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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
------------------- --------------------
Commission File Number: 0-27618
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COLUMBUS MCKINNON CORPORATION
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 16-0547600
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 JOHN JAMES AUDUBON PARKWAY, AMHERST, NY 14228-1197
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(Address of principal executive offices) (Zip code)
(716) 689-5400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. : [X] Yes [ ] No
The number of shares of common stock outstanding as of July 31, 2002 was:
14,895,172 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
JUNE 30, 2002
PAGE #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30, 2002 and March 31, 2002 2
Condensed consolidated statements of income and retained earnings -
Three months ended June 30, 2002 and July 1, 2001 3
Condensed consolidated statements of cash flows -
Three months ended June 30, 2002 and July 1, 2001 4
Condensed consolidated statements of comprehensive income -
Three months ended June 30, 2002 and July 1, 2001 5
Notes to condensed consolidated financial statements -
June 30, 20026
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none. 19
Item 2. Changes in Securities - none. 19
Item 3. Defaults upon Senior Securities - none. 19
Item 4. Submission of Matters to a Vote of Security Holders - none. 19
Item 5. Other Information - none. 19
Item 6. Exhibits and Reports on Form 8-K 19
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, MARCH 31,
2002 2002
---------- ----------
ASSETS: (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 2,259 $ 13,068
Trade accounts receivable 85,847 82,266
Inventories 93,757 89,656
Net assets held for sale 2,300 4,290
Net current assets of discontinued operations - 21,497
Prepaid expenses 11,056 8,543
---------- ----------
Total current assets 195,219 219,320
Property, plant, and equipment, net 69,918 70,742
Goodwill and other intangibles, net 202,493 200,801
Marketable securities 23,315 24,634
Deferred taxes on income 4,205 3,133
Other assets 5,487 5,665
---------- ----------
Total assets $ 500,637 $ 524,295
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 2,891 $ 2,518
Trade accounts payable 32,262 31,617
Accrued liabilities 29,729 39,533
Restructuring reserve 573 949
Current portion of long-term debt 124,397 146,663
---------- ----------
Total current liabilities 189,852 221,280
Senior debt, less current portion 1,829 1,509
Subordinated debt 199,694 199,681
Other non-current liabilities 31,513 30,214
---------- ----------
Total liabilities 422,888 452,684
---------- ----------
Shareholders' equity
Common stock 149 149
Additional paid-in capital 104,922 104,920
Accumulated deficit (9,037) (12,536)
ESOP debt guarantee (6,398) (6,514)
Unearned restricted stock (363) (414)
Total accumulated other comprehensive loss (11,524) (13,994)
---------- ----------
Total shareholders' equity 77,749 71,611
---------- ----------
Total liabilities and shareholders' equity $ 500,637 $ 524,295
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net sales $ 113,891 $ 129,086
Cost of products sold 86,261 95,613
------------ ------------
Gross profit 27,630 33,473
------------ ------------
Selling expenses 11,323 11,110
General and administrative expenses 6,704 5,820
Restructuring charges - 8,840
Amortization of intangibles 129 2,781
------------ ------------
18,156 28,551
------------ ------------
Income from operations 9,474 4,922
Interest and debt expense 7,277 8,267
Interest income and other income (expense) 3,493 (113)
------------ ------------
Income (loss) from continuing operations before income taxes 5,690 (3,458)
Income tax expense (benefit) 2,191 (639)
------------ ------------
Income (loss) from continuing operations 3,499 (2,819)
Income (loss) from discontinued operations - (1,842)
------------ ------------
Net income (loss) 3,499 (4,661)
(Accumulated deficit) retained earnings - beginning of period (12,536) 124,806
Cash dividends of $0.00 and $0.07 per share - (1,006)
------------ ------------
(Accumulated deficit) retained earnings - end of period $ (9,037) $ 119,139
============ ============
Earnings per share data, basic and diluted:
Continuing operations $ 0.24 $ (0.20)
Discontinued operations - (0.13)
------------ -----------
Net income (loss) $ 0.24 $ (0.32)
============ ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
---------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 3,499 $ (2,819)
Adjustments to reconcile income (loss) from continuing
operations to net cash (used in) provided by operating activities:
Depreciation and amortization 2,866 5,876
Deferred income taxes 31 541
Other 575 403
Gain on investments (2,757) -
Changes in operating assets and liabilities:
Trade accounts receivable 834 7,226
Inventories (2,156) 3,089
Prepaid expenses (1,939) (227)
Other assets 68 135
Trade accounts payable (549) (8,184)
Accrued and non-current liabilities (6,614) (3,217)
----------- ----------
Net cash (used in) provided by operating activities (6,142) 2,823
----------- ----------
INVESTING ACTIVITIES:
Purchase of marketable securities, net (50) (787)
Capital expenditures (950) (1,193)
Proceeds from sale of business 15,950 -
Net assets held for sale 1,990 (463)
---------- ----------
Net cash provided by (used in) investing activities 16,940 (2,443)
---------- ----------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit agreements (21,529) (8,369)
Repayment of debt (334) (569)
Dividends paid - (1,006)
Reduction of ESOP debt guarantee 116 185
Other (852) (474)
---------- -----------
Net cash used in financing activities (22,599) (10,233)
Effect of exchange rate changes on cash 510 11
---------- ----------
Net cash used in continuing operations (11,291) (9,842)
Net cash provided by (used in) discontinued operations 482 (2,199)
---------- ----------
Net change in cash and cash equivalents (10,809) (12,041)
Cash and cash equivalents at beginning of period 13,068 14,015
---------- ----------
Cash and cash equivalents at end of period $ 2,259 $ 1,974
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
---------- ----------
(IN THOUSANDS)
Net income (loss) $ 3,499 $ (4,661)
---------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 5,623 (241)
Unrealized (loss) gain on derivatives qualifying as hedges (130) 123
Unrealized (loss) gain on investments:
Unrealized holding (loss) gain arising during the period (989) 199
Less: reclassification adjustment for (gain)
loss included in net income (2,034) 397
----------- ----------
(3,023) 596
----------- ----------
Total other comprehensive income 2,470 478
---------- ----------
Comprehensive income (loss) $ 5,969 $ (4,183)
========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
COLUMBUS MCKINNON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2002
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation of the financial position of Columbus McKinnon
Corporation (the Company) at June 30, 2002, and the results of its
operations and its cash flows for the three month periods ended June 30,
2002 and July 1, 2001, have been included. Results for the period ended
June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended March 31, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended March 31, 2002.
The Company is a leading U.S. designer and manufacturer of material
handling products, systems and services which efficiently and ergonomically
move, lift, position and secure material. Key products include hoists,
cranes, chain and forged attachments. The Company's material handling
products are sold, domestically and internationally, principally to third
party distributors through diverse distribution channels, and to a lesser
extent directly to manufacturers and other end-users. The Company's
integrated material handling solutions businesses deal primarily with end
users and sales are concentrated, domestically and internationally
(primarily Europe), in the consumer products, manufacturing, warehousing
and, to a lesser extent, the steel, construction, automotive and other
industrial markets.
In May of 2002, the Company sold substantially all of the assets of
Automatic Systems, Inc. (ASI). The ASI business was the principal business
unit in the Company's former Solutions-Automotive segment. The operations
of ASI have been reflected as a discontinued operation as of March 31, 2002
and all periods presented have been restated to reflect this change.
2. Inventories consisted of the following:
JUNE 30, MARCH 31,
2002 2002
---------- ----------
(IN THOUSANDS)
At cost - FIFO basis:
Raw materials............................ $ 48,566 $ 48,477
Work-in-process.......................... 17,464 13,735
Finished goods........................... 34,386 34,417
---------- ----------
100,416 96,629
LIFO cost less than FIFO cost............... (6,659) (6,973)
---------- ----------
Net inventories .......................... $ 93,757 $ 89,656
========== ==========
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs.
Because these are subject to many forces beyond management's control,
interim results are subject to the final year-end LIFO inventory valuation.
3. Property, plant, and equipment is net of $72,154,000 and $69,417,000 of
accumulated depreciation at June 30, 2002 and March 31, 2002, respectively.
- 6 -
4. Goodwill and other intangibles is net of $58,472,000 and $58,343,000 of
accumulated amortization at June 30, 2002 and March 31, 2002, respectively.
5. General and Product Liability - The accrued general and product liability
costs, which are included in other non-current liabilities, are the
actuarial present value of estimated expenditures based on amounts
determined from loss reports and individual cases filed with the Company,
and an amount, based on experience, for losses incurred but not reported.
The accrual in these condensed consolidated financial statements was
determined by applying a discount factor based on interest rates
customarily used in the insurance industry.
6. The Company manages its debt portfolio by using interest rate swaps to
achieve an overall desired position of fixed and floating rates. The
Company entered into an interest rate swap agreement to effectively convert
$40 million of variable-rate debt to fixed-rate debt which matures in June
2003. The cash flow hedge is considered effective and the gain or loss on
the change in fair value is reported in other comprehensive income, net of
tax.
The interest rate swap is the only derivative instrument held by the
Company. The net impact of the derivative instrument was a decrease to
other comprehensive income of $130,000 for the period ended June 30, 2002
versus an increase to other comprehensive income of $123,000 for the period
ended July 1, 2001. The fair value of the derivative at June 30, 2002 was a
$924,000 liability.
The carrying amount of the Company's senior debt instruments approximates
the fair value. The Company's subordinated debt has an approximate fair
value of $182,000,000, which is less than its carrying amount of
$199,694,000.
7. The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
---------- ----------
(IN THOUSANDS)
Numerator for basic and diluted earnings per share:
Net income (loss) ................................................ $ 3,499 $ (4,661)
========== ==========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS..................................... 14,477 14,391
Effect of dilutive employee stock options......................... 112 -
---------- ----------
Adjusted weighted-average common stock outstanding
and assumed conversions - denominator for diluted EPS........... 14,589 14,391
========== ==========
8. Income tax benefit for the three-month period ended July 1, 2001 differs
from the customary relationship between income tax benefit and loss before
income taxes due to nondeductible amortization of goodwill of $2,330,000
during the period.
- 7 -
9. On April 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which
requires that goodwill no longer be amortized, but reviewed on an annual
basis at the reporting unit level for impairment. Identifiable intangible
assets acquired in a business combination are amortized over the useful
lives unless their useful lives are indefinite, in which case those
intangible assets are tested for impairment annually and not amortized
until their lives are determined to be finite. In accordance with SFAS No.
142, the Company will complete a transitional goodwill impairment test by
September 29, 2002 and does not anticipate recognition of an impairment
loss. No reclassification of identifiable intangible assets apart from
goodwill was necessary as a result of adoption of SFAS No. 142. The
following table presents the consolidated results of operations adjusted as
though the adoption of SFAS No. 142 occurred as of April 1, 2001.
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
---- ----
(IN THOUSANDS)
Reported income (loss) from continuing operations $ 3,499 $ (2,819)
Goodwill amortization add-back, net of tax - 2,530
---------- ----------
Adjusted income (loss) from continuing operations $ 3,499 $ (289)
========== ==========
Reported income (loss) from continuing operations per share - basic and diluted $ 0.24 $ (0.20)
Goodwill amortization add-back - 0.16
---------- ----------
Adjusted income (loss) from continuing operations per share - basic and diluted $ 0.24 $ (0.03)
========== ==========
Goodwill amounts to $165,923,000 for the products segment and $31,172,000
for the solutions segment as of June 30, 2002. Upon finalization of the
transitional goodwill impairment test, goodwill may be reallocated between
the two segments.
As of June 30, 2002, the gross balance of deferred financing costs is
$8,653,000 and accumulated amortization is $4,459,000. Other intangibles
have a net value of $1,204,000.
Amortization expense is estimated to be $2,900,000 for fiscal 2003
including $500,000 of amortization reflected on the amortization of
intangibles line and $2,400,000 of amortization of deferred financing costs
shown on the interest and debt expense line on the financial statements.
Amortization expense is estimated to be $1,100,000 for each of the four
succeeding fiscal years thereafter including $500,000 of amortization
reflected on the amortization of intangibles line and $600,000 of
amortization of deferred financing costs shown on the interest and debt
expense line on the financial statements without consideration of
additional financing costs expected in conjunction with the refinancing
currently in process.
10. As a result of the way the Company manages the business, its reportable
segments are strategic business units that offer products with different
characteristics. The most defining characteristic is the extent of
customized engineering required on a per-order basis. In addition, the
segments serve different customer bases through differing methods of
distribution. The Company has two reportable segments: Products and
Solutions. The Company's Products segment sells hoists, industrial cranes,
chain, attachments, and other material handling products principally to
third party distributors through diverse distribution channels, and to a
lesser extent directly to manufacturers and other end-users. The Solutions
segment sells engineered material handling systems such as conveyors,
manipulators, and lift tables primarily to end-users in the consumer
products, manufacturing, warehousing, and, to a lesser extent, the steel,
construction, automotive, and other industrial markets. The accounting
policies of the segments are the same as those described note 1.
Intersegment sales are not significant. The Company evaluates performance
based on operating income of the respective business units prior to the
effects of amortization.
- 8 -
Segment information as of and for the three months ended June 30, 2002 and
July 1, 2001, is as follows:
THREE MONTHS ENDED JUNE 30, 2002
--------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
(IN THOUSANDS)
Sales to external customers...................... $ 97,854 $ 16,037 $ 113,891
Operating income before amortization
and restructuring charges..................... 8,960 643 9,603
Depreciation and amortization.................... 2,616 250 2,866
Total assets..................................... 433,247 67,390 500,637
Capital expenditures............................. 813 137 950
THREE MONTHS ENDED JULY 01, 2001
--------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
(IN THOUSANDS)
Sales to external customers...................... $ 109,619 $ 19,467 $ 129,086
Operating income before amortization
and restructuring charges..................... 16,681 (138) 16,543
Depreciation and amortization.................... 5,115 761 5,876
Total assets..................................... 463,995 69,465 533,460
Capital expenditures............................. 879 314 1,193
The following schedule provides a reconciliation of operating income before
amortization with (loss) income before income taxes:
THREE MONTHS ENDED
------------------
JUNE 30, JULY 1,
2002 2001
---- ----
(IN THOUSANDS)
Operating income before amortization.......................... $ 9,603 $ 16,543
Restructuring charges......................................... - (8,840)
Amortization of intangibles................................... (129) (2,781)
Interest and debt expense..................................... (7,277) (8,267)
Interest income and other (expense) income.................... 3,493 (113)
----------- -----------
Income (loss) before income taxes............................. $ 5,690 $ (3,458)
=========== ===========
- 9 -
11. The summary financial information of the parent, domestic subsidiaries
(guarantors) and foreign subsidiaries (nonguarantors of the 8.5% senior
subordinated notes) follows:
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------------
AS OF JUNE 30, 2002
Current assets:
Cash and cash equivalents $ (538) $ (835) $ 3,632 $ - $ 2,259
Trade accounts receivable 54,316 5,760 25,771 - 85,847
Inventories 42,635 24,189 27,882 (949) 93,757
Other current assets 10,531 (1,368) 4,193 - 13,356
------------------------------------------------------------------
Total current assets 106,944 27,746 61,478 (949) 195,219
Property, plant, and equipment, net 34,725 17,896 17,297 - 69,918
Goodwill and other intangibles, net 36,623 121,049 44,821 - 202,493
Intercompany 259,219 (273,512) (57,747) 72,040 -
Other assets 76,853 159,486 (1,551) (201,781) 33,007
------------------------------------------------------------------
Total assets $ 514,364 $ 52,665 $ 64,298 $ (130,690) $ 500,637
==================================================================
Current liabilities $ 165,004 $ 5,006 $ 22,708 $ (2,866) $ 189,852
Long-term debt, less current portion 199,694 - 1,829 - 201,523
Other non-current liabilities 17,078 11,182 3,253 - 31,513
------------------------------------------------------------------
Total liabilities 381,776 16,188 27,790 (2,866) 422,888
Shareholders' equity 132,588 36,477 36,508 (127,824) 77,749
------------------------------------------------------------------
Total liabilities and shareholders' equity $ 514,364 $ 52,665 $ 64,298 $ (130,690) $ 500,637
==================================================================
FOR THE THREE MONTHS ENDED JUNE 30, 2002
Net sales $ 58,521 $ 31,052 $ 28,297 $ (3,979) $ 113,891
Cost of products sold 44,448 24,320 21,472 (3,979) 86,261
------------------------------------------------------------------
Gross profit 14,073 6,732 6,825 - 27,630
------------------------------------------------------------------
Selling, general and administrative expenses 9,783 3,049 5,195 - 18,027
Amortization of intangibles 57 1 71 - 129
------------------------------------------------------------------
9,840 3,050 5,266 - 18,156
------------------------------------------------------------------
Income from operations 4,233 3,682 1,559 - 9,474
Interest and debt expense 7,128 38 111 - 7,277
Interest and other income 3,359 60 74 - 3,493
------------------------------------------------------------------
Income before income taxes 464 3,704 1,522 - 5,690
Income tax expense 202 1,519 470 - 2,191
------------------------------------------------------------------
Net income $ 262 $ 2,185 $ 1,052 $ - $ 3,499
==================================================================
- 10 -
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 2002
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 3,168 $ (5,751) $ (3,559) $ - $ (6,142)
------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net (50) - - - (50)
Capital expenditures (362) (258) (330) - (950)
Proceeds from sale of business - 15,950 - - 15,950
Other - 1,990 - - 1,990
------------------------------------------------------------------
Net cash used in (provided by) investing
activities (412) 17,682 (330) - 16,940
------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving
line-of-credit agreements (10,249) (11,551) 271 - (21,529)
Repayment of debt (329) - (5) - (334)
Other (736) - - - (736)
------------------------------------------------------------------
Net cash (used in) provided by financing
activities (11,314) (11,551) 266 - (22,599)
Effect of exchange rate changes on cash (4) 4 510 - 510
------------------------------------------------------------------
Net cash (used in) provided by continuing
operations (8,562) 384 (3,113) - (11,291)
Net cash provided by discontinued operations - 482 - - 482
------------------------------------------------------------------
Net change in cash and cash equivalents (8,562) 866 (3,113) - (10,809)
Cash and cash equivalents at beginning of period 8,024 (1,701) 6,745 - 13,068
------------------------------------------------------------------
Cash and cash equivalents at end of period $ (538) $ (835) $ 3,632 $ - $ 2,259
==================================================================
AS OF JULY 1, 2001
Current assets:
Cash and cash equivalents $ 2,717 $ (4,096) $ 3,353 $ - $ 1,974
Trade accounts receivable 60,111 12,986 20,062 - 93,159
Inventories 44,719 33,042 28,989 (974) 105,776
Net current assets of discontinued operations - 50,277 - - 50,277
Other current assets 5,471 1,800 3,326 - 10,597
------------------------------------------------------------------
Total current assets 113,018 94,009 55,730 (974) 261,783
Property, plant, and equipment, net 33,845 24,258 17,673 - 75,776
Goodwill and other intangibles, net 38,600 126,055 45,689 - 210,344
Intercompany 167,439 (332,476) (61,985) 227,022 -
Net non-current assets of discontinued
operations - 115,404 - - 115,404
Other assets 227,772 161,070 (2,129) (350,879) 35,834
-------------------------------------------------------------------
Total assets $ 580,674 $ 188,320 $ 54,978 $ (124,831) $ 699,141
===================================================================
Current liabilities $ 33,400 $ 14,974 $ 19,168 $ (3,040) $ 64,502
Long-term debt, less current portion 394,941 3,652 - 398,593
Other non-current liabilities 15,484 14,973 2,699 - 33,156
-------------------------------------------------------------------
Total liabilities 443,825 29,947 25,519 (3,040) 496,251
Shareholders' equity 136,849 158,373 29,459 (121,791) 202,890
-------------------------------------------------------------------
Total liabilities and shareholders' equity $ 580,674 $ 188,320 $ 54,978 $ (124,831) $ 699,141
===================================================================
- 11 -
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
-------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JULY 1, 2001
Net sales $ 57,177 $ 49,750 $ 26,816 $ (4,657) $ 129,086
Cost of products sold 41,149 39,006 20,115 (4,657) 95,613
-------------------------------------------------------------------
Gross profit 16,028 10,744 6,701 - 33,473
-------------------------------------------------------------------
Selling, general and administrative expenses 7,992 4,144 4,794 - 16,930
Restructuring charges 8,840 - - - 8,840
Amortization of intangibles 547 1,634 600 - 2,781
-------------------------------------------------------------------
17,379 5,778 5,394 - 28,551
-------------------------------------------------------------------
(Loss) income from operations (1,351) 4,966 1,307 - 4,922
Interest and debt expense 8,122 - 145 - 8,267
Interest and other (expense) income (219) 55 51 - (113)
-------------------------------------------------------------------
(Loss) income from continuing operations before
income tax (benefit) expense (9,692) 5,021 1,213 - (3,458)
Income tax (benefit) expense (3,713) 2,588 486 - (639)
-------------------------------------------------------------------
(Loss) income from continuing operations (5,979) 2,433 727 - (2,819)
Loss from discontinued operations - (1,842) - - (1,842)
-------------------------------------------------------------------
Net (loss) income $ (5,979) $ 591 $ 727 $ - $ (4,661)
===================================================================
FOR THE THREE MONTHS ENDED JULY 1, 2001
OPERATING ACTIVITIES:
Net cash (used in) provided by operating
activities $ 1,692 $ 2,277 $ (1,146) $ - $ 2,823
-------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net (787) - - - (787)
Capital expenditures (741) (54) (398) - (1,193)
Other - (463) - - (463)
-------------------------------------------------------------------
Net cash used in investing activities (1,528) (517) (398) - (2,443)
-------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings under revolving
line-of-credit agreements (6,700) (1,792) 123 - (8,369)
Repayment of debt (451) - (118) - (569)
Dividends paid (1,006) - - - (1,006)
Other (289) - - - (289)
-------------------------------------------------------------------
Net cash provided by (used in) financing
activities (8,446) (1,792) 5 - (10,233)
Effect of exchange rate changes on cash (18) - 29 - 11
-------------------------------------------------------------------
Net cash provided by continuing operations (8,300) (32) (1,510) - (9,842)
Net cash used in discontinued operations - (2,199) - - (2,199)
-------------------------------------------------------------------
Net change in cash and cash equivalents (8,300) (2,231) (1,510) - (12,041)
Cash and cash equivalents at beginning of period 11,017 (1,865) 4,863 - 14,015
-------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,717 $ (4,096) $ 3,353 $ - $ 1,974
===================================================================
- 12 -
12. On April 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which
requires that goodwill no longer be amortized, but reviewed on an annual
basis at the reporting unit level for impairment. Identifiable intangible
assets acquired in a business combination are amortized over the useful
lives unless their useful lives are indefinite, in which case those
intangible assets are tested for impairment annually and not amortized
until their lives are determined to be finite. In accordance with SFAS No.
142, the Company will complete a transitional goodwill impairment test by
September 29, 2002 and does not anticipate recognition of an impairment
loss. No reclassification of identifiable intangible assets apart from
goodwill was necessary as a result of adoption of SFAS No. 142.
The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" in June 2001. SFAS No. 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. This Statement is effective for the
Company's fiscal year beginning April 1, 2003. The Company is currently
assessing the Statement and the impact, if any, that adoption will have on
the consolidated financial statements.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001. SFAS No. 144 supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." The statement, while
retaining many of the fundamental recognition and measurement provisions of
SFAS No. 121, changes the criteria to be met to classify an asset as
held-for-sale as well as the grouping of long-lived assets and liabilities
that represent the unit of accounting for a long-lived asset to be held and
used. SFAS No. 144 is effective for the Company's fiscal year beginning
April 1, 2002. As of June 30, 2002, this Statement has not had any impact
on the consolidated financial statements.
- 13 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(AMOUNTS IN THOUSANDS)
The Company is a leading U.S. designer and manufacturer of material handling
products, systems and services which efficiently and ergonomically move, lift,
position or secure material. Key products include hoists, cranes, chain and
forged attachments. The Company's material handling Products are sold,
domestically and internationally, principally to third party distributors
through diverse distribution channels, and to a lesser extent directly to
manufacturers and other end-users. Distribution channels include general
distributors, specialty distributors, crane end users, service-after-sale
distributors, original equipment manufacturers (OEMs), government, consumer and
international. The general distributors are comprised of industrial
distributors, rigging shops and crane builders. Specialty distributors include
catalog houses, material handling specialists and entertainment equipment
riggers. The service-after-sale network includes repair parts distribution
centers, chain service centers and hoist repair centers. Consumer distribution
channels include mass merchandisers, hardware distributors, trucking and
transportation distributors, farm hardware distributors and rental outlets. The
Company's integrated material handling Solutions businesses primarily deal
directly with end-users and sales are concentrated, domestically and
internationally (primarily Europe), in the consumer products, manufacturing,
warehousing and, to a lesser extent, the steel, construction, automotive, and
other industrial markets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 AND JULY 1, 2001
Net sales in the fiscal 2003 quarter ended June 30, 2002 were $113,891, a
decrease of $15,195 or 11.8% from the fiscal 2002 quarter ended July 1, 2001.
Sales in the Products segment were down 10.7% and sales in the Solutions segment
decreased by 17.6% as a result of the ongoing softness in industrial markets,
particularly domestically. Sales in the individual segments were as follows, in
thousands of dollars and with percentage changes for each segment:
THREE MONTHS ENDED
------------------
JULY 1, JULY 2, CHANGE
2001 2000 AMOUNT %
---- ---- ------ -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Products $ 97,854 $ 109,619 $ (11,765) (10.7)
Solutions 16,037 19,467 (3,430) (17.6)
----------- ----------- ----------- -------
Consolidated net sales $ 113,891 $ 129,086 $ (15,195) (11.8)
=========== =========== =========== =======
The Company's consolidated gross profit margins were approximately 24.3% and
25.9% for the fiscal 2003 and 2002 quarters, respectively. Gross profit margins
were 25.5% and 28.5% for the Products segment and 16.7% and 11.7% for the
Solutions segment, in the fiscal 2003 and 2002 quarters, respectively. The
decline in consolidated gross profit margin and the Products segment is a
combined result of decreased volume and lack of pricing increases to the
customer. The Solutions segment experienced increased gross profit margins
despite decreased sales volume for the fiscal 2003 quarter as a result of more
profitable projects.
- 14 -
Selling expenses were $11,323 and $11,110 in the fiscal 2003 and 2002 quarters,
respectively. As a percentage of consolidated net sales, selling expenses were
9.9% and 8.6% for the fiscal 2003 and 2002 quarters.
General and administrative expenses were $6,704 and $5,820 in the fiscal 2003
and 2002 quarters, respectively. As a percentage of consolidated net sales,
general and administrative expenses were 5.9% and 4.5% in the fiscal 2003 and
2002 quarters, respectively. The increase is the result of increased product
liability expense recorded by the Company's captive insurance company. This
increased product liability expense is the result of and offset by the higher
investment income shown on the interest and other (expense) income line.
In conjunction with the continuation of its strategic integration process, the
Company incurred restructuring charges of $8,840,000 as a result of its decision
to close the Forrest City, Arkansas plant during the first quarter of fiscal
2002. The charges consisted mainly of lease termination and employee separation
costs.
Amortization of intangibles was $129 and $2,781 in the fiscal 2003 and 2002
quarters, respectively. The decrease in amortization is reflective of the
cessation of amortization of goodwill in accordance with SFAS No. 142.
Interest and debt expense was $7,277 and $8,267 in the fiscal 2003 and 2002
quarters, respectively. The fiscal 2003 decrease is the result of decreasing
debt levels. As a percentage of consolidated net sales, interest and debt
expense was 6.4% for both the fiscal 2003 and 2002 quarters.
Interest income and other (expense) income was $3,493 and ($113) in the fiscal
2003 and 2002 quarters, respectively. The increase in the current year fiscal
quarter is the result of increased investment earnings, specifically realized
gains, on assets in the Company's captive insurance company.
Income taxes as a percentage of income (loss) before income taxes were 38.5% and
18.5% in the fiscal 2003 and 2002 quarters, respectively. The percentage for
fiscal 2002 differs from the U.S. statutory rate as a result of the effect of
$2,330 of nondeductible amortization of goodwill resulting from acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Revolving Credit Facility provides availability up to $150 million, due
March 31, 2003, against which $124 million was outstanding at June 30, 2002.
Interest is payable at varying Eurodollar rates based on LIBOR plus a spread
determined by the Company's leverage ratio amounting to 375 basis points at July
31, 2002. The Revolving Credit Facility is secured by all equipment, inventory,
receivables, subsidiary stock (limited to 65% for foreign subsidiaries) and
intellectual property.
- 15 -
The senior subordinated 8 1/2% Notes issued on March 31, 1998 amounted to
$199,468, net of original issue discount of $532 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 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
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 domestic
subsidiaries and are not subject to any sinking fund requirements.
The Company manages its debt portfolio by using interest rate swaps to achieve
an overall desired position of fixed and floating rates. The Company entered
into an interest rate swap agreement to effectively convert $40 million of
variable-rate debt to fixed-rate debt which matures in June 2003. The cash flow
hedge is considered effective and the gain or loss on the change in fair value
is reported in other comprehensive income, net of tax.
Since the Revolving Credit Facility expires on March 31, 2003, the Company is
currently in the process of negotiating new debt instruments which are expected
to be finalized by approximately September 30, 2002. The new debt instruments
are believed to be sufficient to fund ongoing operations and budgeted capital
expenditures for at least the next twelve months.
Net cash used by operating activities was $6,142 for the three months ended June
30, 2002 compared to cash provided by operating activities of $2,823 for the
three months ended July 1, 2001. The $8,965 difference is due to changes in net
working capital components.
Net cash provided by investing activities increased to $16,940 for the three
months ended June 30, 2002 from net cash used in investing activities of $2,443
for the three months ended July 1, 2001 as a result of the proceeds from the
sale of ASI and proceeds from the sale of assets held for sale.
Net cash used in financing activities was $22,599 for the three months ended
June 30, 2002 compared to $10,233 for the three months ended July 1, 2001. The
$12,366 increase is primarily the result of proceeds from the sale of ASI used
to pay down debt.
CAPITAL EXPENDITURES
In addition to keeping its current equipment and plants properly maintained, the
Company is committed to replacing, enhancing, and upgrading its property, plant,
and equipment to reduce production costs, increase flexibility to respond
effectively to market fluctuations and changes, meet environmental requirements,
enhance safety, and promote ergonomically correct work stations. Consolidated
capital expenditures for the three months ended June 30, 2002 and July 1, 2001
were $950 and $1,193, respectively.
- 16 -
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
Quarterly results may be materially affected by the timing of large customer
orders, by periods of high vacation and holiday concentrations, by the timing
and extent of restructuring projects, 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.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
On April 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which requires
that goodwill no longer be amortized, but reviewed on an annual basis at the
reporting unit level for impairment. Identifiable intangible assets acquired in
a business combination are amortized over the useful lives unless their useful
lives are indefinite, in which case those intangible assets are tested for
impairment annually and not amortized until their lives are determined to be
finite. In accordance with SFAS No. 142, the Company will complete a
transitional goodwill impairment test by September 29, 2002 and does not
anticipate recognition of an impairment loss. No reclassification of
identifiable intangible assets apart from goodwill was necessary as a result of
adoption of SFAS No. 142.
The Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting
for Asset Retirement Obligations" in June 2001. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. This
Statement is effective for the Company's fiscal year beginning April 1, 2003.
The Company is currently assessing the Statement and the impact, if any, that
adoption will have on the consolidated financial statements.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001. SFAS No. 144 supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The statement, while retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, changes the criteria to
be met to classify an asset as held-for-sale as well as the grouping of
long-lived assets and liabilities that represent the unit of accounting for a
long-lived asset to be held and used. SFAS No. 144 is effective for the
Company's fiscal year beginning April 1, 2002. As of June 30, 2003, the
Statement has had no impact on the consolidated financial statements.
- 17 -
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements involve known
and unknown risks, uncertainties and other factors that could cause 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.
- 18 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none.
Item 2. Changes in Securities - none.
Item 3. Defaults upon Senior Securities - none.
Item 4. Submission of Matters to a Vote of Security Holders - none.
Item 5. Other Information - none.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
There are no reports on Form 8-K.
- 19 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS MCKINNON CORPORATION
-----------------------------
(Registrant)
Date: AUGUST 14, 2002 /S/ ROBERT L. MONTGOMERY, JR.
---------------- ---------------------------------
Robert L. Montgomery, Jr.
Executive Vice President and
Chief Financial Officer (Principal
Financial Officer)
- 21 -