first quarter of $0.45, reflecting an 11.1% improvement.

Depreciation for the fiscal 2008 and fiscal 2007 first quarter was $2.2 million and $2.1 million, respectively. Capital expenditures for the fiscal 2008 first quarter were $2.6 million compared with $1.9 million in the fiscal 2007 quarter. 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 to $12 million range.

Net cash provided by operating activities was $9.7 million in the quarter with earnings contributing $17.2 million and operating assets and liabilities using $7.5 million primarily driven by inventory increases this quarter. We continue to focus attention on our working capital utilization. Our long-term target remains 15% working capital as a percent of revenues. At quarters end debt net of cash was $112.8 million and total gross debt was $174.7 million. At quarter end availability on the $75 million revolver provided for under our senior credit agreement was $64.6 million, representing $10.4 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 $10.6 million, reflecting continued improvement in our net debt to total capitalization percentage to 30.8%. Gross debt to total capitalization improved to 40.9% at the end of the fiscal 2008 first quarter, down from 46.1% a year ago.

We are next targeting a corporate debt rating of BB or better; ultimately we are 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. Good morning to everyone. The Product segment sales represented 92% of our total business continued to show strength globally with a 6.7% increase in quarter one of FY '08. Solutions segment sales were down 39% for the quarter as Univeyor business continues to work through its transition to a more products oriented company. The consolidated result was a 1% increase in sales overall for quarter one of FY '08.

Domestic sales of Hoist, which represent just over half of our total domestic sales, grew 8%. Continued strong spending in the energy and nonresidential construction markets are shielding this growth which is expected to continue throughout the year and beyond. Sales of cranes and tire shredders represented 13% of our domestic business were down a combined 21%, although incoming orders for these products are very, very strong. This is more of a timing situation where we have received the order but scheduled for our delivery into the future. This is a typical expansion project that are scheduled well in advance.

General distribution remains strong at 5.5% higher than the same quarter last year. Catalogs have also experienced a similar increase. The only weak area was retail, which was expected due to specific objectives to eliminate lower margin business. Internationally, investments in geographic and market expansions continue to pay off with Product segment international sales up 15%. Factoring out the divestitures of Larco, the Canadian crane builder, quarter one growth was 24% and actual exchange rates are 19% at constant exchange rates. Overall, consolidated international sales were essentially flat with the aforementioned Univeyor situation offsetting the gains in our Product segment.

Product segment sales are expected to remain solid, both domestically and internationally throughout the remainder of the fiscal year with continued focus on end-user markets in the construction and energy sectors, as well as continued expansion internationally. Relative to operations, our operating leverage continues to be strong at 34% in the quarter. Our employees continue to pull together all the dimensions of our strategy to achieve this scope of success quarter to quarter. Our strategic goal of superior customer excellence is supported with detailed initiatives and operational excellence, people development, new products and services, as well as markets to drive sales growth. Investments in all of these areas are occurring throughout the Company.

Our European organization continues to be successful, not only from the strength of the European economy, but also from prior investments in European markets. Our Product segment's backlog continues at a high level, driven mainly by CES, our crane building business. CES backlog, which was already at a very high level, jumped an additional 40% during the quarter to its highest level ever. Most of these large projects are scheduled over the next three quarters according to the customers' schedules, which are generally expansion type projects. They do not present any capacity issues for us at all.

Turning to inventory growth that occurred this quarter, the inventory turns pattern is consistent with the recent past history. This is not to say we are happy with this pattern. We consistently have very high turns in the fourth quarter of the fiscal year and then it falls to roughly the levels of the previous three quarters. The largest area of inventory growth has been in raw material; with the current strength of the economy, our material leadtimes from suppliers have been pushed out, which in some cases means we've had to add stock to maintain our customer service. We are accelerating the creation of full systems with our supplier with all of our suppliers or many of them, as part of our Lean process to reduce our supplier order cycle time, which of course will lower our inventory over time.

We also have a number of new products that have generated more inventory growth than desired. A new stage gate process for the new product development process is being introduced this year, which will create more discipline and planning, new product inventory and more importantly, improve our new product introduction process. We are also putting a more intense focus on our Lean process to shorten our leadtimes to customers as well as part of our superior customer excellence goal. The Lean process will, as a side benefit, of course lower our inventory at the same time. Thank you, and now let me turn it over to Tim.

Thank you, Derwin. Okay, Kathryn, we are ready for questions.

(OPERATOR INSTRUCTIONS) Joe Giamichael, Rodman & Renshaw.

Good morning. This is actually Greg standing in for Joe. I guess a couple of modeling questions, I just wanted to go through first here. I know you didn't give official guidance. You did say that Products group you did expect mid single digit growth and revenue going forward here. On the Solutions side the 11.3 we saw this quarter, is this more of a run rate we should expect for the remainder of the year?

Hard to say at this point in time given the volatility that we are seeing out of Univeyor. We are holding back the revenue to a great extent and specifically to make sure that it is only profitable revenue and it meets our criteria, very strict criteria. So it is very difficult for us to give you any guidance in that area.

Okay, and as far as the restructuring charges we saw this quarter, should we expect additional charges going forward here this year?

That's another question, it really depends on how much of our transition takes place over the next quarter. If we don't see the transition accelerating and see some revenue growth in the area of these new products, I think you can see more restructuring charges come through.

Okay, and I believe you had said -- had identified the year end as a time period by which you had hoped to resolve the issues with Univeyor. Do you feel that that progress is being made and seeing -- do you continue to see this as part of CMCO? Would you prefer to fix it or hope to find a buyer at this point?

The answer to that is yes. It is a funny way to say it, but at the end of the day we're walking down a road today and we are improving this business day by day, order by order, job by job. And it's going to take a little bit of time. We are exploring all our alternatives in terms of fixing it, as well as possibly talking with some strategics to make sure that it might fit better with a different company. I think we said that by the end of the calendar year, by the end of 2007 we will have a definitive direction for that business, whether it remains with the Company or is sold.

Karen, a couple questions probably directed towards you. You mentioned CapEx for this year you are expecting $10 to $12 million range. As far as D&A goes, if we use this quarter -- you are looking at 9 million or slightly below?

Yes, that's reasonable.

Okay, can you just elaborate a little more? You said early September you expected some price increases to reflect rising raw material costs. Could you give a little more detail there?

Some of our products, as you know, are made primarily from steel, chain for example and forgings, it is actually our rigging business. Those we are seeing increases in, and it was volatile for a while. It was up and down; but now we are seeing some fairly consistent price increases over the last couple of quarters or so. To the point where we think it is staying and now we've decided to put some price increases to offset that raw material increase. So that actually started; we've announced it to our channel partners this past week -- today.

And how have price increases typically (inaudible) Have they been temporary, or have they stuck with? Have you had problems passing them on?

No. We typically pass them on, and we get most of them. There's always issues with contracts with some of our bigger channel partners where we have a contractual agreement for a period of time. We don't get the price increase right away; it takes a little bit of time to pull those through. But I think for the most part we get somewhere in the vicinity of 50 to 75% of the price increase.

Okay, and just last question on the general side on the acquisition front you have mentioned or have you been involved in any active discussions to date? And if so, do you continue as you said to look for bolt-on's or something a little more significant?

No, bolt-on's are the way to go from our perspective. And our strategy calls out for us to add some logical extensions of our product line and/or market expansion. We would love to find someone who has a great market presence in terms of a sales force in a market where we don't or we are building organically right now and Asia-Pacific comes to mind in that regard. We are having conversations with a number of parties, but nothing at this point that is meaningful enough to report to you.

Thank you. I will jump back and congratulations on a good quarter.

Mark Grzymski, RBC Capital Markets.

A lot of questions were just asked, but you mentioned the CES business as being very strong. I am wondering if you could elaborate more as to where that strength is coming from, specifically from an end market perspective or geographically.

Yes, it is actually our crane builder business, which is CES, as you just mentioned, it is actually a fairly global business although we make a lot of cranes for the domestic market. Many of them are used internationally, especially supporting oil, oil platforms, things of that nature. Our sense is that most of the end-user customers are oil or oil related kind of expansions, and it really is a physical build. So we book the order today but it ties in with a construction sequence. We have to make deliveries sometime in the third quarter or fourth quarter to sink up with the completion of the building. And it is primarily oil, I'd say.

Oil and CAT and Deere and folks like that.

So it has got to be a lot of these international projects that are going on where you are just built in at some point within the construction process of these large international oil and gas projects.

That's exactly what it is.

Right. So I would assume -- and I don't think you have -- well, you have more visibility in this business than any of your other Products area. Obviously this business looks like it's going to go for at least the next 12 to 18 months based upon a lot of those large projects. Am I fair to assume that?

I think it is fair to say that we can look out and see a pretty strong backlog for the next several quarters, 12 months is probably reasonable, Mark. And also given the level of quotation activity as well, we are seeing maybe even beyond that.

And then looking domestically, since we've already started earning season some companies have mentioned some areas of softness domestically. And granted you are so diverse that any one market that is being weak isn't really going to hurt you too much, but just curious domestically where any abnormal softness or any new softness that you saw in your Q1?

No, it is still very strong. The only area that Derwin mentioned is our consumer channel, which is sold through farm hardware kind of distributors and do-it-yourself kind of big boxes, and that is because we chose not to participate in that business because it wasn't as profitable as we'd like.

Okay.

Everything else -- it seems to be pretty broad; the catalog houses are strong, general distribution is strong. The rigging channel seems to be strong. Crane builders continue to have pretty vibrance activity. So it is still feels the same as we've been reporting for the last several quarters.

Okay. And then just lastly, Tim, the Univeyor business, it is really hard to -- I know you just mentioned to the earlier question that it is hard to predict where revenues are going to be there, but is there anything in these quarters where you should see a pickup in revenue? Or are you really just going to turn away any business that you don't see as being remotely profitable?

I would not expect a pickup. I would be hopeful that we've seen the bottom, but I am not confident that we have just yet. But I would think that we have a management team in place who is focused on making money and doing the right thing in terms of migrating the business toward this profitable kind of solution. So I would expect to see some level of turnaround in the profitability before you see a revenue pickup.

Okay, fair. Thanks for taking my questions.

John Haushalter, Robert W. Baird.

Just curious kind of selling expense going up as a percentage of sales. Is that primarily related to international efforts? And then as you continue to grow, I guess Europe at 19% in Products, should that kind of go down as we look throughout the year?

I would say it wouldn't go down. We are still making investments in new markets overseas, in foreign markets, and that is kind of driving this activity. So I would not expect it to go down.

Okay, I guess it is safe to say that your operating leverage targets are on top of any increase in selling expense, so you are kind of 20 to 30% in being towards the top end of that as taking that into account?

Yes, you're absolutely right. The 20 to 30% number of operating leverage that we expect is, includes those investments we are making in selling expense in new markets, etc.

I guess switching gears, you kind of mentioned on the CapEx front that some of that is going towards new product development. Is there a next generation or some new products coming out or is that more incremental process improvement type things?

It is the same productline extensions that we've been talking about, the FEM-rated wire rope hoists. We are concluding a couple of capacities that need to be done. We have a new FEM-rated electric chain hoist that we are expecting to have complete the fourth quarter. There are a couple of forging tools. So it is more of the same, John, the type of product that we've been talking about.

Okay. Thank you. I will get back in queue.

Theodor Kundtz, Needham & Co.

Hello, everyone. I got a couple questions for you. In terms of the price increase could you say what that will be percentagewise on an average?

It is just for rigging products, so it is steel welded chain and steel forgings. It is not all the hoists etc., all of our productline. So it only represents maybe 20 or 25% of our revenue. Number two, it is 2 to 4% depending on the individual product.

Okay, and you are pretty confident that that can stick?

Well, historically for most of these products we get somewhere in the 50% area. And again, it is because predominately because of timing and contracts.

Several of our competitors have entered at the same time.

They have? Okay.

Yes, we are seeing competition doing it, as well. (multiple speakers) all feeling the same steel dilemma.

Right, okay. Then it is likely to stick. That is good to hear. Secondly on the Solutions business, are you lowering the breakeven level here? It looks like you have. You are coming closer. You've got the operating loss down to what, 600,000 here.

We are indeed reducing costs.

Where will be the breakeven level? You think you can get it down lower than the current revenue run rate?

It is. It should be lower than the current run rate.

So there is a good chance we're going to see breakeven in the next upcoming quarter, is that fair to say?

(multiple speakers) perspective, Ted.

I'm sorry?

I love your optimistic perspective. I am of the vent that I want to see it before I can comment.

But it is going in that direction, that is the key, you got it going the right way and you think it is slower than where you are currently at.

There is no question. We've done a lot of work on the cost side, and [Chuck Geesahy] who is one of our American executives we put over there for the last four months has really been working hard with new management on the ground there to really put some corrections in place. So there is a lot of costs that has come out; but clearly our breakeven is lower.

Okay, and given what you -- I think you answered Mark's question about you thought Solutions would kind of come in roughly the same level it is now in terms of revenue. In the next quarter.

It is hard to predict.

Hard to predict, you said, but you thought it could be?

It certainly could be, yes.

Best guess would be, okay, and one last question. You mentioned operating leverage at 34% in the quarter. Your goal is still 20 to 30%. But you've been doing better than that. So are you backing -- what is can you kind of give an explanation? Are you just being conservative here, or are you seeing something that will bring down the operating leverage back into that range?

The one thing that I would like to say is individual quarters may be higher or lower than that range, but that range is what we expect it to be sustained for a long period of time, multiple years.

But I think we've had several quarters above that, haven't we?

There is no question. But there are some costs that we are seeing. Steel is a good example. Now we're trying to mitigate that with price increases, but I also will tell you that healthcare costs continue to rise. And that is something that eats away at that leverage. And I think 20 to 30% is doable over the long-term.

Okay, and just in terms of gross margins do you have any comments on there? Where you think the trends could be there?

I like the gross margin area we are in right now. The 29.5 to 30% area is certainly doable. Ted, if we can get Univeyor turn to a reasonable level this could be much higher.

It is hard to say, again, because Univeyor is such a big question right now until we can get some controls around it and get some stability in terms of performance and actually putting some things on the ground. But you can see that our Products segment was 30.8%. Actually last year was 30.8%, as well. That is a decent number for us.

Okay, terrific. Thanks very much.

James Bank, Sidoti & Co.

Good morning. In regard to your total capitalization goal, it looks like you are basically there. Can we assume that you might begin to pay down some of that, the other note, the $136 million note? And maybe lower that capitalization goal?

I would like to leave the goal at 30%, total funded debt to cap to total cap. And we are in this -- we are a stone's throw from that, as you can see as we keep generating some cash here we can get there pretty quickly. But I would like to say that 30% is a reasonable leverage, especially if we're going to make an acquisition or two. These bolt-on's that we've been talking about that could push this 30% up into the 40% or 50% area, that will allow us then to work it back down and stay in that range of 30 to 50%. Acquisitions don't come around we will have to decide what we're going to do with the additional free cash and maybe buying back some of those bonds might make some sense.

Okay. What is the timeframe again when you are able to start paying those down?

They are callable in 2009.

Okay. Great. Thank you.

Right now to get them we would have to go to the market.

And sorry to beat a dead horse with this Univeyor line, but just running kind of a rough model here, that was actually a $0.09 swing in the quarter. Just seems -- and please correct me if I'm wrong -- that if that didn't even exist here at this point you would have been $0.09 more positive in the quarter. For $0.59 for a run rate that could be an unanswered $0.32 for the year, am I looking at this correctly?

I haven't done the math to come up with your EPS, so let's assume that that is correct. The $0.09 is right. And that is probably a reasonable way to look at it.

I am just getting at best considerable upside and when you said you were hoping to have a solution for this business and that would be by the end of the calendar year or fiscal year?

Calendar.

Okay. That's helpful. Now SG&A was up a little bit, I guess with your expansion in Europe. Selling expense of $16 million, is that sort of a pretty good run rate to use for the year?

Yes, that's reasonable.

Okay. And could you -- Karen, you might be able to help me with this -- the Product sales, are you able to break that down between international and what was domestic?

Sure. For the quarter in the Product segment about 30% was international.

And then you also made a comment about the third quarter. I might have misunderstood this, but you said it might be light in sales for a particular reason. I missed that.

You know, as we were commenting on our normal quarterly fluctuation, James, our December quarter, which is our fiscal third quarter is traditionally our softest quarter with the year end holidays business just isn't as strong.

Even with the one extra shipping day year-over-year?

Right. That is just the normal quarterly fluctuation for us.

And the Products backlog at $63 million certainly up a good bit from where you ended the year. And how much have you increased your labor force by, and has that helped at all trim down some of that backlog?

Let's talk about the backlog for a moment. It was primarily driven by our crane builders. We had strong bookings with orders due into the future. And again, tied to expansion construction kind of cycle. So a lot of that backlog is not shippable until the customers are ready to accept it, which is not until the third and fourth quarter, basically. So it looks kind of odd that it jumped quite a bit, but it is because of this activity of relatively good-sized crane orders that are due six months from now.

Jamie Cook, Credit Suisse.

My first question, I am just interested on your comments regarding commercial construction in the US. We are hearing from some of the other industrial companies that have reported so far that maybe we've seen the best to date, or things could start to [weaken] in the back half of the year. So I am just trying to match that with what you guys are seeing, so if you can just give a little more detail there or whether there are certain segments within commercial construction that are stronger than others.

The oil support industry is what we are seeing as continues to be very robust. We support CAT and Deere, and they seem to be a lot of activity there in terms of rebuilds. And this isn't expansion or commercial construction. It is probably more of a retrofit of an existing facility. So we don't necessarily touch every aspect of the commercial construction but the pieces that we do touch we are seeing a lot of activity and expect to continue to see that for the foreseeable future.

And then on the acquisition front, can you just talk a bit whether you are seeing any change in valuation of the companies that you're looking at, whether they've come down a bit or in the US versus overseas or whether it is same as what you saw the past couple quarters?

Jamie, it is all over the map and continues to be all over the map, depending upon most of these are private companies, some aren't. Most of them have expectation of valuations that differ. And in the US I think it is probably the same, but internationally it is really all over the map. It is hard to put a trendline on it for you. And these are niche little players that do a great job in the market they participate in, and we would like to take advantage of that and push our product through their network.

And my last question, can you just talk a little bit about what you are seeing on inventory levels, at the distributor level, how you feel -- if you're comfortable with those?

I think they continue to flow. It doesn't seem like they are building. I think it is still very constant, good flow, and they are seeing good demand from the end-user market so things move pretty well.

Okay, great. I will get back in queue, thanks.

John Emrich, Ironworks Capital.

What were the annualized revenues of the Larco divested business?

Approximately $10 million.

$10 million annually? And your presentation in the press release, you don't take out that revenue from the June quarter of a year ago?

It is correct. It was about $2.7 million. We do identify it as in a roll forward for the Products segment. Like (multiple speakers) 7 million in the year ago quarter and obviously zero in this year's quarter.

So the comparable numbers revenue last year is closer to $144 million?

That's right.

(multiple speakers) great. That's it, thanks.

Beth Lilly, Woodland Partners.

Good morning Tim and Karen. I have a couple questions. The first question is when we met in April you talked about dealing with the Univeyor business in the sense of the business continues to mask the overall improved profitability. And I think my question is that at what point do you decide to -- you talked about deciding by calendar at the end of the calendar year. At what point do you decide this doesn't make sense? What are the decision points because as one of the previous callers pointed out, there was a $0.09 swing there. And so can you just provide a little insight into your thinking behind that business?

Sure. It is a very interesting business and has some very good potential. Obviously it has some very difficult times right now and it has for the last three quarters, four quarters or so -- actually three quarters where it has run into some difficulty in the markets and the industries it happens to serve. Our process is very clear. We are migrating this business from less of a total systems one-off design kind of engineered to order business to more of a proprietary products where we it is pre-engineered products for the most part. And we have some proprietary products that we can provide to others where we can make decent margin and decent returns on that. That migration is happening as we speak. In the meantime we have to restructure the business to move it into this area.

At the end of the day it may or may not be with Columbus McKinnon. I think that as we are going through this migration we continually evaluate and think through is there other people out there that might be better owners of this business. We actually continue to have a little bit of dialogue with some of them on a very high level basis to determine level of interest. But in the meantime we are pushing forward with fixing it. If it is going to be not part of our business, we need to have a business that we can actually sell, and one that generates its own Capital and cash to pay down and to give us a return on capital.

And we have decided that we feel like we've invested a fair amount of time and energy in turning it. And during the course of this summer and early fall we will continue to have these dialogues outside the Company and see what kind of -- what make sense going forward. At the end of the day we will make a decision, by our third quarter, which is the December quarter, and let you all know which direction we're going to head.

Can it achieve the profitability of the Product segment? What are your expectations in terms of what kind of margin it can generate?

Long-term it could possibly get there, sure. We see that clearly that with the right model, the right type of products, the right environment that they could earn their way toward that level, sure.

Okay, so by the end of your third quarter you will have made a decision?

Yes.

Either way, either to sell it to keep it?

Right.

Okay. The second question I wanted to ask had to do with your inventory turns, which went down in the quarter. And I know you've spoken about getting those turns back up to the mid 5's. Is that correct?

Our expectations long-term is in the 5 to 6 area. We actually think that by continuing to drive Lean into the Company it could push higher than 6, should be able to push higher than 6.

Okay, and so just to -- I know you've covered this, but I didn't fully understand it. Why did the turns go down so dramatically in the quarter?

A couple things; number one is we prebought some raw material steel in advance of a price increase. We added some raw material, usable raw material just more than we needed at the moment. We've invested in some new products, and those new products had to be stocked up in advance of revenue. That added some inventory on our shelves that we are looking forward to moving and selling over the next couple several quarters or so.

We added some inventory because the and since business is booming so much we are having difficulty occasionally getting raw materials in to make our customer deliveries. So we boosted that up a little bit temporarily until we get some more pull systems with our suppliers, which will bring it back down.

Okay, so do you expect inventory turns to increase next quarter then?

I don't know that they will increase. I think they will be flat, which is the typical pattern, and it will improve dramatically by the fourth quarter. But we are doing many things that are foundation things that will improve. And I think we will see the big jump in the next financial year.

And so how long will it take you to get -- Tim, you talked about ultimately your goal is over 6 times in terms of inventory turns. When do you think you can get there? Will it take two years?

At the end of our fiscal '07 year we hit 5.8 turns, and that has been our peak. That is the best we've been able to do. I would say it's going to take a couple, three years before we are pushing into the 6 cat range. It really takes a lot of effort on the Lean side to get good pull systems to suppliers and inside our factories and with our distribution channel partners. That is the only way we're going to get into this world-class category.

I have one last question. That is, during the quarter there was proceeds of $5.4 million from the sale of property. Can you talk about that?

We have a business in Charlotte by the name of Duff-Norton that makes actuators, electromechanical, mechanical actuators, rotary units. And we owned that -- we actually built that property back in late '50s, early '60s and have owned it -- actually came with the Yale acquisition about 10, 11 years ago -- 12 years ago now, I guess. And that building was way too large for the business that it was housing. So what we did is we sold it to a developer; we occupy a portion of the building, about half of it or so. And the developer now owns the entire structure and will lease out the other half. So we took the capital off the street, if you will, and are buying back bonds August first with it.

Is there any excess land at any other properties that you can sell?

Well, there is always that review going on. None that come to mind right now that we are in the middle of or anything. We've done a lot of this, as you might recall. This is -- I don't know -- is this our eighth, tenth property we've sold? More than that?

I think the proceeds have been about 18 --

So this is kind of a normal occurrence for us to do. As we implement Lean -- we do free up a lot of space, by the way. There may be more properties coming at us in the future, nothing on the radar screen, just yet.

Okay, great. Appreciate it. Thank you so much.

James Bank, Sidoti & Co.

Tim, I think you and I were cut off there a little bit; I just want to make sure I got all of the backlog for the products. You were just saying primarily that it is driven from the crane builders?

Yes, that was kind of strange, I do not know what happened there, but somehow we went to the next question before we were finished. Yes, that jump in backlog was strong bookings in the crane builder business, our CES business, and this is tied to predominantly oil but also we service Deere and Caterpillar. And many of these projects that they have booked recently are due into the future. So in other words it is not shippable backlog. So we will be seeing those revenues, though, our third quarter probably kind of timing. So it is not, even though it looks like it is, wow, it is up quite a bit, and you are short on labor and you are not being able to ship things, for the most part that is not the case. It is just the timing of the orders that came in.

Right, no, no, I wasn't trying to imply short on labor. I was just trying to -- because it seems like your historical average backlog was somewhere in the 45 million mark but it almost seems maybe it is now in the mid '50s mark.

It seems to be more '50s. I would say in the low to mid '50s is normal.

Terrific. And last question, the 139 in the P&L, was that the discontinued operations? Was that Larco?

No. James, that is related to the ASI business that we sold back in 2002. We continue to hold a note, and so it is the proceeds from that.

Okay, terrific. That's all I have. Thank you.

Holden Lewis, BB&T.

Thank you. You sort of commented, I guess, that a lot of the backlog growth was on the crane side of the business. If you look at the pricing in Products I know you put in a price increase I think in March, and yet the price contribution this quarter was quite a bit lower than I think it was last quarter. And so I guess I am wondering are you having difficulty getting the most recent price increases to stick on the hoist side? And given comments that cranes really drove the backlog, does this all rollup and suggest that maybe the core hoist business is not performing as well or is not seeing as much end market strength as maybe some of the more peripheral businesses are?

No, Derwin reported hoists are up 8%, so that clearly is not the case.

Yes. They are very strong.

8% is very positive, and now there is some price in there as well as volume, and I would assume that our price was somewhere around -- I don't know what that number is off the top of my head.

For the Product segment was only about 0.5%.

0.5%.

Right, and there is quite a bit more than that I think in fiscal Q4. And backed up even though I think you put a price increase in on that side of the business in March. Is that right?

Right.

Okay, but domestically hoists are up about 8%?

Yes. The hoist business was up 8% in the quarter.

And that is in North America or global?

That is just domestic hoist business. Our overall hoist businesses were up double-digit.

Okay. So obviously volumes are doing really well. Have you seen any issues or difficulties in keeping the March price increases sticking? Is that just getting more difficult to do or to what do we sort of credit the deceleration and the price component?

I think the answer is no, it is a very dynamic thing. But basically we've been able to hold the price increases. We actually did this price increase in a very different way than we normally do instead of across the board. We were very selective on what we did and how we did it to make sure that we were very competitive. Some things we actually kept flat. Other things we decreased. And so there are several strategic things mixed in there that probably caused the price increase to be a little bit lower than normal to make sure we were competitive.

Okay, so should we interpret that to mean that this most recent price increase may not have been as broad as the one prior year. That it sort of replaced?

That is fair to say, yes.

Okay but the price you have put in is sticking, so hoist demand looks pretty good still. All right, great. Also, I think last quarter just touching on Univeyor one more time you had commented that you felt like Solutions for the full-year would be a breakeven business in aggregate. That was my understanding. Anything that you saw in Q1 or that you are seeing so far that would lead to say maybe it is not breakeven this year, maybe the full-year number is still at a loss or do you think the final three quarters are going to be good enough to overcome the first quarter loss?

Again, Holden, very hard to say with the dynamic situation at Univeyor right now. To be perfectly honest with you I was disappointed at this loss in this quarter for the Solutions business.

Okay.

I expected Univeyor to turn a little quicker. I am a little more optimistic than maybe most, but that was a little disappointing to me. So maybe in the total year it won't be a total breakeven. It might be something less than that. But very hard to say right now.

Fair enough. And again, in terms of Europe, are we still on target to roll out the last tranche of FEM products this summer, or has that target moved around at all? Any details about that?

I think that is still on target for rolling the wire rope hoist line, the FEM hoist line out this summer/fall timeframe, yes.

Okay, and that includes rolling it out into Europe and getting into that market?

Yes, Europe is actually scheduled for the fall.

Okay, so US in the summer and Europe in the fall?

Right, and it is a broader product offering going into Europe. It is just not the FEM wire rope hoist. It is other Columbus McKinnon products that we make domestically that we are introducing into Europe, as well.

And then you talk about the costs and the sort of investments you're making over in Europe and elsewhere, you've obviously been doing that for a while. It is a never-ending process, but when do we start to see the rate of those cost increases begin to taper off a bit? In other words, you've got the infrastructure you want and now it is time to farm it. Are we going to hit a phase when we are in full farming mode, or is that a ways off still?

That is a ways off. We have a great coverage in Western Europe, but for example, we just opened an office in Italy. That will be a new cost, and it's going to ramp up the revenue, of course. We need to do more in the Eastern bloc of Europe. We have a great location in Hungary that is doing very well, but we may need to add some folks in other sections of that part of the world, like Russia, Ukraine or Poland, for example. So I think it is going to be a while before you see the investment. At the end of the day it is growing the topline very nicely and extremely profitable. So it is a good investment to make.

But what is your feeling that -- I mean what level of revenue growth do you think you need to be recognizing to actually leverage the SG&A given those ongoing investments? Do you have a sense of that?

No, I don't. I have not looked at it from that perspective. That is something we can study and chat with you later on.

All right. I appreciate it.

There are no further question at this time. I will now turn it back to Mr. Tevens.

Thank you, Kathryn. Let me just summarize by saying hopefully you can sense that we are poised to grow profitably with a much stronger balance sheet; continues to strengthen and very solid in growing markets and a nice market position here in North America with great cash flows. We're going to use our free cash flow to continue to reduce debt, but we are also focusing our attention on these modest product oriented bolt-on acquisitions that can give us a good market presence that we have in a small with little or no presence in some areas. Or add to our product portfolio where we can leverage our existing distribution channels and brand name strengths here in the United States and in Europe.

And you certainly combine this with our operating excellent Lean activities, cost reduction activities, and the investments we are making in new products and markets. And well as addressing nonperforming businesses, such as Univeyor and I think we are well positioned to have a solid remaining 2008 fiscal year. And lastly, I certainly want to thank all of our associates around the world for their hard work and ultimate success in making this quarter great, as well as prior years and future years. And as always, we appreciate all of your time today. Thanks, and have a great day.

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