UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1999
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-27618
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, N.Y. 14228-1197
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (716) 689-5400
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of Class which registered
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Common Stock, $0.01 Par Value NASDAQ National Market
Securities pursuant to section 12(g) of the Act: NONE
Indicate by checkmark 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. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of May 31, 1999 was $274,298,068.
The number of shares of common stock outstanding as of May 31, 1999
was: 14,663,697 shares.
Documents Incorporated By Reference
-----------------------------------
Portions of the proxy statement for the annual shareholders meeting to
be held August 16, 1999 are incorporated by reference into Part III of this
report .
COLUMBUS McKINNON CORPORATION
1999 Annual Report on Form 10-K
PART I.
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This annual 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 the actual results of the Company to differ materially from the results
expressed or implied by such statements, including general economic and business
conditions, conditions affecting the industries served by the Company and its
subsidiaries, conditions affecting the Company's customers and suppliers,
competitor responses to the Company's products and services, the overall market
acceptance of such products and services, the integration of acquisitions and
other factors disclosed in the Company's periodic reports filed with the
Commission. Consequently such forward looking statements should be regarded as
the Company's current plans, estimates and beliefs. The Company does 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.
Item 1. Business.
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Overview
Columbus McKinnon ("Columbus McKinnon" or the "Company"), established in
1875, 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.
The Company's integrated material handling solutions businesses primarily deal
with end-users. For the year ended March 31, 1999, the Company generated net
sales and income from operations of approximately $735.4 million and
approximately $85.1 million, respectively.
The Company's Products segment includes a wide variety of electric, lever,
hand and air-powered hoists; hoist trolleys; industrial crane systems, such as
bridge, gantry and jib cranes; alloy, carbon steel and kiln chain; closed-die
forged attachments, such as hooks, shackles, logging tools and loadbinders;
industrial components, such as mechanical and electromechanical actuators,
mechanical jacks and rotary unions; and below-the-hook lifters. Through
innovative design and manufacturing expertise developed by the Company and
through selective acquisitions, the Company has established a leading market
share in many of its product lines. Columbus McKinnon believes it has more
overhead hoists in use in North America than all of its competitors combined.
The Company's products and customer base are highly diversified; no single
product accounted for more than 1% and no individual customer accounted for more
than 5% of net Products segment sales for the year ended March 31, 1999. For the
year ended March 31, 1999, the Company's Products segment generated net sales
and income from operations before amortization of approximately $515.7 million
and approximately $80.0 million, respectively.
As a result of its fiscal 1998 acquisitions of Univeyor A/S ("Univeyor")
and LICO, Inc. ("LICO"), the Company has also positioned itself as a leader in
the project design, management and implementation of integrated material
handling systems that are designed to meet specific applications of end-users to
increase productivity. These businesses have formed the foundation for the
Company's two Solutions segments, Solutions - Industrial and Solutions -
Automotive. The delivered products of these segments include various types of
conveyor systems as well as operator-controlled manipulators and scissor lifts.
For the year ended March 31, 1999, the Company's Solutions - Industrial segment
generated net sales and income from operations before amortization of
approximately $58.3 million and approximately $5.6 million, respectively, and
the Company's Solutions - Automotive segment generated net sales and income from
operations before amortization of approximately $161.4 million and approximately
$14.9 million, respectively.
The Company believes that the demand for its products has increased in
recent years and will continue to increase in the future as a result of several
favorable trends impacting a broad array of industries that have enabled the
Company to expand into new product areas and markets. These trends include:
Productivity Enhancement. In recent years employers have responded to
competitive pressures by seeking to maximize productivity and efficiency. The
Company's hoists and other lifting and positioning products allow loads to be
lifted and placed quickly, precisely, with little effort, and with fewer people.
In addition, the Company's conveyor systems enhance productivity within
automotive assembly, general warehousing and industrial operations.
Safety Regulations and Concerns. Driven by federal and state workplace
safety regulations such as the Occupational Safety and Health Act ("OSHA") and
the Americans with Disabilities Act, and by the general competitive need to
reduce costs such as health insurance premiums and workers' compensation
expenses, employers seek safer ways to lift, position and move loads. The
Company's material handling products and solutions enable these tasks to be
performed with reduced risk of personal injury.
Workforce Diversity. The percentages of women, disabled and older persons
in the work force and the tasks they perform are continuing to increase. The
Company's products enable many workplace tasks to be performed safely,
efficiently and with less physical stress. The Company believes that increasing
diversity in the workforce will continue to increase demand for its products and
solutions.
Outsourcing of Material Handling Project Design and Management. More of
the Company's customers and end-users are outsourcing non-core business
functions to improve productivity and cost efficiency. This has created
opportunities for the Company to assume the project design, management and
implementation responsibilities for both workstation and facility-wide material
handling systems. The Company's opportunity to capitalize on this trend has been
enhanced by the recent acquisitions of Univeyor and LICO. Through the
combination of the Company's expertise and technological know-how with that of
Univeyor and LICO, the Company believes that it will be able to position itself
as a leader in the project design, management and implementation of automated
material handling systems. As a result, many of the Company's existing products
may be utilized in these systems.
The Company has extended its product lines and penetrated new markets in
recent years through several acquisitions which have been successfully
integrated into the Company. Over the past five years, the Company has made
thirteen acquisitions which have (i) enhanced the Company's position as the
largest North American manufacturer of overhead hoists, operator-controlled
manipulators and alloy chain, (ii) enabled the Company to broaden its product
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and service offerings and (iii) provided the Company with cross-selling
opportunities into other segments of the material handling and lifting industry.
As a result of internal growth and acquisitions, the Company's net sales and
income from operations have increased to approximately $735.4 million and $85.1
million, respectively, for the year ended March 31, 1999 from approximately
$142.3 million and $12.4 million, respectively, in fiscal 1994, representing
compound annual growth rates of approximately 39% and 47%, respectively.
Key Strengths
The Company attributes its strong competitive position to the following
key strengths:
Leading Market Position. Columbus McKinnon is the largest manufacturer of
hoists, alloy and high strength carbon steel chain and operator-controlled
manipulators in North America. The Company has developed its leading market
position over its nearly 125-year history by emphasizing technological
innovation, manufacturing excellence and superior after-sale service.
Preferred Provider to Major Distributors and End-Users. The Company enjoys
long-standing relationships with and is a preferred provider to many of its
largest distributors. Since 1990, during a period of significant consolidation
among distributors of material handling equipment, the Company has benefited
from this consolidation as it has maintained and enhanced its relationships with
the leading distributors. For example, the Company maintains close contact with
its customers and provides prompt aftermarket service to end-users of its
products through a network of independent distributors staffed with
Company-trained professionals at over 450 hoist parts, product, service and
repair centers, and 12 chain service centers. Additionally, to ensure continuing
product development and market awareness, the Company sponsors advisory boards
composed of representatives of its largest distributors and aftermarket sales
and service network. The Company's Automatic Systems, Inc. ("ASI") subsidiary
was awarded the General Motors Corporation ("GM") 1998 Supplier of the Year
award, recognition which GM made to only 184 out of its approximately 30,000
suppliers worldwide. This marked the second consecutive year that ASI was
awarded this distinction. The Company believes that its ability to retain
existing customers and attract new customers is attributable to its ongoing
commitment to customer service and satisfaction.
Diversified Products, Markets, and Customer Base. The Company believes
that it offers the most extensive line of material handling products and
solutions in the markets which it serves. No single product accounted for more
than 1% of net Products segment sales for the year ended March 31, 1999. The
Company's products are sold to over 10,000 general, specialty and
service-after-sale distributors and original equipment manufacturers ("OEMs")
for various applications in the general manufacturing, crane building, mining,
construction, transportation, entertainment, power generation, agricultural,
marine, automotive and logging markets. Additionally, the Company sells its
products for consumer use to over 100 hardware, trucking and transportation,
farm hardware and rental outlets. No single customer accounted for more than 5%
of net Products segment sales for the year ended March 31, 1999. GM, which deals
principally with the Company's Solutions - Automotive segment, accounted for
approximately 13% of the Company's net sales for the year ended March 31, 1999.
The Company believes that the breadth of its products, the diversity of its
markets and the strength of its distribution relationships minimize its
dependence on any particular product, market or customer.
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Large Installed Product Base; Strong Brand Names. Columbus McKinnon
believes it has more overhead hoists in use in North America than all of its
competitors combined. In addition, the Company's brand names, including
Abell-Howe, Big Orange, Budgit, Chester, CM, Coffing, Duff-Norton, Gaffey,
Hammerlok, Herc-Alloy, Larco, Shaw-Box and Yale, are among the most recognized
and respected in the industry. The Company believes that its strong brand name
recognition, together with the Company's large installed base of products,
provide it with a significant competitive advantage in selling its full product
line to existing and new customers as well as providing repair and replacement
parts.
Experienced Management Team with Significant Ownership Interest. The
Company's management team provides a depth and continuity of experience. The
Company's directors and executive officers own an aggregate of approximately 22%
of the Company's outstanding common stock. In addition, in April 1997 Columbus
McKinnon implemented economic value added ("EVA@") as a performance measure and
is using EVA@ goals to, among other things, determine incentive-based
compensation for all of its employees.
Business Strategy
The Company's strategic objective is to further enhance its position as a
leading designer, manufacturer and distributor of material handling, lifting and
positioning products both domestically and internationally. The Company plans to
achieve this objective through the continued implementation of the following
three-pronged strategy:
Enhance Existing Business. The Company continually strives to enhance its
existing business through the following:
o Leverage Strong Competitive Position. The Company's position as a
leading provider of material handling equipment has resulted in a
substantial installed base of its products. The Company's close
relationships with its distributors permit it to obtain customer
information and product requirements in order to respond to and
anticipate future needs of end-users of the Company's products, which
the Company believes allows it to maintain its market leadership
position. The repair and replacement of parts and complementary
products for the Company's large installed base of products represents
additional revenue growth potential. The Company believes that it can
expand the market and customer base for new and acquired products by
introducing these products through its existing distribution channels.
In addition, the Company believes it can achieve product and marketing
synergies by selling its products into the markets of acquired
businesses.
In fiscal 1999, the Company initiated its CraneMart@ strategy to build
an integrated North American network of full-service crane builders.
The acquisition of Abell-Howe Crane, Inc., a regional manufacturer of
jib and other overhead cranes ("Abell-Howe"), in August 1998 and
merger with GL International, Inc., a full-service designer and
builder of industrial overhead bridge, gantry and jib cranes ("GL"),
in March 1999 were the Company's first significant steps in the
implementation of CraneMart@. In furtherance of this strategy, the
Company expects to form additional strategic alliances, either through
full or partial equity ownership or joint ventures with independent
participants, in major North American Industrial markets. The Company
believes that CraneMart@ will enhance its position as a full-service
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supplier of hoists, cranes and components and will enable it to expand
its product and service offerings to meet the increasing demands of
its end-user customers.
o Increase Productivity and Realize Cost Savings. In addition to
developing and introducing new products, the Company focuses on
improving the quality and reliability of its products and increasing
manufacturing efficiency. Twenty of the Company's existing
manufacturing facilities and six of its distribution facilities have
achieved ISO 9000 certification, and substantially all of the
Company's remaining manufacturing and distribution facilities are in
the process of obtaining such certification. The Company improves
productivity by reducing cycle times, increasing employee involvement
in production and investing in new, more efficient manufacturing
processes, including computer-aided design capabilities. The Company
has implemented EVA@ to analyze the utilization of its assets and
productivity in order to improve all aspects of the Company's
operations, and to determine incentive-based compensation for its
employees. Further, the Company believes additional cost savings can
be realized through the continued integration of the operations of
recent acquisitions with those of the Company. For example, through
its increased critical mass, the Company has been able to achieve raw
material purchasing efficiencies.
Increase Penetration of International Markets. The Company maintains a
distributor network in approximately 50 countries and has manufacturing
facilities in Canada, Mexico, Germany, Denmark, France and China. The Company
intends to increase its international presence, with a primary focus on
enhancing its existing presence in Europe and expanding its operations into the
Pacific Rim, South America and Africa. The Company intends to accomplish this
growth by strengthening its international distribution network and by making
additional strategic acquisitions and alliances. The recent acquisitions of
Camlok Lifting Clamps ("Camlok"), the Tigrip product line ("Tigrip"), Societe
D'Exploitation des Raccords Gautier ("SERG" or "Gautier") and GL with its
Canadian operation have provided the Company with additional international
operating locations, and will enable the Company to market their products to the
Company's customer base. The Company has increased its international net sales
from approximately 14% ($20.3 million) of net sales in fiscal 1994 to
approximately 26% ($191.6 million) of net sales for fiscal 1999.
Pursue Selective Acquisitions. The Company intends to selectively pursue
strategic acquisitions, joint ventures and alliances. Potential strategic
combinations will be evaluated based on their ability to, among other things:
(i) complement existing businesses and further expand product lines; (ii)
strengthen the Company's leadership position in the material handling and
lifting industry; (iii) provide synergistic opportunities; (iv) enhance and
broaden distribution channels; (v) increase the Company's international
presence; and (vi) enhance shareholder value and be EVA@ positive.
Segment Information
During fiscal 1999 the Company classified its operations into the
following three business segments:
(i) Products, which includes the design, manufacture and supply
of a wide variety of electric, lever, hand and air-powered
hoists; hoist trolleys; industrial crane systems; alloy, carbon
steel and kiln chain; closed-die forged attachments, such as
5
hooks, shackles, logging tools and loadbinders; industrial
components, such as mechanical and electromechanical actuators,
mechanical jacks and rotary unions; and below-the-hook lifters
for commercial and consumer markets.
(ii) Solutions - Industrial, which includes the project design,
fabrication and installation of integrated material handling
systems for consumer products manufacturing, warehousing and,
to a lesser extent, the steel, construction and other
industrial markets. Products sold by this segment include
powered roller conveyors, operator-controlled manipulators and
scissor lifts.
(iii) Solutions - Automotive, which includes the project design,
fabrication and installation of integrated material handling
systems for the automotive industry. Products sold by this
segment consist primarily of overhead power-and-free conveyors
and electrified monorail conveyors.
Financial information regarding the business segments is presented in Note
18 to the Company's audited consolidated financial statements included elsewhere
herein.
Products and Services
Products Segment
The Company's Products segment primarily designs, manufactures and
distributes a broad range of material handling, lifting and positioning products
for various applications in industry and for consumer use. These products are
typically manufactured for stock and are sold through a variety of distributors.
In fiscal 1999, net sales of the Products segment were approximately $515.7
million or approximately 70% of the Company's net sales, of which approximately
$389.7 million (76%) were domestic and $126.0 million (24%) were international.
The following table sets forth certain sales data for the products of the
Products segment, expressed as a percentage of net sales of this segment for
fiscal 1999:
Hoists............................................ 56%
Chain and forged attachments...................... 22
Industrial overhead cranes........................ 15
Industrial components............................. 7
--
100%
===
Hoists. The Company manufactures a variety of hand-operated hoists and
lever tools, air-powered hoists, electric chain hoists, and electric wire rope
hoists. Load capacities for the Company's hoist product lines range from less
than one ton to 100 tons. These products are sold under its Budgit, Chester, CM,
Coffing, Shaw-Box, Yale and other recognized trademarks. The Company's hoists
are sold for use in a variety of general industrial applications, as well as for
use in the entertainment, consumer, rental, health care and other emerging
product markets. The Company also supplies hoist trolleys, driven manually or by
electric motors, for the industrial, consumer and OEM markets.
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The Company also offers a line of custom-designed, below-the-hook tooling
and clamps. Below-the-hook tooling and clamps are specialized lifting apparatus
used in a variety of lifting activities performed in conjunction with hoist and
chain applications.
Chain and Forged Attachments. The Company manufactures alloy chain for
various industrial applications. Federal regulations in the United States
require the use of alloy chain, which the Company first developed, for overhead
lifting applications because of its strength and wear characteristics. A line of
the Company's alloy chain is sold under the Herc-Alloy brand name for use in
overhead lifting, pulling and restraining applications. The Company also sells
specialized load chain for use in hoists. Three grades and multiple sizes of
carbon steel welded-link chain are sold by the Company in the industrial and
consumer markets for various load securement and other non-overhead lifting
applications. As a result of the acquisition of Lister Bolt & Chain, Ltd. and
Lister Chain & Forge Inc. (collectively, "Lister"), the Company now also
manufactures kiln chain sold primarily to the cement and lime kiln manufacturing
market and anchor and buoy chain sold primarily to the United States and
Canadian governments.
The Company manufactures a complete line of alloy and carbon steel forged
attachments, including hooks, shackles, hitch pins, master links and
loadbinders. These forged attachments are used in virtually all types of chain
and wire rope rigging applications in a variety of industries, including
transportation, mining, railroad, construction, marine, logging, petrochemical
and agriculture.
The Company also manufactures carbon steel forged and stamped products,
such as loadbinders, hooks, shackles and other securement devices, for sale to
the industrial, consumer and logging markets through industrial distributors,
hardware distributors, mass merchandiser outlets and OEMs.
Industrial Overhead Cranes. The Company entered the crane manufacturing
market through the August 1998 acquisition of Abell-Howe, a Chicago-based
regional manufacturer of jib and overhead bridge cranes. The Company's merger
with GL in March 1999 established the Company as a significant participant in
the strategically important crane building and servicing markets, which are
strong complements to its hoist business.
Industrial Components. The Company, through the Duff-Norton division of
its Yale Industrial Products, Inc. ("Yale") subsidiary, designs and manufactures
industrial components such as mechanical and electromechanical actuators,
mechanical jacks and rotary unions for sale domestically and abroad. Actuators
are linear motion devices used in a variety of industries, including the paper,
steel and aerospace industries. Mechanical jacks are heavy duty lifting devices
whose uses include the repair and maintenance of railroad tracks, locomotives
and industrial machinery. Rotary unions are piping devices which introduce
heating or cooling liquids into the interiors of rotating drums in industrial
processes in the paper, textiles, rubber, plastics, printing and machine tool
industries. The December 1998 acquisition of Gautier, a French rotary union and
swivel joint manufacturer, complemented Duff-Norton's product line while
expanding its global reach.
Solutions Segments
The Solutions segments are engaged primarily in the design, fabrication
and installation of integrated work station and facility-wide material handling
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systems and in the manufacture and distribution of operator-controlled
manipulators and scissor lifts. The products and services of these two segments
are highly engineered and are generally built to order and sold directly to
end-users for specific applications. Net sales of the Solutions - Industrial
segment in fiscal 1999 were approximately $58.3 million or approximately 8% of
the Company's total net sales, of which approximately $30.1 million (52%) were
domestic and approximately $28.2 million (48%) were international. Net sales of
the Solutions - Automotive segment in fiscal 1999 were approximately $161.4
million or approximately 22% of the Company's total net sales, of which
approximately $124.0 million (77%) were domestic and approximately $37.4 million
(23%) were international. The following table sets forth certain sales data for
the products and services of the Solutions segments, expressed as a percentage
of net sales of these segments for fiscal 1999:
Integrated material handling conveyor systems..... 86%
Scissor lifts..................................... 6
Manipulators...................................... 4
Other............................................. 4
--
100%
===
Integrated Material Handling Conveyor Systems. Conveyors are the most
important component of a material handling system, reflecting their high
functionality for transporting material throughout manufacturing and warehouse
facilities. ASI, which is the sole business of the Solutions - Automotive
segment, specializes in overhead conveyors, electrified monorail systems,
robotic indexing systems and automatic body transfer systems. Univeyor, a
component of the Solutions - Industrial segment, specializes in
computer-controlled and automated powered roller conveyors for use in warehouse
operations and distribution systems.
Scissor Lifts. The American Lifts division of Yale manufactures hydraulic
scissor lift tables and other engineered lifting products. These products
enhance workplace ergonomics and are sold primarily to customers in the
manufacturing, construction, general industrial and air cargo industries.
Manipulators. The Company manufactures a line of sophisticated
operator-controlled manipulators. These products are articulated mechanical arms
with specialized end tooling designed to perform lifting, rotating, turning,
tilting, reaching and positioning tasks in a manufacturing process. Utilizing
various models and size configurations, the Company can offer custom-designed
hydraulic, pneumatic, and electric manipulators for a wide variety of
applications where the user requires multi-axial movement in a harsh or
repetitive environment.
Sales and Marketing
The Company supports its Products segment sales through its sales forces
and through independent manufacturing agents worldwide, including approximately
150 dedicated salespersons who sell hoists, chain, forged attachments, cranes,
rotary unions, actuators, jacks, and related material handling accessories.
Sales are further supported by over 130 Company-trained customer service
correspondents and sales application engineers.
The Company promotes its products by advertising in trade journals and by
participating in more than 60 trade shows each year throughout the United States
and abroad. Trade shows are central to promotion of the Company's products and,
in certain cases, for actual sale of the Company's products, particularly to
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hardware retailers. Shows in which the Company participates range from global
events held in Hanover, Germany, Cologne, Germany and Chicago, Illinois to local
"markets" and "open houses" put on by individual hardware and industrial
distributors. The Company also attends specialty shows for the entertainment,
rental, safety and environmental recycling markets, as well as general purpose
industrial and consumer hardware shows. In fiscal 1999, the Company participated
in trade shows in Canada, France, Mexico, Germany, England, Singapore, South
Africa, China, Australia and Brazil, as well as in the United States.
The Company's communication program encompasses advertisements in leading
trade journals as well as producing and distributing high quality information
catalogs. On-site distributors and end-user training programs are held worldwide
to promote and reinforce the attributes of the Company's products. The Company
also has a Web site on the Internet (http://www.cmworks.com).
The Company supports its product distribution by running cooperative
"pull-through" advertising in over 50 vertical trade magazines and directories
targeted to the theatrical, international, consumer, tire shredder and crane
builder markets. The Company has separate ads for chain, hoists, forged
attachments, lifters, actuators, hydraulic jacks, tire shredders, hardware
programs, cranes and light rail systems.
Distribution and Markets
Products Segment.
The distribution channels for the Products segment include a variety of
commercial distributors, including general distributors, specialty distributors,
service-after-sale distributors and other distributors.
General Distribution Channels:
o Industrial distributors sell a variety of products for maintenance,
repair, operation and production ("MROP") applications through their
own direct sales force.
o Rigging shops are distributors who are experts in the rigging,
lifting, positioning and load securement areas of material handling.
Most rigging shops manufacture and distribute chain, wire rope and
synthetic slings and distribute off-the-shelf hoists and attachments,
chain slings and other off-the-shelf products.
o Crane builders design, build and install overhead crane and light-rail
systems for general industry and sell a wide variety of hoists and
lifting attachments. Cranes and crane components are also sold by the
Company's wholly owned crane builders, Abell-Howe and GL, directly to
end-users in a variety of industrial markets.
Specialty Distribution Channels:
o Catalog houses market a variety of MROP supplies and material handling
products either exclusively through large, nationally distributed
catalogs, or through a combination of catalog sales and a field sales
force. The customer base of catalog houses, which traditionally
included smaller industrial companies and consumers, has expanded to
include large industrial accounts and integrated suppliers.
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o Material handling specialists design and assemble systems incorporat-
ing hoists, overhead rail systems, trolleys, lift tables,
manipulators, air balancers, jib arms and other products.
o Entertainment equipment distributors design, supply and install a
variety of material handling equipment for concerts, theaters, ice
shows, sports arenas, convention centers and discos.
Service-After-Sale Distribution Channel:
o Service-after-sale distributors include over 12 chain repair service
stations and over 450 hoist parts, product, service and repair
stations. This service network is designed for easy parts and service
access for the Company's large installed base of hoists and related
equipment in North America.
Other Sales Channels:
o Original equipment manufacturers supply various component parts to
other industrial manufacturers as well as private branding and
packaging of traditional Company products for material handling,
lifting and positioning applications.
o Government sales are sold directly by the Company and have expanded
with the acquisition of Lister, which manufactures anchor, buoy and
mooring chain for the United States and Canadian Navies and Coast
Guards.
Solutions Segments
The products and services of the Solutions segment are sold primarily to
end-users. In the sale of its integrated material handling conveyor systems, the
Company generally acts as a prime contractor with turnkey responsibility for its
systems, or a supplier working closely with the customer's general contractor.
Sales are generated by in-house personnel, generally through
engineer-to-engineer interactions. Products, such as scissor lifts and
manipulators are sold by Company sales employees and specialized independent
distributors.
Customer Service and Training
The Company maintains well-trained customer service departments for all of
its Products segment sales divisions, and regularly schedules product and
service training schools for all customer service representatives and field
sales forces. In addition, training schools for distribution, service stations,
and end-users are held on a regular basis at most of the Company's facilities,
as well as in the field. The Company has more than 450 service stations
worldwide that provide local and regional repair, warranty and general service
work for distributors and end-users. End-user trainees attending various
training schools maintained by the Company include representatives of General
Motors, DuPont, 3M, GTE, Cummins Engine, General Electric and many other large
industrial manufacturers.
The Company also provides a variety of collateral material in video,
cassette, CD-ROM, slide and literature format addressing such relevant material
handling topics as the care, use and inspection of chains and hoists, and
overhead lifting and positioning safety.
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The Company also sponsors nine separate advisory boards made up of
representatives of its primary distributors and service-after-sale network
members who are invited to participate in discussions focused on improving
products and service. These boards enable the Company and its primary
distributors to exchange product and market information relevant to industry
trends.
Recent Acquisitions
Since February 1994, the Company has acquired thirteen operations:
o In March 1999, the Company merged with GL, a full-service designer and
builder of industrial overhead bridge, gantry and jib cranes and
related components, in exchange for shares of, and options to
purchase, the Company's common stock valued at approximately $20.6.
This acquisition was the Company's first major step in the
implementation of its CraneMart@ strategy.
o In January 1999, the Company acquired Camlok and the Tigrip product
line for aggregate consideration of approximately $10.6 million.
Camlok, located in the United Kingdom, manufactures plate clamps,
crane weighers and related products. The German-based Tigrip produces
standard and specialized plate clamps. These acquisitions positioned
the Company as a market leader for lifting clamps in Europe.
o In December 1998, the Company acquired SERG, a manufacturer of rotary
unions and swivel joints, for approximately $2.9 million. SERG's
product lines are complementary to those of the Company's Duff-Norton
division and provide the Company with additional cross-selling and
cross-branding opportunities.
o In August 1998, the Company acquired Abell-Howe, a regional
manufacturer of jib and other overhead cranes for approximately $7.0
million. This acquisition marked the Company's entry into the
complementary crane building product line, creating significant
cross-selling opportunities for its existing hoist products.
o In March 1998, the Company acquired LICO, a designer, manufacturer and
installer of custom conveyors and material handling systems primarily
for the automotive industry, for approximately $155.0 million,
adjusted for outstanding borrowings. This acquisition strengthened the
Company's position as a leader in the project design, fabrication and
installation of automated material handling systems and provided the
Company with an established platform for increasing its sales to the
automotive and industrial manufacturing markets.
o In January 1998, the Company acquired Univeyor, which is engaged in
the design and manufacture of automated material handling systems, for
approximately $15.0 million plus assumed liabilities. This transaction
enabled the Company, which previously had designed solutions only for
individual workstations, to offer automated material handling systems,
predominantly using powered roller conveyors, for the entire
workplace.
o In December 1996, the Company acquired Lister, a manufacturer of
cement kiln, anchor and buoy chain and mining bolts, for approximately
$7.0 million. This transaction complemented the Company's line of
chain products and provided the Company with access to new markets,
11
particularly in the international marketplace.
o In October 1996, the Company acquired the majority of the outstanding
common equity of Yale Industrial Products, Inc., a manufacturer of a
variety of lifting and positioning products, including hoists and
scissor lifts and industrial components such as actuators, jacks and
rotary unions, for approximately $270.0 million through a cash tender
offer. In January 1997, the Company acquired the remaining common
equity of Yale and effected a merger. This acquisition further
complemented the Company's product line and also provided the Company
with international operations and distribution facilities in Europe,
South Africa and China.
o In November 1995, the Company acquired Lift-Tech International, Inc.
("Lift-Tech"), a manufacturer and distributor of hoists and crane
components, including wire rope and air-powered hoists, for
approximately $63.0 million. Lift-Tech's products complemented the
Company's existing hoist product lines, thereby enabling the Company
to offer a broader product line to the marketplace.
Between February 1994 and October 1995 the Company also acquired (i) the
remaining 51% equity interest in Endor, a Mexican manufacturer of hoists, for
approximately $2.0 million, (ii) certain assets of Cady Lifters, Inc., a
manufacturer of "below the hook" lifters, for approximately $0.8 million, (iii)
the assets of the Conco Division of McGill Industries, Inc., a manufacturer of
manipulators, for approximately $0.8 million and (iv) the assets of
Durbin-Durco, Inc., a manufacturer of load securement equipment and attachments,
for approximately $2.4 million.
Competition
The markets in which the Company operates are highly competitive and the
Company faces competition from a number of different manufacturers in each of
its product areas and geographic markets, domestic and foreign. The Company
competes in the sale of hoists with Demag, Kito-Harrington, Ingersoll-Rand and
Morris Material Handling; in chain with Campbell, Peerless Chain Company and
American Chain and Cable Company; in forged attachments with the Crosby Group,
Chicago Hardware and Cooper; in actuators and rotary unions with Deublin and
Joyce-Dayton; and in integrated material handling systems with Jervis B. Webb,
Dearborn Mid-West, Allied UniKing and FATA. The principal competitive factors
affecting the market for the Company's products include performance,
functionality, price, brand recognition, customer service and support and
product availability. Some of the Company's competitors have greater financial
and other resources than the Company.
Employees
At March 31, 1999, the Company had approximately 4,350 employees, 3,480 in
the United States, 375 in Canada, 120 in Mexico and 375 in Europe. Approximately
1,580 of the Company's employees are represented under 12 separate collective
bargaining agreements which terminate at various times between September 1999
and April 2003.
During the past five years, the only interruptions or curtailments of the
Company's business due to labor disputes was a five-day work stoppage at a Yale
plant in Charlotte, North Carolina in fiscal 1997. The Company believes that its
relationship with its employees is good. In support of this relationship, the
12
Company has maintained an Employee Stock Ownership Plan since 1988 and also uses
incentive-based compensation programs that are linked to the Company's
profitability and increase in shareholder value.
Backlog
The Company's backlog of orders at March 31, 1999 was approximately $166.1
million compared to approximately $214.6 million at March 31, 1998. The
Company's orders for standard products are generally shipped within one week.
Orders for products that are manufactured to customers' specifications are
generally shipped within four to twelve weeks. Revenues from the Company's
contracts for automated systems are generally recognized within 12 to 18 months.
The Company does not believe that the amount of its backlog orders is a reliable
indication of its future sales.
Raw Materials and Components
The principal raw materials used by the Company are structural steel and
processed steel bar, forging bar steel, steel rod and wire, steel pipe and
tubing and tool steel which are available from multiple sources. The Company
purchases these various forms of steel from a number of suppliers under
long-term agreements which are negotiated on a company-wide basis to take
advantage of volume discounts. Although the steel industry is cyclical and steel
prices can be volatile, the Company has not been significantly impacted in
recent years by increases in steel prices.
The Company also purchases components such as motors, bearings and gear
housings and castings. These components are generally available from several
suppliers.
The Company estimates that its total materials cost, including steel
products and components, represented approximately 31% of net sales in fiscal
1999. The Company generally seeks to pass on materials price increases to its
customers, although a lag period often exists. The Company's ability to pass on
these increases is determined by competitive conditions.
Environmental and Other Governmental Regulation
Like many manufacturing companies, the Company is subject to various
federal, state and local laws relating to the protection of the environment. To
address the requirements of such laws, the Company has adopted a corporate
environmental protection policy which provides that all facilities owned or
leased by the Company shall, and all employees of the Company have the duty to,
comply with all applicable environmental regulatory standards, and the Company
has initiated an environmental auditing program for its facilities to ensure
compliance with such regulatory standards. The Company has also established
managerial responsibilities and internal communication channels for dealing with
environmental compliance issues that may arise in the course of its business.
Because of the complexity and changing nature of environmental regulatory
standards, it is possible that situations will arise from time to time requiring
the Company to incur expenditures in order to ensure environmental regulatory
compliance. However, the Company is not aware of any environmental condition or
any operation at any of its facilities, either individually or in the aggregate,
which would cause expenditures that would result in a material adverse effect on
the Company's results of operations, financial condition or cash flows and,
accordingly, has not budgeted any material capital expenditures for
environmental compliance for fiscal 2000.
13
Certain federal and state laws, sometimes referred to as Superfund laws,
require certain companies to remediate sites that are contaminated by hazardous
substances. These laws apply to sites owned or operated by a company, as well as
certain off-site areas for which a company may be jointly and severally liable
with other companies or persons. The required remedial activities are usually
performed in the context of administrative or judicial enforcement proceedings
brought by regulatory authorities. The Company has been involved recently in six
administrative enforcement proceedings in connection with the remediation of
certain facilities, one of which it owns and operates, one of which was formerly
owned and operated by a subsidiary of one of the Company's subsidiaries, and
four of which neither the Company nor any subsidiary of the Company has ever
owned or operated but with regard to which the Company or a subsidiary of the
Company has been identified as one of several potentially responsible parties
("PRPs"). The Company has cooperated with the regulatory authorities in
connection with these environmental proceedings. From the perspective of the
Company, with the exception of the two environmental administrative proceedings
discussed below, these matters have been, and are expected to continue to be,
minor matters not requiring substantial effort or expenditure on the part of the
Company.
The first environmental administrative proceeding is one in which the
Company has been identified by the New York State Department of Environmental
Conservation ("NYSDEC"), along with other companies, as a PRP at the Frontier
Chemical Site in Pendleton, New York ("Pendleton Site"), a site listed on
NYSDEC's Registry. From 1958 to 1977, the Pendleton Site had been operated as a
commercial waste treatment and disposal facility. The Company sent waste
pickling liquor generated at its facility in Tonawanda, New York to the
Pendleton Site during the period from approximately 1969 to 1977, and the
Company is participating with other PRPs in conducting the remediation of the
Pendleton Site under a consent order with NYSDEC. As a result of a negotiated
cost allocation among the participating PRPs, the Company has paid its pro rata
share of the remediation costs and accrued its share of the ongoing operations
and maintenance costs. As of March 31, 1999, the Company has paid approximately
$1.0 million in remediation and ongoing operations and maintenance costs
associated with the Pendleton Site. The participating PRPs have identified and
commenced a cost recovery action against a number of other parties who sent
hazardous substances to the Pendleton Site. If any of the currently
nonparticipating parties identified by the participating PRPs pay their pro rata
shares of the remediation costs, then the Company's share of total site
remediation costs will decrease. Settlements have been reached with 45 of the
113 defendants in the cost recovery action, and additional settlements are
expected in the future. However, the Company has not yet received payment in
connection with such settlements. The Company also has entered into a settlement
agreement with one of its insurance carriers in the amount of approximately
$734,130 in connection with the Pendleton Site and has received payment in full
of the settlement amount.
The second environmental administrative proceeding involved Mechanical
Products, Inc., a former subsidiary of Yale ("MPI"). In 1987, MPI discovered
that groundwater and certain soils at and near its Jackson, Michigan plant
contained certain organic chemical compounds in concentrations above those
permitted by applicable law. MPI conducted an extensive investigation of the
site and entered into an Administrative Order by Consent with the State of
Michigan Department of Natural Resources which provides for further
investigation and the development and implementation of a plan for remedial
action. Since 1991, MPI has been engaged in efforts to investigate and remediate
the impacted areas. On or about August 10, 1998, Yale sold MPI in a stock
transaction, and the purchaser assumed the environmental liabilities associated
with the administrative proceeding described in this paragraph. As of August 10,
1998, the Company had paid a total of approximately $3.4 million in remediation
14
and operations and maintenance costs required by this administrative proceeding,
and since that date, as a result of the sale of MPI, the Company has not had,
and does not expect to have, further expenditures in connection with same.
For all of the currently known and unpaid environmental matters, the
Company has accrued a total of approximately $930,000 as of March 31, 1999,
which, in the opinion of the Company's management, is sufficient to deal with
such matters. Further, the Company's management believes that the environmental
matters known to, or anticipated by, the Company should not, individually or in
the aggregate, have a material adverse effect on the Company's cash flow,
results of operations or financial condition. However, there can be no assurance
that potential liabilities and expenditures associated with unknown
environmental matters, unanticipated events, or future compliance with
environmental laws and regulations will not have a material adverse effect on
the Company.
The Company's operations are also governed by many other laws and
regulations, including those relating to workplace safety and worker health,
principally OSHA and regulations thereunder. The Company believes that it is in
material compliance with these laws and regulations and does not believe that
future compliance with such laws and regulations will have a material adverse
effect on its cash flow, results of operations or financial condition.
Item 2. Properties.
- ------- -----------
The Company maintains its corporate headquarters in Amherst, New York. The
principal properties utilized by the Company for its continuous operations
consist of 56 manufacturing and distribution facilities, of which 40 are located
in the United States, 5 are located in Canada, 1 is located in Mexico, 8 are
located in Europe, and 2 are located in Asia. The Company also leases a number
of sales offices and minor warehouses throughout North America, Europe, Asia and
South AFrica. The following table summarizes the Company's headquarters and
principal manufacturing and distribution facilities by business segment:
Approximate Floor Space
(in square feet)
Owned Leased Total
Corporate Headquarters --- 52,000(1) 52,000
Products (42 facilities):
United States 1,740,000 623,000 2,363,000
International 394,000 187,000 581,000
Solutions - Industrial (7 facilities):
United States 323,000 - 323,000
International 85,000 20,000 105,000
Solutions - Automotive (7 facilities):
United States 81,000 65,000 146,000
International - - -
_______________________
(1) Approximately 26,000 square feet is sublet to an unaffiliated party through June 30, 2003. Title to the property is vested in
the Town of Amherst Industrial Development Agency pursuant to an industrial revenue bond transaction. The Company has the right and
obligation to purchase the property upon the expiration of the lease term for $1.00.
15
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. The Company also believes that upon the
expiration of its current leases, it either will be able to secure renewal terms
or enter into leases for alternative locations at market terms.
Item 3. Legal Proceedings.
- ------- ------------------
From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company is not a party to any
pending legal proceeding the resolution of which the management of the Company
believes will have a material adverse effect on the Company's cash flow, results
of operations or financial condition or to any other pending legal proceedings
other than ordinary, routine litigation incidental to its business. The Company
maintains liability insurance against risks arising out of the normal course of
business.
On November 18, 1996, an action entitled Milliken & Company vs.
Duff-Norton Company, Inc. and Industrial Distribution Group, Inc. d/b/a Dixie
Industrial Supply Company was commenced in the Superior Court of Troup County,
Georgia. In its complaint in this action, the plaintiff alleges that a rotary
union coupler manufactured by a subsidiary of Yale failed, causing a fire
resulting in alleged damages to the plaintiff's carpet manufacturing facility
and equipment in excess of $500 million. This action was settled in fiscal 1999
within the limits of the Company's insurance coverage.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not applicable.
16
PART II
Item 5. Market for the Company's Common Stock and Related Security
- ------- --------------------------------------------------------------
Holder Matters.
---------------
The Company's Common Stock is listed on the National Association of
Securities Dealers Automated Quotation System - National Market System
("NASDAQ") under the trading symbol "CMCO". The following table sets forth, for
the fiscal periods indicated, the high and low closing sale prices per share of
the Company's Common Stock as reported by NASDAQ.
Fiscal 1999 Fiscal 1998
----------- -----------
High Low High Low
---- --- ---- ---
1st Quarter 30 1/2 26 1/4 19 17
2nd Quarter 28 7/16 15 1/8 26 1/4 18 5/8
3rd Quarter 19 1/4 14 3/8 26 1/2 22 1/2
4th Quarter 22 3/4 17 7/16 27 7/8 22 3/16
As of March 31, 1999, there were 162 holders of record of the Company's
Common Stock. Approximately 2,000 additional shareholders hold shares of the
Company's Common Stock in "street name".
The Company declared total cash dividends of $.28 per share in fiscal 1999
and $.28 per share in fiscal 1998.
On March 1, 1999, the Company issued 897,114 shares of its common stock
(the "Merger Shares") to six investors in a private placement. The Merger Shares
were issued pursuant to a pooling transaction in which a subsidiary of the
Company and GL merged. As a result of such merger, all of the outstanding shares
of GL were converted into the Merger Shares. The value of the Merger Shares,
based upon the last reported sale price of the Company's common stock on March
1, 1999, was $17.8 million. The Merger Shares were issued in reliance on an
exemption provided under Section 4(2) of the Securities Act of 1933, as amended.
17
Item 6. Selected Financial Data.
- ------- ------------------------
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
of the Company for each of the five fiscal years in the period ended March 31,
1999. This information includes (i) the results of operations of Lift-Tech since
its acquisition on November 1, 1995, (ii) the results of operations of Yale
since its acquisition on October 17, 1996, (iii) the results of operations of
Lister since its acquisition on December 19, 1996, (iv) the results of
operations of Univeyor since its acquisition on January 8, 1998, (v) the results
of operations of LICO since its acquisition on March 31, 1998, (vi) the results
of operations of Mechanical Products through its divestiture on August 7, 1998,
(vii) the results of operations of Abell-Howe since its acquisition on August
21, 1998, (viii) the results of operations of Gautier since its acquisition on
December 4, 1998, (ix) the results of operations of Camlok and Tigrip since
their acquisition on January 29, 1999, and (x) the results of operations of GL
since its formation on April 1, 1997, including the restatement of Company data
reported prior to GL's merger with the Company on March 1, 1999. This table
should be read in conjunction with the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the Consolidated Financial
Statements of the Company, including the notes thereto, included elsewhere
herein. Refer to the "Description of Business and Business Acquisitions" note to
the Consolidated Financial Statements regarding the unaudited pro forma
information presented, which reflects the fiscal 1999 and 1998 business
acquisitions and divestiture, and related capital impact, as if they occurred on
April 1, 1997, which is the beginning of fiscal 1998.
Fiscal Years Ended March 31,
----------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Statement of Income Data:
Net sales.................................................... $172,330 $209,837 $359,424 $561,823 $735,445
Cost of products sold........................................ 124,492 149,511 251,987 401,669 542,975
Gross profit................................................. 47,838 60,326 107,437 160,154 192,470
Selling expenses............................................. 15,915 19,120 32,550 46,578 52,059
General and administrative expenses.......................... 11,449 13,941 24,636 33,361 39,850
Amortization of intangibles.................................. 600 791 5,197 10,297 15,479
Other charges................................................ 1,598 672 - --- ---
Income from operations....................................... 18,276 25,802 45,054 69,918 85,082
Interest and debt expense.................................... 2,352 5,292 11,930 25,104 35,923
Interest and other income.................................... 472 1,134 1,168 1,940 1,565
Income before income taxes, minority interest and
extraordinary charge.......................................
16,396 21,644 34,292 46,754 50,724
Income tax expense........................................... 5,892 8,657 15,617 22,776 23,288
Minority interest............................................ - - (323) --- ---
Extraordinary charge for early debt extinguishment........... - - (3,198) (4,520) ---
Net income................................................... $ 10,504 $ 12,987 $ 15,154 $ 19,458 $ 27,436
Net income per common share-diluted(a)....................... $ 1.48 $ 1.69 $ 1.15 $ 1.35 $ 1.92
Cash dividend per common share (a)........................... 0.21 0.24 0.27 0.28 0.28
Pro Forma Statement of Income Data:
Net sales.................................................... $735,525 $732,143
Income from operations....................................... 81,963 84,702
Income before extraordinary charge........................... 24,354 27,355
Net income................................................... 19,834 27,355
Earnings per share -- diluted:
Income before extraordinary charge........................ 1.69 1.91
Net income................................................ 1.37 1.91
18
Balance Sheet Data (at end of period):
Total assets................................................. $ 97,822 $ 188,734 $ 548,245 $ 788,862 $ 766,911
Total long-term debt (including current maturities).......... 22,587 9,744 286,288 458,577 423,612
Total liabilities............................................ 56,972 51,112 398,089 617,916 578,237
Total shareholders' equity................................... 40,850 137,622 150,156 170,946 188,674
(a) Reflects a 17 to 1 stock split of the common stock effected on February 15, 1996; fiscal 1995 and 1996
per share data also impacted by the Company's initial public offering effected on February 22, 1996.
19
Item 7. Management's Discussion and Analysis of Results of Operations
- ------- --------------------------------------------------------------
and Financial Condition.
------------------------
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, automotive 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. 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. 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, and consumer
products manufacturing, warehousing and, to a lesser extent, the steel,
construction and other industrial markets.
On March 1, 1999, GL International, Inc. ("GL") was merged with and into
the Company through the issuance of new Company stock and options to purchase
Company stock for all issued and outstanding stock and options of GL. The merger
was accounted for as a pooling of interests and, accordingly, the 1999 and 1998
consolidated financial statements have been restated to include the accounts of
GL from the date of GL's formation, April 1, 1997.
This section should be read in conjunction with the consolidated financial
statements of the Company included elsewhere herein.
Results of Operations
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented:
20
Fiscal Years Ended March 31,
----------------------------
1999 1998 1997
---- ---- ----
Products Segment sales............................................................... 71.9% 93.4% 88.6%
Solutions - Industrial Segment sales................................................. 7.9 7.1 7.9
Solutions - Automotive Segment sales................................................. 22.0 - -
Intercompany eliminations/Other sales................................................ (1.8) (0.5) 3.5
---- ---- ---
Net sales............................................................................ 100.0 100.0 100.0
Cost of products sold................................................................ 73.8 71.5 70.1
---- ---- ----
Gross profit......................................................................... 26.2 28.5 29.9
Selling expenses..................................................................... 7.1 8.3 9.1
General and administrative expenses.................................................. 5.4 5.9 6.9
Amortization of intangibles.......................................................... 2.1 1.9 1.4
--- --- ---
Income from operations............................................................... 11.6 12.4 12.5
Interest and debt expense............................................................ 4.9 4.4 3.3
Interest and other income............................................................ 0.2 0.3 0.3
--- --- ---
Income before income taxes, minority interest and extraordinary charge............... 6.9 8.3 9.5
Income tax expense................................................................... 3.2 4.0 4.3
--- --- ---
Income before minority interest and extraordinary charge............................. 3.7% 4.3% 5.2%
==== ==== ====
Fiscal Years Ended March 31, 1999, 1998, and 1997
Sales growth during the periods was primarily due to the March 1999 GL
merger, the March 1998 LICO acquisition, the January 1998 Univeyor acquisition,
the December 1996 Lister acquisition and the October 1996 Yale acquisition,
offset by the August 1998 Mechanical Products divestiture. Sales in 1999 of
$735,445,000 increased $173,622,000 or 30.9% over 1998, and sales in 1998 of
$561,823,000 increased $202,399,000 or 56.3% over 1997. On a pro forma basis,
considering the effects of fiscal 1999 and 1998 acquisitions and divestiture,
the Company experienced a 0.5% decrease in sales in fiscal 1999 compared to
1998. This comparison is impacted by the following economic factors: 1) a
relatively soft industrial market, 2) the effect of the mid-1998 General Motors
strike, 3) the impact of the Asian and South American economic situations, and
4) a shift in demand from small retail hardware stores to larger do-it-yourself
superstores, to which the Company supplies only a small share. On a pro forma
basis, considering the effects of fiscal 1998 and 1997 acquisitions, the Company
experienced a 10.6% increase in sales in fiscal 1998 compared to 1997. This
growth was due to strong Solutions-Automotive segment demand as well as solid
demand by nearly all Products segment market channels. In addition, during these
periods the Company introduced list price increases of approximately 4% 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,
Solutions-Industrial and Solutions-Automotive segments were as follows, in
thousands of dollars and with percentage changes for each segment:
Change Change
Fiscal Years Ended March 31, 1999 vs 1998 1998 vs 1997
---------------------------- ------------ ------------
1999 1998 1997 Amount % Amount %
---- ---- ---- ------ - ------ -
(In thousands, except percentages)
Products................... $528,974 $524,949 $318,544 $ 4,025 0.8 $206,405 64.8
Solutions-Industrial....... 58,301 39,845 28,308 18,456 46.3 11,537 40.8
Solutions-Automotive....... 161,443 - - 161,443 - - -
Eliminations/Other......... (13,273) (2,971) 12,572 (10,302) - (15,543) -
Consolidated net sales........ $735,445 $561,823 $359,424 $173,622 30.9 $202,399 56.3
21
The addition of the Solutions-Automotive segment in fiscal 1999 is due to
the March 1998 LICO acquisition. The 46.3% and 40.8% growth in the
Solutions-Industrial segment in fiscal 1999 and 1998, respectively, is due to
the January 1998 Univeyor acquisition and also a small portion of the October
1996 Yale acquisition. The 64.8% growth in the Products segment in fiscal 1998
is due to the formation of GL in April 1997, the December 1996 Lister
acquisition, the October 1996 Yale acquisition and solid sales growth in nearly
all market channels within this segment. The fluctuation in Eliminations/Other
in each of the periods is due to the addition of intercompany sales between GL
and the other businesses within the Company in fiscal 1999 and 1998, offset by
the August 1998 Mechanical Products divestiture. Sales per employee increased to
$169,500 in fiscal 1999 from $134,400 in fiscal 1997.
The Company's gross profit margins were approximately 26.2%, 28.5% and
29.9% for 1999, 1998 and 1997, respectively. The decrease in gross profit margin
in fiscal 1999 is primarily due to the LICO acquisition which formed the
Solutions-Automotive segment and generally produces lower gross profit margins
than the other segments. The lower profitability of this segment is offset by a
lower operating capital base required to design and manufacture its products.
After isolating the effect of the LICO acquisition, the 1999 gross profit margin
increased by approximately 90 basis points. The decrease in gross profit margin
in fiscal 1998 resulted primarily from a change in the classification of
approximately $7.6 million of costs into cost of products sold which previously
had been classified as general and administrative expenses. This change was made
for intracorporate consistency and had a minimal effect on income from
operations. In addition, the fiscal 1998 gross profit margin was also impact by
the addition of GL, which also generates lower gross profit margins on a lower
capital base as compared to the pre-existing Products segment businesses. After
isolating the effect of the classification change and the GL merger, the 1998
gross profit margin increased by approximately 50 basis points compared to 1997.
Excluding the effects of those specific items noted above, the resulting
increase in gross profit margin in each of the periods resulted from the effects
of the Company's cost control efforts and integration of acquisitions.
Selling expenses were $52,059,000, $46,578,000 and $32,550,000 in fiscal
1999, 1998, and 1997, respectively. The 1999 expenses include the full year of
LICO activity; 1998 expenses include the full year of Yale and GL activity as
compared to fiscal 1997. As a percentage of consolidated net sales, selling
expenses were 7.1%, 8.3% and 9.1% in fiscal 1999, 1998 and 1997, respectively.
The 1999 and 1998 improvements reflect a lower level of selling expenses
incurred on behalf of the LICO and GL businesses, relative to sales.
General and administrative expenses were $39,850,000, $33,361,000 and
$24,636,000 in fiscal 1999, 1998 and 1997, respectively. The 1999 expenses
include the full year of LICO activity; 1998 expenses include the full year of
Yale and GL activity as compared to fiscal 1997. As a percentage of consolidated
net sales, general and administrative expenses were 5.4%, 5.9% and 6.9% in
fiscal 1999, 1998 and 1997, respectively. The 1999 improvement reflects a lower
level of general and administrative expenses incurred on behalf of the LICO
business, relative to sales. As noted above, the improved percentage in fiscal
1998 was primarily due to a change that reclassified approximately $7.6 million
of expenses previously classified as general and administrative into costs of
products sold for intracorporate consistency. This 1998 improvement was offset
somewhat by a higher level of general and administrative expenses incurred on
behalf of the GL business, relative to sales.
22
Amortization of intangibles was $15,479,000, $10,297,000 and $5,197,000 in
fiscal 1999, 1998 and 1997, respectively. Fiscal 1999 includes a full year of
goodwill amortization resulting from the LICO acquisition; 1998 includes a full
year of goodwill amortization resulting from the Yale acquisition; 1997 includes
a partial year of Yale and a full year of goodwill amortization resulting from
the Lift-Tech acquisition.
Interest and debt expense was $35,923,000, $25,104,000 and $11,930,000 in
fiscal 1999, 1998 and 1997, respectively. The fiscal 1999 and 1998 increases
were primarily due to the financing required to complete the LICO and Yale
acquisitions. As a percentage of consolidated net sales, interest and debt
expense was 4.9%, 4.4% and 3.3% in fiscal 1999, 1998 and 1997, respectively.
Interest and other income was $1,565,000, $1,940,000 and $1,168,000 in
fiscal 1999, 1998 and 1997, respectively. The fluctuations reflect changes 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 pre-tax accounting income were 45.9%,
48.7% and 45.5% in fiscal 1999, 1998 and 1997, respectively. The percentages
reflect the effect of non-deductible goodwill amortization resulting from the
business acquisitions.
In fiscal 1997, the minority interest share of Yale earnings of $323,000
resulted from the fact that the Company acquired 72% of the outstanding Yale
shares on a fully diluted basis in October 1996 and the remainder in January
1997.
As a result of the above, income before extraordinary charges increased
$3,458,000 or 14.4% in 1999 and $5,626,000 or 30.7% in 1998. This is based on
income before extraordinary charges of $27,436,000, $23,978,000 and $18,352,000
or 3.7%, 4.3% and 5.2% as a percentage of consolidated net sales in fiscal 1999,
1998 and 1997, respectively.
In fiscal 1998, the extraordinary charge for early debt extinguishment of
$4,520,000 resulted from the non-cash write-off of unamortized deferred
financing costs upon refinancing of the Company's bank debt effective March 31,
1998. The charge is net of $3,012,000 of tax benefit. In 1997, the extraordinary
charge for early debt extinguishment of $3,198,000 resulted from the tender in
December 1996 for 11.5% acquired Yale notes. The charge consisted of redemption
premiums, costs to exercise the tender offer, and write-off of previously
incurred deferred financing costs, and was net of $2,133,000 of tax benefit.
Net income, therefore, increased $7,978,000 or 41.0% in 1999 and
$4,304,000 or 28.4% in 1998. This is based on net income of $27,436,000,
$19,458,000 and $15,154,000 in fiscal 1999, 1998 and 1997, respectively.
Liquidity and Capital Resources
On March 1, 1999, GL was merged with and into the Company through the
issuance of 897,114 shares of newly issued Company stock and options to purchase
154,848 shares of Company stock for all issued and outstanding stock and options
of GL. The fair market value of the stock and options exchanged was
approximately $20.6 million.
On January 29, 1999, the Company acquired all of the outstanding stock of
Camlok and the net assets of the Tigrip product line for $10.6 million in cash,
23
financed by a German subsidiary revolving credit facility and term note.
On December 4, 1998, the Company acquired all of the outstanding stock of
Gautier for $3 million in cash, financed by the Company's revolving credit
facility.
During October 1998, the Company's ESOP borrowed $7,682,000 from the
Company and purchased 479,900 shares of Company common stock on the open market
at an average cost of $16 per share.
On August 21, 1998, the Company acquired the net assets of Abell-Howe for
$7 million in cash, financed by the Company's revolving credit facility.
On August 7, 1998, the Company sold its Mechanical Products division for
$11.5 million, consisting of $9.1 million in cash and a $2.4 million note
receivable.
On March 31, 1998, the Company acquired all of the outstanding stock of
LICO for approximately $155 million of cash, which was financed by proceeds from
the Company's revolving credit facility and a private placement of senior
subordinated 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 plus the assumption of certain
debt, financed by the Company's revolving credit facility.
The 1998 Revolving Credit Facility provides availability up to $300
million, due March 31, 2003, against which $212.4 million was outstanding at
March 31, 1999. Interest is payable at varying Eurodollar rates based on LIBOR
plus a spread determined by the Company's leverage ratio, amounting to 112.5
basis points at March 31, 1999. The 1998 Revolving Credit Facility is secured by
all equipment, inventory, receivables, subsidiary stock (limited to 65% for
foreign subsidiaries) and intellectual property. To manage its exposure to
interest rate fluctuations, the Company has an interest rate swap and cap.
The senior subordinated 8 1/2% 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 1/2% Notes include, without limitation,
restrictions of liens, indebtedness, asset sales, and dividends and other
restricted payments. Prior to April 1, 2003, the 8 1/2% 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 with the proceeds of equity offerings at a redemption price of 108.5%,
subject to certain restrictions. In the event of a Change of Control (as
defined), each holder of the 8 1/2% Notes may require the Company 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 not subject to any sinking
fund requirements.
The Company believes that its cash on hand, cash flows, and borrowing
capacity under its revolving credit facility will be sufficient to fund its
24
ongoing operations, budgeted capital expenditures, and business acquisitions for
the next twelve months.
Net cash provided by operating activities increased to $57,493,000 in
fiscal 1999 from $38,420,000 in 1998 and $28,886,000 in 1997. The $19,073,000
increase in net cash provided by operating activities in fiscal 1999 compared to
1998 results from increased net income of $7,978,000, increased depreciation and
amortization of $7,360,000, and a decrease of changes in net working capital
components, offset by the extraordinary charge for early debt extinguishment of
$4,520,000 in 1998. The $9,534,000 increase in net cash provided by operating
activities in fiscal 1998 compared to 1997 results from increased net income of
$4,304,000, and increased depreciation and amortization of $8,611,000, offset by
decreased deferred income tax expense by $4,761,000. Operating assets net of
liabilities decreased by $4,412,000 in fiscal 1999 and increased by $5,509,000
and $5,905,000 in fiscal 1998 and 1997, respectively.
Net cash used in investing activities was $23,943,000 in fiscal 1999
compared to $185,034,000 in 1998 and $215,851,000 in 1997. The 1999 amount
includes the acquisitions of Camlok/Tigrip, Gautier, and Abell-Howe for
$19,958,000, net of cash acquired; it is reduced by $8,801,000 of net proceeds
from the Mechanical Products divestiture and $2,182,000 of proceeds from the
sale of a portion of non-operating assets acquired with Yale in fiscal 1997. The
1998 amount includes the acquisitions of LICO, Univeyor and a GL business
acquisition for $175,686,000, net of cash acquired; it is reduced by $4,575,000
of proceeds from the sale of a portion of the non-operating Yale assets. The net
cash used in investing activities in fiscal 1997 includes $203,577,000 for the
Yale and Lister acquisitions, net of cash acquired.
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 fiscal 1999, 1998 and 1997 were
$12,992,000, $11,406,000 and $9,392,000, respectively, excluding those capital
assets acquired in conjunction with business acquisitions.
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.
Seasonality and Quarterly Results
Lower than average orders and shipments during the December holiday period
have a slight effect on the Company. In addition, quarterly results may be
materially affected by the timing of large customer orders, by periods of high
vacation concentrations, and by acquisitions and the magnitude of acquisition
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.
25
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 certain 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 95% has been remedially reprogrammed, and
approximately 72% is now certified to be 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 98% 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
June 1999. 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 80% 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".
26
Effects of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities," in June of 1998 which is effective for fiscal 2001. Statement No.
133 establishes accounting and reporting standards for hedging activities. It
requires that entities recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The intended use of the derivative and its designation as either (1) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or a firm commitment (a fair value hedge) (2) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation (a foreign currency hedge), will determine when the gains and losses
on the derivatives are reported in earnings and when they are to be reported as
a component of other comprehensive income. The impact of compliance with this
Statement has not yet been determined by the Company.
In March of 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
the provisions of the SOP in its financial statements for the year ended March
31, 1999. The SOP requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. The impact of
the SOP was not material to the Company.
In April of 1998, the AICPA issued SOP 98-5, "Reporting the Costs of
Start-Up Activities," which requires costs related to start-up activities be
expensed as incurred. The Company adopted the provisions of the SOP in its
financial statements for the year ended March 31, 1999. The adoption of SOP 98-5
had no effect on the Company's reported earnings.
27
Item 7A. Quantitive and Qualitative Disclosures About Market Risk
- -------- --------------------------------------------------------
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. The Company is exposed to various
market risks, including commodity prices for raw materials, foreign currency
exchange rates, and primarily changes in interest rates. The Company has entered
into financial instrument transactions which attempt to manage and reduce the
impact of changes in interest rates. The Company does not enter into derivatives
or other financial instruments for trading or speculative purposes.
The Company's primary commodity risk is related to changes in the price of
steel. The Company controls this risk through negotiating purchase contracts on
a consolidated basis and by attempting to build changes in raw material costs
into the selling prices of its products. The Company does not enter into
financial instrument transactions related to raw material costs.
Approximately 17% of the Company's operations consist of manufacturing
plants and sales offices in foreign jurisdictions. The Company manufactures its
products in the United States, Canada, Germany, Denmark, the United Kingdom,
Mexico, France and China and sells its products and solutions in over 50
countries annually. The Company's results of operations could be affected by
such factors as changes in foreign currency rates or weak economic conditions in
foreign markets. The Company's operating results are exposed to fluctuations
between the US dollar and the Canadian dollar, European currencies, the Mexican
peso and the Chinese renminbi. For example, when the US dollar strengthens
against the Canadian dollar, the value of sales and net income denominated in
Canadian dollars decreases when translated into US dollars for inclusion in the
Company's consolidated results. The Company also is exposed to foreign currency
fluctuations in relation to purchases denominated in foreign currencies. The
Company's foreign currency risk is mitigated since the majority of foreign
operations' sales and the related expense transactions are denominated in the
same currency. In addition, the majority of export sale transactions are
denominated in US dollars. Accordingly, the Company currently does not invest in
derivative instruments such as foreign exchange contracts to hedge foreign
currency transactions.
The Company controls risk related to changes in interest rates through
structuring its debt instruments with a combination of fixed and variable
interest rates and by periodically entering into financial instrument
transactions. At March 31, 1999, approximately 49% of the Company's outstanding
debt has fixed interest rates. At that date, the Company has approximately
$217.2 million of variable rate non-current debt and has an interest rate swap
with a notional amount of $3.5 million maturing in July 2000 based on LIBOR at
5.9025%, plus the applicable margin based on the Company's leverage ratio. Under
this agreement, the Company makes or receives payments equal to the difference
between fixed and variable interest rate payments on the notional amount. In
addition, the Company also has a LIBOR-based interest rate cap on $49.5 million
of debt, maturing in December 1999 at 10%. A 1% fluctuation in interest rates
would change future interest expense on the $213.7 million of debt that is not
covered by the swap agreement by approximately $2.1 million.
28
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Columbus McKinnon Corporation
Audited Consolidated Financial Statements as of March 31, 1999:
Report of Independent Auditors................................. F-2
Consolidated Balance Sheets.................................... F-4
Consolidated Statements of Income.............................. F-5
Consolidated Statements of Shareholders' Equity................ F-6
Consolidated Statements of Cash Flows.......................... F-7
Notes to Consolidated Financial Statements..................... F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Columbus McKinnon Corporation
We have audited the accompanying consolidated balance sheets of Columbus
McKinnon Corporation as of March 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 1999. Our audits also include the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. The consolidated financial statements give
retroactive effect to the merger of Columbus McKinnon Corporation and GL
International, Inc., which has been accounted for as a pooling of interests as
described in Note 1 to the consolidated financial statements. We did not audit
the balance sheet of GL International, Inc. as of March 31, 1998, or the related
statements of income and cash flows for the year then ended, which statements
reflect total assets of $27,921,000 as of March 31, 1998, and total revenues of
$59,860,000 for the year ended March 31, 1998. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for GL International, Inc. for 1998, is
solely based on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Columbus McKinnon Corporation at March
31, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Buffalo, New York
May 17, 1999
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GL International, Inc.:
We have audited the consolidated balance sheet of GL International, Inc.
and subsidiaries as of March 31, 1998, and the related consolidated statements
of income and cash flows for the year then ended (none of which are presented
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GL
International, Inc. and subsidiaries at March 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
August 24, 1998
F-3
COLUMBUS McKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
---------
1999 1998
---- ----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 6,867 $ 22,861
Trade accounts receivable, less allowance for doubtful accounts ($2,271
and $2,511 respectively) ............................................ 136,988 124,637
Unbilled revenues ..................................................... 9,821 19,634
Inventories ........................................................... 115,979 115,126
Net assets held for sale .............................................. 8,214 10,396
Prepaid expenses ...................................................... 8,160 10,407
----- ------
Total current assets ....................................................... 286,029 303,061
Net property, plant, and equipment ......................................... 90,004 87,662
Goodwill and other intangibles, net ........................................ 357,727 368,946
Marketable securities ...................................................... 19,355 16,665
Deferred taxes on income ................................................... 5,627 7,045
Other assets ............................................................... 8,169 5,483
----- -----
Total assets ............................................................... $ 766,911 $ 788,862
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks ................................................ $ 4,590 $ 5,184
Trade accounts payable ................................................ 54,651 58,639
Excess billings ....................................................... 5,058 4,653
Accrued liabilities ................................................... 54,331 44,405
Current portion of long-term debt ..................................... 1,926 2,180
----- -----
Total current liabilities .................................................. 120,556 115,061
Senior debt, less current portion .......................................... 222,165 256,929
Subordinated debt .......................................................... 199,521 199,468
Other non-current liabilities .............................................. 35,995 46,458
------ ------
Total liabilities .......................................................... 578,237 617,916
======= =======
Shareholders' equity:
Class A voting common stock; 50,000,000 shares authorized; 14,663,697 .
and 14,652,972 shares issued ........................................ 146 146
Additional paid-in capital ............................................ 102,313 100,425
Retained earnings ..................................................... 100,455 76,744
ESOP debt guarantee; 708,382 and 325,092 shares ....................... (9,865) (3,203)
Unearned restricted stock; 152,775 and 134,550 shares ................. (1,009) (538)
Accumulated other comprehensive loss .................................. (3,366) (2,628)
Total shareholders' equity ................................................. 188,674 170,946
------- -------
Total liabilities and shareholders' equity ................................. $ 766,911 $ 788,862
========= =========
See accompanying notes.
F-4
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands,
except per share data)
Net sales .............................................. $ 735,445 $ 561,823 $ 359,424
Cost of products sold .................................. 542,975 401,669 251,987
------- ------- -------
Gross profit ........................................... 192,470 160,154 107,437
Selling expenses ....................................... 52,059 46,578 32,550
General and administrative expenses .................... 39,850 33,361 24,636
Amortization of intangibles ............................ 15,479 10,297 5,197
------ ------ -----
107,388 90,236 62,383
------- ------ ------
Income from operations ................................. 85,082 69,918 45,054
Interest and debt expense .............................. 35,923 25,104 11,930
Interest and other income .............................. 1,565 1,940 1,168
----- ----- -----
Income before income taxes, minority interest and
extraordinary charge ................................ 50,724 46,754 34,292
Income tax expense ..................................... 23,288 22,776 15,617
------ ------ ------
Income before minority interest and extraordinary charge
27,436 23,978 18,675
Minority interest ...................................... - - (323)
------ ------ ------
Income before extraordinary charge ..................... 27,436 23,978 18,352
Extraordinary charge for early debt extinguishment ..... - (4,520) (3,198)
------ ------ ------
Net income ............................................. $ 27,436 $ 19,458 $ 15,154
========= ========= =========
Earnings per share data, basic:
Income before extraordinary charge for
debt extinguishment .......................... $ 1.94 $ 1.69 $ 1.39
Extraordinary charge for debt extinguishment ...... - (0.32) (0.24)
-------- -------- --------
Net income ........................................ $ 1.94 $ 1.37 $ 1.15
======== ======== ========
Earnings per share data, diluted:
Income before extraordinary charge for
debt extinguishment .......................... $ 1.92 $ 1.66 $ 1.39
Extraordinary charge for debt extinguishment ...... - (0.31) (0.24)
-------- -------- --------
Net income ........................................ $ 1.92 $ 1.35 $ 1.15
======== ======== ========
See accompanying notes.
F-5
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
Common Addi- Accumulated
Stock tional ESOP Unearned Other Total
($.01 Paid-in Retained Debt Restricted Comprehensive Shareholders'
par value) Capital Earnings Guarantee Stock Income (Loss) Equity
---------- ------- -------- --------- ----- ------------- ------
Balance at March 31, 1996.......... $ 137 $ 94,283 $ 49,386 $ (5,238) $ (836) $ (110) $ 137,622
Comprehensive income:
Net income 1997.................... - - 15,154 - - - 15,154
Change in foreign currency
translation adjustment........... - - - - - (1,309) (1,309)
Net unrealized gain on investments. - - - - - 318 318
Change in minimum pension
liability adjustment............. - - - - - (111) (111)
-----
Total comprehensive income......... - - - - - - 14,052
Earned 105,601 ESOP shares......... - 665 - 1,037 - - 1,702
Restricted common stock granted,
19,800 shares; net of 3,111 - 289 - - (280) - 9
shares canceled....................
Earned portion of restricted stock. - 17 - - 295 - 312
Common dividends declared
$0.27 per share.................. - - (3,541) - - - (3,541)
--- ------ ------ ----- --- ----- -------
Balance at March 31, 1997.......... 137 95,254 60,999 (4,201) (821) (1,212) 150,156
Issued 897,114 common shares....... 9 3,881 - - - 3,890
Comprehensive income:
Net income 1998.................... - - 19,458 - - - 19,458
Change in foreign currency
translation adjustment........... - - - - - (1,527) (1,527)
Net unrealized gain on investments. - - - - - 558 558
Change in minimum pension
liability adjustment............. - - - - - (447) (447)
-----
Total comprehensive income......... - - - - - - 18,042
Earned 101,416 ESOP shares......... - 1,270 - 998 - - 2,268
Earned portion of restricted stock. - 20 - - 283 - 303
Common dividends declared
$0.28 per share.................. - - (3,713) - - - (3,713)
--- ------- ------ ----- --- ----- -------
Balance at March 31, 1998.......... $ 146 $ 100,425 $ 76,744 $ (3,203) $ (538) $ (2,628) $ 170,946
Comprehensive income:
Net income 1999.................... - - 27,436 - - - 27,436
Change in foreign currency
translation adjustment........... - - - - - (1,399) (1,399)
Net unrealized gain on investments. - - - - - 714 714
Change in minimum pension
liability adjustment............. - - - - - (53) (53)
----
Total comprehensive income........ - - - - - - 26,698
Earned 96,610 ESOP shares.......... - 1,108 - 1,020 - - 2,128
Repurchase of 479,900 common shares
by ESOP.......................... - - - (7,682) - - (7,682)
Restricted common stock granted,
19,500 - 780 - - (759) - 21
shares; net of 1,275 shares
canceled...........................
Earned portion of restricted stock. - - - - 288 - 288
Common dividends declared
$0.28 per share.................. - - (3,725) - - - (3,725)
--- ------- ------- ----- ----- ----- -------
Balance at March 31, 1999.......... $ 146 $ 102,313 $ 100,455 $ (9,865) $ (1,009) $ (3,366) $ 188,674
===== ========= ========= ======== ======== ======== =========
See accompanying notes.
F-6
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Operating activities:
Net income........................................................................ $27,436 $ 19,458 $15,154
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge for early debt extinguishment........................... - 4,520 3,198
Minority interest............................................................ - - 323
Depreciation and amortization................................................ 27,256 19,896 11,285
Deferred income taxes........................................................ (2,235) 55 4,816
Other........................................................................ 624 - 15
Changes in operating assets and liabilities net of effects from
businesses purchased:
Trade accounts receivable and unbilled revenues......................... 37 (8,224) (3,320)
Inventories............................................................. (865) (5,454) (2,177)
Prepaid expenses........................................................ 1,952 4,008 (1,721)
Other assets............................................................ (96) 2,135 (949)
Trade accounts payable and excess billings.............................. (5,940) (646) (586)
Accrued and non-current liabilities..................................... 9,324 2,672 2,848
Net cash provided by operating activities......................................... 57,493 38,420 28,886
Investing activities:
Purchase of marketable securities, net............................................ (1,976) (2,517) (2,098)
Capital expenditures.............................................................. (12,992) (11,406) (9,392)
Proceeds from sale of business.................................................... 8,801 - -
Purchase of businesses, net of cash acquired...................................... (19,958) (175,686) (203,577)
Net assets held for sale.......................................................... 2,182 4,575 (784)
Net cash used in investing activities............................................. (23,943) (185,034) (215,851)
Financing activities:
Proceeds from issuance of common stock, net....................................... - 1,914 -
Net (payments) borrowings under revolving line-of-credit agreements............... (28,194) 159,101 75,293
Repayment of debt................................................................. (8,179) (198,251) (78,528)
Proceeds from issuance of long-term debt, net..................................... - 203,357 206,000
Deferred financing costs incurred................................................. (1,272) (1,313) (10,000)
Dividends paid ................................................................... (3,725) (3,713) (4,390)
Repurchase of stock by ESOP....................................................... (7,682) - -
Change in ESOP debt guarantee..................................................... 1,020 998 (1,596)
Net cash (used in) provided by financing activities............................... (48,032) 162,093 186,779
Effect of exchange rate changes on cash........................................... (1,512) (1,525) (1,078)
Net change in cash and cash equivalents........................................... (15,994) 13,954 (1,264)
Cash and cash equivalents at beginning of year.................................... 22,861 8,907 10,171
Cash and cash equivalents at end of year.......................................... $6,867 $ 22,861 $ 8,907
Supplementary cash flows data:
Interest paid................................................................ $27,595 $ 26,553 $ 8,683
Income taxes paid............................................................ $22,829 $ 15,040 $ 14,993
See accompanying notes.
F-7
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Business Acquisitions
Columbus McKinnon Corporation (the Company) is a leading broad-line
designer, manufacturer and supplier of sophisticated material handling products
and integrated material handling solutions that are widely distributed to
industrial, automotive, 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. The
Company's integrated material handling solutions businesses primarily deal with
end users, both domestically and internationally (primarily Europe) in the
automotive and industrial markets. During fiscal 1999, approximately 74% of
sales were to customers in the United States.
On March 1, 1999, GL International, Inc. ("GL"), was merged with and into
the Company through the issuance of 897,114 shares of newly issued Company stock
and options to purchase 154,848 shares of Company stock for all issued and
outstanding stock and options of GL. GL is a full-service designer and builder
of industrial overhead bridge and jib cranes and related components. The merger
was accounted for as a pooling of interests and, accordingly, the 1999 and 1998
consolidated financial statements have been restated to include the accounts of
GL from the date of GL's formation, April 1, 1997. The fair market value of the
stock and options exchanged was approximately $20.6 million. In connection with
the merger, the Company incurred $560,000 of merger related costs which were
charged to operations during the year ended March 31, 1999. Net sales and net
income of the separate companies for the periods preceding the merger were as
follows:
Nine Months Ended Year Ended
December 27,1998 March 31, 1998
----------------- --------------
(In thousands)
Net sales:
Columbus McKinnon, as reported............. $ 510,865 $ 510,731
GL International, Inc...................... 51,558 59,860
Intercompany eliminations.................. (5,455) (8,768)
------- -------
Combined................................... $ 556,968 $ 561,823
======= =======
Net income:
Columbus McKinnon, as reported............. $ 16,865 $ 18,901
GL International, Inc...................... 1,736 1,140
Intercompany eliminations.................. 142 (583)
------ ------
Combined................................... $ 18,743 $ 19,458
====== ======
On January 29, 1999, the Company acquired all of the outstanding stock of
Camlok Lifting Clamps Limited ("Camlok") and the net assets of the Tigrip
product line ("Tigrip") from Schmidt-Krantz & Co. GmbH for $10.6 million in
cash. The acquisition was accounted for as a purchase and was financed through
cash, a revolving credit facility, and a $4 million term note. Camlok
manufactures plate clamps, crane weighers and related products and is based in
Chester, England, while the Tigrip line of standard and specialized plate clamps
is produced in Germany. The consolidated statement of income and the
consolidated statement of cash flows for the year ended March 31, 1999 include
Camlok and Tigrip activity since their January 29, 1999 acquisition by the
Company.
F-8
1. Description of Business and Business Acquisitions (continued)
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 in cash,
consisting of $2.4 million financed by proceeds from the Company's revolving
debt facility and the assumption of certain debt. The consolidated statement of
income and the consolidated statement of cash flows for the year ended March 31,
1999 include Gautier activity since its December 4, 1998 acquisition by the
Company.
On August 21, 1998 the Company acquired the net assets of 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, which was
financed by proceeds from the Company's revolving debt facility. The
consolidated statement of income and the consolidated statement of cash flows
for the year ended March 31, 1999 include Abell-Howe activity since its August
21, 1998 acquisition by the Company.
On August 7, 1998 the Company sold its Mechanical Products division, a
producer of circuit controls and protection devices, for $11.5 million,
consisting of $9.1 million in cash and a $2.4 million note receivable, to
Mechanical Products' senior management team. The selling price approximated the
net book value of the division. The consolidated statement of income and the
consolidated statement of cash flows for the year ended March 31, 1999 include
Mechanical Products activity through its August 7, 1998 sale by the Company.
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. 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 revolving credit facility and a private placement of senior
subordinated notes, both of which also closed effective March 31, 1998. The
consolidated statement of income and the consolidated statement of cash flows
for the year ended March 31, 1998 do not include any LICO activity.
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 for the industrial market,
and has accounted for the acquisition as a purchase. The cost of the acquisition
was approximately $15 million of cash plus certain debt, financed by the
Company's revolving debt facility. The consolidated statement of income and the
consolidated statement of cash flows for the year ended March 31, 1998 include
Univeyor activity since its January 7, 1998 acquisition by the Company.
On October 17, 1996, through a tender offer, the Company acquired
approximately 72% of the outstanding stock (on a diluted basis) of Spreckels
Industries, Inc., now known as Yale Industrial Products, Inc. ("Yale"), a
manufacturer of a wide range of industrial products, including hoists, scissor
lift tables, mechanical jacks, rotating joints, actuators and circuit protection
devices. On January 3, 1997 the Company acquired the remaining outstanding
shares, effected a merger, and accounted for the acquisition as a purchase.
F-9
1. Description of Business and Business Acquisitions (continued)
The total cost of the acquisition was approximately $270 million, consisting of
$200 million of cash and $70 million of acquired Yale debt. The consolidated
statement of income and the consolidated statement of cash flows for the year
ended March 31, 1997 include Yale activity since its October 17, 1996
acquisition by the Company. The minority interest share of Yale's earnings since
acquisition through January 3, 1997 has been appropriately segregated from
consolidated net income for the year ended March 31, 1997.
Included with the Yale acquired assets were real estate properties and
equipment retained from Yale's April 19, 1996 sale of two of its subsidiaries in
unrelated businesses. Certain assets were sold during fiscal 1998 and 1999 and
the remaining assets held for sale are expected to be sold in fiscal 2000. They
have been recorded at their estimated realizable values net of disposal costs,
separately reflected on the consolidated balance sheet and amounting to
$8,214,000 and $10,396,000 as of March 31, 1999 and 1998, respectively.
On December 19, 1996, the Company acquired all of the outstanding stock of
Lister Bolt & Chain Ltd. and of Lister Chain & Forge, Inc. (together known as
"Lister"), a chain and forgings manufacturer, and has accounted for the
acquisition as a purchase. The total cost of the acquisition was approximately
$7 million of cash, which was financed by the Company's revolving debt facility.
The consolidated statement of income and the consolidated statement of cash
flows for the year ended March 31, 1997 include Lister activity since its
December 19, 1996 acquisition by the Company.
The following table presents pro forma summary information, which is not
covered by the report of independent auditors, for the years ended March 31,
1999 and 1998, as if the Abell-Howe, LICO, and Univeyor acquisitions and related
borrowings and also the private placement of senior subordinated notes and the
sale of Mechanical Products, 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:
Year Ended March 31,
--------------------
1999 1998
---- ----
(In thousands,
except per share data)
Pro forma:
Net sales..................................................................... $732,143 $735,525
Income from operations........................................................ 84,702 81,963
Income before extraordinary charge............................................ 27,355 24,354
Net income.................................................................... 27,355 19,834
Earnings per share, basic:
Income before extraordinary charge........................................ $ 1.93 $ 1.71
Extraordinary charge...................................................... - (0.32)
------ ------
Net income................................................................ $ 1.93 $ 1.39
====== ======
Earnings per share, diluted:
Income before extraordinary charge........................................ $ 1.91 $ 1.69
Extraordinary charge...................................................... - (0.32)
------ ------
Net income............................................................... $ 1.91 $ 1.37
====== ======
F-10
2. Accounting Principles and Practices
Consolidation
These consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries; all significant intercompany accounts
and transactions have been eliminated.
Foreign Currency Translations
The Company translates foreign currency financial statements as described
in Financial Accounting Standards (FAS) No. 52. Under this method, all items of
income and expense are translated at average exchange rates for the year. All
assets and liabilities are translated at the year-end exchange rate. Gains or
losses on translations are recorded in accumulated other comprehensive income
(loss) in the shareholders' equity section of the balance sheet.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses.
Actual results could differ from those estimates.
Revenue Recognition and Concentration of Credit Risk
Sales are recorded when products are shipped to a customer, except as
described below. The Company performs ongoing credit evaluations of its
customers' financial condition, but generally does not require collateral to
support customer receivables. The credit risk is controlled through credit
approvals, limits and monitoring procedures. The Company established an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other factors.
LICO and Univeyor recognize contract revenues under the percentage of
completion method, measured by comparing direct costs incurred to total
estimated direct costs. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. In the event that a loss is anticipated on
an uncompleted contract, a provision for the estimated loss is made at the time
it is determined. Billings on contracts may precede or lag revenues earned, and
such differences are reported in the balance sheet as current liabilities
(excess billings) and current assets (unbilled revenues), respectively.
As of March 31, 1999, approximately $26 million ($26 million in 1998) of
trade accounts receivable was concentrated in the automotive industry, including
retainages amounting to $9,061,000 ($7,870,000 in 1998). The accounts receivable
included $22,007,000 ($13,840,000 in 1998) due from General Motors Corporation.
This one customer accounted for $96,663,000 or 13% of consolidated net sales and
is included within the Solutions - Automotive segment for the year ended March
31, 1999.
F-11
2. Accounting Principles and Practices (continued)
Concentrations of Labor
Approximately 36% of the Company's employees are represented by twelve
separate domestic and Canadian collective bargaining agreements which terminate
at various times between September 26, 1999 and April 30, 2003. Approximately 3%
of the labor force is covered by collective bargaining agreements that will
expire within one year. In addition, the Company hires union production workers
for field installation under its material handling systems contracts.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Costs of
approximately 49% of inventories at March 31, 1999 and 1998 have been determined
using the LIFO (last-in, first-out) method. Costs of other inventories have been
determined using the FIFO (first-in, first-out) or average cost method. FIFO
cost approximates replacement cost.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and depreciated
principally using the straight-line method over their respective estimated
useful lives (buildings and building equipment-15 to 40 years; machinery and
equipment-3 to 18 years). When depreciable assets are retired, or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in operating results.
Goodwill
It is the Company's policy to account for goodwill and other intangible
assets at the lower of amortized cost or fair value based on discounted cash
flows, if indicators of impairment exist. As a result of the Yale, Lister,
Univeyor, LICO, Abell-Howe, Gautier, Camlok and Tigrip acquisitions, the Company
recorded approximately $200 million, $2 million, $9 million, $123 million, $3
million, $1 million, and $6 million of goodwill, respectively, which is being
amortized on a straight-line basis over twenty five years. As a result of the
sale of Mechanical Products, the Company reduced goodwill by approximately $8
million. At March 31, 1999 and 1998 accumulated amortization was $29,864,000 and
$14,979,000, respectively.
F-12
2. Accounting Principles and Practices (continued)
Marketable Securities
All of the Company's investments, which consist of equity securities and
corporate and governmental obligations, have been classified as
available-for-sale securities and are therefore recorded at their fair values
with the unrealized gains and losses, net of tax, reported in accumulated other
comprehensive income (loss) within shareholders' equity. Estimated fair value is
based on published trading values at the balance sheet dates. The amortized cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. The cost of securities sold is based on the specific
identification method. Interest and dividend income are included in interest and
other income on the consolidated statements of income.
The marketable securities are carried as long-term assets since they are
retained for the settlement of a portion of the Company's general liability and
products liability insurance claims filed through CM Insurance Company, Inc., a
wholly owned captive insurance subsidiary.
Fair Value of Financial Instruments
The fair value of interest rate swap and cap agreements is the amount that
the Company would receive or pay to terminate the agreements, based on quoted
market prices and considering current interest rates and remaining maturities.
Research and Development
Research and development costs as defined in FAS No. 2, for the years ended
March 31, 1999, 1998 and 1997 were $1,663,000, $1,497,000 and $1,283,000,
respectively.
3. Unbilled Revenues and Excess Billings
March 31,
---------
1999 1998
---- ----
(In thousands)
Costs incurred on uncompleted contracts............................................ $ 255,706 $ 194,359
Estimated earnings................................................................. 54,013 38,255
------- -------
Revenues earned to date............................................................ 309,719 232,614
Less billings to date.............................................................. 304,956 217,633
------- -------
$ 4,763 $ 14,981
======= ========
The net amounts above are included in the consolidated balance sheets under the following captions:
March 31,
---------
1999 1998
---- ----
(In thousands)
Unbilled revenues.................................................................. $9,821 $ 19,634
Excess billings.................................................................... (5,058) (4,653)
------- ---------
$4,763 $ 14,981
======= =========
F-13
4. Inventories
Inventories consisted of the following:
March 31,
---------
1999 1998
---- ----
(In thousands)
At cost-FIFO basis:
Raw materials................................................................... $ 54,648 $57,103
Work-in-process................................................................. 21,663 24,696
Finished goods.................................................................. 45,042 37,089
------ ------
121,353 118,888
LIFO cost less than FIFO cost........................................................ (5,374) (3,762)
------- -------
Net inventories...................................................................... $115,979 $115,126
======== ========
5. Marketable Securities
Marketable securities are retained for the settlement of a portion of the
Company's general liability and products liability insurance claims filed
through CM Insurance Company, Inc. (see Notes 2 and 13). The following is a
summary of available-for-sale securities at March 31, 1999:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
Government securities................................. $ 7,668 $ 203 $ 1 $ 7,870
U. S. corporate securities............................ 700 31 - 731
----- ----- --- -----
Total debt securities............................ 8,368 234 1 8,601
Equity securities..................................... 7,134 3,710 90 10,754
----- ----- --- ------
$15,502 $ 3,944 $ 91 $19,355
======= ======= ==== =======
The following is a summary of available-for-sale securities at March 31, 1998:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
Government securities................................. $ 10,180 $ 285 $ 13 $ 10,452
U. S. corporate securities............................ 1,107 36 1 1,142
------ ----- --- ------
Total debt securities............................ 11,287 321 14 11,594
Equity securities..................................... 2,847 2,247 23 5,071
------ ----- --- ------
$14,134 $ 2,568 $ 37 $16,665
======= ======= ==== =======
F-14
5. Marketable Securities (continued)
The amortized cost and estimated fair value of debt and equity securities
at March 31, 1999, by contractual maturity, are shown below:
Estimated
Fair
Cost Value
---- -----
(In thousands)
Due in one year or less.................................................... $ 4,688 $ 4,688
Due after one year through three years..................................... 100 107
Due after three years...................................................... 3,580 3,806
----- -----
8,368 8,601
Equity securities.......................................................... 7,134 10,754
----- ------
$15,502 $19,355
======= =======
Net unrealized gains included in the balance sheet amounted to $3,853,000
and $2,531,000 at March 31, 1999 and 1998, respectively. The amounts, net of
related income taxes of $1,541,000 and $933,000 at March 31, 1999 and 1998,
respectively, are reflected as a component of accumulated other comprehensive
income (loss) within shareholders' equity.
6. Property, Plant, and Equipment
Consolidated property, plant, and equipment of the Company consisted of the
following:
March 31,
---------
1999 1998
---- ----
(In thousands)
Land and land improvements......................................................... $ 4,592 $ 4,980
Buildings.......................................................................... 31,880 29,570
Machinery, equipment, and leasehold improvements................................... 92,991 81,418
Construction in progress........................................................... 2,589 3,162
------ ------
132,052 119,130
Less accumulated depreciation...................................................... 42,048 31,468
----- ------
Net property, plant, and equipment................................................. $ 90,004 $87,662
======== =======
7. Accrued Liabilities and Other Non-current Liabilities
Consolidated accrued liabilities of the Company included the following:
March 31,
---------
1999 1998
---- ----
(In thousands)
Accrued payroll..................................................................... $12,233 $17,228
Accrued pension cost................................................................ 4,508 5,195
Interest payable.................................................................... 10,394 499
Income taxes payable................................................................ 10,133 5,546
Other accrued liabilities........................................................... 17,063 15,937
------ ------
$54,331 $44,405
======= =======
F-15
7. Accrued Liabilities and Other Non-current Liabilities (continued)
Consolidated other non-current liabilities of the Company included the following:
March 31,
---------
1999 1998
---- ----
(In thousands)
Accumulated postretirement benefit obligation....................................... $15,379 $17,154
Accrued general and product liability costs......................................... 11,416 11,688
Other non-current liabilities....................................................... 9,200 17,616
----- ------
$35,995 $46,458
======= =======
8. Long-Term Debt
Consolidated long-term debt payable to banks (except as noted) of the
Company consisted of the following:
March 31,
---------
1999 1998
---- ----
(In thousands)
Revolving Credit Facility with availability up to $300 million,due
March 31, 2003 with interest payable at varying Eurodollar rates
based on LIBOR plus a spread determined by the Company's
leverage ratio, amounting to 112.5 basis points at March
31, 1999 (6.09% and 6.85% at March 31, 1999 and 1998)............................. $212,400 $ 240,000
Revolving credit facilities, term note, subordinated term loan, and
mortgage note payable repaid and retired March 1999............................... - 10,265
Industrial Development Revenue Bonds payable annually at $625,000
through 1999, $620,000 thereafter through 2001, $315,000 in 2002,
and $52,000 in 2003 in quarterly sinking fund installments plus
interest payable at varying effective rates (3.58% and 3.98% at
March 31, 1999 and 1998).......................................................... 1,608 2,232
Term loan of foreign subsidiary payable in two installments of
$1,639,000 and $2,186,000, due on December 30, 2000 and
December 30, 2001, respectively; interest payable monthly at
4.255%............................................................................ 3,825 -
Employee Stock Ownership Plan term loans payable in quarterly
installments of $148,000 through January 2002 and $1,099,000
in April 2002 plus interest payable at a Eurodollar rate based on
LIBOR plus a spread determined by the Company's leverage ratio
(6.62% and 7.34% at March 31, 1999 and 1998)................................. 3,173 3,765
Other senior debt................................................................... 3,085 2,847
----- -----
Total senior debt................................................................... 224,091 259,109
8 1/2% Senior Subordinated Notes due March 31, 2008 with interest
payable in semi-annual installments at 8.45% effective rate, recorded
net of unamortized discount of $479,000 ($532,000 at March 31,
1998).............................................................................
199,521 199,468
------- -------
Total............................................................................... 423,612 458,577
Less current portion................................................................ 1,926 2,180
----- -----
$421,686 $456,397
======== ========
F-16
8. Long-Term Debt (continued)
On March 31, 1998, the Company entered into a new revolving credit facility
("1998 Revolving Credit Facility") with a group of financial institutions.
Concurrently, the Company issued $200 million of 8 1/2% Senior Subordinated
Notes ("the 1/2% Notes") due March 31, 2008. Proceeds from both the bank
refinancing and the note offering were used to finance the acquisition of LICO,
and to repay the outstanding balances and retire the Company's then existing
Term Loan A, Term Loan B and revolving credit facility.
The 1998 Revolving Credit Facility is secured by all equipment, inventory,
receivables, subsidiary stock (limited to 65% for foreign subsidiaries) and
intellectual property. The corresponding credit agreement places certain debt
covenant restrictions on the Company including, but not limited to, maximum
annual cash dividends of $10 million. Upon refinancing its bank debt in 1998,
the Company wrote off unamortized financing costs of $7,532,000 and recorded an
extraordinary charge of $4,520,000, which is net of $3,012,000 of tax.
To manage its exposure to interest rate fluctuations, the Company has an
interest rate swap with a notional amount of $3.5 million from January 2, 1999
through July 2, 2000, based on LIBOR at 5.9025%. In order to comply with its
credit agreements, 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 debt instruments approximates the fair values.
The Industrial Development Revenue Bonds are held by institutional
investors and are guaranteed by a bank letter of credit (IDRB letter of credit),
which is collateralized by the assets also securing the 1998 Revolving Credit
Facility. The Employee Stock Ownership Plan term loans (ESOP loans) are
guaranteed by the Company and are collateralized by an equivalent number of
shares of Company common stock. The ESOP loans are not further collateralized.
Provisions of the 8 1/2% Notes include, without limitation, restrictions of
liens, indebtedness, asset sales, and dividends and other restricted payments.
Prior to April 1, 2003, the 8 1/2% Notes are redeemable at the option of the
Company, in whole or in part, at the Make-Whole Price (as defined in the 8 1/2%
Notes agreement). On or after April 1, 2003, they are redeemable at prices
declining annually 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 with
the proceeds of equity offerings at a redemption price of 108.5%, subject to
certain restrictions. 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 the
Company 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 principal payments scheduled to be made as of March 31, 1999 on the
above debt, for the next five annual periods subsequent thereto, are as follows
(in thousands):
2000................................... $ 1,926
2001................................... 3,213
2002................................... 3,422
2003................................... 213,870
2004................................... 295
F-17
8. Long-Term Debt (continued)
In December 1996, the Company tendered to purchase the outstanding Yale
Senior Secured Notes at a premium and redeemed $69,480,000 of the $70,000,000
face value which was outstanding. The Company recorded an extraordinary charge
of $5,331,000 ($3,198,000 net of taxes), consisting of redemption premiums,
costs to exercise the tender offer, and write-off of deferred financing costs
related to early retirement of debt. The debt extinguishment was funded by the
Company's revolving credit facility. The remaining $520,000 was redeemed during
fiscal 1999.
As of March 31, 1999, the Company had letters of credit outstanding of $3.6
million, including those issued as security for the IDRBs as referred to above.
9. Retirement Plans
The Company provides defined benefit pension plans to certain employees.
The following provides a reconciliation of benefit obligations, plan assets, and
funded status of plans:
March 31,
---------
1999 1998
---- ----
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year........................................ $ 69,680 $62,093
Benefit obligation of sold businesses.......................................... (9,590) -
Service cost................................................................... 3,151 3,244
Interest cost.................................................................. 4,489 4,787
Effect of amendments........................................................... - (522)
Actuarial loss................................................................. 5,866 3,476
Benefits paid.................................................................. (2,975) (3,398)
------ ------
Benefit obligation at end of year............................................. $ 70,621 $ 69,680
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year................................. 69,203 54,844
Assets of sold plans........................................................... (10,348) -
Actual return on plan assets................................................... 7,015 13,706
Employer contribution.......................................................... 3,381 4,051
Benefits paid.................................................................. (2,975) (3,398)
------ ------
Fair value of plan assets at end of year....................................... $66,276 $69,203
======= =======
Funded Status ................................................................. $ (4,345) $ (477)
Unrecognized transition obligation............................................. (85) (113)
Unrecognized actuarial loss (gain)............................................. 1,661 (3,037)
Unrecognized prior service cost................................................ 1,610 855
----- ---
Net amount recognized.......................................................... $ (1,159) $ (2,772)
========= =========
F-18
9. Retirement Plans (continued)
Amounts recognized in the consolidated balance sheets are as follows:
Intangible asset............................................................... $ 1,172 $ 776
Accrued liabilities............................................................ (4,066) (5,195)
Deferred tax effect of equity charge........................................... 694 659
Accumulated other comprehensive income......................................... 1,041 988
Net amount recognized.......................................................... $(1,159) $(2,772)
Net periodic pension cost included the following components:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Service costs-benefits earned during the period............................ $3,151 $3,244 $2,354
Interest cost on projected benefit obligation.............................. 4,489 4,787 2,744
Expected return on plan assets............................................. (5,124) (6,670) (2,966)
Net amortization........................................................... 167 1,951 475
--- ----- ---
Net periodic pension cost.................................................. $2,683 $3,312 $2,607
====== ====== ======
The aggregate accumulated benefit obligation and aggregate fair value of
plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets were $9,932,000 and $7,293,000, respectively as of March 31, 1999
and $11,311,000 and $9,090,000, respectively as of March 31, 1998.
The unrecognized transition obligation is being amortized on a
straight-line basis over 20 years. Unrecognized gains and losses are amortized
on a straight-line basis over the average remaining service period of active
participants.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation of all of the defined benefit
plans was 7% and 7 1/2% as of March 31, 1999 and 1998, respectively. Future
average compensation increases are assumed to be 4.0% and 4.3% per year as of
March 31, 1999 and 1998, respectively. The weighted-average expected long-term
rate of return on plan assets used in determining the expected return on plan
assets included in net periodic pension cost was 8 7/8% for the each of the
years ended March 31, 1999, 1998 and 1997. Plan assets consist of equities,
corporate and government securities, and fixed income annuity contracts.
The Company's funding policy with respect to the defined benefit pension
plans is to contribute annually at least the minimum amount required by the
Employee Retirement Income Security Act of 1974 (ERISA).
The Company also sponsors defined contribution plans covering substantially
all domestic employees. Participants may elect to contribute basic
contributions. Effective April 1, 1998, these plans provide for employer
contributions based primarily on employee participation. The Company recorded a
charge for such contributions of approximately $1,410,000 during 1999.
F-19
10. Employee Stock Ownership Plan (ESOP)
The AICPA Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" requires that compensation expense for ESOP shares be
measured based on the fair value of those shares when committed to be released
to employees, rather than based on their original cost. Also, dividends on those
ESOP shares that have not been allocated or committed to be released to ESOP
participants are not reflected as a reduction of retained earnings. Rather,
since those dividends are used for debt service, a charge to compensation
expense is recorded. Furthermore, ESOP shares that have not been allocated or
committed to be released are not considered outstanding for purposes of
calculating earnings per share.
The obligation of the ESOP to repay borrowings incurred previously to
purchase shares of the Company's common stock is guaranteed by the Company; the
unpaid balance of such borrowings, therefore, has been reflected in the
accompanying consolidated balance sheet as a liability. An amount equivalent to
the cost of the collateralized common stock and representing deferred employee
benefits has been recorded as a deduction from shareholders' equity.
Substantially all of the Company's domestic non-union employees, excluding
LICO, Abell-Howe and GL employees, are participants in the ESOP. Contributions
to the plan result from the release of collateralized shares as debt service
payments are made. Compensation expense amounting to $2,128,000, $2,268,000 and
$1,704,000 in fiscal 1999, 1998 and 1997, respectively, is recorded based on the
guarantee release of the ESOP shares at their fair market value. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings and are
applied toward debt service.
During fiscal 1999, the ESOP borrowed $7,682,000 from the Company and
purchased 479,900 shares on the open market at an average cost of $16 per share.
At March 31, 1999 and 1998, 886,684 and 855,337 of ESOP shares,
respectively, were allocated or available to be allocated to participants'
accounts. At March 31, 1999 and 1998, 708,382 and 325,092 of ESOP shares were
pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares at March 31, 1999 amounted to
$14,256,000.
11. Postretirement Benefit Obligation
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to Yale domestic retirees and their
dependents. Prior to the acquisition of Yale, the Company did not sponsor any
postretirement benefit plans. The Company pays the majority of the medical costs
for Yale retirees and their spouses who are under age 65. For retirees and
dependents of retirees who retired prior to January 1, 1989, and are age 65 or
over, the Company contributes 100% toward the American Association of Retired
Persons ("AARP") premium frozen at the 1992 level. For retirees and dependents
of retirees who retired after January 1, 1989, the Company contributes $35 per
month toward the AARP premium. The life insurance plan is noncontributory.
F-20
11. Postretirement Benefit Obligation (continued)
The Company's postretirement health benefit plans are not funded. In
accordance with FAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits," the following sets forth a reconciliation of benefit
obligations and the funded status
of the plan:
March 31,
---------
1999 1998
---- ----
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year....................................... $ 16,509 $17,057
Service cost.................................................................. 257 348
Interest cost................................................................. 1,061 1,203
Effect of amendments.......................................................... (4,035) -
Actuarial loss (gain)......................................................... 1,713 (645)
Benefits paid................................................................. (1,475) (1,454)
Curtailment effect............................................................ (1,618) -
----- --
Benefit obligation at end of year............................................ $ 12,412 $16,509
======== =======
Funded Status ................................................................ $(12,412) $(16,509)
Unrecognized actuarial loss (gain)............................................ 1,068 (645)
Unrecognized prior service gain............................................... (4,035) -
----- --
Net amount recognized in other non-current liabilities........................ $(15,379) $(17,154)
======== ========
Net periodic postretirement benefit cost included the following components
since the October 17, 1996 Yale acquisition:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Service cost-benefits attributed to service during the period........... $ 257 $ 348 $187
Interest cost........................................................... 1,061 1,203 609
----- ----- ---
Net periodic postretirement benefit cost........................... $1,318 $1,551 $796
====== ====== ====
For measurement purposes, a 6.5% annual rate of increase in the per capita
cost of postretirement medical benefits was assumed at the beginning of the
period; the rate was assumed to decrease 0.5% per year to 5.5% by 2001. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7% and 7 1/2% as of March 31, 1999 and 1998, respectively.
Assumed medical claims cost trend rates have an effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
One Percentage One Percentage
Point Increase Point Decrease
(In thousands)
Effect on total of service and interest cost components......... $ 86 $ (79)
Effect on postretirement obligation............................. 600 (541)
F-21
12. Earnings per Share and Stock Plans
Earnings per Share
In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128). FAS
No. 128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where necessary, restated
to conform to the FAS No. 128 requirements. The following table sets forth the
computation of basic and diluted earnings per share before extraordinary charge
for debt extinguishment:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Numerator for basic and diluted earnings per share:
Income before extraordinary charge..................................... $27,436 $23,978 $18,352
======= ======= =======
Denominators:
Weighted-average common stock outstanding-denominator
for basic EPS........................................................ 14,137 14,221 13,210
Effect of dilutive employee stock options.............................. 157 206 5
--- --- --
Adjusted weighted-average common stock outstanding and
assumed conversions-denominator for diluted EPS...................... 14,294 14,427 13,215
====== ====== ======
The weighted-average common stock outstanding shown above is net of
unallocated ESOP shares (see Note 10).
Stock Plans
The Company maintains two stock option plans, a Non-Qualified Stock Option
Plan ("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive
Plan"). Under the Non-Qualified Plan, options may be granted to officers and
other key employees of the Company as well as to non-employee directors and
advisors. The Company has not granted any options under the Non-Qualified Plan
and accordingly, at March 31, 1999, 250,000 shares were reserved for grant under
that plan. Options granted under the Incentive Plan become exercisable over a
four-year period at the rate of 25% per year commencing one year from the date
of grant at an exercise price of not less than 100% of the fair market value of
the common stock on the date of grant. Any option granted under this plan may be
exercised not earlier than one year and not later than ten years from the date
such option is granted.
F-22
12. Earnings per Share and Stock Plans (continued)
A summary of Incentive Plan option transactions during each of the three
fiscal years in the period ended March 31, 1999 is as follows:
Year Ended March 31,
--------------------
Number of Shares 1999 1998 1997
---------------- ---------------------------------
Outstanding at beginning of year 200,000 200,000 -
Granted 31,000 - 200,000
Canceled (32,500) - -
Exercised - - -
----------------------------------
Outstanding at end of year 198,500 200,000 200,000
==================================
Exercisable at end of year 92,500 50,000 -
Available for grant at end of year 1,051,500 1,050,000 1,050,000
Price range of options outstanding $15.50-$29.00 $15.50 $15.50
In conjunction with the March 1, 1999 merger of GL International, Inc. (see
Note 1), outstanding GL options which were originally issued in fiscal years
1999 and 1998 became fully vested and were converted into options to acquire
154,848 Company shares at prices of $4.34 to $17.36. Those options expire
approximately three years after the date of their original issuance, ranging
from September 30, 1999 through June 5, 2001.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under FAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the grant date, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-23
12. Earnings per Share and Stock Plans (continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The fair value
for issued options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions and
yielding the following pro forma results:
Year Ended March 31,
--------------------
1999 1998 1997
---------------------------------------
(In thousands, except for assumptions
and earnings per share data)
Assumptions:
Risk-free interest rate 5.5% 5.5% 5.5%
Dividend yield - Incentive Plan 0.97% - 1.80%
Dividend yield - GL conversions 1.33% 1.33% -
Volatility factor 0.200 0.245 0.245
Expected life - Incentive Plan 4 years - 4 years
Expected life - GL conversions 1 year 3 years ---
Pro forma results:
Net income $ 26,314 $ 18,946 $ 15,127
Earnings per share, basic 1.86 1.33 1.15
Earnings per share, diluted 1.84 1.31 1.14
The Company maintains a Restricted Stock Plan, under which the Company has
reserved 60,700 shares at March 31, 1999. The Company charges unearned
compensation, a component of shareholders' equity, for the market value of
shares, as they're issued. It is then ratably amortized over the restricted
period. Grantees who remain continuously employed with the Company become vested
in their shares five years after the date of the grant.
13. Loss Contingencies
General and Product Liability - $10,392,000 of the accrued general and
product liability costs which are included in other non-current liabilities at
March 31, 1999 ($9,688,000 at March 31, 1998) are the actuarial present value of
estimated reserves based on an amount 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 consolidated
financial statements was determined by applying a discount factor based on
interest rates customarily used in the insurance industry, between 6.76% and
8.12%, to the undiscounted reserves of $13,897,000 and $12,685,000 at March 31,
1999 and 1998, respectively. This liability is funded by investments in
marketable securities (see Notes 2 and 5).
Prior to its acquisition by the Company, 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. The Company
was advised that a customer alleged that one of Yale's products was the cause of
a fire which occurred in January 1995 at a manufacturing facility, resulting in
losses in excess of Yale's policy limits. A formal complaint was filed seeking
damages in excess of $500 million. This claim was settled during fiscal 1999
within the Company's policy limits.
F-24
14. Income Taxes
The following is a reconciliation of the difference between the effective
tax rate and the statutory federal tax rate:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Computed statutory provision.............................................. $17,753 $16,363 $12,002
State income taxes net of federal benefit................................. 1,767 1,945 1,700
Nondeductible goodwill amortization....................................... 4,540 2,870 1,961
Foreign taxes greater than statutory provision............................ 790 949 301
Other..................................................................... (1,562) 649 (347)
----- --- ---
Actual tax provision...................................................... $23,288 $22,776 $15,617
======= ======= =======
The provision for income tax expense consisted of the following:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Current income tax expense:
Federal taxes........................................................ $18,775 $15,800 $8,399
State taxes.......................................................... 2,770 3,081 1,124
Foreign.............................................................. 3,978 3,840 1,278
Deferred income tax (benefit) expense:
Domestic............................................................. (2,298) (238) 4,736
Foreign.............................................................. 63 293 80
-- --- --
$23,288 $22,776 $15,617
======= ======= =======
The Company applies the liability method of accounting for income taxes as
required by FAS Statement No. 109, "Accounting for Income Taxes."
The gross composition of the net current deferred tax asset, included in
prepaid expenses within the consolidated balance sheet, is as follows:
March 31,
---------
1999 1998
---- ----
(In thousands)
Inventory........................................................................... $ (5,366) $ (5,357)
Accrued vacation and incentive costs................................................ 1,596 1,724
Other............................................................................... 5,945 4,463
----- -----
Net current deferred tax asset................................................. $ 2,175 $ 830
======= =====
The gross composition of the net non-current deferred tax asset is as follows:
March 31,
---------
1999 1998
---- ----
(In thousands)
Insurance reserves.................................................................. $10,718 $11,087
Property, plant, and equipment...................................................... (7,438) (8,109)
Other............................................................................... 2,347 4,067
----- -----
Net non-current deferred tax asset............................................. $ 5,627 $ 7,045
======= =======
F-25
14. Income Taxes (continued)
Income before income taxes, minority interest and extraordinary charge
includes foreign subsidiary income of $9,288,000, $9,097,000, and $3,650,000 for
the years ended March 31, 1999, 1998, and 1997 respectively. United States
income taxes have not been provided on unremitted earnings of the Company's
foreign subsidiaries as such earnings are considered to be permanently
reinvested.
15. Rental Expense and Lease Commitments
Rental expense for the years ended March 31, 1999, 1998 and 1997 was
$6,672,000, $4,478,000 and $2,805,000, respectively. The following amounts
represent future minimum payment commitments as of March 31, 1999 under
non-cancelable operating leases extending beyond one year (in thousands):
Vehicles and
Year Ended March 31, Real Property Equipment Total
-------------------- ------------- --------- -----
2000........................................................... $ 1,984 $ 1,940 $3,924
2001........................................................... 1,705 1,476 3,181
2002........................................................... 1,538 752 2,290
2003........................................................... 1,478 252 1,730
2004........................................................... 1,466 118 1,584
F-26
16. Summary Financial Information
The summary financial information of the parent, domestic subsidiaries
(guarantors) and foreign subsidiaries (nonguarantors) of the 8 1/2% senior
subordinated notes follows:
As of and for the year ended March 31, 1999:
Domestic Foreign
-------- -------
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
(In thousands)
As of March 31, 1999:
Current assets:
Cash..................................... $ 3,109 $ 408 $ 3,350 $ - $ 6,867
Trade accounts receivable and unbilled
revenues............................... 55,479 66,556 24,774 - 146,809
Inventories.............................. 47,792 41,707 27,488 (1,008) 115,979
Other current assets..................... 3,168 10,645 2,561 --- 16,374
----- ------ ----- ----- ------
Total current assets.................. 109,548 119,316 58,173 (1,008) 286,029
Net property, plant, and equipment............ 36,649 33,058 20,297 - 90,004
Goodwill and other intangibles, net........... 42,993 260,406 54,328 - 357,727
Intercompany balances......................... 205,830 (368,479) (66,710) 229,359 -
Other non-current assets...................... 220,453 162,153 (833) (348,622) 33,151
------- ------- ------ ------- ------
Total assets.......................... $615,473 $ 206,454 $ 65,255 $(120,271) $ 766,911
======== ========= ======== ========= =========
Current liabilities........................... $ 41,010 $ 54,336 $ 25,846 $ (636) $ 120,556
Long-term debt, less current portion.......... 415,096 --- 6,590 - 421,686
Other non-current liabilities................. 11,311 21,849 2,835 - 35,995
------ ------ ----- --- ------
Total liabilities..................... 467,417 76,185 35,271 (636) 578,237
Shareholders' equity.......................... 148,056 130,269 29,984 (119,635) 188,674
------- ------- ------ ------- -------
Total liabilities and shareholders'
equity........................... $615,473 $ 206,454 $ 65,255 $(120,271) $ 766,911
======== ========= ======== ========= =========
For the Year Ended March 31, 1999:
Net sales..................................... $265,284 $ 368,716 $ 122,300 $ (20,855) $ 735,445
Cost of products sold......................... 184,781 291,446 87,744 (20,996) 542,975
------- ------- ------ ------ -------
Gross profit.................................. 80,503 77,270 34,556 141 192,470
Selling, general and administrative expenses. 35,147 34,436 22,326 - 91,909
Amortization of intangibles................... 1,961 11,349 2,169 - 15,479
----- ------ ----- --- ------
37,108 45,785 24,495 - 107,388
------ ------ ------ --- -------
Income from operations........................ 43,395 31,485 10,061 141 85,082
Interest and debt expense..................... 34,349 947 627 - 35,923
Interest and other income..................... 1,531 249 (215) - 1,565
----- --- --- --- -----
Income before income taxes and
extraordinary charge..................... 10,577 30,787 9,219 141 50,724
Income tax expense............................ 4,521 14,709 4,006 52 23,288
----- ------ ----- -- ------
Income before extraordinary charge............ 6,056 16,078 5,213 89 27,436
Extraordinary charge for early debt
extinguishment.......................... - - - - -
--- --- --- -- ---
Net income.................................... $ 6,056 $ 16,078 $ 5,213 $ 89 $ 27,436
======= ======== ======= ==== ========
F-27
16. Summary Financial Information (continued)
Domestic Foreign
-------- -------
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
(In thousands)
For the Year Ended March 31, 1999:
Operating activities:
Cash provided by (used in) operating
activities................................. $ 36,147 $ 10,776 $ 9,878 $ 692 $ 57,493
Investing activities:
Purchase of marketable securities, net........ (1,976) - - - (1,976)
Capital expenditures.......................... (8,414) (2,809) (1,769) - (12,992)
Proceeds from sale of business................ 9,390 (589) - - 8,801
Purchase of businesses, net of cash acquired. (9,597) (1,313) (8,861) (187) (19,958)
Net assets held for sale...................... - 2,182 - - 2,182
--- ----- --- --- -----
Net cash (used in) provided by investing
activities................................. (10,597) (2,529) (10,630) (187) (23,943)
Financing activities:
Proceeds from issuance of common stock........ - - 1,449 (1,449) -
Net (payments) borrowings under revolving
line-of-credit agreements.................. (27,600) (1,340) 746 - (28,194)
Repayment of debt............................. (1,216) (8,365) 1,402 - (8,179)
Dividends paid................................ (3,725) 1,078 (2,071) 993 (3,725)
Other......................................... (7,934) - - - (7,934)
----- --- --- --- -----
Net cash provided by (used in) financing
activities................................. (40,475) (8,627) 1,526 (456) (48,032)
Effect of exchange rate changes on cash....... (1) - (1,462) (49) (1,512)
- --- ----- -- -----
Net change in cash and cash equivalents....... (14,926) (380) (688) - (15,994)
Cash and cash equivalents at beginning of
year....................................... 18,035 788 4,038 - 22,861
------ --- ----- --- ------
Cash and cash equivalents at end of year...... $ 3,109 $ 408 $ 3,350 $ - $ 6,867
======= ===== ======= === =======
As of and for the year ended March 31, 1998:
Domestic Foreign
-------- -------
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
(In thousands)
As of March 31, 1998:
Current assets:
Cash..................................... $ 18,035 $ 788 $ 4,038 $ --- $ 22,861
Trade accounts receivable and unbilled
revenues............................... 41,651 79,245 24,744 (1,369) 144,271
Inventories.............................. 47,201 44,314 24,712 (1,101) 115,126
Other current assets..................... 5,050 12,919 2,834 --- 20,803
----- ------ ----- ----- ------
Total current assets.................. 111,937 137,266 56,328 (2,470) 303,061
Net property, plant, and equipment............ 32,159 35,517 19,986 --- 87,662
Goodwill and other intangibles, net........... 43,404 276,210 49,332 --- 368,946
Intercompany balances......................... 237,011 (400,737) (65,997) 229,723 -
Other non-current assets...................... 214,997 165,698 494 (351,996) 29,193
------- ------ --- ------- ------
Total assets.......................... $639,508 $ 213,954 $ 60,143 $(124,743) $ 788,862
======== ========= ======== ========= =========
Current liabilities........................... $ 35,854 $ 54,748 $ 25,933 $(1,474) $ 115,061
Long-term debt, less current portion.......... 444,225 9,098 3,074 --- 456,397
Other non-current liabilities................. 10,576 31,065 4,817 --- 46,458
------ ------ ----- ----- ------
Total liabilities..................... 490,655 94,911 33,824 (1,474) 617,916
Shareholders' equity.......................... 148,853 119,043 26,319 (123,269) 170,946
------- ------- ------ ------- -------
Total liabilities and shareholders'
equity........................... $639,508 $ 213,954 $ 60,143 $(124,743) $ 788,862
======== ========= ======== ========= =========
F-28
16. Summary Financial Information (continued)
Domestic Foreign
-------- -------
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
(In thousands)
For the Year Ended March 31, 1998:
Net sales .................................... $269,675 $ 212,269 $ 101,279 $ (21,400) $ 561,823
Cost of products sold......................... 192,684 156,749 72,688 (20,452) 401,669
------- ------- ------ ------ -------
Gross profit.................................. 76,991 55,520 28,591 (948) 160,154
Selling, general and administrative expenses. 36,804 26,122 17,013 --- 79,939
Amortization of intangibles................... 1,892 6,475 1,930 --- 10,297
----- ----- ----- ----- ------
38,696 32,597 18,943 - 90,236
------ ------ ------ --- ------
Income from operations........................ 38,295 22,923 9,648 (948) 69,918
Interest and debt expense..................... 24,125 594 385 --- 25,104
Interest and other income..................... 1,764 7 169 --- 1,940
----- - --- ----- -----
Income before income taxes
and extraordinary charge................... 15,934 22,336 9,432 (948) 46,754
Income tax expense............................ 7,326 11,529 4,286 365 22,776
----- ------ ----- --- ------
Income before extraordinary charge............ 8,608 10,807 5,146 (583) 23,978
Extraordinary charge for early debt
extinguishment............................. (4,520) - - --- (4,520)
----- --- --- ----- -----
Net income.................................... $ 4,088 $ 10,807 $ 5,146 $ (583) $ 19,458
======= ======== ======= ====== ========
For the Year Ended March 31, 1998:
Operating activities:
Cash provided by (used in) operating
activities................................. $ 40,272 $ (5,864) $ 3,361 $ 651 $ 38,420
Investing activities:
Purchase of marketable securities, net........ (2,517) - - - (2,517)
Capital expenditures.......................... (6,518) (3,044) (1,844) - (11,406)
Purchase of businesses, net of cash acquired. (170,277) (5,918) 509 --- (175,686)
Net assets held for sale...................... - 4,575 - --- 4,575
------- ----- --- ----- -----
Net cash (used in) provided by investing
activities................................. (179,312) (4,387) (1,335) - (185,034)
Financing activities:
Proceeds from issuance of stock............... - 1,914 - - 1,914
Net (payments) borrowings under revolving
line-of-credit agreements.................. 157,058 2,551 (508) - 159,101
Repayment of debt............................. (196,353) (955) (943) - (198,251)
Proceeds from issuance of long-term debt, -
net........................................ 196,120 7,237 - --- 203,357
Dividends paid................................ (3,713) - - --- (3,713)
Other......................................... (275) (219) 740 (561) (315)
--- --- --- --- ---
Net cash provided by (used in) financing
activities................................. 152,837 10,528 (711) (561) 162,093
Effect of exchange rate changes on cash....... - - (1,435) (90) (1,525)
--- --- ----- -- -----
Net change in cash and cash equivalents....... 13,797 277 (120) - 13,954
Cash and cash equivalents at beginning of
year....................................... 4,238 511 4,158 --- 8,907
----- --- ----- ----- -----
Cash and cash equivalents at end of year...... $ 18,035 $ 788 $ 4,038 $ - $ 22,861
======== ===== ======= === ========
F-29
17. Effects of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities," in June of 1998 which is effective for fiscal 2001. Statement No.
133 establishes accounting and reporting standards for hedging activities. It
requires that entities recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The intended use of the derivative and its designation as either (1) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or a firm commitment (a fair value hedge) (2) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation (a foreign currency hedge), will determine when the gains and losses
on the derivatives are reported in earnings and when they are to be reported as
a component of other comprehensive income. The impact of compliance with this
Statement has not yet been determined by the Company.
In March of 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
the provisions of the SOP in its financial statements for the year ended March
31, 1999. The SOP requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. The impact of
the SOP was not material to the Company.
In April of 1998, the AICPA issued SOP 98-5, "Reporting the Costs of
Start-Up Activities," which requires costs related to start-up activities be
expensed as incurred. The Company adopted the provisions of the SOP in its
financial statements for the year ended March 31, 1999. The adoption of SOP 98-5
had no effect on the Company's reported earnings.
18. Business Segment Information
In June of 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued effective for fiscal years ending after
December 15, 1998. The Company has adopted the statement for the year ended
March 31, 1999.
As a result of how 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 three reportable segments: material handling products, integrated material
handling solutions - industrial, and integrated material handling solutions -
automotive. The Company's material handling products segment sells hoists,
chains, attachments, and other material handling products principally to third
party distributors in commercial and consumer distribution channels. The
material handling solutions segments sell engineered material handling systems
such as conveyors, manipulators, and lift tables primarily to end-users in the
consumer products manufacturing, warehousing, and general manufacturing
industries or the automotive segment. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. Intersegment sales are not significant. The Company evaluates
performance based on operating earnings of the respective business units prior
to the effects of amortization.
F-30
18. Business Segment Information (continued)
Segment information as of and for the years ended March 31, 1999, 1998, and 1997, is as follows:
Year Ended March 31, 1999
-------------------------
Solutions - Solutions - Eliminations/
Products Industrial Automotive Other Total
-------- ---------- ---------- ----- -----
(In thousands)
Sales to external customers.............. $528,974 $ 58,301 $ 161,443 $ (13,273) $735,445
Operating income before amortization. 81,165 5,592 14,925 (1,121) 100,561
Depreciation and amortization............ 18,237 3,045 5,652 322 27,256
Total assets............................. 517,774 68,520 180,617 --- 766,911
Capital expenditures..................... 11,201 1,468 321 2 12,992
Year Ended March 31, 1998
-------------------------
Solutions - Solutions - Eliminations/
Products Industrial Automotive Other Total
-------- ---------- ---------- ----- -----
(In thousands)
Sales to external customers.............. $524,949 $ 39,845 $ --- $(2,971) $561,823
Operating income before amortization. 76,188 3,992 --- 35 80,215
Depreciation and amortization............ 17,094 1,957 --- 845 19,896
Total assets............................. 515,772 71,499 183,609 17,982 788,862
Capital expenditures..................... 10,580 712 --- 114 11,406
Year Ended March 31, 1997
-------------------------
Solutions - Solutions - Eliminations/
Products Industrial Automotive Other Total
-------- ---------- ---------- ----- -----
(In thousands)
Sales to external customers.............. $318,544 $ 28,308 $ --- $12,572 $359,424
Operating income before amortization. 45,169 3,513 --- 1,569 50,251
Depreciation and amortization............ 10,571 506 --- 208 11,285
Total assets............................. 485,350 43,744 --- 19,151 548,245
Capital expenditures..................... 8,851 541 --- --- 9,392
The following provides a reconciliation of operating income before amortization to consolidated income
before income tax, minority interest, and extraordinary charge:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Operating income before amortization............................... $100,561 $80,215 $50,251
Amortization of intangibles........................................ 15,479 10,297 5,197
Interest and debt expense.......................................... 35,923 25,104 11,930
Interest and other income.......................................... (1,565) (1,940) (1,168)
----- ----- -----
Income before income taxes, minority interest and
extraordinary charge.......................................... $50,724 $46,754 $34,292
======= ======= =======
F-31
18. Business Segment Information (continued)
Financial information relating to the Company's operations by geographic area is as follows:
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Net sales:
United States...................................................... $613,179 $462,120 $313,705
Europe............................................................. 65,000 39,208 14,146
Canada............................................................. 51,653 55,367 27,951
Other.............................................................. 5,613 5,128 3,622
----- ----- -----
Total.............................................................. $735,445 $561,823 $359,424
======== ======== ========
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
(In thousands)
Identifiable and total assets:
United States...................................................... $634,720 $662,371 $457,501
Europe............................................................. 100,317 90,036 61,696
Canada............................................................. 28,265 32,258 26,191
Other.............................................................. 3,609 4,197 2,857
----- ----- -----
Total.............................................................. $766,911 $788,862 $548,245
======== ======== ========
19. Selected Quarterly Financial Data (Unaudited)
In accordance with the pooling of interests method of accounting, the following selected quarterly financial
data has been restated to include the accounts of GL from the date of GL's formation, April 1, 1997.
(In thousands, except per share data)
Three Months Ended Year Ended
------------------ ----------
June 28, September 27, December 27, March 31, March 31,
1998 1998 1998 1999 1999
---- ---- ---- ----
Net sales................................ $184,616 $ 185,357 $ 186,995 $178,477 $735,445
Gross profit............................. 47,313 47,042 47,396 50,719 192,470
Income from operations................... 21,223 20,578 21,402 21,879 85,082
Income before extraordinary charge....... 6,375 5,923 6,445 8,693 27,436
Net income............................... 6,375 5,923 6,445 8,693 27,436
Income per share before extraordinary
charge................................ 0.44 0.41 0.46 0.62 1.92
Net income per share..................... 0.44 0.41 0.46 0.62 1.92
Three Months Ended Year Ended
------------------ ----------
June 29, September 28, December 28, March 31, March 31,
1997 1997 1997 1998 1998
---- ---- ---- ---- ----
Net sales................................ $136,858 $ 136,060 $ 137,329 $151,576 $561,823
Gross profit............................. 38,273 39,008 38,634 44,239 160,154
Income from operations................... 15,663 17,312 16,112 20,831 69,918
Income before extraordinary charge 4,579 5,850 5,619 7,930 23,978
Net income............................... 4,579 5,850 5,619 3,410(a) 19,458(a)
Income per share before extraordinary
charge................................ 0.32 0.41 0.39 0.55 1.66
Net income per share..................... 0.32 0.41 0.39 0.24(a) 1.35(a)
F-32
19. Selected Quarterly Financial Data (Unaudited) (continued)
Three Months Ended Year Ended
------------------ ----------
June 30, September 29, December 29, March 31, March 31,
1996 1996 1996 1997 1997
---- ---- ---- ---- ----
Net sales................................ $ 65,735 $ 64,426 $ 103,393 $125,870 $359,424
Gross profit............................. 20,017 19,184 30,104 38,132 107,437
Income from operations................... 8,681 8,910 11,240 16,223 45,054
Income before extraordinary charge 5,032 5,211 3,219 4,890 18,352
Net income............................... 5,032 5,211 118(b) 4,793(b) 15,154(b)
Income per share before extraordinary
charge................................ 0.38 0.39 0.24 0.37 1.39
Net income per share..................... 0.38 0.39 0.01(b) 0.36(b) 1.15(b)
________
(a) Includes extraordinary charges for early debt extinguishment amounting to $4,520,000 in the quarter ended
March 31, 1998, net of the tax effect.
(b) Includes extraordinary charges for early debt extinguishment amounting to $3,101,000 and $97,000 in the
quarters ended December 29, 1996 and March 31, 1997, respectively, net of the tax effect.
20. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows:
March 31,
---------
1999 1998
---- ----
(In thousands)
Net unrealized investment gains - net of tax....................................... $ 2,312 $ 1,598
Minimum pension liability adjustment - net of tax.................................. (1,041) (988)
Foreign currency translation adjustment............................................ (4,637) (3,238)
----- -----
Accumulated other comprehensive loss............................................... $ (3,366) $ (2,628)
======== ========
The net tax liability associated with items included in comprehensive
income (loss) was $847,000 and $406,000 for 1999 and 1998, respectively.
F-33
COLUMBUS McKINNON CORPORATION
SCHEDULE II-Valuation and qualifying accounts
March 31, 1999, 1998 and 1997
Dollars in thousands
Additions
---------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $ 2,511 $ 743 $ (27)(5) $ 956(1) $ 2,271
Slow-moving and obsolete inventory 4,684 1,884 (592)(5) 1,681(2) 4,295
Reserve against non-current receivable 600 - - 600(6) -
--- --- --- --- ---
Total $ 7,795 $2,627 $ (619) $ 3,237 $ 6,566
======= ====== ====== ======= =======
Reserves on balance sheet:
Accrued general and product liability costs $ 11,688 $3,265 $- $3,537(3) $11,416
======== ====== === ====== =======
Year ended March 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,884 $1,677 $ 470(4) $1,520(1) $ 2,511
Slow-moving and obsolete inventory 3,356 1,115 854(4) 641(2) 4,684
Reserve against non-current receivable 600 - - - 600
--- --- --- --- ---
Total $ 5,840 $2,792 $ 1,324 $ 2,161 $ 7,795
======= ====== ======= ======= =======
Reserves on balance sheet:
Accrued general and product liability costs $ 11,973 $1,522 $- $1,807(3) $11,688
======== ====== === ====== =======
Year ended March 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 917 $ 905 $ 1,189(4) $ 1,127(1) $ 1,884
Slow-moving and obsolete inventory 2,467 325 1,770(4) 1,206(2) 3,356
Reserve against non-current receivable 600 - - - 600
--- --- --- --- ---
Total $ 3,984 $1,230 $ 2,959 $2,333 $ 5,840
======= ====== ======= ====== =======
Reserves on balance sheet:
Accrued general and product liability costs $ 7,110 $1,775 $ 3,806(4) $ 718(3) $11,973
======= ====== ======= ===== =======
________
(1) Uncollectible accounts written off, net of recoveries
(2) Obsolete inventory disposals
(3) Insurance claims and expenses paid
(4) Reserves at date of acquisition of subsidiaries
(5) Reserves at date of disposal of subsidiary
(6) Receivable deemed to be collectible in its entirety
F-34
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- --------------------------------------------------------------
and Financial Disclosures
-------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
The information regarding Directors and Executive Officers of the
Registrant will be included in a Proxy Statement to be filed with the Commission
prior to July 29, 1999.
Item 11. Executive Compensation
- -------- ----------------------
The information regarding Executive Compensation will be included in a
Proxy Statement to be filed with the Commission prior to July 29, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The information regarding Security Ownership of Certain Beneficial Owners
and Management will be included in a Proxy Statement to be filed with the
Commission prior to July 29, 1999.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information regarding Certain Relationships and Related Transactions
will be included in a Proxy Statement to be filed with the Commission prior to
July 29, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
- -------- ------------------------------------------------------------
8-K.
----
(a)(1) Financial Statements:
---------------------
The following consolidated financial statements of Columbus McKinnon
Corporation are included in Item 8:
Reference Page No.
--------- --------
Report of Independent Auditors - Ernst & Young LLP F-2
Report of Independent Auditors - Deloitte & Touche LLP F-3
Consolidated balance sheets - March 31, 1999 and 1998 F-4
29
Consolidated statements of income - Years ended
March 31, 1999, 1998 and 1997 F-5
Consolidated statements of shareholders' equity - Years ended
March 31, 1999, 1998 and 1997 F-6
Consolidated statements of cash flows - Years ended
March 31, 1999, 1998 and 1997 F-7
Notes to consolidated financial statements F-8 - F-33
(a)(2) Financial Statement Schedule: Page No.
----------------------------- --------
Report of Independent Auditors F-2
Schedule II - Valuation and qualifying accounts F-34
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(a)(3) Exhibits:
---------
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger dated August 24, 1996 among Columbus
McKinnon Corporation, L Acquisition Corporation and Spreckels
Industries, Inc. (known as Yale International, Inc.) (incorporated by
reference to Exhibit (c)(1) to the Company's Tender Offer Statement on
Schedule 14D-1 dated August 30, 1996).
2.2 Offer to Purchase by L Acquisition Corporation dated August 30,
1997, as revised (incorporated by reference to Exhibit (a)(1) to the
Company's Tender Offer Statement on Schedule 14D-1 dated August 30,
1997, as amended by Amendment No. 1 dated September 18, 1996, Amendment
No. 2 dated September 27, 1996, Amendment No. 3 dated October 4, 1996,
Amendment No. 4 dated October 9, 1996 Amendment No. 5 dated October 13,
1996 and Amendment No. 6 dated October 17, 1996).
3.1 Restated Certificate of Incorporation of the Registrant (incorporat-
ed by reference to Exhibit 3.1 to the Company's Registration Statement
No. 33-80687 on Form S-1 dated December 21, 1995).
3.2 Amended By-Laws of the Registrant (incorporated by reference to
Exhibit 3 the Company's Current Report on Form 8-K dated May 17, 1999).
4.1 Specimen Common Share Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
30
4.2 First Amendment and Restatement of Rights Agreement, dated as of
October 1, 1998, between Columbus McKinnon Corporation and American
Stock Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4 to the Company's Current Report on Form 8-K
dated October 29, 1998).
4.3 Indenture among Columbus McKinnon Corporation, the guarantors named
on the signature pages thereto and State Street Bank and Trust Company,
N.A., as trustee (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated April 9, 1998).
4.4 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc.,
LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial
Products, Inc., Mechanical Products, Inc., Minitec Corporation and
State Street Bank and Trust Company, N.A., as trustee, dated March 31,
1998 (incorporated by reference to Exhibit 4.3 to the Company's Current
Report on form 8-K dated April 9, 1998).
4.5 A/B Registration Rights Agreement among Columbus McKinnon
Corporation, the guarantors named on the signature pages thereto and
Bear, Stearns & Co., Inc. and Goldman, Sachs & Co., as initial
purchasers (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated April 9, 1998).
#4.6 Second Supplemental Indenture among Abell-Howe Crane, Inc., LICO,
Inc., Automatic Systems, Inc. LICO Steel, Inc., Columbus McKinnon
Corporation, Yale Industrial Products Inc. and State Street Bank and
Trust Company, N.A., as trustee, dated as of February 12, 1999.
#4.7 Third Supplemental Indenture among G.L. International, Inc., Gaffey,
Inc., Handling Systems and Conveyors, Inc., Larco Material Handling
Inc., Abell-Howe Crane, Inc., LICO, Inc., Automatic Systems, Inc., LICO
Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products,
Inc. and State Street Bank and Trust Company, N.A., as trustee, dated
as of March 1, 1999.
10.1 Amended and Restated Term Loan Agreement by and among Fleet Bank of
New York, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter
A. Grant and Robert L. Montgomery, Jr., as Trustees under the Columbus
McKinnon Corporation Employee Stock Ownership Trust Agreement, dated
March 31, 1993 (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
10.2 Amendment No. 1 to Amended and Restated Term Loan Agreement, dated
March 31, 1993, by and among Fleet Bank of New York, Columbus McKinnon
Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L.
Montgomery, Jr. as trustees under the Columbus McKinnon Corporation
Employee Stock Ownership Trust Agreement, dated October 27, 1994
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement No. 33-80687 on Form S-1 dated December 21,
1995).
31
10.3 Amendment No. 2 to Amended and Restated Term Loan Agreement by and
among Fleet Bank, Columbus McKinnon Corporation and Kenneth G.
McCreadie, Peter A. Grant and Robert L. Montgomery, Jr. under the
Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement,
dated November 2, 1995 (incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.4 Amendment No. 3 to Amended and Restated Term Loan Agreement by and
among Fleet Bank, Columbus McKinnon Corporation and Karen L. Howard,
Timothy R. Harvey, and Robert L. Montgomery, Jr. as trustees under the
Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement.
10.5 Loan Agreement by and among Columbus McKinnon Corporation Employee
Stock Ownership Trust, Columbus McKinnon Corporation and Marine Midland
Bank, dated October 27, 1994 (incorporated by reference to Exhibit 10.5
to the Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.6 Amended and Restated Term Loan Agreement by and among Columbus
McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon
Corporation and Marine Midland Bank, dated August 5, 1996.
#10.7 First Amendment to Amended and Restated Term Loan Agreement by
and among Columbus McKinnon Corporation Employee Stock Ownership Trust,
Columbus McKinnon Corporation and Marine Midland Bank, dated October
16, 1996.
#10.8 Second Amendment to Amended and Restated Term Loan Agreement by
and among Columbus McKinnon Corporation Employee Stock Ownership Trust,
Columbus McKinnon Corporation and Marine Midland Bank, dated March 31,
1998.
#10.9 Third Amendment to Amended and Restated Term Loan Agreement by and
among Columbus McKinnon Corporation Employee Stock Ownership Trust,
Columbus McKinnon Corporation and Marine Midland Bank, dated November
30, 1998.
10.10 Agreement by and among Columbus McKinnon Corporation Employee Stock
Ownerhsip Trust, Columbus McKinnon Corporation and Marine Midland Bank,
dated November 2, 1995 (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
10.11 Credit Agreement, dated as of March 31, 1998, among Columbus
McKinnon Corporation, as Borrower, the banks, financial institutions
and other institutional lenders named therein, as Initial Lenders,
Fleet National Bank, as the Initial Issuing Bank, Fleet National Bank,
as the Swing Line Bank, and Fleet National Bank, as the Administrative
Agent (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 9, 1998).
10.12 First Amendment, dated as of September 23, 1998, to the Credit
Agreement, dated as of March 31, 1998, among Columbus McKinnon
Corporation, as Borrower, the banks, financial institutions and other
institutional lenders named therein, as Initial Lenders, Fleet National
Bank, as the Initial Issuing Bank, Fleet National Bank, as the Swing
Line Bank and Fleet National Bank, as the Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 27, 1998).
32
#10.13 Second Amendment, dated as of February 12, 1999, to the Credit
Agreement, dated as of March 31, 1998, among Columbus McKinnon
Corporation, as Borrower, the banks, financial institutions and other
institutional leaders named therein, as Initial Lenders, Fleet National
Bank, as the Initial Issuing Bank, Fleet National Bank, as the Swing
Line Bank and Fleet National Bank, as the Administrative Agent.
10.14 Series Lease, dated as of November 1, 1993, between Town of Amherst
Industrial Development Agency as Lessor and Columbus McKinnon
Corporation as Lessee (incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
*10.15 Columbus McKinnon Corporation Employee Stock Ownership Plan
Restatement Effective April 1, 1989 (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
*10.16 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated March
2, 1995 (incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement No. 33-80687 on Form S-1 dated December 21,
1995).
*10.17 Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated October 17, 1995 (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997).
*10.18 Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated March 27, 1996 (incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997).
*10.19 Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
September 30, 1996 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996).
*10.20 Amendment No. 5 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
August 28, 1997 (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1998).
*10.21 Amendment No. 6 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated June
24, 1998 (incorporated by reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998).
*10.22 Columbus McKinnon Corporation Personal Retirement Account Plan
Trust Agreement, dated April 1, 1987 (incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
33
*10.23 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Trust Agreement (formerly known as the Columbus McKinnon
Corporation Personal Retirement Account Plan Trust Agreement) effective
November 1, 1988 (incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
*10.24 Columbus McKinnon Corporation Management EVA@ Incentive Compensation
Plan (incorporated by reference to Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 28,
1998).
#*10.25 Amendment and Restatement of Columbus McKinnon Corporation 1995
Incentive Stock Option Plan.
*10.26 Columbus McKinnon Corporation Restricted Stock Plan (incorporated
by reference to Exhibit 10.28 to the Company's Registration Statement
No. 33-80687 on Form S-1 dated December 21, 1995).
#*10.27 Amendment and Restatement of Columbus McKinnon Corporation Non-
Qualified Stock Option Plan.
*10.28 Columbus McKinnon Corporation Thrift [401(k) Plan] 1989 Restatement
Effective January 1, 1998 (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1998).
#*10.29 Amendment No.1 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift 401(K) Plan, dated December 10, 1998.
*10.30 Columbus McKinnon Corporation Thrift [401(k)] Plan Trust Agreement
Restatement Effective August 9, 1994 (incorporated by reference to
Exhibit 10.32 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
*10.31 Columbus McKinnon Corporation Monthly Retirement Benefit Plan
Restatement Effective April 1, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 27, 1998).
#*10.32 Amendment No.1 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated December 10, 1998.
#*10.33 Amendment No.2 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated May 26, 1999.
*10.34 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust
Agreement effective as of April 1, 1987 (incorporated by reference to
Exhibit 10.34 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
34
#*10.35 Form of change in Control Agreement as entered into between Columbus
McKinnon Corporation and each of Timothy T. Tevens, Robert L.
Montgomery, Jr., Ned T. Librock, Karen L. Howard, Lois H. Demler,
Timothy R. Harvey, John Hansen, Neal Wixson and Joe Owen.
10.36 Stock Purchase Agreement, dated as of March 11, 1998, among Columbus
McKinnon Corporation and the shareholders of LICO, Inc. identified on
the signature pages thereto (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 9, 1998).
#10.37 Agreement and Plan of Merger, dated as of February 16, 1999, by and
among Columbus McKinnon Corporation, GL Delaware, Inc. and Larco
Industrial Services, Ltd.
#10.38 Columbus McKinnon Corporation - GL International Inc. 1997 Stock
Option Plan.
#10.39 Columbus McKinnon Corporation - Larco Industrial Services, Ltd. 1997
Stock Option Plan.
#21.1 Subsidiaries of the Registrant.
#23.1 Consent of Ernst & Young LLP.
#23.2 Consent of Deloitte & Touche LLP.
#27.1 Financial Data Schedule.
#99.1 Form 11-K Columbus McKinnon Corporation Employee Stock Ownership
Plan Annual Report for the year ended March 31, 1999.
* Indicates a management contract or compensation plan or arrangement.
# Filed herewith
(b) Reports on Form 8-K:
During the fourth quarter of fiscal 1999, the Company did not file any
Current Reports on Form 8-K.
35
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Buffalo,
State of New York on June 29, 1999.
COLUMBUS McKINNON CORPORATION
By: /s/ Timothy T. Tevens
----------------------
Timothy T. Tevens
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15 (d) 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.
Signature Title Date
--------- ----- ----
/s/ Timothy T. Tevens President, Chief Executive Officer June 29, 1999
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Timothy T. Tevens and Director
(Principal Executive Officer)
/s/ Robert L. Montgomery, Jr. Executive Vice President, Chief June 29, 1999
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Robert L. Montgomery, Jr. Financial Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
/s/ Herbert P. Ladds, Jr. Chairman of the Board of Directors June 29, 1999
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Herbert P. Ladds, Jr.
/s/ Edward W. Duffy Director June 29, 1999
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Edward W. Duffy
/s/ Randolph A. Marks Director June 29, 1999
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Randolph A. Marks
/s/ L. David Black Director June 29, 1999
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L. David Black
/s/ Carlos Pascual Director June 29, 1999
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Carlos Pascual
/s/ Richard H. Fleming Director June 29, 1999
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Richard H. Fleming
36