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 December 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 January 31, 2008 was:
18,961,663 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
DECEMBER 30, 2007
PAGE #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
December 30, 2007 and March 31, 2007 2
Condensed consolidated statements of operations
and retained earnings - Three months and nine
months ended December 30, 2007 and December 31, 2006 3
Condensed consolidated statements of cash flows -
Nine months ended December 30, 2007 and December 31, 2006 4
Condensed consolidated statements of comprehensive
income - Three months and nine months ended
December 30, 2007 and December 31, 2006 5
Notes to condensed consolidated financial statements -
December 30, 2007 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none. 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds - none. 22
Item 3. Defaults upon Senior Securities - none. 22
Item 4. Submission of Matters to a Vote of Security Holders - none. 22
Item 5. Other Information - none. 22
Item 6. Exhibits 22
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 30, MARCH 31,
2007 2007
---------- ----------
ASSETS: (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 61,073 $ 48,655
Trade accounts receivable 93,928 97,269
Unbilled revenues 11,181 15,050
Inventories 91,612 77,179
Prepaid expenses 17,753 18,029
---------- ----------
Total current assets 275,547 256,182
Property, plant, and equipment, net 56,684 55,231
Goodwill and other intangibles, net 186,705 185,903
Marketable securities 30,213 28,920
Deferred taxes on income 20,549 34,460
Other assets 6,595 4,942
---------- ----------
Total assets $ 576,293 $ 565,638
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 10,356 $ 9,598
Trade accounts payable 36,014 35,896
Accrued liabilities 57,698 52,344
Restructuring reserve 15 599
Current portion of long-term debt 460 297
---------- ----------
Total current liabilities 104,543 98,734
Senior debt, less current portion 6,072 26,168
Subordinated debt 133,000 136,000
Other non-current liabilities 53,019 63,411
---------- ----------
Total liabilities 296,634 324,313
---------- ----------
Shareholders' equity
Common stock 189 188
Additional paid-in capital 177,296 174,654
Retained earnings 114,018 85,237
ESOP debt guarantee (2,995) (3,417)
Accumulated other comprehensive loss (8,849) (15,337)
---------- ----------
Total shareholders' equity 279,659 241,325
---------- ----------
Total liabilities and shareholders' equity $ 576,293 $ 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 NINE MONTHS ENDED
------------------ -----------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
2007 2006 2007 2006
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $ 155,196 $ 142,044 $ 454,716 $ 432,963
Cost of products sold 108,522 103,421 318,116 313,040
----------- ----------- ----------- -----------
Gross profit 46,674 38,623 136,600 119,923
----------- ----------- ----------- -----------
Selling expenses 17,818 14,989 51,208 45,095
General and administrative expenses 9,516 8,566 27,839 26,195
Restructuring charges 149 128 894 (278)
Amortization of intangibles 29 44 82 131
----------- ----------- ----------- -----------
27,512 23,727 80,023 71,143
----------- ----------- ----------- -----------
Income from operations 19,162 14,896 56,577 48,780
Interest and debt expense 3,445 4,034 11,250 12,722
Cost of bond redemptions 177 359 1,620 4,942
Investment income (261) (3,774) (812) (4,560)
Other income (835) (151) (2,312) (1,444)
----------- ----------- ----------- -----------
Income before income tax expense 16,636 14,428 46,831 37,120
Income tax expense 6,781 5,510 18,281 14,673
----------- ----------- ----------- -----------
Income from continuing operations 9,855 8,918 28,550 22,447
Income from discontinued operations (net of tax) 139 208 417 565
----------- ----------- ----------- -----------
Net income 9,994 9,126 28,967 23,012
Retained earnings - beginning of period 104,024 65,038 85,237 51,152
Change in accounting principle (note 6) - - (186) -
----------- ----------- ----------- -----------
Retained earnings - end of period $ 114,018 $ 74,164 $ 114,018 $ 74,164
=========== =========== =========== ===========
Basic income per share:
Income from continuing operations $ 0.52 $ 0.48 $ 1.53 $ 1.21
Income from discontinued operations 0.01 0.01 0.02 0.03
----------- ----------- ----------- -----------
Net income $ 0.53 $ 0.49 $ 1.55 $ 1.24
=========== =========== =========== ===========
Diluted income per share:
Income from continuing operations $ 0.51 $ 0.47 $ 1.49 $ 1.19
Income from discontinued operations 0.01 0.01 0.02 0.03
----------- ----------- ----------- -----------
Net income $ 0.52 $ 0.48 $ 1.51 $ 1.22
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
DECEMBER 30, DECEMBER 31,
2007 2006
----------- -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations $ 28,550 $ 22,447
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 6,378 6,306
Deferred income taxes 13,911 12,526
Gain on sale of real estate/investments (433) (4,745)
Loss on early retirement of bonds 1,244 4,069
Stock compensation expense 944 1,040
Amortization/write-off of deferred financing costs 814 1,385
Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenues 8,351 4,178
Inventories (13,317) (10,890)
Prepaid expenses 349 (1,564)
Other assets (1,045) (297)
Trade accounts payable (502) (2,033)
Accrued and non-current liabilities (7,259) (5,192)
---------- ----------
Net cash provided by operating activities 37,985 27,230
---------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 12,876 22,077
Purchases of marketable securities (14,273) (20,025)
Capital expenditures (7,421) (6,825)
Proceeds from sale of facilities and surplus real estate 5,504 2,051
Proceeds from discontinued operations note receivable 417 565
---------- ----------
Net cash used by investing activities (2,897) (2,157)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 1,309 2,334
Net (repayments) borrowings under revolving line-of-credit agreements (182) 2,294
Repayment of debt and payment of debt premiums (27,728) (43,668)
Deferred financing costs incurred (2) (456)
Other 422 438
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Net cash used by financing activities (26,181) (39,058)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,511 512
---------- ----------
Net change in cash and cash equivalents 12,418 (13,473)
Cash and cash equivalents at beginning of period 48,655 45,598
---------- ----------
Cash and cash equivalents at end of period $ 61,073 $ 32,125
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
2007 2006 2007 2006
---- ---- ---- ----
(IN THOUSANDS)
Net income $ 9,994 $ 9,126 $ 28,967 $ 23,012
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,262 425 6,637 3,081
Unrealized gain (loss) on investments:
Unrealized holding (losses) gains arising
during the period (211) 1,999 (104) 2,328
Reclassification adjustment for
gains included in net income - (3,544) (45) (4,013)
---------- ---------- ---------- ----------
(211) (1,545) (149) (1,685)
---------- ---------- ---------- ----------
Total other comprehensive income 1,051 (1,120) 6,488 1,396
---------- ---------- ---------- ----------
Comprehensive income $ 11,045 $ 8,006 $ 35,455 $ 24,408
========== ========== ========== ==========
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)
DECEMBER 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 December 30, 2007 and the results of its operations and its cash
flows for the three and nine-month periods ended December 30, 2007 and December
31, 2006, have been included. Results for the period ended December 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:
DECEMBER 30, MARCH 31,
2007 2007
---------- ----------
At cost - FIFO basis:
Raw materials............................ $ 51,360 $ 45,006
Work-in-process.......................... 12,350 9,050
Finished goods........................... 43,821 36,606
---------- ----------
107,531 90,662
LIFO cost less than FIFO cost............ (15,919) (13,483)
---------- ----------
Net inventories.......................... $ 91,612 $ 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 nine-month period ended December 30, 2007, the Company recorded
restructuring costs of $894 for facility demolition costs and severance. These
costs are related to two separate businesses within the Solutions segment. The
liability as of December 30, 2007 was $15, 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 NINE MONTHS ENDED
------------------ -----------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
2007 2006 2007 2006
---- ---- ---- ----
Service costs................... $1,094 $1,049 $3,282 $3,147
Interest cost................... 2,019 1,879 6,057 5,636
Expected return on plan assets.. (2,043) (1,831) (6,129) (5,492)
Net amortization................ 450 623 1,350 1,869
------ ------ ------ ------
Net periodic pension cost....... $1,520 $1,720 $4,560 $5,160
====== ====== ====== ======
The following table sets forth the components of net periodic postretirement
benefit cost for the Company's defined benefit postretirement plans:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
2007 2006 2007 2006
---- ---- ---- ----
Service costs................... $ - $ 2 $ 2 $ 5
Interest cost .................. 147 160 439 482
Amortization of plan net losses. 96 100 288 300
------ ------ ------ ------
Net periodic postretirement cost $ 243 $ 262 $ 729 $ 787
====== ====== ====== ======
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 $11,750. The outstanding
borrowings on this credit facility were approximately $10,240 at December 30,
2007.
6. INCOME TAXES
Income tax expense as a percentage of income from continuing operations before
income tax expense was 40.8%, 38.2%, 39.0%, and 39.5% in the fiscal 2008 and
2007 quarters and the nine-month periods then ended, respectively. The fiscal
2008 percentages vary from the U.S. statutory note due to a $479 deferred tax
asset valuation allowance recorded in the third quarter related to our Univeyor
business. The nine month fiscal 2007 percentage varies from the U.S. statutory
rate due to $1,040 of non-deductible stock option expense in the period. As of
December 30, 2007, the Company had U.S. federal net operating loss
carry-forwards of approximately $6,200 representing approximately $2,200 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," ("FIN 48") an interpretation of FASB Statement of
Financial Accounting Standards ("SFAS") No. 109. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized under SFAS 109. FIN 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 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. 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. There was no change in the
balance of unrecognized tax benefits during the first or third quarter of fiscal
2008.
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 December 30, 2008.
The Company had $207 accrued for the payment of interest and penalties at
December 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 NINE MONTHS ENDED
------------------ -----------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
2007 2006 2007 2006
---- ---- ---- ----
Numerator for basic and diluted earnings per share:
Net income $ 9,994 $ 9,126 $ 28,967 $ 23,012
======== ======== ======== ========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS 18,753 18,544 18,702 18,491
Effect of dilutive employee stock options 447 410 442 438
-------- -------- -------- --------
Adjusted weighted-average common stock
outstanding and assumed conversions -
denominator for diluted EPS 19,200 18,954 19,144 18,929
======== ======== ======== ========
During the first nine months of fiscal 2008, a total of 123,550 shares of stock
were issued upon the exercising of stock options related to the Company's stock
option plans, and 11,801 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 nine months ended December 30, 2007 and
December 31, 2006, is as follows:
NINE MONTHS ENDED DECEMBER 30, 2007
-----------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers...................... $ 417,556 $ 37,160 $ 454,716
Income from operations........................... 57,380 (803) 56,577
Depreciation and amortization.................... 5,739 639 6,378
Total assets..................................... 537,479 38,814 576,293
NINE MONTHS ENDED DECEMBER 31, 2006
-----------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers...................... $ 384,039 $ 48,924 $ 432,963
Income from operations........................... 49,991 (1,211) 48,780
Depreciation and amortization.................... 5,657 649 6,306
Total assets..................................... 515,053 36,536 551,589
- 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 DECEMBER 30, 2007
Current assets:
Cash and cash equivalents $ 19,408 $ (1,292) $ 42,957 $ - $ 61,073
Trade accounts receivable and unbilled revenues 59,096 159 45,854 - 105,109
Inventories 38,986 20,566 34,220 (2,160) 91,612
Other current assets 8,081 1,576 8,096 - 17,753
--------------------------------------------------------------------
Total current assets 125,571 21,009 131,127 (2,160) 275,547
Property, plant, and equipment, net 25,545 11,237 19,902 - 56,684
Goodwill and other intangibles, net 88,757 57,035 40,913 - 186,705
Intercompany 51,067 (61,797) (62,865) 73,595 -
Other assets 82,398 193,540 31,275 (249,856) 57,357
--------------------------------------------------------------------
Total assets $ 373,338 $ 221,024 $ 160,352 $ (178,421) $ 576,293
====================================================================
Current liabilities $ 35,836 $ 18,143 $ 52,135 $ (1,571) $ 104,543
Long-term debt, less current portion 133,000 2,881 3,191 - 139,072
Other non-current liabilities 16,847 11,303 24,869 - 53,019
--------------------------------------------------------------------
Total liabilities 185,683 32,327 80,195 (1,571) 296,634
Shareholders' equity 187,655 188,697 80,157 (176,850) 279,659
--------------------------------------------------------------------
Total liabilities and shareholders' equity $ 373,338 $ 221,024 $ 160,352 $ (178,421) $ 576,293
====================================================================
FOR THE NINE MONTHS ENDED DECEMBER 30, 2007
Net sales $ 218,182 $ 130,388 $ 135,943 $ (29,797) $ 454,716
Cost of products sold 159,021 96,563 92,329 (29,797) 318,116
--------------------------------------------------------------------
Gross profit 59,161 33,825 43,614 - 136,600
--------------------------------------------------------------------
Selling, general and administrative expenses 35,096 13,293 30,658 - 79,047
Restructuring charges 551 - 343 - 894
Amortization of intangibles 80 2 - - 82
--------------------------------------------------------------------
35,727 13,295 31,001 - 80,023
--------------------------------------------------------------------
Income from operations 23,434 20,530 12,613 - 56,577
Interest and debt expense 7,432 2,994 824 - 11,250
Other (income) and expense, net 678 (298) (1,884) - (1,504)
--------------------------------------------------------------------
Income before income tax expense 15,324 17,834 13,673 - 46,831
Income tax expense 6,818 7,209 4,254 - 18,281
--------------------------------------------------------------------
Income from continuing operations 8,506 10,625 9,419 - 28,550
Income from discontinued operations 417 - - - 417
--------------------------------------------------------------------
Net income $ 8,923 $ 10,625 $ 9,419 $ - $ 28,967
====================================================================
- 10 -
Parent Guarantors Nonguarantors Eliminations Consolidated
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 30, 2007
OPERATING ACTIVITIES:
Net cash provided (used) by operating activities $ 30,010 $ (3,697) $ 11,672 $ - $ 37,985
--------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net - - (1,397) - (1,397)
Capital expenditures (4,495) (1,664) (1,262) - (7,421)
Proceeds from sale of facilities and surplus real
estate - 5,504 - - 5,504
Proceeds from discontinued operations note
receivable 417 - - - 417
--------------------------------------------------------------------
Net cash (used) provided by investing activities (4,078) 3,840 (2,659) - (2,897)
--------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 1,309 - - - 1,309
Net payments under revolving line-of-credit
agreements - - (182) - (182)
Repayment of debt (26,619) (84) (1,025) - (27,728)
Other 420 - - - 420
--------------------------------------------------------------------
Net cash used by financing activities (24,890) (84) (1,207) - (26,181)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (189) 3,700 - 3,511
--------------------------------------------------------------------
Net change in cash and cash equivalents 1,042 (130) 11,506 - 12,418
Cash and cash equivalents at beginning of period 18,366 (1,162) 31,451 - 48,655
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,408 $ (1,292) $ 42,957 $ - $ 61,073
====================================================================
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 NINE MONTHS ENDED DECEMBER 31, 2006
Net sales $ 208,814 $ 125,574 $ 134,320 $ (35,745) $ 432,963
Cost of products sold 153,144 94,092 101,139 (35,335) 313,040
--------------------------------------------------------------------
Gross profit 55,670 31,482 33,181 (410) 119,923
--------------------------------------------------------------------
Selling, general and administrative expenses 31,715 12,650 26,925 - 71,290
Restructuring charges (331) - 53 - (278)
Amortization of intangibles 79 2 50 - 131
--------------------------------------------------------------------
31,463 12,652 27,028 - 71,143
--------------------------------------------------------------------
Income (loss) from operations 24,207 18,830 6,153 (410) 48,780
Interest and debt expense 9,453 2,975 294 - 12,722
Other (income) and expense, net 4,591 (407) (5,246) - (1,062)
--------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 10,163 16,262 11,105 (410) 37,120
Income tax expense (benefit) 5,264 6,444 3,175 (210) 14,673
--------------------------------------------------------------------
Income (loss) from continuing operations 4,899 9,818 7,930 (200) 22,447
Income from discontinued operations 565 - - - 565
--------------------------------------------------------------------
Net income (loss) $ 5,464 $ 9,818 $ 7,930 $ (200) $ 23,012
====================================================================
FOR THE NINE MONTHS ENDED DECEMBER 31, 2006
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 24,998 $ 1,424 $ 808 $ - $ 27,230
--------------------------------------------------------------------
INVESTING ACTIVITIES:
Sale of marketable securities, net - - 2,052 - 2,052
Capital expenditures (4,195) (710) (1,920) - (6,825)
Proceeds from sale of facilities and surplus real
estate 1,655 396 - - 2,051
Proceeds from discontinued operations note
receivable 565 - - - 565
--------------------------------------------------------------------
Net cash (used) provided by investing activities (1,975) (314) 132 - (2,157)
--------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 2,334 - - - 2,334
Net borrowings under revolving line-of-credit
agreements - - 2,294 - 2,294
(Repayment) borrowings of debt (46,321) - 2,653 - (43,668)
Deferred financing costs incurred (456) - - - (456)
Other 438 - - - 438
--------------------------------------------------------------------
Net cash (used) provided by financing activities (44,005) - 4,947 - (39,058)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (135) 647 - 512
--------------------------------------------------------------------
Net change in cash and cash equivalents (20,982) 975 6,534 - (13,473)
Cash and cash equivalents at beginning of period 27,531 (1,461) 19,528 - 45,598
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,549 $ (486) $ 26,062 $ - $ 32,125
====================================================================
- 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 $15,000 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 December 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
$380 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.
The Company's non-asbestos related product liability reserves decreased
approximately $1,500 during the quarter ended December 30, 2007 as a result of
decreases in the estimated losses for claims. Product liability costs, which are
reflected as cost of sales, were approximately $1,200 lower in the third quarter
of fiscal 2008 when compared to the fiscal 2007 third quarter.
11. NEW ACCOUNTING STANDARDS
In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements," ("SFAS 157") 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 157 will be effective for fiscal years beginning after
November 15, 2007. The Company is assessing the impact the adoption of SFAS 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 SFAS 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
- 13 -
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.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) requires the acquiring entity in a
business combination to recognize all the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose all of the information required to evaluate
and understand the nature and financial effect of the business combination. This
statement is effective for acquisition dates on or after the beginning of the
first annual reporting period beginning after December 15, 2008. The Company is
currently evaluating the impact the adoption of SFAS 141(R) will have on the
Company's consolidated financial statements.
12. SUBSEQUENT EVENTS
During January 2008 the Company used cash on hand to redeem $3,145 of the
outstanding 8 7/8% Notes. The redemption required a $134 premium payment to
Noteholders and $40 of unamortized financing costs were written-off.
- 14 -
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, material
handling systems, lift tables and industrial components 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 excellent
customer satisfaction.
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.
Additionally, we are targeting the high growth sectors of energy and commercial
construction as growing users of our products. 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 and reducing the impact of industrial
cyclicality on our business. 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-to-high
single-digit range for fiscal 2008. Management monitors U.S. Industrial Capacity
Utilization, which has approximated 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. 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 nine 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 used to repay our outstanding debt. We recently announced
that we are evaluating strategic alternatives, including potential sale of
Univeyor, our material handling systems business.
- 15 -
We keep a close watch on the costs of 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 which fully capture recent steel cost
increases. Additionally, in January 2008 we instituted an annual price increase
covering most of our product offering. 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 NINE MONTHS ENDED DECEMBER 30, 2007 AND DECEMBER 31, 2006
Net sales in the fiscal 2008 quarter ended December 30, 2007 were $155,196, up
$13,152 or 9.3% from the fiscal 2007 quarter ended December 31, 2006. Net sales
for the nine months ended December 30, 2007 were $454,716, an increase of
$21,753 or 5.0% from the nine months ended December 31, 2006. Sales in the
Products segment increased by $13,615 or 10.7% from the previous year's quarter
and $33,517 or 8.7% from the previous year's nine-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 $6,100 in the nine months
ended December 30, 2007. Translation of foreign currencies, particularly the
Euro and Canadian dollar, into U.S. dollars contributed $3,700 and $7,500 toward
the Products segment increase in sales for the quarter and nine-month period
ended December 30, 2007, respectively. Sales in the Solutions segment decreased
3.0% or $463 for the quarter and 24.0% or $11,764 for the nine months ended
December 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 while we evaluate strategic alternatives, including
its potential sale. Translation of foreign currencies into U.S. dollars
contributed an additional $1,000 and $1,900 toward the Solutions segment sales
for the quarter and nine-months ended December 30, 2007. Sales in the segments
are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------- -------------------------------------------
DEC. 30, DEC. 31, CHANGE DEC. 30, DEC. 31, CHANGE
2007 2006 AMOUNT % 2007 2006 AMOUNT %
---- ---- ------ --- ---- ---- ------ ---
Products $ 140,478 $ 126,863 $ 13,615 10.7 $ 417,556 $ 384,039 $ 33,517 8.7
Solutions 14,718 15,181 (463) -3.0 37,160 48,924 (11,764) -24.0
---------- ---------- -------- ---------- --------- ---------
Net sales $ 155,196 $ 142,044 $ 13,152 9.3 $ 454,716 $ 432,963 $ 21,753 5.0
========== ========== ======== ========== ========= =========
Gross profit and gross profit margins by reporting segment are summarized as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------ --------------------------------------
DEC. 30, 2007 DEC. 31, 2006 DEC. 30, 2007 DEC. 31, 2006
------------- ------------- ------------- -------------
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
Products $ 44,199 31.5 $ 37,654 29.7 $ 130,530 31.3 $ 114,967 29.9
Solutions 2,475 16.8 969 6.4 6,070 16.3 4,956 10.1
--------- --------- ---------- ----------
Total Gross Profit $ 46,674 30.1 $ 38,623 27.2 $ 136,600 30.0 $ 119,923 27.7
========= ========= ========== ==========
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, favorable trends in our product liability and workers compensation
costs, ongoing cost containment activities and the translation of foreign
currencies into U.S. dollars, which contributed $1,400 and $3,000 toward the
Products segment increase in gross margin for the quarter and nine-months ended
December 30, 2007, respectively. The Solutions segment reflected gross margin
improvement due to restructuring activities and focus on profitable core
business undertaken at our Univeyor business.
- 16 -
Selling expenses were $17,818, $14,989, $51,208 and $45,095 in the fiscal 2008
and 2007 quarters and the nine-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
and strategic sales initiatives ($1,400 and $3,000 for the quarter and
nine-month period ended December 30, 2007, respectively), translation of foreign
currencies into U.S. dollars ($700 and $1,600 for the quarter and nine-month
period ended December 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 11.5%, 10.6%, 11.3%, and 10.4% in the fiscal 2008
and 2007 quarters and the nine-month periods then ended, respectively.
General and administrative expenses were $9,516, $8,566, $27,839 and $26,195 in
the fiscal 2008 and 2007 quarters and the nine-month periods then ended,
respectively. The change in administrative expenses was primarily the result of
increased research and development costs ($210 and $640 for the quarter and
nine-month period ended December 30, 2007, respectively) and the translation of
foreign currencies into U.S. dollars ($350 and $850 for the quarter and
nine-month period ended December 30, 2007, respectively). The quarter ended
December 30, 2007 also included the recognition of $135 of stock based
compensation expense related to our Long Term Incentive Plan. As a percentage of
consolidated net sales, general and administrative expenses were 6.1%, 6.0%,
6.1%, and 6.1% in the fiscal 2008 and 2007 quarters and the nine-month periods
then ended, respectively.
Restructuring charges were $149, $128, $894, and ($278) in the fiscal 2008 and
2007 quarters and the nine-month periods then ended, respectively. The 2008
restructuring charges include $551 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 $3,445, $4,034, $11,250, and $12,722 in the fiscal
2008 and 2007 quarters and the nine-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 2.2%, 2.8%, 2.5%, and 2.9% in the fiscal
2008 and 2007 quarters and the nine-month periods then ended, respectively.
Cost of bond redemptions was $177, $359, $1,620, and $4,942 in the fiscal 2008
and 2007 quarters and the nine-month periods then ended, respectively,
supporting our debt reduction initiatives.
Investment income was $261, $3,774, $812, and $4,560 in the fiscal 2008 and 2007
quarters and the nine-month periods then ended, respectively. The fiscal 2007
quarter and nine month period includes $3,400 of realized gains on sale of the
investments resulting from the reallocation of our captive insurance company's
investment portfolio.
Income tax expense as a percentage of income from continuing operations before
income tax expense was 40.8%, 38.2%, 39.0%, and 39.5% in the fiscal 2008 and
2007 quarters and the nine-month periods then ended, respectively. The fiscal
2008 percentages vary from the U.S. statutory note due to a $479 deferred tax
asset valuation allowance recorded in third quarter related to our Univeyor
business. The nine month fiscal 2007 percentage varies from the U.S. statutory
rate due to $1,040 of non-deductible stock option expense in the period. As of
December 30, 2007, the Company had U.S. federal net operating loss
carry-forwards of approximately $6,200 representing approximately $2,200 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," ("FIN 48") an interpretation of FASB Statement of
Financial Accounting Standards ("SFAS") No. 109. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized under SFAS 109. FIN 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.
- 17 -
Upon adoption of FIN 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. 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. There was no change in the
balance of unrecognized tax benefits during the first or third quarter of fiscal
2008.
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 December 30, 2008.
The Company had $207 accrued for the payment of interest and penalties at
December 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 $61,073 at December 30, 2007, an increase of
$12,418 from the March 31, 2007 balance of $48,655.
Net cash provided by operating activities was $37,985 for the nine months ended
December 30, 2007 compared to $27,230 for the nine months ended December 31,
2006. The $10,755 increase is primarily the result of a $6,103 increase in
income from continuing operations to $28,550 in fiscal 2008 from $22,447 in
fiscal 2007, an increase of $4,173 of cash from the change of accounts
receivables and unbilled revenues as a result of improved collection activities,
and a $1,385 increase in the use of deferred tax assets for net operating loss
carry-forwards. The resulting increase in cash from operations was partially
offset by a $2,427 increase in cash used for the change in inventory resulting
from support for upcoming new product launches, an increase for longer term
capital projects equipment and timing of offshore purchases.
Net cash used by investing activities was $2,897 for the nine months ended
December 30, 2007 compared to $2,157 for the nine months ended December 31,
2006. The net cash used in investing activities for the nine months ended
December 30, 2007 was the result of $7,421 used for capital expenditures and
$1,397 for the net purchases of marketable securities, partially offset by
$5,504 of proceeds from the sale of facilities and surplus real estate and $417
of proceeds from discontinued operations. The net cash used in investing
activities for the nine months ended December 31, 2006 was the result of $6,825
used for capital expenditures, partially offset by $2,051 of proceeds from the
sale of facilities and surplus real estate, $2,052 received from the net sale of
marketable securities, and $565 of proceeds from discontinued operations.
Net cash used by financing activities was $26,181 for the nine months ended
December 30, 2007 compared to $39,058 for the nine months ended December 31,
2006. The net cash used in financing activities for the nine months ended
December 30, 2007 consisted primarily of $27,910 of net debt repayments,
partially offset by $1,309 of proceeds from stock options exercised. The net
cash used in financing activities for the nine months ended December 31, 2006
consisted primarily of $41,374 of net debt repayments, partially offset by
$2,334 of proceeds from stock options exercised.
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.
- 18 -
The unused portion of the Revolving Credit Facility totaled $63,586, net of
outstanding borrowings of zero and outstanding letters of credit of $11,414 of
December 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
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 $133,000 at December 30, 2007 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. During the fiscal 2008 third quarter ending December
30, 2007 the Company used cash on hand to redeem $3,000 of the outstanding 8
7/8% Notes. The redemption required a $138 premium payment to Noteholders and
$39 of unamortized financing costs were written-off. During January 2008 the
Company used cash on hand to redeem an additional $3,145 of the outstanding 8
7/8% Notes which required a $134 premium payment to Noteholders and $40 of
unamortized financing costs were written-off.
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 December 30, 2007, amounts available under significant
foreign credit lines totaled approximately $11,750 of which $10,240 was drawn.
In addition to the above facilities, our foreign subsidiaries have certain fixed
term bank loans. As of December 30, 2007, significant secured loans totaled
$3,040.
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 nine months ended
December 30, 2007 and December 31, 2006 were $7,421 and $6,825, respectively. We
expect capital spending for fiscal 2008 to be approximately $11 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
- 19 -
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.
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," ("SFAS 157") 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 157 will be effective for fiscal years beginning after
November 15, 2007. The Company is assessing the impact the adoption of SFAS 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 SFAS 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.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) requires the acquiring entity in a
business combination to recognize all the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose all of the information required to evaluate
and understand the nature and financial effect of the business combination. This
statement is effective for acquisition dates on or after the beginning of the
first annual reporting period beginning after December 15, 2008. The Company is
currently evaluating the impact the adoption of SFAS 141(R) will have on the
Company's consolidated financial statements.
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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, our
asbestos-related liability, 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.
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 December 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 December 30, 2007. There were no
changes in the Company's internal controls or other factors during our third
quarter ended December 30, 2007.
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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 - none.
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: FEBRUARY 8, 2008 /S/ KAREN L. HOWARD
---------------- ----------------------------------------
Karen L. Howard
Vice President and Chief Financial
Officer (Principal Financial Officer)
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