Columbus McKinnon Corp (CMCO) 2008 Q4 法說會逐字稿

Good morning, and welcome to the Columbus McKinnon financial year 2008 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. I will now turn the meeting over to Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Thank you. Good morning, and welcome to the Columbus McKinnon conference call to review the results of our fourth quarter and full fiscal year '08 results. Earlier this morning we did issue a press release with some 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; and Joe Owen, our Vice President of Hoist Group.

We do want to remind you the press release and the 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 we file with the SEC to be sure you understand these risks.

The base business of Columbus McKinnon performed very well over the past quarter and for the full fiscal year which was offset by the poor results at Univeyor. As we previously reported we're in the process of divesting this asset. A better year of the quarter and the full fiscal year is to remove Univeyor from Columbus McKinnon and review the remaining business. Less the Univeyor business and some tax benefits that happened in the quarter, you will clearly see that we produced about $0.74 of earnings per share in the quarter and $2.38 for the year or well above the actual reported earnings. In addition, even with Univeyor included we generated almost $60 million in cash from operations for the year or $3.11 per diluted share. I will update you in a moment on our divesture process.

Overall our revenue for the fourth quarter was $168.6 million and exceeded the same quarter last year by 7.5% with our product segment up 6.6% and the solutions segment up 16.8%. Fiscal year '07 revenue did include Larco, a Canadian crane builder business we divested in March of '07. Sales outside the United States grew to $60.6 million in the quarter or 16% over the same quarter last year. For the quarter our international revenue represented 36% of our total revenue.

Contrary to what we read about, the global state of -- about the global state -- the state of the global economy, excuse me, we continue to experience a strong demand for our products. Gross profit was up 7.3%, and income from operations decreased almost 26% driven by the poor results at Univeyor and some additional investments we made this past quarter in new markets. Operating leverage was negative in the quarter but up 8% for the year. If you adjust for Univeyor, the operating leverage would have been around 37% for the year and 21% for the quarter which is clearly within our range, our target range of 20 to 30% operating leverage for the Company. Revenue for the product segment in the fourth quarter was up 6.6% compared to the same quarter last year and up 8.5% compared to the fiscal '08 third quarter. The increase over the same quarter last year is primarily driven from additional volume as a result of increased demand from end-users as well as some currency translation, a price increase, and offset by that Larco divestiture I mentioned and one fewer shipping day.

International sales in the product segment were up 11% over last year, about 5.5 excluding currency at Larco. This is driven by a very strong Pan European and Latin American economies and from those investments that we've made in products and markets over the last several years. Product segment gross profit was up 8.4% over the same quarter last year, and the gross margin continued to be strong at 31.4%. Operating income was down 2% in the quarter given the timing of investments in the quarter. As you may recall these investments we're making in new geographic markets as well as increased advertising and personnel to address certain key markets here in North America. On a go-forward basis we do expect our selling expenses to range between 11 and 12%. The operating margin was 13.8% and lower than normal because of the timing and investments in the markets. At this point we continue to be buoyed by the activity we see in the various distribution channels and at the end-user level.

While we have nothing definitive to report as of yet, we're very if I have in searching for and having discussions with companies that represent potential acquisitions for us. Most of them fit our strategic filter very nicely and we will report back to you at the appropriate time. Bookings in the product segment continued to be strong in the quarter and overall were up once again in the mid-single digit area over the same quarter last year. Backlog was up slightly compared to the third quarter. As you may recall, the cycle time on most of the items in our product segment is a day or week, therefore the backlog number represents about a month worth of shipments or so. Solutions segment sales were up 17% from the same quarter last year and up about 10% from last quarter. This was primarily driven by some very large orders at our tire shredder division.

You now know we had some surprise negative adjustments at Univeyor this past quarter which had a negative impact on the quarter and annual results to the tune of about $0.40 in earnings per share for the quarter and $0.53 earnings per share for the full fiscal year. Most of these adjustments were for write off of development costs, some accounts receivable write offs and higher costs in projects in process. The process to sell Univeyor is off to a very good start with significant interest expressed by many potential buyers. We will be going through management presentations in early June with final bids due shortly thereafter. We are still working towards a summertime completion for the sale process.

Despite the fourth quarter difficulties, Univeyor is still considered a valuable asset especially to many strategic players in the industry. In fact, we have many strategic and financial buyers currently in the sale process. Additionally, other portions of the Solutions segment are performing just fine and the backlog stands at about $11.8 million. Cash flow from operations as a mentioned earlier was very strong and especially in the quarter at about $22 million. Funded debt net of cash is down to $72 million at the end of the quarter. We now stand at 19.6% net debt of total cap. With that overview let me turn it over to Karen Howard who will lead us through more detailed results in the quarter and the full fiscal year.

Thank you, Tim, and good morning, everyone. I am pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon's fiscal 2008 fourth quarter and fiscal year that ended on March 31, 2008. Consolidated sales increased by 7.5% to $168.6 million in the fourth quarter of this year compared with last year's fourth quarter. Product segment sales which accounted for approximately 90% of total sales in the quarter increased by $9.4 million or 6.6% with strong double-digit sales increases reported by our Columbus McKinnon Europe and our U.S. crane groups, and low single-digit growth reported by our U.S. hoist and rigging businesses.

Our Larco Canadian crane business which contributed $1.4 million of revenue to last year's quarter was divested on March 1, 2007, resulting in a 1% reduction in product segment revenues. Volume contributed a 3.9% increase for this segment over last year while one fewer day deducted 1.6%. Further, pricing and foreign currency translation favorably impacted the change by 2.6% and 2.7% respectively. Solutions segment sales increased $2.3 million or 16.8% compared with the fourth quarter of fiscal '07 driven by significant tire shredder shipments which were scheduled for this quarter.

Within the Solutions segment revenue of our Univeyor business were down $200,000 and as previously reported we are actively pursuing potential divesture of that business. On a year-to-date basis consolidated sales increased $33.5 million or 5.7% over last year. Product segment sales were up 8.1% while Solutions segment sales were down 15%. 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 with such comparisons being impacted throughout fiscal '08 by the March 2007 Larco divestiture. The recent quarter has 63 shipping days, 1 less than a year ago quarter and the next quarter will also have 63 shipping days. Included in the press release is a table showing the number of shipping days in each of the quarters of fiscal 2008 and '07 as well as a new fiscal year 2009 for your reference.

Overall fourth quarter consolidated gross profit increased $3.3 million or 7.3% with gross margin contracting 10 basis points to 28.4%. Product segment contributed an incremental $3.7 million or 8.4% with its gross margin expanding 50 basis points to 31.4% from 30.9% in the year ago quarter. We favorably realized margin expansion on volume and productivity improvements somewhat offset by unfavorable mix and pricing incentives to penetrate new European markets. The Solutions segment realized a $400,000 decline in gross profit for the fiscal 2008 quarter, dropping to 0.4% gross margin compared with 3.6% in the fiscal 2007 quarter. Negatively contributing to these results Univeyor realized higher costs in this quarter breaking the previous positive trend of improving operating results. We are disappointed with these results but remain optimistic of the inherent value of this business that could be realized by a different owner.

On a year-to-date basis consolidated gross profit is up $20 million with gross margin expansion of 170 basis points to 29.6%. Consolidated selling expense as a percent of sales was 12.3% in the fourth quarter, up from 10.6% last year. During this quarter we recorded an unusually large $1.5 million commission on an international tire shredder shipment impacting consolidated revenue by 0.9%. Additionally, consistent with prior quarters of this fiscal year we have continued to make investments in our product segment to further grow global market share in accordance with our strategy.

On a year-to-date basis consolidated selling expenses followed a similar pattern at 11.5% of fiscal 2008 year-to-date sales compared with 10.5% for fiscal 2007 year-to-date. Consolidated G&A expense was 5.8% of sales in the fiscal '08 quarter modestly exceeding fiscal '07's 5.0%. Last year's percent was lower in Q4 due to lower incentive compensation expense.

Year-to-date G&A expenses were relatively consistent year-over-year at 6.0% of sales this year and 5.8% last year. During fiscal '09 SG&A is expected to approximate 17 to 18% of sales. As noted in the earnings release Univeyor's results negatively impacted the consolidated results for the quarter and year. This business recorded an operating loss of $5.1 million on $7.4 million of revenue for the fiscal '08 fourth quarter as compared with an operating loss of $2.4 million on $7.7 million of revenue for the fourth fiscal '07 fourth quarter. On a full year basis Univeyor recorded an operating loss of $7.1 million on $29.5 million of revenue for fiscal '08 as compared with an operating loss of $6.3 million on $39.4 million of revenue for fiscal '07. Additionally, we evaluated potential impairment of our Univeyor business and recorded a $2.5 million impairment charge in the fiscal '08 fourth quarter negatively impacting operating income and margin in this quarter and for the year.

With operating income decreasing by $5.1 million or 25.9%, our operating margin contracted 390 basis points to 8.6% for this year's quarter compared with last year's 12.5%. On a year-to-date basis operating margin contracted 20 basis points to 11.4%. As previously described both the quarter and fiscal year were negatively impacted by the performance of our Univeyor business. As we look to the future with steady revenue growth we maintain our goal of 20 to 30% operating leverage. Interest and debt expense was down $300,000 or 8.9% over the prior year's quarter and $1.8 million or 11% year-to-date due to lower debt levels. We incurred bond redemption costs of $200,000 or $0.01 per diluted share during the quarter upon purchasing $3 million of our 8 and seven-eighths notes which will save $300,000 or $0.01 per diluted share of annual interest costs going forward. During last year's quarter we also incurred $200,000 of similar costs representing a similar $0.01 per diluted share.

On a year-to-date basis we have incurred $1.8 million or 1.2 million after tax of bond redemption costs in fiscal '08 representing $0.06 per diluted share compared with $5.2 million or 3.8 -- excuse me, $3.4 million after tax representing $0.18 per diluted share for fiscal '07 bond redemption costs. We realized $400,000 of investment income on our captive insurance company assets this quarter compared with last year's $700,000. Further, we recognized $1.3 million of other income in this year's quarter including interest on invested cash compared with $400,000 last year. On a year-to-date basis we realized $1.2 million of investment income in fiscal '08 as compared with $5.3 million in fiscal '07. Fiscal '07 included realized gain from a third quarter portfolio reallocation to be more heavily weighted on fixed income securities as opposed to equities. Also on a year-to-date basis fiscal '08 other income of $3.6 million compared with $1.8 million in fiscal '07 with the increase primarily due to incremental interest income on invested cash.

Regarding income taxes, the effective tax rate for the fiscal '08 and fiscal '07 fourth quarter were 35.1 and 34.9% respectively. On a year-to-date basis effective tax rates were 38.2% and 38.1% for fiscal '08 and '07 respectively. On a go-forward basis our expectations are for an effective tax rate in the 37 to 38% range for fiscal '09. During the fourth quarter of fiscal '08 we fully utilized the remaining U.S. federal net operating loss carry forwards and we'll begin paying U.S. federal taxes going forward. Earnings per diluted share for the fourth quarter of fiscal '08 were $0.44 versus $0.58 in the fourth quarter of fiscal '07.

On a pro forma basis excluding the Univeyor results, impairment charge and favorable tax adjustments, diluted EPS for the fiscal '08 fourth quarter would have been $0.74 versus $0.69 for the fiscal '07 fourth quarter, also excluding the Univeyor results. Year-to-date actual diluted EPS of $1.95 reflects an 8.3% increase from last year's $1.80. Upon removing the Univeyor results, impairment charge and favorable tax adjustments from both periods, pro forma diluted EPS for fiscal '08 would be $2.38 as compared with $2.08 for fiscal '07 representing 14.4% improvement. Depreciation was $2.4 million and $1.9 million for the fiscal '08 and '07 fourth quarters respectively. On a year-to-date basis it was $8.7 million compared with $8.1 million last year. Capital expenditures were $5.6 million and $3.8 million for the fiscal '08 and '07 quarters respectively reflecting increased investment and productivity enhancing equipment. Year-to-date CapEx was $13.1 million with last year being $10.7 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 '09 to be in the 14 million to $15 million range. Net cash provided by operating activities was $21.6 million in the quarter or $1.13 per diluted share with earnings contributing $14.6 million and operating assets and liabilities providing $7 million. Within working capital reductions in inventories and increases in payables generated cash but were partially offset by decreases in other noncurrent liabilities which utilized cash. On a year-to-date basis net cash provided by operating activities was $59.6 million or $3.11 per diluted share as compared with $45.5 million or $2.40 per diluted share for fiscal '07, a 31% increase.

We continue to focus attention on our working capital utilization. At quarter's end debt net of cash was $71.9 million and total gross debt was $147.9 million. At quarter end availability on the $75 million revolver provided for under our senior credit agreement was $63.8 million representing $11.2 million 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 reductions to further improve our profitability and provide capital structure stability.

During the quarter net debt decreased by $16.9 million reflecting continued improvement in our net debt to total capitalization percentage to 19.6%. Gross debt to total capitalization improved to 33.4% at the end of the quarter down from 41.6% a year ago. Ultimately we're targeting a 30% 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 regardless of the point in the economic cycle. With that I thank you and turn it over to Derwin.

Thank you, Karen. Good morning to everyone. Internationally sales were up 16% in the fourth quarter and 10% for the year. The fourth quarter benefited from two very large orders associated with our tire shredder business totaling $5.7 million. One of these orders was from a customer in Korea, and the other was a customer in the U.K. Excluding Univeyor and previously divested Larco, international growth for the quarter was 23% with favorable exchange rates accounting for half of this growth. International growth is expected to remain strong for FY '09 as a result of our continued focus on geographic and market expansion, generally strong economics and favorable exchange rates.

Domestically sales increased 3.3% in the fourth quarter and 3.6% for the year. Energy and public works works infrastructure activities remained strong as evidenced by our sales to rigging shops and OEM government customers who were up a combined 17% for the quarter and 11% for the year. These channels account for 17% of our domestic sales. Our CES crane building business represents 15% of the total sales, was up 18% for the quarter and 9% for the year driven by continued strong energy related activity in the Gulf Coast. Reflecting the moderation in domestic manufacturing activity, sales to general industrial distributors representing 28% of our domestic sales were down 1% for the quarter. To grow, we increased emphasis on end-users to drive preference for brands. We expect to continue to drive sales through this and other channels. One example of this is a $1 million agreement just signed with a large national end-user who had previously been purchasing products primarily from our competitors. Sales to national distributors representing 9% of total domestic sales were up 4.4% for the quarter and 3.1% for the year.

Columbus McKinnon expects to have another strong year in fiscal '09 with continued allocation of resources toward attractive, target markets and geographies. International expansion in Eastern Europe, Latin America, and Asia will continue to bear fruit in fiscal '09. We will continue to focus on energy and public works infrastructure which shows no sign of slowing globally.

With additional investments in R&D resources and the implementation of Stage Gate which is our process for new product development, we expect to have increasing success launching new products in FY '09. Investments in training and other value added revenue generating services will continue as well in response to increased demand in the marketplace. In summary, we feel we have a good understanding of external market dynamics and have well laid plans for another successful year.

Relative to operations, our strategic goal of superior customer excellence is supported with detailed initiatives and operational excellence, people excellence, new products and services, as well as new markets and geographies to drive sales growth. Investments in operational team projects and all of these areas are ongoing. A couple of examples I will give you. For example, we have recently split our salesforce selling our CM brand with the overall objective of delivering more value to our channel partners and end-users. Our primary strategy in this regard is to create focused knowledge centers within CM hoist and CM rigging that include sales, marketing, engineering, training, and related support activities to deliver a total value package that is unparalleled in our industry. This change will drive a focus on end-user customers and markets to educate and build preference for exceptional value package that CM represents in both hoist and rigging. Our channel partners will also have access to more training and support as we work together to provide the highest level of service in the market. In addition to the focused salesforce, we'll have a renewed emphasis on training and application engineering to support our enhanced value package.

Another example involves Dixie Industries, one of our forge operations. They establish an operational excellence team to take our existing product into new markets. Specifically, the towing and auto collision markets. To do this, they had to develop standard operating procedures for order entry, manufacturing, order pulling, and shipping to reduce their lead time on these products from six days to one day. This product for this new market will be launched soon. This is a good example where lean is being used to increase sales by reducing lead times. Our international focus continues to intensify. Our office in Russia is now open. Our activities in the Middle East continue. We're hiring sales people in China, and winning orders including the recent order for the Olympics in China.

Moving to costs, as a result of the extraordinary increase in global steel prices on March 31, we implemented a surcharge on our rigging products ranging from 0 to 10%. On May 9, these surcharges were adjusted to range from 0 to 29%, the exact percentage by product line was determined by the type of steel used and the steel content as a percentage of the total costs of the product. Whether adjustment to say surcharges are expected in response to the continued volatility and the upward pressure on raw material costs. The surcharges are sticking, and we are achieving the objective of being margin neutral. Our freight increases as reported at our February 1, 2008, investor day where we reduced the number of freight carriers in order to lower our costs have offset the inflation at our freight costs. Our backlog is up slightly in the product segment and solutions. There is a decrease primarily due to significant amounted of tire shredders that shipped during the fourth quarter. Now I will turn it over to Tim.

Thank you, Derwin. Okay, we're ready for questions.

Thank you very much. (OPERATOR INSTRUCTIONS) Our first question today comes from Amit Daryanani with RBC Capital Markets.

Good morning, guys.

Good morning.

Just a quick question. I may have missed this, the 5.2 million net loss on Univeyor. How much was that was write-offs and how much was operating loss within the Company or within the division? And secondly, it looks like this is going to continue through Q2 at least. Have you explored maybe putting this as a discontinued operation?

Let me take the first question. The 5.2 million is a combination of all of that. I haven't broken it out between all the pieces. Some accounts receivable write off, some were old projects that were still wrapping up if you will and getting rid of, and some were a couple of new projects that we had some over runs on as well, and the total was 5.2. Relative to discontinued ops, we don't have a contract or are not firmed up yet as to who we're going to negotiate with to sell this asset, so we are not able to account for it as a discontinued ops. It would have been a lot easier, and you're absolutely right, just to display it that way, but we tried to give you a sense of what it would look like without it. Hopefully we were successful in doing that.

I mean, the color you're on definitely helps us get to what the business looks like, just thought discontinued would be a simpler way to go about it.

Right.

I guess the second thing I just have is you guys are talking about price increases in the sense that these surcharges are sticking pretty well. Is the sense that the price increases are sticking a lot better not in North America and Europe versus the rest of international markets or is it across the border you'll be able to pass them on?

Well, I think the surcharges are predominantly in steel-based products which is our rigging products, and those are predominantly here in North America, especially the ones that Derwin referenced, the 0 to 29% adders if you will, and I would say that -- so it is mostly North America and they are sticking. We've done this in the past. We started this in 2004 when we saw steel begin to go crazy and have had success in passing that worldwide growth in steel prices onto the channel partners and telling them to pass it on as well. I think it is probably mostly North America only because of the type of product we sell and where we sell it.

All right. This is my final question, hop off after that, when you look at all the investments you made to get better presence from the international market, is the sense that we're pretty much content with the extent of investments we've had or are there any big cash outlays going forward that we should be cognizant about?

Great question. Our sales growth strategy includes international growth, and I think you know we've been investing in these markets for awhile now, and they're bearing fruit. You're seeing that in the numbers in terms of the sales growth. Going forward, Derwin mentioned we just opened up our office in St. Petersburg, Russia, and that was April 1, actually, and just recently. I would expect that to continue to grow as the revenue grows into markets like Russia we would continue to make investments hopefully offset by the revenue. So the margin we would begin to see the leverage come through. I will tell you that there is another area that we're studying right now, and pursuing with some aggressiveness, and that is the Middle East. We do sell and export a lot there, but we don't have a presence there, and I suspect that most likely that might be a market that we would invest in as well as Poland. Today we export a considerable amount to Poland. We don't have anybody on the ground selling into that market, so that may be an additional investment. The good news there is we already have a fair amount of revenue to offset that. So I think it is fair to say you'll continue to see us invest in these new markets, especially the emerging and growing ones.

Fair enough. Thanks a lot and congratulations on a good quarter.

Thank you.

The next question is from Peter Lisnic, Robert Baird.

Good morning. It is actually John on for Pete.

Hi, John.

Could you guys just, on the surcharges you're putting through, is that going to be margin neutral or kind of profit dollar neutral?

Our goal is margin neutral.

Okay. And is that just -- at this point just limited to riggings, so kind of on the actual hoist business there really haven't been increases so far?

They've been more price increases, basic price increases. The surcharges are the forgings and the chain products which is the rig products.

Right. We're monitoring that very closely.

Okay. But it is not that pricing in the other businesses is -- you're getting really as pressured on the hoist business on the cost structure front?

Say that one more time for me.

The cost pressures more from steel is definitely more on the riggings side?

Definitely.

You're absolutely right. Aluminum is the primary product, commodity we buy for our power hoist products. There is some steel in some of the wire rope products as well as some of the manual hoists, but if you look at electric chain hoists, they're mostly aluminum bodied. The cost is more aluminum in motors.

Okay. Thank you. Then just on the international growth, I was writing it down right, it was kind of 23% excluding Univeyor and then currency was about half of that? Is that correct?

Yes.

And then just within that, that has the tire shredder business in it still which was up kind of substantially year-on-year, I would assume?

That's right.

The 5.7 million I assume is all kind of incremental internationally?

Yes. That tire shredder order, there was actually two orders, were both international orders. If you just to want look at the product segment, that 23% was the total business. You want to look at the product segment, it was up -- international sales were up 11%.

And that has the currency number in there obviously?

Currency, yes, about half of that actually.

Okay. All right. And then just final one, just with the cash balance kind of continuing to go up, and you guys are kind of looking to deploy it both through the international investment and selling resources and potentially acquisition activity, but is there any kind of consideration of a cash dividend or anything like that at this point?

Yes. Great question, John. I think it is fair to say that we will consider all forms of use of proceeds, use of our cash including cash dividends or stock buybacks. Right now we're very focused however on acquisitions. We're working diligently in that area as well as investments in the organic business, but at some point in time you're absolutely right. It may come to a different form of use of those cash that we have on our balance sheet.

At the current time you view kind of the internal organic growth potential here is a better use of cash?

That would be a better, more value-added use of cash, yes.

Thank you. I will get back in queue.

Thank you, John.

The next question is from Holden Lewis, BB&T.

Good morning. Thank you.

Hi, Holden.

Hi. Can you talk a little bit -- I think when you were talking about expectations for fiscal '09, particularly on the SG&A leverage, I think you referenced 11 or I think it was 17 -- for the SG&A percentage of sales you were looking for something in the 17 to 18% range, I believe, for the year. In Q4 it was obviously a fair bit higher than that, and just looks like you had sort of a bubble in the SG&A. You kind of had a bubble in the CapEx that really hit Q4 that you seem to be suggesting is perhaps a little bit heavier spend than what we might expect to see through fiscal '09. Can you sort of talk about what specific items really sort of were bigger in Q4 than you expect to see going forward or if I am reading that right?

You're reading it perfectly. Right on with what we're seeing. A couple of things. One is timing. We saw a fair amount of selling expense come through in the quarter that just hit us all at the same time. For example, we talked about that tire shredder order, about $1.5 million was commission on that large order, so that hit us at the same time as we saw some increase in advertising things come through in the quarter, some investments we have made in some of our international markets all happen about the same time, but I think if you view it as 11 to 12% selling expense on a go forward 17 to 18% SG&A on a go forward, that's about the range we would expect to be in for '09.

You've clearly said that you're going to continue to -- those international investments are clearly going to continue, advertising, I assume that you're going to sort of continue on with that as well. What was sort of unusually bulky in the period?

Well, that commission, some advertising, some programs that we put in place, that we don't expect all of that to repeat, so the 11 to 12% is kind of the average run rate we would look at going forward for selling expense.

So was that advertising and the programs you talk about, was that sort of promotional stuff that was very short-term in nature that may have had an impact somewhere else on the P&L?

I would say that some of it would be short-term in nature, especially when you run an ad, but I also think that we did have some use of consultants to help us in the marketing area that are one-time spends.

Okay. And then can you talk also about the CapEx spend, looks like it was about twice in Q4 what you experienced in any other quarter for the year. What sort of went into that, and how sort of ongoing is that kind of rate of spend?

Yes. As you might know, the first three quarters we underspent capital compared to our target, and then the last quarter was kind of the catch up where people got things implemented and completed, so the year was about 13 million, and I think our guidance was in that area, 12 million to $13 million or so. Going forward it is 14 to 15 for '09. 14 million to $15 million of CapEx would be our expectations.

Okay. Great. I will just jump -- were there any LIFO charges during the quarter?

Not significant.

Okay. I will jump back in. Thanks.

Thanks.

The next question from Ted Kundtz of Needham.

Hello, everyone. One major question for you. Can you talk about maybe the domestic outlook you've got? You talked in your release, I think you mentioned growth was slowing, it was up 3.3% in the quarter. Looks to be slowing a bit. Capacity utilization rates have ticked down a little bit in April, still strong in minor utilities, but manufacturing has ticked down. I Just wanted to see your current outlook and what are you guys seeing now in the markets domestically?

I think that it is fair to say that slower growth but still growth is the feeling we get. In conversations with our customer base and our channel partners, they're seeing similar, still a lot of activity, a lot of opportunity for work flowing through our distributors and therefore us, but it may be a lower number, more low single-digit as opposed to mid-single digit growth. As we look to the future, you've heard me talk, Ted, about we typically lag any downturn by maybe a quarter or two.

Right.

And we would lag people like the Kenna Metals, the perishable tooling people, people who are out there in front of us, maybe more industrial production oriented, we're more capacity utilization oriented, so as they turn down in America and the United States, we would probably feel it a couple of quarters later, and they're still seeing low single-digit growth, I think. So as a result, at this point in time we're still looking in that area. Given the dialogs we've had with a number of our channel partners and users, that remains the same. It is still fairly positive in the marketplace.

Yes. Okay.

Internationally it is better.

It's much better still.

Right.

Are you seeing any change in international tones at all? Month to month type business or just kind of currently versus what you saw in the last quarter?

No. I would say it is very similar to last quarter. It is still double-digit. It is lower double-digit. I would think the Western European economies are slowing a bit. They're being offset by the emerging economies in Europe which are growing still at a pretty torrid pace, and we're feeling that growth as well. Our export business is up nicely out of Germany into the other portions of Europe. Latin America seems to be going very well. Brazil is strong. We're seeing a lot of activity now in the Asia Pacific region where as you know we're in our infancy in terms of building out our sales capabilities there.

Right. That was my last question is what are your plans there in Asia? We talked about China you're still I guess growing internally, but you've also talked about partnering somewhere over there with somebody. Just wanted to see if there was any update on that, progress towards doing something a little bolder, a little quicker?

We would love to.

Any signs of any -- have you identified people or is it just this long-term process?

There is a number of potential partners in China that we have identified, had conversations with, and would love to do something with, whether that's a joint venture, a strategic alliance or a straight out acquisition to help boost the revenue growth in the Asia Pacific region. We spent a lot of time there. We had a lot of conversations and a lot of dinners and a lot of drinks and a lot of relationship building. We're not just ready to report anything in terms of step there, but that is something we would love to do.

Do you think you can get that done this year?

I would say that would be great if we're able to do something this year. I am not sure we will be able to get something done. It is a longer process than maybe you and I are used to doing in North America or even Europe.

Great. Great. Okay. Tim, thank you.

Okay, Ted.

The next question is from Joe Giamichael, Rodman and Renshaw.

Close enough. All of my questions have been answered at this time.

Thank you, Joe.

I tried. The next question from James Bank, Sidoti and Company.

Good morning. That's an easy one. Hi. If I could jump back to Uni there, I think you guys did a very good job in terms of stripping it out, but I am just a little it confused. Going forward you are not going to report it as discontinued operations even though we've been given a definitive timeframe. I was actually anticipating break even here in the fourth quarter, $0.27 literally took me by surprise, is this the same type of dilution we should see in the first half of fiscal '09 until you ultimately do divest this business?

That is not the plan, but neither was $0.27 in the fourth quarter, Solutions. Our expectations and as you heard us report over the first three quarters of this fiscal year, was that Univeyor was improving, and we gave you a trend line that was in a positive direction, and to be perfectly honest, these were surprises that hit us in the fourth quarter, and we are aggressively managing our way through those. I don't know what the first quarter or second quarter would bring. The only thing I do know is that we are aggressively pursuing and speaking with potential buyers of this business that could run it and operate it much more effectively than we can. They're much more aligned with the industry that Univeyor sells into.

Okay. That's helpful. Ultimately by the September quarter or after that we shouldn't -- it won't be on your P&L any more?

That is our plan.

All right. Fantastic. And just one if you might, when you file the Q if you want to throw in a section like a matrix in terms of quarterly historicals, that would also be helpful because I saw that you said that it cost you about $0.11 in the March quarter year-over-year, I had no idea what it cost you in the previous three quarters in fiscal '07, so whether or not you do it, that would be helpful. Then a clarification, selling expense or, excuse me, SG&A total you expected to be in the 17 to 16 to 17% as a percentage of sales going forward?

17 to 18 I think is what we reported, yes.

17 to 18. Okay. Great. And excluding Univeyor, what's the operating margin for solutions going forward, ballpark?

Well, you can back your way into it. We have pulled out Univeyor and showed you that they were doing.

Okay.

Ballpark I would say a range -- it is a little more lumpy business because of the tire shredder, could be huge like it was this quarter and could be very little in some quarters, but on an average you're looking at high single-digit.

Okay. That's helpful. Right. And right now I guess in the June quarter here you're releasing your 1 to 10-ton wire rope hoists.

1 to 3-ton, right.

Excuse me, 1 to 3-ton. Derwin, I apologize. I don't know if I caught this correctly. Are you anticipating rigging products, too, coming out this year, new products?

Yes.

And last question. Karen, what's the interest rate on that line of credit, the 11.2 million?

That's a letter of credit.

We have letters of credit outstanding, James. It is not actual debt outstanding.

I am sorry. Okay. That's all I have. Thank you.

Thank you, James.

The next question is from [Tory Konig] of Lehman Brothers.

This is actually [Dory Konig]. Good morning, guys.

Hi, Dory.

One quick question. I was wondering if you could commented on what type of questions you may have had or plan to have with the rating agencies and what specifically they would require from you or what milestone you would need to reach in order to achieve investment grade status?

Sure. I will try to tackle that for you, Dory. We absolutely have ongoing discussions with our rating agencies and talk about our desire to continue to improve our ratings as we aspire to be investment grade, and they acknowledge our improving credit statistics. However, a key factor for us to reach investment grade is size. We need to be a bigger Company. That really relates to the risk of volatility associated with smaller companies. It is not a definitive number, but it is continued growth that we're working towards to balance that risk.

Great. Thank you. That's very helpful.

The next question is from Mr. Holden Lewis, BB&T.

Thank you again. Can you talk a bit about profitability within the products business by region? It seems like a lot of the investments you're making obviously in Europe so I would imagine that's where we saw the weakness in the margin, but are we seeing operating margin improvements in the U.S. ops and sort of where are we in Latin America? Give a geographical break down of how we're seeing things profitwise?

That's not something we disclose, but generally speaking they're relatively equivalent around the globe.

Okay. But in terms of directionally, if most of the costs were in--?

Most of the investments were in outside the U.S.

Okay. Directionally were U.S. margins at least moving in the right direction? Were they flattish?

I think they were in the right direction. We're very pleased with the U.S. operation.

Okay. Absent those you were still sort of getting good leverage on that business and that sort of thing?

Yes, yes, and I would expect that to continue, especially with the lean activity that we have ongoing and some of these things to offset like a surcharge to offset the steel increases. That's always helpful.

And then in Europe you made these other investments obviously everywhere, but in Europe when do you give a sense directionally when the margins went that way too not talking about the numbers, but when do you expect to begin farming the investments in Europe? I mean your investments are probably more mature there than elsewhere in the world.

We're farming right now.

So European margins are also trending higher despite investments at this point?

Yes.

So all of these, the challenges on the margin side that are hitting even products is primarily Asia?

Asia is a challenge. I think that when you open up a new office in like Russia where you have a very little export, we might do a million euros or something there now. That is a drag for initially, but the demand that we see there right now should increase and offset that very, very quickly. We'll get leverage there soon.

Right. Yes, I'm just looking at the operating margin for the products business obviously fell, and if U.S. was trending upwards and Europe was trending upwards, I assume that includes Russia. Does that suggest that all the margin challenge was in Asia?

No, no. If you remove some of the selling expense investment that we made in the products segment here in the United States, then you see that leverage.

Okay. So some of those selling costs that you talked about were also U.S.

Right.

For the quarter U.S. margins were down as well?

I think it is more mix in that regard. I don't have that in front of me, but if you strip out some of the consultants and some of the advertising and some of the very specific market segments that we were addressing which is specifically construction and energy here in the U.S. we made some increased investments in the quarter. We also had a bit of a mix situation going on. We sold a lot more cranes which is a little lower margin product than a hoist would be, that is probably more the offset than anything else. If you look at the hoist business in total, it had positive operating leverage. It was very good, for example.

Okay. And then not to beat up Univeyor too much, but we kind of knew you had some projects in Univeyor that were lower margin, but you kind of talked about perhaps new project overruns, too, which I guess the assumption was that you were going to clean up all of those old projects and any new projects that you built in would have more discipline in terms of the pricing and that sort of thing and it kind of sounds like we kind of had a replay of sort of old habits in that business. Is that accurate, inaccurate?

That's actually reasonably accurate. We had some surprises in some of the new projects. Now, you're right. We put a strategic filter in place there where we don't allow them to take projects that are more in the risky category, so we downsized the revenue. The new revenue that came in, they experienced some additional costs that they didn't originally plan for, so it is more on the execution side at this point which is a bit of a concern, but it is something we're working our way through than historically it has been more on we're just taking projects that are too risky. That piece is gone.

Do you think it is more execution than just simply something endemic to the market? I am just curious if that type of thing puts the likelihood of a sale of this business at risk at all?

I will tell you I don't think so. Let me give you my logic to it. Univeyor has some very valuable assets in it. The first one comes to mind about a quarter of the revenue is maintenance contracts, and this is servicing existing installed base which is a very nice piece of business for them. There is another product that we call the layer picker which is a proprietary product that's patented, sold worldwide, very global product and very well established with a very nice margin. That's a great asset, and this new one we developed called the Empticon machine in a similar state although it is a little earlier in its stage of development and launch to the marketplace. It has only been launched about a year now or so. Those assets are wonderful, and I think that strategic buyers would love to have them. Regardless of how the business operated and regardless of the problems we had in this fourth quarter. By the way, in addition to that, they have great project management and great technical skills embedded in the business that a strategic person could really avail themselves of in the Scandinavian market.

And then I guess another way to look at where you are with this Univeyor process, you took the impairment charge, I assume -- do you find every kind of feel like you know what you're going to get for this to the point that that impairment charge fully accounts for whatever sale price you may ask, so we may not have additional hits in that regard?

I don't know. A couple of months from now I will know very definitively. As we sit here today we're just in the beginning portion of management presentations, so we don't have definitive bids yet.

Okay. Fair enough. Then in terms of the operating costs, is there any of that which is just sort of like in order to sell this we kind of have to throw in the kitchen sink and maybe there is some severance stuff and some other things that maybe just need to gussy it up for sale that you knew ultimately a buyer was going to say you're going to have to take the hits before we take this off your hands or was it truly just all operational in nature that way?

It was operational in nature for the fourth quarter. Going forward I can't comment until we talk to potential buyers.

Okay. And then lastly on the pricing, when you talked about these surcharges, your price in products was 2.6%. Does that include the surcharges or not include the surcharges.

Includes.

That does include.

Yes.

You referenced obviously the surcharges in very specific terms when you talked about offset in raw material costs, but you didn't really talk about true pricing, sustainable pricing. Can you talk about what the pricing sort of element is?

In the fourth quarter the 2.3% I think it was price increase, I would call that, Holden, predominantly price increase because the surcharges that Derwin referred to started March 31, and May 9, so kind of after the end of the fourth quarter, so the bulk of it by the way was 2.6% was predominantly price increases.

So we can expect that pricing piece to go up in upcoming quarters given the surcharges kicking in? Or are we anniversarying something?

I think the price increase was on January 5.

Yes, but he is asking a go-forward basis will the surcharges affect the price increase in a positive way? Certainly that is logical condition to have.

Right. Because you're working off January 5, '08 price increase, so we have a full year of that plus surcharges will add on top of that, too?

It is only a slice of the business. Certain rigging and chain products.

Good point. It is not the whole business, so you can't apply that to 620 million. You got to apply it to a much smaller base.

That 2.60 goes up to some extent? Okay. Thank you.

Thank you.

The next question is from [Russ Stiver], Raymond James.

Good morning, guys. A couple questions for you. On the tire shredder, the two large orders that you had, were those all completed during the quarter or are they going to flow through into Q1 and Q2 or how long is that going to play out?

They were completed and shipped and we recognized revenue in the fourth quarter.

That's a non-recurring kind of order thing is one-time?

Yes. All of their business is nonrecurring to a degree, but they make a variety of tire handling products that are sold globally, and basically they sell products that separate the steel from the crumb rubber of the tire.

Right.

And that demand is huge around the world.

Okay. And secondly, do you have a breakdown of the gross margin percentage for solutions excluding the Univeyor? What would margins have been in that business if it wasn't there and how do those compare to last year?

We don't normally break that out, but I think you can work your way back to that number.

You gave us the operating income, I don't think you gave us--.

I am sorry, we don't go to that level of detail. We won't disclose that.

Okay. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) There are no other questions.

Thank you. In summary, let me tell you that we are poised to grow profitably with a strong balance sheet and very solid at this point in growing markets with a strong market position in North America and excellent cash flows. Our use of free cash flow will continue to be applied to reduce debt, and we're still focusing our attention on products oriented bolt-on acquisition that is 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 strengths. Combine this with our lean initiatives, cost reduction activities, investments in new products and markets, and we're well position to do have a very solid 2009 fiscal year. The Univeyor divestiture is well under way, and our expectations are that we will complete this sale in the near future. I would like to thank all of our Columbus McKinnon associates around the world for their hard work and ultimate success in making this quarter and the fiscal year a very good success. As always, we appreciate your time today. Have a great day.

To listen to a replay of today's conference please dial 866-463-4962. Thank you for attending today's conference. Have a great day. You may disconnect your phone lines at this time.