Columbus McKinnon Corp (CMCO) 2009 Q1 法說會逐字稿

Good morning and thank you all for holding. Your lines have been placed on a listen-only mode until the question and answer portion of today's conference. I would like to remind all parties, today's call is being recorded, if you have any objections, to please disconnect at this time. I would now like to turn the call over to Mr. Tim Tevens. Thank you, sir, you may begin.

Thank you, Yolanda. Good morning, everyone, and welcome to the Columbus McKinnon conference call to review the results of our fiscal 2009 first quarter. Earlier this morning we did issue a couple of press releases and corresponding financials with one, and hopefully you read that we did issue the additional press release announcing the divestiture of Univeyor. With me today is Karen Howard, our Chief Financial Officer, Derwin Gilbreath, our Chief Operating Officer, and Joe Owen, our Vice President of our hoist Group.

We do want to remind you that this 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 Columbus McKinnon files with the SEC to be sure you understand these risks.

Okay, with that as a backdrop, let me just get started here. We have signed a definitive agreement to sell Univeyor to the owner of a Danish material handling company and expect it to close tomorrow. As a result, we have restated Columbus McKinnon financials to reflect Univeyor's discontinued operation. Now, in a moment here, Karen will review these details with you.

We have completed an open auction for Univeyor and have selected the best bid from a company who happens to be a fairly good strategic fit for Univeyor. As we have said in the past, there is a better owner for Univeyor than Columbus McKinnon, and we believe the buyer is clearly suited-- better suited for managing Univeyor on a go forward basis. I do believe that the sale is a win-win for all parties involved.

Columbus McKinnon performed very well this past quarter. Overall, our revenue for the first quarter was about $151 million, and exceeded this same quarter last year by almost 7%. Please note that we now only have one segment for the quarter given this divestiture of Univeyor. Sales outside the United States grew to $49.4 million, up about 15% over the same quarter last year, and for the quarter, international revenue represented about 33% of our total revenue.

Contrary to what we all read about in the state of the global economy, we continue to experience strong demand for our products. Our gross profit was up 4.6%, and gross margin was up 150 basis points to 32.1%. Income from operations was up 4.7%, and income from continuing operations increased 12.6%. Our operating leverage on this quarter was 9.5% as we continue to make investments in international and domestic markets as well.

The bookings for our business continue to be strong and, overall, were up once again in the mid-single digit area over the same quarter last year. Our backlog was up slightly compared to the fourth quarter, and this backlog number represents somewhere in the vicinity of 4 to 5 weeks worth of shipments. Our cash flow from operations continued to be strong, and in the quarter was about $12 million. Funded debt, net of cash, is down to $48 million at the end of the quarter. That represents a 13.6% net debt to total capitalization, which is just a very superb number for our Company.

And with that backdrop, let me just turn it over to Karen, who will lead us through more details of the financials. Karen?

Thank you, Tim, and good morning, everyone. I'm pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon's Univeyor business divestiture that is scheduled to close tomorrow, as well as fiscal 2009's first quarter that ended on June 29th, 2008.

As a result of the comprehensive strategic evaluation process, we are pleased to announce that our Danish Univeyor subsidiary will have a better opportunity to realize its potential with the new owner, which is aligned with the Danish material handling provider. Effective tomorrow, Columbus McKinnon will sell its Univeyor shares for a nominal amount and will repay approximately $15.2 million of third-party debt.

We have accounted for the business as a discontinued operation, recording a $2.2 million loss in the first quarter of 2009, which is net of a $14 million US tax benefit that will be realized as a result of the transaction. Accordingly, all periods presented reflect Univeyor's discontinued operations on the income statements, balance sheets, and statements of cash flows. Further, we have combined what remained of our solutions segment into our product segment and now are reporting as one segment for all periods presented.

Consolidated sales of continuing operations increased by 6.9% to $151.2 million in the first quarter of this year, compared with last year's first quarter. The increase is driven by strong, double-digit sales increases reported by our Columbus McKinnon Europe and our US crane group, and low single-digit growth reported by the rest of the business. Volume contributed a 1.5% increase over last year, with international volume growing by 4.3%, while US volume grew by .2%. Further, pricing and foreign currency translation favorably impacted a change by 2.6% and 2.8%, respectively.

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. That's the December quarter. The recent quarter had 63 shipping days, consistent with the 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 2009 and fiscal 2008.

Overall, first quarter consolidated gross profit from continuing operations increased by $0.2 million, or 12%, with gross margin expanding 150 basis points to 32.1%. We favorably realized margin expansion and volume and productivity improvements while we managed to control the impact of steel cost increases. Consolidated selling expense as a percent of sales was 12.0% in the first quarter, up from 11% last year.

Consistent with our growth strategy, we have continued to make investments to further grow global market share. Consolidated G&A expense was 6.5% of sales in the fiscal 2009 quarter compared with fiscal 2008's 5.9%. During fiscal 2009, SG&A is expected to approximate 18% to 19% of sales to continue this global penetration, as we are realizing the benefits of investments made over the past year.

While operating income from continuing operations increased by $900,000, or 4.7%, our operating margin contracted 30 basis points, but reflected a solid 13.5% for this year's quarter compared with last year's 13.8%. Isolating the SG&A investments and future revenue growth, operating margin would have been 14.2%, indicative of 22% operating leverage. As we update our strategic planning this summer and fall, we will re-evaluate our previously disclosed long-term operating margin and leverage goals without the impact of Univeyor in our consolidated results and report back to you.

Interest in debt expense was down $800,000, or 19.4% over the prior year's quarter due to lower debt levels. We realized $300,000 of investment income on our captive insurance company assets in both this year and last year's quarters. Further, we recognized $800,000 of other income in this year's quarter, including interests on invested cash, compared with $900,000 last year.

Regarding income taxes, the effective tax rates for the fiscal 2009 and fiscal 2008 first quarters were 35.6% and 37.6%, respectively. This year's improvement is primarily due to changes in rates in certain international jurisdictions and improved mix. On a go forward basis, our expectations are for an effective tax rate in the 35-36% range.

As a result of the tax treatment of the Univeyor sale, we have a $14 million tax benefit available, which will be applied against US cash taxes that would otherwise be due during fiscal 2009. Earnings per diluted share from continuing operations for the first quarter of fiscal 2009 were $0.61, versus $0.55 in the first quarter of fiscal 2008, reflecting an increase of 10.9%.

Including the net losses of the Univeyor discontinued operation, net income per diluted share was $0.50 for both this year's and last year's quarter. Depreciation was $2.1 million for both the fiscal 2009 and fiscal 2008 first quarters. Capital expenditures were $2.1 million and $2.5 million for the fiscal 2009 and 2008 first quarters, respectively.

This spending included investments in our new product-development activities, our growing low-cost international facilities, productivity improvement equipment, as well as normal maintenance CapEx. We expect capital expenditures for fiscal 2009 to be in the $14 million to $15 million range. Net cash provided by operating activities from continuing operations was $12 million in both this year and last year's quarters, or $0.63 per diluted share. This year, earnings contributed $15.6 million, and operating assets and liabilities used $3.6 million.

Within working capital, increases in inventories were the primary users of cash. Last year, earnings contributed $18.7 million, including $6.1 million from deferred taxes while operating assets and liabilities used $6.6 million. We continue to focus attention on our working capital utilization.

At quarter's end, debt of continuing operations net of cash was $48.4 million, and total gross debt was $133.2 million. To effect the Univeyor divestiture, approximately $15.2 million of the company's cash will be applied against the debt of the discontinued operation. At quarter end, availability on the $75 million revolver provided for under our senior credit agreement was $62.8 million, representing $12.2 million of outstanding letters of credits 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 of continuing operations decreased by $8.9 million, reflecting continued improvement in our net debt-to total capitalization percentage to 13.6%. On a pro forma basis, considering the Univeyor debt repayment due coincident with the divestiture, our net debt to total capitalization percentage would be 17.2%

Gross debt total capitalization improved to 30.3% at the end of the quarter, down from 39% a year ago. We've reached our 30% debt to total capitalization ratio goal, and we're ultimately targeting an investment-grade rating to give us flexibility to support our growth strategy, which will include strategic, bolts-on acquisitions regardless of the point in the economic cycle.

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

Thank you, Karen, and good morning to everyone. The momentum from fiscal year '08 continued into the first quarter of this year, with revenue from continuing operations increasing 6.9%, and bookings up in the mid-single-digit area. We continue to see fairly good end-user markets around the globe, both in terms of booking and quoting activity.

The US entertainment channel continues to be robust, although somewhat volatile, and experienced significant growth in the revenue by 23% over last year's quarter. Also strong was the US rigging channel. Sales of rigging products increased by 21%, lead by consistent demand in non-residential construction markets. As we have mentioned in the past, we have invested sales in marketing resources in non-residential construction, and that is bearing some fruit right now.

US cranes and crane service increased by 25%. We continue to see a strong demand from oil, petrochemical, and support industries. The US industrial distribution channel did slow slightly by negative 3%. Internationally, investments in new markets continue to produce, as we have seen, revenues increase 15% year-over-year, are 6%, excluding the effects of currency translation.

Efforts to expand the offering of the CM brand of hoist and rigging products in Western Europe are proceeding at a good pace, and we're having success. We continue to invest in the emerging economies of Eastern Europe, Asia and Latin America and are experiencing excellent revenue as a result of our increased presence in these markets.

Our tire shredder business is also continuing to expand into international markets as many companies invest in moving-- removing environmentally-unfriendly tire piles and recycle this kind of waste. We expect that our emphasis on vertical markets such as mining, power generation and alternative energy will offset a slowdown in US industrial utilization that may occur in the foreseeable future.

Programs revolving around revenue-generating training will be refined in the upcoming months as users emphasize safety and productivity in the workplace. Also, we have introduced a new product development cool, StageGate, which will help us successfully launch more new products over the longer term.

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 and operational team projects in all these areas are ongoing.

Some examples follow. We recently divided our CM sales force into two distinct product offerings-- hoist and rigging products. This allows for more focused selling with the overall objective of delivering more value to our general partners and user customers. 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, really, unparalleled in the industry.

This change will drive a focus on our end-user customers and markets to educate and build preference for the exceptional value package that CM brand represents. Our channel partners will also have access to more training and support as we work together to provide the highest level of service to the market. In addition to the focus of sales force, we will have renewed emphasis on training and application engineering to support our enhanced value package.

We continue to be very focused on improving our operations through lean activities. One recent example of this is in our chain facility, which was able to reduce the lead time on a high-strength grade of chain by 68%. As a result of this reduction, we recognized a 15% increase in chain orders. We believe the market price appreciated the reduced lead time and quicker replenishment cycle, and gave us more business. Additionally, this reduction in cycle time also reduced inventory by 91% for this particular grade of chain. Our lean initiatives continue full speed ahead in all operations.

As you know, the world has seen extraordinary increases in global steel prices. Steel approximates 9% of the Columbus McKinnon cost of goods sold. Our goal is to remain margin neutral and pass onto the channels these increases. On March 31st, we implemented a surcharge on the bulk of our steel-based rigging products. Our control process includes the review of steel and other commodity markets, to adjust the surcharge of prices accordingly. Currently the surcharges on rigging products range from 10% all the way to 32%, depending on the type of steel used and the steel content as a percentage of the total cost of the product. We are achieving our objective of being margin-neutral.

We have also seen increase in some hoist components. As a result, we have announced a mid-year price increase effective August 4th on those products. Again, our objective is to remain margin-neutral. Thank you, and I'll turn it back over to Tim.

Thanks, Derwin. Yolanda, we're open for questions now. Yolanda?

(OPERATOR INSTRUCTIONS) Our first question is from Joe Giamichael.

Good morning. Congratulations on the quarter. Impressive margins given the environment.

Thank you, Joe.

Just a couple of quick questions for you. Karen, do you mind walking us through the Univeyor transaction and just sort of explaining what the end-result economic benefit would be to Columbus shareholders? I would imagine there's some confusion regarding the net benefit after you repay the associated debt.

Sure, thanks Joe. It's actually pretty simple in that at the-- effective with the closing tomorrow, Columbus McKinnon is required to repay Univeyor's external debt, which is $15.2 million, and as a result of the transaction, we have transaction costs which are about $1.8 million, and then also as a result of transaction, we are-- we will have a US Federal tax-- Federal and State tax benefit in the amount of $14 million. So, it's a net cash outflow to Columbus McKinnon of about $3 million, but, of course, we remove the drag that that operation has had on Columbus McKinnon's results of operations, as well as the management resource it has required.

Okay, great. And, just on a modeling-- just a modeling question. What were Univeyor's contribution in Q2 of '08 on a revenue basis?

You know, Joe, it may simpler-- in conjunction with our 8k there will be a schedule attached that will restate the fiscal '08 operations by quarter on a discontinued operations basis.

Got it. Okay, great, thank you. And, just based on CapEx guidance that you provided, it seems that spending is set to accelerate over the back half of the year. Could you walk us through what some of those projects are?

I'll let Joe answer--

Sure. We have a number of projects, one of which is a gear project where we're totally refocusing all of our efforts in gear manufacturing. We have also a number of numerical-controlled machines that we have ordered and they have deliveries toward the latter part of the year, which will also help us in our cost reductions. We have, as well, in the latter part of the year, some new products, and there is a lot of tooling involved with those products, and so those will be coming toward the end of the year.

Okay, thank you, Joe Owen. And just, last question. Were there any share repurchases in the quarter, and, if not, do you have an authorization in place, given the current valuation, that would seem a like a solid allocation of cash?

Yes, we have not repurchased any shares in the quarter, and, at this point, our Board has not given us authorization to do so. However, that is something that we continually speak about and consider.

Great, thank you very much.

Thank you, Joe.

Joe.

Thank you. Our next question is from Ted Kundtz.

Yes, hello, everyone.

Hello, Ted.

Hello, Ted.

I have a couple of questions for you. Tim, could you comment a little bit on the outlook you're currently seeing going forward? I see, you know, manufacturing utilization rates are holding up pretty nicely in the US. They're really right below 80% levels overall, so that seems to be holding in okay, and I was wondering if you're seeing any change at all in your business outlook? You said bookings were pretty good, so I think I know the answer, but I just want to hear you elaborate a little more on the US outlook and also the international outlook. Do you still see that double-digit growth rate over there?

Yes, sure, Ted. The bookings, which is our best indicator of the market activity, still remain in this mid-single digit area. You know, when we go to conventions and we spend time in the channel partners and then end users, there is a lot of activity still in the area of non-res construction, oil, petrochemical, all the support industries for oil in the United States. You know, we're seeing infrastructure build continuing to push forward and use our kind of hoisting products. Mining is still very strong.

So, we're getting these touches, these-- continue to have these positive statements from the marketplace, and our bookings are indicative of that. Our backlog did grow about $7 million, 7 or $8 million in the quarter, and that is because of the stronger bookings. We didn't turn it into revenue as quick as we would like. Some of the bookings, maybe, are beyond this quarter, so we'll see them turn to revenue in the future quarters.

Relative to international, Ted, very robust. I would say the emerging markets are the strongest. The Eastern Europe, Latin America, and most of the region of Asia Pacific continue to give us double-digit growth, which is wonderful. Western Europe is still going along quite nicely, although maybe at a slower pace in terms of growth than we have seen in the prior years, but it's still pretty strong and still pretty solid, so as we sit here today and look to our foreseeable future which, as you know, is somewhat limited, given the turnaround of orders into revenue is so quick for us, especially now that Univeyor is gone, it's even quicker, we feel pretty good.

We feel pretty good about the quoting activity and the end-user markets, so it's very positive.

Okay. You just commented on the US industrial manufacturing. Would that-- you mentioned that could be the only area of some weakness, mentioning the distribution side. What percent of your revenues does that represent?

Industrial distribution is somewhere around 28%. I was going to say 25% to 30%, so I guess I'm right.

Of the US.

Of the US. Yes, it's still pretty solid. I think that we see ebbs and flows in that channel kind of normally. You know, last quarter was very strong, this quarter is a little weaker, so, I don't think there is anything there that is causing us some disappointment and some pain. Some of the channel partners like the large distributors like Grainger are actually increasing their SKUs in their book with us, which is positive news, and I think they're also seeing some very good results from the end-user markets that they service.

Okay, terrific. Just real quickly on gross margins, it seems like, after Univeyor they have moved up nicely, and I would expect that level to remain the same or slightly improve. Any thoughts on-- can you give us any color and gross margin outward?

Sure, Ted. Thanks. Yes, as you could see, the Univeyor has been a drag on the consolidated results, so we are pleased to see with better clarity the margins reported by the rest of the business. On a go forward basis, we think this is a reasonable level. There isn't anything unusual, really, associated with the margins realized in this quarter.

Okay. And then, finally, Karen, on the tax rate, you gave guidance for this year. Is that a level you would expect in the following year as well, or is this a one-time lower rate because of the $14 million of tax loss carry-forwards you had? Is that factoring into your lower tax rate assumption?

Actually, it doesn't impact it because it ends up having an accounting deferred tax implication. So, the effective tax rate, you know, guidance that I had given in the 35% to 36% area is reasonable, but we will get that favorable cash benefit of $14 million, and then looking forward to next year, fiscal '10, say, everything else being equal, unless there is some change in the business or shift in mix by jurisdiction or something like that, this 35% to 36% I would expect to continue to be reasonable.

Terrific. Okay. And, Tim, just a final question. Just, what would concern you looking forward here? What are you guys watching out as major concerns? It looks like you've offset so many of them, being able to do it with price increases, and the bookings look pretty good. What worries you out there?

Well, the first thing that comes to my mind when you ask that question, Ted, is the increased costs that we're seeing in a variety of areas. You heard Derwin talk about steel and our ability to really focus on that and keep it in front of us and then try to-- and work hard to be margin neutral. There is a lot of effort behind that, but it's not just steel. You know, we're seeing increases and surcharges on fuel, and increases on other materials that we purchased. Derwin mentioned a mid-year price increase to offset some of the increases we're seeing on the hoist materials now.

And our biggest challenge is to stay ahead of that curve, and it's a lot of management attention and time and dedication, and I'm happy to say that our team has done a great job to do that. The difficulty, of course, is not dropping one of those balls. I also say that I feel pretty good about the general economy, so I'm not as worried there as maybe others are. You know, it seems like we want to talk ourselves into a recession, and I'm wary of that. Our management team is on the lookout for any downturn, and we'll react very quickly to any changes in the business. We're prepared for that, so I feel good about our position there.

Our biggest challenge is revenue right now, and continuing the topline growth. You know, if we can continue in the 5%, 6%, 7% area for the foreseeable future, this would be pretty soon a great position long term.

Terrific. Thanks very much. You guys are doing a great job.

Thanks, Ted.

Thank you. Our next question is from Peter Lisnic.

Good morning, everyone.

Hello, Pete.

Hello, Pete.

Tim, I was wondering if you maybe you could, I mean, you've talked a little bit about the growth in Latin America and some of the emerging economies. I was wondering if you could maybe give us a peek into what the return profile those regions is looking like now, now that they're staring to ramp and become more material sales.

Yes, I would say that generally speaking, the Europe-- the whole European continent, Western and Eastern Europe is very positive and very helpful to the company and probably would mirror the corporation in terms of return, and you might imagine that because of our strong base in Western Europe that really is just moving into Eastern Europe. We're selling the same kind of products, which is helpful.

I would say that new offices, like the one we just opened up in Russia, that's still at a-- I would call it a loss state probably just yet, because of the initial investment that we've made. We're doing great business there and it's probably several million euros worth of work right now, it just needs to be a little larger, and that initial investment is just really tough to overcome initially.

Latin America, I would say, is-- mirrors the corporation as well. As you know, we've be in Mexico and down into Brazil and now Uruguay and Panama, so that's reasonably static. Probably the biggest, let's say, margin challenge for us is Asia, and that's because we are really starting from a very, very low base there, and we need plenty of feet on the street from a selling standpoint to get our product into the marketplace, so I would say that's probably the-- from a drain or a negative standpoint, the lowest. I wouldn't say it's negative, quite honestly, but I would also say it's our biggest opportunity for long-term growth.

Okay, and that actually leads into my next question, which is if you could give us a sense of what exactly is going down on the ground in Asia in terms of your growing the business and penetrating that market?

About a year ago we hired a business development manager who is-- actually he's a Chinese with an American passport, and he's been with us now. His job is to add to the sales force, so he's been adding sales personal across China, and they basically are covering different cities in China, and their job is to move product into the various, well, distribution-- if there is distribution there or direct sales if that's needed as well, into those markets.

And I would say that that's going fairly well. We just need more people to ramp up that activity. They are right now taking products from the United States for the most part, which is not the long-term model, Pete. The long-term model is to products from our Chinese factories today that currently produce product, and they will be able to do that shortly here once we get some government certifications finished, which is upcoming here in the-- I would say, the next several months.

Okay, alright. That's helpful. Thank you for that. Then, if I could follow up with the strength that you're seeing or experiencing in non-resi. Can you-- there's a lot of concern out there about non-resi. Can you maybe give us a breakout of your non-resi exposure vis-a-vis infrastructure versus commercial building or light building to give us a sense of what piece of the business could come under some pressure as the consensus might be assuming for later this year or next year?

Yes, great question. I don't have the specific data. I have anecdotes for you. And the reason I don't have specific data is because when we sell to the distributor we kind of lose visibility once he resells it into the market, but we kind of know activity and we generally can feel some of the increase.

Rigging products are used below the hook on a bridge-- on a crane, at a construction site, and those are forgings and chain attachments and things of that nature. Textile slings, and I think this is going pretty good. I would say that our guys feel pretty positive about that, and I'll look for Joe Owen to comment if I'm misstating anything here.

I would say that any kind of bridge work or infrastructure work like that is very positive. Any power plants always use a lot of material handling in their systems to just handle their material and do maintenance on generators and turbines and things of that nature, which uses pretty large cranes and hoists, and that seems to be going quite well. Linesmen use our utility tools, which basically allow them to put tension on power lines, and I'm pretty sure that's pretty robust right now. It's very positive.

So, that-- but, again, I don't have, or I can't give you, specific numbers in terms of what percent of our construction trade goes to each one of these. We just kind of know generally what they would be.

I would also add that in our crane business, a large part of their business is in the oil industry, and that certainly has been very strong, and as you will probably recall, CAT just announced a $1 billion plus investment in the US capital investments, and we were also recently named CAT's preferred supplier for cranes. That was announced a few weeks ago, so we're expecting to benefit from that.

Okay, that does it for me. Thanks very much, and nice quarter.

Thanks, Pete.

Thanks, Pete.

Thank you. Our next question is from James Bank.

Hi, good morning.

Hi, James.

Hi, the increase in selling expense with your international expansion, is that something that we could see into next year as well?

Yes, sure, James. We expect the investments that we've made will continue. We've invested in people, we've invested in setting up new sales offices to drive the revenue growth, so we think the level that we're currently at will continue.

Level meaning absolute dollar, or percentages of sales?

For the foreseeable future, the area of-- they're pretty similar, I would say, at this point, of absolute dollar as well as percentage of sales-- with the, of course, the long-term expectation that the revenues would continue to grow as a result of those investments.

Okay. Now, with Univeyor, just so I'm clear, essentially you're spending $3 million just to get rid of it, and now further writedowns? Or writedowns, I should say, in the future.

I guess in a summary sense, yes. That's-- at the end of the day, that's the picture. You know, we really needed to remove that risk from Columbus McKinnon, and the negative impact it was having on the company.

Oh, I agree. Absolutely, and I'm sure that everybody would agree with you. And then, I'm sorry, didn't catch the date when you were going to revisit your longer-term guidance and then deliver that. What was the day?

Oh, we didn't give a specific day, James. We undertake our strategic planning activities through the summer and into the fall. It reviews with our board of directors in the fall, so we would expect to get back to the public community at some point after that later this calendar year.

Okay, great. And I heard the comment on the share of purchase. I thought maybe another good use of cash, not to overstep myself here, but potentially returning to your dividend policy. With the cash you guys just put up, if you just net, with interest expense, maybe even pay half of that out to shareholders, we could see $1.90 in annual dividends. That's a 7% yield right here. So I'm just curious if that's maybe something you would also maybe revisit.

Sure, James. You know, we think about all alternatives with respect to generating returns for our shareholders. At this point, our initial priority is acquisitions to complement our organic growth to drive-- we believe that that type of investment, at least initially, will drive a better return to our shareholders. Of course, we can't control the timing of those, so we also visit other potential alternatives, such as dividends, such as share repurchase.

Okay, terrific. Thank you. Very helpful.

Thank you. Our next question is from Amit Daryanani.

Hello?

Hello.

A couple questions. First, for your mid single-digit growth assumptions going forward, are their any acquisition or assumptions built into that?

No acquisitions.

No acquisitions and no conscious FX fluctuations in that.

Okay. Also, well, so, I guess, next question. On the acquisition front, could you give us an update on what the pipeline looks like?

Sure. As you've heard me talking the past, we have our corporate director of development, Kurt Wozniak, who's primary target is to develop the relationships and begin to close some of these deals. There's a number of them in the pipeline today and, by the way, have been. We've been working on a fair number of them. Nothing that's immanent or that we're prepared to announce at all, but there's a series of them that we're actively engaged with today. Timing is always a difficult thing since we don't control the whole process, but I think it's fair to say that there is a lot of effort underway with Kurt and his team, and his team is-- we have them placed in Asia as well as in Europe for the international aspects of this.

You know, we're going to work hard at this, and I suspect that in the future we'll be able to report something very positive to you that meets our strategic goals in terms of international growth, as well as adding to the product portfolio.

And what would you say sort of your sweet spot is in terms of annual revenues?

If I could paint a picture for you, I would give you a picture of what a perfect acquisition could be. It would be someone who's doing a-- someone in the $40 million, $50 million of revenue, very profitable, has a great market presence in an interesting market to us, like, maybe Asia Pacific region, and has an established field sales force and brand name recognition.

We could partner-- or add them to our portfolio. We would add our products to their sales capabilities. We would also-- that partner would be great if we could bring some of their existing products into our markets, where we have this number one position, like North America, like Western Europe, and we could add to our portfolio here, as well. So, that's kind of the one we're searching for.

Yes, sounds pretty nice.

Thank you.

And, final question, EBIT margins going forward? Do you think-- I think it was 13.5% this quarter. Is that sort of what you see as sustainable? Kind of on the low end, on the high end?

Yes, Amit, it was 13.5% this quarter. We-- as we indicated in our prior comments, that's something we will need to revisit. We previously, when we were talking-- previously had a target in this range, but now with Univeyor no longer part of the company, of course we're seeing improvement in those margins, so as part of our strategic planning, we will be revisiting our long-term operating margin goals and report back to you later this calendar year.

Okay, sounds good. Thank you very much.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is from [Aki Koja].

Hi, good morning, everyone.

How are you?

Good. I had a question on the US business. Would you be able to break down the volume and pricing just for that? Excluding international?

I think we could do that, sure.

Sure. With respect to our US business, Aki, price contributed about 3.1% and volume contributed about 0.2%.

Got you. And you mentioned that there were some strong areas in the US like entertainment and rigging, as well as the cranes business, and distribution was down 3%, but that's only 25% to 30% of the US revenue, so I was wondering where there were-- some other areas that were weaker in the quarter in the US.

We were weak in retail which doesn't hurt us much because it is a very small area, but that was down 10%, 10.7%. That was a weak area.

I think crane builders was down as well, Derwin. This is a channel that we sell some of our large hoists to. They were down about 3%, and I think that their bookings were relatively strong, but the orders ended up in backlog, basically. That's a timing issue.

That's all-- yes, it's a timing issue. Those are up and down.

Got you. And then, secondly, in the quarter-- I guess, Karen, what was the LIFO charge?

Wow, good question, Aki. I've got to admit, I don't have that in front of me and, therefore, I would say it was not significant.

Got you. So, you're-- it was not significant basically-- all of the increased steel cost is, right now, in your inventory?

No, there-- I mean, there would certainly be some LIFO offset, but it just was not significant to the operations of the quarter.

Got you, okay, okay. Okay, that's it. Thank you.

Thank you.

Thank you. Our next question is from Beth Lilly.

Hello, Beth.

Hi, Tim and Karen.

Hey, Beth.

How are you?

I wanted to ask a couple questions. First of all, congratulations on the divestiture of Univeyor. Yes, I know it's a long time coming, and it's good to get that behind us. I wanted to better understand a couple things. One is, the 5%, 6% topline growth, Tim, that you talked about, can you break that down between volume and price?

Our price has normally been in the 1% to 2% area, is kind of normal for us. It may be up a little higher this quarter because of the surcharges that Derwin spoke about, but I think normally, Beth, it's 1% to 2%, so the balance would be volume.

Okay, okay. Okay. The next question is-- is it-- as you look-- your growth margins in this quarter were 32% and we're going to see SG&A probably stay around the 18% as you spend to grow the business internationally and-- is the 32% growth margin sustainable, and do you think that can go higher?

Yes, I think that it is, as you probably know, it's pretty hard work to keep it at this level, because of the increase in cost that Derwin mentioned and others that-- we've got to stay in front of that as best we can. But I will tell you that just generally speaking, strategically, we are investing in productivity gains. Derwin mentioned some capital that he's planning on putting in in some of our facilities. We're also looking at lean as an interesting-- a very good tool to increase our productivity and it has done a great job for us, quite honestly, in this regard, over the last half dozen years or so.

Beth, we can continue to work on margins and we'll do so. It's tough to say where they're going to head, and as a matter of fact, we don't give guidance in this regard, but rest assured that that's an area that's a focus and of interest for us.

Okay. So, raw materials clearly are impacting you, but with Univeyor out of the way, it seems to me that your gross margins should go up.

With the Univeyor divestiture, clearly our gross margins are impacted in a positive way. That's right.

Yes. Okay, okay.

And let me give you the--

Pardon me?

Actually, we'll give you some of those details on the 8k. We'll try to give you a sense of Univeyor coming out, how big that is. So, look for our 8k tomorrow.

Tomorrow? Okay. Okay. And then I wanted to ask two other questions. One is, you've talked about your acquisition strategy and, particularly, I think you've talked about wanting to build a presence in China, is that correct?

Yes, that's correct.

Can you talk a little bit more about that, and are you having success penetrating that market?

We are having success selling more product into that market, there's no question. It's predominantly, as I mentioned earlier, product coming from the United States for some more niche markets or some demands from that economy that they're looking for premium product. The Beijing Olympics, I know, bought several hundred hoists of ours to use in the Olympics. That's the kind of activity we're seeing.

Some power plant activity, some windmill activity. We've put some hoist in a 500 windmill farm someplace in Mongolia that is helping them generate power. In-- and that's the kind of volume we're seeing now, which is wonderful, but I think to really be successful in China, you also have to service the other end of the market which-- what I would call the indigenous manufacturers, and to do that successfully, you need to have a more deep presence and a more broad and global-- a more broad sales and marketing presence into the market, and we also have to sell our products which come out of our Chinese plant which is-- we're working on getting certified to do that.

So, there's a lot more work that needs to be done. Finding a partner in China is relatively easy. Finding a partner that will work in a strategic way is a little bit more difficult and challenging. You should know that we're actively pursuing that, though.

Yes, okay. Okay, great. And then my last question-- and somebody asked about this-- do you have a share authorization-- is there a share repurchase authorization outstanding?

There is not.

Okay.

But, we-- rest assured that we consider all aspects of uses of cash, including that, on a go forward basis.

Yes, because you've talked about your goal in terms of your debt to cap is 30% and you're below that now, and I'm just-- with cash on the balance sheet and such, it just seems to me that-- and where the stock is today, it probably would, I don't know. It might make sense for you to put a share repurchase authorization in place.

You're right, and we certainly consider all aspects of that.

Okay, great. Well, again, congratulations.

Thank you, Beth.

You're welcome.

Thank you. I am showing no further questions at this time. (OPERATOR INSTRUCTIONS) One moment, please, for the next question. I am showing no further questions at this time. I apologize. I do have another question. [Ellen Demboa], you may ask your question.

Good morning. I just have a quick question on the Univeyor divestiture. Are there any sort of pension liabilities that would also go away with that divestiture?

No, there were no pension liabilities associated with the Univeyor business.

Great, thank you.

You're welcome.

Thank you.

And I'm showing no further questions.

Thank you, Yolanda. Well, let me summarize by saying with the Univeyor divestiture now behind us, we're even more ready to grow profitably with a stronger balance sheet, solid growing market, very strong position in North America, and excellent cash flows. Our use of free cash flow will continue to be applied to reducing debt, but we're also very focused on bolt-on acquisitions that give us a market presence where we have a small or no presence at all, or add to our product portfolio, we can leverage our existing distribution channels in brand-name strength.

Combine this with the lean activities, our cross-reduction activities and investments in new products and markets and we're very well-positioned to have a solid 2009 fiscal year. I would just like to take this time to thank all of our Columbus McKinnon associates around the world for their hard work and ultimate success in making this quarter a very good success.

As always, we appreciated your time today. Have a good day.

Thank you, and this concludes today's conference. You may disconnect at this time.