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 July 3, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
------------------- --------------------
Commission File Number: 0-27618
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COLUMBUS MCKINNON CORPORATION
- --------------------------------------------------------------------------------
(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 check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934): [X] Yes [ ] No
The number of shares of common stock outstanding as of July 31, 2005 was:
15,026,422 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
JULY 3, 2005
PAGE #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
July 3, 2005 and March 31, 2005 2
Condensed consolidated statements of operations and
accumulated deficit - Three months ended
July 3, 2005 and July 4, 2004 3
Condensed consolidated statements of cash flows -
Three months ended July 3, 2005 and July 4, 2004 4
Condensed consolidated statements of comprehensive income -
Three months ended July 3, 2005 and July 4, 2004 5
Notes to condensed consolidated financial statements -
July 3, 2005 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. Disclosure Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none. 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 and Reports on Form 8-K 22
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 3, MARCH 31,
2005 2005
---------- ----------
(UNAUDITED) (AUDITED)
ASSETS: (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 13,627 $ 9,479
Trade accounts receivable 89,881 88,974
Unbilled revenues 9,871 8,848
Inventories 79,646 77,626
Prepaid expenses 14,047 14,198
---------- ----------
Total current assets 207,072 199,125
Property, plant, and equipment, net 55,946 57,237
Goodwill and other intangibles, net 186,741 187,285
Marketable securities 25,674 24,615
Deferred taxes on income 4,398 6,122
Other assets 6,430 6,487
---------- ----------
Total assets $ 486,261 $ 480,871
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 4,728 $ 4,839
Trade accounts payable 35,019 33,688
Accrued liabilities 54,696 51,962
Restructuring reserve 122 144
Current portion of long-term debt 194 5,819
---------- ----------
Total current liabilities 94,759 96,452
Senior debt, less current portion 119,441 115,735
Subordinated debt 142,259 144,548
Other non-current liabilities 43,609 42,369
---------- ----------
Total liabilities 400,068 399,104
---------- ----------
Shareholders' equity
Common stock 150 149
Additional paid-in capital 104,283 104,078
Accumulated deficit (1,322) (8,644)
ESOP debt guarantee (4,409) (4,554)
Unearned restricted stock (29) (6)
Accumulated other comprehensive loss (12,480) (9,256)
---------- ----------
Total shareholders' equity 86,193 81,767
---------- ----------
Total liabilities and shareholders' equity $ 486,261 $ 480,871
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-2 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMLATED DEFICIT
(UNAUDITED)
THREE MONTHS ENDED
------------------
JULY 3, JULY 4,
2005 2004
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net sales $ 140,877 $ 121,658
Cost of products sold 104,334 90,207
------------ ------------
Gross profit 36,543 31,451
------------ ------------
Selling expenses 13,658 12,700
General and administrative expenses 8,175 7,485
Restructuring charges 26 33
Amortization of intangibles 62 77
------------ ------------
21,921 20,295
------------ ------------
Income from operations 14,622 11,156
Interest and debt expense 6,716 7,048
Other (income) and expense, net (789) 18
------------- ------------
Income before income tax expense 8,695 4,090
Income tax expense 1,587 728
------------ ------------
Income from continuing operations 7,108 3,362
Income from discontinued operations 214 -
------------ ------------
Net income 7,322 3,362
Accumulated deficit - beginning of period (8,644) (25,354)
------------ ------------
Accumulated deficit - end of period $ (1,322) $ (21,992)
============ ============
Basic income per share:
Income from continuing operations $ 0.49 $ 0.23
Income from discontinued operations 0.01 -
------------ ------------
Basic income per share $ 0.50 $ 0.23
============ ============
Diluted income per share:
Income from continuing operations $ 0.48 $ 0.23
Income from discontinued operations 0.01 -
------------ ------------
Diluted income per share $ 0.49 $ 0.23
============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
------------------
JULY 3, JULY 4,
2005 2004
---------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations $ 7,108 $ 3,362
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 2,332 2,325
Deferred income taxes 1,724 1,455
Gain on sale of investments (481) -
Gain on early retirement of 2008 bonds (11) -
Amortization of deferred financing costs 320 369
Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenues (3,919) 2,674
Inventories (2,620) (2,080)
Prepaid expenses 130 (1,118)
Other assets (202) (129)
Trade accounts payable 2,095 (5,207)
Accrued and non-current liabilities 4,161 (519)
---------- ----------
Net cash provided by operating activities 10,637 1,132
---------- ----------
INVESTING ACTIVITIES:
(Purchase) sale of marketable securities, net (688) 208
Capital expenditures (1,674) (838)
Net assets held for sale - 220
---------- ----------
Net cash used in investing activities (2,362) (410)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1 -
Net borrowings under revolving
line-of-credit agreements 4,205 1,175
Repayment of debt (8,186) (1,078)
Deferred financing costs incurred (98) (11)
Other 145 143
---------- ----------
Net cash (used in) provided by financing activities (3,933) 229
Effect of exchange rate changes on cash (408) 12
---------- ----------
Net cash provided by continuing operations 3,934 963
Net cash provided by discontinued operations 214 -
---------- ----------
Net change in cash and cash equivalents 4,148 963
Cash and cash equivalents at beginning of period 9,479 11,101
---------- ----------
Cash and cash equivalents at end of period $ 13,627 $ 12,064
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
JULY 3, JULY 4,
2005 2004
---------- ----------
(IN THOUSANDS)
Net income $ 7,322 $ 3,362
---------- ----------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (3,145) (7)
Unrealized loss on investments:
Unrealized holding gain (loss) arising
during the period 371 (150)
Reclassification adjustment for
(gain) loss included in net income (450) 69
---------- ----------
(79) (81)
---------- ----------
Total other comprehensive loss (3,224) (88)
---------- ----------
Comprehensive income $ 4,098 $ 3,274
========== ==========
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)
JULY 3, 2005
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 July 3, 2005, and the results of its operations and its cash flows
for the three month periods ended July 3, 2005 and July 4, 2004, have been
included. Results for the period ended July 3, 2005 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2006. The balance sheet at March 31, 2005 has been derived from the audited
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,
2005.
The Company is a leading U.S. designer, 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. STOCK BASED COMPENSATION
The Company has two stock-based employee compensation plans in effect. The
Company accounts for these plans under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under these plans had an exercise price equal to the market value of the
underlying common stock on the date of grant and the number of options granted
was fixed. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition of SFAS No. 123
"Accounting for Stock-Based Compensation", to stock-based employee compensation:
THREE MONTHS ENDED
-------------------------------
JULY 3, 2005 JULY 4, 2004
-------------------------------
Net income, as reported.......................... $ 7,322 $ 3,362
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (346) (186)
-------------------------------
Net income, pro forma............................ $ 6,976 $ 3,176
===============================
Basic income per share:
As reported...................................... $ 0.50 $ 0.23
===============================
Pro forma........................................ $ 0.48 $ 0.22
===============================
Diluted income per share:
As reported...................................... $ 0.49 $ 0.23
===============================
Pro forma........................................ $ 0.46 $ 0.22
===============================
- 6 -
3. INVENTORIES
Inventories consisted of the following:
JULY 3, MARCH 31,
2005 2005
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At cost - FIFO basis:
Raw materials.............................. $ 41,767 $ 42,283
Work-in-process............................ 11,941 10,238
Finished goods............................. 36,568 35,800
---------- ----------
90,276 88,321
LIFO cost less than FIFO cost................. (10,630) (10,695)
---------- ----------
Net inventories............................... $ 79,646 $ 77,626
========== ==========
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.
4. RESTRUCTURING CHARGES
During the first three-months of fiscal 2006, the Company recorded restructuring
costs of $26 related mostly to the maintenance of non-operating facilities being
held for sale which are expensed on an as incurred basis in accordance with SFAS
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." All
of these costs are related to the Products segment. The liability as of July 3,
2005 consists of severance payments and costs associated with the preparation
and maintenance of non-operating facilities prior to disposal which were accrued
prior to the adoption of SFAS No. 146.
The following table provides a reconciliation of the activity related to
restructuring reserves:
EMPLOYEE FACILITY TOTAL
-----------------------------------------------
Reserve at March 31, 2005................................. $ 16 $ 128 $ 144
Fiscal 2006 first quarter restructuring charges........... - 26 26
Cash payments............................................. (13) (35) (48)
-----------------------------------------------
Reserve at July 3, 2005................................... $ 3 $ 119 $ 122
===============================================
5. 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
------------------
JULY 3, JULY 4,
2005 2004
---------- ----------
Service costs......................... $ 1,088 $ 1,190
Interest cost......................... 1,737 1,755
Expected return on plan assets........ (1,654) (1,645)
Net amortization...................... 508 495
---------- ----------
Net periodic pension cost............. $ 1,679 $ 1,795
========== ==========
For additional information on the Company's defined benefit pension 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, 2005.
- 7 -
The following table sets forth the components of net periodic postretirement
benefit cost for the Company's defined benefit postretirement plans:
THREE MONTHS ENDED
------------------
JULY 3, JULY 4,
2005 2004
---------- ----------
Service costs......................... $ 4 $ 4
Interest cost ........................ 188 234
Amortization of plan net losses....... 101 146
---------- ---------
Net periodic postretirement cost...... $ 293 $ 384
========== ==========
On December 8, 2003, Congress passed the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 ("Medicare Act"). In March 2004, the
FASB issued Staff Position No FAS 106-2 "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug Improvement and Modernization Act of
2003 ("FSP No 106-2")," which provides accounting guidance on how to account for
the effects of the Medicare Act on postretirement plans that provide
prescription drug benefits. The Medicare Act also requires certain disclosures
regarding the effect of the subsidy provided by the Medicare Act. Additionally,
FSP 106-2 provides two transition methods - retroactive to the date of enactment
or prospective from the date of adoption. The Company elected to adopt FAS 106-2
and apply the prospective transition method in the second quarter of fiscal
2005. The accumulated post retirement benefit obligation decreased approximately
$2,200.
For additional information on the Company's defined benefit postretirement
benefit plans, refer to Note 13 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, 2005.
6. INCOME TAXES
Income tax expense as a percentage of income from continuing operations before
income tax expense was 18.3%, and 17.8% in the fiscal 2006 and 2005 quarters,
respectively. The fiscal 2006 and 2005 percentages vary from the U.S. statutory
rate due to the utilization of domestic net operating loss carry-forwards that
had been fully reserved and jurisdictional mix. Therefore, income tax expense
primarily results from non-U.S. taxable income and state taxes on U.S. taxable
income.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED
------------------
JULY 3, JULY 4,
2005 2004
---------- ----------
Numerator for basic and diluted earnings per share:
Net income........................................................... $ 7,322 $ 3,362
========== ==========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS........................................ 14,672 14,576
Effect of dilutive employee stock options.............................. 357 24
---------- ----------
Adjusted weighted-average common stock outstanding
and assumed conversions - denominator for diluted EPS.............. 15,029 14,600
========== ==========
- 8 -
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.
Segment information as of and for the three months ended July 3, 2005 and July
4, 2004, is as follows:
THREE MONTHS ENDED JULY 3, 2005
-------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
Sales to external customers...................... $ 123,881 $ 16,996 $ 140,877
Income from operations........................... 14,128 494 14,622
Depreciation and amortization.................... 2,035 297 2,332
Total assets..................................... 452,810 33,451 486,261
THREE MONTHS ENDED JULY 4, 2004
-------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
Sales to external customers...................... $ 108,557 $ 13,101 $ 121,658
Income from operations........................... 10,824 332 11,156
Depreciation and amortization.................... 2,088 237 2,325
Total assets..................................... 443,925 27,356 471,281
- 9 -
9. SUMMARY FINANCIAL INFORMATION
The following information sets forth the condensed consolidating summary
financial information of the parent and guarantors, which guarantee the 10%
Senior Secured Notes and the 8 1/2% 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 JULY 3, 2005
Current assets:
Cash and cash equivalents $ 2,418 $ (1,000) $ 12,209 $ - $ 13,627
Trade accounts receivable and unbilled revenues 57,948 410 41,394 - 99,752
Inventories 34,731 20,399 25,943 (1,427) 79,646
Other current assets 6,021 938 7,088 - 14,047
--------------------------------------------------------------------
Total current assets 101,118 20,747 86,634 (1,427) 207,072
Property, plant, and equipment, net 25,106 12,560 18,280 - 55,946
Goodwill and other intangibles, net 90,022 57,286 39,433 - 186,741
Intercompany 95,132 (98,463) (69,674) 73,005 -
Other assets 53,560 197,864 25,273 (240,195) 36,502
-------------------------------------------------------------------
Total assets $ 364,938 $ 189,994 $ 99,946 $ (168,617) $ 486,261
===================================================================
Current liabilities $ 43,365 $ 15,439 $ 37,865 $ (1,910) $ 94,759
Long-term debt, less current portion 261,059 - 641 - 261,700
Other non-current liabilities 7,201 8,188 28,220 - 43,609
-------------------------------------------------------------------
Total liabilities 311,625 23,627 66,726 (1,910) 400,068
Shareholders' equity 53,313 166,367 33,220 (166,707) 86,193
-------------------------------------------------------------------
Total liabilities and shareholders' equity $ 364,938 $ 189,994 $ 99,946 $ (168,617) $ 486,261
===================================================================
FOR THE THREE MONTHS ENDED JULY 3, 2005
Net sales $ 67,049 $ 37,922 $ 42,193 $ (6,287) $ 140,877
Cost of products sold 49,881 28,790 31,495 (5,832) 104,334
-------------------------------------------------------------------
Gross profit 17,168 9,132 10,698 (455) 36,543
-------------------------------------------------------------------
Selling, general and administrative expenses 10,225 3,965 7,643 - 21,833
Restructuring charges 26 - - - 26
Amortization of intangibles 44 1 17 - 62
-------------------------------------------------------------------
10,295 3,966 7,660 - 21,921
-------------------------------------------------------------------
Income from operations 6,873 5,166 3,038 (455) 14,622
Interest and debt expense 5,573 1,053 90 - 6,716
Other income (181) (3) (605) - (789)
-------------------------------------------------------------------
Income (loss) before income tax expense 1,481 4,116 3,553 (455) 8,695
Income tax expense 175 309 1,103 - 1,587
-------------------------------------------------------------------
Income (loss) from continuing operations 1,306 3,807 2,450 (455) 7,108
Income from discontinued operations 214 - - - 214
-------------------------------------------------------------------
Net income (loss) $ 1,520 $ 3,807 $ 2,450 $ (455) $ 7,322
===================================================================
- 10 -
Parent Guarantors Nonguarantors Eliminations Consolidated
-------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JULY 3, 2005
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 6,655 $ (160) $ 4,142 $ - $ 10,637
-------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net - - (688) - (688)
Capital expenditures (1,283) (151) (240) - (1,674)
-------------------------------------------------------------------
Net cash used in investing activities (1,283) (151) (928) - (2,362)
-------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1 - - - 1
Net borrowings under revolving
line-of-credit agreements 4,040 - 165 - 4,205
Repayment of debt (8,109) - (77) - (8,186)
Deferred financing costs incurred (98) - - - (98)
Other 145 - - - 145
-------------------------------------------------------------------
Net cash (used in) provided by financing
activities (4,021) - 88 - (3,933)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (166) 8 (250) - (408)
-------------------------------------------------------------------
Cash provided by (used in) continuing operations 1,185 (303) 3,052 - 3,934
CASH PROVIDED BY DISCONTINUED OPERATIONS 214 - - - 214
-------------------------------------------------------------------
Net change in cash and cash equivalents 1,399 (303) 3,052 - 4,148
Cash and cash equivalents at beginning of
period 1,019 (697) 9,157 - 9,479
-------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,418 $ (1,000) $ 12,209 $ - $ 13,627
===================================================================
AS OF MARCH 31, 2005
Current assets:
Cash and cash equivalents $ 1,019 $ (697) $ 9,157 $ - $ 9,479
Trade accounts receivable and unbilled revenues 57,707 197 39,918 - 97,822
Inventories 33,651 18,919 26,028 (972) 77,626
Other current assets 7,297 973 5,928 - 14,198
-------------------------------------------------------------------
Total current assets 99,674 19,392 81,031 (972) 199,125
Property, plant, and equipment, net 25,107 12,847 19,283 - 57,237
Goodwill and other intangibles, net 90,027 57,287 39,971 - 187,285
Intercompany 98,964 (102,189) (70,216) 73,441 -
Other assets 55,396 197,864 24,159 (240,195) 37,224
-------------------------------------------------------------------
Total assets $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871
===================================================================
Current liabilities $ 50,323 $ 14,450 $ 33,153 $ (1,474) $ 96,452
Long-term debt, less current portion 259,520 - 763 - 260,283
Other non-current liabilities 7,898 8,199 26,272 - 42,369
-------------------------------------------------------------------
Total liabilities 317,741 22,649 60,188 (1,474) 399,104
Shareholders' equity 51,427 162,552 34,040 (166,252) 81,767
-------------------------------------------------------------------
Total liabilities and shareholders' equity $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871
===================================================================
- 11 -
Parent Guarantors Nonguarantors Eliminations Consolidated
-------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JULY 4, 2004
Net sales $ 60,503 $ 33,971 $ 33,471 $ (6,287) $ 121,658
Cost of products sold 45,821 26,513 24,160 (6,287) 90,207
-------------------------------------------------------------------
Gross profit 14,682 7,458 9,311 - 31,451
Selling, general and administrative expenses 9,968 3,253 6,964 - 20,185
Restructuring charges 33 - - - 33
Amortization of intangibles 59 1 17 - 77
-------------------------------------------------------------------
10,060 3,254 6,981 - 20,295
-------------------------------------------------------------------
Income from operations 4,622 4,204 2,330 - 11,156
Interest and debt expense 7,248 (297) 97 - 7,048
Other (income) and expense, net (6) (2) 26 - 18
-------------------------------------------------------------------
(Loss) income before income tax
(benefit) expense (2,620) 4,503 2,207 - 4,090
Income tax (benefit) expense (137) 248 617 - 728
-------------------------------------------------------------------
Net (loss) income $ (2,483) $ 4,255 $ 1,590 $ - $ 3,362
===================================================================
FOR THE THREE MONTHS ENDED JULY 4, 2004
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 1,542 $ (854) $ 444 $ - $ 1,132
-------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net - - 208 - 208
Capital expenditures, net (692) (173) 27 - (838)
Other - 220 - - 220
-------------------------------------------------------------------
Net cash (used in) provided by investing
activities (692) 47 235 - (410)
-------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
line-of-credit agreements 1,260 - (85) - 1,175
Repayment of debt (1,000) - (78) - (1,078)
Deferred financing costs incurred (11) - - - (11)
Other 143 - - - 143
-------------------------------------------------------------------
Net cash provided by (used in) financing
activities 392 - (163) - 229
EFFECT OF EXCHANGE RATE CHANGES ON CASH 43 111 (142) - 12
-------------------------------------------------------------------
Net change in cash and cash equivalents 1,285 (696) 374 - 963
Cash and cash equivalents at beginning of period 6,981 (329) 4,449 - 11,101
-------------------------------------------------------------------
Cash and cash equivalents at end of period $ 8,266 $ (1,025) $ 4,823 $ - $ 12,064
===================================================================
10. LOSS CONTINGENCIES
Like many industrial manufacturers, the Company is involved in asbestos-related
litigation. In continually evaluating 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.
- 12 -
Based on actuarial information, the Company has estimated its asbestos-related
aggregate liability through March 31, 2030 and March 31, 2081 to range between
$4,200 and $16,700 using actuarial parameters of continued claims for a period
of 25 to 76 years. The Company's estimation of its asbestos-related aggregate
liability that is probable and estimable is through March 31, 2030 and ranges
from $4,200 to $5,500 as of July 3, 2005. The range of probable and estimable
liability reflects 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. Based on the underlying actuarial information,
the Company has reflected $4,800 as a liability in the consolidated financial
statements in accordance with U.S. generally accepted accounting principles. The
recorded liability does not consider the impact of any potential favorable
federal legislation such as the "FAIR Act". Of this amount, management expects
to incur asbestos liability payments of approximately $220 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 November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS, as an amendment
to ARB No. 43, Chapter 4, INVENTORY PRICING, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage). This Statement requires that these items be recognized as
current-period charges and requires the allocation of fixed production overheads
to inventory based on the normal capacity of the production facilities. This
Statement becomes effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company does not expect the adoption of SFAS
No. 151 to have a material impact on the Company's consolidated financial
statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), SHARE-BASED PAYMENT, which is a revision of
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement
123(R) supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEEs,
and amends FASB Statement No. 95, STATEMENT OF CASH FLOWS. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
Statement 123(R) was to be adopted for interim or annual periods beginning after
June 15, 2005. On April 14th, 2005, the SEC announced that it would provide for
a phased-in implementation process for FASB statement No. 123(R). The SEC is
requiring that registrants adopt statement 123(R)'s fair value method of
accounting for share-based payments to employees no later than the beginning of
the first fiscal year beginning after June 15, 2005. We expect to adopt 123(R)
in the first quarter of Fiscal 2007. Statement 123(R) permits public companies
to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective
date and (b) based on the requirements of Statement 123(R) for all
share-based payments granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date.
2. A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
The Company is still evaluating the method it plans to use when it adopts
statement 123(R).
- 13 -
As permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
recognizes no compensation cost for employee stock options. Accordingly,
adoption of Statement 123(R)'s fair value method will have an impact on our
results of operations, although it will have no impact on our overall financial
position. The impact of adoption of 123(R) cannot be predicted at this time
because it will depend on levels of share based payments granted in the future.
However, had we adopted Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of statement 123 as described in the
disclosure of pro forma net income and earnings per share in Note 2 to our
condensed consolidated financial statements.
- 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, 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 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 leadership position through
organic growth and also as the result of the 14 businesses we acquired between
February 1994 and April 1999. We have developed our leading market position over
our 130-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. Integration of the
operations of the acquired businesses with our previously existing businesses is
substantially complete. Ongoing integration of these businesses includes
improving our productivity, further reducing our excess manufacturing capacity
and extending our sales activities to the European and Asian marketplaces. We
are executing those initiatives through our Lean Manufacturing efforts, facility
rationalization program, new product development and expanded sales activities.
Shareholder value will be enhanced through continued emphasis on the improvement
of the fundamentals including manufacturing efficiency, cost containment,
efficient capital investment, and our markets and customers.
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. This
includes development of 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. These investments in international markets
and new products are part of our focus on our greatest opportunities for growth.
International sales increased 25% from approximately $40,000 to $50,000 during
the first quarter of fiscal 2006 and overall sales increased 16% over the same
period last year. Management believes that the growth rate of total sales will
decline in future periods due to more difficult comparisons with our fiscal 2005
periods. In addition, bookings have tempered to growth in the mid-single digit
range. We monitor such indicators as U.S. Industrial Capacity Utilization and
Industrial Production, which had been increasing since July 2003 but have more
recently begun to stabilize. In addition, we continue to monitor the potential
impact of global and domestic trends, including steel price fluctuations,
possibly rising interest rates and uncertainty in some 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. From 2001 to 2004 under our facility
rationalization program, we closed 13 facilities and consolidated several
product lines, with potential opportunity for further rationalization. We have
been undergoing assessments for possible divestiture of several less-strategic
businesses. Our manipulator and specialty marine chain businesses were sold in
fiscal 2004 and two others remain as possible divestiture candidates, our
conveyor business which comprises a majority of our Solutions segment and a
specialty crane business within our Products segment. In furtherance of our
facility rationalization projects, we completed the sale of several excess
properties at a gain of $3,700 during fiscal 2005. In July of 2005, we completed
the sale of a Canadian facility in a sale-leaseback transaction at a gain of
$300, which will be recorded in the second quarter of fiscal 2006. We will
- 15 -
continue to sell surplus real estate resulting from our facility rationalization
projects and those sales may result in gains or losses.
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 $33,000 in fiscal 2005 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. Increases in our costs have been reflected as price increases and
surcharges to our customers and we continue to monitor them. The costs of
implementing Sarbanes-Oxley internal control documentation and compliance had a
substantial impact on fiscal 2005 profitability and we are focused on minimizing
the future added costs of compliance. 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. Based on current trends, we
look forward to slowed growth over the remainder of fiscal 2006.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 3, 2005 AND JULY 4, 2004
Net sales in the fiscal 2006 quarter ended July 3, 2005 were $140,877, up
$19,219 or 15.8% from the fiscal 2005 quarter ended July 4, 2004. Sales in the
Products segment increased by $15,324 or 14.1% from the previous year's quarter.
These increases are due to the continued strength of the U.S. and European
industrial markets, as well as the impact of price increases ($6,100) and
surcharges ($1,800) to recover cost increases. Translation of foreign
currencies, particularly the Euro and Canadian dollar, into U.S. dollars
contributed $1,300 toward the Products segment increase in sales for the quarter
ended July 3, 2005. Sales in the Solutions segment increased 29.7% or $3,895 for
the quarter ended July 3, 2005 when compared to the same period in the prior
year. The increase in this segment for the quarter is primarily due to
improvement in our European conveyor business. Translation of foreign currencies
into U.S. dollars contributed $600 toward the Solutions segment increase in
sales for the quarter ended July 3, 2005. Sales in the segments are summarized
as follows:
THREE MONTHS ENDED
------------------
JULY 3, JULY 4, CHANGE
2005 2004 AMOUNT %
---------- ---------- -------- ----
Products........................ $ 123,881 $ 108,557 $ 15,324 14.1
Solutions....................... 16,996 13,101 3,895 29.7
---------- ---------- --------
Net sales....................... $ 140,877 $ 121,658 $ 19,219 15.8
========== ========== ========
Gross profit and gross profit margins by operating segment are summarized as
follows:
THREE MONTHS ENDED
------------------
JULY 3, 2005 JULY 4, 2004
------------ ------------
$ % $ %
----- ---- ----- ----
Products.......................... $ 34,220 27.6 $ 29,245 26.9
Solutions......................... 2,323 13.7 2,206 16.8
--------- ---------
Total Gross Profit............. $ 36,543 25.9 $ 31,451 25.9
========= =========
The increase in the gross profit margin for the Products segment is the result
of realization of operational leverage at increased sales volumes and previous
cost containment activities. The Solutions segment gross profit margin was
unfavorably impacted by product mix.
Selling expenses were $13,658 and $12,700 in the fiscal 2006 and 2005 quarters,
respectively. The changes in expense dollars were impacted by increased
investment in international markets ($500), translation from changes in foreign
exchange rates ($200), and increased variable selling costs as a result of
higher sales volume ($100). As a percentage of consolidated net sales, selling
expenses were 9.7%, and 10.4% in the fiscal 2006 and 2005 quarters,
respectively.
- 16 -
General and administrative expenses were $8,175 and $7,485 in the fiscal 2006
and 2005 quarters, respectively. The quarterly increase is primarily the result
of increased salaries ($200), increased professional costs associated with
regulatory compliance with the Sarbanes-Oxley Act ($100), currency translation
impact ($100), and variable compensation expense ($100). As a percentage of
consolidated net sales, general and administrative expenses were 5.8%, and 6.2%
in the fiscal 2006 and 2005 quarters, respectively.
Restructuring charges were $26 and $33 in the fiscal 2006 and 2005 quarters,
respectively.
Amortization of intangibles was $62, and $77 in the fiscal 2006 and 2005
quarters, respectively.
Interest and debt expense was $6,716 and $7,048 in the fiscal 2006 and 2005
quarters, respectively. The quarterly decrease is the result of lower debt
levels. As a percentage of consolidated net sales, interest and debt expense was
4.8%, and 5.8% in the fiscal 2006 and 2005 quarters, respectively.
Other (income) and expense, net was ($789), and $18 in the fiscal 2006 and 2005
quarters, respectively. The 2006 quarter consisted primarily of $575 of realized
gains and investment income on investments within our captive insurance company
portfolio.
Income tax expense as a percentage of income from continuing operations before
income tax expense was 18.3%, and 17.8% in the fiscal 2006 and 2005 quarters,
respectively. The fiscal 2006 and 2005 percentages vary from the U.S. statutory
rate due to the utilization of domestic net operating loss carry-forwards that
had been fully reserved and jurisdictional mix. Income tax expense primarily
results from non-U.S. taxable income and state taxes on U.S. taxable income. We
evaluate our estimated annual effective tax rate each quarter. In light of the
our continuing improvement in the results of our U.S. operations during fiscal
2005 and 2006, we plan to review the previously established valuation reserves
for our net deferred tax assets in more detail as information becomes available.
LIQUIDITY AND CAPITAL RESOURCES
On April 29, 2005, we amended our credit facilities. As a result of the
amendment, the Term Loan was repaid in its entirety. The Revolving Credit
Facility was amended to provide availability up to a maximum of $65,000.
Underlying collateral at July 3, 2005 amounted to $65,000. The unused portion
totaled $47,700, net of outstanding borrowings of $3,800 and outstanding letters
of credit of $13,500. Interest is payable at varying Eurodollar rates based on
LIBOR or prime plus spreads determined by our leverage ratio, amounting to 175
or 50 basis points applied to each, respectively, at July 3, 2005 (4.93%). 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 Senior Subordinated 8 1/2% Notes issued on March 31, 1998 amounted to
$142,259, net of original issue discount and are due March 31, 2008. Provisions
of the 8 1/2% Senior Subordinated Notes (8 1/2% Notes) include, without
limitation, restrictions on liens, indebtedness, asset sales, and dividends and
other restricted payments. The 8 1/2% Notes are redeemable at our option, in
whole or in part, at prices declining annually from the Make-Whole Price (as
defined in the 8 1/2% Notes agreement) to 100% on and after April 1, 2006. The 8
1/2% Notes are currently callable at 101.417. In the event of a Change of
Control (as defined in the indenture for such notes), each holder of the 8 1/2%
Notes may require us to repurchase all or a portion of such holder's 8 1/2%
Notes at a purchase price equal to 101% of the principal amount thereof. The 8
1/2% Notes are guaranteed by certain existing and future domestic subsidiaries
and are not subject to any sinking fund requirements.
The Senior Secured 10% Notes issued on July 22, 2003 amounted to $115,000 and
are due August 1, 2010. Provisions of the 10% Notes include, without limitation,
restrictions on indebtedness, restricted payments, asset and subsidiary stock
sales, liens, and other restricted transactions. The 10% Notes are not entitled
to redemption at our option, prior to August 1, 2007 in the absence of an equity
offering. Until August 1, 2006, we may redeem up to 35% of the outstanding notes
at a redemption price of 110.0% with the proceeds of equity offerings, subject
to certain restrictions. On and after August 1, 2007, they are redeemable at
prices declining annually to 100% on and after August 1, 2009. In the event of a
- 17 -
Change of Control (as defined in the indenture for such notes), each holder of
the 10% Notes may require us to repurchase all or a portion of such holder's 10%
Notes at a purchase price equal to 101% of the principal amount thereof. The 10%
Notes are secured by a second-priority interest in all domestic inventory,
receivables, equipment, real property, subsidiary stock (limited to 65% for
foreign subsidiaries) and intellectual property. The 10% Notes are guaranteed by
certain existing and future domestic subsidiaries and are not subject to any
sinking fund requirements.
The corresponding credit agreements associated with the Revolving Credit
Facility place certain debt covenant restrictions on us including certain
financial requirements and a restriction on dividend payments.
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 is focused on cash generation for debt repayment. The
business plan includes continued implementation of Lean Manufacturing, facility
rationalization projects, divestiture of excess facilities and certain
non-strategic operations, improving working capital utilization, and new market
and new product development.
Net cash provided by operating activities was $10,637 for the three months ended
July 3, 2005 compared to $1,132 for the three months ended July 4, 2004. The
$9,505 increase is the result of increased income from continuing operations of
$3,746 and changes in net working capital components, primarily increased
accounts payable and accrued liabilities, offset by increases in accounts
receivable and unbilled revenues.
Net cash used in investing activities was $2,362 for the three months ended July
3, 2005 compared to $410 for the three months ended July 4, 2004. In 2006, we
purchased $688 of marketable equity securities compared to the sale $208 of
marketable equity securities to fund product liability payments in fiscal 2005.
Capital expenditures increased to $1,674 in 2006 compared to $838 in fiscal
2005.
Net cash used in financing activities was $3,933 for the three months ended July
3, 2005 compared to net cash provided by financing activities of $229 for the
three months ended July 4, 2004. The $4,162 change is primarily the result of
repayment of debt.
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 July
3, 2005 and July 4, 2004 were $1,674 and $838, respectively.
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, 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 over such periods and the 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, employee benefit costs such as health insurance, workers compensation
insurance, pensions as well as energy and business insurance have exceeded
general inflation levels. We generally incorporate those cost increases into our
sales price increases as well as surcharges on certain products. In the future,
we may be further affected by inflation that we may not be able to pass on as
price increases.
- 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, restructuring
charges and other costs attributable to our facility rationalization program,
divestitures, acquisitions and the magnitude of rationalization integration
costs. 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 November 2004, the FASB issued SFAS No. 151, "Inventory Costs," as an
amendment to ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted materials (spoilage). This Statement requires that these items
be recognized as current-period charges and requires the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. This Statement becomes effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We do not expect the adoption of
SFAS No. 151 to have a material impact on our consolidated financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), SHARE-BASED PAYMENT, which is a revision of
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement
123(R) supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEEs,
and amends FASB Statement No. 95, STATEMENT OF CASH FLOWS. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
Statement 123(R) was to be adopted for interim or annual periods beginning after
June 15, 2005. On April 14th, 2005, the SEC announced that it would provide for
a phased-in implementation process for FASB statement No. 123(R). The SEC is
requiring that registrants adopt statement 123(R)'s fair value method of
accounting for share-based payments to employees no later than the beginning of
the first fiscal year beginning after June 15, 2005. We expect to adopt 123(R)
in the first quarter of Fiscal 2007. Statement 123(R) permits public companies
to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of
Statement 123(R) for all share-based payments granted to employees
prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on amounts previously recognized under
Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of
adoption.
We are still evaluating the method it plans to use when it adopts statement
123(R).
As permitted by Statement 123, we currently account for share-based payments to
employees using Opinion 25's intrinsic value method and, as such, recognize no
compensation cost for employee stock options. Accordingly, adoption of Statement
123(R)'s fair value method will have an impact on our results of operations,
although it will have no impact on our overall financial position. The impact of
adoption of 123(R) cannot be predicted at this time because it will depend on
levels of share based payments granted in the future. However, had we adopted
Statement 123(R) in prior periods, the impact of that standard would have
approximated the impact of statement 123 as described in the disclosure of pro
forma net income and earnings per share in Note 2 to our condensed consolidated
financial statements.
- 19 -
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
declines 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.
- 20 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the reported market risks since the end
of Fiscal 2005.
Item 4. Disclosure Controls and Procedures
As of July 3, 2005, 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 July 3, 2005. There were no changes in the
Company's internal controls or in other factors during our first quarter ended
July 3, 2005.
- 21 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none.
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 and Reports on Form 8-K
(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.
(b) Reports on Form 8-K:
On June 7, 2005, the Company filed a Current Report on Form 8-K with
respect to its financial results for the fourth quarter of fiscal
2005.
On July 21, 2005, the Company filed a Current Report on Form 8-K with
respect to the sale and partial leaseback of property.
On July 26, 2005, the Company filed a Current Report on Form 8-K with
respect to its financial results for the first quarter of fiscal
2006.
- 22 -
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: AUGUST 8, 2005 /S/ KAREN L. HOWARD
-------------- -------------------------------------
Karen L. Howard
Vice President and Treasurer and
Interim Chief Financial Officer
(Principal Financial Officer)