Columbus McKinnon Corp. F4Q08 (Qtr End 03/31/08) Conference Call Transcript

May.22.08 | About: Columbus McKinnon (CMCO)

Columbus McKinnon Corp. (NASDAQ:CMCO)

F4Q08 (Qtr End 03/31/08) Conference Call

May 22, 2008 10:00 am ET

Executives

Timothy Tevens - President and CEO

Karen Howard - VP of Finance, CFO and Treasurer

Derwin Gilbreath - COO

Analysts

Amit Daryanani - RBC Capital Markets

John Haushalter - Robert W. Baird

Holden Lewis - BB&T

Ted Kundtz - Needham

Joe Giamichael - Rodman & Renshaw

James Bank - Sidoti & Company

Dori Konig - Lehman Brothers

Russ Steifer - Raymond James

Operator

Good morning and welcome to Columbus McKinnon financial year 2008 fourth quarter earnings conference call. (Operator Instructions).

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

Timothy Tevens

Thank you, Brenda. Good morning and welcome to the Columbus McKinnon conference call to review the results of our fourth quarter and full fiscal year of '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 our Hoist Group.

We do want to remind you that 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 of Univeyor. As we previously reported, we are in the process of divesting this asset. A better view 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 divestiture process.

Overall, our revenue for the fourth quarter was $168.6 million and exceeded the same quarter last year by 7.5%, with our Products 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 state of the global economy, 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 target range of 20% to 30% operating leverage for the company.

Revenue for the Products 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 of price increase and offset by that Larco divestiture I mentioned and one fewer shipping day.

International sales in the Products segment were up 11% over last year, about 5.5% excluding currency and 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. Products segment gross profit was up 8.4% over the same quarter last year and the gross margin continue 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 are 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 in investments in the market. 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 are very active in searching for and having discussions with companies that represent potential acquisitions for us. Most of them fit our strategic alternatives very nicely and we will report back to you at the appropriate time.

Bookings in the Products segment continue to be strong in the quarter, and overall, we're 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 Products segment is a day or weeks, therefore, the backlog number represents about a month worth a 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-offs of development cost, some accounts receivable write-offs, and higher cost 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 for many strategic players in the industry. In fact, we have many strategic and financial potential 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 I 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 now lead us through more detailed results of the quarter and the full fiscal year.

Karen Howard

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. Products 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 US crane groups and low single digit growth reported by our US 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 1% reduction in Products 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 the significant tire shredder shipments, which were scheduled for this quarter. Within the Solutions segment, revenues of our Univeyor business were down $200,000, and as previously reported, we are actively pursuing potential divestiture of that business. On a year-to-date basis, consolidated sales increased $33.5 million or 5.7% over last year.

Products 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 quarter, with such comparisons being impacted throughout fiscal '08 by the March 2007 Larco divestiture.

The recent quarter had 63 shipping days, one less than 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 2008 and '07 as well as our 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%. Products segment contributed an incremental $3.7 million or 8.4% with its gross margin expanding 50 basis point to 31.4% from 30.9% in the year ago quarter. We favorably realized margin expansion and volume and productivity improvement 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 cost in this quarter, breaking the previous positive trend of improving operating result. 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 and 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 Products segment to further grow our 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 '07s 5.0%. Last year's percent was lower in Q4 due to lower incentive compensation expense. Year-to-date G&A expense 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 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 and $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. We a view 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 cost of $200,000 or $0.01 per diluted share during the quarter upon purchasing $3 million of our 8 7/8% notes, which will save $300,000 or $0.01 per diluted share of annual interest cost going forward. During last year's quarter, we also incurred $200,000 of similar cost, 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 cost in fiscal '08, representing $0.06 per diluted share, compared with $5.2 million or $3.4 million after-tax, representing $0.18 per diluted share for fiscal '07 bond redemption cost. We realized $400,000 of investment income on our captive insurance company assets this quarter compared to 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 gains from our 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 rates for the fiscal '08 or 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 US federal net operating loss carry-forward, and we'll begin paying US 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 period 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 quarter's 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 in investments in our new product development activities, our growing low-cost international facilities, productivity improvement equipments, 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 non-current liabilities which utilize 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 of outstanding letters of credit and nothing drawn against the revolver. We were comfortably in full compliance with all financial covenants related to this agreement.

While our strategy emphasizes profitable sales growth with international expansion, it continues to include focus on debt and interest expense 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.

Derwin Gilbreath

Thank you, Karen, and 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 the customer in Korea and other was a customer in the UK. Excluding Univeyor and previously divested Larco, international growth for the quarter was up 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 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 infrastructure activities remained strong as evidence 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 and industrial distributors, representing 28% of our domestic sales, were down 1% for the quarter. To grow, we increased emphasis on end users to draw a preference for brands. We expect to continue to draw 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-end fiscal '09 with continued allocation of resources to our 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 in launching new products in FY '09. Investment and 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 in operational excellence, people excellence, new products and services as well as new markets and geographies to drive sales growth, and investments in operational team projects in all of these areas are ongoing.

A couple of examples I'll give you. For example, we have recently spread our sales force 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 hoists and CM rigging that includes sales, marketing, engineering, training, and related support activities to deliver a total value package that is unparallel in our industry.

This change will drive and focus on end user customers and markets to educate and build preference for exceptional value package that CM represents in both hoists 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 sales force, we will 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 established 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 on 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, and our activities in the Middle East continue. We are hiring salespeople in China and winning orders, including the recent order for the Olympics in China.

Moving to cost, as a result of the extraordinary increase in global steel prices, on March 31st, 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 for our product line was determined by the type of steel used and the steel content as a percentage of the total cost of the product.

Further adjustments to surcharges are expected in response to the continued volatility and the upward pressure on raw material cost. The surcharges are slugging, 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 cost and offset the inflation on our freight cost.

Our backlog is up slightly in the Products segment and Solutions. There is a decrease primarily due to significant amount of tire shredders there that shift during the fourth quarter.

Now, we will turn it over to Tim.

Timothy Tevens

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question today comes from Amit Daryanani. You may ask your question. He is with RBC Capital Markets.

Amit Daryanani - RBC Capital Markets

Thanks. Good morning guys.

Timothy Tevens

Good morning.

Karen Howard

Good morning.

Amit Daryanani - RBC Capital Markets

Just a quick question. I may have missed this, I am sorry. The $5.2 million net loss in Univeyor, how much of that was just write-offs and how much of that was just operating losses within the company or whether the division. Secondly, looks likes this is going through to Q2 at least, so have you ever explored maybe putting this as a discontinued operation?

Timothy Tevens

Yeah, let me take the first question. This $5.2 million is a combination of all of that, I haven’t broken it all between all the pieces, somewhere accounts receivable write-off, somewhere old projects that we're still, we're wrapping up if you will and getting rid off and somewhere a couple of new projects that we had some over run then 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 are going to negotiate with to sell this asset, so we are not able to account for the 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 with out it. Hopefully, we were successful in doing that.

Amit Daryanani - RBC Capital Markets

No, I mean the color you guys give around definitely helps us get to what the business looks like x or I just feel discontinued would be a simpler way to go about it. I guess the second thing I just had was, (inaudible) you guys were 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 in North America and Europe versus the rest of international market, so is that across the board we are able to pass them on.

Timothy Tevens

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

Amit Daryanani - RBC Capital Markets

All right. And it’s my final question. I’ll hop off after that. When you look at all the investments we've made to get better presence in the international market, is this sense that we are pretty much content with the extent of investments we’ve had or are the big cash outlays going forward that we should be cognizant about?

Timothy Tevens

Yeah. Great question. Our sales growth strategy includes international growth and I think you know we've been investing in these markets for a while now. And they are bearing fruit as you are seeing that in the numbers in terms of the sales growth. Going forward, Derwin mentioned, we just opened up our offices in Petersburg, Russia and that was April 1, actually and just recently. I would expect that to continue to grow as the revenue grows in markets like Russia, we would continue to make investments, hopefully offset by the revenue, so the margin would begin to see the leverage come through.

I will tell you that there is another area that we are 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 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 will continue to see us invest in these new markets, especially the emerging and growing ones.

Amit Daryanani - RBC Capital Markets

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

Timothy Tevens

Thank you.

Operator

The next question is from Peter Lisnic, Robert Baird.

John Haushalter - Robert W. Baird

Good morning. It’s actually John Haushalter, for Pete.

Timothy Tevens

Well. Hi, John.

John Haushalter - Robert W. Baird

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

Timothy Tevens

Our goal was margin neutral.

John Haushalter - Robert W. Baird

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

Timothy Tevens

There have been more price increases, basic price increase surcharges are the forgings in the chain products, which is the regular product.

Derwin Gilbreath

Right we're monitoring that very closely.

John Haushalter - Robert W. Baird

Okay.

Derwin Gilbreath

Close quarter.

John Haushalter - Robert W. Baird

Okay, but it's not that pricing in the other businesses, as you are getting really as pressured on the hoist business on the cost structure front?

Timothy Tevens

Say that, one more time for me?

John Haushalter - Robert W. Baird

The cost pressure is more steel, it's definitely more on the regain side, just above…

Derwin Gilbreath

Definitely.

Timothy Tevens

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

John Haushalter - Robert W. Baird

Okay, thank you. And then just on the International growth side we are charting it down. It was kind of 23% excluding Univeyor and then currency was about half of that, is that correct?

Timothy Tevens

Yes.

John Haushalter - Robert W. Baird

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

Timothy Tevens

That's right.

John Haushalter - Robert W. Baird

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

Timothy Tevens

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

John Haushalter - Robert W. Baird

Okay and that has the currency number in there obviously?

Timothy Tevens

Currencies; yeah about half of that actually.

John Haushalter - Robert W. Baird

Okay, all right. Then just a final question: with the cash balance kind of continuing to go up, and you guys are kind of looking to deploy a go-through with that international investments and selling resources and potential acquisition activity. Is there any kind of consideration of a cash dividend or anything like that at this point?

Timothy Tevens

Yeah, great question, John. I think it's fair to say that we will consider all forms of use of proceeds, use of our cash including cash dividend, their stock buy backs. Right now we are very focused however on acquisitions and we are working diligently in that area as well as investments in the organic business. However, at some point in time you are absolutely right, it may come to a different form of use of those cash share that we have on our balance sheet.

John Haushalter - Robert W. Baird

Okay. However, at the current time you view kind of the internal organic growth potential here is a better use of cash.

Timothy Tevens

Would be a better more value added use of cash. Yes.

John Haushalter - Robert W. Baird

Okay, thank you. I'll get back in queue.

Timothy Tevens

Thank you, John.

Operator

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

Holden Lewis - BB&T

Good morning, thank you.

Timothy Tevens

Hi Holden.

Holden Lewis - BB&T

Hi. Can you talk a little bit, I think when you are talking about expectations for fiscal '09 particularly on the SG&A leverage. I think you referenced 11, or I think it was a, was it 17. For the SG&A as a percent of sales, you were looking for something in the 17% to 18% range, I believe for the year. In Q4 it's obviously a fair bit higher than that, and this 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, but you seem to 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'm sort of reading that right?

Timothy Tevens

You know you are reading it perfectly, right on with what we are 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 commissioned on that large order. So, that hit us at the same time. 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. 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.

Holden Lewis - BB&T

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

Timothy Tevens

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 that we've been looking at going forward for selling expense.

Holden Lewis - BB&T

Okay. So was that advertising and the programs you're talking 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?

Timothy Tevens

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

Holden Lewis - BB&T

Okay. 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?

Timothy Tevens

Yeah. As you might know, the first three quarters, we under spent capital compared to our target, and then the last quarter was kind of a 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 of $12 million to $13 million or so. Going forward, it's $14 million to $15 million for '09. So, $14 million to $15 million of CapEx would be our expectations.

Holden Lewis - BB&T

Okay. Great. Were there any LIFO charges during the quarter?

Karen Howard

Not significant.

Holden Lewis - BB&T

Okay. I will jump back in. Thanks.

Timothy Tevens

Thanks.

Operator

The next question from Ted Kundtz of Needham.

Ted Kundtz - Needham

Yes. Hello, everyone. One major question I guess for you. Could you talk about 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 little bit. Capacity utilization rates have ticked down a little bit in April, still strong in mining 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?

Timothy Tevens

I think that it's 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 are seeing similar. Still a lot of activity, a lot of opportunity for work flowing through our distributors, and therefore, us. However, it may be a lower number, more slow single digit as opposed to mid single digit growth. As we look to the future, you heard me talk, Ted, about we typically lag any downturn by maybe a quarter or two.

Ted Kundtz - Needham

Right.

Timothy Tevens

We would lag behind people like the Kennametals, the perishable tooling people, people who are out there in front of us may be more industrial production oriented; we're more capacity utilization oriented. So, as they turn down in America, in United States, we would probably feel that a couple of quarters later. 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 dialogues we've had with a number of our channel partners and end users that remains the same. So, it's still fairly positive in the marketplace.

Ted Kundtz - Needham

Yeah, okay.

Timothy Tevens

And internationally it's better.

Ted Kundtz - Needham

It's much better still.

Timothy Tevens

Yeah.

Ted Kundtz - Needham

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

Timothy Tevens

No. I would say it's very similar to the last quarter. It's still double-digit, it's lower double-digit. I would think the Western European economies are slowing a bit, but they are 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 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.

Ted Kundtz - Needham

Right. My last question was what are you 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. I just wanted to see if there is any update on that, progress towards doing something a little bolder, a little quicker.

Timothy Tevens

We'd love to.

Ted Kundtz - Needham

Have you identified people or is it just as long-term process--?

Timothy Tevens

There are 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 or strategic alliance or on straight out acquisition to help boost the revenue growth in the Asia Pacific region. We spend 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 a step there. However, that is something we would love to do.

Ted Kundtz - Needham

Do you think you could get that done this year?

Timothy Tevens

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

Ted Kundtz - Needham

Great. Okay. Tim, thank you.

Timothy Tevens

Okay, Ted.

Operator

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

Joe Giamichael - Rodman & Renshaw

Thank you, guys. All of my questions have been answered at this time.

Timothy Tevens

Thank you, Joe.

Operator

The next question is from James Bank, Sidoti & Company.

James Bank - Sidoti & Company

Hi. Good morning. That's an easy one.

Timothy Tevens

Hi, James.

James Bank - Sidoti & Company

Hi. Just if I could jump back to Univeyor, I think you guys did a very good job in terms of stripping it out. I'm just a little bit confused. So going forward, you are not going to report it as discontinued operations even though we've been given a definitive timeframe. So, I was actually anticipating a breakeven here in the fourth quarter of $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?

Timothy Tevens

That is not the plan, but neither was $0.27 in the fourth quarter dilution.

James Bank - Sidoti & Company

Right.

Timothy Tevens

Our expectations, and as you've heard us report over the first three quarters of this fiscal year was that Univeyor was improving. We gave you a trend line that was in a positive direction. To be perfect, 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 and second quarter would bring. The only thing I do know is that we are aggressively pursing and speaking with potential buyers of this business that could run it and operate it much more effectively than we can. They are much more aligned with the industry that Univeyor sells into.

James Bank - Sidoti & Company

Okay, that's helpful. Ultimately, by the September quarter or after that, it won't be on the P&L anymore?

Timothy Tevens

That is our plan.

James Bank - Sidoti & Company

Okay, all right, fantastic. 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've said that it costs you about $0.11 in the March quarter year-over-year. I just had no idea what it cost you in the previous three quarters in fiscal '07. So, that whether or not you do it that would be helpful.

Then a clarification on SG&A total. Do you expect it to be in the 16% to 17% as a percentage of sales going forward?

Timothy Tevens

17% to 18% I think was what we've reported.

James Bank - Sidoti & Company

Okay.

Timothy Tevens

Yes.

James Bank - Sidoti & Company

17% to 18%. Okay, great. Excluding Univeyor, what's the operating margin for solutions going forward, ballpark?

Timothy Tevens

Well, you can back your way into it, because we have pulled out Univeyor and showed you what they were doing.

James Bank - Sidoti & Company

Okay.

Timothy Tevens

So, ballpark, it's 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. On average, you're looking at high single digit.

James Bank - Sidoti & Company

Okay, that's helpful. Right now, I guess in the June quarter here, you're releasing your 1 to 10 ton wire rope hoists?

Timothy Tevens

1 to 3 ton, right?

James Bank - Sidoti & Company

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

Derwin Gilbreath

Yes.

James Bank - Sidoti & Company

Okay. Last question. Karen, what's the interest rate on that line of credit, the $11.2 million?

Karen Howard

We've got letters of credit outstanding change.

James Bank - Sidoti & Company

Okay.

Karen Howard

Yes, it's not actual data in it.

James Bank - Sidoti & Company

I am sorry. Okay, okay. All right, that's all I have. Thank you.

Karen Howard

Thank you.

Timothy Tevens

Thank you, James.

Operator

The next question from [Tory Koning] of Lehman Brothers.

Dori Konig - Lehman Brothers

Hi. This is actually [Dori Konig].

Timothy Tevens

Hi, Dori.

Dori Konig - Lehman Brothers

Good morning, guys. Just one quick question. I was wondering if you could comment on what type of discussions you may have had or you plan to have with the rating agencies and what specially they would require from you or what milestone you would need to reach in order to achieve investment grade status.

Karen Howard

Sure, I'll try and calculate that you for you, Dori. 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 and grasp investment grade is size. We need to be a bigger company, and that really relates to the risk of volatility associated with smaller companies. It's not a definitive number, but it's continued growth that we are working toward to balance that risk.

Dori Konig - Lehman Brothers

Okay, great. Thank you. That's very helpful.

Operator

The next question from Holden Lewis, BB&T.

Holden Lewis - BB&T

Thank you again. Can you talk a bit about profitability within the Products business by region? I mean it seems like a lot of the investments you're making obviously in Europe, so I'd imagine that that's where we saw the weakness in the margin. Are we seeing operating margin improvements in the US ops and sort of where are we in Latin America, just give us sort of a geographical breakdown of how we are seeing things profit-wise?

Timothy Tevens

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

Holden Lewis - BB&T

Okay. However, in terms of directionally, most of the cost were in --?

Timothy Tevens

Yes, most of the investments were in outside the US.

Holden Lewis - BB&T

So, directionally, your US margins are at least moving in the right direction. Were they flattish?

Timothy Tevens

I think they were in the right direction. We are very pleased with the US operation.

Holden Lewis - BB&T

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

Timothy Tevens

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

Holden Lewis - BB&T

Okay. You made these other investments obviously everywhere. In Europe, Derwin, can you give us a sense of directionally which way the margins went there too without talking about the numbers? When do you expect to begin farming the investments in Europe? I mean your investments I think are probably are more mature there then elsewhere in the world.

Derwin Gilbreath

We are farming right now.

Holden Lewis - BB&T

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

Timothy Tevens

Yes.

Holden Lewis - BB&T

Okay. So, all of these, sort of the challenges on the margin side, even products is primarily Asia.

Timothy Tevens

Asia, the challenge, I think that when you open up a new office in like Russia where you have very little export, we might do a $1 million euros or something there now. That is a drag initially, but the demand that we see there right now should increase and offset that very, very quickly. So, we'll get leverage there soon.

Holden Lewis - BB&T

Right. I am just looking at the operating margin for the Products business, which obviously fell. And if US was trending upwards and Europe was trending upwards, I assume that includes Russia. Does that suggest that all of the margin challenge was in Asia?

Timothy Tevens

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

Holden Lewis - BB&T

Okay. So, the selling costs that talked about were also in US.

Timothy Tevens

For the US, right.

Holden Lewis - BB&T

For the quarter, US margins were down as well?

Timothy Tevens

I think it's more mixed 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're addressing, which is specifically construction and energy here in the US, we made some increased investments in the quarter. We also had a bit of mix situation when we saw a lot more cranes, which is a little lower margin product than a hoist would be. That's probably the more of 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.

Holden Lewis - BB&T

Okay. Not to beat up Univeyor too much, but we had kind of news that you had some projects in Univeyor that were lower margins, but you kind of talked about perhaps a new project overrun too. I guess the assumption was that you're going to clean up all those old projects and any new projects that you had built in would without more discipline in terms of the pricing and that sort of thing; it kind of sounds like we kind of had a replay of sort of old habits in that business. Is that accurate, inaccurate?

Timothy Tevens

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

Holden Lewis - BB&T

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

Timothy Tevens

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. 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 a layer picker which is a proprietary product that's patented or sold worldwide, very global product and very well established with the very nice margin, that's a great asset.

This new one we developed called the [emptycon] machine is in a similar state, although it’s a little earlier in its stage of development and launched to the marketplace, it has only been launched about a year or 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've got great project management and great technical skills embedded in the business that a strategic person could really avail themselves of in the Scandinavian market.

Holden Lewis - BB&T

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

Timothy Tevens

I don't know.

Holden Lewis - BB&T

You don't know, okay

Timothy Tevens

A couple of months from now, very definitively. As we sit here today, we're just in the beginning portion of management presentation. So we don’t have definitive bids yet.

Holden Lewis - BB&T

Okay. Fair enough. And 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 got 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, we are up to take these hits before we are going to take this off your hands or was it truly just all operational in nature that way?

Derwin Gilbreath

It was operational in nature through the fourth quarter. However, going forward, I can’t comment until we talk to potential buyers.

Holden Lewis - BB&T

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

Derwin Gilbreath

Includes.

Holden Lewis - BB&T

That does include.

Derwin Gilbreath

Yeah.

Holden Lewis - BB&T

Because you referenced, obviously, the surcharge in very specific terms when you talked about offsetting raw material cost. You didn’t really talked about sort of true pricing, sustainable pricing. Can you talk about what the pricing element is?

Timothy Tevens

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

Holden Lewis - BB&T

Okay. So we can kind of expect that pricing piece to go up in upcoming quarters, given the surcharges ticking in. Or are you anniversaring something?

Derwin Gilbreath

I think the price increase was on January.

Timothy Tevens

January the 10th.

Derwin Gilbreath

January 5th what else..

Timothy Tevens

So on a go forward basis will the surcharges affect the price increase in a positive way?

Derwin Gilbreath

[Deadline].

Timothy Tevens

Certainly, that is a logical tradition to have.

Holden Lewis - BB&T

Right. Because you are working up and January 5, '08 price increase, so we have a full year of that plus the surcharges will add on top of that too.

Timothy Tevens

Right.

Derwin Gilbreath

It's only a slice of that business, certain rigging and chain product.

Timothy Tevens

Yeah, good point, it's not the whole business so you can't apply that to 620 million, you got to apply to a much smaller base.

Holden Lewis - BB&T

That 260 goes up to some extent. Okay, alright, thank you.

Timothy Tevens

Thank you.

Operator

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

Russ Steifer - Raymond James

Good morning guys. Couple of questions for you, on the tire shredder the two large orders that you have had. Were those all completed during the quarter or do they -- are they going to fluctuate in Q1 and Q2 or how long is that going to play out?

Timothy Tevens

No, they were completed in shift and we’ve recognized revenue in the fourth quarter.

Russ Steifer - Raymond James

Okay, and that's a non recurring kind of order thing or is it one time.

Timothy Tevens

Yes, all of their business is non-recurring to a degree, but they make a variety of tire handling products that are sold globally, and basically they sell products to separate the steel from the chrome rubber of the tire and that demand is huge around the world.

Russ Steifer - Raymond James

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

Timothy Tevens

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

Russ Steifer - Raymond James

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

Timothy Tevens

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

Russ Steifer - Raymond James

Okay, thank you.

Timothy Tevens

Thank you.

Operator

(Operator Instructions). There are no other questions.

Timothy Tevens

Thank you, Brenda. In summary, let me tell you that we are poised to grow profitably with the strong balance sheet and very solid at this point in growing markets with the strong market position in North America and excellent cash flows. Our use to free cash flow will continue to be part of reduced debt, and we are still focusing our attention on products oriented both on acquisitions that can add market presence where we have a small or no presence, and to our product portfolio where we can leverage our existing distribution channels and branding strength.

Combine with this our lean initiatives cost reduction activities, investments in new products and markets and we are well positioned to have a very solid 2009 fiscal year. The Univeyor divestiture is well under way and our expectations are that we will complete the 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.

Operator

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

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