UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended September 30, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission File Number: 0-27618
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COLUMBUS MCKINNON CORPORATION
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(Exact name of registrant as specified in its charter)
NEW YORK 16-0547600
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 JOHN JAMES AUDUBON PARKWAY, AMHERST, NY 14228-1197
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(Address of principal executive offices) (Zip code)
(716) 689-5400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. : [X] Yes [ ] No
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The number of shares of common stock outstanding as of October 31, 2007 was:
18,948,413 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
SEPTEMBER 30, 2007
PAGE #
PART I. FINANCIAL INFORMATION ------
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 2007 and March 31, 2007 2
Condensed consolidated statements of operations
and retained earnings - Three months and six
months ended September 30, 2007 and October 1, 2006 3
Condensed consolidated statements of cash flows -
Six months ended September 30, 2007 and October 1, 2006 4
Condensed consolidated statements of comprehensive income -
Three months and six months ended September 30, 2007
and October 1, 2006 5
Notes to condensed consolidated financial statements -
September 30, 2007 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none. 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds - none. 21
Item 3. Defaults upon Senior Securities - none. 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information - none. 21
Item 6. Exhibits 21
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
2007 2007
---------- -----------
ASSETS: (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 53,628 $ 48,655
Trade accounts receivable 96,740 97,269
Unbilled revenues 11,716 15,050
Inventories 90,813 77,179
Prepaid expenses 16,896 18,029
---------- -----------
Total current assets 269,793 256,182
Property, plant, and equipment, net 56,266 55,231
Goodwill and other intangibles, net 186,501 185,903
Marketable securities 29,738 28,920
Deferred taxes on income 24,855 34,460
Other assets 6,730 4,942
---------- -----------
Total assets $ 573,883 $ 565,638
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 10,308 $ 9,598
Trade accounts payable 34,326 35,896
Accrued liabilities 54,720 52,344
Restructuring reserve 19 599
Current portion of long-term debt 493 297
---------- -----------
Total current liabilities 99,866 98,734
Senior debt, less current portion 7,485 26,168
Subordinated debt 136,000 136,000
Other non-current liabilities 62,979 63,411
---------- -----------
Total liabilities 306,330 324,313
---------- -----------
Shareholders' equity
Common stock 189 188
Additional paid-in capital 176,374 174,654
Retained earnings 104,024 85,237
ESOP debt guarantee (3,134) (3,417)
Accumulated other comprehensive loss (9,900) (15,337)
---------- -----------
Total shareholders' equity 267,553 241,325
---------- -----------
Total liabilities and shareholders' equity $ 573,883 $ 565,638
========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2007 2006 2007 2006
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $ 151,410 $ 144,225 $ 299,520 $ 290,919
Cost of products sold 105,372 105,208 209,594 209,619
----------- ----------- ----------- -----------
Gross profit 46,038 39,017 89,926 81,300
----------- ----------- ----------- -----------
Selling expenses 17,269 14,739 33,390 30,106
General and administrative expenses 9,127 8,540 18,323 17,629
Restructuring charges 469 (410) 745 (406)
Amortization of intangibles 25 44 53 87
----------- ----------- ----------- -----------
26,890 22,913 52,511 47,416
----------- ----------- ----------- -----------
Income from operations 19,148 16,104 37,415 33,884
Interest and debt expense 3,627 4,176 7,805 8,688
Cost of bond redemptions 1,443 - 1,443 4,583
Investment income (257) (312) (551) (786)
Other income (523) (754) (1,477) (1,293)
----------- ----------- ----------- -----------
Income before income tax expense 14,858 12,994 30,195 22,692
Income tax expense 5,544 4,898 11,500 9,163
----------- ----------- ----------- -----------
Income from continuing operations 9,314 8,096 18,695 13,529
Income from discontinued operations (net of tax) 139 218 278 357
----------- ----------- ----------- -----------
Net income 9,453 8,314 18,973 13,886
Retained earnings - beginning of period 94,571 56,724 85,237 51,152
Change in accounting principle (note 6) - - (186) -
----------- ----------- ----------- -----------
Retained earnings - end of period $ 104,024 $ 65,038 $ 104,024 $ 65,038
=========== =========== =========== ===========
Basic income per share:
Income from continuing operations $ 0.50 $ 0.44 $ 1.01 $ 0.73
Income from discontinued operations 0.01 0.01 0.01 0.02
----------- ----------- ----------- ----------
Net income $ 0.51 $ 0.45 $ 1.02 $ 0.75
=========== =========== =========== ==========
Diluted income per share:
Income from continuing operations $ 0.48 $ 0.43 $ 0.98 $ 0.71
Income from discontinued operations 0.01 0.01 0.01 0.02
----------- ----------- ----------- ----------
Net income $ 0.49 $ 0.44 $ 0.99 $ 0.73
=========== =========== =========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
----------------
SEPTEMBER 30, OCTOBER 1,
2007 2006
------------ ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations $ 18,695 $ 13,529
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 4,304 4,208
Deferred income taxes 9,605 8,710
Gain on sale of real estate/investments (333) (1,170)
Loss on early retirement of bonds 1,106 3,780
Stock compensation expense 395 866
Amortization/write-off of deferred financing costs 643 1,148
Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenues 4,234 (1,934)
Inventories (12,769) (10,532)
Prepaid expenses 1,189 (2,521)
Other assets (981) (258)
Trade accounts payable (1,998) 1,102
Accrued and non-current liabilities (206) (1,967)
---------- ----------
Net cash provided by operating activities 23,884 14,961
---------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 12,776 3,796
Purchases of marketable securities (13,487) (3,019)
Capital expenditures (4,979) (4,336)
Proceeds from sale of facilities and surplus real estate 5,454 2,051
Proceeds from discontinued operations note receivable 278 357
---------- ----------
Net cash provided (used) by investing activities 42 (1,151)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 1,061 2,051
Net borrowings under revolving line-of-credit agreements 74 1,571
Repayment of debt and payment of debt premiums (23,397) (39,325)
Deferred financing costs incurred (2) (395)
Other 283 291
---------- ----------
Net cash used by financing activities (21,981) (35,807)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,028 576
---------- ----------
Net change in cash and cash equivalents 4,973 (21,421)
Cash and cash equivalents at beginning of period 48,655 45,598
---------- ----------
Cash and cash equivalents at end of period $ 53,628 $ 24,177
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2007 2006 2007 2006
---- ---- ---- ----
(IN THOUSANDS)
Net income $ 9,453 $ 8,314 $ 18,973 $ 13,886
Other comprehensive income, net of tax:
Foreign currency translation adjustments 3,738 306 5,375 2,656
Unrealized gain (loss) on investments:
Unrealized holding gains arising
during the period 106 536 107 329
Reclassification adjustment for
gains included in net income (1) (153) (45) (469)
---------- ---------- ---------- ----------
105 383 62 (140)
---------- ---------- ---------- ----------
Total other comprehensive income 3,843 689 5,437 2,516
---------- ---------- ---------- ----------
Comprehensive income $ 13,296 $ 9,003 $ 24,410 $ 16,402
========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
COLUMBUS MCKINNON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 2007
1. DESCRIPTION OF BUSINESS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position of Columbus McKinnon Corporation (the
Company) at September 30, 2007 and the results of its operations and its cash
flows for the three and six-month periods ended September 30, 2007 and October
1, 2006, have been included. Results for the period ended September 30, 2007 are
not necessarily indicative of the results that may be expected for the year
ended March 31, 2008. The balance sheet at March 31, 2007 has been derived from
the audited consolidated financial statements at that date, but does not include
all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Columbus McKinnon Corporation annual report on Form 10-K
for the year ended March 31, 2007.
The Company is a leading manufacturer and marketer of material handling
products, systems and services which lift, secure, position and move material
ergonomically, safely, precisely and efficiently. Key products include hoists,
cranes, chain and forged attachments. The Company's material handling products
are sold, domestically and internationally, principally to third party
distributors through diverse distribution channels, and to a lesser extent
directly to manufacturers and other end-users. The Company's integrated material
handling solutions businesses deal primarily with end users and sales are
concentrated, domestically and internationally (primarily Europe), in the
consumer products, manufacturing, warehousing and, to a lesser extent, the
steel, construction, automotive and other industrial markets.
2. INVENTORIES
Inventories consisted of the following:
SEPTEMBER 30, MARCH 31,
2007 2007
------------- -----------
At cost - FIFO basis:
Raw materials......................... $ 50,445 $ 45,006
Work-in-process....................... 12,162 9,050
Finished goods........................ 43,517 36,606
---------- -----------
106,124 90,662
LIFO cost less than FIFO cost............ (15,311) (13,483)
---------- -----------
Net inventories.......................... $ 90,813 $ 77,179
========== ===========
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
3. RESTRUCTURING CHARGES
During the first six-months of fiscal 2008, the Company recorded restructuring
costs of $469 for facility demolition costs and severance. These costs are
related to two separate businesses within the Solutions segment. The liability
as of September 30, 2007 was $19, consisting primarily of environmental
remediation costs which were accrued in accordance with SFAS No. 143.
- 6 -
4. NET PERIODIC BENEFIT COST
The following table sets forth the components of net periodic pension cost for
the Company's defined benefit pension plans:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2007 2006 2007 2006
---- ---- ---- ----
Service costs...................... $1,094 $1,049 $2,188 $2,098
Interest cost...................... 2,019 1,878 4,038 3,757
Expected return on plan assets..... (2,043) (1,830) (4,086) (3,661)
Net amortization................... 450 623 900 1,246
------ ------ ------ ------
Net periodic pension cost.......... $1,520 $1,720 $3,040 $3,440
====== ====== ====== ======
The following table sets forth the components of net periodic postretirement
benefit cost for the Company's defined benefit postretirement plans:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2007 2006 2007 2006
---- ---- ---- ----
Service costs...................... $ 1 $ 1 $ 2 $ 3
Interest cost ..................... 146 161 292 322
Amortization of plan net losses.... 96 100 192 200
----- ----- ----- -----
Net periodic postretirement cost... $ 243 $ 262 $ 486 $ 525
===== ===== ===== =====
For additional information on the Company's defined benefit pension and
postretirement benefit plans, refer to Note 11 in the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 2007.
5. FOREIGN DEBT GUARANTEE
Effective August 1, 2007, the Company issued a guarantee to a third party lender
which secures any borrowing by one of the Company's wholly-owned foreign
subsidiaries under the subsidiary's credit facility. The credit facility
provides availability up to a maximum of approximately $11,500. The outstanding
borrowings on this credit facility were approximately $9,800 at September 30,
2007.
6. INCOME TAXES
Income tax expense as a percentage of income from continuing operations before
income tax expense was 37.3%, 37.7%, 38.1%, and 40.4% in the fiscal 2008 and
2007 quarters and the six-month periods then ended, respectively. The six month
fiscal 2007 percentage varies from the U.S. statutory rate due to $866 of
non-deductible stock option expense in the period. As of September 30, 2007, the
Company had U.S. federal net operating loss carry-forwards of approximately
$16,800 representing approximately $5,900 of cash tax savings in future periods.
On April 1, 2007, the Company adopted the provisions of Financial Standards
Accounting Board ("FASB") Interpretation ("FIN") No. 48 "Accounting for
Uncertainty in Income Taxes," an interpretation of FASB Statement of Financial
Accounting Standards ("SFAS") No. 109. FIN No. 48 clarifies the accounting for
uncertainty in income taxes recognized under SFAS 109. FIN No. 48 prescribes a
recognition threshold and measurement attribute for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return and also provides guidance on various related matters such as
derecognition, interest and penalties, and disclosure.
- 7 -
Upon adoption of FIN No. 48, the Company recorded a reduction in retained
earnings for the cumulative effect adjustment of $186 to its $2,600 of
unrecognized tax benefits, all of which would favorably impact the effective tax
rate if recognized. At the end of the first quarter, there was no change in the
balance of unrecognized tax benefits.
During the second quarter of fiscal 2008, the balance of unrecognized tax
benefits increased $223 as a result of certain intercompany transactions that
have not been audited by the various tax jurisdictions and a matter that arose
during a state income tax audit.
The Company does not anticipate that total unrecognized tax benefits will change
significantly due to the settlement of audits or the expiration of statutes of
limitations prior to September 30, 2008.
The Company had $177 accrued for the payment of interest and penalties at
September 30, 2007. The Company recognizes interest expense or penalties related
to uncertain tax positions as a part of income tax expense in its Consolidated
Statement of Operations. The Company is currently open to audit by the Internal
Revenue Service for the years ending March 31, 2004 through 2007.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2007 2006 2007 2006
---- ---- ---- ----
Numerator for basic and diluted earnings per share:
Net income $ 9,453 $ 8,314 $ 18,973 $13,886
======== ======= ======== =======
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS 18,717 18,500 18,677 18,465
Effect of dilutive employee stock options 426 373 438 452
-------- ------- -------- -------
Adjusted weighted-average common stock
outstanding and assumed conversions -
denominator for diluted EPS 19,143 18,873 19,115 18,917
======== ======= ======== =======
During the first six months of fiscal 2008, a total of 99,675 shares of stock
were issued upon the exercising of stock options related to the Company's stock
option plans, and 11,554 shares of stock were issued under the Company's Long
Term Incentive Plan to the Company's non-executive directors as part of their
annual compensation.
8. BUSINESS SEGMENT INFORMATION
As a result of the way the Company manages the business, its reportable segments
are strategic business units that offer products with different characteristics.
The most defining characteristic is the extent of customized engineering
required on a per-order basis. In addition, the segments serve different
customer bases through differing methods of distribution. The Company has two
reportable segments: Products and Solutions. The Company's Products segment
sells hoists, industrial cranes, chain, attachments, and other material handling
products principally to third party distributors through diverse distribution
channels, and to a lesser extent directly to end-users. The Solutions segment
sells engineered material handling systems such as conveyors and lift tables
primarily to end-users in the consumer products, manufacturing, warehousing,
and, to a lesser extent, the steel, construction, automotive, and other
industrial markets. Intersegment sales are not significant. The Company
evaluates performance based on operating income of the respective business
units.
- 8 -
Segment information as of and for the six months ended September 30, 2007 and
October 1, 2006, is as follows:
SIX MONTHS ENDED SEPTEMBER 30, 2007
-----------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers............. $ 277,078 $ 22,442 $ 299,520
Income from operations.................. 38,479 (1,064) 37,415
Depreciation and amortization........... 3,877 427 4,304
Total assets............................ 534,842 39,041 573,883
SIX MONTHS ENDED OCTOBER 1, 2006
--------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers............. $ 257,176 $ 33,743 $ 290,919
Income from operations.................. 33,848 36 33,884
Depreciation and amortization........... 3,775 433 4,208
Total assets............................ 513,364 38,392 551,756
- 9 -
9. SUMMARY FINANCIAL INFORMATION
The following information sets forth the condensed consolidating summary
financial information of the parent and guarantors, which guarantee the 8 7/8%
Senior Subordinated Notes, and the nonguarantors. The guarantors are wholly
owned and the guarantees are full, unconditional, joint and several.
Parent Guarantors Nonguarantors Eliminations Consolidated
--------------------------------------------------------------------
AS OF SEPTEMBER 30, 2007
Current assets:
Cash and cash equivalents $ 19,968 $ (1,630) $ 35,290 $ - $ 53,628
Trade accounts receivable and unbilled revenues 61,398 174 46,884 - 108,456
Inventories 39,752 20,696 32,525 (2,160) 90,813
Other current assets 6,079 1,536 9,281 - 16,896
--------------------------------------------------------------------
Total current assets 127,197 20,776 123,980 (2,160) 269,793
Property, plant, and equipment, net 25,162 11,351 19,753 - 56,266
Goodwill and other intangibles, net 88,757 57,035 40,709 - 186,501
Intercompany 54,799 (65,784) (61,982) 72,967 -
Other assets 87,131 193,453 30,595 (249,856) 61,323
--------------------------------------------------------------------
Total assets $ 383,046 $ 216,831 $ 153,055 $ (179,049) $ 573,883
====================================================================
Current liabilities $ 37,955 $ 16,921 $ 47,189 $ (2,199) $ 99,866
Long-term debt, less current portion 136,000 3,236 4,249 - 143,485
Other non-current liabilities 25,541 11,346 26,092 - 62,979
--------------------------------------------------------------------
Total liabilities 199,496 31,503 77,530 (2,199) 306,330
Shareholders' equity 183,550 185,328 75,525 (176,850) 267,553
--------------------------------------------------------------------
Total liabilities and shareholders' equity $ 383,046 $ 216,831 $ 153,055 $ (179,049) $ 573,883
====================================================================
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007
Net sales $ 145,976 $ 85,899 $ 87,562 $ (19,917) $ 299,520
Cost of products sold 106,731 63,341 59,439 (19,917) 209,594
--------------------------------------------------------------------
Gross profit 39,245 22,558 28,123 - 89,926
--------------------------------------------------------------------
Selling, general and administrative expenses 23,074 8,657 19,982 - 51,713
Restructuring charges 402 - 343 - 745
Amortization of intangibles 51 2 - - 53
--------------------------------------------------------------------
23,527 8,659 20,325 - 52,511
--------------------------------------------------------------------
Income from operations 15,718 13,899 7,798 - 37,415
Interest and debt expense 5,228 2,037 540 - 7,805
Other (income) and expense, net 806 (227) (1,164) - (585)
--------------------------------------------------------------------
Income before income tax expense 9,684 12,089 8,422 - 30,195
Income tax expense 4,083 4,901 2,516 - 11,500
--------------------------------------------------------------------
Income from continuing operations 5,601 7,188 5,906 - 18,695
Income from discontinued operations 278 - - - 278
--------------------------------------------------------------------
Net income $ 5,879 $ 7,188 $ 5,906 $ - $ 18,973
====================================================================
- 10 -
Parent Guarantors Nonguarantors Eliminations Consolidated
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007
OPERATING ACTIVITIES:
Net cash provided (used) by operating activities $ 26,428 $ (4,675) $ 2,131 $ - $ 23,884
--------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net - - (711) - (711)
Capital expenditures (2,965) (1,071) (943) - (4,979)
Proceeds from sale of facilities and surplus real
estate - 5,454 - - 5,454
Proceeds from discontinued operations note
receivable 278 - - - 278
--------------------------------------------------------------------
Net cash (used) provided by investing activities (2,687) 4,383 (1,654) - 42
--------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 1,061 - - - 1,061
Net borrowings under revolving line-of-credit
agreements - - 74 - 74
(Repayment) borrowings of debt (23,481) (55) 139 - (23,397)
Other 281 - - - 281
--------------------------------------------------------------------
Net cash (used) provided by financing activities (22,139) (55) 213 - (21,981)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (121) 3,149 - 3,028
--------------------------------------------------------------------
Net change in cash and cash equivalents 1,602 (468) 3,839 - 4,973
Cash and cash equivalents at beginning of period 18,366 (1,162) 31,451 - 48,655
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,968 $ (1,630) $ 35,290 $ - $ 53,628
====================================================================
AS OF MARCH 31, 2007
Current assets:
Cash and cash equivalents $ 18,366 $ (1,162) $ 31,451 $ - $ 48,655
Trade accounts receivable and unbilled revenues 64,849 45 47,425 - 112,319
Inventories 34,548 17,175 27,616 (2,160) 77,179
Other current assets 6,237 2,707 9,085 - 18,029
--------------------------------------------------------------------
Total current assets 124,000 18,765 115,577 (2,160) 256,182
Property, plant, and equipment, net 24,662 11,508 19,061 - 55,231
Goodwill and other intangibles, net 88,703 57,037 40,163 - 185,903
Intercompany 66,971 (77,385) (63,602) 74,016 -
Other assets 93,609 194,922 29,647 (249,856) 68,322
--------------------------------------------------------------------
Total assets $ 397,945 $ 204,847 $ 140,846 $ (178,000) $ 565,638
====================================================================
Current liabilities $ 36,388 $ 15,376 $ 48,120 $ (1,150) $ 98,734
Long-term debt, less current portion 158,125 - 4,043 - 162,168
Other non-current liabilities 27,646 11,143 24,622 - 63,411
--------------------------------------------------------------------
Total liabilities 222,159 26,519 76,785 (1,150) 324,313
Shareholders' equity 175,786 178,328 64,061 (176,850) 241,325
--------------------------------------------------------------------
Total liabilities and shareholders' equity $ 397,945 $ 204,847 $ 140,846 $ (178,000) $ 565,638
====================================================================
- 11 -
Parent Guarantors Nonguarantors Eliminations Consolidated
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED OCTOBER 1, 2006
Net sales $ 141,257 $ 85,164 $ 89,388 $ (24,890) $ 290,919
Cost of products sold 104,169 63,432 66,758 (24,740) 209,619
--------------------------------------------------------------------
Gross profit 37,088 21,732 22,630 (150) 81,300
--------------------------------------------------------------------
Selling, general and administrative expenses 21,477 8,470 17,788 - 47,735
Restructuring charges (406) - - - (406)
Amortization of intangibles 52 1 34 - 87
--------------------------------------------------------------------
21,123 8,471 17,822 - 47,416
--------------------------------------------------------------------
Income (loss) from operations 15,965 13,261 4,808 (150) 33,884
Interest and debt expense 6,572 1,968 148 - 8,688
Other (income) and expense, net 4,221 (406) (1,311) - 2,504
--------------------------------------------------------------------
Income (loss) before income tax expense 5,172 11,699 5,971 (150) 22,692
Income tax expense 2,246 4,653 2,264 - 9,163
--------------------------------------------------------------------
Income (loss) from continuing operations 2,926 7,046 3,707 (150) 13,529
Income from discontinued operations 357 - - - 357
--------------------------------------------------------------------
Net income (loss) $ 3,283 $ 7,046 $ 3,707 $ (150) $ 13,886
====================================================================
FOR THE SIX MONTHS ENDED OCTOBER 1, 2006
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 14,203 $ 171 $ 587 $ - $ 14,961
--------------------------------------------------------------------
INVESTING ACTIVITIES:
Sale of marketable securities, net - - 777 - 777
Capital expenditures (2,394) (588) (1,354) - (4,336)
Proceeds from sale of facilities and surplus real
estate 1,655 396 - - 2,051
Proceeds from discontinued operations note
receivable 357 - - - 357
--------------------------------------------------------------------
Net cash used by investing activities (382) (192) (577) - (1,151)
--------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 2,051 - - - 2,051
Net borrowings under revolving
line-of-credit agreements - - 1,571 - 1,571
(Repayment) borrowings of debt (42,328) - 3,003 - (39,325)
Deferred financing costs incurred (395) - - - (395)
Other 291 - - - 291
--------------------------------------------------------------------
Net cash (used) provided by financing activities (40,381) - 4,574 - (35,807)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (69) 645 - 576
--------------------------------------------------------------------
Net change in cash and cash equivalents (26,560) (90) 5,229 - (21,421)
Cash and cash equivalents at beginning of period 27,531 (1,461) 19,528 - 45,598
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 971 $ (1,551) $ 24,757 $ - $ 24,177
====================================================================
- 12 -
10. LOSS CONTINGENCIES
Like many industrial manufacturers, the Company is involved in asbestos-related
litigation. In continually evaluating costs associated with its estimated
asbestos-related liability, the Company reviews, among other things, the
incidence of past and recent claims, the historical case dismissal rate, the mix
of the claimed illnesses and occupations of the plaintiffs, its recent and
historical resolution of the cases, the number of cases pending against it, the
status and results of broad-based settlement discussions, and the number of
years such activity might continue. Based on this review, the Company has
estimated its share of liability to defend and resolve probable asbestos-related
personal injury claims. This estimate is highly uncertain due to the limitations
of the available data and the difficulty of forecasting with any certainty the
numerous variables that can affect the range of the liability. The Company will
continue to study the variables in light of additional information in order to
identify trends that may become evident and to assess their impact on the range
of liability that is probable and estimable.
Based on actuarial information, the Company has estimated its asbestos-related
aggregate liability through March 31, 2025 and March 31, 2037 to range between
$5,000 and $14,000 using actuarial parameters of continued claims for a period
of 18 to 30 years. The Company's estimation of its asbestos-related aggregate
liability that is probable and estimable, in accordance with U.S. generally
accepted accounting principles approximates $8,400 which has been reflected as a
liability in the consolidated financial statements as of September 30, 2007. The
recorded liability does not consider the impact of any potential favorable
federal legislation. This liability may fluctuate based on the uncertainty in
the number of future claims that will be filed and the cost to resolve those
claims, which may be influenced by a number of factors, including the outcome of
the ongoing broad-based settlement negotiations, defensive strategies, and the
cost to resolve claims outside the broad-based settlement program. Of this
amount, management expects to incur asbestos liability payments of approximately
$325 over the next 12 months. Because payment of the liability is likely to
extend over many years, management believes that the potential additional costs
for claims will not have a material after-tax effect on the financial condition
of the Company or its liquidity, although the net after-tax effect of any future
liabilities recorded could be material to earnings in a future period.
11. NEW ACCOUNTING STANDARDS
In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements," to define fair value, establish a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expand disclosures about fair value measurements.
SFAS No. 157 will be effective for fiscal years beginning after November 15,
2007. The Company is assessing the impact the adoption of SFAS No. 157 will have
on the Company's consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (SFAS 158). Among other items, SFAS 158
requires recognition of the overfunded or underfunded status of an entity's
defined benefit postretirement plan as an asset or liability in the financial
statements and requires recognition of the funded status of defined benefit
postretirement plans in other comprehensive income. We adopted all of the
currently required provisions of Statement 158 in fiscal 2007. This statement
also requires an entity to measure a defined benefit postretirement plan's
assets and obligations that determine its funded status as of the end of the
employers' fiscal year. This requirement is effective for fiscal years ending
after December 15, 2008. The Company does not expect the adoption of this
requirement to have a material impact on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an Amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 allows the irrevocable election of
fair value as the initial and subsequent measurement attribute for certain
financial assets and liabilities and other items on an instrument-by-instrument
basis. Changes in fair value would be reflected in earnings as they occur. The
objective of SFAS 159 is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is effective as of the beginning
of the first fiscal year beginning after November 15, 2007. The Company is
currently evaluating if it will elect the fair value option for any of its
eligible financial instruments and other items.
- 13 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)
EXECUTIVE OVERVIEW
We are a leading manufacturer and marketer of hoists, cranes, chain, conveyors,
material handling systems, lift tables and component parts serving a wide
variety of commercial and industrial end-user markets. Our products are used to
efficiently and ergonomically move, lift, position or secure objects and loads.
Our Products segment sells a wide variety of powered and manually operated wire
rope and chain hoists, industrial crane systems, chain, hooks and attachments,
actuators and rotary unions. Our Solutions segment designs, manufactures, and
installs application-specific or standard material handling systems and
solutions for end-users to improve work station and facility-wide work flow.
Founded in 1875, we have grown to our current size and leadership position
through organic growth and the acquisition of 14 businesses between February
1994 and April 1999. We have developed our leading market position over our
132-year history by emphasizing technological innovation, manufacturing
excellence and superior after-sale service. In addition, the acquisitions
significantly broadened our product lines and services and expanded our
geographic reach, end-user markets and customer base. Ongoing operation of these
businesses includes improving our productivity and extending our sales
activities to the European and Asian marketplaces. We are executing those
initiatives through our Lean Manufacturing efforts, new product development and
expanded sales activities. Shareholder value will be enhanced through continued
emphasis on improvement of the fundamentals including manufacturing efficiency,
cost containment, efficient capital investment, market expansion and renewed
customer focus.
We maintain a strong domestic market share with significant leading North
American market positions in hoists, lifting and sling chain, and forged
attachments. To broaden our product offering in markets where we have a strong
competitive position as well as to facilitate penetration into new geographic
markets, we have heightened our new product development activities. Over the
past two years, this includes the introduction of powered hoist lines in
accordance with international standards, to complement our current offering of
hoist products designed in accordance with U.S. standards. To further expand our
global sales, we are introducing certain of our products that historically have
been distributed only in North America and also introducing new products through
our existing European distribution network. Furthermore, we are working to build
a distribution network in China to capture an anticipated growing demand for
material handling products as that economy continues to industrialize. We have
recently reorganized and expanded our management team to align with these
strategic initiatives. These investments in international markets and new
products are part of our focus on our greatest opportunities for growth. As a
result of these efforts and the continued strong industrial economy in our
important markets of interest, we believe we can sustain our expected Products
segment growth rate in the mid single-digit range for fiscal 2008. Management
monitors U.S. Industrial Capacity Utilization, which has exceeded 80% for the
past 1 1/2 years, as an indicator of anticipated demand for our product. In
addition, we continue to monitor the potential impact of other global and
domestic trends, including energy costs, steel price fluctuations, interest
rates and activity in a variety of end-user markets around the globe.
Our Lean Manufacturing efforts continue to fundamentally change our
manufacturing processes to be more responsive to customer demand and improve
on-time delivery and productivity. We are evaluating strategic alternatives of
certain other businesses performing at levels below the corporate average,
including Univeyor, our material handling systems business. During fiscal 2007,
in furtherance of our facility rationalization projects, we completed the sale
of one of our less strategic businesses, a specialty crane manufacturer, and
sold two pieces of excess real estate, generating $4.5 million of proceeds.
During the six months of fiscal 2008, we completed the sale and partial
leaseback of a manufacturing facility in Charlotte, North Carolina, generating
$5.2 million of proceeds. The proceeds have been, and will continue to be used
to repay our outstanding debt.
- 14 -
We keep a close watch on the costs for fringe benefits such as health insurance,
workers compensation insurance and pension. Combined, those benefits cost us
over $35,000 in fiscal 2007 and we work diligently to balance cost control with
the need to provide competitive employee benefits packages for our associates.
Another cost area of focus is steel. We utilize approximately $35,000 to $40,000
of steel annually in a variety of forms including rod, wire, bar, structural and
others. With increases in worldwide demand for steel and fluctuating scrap steel
prices, as we experience fluctuations in our costs, we reflect them as price
increases to our customers. We implemented a price increase on our
steel-intensive products in September to capture recent steel cost increases. We
will continue to monitor our costs and reevaluate our pricing policies. We
continue to operate in a highly competitive business environment in the markets
and geographies served. Our performance will be impacted by our ability to
address a variety of challenges and opportunities in those markets and
geographies, including trends towards increased utilization of the global labor
force and the expansion of market opportunities in Asia and other emerging
markets.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2007 AND OCTOBER 1, 2006
Net sales in the fiscal 2008 quarter ended September 30, 2007 were $151,410, up
$7,185 or 5.0% from the fiscal 2007 quarter ended October 1, 2006. Net sales for
the six months ended September 30, 2007 were $299,520, an increase of $8,601 or
3.0% from the six months ended October 1, 2006. Sales in the Products segment
increased by $11,275 or 8.7% from the previous year's quarter and $19,902 or
7.7% from the previous year's six-month period then ended. These increases are
due to the continued strength of the U.S. and European industrial markets, as
well as the impact of price increases of $4,500 in the six months ended
September 30, 2007. Translation of foreign currencies, particularly the Euro and
Canadian dollar, into U.S. dollars contributed $2,300 and $3,800 toward the
Products segment increase in sales for the quarter and six-month period ended
September 30, 2007, respectively. Sales in the Solutions segment decreased 26.9%
or $4,090 for the quarter and 33.5% or $11,301 for the six months ended
September 30, 2007 when compared with the same periods in the prior year. The
decreases in this segment are primarily due to lower volume in our European
conveyor business as revenue has been intentionally held back as a result of
historically unacceptable returns on certain types of projects. We have
restructured that business and are converting it into a more products and
services orientated model. Translation of foreign currencies into U.S. dollars
contributed an additional $500 and $900 toward the Solutions segment sales for
the quarter and six-months ended September 30, 2007. Sales in the segments are
summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPT. 30, OCT. 1, CHANGE SEPT. 30, OCT. 1, CHANGE
2007 2006 AMOUNT % 2007 2006 AMOUNT %
---- ---- ------ --- ---- ---- ------ ---
Products $ 140,312 $ 129,037 $ 11,275 8.7 $ 277,078 $ 257,176 $ 19,902 7.7
Solutions 11,098 15,188 (4,090) -26.9 22,442 33,743 (11,301) -33.5
---------- ---------- -------- ---------- --------- ---------
Net sales $ 151,410 $ 144,225 $ 7,185 5.0 $ 299,520 $ 290,919 $ 8,601 3.0
========== ========== ======== ========== ========= =========
Gross profit and gross profit margins by operating segment are summarized as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPT. 30, 2007 OCT. 1, 2006 SEPT. 30, 2007 OCT. 1, 2006
-------------- ------------ -------------- ------------
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
Products $ 44,232 31.5 $ 37,896 29.4 $ 86,331 31.2 $ 77,313 30.1
Solutions 1,806 16.3 1,121 7.4 3,595 16.0 3,987 11.8
--------- --------- --------- ---------
Total Gross Profit $ 46,038 30.4 $ 39,017 27.1 $ 89,926 30.0 $ 81,300 27.9
========= ========= ========= =========
The increase in the gross profit margin for the Products segment is the result
of product mix, the realization of operational leverage at increased sales
volumes, ongoing cost containment activities and the translation of foreign
currencies into U.S. dollars, which contributed $900 and $1,600 toward the
Products segment increase in gross margin for the quarter and six-months ended
September 30, 2007, respectively. The Solutions segment reflected gross margin
improvement due to restructuring activities undertaken at our Univeyor business.
- 15 -
Selling expenses were $17,269, $14,739, $33,390 and $30,106 in the fiscal 2008
and 2007 quarters and the six-month periods then ended, respectively. The
changes in selling expense dollars were impacted by our increased investment to
support our strategic growth initiatives including investments in new markets
($1,100 and $1,600 for the quarter and six-month period ended September 30,
2007, respectively), translation of foreign currencies into U.S. dollars ($600
and $900 for the quarter and six-month period ended September 30, 2007,
respectively) and increased variable selling costs as a result of higher sales
volume. As a percentage of consolidated net sales, selling expenses were 11.4%,
10.2%, 11.1%, and 10.3% in the fiscal 2008 and 2007 quarters and the six-month
periods then ended, respectively.
General and administrative expenses were $9,127, $8,540, $18,323 and $17,629 in
the fiscal 2008 and 2007 quarters and the six-month periods then ended,
respectively. The increase in administrative expenses was primarily the result
of increased research and development costs ($275 and $430 for the quarter and
six-month period ended September 30, 2007, respectively) and the translation of
foreign currencies into U.S. dollars ($350 and $500 for the quarter and
six-month period ended September 30, 2007, respectively) As a percentage of
consolidated net sales, general and administrative expenses were 6.0%, 5.9%,
6.1%, and 6.1% in the fiscal 2008 and 2007 quarters and the six-month periods
then ended, respectively.
Restructuring charges were $469, ($410), $745, and ($406) in the fiscal 2008 and
2007 quarters and the six-month periods then ended, respectively. The 2008
restructuring include $402 of costs related to the partial demolition of an
older and underutilized domestic facility and $343 of costs incurred to reduce
ongoing operating costs and change our Univeyor business model to increase its
focus on offering products as packaged solutions rather than engineered-to-order
systems. The reversal of restructuring charges in fiscal 2007 resulted from the
sale of a previously closed facility and included $216 of gain on the sale of
the property that had been written down in previous periods.
Interest and debt expense was $3,627, $4,176, $7,805, and $8,688 in the fiscal
2008 and 2007 quarters and the six-month periods then ended, respectively. This
decrease is the result of lower debt levels. As a percentage of consolidated net
sales, interest and debt expense was 2.4%, 2.9%, 2.6%, and 3.0% in the fiscal
2008 and 2007 quarters and the six-month periods then ended, respectively.
Cost of bond redemptions was $1,443, $0, $1,443, and $4,583 in the fiscal 2008
and 2007 quarters and the six-month periods then ended, respectively. The
charges in fiscal 2008 and 2007 were related to the redemption of our 10% notes.
Income tax expense as a percentage of income from continuing operations before
income tax expense was 37.3%, 37.7%, 38.1%, and 40.4% in the fiscal 2008 and
2007 quarters and the six-month periods then ended, respectively. The six month
fiscal 2007 percentage varies from the U.S. statutory rate due to $866 of
non-deductible stock option expense in the period. As of September 30, 2007, the
Company had U.S. federal net operating loss carry-forwards of approximately
$16,800 representing approximately $5,900 of cash tax savings in future periods.
On April 1, 2007, the Company adopted the provisions of Financial Standards
Accounting Board ("FASB") Interpretation ("FIN") No. 48 "Accounting for
Uncertainty in Income Taxes," an interpretation of FASB Statement of Financial
Accounting Standards ("SFAS") No. 109. FIN No. 48 clarifies the accounting for
uncertainty in income taxes recognized under SFAS 109. FIN No. 48 prescribes a
recognition threshold and measurement attribute for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return and also provides guidance on various related matters such as
derecognition, interest and penalties, and disclosure.
Upon adoption of FIN No. 48, the Company recorded a reduction in retained
earnings for the cumulative effect adjustment of $186 to its $2,600 of
unrecognized tax benefits, all of which would favorably impact the effective tax
rate if recognized. At the end of the first quarter, there was no change in the
balance of unrecognized tax benefits.
During the second quarter of fiscal 2008, the balance of unrecognized tax
benefits increased $223 as a result of certain intercompany transactions that
have not been audited by the various tax jurisdictions and a matter that arose
during a state income tax audit.
- 16 -
The Company does not anticipate that total unrecognized tax benefits will change
significantly due to the settlement of audits or the expiration of statutes of
limitations prior to September 30, 2008.
The Company had $177 accrued for the payment of interest and penalties at
September 30, 2007. The Company recognizes interest expense or penalties related
to uncertain tax positions as a part of income tax expense in its Consolidated
Statement of Operations. The Company is currently open to audit by the Internal
Revenue Service for the years ending March 31, 2004 through 2007.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $53,628 at September 30, 2007, an increase of
$4,973 from the March 31, 2007 balance of $48,655.
Net cash provided by operating activities was $23,884 for the six months ended
September 30, 2007 compared to $14,961 for the six months ended October 1, 2006.
The $8,923 increase is the result of stronger operating performance in fiscal
2008 ($3,344) and changes in working capital components. During the six months
ended September 30, 2007, changes in working capital components used $10,531,
compared to $16,110 used in the six months ended October 1, 2006. Changes in net
working capital include a favorable change of $6,168 on accounts receivables and
unbilled revenues as a result of improved collection results and a favorable
change in prepaid expenses and other assets of $2,987 due to timing of payments.
These were offset by an unfavorable change of $2,237 on inventory (resulting
from support for upcoming new product launches, an increase for longer term
capital projects equipment and timing of offshore purchases) and an unfavorable
change of $1,339 in accounts payable and accrued and non-current liabilities
(resulting from timing of disbursements and changing product liability
reserves).
Net cash provided (used) by investing activities was $42 for the six months
ended September 30, 2007 compared to ($1,151) for the six months ended October
1, 2006. The $1,193 change in net cash provided (used) by investing activities
was the result of a $3,403 increase in proceeds received from the sale of
facilities and surplus real estate in fiscal 2008 compared to fiscal 2007. This
increase in cash was partially offset by a $1,488 increase in cash used to
purchase marketable securities, net and a $643 increase in capital expenditures.
Net cash used by financing activities was $21,981 for the six months ended
September 30, 2007 compared to $35,807 for the six months ended October 1, 2006.
The net cash used in financing activities for the six months ended September 30,
2007 consisted primarily of $23,397 of net debt repayments, partially offset by
$1,061 of proceeds from stock options exercised. The net cash used in financing
activities for the six months ended October 1, 2006 consisted primarily of
$39,325 of debt repayments, partially offset by $2,051 of proceeds from the
issuance of common stock and stock options exercised, and $1,571 of borrowings
under revolving line of credit agreements.
We believe that our cash on hand, cash flows, and borrowing capacity under our
Revolving Credit Facility will be sufficient to fund our ongoing operations and
budgeted capital expenditures for at least the next twelve months. This belief
is dependent upon a steady economy and successful execution of our current
business plan which includes focus on cash generation for debt repayment. The
business plan includes continued implementation of new market penetration, new
product development, lean manufacturing and improving working capital
utilization.
Our Revolving Credit Facility provides availability up to $75,000. Provided
there is no default, the Company may request an increase in the availability of
the Revolving Credit Facility by an amount not exceeding $50,000. The Revolving
Credit Facility matures February 2011.
The unused portion of the Revolving Credit Facility totaled $63,441, net of
outstanding borrowings of zero and outstanding letters of credit of $11,559 of
September 30, 2007. Interest is payable at a Eurodollar Rate or a prime rate
plus an applicable margin determined by our leverage ratio. At our current
leverage ratio, we qualify for the lowest applicable margin level, which amounts
to 87.5 basis points for Eurodollar borrowings and zero basis points for prime
rate based borrowings. The Revolving Credit Facility is secured by all domestic
inventory, receivables, equipment, real property, subsidiary stock (limited to
65% for foreign subsidiaries) and intellectual property. The corresponding
- 17 -
credit agreement associated with the Revolving Credit Facility places certain
debt covenant restrictions on us, including certain financial requirements and a
limitation on dividend payments.
The Senior Subordinated 8 7/8% Notes (8 7/8% Notes) issued on September 2, 2005
amounted to $136,000 and are due November 1, 2013. Provisions of the 8 7/8%
Notes include limitations on indebtedness, asset sales, and dividends and other
restricted payments. Until November 1, 2008, we may redeem up to 35% of the
outstanding notes at a redemption price of 108.875% with the proceeds of equity
offerings, subject to certain restrictions. On or after November 1, 2009, the 8
7/8% Notes are redeemable at the option of the Company, in whole or in part, at
prices declining annually from 104.438% to 100% on and after November 1, 2011.
In the event of a Change of Control (as defined in the indenture for such
notes), each holder of the 8 7/8% Notes may require us to repurchase all or a
portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the
principal amount thereof. The 8 7/8% Notes are guaranteed by certain existing
and future domestic subsidiaries and are not subject to any sinking fund
requirements.
On August 1, 2007 the Company used cash on hand to redeem all of the outstanding
Senior Secured 10% Notes at a price of 105% of the principal amount. The
redemption required a $1,106 premium payment to Noteholders and $337 of
unamortized financing costs were written-off in the fiscal 2008 second quarter
ending September 30, 2007.
International lines of credit are available to meet short-term working capital
needs for our subsidiaries operating outside of the United States. The lines of
credit are available on an offering basis, meaning that transactions under the
line of credit will be on such terms and conditions, including interest rate,
maturity, representations, covenants and events of default, as mutually agreed
between our subsidiaries and the local bank at the time of each specific
transaction. As of September 30, 2007, amounts available under significant
foreign credit lines totaled approximately $11,500 of which $9,800 was drawn.
In addition to the above facilities, our foreign subsidiaries have certain fixed
term bank loans. As of September 30, 2007, significant loans totaled $4,140 of
which $2,992 were secured loans.
CAPITAL EXPENDITURES
In addition to keeping our current equipment and plants properly maintained, we
are committed to replacing, enhancing, and upgrading our property, plant, and
equipment to support new product development, reduce production costs, increase
flexibility to respond effectively to market fluctuations and changes, meet
environmental requirements, enhance safety, and promote ergonomically correct
work stations. Consolidated capital expenditures for the three months ended
September 30, 2007 and October 1, 2006 were $4,979 and $4,336, respectively. We
expect capital spending for fiscal 2008 to be approximately $10 to $12 million
compared with $10.7 million in fiscal 2007. Incremental capital expenditures for
fiscal 2008 will be primarily directed toward new product development and
productivity improvement.
INFLATION AND OTHER MARKET CONDITIONS
Our costs are affected by inflation in the U.S. economy and, to a lesser extent,
in foreign economies including those of Europe, Canada, Mexico, South America,
and the Pacific Rim. We do not believe that general inflation has had a material
effect on results of operations over the periods presented primarily due to
overall low inflation levels of most costs over such periods and our ability to
generally pass on rising costs through price increases. However, we have been
impacted by fluctuations in steel costs, which vary by type of steel and we
continue to monitor them. In addition, U.S. employee benefits costs such as
health insurance and workers compensation insurance as well as energy costs have
exceeded general inflation levels. We generally incorporate those cost increases
into our sales price increases and consider surcharges on certain products, as
determined necessary. In the future, we may be further affected by inflation
that we may not be able to pass on as price increases or surcharges.
- 18 -
SEASONALITY AND QUARTERLY RESULTS
Quarterly results may be materially affected by the timing of large customer
orders, periods of high vacation and holiday concentrations, gains or losses on
early retirement of bonds, restructuring charges, divestitures and acquisitions.
Therefore, the operating results for any particular fiscal quarter are not
necessarily indicative of results for any subsequent fiscal quarter or for the
full fiscal year.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements," to define fair value, establish a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expand disclosures about fair value measurements.
SFAS No. 157 will be effective for fiscal years beginning after November 15,
2007. We are assessing the impact the adoption of SFAS No. 157 will have on our
consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (SFAS 158). Among other items, SFAS 158
requires recognition of the overfunded or underfunded status of an entity's
defined benefit postretirement plan as an asset or liability in the financial
statements and requires recognition of the funded status of defined benefit
postretirement plans in other comprehensive income. We adopted all of the
currently required provisions of Statement 158 in fiscal 2007. This statement
also requires an entity to measure a defined benefit postretirement plan's
assets and obligations that determine its funded status as of the end of the
employers' fiscal year. This requirement is effective for fiscal years ending
after December 15, 2008. We do not expect the adoption of this requirement to
have a material impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an Amendment of FASB
Statements No. 115" ("SFAS 159"). SFAS 159 allows the irrevocable election of
fair value as the initial and subsequent measurement attribute for certain
financial assets and liabilities and other items on an instrument-by-instrument
basis. Changes in fair value would be reflected in earnings as they occur. The
objective of SFAS 159 is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is effective as of the beginning
of the first fiscal year beginning after November 15, 2007. We are currently
evaluating whether we will elect the fair value option for any of our eligible
financial instruments and other items.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements involve known
and unknown risks, uncertainties and other factors that could cause our actual
results to differ materially from the results expressed or implied by such
statements, including general economic and business conditions, conditions
affecting the industries served by us and our subsidiaries, conditions affecting
our customers and suppliers, competitor responses to our products and services,
the overall market acceptance of such products and services, the integration of
acquisitions and other factors disclosed in our periodic reports filed with the
Commission. Consequently such forward-looking statements should be regarded as
our current plans, estimates and beliefs. We do not undertake and specifically
decline any obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
- 19 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the market risks since the end of Fiscal
2007.
Item 4. Controls and Procedures
As of September 30, 2007, an evaluation was performed under the supervision and
with the participation of the Company's management, including the chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the chief executive
officer and chief financial officer, concluded that the Company's disclosure
controls and procedures were effective as of September 30, 2007. There were no
changes in the Company's internal controls or other factors during our second
quarter ended September 30, 2007.
- 20 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none.
Item 1A. Risk Factors
No material changes from risk factors as previously disclosed in the
Company's Form 10-K for the year ended March 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - none.
Item 3. Defaults upon Senior Securities - none.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on July 30,
2007, the stockholders approved the following:
(a) A proposal to elect directors of the Company as follows:
16,014,798 votes cast for: Timothy T. Tevens;
15,570,498 votes cast for: Richard H. Fleming;
16,017,345 votes cast for: Ernest R. Verebelyi;
15,802,284 votes cast for: Wallace W. Creek;
15,802,427 votes cast for: Linda A. Goodspeed;
15,801,889 votes cast for: Stephen Rabinowitz;
15,659,480 votes cast for: Nicholas T. Pinchuk.
Item 5. Other Information - none.
Item 6. Exhibits
(a) Exhibits:
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934; as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934; as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS MCKINNON CORPORATION
-----------------------------
(Registrant)
Date: NOVEMBER 9, 2007 /S/ KAREN L. HOWARD
---------------- ------------------------------------------
Karen L. Howard
Vice President and Chief Financial Officer
(Principal Financial Officer)
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