Columbus McKinnon Corporation (CMCO) Q4 2014 Earnings Report, Transcript and Summary

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you can disconnect at this time. Now I will turn the conference over to Alex Hamilton [ph]. You may begin.

Great. Thank you, Melissa, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. On the call, call we have Tim Tevens, President and CEO; Greg Rustowicz, Vice President and CFO. Tim and Greg will review the results for this quarter and give an -- and for the year, and give an update on the company's outlook and strategic progress. You should have a copy of the financial results that were released this morning before the market, and if not, you can access that at the company's website, www.cmworks.com. Also at the website, in the Investor section, you will find the slides that will accompany the discussion that Tim and Greg will be having today. If you turn in the slide deck to Slide 2, you'll find our Safe Harbor statement. As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from what was stated in today's call. These risks and uncertainties and other factors are provided in the earnings release, as well as other documents filed with the Securities and Exchange Commission. The documents can also be found on the company's website or at sec.gov. So with that, let me turn the call over to Tim to begin. Tim?

Thank you. Good afternoon, good morning, everyone. I'm actually in Germany right now, and Greg is in Amherst. So bear with us if you would. Just attended a manufacturer material handling show in Hanover, Germany, and we're stuck here, if you will. So we're going to do this in long distance. But welcome to our call. We're going to review the fourth quarter of the fiscal year 2014. Greg is in Amherst, as I said. And here in Germany with me is Evo Channing [ph], our Managing Director of Europe, and Ronald Bartell [ph], who runs our CMEP group, and they're going to be listening in. Please notice, as we just told you, that we have included summary slides of the quarter for your review, and I'm going to start actually on Page 3 now. And we want to remind you of our long-term objectives, which just includes growing to be a $1 billion business with about 1/3 of our revenue in developing markets, 2/3 of our business in developed markets, along with $200 million to $300 million in acquisitions, a 12% to 14% operating margin target, a strong working capital level and overall strong balance sheet. We continue to focus our resources and energy on acquiring companies that strategically add market presence and product breadth and help us grow around the world and achieve these results. Let me move you to Page 4, which provides the highlight of our fourth quarter of fiscal 2014. As you can see, we had a very strong finish to the fiscal year. As you know, our fourth quarter is normally our best, and this year was no exception. We finished the large Rail & Road project in Montréal, and our Hoist and Rigging businesses were very strong in the quarter and our recent acquisitions are doing very well for us. Revenues were up 11%, 7.3% in the United States and 16.3% outside the U.S. The U.S. revenues were very strong as our annual price increase caused some additional sales, bookings and sales. Our ISG program is also gaining some momentum when we're seeing some good volume there, too. We also added 2 acquisitions that added about $2.7 million in revenue in the quarter. Our gross margins continue to expand nicely, but we're up 70 basis points to 31.3%, driven by volume, productivity and pricing. The operating income improved to 21% and the margins were up to 10.9%. Cash from operations was also very strong in the quarter at $11.5 million. Page 5 summarizes the highlights for fiscal '14. Revenues in the United States were down, driven by a large OEM account as they significantly reduced their spend right now, and we also divested of a crane builder in August of 2012. The rest of the business grew nicely in the fiscal year, but could not overcome these reductions. Outside the U.S, our revenue decreased as Europe remained in the prolonged recession, which was positively offset by our Austrian acquisition that we made this past June. Gross margins improved 180 basis points to 31% despite the lower revenues, and operating margins improved 9.6%, excluding an atypical M&A expense we recognized in Q3. Cash from operations was very strong for the year at $29.5 million. We remain focused on profitable growth and are making investments in our business to accomplish this goal. We continue to develop new and enhanced products, a new electric chain hoist -- and I'm on Page 6 actually right now, and enhanced versions of our Global wire rope hoist product line, were launched this past year. We did complete our Chinese expansion in the quarter and are up and running in our expanded locations. This past year, we also introduced our in-stock guarantee program. This, you might recall, is where we guarantee to ship key items to our customers in 3 days or less, and this program is now gaining traction and is beginning to see some rigging market share recovery in the quarter. I'm also pleased with our Columbus McKinnon lean business progress as we're now achieving record levels of performance in our manufacturing and distribution facilities around the world. Fourth quarter revenues increased to $15.9 million, mostly driven by volume, as shown on Page 7. We recognized additional revenue from the 2 acquisitions we made this past year, price and certainly some currency translation as well. U.S. sales were up nicely in the quarter in spite of these key customer spending reductions, and sales outside the U.S. were even stronger, up 16.3%, driven by volume as we see some economic recovery, the Austrian acquisition and the completion of the Canadian Rail & Road project of $4.4 million. And as you can see here as well, revenue per day continued to improve as well. So let me turn it over to Greg to provide some more details for you.

Thank you, Tim, and good morning, everyone. On Slide 8, our fourth quarter gross profit margin increased 70 basis points to 31.3% from 30.6% in the prior year. Gross profit dollars increased $6.1 million or 13.8%. Sales volume added $3.3 million to gross profit. Productivity gains contributed $1.4 million. Pricing, net of material inflation, added $1 million to gross margin. Acquisitions also contributed $700,000 to gross profit. Offsetting these positive factors were slightly higher legal expenses related to product liability cost. On a sequential basis, gross profit margin improved 170 basis points from the December quarter. As shown on Slide 9, selling expense increased 14.3% from the prior year and represented 11.7% of sales this quarter compared to the 11.3% in the prior year. The increase in selling cost was primarily related to our investments to expand our global sales network, as well as acquisitions, which added $500,000 of incremental selling cost in the quarter. G&A expense increased 5.3% from the prior year and represented 8.4% of sales this quarter compared to 8.9% in the prior year. G&A expense was impacted by higher group health cost in the U.S. In addition, foreign currency translation had a $100,000 unfavorable impact on G&A cost this quarter. We expect our SG&A run rate to be approximately $33 million per quarter, driven by our recent acquisitions and investments to drive top line growth. Turning to Slide 10, operating income increased by 21% to $17.5 million or 10.9% of sales compared to 10% of sales in the previous year. Operating income improvement was driven by the gross margin expansion previously discussed. On a year-over-year basis, this was the 14th consecutive quarter of gross margin expansion. Operating leverage was 19.1% or 23.5% if you exclude the one-time atypical acquisition expenses that Tim talked about. As you can see on Slide 11, adjusted earnings per diluted share for the fourth quarter of fiscal 2014 was $0.52 per share compared to $0.42 per share in the previous year. We are adjusting earnings to reflect a more normalized 30% tax rate as the previous year included the tax benefits of reversing a valuation allowance against deferred tax assets, which amounted to $49 million. On an as-reported basis, earnings per share in the fourth quarter of fiscal 2014 were $0.48 per share compared to $2.64 per share in the fourth quarter of fiscal 2013. Our effective tax rate for fiscal 2015 is expected to be between 25% and 30%. On Slide 12, we have compared our full-year performance for several key metrics. For fiscal 2014, revenue was down 2.3%. This was largely driven by lower volumes in our Crane business, which services heavy OEM customers, as well as lower volumes in Europe. This was partially offset by price increases totaling $10.2 million in favorable foreign currency translation of $600,000. Net acquisitions contributed $500,000 of sales growth on a full-year basis. Gross profit was up 3.9% and gross profit margin expanded 180 basis points to 31%. Net pricing over material inflation [indiscernible] with manufacturing efficiencies drove the margin expansion. Full-year operating income was flat despite $14 million less sales. This resulted in an improved operating margin of 20 basis points to 9.3%. Finally, earnings per share for the year were $1.52 versus $1.49 in the previous year, which adjust for the reversal of a deferred tax asset valuation allowance, which created a $49 million tax benefit in fiscal 2013. The impact of the reversal of the tax valuation allowance in fiscal 2013 was $2.49 per diluted share. Turning to Slide 13, our working capital as a percent of sales was 21.7% compared to 18.3% at March 31, 2013. The increase is largely attributable to an increase in accounts receivable due to the strong sales quarter. We expect working capital as a percent of sales to revert back to more normal levels in fiscal 2015. Inventory turns improved to 4.5x in the recent quarter compared to 4.3x in the fiscal fourth quarter last year. Excluding acquisitions, inventory turns would have been 4.6x. On Slide 14, you can see that we generated $11.5 million of cash provided by operating activities in the quarter and $29.5 million for the year. Income taxes paid year-to-date were $2.4 million higher than in the previous year as we are no longer in an NOL position in the U.S. Capital expenditures for the year were $20.8 million versus $14.9 million in the previous year. Capital expenditures are higher than the previous year due to our Chinese plant expansion, where we have spent $6.4 million of which $4.4 million was paid as of March 31, 2014. In addition, we continue to spend in our ERP systems implementation. We ended the quarter with $112.3 million of cash, which is net of $22.2 million of cash used for acquisitions which closed during the fiscal year. We expect capital expenditures for fiscal 2015 to be in the $20 million to $25 million range. In fiscal 2015, we plan to spend the remaining $2 million for the China plant expansion, $3 million for our ERP initiative, and then $10 million to $15 million for productivity and growth projects and $5 million for maintenance capital. On Slide 15, you can see that as of March 31, 2014, total gross debt was $152.3 million and net debt was $40 million. Net debt -- net total capital was 12.1%. In addition to having $112.3 million of cash on our balance sheet as of March 31, we have an additional $94.2 million available under our $100 million senior credit facility, debt of $5.8 million of outstanding letters of credit. This puts this facility, along with our healthy cash balance, provides significant liquidity to support our strategic growth plan. As a result of our ability to generate cash throughout the business cycle and our strong balance sheet, we reinitiated and paid a regular quarterly dividend of $0.04 per share on May 19 to shareholders of record on May 9. The dividend will be assessed annually by our board. This will allow us to reward shareholders, while at the same time, execute our strategic growth plans. With that, I will turn it back over to Tim to cover the fiscal 2015 outlook.

Thanks, Greg. So let's spend a moment and take a look at our outlook on Page 16. We do expect to continue to see order levels improve. As Europe recovers, our ISG, that in-stock guarantee program, expands and certainly wins back market share and new product introductions do gain momentum. We are investing in key markets around the globe, and are very focused on developing new products to meet these key end-users. Our Chinese expansion should gain traction as they're now able to manufacture products in China for the Asian markets. Mexico seems to be going very strong for us, but South Africa and Brazil are facing some currency and commodity pricing challenges. We expect North America to be reasonably good in fiscal '15 and should see a much better Europe as that economy continues to recover. Our backlog remains relatively consistent, but as you know, is not really an indicator of our future revenues as the time from bookings to shipments and revenue recognition generally happens very quickly in most of our businesses. The exception of this is large projects like the Rail & Road project or certain cranes which are scheduled into the future. I do expect our vertical market and global service focus to bear fruit in the coming year, and I do expect to continue to make some small but important acquisitions this coming year, which as you can see from the last 2 relatively small ones that can certainly help our business. We expect productivity improvements to continue as we focus and utilize the Columbus McKinnon lean business system to improve our processes and reduce our costs. So at this time, Melissa, let me open it up to questions if I could.

[Operator Instructions] Our first question comes from Schon Williams, BB&T Capital Markets.

I wanted to maybe, Tim, just with you being in Europe at the moment, could you maybe just comment on kind of what you're seeing at the show and what you're hearing from customers there and what the general mood is at the moment?

I think it's a little better than what we saw last year. There's up and down sections of the marketplace. I would say it's not robust growth by any stretch of the imagination, but there is certainly signs that it's improving.

And are there any things specific within Europe that you'd call out, whether -- and specific end markets or kind of Northern Europe versus Southern Europe, anything along those lines?

Well, I think what we see is probably our Base Hoist and Rigging business doing a little bit better than the Project business. So I can't point to existing markets. I think Germany is probably doing better than the other ones certainly, they [ph] probably are the normal one to recover first in that portion of the business. But you [ph] think about the Hoist business is probably doing better and our Project business is not doing better just yet, the capital expansion portion of our business.

Okay, that's helpful. And then I wonder if we could just talk about pricing perhaps from a global perspective. I mean, can you talk about what exactly was put through in North America for the spring and then what are your thoughts? I mean you mentioned maybe a little bit of pull ahead. I mean, I would assume that that's normal given kind of your normal annual price increases. But any concern that there may be some pull-back in volume in Q1? If you can address that.

Well, as you know, that's kind of what normally happens. A couple of dynamics in our business is the fourth quarter, as you know, is always the largest, and it’s driven by a couple of dynamics. We do have typically price increases in the quarter, in the fourth quarter. It does drive some buying in the channel. I would say that it's extra weeks of buying and not months of buying normally, maybe 2 to 4 weeks of stock up in advance of a price increase by our channel partners. So that happens normally. This year, it seemed to be consistent with that. But I would also say that the pricing that we did put in place is kind of normal 1% of 3% pricing, depends on the product and the market that you look at. And as you can see, we did call out price in the press release. And I think price, Greg, was up 0.9%. Actually, we're actually usually around 1% to 2%. So this was slightly below that.

But we should expect some acceleration of that pricing as go into Q1 just given it takes some time for implementation to kind of hit the market. Does that sound reasonable?

I think if you think about 1% to 2%, you're probably going to be right.

Yes, Schon, the answer is yes. The U.S. price increase typically gets implemented in March. So we would expect to see some more price increase. And the good news, I think, is that in Europe, we were able to push through a price increase in a January time frame.

Yes, it wasn't as big or robust as it normally is. But we did get a price increase.

Okay. And then, I guess, the possibility with Europe turning, I mean, is there -- would you generally get another price increase in Europe? I want to say, if memory serves correct, maybe in the fall or something like that? Is that something that you would revisit or now that you've got something in January, we won't be looking at pricing in Europe again until sometime in 2015?

I think it's fair to say we would revisit it. It would depend on market conditions.

Our next question comes from Jason Ursaner of CJS Securities.

This is actually Jack O'Brien calling in for Jason this morning. In terms of volume for the quarter, for the U.S., I was just wondering what the magnitude of the impact from the heavy OEM customers was? Is this still a negative comp or have you anniversary-ed it now?

Now Greg, you can add to this, but I think it anniversary-ed this fourth quarter.

So actually that business was off substantially as well, but I would say we have, starting in our fiscal first quarter of 2015, the comps will be on the same sort of a basis. So there was still a little bit of a residual reduction in sales in that sector 4 -- in Q4.

Okay. That's fine. And then moving over to gross margin. I was just wondering what the largest factor driving the increase was. I know there's been lot of initiatives on sourcing and restructuring. Is this the driver or is it mainly kind of factory absorption or whatnot?

Well, we actually -- if you're talking about in the quarter, we do have a bridge in our -- on Page 2 of the press release. The biggest factor in the year-over-year quarter increase in gross margin is higher sales volume, which contributed $3.3 million. But the next biggest item is productivity gains, and we had another strong quarter of productivity gains in our factory. We were -- that contributed about $1.4 million to the positive impact in gross margin. The other 2 significant factors would be our pricing over material inflation was about $1 million favorable, and then our acquisitions contributed $700,000 of gross margin in the quarter on a year-over-year basis.

Okay. And do you guys see this as being sustainable going forward?

The productivity...

Yes, certainly the acquisitions will continue to roll through. I think that productivity gains, we typically get $1 million, $1.5 million a quarter, have at least for the last several years. Improved pricing net of material cost inflation, we don't see inflation too much right now. And as we look to the rest of the fiscal year, we don't really see that spiking up too badly. So there's probably good cause or good reason to believe that that kind of improvement will continue on, at least for a while, until something happens on the cost side. And then of course, we need volume. Volume is the biggest driver of our gross profit, and the more volume we get, obviously, it drives our profitability. And we're looking for modest top-line growth, so I guess I would expect to see, maybe not at this level, but certainly a positive impact on gross profit on year-over-year growth.

Okay. And are you guys seeing any movement in your key raw materials?

No.

Okay. And then, I guess, lastly -- sorry, did I interrupt you?

No, I was going to say [indiscernible] has been very benign. So that's been a nice factor for us.

Okay. And then lastly, you guys have done a great job on the cash aside. The balance sheet's in a much stronger position now than it has been in a couple of years. Can you give us an update on the acquisition pipeline? Would you say that the size of deals you're evaluating in the pipeline tend to look larger now, more transformational rather than tuck-in? And specifically to China, given the increase in CapEx going into the region, do you see that as an internal focus or something you'd still be looking to expand through acquisitions?

Yes, generally speaking, the acquisitions that we're looking at today would fall into the category of below $50 million in revenue. So, let's say, not transformational, more bolt-on, tuck-in, certainly integrate-able kinds of acquisitions. Product expansion and/or market expansion is what we would focus on. Specifically, as it relates to China, we tried an acquisition there a couple of years ago and could not come to terms with the owner of this company. So that caused us to expand our own manufacturing footprint there. So it's much more organic. Having said that, that doesn't mean that we won't continue to think about acquisitions or search for acquisitions in China as well if it can improve our market position.

Our next question comes from Joe Mondillo of Sidoti & Company.

The first question I wanted to ask about is related to backlog. So you had this big project within the quarter, and that was completed within the quarter. And so you acknowledged sort of your next quarter backlogs, sort of excluding any large product work, and that sort of next quarter backlog is down year-over-year about 13%. So I was wondering if could just address that, if that's concerning at all. I know that part of that backlog, I think it was around $50 million or something. It's just 1/3 of the quarter. So you're still at this -- still a lot of the revenue for just a quarter alone still has to be made up given your short lead times. But so how do you look at that? And does that concern you at least for the month of April or how are you looking at that?

Joe, backlog is not a leading indicator for revenue in our company. And I'll underline that and bold it, too. It just doesn't work that way. We needs to book probably 2/3 to 3/4 of our revenue in the quarter in which we are in. So the first quarter, we need to book well over $100 million to get the flow-through. There is about $30 million or so of things that are out in the future, and about $50 million that will happen throughout the quarter that we already booked. But that's going to, at any given point in time, that's going to move quite a bit up or down, and at this point in time, it's actually down because we're able to book and ship, because our factories are performing so well, by the way, in the quarter and get things flowing very nicely. And in addition to that, we took this Rail & Road project out of the backlog as well that we installed in May and completed that as well. But I wouldn't look at this, Joe, as concerning or disconcerting either way. It is what it is, but it's not a driver of our business. In fact, Greg, I think you have a number that indicates it's already moved up again.

Yes, so we're back into the $90 million-plus range. We monitor this on a weekly basis, and so there is a lot of volatility just based on shipments and the timing of shipments. So to Tim's point, it would not be a leading indicator of future revenue performance.

Okay. In terms of your U.S. business, did you see any, I guess, slowdown at all throughout the quarter? Just given the weather and all, did that affect you at all or not really?

No. No. Certainly, everybody wants to point at the weather, but in the case of our business, I know certain locations we're shut down and we were not operating. But I'll tell you, what happened is the orders came in the next day, and our plants worked on weekends to service those customers and get the orders out. So it might have been delayed a day or 2, but certainly, it didn't have an impact on the overall quarter.

Okay. And then, I guess, moving on to the expense side, G&A was down a good amount sequentially. It was up a little bit year-over-year, but sequentially, it was down from the last two quarters. Is that -- I mean, as I understand it, that's fairly fixed or a lot of that is fixed. So why did that drop sequentially? And is that 13.5 sort of the run rate that we're looking at going forward or...

Yes, the run rate on G&A, one factor that you have to take into account is, in the fiscal third quarter, we had about $1.4 million of the atypical M&A expenses. So if you're looking sequentially, that's one of the reasons or the biggest reason why it was favorable, about $1.7 million.

Okay. That make sense. And so that 13.5 is sort of a normalized going forward?

Yes. Yes. So what we did, Joe, is on one of the slides, I talked about the fact that with the new acquisition and as we look to drive continued top- line growth, our run rate on G&A is going to be in the $33 million a quarter range.

SG&A.

SG&A, you mean?

Sorry, yes, SG&A. Okay, right.

Okay. That's good enough. And then, I guess, just lastly, so the 15% of your business, is that's that lower margin business that you commented a little earlier that's been really slow over the last year and a half or so? On a sequential basis, has that begun to improve at all or has it sort of just -- sort of stabilized at the bottom?

So which business are you referring to, Joe?

The Heavy Capital Equipment business, roughly 15%.

Okay, right. Joe, it's stabilized near 0. It's really down quite a bit. So yes, I guess that's stabilizing. At this point in time, fiscal '15 is not going to be any better than '14 from what we can see.

Just to be clear on that, when Tim says it's 0, the business isn't 0, it's sales to that 1 particular customer are zero. So overall, that sector is down about 45% to 50% for the year, and we are lapping that beginning in the first quarter. So it's not like there's no sales in that sector. It's just that 1 particular customer.

Okay. And so just looking at that overall part of the business, has that begun to improve sequentially at all?

Not yet.

Okay. And then just lastly, so you're getting all this other large project work. Obviously, you saw this Canadian rail project, and I imagine, as the economy begins to improve, you see a lot more of that larger project work, is that correct?

We're not seeing it just yet, Joe.

Okay, that's what my question was going to be.

So in that sector, our Rail & Road sector, we would expect comparable sales in fiscal '15 compared to '14. We won't have a large of a project. I believe, we've got a project that's lined up for Turkey later in the year. But I don't think it's of the same dollar magnitude or euro magnitude, slightly smaller. So it will be some other projects as well [indiscernible].

And that Canadian rail project, how much did that roughly amount to?

$4 million.

Yes, $4.4 million.

$4.4 million. And the one that was just referenced by Greg, the Turkey one, is probably about half that size.

Okay. And those are -- do those carry higher margin or similar?

No, similar.

Our next question comes from Jon Evans of Jwest LLC.

Yes, can you talk a little bit more about Europe? You seemed more excited about that business than you have in the past. And I was just curious maybe if you can give us any more insight and kind of what you're seeing there and what you're seeing from customers.

Sure. So our European business last year, probably for a little bit more than a year, was really in a recession. It was down considerably, challenged on all fronts and it's -- you had to scrape for orders. It really -- capacity utilization was down quite a bit, which is one of the leading indicators in that market for us. And I would say this past fall, I'd say November, December time frame, we start to see things getting a little bit improved there. And that continued on through the fourth quarter, where bookings are sequentially getting more positive. By the way, nowhere near back to the peak level that we had seen a year and a half ago or maybe 2 years ago, but certainly, the trend line has continued in a positive direction. So it certainly feels better, but nowhere near back to what we feel to be very comfortable and peak-ish.

Our next question comes from Schon Williams, BB&T Capital Markets.

Just a couple of follow-ups. Tim, the incremental margins in the quarter at 19%, kind of a bit below your normal 30% to 40%. Can you just talk about were there any headwinds in the quarter that maybe might have affected that number? And then are you still comfortable with kind of about 30% to 40% target going forward?

Yes, historically, Schon, we're in that 30% to 40% area. And I think if you look quarter-to-quarter, it does range and bounce quite a bit from individual quarters. As a matter of fact, I think a couple of years ago, Gregory, we were well over 100%.

173.5% [ph]. And then Schon, just -- to Tim's point, if you looked at operating leverage for the year, we actually had a decrease in sales of around $14 million and we held operating income within $20,000. So that leverage is at 0.2 but it's on a negative side. So with that 30% to 40%, you would have expected a reduction of $3 million in operating income, and in essence [ph], we were able to maintain the same operating income on $14 million less sales. So on an annual basis, that's a tremendous drop from an operating leverage perspective, well in excess of 30% to 40%.

[indiscernible]

And, I guess the -- sorry, go ahead.

Schon, to really focus on your point, if we get volume increases over the long haul, we would expect the operating leverage to be in the 30% to 40% -- average in the 30% to 40% area. In the quarter, I was pleased with 19% given where the revenue came from, and the hard work that the team had to do to pull out everything to get everything out the door to recognize this revenue. So I was not displeased with the 19%. Over the long haul, you can still think of us as that 30% to 40% kind of company.

Alright, perfect. That's very helpful. And then I wonder if we could maybe just dive in a little bit more in the CapEx. You're guiding for accelerating CapEx despite the fact that China should be largely faded, a couple of million still next year. But it sounds like you want to spend a lot on kind of efficiency and productivity. I just wonder if you could maybe, I don't know, are there a couple of projects that you could maybe highlight exactly what those are? And then is that U.S. versus international? And is that going to help -- I don't know. Is that part of your plan to maybe getting back to this 30% to 40% incremental margin? So I just want to kind of have a sense of how that all plays together.

Yes, so Schon...

Yes, go ahead, Greg.

So we talked about the fact that there's going to be $2 million of CapEx from China that's going to roll into fiscal '15. In that sense, the work was done, we received the bills, they're in accounts payable, but they weren't paid. So the auditors required that to show up as a cash flow next year. We're continuing to invest in our SAP project, and that's about $3 million. We've got about $5 million for maintenance capital, kind of maintaining existing capacity. But the swing is really in the productivity and growth projects, where we've got $10 million to $15 million, and we look at each project on an individual basis and we expect our projects to earn our cost -- outearn our cost of capital. And each decision gets made individually as the year progresses. But I don't know if that helps, Tim. From a size perspective, in the productivity area and growth projects, just going off of my memory from our budget presentation, there's not a single project there that's over $1 million. So it's a lot of little things, but once again, they've got to make sense, and each one gets assessed individually.

Maybe just to frame it, I mean, do you view these projects as, I don't know, these are going to help you get product out the door to customers quicker, they're going to help you with on working capital or should it be more kind of margin-enhancing projects? I don't know if it's -- maybe a little bit of color you could offer?

Sure. I think would say that they're mostly margin-enhancement productivity kind of gain projects, especially the ones that Greg said was around $10 million that we would evaluate as the year goes on. Those would be more margin and productivity gains.

Yes, so think of them, Schon, as potentially like a C&C [ph] machine that replaces an older machine, that there's maintenance savings, labor savings, yield savings, those are the sorts of projects that should drive further gross margin improvement.

Our next question comes from Gregory Macosko [ph] of Montréal Advisors [ph].

Could talk a little bit about SAP? You mentioned it, $3 million you're going to be spending. How is that going, and what's the time frame on it?

Let me tell you about SAP. We started a couple of years ago, maybe more a little bit more than that. And speced [ph] out we needed today a global ERP platform and started it in a relatively small division in America called Duff-Norton, down in Charlotte, that was implemented about, 2 years ago actually now. And then moved to a sister company in Germany, our Pfaff business, CMEP, and that is -- was implemented about a year ago now. So we have maybe 20% of our revenue covered with SAP. These are not easy tasks. Our people are challenged to get data right and get retrained on how the new system works, and these kinds of changes are pretty big and difficult. But I'll tell you, I'm very proud of our people and the work that they did to actually get them done and implemented, as well as they did with all of the challenges around that. So we're pretty much on target with the original plan, we're working on another business in Europe, our Hoist business in Europe right now, which we expect to go live this coming summer. So things are on-budget and on-target, and there's probably not too many SAP implementations that actually say that. But because I think our people and the great work that they're doing that we're actually able to say that we're reasonably pleased with this project as difficult as they are.

You said less than a year ago, you talked about having to do 6 facilities in North America all at once. And I wonder how that went. That sounded, as you said, it sounded tough. How did that go? Is that completed?

Well, we didn't finish -- we didn't start that yet. Well, so we wanted to finish all of Europe first and have that behind us, and then the next decision point is going to be some smaller locations in Latin America, maybe I think France won't be on -- just yet, a small European business. Or we'll do North America, which is, yes, 6 locations all at once. We did this once before about 20 years ago, Greg, when we put this oracle-based platform in. And it is a big challenge, there's no question. But we'll let you know which direction we're going to head probably in the next 6 months here. We're going to take on the big one, or finish up some small ones first.

And then following up on China, you had said that you had tried to do an acquisition. It didn't work out, so you built your footprint you might look. But did that -- just give me some color on that decision. Did it make sense? And I mean, was it -- obviously, it's what you had to do at the time, but I know you have -- I think you have 9 sales offices. Just talk a little bit about how things are going in China.

Okay. So we've been in Hangzhou, China for -- since 1992, so over 20 years, manufacturing a variety of products there. One of the things that we started to do 4, 5 years ago is try to actually -- most of our manufacturing there was exported to Europe and exported to America. But we never really sold that many products into the Asian, and particularly, the Chinese market. So we started to build a sales force and an engineering capability there, and determined very quickly that to really be successful long-term, we need to manufacture more products in the Chinese market for the Chinese market. We're literally exporting products from -- and have been for a while in Germany, America back into China, and obviously, the cost disadvantage is pretty large. So we needed to find a footprint or a partner that could help us manufacture. We thought we had one, there was a nice little hoist company just outside of Shanghai. We explored with the owner, his willingness to sell, seemingly wanted to do that with us. We both agreed to assess the assets of his business and pay fair market for that -- those assets. Hired a third party to assess the assets, finally came down to the fact that the land use rights for his manufacturing location, he wanted us to pay a market price for condominiums even though our plan was to make hoists in that plant and have an industrial location. And of course, as you might imagine, Greg [ph], condominium land use rights are much higher than if you just had a factory there. So the numbers became unworkable, and we thought we had a partner and we thought we had a solid understanding, but in reality, we did not. So we evaluated other options including other purchases there, but really decided to expand the footprint that we had there ourselves. And that's the $6 million that Greg talked about earlier in terms of capital we employed this past year. And so we expanded our own footprint, modernized our facilities and now are beginning to make all of the hoists or many of the hoists that we need in the Chinese market, in our own Chinese location there. So we pursued the organic path at this point. Having said that, if a Chinese company comes along that has a strong market presence and can help our sales force sell more deeply into that market, that certainly would be interesting to us. At this point in time, we have not found that partner.

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Well, I just want to thank everyone for taking the time today. As you know, we do look to capitalize on our strong fourth quarter finish and continue the trend into fiscal '15. Our previous investments in lean new product development and the addition of a new executive, Jeff Armfield, to help gain even more revenue from new products and services should increase our revenues over the short-term here. Our emerging market expansion and investment will continue apace and help grow our company next year and into the future. We are well-capitalized and remain positioned to continue to execute our strategic plans to profitably grow our businesses. We have about $112 million in cash, $100 million revolver. We continue to have acquisition discussions with many businesses that we believe can add strategic value to our company. I'd like to thank you all of our Columbus McKinnon associates around the world for their dedication to excellence in making our company a stronger market-leading company. As always, we appreciated your time today. Have a good day.

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