Greetings and welcome to the Columbus McKinnon Third Quarter Fiscal Year 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Also as a reminder, this conference is being recorded. I’d now like to turn the conference over to your host Ms. Deborah Pawlowski, Investor Relations for Columbus McKinnon. Thank you. You may begin.

Thank you Matt and good morning everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. As Matt mentioned, we are going to review our third quarter fiscal year 2016 financial results and discuss our outlook. 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. And if not, you can access those as well as the slides that we have to accompany our conversation today at www.cmworks.com. If you would look at those slides and turn to Page 2, I will discuss the Safe Harbor statement. As you are aware, we may make some forward-looking statements during the formal discussions, as well as during the question-and-answer session following. 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 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. So with that, I’ll let you turn to Slide 3, and have Tim begin.

Thank you Deb, and let me also welcome you to our results – our conference call for the results of the third quarter of fiscal 2016. Page 3 does remind you of our long-term objectives, which include growing to be $1 billion business with about a third of our revenue in developing markets and two-thirds in developed markets, along with a couple of hundred million to $300 million or so in acquisitions and steady stream of new products of target of 12% to 14% operating margin and a strong working capital level and overall balance sheet. The Magnetek acquisition has certainly helped us to move closer within this target range. Page 4 provides the highlights of the third quarter. Our revenue was up 18.8%, or $31.7 million, driven by acquisitions and also excluding the negative impact of foreign currency translation. The strong U.S. dollar resulted in unfavorable currency translation of about $7.4 million. Magnetek integration is off to a great start. We have already achieved $3.7 million run rate of cost synergies at the end of this quarter and our revenue synergies of geographic expansion and product development are well underway. As a result of the strong cash generated today, we have also repaid about $30 million in acquisition borrowings. U.S. revenues were up 23.3% to $102.7 million of which acquisitions contributed $26.1 million. Revenues outside the United States were up 12.1% to $64.5 million driven by organic growth and acquisitions and also excluding the $7.4 million of negative foreign currency translation. We continue to increase our gross margin, improving this quarter to 30.9% on an adjusted basis driven by the acquisitions, productivity, enhancing activities. Please remember that the December quarter is generally our weakest quarter of our fiscal year. We did have a great free cash flow generation in…

Thank you, Tim. Good morning everyone. On Slide 7, our third quarter adjusted gross profit margin increased 10 basis points to 30.9% from 30.8% in the prior year. Adjusted gross profit increased $6 million, or 13.9%. We’re adjusting gross profit for two purchase accounting adjustments related to the Magnetek acquisition, the inventory step-up expense was $700,000, and the amortization of backlog, which was $400,000. The reconciliation for adjusted gross profit is included on Page 18 of this presentation. This quarter represents the 21st consecutive quarter of year-over-year gross margin improvement on an adjusted basis. On a GAAP basis, gross margin was 30.3%, which compared to 30.8% in the prior year period. GAAP gross profit increased by $4.9 million this quarter compared to the prior year. Foreign currency translation negatively impacted gross profit by $2.1 million. Excluding foreign currency translation, gross profit increased $7 million. The STB and Magnetek acquisitions contributed $11.5 million to gross profit. Pricing and material cost deflation added $1.6 million. A number of items partially offset these positives. Sales volume and mix negatively impacted gross profit by $2.5 million. Higher product liability cost reduced gross profit by $1.2 million. The impact of Magnetek purchase accounting adjustments reduced gross profit by $1.1 million. These purchase accounting adjustments related to inventory step-up expense and amortization of backlog are now complete. Finally, reduced fixed cost absorption and productivity, net of other manufacturing cost changes negatively impacted gross profit this quarter by $1.3 million. As shown on Slide 8, selling expense was higher than the prior year by $1.9 million and represented 12.1% of sales this quarter compared to 12.4% in the prior year. The Magnetek and STB acquisitions added $3.2 million to selling expense in the quarter. Favorable foreign currency translation lowered selling cost by $1.3 million. G&A expense increased…

Thanks, Greg. Let’s spend a moment and take a look at the outlook on Page 15. The Magnetek acquisition is certainly a very good one for our company and is producing good revenue and earnings growth more than offset the economic headwinds we’re now facing. Our order rate is down 15% from last year’s – from this last Q2 as a result of slowing end market demand in oil and gas, mining, and traditional MRO, and heavy equipment manufacturers mostly in the U.S. I would say that EMEA is positive as the order rate is up 12% year-over-year in our traditional hoist business and Asia Pacific is actually up 26% year-over-year in a similar market. Latin America order rate is flat. As I said earlier Brazil was in a recession, offsets by a relatively strong Mexico. Our backlog of almost $98 million is up over last year driven mostly by Magnetek as you know we now report them part of our company. Given the soft order rate in the stakes and weak economic environment, we are controlling our costs in those businesses that are directly affected at this point. So let me also, Matt, just open it up to questions if I could.

[Operator Instructions] Our first question comes from the line of Mike Shlisky from Seaport Global. Please proceed with your question.

Good morning guys.

Good morning. How are you doing?

Good, thank you. Greg, I want a thought on your comment about debt reduction going forward, I think, about $45 million. Do you have any thoughts of going above that, should we be able to work that on your working capital a bit more over the next few quarters? Or is that pretty much set for the rest of the year?

So, good question, Mike, thank you. So, absolutely, we think we have an opportunity to improve our working capital. We’re focused on it, you know, inventory in particular and to the extent we generate excess cash. We could use that for additional principal repayments, against our debt balance.

I would imagine – I’m not sure if that’s the kind of first priority for any [indiscernible] that could coming.

Yes, Mike this is Tim. At this point that would be exactly our focus.

Okay, great. I also wanted to ask a little bit more about your view on your gross margins in the fiscal fourth quarter of your [indiscernible]. I guess I was wondering if you could maybe one just – if that will continue in Q4. And secondly, have you made any kind of material changes in the cost structure of Magnetek that are beyond just the opportunities as you had as you had planned in actual operating improvement there.

So the first part of question was the gross margin improvement continuing in the fourth quarter. Hey, look as you know, we don’t give guidance. So it’s hard for us to comment on that. But I would tell you that we are very focused on cost, and very focused on growing that gross margins. So, our expectations here is that we would love to see that continue in to the fourth quarter and that would be our target. Relative to cost structure at Magnetek, we – when we did this acquisition we gave you a number of around $5 million of cost reduction, which is for the most part as we said through four months of utility of 60 – we are two-thirds complete we’re at $3.7 million right now. And we can certainly see our way clear to the end of the fourth quarter hitting that target run rate, which is fabulous for them. I would say that as we continue to integrate and work more closely with them, which is by the way culturally a wonderful thing for both companies we’re very much aligned in this regard. There is certainly may be more opportunities of falling beyond what we have quoted. And we will certainly give you heads up as we identify them and clarify them and quantify them going forward.

And maybe just like to add on to it. So of the $5 million of cost savings targeted about 80% of that is SG&A related? And the remainder is sourcing and manufacturing savings, but more or less working at opportunities for the two companies to work more closely together.

Okay, great, I’ll just squeeze in one last one here. On your last slide you had fewer end marks there are bit challenging mention there. So why don’t you kind of give us any kind of thought – value versus pricing there. Are you finding in some market like in oil and gas, putting in a little bit more [indiscernible] with their money and how they’re asking for price concessions or growing down the curve, energy features or other kinds of ways to cut upcoming costs going forward.

Yes tough question. Let me see if I can break it down a little bit. Our experience in prior recessions Mike is that the price we get goes down. It rarely goes below zero. So it doesn’t normally get negative. So where we give concessions to do that degree, but to be honest with the you – in the oil and gas world, we’re finding those customers and our channel partners that supply those customers it’s a very challenged environment and there is not a lot of good projects just yet going in there. So, yes, every nickel they spend they’re very cautious with it. And they only spend money when they absolutely have to keep things operating and running, which is our experience. So, new projects are few and far between if any, and it’s really more of a maintenance activity and we find that business to be okay, it’s just been a much lower volume than we see with the capital expansion that we had seen last year that has gone. It’s just not prevalent. So – but I would expect our price to behave as it has in prior recessions, which is to say that instead of getting the 2% to 3% we would normally see and that would be 1% maybe even go below 1%, but we’d get some of that. We should get some price in the market.

So, eventually you’re saying – you’re not seeing lots of [indiscernible] you’re just having to adjust your reputations a little bit down.

Yes, correct, correct. It’s just harder to get price in a down market as you might imagine.

And Mike, just to review some of the numbers that we typically report when you look at it on an overall company basis, we’ve been consistent at 1% price year-over-year all three quarters this year. So that is not varied.

Okay, great guys. I’ll hop back in queue. I appreciate it.

Thanks, Mike.

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

Hi, good morning.

Good morning, Robert.

Magnetek seems to be holding up pretty well. Can you just give us a little more color what’s behind that it’s reasonable to expect that front to continue on a given the headwinds we’re facing?

Yes, yes, good question and I probably should elaborate that a little bit more on my remarks. So, Magnetek has a different business model than Columbus McKinnon. It’s really plays in a world that different to a large degree than what Columbus McKinnon does. So much of the project work that they’re seeing now is dedicated to changing out drives and controls in existing equipment that’s already operating today. Typically, these are in – well a good example is large steel mills. And these controls and drives that they’re switching out, so they’re going from 70’s technology to today’s technology provide a lot of benefit to the end-user. The first and foremost, generally, is energy efficiency. So, they actually regen energy in many of these cranes and hoists to create power, and the multi million dollar projects that they’re seeing with some of these steel companies, actually pay themselves back in very short order, typically one to two years kind of payback. So, we’re seeing those kinds of folks make these investments. The hoist and the crane is fine, it continues to operate, but they just switch out the controls and the payback is very quick. They’re also seeing in the radio business about 25% or so of their business is in radio and this is a device that controls a hoist, or a crane, or mobile crane or anything hydraulic, or electrical, that communicates to the device of a radio frequency. So you’re not tethered to accord. And they’re seeing that growth quite nice broadly speaking in material handling sector, but also outside the material handling sector. And the thing that’s driving that is safety. We’re getting the operator away from the load that’s being lifted or the operation that’s taking place. And this radio device puts the operator in a position to see what’s going on, but yet be a safe distance away from the actual lift that’s occurring. They’re seeing very good operations, a very good lift in there. And of course, the thing that we’re going to do Robert with them is introduce some markets where we have a very strong presence like Europe, where they don’t today. And try to push those kinds of products through our sales force, but also make investments to penetrate some of those sectors that we’re not in as well. EMEA and Asia Pacific will be the two markets that they will be focused on. So it’s actually different drivers of their business than it would be with Columbus McKinnon. So it actually changes the kind of business Columbus McKinnon has traditionally been slightly that’s there 20% of our revenue or so and it does give us more or less than traditionally we have seen in the past.

That’s helpful. Thank you. I’ll jump back in queue.

Okay.

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

Hi guys, good morning.

Hi Joe.

Just regarding the Magnetek acquisition and the accretion there, just wondering, if you fully realized the NOLs that you were expecting in this particular quarter. In addition to that the pension expense also, I know you were expecting that to go from an expense to an income was that fully realized as well?

Yes hey, Joe it’s Greg. So on the NOL side, yes, we are realizing the NOLs as we talked about a total of about $62 million over – is the cash value over the 20-year period. And I believe that was $6.7 million at an annual basis. In fact, we just had a tax payment due here in December and we didn’t make a tax payment because we were able to utilize the NOL. So we are seeing cash tax benefit fall into our cash flow. And your second question…

Pension.

Pension, yes. That change actually took place back in September. So, yes, so if you looked at historical Magnetek they were running at about a $2 million a year pension expense prior rates. And now with the revaluation of the pension plan, its pension income of, I know it’s like $1 million – a little over $1 million for the seven months that we’ve owned them.

Okay, thank you. Regarding sort of just the organic business, just wondering if there’s any sort of cost control measures that you’re looking at headed into this next fiscal year. Are there any things that you’re looking at to try to reduce the cost structure, just given the ongoing pressure on the top-line that we’re seeing?

Yes, yes in a regular and ongoing basis. So we have had some reductions in force in America, as our plans don’t need to produce as much as they have in the past obviously. And those are being executed – have been executed last – this past quarter the Q3. And also continue. So that’s something we monitor very closely so that we don’t have excess cost where we don’t need it. And that’s something that we view as management to be every serious and something that we’ll continue to monitor and take action on as needed. The other thing as we, if you might recall, we did move one of our facilities in Germany, in Heilbronn, Germany into our Kissing facility that’s now complete. And there was a little bit of restructuring cost that flowed into this quarter that is behind us now and that’s done. So that restructuring is complete as well. And I will also tell you on predominantly on the G&A side where we really, Greg and Tim focus on keeping our cost as low as possible, there’s a lot of energy around that as well. So it’s not just a manufacturing facility, the staff functions and all of our folks here at corporate headquarters as well as all the G&A across the company. The one area that we’re actually spending, probably outspending on is product development. And that’s really to integrate Magnetek, take their controls and drives, putting in our hoisting platforms, also producing new products that we’ve never had before and that’s an area that I think is going to drive revenue. So we’ve not slowed that investment down at all. So yes, it’s very key focus for the company.

Okay. So it’s sounds like – it’s sort of a fluid type thing as opposed to taking a one big shot at regarding just given the environment. Is headcount being reduced by attrition just over time or…

Yes, so headcount will be reduced more proactively to just attrition.

Okay.

Some facilities find it better to, for example, instead of working 40-hour a week they work 32-hour weeks. So the cost comes down, but we keep the skilled workforce engaged. Some facilities on the contrary to that actually reduce. In some of our [indiscernible] facilities we’d actually take in the number of actions to reduce by terminating employees. Unfortunately as that is, but people are no longer with us. So it really depends on how the business plans chooses to operate that reduction.

Okay, and then that brings me to the sort of just the overall trend in the business. I guess, and how the affects of cost, but more so just the sort of the top-line that you’re seeing. So the U.S. continues to see pressure, do you think we’re continuing on a sort of a downward slope in the U.S. or where do you see sort of the trajectory on the U.S. part of the business. And then sort of same question related to Europe – China seeing their pressures and then Asia and everything. Are we going to start to see sort of that strong growth that you’re seeing in Europe that has been nice? But are we going to start to see that maybe start to slowdown just given what we’ve seen in China and elsewhere in the world?

Yes. Well, as you know it is a global business, right. It does interact with each other. So, but let me see if I could take into pieces for you and give you at least my perspective on how I think things might play out. I think U.S. will remain challenge for quite a while. I don’t know what quite a while is, if it’s one, two, three quarters, I don’t I know exactly. As you may recall our visibility in our normal business is not very long. We don’t have a lot of big projects that are booked down for the next 12 months. Rather we need to book two months worth of business in the quarter that we’re in to be able to recognize the revenue. So we’re somewhat dependent on what the activity is in the local markets to drive that revenue. So I think oil and gas will continue to be a headwind. It will start to lessen, because it – okay, did we find the floor at $31 dollars a barrel. I don’t know but it’s been treading in this area now for a while. And maybe things will level out there. The supporting industries, that have historically supported oil and gas have reduced significantly and I think you see MRO expenses from some of our – MRO revenues from some of our channel partners. They’re reporting down numbers, which obviously directly affects us as well. I will tell you that we’re taking some very good action as to develop some new and interesting products to the marketplace that we think could counter some of that. So we would love to see ourselves be counter to the cycle. And do things much differently in the marketplace than what our competitors are doing especially now with…

No, yes, very helpful. Thank you. Just lastly I was wondering if you could – if you could give me the backlog excluding the Magnetek – or excluding any acquisitions to trying to get an idea sort of organic backlog?

Yes. I’m sure Greg can do that for you, reasonably quickly.

Yes. So, looking at December’s backlog, excluding Magnetek and – it will be around $81 million.

And is that, how does that compare to?

Yes, I got that – I think its $85.5 million?

Joe, it’s down slightly.

Yes, okay. All right, thanks a lot.

Thanks Joe.

Our next question comes from the line of Gary Farber from CL King. Please proceed with your question.

Hi, good morning. Could you discuss the couple of things one, can you talk about the competitive environment and are the some markets that are sort of more pressure than others. What you’re saying, as you’re saying influence from sort of a foreign competition coming in?

Sure. So competitive environment is just that competitive globally. We are seeing, everybody attack the U.S. market, which is not new Gary, that’s been going on forever. I was stated in Europe, there is an American to a degree with the potential Terex counter merger. There’s some conservative in the marketplace as to where that’s going to head and what will really happen. I think to some degree we benefited from that. That’s helpful both domestically and in Europe in particular. And in Asia, its well below the rest, right, it’s 60 hoist companies all battling for the same ground and we’re working hard and our team is doing a great job there. But, nothing really changed significantly in that regard other than the counter Terex[ph] merger.

And also can you talk about CapEx for next year or just give some sense of what kind of things you might be spending your capital on as far as the company itself?

Yes. So, from a CapEx perspective, this year as I mentioned on my prepared remarks we’re in a range of $18 million to $22 million. We think next year, it’s going to be more in the $15 million to $20 million range. We had some bigger projects this year, which is not going to repeat. And also, clearly with our push to generate cash we’re going to be, especially vigilant on making sure that we could put cash paybacks on the projects that we do approval.

Then you would expect your – would you expect your working capital to improve with the environment remain slow from compared year-over-year?

I do, if you look at working capitals percent of sales, I do think we can improve that metric more on the inventory side.

Great, right, okay.

We’re pretty good on the receivables side. Payables, as we’ve talked before, we continue to take discounts, because it economically makes sense to do so. But I think inventory is clearly an area that we will work hard on to improve that metric.

And you have, coming into the short cycle business, but I was just wondering given that things seem like they’re softening, Tim sort of allude some, may be a couple of quarters of softness, and anything changed or you made any changes to sort of your forecasting approach or have you sort of building up your own internal forecast?

We haven’t changed the approach, but I think certainly the numbers have changed relative to what we believe the rest of the year might line up. And as a result, our manufacturing planning has come down, in terms of what we need to produce, which is why Greg indicated that we expect inventory to also be reduced because we’ll be using the inventory to supply as opposed to producing.

Great. Okay, thanks.

Thank you.

Our next question comes from the line of Schon Williams from BBandT Capital Markets. Please proceed with your question.

Hi, good morning.

Hi, Schon.

Could you just elaborate how much are you expecting to go out this next quarter for the large projects?

Greg, can you floor?

Yes, it’s going to be just under $4 million.

Yes, right.

Well, probably closer to $3.5 million.

Okay. That’s helpful. I’m a bit perplexed by the SG&A guide and maybe it’s just kind of a misunderstanding of terminology. But – so to some extent you guys have been guiding kind of well above – I think where my adjusted numbers are coming in the last couple of quarters. You’re actually guiding – I guess, you took the SG&A run rate down slightly from what you would expect at last quarter. We’re now at just 37 to 38. But, I’m thinking if I – my numbers on adjusting for some of the one-time Magnetek, I’m coming at a something closer to like $35 million. So, I’m just trying to think in a sense of do you still expect an acceleration from current levels and why would that be or are we just mixing terminology here?

Yes, so I’m looking at – I guess on the selling side, Schon, if you’re – I’ve been looking at where you’ve got your numbers from. If you just took the last quarter, it’s about $35.6 million and there is arguably about $400,000 of deal cost, which go away. So it’s a little over $35 million in the quarter. Selling cost is – there’s a large component of selling costs, which are variable. And we do expect higher sales in the quarter, which traditionally Columbus McKinnon strongest quarter. And so, the selling expenses will be higher. And we also are investing in some additional resources to help us on the Magnetek revenue synergy side, and some of those costs will be in there as well.

So it would be reasonable to assume that we would step up SG&A another $2 million to $3 million a quarter versus where we are today. Is that what you’re saying?

The $3 million might be a little high. It’s going to be probably closer to the $37 million and it is to the $38 million.

Okay, all right. And that’s in…

That’s in particular in Q4, Greg is referring to…

Yes.

Okay. And then – so to some extent we should expect that number to get delve back as we move into fiscal Q1 given that again the volume seasonally would be kind of – even assuming the demand environment state of things seasonally. We expect the volumes to come in a bit in Q1 and you would expect that SG&A to come back in as well.

Certainly on the selling side, but we’re in the process of – our budgeting process right now. So, it’s hard for me to say where we’re coming in. But clearly what we’re trying to do is reduce our base fixed cost, so we can free up resources to invest in growth initiatives like new product development.

All right, that’s helpful. Maybe just on the product liability and I noted that’s – that was a bigger headwind this quarter versus the last quarter. Are you seeing increased realization of – kind of warranty – your liability items there or maybe just a little detail.

Yes, sure. So you’re right that is kind of an unusual spike and we would attributed to essentially one case that we really don’t want to get into the details on, but it’s one case that you know what’s currently underway, which has caused the lion’s share of that increase.

Yes, let me just add – just so make it a little bit clear. The one case that Greg is referring to is a product line that we sold a dozen years ago or so, but we don’t even make this product anymore.

Not a hoist.

It’s not our basic line, but we have to defend ourselves in that. And we’re actually vigorously defending ourselves because that’s just wrong. But having said that that’s what the extra cost is.

And that’s all legal defense costs.

But that cost would continue for the next several quarters until you get some conclusion on the case itself. Is where you’re seeing?

Yes, I don’t think so.

There won’t be some more spent, but the lion’s share of the – cost has already been spent right. The actual trial – this does goes to a trial…

That’s coming up shortly Schon. So…

Yes.

So the spend will be done in this quarter.

Okay, that’s helpful. And just so I am clear back on the discussion around pricing, traditionally you go out in the March quarter with new pricing in North America, I mean, the expectation would be that you’ll continue to go to with pricing just will not be as potentially as robust as – during other periods you know where we’re seeing significant inflation…

That’s correct. That’s correct.

Okay.

So think of – we’re normally in this one to three – think of us is – in this upcoming period as we might get half a point to a point in that area probably.

Okay.

Individual line items are just to be clear, we raise prices on individual line items product by product to the market, some don’t go up at all, some go up more, it really depends on how we view the products position in the marketplace as well as what the competition is doing.

Is there any opportunity to raise pricing specifically within Magnetek? I mean you talked about new product development I mean would that be – that would be an opportunity to raise pricing?

Their business is a little different. Most of their project – are the other project related, so they’re actually quoting on a project and whatever the costs are gets hold into the cost of that project. So that’s not – we can’t calculate what the price comparison was to the prior year for example, but that’s not how their business flows. But I would tell you that I would expect the Columbus McKinnon product lines we would take their products – much of their products into our Columbus McKinnon hoisting, power hoisting product. And then I would expect that we would increase those prices of right along with the hoists sale that we would normally do through our channels.

All right, thanks guys. I’ll get back in the queue.

Thanks, Schon.

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

Hi guys, just a couple of follow-up. Just on the 37 or 38 of SG&A that is not including the amortization of intangibles. Is that correct?

Correct. The amortization of intangibles are falls down below.

Right, okay. And then just lastly I was wondering if you have any idea of what maybe the tax rate, hello?

[Operator Instructions]

Hello?

Okay, the line should be connected now.

Okay. Thank you.

Hello, Joe.

Yes, can you hear me?

Yes, sorry somehow we got disconnected I apologize to that, I don’t know what happened. But…

No, problem. Yes, I was just wondering if you have any – by chance at this point in time an idea of what the tax rate would be in fiscal 2017 that you’re looking at.

Yes, sure. So excluding any unusual items we would expect that it’s going to be closer to 35% rate give or take.

Okay.

U.S. income from Magnetek, which will blend our overall effective tax rate up.

Okay, great. All right, thanks a lot.

Thank you, Joe.

Our next question comes from the line of Peter Van Roden from Spitfire Capital. Please proceed with your question.

Hi, guys.

How are you doing?

Just a quick question on the gross margin side, you mention that you’re going to be focusing on times, some of the products out of inventory, in order to reduce working capital, this quarter. How does that impact, it takes sort of a down time in your plants this quarter. How does that impact gross margins, going forward, in terms of the – if you are going to design next year?

What really affects the gross margins is going to be the level of activity and to the extent we absorb our fixed costs, in an efficient way. So some of the inventory that we will be reducing will be raw materials, and that won’t have any impact at all in gross margin. But I wouldn’t expect there to be a material impact to the reduction in inventory to our gross margin percentage.

Okay. That's all I had. Thanks guys.

Okay.

It appears there’s no further questions at this time. Management would you like to make any closing remarks?

Yes, if you don’t mind, I just wanted to comment that we remain very excited about the combination of Magnetek and Columbus McKinnon. As is evidenced by our current run rate of recognized cost synergies, the shorter term benefits through these synergies is well underway. And we should be complete here – in this quarter. More importantly the long-term strategic positioning; we are well on our way to create a new lifting capability by combining Magnetek Technology into the 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. I wanted to thank all of our people around the world for the dedication in the excellence in making our company stronger, a market leading organization, without them and their efforts, none of this can be established. So thanks very much today, we appreciate your time. Have a good day.

This concludes this conference. You may disconnect your lines at this time. Thank you.