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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 OF 1934
For the quarterly period ended December 29, 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
-------
COLUMBUS MCKINNON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 16-0547600
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 JOHN JAMES AUDUBON PARKWAY, AMHERST, NY 14228-1197
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(716) 689-5400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. :
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934): [X] Yes [ ] No
The number of shares of common stock outstanding as of January 31, 2003 was:
14,895,172 shares.
FORM 10-Q INDEX
COLUMBUS MCKINNON CORPORATION
DECEMBER 29, 2002
PAGE #
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets -
December 29, 2002 and March 31, 2002 2
Condensed consolidated statements of income and
retained earnings - Three months and nine months
ended December 29, 2002 and December 30, 2001 3
Condensed consolidated statements of cash flows -
Nine months ended December 29, 2002 and December 30, 2001 4
Condensed consolidated statements of comprehensive
income - Three months and nine months ended
December 29, 2002 and December 30, 2001 5
Notes to condensed consolidated financial statements -
December 29, 2002 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Disclosure Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none. 20
Item 2. Changes in Securities - none. 20
Item 3. Defaults upon Senior Securities - none. 20
Item 4. Submission of Matters to a Vote of Security Holders - none. 20
Item 5. Other Information - none. 20
Item 6. Exhibits and Reports on Form 8-K 20
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 29, MARCH 31,
2002 2002
---------- ----------
ASSETS: (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 5,869 $ 13,068
Trade accounts receivable 82,509 82,266
Inventories 91,376 89,656
Net assets held for sale 2,300 4,290
Net current assets of discontinued operations - 21,497
Prepaid expenses 10,277 8,543
---------- ----------
Total current assets 192,331 219,320
Property, plant, and equipment, net 67,437 70,742
Goodwill and other intangibles, net 199,303 200,801
Marketable securities 21,630 24,634
Deferred taxes on income 4,129 3,133
Other assets 1,714 5,665
---------- ----------
Total assets $ 486,544 $ 524,295
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 2,599 $ 2,518
Trade accounts payable 22,506 31,617
Accrued liabilities 25,999 39,533
Restructuring reserve 913 949
Current portion of long-term debt 3,627 146,663
---------- ----------
Total current liabilities 55,644 221,280
Senior debt, less current portion 131,239 1,509
Subordinated debt 199,721 199,681
Other non-current liabilities 29,550 30,214
---------- ----------
Total liabilities 416,154 452,684
---------- ----------
Shareholders' equity
Common stock 149 149
Additional paid-in capital 104,765 104,920
Accumulated deficit (18,495) (12,536)
ESOP debt guarantee (6,070) (6,514)
Unearned restricted stock (261) (414)
Accumulated other comprehensive loss (9,698) (13,994)
---------- ----------
Total shareholders' equity 70,390 71,611
---------- ----------
Total liabilities and shareholders' equity $ 486,544 $ 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 NINE MONTHS ENDED
------------------ -----------------
DECEMBER 29, DECEMBER 30, DECEMBER 29, DECEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $ 107,384 $ 113,922 $ 334,513 $ 365,550
Cost of products sold 81,085 83,998 254,011 270,959
----------- ----------- ----------- -----------
Gross profit 26,299 29,924 80,502 94,591
----------- ----------- ----------- -----------
Selling expenses 12,033 10,419 35,018 32,469
General and administrative expenses 5,281 6,476 18,223 19,222
Restructuring charges 840 (6) 840 9,561
Amortization of intangibles 137 2,742 400 8,284
----------- ----------- ----------- -----------
18,291 19,631 54,481 69,536
----------- ----------- ----------- -----------
Income from operations 8,008 10,293 26,021 25,055
Interest and debt expense 8,887 6,798 23,371 22,979
Interest and other (expense) income (2,399) (77) 1,319 (159)
----------- ----------- ----------- -----------
(Loss) income before income taxes (3,278) 3,418 3,969 1,917
Income tax (benefit) expense (805) 2,174 1,928 3,224
----------- ----------- ----------- -----------
(Loss) income from continuing operations before
cumulative effect of accounting change (2,473) 1,244 2,041 (1,307)
Loss from discontinued operations - (1,336) - (4,778)
----------- ----------- ----------- -----------
(Loss) income before cumulative effect of
accounting change (2,473) (92) 2,041 (6,085)
Cumulative effect of accounting change - - (8,000) -
----------- ----------- ------------ -----------
Net loss (2,473) (92) (5,959) (6,085)
(Accumulated deficit) retained
earnings - beginning of period (16,022) 116,797 (12,536) 124,806
Cash dividends of $0.00, $0.00, $0.00 and
$0.14 per share - - - (2,016)
----------- ----------- ----------- -----------
(Accumulated deficit) retained
earnings - end of period $ (18,495) $ 116,705 $ (18,495) $ 116,705
=========== =========== =========== ===========
Earnings per share data, basic and diluted:
Continuing operations $ (0.17) $ 0.09 $ 0.14 $ (0.09)
Discontinued operations - (0.10) - (0.33)
Cumulative effect of accounting change - - (0.55) -
----------- ----------- ----------- -----------
Basic and diluted net loss per share $ (0.17) $ (0.01) $ (0.41) $ (0.42)
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
DECEMBER 29, DECEMBER 30,
2002 2001
---------- -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income (loss) from continuing operations before cumulative effect
of accounting change $ 2,041 $ (1,307)
Adjustments to reconcile income (loss) from continuing operations
before cumulative effect of accounting change to net cash
provided by operating activities:
Depreciation and amortization 8,470 17,535
Deferred income taxes (499) 1,436
Net gain on investments (1,025) -
Deferred financing costs amortization 3,008 1,099
Changes in operating assets and liabilities:
Trade accounts receivable 3,966 13,464
Inventories 1,727 11,880
Prepaid expenses 34 (1,765)
Other assets 3,912 101
Trade accounts payable (11,433) 338
Accrued and non-current liabilities (12,683) (7,087)
---------- ----------
Net cash (used in) provided by operating activities of continuing operations (2,482) 35,694
---------- ----------
INVESTING ACTIVITIES:
Sale (purchase) of marketable securities, net 1,221 (1,240)
Capital expenditures (3,623) (3,966)
Proceeds from sale of businesses 15,950 -
Net assets held for sale 1,990 4,267
---------- ----------
Net cash provided by (used in) investing activities of continuing operations 15,538 (939)
---------- ----------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit agreements (188,150) (143,100)
Net borrowings under revolving line-of-credit agreements 176,196 99,583
Repayment of debt (1,675) (2,798)
Deferred financing costs incurred (7,565) (489)
Dividends paid - (2,016)
Other 444 510
---------- ----------
Net cash used in financing activities of continuing operations (20,750) (48,310)
Effect of exchange rate changes on cash (9) (104)
---------- ----------
Net cash used in continuing operations (7,703) (13,659)
Cash provided by (used in) discontinued operations 504 (356)
---------- ----------
Net decrease in cash and cash equivalents (7,199) (14,015)
Cash and cash equivalents at beginning of period 13,068 14,015
---------- ----------
Cash and cash equivalents at end of period $ 5,869 $ -
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
COLUMBUS MCKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 29, DECEMBER 30, DECEMBER 29, DECEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----
(IN THOUSANDS)
Net loss $ (2,473) $ (92) $ (5,959) $ (6,085)
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 2,452 (1,399) 6,559 493
Unrealized gain (loss) on derivatives
qualifying as hedges 145 (22) 48 (594)
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising
during the period 191 1,080 (2,244) (224)
Reclassification adjustment for
losses (gains) included in net income 1,888 235 (67) 650
---------- ---------- ---------- ----------
2,079 1,315 (2,311) 426
---------- ---------- ---------- ----------
Total other comprehensive income (loss) 4,676 (106) 4,296 325
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 2,203 $ (198) $ (1,663) $ (5,760)
========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
COLUMBUS MCKINNON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 29, 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 December 29, 2002, and the results of its
operations and its cash flows for the three and nine-month periods ended
December 29, 2002 and December 30, 2001, have been included. Results for
the period ended December 29, 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 Columbus McKinnon Corporation 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:
DECEMBER 29, MARCH 31,
2002 2002
---------- ----------
(IN THOUSANDS)
At cost - FIFO basis:
Raw materials...................... $ 46,732 $ 48,477
Work-in-process.................... 17,461 13,735
Finished goods..................... 34,620 34,417
---------- ----------
98,813 96,629
LIFO cost less than FIFO cost........... (7,437) (6,973)
---------- ----------
Net inventories ...................... $ 91,376 $ 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 $77,487,000 and $69,417,000 of
accumulated depreciation at December 29, 2002 and March 31, 2002,
respectively.
- 6 -
4. 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 their 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.
Under SFAS No. 142, goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. The fair value
of a reporting unit is determined using a discounted cash flow methodology.
The Company's reporting units are determined based upon whether discrete
financial information is available and regularly reviewed, whether those
units constitute a business, and the extent of economic similarities
between those reporting units for purposes of aggregation. As a result of
this analysis, the reporting units identified under SFAS No. 142 were at
the component level, or one level below the reporting segment level as
defined under SFAS No. 131. The Products and Solutions segments were each
further subdivided into three reporting units.
The Company completed its transitional goodwill impairment test for SFAS
No. 142 during the quarter ended September 29, 2002. Related to the
adoption of SFAS No. 142, the Company recorded a one-time, noncash charge
of $8,000,000 to reduce the carrying value of its goodwill as of April 1,
2002. Such charge is reflected as a cumulative effect of an accounting
change in the accompanying consolidated statement of operations. The
impairment charge was related to the Cranebuilder reporting unit in the
Products segment and the Univeyor reporting unit in the Solutions segment.
Upon finalization of the transitional goodwill impairment test, goodwill
was reallocated amongst reporting units. The Company will perform its
annual impairment review during the fourth quarter of each year commencing
in the fourth quarter of Fiscal 2003. The Company would record any future
impairment charges as a component of operating income.
Based on the continued recession in the industrial economy as well as the
decline in the current market capitalization of Columbus McKinnon as
implied by the Company's stock price, management believes that it is
possible that a significant goodwill impairment has occurred as of December
29, 2002. At this time, management is unable to reasonably estimate the
magnitude of such impairment. The factors that will affect the magnitude of
the potential impairment include management's assessment of future
operating performance of the Company and management's determination of the
appropriate discount rate as reflective of the premium for equity risk
associated with Columbus McKinnon Corporation. Any impairment would be
non-cash in nature and, therefore, is not expected to affect the Company's
liquidity or result in non-compliance with any debt covenants, including
minimum net worth.
A summary of changes in goodwill during the first nine months of Fiscal
2003 by business segment is as follows:
MARCH 31, RECLASSIFICATIONS DECEMBER 29,
2002 AND TRANSLATION IMPAIRMENTS 2002
---- ------------ ------------ ----
(IN THOUSANDS)
Products $ 165,295 $ 25,081 $ (1,930) $ 188,446
Solutions 30,360 (23,139) (6,070) 1,151
------------ ------------ ------------ ------------
Total $ 195,655 $ 1,942 $ (8,000) $ 189,597
============ ============ ============ ============
As of December 29, 2002, the gross balance of deferred financing costs is
$10,525,000 and accumulated amortization is $2,048,000. Other intangibles
have a net value of $1,229,000.
During the fiscal 2003 third quarter, the Company incurred approximately
$5.9 million of deferred financing costs related to its new credit
facility. Also during the third quarter, the Company wrote off
approximately $1.2 million of deferred costs related to the old credit
facility and recorded that charge as interest and debt expense.
No reclassification of identifiable intangible assets apart from goodwill
was necessary as a result of adoption of SFAS No. 142.
- 7 -
The following table presents the consolidated results of operations
adjusted as though the adoption of SFAS No. 142 occurred as of April 1,
2001.
NINE MONTHS ENDED
-----------------
DECEMBER 29, DECEMBER 30,
2002 2001
---- ----
(IN THOUSANDS)
Reported income (loss) from continuing operations $ 2,041 $ (1,307)
Goodwill amortization add-back, net of tax - 7,648
-------- --------
Adjusted income from continuing operations $ 2,041 $ 6,341
======== ========
Reported income (loss) from continuing operations
per share - basic and diluted $ 0.14 $ (0.09)
Goodwill amortization add-back - 0.53
-------- --------
Adjusted income from continuing operations
per share - basic and diluted $ 0.14 $ 0.44
======== ========
Amortization expense is estimated to be $4,000,000 for fiscal 2003
including $525,000 of amortization reflected on the amortization of
intangibles line and $3,475,000 of amortization of deferred financing costs
shown on the interest and debt expense line on the financial statements.
Amortization expense is estimated to be $2,365,000 for each of the four
succeeding fiscal years thereafter including $500,000 of amortization
reflected on the amortization of intangibles line and $1,865,000 of
amortization of deferred financing costs shown on the interest and debt
expense line on the financial statements.
Goodwill and other intangibles is net of $54,814,000 and $58,343,000 of
accumulated amortization at December 29, 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. On November 27, 2002, the Company refinanced its existing credit facility.
The new credit facility consists of a $100 million senior secured credit
facility and a $70 million Senior Second Secured Term Loan. The senior
secured credit facility is comprised of a $67 million Revolving Credit
Facility and a $33 million Term Loan. The Revolving Credit Facility
provides availability up to $67 million and is due March 31, 2007. Maximum
availability, as based on the underlying collateral, at December 29, 2002
amounted to $55.7 million which is reduced by outstanding borrowings of
$30.9 million, outstanding letters of credit of $7.9 and other reserve
holdbacks of $2.5 leaving actual availability at $14.4 million. Interest is
payable at varying Eurodollar rates based on LIBOR or prime plus a spread
determined by the Company's leverage ratio amounting to 275 or 150 basis
points at December 29, 2002, respectively. The Revolving Credit Facility is
secured by all inventory, receivables, subsidiary stock (limited to 65% for
foreign subsidiaries) and intellectual property. The Term Loan amounting to
$33 million amortizes quarterly over a seven-year amortization period
beginning on April 1, 2003 and matures on March 31, 2007. Interest is
payable at varying Eurodollar rates based on LIBOR plus a spread determined
by the Company's leverage ratio amounting to 325 basis points at December
29, 2002. The Term Loan is secured by all equipment and real property. The
Senior Second Secured Term Loan amounting to $70 million is due in May 2007
($60 million) and November 2007 ($10 million), has no scheduled
amortization, and is prepayable at the Company's option without penalty.
Interest is payable at 11.5% in the first year and increases annually for
the three succeeding years at a rate of 0.5% per year. In addition, payment
in kind interest is also due annually at a rate of 1.25%. The Senior Second
Secured Term Loan is secured by a secondary interest in all inventory,
receivables, equipment and real property, subsidiary stock (limited to 65%
for foreign subsidiaries), and intellectual property. The credit facility
places certain debt covenant restrictions on the Company including certain
financial requirements and a restriction on dividend payments.
- 8 -
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 an increase to
other comprehensive income of $145,000 for the quarter ended December 29,
2002 versus a decrease to other comprehensive income of $22,000 for the
quarter ended December 30, 2001. For the nine-month periods ended December
29, 2002 and December 30, 2001, the net impact of the derivative instrument
was an increase to other comprehensive income of $48,000 versus a decrease
to other comprehensive income of $594,000, respectively. The fair value of
the derivative at December 29, 2002 was a $626,000 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 $145,000,000 based on quoted market prices, which is less than its
carrying amount of $199,721,000.
7. The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 29, DECEMBER 30, DECEMBER 29, DECEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----
(IN THOUSANDS)
Numerator for basic and diluted earnings per share:
Net loss $ (2,473) $ (92) $ (5,959) $ (6,085)
======== ======== ======== ========
Denominators:
Weighted-average common stock outstanding -
denominator for basic EPS 14,502 14,423 14,489 14,407
Effect of dilutive employee stock options - - - -
-------- -------- -------- --------
Adjusted weighted-average common stock
outstanding and assumed conversions -
denominator for diluted EPS 14,502 14,423 14,489 14,407
======== ======== ======== ========
8. Income tax expense for the three and nine-month periods ended December 29,
2002 varies from the customary relationship between income tax (benefit)
expense and (loss) income before income taxes due to jurisdictional mix.
Income tax expense for the three and nine-month periods ended December 30,
2001 exceeds the customary relationship between income tax expense and
income (loss) before income taxes due to nondeductible amortization of
goodwill of $2,406,000 and $7,125,000, respectively.
- 9 -
9. 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 in 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.
Segment information as of and for the nine months ended December 29, 2002
and December 30, 2001, is as follows:
NINE MONTHS ENDED DECEMBER 29, 2002
-----------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
(IN THOUSANDS)
Sales to external customers...................... $ 286,295 $ 48,218 $ 334,513
Operating income before amortization
and restructuring charges..................... 26,531 730 27,261
Depreciation and amortization.................... 7,701 769 8,470
Total assets..................................... 418,988 67,556 486,554
Capital expenditures............................. 2,959 664 3,623
NINE MONTHS ENDED DECEMBER 30, 2001
-----------------------------------
PRODUCTS SOLUTIONS TOTAL
----------- ----------- -----------
(IN THOUSANDS)
Sales to external customers...................... $ 308,359 $ 57,191 $ 365,550
Operating income before amortization
and restructuring charges..................... 41,566 1,334 42,900
Depreciation and amortization.................... 15,276 2,259 17,535
Total assets..................................... 433,864 68,910 502,774
Capital expenditures............................. 3,229 737 3,966
The following schedule provides a reconciliation of operating income before
amortization with (loss) income before income taxes:
NINE MONTHS ENDED
-----------------
DECEMBER 29, DECEMBER 30,
2002 2001
---- ----
(IN THOUSANDS)
Operating income before amortization............................. $ 27,261 $ 42,900
Restructuring charges............................................ (840) (9,561)
Amortization of intangibles...................................... (400) (8,284)
Interest and debt expense........................................ (23,371) (22,979)
Interest income and other (expense) income....................... 1,319 (159)
----------- ----------
Income before income taxes....................................... $ 3,969 $ 1,917
=========== ==========
- 10 -
10. The summary financial information of the parent, domestic subsidiaries
(guarantors) and foreign subsidiaries (nonguarantors of the 8.5% senior
subordinated notes) follows:
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------------
AS OF DECEMBER 29, 2002
Current assets:
Cash and cash equivalents $ 2,169 $ (935) $ 4,635 $ - $ 5,869
Trade accounts receivable 54,254 2,916 25,339 - 82,509
Inventories 43,674 20,854 27,820 (972) 91,376
Net assets held for sale 2,300 - - - 2,300
Other current assets 6,594 (1,411) 5,094 - 10,277
------------------------------------------------------------------
Total current assets 108,991 21,424 62,888 (972) 192,331
Property, plant, and equipment, net 32,768 16,648 18,021 - 67,437
Goodwill and other intangibles, net 40,562 119,117 39,624 - 199,303
Intercompany 102,315 (130,273) (41,254) 69,212 -
Other assets 202,437 156,992 (1,569) (330,387) 27,473
------------------------------------------------------------------
Total assets $ 487,073 $ 183,908 $ 77,710 $ (262,147) $ 486,544
==================================================================
Current liabilities $ 27,130 $ 9,192 $ 25,025 $ (5,703) $ 55,644
Long-term debt, less current portion 314,100 - 16,860 - 330,960
Other non-current liabilities 14,769 11,252 3,529 - 29,550
------------------------------------------------------------------
Total liabilities 355,999 20,444 45,414 (5,703) 416,154
Shareholders' equity 131,074 163,464 32,296 (256,444) 70,390
------------------------------------------------------------------
Total liabilities and shareholders' equity $ 487,073 $ 183,908 $ 77,710 $ (262,147) $ 486,544
==================================================================
FOR THE NINE MONTHS ENDED DECEMBER 29, 2002
Net sales $ 171,014 $ 92,329 $ 84,995 $ (13,825) $ 334,513
Cost of products sold 126,770 76,306 64,737 (13,802) 254,011
------------------------------------------------------------------
Gross profit 44,244 16,023 20,258 (23) 80,502
------------------------------------------------------------------
Selling, general and administrative expenses 26,985 9,788 16,468 - 53,241
Restructuring charges - - 840 - 840
Amortization of intangibles 178 2 220 - 400
------------------------------------------------------------------
27,163 9,790 17,528 - 54,481
------------------------------------------------------------------
Income from operations 17,081 6,233 2,730 (23) 26,021
Interest and debt expense 22,839 122 410 - 23,371
Interest and other income 920 246 153 - 1,319
------------------------------------------------------------------
(Loss) income before income tax (benefit) expense (4,838) 6,357 2,473 (23) 3,969
Income tax (benefit) expense (1,141) 2,557 521 (9) 1,928
------------------------------------------------------------------
(Loss) income from continuing operations (3,697) 3,800 1,952 (14) 2,041
Income (loss) from discontinued operations 1,278 (1,278) - - -
Cumulative effect of accounting change - (1,930) (6,070) - (8,000)
------------------------------------------------------------------
Net (loss) income $ (2,419) $ 592 $ (4,118) $ (14) $ (5,959)
==================================================================
- 11 -
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 29, 2002
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 17,983 $ (5,721) $ (14,744) $ - $ (2,482)
------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net 1,221 - - - 1,221
Capital expenditures (1,427) (411) (1,785) - (3,623)
Proceeds from sale of business - 15,950 - - 15,950
Other - 1,990 - - 1,990
------------------------------------------------------------------
Net cash provided by (used in) investing
activities (206) 17,529 (1,785) - 15,538
------------------------------------------------------------------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit
agreements (176,530) (11,551) (69) - (188,150)
Net borrowings under revolving line-of-credit
agreements 160,196 - 16,000 - 176,196
Repayment of debt (535) - (1,140) - (1,675)
Deferred financing costs incurred (7,200) - (365) - (7,565)
Other 444 - - - 444
------------------------------------------------------------------
Net cash (used in) provided by financing
activities (23,625) (11,551) 14,426 - (20,750)
Effect of exchange rate changes on cash (7) 5 (7) - (9)
------------------------------------------------------------------
Net cash (used in) provided by continuing
operations (5,855) 262 (2,110) - (7,703)
Net cash provided by discontinued operations - 504 - - 504
------------------------------------------------------------------
Net change in cash and cash equivalents (5,855) 766 (2,110) - (7,199)
Cash and cash equivalents at beginning of period 8,024 (1,701) 6,745 - 13,068
------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,169 $ (935) $ 4,635 $ - $ 5,869
==================================================================
AS OF DECEMBER 30, 2001
Current assets:
Cash and cash equivalents $ (1,421) $ (1,418) $ 2,839 $ - $ -
Trade accounts receivable 53,141 9,740 23,126 - 86,007
Inventories 44,959 25,447 27,583 (975) 97,014
Net assets held for sale - 3 - - 3
Net current assets of discontinued operations - 34,112 - - 34,112
Other current assets 5,013 (1,730) 4,110 - 7,393
------------------------------------------------------------------
Total current assets 101,692 66,154 57,658 (975) 224,529
Property, plant, and equipment, net 33,802 21,320 17,238 - 72,360
Goodwill and other intangibles, net 37,041 122,838 44,932 - 204,811
Intercompany 131,637 (298,498) (58,648) 225,509 -
Net non-current assets of discontinued
operations - 112,664 - - 112,664
Other assets 226,372 160,753 (1,020) (350,919) 35,186
------------------------------------------------------------------
Total assets $ 530,544 $ 185,231 $ 60,160 $ (126,385) $ 649,550
==================================================================
Current liabilities $ 36,180 $ 13,552 $ 24,473 $ (4,553) $ 69,652
Long-term debt, less current portion 345,468 - 1,767 - 347,235
Other non-current liabilities 15,580 13,443 2,906 - 31,929
------------------------------------------------------------------
Total liabilities 397,228 26,995 29,146 (4,553) 448,816
Shareholders' equity 133,316 158,236 31,014 (121,832) 200,734
------------------------------------------------------------------
Total liabilities and shareholders' equity $ 530,544 $ 185,231 $ 60,160 $ (126,385) $ 649,550
==================================================================
- 12 -
Domestic Foreign Elimina- Consoli-
(In thousands) Parent Subsidiaries Subsidiaries tions dated
------------------------------------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 30, 2001
Net sales $ 165,613 $ 136,311 $ 79,610 $ (15,984) $ 365,550
Cost of products sold 118,926 108,228 59,788 (15,983) 270,959
------------------------------------------------------------------
Gross profit 46,687 28,083 19,822 (1) 94,591
------------------------------------------------------------------
Selling, general and administrative expenses 24,556 12,580 14,555 - 51,691
Restructuring charges 9,561 - - - 9,561
Amortization of intangibles 1,621 4,851 1,812 - 8,284
------------------------------------------------------------------
35,738 17,431 16,367 - 69,536
------------------------------------------------------------------
Income from operations 10,949 10,652 3,455 (1) 25,055
Interest and debt expense 22,576 - 403 - 22,979
Interest and other (expense) income (517) 170 188 - (159)
------------------------------------------------------------------
(Loss) income from continuing operations before
income tax (benefit) expense (12,144) 10,822 3,240 (1) 1,917
Income tax (benefit) expense (4,601) 6,135 1,690 - 3,224
------------------------------------------------------------------
(Loss) income from continuing operations (7,543) 4,687 1,550 (1) (1,307)
Loss from discontinued operations - (4,778) - - (4,778)
------------------------------------------------------------------
Net (loss) income $ (7,543) $ (91) $ 1,550 $ (1) $ (6,085)
==================================================================
FOR THE NINE MONTHS ENDED DECEMBER 30, 2001
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 51,475 $ (16,670) $ 1,822 $ (933) $ 35,694
------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities, net (1,240) - - - (1,240)
Capital expenditures (3,759) 866 (1,073) - (3,966)
Net assets held for sale - 4,267 - - 4,267
------------------------------------------------------------------
Net cash (used in) provided by investing
activities (4,999) 5,133 (1,073) - (939)
------------------------------------------------------------------
FINANCING ACTIVITIES:
Net payments under revolving line-of-credit
agreements (143,100) - - - (143,100)
Net borrowings under revolving line-of-credit
agreements 86,900 12,340 343 - 99,583
Repayment of debt (703) - (2,095) - (2,798)
Deferred financing costs incurred (489) - - - (489)
Dividends paid (2,016) - (933) 933 (2,016)
Other 510 - - - 510
------------------------------------------------------------------
Net cash (used in) provided by financing
activities (58,898) 12,340 (2,685) 933 (48,310)
Effect of exchange rate changes on cash (16) - (88) - (104)
------------------------------------------------------------------
Net cash (used in) provided by continuing
operations (12,438) 803 (2,024) - (13,659)
Net cash used in discontinued operations - (356) - - (356)
------------------------------------------------------------------
Net change in cash and cash equivalents (12,438) 447 (2,024) - (14,015)
Cash and cash equivalents at beginning of period 11,017 (1,865) 4,863 - 14,015
------------------------------------------------------------------
Cash and cash equivalents at end of period $ (1,421) $ (1,418) $ 2,839 $ - $ -
==================================================================
- 13 -
11. 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 December 29, 2002, this Statement has not had any
impact on the consolidated financial statements.
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" in June 2002. The statement nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The statement
changes the requirements for recognition of a liability for a cost
associated with an exit or disposal activity. Under EITF 94-3, a liability
for an exit cost as defined was recognized at the date of an entity's
commitment to an exit plan. Under SFAS No. 146, a liability for an exit
cost or disposal activity is recognized when the liability is incurred.
SFAS No. 144 is effective for exit or disposal activities that are
initiated after December 31, 2002. As of December 29, 2002, this Statement
has not had any impact on the consolidated financial statements. This
statement will result in the delay of recognition of certain restructuring
charges associated with the Company's reorganization plans.
- 14 -
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 AND NINE MONTHS ENDED DECEMBER 29, 2002 AND DECEMBER 30, 2001
Consolidated net sales and sales in the individual segments were as follows, in
thousands of dollars and with percentage changes for each group:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DEC. 29, DEC. 30, CHANGE DEC. 29, DEC. 30, CHANGE
2002 2001 AMOUNT % 2002 2001 AMOUNT %
---- ---- ------ - ---- ---- ------ -
(IN THOUSANDS, EXCEPT PERCENTAGES)
Products $ 91,477 $ 95,590 $ (4,113) (4.3) $ 286,295 $ 308,359 $ (22,064) (7.2)
Solutions 15,907 18,332 (2,425) (13.2) 48,218 57,191 (8,973) (15.7)
--------- --------- --------- --------- --------- ---------
Net sales $ 107,384 $ 113,922 $ (6,538) (5.7) $ 334,513 $ 365,550 $ (31,037) (8.5)
========= ========= ========= ========= ========= =========
Net sales in the fiscal 2003 quarter ended December 29, 2002 were $107,384, a
decrease of $6,538 or 5.7% from the fiscal 2002 quarter ended December 30, 2001.
Net sales for the nine months ended December 29, 2002 were $334,513, a decrease
of $31,037 or 8.5% from the nine months ended December 30, 2001. Sales in the
Products segment decreased by $4,113 or 4.3% from the previous year's quarter
and $22,064 or 7.2% for the nine months ended December 29, 2002 in comparison to
the prior year period due to continued softness in all industrial markets
(particularly domestically). Sales in the Solutions segment decreased 13.2% or
$2,425 for the quarter and 15.7% or $8,973 for the nine months ended December
29, 2002 when compared to the same periods in the prior year due to weak
industrial markets.
Gross profits and gross profit margins by operating segment were as follows, in
thousands of dollars:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DEC. 29, 2002 DEC. 30, 2001 DEC. 29, 2002 DEC. 30,2001
------------- ------------- ------------- ------------
$ % $ % $ % $ %
- - - - - - - -
(IN THOUSANDS, EXCEPT PERCENTAGES)
Products $ 24,285 26.5 $ 26,834 28.1 $ 73,383 25.6 $ 86,228 28.0
Solutions 2,014 12.7 3,090 16.9 7,119 14.8 8,363 14.6
--------- --------- --------- --------- ----
Total Gross Profit $ 26,299 24.5 $ 29,924 26.3 $ 80,502 24.1 $ 94,591 25.9
========= ========= ========= ========= ====
- 15 -
The decrease in all gross profit margins relative to the respective periods in
the prior year, with the exception of the nine-month period margin in the
Solutions segment, is the combined result of decreased volume and competitive
pricing pressure with limited ability to achieve widespread price increases. The
slight increase in gross profit margin in the nine-month period for the
Solutions segment is a function of ease in competitive pricing in overseas
markets and core business refocus in one domestic market.
Selling expenses were $12,033, $10,419, $35,018 and $32,469 in the fiscal 2003
and 2002 quarters and the nine-month periods then ended, respectively. As a
percentage of consolidated net sales, selling expenses were 11.2%, 9.1%, 10.5%,
and 8.9% in the fiscal 2003 and 2002 quarters and the nine-month periods then
ended, respectively. The increased selling expenses are the result of increased
commissions, foreign exchange rates, new sales offices for international
operations and inflation.
General and administrative expenses were $5,281, $6,476, $18,223 and $19,222 in
the fiscal 2003 and 2002 quarters and the nine-month periods then ended,
respectively. As a percentage of consolidated net sales, general and
administrative expenses were 4.9%, 5.7%, 5.4% and 5.3% in the fiscal 2003 and
2002 quarters and the nine-month periods then ended, respectively. The decrease
in the current quarter is the result of a reclassification of general and
administrative expense of crane builders to cost of products sold and a decrease
in product liability expense recorded by the Company's captive insurance
company. The nine-month period expense decrease is a result of the decrease from
the reclassification of general and administrative expense of crane builders to
cost of products sold being offset by an increase for consulting projects,
product liability expense, and inflation.
The Company incurred restructuring charges as a result of its strategic
integration process of $840 in November of 2002 related to the discontinuance of
production at its CM Ltd. manufacturing facility in Cobourg, Ontario, Canada;
$727 in September 2001 associated with the closure of the Lister Bolt and Chain
Division manufacturing facility in Richmond, British Columbia, Canada; and
$8,840 in June 2001 from the closure of the Forrest City, Arkansas plant. The
charges consist mainly of property resolution and employee separation costs.
Amortization of intangibles was $137, $2,742, $400 and $8,284 in the fiscal 2003
and 2002 quarters and the nine-month periods then ended, respectively. The
decrease in amortization in the current year periods is reflective of the
cessation of goodwill amortization in accordance with SFAS No. 142 beginning
April 1, 2002.
Interest and debt expense was $8,887, $6,798, $23,371 and $22,979 in the fiscal
2003 and 2002 quarters and the nine-month periods then ended, respectively. The
fiscal 2003 third quarter increase is the result of the write-off of $1.2
million in deferred financing costs related to the previous credit facility and
the increased borrowing rates associated with the new credit facility. As a
percentage of consolidated net sales, interest and debt expense was 8.3%, 6.0%,
7.0% and 6.3% in the fiscal 2003 and 2002 quarters and the nine-month periods
then ended, respectively.
Interest and other (expense) income was ($2,399), ($77), $1,319 and ($159) in
the fiscal 2003 and 2002 quarters and the nine-month periods then ended,
respectively. The decrease in the current quarter is the result of $1,172
realized loss on assets in the Company's captive insurance company and the
recognition of a pre-tax charge to earnings of $1,732 in accordance with FAS No.
115 to reduce the cost bases of certain equity securities since it was
determined that the unrealized losses on those securities was other than
temporary in nature. The nine-month period results for the current year are
reflective of a portfolio liquidation in April 2002 of assets in the Company's
captive insurance company at a gain of $3.5 million.
Income taxes as a percentage of (loss) income before income taxes were 24.6%,
63.6%, 48.6% and 168.2% in the fiscal 2003 and 2002 quarters and the nine-month
periods then ended, respectively. The percentages for fiscal 2003 vary from the
U.S. statutory rate due to jurisdictional mix. The percentages for fiscal 2002
differ from the U.S. statutory rate as a result of the effect of nondeductible
amortization of goodwill resulting from acquisitions.
- 16 -
LIQUIDITY AND CAPITAL RESOURCES
On November 27, 2002, the Company refinanced its existing credit facility. The
new credit facility consists of a $100 million senior secured credit facility
and a $70 million Senior Second Secured Term Loan. The senior secured credit
facility is comprised of a $67 million Revolving Credit Facility and a $33
million Term Loan. The Revolving Credit Facility provides availability up to $67
million and is due March 31, 2007. Maximum availability, as based on the
underlying collateral, at December 29, 2002 amounted to $55.7 million which is
reduced by outstanding borrowings of $30.9 million, outstanding letters of
credit of $7.9 and other reserve holdbacks of $2.5 leaving actual availability
at $14.4 million. Interest is payable at varying Eurodollar rates based on LIBOR
or prime plus a spread determined by the Company's leverage ratio amounting to
275 or 150 basis points at December 29, 2002, respectively. The Revolving Credit
Facility is secured by all inventory, receivables, subsidiary stock (limited to
65% for foreign subsidiaries) and intellectual property. The Term Loan amounting
to $33 million amortizes quarterly over a seven-year amortization period
beginning on April 1, 2003 and matures on March 31, 2007. Interest is payable at
varying Eurodollar rates based on LIBOR plus a spread determined by the
Company's leverage ratio amounting to 325 basis points at December 29, 2002. The
Term Loan is secured by all equipment and real property. The Senior Second
Secured Term Loan amounting to $70 million is due in May 2007 ($60 million) and
November 2007 ($10 million), has no scheduled amortization, and is prepayable at
the Company's option without penalty. Interest is payable at 11.5% in the first
year and increases annually for the three succeeding years at a rate of 0.5% per
year. In addition, payment in kind interest is also due annually at a rate of
1.25%. The Senior Second Secured Term Loan is secured by a secondary interest in
all inventory, receivables, equipment and real property, subsidiary stock
(limited to 65% for foreign subsidiaries), and intellectual property. The credit
facility places certain debt covenant restrictions on the Company including
certain financial requirements and a restriction on dividend payments.
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 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 believes that its cash on hand, cash flows, and borrowing capacity
under its revolving credit facility will be sufficient to fund its ongoing
operations and budgeted capital expenditures for at least the next twelve
months. This belief is dependent upon successful execution of the Company's
current business plan which is focused on cash generation for debt repayment.
The business plan includes continued implementation of lean manufacturing,
facility rationalization projects, divestiture of excess facilities, and
improving working capital components, including inventory reductions.
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 an increase to other
comprehensive income of $145,000 for the quarter ended December 29, 2002 versus
a decrease to other comprehensive income of $22,000 for the quarter ended
December 30, 2001. For the nine-month periods ended December 29, 2002 and
December 30, 2001, the net impact of the derivative instrument was an increase
to other comprehensive income of $48,000 versus a decrease to other
comprehensive income of $594,000, respectively. The fair value of the derivative
at December 29, 2002 was a $626,000 liability.
- 17 -
Net cash used in operating activities was $2,482 for the nine months ended
December 29, 2002 compared to net cash provided by operating activities of
$35,694 for the nine months ended December 30, 2001. The difference of $38,176
is due to the decline in operating performance in the current year and changes
in net working capital components particularly accounts receivable, inventories,
accounts payable, and accrued liabilities.
Net cash provided by investing activities was $15,538 for the nine months ended
December 29, 2002 compared to net cash used in investing activities of $939 for
the nine months ended December 30, 2001 with the difference primarily the result
of the proceeds from the sale of ASI.
Net cash used in financing activities was $20,750 for the nine months ended
December 29, 2002 compared to $48,310 for the nine months ended December 30,
2001. The $27,560 change is the result of debt payments made from funds freed
from working capital during the first nine months of fiscal 2002 and excess cash
on hand at the beginning of fiscal 2002.
CAPITAL EXPENDITURES
In addition to keeping its current equipment and plants properly maintained, the
Company is committed to replacing, enhancing, and upgrading its property, plant,
and equipment to reduce production costs, increase flexibility to respond
effectively to market fluctuations and changes, meet environmental requirements,
enhance safety, and promote ergonomically correct work stations. Consolidated
capital expenditures for the nine months ended December 29, 2002 and December
30, 2001 were $3,623 and $3,966, respectively.
FOREIGN EXCHANGE, INFLATION, AND OTHER MARKET CONDITIONS
The Company's international operations account for about ten to twenty percent
of our annual business segment operating profit. Operating in international
markets involves exposure to movements in foreign exchange rates, primarily the
euro, Canadian dollar and Danish Krone, which principally impacts the
translation of our international operating profit into U.S. dollars. The Company
does not enter into derivative instruments to reduce the effect of foreign
exchange rate changes. 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 primary component of inflation
impacting current operations consists of increasing personnel costs associated
with fringe benefits in the U.S. The impact of inflation has been further
compounded by the Company's limited ability to achieve widespread price
increases as a result of the competitive environment in which the Company
operates. 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 to customers.
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, 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
The 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, which is effective for the Company's
fiscal year beginning April 1, 2003, may be adopted as of April 1, 2002. We are
currently assessing the Statement and the impact, if any, that adoption will
have on our consolidated financial statements.
- 18 -
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, does change 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 December 29, 2002, this
Statement has not had any impact on the consolidated financial statements.
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" in June 2002. The statement nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The statement changes the requirements for
recognition of a liability for a cost associated with an exit or disposal
activity. Under EITF 94-3, a liability for an exit cost as defined was
recognized at the date of an entity's commitment to an exit plan. Under SFAS No.
146, a liability for an exit cost or disposal activity is recognized when the
liability is incurred. SFAS No. 144 is effective for exit or disposal activities
that are initiated after December 31, 2002. As of December 29, 2002, this
Statement has not had any impact on the consolidated financial statements. This
statement will result in the delay of recognition of certain restructuring
charges associated with the Company's reorganization plans.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the reported market risks since the end
of Fiscal 2002.
Item 4. Disclosure Controls and Procedures
As of December 29, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management including the chief executive
officer and chief financial officer of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management including the chief executive officer and
chief financial officer concluded that the Company's disclosure controls and
procedures were effective as of December 29, 2002. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to December 29, 2002.
- 19 -
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 10.1 Amendment No. 5 to the 1998 Plan Restatement of the
Columbus McKinnon Corporation Thrift 401(k) Plan,
dated December 20, 2002.
Exhibit 10.2 Amendment No. 4 to the 1998 Plan Restatement of the
Columbus McKinnon Corporation Monthly Retirement
Benefit Plan, dated December 20, 2002.
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
On December 3, 2002, the Company filed a Current Report on Form 8-K
with respect to its new senior secured credit facility and senior
second secured term loan.
- 20 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS MCKINNON CORPORATION
---------------------------------
(Registrant)
Date: FEBRUARY 12, 2003 /S/ ROBERT L. MONTGOMERY, JR.
------------------ --------------------------------
Robert L. Montgomery, Jr.
Executive Vice President and
Chief Financial Officer (Principal
Financial Officer)
- 21 -
CERTIFICATION
I, Timothy T. Tevens, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Columbus
McKinnon Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/S/ TIMOTHY T. TEVENS
- ------------------------
Timothy T. Tevens
Chief Executive Officer
CERTIFICATION
I, Robert L. Montgomery, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Columbus
McKinnon Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/S/ ROBERT L. MONTGOMERY
- ------------------------
Robert L. Montgomery
Chief Financial Officer