Columbus McKinnon Corporation (CMCO) Q1 2015 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 may disconnect at this time. I would now like to turn the call over to Ms. Deborah Pawlowski, Investor Relations for Columbus McKinnon. Go ahead. You may begin.

Thank you, Sharon, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. On the call is Tim Tevens, our President and CEO; and Greg Rustowicz, our Chief Financial Officer. Tim and Greg are going to review the results for this quarter 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 earlier this morning before the market. And if not, you can access those at the company's website, www.cmworks.com. You will also find at the Investors Relations section of the website the slides that are going to accompany the discussion that Tim and Greg will be having today. Let me start by having you turn to Slide 2, where 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 question-and-answer session. 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 materially 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, you can turn to Slide 3, and let me turn it over to Tim. Tim?

Thanks, Deb. We just want to remind you, on Slide 3, of our long-term objectives, including growing to be a $1 billion business with about 1/3 of our revenue in developing markets and 2/3 in developed markets, along with a couple $100 million to $300 million in acquisitions, a 12% to 14% operating margin, strong working capital level and overall balance sheet. We continue to focus our resources in energy on acquiring companies that strategically add market presence, as well as product breadth to help us grow around the world and achieve these results. Page 4 provides the highlights of our first quarter of fiscal 15. We had a fairly decent quarter and start to the fiscal year. Our gross margins continue to expand. The previous year's acquisitions are performing well and growing. Our Lean business system continues to drive these good results, and our strategic global investments are indeed working for us. Revenues were up 3% overall, and essentially flat in the U.S. We are currently seeing some weakness in products that serve the capital goods sectors, such as cranes and high-capacity hoists, and engineered solutions, in particular, in Europe. However, our ISG program, that's the In-Stock Guarantee program, continues to produce some good results for the company. Revenues outside the United States increased 7.3%. And as you can see, we're doing a much better business at -- hoist business in Europe, in particular, is doing much better. Our overall average sales per day is up 4.5% over last year. As I mentioned, our gross margins continue to expand nicely, up 60 basis points to 31.9%. That's driven by volume, productivity, as well as price. Our operating income was down slightly to $13 million, as we continue to invest in our strategic growth initiatives around the world. And we did generate cash from operations of $6.5 million, which Greg will cover in more detail in a moment here. Our focus remains on profitable growth, as depicted on Page 5. We recently added a new Product Development Executive, Jeff Armfield, to lead our Global Product, Strategy and Development group. The 2 small acquisitions that we added last fiscal year remained very strong, and our integration plans are working well with those companies. We recently completed the expansion of our Chinese facilities, and the production activities up there are ramping up nicely and serving our growing presence in the Asia Pacific economy. As mentioned earlier, In-Stock Guarantee program continues to bear fruit in our market growth where certain rigging products has increased market share. Has been the case for many years, our Columbus McKinnon Lean business system has allowed our teams to focus on improving the daily activities of our business and has driven our productivity and continues to drive productivity. First quarter revenues increased $4 million in spite of one less shipping day than last year, as shown on Page 6. We recognized additional revenue from the 2 acquisitions made last year, and we had some price and currency translation, also had a positive influence. Volume was essentially flat with last year. U.S. sales were also essentially flat in the quarter, with the unified acquisition offsetting one fewer shipping day and some lower volume. As I mentioned, the high-capacity hoists, these are high-cost-dollar items and cranes that are tied to capital investment in the country, are currently being negatively affected. Sales outside the U.S. remain very positive, up 7.3%, driven by volume in Europe for our hoist and rigging products. And as I also mentioned, our average sales per day increased 4.5%. So now, I'll turn it over to Greg for some more financial details.

Thank you, Tim, and good morning, everyone. On Slide 7, our first quarter gross profit margin increased 60 basis points to 31.9% from 31.3% in the prior year. Gross profit dollars increased $2.1 million or 4.8%. Pricing, net of material inflation, added $1.6 million to gross profit. Our acquisitions contributed $1.3 million to gross profit as well. Please note that the Austrian acquisition has now been owned for a year, and starting next quarter, will no longer be reported in the acquisitions category. Productivity gains contributed $300,000 to gross profit, and foreign currency translation positively impacted gross margin by $300,000 as a result of the strength of the euro. In addition, we experienced slightly lower legal expenses related to product liability costs, which positively impacted margin by $100,000. All of these factors more than offset the negative impact of lower volume and mix of $1.5 million. On a sequential basis, gross profit margin also improved 60 basis points from the fiscal 2014 fourth quarter ended March 31. As shown on Slide 8, selling expense increased 6.8% or $1.1 million from the prior year, and represented 12.5% of sales this quarter, compared to 12.1% in the prior year. More than half of the increase in selling costs was related to our acquisitions, which accounted for $500,000 of the increase and foreign currency translation, which accounted for $200,000 of the increase. The remaining increase reflects investments we have made to expand our global sales network. G&A expense increased 9.6% or $1.2 million from the prior year, and represented 9.9% of sales this quarter, compared to 9.3% in the prior year. The G&A expense increase was impacted by acquisitions, which accounted for $300,000 of the increase, and foreign currency translation, which added $100,000. The remaining increase was due to the timing of professional services and some one-time costs, which accounted for $400,000 of the increase, as well as general inflationary increases. 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 9. Operating income decreased by 3.2% to $13 million or 9.1% of sales, compared to 9.7% of sales in the previous year. The decline in operating income was driven by the SG&A investments we have made to drive top line growth in the future. These initiatives include the impact of our acquisitions, new product development, vertical and emerging markets and global services. On a year-over-year basis, this was the 15th consecutive quarter of gross margin expansion. As you can see on Slide 10, pretax income was up slightly from a year ago. Earnings per diluted share for the first quarter of fiscal 2014 were $0.34 per share, compared to $0.35 in the previous year due to a slightly higher tax rate this quarter compared to a year ago. At a more normalized 30% tax rate, earnings per diluted share were unchanged from a year ago. Our effective tax rate for fiscal 2015 is expected to be between 28% and 33%. Turning to Slide 11. Our working capital, as a percent of sales, was 22.4% compared to 21.7% at March 31, 2014. The increase is largely attributable to higher inventory levels in advance of expected future sales increases, as well as lower trade accounts payable due to the timing of vendor payments, as well as the payment of the fiscal 2014 annual incentive compensation bonus. We expect working capital as a percent of sales at the end of fiscal 2015 to revert back to more normal levels. Inventory turns decreased to 3.8x in the recent quarter, which is comparable to the inventory turns reported in the fiscal first quarter last year. We expect inventory turns to improve by the end of the current fiscal year. On Slide 12, you can see that we generated $6.5 million of cash provided by operating activities in the quarter. Capital expenditures for the quarter were $4.6 million versus $3.6 million in the previous year. Capital expenditures in the first quarter include $2 million of cash payments for our Chinese plant expansion, which was completed at the end of fiscal 2014. We ended the quarter with $114.1 million of cash. We expect capital expenditures for fiscal 2015 to be approximately $20 million. On Slide 13, you can see that, as of June 30, 2014, total gross debt was $152 million and net debt was $37.9 million. Net debt to net total capitalization was 11.2%. In addition to having $114.1 million of cash in our balance sheet as of June 30, we have an additional $94.6 million available under our $100 million senior credit facility, which is net of $5.4 million of outstanding letters of credit. 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, our board declared a regular quarterly dividend of $0.04 per share to be paid on August 18 to shareholders of record on August 8. Finally, I would like to highlight that we have an opportunity to refinance our 7 7/8% notes, which are callable in February of 2015 at a redemption price of 103.938%. We plan to evaluate refinancing opportunities over the next several months in light of executing our strategic growth plans including possible acquisitions. With that, I will turn it back over to Tim to cover the fiscal 2015 outlook.

Thanks, Greg. Let's spend a moment to look at that outlook on Page 14. We do continue to see improved order levels and expect this trend to accelerate through the fiscal year. Overall, we do expect a modest growth in '15, and do expect our margins to continue to improve as well. Year-over-year, our orders are up 6%. And very strong in emerging markets led by Asia Pacific, they were up a whopping 130% in the Chinese business. North America had seen modest organic growth, and we continue to see solid improvement in Europe in spite of some particular engineered solutions projects been delayed. Our backlog is up slightly, but as you know, it's not really an indicator of our future revenues, as the time from bookings to shipments and revenue recognition generally happens very quickly in our business. Our vertical market approach to oil and gas, entertainment and mining, as well as our investments in new products, the In-Stock Guarantee program and the Chinese expansion that we just finished will all help lift our revenues in fiscal '15. And as you know, we continue to aggressively pursue acquisitions, and we do have multiple targets in sight at this time. And, Sharon, with that summary, I'd like to open it up to questions, if you don't mind.

[Operator Instructions] Our first question comes from Jason Ursaner of CJS Securities.

Just first want to try to focus on the volume. It decreased slightly year-over-year. Just wondering if maybe you could talk a little bit more about what you saw month-to-month and then also by geographies, since things are bouncing around a bit with the market here.

Yes, I would say that as the quarter unfolded, we saw the weakest month being April, improved in May, improved in June. And to be honest with you, through 3 weeks in July, it's improved as well. These are orders I'm speaking of. So we did see a bit of a ramp up through the quarter, and particularly the volume. Jason, you heard me talk about high-capacity hoists, these are the more high-dollar hoists that we sell into the market, seem to be not as robust as they were, let's say, at the end of fiscal '14 or through fiscal '14. In Europe, I'd say that our normal hoist business is doing much better than it was last year, and the recovery is, I'll say, intact now, it's -- we're really seeing that business improve greatly. The other portion in Europe of our business, which is engineered products, these are the big projects that we would sell as more of an engineered solution or some of those rail and road projects. Those -- we just don't see as much activity in those capital-intensive projects at this point in time. Asia, as I said, we're not linked economically there. We're such a small base, but they're doing fabulous, and the new production facility is allowing them to build more product to service that market and that's growing very nicely for us. Latin America was a bit soft in the quarter. I think Brazil, in particular, was soft. And I would say maybe because people were watching the World Cup for a couple months or something like that, but we would expect that business to get back to normal here this summer -- the rest of the summer and then into the fall. Mexico was a bit soft for us in the month and in the quarter, I should say. But that, too, is going to rebound, and the Mexican economy is doing much better. And we're seeing some solid orders at this point in time, as well.

Okay. So 2 more questions on that. With April being the weakest month, I know, typically -- well, I think in the U.S., you typically take price in March, and you did do that this year. So just wondering, is the weakness in April, was it concentrated in the U.S.? And again the volume in the U.S., how much of that was still the heavy OEM drag versus, really, the underlying base hoist business there?

If you look at the underlying base hoist business in the U.S., I would say that most of the drag was in this high-capacity hoist business in particular. Normal electric chain hoist and the hand chain hoist business seem to be doing okay. The biggest drag was engineered products in Europe for us, in the quarter compared to the fourth quarter. However, let me also be clear and tell you that you do know, in the U.S. we do pass a price increase and have historically in March. We did, as we do most times, see our channel partners ordering up in advance of that price increase in March, which certainly moves some volume, let's say, into the fourth quarter as it normally does. And I would say that it wasn't abnormally different than prior years, maybe a little bit more extensive in ordering up and stocking up in the U.S. which might have moved some orders from -- and some business from the first quarter of this fiscal year into the fourth quarter. But that might have been $1 million or $2 million or $3 million kind of level, not extensive.

Okay. And the high-capacity hoist, is that just certain verticals where you could get a lumpy month or 2?

Yes, exactly. And it wouldn't be certain verticals, it's a broad-based sale into the general economy, but these are more for capital expansion and to our capital replacement, as opposed to most of our business, which as you know, under a selling price of $5,000 per unit. These are ones that would be greater than that, the CapEx kind of spending. And It could be just timing, it's just a matter of when people get around to doing their projects and when we see that demand come through.

Okay. And on China, I understand that it's a relatively small piece, but I just want to make sure I heard right. Was revenue there, you said it was up over 100%?

Orders. The orders -- revenue was actually flat, but the orders were -- we did book a fair amount in the quarter that we'll begin to see now flow-through, some in the first quarter, most in the second and third quarter.

Okay. And that's just mostly production driven with your new capacity from the plant or some of that -- I guess I'm trying to understand how much of that is demand driven from the market improving there?

It's -- I don't think that growth is economically linked because we're such as a small player in that market today. It's mostly we have more availability of product from our production facility coming online. It's mostly from us continuing to gain share from our stronger market presence now. Every year that goes by, our sales team is growing. And the investments we made in engineering capability there is being able to apply our products more deeply into the marketplace. It's more our activities driving that increase that it would be economic growth in the general economy.

Our next question comes from John Duni of BB&T Capital Markets. John C. Duni - BB&T Capital Markets, Research Division: Sticking with the Chinese factory expansion, are you able to quantify revenue-wise how much that contributed in the quarter? And are we operating in a full run rate there or is it going to take some time to get up to that?

Yes, it's still very low in terms of total dollars of revenue.

It's 3%.

3%. So insignificant at this point in time. But the plant opened up, in earnest, at the end of March, beginning of April timeframe, and they're ramping up production capability now. So that's going to be -- think about this processes over the next year a ramp up of more capability and more producing there. It's going to -- it's obviously, going to take some time to get up to full capacity. John C. Duni - BB&T Capital Markets, Research Division: Okay. And what are you expecting in terms of the margin profile in that factory? Pretty in line with the rest of your operations or are you expecting it to be a little bit better?

We don't generally comment on margins by business unit, but it should be in the same category. Keep in mind, the sales price into the Chinese market is lower, but the costs are lower as well. The margin profile should look similar to the corporate margin profile over time. John C. Duni - BB&T Capital Markets, Research Division: Okay. Great. And switching gears to the Unified, acquisition. That business had been posting sales, I believe, in the $12 million range, pre-acquisition.

Right. John C. Duni - BB&T Capital Markets, Research Division: Do you feel like that's still a reasonable run rate at that division?

I do. I do. And in fact, part of our plans when we bought Unified was to take that product line globally. And also, they're initially very automotive-focused and we wanted to take them to the industrial markets. So part of our strategic plan was to integrate them into our sales force around the world. And I'm pleased to say that we've already gotten a lot of orders from around the world for this kind of product. So the team seems to be grabbing hold of this product line, selling it very well into the local markets and so I would actually expect to exceed what we did -- what Unified was able to do when they were a stand-alone company this $12 million that you mentioned.

And just to add on, the orders in the first quarter for that business were substantially higher than the sales recorded in the quarter. John C. Duni - BB&T Capital Markets, Research Division: Okay. Great. And if I can sneak one more in. With the new level of this SG&A spend kind of in the $33 million range, can we still expect incremental margins in that 30% to 40% range you guys talked about previously or does that figure need to come down a little bit?

We believe we can continue to post in the 30% or 40% area. This quarter was a bit of an anomaly, in my mind, as I look at the quarter in that we did have one fewer shipping day, most of the growth came from acquisitions as opposed to the base business. If we got the growth from the base business, I would expect a 30% to 40% to be achievable. And I would also expect it be achievable in the face of more spending SG&A, as you mentioned, the $33 million run rate.

Our next question comes from Mike Shlisky of Global Hunter Securities.

Could you give us a little bit -- just more color on your oil and gas business? You mentioned that was pretty strong and you're going to be kind of focusing there in the coming quarters. Can you maybe tell us a little about where you're seeing strength not just regionally, but what kind of projects?

Most of our sales go through third parties. So it's hard for me to specifically point at a project or 2, but I would -- my -- based on the product we sold, it's explosion-proof hoists mostly that we sold. So those explosion hoists go on our platforms, they go in refineries, they go in LNG, plants so I would expect it to be covering all of that. And most of those sales, I believe, were U.S.-based.

Got it. Great. And then moving on to your backlog. It looks like a higher percent of your backlog this quarter is set for delivery within the next 3 months that we've seen, in quite some time, maybe 1-year plus? Can you just talk a little bit about your customer lead times and the types of share gains. What size of share gain do you expect to get based on your Stock Guarantee program?

Sure. I can touch on those. The backlog movement is, to a great degree, inconsequential. It really doesn't mean a lot to us. Because more than 3 quarters of our business is a flow business where we take an order today and ship it in, literally, days, workdays. Clearly, a week or less. So we do rely on channel partners to give us orders and give good flow through most of our business. We do have the larger project business, and I mentioned earlier that we were challenged in the larger project business, mostly coming out of Europe but also the high-capacity hoist that are high to CapEx in the general economy in the U.S. As being, let's say, the orders were lower than what we historically have seen at least in this quarter so far in the year. And that would have had an impact on reducing the amount of backlog in those longer lead time items. The bigger dollar items typically are the -- and these are project-related and they're longer lead time, out months, maybe even years, quite honestly, part of our business. That's the 20 to 25 portion of our business. So it wasn't surprising to see the backlog move a little bit down in the longer lead time items, but the normal flow business continued to move along quite nicely, especially in Europe where our normal hoist flow business improved quite dramatically actually over the prior year.

Got it. And maybe just as a follow-up to that. In the quarter was there any impact on margins from your In-Stock program as far as [indiscernible] Airfreight or logistical costs that you haven't seen in prior years? Or is that program pretty much up and running fairly smoothly right now?

Yes. I'm sorry, I should have mentioned that, because you did ask that question earlier. The In-Stock Guarantee program has been in place for over a year now, maybe a year, I don't remember exactly when we started it. Last summer, I guess, we started it. And I would say that it's producing the results that we expected. We're seeing market share gain of, so far, and this only goes through the end of March, which is the latest date I have, probably 3 or 4 percentage points gain in that product grouping. It has added to our inventory levels because we guarantee a shipment in days when we get an order. And that basically was to reverse a trend that we had seen where we're unable to ship that quickly, and now we are performing very well. The margins are actually substantially better than prior year, and the result of that is the additional volume going through, but also the plants performing much better. Our quality rates are up. Our productivity is up. The CapEx that we put in that business 2 or 3 years ago now is really bearing fruit for us. So I'm -- it's not back to the level where I would say I'm pleased, but it's at a level that it's significantly better than the bottom, and we're way off the bottom, maybe more than half way up to the profitability that I'd like to see out of that business. So they're doing quite well. The only negative, if there is a one, is a little bit more inventory that I think we have to hold just to stand behind our word that we're going to get you product, Mister customer, when you need it.

Got it. And if I could squeeze in one last one here. So you've been on a pretty good streak here for your gross margins. You've had growth year-over-year, I think you said for 15 straight quarters. But it does look like in 2Q here, last year's 2Q was kind of the peak, and it was inline with this year's 1Q. But could you maybe give us some color as to what do you think they that streak will continue in Q3 and through -- I'm sorry, in Q2 ,as well as Q3, Q4 or if it can expect a little bit more mixed results going forward given the pretty good growth you've had over the last couple of years.

I think we are in a good spot right now, and we're performing quite well. Our businesses are performing well. And we have plenty of room to continue to improve. I see opportunities lying everywhere for us to continue to control our cost or reduce our costs or get more productive. Our Lean business system is working. Our price in excess of inflation is fine as well, and those are all nice additives. And, Mike, to be honest with you, I would be disappointed if I didn't see the streak continue for the next 2, 3 quarters, as you mentioned, through the fiscal year. That would be my expectation, unless something happens that I can't see right now or throws a curve ball at us that it's abnormal at this point. But my expectations are we would continue to walk down this improvement path.

Our next question comes from Jake Thomson of Odey.

Just a couple of questions really. Delving into the question of U.S. demand sort of seems a bit strange against the backdrop of improving industrial production and GDP that we've hit this kind of air pocket. So what's the feedback from your channel partners about why there's been this pause? And why is, I mean none of their CapEx has picked up as people expected, but it's still, for it to be flat, presumably, and the big-ticket stuff has been negative to offset some of modest growth elsewhere. So what are the -- can you give me some color around that, that would be great. And I've got a couple of other questions after that.

Sure. So in the U.S., we would generally lag 1 quarter or 2 on average, any economic swing. And that, of course, moves a bit from quarter-to-quarter. But I think the feedback, specifically from our channel partners, are some of the project activity in the U.S. is either delayed or pushed out or being moved outward. It's nothing that I could point towards that would say it's a trend or it's not going to turn around and come back at us, at this point in time at least. I would tell you that in Europe, and particularly Germany with our solutions business, I would say that, that may be a little more long-term downward trend and that we're just not seeing quoting activities. The potential business is not coming at us. We're not even seeing -- and the market isn't seeing these opportunities. Whereas I think in the U.S., my expectation is, if you look out into the fiscal year, that we would see some improvement in these larger CapEx projects. It just seemed to have paused for a while, as the projects move around a bit.

And that European business, that sort of big project European business is what percentage of Europe as a whole for you?

27%.

Europe is 27%.

Actually, 29%.

The engineered business portion of that 29% is maybe 10% thereabouts.

Okay. 10% is great. Okay. All right, that's really helpful. And then in terms of -- you talked about In-Stock Guarantee, so what percentage of sales does that program apply to?

It's about ballpark of 15 to -- high-teens percent.

Okay. That's pretty helpful.

And some headway. So I'm just doing this off the top of my head, I apologize.

Yes. No, no, that's fine. Okay.

It would be about 15% to 20% here.

And then the price increase at the end of March was what kind of magnitude?

1.2% in total.

1.2%?

1.2% on a global basis, yes.

And that is on a net basis as well?

Yes.

For the next cost inflation.

Yes. And that's the global price increase, all [indiscernible].

Okay. Okay. That's really helpful. And then lastly, Tim, it was encouraging to hear that you still see lots of room for productivity gains elsewhere in your business. Would you mind just sort of sketching out the sort of order of magnitude there and where that is and how achievable that is.

Sure. And it would come at us in a variety of areas. The first one that comes to my mind is we have plenty of opportunity to continue to this to purchase as a company. So we have an executive leader of that group, Larry Gavin, who's been leading it for the last year now. And as we source components for our products, from around the world, we see opportunities to continue to reduce the input costs on the buy side. But also, when you then look at our facilities, I mentioned China, and the investment we've made in China. I will be the first to tell you that our Chinese plant is not as productive, on an output basis, as our American plants are yet. So we -- and keep in mind we're ramping that production up. So it's going to take some time for them to get to that level in China. I also believe that in the American facilities we continue to see some great opportunities to put flow systems in place, one piece flow and create more productivity around the elimination of waste in all forms in our facilities in America. We're also beginning to produce some product in the -- our Mexican facility, which we're adding products there that we currently make in the states. We'll be making them in Mexico for the Latin American marketplace. That will be some cost reductions as well. We won't have to export from America. And when we make them in our Mexican plant, the costs do come down a bit and allow us to service that market more deeply. Those will be the 4, 5 that comes on top of mind that I would think about, when I think about productivity in the company.

Right. I guess you've probably guessed what I'm trying to do. With your kind of year-on-year increase in SG&A being about sort of about kind of 60 basis points, and with your net price increase being 1.2, you need to kind of pickup from volumes or productivity to kind of fill the gap and keep your incremental above 30 and keep your impressive track record of adding kind of almost 1 point of margin a year. So just you -- you may need to see 1 of 2 things happening for you to keep the show on the road as it were.

No, you're spot on.

Our next question comes from Bob Franklin of Prudential Financial.

On the topic of refinancing, you mentioned that in the same sentence as acquisitions, I'm wondering if one could conclude that you might make some larger acquisitions than you have in the past.

I'll take that and I'll ask Greg to comment on the bond side of that. We have looked at larger acquisitions, so we were unsuccessful in a very large one. But there's a couple that we're looking at that would be I'd say meaningfully bigger than the last 2 you saw come at us, that we just did in the last year. That could add some good revenue and good margins to the company. But I'm speaking of, still, think about $30 million, $40 million, $50 million in revenue kind of companies. We're really -- we don't -- we have a couple on our radar screen, but none at this point in time that would be in a couple hundred-million-dollar area. So yes, we would need to be considerate of those strategic steps that we would like to take. And at the same time, look at this bond refinancing that given the current market conditions might make some sense, and maybe, Greg, you want to comment on that.

Sure. Bob, as you know, the credit markets have improved tremendously from when we issued these bonds back in -- I think it was January 2011. And in addition, Columbus McKinnon's credit profile has strengthened dramatically as well. So as we think about the impact of acquisitions and what they might have on the refinancing, we're thinking more in terms of not whether do we refinance or not, because clearly, at today's rates, it would make economic sense to do so. It's a question of how do we refinance. And how much do we refinance, not whether we would refinance.

Right. I mean these come and do [ph] anyway, so I understand that you're inquisitive. You spent, I think, $22 million last year on a couple of acquisitions, is that right? So that's the floor we should look at, I guess, if you're talking about looking at some larger ones?

Those happen to be 2 acquisitions that added up to that sort of a level. So when you talk about the floor -- I mean, the one acquisition was in the $5 million kind of range. But it made sense for us strategically. So if you're talking about the size of the smallest acquisition we would consider, we don't have a limit per se, but once again, we're looking to do meaningful acquisitions that make sense.

It makes sense, strategically. To give us a good presence in a market that's interesting, but also to give us a product breadth that we would look for. We would be a strategic acquirer, clearly, not just something to add on to the portfolio.

And we're not financial [indiscernible].

Yes.

And then this is more of a general question. And I think you've answered it a couple of times already, but I'll ask anyway. This earnings season, you're not the only industrial name who's seen, call it, at hiatus in the U.S. at least. A couple of other companies, not necessarily competitors of yours, have said that they're expecting a better second half based on what they're seeing in their backlog and pipeline. And I don't know if they're being optimistic or if you're being conservative. If I heard it right, some large projects got put on hold, they didn't go away, but you don't know when they're starting. Is that about right?

Yes, I would say that, that's fair. The difficulty with our business here is, from a forecasting and projection standpoint, is we really have a very -- we're not backlog driven. So I can't lean on orders that we already booked and say, "I know I'm going to produce those and ship those and recognize revenue at a certain point in time in the future." I have to rely on the general economy to give us the orders. So I look at order flow and order rate, and the only thing I can tell you is that from a sequence standpoint, starting at the beginning of our fiscal year in April and through July, through the full month -- almost the full month of July, I'm 1-week short, as you probably know, I see a sequential uptick in order rates. So that makes me encouraged that the back half probably will look better than the front half. And so I have the same kind of sentiment maybe that you're hearing from others as well, just looking at my order flow.

The next question comes from John Duni of BB&T Capital Markets. John C. Duni - BB&T Capital Markets, Research Division: Just a couple of follow-ups here. Heavy OE kind of caught my eye. It's been weak the past few quarters, but you highlighted it as a bright spot in the press release. Just wondering if you could offer a little more color there. And also if you're seeing anything positive from your agricultural customers as well?

Well, yes, just a couple of big customers. Our heavy OEM, we have a very large strategic partner of ours that we've been supplying hoists and crane systems to for many, many years, continues to be a drag on the company. This channel partner, this end customer of ours just is not investing anywhere around the globe. And we don't see that changing, by the way, for at least the rest of this year, and mostly likely into next year for this one very large, fabulous customer of ours. There are other customers that are in that category that maybe have a little more bright spot, a touch more. And there would be -- they would be heavy equipment manufacturers, they would be aerospace companies, they would be some are ag-related that we are seeing some increased activity with, which has been helpful. Just try to offset this one large customer that we obviously is not investing in their business just yet, just today. So there is a couple of spots that are positive, but they're not enough to offset the significant downturn from the large customer I mentioned. John C. Duni - BB&T Capital Markets, Research Division: Okay. Great. That's very helpful. And then kind of switching over to pricing here. It is maybe a little bit weaker than we had expected. Is this kind of the high watermark for the year or can we expect pricing to pickup as we go on to the next few quarters here?

Yes. So, typically, we had talked that our pricing was typically in the 2% to 3% per year. And leading into this year, I think even on the last call we mentioned that pricing was going to be probably in the 1% to 2% range. And so we're clearly within that range. And yes, it is a little weaker than it was a year ago.

We probably have the opportunity to do more, and -- but we'll have to see how the economies develop. It's tough to raise price in difficult markets. John C. Duni - BB&T Capital Markets, Research Division: Great. And then one last quick one. Also in the press release you talked about building up inventory levels due to the anticipation of higher sales. Is this more based on prospects for U.S. growth or was that more so in the international space?

Both. Both areas.

[Operator Instructions] And I am showing no further questions at this time.

Thank you, Sharon. And thanks, everyone, for your time today. We do look forward to continue to grow our revenues and profits through the rest of the fiscal year. The investments that we've made in Lean new product development, the addition of our new executive, Jeff Armfield, should help gain even more revenues from new products and services, and increase our revenues overall. Our investments in the emerging markets will continue, that's not going to stop, to help grow our company for the foreseeable future. We are a well-capitalized company, we remain well-positioned to continue to execute our strategic plans to profitably grow our business. As Greg mentioned, we have about $114 million of cash, $100 million revolver. We continue to have acquisition discussions with many businesses that I think can add strategic value to our company. And I'd like to thank all of our associates around the world for their dedication to excellence in making our company a stronger, market-leading organization. And as always, we appreciate your time today. Thanks very much.

This concludes today's conference. Thank you for your participation. You may now disconnect.