UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended December 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
-------------------- ---------------
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
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 John James Audubon Parkway, Amherst, NY 14228-1197
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(716) 689-5400
- --------------------------------------------------------------------------------
(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 January 31, 1999 was:
13,766,083 shares.
FORM 10-Q INDEX
COLUMBUS McKINNON CORPORATION
DECEMBER 27, 1998
Page #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
December 27, 1998 and March 31, 1998 2
Condensed consolidated statements of income and retained earnings -
Three months and nine months ended December 27, 1998
and December 28, 1997 3
Condensed consolidated statements of cash flows -
Nine months ended December 27, 1998 and December 28, 1997 4
Condensed consolidated statements of comprehensive income -
Three months and nine months ended December 27, 1998
and December 28, 1997 5
Notes to condensed consolidated financial statements -
December 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 18
Item 2. Changes in Securities - none. 18
Item 3. Defaults upon Senior Securities - none. 18
Item 4. Submission of Matters to a Vote of Security Holders - none. 18
Item 5. Other Information - none. 18
Item 6. Exhibits and Reports on Form 8-K 18
-1-
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 27, MARCH 31,
1998 1998
----------- ---------
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents ......................... $ 11,102 $ 22,841
Trade accounts receivable ......................... 132,408 113,509
Unbilled revenues ................................. 17,986 19,634
Inventories ....................................... 107,621 107,673
Net assets held for sale .......................... 7,292 10,396
Prepaid expenses .................................. 7,126 9,969
--------- ---------
Total current assets .................................... 283,535 284,022
Net property, plant, and equipment ...................... 82,325 81,927
Goodwill and other intangibles, net ..................... 352,132 368,137
Marketable securities ................................... 18,173 16,665
Deferred taxes on income ................................ 6,820 7,534
Other assets ............................................ 8,748 5,463
--------- ---------
Total assets ............................................ $751,733 $763,748
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks ............................ $ 2,890 $ 2,801
Trade accounts payable ............................ 45,371 53,901
Excess billings ................................... 2,871 3,290
Accrued liabilities ............................... 41,849 43,065
Current portion of long-term debt ................. 1,423 1,456
--------- ---------
Total current liabilities ............................... 94,404 104,513
Senior debt, less current portion ....................... 243,877 247,388
Subordinated debt ....................................... 199,508 199,468
Other non-current liabilities ........................... 39,049 45,857
--------- ---------
Total liabilities ....................................... 576,838 597,226
Shareholders' equity:
Common stock ...................................... 137 137
Additional paid-in capital ........................ 97,409 96,544
Retained earnings ................................. 90,225 76,187
ESOP debt guarantee ............................... (10,235) (3,203)
Unearned restricted stock ......................... (322) (538)
Total accumulated other comprehensive income (loss) (2,319) (2,605)
--------- ---------
Total shareholders' equity .............................. 174,895 166,522
--------- ---------
Total liabilities and shareholders' equity .............. $751,733 $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 NINE MONTHS ENDED
------------------ -----------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1998 1997 1998 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales ........................... $171,727 $124,093 $510,865 $372,442
Cost of products sold ............... 128,741 88,680 382,024 265,990
-------- -------- -------- --------
Gross profit ........................ 42,986 35,413 128,841 106,452
-------- -------- -------- --------
Selling expenses .................... 12,480 11,565 37,421 33,358
General and administrative expenses . 6,886 5,751 20,996 18,087
Amortization of intangibles ......... 3,756 2,487 11,363 7,581
-------- -------- -------- --------
23,122 19,803 69,780 59,026
-------- -------- -------- --------
Income from operations .............. 19,864 15,610 59,061 47,426
Interest and debt expense ........... 8,946 5,294 26,543 17,729
Interest and other income ........... 231 432 864 1,076
-------- -------- -------- --------
Income before income taxes .......... 11,149 10,748 33,382 30,773
Income tax expense .................. 5,451 5,263 16,517 15,227
-------- -------- -------- --------
Net income .......................... 5,698 5,485 16,865 15,546
Retained earnings -
beginning of period ............ 85,473 69,194 76,187 60,999
Cash dividends of $0.07, $0.07,
$0.21 and $0.21 per share ...... (946) (936) (2,827) (2,802)
-------- -------- -------- --------
Retained earnings - end of period ... $ 90,225 $ 73,743 $ 90,225 $ 73,743
======== ======== ======== ========
Earnings per share data,
both basic and diluted: ......... $0.44 $0.41 $1.26 $1.16
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
-3-
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
DECEMBER 27, DECEMBER 28,
1998 1997
---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income ........................................... $ 16,865 $ 15,546
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 19,752 14,244
Other .......................................... 1,410 1,080
Changes in operating assets and liabilities
net of effects from businesses
purchased and sold:
Trade accounts receivable ................. (20,115) (5,979)
Unbilled revenues and excess billings ..... 1,229 -
Inventories ............................... (2,080) (1,590)
Prepaid expenses .......................... (482) 8,986
Other assets .............................. (434) (311)
Trade accounts payable .................... (8,241) (6,038)
Accrued and non-current liabilities ....... 1,373 (1,909)
-------- --------
Net cash provided by operating activities ............ 9,277 24,029
-------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities, net of sales ...... (834) (2,295)
Capital expenditures ................................. (9,705) (6,161)
Proceeds from sale of businesses ..................... 9,301 -
Purchases of businesses, net of cash ................. (7,323) -
Net assets held for sale ............................. 3,104 4,669
Other ................................................ - (168)
-------- --------
Net cash used in investing activities ................ (5,457) (3,955)
-------- --------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit agreements (2,511) (1,273)
Repayment of debt .................................... (944) (17,610)
Deferred financing costs ............................. (985) (558)
Dividends paid ....................................... (2,827) (2,802)
Reduction of ESOP debt guarantee, net of borrowings .. (7,032) 625
-------- --------
Net cash used in financing activities ................ (14,299) (21,618)
Effect of exchange rate changes on cash .............. (1,260) (1,480)
-------- --------
Net change in cash and cash equivalents .............. (11,739) (3,024)
Cash and cash equivalents at beginning of period ..... 22,841 8,907
-------- --------
Cash and cash equivalents at end of period ........... $ 11,102 $ 5,883
======== ========
See accompanying notes to condensed consolidated financial statements.
-4-
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
Net income ............................... $ 5,698 $ 5,485 $ 16,865 $ 15,546
-------- -------- -------- --------
Other comprehensive income (loss),
net of tax:
Foreign currency translation adjustments (529) (563) (388) (1,520)
Unrealized gains on investments:
Unrealized holding gains arising
during the period ................... 899 182 678 983
Less: reclassification adjustment for
gains included in net income ....... 22 (182) (4) (429)
-------- -------- -------- --------
921 - 674 554
-------- -------- -------- --------
Total other comprehensive income (loss) .. 392 (563) 286 (966)
-------- -------- -------- --------
Comprehensive income ..................... $ 6,090 $ 4,922 $ 17,151 $ 14,580
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
-5-
COLUMBUS McKINNON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 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
December 27, 1998, and the results of its operations and its cash flows for
the three and nine month periods ended December 27, 1998 and December 28,
1997, have been included. Results for the period ended December 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:
DECEMBER 27, MARCH 31,
1998 1998
------------------------
(IN THOUSANDS)
At cost - FIFO basis:
Raw materials .......... $ 49,667 $ 52,158
Work-in-process ........ 17,504 22,188
Finished goods ......... 44,253 37,089
--------- ---------
111,424 111,435
LIFO cost less than FIFO cost (3,803) (3,762)
--------- ---------
$ 107,621 $ 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 $38,485,000 and $30,876,000 of
accumulated depreciation at December 27, 1998 and March 31, 1998,
respectively.
4. Goodwill and other intangibles, net includes $25,750,000 and $14,979,000 of
accumulated amortization at December 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 general and product
liability accrual continues to include provisions related to that
pre-acquisition time period.
6. To manage its exposure to interest rate fluctuations, the Company has an
interest rate swap with a notional value $3.5 million from January 2, 1999
through July 2, 2002 based on LIBOR at 5.9025%. The Company also has a
LIBOR-based interest rate cap on $49.5 million of debt through December 16,
1999 at 10%. 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 $192,500,000,
which is less than its carrying amount of $199,508,000.
7. The following table sets forth the computation of basic and diluted
earnings per share before extraordinary charge for debt extinguishment:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
Numerator for basic and diluted earnings per share:
Income before extraordinary charge .............. $ 5,698,000 $ 5,485,000 $16,865,000 $15,546,000
=========== =========== =========== ===========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS .................... 13,079,000 13,374,000 13,313,000 13,352,000
Effect of dilutive employee stock options ...... 13,000 72,000 48,000 52,000
----------- ----------- ----------- -----------
Adjusted weighted-average common stock
outstanding and assumed conversions -
denominator for diluted EPS .................. 13,092,000 13,446,000 13,361,000 13,404,000
=========== =========== =========== ===========
8. Income tax expense for the three month periods ended December 27, 1998 and
December 28, 1997 and also for the nine month periods then ended exceeds
the customary relationship between income tax expense and income before
income taxes due to nondeductible amortization of goodwill of $3,605,000,
$2,487,000, $11,212,000, and $7,581,000, respectively.
9. On December 4, 1998 the Company acquired all of the outstanding stock of
Societe D'Exploitation des Raccords Gautier ("Gautier"), a French-based
manufacturer of industrial components. The total cost of the acquisition,
which was accounted for as a purchase, was approximately $3 million,
consisting of cash of $2.4 million financed by proceeds from the Company's
revolving debt facility and the assumption of certain debt.
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.
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.
-7-
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 nine
month periods ended December 27, 1998 and December 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:
NINE MONTHS ENDED
-----------------
DECEMBER 27, 1998 DECEMBER 28, 1997
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro forma:
Net sales .............. $507,563 $501,331
Income from operations . 58,682 56,239
Net income ............. 16,784 15,670
Earnings per share,
both basic and diluted 1.26 1.17
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 DECEMBER 27, 1998
Current assets:
Cash and cash equivalents $ 6,627 $ (1,482) $ 5,957 $ - $ 11,102
Trade accounts receivable 55,583 60,058 16,767 - 132,408
Unbilled revenues - 17,986 - - 17,986
Inventories 46,218 37,386 24,356 (339) 107,621
Other current assets 1,696 8,453 4,269 - 14,418
------------------------------------------------------------
Total current assets 110,124 122,401 51,349 (339) 283,535
Net property, plant, and equipment 36,257 29,817 16,251 - 82,325
Goodwill and other intangibles, net 42,967 261,236 47,929 - 352,132
Intercompany 208,358 (373,211) (65,684) 230,537 -
Other assets 218,002 163,723 (1,851) (346,133) 33,741
------------------------------------------------------------
Total assets $ 615,708 $ 203,966 $ 47,994 $ (115,935) $751,733
============================================================
-8-
Current liabilities $ 18,230 $ 57,109 $ 18,052 $ 1,013 $ 94,404
Long-term debt, less current portion 440,843 103 2,439 - 443,385
Other non-current liabilities 11,909 24,061 3,079 - 39,049
------------------------------------------------------------
Total liabilities 470,982 81,273 23,570 1,013 576,838
Shareholders' equity 144,726 122,693 24,424 (116,948) 174,895
------------------------------------------------------------
Total liabilities and shareholders' equity $ 615,708 $ 203,966 $ 47,994 $ (115,935) $751,733
============================================================
FOR THE NINE MONTHS ENDED DECEMBER 27, 1998
Net sales $196,972 $251,866 $72,555 $ (10,528) $510,865
Cost of products sold 139,571 201,455 51,371 (10,373) 382,024
------------------------------------------------------------
Gross profit 57,401 50,411 21,184 (155) 124,841
------------------------------------------------------------
Selling, general and administrative expenses 25,448 18,665 14,304 - 58,417
Amortization of intangibles 1,467 8,309 1,587 - 11,363
------------------------------------------------------------
26,915 26,974 15,891 - 69,780
------------------------------------------------------------
Income from operations 30,486 23,437 5,293 (155) 59,061
Interest and debt expense 26,144 98 301 - 26,543
Interest and other income 934 141 (211) - 864
------------------------------------------------------------
Income before income taxes 5,276 23,480 4,781 (155) 33,382
Income tax expense 2,625 11,560 2,394 (62) 16,517
------------------------------------------------------------
Net income $ 2,651 $ 11,920 $ 2,387 $ (93) $ 16,865
============================================================
FOR THE NINE MONTHS ENDED DECEMBER 27, 1998
OPERATING ACTIVITIES:
Net cash (used in) provided by operating $ 8,100 $ (2,990) $ 4,135 $ 32 $ 9,277
activities
------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net (834) - - - (834)
Capital expenditures (6,755) (1,572) (1,378) - (9,705)
Proceeds from sale of businesses 9,390 (89) - - 9,301
Purchases of businesses, net of cash (7,000) (323) - - (7,323)
Other - 3,104 - - 3,104
------------------------------------------------------------
Net cash used in investing activities (5,199) 1,120 (1,378) - (5,547)
------------------------------------------------------------
FINANCING ACTIVITIES:
Net payments under revolving
line-of-credit agreements (2,600) - 89 - (2,511)
Repayment of debt (822) (380) 258 - (944)
Dividends paid (2,827) - - - (2,827)
Other (8,017) - - - (8,017)
------------------------------------------------------------
Net cash used in financing activities (14,266) (380) 347 - (14,299)
------------------------------------------------------------
Effect of exchange rate changes on cash 1 - (1,229) (32) (1,260)
------------------------------------------------------------
Net change in cash and cash equivalents (11,364) (2,250) 1,875 - (11,739)
Cash and cash equivalents at beginning of period 17,991 768 4,082 - 22,841
------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,627 $ (1,482) $ 5,597 $ - $ 11,102
============================================================
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 (FASB) issued Statement of
Financial Accounting Standards (FAS) 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.
The FASB issued FAS Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for years beginning
after June 15, 1999. Statement No. 133 establishes standards for the
recognition and measurement of derivatives and hedging activities. At this
time, the Company's management does not believe that this statement will
have a material effect on the financial statements.
-10-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company is a broad-line designer, manufacturer, and supplier of
sophisticated material handling products and integrated material handling
solutions that are widely distributed to industrial and consumer markets
worldwide. The Company's material handling 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. Commercial distribution channels include general
distributors, specialty distributors, service-after-sale distributors, original
equipment manufacturers ("OEMs"), and the U.S. and Canadian governments. 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. Consumer distribution channels include mass merchandisers,
hardware distributors, trucking and transportation distributors, farm hardware
distributors and rental outlets. The Company's integrated material handling
solutions businesses primarily deal with end-users. Material handling solution
sales are concentrated, domestically and internationally (primarily Europe), in
the automotive industry, consumer products manufacturing, warehousing and, to a
lesser extent, the steel, construction and other industrial markets.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
Net sales in the fiscal 1999 quarter ended December 27, 1998 were $171,727,000,
an increase of $47,634,000 or 38.4% over the fiscal 1998 quarter ended December
28, 1997. Net sales for the nine months ended December 27, 1998 were
$510,865,000, an increase of $138,423,000 or 37.2% over the nine months ended
December 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 of $4,360,000 for the quarter December 27, 1998 compared to the quarter
ended December 28, 1997. Excluding the effects of the acquisitions and the
divestiture, compared with the prior year quarter, the Company experienced a
3.9% net decrease in sales volume due to a soft industrial market, the continued
effect of the General Motors strike, the impact of the Asian and South American
economic situations and 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 1998 and 1997 affecting certain 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 NINE MONTHS ENDED
------------------ -----------------
DEC. 27, DEC. 28, CHANGE DEC. 27 DEC. 28 CHANGE
------ ------
1998 1997 AMOUNT % 1998 1997 AMOUNT %
---- ---- ------ - ---- ---- ------ -
(IN THOUSANDS, EXCEPT PERCENTAGES)
Products $ 113,416 $ 113,014 $ 402 0.4 $ 339,757 $ 341,524 $ (1,767) (0.5)
Solutions 62,452 9,996 52,456 524.8 174,054 26,940 147,114 546.1
Divested business - 4,360 (4,360) (100.0) 7,582 13,329 (5,747) (43.1)
Intercompany
Eliminations (4,141) (3,277) (864) (26.4) (10,528) (9,351) (1,177) (12.6)
--------- --------- -------- ---------- --------- --------
Net sales $ 171,727 $ 124,093 $ 47,634 38.4 $ 510,865 $ 372,442 $138,423 37.2
========= ========= ======== ========== ========= ========
The Company's gross profit margins were approximately 25.0%, 28.5%, 25.2% and
28.6% for the fiscal 1999 and 1998 quarters and the nine months then ended,
respectively. The decrease in gross profit margin in the current quarter and the
nine month period 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 $12,480,000, $11,565,000, $37,421,000 and $33,358,000 in
the fiscal 1999 and 1998 quarters and the nine 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 7.3%, 9.3%,
7.3% and 9.0% in the fiscal 1999 and 1998 quarters and the nine months then
ended, respectively. The more favorable percentages in the fiscal 1999 quarter
and the nine 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 $6,886,000, $5,751,000, $20,996,000 and
$18,087,000 in the fiscal 1999 and 1998 quarters and the nine 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 4.0%, 4.6%, 4.1% and 4.9% in the fiscal 1999 and
1998 quarters and the nine 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 $3,756,000, $2,487,000, $11,363,000 and
$7,581,000 in the fiscal 1999 and 1998 quarters and the nine 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 $4,254,000 or 27.3%
in the fiscal 1999 quarter and $11,635,000 or 24.5% in the fiscal 1999 nine
month period compared to the respective periods in fiscal 1998. This is based on
income from operations of $19,864,000, $15,610,000, $59,061,000 and $47,426,000
or 11.6%, 12.6%, 11.6% and 12.7% as a percentage of consolidated net sales in
the fiscal 1999 and 1998 quarters and nine months then ended, respectively.
Interest and debt expense was $8,946,000, $5,294,000, $26,543,000 and
$17,729,000 in the fiscal 1999 and 1998 quarters and the nine 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 5.2%, 4.3%, 5.2% and 4.8% in the fiscal 1999 and
1998 quarters and the nine months then ended, respectively.
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Interest and other income was $231,000, $432,000, $864,000 and $1,076,000 in the
fiscal 1999 and 1998 quarters and the nine 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 48.9%, 49.0%,
49.5% and 49.5% in the fiscal 1999 and 1998 quarters and the nine 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 increased $213,000 or 3.9% for the quarter
and increased $1,319,000 or 8.5% for the nine months then ended. As a percentage
of consolidated net sales, net income was 3.3%, 4.4%, 3.3% and 4.2% in the
fiscal 1999 and 1998 quarters and the nine months then ended, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On December 4, 1998 the Company acquired all of the outstanding stock of Societe
D'Exploitation des Raccords Gautier ("Gautier"), a French-based manufacturer of
industrial components. The total cost of the acquisition, which was accounted
for as a purchase, was approximately $3 million, consisting of cash of $2.4
million financed by proceeds from the Company's revolving debt facility and the
assumption of certain debt.
During October, the Company repurchased 479,900 shares of its common stock of a
total of $7,82,000. These shares were deposited in the Employee Stock Ownership
Plan and are owned by such plan.
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.
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The new 1998 Revolving Credit Facility provides availability up to $300 million,
due March 31, 2003, against which $237.4 million was outstanding at December 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 an interest rate swap and cap.
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.
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 $9,277,000 for the nine
months ended December 27, 1998 from $24,029,000 for the nine months ended
December 28, 1997. The $14,752,000 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 increased to $5,457,000 for the nine
months ended December 27, 1998 from $3,955,000 for the nine months ended
December 28, 1997. The $1,502,000 increase in cash usage is due primarily to
increased capital expenditures over the prior year's quarter, 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 $14,299,000 for the nine
months ended December 27, 1998 from $21,618,000 for the nine months ended
December 28, 1997. The $7,319,000 decrease in cash usage is primarily due to the
timing of debt repayments and the repurchase of common stock for the Company's
Employee Stock Ownership Plan.
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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 nine months ended December 27, 1998 and December
28, 1997 were $9,705,000 and $6,161,000, 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.
YEAR 2000 CONVERSIONS
The Company's corporate-wide Year 2000 initiative is being managed by a team of
internal staff and administered by the Director of Information Services. 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 84% has been remedially reprogrammed,
approximately 46% has been successfully tested, and approximately 41% 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
85% of all microprocessor controlled equipment, including over 98% 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
March 1999. In addition, the Company has determined that all of its manufactured
products are 100% Year 2000 compliant.
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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 70% 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
by future 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."
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.
The FASB issued FAS Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" which is effective for years beginning after June 15, 1999.
Statement No. 133 establishes standards for the recognition and measurement of
derivatives and hedging activities. At this time, the Company's management does
not believe that this statement will have a material effect on the financial
statements.
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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, intentions 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 - A settlement has been reached among all parties in a
previously disclosed product liability lawsuit brought against Yale
Industrial Products, Inc. prior to the fiscal 1997 acquisition. The
lawsuit was settled within the policy limits of the Company's product
liability insurance coverage.
Item 2. Changes in Securities - 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
Exhibit 10.1 - Columbus McKinnon Corporation Monthly Retirement Benefit
Plan Restatement Effective April 1, 1998
Exhibit 10.2 - Columbus McKinnon Corporation Thrift 401(K) Plan
Restatement Effective January 1, 1998
There are no reports on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS McKINNON CORPORATION
-----------------------------
(Registrant)
Date: FEBRUARY 10, 1999 /S/ ROBERT L. MONTGOMERY, JR.
----------------- -----------------------------
Robert L. Montgomery, Jr.
Executive Vice President and
Chief Financial Officer (Principal
Financial Officer)
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