UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended September 27, 1998
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
The number of shares of common stock outstanding as of October 30, 1998 was:
13,768,358 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
SEPTEMBER 27, 1998
PAGE #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 27, 1998 and March 31, 1998 2
Condensed consolidated statements of income and
retained earnings - Three months and six months
ended September 27, 1998 and September 28, 1997 3
Condensed consolidated statements of cash flows -
Six months ended September 27, 1998 and September 28, 1997 4
Condensed consolidated statements of comprehensive income -
Three months and six months ended September 27, 1998
and September 28, 1997 5
Notes to condensed consolidated financial statements -
September 27, 1998 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities - none. 17
Item 3. Defaults upon Senior Securities - none. 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information - none. 17
Item 6. Exhibits and Reports on Form 8-K 17
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 27, MARCH 31,
1998 1998
-------- --------
(IN THOUSANDS)
ASSETS:
Current assets:
Cash and cash equivalents $ 17,132 $ 22,841
Trade accounts receivable 131,233 113,509
Unbilled revenues 16,659 19,634
Inventories 103,885 107,673
Net assets held for sale 8,993 10,396
Prepaid expenses 6,711 9,969
-------- --------
Total current assets 284,613 284,022
Net property, plant, and equipment 80,747 81,927
Goodwill and other intangibles, net 355,977 368,137
Marketable securities 15,980 16,665
Deferred taxes on income 6,859 7,534
Other assets 8,697 5,463
-------- --------
Total assets $752,873 $763,748
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 2,660 $ 2,801
Trade accounts payable 39,381 53,901
Excess billings 4,853 3,290
Accrued liabilities 45,987 43,065
Current portion of long-term debt 1,425 1,456
-------- --------
Total current liabilities 94,306 104,513
Senior debt, less current portion 244,270 247,388
Subordinated debt 199,468 199,468
Other non-current liabilities 37,843 45,857
-------- --------
Total liabilities 575,887 597,226
Shareholders' equity:
Common stock 137 137
Additional paid-in capital 97,248 96,544
Retained earnings 85,473 76,187
ESOP debt guarantee (2,767) (3,203)
Unearned restricted stock (394) (538)
Total accumulated other comprehensive income (loss) (2,711) (2,605)
-------- --------
Total shareholders' equity 176,986 166,522
-------- --------
Total liabilities and shareholders' equity $752,873 $763,748
======== ========
See accompanying notes to condensed consolidated financial statements.
- 2 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $168,634 $123,907 $339,138 $248,349
Cost of products sold 126,234 88,071 253,283 177,310
------- ------- ------- -------
Gross profit 42,400 35,836 85,855 71,039
------- ------- ------- -------
Selling expenses 12,461 10,628 24,941 21,793
General and administrative expenses 7,213 5,993 14,109 12,336
Amortization of intangibles 3,847 2,545 7,607 5,094
------- ------- ------- -------
23,521 19,166 46,657 39,223
------- ------- ------- -------
Income from operations 18,879 16,670 39,198 31,816
Interest and debt expense 8,978 5,910 17,596 12,435
Interest and other income 262 328 633 644
------- ------- ------- -------
Income before income taxes 10,163 11,088 22,235 20,025
Income tax expense 5,078 5,458 11,066 9,964
------- ------- ------- -------
Net income 5,085 5,630 11,169 10,061
Retained earnings - beginning of period 81,330 64,497 76,187 60,999
Cash dividends of $0.07, $0.07, $0.14 and
$0.14 per share (942) (933) (1,883) (1,866)
------- ------- ------- -------
Retained earnings - end of period $85,473 $69,194 $85,473 $69,194
======= ======= ======= =======
Earnings per share data, both basic and diluted: $0.38 $0.42 $0.83 $0.75
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
----------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 11,169 $ 10,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,231 9,539
Other 1,166 347
Changes in operating assets and liabilities net
of effects from businesses purchased and sold:
Trade accounts receivable (18,940) (4,906)
Unbilled revenues and excess billings 4,538 -
Inventories 1,656 210
Prepaid expenses (67) 769
Other assets (367) (284)
Trade accounts payable (14,231) (4,900)
Accrued and non-current liabilities 4,072 5,132
--------- --------
Net cash provided by operating activities 2,227 15,968
--------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities, net of sales 438 (1,687)
Capital expenditures (5,363) (3,280)
Proceeds from sale of businesses 9,301 -
Purchases of businesses, net of cash (7,323) -
Net assets held for sale 1,403 (324)
Other - (148)
--------- ---------
Net cash used in investing activities (1,544) (5,439)
---------- ---------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit agreements (2,741) (1,526)
Repayment of debt (549) (7,093)
Dividends paid (1,883) (1,866)
Reduction of ESOP debt guarantee 436 407
Other (891) (558)
---------- ---------
Net cash used in financing activities (5,628) (10,636)
Effect of exchange rate changes on cash (764) (730)
---------- ---------
Net change in cash and cash equivalents (5,709) (837)
Cash and cash equivalents at beginning of period 22,841 8,907
--------- --------
Cash and cash equivalents at end of period $ 17,132 $ 8,070
========= ========
See accompanying notes to condensed consolidated financial statements.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
Net income $ 5,085 $ 5,630 $ 11,169 $ 10,061
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 360 (219) 143 (957)
Unrealized gains on investments:
Unrealized holding gains arising during
the period (268) 304 (221) 801
Less: reclassification adjustment for gains
included in net income 48 (158) (28) (247)
---------- ---------- ---------- ----------
(220) 146 (249) 554
---------- ---------- ---------- ----------
Total other comprehensive income (loss) 140 (73) (106) (403)
---------- ---------- ---------- ----------
Comprehensive income $ 5,225 $ 5,557 $ 11,063 $ 9,658
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
- 5 -
COLUMBUS MCKINNON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 27, 1998
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with 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 the Company at
September 27, 1998, and the results of its operations and its cash flows
for the three and six month periods ended September 27, 1998 and September
28, 1997, have been included. Results for the period ended September 27,
1998 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1999. 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, 1998.
2. Inventories consisted of the following:
SEPTEMBER 27, MARCH 31,
1998 1998
-------------------------------
(IN THOUSANDS)
At cost - FIFO basis:
Raw materials $ 47,835 $ 52,158
Work-in-process 17,401 22,188
Finished goods 42,399 37,089
----------- -----------
107,635 111,435
LIFO cost less than FIFO cost (3,750) (3,762)
----------- -----------
$ 103,885 $ 107,673
=========== ===========
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. Property, plant, and equipment is net of $35,722,000 and $30,876,000 of
accumulated depreciation at September 27, 1998 and March 31, 1998,
respectively.
4. Goodwill and other intangibles, net includes $21,993,000 and $14,979,000 of
accumulated amortization at September 27, 1998 and March 31, 1998,
respectively.
5. General and Product Liability - Accrued general and product liability costs
which are included in other non-current liabilities are the actuarial
present value of estimated expenditures based on amounts determined from
loss reports and individual cases filed with the Company and an amount,
based on past experience, for losses incurred but not reported. The accrual
in these condensed consolidated financial statements was determined by
applying a discount factor based on interest rates customarily used in the
insurance industry.
- 6 -
Yale was self-insured for product liability claims up to a maximum of
$500,000 per occurrence and maintained product liability insurance with a
$100 million cap per occurrence through July 31, 1997 when Yale was added
to the Company's coverage as described above. The Company has been advised
that a customer has alleged that one of Yale's products was the cause of a
fire that occurred in January 1995 at a manufacturing facility, resulting
in losses in excess of Yale's policy limits. A formal complaint has been
filed seeking damages in excess of $500 million. However, it is the opinion
of management that there was no manufacturing defect and that the claim
will in all likelihood be settled within the Company's policy limits.
6. To manage its exposure to interest rate fluctuations, the Company has
interest rate swaps with a notional value of $22 million through January 2,
1999 and $3.5 million from January 2, 1999 through July 2, 2002, both based
on LIBOR at 5.9025%. The Company also has LIBOR-based interest rate caps on
$40 million of debt through December 16, 1998 and on an additional $49.5
million of debt through December 16, 1999 at 9% and 10%, respectively. Net
payments or receipts under the swap and cap agreements are recorded as
adjustments to interest expense. The carrying amount of the Company's
senior debt instruments approximates the fair values. The Company's
subordinated debt has an approximate fair value of $184,000,000, which is
less than its carrying amount of $199,468,000.
7. The following table sets forth the computation of basic and diluted
earnings per share before extraordinary charge for debt extinguishment:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
Numerator for basic and diluted earnings per share:
Income before extraordinary charge $5,085,000 $5,630,000 $11,169,000 $10,061,000
========== ========== =========== ===========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS 13,456,000 13,352,000 13,444,000 13,340,000
Effect of dilutive employee stock options 47,000 53,000 66,000 41,000
---------- ---------- ---------- ----------
Adjusted weighted-average common stock
outstanding and assumed conversions -
denominator for diluted EPS 13,503,000 13,405,000 13,510,000 13,381,000
========== ========== ========== ==========
8. Income tax expense for the three month periods ended September 27, 1998 and
September 28, 1997 and also for the six month periods then ended exceeds
the customary relationship between income tax expense and income before
income taxes due to nondeductible amortization of goodwill of $3,847,000,
$2,545,000, $7,607,000, and $5,094,000, respectively.
9. On August 21, 1998 the Company acquired the net assets of the Abell-Howe
Crane division ("Abell-Howe") of Abell-Howe Company, a regional
manufacturer of jib, gantry, and bridge cranes. The total cost of the
acquisition, which was accounted for as a purchase, was approximately $7
million of cash and was financed by proceeds from the Company's revolving
debt facility.
- 7 -
On August 7, 1998 the Company sold its Mechanical Products division, a
producer of circuit protection devices, for $12 million, consisting of $9.6
million of cash and a $2.4 million note receivable, to Mechanical Products'
senior management team.
On March 31, 1998 the Company acquired all of the outstanding stock of
LICO, Inc. ("LICO"), a leading designer, manufacturer and installer of
custom conveyor and automated material handling systems primarily for the
automotive industry and, to a lesser extent, the steel and other industrial
markets. The total cost of the acquisition, which was accounted for as a
purchase, was approximately $155 million of cash, which was financed by
proceeds from the Company's new revolving debt facility and a private
placement of senior subordinated notes, both of which also closed effective
March 31, 1998.
On January 7, 1998 the Company acquired all of the outstanding stock of
Univeyor A/S ("Univeyor"), a Denmark-based designer, manufacturer and
distributor of automated material handling systems, and has accounted for
the acquisition as a purchase. The cost of the acquisition was
approximately $15 million of cash financed by the Company's revolving debt
facility, plus the assumption of certain debt.
The following table presents pro forma summary information for the six
month periods ended September 27, 1998 and September 28, 1997 as if the
Mechanical Products sale, Abell-Howe, LICO and Univeyor acquisitions, and
related borrowings had occurred as of April 1, 1997, which is the beginning
of fiscal 1998. The pro forma information is provided for informational
purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
enterprise:
SIX MONTHS ENDED
----------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro forma:
Net sales $ 335,836 $ 322,615
Income from operations 38,818 35,365
Net income 11,087 8,729
Earnings per share,
both basic and diluted 0.82 0.65
10. The summary financial information of the parent, domestic subsidiaries
(guarantors) and foreign subsidiaries (nonguarantors) of the 8.5% senior
subordinated notes follows:
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------
AS OF SEPTEMBER 27, 1998
Current assets:
Cash and cash equivalents $ 17,038 $ (3,526) $ 3,620 $ - $ 17,132
Trade accounts receivable 57,073 56,209 17,951 - 131,233
Unbilled revenues - 16,659 - - 16,659
Inventories 46,479 34,806 22,802 (202) 103,885
Other current assets 1,742 10,156 3,806 - 15,704
------------------------------------------------------------
Total current assets 122,332 114,304 48,179 (202) 284,613
Net property, plant, and equipment 34,567 29,676 16,504 - 80,747
Goodwill and other intangibles, net 43,511 263,960 48,506 - 355,977
Intercompany 214,865 (380,000) (64,073) 229,208 (0)
Other assets 218,229 161,251 (1,811) (346,133) 31,536
------------------------------------------------------------
Total assets $ 633,504 $ 189,191 $ 47,305 $ (117,127) $ 752,873
============================================================
- 8 -
Current liabilities $ 31,098 $ 45,645 $ 17,817 $ (254) $ 94,306
Long-term debt, less current portion 441,088 103 2,547 - 443,738
Other non-current liabilities 10,725 24,103 3,015 - 37,843
------------------------------------------------------------
Total liabilities 482,911 69,851 23,379 (254) 575,887
Shareholders' equity 150,593 119,340 23,926 (116,873) 176,986
------------------------------------------------------------
Total liabilities and shareholders' equity $ 633,504 $ 189,191 $ 47,305 $ (117,127) $ 752,873
============================================================
FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1998
Net sales $ 130,613 $ 166,862 $ 48,050 $ (6,387) $ 339,138
Cost of products sold 93,092 132,050 34,528 (6,387) 253,283
------------------------------------------------------------
Gross profit 37,521 34,812 13,522 - 85,855
------------------------------------------------------------
Selling, general and administrative expenses 17,372 12,503 9,175 - 39,050
Amortization of intangibles 976 5,577 1,054 - 7,607
------------------------------------------------------------
18,348 18,080 10,229 - 46,657
------------------------------------------------------------
Income from operations 19,173 16,732 3,293 - 39,198
Interest and debt expense 17,358 73 165 - 17,596
Interest and other income 752 50 (169) - 633
------------------------------------------------------------
Income before income taxes 2,567 16,709 2,959 - 22,235
Income tax expense 1,375 8,134 1,557 - 11,066
------------------------------------------------------------
Net income $ 1,192 $ 8,575 $ 1,402 $ - $ 11,169
============================================================
FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1998
OPERATING ACTIVITIES:
Net cash (used in) provided by operating
activities $ 5,414 $ (4,456) $ 1,219 $ 50 $ 2,227
------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net 438 - - - 438
Capital expenditures (3,720) (449) (1,194) - (5,363)
Proceeds from sale of businesses 9,390 (89) - - 9,301
Purchases of businesses, net of cash (7,000) (323) - - (7,323)
Other - 1,403 - - 1,403
------------------------------------------------------------
Net cash used in investing activities (892) 542 (1,194) - (1,544)
------------------------------------------------------------
FINANCING ACTIVITIES:
Net payments under revolving
line-of-credit agreements (2,600) - (141) - (2,741)
Repayment of debt (537) (380) 368 - (549)
Dividends paid (1,883) - - - (1,883)
Other (455) - - - (455)
------------------------------------------------------------
Net cash used in financing activities (5,475) (380) 227 - (5,628)
------------------------------------------------------------
Effect of exchange rate changes on cash - - (714) (50) (764)
------------------------------------------------------------
Net change in cash and cash equivalents (953) (4,294) (462) - (5,709)
Cash and cash equivalents at beginning of period 17,991 768 4,082 - 22,841
------------------------------------------------------------
Cash and cash equivalents at end of period $ 17,038 $ (3,526) $ 3,620 $ - $ 17,132
============================================================
11. During October 1998 the Company repurchased 479,900 shares of its common
stock for a total consideration of $7,682,000. These shares were deposited
in the Employee Stock Ownership Plan and are owned by such plan.
- 9 -
12. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which the
Company adopted for the interim reporting period ending June 28, 1998.
Statement No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. This includes unrealized gains and
losses on the Company's available-for-sale securities, foreign currency
translation adjustments, and minimum pension liability adjustments, which
previously were reported in shareholders' equity and will now be included
and disclosed in total comprehensive income. Compliance with this Statement
does not impact financial position, net income or cash flows.
The FASB also issued FAS Statement No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which the Company will adopt for
the year ended March 31, 1999. Statement No. 131 superseded FAS Statement
No. 14 "Financial Reporting for Segments of a Business Enterprise."
Statement No. 131 establishes new standards for determining segment
criteria and annual and interim reporting of that data. It also establishes
new disclosures about products, geographic areas and major customers.
Currently, the company reports one operating segment under Statement No. 14
and, while the impact of compliance with Statement No. 131 has not yet been
determined, the Company expects to report at least two segments upon its
adoption.
- 10 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Excluding the recent acquisitions of LICO and Univeyor on March 31, 1998 and
January 7, 1998, respectively, the Company's products are sold, domestically and
internationally, principally to third party distributors in commercial and
consumer distribution channels, and to a lesser extent directly to manufacturers
and other end-users. These are referred to as "Products" sales. Commercial
distribution channels include general distributors, specialty distributors,
service-after-sale distributors and original equipment manufacturers ("OEMs").
The general distributors are comprised of industrial distributors, rigging shops
and crane builders. Specialty distributors include catalog houses, material
handling specialists and entertainment equipment riggers. The service-after-sale
network includes repair parts distribution centers, chain service centers, and
hoist repair centers. Company products are also sold to OEMs, and to the U.S.
and Canadian governments. Consumer distribution channels include mass
merchandisers, hardware distributors, trucking and transportation distributors,
farm hardware distributors and rental outlets. LICO and Univeyor sales, as well
as those of previously existing specialty divisions, are made primarily to
end-users. These are referred to as "Solutions" sales. LICO's sales are
concentrated in the domestic automotive industry and, to a lesser extent, the
steel, construction and other industrial markets. Univeyor's sales are made to
automotive, consumer products manufacturing, warehousing and other industrial
markets, primarily in Europe.
RESULTS OF OPERATIONS
Three Months and Six Months Ended September 27, 1998 and September 28, 1997 Net
sales in the fiscal 1999 quarter ended September 27, 1998 were $168,634,000, an
increase of $44,727,000 or 36.1% over the fiscal 1998 quarter ended September
28, 1997. Net sales for the six months ended September 27, 1998 were
$339,138,000, an increase of $90,789,000 or 36.6% over the six months ended
September 28, 1997. Sales growth during the current quarter was due primarily to
the March 1998 LICO acquisition and January 1998 Univeyor acquisition. The
impact of the August 1998 sale of the Mechanical Products division resulted in a
decrease in sales of $2,446,000 for the quarter ended September 27, 1998
compared to the quarter ended September 28, 1997. Excluding the effects of the
acquisitions and the divestiture, compared with the prior year quarter, the
Company experienced consistent sales volume through certain of its commercial
distribution channels due to solid demand in the marketplace. This was offset by
softness in the international and consumer market channels. Softness resulted
from the effect of the General Motors strike, the impact of the Asian economic
situation and also a shift in demand from small retail hardware stores to larger
do-it-yourself superstores, to which the Company supplies only a small share. In
addition, list price increases of approximately 4% were introduced in both
December 1997 and November/December 1996 affecting many of the Company's hoist,
chain and forged products sold in its domestic commercial markets. Sales in the
Products and Solutions segments were as follows, in thousands of dollars and
with percentage changes for each group:
- 11 -
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPT. 27, SEPT. 28, CHANGE SEPT. 27 SEPT. 28 CHANGE
------ ------
1998 1997 AMOUNT % 1998 1997 AMOUNT %
---- ---- ------ - ---- ---- ------ -
(IN THOUSANDS, EXCEPT PERCENTAGES)
Products $ 115,998 $ 118,304 $ (2,306) (1.9) $ 233,923 $ 237,479 $ (3,556) (1.5)
Solutions 55,906 8,788 47,118 536.2 111,602 16,944 94,658 558.7
Intercompany
Eliminations (3,270) (3,185) (85) (2.7) (6,387) (6,074) (313) (5.2)
--------- --------- -------- ---------- --------- --------
Net sales $ 168,634 $ 123,907 $ 44,727 36.1 $ 339,138 $ 248,349 $ 90,789 36.6
========= ========= ======== ========== ========= ========
The Company's gross profit margins were approximately 25.1%, 28.9%, 25.3% and
28.6% for the fiscal 1999 and 1998 quarters and the six months then ended,
respectively. The decrease in gross profit margin in the current quarter and six
month periods resulted from the inclusion of the LICO and Univeyor operations.
These design and engineer-to-order businesses typically experience gross profit
margins of approximately 20%, which is lower than the Company's margins in its
product-oriented businesses.
Selling expenses were $12,461,000, $10,628,000, $24,941,000 and $21,793,000 in
the fiscal 1999 and 1998 quarters and the six months then ended, respectively.
The 1999 expenses were impacted by the addition of LICO and Univeyor activities.
As a percentage of consolidated net sales, selling expenses were 7.4%, 8.6%,
7.4% and 8.8% in the fiscal 1999 and 1998 quarters and the six months then
ended, respectively. The more favorable percentages in the fiscal 1999 quarter
and the six month period are primarily due to low selling expenses relative to
sales for LICO and Univeyor, which is normal for these businesses.
General and administrative expenses were $7,213,000, $5,993,000, $14,109,000 and
$12,336,000 in the fiscal 1999 and 1998 quarters and the six months then ended,
respectively. The 1999 expenses were impacted by the addition of LICO and
Univeyor activities. As a percentage of consolidated net sales, general and
administrative expenses were 4.3%, 4.8%, 4.2% and 5.0% in the fiscal 1999 and
1998 quarters and the six months then ended, respectively. The improved
percentages result from continued integration of acquisitions and the fixed
nature of costs in relation to the increased sales.
Amortization of intangibles was $3,847,000, $2,545,000, $7,607,000 and
$5,094,000 in the fiscal 1999 and 1998 quarters and the six months then ended,
respectively. The fiscal 1999 increase is due to the amortization of goodwill
resulting from the acquisitions of LICO and Univeyor.
As a result of the above, income from operations increased $2,209,000 or 13.3%
in the fiscal 1999 quarter and $7,382,000 or 23.2% in the fiscal 1999 six month
period compared to the respective periods in fiscal 1998. This is based on
income from operations of $18,879,000, $16,670,000, $39,198,000 and $31,816,000
or 11.2%, 13.5%, 11.6% and 12.8% as a percentage of consolidated net sales in
the fiscal 1999 and 1998 quarters and six months then ended, respectively.
Interest and debt expense was $8,978,000, $5,910,000, $17,596,000 and
$12,435,000 in the fiscal 1999 and 1998 quarters and the six months then ended,
respectively. The fiscal 1999 increase is primarily due to debt incurred to
finance the LICO acquisition. As a percentage of consolidated net sales,
interest and debt expense was 5.3%, 4.8%, 5.2% and 5.0% in the fiscal 1999 and
1998 quarters and the six months then ended, respectively.
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Interest and other income was $262,000, $328,000, $633,000 and $644,000 in the
fiscal 1999 and 1998 quarters and the six months then ended, respectively. The
fiscal 1999 decrease is due to decreases in the investment return on marketable
securities held for settlement of a portion of the Company's general and
products liability claims.
Income taxes as a percentage of income before income taxes were 50.0%, 49.2%,
49.8% and 49.8% in the fiscal 1999 and 1998 quarters and the six months then
ended, respectively. The percentages reflect the effect of nondeductible
amortization of goodwill resulting from acquisitions.
As a result of the above, net income decreased $545,000 or 9.7% for the quarter
and increased $1,108,000 or 11.0% for the six months then ended. As a percentage
of consolidated net sales, net income was 3.0%, 4.5%, 3.3% and 4.1% in the
fiscal 1999 and 1998 quarters and the six months then ended, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On August 21, 1998 the Company acquired the net assets of the Abell-Howe Crane
division of Abell-Howe Company, a regional manufacturer of jib, gantry, and
bridge cranes. The total cost of the acquisition, which was accounted for as a
purchase, was approximately $7 million of cash, and was financed by proceeds
from the Company's revolving debt facility.
On August 7, 1998 the Company sold its Mechanical Products division, a producer
of circuit controls and protection devices, for $12 million, consisting of $9.6
million of cash and a $2.4 million note receivable, to Mechanical Products'
senior management team.
On March 31, 1998, the Company acquired all of the outstanding stock of LICO for
approximately $155 million in cash, which was financed by proceeds from the
Company's new revolving credit facility ("1998 Revolving Credit Facility") and a
private placement of senior subordinated notes ("8.5% Notes"), both of which
also closed effective March 31, 1998. The Company's previously existing Term
Loan A, Term Loan B and revolving credit facility were repaid and retired on
March 31, 1998.
On January 7, 1998, the Company acquired all of the outstanding stock of
Univeyor for approximately $15 million of cash financed by the Company's
revolving credit facility, plus the assumption of certain debt.
The new 1998 Revolving Credit Facility provides availability up to $300 million,
due March 31, 2003, against which $237.4 million was outstanding at September
27, 1998. Interest is payable at varying Eurodollar rates based on LIBOR plus a
spread determined by the Company's leverage ratio, revised to 112.5 basis points
effective July 20, 1998. The 1998 Revolving Credit Facility is secured by all
equipment, inventory, receivables and subsidiary stock (limited to 65% for
foreign subsidiaries). To manage its exposure to interest rate fluctuations, the
Company has interest rate swaps and caps.
The 8.5% Notes issued on March 31, 1998 amounted to $199,468,000, net of
original issue discount of $532,000 and are due March 31, 2008. Interest is
payable semi-annually based on an effective rate of 8.45%, considering
$1,902,000 of proceeds from rate hedging in advance of the placement. Provisions
of the 8.5% Notes include, without limitation, restrictions on liens,
indebtedness, asset sales, and dividends and other restricted payments. Prior to
April 1, 2003, the 8.5% Notes are redeemable at the option of the Company, in
whole or in part, at the Make-Whole Price (as defined). On or after April 1,
2003 they are redeemable at prices declining annually from 108.5% to 100% on and
after April 1, 2006. In addition, on or prior to April 1, 2001, the Company may
redeem up to 35% of the outstanding notes at a redemption price of 108.5% with
the proceeds of equity offerings, subject to certain restrictions. In the event
of a Change in Control (as defined), each holder of the 8.5% Notes may require
the Company to repurchase all or a portion of such holder's 8.5% Notes at a
purchase price equal to 101% of the principal amount thereof. The 8.5% Notes are
not subject to any sinking fund requirements.
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The Company believes that its cash on hand, cash flows, and borrowing capacity
under its 1998 Revolving Credit Facility will be sufficient to fund its ongoing
operations, budgeted capital expenditures and business acquisitions for the next
twelve months.
Net cash provided by operating activities decreased to $2,227,000 for the six
months ended September 27, 1998 from $15,968,000 for the six months ended
September 28, 1997. The $13,741,000 decrease is primarily due to changes in
working capital, reflecting fluctuations in the temporary working capital needs
of LICO.
Net cash used in investing activities decreased to $1,544,000 for the six months
ended September 27, 1998 from $5,439,000 for the six months ended September 28,
1997. The $3,895,000 decrease in cash usage is due primarily to proceeds
received from the sale of Mechanical Products offset by cash used for the
acquisition of Abell-Howe.
Net cash used in financing activities decreased to $5,628,000 for the six months
ended September 27, 1998 from $10,636,000 for the six months ended September 28,
1997. The $5,008,000 decrease in cash usage is primarily due to the timing of
debt repayments.
CAPITAL EXPENDITURES
In addition to keeping its current equipment and plants properly maintained, the
Company is committed to replacing, enhancing, and upgrading its property, plant,
and equipment to 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 six months ended September 27, 1998 and September
28, 1997 were $5,363,000 and $3,280,000, respectively. The increase reflects
timing of the incurrence of maintenance capital expenditures.
INFLATION AND OTHER MARKET CONDITIONS
The Company's 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. The Company does not believe that inflation has had a
material effect on results of operations over the periods presented because of
low inflation levels over the periods and because the Company has generally been
able to pass on rising costs through price increases. However, in the future
there can be no assurance that the Company's business will not be affected by
inflation or that it will be able to pass on cost increases.
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YEAR 2000 CONVERSIONS
The Company's corporate-wide Year 2000 initiative is being managed by a team of
internal staff and administered by an outside consultant. The Company has
completed the assessment phase of its Year 2000 compliance project and is
currently working on remediation of affected components.
The Company has determined that it needs to modify significant portions of its
corporate business information software so that its computer system will
function properly with respect to dates in the year 2000 and beyond. Both
internal and external resources have been dedicated to identifying,
implementing, and testing corrective action in order to make such programs Year
2000 compliant; all such work is planned to be completed by July 1999 and is
currently on schedule. To date the corporate business information software has
been 100% assessed, approximately 75% has been remedially reprogrammed,
approximately 25% has been successfully tested, and approximately 20% is now
implemented as totally Year 2000 compliant. The Company believes that, with
modifications to existing software, the Year 2000 issue will not pose
significant operational problems for its computer systems.
The Company has completed a corporate-wide assessment of the Year 2000 readiness
of microprocessor controlled equipment such as robotics, CNC machines, and
security and environmental systems. This assessment has revealed that at least
70% of microprocessor controlled equipment, including over 95% of all security
and environmental systems, is currently compliant. Any necessary upgrades to
ensure Year 2000 readiness are expected to be in place by the end of December
1998. In addition, the Company has determined that all of its manufactured
products are 100% Year 2000 compliant.
The Company has initiated communications with its suppliers and customers to
determine the extent to which systems, products or services are vulnerable to
failure should those third parties fail to remediate their own Year 2000 issues.
To date the Company has received responses to over 60% of its inquiries and no
Year 2000 compliance problem has been identified from these responses. While we
believe that our Year 2000 compliance plan adequately addresses potential Year
2000 concerns and to date no significant Year 2000 issues have been identified
with our suppliers and customers, there can be no guarantee that the systems of
other companies on which our operations rely will be compliant on a timely basis
and will not have an effect on our operations.
The Company has conducted preliminary contingency planning and identified the
critical need areas. A high level approach incorporating manual workarounds,
increasing critical inventories, identifying alternate suppliers, and adjusting
staffing levels has been discussed and forms the basis for the initial
contingency planning. The Company believes this level of planning is appropriate
at the current time, however, the planning will be further expanded if warranted
byfuture events.
The cost of the Year 2000 initiatives is not expected to be material to the
Company's results of operations or financial position.
The forward looking statements contained in the Year 2000 Conversions should be
read in conjunction with the Company's disclosures under the heading "Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995."
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EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which the Company
adopted for the interim reporting period ending June 28, 1998. Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components. This includes unrealized gains or losses on the Company's
available-for-sale securities, foreign currency translation adjustments, and
minimum pension liability adjustments, which previously were reported in
shareholders' equity, and will be included and disclosed in total comprehensive
income. Compliance with this Statement does not impact financial position, net
income or cash flows.
The FASB also issued FAS Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which the Company will adopt for the year
ended March 31, 1999. Statement No. 131 superseded FAS Statement No. 14
"Financial Reporting for Segments of a Business Enterprise." Statement No. 131
establishes new standards for determining segment criteria and annual and
interim reporting of that data. It also establishes new disclosures about
products, geographic areas and major customers. Currently, the Company reports
one operating segment under Statement No. 14 and, while the impact of compliance
with Statement No. 131 has not yet been determined, the Company expects to
report at least two segments upon its adoption.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intention and adequacy of resources, are made pursuant to the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations, and intentions are subject to
change at any time at the discretion of the Company, (ii) the Company's plans
and results of operations will be affected by the Company's ability to manage
its growth, and (iii) other risks and uncertainties indicated from time to time
in the Company's filings with the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none other than that previously disclosed within
"Notes to Condensed Consolidated Financial Statements" footnote number 5
contained herein.
Item 2. Changes in Securities - none.
Item 3. Defaults upon Senior Securities - none.
Item 4. Submission of Matters to a Vote of Security Holders
On August 17, 1998, the following directors were elected at an Annual
Meeting of Shareholders with:
12,717,917 votes cast for and 5,112 against: Herbert P. Ladds, Jr.;
Timothy T. Tevens; Robert L. Montgomery, Jr.; Edward W. Duffy;
Randolph A. Marks; and L. David Black.
Item 5. Other Information - none.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.1 - First Amendment to the Credit Agreement By and Among THE
BANKS, FINANCIAL INSTITUTIONS AND OTHER INSTITUTIONAL
LENDERS NAMED THEREIN, as Lenders, FLEET NATIONAL BANK, as
Initial Issuing Bank, FLEET NATIONAL BANK, as Swing Line
Bank, FLEET NATIONAL BANK, as Administrative Agent and
Columbus McKinnon Corporation as the Borrower, Dated as of
September 23, 1998.
On October 29, 1998 the Company filed Form 8-K dated October 29, 1998 with
respect to First Amendment and Restatement of Rights Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS MCKINNON CORPORATION
-----------------------------
(Registrant)
Date: NOVEMBER 11, 1998 /S/ ROBERT L. MONTGOMERY, JR.
------------------ ------------------------------
Robert L. Montgomery, Jr.
Executive Vice President and
Chief Financial Officer (Principal
Financial Officer)
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