Garett Gough - IR Tim Tevens - President and CEO Greg Rustowicz - CFO.

Schon Williams - BB&T Capital Markets Mike Shlisky - Seaport Global Robert Majek - CJS Securities Joe Mondillo - Sidoti and Company John Sturges - Oppenheimer.

Presentation:.

Greetings and welcome to the Columbus McKinnon Corporation Fourth Quarter and Full Year 2016 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I’d now like to turn the conference over to your host Garett Gough, Investor Relations for Columbus McKinnon. Thank you. You may begin..

Thank you, Melissa and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Today we'll begin by reviewing our fourth quarter and fiscal year 2016 financial results and discuss our outlook. Then we'll open up the line for question-and-answer.

I have on the call with me today Tim Tevens, our President and CEO; and Greg Rustowicz, our Chief Financial Officer. You should have a copy of the financial results that were released earlier this morning before the market opened. If not, you can access those as well as the slides that we will have to accompany today's conversation at cmworks.com.

If you turn to Page 2 of our slides, I will discuss the Safe Harbor statement. As you're aware, we may make some forward-looking statements during the formal discussions, as well as during the Q&A session.

These statements apply to future events, which are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today.

These risks and uncertainties and other factors are provided in the earnings release as well as in other documents filed with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will discuss non-GAAP financial measures, which we believe will be useful in evaluating our performance.

You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying today's earnings release and slides. I also want to mention that Tim is joining the call remotely.

We don't anticipate any issues as a result of that. However, if anything does come up and we lose Tim's connection, we'll work to get that resolved quickly and I just want to apologize in advance for any interruptions that could result from that. With that, I’ll turn the call over to you Tim..

Thanks, Garett, and I too want to welcome you to the Columbus McKinnon conference call to review the results of our fiscal '16 fourth quarter and for the full year. I’m in Hannover, Germany at the CeMAT show, which is a material handling show and just wanted to do this remote with you all as well as be able to be with some of our good customers.

Let me start on Page 3 and we remind you of our long term objectives, which include growing to be a $1 billion business with about a third of our revenue in developing markets and two-thirds in developed markets along with the $200 million to $300 million of acquisitions and a steady stream of new products with a 12% to 14% operating margin and a strong working capital level and overall financial balance sheet.

Page 4 provides a highlight of our fiscal '16 fourth quarter. Our revenue was up 6.6% driven by acquisitions and excluding the negative impact of foreign currency, which was $2.7 million or 2.5%.

We achieved our targeted Magnetek acquisition annualized run rate cost goal reduction of $5 million and are well underway in achieving our integration revenue targets. Sales in the United States were up 17.1% to $100 million and Magnetek acquisition more than offset the lower volume we were seeing in the U.S.

Gross margin increased to 31.2% and non-GAAP gross margin is up to 32.2%. Our quarterly streak of year-over-year increases remains intact. One of the key tenets of our company is our strong cash flow and this quarter reinforced this quality. We generated $19.7 million in cash from operations and repaid $13.3 million in debt in the quarter.

Fiscal '16 highlights on Slide 5 show a 3% increase in revenue to $597.1 million up 8.1% excluding the negative effects of foreign exchange. U.S. revenues were up 11.4% to $373.8 million and the Magnetek acquisition contributed $59.9 million. Non-U.S. sales increased 3.5% to $223.3 million, excluding the negative effects of foreign exchange again.

This past year we consolidated several facilities, which provided some additional benefits to our gross margins. Gross margin improved to 31.4% and non-GAAP gross margin improved to 32%. We generated $52.6 million in cash from operations and we paid almost $50 million of debt, since the Magnetek acquisition in September of 2015. The U.S.

industrial economy is slowing and we have seen U.S. industrial capacity utilization slow to 75.4%. It does appear as if we may have seen the bottom of this slide as in the last five months or so seem to be hovering around 75%. Our Q4 revenues as shown on Page 7 are up $9.9 million or 6.6% excluding FX, driven by the Magnetek acquisition.

Volume was down in the quarter because of lower industrial activity in key sectors of the economy such as oil and gas, heavy manufacturing, mining and all of the supporting industries to those industries. We’re growing market share in a shrinking market in the U.S.

and we focus entirely on our customer's needs, leveraging our strong channel partner's relations. International markets remain volatile as oil and gas and related industries continue to be a drag on many markets. Now let me turn it over to Greg to provide some more financial details..

Thank you, Tim and good morning, everyone. On Slide 8, our fourth quarter adjusted gross profit margin increased 60 basis points to 32.2% from 31.6% in the prior year. Adjusted gross profit increased $2.9 million or 6.1%. We’re adjusting gross profit for two one-time items that relate to a divested business.

The first item was for $1.1 million and relates to a product liability legal settlement and the second item was for $400,000 to record an impairment charge on a building held for sale. The reconciliation for adjusted gross profit is included on Page 20 of this presentation.

This quarter represented the 22nd consecutive quarter of year-over-year gross margin improvement on an adjusted basis. On a GAAP basis, gross margin was 31.2%, which compared to 30.5% in the prior year period. GAAP gross profit increased by $2.9 million this quarter or 6.4% compared to the prior year.

Foreign currency translation negatively impacted gross profit by $1.2 million. Excluding foreign currency translation, gross profit increased $4.1 million. The Magnetek acquisition contributed $9.5 million to gross profit. Pricing and material cost deflation added $1.4 million.

The prior year quarter had $1.2 million of European facility consolidation cost and $400,000 of acquisition inventory step-up expense, which did not repeat in the current quarter. A number of items partially offset these positives. Sales volume and mix negatively impacted gross profit by $6.6 million.

Higher product liability cost reduced gross profit by $900,000, driven by the previously mentioned legal settlement related to a divested business, as did the $400,000 impairment charge related to a building held for sale.

Finally, reduced fixed cost absorption and productivity, net of other manufacturing cost changes, negatively impacted gross profit this quarter by $500,000. As shown on Slide 9, selling expense was higher than the prior year by $2.2 million and represented 12.6% of sales this quarter compared to 11.7% in the prior year.

The Magnetek acquisition added $3.1 million to selling expense in the quarter. The onetime cost associated with the closure of two North American warehouses added $900,000 to selling expense. Favorable foreign currency translation lowered selling cost by $600,000.

G&A expense increased $600,000 from the prior year and represented 9.8% of sales this quarter unchanged from the prior year period. The Magnetek acquisition added $2.1 million to G&A expense in the quarter. Favorable foreign currency translation reduced G&A expense by $400,000.

We expect our SG&A run rate to be approximately $35 million to $36 million per quarter in fiscal 2017. Turning to Slide 10, income from operations was $11.8 million or 7.6% of sales. Adjusted operating income was $14.2 million compared to $15.1 million in the prior year. This represents a decrease of $900,000 or 6.2%.

We have adjusted operating income this quarter for the product liability settlement from the divested business in the amount of $1.1 million, the North American warehouse consolidation and reduction in-force cost of $900,000 and the building held for sales impairment charge for $400,000.

Adjusted operating margin was 9.2% compared to 10.2% in the prior year. This reconciliation can be found on Page 21 of this presentation. As you can see on Slide 11, adjusted earnings per diluted share for the fourth quarter of fiscal 2016 were $0.37 per share compared to $0.43 per share in the previous year, a decrease of $0.06 per share or 14%.

Adjusted earnings per share reflect the exclusion of the product liability settlement from a divested business, the one-time cost associated with the North American warehouse consolidation and reduction in-force cost and the impairment charge associated with the building held for sale.

GAAP earnings per diluted share were $0.29 per diluted share versus $0.10 per diluted share in the prior year period.

The GAAP earnings per share included the impact of the items I just mentioned for the current year as well as in the prior year debt refinancing costs, European facility consolidation costs and acquisition inventory step-up expense and real estate transfer taxes related to the STB acquisition.

The actual tax rate in the current quarter was 33.5% which compares to 13.2% in the prior year period. The unusually low tax rate in last year's quarter was due to certain tax adjustments for the period and lower pretax income as a result of the bond redemption to February 2015.

The effective tax rate for fiscal 2017 is expected to fall between 30% and 32%. On Slide 12 and 13, we have compared our full year performance for several key metrics. For fiscal 2016 revenue was up $17.5 million or 3%. The Magnetek and STB acquisitions added $74.3 million of revenue. Price increases totaled $5.6 million or 1% for the year.

Offsetting these items were foreign currency translation, which negatively impacted sales by $29.3 million and lower sales volumes of $33.1 million. Adjusted gross profit was up 4.3% and adjusted gross profit margin expanded 40 basis points to 32%.

Full year adjusted income from operations was down $3.4 million and adjusted operating margin declined 80 basis points to 9%. Finally adjusted earnings per share for the year were $1.45 per share versus $1.53 per share in the previous year. The reconciliation of adjusted diluted earnings per share can be found on Page 22 of this presentation.

Turning to Slide 14, excluding the impact of acquisitions on for less than one year, our working capital as a percent of sales was 21.5% compared to 21.6% at December 31, 2015 and 20.8% at March 31, 2015.

Working capital as a percent of sales decreased 10 basis points sequentially from last quarter, but was up 70 basis points from one year ago due to higher inventory levels. Inventory turns were 3.6 turns compared to 4 turns one year ago, in our focus for the business.

We expect inventory turns to improve in fiscal 2017, which will add to our cash generation capabilities. On Slide 15, operating free cash flow in the fourth quarter was especially strong coming in at $12.9 million compared to $2.5 million in the prior year.

We are benefiting from the cash generation capability of Magnetek as well as lower cash taxes from the utilization of the NOLs we acquired. Net cash provided by operating activities for the year ended March 31 was $52.6 million compared to $38.3 million one year ago.

Capital expenditures for the year were $22.3 million versus $17.2 million in the previous year. As a result, operating free cash flow was $30.3 million compared to operating free cash flow of $21 million one year ago. We expect fiscal 2017 capital expenditures to be approximately $18 million.

Turning to Slide 16, you can see that our total debt was $267.8 million and our net debt was $216.2 million as of March 31, 2016. Our net debt to net total capitalization was 43% as of March 31. We've repaid a total of $13.3 million of debt in the quarter.

We've repaid almost $50 million of debt since acquiring Magnetek and expect to repaying additional $43 million in fiscal 2017. Our focus continues to be on deleveraging the balance sheet quickly. With that, I will turn it back over to over to Tim to cover the fiscal 2017 outlook..

Thanks, Greg. Let’s take a moment to look at the outlook on Page 17. The Magnetek acquisition will provide -- certainly provide some sales lift for us in our fiscal '17 Q1. However, our base business will contract as we encounter the slowing U.S. industrial economy.

We continue to make strategic investments in new products and leverage our strong global footprint to add revenues to our recent acquisitions of Magnetek, STB and unified industries. Our business system will continue to improve our operations and help improve our gross margins.

I'll note that fiscal '16 Q4 bookings were down 12% year-over-year, reflecting softness in the North America markets, which were down 14% driven by weak oil and gas, mining, heavy equipment and supporting industries.

EMEA orders were up 11% excluding FX, continuing to reflect an improved economic upswing in Europe and our good positioning in that market. Emerging markets are slowing and that is reflected in fewer opportunities and lower bookings in those markets. Our backlog is stable, excluding Magnetek, but up year-over-year and sequentially to $98.6 million.

And with that Melissa, let me open it up to questions if I could..

[Operator Instructions] Our first question comes from the line of Schon Williams with BB&T Capital Markets. Please proceed with your question..

Hi. Good morning..

Hi Schon..

Tim, it’s good timing just with the CeMAT show. I wonder if you could maybe just talk a little bit about maybe what you're hearing from customers there and also maybe tie in a little bit more color around the Q1 demand and we were two thirds of the way through the quarter here through the next quarter.

Can you just -- I don't know, I am just trying to think from a demand standpoint, do things appear to be kind of stabilizing or things still getting worse, just any color there would be helpful..

Sure, let’s start in Europe -- in Germany, so it's a great place for me to start at least and listening to some of our channel partners and people, end users at the show, there seems to -- at least it feels to me to be a renewed emphasis on spending more and spending more on capital.

I would not put it over the top unbelievably good, but I would say it’s a higher level than it has been in the past at least with the last show that I was at. We’ve also launched two new products here at the show, which I think created a fair amount of buzz and energy around what people could do with those products.

One is a manual lever hoist and the other one is a higher capacity electric chain hoist. So seems much more positive here and I think that's shown in our bookings. I will tell you that it is hit or miss.

I think the last quarter we were actually down a little bit, but we did have a tough comp against last year's CMEP that shipped a couple of big orders last year, which did not repeat. As you know they go -- they’re not exactly lined up quarter-to-quarter. Relative to the U.S., I think it's soft.

I think it definitely is a bit of a recession going on here. I hate to use that word, but I do think that is definitely slowing. Not a lot of investment. I think oil and gas and oil and gas related sub industries are definitely down. Our MRO channel partners are definitely down. Good news is our market share is up. Unfortunately it's in a down market.

So we’re positioned well, we’re positioned very well for any kind of recovery that might occur and we certainly look forward to that..

And Tim just a follow-up there, when you’re talking about market share gains in the U.S. just help me -- help me understand that because U.S. volumes still on an organic basis still down sharply.

Is it I don’t know, may be just a little bit of color where you guys think you’re doing better than the market and what exactly, what -- is that traditional product lines, is that now may be including Magnetek, just some additional color there would be helpful..

Sure, it’s the key hoist lines for us Schon which would be electric chain hoist, wire rope hoist and manual chain products, chain hoisting products that we sell into the U.S. market, we measure this market share through a trade association.

That along with our chain and rigging products, which we would consider to be lifting tools, our market share is improved in those categories in total. But the whole market is down significantly as you might imagine given the softness in the general industrial activity..

And what do you think would explain the share gains? Is that new product introductions? Is that lapping some previous, I don’t know I’m thinking maybe just may be some share gains back into the -- some of the forging and the attachments business? Is it competitors stumbling, just any thoughts there..

Yeah, yeah it's probably a little bit of all of the above, but if I had to prioritize it, I would point to more product introductions than we have done in the past at a more steady stream. We’ve expanded our wire rope hoist line and added more options to that, which make it a more viable and robust product that people would like to have.

And I also think that from a customer service standpoint Schon, we’re just doing very well in delivering quality product to our customers on time and I think that’s very helpful in a very challenged market..

Perfect. I’ll get back in queue. Thanks..

Okay..

Thank you. Our next question comes from the line of Mike Shlisky with Seaport Global. Pleas proceed with your question..

Good morning, guys..

Hi Mike..

I just wanted to follow-up on Schon's question about your forward-looking thoughts on 2017 market share. You’ve implied that you could gain some share in '17 as well.

Could it be on the same magnitude that you saw here in the fourth quarter or perhaps even better with some more things you had planned to launch this year? Just some kind of color around your launch plans for 2017 will be appreciated..

Sure, there is -- actually we’re in the midst of launching a fairly substantial robust digital platform that allows our customers to customize and configure to order, hoist and cranes. It’s not 100% complete with all of the product offerings, but it’s got two of the major products that we sell that is being launched with our channel partners now.

And we expect that to be very helpful to us in for not only this quarter, but for the rest of 2017. It’s an easy way Mike for our channel partners to actually design with an end user or lifting system for their business and quote our product directly to that end user in a simple, easy to manage methodology.

And it’s on the web, it’s digital and we’re very pleased with the trials that we’ve had and gone through so far with some key channel partners that we’ve base-tested it against. And we expect that to be helpful in fiscal '17. We’re also adding to the product portfolio.

We just launched a brand new Ratchet Lever Hoist that has a unique feature in the handle that allows it to be much more ergonomic in its activity. You might recall that we’re all about safety and productivity while having workers not get hurt when they operate some of these hoists and put some force on their shoulders.

This is a tool that actually has a lever that sticks out of the handle that allows an operator to use it much more ergonomically without putting undue pressure on their wrists and their shoulders, which we’re finding to be -- we actually launched it in America and EMEA at least showed it and we will be selling it this coming beginning of Q2.

So we think that’s going to be helpful as well as some of the options that we’re adding to our Wire Rope Hoist line like a new load break and some explosion-proof features, which we think the market is demanding and would appreciate as well..

Got it. Yes I think I did see that Ratchet product very elegant solution to what could be a dangerous problem.

Moving on, I also want to ask, do you have any kind of assumption baked in for pricing in '17 as well? Could it be in the 1% range, it might be a little bit below or above that? Any thoughts there?.

Yes, I think I’ll comment and ask Greg if he has heard anything from the teams differently, but it probably should be bracketed around this 1% area. This is kind of the low point that we normally see. When business is down substantially, we don’t get the full 2% to 3%. We get more like 1% to 2%..

Right..

Yes. And just to echo Tim’s comments, in this environment I think it’s very, very important and we will be as competitive as we can to win every order that we can. So I would expect pricing probably more in the 80 basis points, so 1% kind of a range..

Okay. Got it.

I have got one for you Greg, can you give us the walkthrough for '17 of your debt repayment schedule? Are there certain quarter where you plan to take your debt down by about $43 million? Is it spread out, etcetera?.

Yes, so the math behind the $43 million reduction is we have scheduled Term A loan payments of $3,125,000 every quarter and it’s on the last day of the fiscal quarter. So that will be ratable.

We also have in our plan $30 million of revolver borrowings and that is assumed to be spread equally through the year, roughly $7.5 million a quarter, but to the extent that we can or have excess cash at the end of any quarter. We’re going to try and utilize that cash and pay back our debt even sooner than we have.

And I would say right now we’re on track for maybe even being a little better than that in the first quarter. In the first quarter as well as just from a cash flow perspective, we did make a pension contribution to our U.S. plans in the amount of $5 million and we will be done with our contributions for fiscal '17 to our U.S. plans..

Okay..

And to the extent our inventory levels, which we do expect to this year that will be in essence gravy for us to pay down even more debt faster..

Okay. Got it. And just one last one for me on the tax rate outlook you’ve got there, it seems a little bit lower than you had in the past. It is simply -- you look to have a little bit better orders in EMEA at least here going into the first quarter.

Is it just more what country gets what operating income that's going to drive the tax rate this year?.

Partially -- it’s partially that, but it’s also the fact that we have taken this past year some valuation allowances that in essence as we earn pretax income, it will be in essence tax free in certain jurisdictions so that will drive our overall rate down to about 30% rate give or take 30% to 30% I think is the guidance I gave..

Great. Perfect. I'll hop back in queue. Thank you very much..

Thank you. Our next question comes from the line of Robert Majek with CJS Securities. Please proceed with your question..

Good morning..

Good morning, Robert..

I was hoping you could give us some color on how volume trended by month in the quarter? A lot of industrial companies indicate a big slowdown in February and then a meaningful pick-up in March.

Did you see something similar?.

I don’t think it was that dramatic for us. I think it was may be Greg has a data right in front of him. I don’t Robert, but it seemed to me if I recollect it correctly, it was evenly spread throughout the quarter.

Greg do you have any more details?.

Yeah, it actually was a little better in the month of March than it was in February, but not meaningful..

Okay. Thank you. And it looks like you brought down your quarterly SG&A guidance from $37 million. $38 million to $35 million, $36 million. So that’s about $8 million per year change.

What specific initiatives are driving that shift?.

Yeah, Tim you want me to take that question. So we’ve -- part of the onetime charges we talked about in this quarter was the fact that we consolidated a couple of warehouses in North America. So we expect to have lower selling costs.

In addition I would say that as we run through our budgeting process, we try to be very selective about what initiatives we would fund and certainly new product development is in area that is very important to us. It's a life spot of the company and so we’re funding that.

We’re also funding our IT initiatives as we look to roll out SAP around the world, but everywhere else, we really try to really manage our cost structure in a way that will give us the best financial performance on a go-forward basis..

Thank you. I’ll hop back in queue..

Thank you. Our next question comes from the line of Joe Mondillo with Sidoti and Company. Please proceed with your question..

Hi, good morning, guys..

Good morning, Joe..

Regarding gross margins, so one of the biggest drivers on the gross margin expansion has been just the difference between input prices and output prices, but there has been a couple other drivers as well.

Just wondering what your outlook with all those drivers are in fiscal '17 and are you expecting to continue to be able to expand your gross margins?.

Yes maybe I’ll comment Greg and then you can add on if you don’t mind. So yes, we would expect gross margin to continue to expand. It’s been a nice measured pace. It’s nothing crazy, but we don’t see input cost going up with any great degree at this point in time. We do expect to get a bit of price.

We’re really doing a great job in our facilities of managing cost on a daily basis and by using our lean program and crane systems, we’re able to challenge ourselves and optimize our production and logistics facilities in a meaningful way. So we’re just much more productive and Joe I expect that pace to continue through fiscal '17..

Okay. And then also in regard to just wondering if you could update us on Magnetek, how that’s going. I thought it seemed like the revenue was a little lighter than I was expecting. I don’t know if there is a seasonal aspect to that.

Just wondering what -- how orders are progressing with that business? I know you said in the past that, that business should actually do a little better than your core business because it’s got a technological capital investment aspect to it that your customers are focused on.

So just wondering is that business slowing with your core business as well or just general update there?.

Sure. So first of all relative to integration activities, we did achieve as we said the $5 million annualized run rate of cost reductions effective at the end of March.

So we’re very pleased with the work the teams have done and what they’ve accomplished and really look forward to -- by the way that’s certainly an add-on to gross margin as well when we’re able to take that much cost out. The revenue projections are on target.

We have fair amount of resources devoted to putting a drive in every one of our power chain hoists. We're focusing on two product lines initially. One is a Global King that's called a Global King Wire Rope Hoist and Lodestar Electric Chain Hoist and those teams are working well to get those drives in every hoist.

And then that would I think give us a bump in the marketplace, because we would -- we would be able to offer that as a standard as opposed to a special and a significant up-charge in many cases by our competitors, which we wouldn't have to do go that far. So we feel good about those revenue streams.

We've added two key resources, one in Europe to the Magnetek team to really build up the material handling business across Europe as well as radio controls. And we've actually added a person in Asia Pacific in our Shanghai office working for Magnetek to grow the elevator as well as material handling business there.

So those activities are well underway and on track. Relative to their orders, I would say that they did see a bit of a softening in the fourth quarter. You might have heard us report that they had some very large orders from some big steel companies customers of theirs. But they booked and were processing through, those orders have now been done.

They're basically completed or rolling off right now and they're just not repeating. But I would also say is that certainly Magnetek is not immune to the industrial cycle that we're seeing and they're beginning to see bits and pieces of it as well.

There's a bit of an ebb and flow to their business and they do have a softness in certain quarters this quarter happens to be a pretty soft quarter form or the December quarter is usually their strongest kind of opposite of the old Columbus McKinnon, Joe this you might recall, which is neat.

But they did see orders soften a bit in the fourth quarter and that's I think more of the traditional material handling crane builder OEM accounts that just didn't have a need for product at this point in time. They did see those orders rebound and they're beginning to rebound now. So we're pleased with that in this first quarter of '17.

So we'll have to see how that plays out through the rest of this quarter..

Okay. And just in regard to your overall I guess view of things, it seems like in my view, it seems like things are a little bit contradictory.

So I just wanted to get your just to clarify, because in the press release it reads in your fiscal '17 outlook, it reads cautious, but when you look at the backlog and you even mention the orders have been pretty good actually and Europe you mentioned some positive thing.

So could you just sum up what your general outlook is? I know you've already covered this, but again it just seems like there's a lot of mix thoughts that I didn't really think was tremendously clear..

Okay. Well let me see if I can clarify for you, because it is clear to me. So let me just pause here and give it to you. So the core hoist rigging business in North America is definitely soft. It is down significantly.

The whole market is down significantly as I mentioned and our market share is up, but the whole market is down in a pretty big and meaningful way. And that is driven by we think it started to do and coincide with oil and gas fewer activities in the oil and gas markets and then all of the supporting industries.

So all of the welding, galvanizing, equipment suppliers, field service suppliers all of those people that use our product, don't need to use our product anymore, because we’ll hack the number of rigs one from 1,900 to 320, there is just not a lot of activity in that sector. So North America, the big nugget for Columbus McKinnon is down substantially.

EMEA is a little bit more robust. It's coming out of a recession from the last couple years now and we see these seem to be having more wins in that market as well as just more market activity.

But I would also tell you very quickly that if you go to the emerging markets and let me use Brazil and Mexico as an example, certainly as you well know Joe, have foreign exchange headwinds, but I would also say that oil and gas has affected them as well. It's affected China, which we're seeing fewer opportunities in China.

We’re still very small there. We're not necessarily economically linked, but we are seeing fewer opportunities. The one bright spot in all of the markets around the world is automotive and let me just remind you that automotive is we're driven by changeovers not by builds.

So the model changeover is when they change out the material handling equipment and that's when we get involved in that. So we like when they refresh their product platforms frequently because we have a chance to get some significant business from that. And that is true globally. That’s pretty good around the world.

If you added it all up we’re going to be down because of the fact that $300 million plus of our business is really being hurt right now, it's down substantially..

Okay. Great. Thanks, I appreciate for you to have to repeat yourself, but I appreciate that..

No problem..

Just lastly I was just -- I had a question regarding your working capital. You mentioned that the inventory should be able to -- it sounds like that’s going to be a source of cash.

Is your overall -- do you anticipate overall working capital to be a source of cash this year?.

That would be my expectation. I would think the inventory turns would improve, but it's one of our focus of our management teams and they're incentivized to really focus on inventory, keep customer service up. So we have to have the right inventory, but really to generate cash from inventory.

Greg you want to comment?.

Yeah, so when we developed our estimate of the $43 million of debt repayment in fiscal '17 we did not include any source or use of cash in the working capital area. I would suspect there could be several million dollars, if not more potential -- of a potential source of cash. It primarily ties the inventory.

I think in our DSOs have been consistently below our 50-day long term target. Our DPOs we have like some of those as we work with a number of our suppliers. We are taking discounts just getting the low interest rate environment.

So it does have an impact on our DPOs the focus is really on inventory and so if you can reduce our inventory $5 million that gives us $5 million more cash to repay debt..

Okay. Great.

And what is the DNA that you are anticipating?.

DNA is I think the share was $20 million but that was with a partial year of Magnetek I think it’s closer to $24 million or $25 million..

Is the fourth quarter, is the fourth quarter a good run rate that was higher than the third quarter. Okay. So the $6.5 million or….

No, that's little $25 million, $26 million yeah, that should be a good number..

Okay. Okay. Great. All right, thanks a lot. Appreciate it..

Thanks Joe..

Thank you. Our next question comes from the line of John Sturges with Oppenheimer. Please proceed with your question..

Thank you. Tim and Greg, congratulations on the margin improvements especially in the face of the headwinds you’ve had to deal with.

My question is really on the -- if you could talk about the progress of the digital hoist, when you expect introduction, how many models, just sort of a general anticipatory, what we might anticipate say in the months ahead?.

Sure. So the first step that we were taking and it's the sequence phased approach is to create an environment in our hoist where we can actually put a brain, a drive, which is nothing more than a computer that's programmed and that work is done for two product lines now and they will be launching that drive in those hoists shortly.

The second phase is where we get a little more specific and we start to program those drives with specific characters looking for certain characteristics; overload, over heat, jogging of a hoist, bad situations where operators control the activity of the hoist and let's call it a negative or unfriendly way and we'll capture those and it will provide us to communicate outward to a maintenance crib or to us or to our channel partners to make sure that that operator is retrained on how that operate the hoist.

In addition to that we'll also program in the drive the preventive maintenance schedule.

So when for example an inspection needs to be done, which according to OSHA and the United States has done periodically on a hoist or one chain needs to be a little lubricated or wire rope needs to be changed after so many hours of operation, we will then be able to digitally send that signal out to the appropriate technician to make those changes or do those inspections and make that happens report back to the hoist.

That is a little bit more complicated and that the programming needs to take place and also we need to have good communication devices so that the hoist can actually talk outwards to us in a normal way and our team is working on that as well. We would expect that to happen sometime next fiscal year, not this fiscal year.

The drive in every hoist would be -- we would like to have in this fiscal year, fiscal '17 and then the digital smart technology to come thereafter..

And Tim you might want to mention also about the cost engineering that’s going on as well?.

Yes good point Greg. So as we put a drive in a hoist, there are certain mechanical components that we can either reduce or eliminate, pullout of the hoist or reduce their functionality and therefore reduce the cost impact. And it’s our intent to try to be as cost neutral as we possibly can by putting this drive, this brain in every hoist as well..

In each hoist, that model that you offer, I think you do pretty extensive testing upwards of million hours of testing before you release them/ I assume that that will be the same with these or is there some you can capture, some information can capture from previous products that will be applicable and don't have to do as much effort there?.

That's a great question. Our approval for sale process is robust because as you know we don’t want to release a product that could fail, create an unsafe condition. I am not the right guy to answer that question, but I believe we probably from a mechanical standpoint know we have a solid platform that works. We put drives in hoists today.

So we know that technology works in the hoist. The thing that we will be creating is all this software and reporting outward, which won’t have a direct bearing on the operation of the hoist from the standpoint of safety or productivity or up time. What it will do is just give us more intelligence around it.

So I think that probably your assumption is probably right that we won’t have to test it to the same degree that we test a normal hoist coming out first time..

Right. Thank you..

Thank you..

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Schon Williams with BB&T Capital Markets. Please proceed with your question..

Hi thanks for taking the follow-up. I just wanted to be clear on the outlook for the international side because while it does sound like you’re getting a little bit more optimistic about Europe and EMEA, the international piece of the business was down even if I strip up the 4X down high-single digits.

I just want to clarify like is Latin America and some of the headwinds in Asia is more than offsetting any gains that you’re seeing in Europe right now or am I looking at this the wrong way?.

No we -- in the fourth quarter in particular Schon, all three foreign markets, the EMEA, APAC and Latin America were down year-over-year. We are seeing better orders in EMEA now, which should give us some better Q1 activity in EMEA much more positive environment there.

We’re not seeing huge rebounds at this point in time in Asia-Pacific or in Latin America..

That’s helpful. And then this is going to sound a little cynical, but all the commentary you made about kind of the improving working capital, to some extent that was all true going into this quarter and you didn’t hit your target in terms of the inventory turns.

I don’t know was there something special where that -- was there something special that impacted this quarter that may have impacted those inventory turns and what I don’t know what has changed as we move forward to next quarter or two that helps to ensure that some of this working capital metrics are actually achieved?.

Yes sure. Go ahead Greg..

So in the case of inventory, there was about $3 million of inventory related to projects. If you recall we, on the previous call, we mentioned that our rail and road business in Europe has brought two years or more worth of orders.

And so they should have a really good year this year and so they are working on instead of having the large projects delivered towards the latter half of the year, they're already working on projects to be delivered sooner.

Having said that, we did in most of our businesses lowered the amount of inventory we had, but the problem was that our sales forecasts assume that sales would be higher than they were and so that's what's impacting the turns.

We weren’t able to reduce the inventory levels to be commensurate with the actual sales that we had, and in some cases we have inventory in parts that we ordered that come from overseas that have significant lead times and once the orders are placed, you're looking out perhaps six weeks, seven weeks in some cases it's just the long lead time.

So we do think we have an opportunity and you're right, we have, I was taking about it, but believe me, the entire team is energized around cash flow generation and specifically working capital..

And are there - just a follow-up, are there pieces of SAP as you turn -- as you turn that on? Should that be a catalyst for working capital improvement?.

Yeah, absolutely..

Absolutely. Europe has already seen the results of that Schon and we would expect North America to as well as we integrate all of our planning systems..

Okay. That’s very helpful color guys. I appreciate it. That's it for me..

Thank you. Mr. Tevens there are no further questions at this time. I’d like to turn the floor back to you for any final remarks..

Great. Thank you, Melissa. Let me finalize by saying here the Magnetek acquisition is already bearing fruit in the form of achievement of our cost synergies that $5 million.

More importantly for the long term strategic positioning, we are well underway to create a new lifting capability by combining the Magnetek technology into traditional Columbus McKinnon mechanical products.

We also see the power of the company as we generate free cash flow and de-lever our balance sheet very quickly and this is evidenced by the strong quarter we had in Q4. I want to thank all of our people around the world for the dedication and excellence in making our company a stronger market leading organization.

Without them and their significant efforts and diligence, none of this could be accomplished. And as always, we appreciate all of your time today. Thanks have a good day..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..