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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
COMMISSION FILE NUMBER 0-27618
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COLUMBUS MCKINNON CORPORATION
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(Exact name of Registrant as specified in its charter)
NEW YORK 16-0547600
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(State of Incorporation) (I.R.S. Employer Identification Number)
140 JOHN JAMES AUDUBON PARKWAY
AMHERST, NEW YORK 14228-1197
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(Address of principal executive offices, including zip code)
(716) 689-5400
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(Registrant's telephone number, including area code)
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Securities pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE (AND RIGHTS ATTACHED THERETO)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No[X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 30, 2003 was $55,947,637, based upon the closing
price of the Company's common shares as quoted on the Nasdaq Stock Market on
such date. The number of shares of the Registrant's common stock outstanding as
of May 31, 2004 was 14,896,172 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its 2004 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the Registrant's fiscal
year ended March 31, 2004 are incorporated by reference into Part III of this
report.
COLUMBUS MCKINNON CORPORATION
2004 ANNUAL REPORT ON FORM 10-K
This annual report contains "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 our
actual results to differ materially from the results expressed or implied by
such statements, including general economic and business conditions, conditions
affecting the industries served by us and our subsidiaries, conditions affecting
our customers and suppliers, competitor responses to our products and services,
the overall market acceptance of such products and services, the integration of
acquisitions and other factors set forth herein under "Management's Discussion
and Analysis of Results of Operations and Financial Condition - Factors
Affecting Our Operating Results." We use words like "will," "may," "should,"
"plan," "believe," "expect," "anticipate," "intend," "future" and other similar
expressions to identify forward looking statements. These forward looking
statements speak only as of their respective dates and we do not undertake and
specifically decline 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 changes. Our actual operating
results could differ materially from those predicted in these forward-looking
statements, and any other events anticipated in the forward-looking statements
may not actually occur.
PART I
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ITEM 1. BUSINESS.
GENERAL
We are a leading manufacturer and marketer of hoists, cranes, chain,
conveyors, material handling systems, lift tables and component parts serving a
wide variety of commercial and industrial end markets. Our products are used to
efficiently and ergonomically move, lift, position or secure objects and loads.
We are the domestic market leader in hoists, our principal line of products,
which we believe provides us with a strategic advantage in selling our other
products. We have achieved this leadership position through strategic
acquisitions, our extensive and well-established distribution channels and our
commitment to product innovation and quality. We have one of the most
comprehensive product offerings in the industry and we believe we have more
overhead hoists in use in North America than all of our competitors combined.
Our brand names, including CM, Coffing, Duff-Norton, Shaw-Box and Yale, are
among the most recognized and well-respected in our marketplace.
THE BUILDING OF OUR BUSINESS
Founded in 1875, we have grown to our current leadership position through
organic growth and also as the result of the 14 businesses we acquired since
February 1994. We have developed our leading market position over our 125-year
history by emphasizing technological innovation, manufacturing excellence and
superior after-sale service. In addition, the acquisitions significantly
broadened our product lines and services and expanded our geographic, end-user
markets and our customer base. Our senior management has substantial experience
in the acquisition and integration of businesses, aggressive cost management,
efficient manufacturing techniques and global operations, all of which are
critical to our long-term growth strategy. We have a proven track record of
acquiring complementary businesses and product lines, integrating their
activities into our organization, and aggressively managing their cost
structures to improve operating efficiencies. The history of our Products and
Solutions acquisitions since 1994 is outlined below (purchase price in
millions):
1
DATE OF
ACQUISITION ACQUIRED COMPANY PURCHASE PRICE PRODUCTS/SERVICES
- ------------- --------------------------- -------------- -----------------
April 1999 Washington Equipment Company $ 6.4 Overhead cranes
March 1999 GL International (1) 20.6 Overhead cranes
January 1999 Camlok/Tigrip 10.6 Plate clamps, crane scales
December 1998 Gautier 2.9 Rotary unions, swivel joints
August 1998 Abell-Howe Crane 7.0 Overhead cranes
March 1998 ASI (2) 155.0 Design and manufacture of custom
conveyor systems
January 1998 Univeyor 15.0 Design and manufacture of powered
roller conveyor systems
December 1996 Lister (4) 7.0 Cement kiln chain
October 1996 Yale (3) 270.0 Hoists, scissor lift tables,
actuators, jacks and rotary unions
November 1995 Lift-Tech 63.0 Hoists
October 1995 Endor 2.0 Hoists
January 1995 Cady Lifters 0.8 Below-the-hook lifters
December 1994 Conco 0.8 Operator controlled manipulators
February 1994 Durbin-Durco 2.4 Load securing equipment and attachments
- ----------------------
(1) In January 2002, we sold Handling Systems & Conveyors, Inc., a subsidiary of
GL International.
(2) In May 2002, we sold substantially all of the assets of Automatic Systems,
Inc. ("ASI") and in March 2003, we sold LICO Steel, Inc., a subsidiary of
Audubon West, formerly ASI.
(3) In August 1998, we sold the Mechanical Products division of Yale.
(4) In February 2004, we sold the assets of the Lister Chain & Forge division.
OUR POSITION IN THE INDUSTRY
The U.S. material handling industry is generally divided into the following
sectors:
o overhead material handling and lifting devices;
o continuous materials movement;
o wheeled handling devices;
o pallets, containers and packaging;
o storage equipment and shop furniture;
o automation systems and robots; and
o services and unbundled software.
The breadth of our products and services enables us to participate in each of
these sectors, except for pallets, containers and packaging and storage
equipment and shop furniture. This diversification, together with our extensive
and varied distribution channels, minimizes our dependence on any particular
product, market or customer. We believe that none of our competitors offers the
variety of products or services in the markets we serve.
We believe that the demand for our products and services will increase in the
future as a result of several favorable trends. These trends include:
o PRODUCTIVITY ENHANCEMENT. In recent years, employers have responded to
competitive pressures by seeking to maximize productivity and efficiency. Our
hoists and other lifting and positioning products allow loads to be lifted and
placed quickly, precisely, with little effort and fewer people, thereby
increasing productivity and reducing cycle time.
o SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace
safety regulations such as the Occupational Safety and Health Act and the
Americans with Disabilities Act, and by the general competitive need to reduce
costs such as health insurance premiums and workers' compensation expenses,
employers seek safer ways to lift and position loads. Our lifting and
positioning products enable these tasks to be performed with reduced risk of
personal injury.
2
o CONSOLIDATION OF SUPPLIERS. In an effort to reduce costs and increase
productivity, our customers and end-users are increasingly consolidating their
suppliers. We believe that our competitive strengths will enable us to benefit
from this consolidation and enhance our market share.
OUR COMPETITIVE STRENGTHS
o COMPREHENSIVE PRODUCT LINE AND STRONG BRAND NAME RECOGNITION. We believe
we offer the most comprehensive product lines in the markets we serve. The
breadth of product lines enables us to provide a "one-stop shop" to many of our
distributors who are looking to consolidate their suppliers. In addition, our
brand names, including Budgit, Chester, CM, Coffing, Duff-Norton, Little Mule,
Shaw-Box and Yale, are among the most recognized and respected in the industry.
We believe that our strong brand name recognition has created customer loyalty
and helps us maintain existing business, as well as capture additional business.
o LEADING MARKET POSITION AND REPUTATION. We are the largest manufacturer
of hoists and alloy and high strength carbon steel chain in North America. We
have developed our leading market position over our 125-year history by
emphasizing technological innovation, manufacturing excellence and superior
after-sale service. Over 65% of our domestic net sales in fiscal 2004 were from
product categories in which we believe we hold the leading market share. We
believe that the strength of our established products and brands and our leading
market position provide us with significant competitive advantages, including
preferred supplier status with a majority of our largest customers. Our large
installed base of products also provides us with a significant competitive
advantage in selling our products to existing customers as well as providing
repair and replacement parts.
o LOW-COST MANUFACTURING CAPABILITY. We believe we are a low-cost
manufacturer and we will continue to consolidate our manufacturing operations
and reduce our manufacturing costs through the following initiatives:
- RATIONALIZATION AND CONSOLIDATION. In fiscal 2002 through fiscal
2004, we conducted projects to close manufacturing plants and
warehouses, as more fully described in Our Strategy on the next
page of this document.
- LEAN MANUFACTURING. In fiscal 2002, we initiated Lean
Manufacturing techniques, facilitating substantial inventory
reductions, a significant decline in required manufacturing floor
area, decreased product lead time and improved productivity.
- PURCHASING COUNCIL. We continue to leverage our company-wide
purchasing power through our Purchasing Council to reduce our
costs.
- SELECTIVE VERTICAL INTEGRATION. We manufacture many of the
critical parts and components used in our manufacture of hoists
and cranes, resulting in reduced costs.
- INTERNATIONAL EXPANSION. Our continued expansion of our
manufacturing facilities in China and Mexico, along with opening
additional sales offices in Europe, South America and the Far
East, provides us with another cost efficient platform to
manufacture and distribute certain of our products.
o DISTRIBUTION CHANNEL DIVERSITY AND STRENGTH. Our products are sold to
over 20,000 general and specialty distributors and OEMs, as well as to over 100
consumer outlets. We enjoy long-standing relationships with, and are a preferred
provider to, the majority of our largest distributors and industrial buying
groups. Over the past decade, there has been significant consolidation among
distributors of material handling equipment. We have benefited from this
consolidation and have maintained and enhanced our relationships with our
leading distributors, as well as formed new relationships. We believe our
extensive North American distribution channels provide a significant competitive
advantage and allow us to effectively market new product line extensions and
promote cross-selling.
o STRONG AFTER-MARKET SALES AND SUPPORT. We believe that we retain
customers and attract new customers due to our ongoing commitment to customer
service and satisfaction. We have a large installed base of hoists and chain
that drives our after-market sales for components and repair parts and is a
stable source of higher margin business. We maintain strong relationships with
our customers and provide prompt aftermarket service to end-users of our
products through our authorized network of 13 chain repair stations and over 350
hoist service and repair stations.
o EXPERIENCED MANAGEMENT TEAM. Our senior management team provides a depth
and continuity of experience in the material handling industry, with our top six
executives possessing an average of approximately 15 years of experience with
3
us. Our management has experience in aggressive cost management, balance sheet
management, efficient manufacturing techniques, acquiring and integrating
businesses and global operations, all of which are critical to our long-term
growth.
OUR STRATEGY
o REDUCE OUR OPERATING COSTS. Our objective is to remain a low-cost
producer. We continuously seek ways to reduce our operating costs and increase
our manufacturing productivity. In furtherance of this objective, we have
undertaken the following:
- RATIONALIZATION OF FACILITIES. Consolidating acquired operations
is an integral part of our acquisition strategy. In fiscal 2002
through fiscal 2004, we conducted projects to close ten
manufacturing plants and three warehouses, consolidate a number
of similar product lines and standardize certain component parts.
All of those projects are complete and properties relating to
those closures have been sold or are currently in the process of
being marketed.
- IMPLEMENTATION OF LEAN MANUFACTURING. Through fiscal 2004, we
have instituted Lean Manufacturing at 15 of our major facilities,
an initiative which we began in fiscal 2002. Through fiscal 2004,
largely as a result of our Lean Manufacturing initiatives, we
recaptured approximately 164,000 square feet of manufacturing
floor area and consolidated an additional 920,000 square feet
from closed facilities. Additionally, we reduced inventories by
approximately $40 million, or 36.5%, improved productivity and
achieved significant reductions in product lead times.
Specifically in fiscal 2004, we improved inventory turns by 20%
to 5.3 times at March 31, 2004 from 4.4 times at March 31, 2003.
Our Lean Manufacturing initiative complements our strategy of
integrating and consolidating our manufacturing facilities.
- LEVERAGE PURCHASING POWER. The Columbus McKinnon Purchasing
Council was formed in fiscal 1998 to centralize and leverage our
overall purchasing power, which has grown through acquisitions
and has resulted in significant savings for our Company.
o INCREASE OUR DOMESTIC ORGANIC GROWTH. We intend to use our competitive
advantages to increase our domestic and international market share across all of
our product lines through the following initiatives:
- LEVERAGE STRONG COMPETITIVE POSITION. Our large diversified
customer base, our extensive distribution channels and our close
relationships with our distributors provide us with insights into
customer preferences and product requirements that allow us to
anticipate and address the future needs of end-users.
Additionally, we continue to implement our
CraneMart(TM)initiative launched in 1999 to build an integrated
North American network of independent and company-owned crane
builders. CraneMart(TM)participants purchase our products and
parts for incorporation in their products as well as for
distribution and are provided a full range of services, including
best pricing, parts distribution rights, technical support and
shared resources.
- INTRODUCE NEW PRODUCTS. We continue to expand our business by
developing new material handling products and services and expand
the breadth of our product lines to address customer needs. Over
the past three years, we developed over 100 new or cross-branded
products, representing approximately $35 million in fiscal 2004
revenues. During fiscal 2004, we established a dedicated hoist
new product development team. The majority of the hoist products
currently under development by this team are guided by the
standards established by the Federation of European
Manufacturers, or FEM. We believe these FEM hoist products will
facilitate our global sales expansion strategy as well as improve
our cost competitiveness against U.S. imports. Recent new product
introductions include:
o light-weight high speed industrial air hoists;
o a variety of new forged lifting attachments;
o global wire rope hoists used in overhead cranes;
o hand hoists and lever tools manufactured at our Chinese
plants; and
o top-running and underhung end-trucks used in the crane
builder industry.
o INCREASE OUR PENETRATION OF INTERNATIONAL MARKETS. Our international
sales of $158.6 million comprised 36% of our net sales in fiscal 2004, as
compared to $154.2 million, or 26% of our net sales in fiscal 1999. We sell to
distributors in approximately 50 countries and have our primary international
facilities in Canada, Mexico, Germany, the United Kingdom, Denmark, France and
China. In addition to new product introductions, we intend to increase
international sales and enhance margins by:
4
- EXPANDING OUR SALES AND SERVICE PRESENCE. We continue to expand
our sales and service presence in the major market areas of
Europe, Asia and South America through our sales offices and
warehouse facilities in Europe, Thailand, Brazil and Mexico.
- INCREASING SALES AND IMPROVING MARGINS. We intend to increase our
sales and improve our margins by manufacturing and exporting a
broader array of high quality, low-cost products and components
from our facilities in Mexico and China. We are developing new
hoist products in compliance with FEM standards to enhance our
global distribution and we have sales offices in Europe, South
America and the Far East.
o REDUCE OUR DEBT. We intend to continue our significant focus on cash
generation for debt reduction through the following initiatives:
- INCREASE OPERATING CASH FLOW. As a result of execution of our
strategies to reduce our operating costs, increase our domestic
organic growth and increase our penetration of international
markets, we believe that with an improved economic climate, we
will realize favorable operational leverage. We further believe
that such operational leverage will result in operating cash flow
available for debt reduction.
- REDUCE WORKING CAPITAL. We believe that our Lean Manufacturing
activities are facilitating inventory reduction, improving
product lead times and increasing our productivity. Since
initiating our Lean activities, we've reduced inventory by $39.8
million and improved turns from 3.8 times to 5.3 times, or 39.5%.
Specifically in fiscal 2004, we realized approximately 20%
improvement from 4.4 times at March 31, 2003.
- PURSUE SELECTED DIVESTITURES. Our strategy is to exit
non-strategic businesses that (i) are not integrated, either
operationally or through sales and marketing, with the rest of
our Company; (ii) have market channels and customers different
from the business of our core Products segment; or (iii) have
had, and are expected to continue to have, low returns on our
investment of financial and management resources. For example, in
fiscal 2004 and 2003, we sold our Positech, Lister Chain & Forge,
ASI and LICO Steel businesses after determining that they did not
meet our criteria for continuing investment. We periodically
review our businesses and are currently evaluating strategic
alternatives for certain of our businesses. In the aggregate,
these businesses generated fiscal 2004 sales and EBITDA of $82.4
million and $2.5 million, respectively. The proceeds from
divestitures will provide additional liquidity and improve the
flexibility of our capital structure.
OUR SEGMENTS
We currently report our operations in two business segments, Products and
Solutions.
Our Products segment designs, manufactures and distributes a broad range of
material handling products for various industrial applications and for consumer
use. Products in this segment include a wide variety of electric, lever, hand
and air-powered hoists; hoist trolleys; industrial crane systems such as bridge,
gantry and jib cranes; alloy, carbon steel and kiln chain; closed-die forged
attachments, such as hooks, shackles, logging tools and loadbinders; industrial
components, such as mechanical and electromechanical actuators, mechanical jacks
and rotary unions; and below-the-hook special purpose lifters. These products
are typically manufactured for stock or assembled to order from standard
components and are sold through a variety of commercial distributors and to
end-users. The end-users of our products are in manufacturing plants, power
utility facilities and warehouses. Some of our products have farming, mining and
logging applications, and we serve a niche market for the entertainment
industry. We also sell some of our products to the consumer market through a
variety of retailers and wholesalers. In February 2004, we divested our Lister
business which manufactured anchor and buoy chain primarily for the U.S.
government.
Our Solutions segment is engaged primarily in the design, fabrication and
installation of integrated workstation and facility-wide material handling
systems and in the design and manufacture of tire shredders. This segment also
included our Positech manipulator business and our LICO steel erection
operation, which were divested in February 2004 and March 2003, respectively.
The products and services of this segment are highly engineered, are typically
built to order and are primarily sold directly to end-users for specific
applications in a variety of industries.
Note 20 to our consolidated financial statements included elsewhere in this
annual report provides information related to our business segments in
accordance with generally accepted accounting principles in the United States.
Summary information concerning our business segments for fiscal 2002, 2003 and
2004 is set forth below.
5
FISCAL YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------
2002 2003 2004
---- ---- ----
(DOLLARS IN MILLIONS)
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ -----
NET SALES
Products......................... $404.7 84.3 $388.1 85.6 $394.2 88.7
Solutions........................ 75.3 15.7 65.2 14.4 50.4 11.3
---- ---- ---- ---- ---- ----
Total......................... $480.0 100.0 $453.3 100.0 $444.6 100.0
====== ===== ====== ===== ====== =====
% OF % OF % OF
SEGMENT SEGMENT SEGMENT
AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ -----
INCOME FROM OPERATIONS BEFORE
RESTRUCTURING CHARGES AND
AMORTIZATION
Products......................... $47.0 11.6 $33.6 8.7 $33.5 8.5
Solutions........................ 1.7 2.2 (0.3) (0.4) (2.0) (4.0)
--- --- ----- ----- ----- -----
Total......................... $48.7 10.1 $33.3 7.4 $31.5 7.1
===== ===== =====
PRODUCTS SEGMENT
PRODUCTS
Our Products segment primarily designs, manufactures and distributes a
broad range of material handling, lifting and positioning products for various
applications in industry and for consumer use and has total assets of
approximately $446.1 million as of March 31, 2004, of which $185.0 million is
goodwill. These products are typically manufactured for stock or assembled to
order from standard components and are sold through a variety of distributors.
Approximately 75% of our Products segment net sales is derived from the sale of
products that we sell at a unit price of less than $5,000. In fiscal 2004, net
sales of the Products segment were approximately $394.2 million or approximately
88.7% of our net sales, of which approximately $267.5 million, or 67.9%, were
domestic and $126.7 million, or 32.1%, were international. The following table
sets forth certain sales data for the products of our Products segment,
expressed as a percentage of net sales of this segment for fiscal 2003 and 2004:
FISCAL YEARS ENDED MARCH 31,
---------------------------------------------
2003 2004
---- ----
Hoists 52% 50%
Chain 16 16
Forged attachments 11 12
Industrial cranes 13 14
Industrial components 8 8
-- --
100% 100%
=== ===
o HOISTS. We manufacture a variety of electric chain hoists, electric
wire rope hoists, hand-operated hoists, lever tools and air-powered
balancers and hoists. Load capacities for our hoist product lines
generally range from one-eighth of a ton to 100 tons. These products
are sold under our Budgit, Chester, CM, Coffing, Little Mule,
Shaw-Box, Yale and other recognized trademarks. Our hoists are sold
for use in a variety of general industrial applications, as well as
for use in the construction, entertainment, power generation and other
markets. We also supply hoist trolleys, driven manually or by electric
motors, for the industrial, consumer and OEM markets.
We offer a line of custom-designed below-the-hook tooling, clamps,
textile strappings and pallet trucks. Below-the-hook tooling and
clamps are specialized lifting apparatus used in a variety of lifting
activities performed in conjunction with hoist and chain applications.
Textile strappings are below-the-hook attachments, frequently used in
conjunction with hoists. Pallet trucks are manual devices used for
across-the-floor material handling, frequently in warehouse settings.
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o CHAIN. We manufacture alloy and carbon steel chain for various
industrial and consumer applications. Federal regulations require the
use of alloy chain, which we first developed, for overhead lifting
applications because of its strength and wear characteristics. A line
of our alloy chain is sold under the Herc-Alloy brand name for use in
overhead lifting, pulling and restraining applications. In addition,
we also sell specialized load chain for use in hoists, as well as
three grades and multiple sizes of carbon steel welded-link chain for
various load securing and other non-overhead lifting applications. We
also manufacture kiln chain sold primarily to the cement manufacturing
market. We previously manufactured and sold anchor and buoy chain
through our Lister Chain & Forge division which was sold in February
2004.
o FORGED ATTACHMENTS. We produce a complete line of alloy and carbon
steel closed-die forged attachments, including hooks, shackles, hitch
pins and master links. These forged attachments are used in chain,
wire rope and textile rigging applications in a variety of industries,
including transportation, mining, construction, marine, logging,
petrochemical and agriculture.
In addition, we manufacture carbon steel forged and stamped products
such as loadbinders, logging tools and other securing devices, for
sale to the industrial, consumer and logging markets through
industrial distributors, hardware distributors, mass merchandiser
outlets and OEMs.
o INDUSTRIAL CRANES. We entered the crane manufacturing market through
our August 1998 acquisition of Abell-Howe, a Chicago-based regional
manufacturer of jib and overhead bridge cranes. Our March 1999
acquisition of GL International, which included the Gaffey and Larco
brands, and our April 1999 acquisition of Washington Equipment Company
established us as a significant participant in the crane building and
servicing markets. Crane builders represent a specialized distribution
channel for electric wire rope hoists and other crane components.
o INDUSTRIAL COMPONENTS. Through our Duff-Norton division, we design and
manufacture industrial components such as mechanical and
electromechanical actuators, mechanical jacks and rotary unions for
sale domestically and abroad. Actuators are linear motion devices used
in a variety of industries, including the paper, steel and aerospace
industries. Mechanical jacks are heavy duty lifting devices used in
the repair and maintenance of railroad equipment, locomotives and
industrial machinery. Rotary unions are devices that transfer a liquid
or gas from a fixed pipe or hose to a rotating drum, cylinder or other
device. These unions are unique in that they connect a moving or
rotating component of a machine to fixed plumbing without major
spillage or leakage. Rotary unions are used in a variety of industries
including pulp and paper, printing, textile and fabric manufacturing,
rubber and plastic.
SALES AND MARKETING
Our sales and marketing efforts in support of our Products segment consist
of the following programs:
o FACTORY-DIRECT FIELD SALES AND CUSTOMER SERVICE. We sell our products
through our direct sales forces of more than 125 salespersons and
through independent sales agents worldwide. Our sales are further
supported by our more than 230 company-trained customer service
correspondents and sales application engineers. We compensate our
sales force through a combination of base salary and a commission plan
based on top line sales and a pre-established sales quota.
o PRODUCT ADVERTISING. We promote our products by regular advertising in
leading trade journals as well as producing and distributing high
quality information catalogs. We support our product distribution by
running cooperative "pull-through" advertising in over 15 vertical
trade magazines and directories aimed toward theatrical,
international, consumer and crane builder markets. We run targeted
advertisements for chain, hoists, forged attachments, scissor lift
tables, actuators, hydraulic jacks, hardware programs, cranes and
light-rail systems.
o TRADE SHOW PARTICIPATION. Trade shows are central to the promotion of
our products, and we participate in more than 30 regional, national
and international trade shows each year. Shows in which we participate
range from global events held in Germany to local "markets" and "open
houses" organized by individual hardware and industrial distributors.
We also attend specialty shows for the entertainment, rental and
safety markets, as well as general purpose industrial and consumer
hardware shows. In fiscal 2004, we participated in trade shows in the
U.S., Canada, France, Mexico, Germany, England and Brazil.
o INDUSTRY ASSOCIATION MEMBERSHIP AND PARTICIPATION. As a recognized
industry leader, we have a long history of work and participation in a
variety of industry associations. Our management is directly involved
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at the officer and director levels of numerous industry associations
including the following: ISMA (Industrial Supply Manufacturers
Association), AWRF (Associated Wire Rope Fabricators), PTDA (Power
Transmission and Distributors Association), SCRA (Specialty Carriers
and Riggers Association), WSTDA (Web Sling and Tie Down Association),
MHI (Material Handling Institute), HMI (Hoist Manufacturers
Institute), CMAA (Crane Manufacturers Association of America), ESTA
(Entertainment Services and Technology Association), NACM (National
Association of Chain Manufacturers), AHMA (American Hardware
Manufacturers Association), ARA (American Rental Association) and IDA
(Industrial Distributors Association).
o PRODUCT STANDARDS AND SAFETY TRAINING CLASSES. We conduct on-site
training programs worldwide for distributors and end-users to promote
and reinforce the attributes of our products and their safe use and
operation in various material handling applications.
o WEB SITES. In addition to our main corporate web site at
www.cmworks.com, we currently sponsor an additional 25 brand specific
web sites and sell hand pallet trucks on one of these sites. Our web
site at www.cmindustrial.com currently includes electronic catalogs of
CM brand hoist and chain products and list prices. Current and
potential customers can browse through our diverse product offering or
search for specific products by name or classification code and obtain
technical product specifications. We continue to add additional
product catalogs, maintenance manuals, advertisements and customer
service information on our various web sites. Many of the web sites
allow distributors to search for personalized pricing information,
order status and product serial number data.
DISTRIBUTION AND MARKETS
The distribution channels for the Products segment include a variety of
commercial distributors. In addition, the Products segment sells overhead
bridge, jib and gantry cranes directly to end-users. We also sell to the
consumer market through wholesalers. The following summarizes our distribution
channels:
o GENERAL DISTRIBUTION CHANNELS. Our general distribution channels
consist of:
- Industrial distributors that serve local or regional industrial
markets and sell a variety of products for maintenance, repair,
operating and production, or MROP, applications through their own
direct sales force.
- Rigging shops that are distributors with expertise in rigging,
lifting, positioning and load securing. Most rigging shops
assemble and distribute chain, wire rope and synthetic slings and
distribute off-the-shelf hoists and attachments, chain slings and
other off-the-shelf products.
- Independent crane builders that design, build, install and
service overhead crane and light-rail systems for general
industry and also sell a wide variety of hoists and lifting
attachments. We sell electric wire rope hoists and chain hoists
as well as crane components, such as end trucks, trolleys, drives
and electrification systems to crane builders.
o CRANE END-USERS. We sell overhead bridge, jib and gantry cranes, parts
and service to end-users through our wholly owned crane builders
within the CraneMart(TM) network. Our wholly owned crane builders
(Abell-Howe, Gaffey, Larco and Washington Equipment) design,
manufacture, install and service a variety of cranes with capacities
up to 100 tons.
o SPECIALTY DISTRIBUTION CHANNELS. Our specialty distribution channels
consist of:
- Catalog houses that market a variety of MROP supplies, including
material handling products, either exclusively through large,
nationally distributed catalogs, or through a combination of
catalog and internet sales and a field sales force. More
recently, catalog houses, particularly W.W. Grainger, Inc., are
pursuing e-commerce through their web sites. The customer base
served by catalog houses, which traditionally included smaller
industrial companies and consumers, has grown to include large
industrial accounts and integrated suppliers.
- Material handling specialists and integrators that design and
assemble systems incorporating hoists, overhead rail systems,
trolleys, scissor lift tables, manipulators, air balancers, jib
arms and other material handling products to provide end-users
with solutions to their material handling problems.
- Entertainment equipment distributors that design, supply and
install a variety of material handling and rigging equipment for
concerts, theaters, ice shows, sports arenas, convention centers
and discos.
8
o SERVICE-AFTER-SALE DISTRIBUTION CHANNEL. Service-after-sale
distributors include our authorized network of 13 chain repair service
stations and over 350 hoist service and repair stations. This service
network is designed for easy parts and service access for our large
installed base of hoists and related equipment in North America.
o OEM/GOVERNMENT DISTRIBUTION CHANNELS. This channel consists of:
- OEMs that supply various component parts directly to other
industrial manufacturers as well as private branding and
packaging of our traditional products for material handling,
lifting, positioning and special purpose applications.
- Government agencies, including the United States and Canadian
Navies and Coast Guards, that purchase primarily load securing
chain and forged attachments.
o CONSUMER DISTRIBUTION. Consumer sales, consisting primarily of carbon
steel chain and assemblies, forged attachments and hand powered
hoists, are made through five distribution channels: two-step
wholesale hardware distribution; one-step distribution direct to
retail outlets; trucking and transportation distributors; farm
hardware distributors; and rental outlets.
o INTERNATIONAL DISTRIBUTION. We distribute virtually all of our
products in over 50 countries on six continents through a variety of
distribution channels.
CUSTOMER SERVICE AND TRAINING
We maintain customer service departments staffed by trained personnel for
all of our Products segment sales divisions, and regularly schedule product and
service training schools for all customer service representatives and field
sales personnel. Training programs for distribution and service station
personnel, as well as for end-users, are scheduled on a regular basis at most of
our facilities and in the field. We have more than 350 service and repair
stations worldwide that provide local and regional repair, warranty and general
service work for distributors and end-users. End-user trainees attending our
various programs include representatives of General Motors, DuPont, 3M, GTE,
Cummins Engine, General Electric and many other industrial and entertainment
organizations.
We also provide, in multiple languages, a variety of collateral material in
video, cassette, CD-ROM, slide and print format addressing relevant material
handling topics such as the care, use and inspection of chains and hoists, and
overhead lifting and positioning safety. In addition, we sponsor advisory boards
made up of representatives of our primary distributors and service-after-sale
network members who are invited to participate in discussions focused on
improving products and service. These boards enable us and our primary
distributors to exchange product and market information relevant to industry
trends.
BACKLOG
Our Products segment backlog of orders at March 31, 2004 was approximately
$45.3 million compared to approximately $41.7 million at March 31, 2003. The
March 31, 2003 backlog included $6.2 million relating to our Lister business,
which was divested in February 2004. Our orders for standard products are
generally shipped within one week. Orders for products that are manufactured to
customers' specifications are generally shipped within four to twelve weeks.
Given the short product lead times, we do not believe that the amount of our
Products segment backlog of orders is a reliable indication of our future sales.
COMPETITION
Despite recent consolidation, the material handling industry remains highly
fragmented. We face competition from a wide range of regional, national and
international manufacturers in both domestic and international markets. In
addition, we often compete with individual operating units of larger, highly
diversified companies.
The principal competitive factors affecting our Products segment include
product performance, functionality, price, brand, reputation, reliability and
availability, as well as customer service and support. Other important factors
include distributor relationships, territory coverage and the ability to service
the distributor with on-time delivery and repair services.
Major competitors with our Products segment for hoists are Demag,
Kito-Harrington, Ingersoll-Rand, KCI Konecranes and Morris Material Handling;
for chain are Campbell Chain, Peerless Chain Company and American Chain and
Cable Company; for forged attachments are The Crosby Group and Brewer Tichner
Company; for crane building are Demag, KCI Konecranes, Morris Material Handling,
R. Stahl and a variety of independent crane builders; and for industrial
components are Deublin, Joyce-Dayton and Nook Industries.
9
SOLUTIONS SEGMENT
The Solutions segment is engaged primarily in the design, fabrication and
installation of integrated work station and facility-wide material handling
systems and in the manufacture and distribution of operator-controlled
manipulators, lift tables and tire shredders and has total assets of
approximately $27.3 million as of March 31, 2004, of which none is goodwill. Net
sales of the Solutions segment in fiscal 2004 were approximately $50.4 million,
or approximately 11.3% of our total net sales, of which approximately $18.5
million, or 36.7%, were domestic and approximately $31.9 million, or 63.3% were
international. We are currently evaluating strategic alternatives for certain
businesses within this segment. The following table sets forth certain sales
data for the products and services of our Solutions segment, expressed as a
percentage of this segment's net sales for fiscal 2003 and 2004:
FISCAL YEARS ENDED MARCH 31,
----------------------------
2003 2004
---- ----
Integrated material handling
conveyor systems 50% 57%
Lift tables 13 15
Light-rail systems and manipulators 15 13
Steel erection 12 -
Other 10 15
-- -
100% 100%
==== ====
PRODUCTS AND SERVICES
o INTEGRATED MATERIAL HANDLING CONVEYOR SYSTEMS. Conveyors are an
important component of many material handling systems, reflecting
their high functionality for transporting material throughout
manufacturing and warehouse facilities. We specialize in designing
computer-controlled and automated powered roller conveyors for use in
warehouse operations and distribution systems. In fiscal 2002 and 2003
we executed a revenue growth strategy by developing our capabilities
to function as a turnkey integrator of material handling systems,
while continuing to provide the conveyors required for the systems.
o LIFT TABLES. Our American Lifts division manufactures powered lift
tables. These products enhance workplace ergonomics and are sold
primarily to customers in the manufacturing, construction, general
industrial and air cargo industries.
o LIGHT-RAIL SYSTEMS AND MANIPULATORS. Introduced in fiscal 2001,
light-rail systems are portable steel overhead beam configurations
used at workstations, from which hoists are frequently suspended. We
previously manufactured two lines of sophisticated operator-controlled
manipulators under the names Positech and Conco. These products are
articulated mechanical arms with specialized end tooling designed to
perform lifting, rotating, turning, tilting, reaching and positioning
tasks in a manufacturing process. That manipulator business, known as
our Positech division, was sold in February 2004.
SALES AND MARKETING
The products and services of the Solutions segment are sold primarily to
large sophisticated corporate end-users, including Federal Express, UPS, United
Biscuits, Lego, John Deere, Lowe's and other industrial companies, systems
integrators and distributors. In the sale of our integrated material handling
conveyor systems, we act as a prime contractor with turnkey responsibility or as
a supplier working closely with the customer's general contractor. Sales are
generated by internal sales personnel and rely heavily on engineer-to-engineer
interactions with the customer. The process of generating client contract awards
for integrated conveyor systems generally entails receiving a
request-for-quotation from customers and undergoing a competitive bidding
process. The Solutions segment also sells light-rail systems and scissor lift
tables through its internal sales force and through specialized independent
distributors and manufacturers representatives.
CUSTOMER SERVICE AND TRAINING
The Solutions segment offers a wide range of value-added services to
customers including: an engineering review of the customer's processes; an
engineering solution for identified material handling problems; project
management; and custom design, manufacturing and installation services. We also
offer after-sales services including operator training, maintenance and hot-line
support. The typical length of after-sales service varies depending on customer
requirements and supplemental training courses are offered as needed.
10
BACKLOG
Revenues from our Solutions segment are generally recognized within one to
six months. Our backlog of orders at March 31, 2004 was approximately $9.2
million compared to approximately $10.5 million at March 31, 2003. The March 31,
2003 backlog included $0.9 million relating to our Positech business, which was
divested in February 2004.
COMPETITION
The principal competitive factors affecting the market for the products and
services of our Solutions segment include application solutions, performance and
price. The process of generating client contract awards for these businesses
generally entails receiving a request-for-quotation from end-users and
undergoing a competitive bidding process. Our Solutions segment competes
primarily with Crisplant, Diafuku, Swisslog, Gorbel and Southworth.
EMPLOYEES
At March 31, 2004, we had 2,716 employees; 1,983 in the U.S., 126 in
Canada, 129 in Mexico and 478 in Europe and Asia. Approximately 670 of our
employees are represented under seven separate U.S. or Canadian collective
bargaining agreements which terminate at various times between July 2004 and
March 2008. The contract which expires July 2004 currently covers 11 associates.
We believe that our relationship with our employees is good.
RAW MATERIALS AND COMPONENTS
Our principal raw materials and components are steel, consisting of
structural steel, processed steel bar, forging bar steel, steel rod and wire,
steel pipe and tubing and tool steel; electric motors; bearings; gear reducers;
castings; and electro-mechanical components. These commodities are all available
from multiple sources. We purchase most of these raw materials and components
from a limited number of strategic and preferred suppliers under long-term
agreements which are negotiated on a company-wide basis through our Purchasing
Council to take advantage of volume discounts. As the steel industry is cyclical
and steel prices can fluctuate significantly, beginning in approximately January
2004 we have seen significant cost increases in certain types of steel in
certain markets. We generally seek to pass on materials price increases to our
distribution channel partners and end user customers, although a lag period
often exists. We instituted price increases for our chain and forged attachment
products effective April 1, 2004 and for the majority of our hoist products
effective May 1, 2004. In addition, we initiated price surcharges beginning
March 18, 2004 on certain products, and increased some of those and added price
surcharges to other products effective May 3, 2004. We will continue to monitor
our costs and reevaluate our price surcharges on a monthly basis. Our ability to
pass on these increases is determined by market conditions.
MANUFACTURING
We manufacture approximately 90% of the products we sell. Additionally, we
outsource components and finished goods from an established global network of
suppliers. We regularly upgrade our manufacturing facilities and invest in
tooling, equipment and technology. We have implemented Lean Manufacturing in our
plants which has resulted in inventory reductions, reductions in required
manufacturing floor area, shorter product lead time and increased productivity.
Our manufacturing operations are highly integrated. Although raw materials
and some components such as motors, bearings, gear reducers, castings and
electro-mechanical components, are purchased, our vertical integration enables
us to produce many of the components used in the manufacturing of our products.
We manufacture hoist lifting chain, steel forged gear blanks, lift wheels,
trolley wheels, and hooks and other attachments for incorporation into our hoist
products. These products are also sold as spare parts for hoist repair.
Additionally, our hoists are used as components in the manufacture of crane
systems by us and by our end-users. We believe this vertical integration results
in lower production costs, greater manufacturing flexibility and higher product
quality, and reduces our reliance on outside suppliers.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
Like most manufacturing companies, we are subject to various federal, state
and local laws relating to the protection of the environment. To address the
requirements of such laws, we have adopted a corporate environmental protection
policy which provides that all of our owned or leased facilities shall, and all
of our employees have the duty to, comply with all applicable environmental
regulatory standards, and we have initiated an environmental auditing program
for our facilities to ensure compliance with such regulatory standards. We have
also established managerial responsibilities and internal communication channels
for dealing with environmental compliance issues that may arise in the course of
our business. Because of the complexity and changing nature of environmental
11
regulatory standards, it is possible that situations will arise from time to
time requiring us to incur expenditures in order to ensure environmental
regulatory compliance. However, we are not aware of any environmental condition
or any operation at any of our facilities, either individually or in the
aggregate, which would cause expenditures having a material adverse effect on
our results of operations, financial condition or cash flows and, accordingly,
have not budgeted any material capital expenditures for environmental compliance
for fiscal 2005.
Certain federal and state laws, sometimes referred to as Superfund laws,
require certain companies to remediate sites that are contaminated by hazardous
substances. These laws apply to sites owned or operated by a company, as well as
certain off-site areas for which a company may be jointly and severally liable
with other companies or persons. The required remedial activities are usually
performed in the context of administrative or judicial enforcement proceedings
brought by regulatory authorities. We have been identified by the New York State
Department of Environmental Conservation, or NYSDEC, along with other companies,
as a potentially responsible party, or PRP, at the Frontier Chemical Site in
Pendleton, New York, a site listed on NYSDEC's Registry. From 1958 to 1977, the
Pendleton Site had been operated as a commercial waste treatment and disposal
facility. We sent waste-pickling liquor generated at our facility in Tonawanda,
New York, to the Pendleton Site during the period from approximately 1969 to
1977, and we participated with other PRPs in conducting the remediation of the
Pendleton Site under a consent order with NYSDEC. Construction in connection
with the remediation has been completed and this project is currently in its
operations and maintenance phase. As a result of a negotiated cost allocation
among the participating PRPs, we have paid our pro rata share of the remediation
construction costs and accrued our share of the ongoing operations and
maintenance costs. As of March 31, 2004, we have paid approximately $1.0 million
in remediation and ongoing operations and maintenance costs associated with the
Pendleton Site. The participating PRPs have identified and commenced a cost
recovery action against a number of other parties who sent hazardous substances
to the Pendleton Site. Full settlements have been reached with all defendants in
the cost recovery action. All settlement payments in connection with the
Pendleton Site litigation have been made, and we have received $0.2 million as
our share of the settlement proceeds. We have also entered into a settlement
agreement with one of our insurance carriers in the amount of $0.7 million in
connection with the Pendleton Site and have received payment in full of the
settlement amount.
We are investigating past waste disposal activities at a facility in
Cleveland, Texas, operated by our subsidiary, Crane Equipment and Service, Inc.,
and we plan to apply to the Texas Commission on Environmental Quality for entry
into its Voluntary Cleanup Program in connection with the site. At this time, it
is not possible to determine the costs of future site investigation or, if
necessary, remediation, but we believe any such costs will not have a material
adverse effect on our operating results or financial condition.
For all of the currently known environmental matters, we have accrued a
total of approximately $0.3 million as of March 31, 2004, which, in our opinion,
is sufficient to deal with such matters. Further, our management believes that
the environmental matters known to, or anticipated by, us should not,
individually or in the aggregate, have a material adverse effect on our
operating results or financial condition. However, there can be no assurance
that potential liabilities and expenditures associated with unknown
environmental matters, unanticipated events, or future compliance with
environmental laws and regulations will not have a material adverse effect on
us.
Our operations are also governed by many other laws and regulations,
including those relating to workplace safety and worker health, principally OSHA
and regulations thereunder. To our knowledge, we are in material compliance with
these laws and regulations and do not believe that future compliance with such
laws and regulations will have a material adverse effect on our operating
results or financial condition.
AVAILABLE INFORMATION
Our internet address is WWW.CMWORKS.COM. We make available free of charge
through our website our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such documents are
electronically filed with, or furnished to, the Securities and Exchange
Commission.
12
ITEM 2. PROPERTIES.
We maintain our corporate headquarters in Amherst, New York and conduct
our principal manufacturing at the following facilities:
OWNED OR BUSINESS
LOCATION PRODUCTS/OPERATIONS SQUARE FOOTAGE LEASED SEGMENT
-------- ------------------- -------------- ------ -------
UNITED STATES:
Muskegon, MI Hoists 500,000 Owned Products
Charlotte, NC Industrial components 250,000 Owned Products
Tonawanda, NY Light-rail crane systems 187,600 Owned Solutions
Wadesboro, NC Hoists 180,000 Owned Products
Lexington, TN Chain 153,200 Owned Products
Cedar Rapids, IA Forged attachments 100,000 Owned Products
Eureka, IL Cranes 91,300 Owned Products
Damascus, VA Hoists 87,400 Owned Products
Chattanooga, TN Forged attachments 77,000 Owned Products
Greensburg, IN Scissor lifts 60,000 Owned Solutions
Lisbon, OH Hoists 37,000 Owned Products
Cleveland, TX Cranes 35,000 Owned Products
Chattanooga, TN Forged attachments 33,000 Owned Products
Sarasota, FL Tire shredders 25,000 Owned Solutions
INTERNATIONAL:
Santiago, Tianguistenco, Mexico Hoists and chain 85,000 Owned Products
Arden, Denmark Project design and conveyors 70,500 Owned Solutions
Velbert, Germany Hoists 56,000 Leased Products
Chester, United Kingdom Plate clamps 47,900 Leased Products
Stoney Creek, Ontario, Canada Cranes 42,400 Owned Products
Hangzhou, China Metal fabrication, textiles and 37,000 Leased Products
textile strappings
Chester, United Kingdom Plate clamps 25,400 Owned Products
Romeny-sur-Marne, France Rotary unions 21,600 Owned Products
Hangzhou, China Textile strappings 20,000 Leased Products
Arden, Denmark Project construction 19,500 Leased Solutions
Vierzon, France Hoists 14,000 Leased Products
Hangzhou, China Hoists and hand pallet trucks 7,200 Leased Products
In addition, we have a total of 35 sales offices, distribution centers and
warehouses. We believe that our properties have been adequately maintained, are
in generally good condition and are suitable for our business as presently
conducted. We also believe our existing facilities provide sufficient production
capacity for our present needs and for our anticipated needs in the foreseeable
future. Upon the expiration of our current leases, we believe that either we
will be able to secure renewal terms or enter into leases for alternative
locations at market terms.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we are named a defendant in legal actions arising out
of the normal course of business. We are not a party to any pending legal
proceeding other than ordinary, routine litigation incidental to our business.
We do not believe that any of our pending litigation will have a material impact
on our business. We maintain comprehensive general liability insurance against
risks arising out of the normal course of business through our wholly-owned
insurance subsidiary of which we are the sole policy holder. The limits of this
coverage are $3.0 million per occurrence ($2.0 million through March 31, 2003)
and $6.0 million aggregate ($5.0 million through March 31, 2003) per year. We
obtain additional insurance coverage from independent insurers to cover
potential losses in excess of these limits.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
14
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Our common stock is traded on the Nasdaq Stock Market under the symbol
"CMCO." As of May 31, 2004, there were 557 holders of record of our common
stock.
We paid quarterly cash dividends on our common stock from 1988 through the
second quarter of fiscal 2002. In January 2002, we announced that we were
indefinitely suspending the payment of cash dividends on our common stock in
order to dedicate our cash resources to the repayment of outstanding
indebtedness. Our current credit agreement does not permit us to pay dividends.
We may reconsider or revise this policy from time to time based upon conditions
then existing, including, without limitation, our earnings, financial condition,
capital requirements, restrictions under credit agreements or other conditions
our Board of Directors may deem relevant.
The following table sets forth, for the fiscal periods indicated, the high
and low sale prices per share for our common stock as reported on the Nasdaq
Stock Market and our dividend history.
PRICE RANGE OF DIVIDEND
COMMON STOCK PER SHARE
---------------------- ----------
HIGH LOW
---- ---
YEAR ENDED MARCH 31, 2002
First Quarter............................... $ 11.25 $ 6.96 $ 0.07
Second Quarter.............................. 10.40 9.36 0.07
Third Quarter............................... 10.15 7.45 0.00
Fourth Quarter.............................. 12.80 9.31 0.00
YEAR ENDED MARCH 31, 2003
First Quarter............................... $ 13.67 $ 6.95 $ 0.00
Second Quarter.............................. 9.08 4.90 0.00
Third Quarter .............................. 5.38 3.30 0.00
Fourth Quarter ............................. 3.90 1.40 0.00
YEAR ENDED MARCH 31, 2004
First Quarter............................... $ 2.72 $ 1.30 $ 0.00
Second Quarter.............................. 4.84 2.31 0.00
Third Quarter............................... 7.80 4.58 0.00
Fourth Quarter.............................. 11.72 6.35 0.00
On June 10, 2004, the last reported sale price of our common stock on the
Nasdaq Stock Market was $5.28 per share.
15
ITEM 6. SELECTED FINANCIAL DATA.
The consolidated balance sheets as of March 31, 2004 and 2003 and the
related statements of operations, cash flows and shareholders' equity for the
three years ended March 31, 2004 and notes thereto appear elsewhere in this
annual report. The selected consolidated financial data presented below should
be read in conjunction with, and are qualified in their entirety by
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," our consolidated financial statements and the notes thereto and
other financial information included elsewhere in this annual report.
FISCAL YEARS ENDED MARCH 31,
----------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA (1):
Net sales $ 444.6 $ 453.3 $ 480.0 $ 586.2 $ 609.2
Cost of products sold 339.7 346.0 359.5 426.7 436.8
-----------------------------------------------------
Gross profit 104.8 107.3 120.5 159.5 172.4
Selling expenses 48.3 47.4 43.5 48.4 48.7
General and administrative expenses 25.0 26.6 28.3 34.3 40.5
Restructuring charges 1.2 3.7 9.6 - -
Write-off/amortization of intangibles (2) 0.4 4.2 11.0 11.0 11.4
-----------------------------------------------------
Income from operations 29.9 25.4 28.1 65.8 71.8
Interest and debt expense 28.9 32.0 29.4 36.3 33.4
Other (income) and expense, net (4.2) (2.1) 2.4 (2.2) (1.3)
-----------------------------------------------------
Income (loss) before income taxes 5.2 (4.5) (3.7) 31.7 39.7
Income tax expense 4.0 1.5 2.3 16.8 17.6
-----------------------------------------------------
Income (loss) from continuing operations 1.2 (6.0) (6.0) 14.9 22.1
Income (loss) from discontinued operations - - (7.9) 0.3 (5.0)
Loss on disposition of discontinued operations - - (121.4) - -
-----------------------------------------------------
Total income (loss) from discontinued operations - - (129.3) 0.3 (5.0)
Cumulative effect of change in accounting
principle (2) - (8.0) - - -
-----------------------------------------------------
Net income (loss) $ 1.2 $ (14.0) $ (135.3) $ 15.2 $ 17.1
=====================================================
Diluted earnings (loss) per share from continuing
operations $ 0.08 $ (0.42) $ (0.41) $ 1.04 $ 1.55
Basic earnings (loss) per share from continuing
operations $ 0.08 $ (0.42) $ (0.41) $ 1.04 $ 1.57
Weighted average shares outstanding - assuming
dilution 14.6 14.5 14.4 14.3 14.2
Weighted average shares outstanding - basic 14.6 14.5 14.4 14.3 14.1
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets (3) $ 473.4 $ 482.6 $ 524.3 $ 722.4 $ 731.8
Total debt 287.9 314.1 347.9 407.0 413.8
Total shareholders' equity 63.0 52.7 71.6 207.9 203.5
OTHER FINANCIAL DATA:
Net cash provided by operating activities 26.4 14.2 49.8 38.3 44.3
Net cash provided by (used in) investing activities 4.3 16.0 (1.6) (7.2) (18.7)
Net cash used in financing activities (21.5) (41.9) (48.5) (19.5) (24.2)
Capital expenditures 3.6 5.0 4.7 10.2 7.9
Cash dividends per common share 0.00 0.00 0.14 0.28 0.28
16
- -------------
(1) Statement of Operations data represent our continuing operations and
reflect the May 2002 sale of substantially all of the assets of ASI. The
financial statements of all periods presented have been restated to remove
ASI results from the continuing operations data. Refer to Note 3 to our
consolidated financial statements for more information on the Discontinued
Operations.
(2) As a result of our adoption of SFAS 142 effective April 1, 2002, goodwill
is no longer amortized. The charge in fiscal 2003 represents a $4.0 million
impairment write-off. In addition, the cumulative effect of change in
accounting principle represents the impact of adopting SFAS 142.
(3) Total assets includes net assets of discontinued operations of $21.5
million, $163.5 million and $152.6 million as of March 31, 2002, 2001 and
2000, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
This section should be read in conjunction with our consolidated financial
statements included elsewhere in this annual report. Comments on the results of
operations and financial condition below refer to our continuing operations,
except in the section entitled "Discontinued Operations."
EXECUTIVE OVERVIEW
We are a leading manufacturer and marketer of hoists, cranes, chain,
conveyors, material handling systems, lift tables and component parts serving a
wide variety of commercial and industrial end markets. Our products are used to
efficiently and ergonomically move, lift, position or secure objects and loads.
Our Products segment sells a wide variety of powered and manually operated wire
rope and chain hoists, industrial crane systems, chain, hooks and attachments,
actuators and rotary unions. Our Solutions segment designs, manufactures, and
installs application-specific material handling systems and solutions for
end-users to improve work station and facility-wide work flow.
Founded in 1875, we have grown to our current leadership position through
organic growth and also as the result of the 14 businesses we acquired between
February 1994 and April 1999. We have developed our leading market position over
our 125-year history by emphasizing technological innovation, manufacturing
excellence and superior after-sale service. In addition, the acquisitions
significantly broadened our product lines and services and expanded our
geographic reach, end-user markets and customer base. We continue to further
integrate the operations of the acquired businesses with our previously existing
businesses. The current phase of the ongoing integration of these businesses
includes improving our productivity, further reducing our excess manufacturing
capacity and extending our cross-selling activities to the European marketplace.
This phase is in process through our Lean Manufacturing efforts, facility
rationalization program and European sales initiatives. Our Lean Manufacturing
efforts are fundamentally changing our manufacturing processes to be more
responsive to customer demand, resulting in significant inventory reductions and
improving on-time delivery and productivity. For example, we realized nearly 40%
inventory turn improvement to 5.3 times at March 31, 2004 from 3.8 times at
March 31, 2001. Specifically in fiscal 2004, we realized approximately 20%
improvement from 4.4 times at March 31, 2003. Over the past three years, under
our facility rationalization program, we have closed 13 facilities and
consolidated several product lines, with potential opportunity for further
rationalization. Also, as previously reported, we have been undergoing
assessments for possible divestiture of several less-strategic businesses,
including most of our Solutions segment and certain businesses within our
Products segment. Two businesses were sold in fiscal 2004 and four others remain
as possible divestiture candidates. Furthermore, we are selling real properties
that resulted from our facility rationalization projects. These divestitures may
result in gains or losses. To further expand our global sales, we have begun
introducing certain of our products through our existing European distribution
network that historically have been distributed only in North America.
Many of the U.S. industrial sectors that we serve have been impacted by
soft economic conditions since mid-1998. These conditions deteriorated
significantly in our fiscal 2001 fourth quarter and continued to decline
throughout fiscal 2002 and 2003, negatively impacting our net sales and
financial performance. We began to see some stabilization and then very modest
improvement in the latter half of fiscal 2004. While reaching a historical high
of $609.2 million in fiscal 2000, our net sales dropped by 18.1% to $480.0
million in fiscal 2002, by an additional 5.6% to $453.3 million in fiscal 2003
and by an additional 1.9% to $444.6 million in fiscal 2004, primarily due to
this downturn in the business cycle. Despite these economic conditions and their
impact on our operating results, we maintained our leading market share,
generated positive cash flow from operations and business divestitures and
repaid $59.7 million, $34.5 million and $17.7 million of debt in fiscal 2002,
2003 and 2004, respectively.
17
We continue to be cautiously optimistic that the economic environment as it
impacts our Company is modestly improving. We monitor such indicators as U.S.
Industrial Capacity Utilization and Industrial Production which have been
steadily increasing since July 2003. We sell our products domestically to a
cross-section of business sectors, spanning the breadth of primarily the
industrial contributors to the U.S. gross domestic product. These sectors are
impacted by these indicators in varying degrees and at various points in a
business cycle. We will continue to monitor these indicators to assess the
impact on our future business. In addition, to enhance future revenue
opportunities, we are increasing our sales and marketing efforts in
international markets and investing in new products and services as further
described in Item 1 of this Annual Report within the section described as "Our
Strategy".
On the cost side we, like many companies, have been challenged over the
past several years with significantly increased costs for fringe benefits such
as health insurance, workers compensation insurance and pension. Combined, those
benefits cost us almost $30 million in fiscal 2004 and we work dilingently with
our advisors to balance cost control with the need to provide competitive
benefits packages for our associates. Another cost area of focus is steel
pricing. We utilize approximately $20-$25 million of steel annually in a variety
of forms including rod, wire, bar, structural and others. With increases in
worldwide demand for steel and significant increases in scrap steel prices, we
have experienced increases in our costs that we have reflected as price
increases and surcharges to our customers. Our surcharges went into effect
beginning March 18, 2004 and currently affect most of our chain and forged
attachment products. We continue to monitor steel costs and potential surcharge
requirements on a monthly basis.
RESULTS OF OPERATIONS
Net sales of our Products and Solutions segments, in millions of dollars
and with percentage changes for each segment, were as follows:
CHANGE CHANGE
FISCAL YEARS ENDED MARCH 31, 2004 VS. 2003 2003 VS. 2002
---------------------------- ------------- -------------
2004 2003 2002 AMOUNT % AMOUNT %
---- ---- ---- ------ - ------ -
Products segment............. $394.2 $388.1 $404.7 $ 6.1 1.6 $(16.6) (4.1)
Solutions segment............ 50.4 65.2 75.3 (14.8) (22.7) (10.1) (13.4)
---- ---- ---- ------ ------ ------ ------
Total net sales......... $444.6 $453.3 $480.0 $(8.7) (1.9) $(26.7) (5.6)
====== ====== ====== ====== ======
Sales in recent years were affected by the downturn in the general North
American and European economies and the industrial sectors in particular. Net
sales in fiscal 2004 of $444.6 million decreased by $8.7 million, or 1.9%, from
fiscal 2003, and net sales in fiscal 2003 of $453.3 million decreased $26.7
million, or 5.6%, from fiscal 2002. Our Products segment net sales improved 1.6%
in fiscal 2004 as we saw stabilization by mid-2004 and improvement of 7.4% in
the latter half of the fiscal year. Fiscal 2003 Products segment was marked with
a 4.1% decline, primarily due to decreased unit sales resulting from the soft
U.S. industrial markets. Both fiscal 2004 and 2003 were impacted by the
weakening U.S. dollar relative to other currencies, particularly the euro, and
reported Products segment sales were favorably affected by $11.3 million and
$4.6 million in fiscal 2004 and 2003, respectively. Our Solutions segment net
sales decreased 22.7% and 13.4% in fiscal 2004 and 2003, respectively. The
declines in fiscal 2004 and 2003 were primarily due to soft U.S. and European
industrial markets, particularly affecting purchasing decisions for capital
goods. The fiscal 2004 decline was further impacted by the March 2003
divestiture of our steel erection business, which generated $7.9 million and
$17.7 million of revenues in fiscal 2003 and 2002, respectively.
Gross profit of the Products and Solutions segments, in millions of dollars
and as a percentage of total segment net sales, was as follows:
FISCAL YEARS ENDED MARCH 31,
--------------------------------------------------------------
2004 2003 2002
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Products segment............ $99.2 25.2 $98.7 25.4 $109.3 27.0
Solutions segment........... 5.6 11.1 8.6 13.2 11.2 14.9
--- ---- --- ---- ---- ----
Total gross profit..... $104.8 23.6 $107.3 23.7 $120.5 25.1
====== ====== ======
18
Our gross profit margins were approximately 23.6%, 23.7% and 25.1% in fiscal
2004, 2003 and 2002, respectively. The Products segment reflected a stabilized
gross profit margin in fiscal 2004 as the revenues stabilized during the year
and costs were closely monitored. The decrease in Products segment gross profit
margin for fiscal 2003 was primarily the result of economic and inventory
reduction factors. The Product segment's gross profit margin decreased in fiscal
2003 due to the following factors: i) our price increase implementation was
delayed eight months until August 2002 due to economic market conditions
(approximately $2.0 million impact); ii) cost increases, particularly for
employee benefits such as health insurance, workers compensation insurance and
pension and also general property insurance (approximately $1.4 million impact);
iii) pricing pressure, especially on our capital-type products such as cranes
(approximately $1.5 million impact); iv) the 4.1% decline in net sales and the
resulting decrease in absorption of fixed production costs; v) production at
levels lower than sales levels to reduce inventories and the resulting further
decrease in absorption of fixed production costs; vi) production inefficiencies
at our facilities impacted by facility rationalization activities; and vii) a
$2.5 million reclassification of certain crane builder expenses to cost of
products sold from general and administrative expenses in fiscal 2003. The
Solutions segment's gross profit margins decreased in fiscal 2004 and 2003
primarily due to the 22.7% and 13.4% declines in net sales, respectively, and
resulting decease in absorption of fixed production costs, increased employee
benefits costs as described above and an increase in larger integrated solutions
projects which carry a lower gross profit margin overall.
Selling expenses were $48.3 million, $47.4 million and $43.5 million in
fiscal 2004, 2003 and 2002, respectively. As a percentage of net sales, selling
expenses were 10.9%, 10.5% and 9.1% in fiscal 2004, 2003 and 2002, respectively.
The fiscal 2004 and 2003 increases include $2.2 million and $1.8 million,
respectively, resulting from the weakening of the U.S. dollar relative to
foreign currencies, particularly the euro, upon translation of foreign operating
results into U.S. dollars for reporting purposes. The fiscal 2004 and 2003
increases also include $0.4 million and $0.9 million, respectively, resulting
from reclassification of certain crane builder expenses from general and
administrative expenses in fiscal 2003 to improve reporting consistency. The
fiscal 2003 increase further includes $0.5 million for investing in new
geographic markets and other increases for employee benefits costs, catalogs,
and commissions in certain markets, partially offset by cost control measures.
General and administrative expenses were $25.0 million, $26.6 million and
$28.2 million in fiscal 2004, 2003 and 2002, respectively. As a percentage of
net sales, general and administrative expenses were 5.6%, 5.9% and 5.9% in
fiscal 2004, 2003 and 2002, respectively. Much of the expense reductions
resulted from general discretionary cost control measures. Partially offsetting
those savings, fiscal 2004 was unfavorably impacted by $1.2 million resulting
from the translation of foreign currencies into the weaker U.S. dollar for
reporting purposes and also included $0.8 million higher bad debt expenses. The
fiscal 2003 expenses were favorably impacted by a $0.8 million reduction in
product liability expense due to reassessment of self-insurance exposure
relative to certain claims and the reclassification of $3.4 million of crane
builder expenses into cost of products sold or selling expense. These fiscal
2003 favorable results were partially offset by $1.2 million for professional
fees for special projects to improve the Company's organization structure, $1.1
million for a business divested in March 2003, $0.8 million for intercompany
exchange losses and $0.5 million for increased bad debt expenses.
Restructuring charges of $1.2 million, $3.7 million and $9.6 million, or
0.3%, 0.8% and 2.0% of net sales in fiscal 2004, 2003 and 2002, respectively,
were primarily attributable to the closure or significant reorganization of
thirteen manufacturing or warehouse facilities. During fiscal 2004, we recorded
restructuring charges of $1.2 million related to various employee termination
benefits and facility costs as a result of our continued closure, merging and
reorganization and completion of two open projects from fiscal 2003. The
following facilities were closed, merged or significantly reorganized beginning
in fiscal 2003: Abingdon, VA; Tonawanda, NY; Cobourg, Ontario, Canada; Forest
Park, IL; and Reform, AL. Excluding the Tonawanda facility, these operations
were included within our Products segment, and were relocated into other
existing Products segment facilities. Fiscal 2003 charges included exit costs of
$1.8 million for severance relating to approximately 215 employees, $1.0 million
of lease termination, facility wind-down, preparation for sale and maintenance
of non-operating facilities prior to disposal and $0.9 million for facility
closure costs on projects begun in 2002. Three of the five 2003 projects were
completed as planned in the fourth quarter of fiscal 2003 while two were
completed by the second quarter of fiscal 2004. The remaining liability of $0.4
million for fiscal 2003-2004 projects relates to the ongoing maintenance costs
of the non-operating facilities.
The following facilities were closed, merged or significantly reorganized
beginning in fiscal 2002: Houma, LA; Woodland, CA; Romeoville, IL; Forrest City,
AR; Monterrey, Mexico; Hobro, Denmark; Atlanta, GA; and Richmond, British
Columbia, Canada. All operations except for the Hobro facility were included
within our Products segment, and all activities were relocated into other
existing company facilities within their respective segments. Charges included
exit costs of $2.4 million for severance relating to approximately 250 employees
and $7.2 million of lease termination, facility wind-down, preparation for sale
and maintenance of non-operating facilities prior to disposal. Included in the
restructuring charges was approximately $8.3 million to terminate a facility
19
lease, resulting in the purchase of the property with an estimated fair value of
approximately $2.3 million which was recorded as an offset to the restructuring
charges. Due to changes in the real estate market and a reassessment of the fair
value of the property, the net asset held for sale was adjusted downward by $0.5
million as a further restructuring charge during fiscal 2003. All of the
projects were completed as planned during fiscal 2002. The remaining liability
of $0.2 million relates to the ongoing maintenance costs of the non-operating
facility.
Each rationalization project was analyzed based on our capacity and the
cost structure of the specific facilities relative to others. As a result of
these rationalization projects we expect to achieve approximately $13 million to
$15 million of annualized savings primarily in cost of products sold including
facility fixed costs and employee costs, of which approximately $8 million and
$11 million was realized during fiscal 2003 and 2004, respectively. We
anticipate that our restructuring charges for fiscal 2005 in connection with our
ongoing facility rationalization and reorganization initiatives will be between
$0.4 million and $0.7 million.
Write-off/amortization of intangibles was $0.4 million, $4.2 million and
$11.0 million in fiscal 2004, 2003 and 2002, respectively. Fiscal 2003 reflected
a $4.0 million goodwill write-off in the fourth quarter relating to impairment
under Statement of Financial Accounting Standard (SFAS) No. 142 "Goodwill and
Other Intangible Assets," which pronouncement eliminated the requirement to
amortize goodwill and indefinite-lived intangible assets beginning in fiscal
2003 but added new impairment testing rules. The fiscal 2002 amount relates
primarily to non tax-deductible goodwill amortization.
Interest and debt expense was $28.9 million, $32.0 million and $29.4
million in fiscal 2004, 2003 and 2002, respectively. As a percentage of net
sales, interest and debt expense was 6.5%, 7.1% and 6.1% in fiscal 2004, 2003
and 2002, respectively. The fiscal 2004 decrease primarily resulted from lower
debt levels. The fiscal 2003 increase included a $1.2 million write-off of
deferred financing costs associated with the Company's former credit facility,
which was replaced with a new credit arrangement in November 2002, a portion of
which carried higher effective interest rates than the Company's former credit
facility.
Other (income) and expense, net was ($4.2) million, ($2.1) million and $2.5
million in fiscal 2004, 2003 and 2002, respectively. The income in fiscal 2004
included $5.7 million from asset sales and $1.9 million from an interest rate
swap partially offset by $3.9 million of losses upon business divestitures. The
income in fiscal 2003 included $5.3 million from asset sales offset by a $2.2
million unrealized, non-cash, mark-to-market loss recognized within our captive
insurance company's securities portfolio and a $1.3 million loss on a business
divestiture. The unrealized loss within the securities portfolio was recognized
since it was deemed to be other than temporary in nature, resulting from
unrealized losses that existed longer than a six month period. The expense in
fiscal 2002 similarly included a $2.8 million unrealized, non-cash,
mark-to-market loss recognized on marketable securities held by our captive
insurance subsidiary, a $1.5 million loss on a business divestiture and a $1.8
million gain on asset sales.
Income taxes as a percentage of income before income taxes were not
reflective of U.S statutory rates in fiscal 2004, 2003 or 2002 primarily due to
the impact of non-deductible goodwill amortization/write-off in fiscal 2003 and
2002 and also due to varying tax jurisdiction rates on low or negative pretax
income, and the existence of losses for which no tax benefit has been recorded.
Upon adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," we
reduced goodwill by $8.0 million as of the beginning of fiscal 2003, reflected
as the cumulative effect of a change in accounting principle on our statement of
operations. A discounted cash flows approach was used to test goodwill for
potential impairment.
LIQUIDITY AND CAPITAL RESOURCES
In November 2002, we refinanced our credit facilities. The new arrangement
replaced our previous revolving credit facility that was scheduled to mature on
March 31, 2003. The new arrangement consisted of a Revolving Credit Facility, a
Term Loan and a Senior Second Secured Term Loan. The Revolving Credit Facility
currently provides availability up to a maximum of $50 million through March 31,
2007. Availability based on the underlying collateral at March 31, 2004 amounted
to $48.9 million. The unused Revolving Credit Facility totaled $39.7 million at
March 31, 2004 with no borrowings outstanding but with $9.2 million of
outstanding letters of credit. Interest is payable at varying Eurodollar rates
based on LIBOR or prime plus spreads determined by our leverage ratio, amounting
to 275 or 150 basis points applied to each, respectively, at March 31, 2004.
The Term Loan requires quarterly $0.5 million payments with the balance due
on March 31, 2007. At March 31, 2004, $7.8 million was outstanding under the
Term Loan. Interest is payable at varying Eurodollar rates based on LIBOR plus a
spread determined by our leverage ratio, amounting to 325 basis points at March
31, 2004 (4.37%).
The Revolving Credit Facility and Term Loan are secured by all of our
domestic tangible and intangible assets (limited to 65% for stock ownership of
foreign subsidiaries).
20
In July 2003, we issued $115.0 million of 10% Senior Secured Notes due
August 1, 2010 which remain outstanding at March 31, 2004. Proceeds from this
offering were used for the repayment in full of a then outstanding senior second
secured term loan ($66.8 million), the repurchase of $35.7 million of Senior
Subordinated 8 1/2% Notes at a discount ($30.1 million), the repayment of a
portion of the outstanding Revolving Credit Facility ($10.0 million), the
repayment of a portion of the Term Loan ($3.9 million), the payment of financing
costs ($2.8 million) and the payment of accrued interest ($1.4 million).
Provisions of the 10% Notes include, without limitation, restrictions on liens,
indebtedness, asset sales, and dividends and other restricted payments. The 10%
Notes are redeemable at our option, in whole or in part, at prices declining
annually from the Make-Whole Price (as defined in the Indenture for the Notes).
In the event of a Change of Control (as defined), each holder of the 10% Notes
may require us to repurchase all or a portion of such holder's 10% Notes at a
purchase price equal to 101% of the principal amount thereof. The 10% Notes are
guaranteed by certain existing and future domestic subsidiaries and are not
subject to any sinking fund requirements. The 10% Notes are also secured, in a
second lien position, by all domestic inventory, receivables, equipment, real
property, subsidiary stock (limited to 65% for foreign subsidiaries) and
intellectual property.
The redemption of a portion of the outstanding Senior Subordinated 8 1/2%
Notes occurred at a discount resulting in a $5.6 million pre-tax gain on early
extinguishment of debt. As a result of the repayment of the senior second
secured term loan and a portion of the Term Loan and Senior Subordinated 8 1/2%
Notes, $4.9 million of pre-tax deferred financing costs were written-off in
fiscal 2004. The net effect of these two items, a $0.7 million pre-tax gain, is
shown as part of other (income) and expense, net.
The corresponding credit agreements associated with the Revolving Credit
Facility and the Term Loan place certain debt covenant restrictions on us,
including financial requirements and a restriction on dividend payments, with
which we are currently in compliance.
From time to time, we manage our debt portfolio by using interest rate
swaps to achieve an overall desired position of fixed and floating rates. In
June 2001, we entered into an interest rate swap agreement to effectively
convert $40 million of variable-rate debt to fixed-rate debt, which matured in
June 2003. That cash flow hedge was considered effective and the gain or loss on
the change in fair value was reported in other comprehensive income, net of tax.
In August 2003, we entered into an interest rate swap agreement to convert $93.5
million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis
points) through August 2008 and $57.5 million from August 2008 through August
2010 at the same rate. That interest rate swap was considered an ineffective
hedge and therefore the change in fair value was recognized in income as a gain.
The swap was terminated in January 2004 and a pre-tax gain of $1.9 million was
recognized as other income as a result of changes in the fair value of the swap.
At March 31, 2004, our Senior Subordinated 8 1/2% Notes issued on March 31,
1998 and due March 31, 2008 amounted to $164.1 million, net of original issue
discount. Interest is payable semi-annually based on an effective rate of 8.45%,
considering $1.9 million of proceeds from rate hedging in advance of the
placement. Provisions of the 8 1/2% Notes include, without limitation,
restrictions on liens, indebtedness, asset sales and dividends and other
restricted payments. Prior to April 1, 2003, the 8 1/2% Notes were redeemable at
our option, in whole or in part, at the Make-Whole Price (as defined in the
Indenture for the Notes). On or after April 1, 2003, they are redeemable at
prices declining annually from 104.25% to 100% on and after April 1, 2006. In
the event of a Change of Control (as defined), each holder of the 8 1/2% Notes
may require us to repurchase all or a portion of such holder's 8 1/2% Notes at a
purchase price equal to 101% of the principal amount thereof. The 8 1/2% Notes
are guaranteed by certain existing and future domestic subsidiaries and are not
subject to any sinking fund requirements.
We believe that our cash on hand, cash flows, and borrowing capacity under
our Revolving Credit Facility will be sufficient to fund our ongoing operations
and budgeted capital expenditures for at least the next twelve months. This
belief is dependent upon a steady economy and successful execution of our
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 certain
non-strategic operations, improving working capital components, including
inventory reductions, and new market and new product development.
Net cash provided by operating activities was $26.4 million, $14.2 million
and $49.8 million in fiscal 2004, 2003 and 2002, respectively. Overall,
operating assets net of liabilities provided cash of $8.8 million, $4.0 million
and $28.3 million in fiscal 2004, 2003 and 2002, respectively. The $12.2 million
increase in fiscal 2004 relative to fiscal 2003 was primarily due to stronger
operating performance in fiscal 2004 and income tax refunds of $12.5 million.
The $35.6 million decrease in fiscal 2003 relative to fiscal 2002 was due to
weaker operating performance in fiscal 2003 and to working capital changes. In
particular, trade accounts receivable and inventories provided cash of $10.2
million in fiscal 2003 compared to $33.5 million in fiscal 2002 and trade
accounts payable used $4.8 million of cash in fiscal 2003 but provided $3.7
million of cash in fiscal 2002.
21
Net cash provided by investing activities was $4.3 million and $16.0
million in fiscal 2004 and 2003, respectively, and used in investing activities
was $1.6 million in fiscal 2002. The fiscal 2004, 2003 and 2002 amounts included
$7.8 million, $21.7 million and $4.9 million, respectively, from business and
property divestitures.
Net cash used in financing activities was $21.5 million, $41.9 million and
$48.5 million in fiscal 2004, 2003 and 2002, respectively. Those amounts
included $17.7 million, $34.5 million and $46.7 million of debt repayment in
fiscal 2004, 2003 and 2002, respectively, as well as $2.0 million of dividends
paid in fiscal 2002. We also paid $4.4 million and $8.2 million of financing
costs in fiscal 2004 and 2003, respectively, to effect the capital transactions
previously described.
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual obligations in
millions of dollars as of March 31, 2004, by period of estimated payments due:
FISCAL FISCAL 2006- FISCAL 2008- MORE THAN
TOTAL 2005 FISCAL 2007 FISCAL 2009 FIVE YEARS
----- ---- ----------- ----------- ----------
Long-term debt obligations (a). $287.9 $2.2 $6.1 $164.3 $115.3
Operating lease obligations (b) 12.6 3.8 4.9 2.9 1.0
Purchase obligations (c) ...... - - - - -
Interest obligations (d)....... 129.3 25.8 51.2 37.0 15.3
Letter of credit obligations... 9.2 7.5 1.7 - -
Other long-term liabilities
reflected on the Company's
balance sheet under GAAP (e)... 37.9 2.9 22.8 9.2 3.0
------ ----- ----- ------ ------
Total..................... $476.9 $42.1 $86.7 $213.3 $134.6
====== ===== ===== ====== ======
(a) As described in note 10 to our consolidated financial statements.
(b) As described in note 18 to our consolidated financial statements.
(c) We have no purchase obligations specifying fixed or minimum
quantities to be purchased. We estimate that, at any given point in
time, our open purchase orders to be executed in the normal course
of business approximate $40 million.
(d) Estimated for our Term Loan due 3/31/07, Senior Secured Notes due
8/1/10 and Senior Subordinated Notes due 3/31/08.
(e) As described in note 9 to our consolidated financial statements.
We have no additional off-balance sheet obligations that are not reflected
above.
CAPITAL EXPENDITURES
In addition to keeping our current equipment and plants properly
maintained, we are committed to replacing, enhancing and upgrading our property,
plant and equipment to support new product development, reduce production costs,
increase flexibility to respond effectively to market fluctuations and changes,
meet environmental requirements, enhance safety and promote ergonomically
correct work stations. Further, our facility rationalization program underway
over the past three years reduced our annual capital expenditure requirements
and also provided for transfers of equipment from the rationalized facilities to
other operating facilities. Our capital expenditures for fiscal 2004, 2003 and
2002 were $3.6 million, $5.0 million and $4.8 million, respectively. The
decreased spending throughout the period reflects a deferral of certain projects
due to soft market conditions, as well as reduced needs resulting from our
facility rationalization program. We expect capital expenditure spending to
increase modestly in fiscal 2005, to $4.0-$6.0 million.
INFLATION AND OTHER MARKET CONDITIONS
Our 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. We do not believe that general inflation has had a material effect
on our results of operations over the periods presented primarily due to overall
low inflation levels over such periods and our ability to generally pass on
rising costs through annual price increases. However, employee benefits costs
such as health insurance, workers compensation insurance, pensions as well as
energy and business insurance have exceeded general inflation levels. In the
future, we may be further affected by inflation that we may not be able to pass
on as price increases. In the fourth quarter of fiscal 2004, we were impacted by
high inflation in steel costs which varied by type of steel. We generally
incorporated those cost increases into our sales price increases effective in
early fiscal 2005 as well as surcharges on certain products that began in March
2004. We continue to monitor steel costs and potential surcharge requirements on
a monthly basis.
22
SEASONALITY AND QUARTERLY RESULTS
Our quarterly results may be materially affected by the timing of large
customer orders, periods of high vacation and holiday concentrations,
restructuring charges and other costs attributable to our facility
rationalization program, divestitures, acquisitions and the magnitude of
rationalization integration costs. Therefore, our operating results for any
particular fiscal quarter are not necessarily indicative of results for any
subsequent fiscal quarter or for the full fiscal year.
DISCONTINUED OPERATIONS
In May 2002, we completed the divestiture of substantially all of the
assets of ASI which comprised the principal business unit in our former
Solutions - Automotive segment. Proceeds from this sale included cash of $15.9
million and an 8% subordinated note in the principal amount of $6.8 million
payable over 10 years.
Accordingly, the ASI operation was reflected as discontinued operations in
our financial statements and all prior financial statements have been restated.
The loss from discontinued operations was $7.9 million and in fiscal 2002 and
the loss on the disposition of the discontinued operations was $121.5 million,
both reflected in our fiscal 2002 consolidated statement of operations.
Cash provided by (used in) discontinued operations was $0.5 million and
($0.3) million in fiscal 2003 and 2002, respectively, as shown on our
consolidated statements of cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial statements and
accompanying notes. We continually evaluate the estimates and their underlying
assumptions, which form the basis for making judgments about the carrying value
of our assets and liabilities. Actual results inevitably will differ from those
estimates. We have identified below the accounting policies involving estimates
that are critical to our financial statements. Other accounting policies are
more fully described in note 2 of notes to our consolidated financial
statements.
PENSION AND OTHER POSTRETIREMENT BENEFITS. The determination of the
obligations and expense for pension and postretirement benefits is dependent on
our selection of certain assumptions that are used by actuaries in calculating
such amounts. Those assumptions are disclosed in Notes 11 and 13, respectively,
to our consolidated financial statements and include the discount rates,
expected long-term rate of return on plan assets and rates of future increases
in compensation and healthcare costs.
The pension discount rate assumptions of 6 1/4%, 6 3/4% and 7 1/4% as of
March 31, 2004, 2003 and 2002, respectively, are based on long-term bond rates.
The decrease in discount rates for fiscal 2004 and 2003 resulted in $7.0 million
and $5.6 million increases in the projected benefit obligations as of March 31,
2004 and 2003, respectively. The rate of return on plan assets assumptions of
8.4%, 8 1/2% and 8 7/8% for the years ended March 31, 2004, 2003 and 2002,
respectively, are based on the composition of the asset portfolios
(approximately 55% equities and 45% fixed income at March 31, 2004) and their
long-term historical returns. The actual assets realized gains of $9.8 million
in fiscal 2004 but sustained losses of $(8.4) million in fiscal 2003.
Accordingly, our funded status as of March 31, 2004 and 2003 was negative by
$30.3 million and $31.1 million, or 27.3% and 32.2%, respectively. To improve
our funded status, we increased our pension contributions during fiscal 2004 by
$4.0 million over fiscal 2003. Accordingly, our accrued pension cost decreased
by $3.6 million as of March 31, 2004 as compared to March 31, 2003. The negative
funded status may result in future pension expense increases. However, pension
expense for the March 31, 2005 fiscal year is expected to approximate fiscal
2004 expense. These factors will also result in increases in funding
requirements over time, unless there is continued significant market
appreciation in the asset values. However, pension funding contributions for the
March 31, 2005 fiscal year are expected to decrease by approximately $1.5
million compared to fiscal 2004. The compensation increase assumption of 4% as
of March 31, 2004, 2003 and 2002 is based on historical trends.
The healthcare inflation assumptions of 12%, 12% and 9% for fiscal 2004,
2003 and 2002, respectively are based on anticipated trends. Healthcare costs in
the United States have increased substantially over the last several years. If
this trend continues, the cost of postretirement healthcare will increase in
future years.
INSURANCE RESERVES. Our accrued general and product liability reserves as
described in Note 15 to our consolidated financial statements involve actuarial
techniques including the methods selected to estimate ultimate claims, and
assumptions including emergence patterns, payment patterns, initial expected
losses and increased limit factors. Other insurance reserves such as workers
compensation and group health insurance are based on actual historical and
current claim data provided by third party administrators or internally
maintained.
23
INVENTORY AND ACCOUNTS RECEIVABLE RESERVES. Slow-moving and obsolete
inventory reserves are judgmentally determined based on historical and expected
future usage within a reasonable timeframe. We reassess trends and usage on a
regular basis and if we identify changes we revise our estimated allowances.
Allowances for doubtful accounts and credit memo reserves are also judgmentally
determined based on historical bad debt write-offs and credit memos issued,
assessing potentially uncollectible customer accounts and analyzing the accounts
receivable agings.
LONG-LIVED ASSETS. Property, plants and equipment and certain intangibles
are depreciated or amortized over their assigned lives. These assets as well as
goodwill are also periodically measured for impairment. The assigned lives and
the projected cash flows used to test impairment are subjective. If actual lives
are shorter than anticipated or if future cash flows are less than anticipated,
we could incur a future impairment charge or a loss on disposal relating to
these assets.
MARKETABLE SECURITIES. On a quarterly basis, we review our marketable
securities for declines in market value that may be considered other than
temporary. We consider market value declines to be other than temporary if they
are declines for a period longer than six months and in excess of 20% of
original cost.
DEFERRED TAX ASSET VALUATION ALLOWANCE. As of March 31, 2004, the Company
had $56.3 million of total net deferred tax assets before valuation allowances.
As described in Note 17 to the consolidated financial statements, $39.7 million
of the assets pertain to net operating loss carryforwards and the remainder
relate principally to liabilities including employee benefit plans, insurance
reserves, accrued vacation and incentive costs and also to asset valuation
reserves such as inventory obsolescence reserves and bad debt reserves. The net
operating loss carryforwards expire in 2023. A valuation allowance of $48.2
million was recorded at March 31, 2004 due to the uncertainty of whether the
Company's net operating loss carryforwards, capital loss carryforwards and other
deferred tax assets may ultimately be realized. Our ability to realize our
deferred tax assets is primarily dependent on generating sufficient future
taxable income. If we do not generate sufficient taxable income, we would record
an additional valuation allowance.
REVENUE RECOGNITION. Sales are recorded when title passes to the customer,
which is generally at the time of shipment to the customer, except for long-term
construction contracts. For long-term construction contracts, we recognize
contract revenues under the percentage of completion method, measured by
comparing direct costs incurred to total estimated direct costs. Changes in job
performance, job conditions and estimated profitability, including those arising
from final contract settlements, may result in revisions to costs and income and
are recognized in the period in which the revisions are determined. In the event
that a loss is anticipated on an uncompleted contract, a provision for the
estimated loss is made at the time it is determined. Billings on contracts may
precede or lag revenues earned, and such differences are reported in the balance
sheet as current liabilities (accrued liabilities) and current assets (unbilled
revenues), respectively. Customers do not routinely return product. However,
sales returns are permitted in specific situations and typically include a
restocking charge or the purchase of additional product. We have established an
allowance for returns based upon historical trends.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No.
03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" (EITF 03-01) in November 2003. EITF 03-01 provides guidance
on other-than-temporary impairments and its application to debt and equity
investments and applies to investments in debt and marketable securities that
are accounted for under Statement of Financial Accounting Standards (SFAS) No.
115 "Accounting for Certain Investments in Debt and Equity Securities." EITF
03-01 requires additional disclosure of investments with unrealized losses. The
requirements are effective for fiscal years ending after December 15, 2003 and
accordingly we have reflected those expanded disclosures in note 6 to our
consolidated financial statements.
The Financial Accounting Standards Board (FASB) issued SFAS No. 132
(revised 2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (FAS 132R) in December 2003. SFAS No. 132R requires additional
disclosure regarding certain aspects of pension plans including, but not limited
to, asset and investment strategy, expected employer contributions and expected
benefit payments. The disclosure requirements of SFAS No. 132R are effective for
financial statements of periods ending after December 15, 2003 and accordingly
we have reflected those expanded disclosures in note 11 to our consolidated
financial statements.
FACTORS AFFECTING OUR OPERATING RESULTS
OUR BUSINESS IS CYCLICAL AND IS AFFECTED BY INDUSTRIAL ECONOMIC CONDITIONS, AND
OVER THE PAST SEVERAL YEARS WE EXPERIENCED SUBSTANTIALLY REDUCED DEMAND FOR OUR
PRODUCTS.
Many of the end-users of our products are in highly cyclical industries,
such as general manufacturing and construction, that are sensitive to changes in
general economic conditions. Their demand for our products, and thus our results
24
of operations, is directly related to the level of production in their
facilities, which changes as a result of changes in general economic conditions
and other factors beyond our control. Since the fourth quarter of fiscal 2001,
for example, we experienced significantly reduced demand for our products,
generally as a result of the global economic slowdown, and more specifically as
a result of the dramatic decline in capital goods spending in the industries in
which our end-users operate. These lower levels of demand resulted in a 24%
decline in net sales from fiscal 2001 to fiscal 2004, from approximately $586.2
million to approximately $444.6 million. This decline in net sales resulted in a
55% decline in our income from operations during the same period. In addition,
our fiscal 2002 annual price increase implementation, scheduled for December
2001, was delayed for eight months due to weak economic conditions. During
fiscal 2004, we began to see stabilization and modest improvement in sales and
operating profitability in the latter half of the year.
If there is further deterioration in the general economy or in the
industries we serve, our business, results of operations and financial condition
could be further adversely affected. In addition, the cyclical nature of our
business could at times also adversely affect our liquidity and ability to
borrow under our revolving credit facility.
IF DEMAND FOR OUR PRODUCTS DETERIORATES FURTHER, THE COST SAVING EFFORTS WE HAVE
IMPLEMENTED MAY NOT BE SUFFICIENT TO ACHIEVE THE BENEFITS WE EXPECT.
In fiscal 2004, we continued our facility rationalization and Lean
manufacturing programs in an ongoing effort to reduce our cost structure. If the
economy does not continue to improve or deteriorates further, our sales could
continue to decline. If sales are lower than our expectations, our cost saving
programs may not achieve the benefits we expect. We may be forced to take
additional cost savings steps that could result in additional charges and
materially affect our ability to compete or implement our business strategies.
WE RELY IN LARGE PART ON INDEPENDENT DISTRIBUTORS FOR SALES OF OUR PRODUCTS.
We depend on independent distributors to sell our products and provide
service and aftermarket support to our customers. Distributors play a
significant role in determining which of our products are stocked at the branch
locations, and hence are most readily accessible to aftermarket buyers, and the
price at which these products are sold. Almost all of the distributors with whom
we transact business offer competitive products and services to our customers.
We do not have written agreements with our distributors located in the United
States. The loss of a substantial number of these distributors or an increase in
the distributors' sales of our competitors' products to our ultimate customers
could materially reduce our sales and profits.
WE ARE SUBJECT TO CURRENCY FLUCTUATIONS FROM OUR INTERNATIONAL SALES.
Our products are sold in many countries around the world. Thus, a portion
of our revenues (approximately $124.8 million in fiscal year 2004) is generated
in foreign currencies, including principally the euro and the Canadian dollar,
while a portion of the costs incurred to generate those revenues are incurred in
other currencies. Since our financial statements are denominated in U.S.
dollars, changes in currency exchange rates between the U.S. dollar and other
currencies have had, and will continue to have, an impact on our earnings. We
currently do not have exchange rate hedges in place to reduce the risk of an
adverse currency exchange movement. Currency fluctuations may impact our
financial performance in the future.
OUR INTERNATIONAL OPERATIONS POSE CERTAIN RISKS THAT MAY ADVERSELY IMPACT SALES
AND EARNINGS.
We have operations and assets located outside of the United States,
primarily in Canada, Mexico, Germany, the United Kingdom, Denmark, France and
China. In addition, we import a portion of our hoist product line from China and
Japan, and sell our products to distributors located in approximately 50
countries. In fiscal year 2004, approximately 36% of our net sales were derived
from non-U.S. markets. These international operations are subject to a number of
special risks, in addition to the risks of our domestic business, including
currency exchange rate fluctuations, differing protections of intellectual
property, trade barriers, labor unrest, exchange controls, regional economic
uncertainty, differing (and possibly more stringent) labor regulation, risk of
governmental expropriation, domestic and foreign customs and tariffs, current
and changing regulatory environments, difficulty in obtaining distribution
support, difficulty in staffing and managing widespread operations, differences
in the availability and terms of financing, political instability and risks of
increases in taxes. Also, in some foreign jurisdictions we may be subject to
laws limiting the right and ability of entities organized or operating therein
to pay dividends or remit earnings to affiliated companies unless specified
conditions are met. These factors may adversely affect our future profits.
Part of our strategy is to expand our worldwide market share and reduce
costs by strengthening our international distribution capabilities and sourcing
basic components in foreign countries, in particular in Mexico and China.
Implementation of this strategy may increase the impact of the risks described
above, and we cannot assure you that such risks will not have an adverse effect
on our business, results of operations or financial condition.
25
OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR
SALES, EARNINGS AND PROFITABILITY.
The principal markets that we serve within the material handling industry
are fragmented and highly competitive. Competition is based primarily on
performance, functionality, price, brand recognition, customer service and
support, and product availability. Our competition in the markets in which we
participate comes from companies of various sizes, some of which have greater
financial and other resources than we do. Increased competition could force us
to lower our prices or to offer additional services at a higher cost to us,
which could reduce our gross margins and net income.
The greater financial resources or the lower amount of debt of certain of
our competitors may enable them to commit larger amounts of capital in response
to changing market conditions. Certain competitors may also have the ability to
develop product or service innovations that could put us at a disadvantage. In
addition, some of our competitors have achieved substantially more market
penetration in certain of the markets in which we operate. If we are unable to
compete successfully against other manufacturers of material handling equipment,
we could lose customers and our revenues may decline. There can also be no
assurance that customers will continue to regard our products favorably, that we
will be able to develop new products that appeal to customers, that we will be
able to improve or maintain our profit margins on sales to our customers or that
we will be able to continue to compete successfully in our core markets.
IMPROPER USE OF OUR PRODUCTS INVOLVES RISKS OF PERSONAL INJURY AND PROPERTY
DAMAGE, WHICH EXPOSES US TO POTENTIAL LIABILITY.
Our business exposes us to possible claims for personal injury or death and
property damage resulting from the products that we sell. We maintain insurance
through a combination of self-insurance retentions and excess insurance
coverage. We monitor claims and potential claims of which we become aware and
establish accrued liability reserves for the self-insurance amounts based on our
liability estimates for such claims. We cannot give any assurance that existing
or future claims will not exceed our estimates for self-insurance or the amount
of our excess insurance coverage. In addition, we cannot give any assurance that
insurance will continue to be available to us on economically reasonable terms
or that our insurers would not require us to increase our self-insurance
amounts. Claims brought against us that are not covered by insurance or that
result in recoveries in excess of insurance coverage could have a material
adverse effect on our results and financial condition.
OUR OPERATING RESULTS MAY BE AFFECTED BY FLUCTUATIONS IN STEEL PRICES. WE MAY
NOT BE ABLE TO PASS ON INCREASES IN RAW MATERIAL COSTS TO OUR CUSTOMERS.
The principal raw material used in our specialty chain, forging and crane
building operations is steel. We utilize approximately $20-$25 million of steel
annually in a variety of forms including rod, wire, bar, structural and others.
The steel industry as a whole is highly cyclical, and at times pricing can be
volatile due to a number of factors beyond our control, including general
economic conditions, labor costs, competition, import duties, tariffs and
currency exchange rates. Recently, the market price of steel has increased
significantly. This volatility can significantly affect our raw material costs.
In an environment of increasing raw material prices, competitive conditions will
determine how much of the steel price increases we can pass on to our customers.
To the extent we are unable to pass on sufficient price increases to our
customers, our profitability could be adversely affected.
WE DEPEND ON OUR SENIOR MANAGEMENT TEAM AND THE LOSS OF ANY MEMBER COULD
ADVERSELY AFFECT OUR OPERATIONS.
Our success is dependent on the management and leadership skills of our
senior management team. The loss of any of these individuals or an inability to
attract, retain and maintain additional personnel could prevent us from
implementing our business strategy. We cannot assure you that we will be able to
retain our existing senior management personnel or to attract additional
qualified personnel when needed. We have not entered into employment agreements
with any of our senior management personnel.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS WHICH MAY REQUIRE US TO EXPEND
SIGNIFICANT CAPITAL AND INCUR SUBSTANTIAL COST.
Our operations and facilities are subject to various federal, state, local
and foreign requirements relating to the protection of the environment,
including those governing the discharges of pollutants in the air and water, the
generation, management and disposal of hazardous substances and wastes and the
cleanup of contaminated sites. We have made, and will continue to make,
expenditures to comply with such requirements. Violations of, or liabilities
under, environmental laws and regulations, or changes in such laws and
regulations (such as the imposition of more stringent standards for discharges
into the environment), could result in substantial costs to us, including
operating costs and capital expenditures, fines and civil and criminal
sanctions, third party claims for property damage or personal injury, clean-up
costs or costs relating to the temporary or permanent discontinuance of
operations. Certain of our facilities have been in operation for many years, and
we have remediated contamination at some of our facilities. Over time, we and
other predecessor operators of such facilities have generated, used, handled and
disposed of hazardous and other regulated wastes. Additional environmental
26
liabilities could exist, including clean-up obligations at these locations or
other sites at which materials from our operations were disposed, which could
result in substantial future expenditures that cannot be currently quantified
and which could reduce our profits or have an adverse effect on our financial
condition.
WE COULD PURSUE SELECTED DIVESTITURES WHICH WOULD IMPACT FUTURE SALES, OPERATING
RESULTS, FINANCIAL POSITION AND CASH FLOWS.
Our strategy is to exit businesses that (i) are not integrated, either
operationally or through sales and marketing, with the rest of our Company; (ii)
have market channels and customers different from the business of our core
Products segment; (iii) are not designated as recipients of significant
investment of corporate resources in the foreseeable future; or (iv) have had,
and are expected to continue to have, low returns on our investment of financial
and management resources. For example, in fiscal 2004, we sold our Positech and
Lister Chain & Forge businesses and in fiscal 2003, we sold our ASI and LICO
Steel businesses after determining that they did not meet our criteria for
continuing investment. We periodically review our businesses and are currently
evaluating strategic alternatives for certain of our businesses. In the
aggregate, these businesses generated fiscal 2004 sales and EBITDA of $82.4
million and $2.5 million, respectively. Divestiture of some or all of such
businesses would affect future sales, operating results, financial position and
cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. We are exposed to various market
risks, including commodity prices for raw materials, foreign currency exchange
rates and changes in interest rates. We may enter into financial instrument
transactions, which attempt to manage and reduce the impact of such changes. We
do not enter into derivatives or other financial instruments for trading or
speculative purposes.
Our primary commodity risk is related to changes in the price of steel. We
control this risk through negotiating purchase contracts on a consolidated basis
and by attempting to build changes in raw material costs into the selling prices
of our products. We also evaluate our steel cost increases and assess the need
for price increases and surcharges to our customers. We have not entered into
financial instrument transactions related to raw material costs.
In fiscal 2004, approximately 28.1% of our net sales were from
manufacturing plants and sales offices in foreign jurisdictions. We manufacture
our products in the United States, Mexico, China, Denmark, the United Kingdom,
France and Germany and sell our products and solutions in over 50 countries. Our
results of operations could be affected by factors such as changes in foreign
currency rates or weak economic conditions in foreign markets. Our operating
results are exposed to fluctuations between the U.S. dollar and the Canadian
dollar, European currencies and the Mexican peso. For example, when the U.S.
dollar strengthens against the Canadian dollar, the value of our net sales and
net income denominated in Canadian dollars decreases when translated into U.S.
dollars for inclusion in our consolidated results. We are also exposed to
foreign currency fluctuations in relation to purchases denominated in foreign
currencies. Our foreign currency risk is mitigated since the majority of our
foreign operations' net sales and the related expense transactions are
denominated in the same currency so therefore a significant change in foreign
exchange rates would likely have a very minor impact on net income. For example,
a 10% decline in the rate of exchange between the euro and the U.S. dollar
impacts net income by approximately $0.3 million. In addition, the majority of
our export sale transactions are denominated in U.S. dollars. Accordingly, we
currently have not invested in derivative instruments, such as foreign exchange
contracts, to hedge foreign currency transactions.
We control risk related to changes in interest rates by structuring our
debt instruments with a combination of fixed and variable interest rates and by
periodically entering into financial instrument transactions as appropriate. At
March 31, 2004, we do not have any swap agreements or similar financial
instruments in place. At March 31, 2004 and 2003, approximately 95% and 98%,
respectively, of our outstanding debt had fixed interest rates, including the
effect of an interest rate swap that was in place at March 31, 2003. At those
dates, we had approximately $14.3 million and $6.6 million, respectively, of
outstanding variable rate debt. A 1% fluctuation in interest rates in fiscal
2003 and 2002 would have changed interest expense on that outstanding variable
rate debt by approximately $0.1 million and $0.6 million, respectively.
Like most industrial manufacturers, we are involved with asbestos-related
litigation. In continually evaluating our estimated asbestos-related liability
we review, among other things, the incidence of past and recent claims, the
historical case dismissal rate, the mix of the claimed illnesses and occupations
of the plaintiffs, our recent and historical resolution of the cases, the number
of cases pending against us, the status and results of broad-based settlement
discussions and the number of years such activity might continue. Based on this
review, we have estimated our share of the liability to defend and resolve
probable asbestos-related personal injury claims. This estimate is highly
uncertain due to the limitations of the available data and the difficulty of
forecasting with any certainty the numerous variables that can affect the range
of the liability. We will continue to study the variables in light of additional
27
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.
Our actuaries have estimated our asbestos-related liability to range from
$2.8 million to $12.3 million through approximately March 31, 2034. The estimate
of our asbestos-related liability that is probable and estimable through 2012
ranges from $2.8-$4.0 million as of March 31, 2004. The range of probable and
estimable liability reflects uncertainty in the number of future claims that
will be filed and the cost to resolve those claims, which may be influenced by a
number of factors, including the outcome of the ongoing broad-based settlement
negotiations, defensive strategies, and the cost to resolve claims outside the
broad-based settlement program. We have concluded that no amount within that
range is more likely than any other, and therefore we have reflected $3.0
million as a liability in our consolidated financial statements in accordance
with generally accepted accounting principles. The recorded liability does not
consider the impact of any potential favorable federal legislation such as the
"FAIR Act." Of this amount, we expect to incur asbestos liability payments of
approximately $0.2 million over the next 12 months. Because payment of the
liability is likely to extend over many years, we believe that the potential
additional costs for claims will not have a material after-tax effect on the
financial condition of the Company or its liquidity, although the net after-tax
effect of any future liabilities recorded could be material to earnings in a
future period.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBUS MCKINNON CORPORATION
Audited Consolidated Financial Statements as of March 31, 2004:
Report of Independent Registered Public Accounting Firm............ F-2
Consolidated Balance Sheets........................................ F-3
Consolidated Statements of Operations.............................. F-4
Consolidated Statements of Shareholders' Equity.................... F-5
Consolidated Statements of Cash Flows.............................. F-6
Notes to Consolidated Financial Statements
1. Description of Business................................... F-7
2. Accounting Principles and Practices....................... F-7
3. Discontinued Operations................................... F-11
4. Unbilled Revenues and Excess Billings..................... F-11
5. Inventories............................................... F-12
6. Marketable Securities..................................... F-12
7. Property, Plant, and Equipment............................ F-13
8. Goodwill and Intangible Assets............................ F-14
9. Accrued Liabilities and Other Non-current Liabilities..... F-16
10. Debt...................................................... F-16
11. Retirement Plans.......................................... F-19
12. Employee Stock Ownership Plan (ESOP)...................... F-21
13. Postretirement Benefit Obligation......................... F-21
14. Earnings per Share and Stock Plans........................ F-22
15. Loss Contingencies........................................ F-25
16. Restructuring Charges..................................... F-26
17. Income Taxes.............................................. F-27
18. Rental Expense and Lease Commitments...................... F-29
19. Summary Financial Information............................. F-30
20. Business Segment Information.............................. F-34
21. Selected Quarterly Financial Data (unaudited)............. F-36
22. Accumulated Other Comprehensive Loss...................... F-37
23. Effects of New Accounting Pronouncements.................. F-38
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Columbus McKinnon Corporation
We have audited the accompanying consolidated balance sheets of Columbus
McKinnon Corporation as of March 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Columbus McKinnon Corporation at March 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 31, 2004, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective
April 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
/S/ ERNST & YOUNG LLP
Buffalo, New York
May 12, 2004
F-2
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------------
MARCH 31,
----------------------------------
2004 2003
---- ----
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 11,101 $ 1,943
Trade accounts receivable, less allowance for doubtful accounts
($2,811 and $2,743, respectively).............................................. 84,374 79,335
Unbilled revenues................................................................. 5,160 8,861
Inventories....................................................................... 69,119 78,613
Net assets held for sale.......................................................... 2,790 1,800
Prepaid expenses.................................................................. 15,486 10,819
----------------------------------
Total current assets................................................................... 188,030 181,371
Net property, plant, and equipment..................................................... 58,773 67,295
Goodwill, net.......................................................................... 184,994 184,921
Other intangibles, net................................................................. 7,969 10,208
Marketable securities.................................................................. 25,355 21,898
Deferred taxes on income............................................................... 6,388 15,245
Other assets........................................................................... 1,854 1,668
----------------------------------
Total assets........................................................................... $ 473,363 $ 482,606
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks............................................................ $ 5,471 $ 2,245
Trade accounts payable............................................................ 30,076 28,654
Accrued liabilities............................................................... 48,416 36,540
Restructuring reserve............................................................. 561 2,331
Current portion of long-term debt................................................. 2,205 15,213
----------------------------------
Total current liabilities.............................................................. 86,729 84,983
Senior debt, less current portion...................................................... 121,603 99,123
Subordinated debt...................................................................... 164,131 199,734
Other non-current liabilities.......................................................... 37,922 46,059
----------------------------------
Total liabilities...................................................................... 410,385 429,899
Shareholders' equity:
Voting common stock; 50,000,000 shares authorized;
14,896,172 shares issued................................................... 149 149
Additional paid-in capital........................................................ 103,914 104,412
Accumulated deficit............................................................... (25,354) (26,547)
ESOP debt guarantee; 319,802 and 356,851 shares................................... (5,116) (5,709)
Unearned restricted stock; 24,096 and 38,997 shares............................... (39) (208)
Accumulated other comprehensive loss.............................................. (10,576) (19,390)
----------------------------------
Total shareholders' equity............................................................. 62,978 52,707
----------------------------------
Total liabilities and shareholders' equity............................................. $ 473,363 $ 482,606
==================================
See accompanying notes.
F-3
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales........................................................... $ 444,591 $ 453,320 $ 480,028
Cost of products sold............................................... 339,745 345,986 359,551
-----------------------------------------------------------
Gross profit........................................................ 104,846 107,334 120,477
Selling expenses.................................................... 48,331 47,400 43,522
General and administrative expenses................................. 25,026 26,611 28,245
Restructuring charges............................................... 1,239 3,697 9,569
Write-off/amortization of intangibles............................... 383 4,246 11,013
-----------------------------------------------------------
Income from operations.............................................. 29,867 25,380 28,128
Interest and debt expense........................................... 28,856 32,008 29,381
Other (income) and expense, net..................................... (4,191) (2,149) 2,464
-----------------------------------------------------------
Income (loss) from continuing operations before
income tax expense and cumulative effect of
accounting change................................................ 5,202 (4,479) (3,717)
Income tax expense.................................................. 4,009 1,532 2,301
-----------------------------------------------------------
Income (loss) from continuing operations before
cumulative effect of accounting change........................... 1,193 (6,011) (6,018)
-----------------------------------------------------------
Loss from discontinued operations................................... - - (7,873)
Loss on disposition of discontinued operations...................... - - (121,475)
-----------------------------------------------------------
Total loss from discontinued operations............................. - - (129,348)
-----------------------------------------------------------
Net income (loss) before cumulative effect of
accounting change................................................ 1,193 (6,011) (135,366)
Cumulative effect of change in accounting principle................. - (8,000) -
-----------------------------------------------------------
Net income (loss)................................................... $ 1,193 $ (14,011) $ (135,366)
===========================================================
Average basic shares outstanding.................................... 14,553 14,496 14,414
Average diluted shares outstanding.................................. 14,554 14,496 14,414
Basic and diluted (loss) income per share:
Income (loss) from continuing operations....................... $ 0.08 $ (0.42) $ (0.41)
Loss from discontinued operations.............................. - - (0.55)
Loss on disposition of discontinued operations................. - - (8.43)
Cumulative effect of accounting change......................... - (0.55) -
-----------------------------------------------------------
Basic and diluted income (loss) per share...................... $ 0.08 $ (0.97) $ (9.39)
===========================================================
See accompanying notes.
F-4
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMMON ADDI- RETAINED ACCUMULATED
STOCK TIONAL EARNINGS ESOP UNEARNED OTHER TOTAL
($.01 PAID-IN (ACCUMULATED DEBT RESTRICTED COMPREHENSIVE SHAREHOLDERS'
PAR VALUE) CAPITAL DEFICIT) GUARANTEE STOCK INCOME (LOSS) EQUITY
---------------------------------------------------------------------------------------
Balance at March 31, 2001.......... $ 149 $105,418 $ 124,806 $ (7,527) $ (955) $ (14,027) $ 207,864
Comprehensive loss:
Net loss 2002...................... - - (135,366) - - - (135,366)
Change in foreign currency
translation adjustment........... - - - - - 216 216
Net unrealized gain on
investments, net - - - - - 2,168 2,168
of tax expense of $1,445.........
Net unrealized loss on derivatives
qualifying as hedges, net of
tax benefit of $282.............. - - - - - (424) (424)
Change in minimum pension
liability adjustment, net of
tax benefit of $1,285............ - - - - - (1,927) (1,927)
---------
Total comprehensive loss.......... (135,333)
Earned 86,939 ESOP shares.......... - (169) - 1,013 - - 844
Earned portion and adjustment of
restricted shares.............. - (329) - - 541 - 212
Common dividends declared
$0.14 per share.................. - - (1,976) - - - (1,976)
---------------------------------------------------------------------------------------
Balance at March 31, 2002.......... $ 149 $104,920 $ (12,536) $ (6,514) $ (414) $ (13,994) $ 71,611
Comprehensive loss:
Net loss 2003...................... - - (14,011) - - - (14,011)
Change in foreign currency
Translation adjustment........... - - - - - 7,453 7,453
Net unrealized loss on
investments, net - - - - - (2,411) (2,411)
of tax benefit of $1,564.........
Net change in unrealized loss
on derivatives qualifying as
hedges, net of tax of $155....... - - - - - 233 233
Change in minimum pension
liability adjustment, net of
tax benefit of $7,115............ - - - - - (10,671) (10,671)
---------
Total comprehensive loss.......... (19,407)
Earned 61,003 ESOP shares.......... - (464) - 805 - - 341
Earned portion and adjustment of
restricted shares.............. - (44) - - 206 - 162
---------------------------------------------------------------------------------------
Balance at March 31, 2003.......... $ 149 $104,412 $ (26,547) $ (5,709) $ (208) $ (19,390) $ 52,707
Comprehensive income:
Net income 2004.................... - - 1,193 - - - 1,193
Change in foreign currency
translation adjustment........... - - - - - 6,389 6,389
Net unrealized gain on
investments, net - - - - - 1,706 1,706
of tax benefit of $918...........
Net change in unrealized loss
on derivatives qualifying as
hedges, net of tax of $127....... - - - - - 191 191
Change in minimum pension
liability adjustment, net of
tax benefit of $352.............. - - - - - 528 528
---------
Total comprehensive income........ 10,007
Earned 37,049 ESOP shares.......... - (393) - 593 - - 200
Earned portion and adjustment of
restricted shares.............. - (105) - - 169 - 64
---------------------------------------------------------------------------------------
Balance at March 31, 2004.......... $ 149 $103,914 $ (25,354) $ (5,116) $ (39) $ (10,576) $ 62,978
=======================================================================================
See accompanying notes.
F-5
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------
2004 2003 2002
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss) from continuing operations............................. $ 1,193 $ (6,011) $ (6,018)
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation and amortization....................................... 10,126 14,803 22,462
Deferred income taxes............................................... 6,413 (713) 166
Loss on divestitures................................................ 3,875 1,357 -
(Gain) loss on sale of real estate/investments...................... (5,143) (1,949) 2,757
Gain on early retirement of 2008 bonds.............................. (5,590) - -
Amortization/write-off of deferred financing costs.................. 6,613 3,696 -
Other............................................................... 67 (1,045) 2,177
Changes in operating assets and liabilities
net of effects of business divestitures:
Trade accounts receivable and unbilled revenues............... 1,140 (1,214) 14,644
Inventories.................................................... 8,351 11,379 18,876
Prepaid expenses............................................... (1,332) (2,891) (1,276)
Other assets................................................... (181) 3,915 1,328
Trade accounts payable......................................... (976) (4,820) 3,677
Accrued and non-current liabilities............................ 1,813 (2,328) (8,996)
--------------------------------------------------
Net cash provided by operating activities of continuing operations....... 26,369 14,179 49,797
--------------------------------------------------
INVESTING ACTIVITIES:
Sale (purchase) of marketable securities, net............................ 110 (672) (1,794)
Capital expenditures..................................................... (3,619) (5,040) (4,753)
Proceeds from sale of businesses......................................... 4,015 17,262 890
Proceeds from sale of property, plant, and equipment..................... 387 - 1,750
Proceeds from net assets held for sale................................... 3,376 4,418 2,280
--------------------------------------------------
Net cash provided by (used in) investing activities of continuing
operations............................................................ 4,269 15,968 (1,627)
--------------------------------------------------
FINANCING ACTIVITIES:
Payments under revolving line-of-credit agreements....................... (332,218) (282,211) (167,300)
Borrowings under revolving line-of-credit agreements..................... 325,326 249,081 123,622
Repayment of debt........................................................ (125,764) (1,395) (3,047)
Proceeds from issuance of long-term debt................................. 115,000 - -
Payment of deferred financing costs...................................... (4,432) (8,188) (794)
Dividends paid .......................................................... - - (1,976)
Change in ESOP debt guarantee............................................ 593 805 1,013
--------------------------------------------------
Net cash used in financing activities of continuing operations........... (21,495) (41,908) (48,482)
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................. 15 132 (306)
--------------------------------------------------
Net cash (used in) provided by continuing operations..................... 9,158 (11,629) (618)
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS................... - 504 (329)
--------------------------------------------------
Net change in cash and cash equivalents.................................. 9,158 (11,125) 947
Cash and cash equivalents at beginning of year........................... 1,943 13,068 14,015
--------------------------------------------------
Cash and cash equivalents at end of year................................. $ 11,101 $ 1,943 $ 13,068
==================================================
Supplementary cash flows data:
Interest paid....................................................... $ 30,002 $ 30,867 $ 29,887
Income taxes (received) paid........................................ $ (9,683) $ (4,197) $ 3,262
See accompanying notes.
F-6
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS
Columbus McKinnon Corporation (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 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. During fiscal
2004, approximately 64% of sales were to customers in the United States. The
operations of Automatic Systems, Inc. (ASI) have been reflected as a
discontinued operation and as more fully described in Note 3, the consolidated
financial statements for all periods presented have been restated to reflect
this change.
2. ACCOUNTING PRINCIPLES AND PRACTICES
ADVERTISING
Costs associated with advertising are expensed in the year incurred and
are included in selling expense in the statement of operations. Advertising
expenses were $2,406,000, $2,932,000, and $2,531,000 in fiscal 2004, 2003, and
2002, respectively.
CASH AND CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
CONCENTRATIONS OF LABOR
Approximately 24% of the Company's employees are represented by seven
separate domestic and Canadian collective bargaining agreements which terminate
at various times between July 2004 and March 2008. Approximately 0.4% of the
labor force is covered by a collective bargaining agreement that will expire
within one year.
CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its domestic and foreign subsidiaries; all significant intercompany
accounts and transactions have been eliminated.
DERIVATIVES AND FINANCIAL INSTRUMENTS
Derivative instruments held by the Company that have high correlation with
the underlying exposure and are highly effective in offsetting underlying price
movements are designated as hedges. Accordingly, gains and losses from changes
in derivatives fair values are deferred until the underlying transaction occurs
at which point they are then recognized in the statement of operations. When
derivatives are not designated as hedges, the gains and losses from changes in
fair value are recorded currently in the statement of operations. All derivates
are carried at fair value in the balance sheet. The fair values of derivatives
are determined by reference to quoted market prices. The Company's use of
derivative instruments has historically been limited to cash flow hedges of
certain interest rate risks.
The carrying value of the Company's current assets and current liabilities
approximate their fair values based upon the relatively short maturity of those
instruments. For the fair value of the Company's marketable securities and debt
instruments, see Notes 6 and 10, respectively.
F-7
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATIONS
The Company translates foreign currency financial statements as described
in Financial Accounting Standards (FAS) No. 52. Under this method, all items of
income and expense are translated to U.S. dollars at average exchange rates for
the year. All assets and liabilities are translated to U.S. dollars at the
year-end exchange rate. Gains or losses on translations are recorded in
accumulated other comprehensive income (loss) in the shareholders' equity
section of the balance sheet. The functional currency is the foreign currency in
which the foreign subsidiaries conduct their business. Gains and losses from
foreign currency transactions are reported in other (income) and expense, net.
There was an approximate $0.6 and $0.8 million loss on transactions with foreign
subsidiaries in fiscal 2004 and fiscal 2003, respectively. The amount for fiscal
2002 was not significant.
GOODWILL
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 for impairment on an annual
basis, or more frequently if indicators of impairment exist, at the reporting
unit level. 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 subdivided into three reporting units. As a
result of adopting SFAS No. 142, the Company ceased amortization of goodwill
beginning April 1, 2002. See Note 8 for further discussion of goodwill and
intangible assets.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost of
approximately 55% of inventories at March 31, 2004 (56% in 2003) has been
determined using the LIFO (last-in, first-out) method. Costs of other
inventories have been determined using the FIFO (first-in, first-out) or average
cost method. FIFO cost approximates replacement cost.
MARKETABLE SECURITIES
All of the Company's marketable securities, which consist of equity
securities and corporate and governmental obligations, have been classified as
available-for-sale securities and are therefore recorded at their fair values
with the unrealized gains and losses, net of tax, reported in accumulated other
comprehensive loss within shareholders' equity unless unrealized losses are
deemed to be other than temporary. In such instance, the unrealized losses are
reported in the statement of operations within other income and expense, net.
Estimated fair value is based on published trading values at the balance sheet
dates. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. The cost of securities sold is
based on the specific identification method. Interest and dividend income are
included in other income and expense, net in the consolidated statements of
operations.
The marketable securities are carried as long-term assets since they are
held for the settlement of a portion of the Company's general and products
liability insurance claims filed through CM Insurance Company, Inc., a wholly
owned captive insurance subsidiary.
F-8
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NET ASSETS HELD FOR SALE
At March 31, 2004 and 2003, net assets held for sale includes $2,790,000
and $1,800,000, respectively, as the carrying value of closed and vacated
facilities which are currently for sale.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and depreciated
principally using the straight-line method over their respective estimated
useful lives (buildings and building equipment--15 to 40 years; machinery and
equipment--3 to 18 years). When depreciable assets are retired, or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in operating results.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
current year presentation.
RELATED PARTY TRANSACTIONS
The Company entered into a consulting agreement with the Chairman of the
Board of Directors on October 1, 2002. The agreement provided compensation at a
monthly rate of $23,750 through January 2003, at which point the arrangement was
terminated.
RESEARCH AND DEVELOPMENT
Research and development costs as defined in FAS No. 2, for the years
ended March 31, 2004, 2003 and 2002 were $1,625,000, $1,239,000 and $1,328,000,
respectively and are classified as general and administrative expense in the
statement of operations.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Sales are recorded when title passes to the customer which is generally at
time of shipment to the customer, except for long-term construction contracts as
described below. The Company performs ongoing credit evaluations of its
customers' financial condition, but generally does not require collateral to
support customer receivables. The credit risk is controlled through credit
approvals, limits and monitoring procedures. Accounts receivable are reported at
net realizable value and do not accrue interest. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other factors. Accounts receivable
are charged against the allowance for doubtful accounts once all collection
efforts have been exhausted. The Company does not routinely permit customers to
return product. However, sales returns are permitted in specific situations and
typically include a restocking charge or the purchase of additional product. The
Company has established an allowance for returns based upon historical trends.
The Company recognizes contract revenues under the percentage of
completion method, measured by comparing direct costs incurred to total
estimated direct costs. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. In the event that a loss is anticipated on
an uncompleted contract, a provision for the estimated loss is made at the time
it is determined. Billings on contracts may precede or lag revenues earned, and
such differences are reported in the balance sheet as current liabilities
(accrued liabilities) and current assets (unbilled revenues), respectively.
F-9
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SHIPPING AND HANDLING COSTS
Shipping and handling costs are a component of cost of products sold.
STOCK BASED EMPLOYEE COMPENSATION
At March 31, 2004, the Company has two stock-based employee compensation
plans in effect, which are described more fully in Note 14. The Company accounts
for these plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations. No stock based employee compensation cost is
reflected in net income, as all options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant and the number of options granted was fixed. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition of SFAS No. 123 "Accounting for Stock-Based
Compensation", to stock-based employee compensation:
-----------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------
2004 2003 2002
-----------------------------------------------
Net income (loss), as reported.............................. $ 1,193 $ (14,011) $ (135,366)
Deduct: Total stock based employee compensation
expenses determined under fair value based method
for all awards, net of related tax effects............... (504) (1,019) (1,331)
-----------------------------------------------
Net income (loss), pro forma............................. $ 689 $ (15,030) $ (136,697)
===============================================
Basic and diluted income (loss) per share:
As reported.............................................. $ 0.08 $ (0.97) $ (9.39)
===============================================
Pro forma................................................ $ 0.05 $ (1.04) $ (9.48)
===============================================
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
WARRANTIES
The Company offers warranties for certain of the products it sells. The
specific terms and conditions of those warranties vary depending upon the
product sold and the country in which the Company sold the product. The Company
generally provides a basic limited warranty, including parts and labor for any
product deemed to be defective for a period of one year. The Company estimates
the costs that may be incurred under its basic limited warranty, based largely
upon actual warranty repair costs history, and records a liability in the amount
of such costs in the month that the product revenue is recognized. The resulting
accrual balance is reviewed during the year. Factors that affect the Company's
warranty liability include the number of units sold, historical and anticipated
rate of warranty claims, and cost per claim.
Changes in the Company's product warranty accrual are as follows:
-------------------------
MARCH 31,
-------------------------
2004 2003
---- ----
Balance at beginning of year................ $ 482 $ 567
Accrual for warranties issued............... 2,634 2,172
Warranties settled.......................... (2,227) (2,257)
------------------------
Balance at end of year...................... $ 889 $ 482
=======================
F-10
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DISCONTINUED OPERATIONS
In May 2002, the Company sold substantially all of the assets of ASI. The
ASI business was the principal business unit in the Company's former Solutions -
Automotive segment. The Company received $20,600,000 in cash and an 8%
subordinated note in the principal amount of $6,800,000 which is payable over 10
years. The note has been recorded at the estimated net realizable value. The
measurement date for this discontinued operation was January 21, 2002.
Accordingly, the impact of the prospective transaction has been recorded in
fiscal 2002. The Company recorded an after-tax loss of $121,475,000 or $8.43 per
diluted share and reflected ASI as a discontinued operation in the fourth
quarter of fiscal 2002. The impairment loss included closing costs from the
transaction and estimated operating losses of the discontinued operation from
April 1, 2002 through May 10, 2002, the date of the sale. The impairment loss
was due primarily to the write-off of $104,000,000 of goodwill and a $17,475,000
loss related to the write-off of the remaining net assets in excess of the
selling price. The consolidated financial statements and related notes for all
periods presented have been restated, where applicable, to reflect the ASI
business as a discontinued operation.
In accordance with Emerging Issues Task Force (EITF) 87-24, "Allocation of
Interest to Discontinued Operations," the Company allocated interest to the
discontinued operations based upon the net principal amount of debt that was
paid down with the proceeds from the sale of such operation. This resulted in an
interest allocation of approximately $905,000 for the year ended March 31, 2002.
Operating results of discontinued operations were as follows:
---------------
MARCH 31,
---------------
2002
---------------
Net revenue............................................................ $ 137,070
---------------
Loss before income taxes............................................... (9,350)
Income tax benefit..................................................... (1,477)
---------------
Loss from operations of discontinued business.......................... (7,873)
Loss on disposal of business (net of tax benefit of $9,464)............ (121,475)
---------------
Loss from discontinued operations...................................... $ (129,348)
===============
Diluted loss per share from discontinued operations.................... $ (8.98)
===============
4. UNBILLED REVENUES AND EXCESS BILLINGS
-------------------------
MARCH 31,
-------------------------
2004 2003
---- ----
Costs incurred on uncompleted contracts......$ 23,891 $ 29,532
Estimated earnings........................... 8,339 9,016
-------------------------
Revenues earned to date...................... 32,230 38,548
Less billings to date........................ 27,681 29,980
-------------------------
$ 4,549 $ 8,568
=========================
The net amounts above are included in the consolidated balance sheets under the
following captions:
-------------------------
MARCH 31,
-------------------------
2004 2003
---- ----
Unbilled revenues................................ $ 5,160 $ 8,861
Accrued liabilities.............................. (611) (293)
-------------------------
$ 4,549 $ 8,568
=========================
F-11
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVENTORIES
Inventories consisted of the following:
----------------------------
MARCH 31,
----------------------------
2004 2003
---- ----
At cost--FIFO basis:
Raw materials....................... $ 34,657 $ 42,707
Work-in-process..................... 10,169 10,361
Finished goods...................... 31,205 33,072
---------------------------
76,031 86,140
LIFO cost less than FIFO cost............ (6,912) (7,527)
---------------------------
Net inventories.......................... $ 69,119 $ 78,613
===========================
6. MARKETABLE SECURITIES
Marketable securities are held for the settlement of a portion of the
Company's general and products liability insurance claims filed through the
Company's subsidiary, CM Insurance Company, Inc. (see Notes 2 and 15).
The following is a summary of available-for-sale securities at March 31,
2004:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
Government securities........ $ 6,874 $ 440 $ - $ 7,314
Equity securities............ 16,383 1,929 271 18,041
---------------------------------------------
$ 23,257 $ 2,369 $ 271 $ 25,355
=============================================
As of March 31, 2004, in accordance with FAS No. 115, the Company reduced
the cost bases of certain equity securities since it was determined that the
unrealized losses on those securities were other than temporary in nature. This
determination resulted in the recognition of a pre-tax charge to earnings of
$110,000 for the year ended March 31, 2004, classified within other (income) and
expense, net. The above schedule reflects the reduced cost bases.
The aggregate fair value of investments and unrealized losses on available
for sale securities in an unrealized loss position at March 31, 2004 are as
follows:
AGGREGATE UNREALIZED
FAIR VALUE LOSSES
------------------------------
Equity securities in a loss
position for less than 12 months $ 2,153 $ 137
Equity securities in a loss
position for more than 12 months 2,154 134
------------------------------
$ 4,307 $ 271
==============================
The net gain or (loss) related to sales of marketable securities totaled
$1,861,000 $(478,000), and $(3,909,000) in fiscal 2004, 2003 and 2002,
respectively.
F-12
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of available-for-sale securities at March 31,
2003:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
Government securities.........$ 7,379 $ 483 $ - $ 7,862
Equity securities............. 15,045 152 1,161 14,036
---------------------------------------------
$ 22,424 $ 635 $ 1,161 $ 21,898
=============================================
As of March 31, 2003, in accordance with FAS No. 115, the Company reduced
the cost bases of certain equity securities since it was determined that the
unrealized losses on those securities were other than temporary in nature. This
determination resulted in the recognition of a pre-tax charge to earnings of
$2,189,000 for the year ended March 31, 2003, classified within other (income)
and expense, net. The above schedule reflects the reduced cost bases.
The amortized cost and estimated fair value of debt and equity securities
at March 31, 2004, by contractual maturity, are shown below:
ESTIMATED
FAIR
COST VALUE
-------------------------
(IN THOUSANDS)
Due in one year or less................. $ 2,293 $ 2,293
Due in one to five years................ 1,507 1,594
Due in five to ten years................ 2,153 2,388
Due after ten years..................... 921 1,039
-------------------------
6,874 7,314
Equity securities....................... 16,383 18,041
-------------------------
$ 23,257 $ 25,355
=========================
Net unrealized gain or loss included in the balance sheet amounted to a
$2,098,000 gain at March 31, 2004 and a $526,000 loss at March 31, 2003. The
amounts, net of related income taxes of $734,000 and $(184,000) at March 31,
2004 and 2003, respectively, are reflected as a component of accumulated other
comprehensive loss within shareholders' equity.
7. PROPERTY, PLANT, AND EQUIPMENT
Consolidated property, plant, and equipment of the Company consisted of
the following:
---------------------
MARCH 31,
---------------------
2004 2003
---- ----
Land and land improvements.......................... $ 5,554 $ 5,745
Buildings........................................... 32,541 34,036
Machinery, equipment, and leasehold improvements.... 96,809 103,782
Construction in progress............................ 1,509 3,033
---------------------
136,413 146,596
Less accumulated depreciation....................... 77,640 79,301
---------------------
Net property, plant, and equipment.................. $ 58,773 $ 67,295
=====================
Depreciation expense from continuing operations was $9,743,000,
$10,557,000, and $11,449,000 for the years ended March 31, 2004, 2003 and 2002,
respectively.
F-13
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. GOODWILL AND INTANGIBLE ASSETS
As discussed in Note 2, effective 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 for impairment on an annual basis, or more frequently if indicators of
impairment exist, at the reporting unit level. 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 subdivided into three reporting units.
Upon the adoption of SFAS No. 142 in the second quarter of fiscal 2003,
the Company recorded a one-time, non-cash 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 a change in accounting principle 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. In relation to the initial adoption of SFAS No.
142, goodwill was allocated amongst the reporting units so that goodwill was
allocated to the units that benefited from the acquisitions. The Company will
record any future impairment charges as a component of operating income.
During the fourth quarter of fiscal 2003, the Company performed its annual
impairment review and recorded an additional charge of $4,000,000 resulting from
the decline in the fair value of one of its reporting units, which is recorded
as a component of operating income in the accompanying consolidated statement of
operations as part of write-off/amortization of intangibles.
The impairment charge is non-cash in nature and does not affect the
Company's liquidity or result in non-compliance with respect to any debt
covenants contained in the Company's credit facilities.
No impairment charges were recorded during fiscal 2004.
A summary of changes in goodwill during the years ended March 31, 2004 and
2003 by business segment is as follows:
PRODUCTS SOLUTIONS TOTAL
----------------------------------------
Balance at March 31, 2002.............................. $ 165,295 $ 30,360 $ 195,655
Allocation upon adoption of SFAS No. 142............... 24,290 (24,290) -
Currency translation................................... 1,266 - 1,266
Cumulative effect of accounting change................. (1,930) (6,070) (8,000)
Fourth quarter impairment charge....................... (4,000) - (4,000)
----------------------------------------
Balance at March 31, 2003.............................. $ 184,921 $ - $ 184,921
Currency translation................................... 725 - 725
Divestitures........................................... (652) - (652)
----------------------------------------
Balance at March 31, 2004.............................. $ 184,994 $ - $ 184,994
========================================
No reclassification of identifiable intangible assets apart from goodwill
was necessary as a result of adoption of SFAS No. 142.
F-14
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other intangibles, all subject to amortization with the exception of the
intangible assets related to the Company's pension plans, consisted of the
following:
-------------------------
MARCH 31,
-------------------------
2004 2003
---- ----
Gross deferred financing costs......................................... $ 14,834 $ 10,983
Accumulated amortization of deferred financing costs................... (8,613) (2,610)
-------------------------
Deferred financing costs, net....................................... 6,221 8,373
Intangible pension assets........................................... 1,320 1,501
Patents and other, net.............................................. 428 334
-------------------------
Other intangibles, net................................................. $ 7,969 $ 10,208
=========================
During fiscal 2004, the Company incurred approximately $4.4 million of
deferred financing costs, of which $3.9 million related to its 10% Senior
Secured Notes. The Company wrote off approximately $4.9 million of deferred
financing costs related to the former term loan and recorded that charge as
interest and debt expense.
During fiscal 2003, the Company incurred approximately $8.2 million of
deferred financing costs, of which $6.3 million related to its refinanced credit
facility. The Company wrote off approximately $1.2 million of deferred financing
costs related to the former credit facility and recorded that charge as interest
and debt expense.
Based on the current amount of intangible assets subject to amortization,
the estimated amortization expense for each of the succeeding three years is
estimated to be $1,420,000 including $100,000 of amortization reflected on the
amortization of intangibles line and $1,320,000 of amortization of deferred
financing costs shown on the interest and debt expense line on the statement of
operations. Amortization expense for the fourth and fifth succeeding year is
estimated to be $1,065,000 and $590,000, respectively, including $100,000 and
$0, respectively, of amortization reflected on the amortization of intangibles
line and $965,000 and $590,000, respectively, of amortization of deferred
financing costs shown on the interest and debt expense line on the statement of
operations.
The following table presents the consolidated results of operations
adjusted as though the adoption of SFAS No. 142 occurred as of April 1, 2001.
YEAR ENDED
----------------------------
MARCH 31, 2002
----------------------------
Reported loss from continuing operations................................................ $ (6,018)
Goodwill amortization add-back, net of tax.............................................. 10,208
---------------
Adjusted income from continuing operations.............................................. $ 4,190
===============
Reported loss from continuing operations per share - basic and diluted.................. $ (0.41)
Goodwill amortization add-back.......................................................... 0.70
---------------
Adjusted income from continuing operations per share - basic and diluted................ $ 0.29
===============
F-15
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
Consolidated accrued liabilities of the Company consisted the following:
----------------------
MARCH 31,
----------------------
2004 2003
---- ----
Accrued payroll..................................... $ 10,188 $ 12,033
Accrued pension cost................................ 7,869 4,355
Interest payable.................................... 8,970 10,116
Accrued workers compensation........................ 5,220 4,615
Accrued income taxes payable........................ 4,062 -
Accrued postretirement benefit obligation........... 2,250 -
Accrued health insurance............................ 2,100 2,080
Other accrued liabilities........................... 7,757 3,341
----------------------
$ 48,416 $ 36,540
======================
Consolidated other non-current liabilities of the Company consisted the
following:
----------------------
MARCH 31,
----------------------
2004 2003
---- ----
Accumulated postretirement benefit obligation....... $ 5,840 $ 9,108
Accrued general and product liability costs......... 15,930 14,439
Accrued pension cost................................ 14,591 22,037
Other non-current liabilities....................... 1,561 475
----------------------
$ 37,922 $ 46,059
======================
10. DEBT
Consolidated debt of the Company consisted of the following:
----------------------------
MARCH 31,
----------------------------
2004 2003
---- ----
Revolving Credit Facility due March 31, 2007........................................ $ - $ 10,232
Term Loan requiring quarterly payments of $500
with balance due March 31, 2007.................................................. 7,821 32,908
10% Senior Secured Notes due August 1, 2010 with interest
payable in semi-annual installments ............................................. 115,000 -
Previous Senior Secured Term Loan repaid and retired July 2003...................... - 70,000
Other senior debt................................................................... 987 1,196
----------------------------
Total senior debt................................................................... 123,808 114,336
8 1/2% Senior Subordinated Notes due March 31, 2008 with interest
payable in semi-annual installments at 8.45% effective rate, recorded
net of unamortized discount of $169 ($266 at March 31, 2003)..................... 164,131 199,734
----------------------------
Total............................................................................... 287,939 314,070
Less current portion................................................................ 2,205 15,213
----------------------------
$ 285,734 $ 298,857
============================
On November 21, 2002, the Company refinanced its credit facilities. The
new arrangement consisted of a Revolving Credit Facility, a Term Loan, and a
Senior Second Secured Term Loan.
F-16
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Revolving Credit Facility provides availability up to a maximum of $50
million. Availability based on the underlying collateral at March 31, 2004
amounted to $48.9 million. The unused Revolving Credit Facility totaled $39.7
million, net of outstanding borrowings of $0.0 million and outstanding letters
of credit of $9.2 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, respectively, at March, 31, 2004. The
Revolving Credit Facility is secured by all domestic inventory, receivables,
equipment, real property, subsidiary stock (limited to 65% for foreign
subsidiaries) and intellectual property.
The Term Loan requires quarterly payments of $500,000 with the balance due
at 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 March, 31, 2004 (4.37%). The Term Loan is secured by all
domestic inventory, receivables, equipment, real property, subsidiary stock
(limited to 65% for foreign subsidiaries) and intellectual property.
On July 22, 2003, the Company issued $115 million of 10% Senior Secured
Notes due August 1, 2010. Proceeds from this offering were used for the
repayment in full of the Senior Second Secured Term Loan ($66.8 million), the
repurchase of $35.7 million of Senior Subordinated Notes at a discount ($30.1
million), the repayment of a portion of the outstanding Revolving Credit
Facility ($10.0 million), the repayment of a portion of the Term Loan ($3.9
million), the payment of financing costs ($2.8 million), and the payment of
accrued interest ($1.4 million).
As noted above, the Senior Second Secured Term loan was repaid in its
entirety on July 22, 2003. In accordance with the terms of the agreement, since
the loan was repaid prior to the first anniversary date, the payment of certain
accrued interest was waived. As a result, $1.1 million of accrued interest
expense was reversed in fiscal 2004 and is reflected as a reduction of interest
expense.
The redemption of the 8 1/2% Senior Subordinated Notes occurred at a
discount resulting in a $5.6 million pre-tax gain on early extinguishment of
debt. As a result of the repayment of the Senior Second Secured Term Loan and a
portion of the Term Loan and 8 1/2% Senior Subordinated Notes, $4.9 million of
pre-tax deferred financing costs were written-off in fiscal 2004. The net effect
of these two items, a $0.7 million pre-tax gain, is shown as part of other
(income) and expense, net.
The corresponding credit agreements associated with the Revolving Credit
Facility and the Term Loan place certain debt covenant restrictions on the
Company including certain financial requirements and a restriction on dividend
payments, with which the Company was in compliance as of Mach 31, 2004.
From time to time, the Company manages its debt portfolio by using
interest rate swaps to achieve an overall desired position of fixed and floating
rates. In June 2001, the Company entered into an interest rate swap agreement to
effectively convert $40 million of variable-rate debt to fixed-rate debt, which
matured in June 2003. This cash flow hedge was considered effective and the gain
or loss on the change in fair value was reported in other comprehensive income,
net of tax.
In August 2003, the Company entered into an interest rate swap agreement
to convert $93.5 million of fixed-rate debt (10%) to variable-rate debt (LIBOR
plus 578.2 basis points) through August 2008 and $57.5 million from August 2008
through August 2010. This interest rate swap was considered an ineffective hedge
and therefore the change in fair value was recognized in income as a gain. The
swap was terminated in January 2004 and a pre-tax gain of $1.9 million was
recognized as other income as a result of changes in the fair value of the swap.
F-17
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Provisions of the 8 1/2% Senior Subordinated Notes (8 1/2% Notes) include,
without limitation, restrictions on liens, indebtedness, asset sales, and
dividends and other restricted payments. The 8 1/2% Notes are redeemable at the
option of the Company, in whole or in part, at prices declining annually from
the Make-Whole Price (as defined in the 8 1/2% Notes agreement) 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 existing and future domestic subsidiaries and are not
subject to any sinking fund requirements.
Provisions of the 10% Senior Secured Notes (10% Notes) include, without
limitation, restrictions on liens, indebtedness, asset sales, and dividends and
other restricted payments. The 10% Notes are redeemable at the option of the
Company, in whole or in part, at prices declining annually from the Make-Whole
Price (as defined in the 10% Notes agreement) to 100% on and after August 1,
2009. In the event of a Change of Control (as defined in the indenture for such
notes), each holder of the 10% Notes may require the Company to repurchase all
or a portion of such holder's 10% Notes at a purchase price equal to 101% of the
principal amount thereof. The 10% Notes are guaranteed by certain existing and
future domestic subsidiaries and are not subject to any sinking fund
requirements. The 10% Notes are also secured, in a second lien position, by all
domestic inventory, receivables, equipment, real property, subsidiary stock
(limited to 65% for foreign subsidiaries) and intellectual property.
The carrying amount of the Company's revolving credit facility and term
loan approximates the fair value based on current market rates. The Company's
Senior Secured Notes and Senior Subordinated Notes have an approximate fair
market value of $121,900,000 and $154,442,000, respectively, based on quoted
market prices which is less than their aggregate carrying amount of
$279,131,000.
The principal payments scheduled to be made as of March 31, 2004 on the
above debt, for the next five annual periods subsequent thereto, are as follows
(in thousands):
2005 $ 2,205
2006 2,182
2007 3,944
2008 164,229
2009 95
F-18
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RETIREMENT PLANS
The Company provides defined benefit pension plans to certain employees.
The Company uses December 31 as the measurement date for all of its domestic
pension plans. The following provides a reconciliation of benefit obligation,
plan assets, and funded status of the plans:
----------------------------
MARCH 31,
----------------------------
2004 2003
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year...................................... $ 96,562 $ 88,181
Service cost................................................................. 3,921 3,760
Interest cost................................................................ 6,711 6,294
Actuarial loss............................................................. 7,919 2,606
Benefits paid................................................................ (4,248) (4,279)
----------------------------
Benefit obligation at end of year............................................ $ 110,865 $ 96,562
============================
Change in plan assets:
Fair value of plan assets at beginning of year............................... $ 65,428 $ 72,495
Actual gain (loss) on plan assets............................................ 9,787 (8,366)
Employer contribution........................................................ 9,597 5,578
Benefits paid................................................................ (4,248) (4,279)
----------------------------
Fair value of plan assets at end of year..................................... $ 80,564 $ 65,428
============================
Funded status ............................................................... $ (30,301) $ (31,134)
Unrecognized actuarial loss.................................................. 29,829 27,958
Unrecognized prior service cost.............................................. 1,320 1,501
----------------------------
Net amount recognized........................................................ $ 848 $ (1,675)
============================
Amounts recognized in the consolidated balance sheets are as follows:
----------------------------
MARCH 31,
----------------------------
2004 2003
---- ----
Intangible asset............................................................. $ 1,320 $ 1,501
Accrued liabilities.......................................................... (7,869) (4,008)
Other non-current liabilities................................................ (14,591) (22,037)
Deferred tax effect of accumulated other comprehensive loss.................. 8,795 9,148
Accumulated other comprehensive loss......................................... 13,193 13,721
----------------------------
Net amount recognized........................................................ $ 848 $ (1,675)
============================
Net periodic pension cost included the following components:
----------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------
2004 2003 2002
---- ---- ----
Service costs--benefits earned during the period......................$ 3,921 $ 3,760 $ 4,111
Interest cost on projected benefit obligation........................ 6,711 6,294 6,230
Expected return on plan assets....................................... (5,404) (6,026) (6,676)
Net amortization..................................................... 1,978 299 213
----------------------------------------
Net periodic pension cost............................................ $ 7,206 $ 4,327 $ 3,878
========================================
The accumulated benefit obligation for all defined benefit plans was
$102,528,000 and $91,258,000 as of March 31, 2004 and 2003, respectively.
F-19
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information for pension plans with a projected benefit obligation in
excess of plan assets is as follows:
------------------------
MARCH 31,
------------------------
2004 2003
---- ----
Projected benefit obligation................ $ 110,865 $ 97,007
Fair value of plan assets................... 80,564 65,428
Information for pension plans with an accumulated benefit obligation in
excess of plan assets is as follows:
------------------------
MARCH 31,
------------------------
2004 2003
---- ----
Accumulated benefit obligation.............. $ 102,528 $ 91,258
Fair value of plan assets................... 80,564 65,428
Unrecognized gains and losses are amortized on a straight-line basis over
the average remaining service period of active participants.
The weighted-average assumptions in the following table represent the
rates used to develop the actuarial present value of the projected benefit
obligation for the year listed and also net periodic pension cost for the
following year:
MARCH 31,
--------------------------------------------------------
2004 2003 2002 2001
--------------------------------------------------------
Discount rate........................................ 6.25% 6.75% 7.25% 7.50%
Expected long-term rate of return on plan assets..... 8.40 8.50 8.88 8.88
Rate of compensation increase........................ 4.00 4.00 4.00 4.50
The expected rate of return on plan asset assumptions are determined
considering historical averages and real returns on each asset class.
The Company's retirement plan target and actual asset allocations are as
follows:
MARCH 31,
------------------------------------------
TARGET ACTUAL
------------ ---------------------
2005 2004 2003
------------ ---------------------
Equity securities.............. 60 55% 50%
Fixed income................... 40 45 50
------------ ---------------------
Total plan assets.............. 100% 100% 100%
============ =====================
The Company has an investment objective for domestic pension plans to
adequately provide for both the growth and liquidity needed to support all
current and future benefit payment obligations. The investment strategy is to
invest in a diversified portfolio of assets which are expected to satisfy the
aforementioned objective and produce both absolute and risk adjusted returns
competitive with a benchmark that is a blend of the S&P 500 and an aggregate
bond fund. The shift to the targeted allocation is the result of some plan
assets governed by collective bargaining contracts to be transferred from fixed
income into equity securities during fiscal 2005.
The Company's funding policy with respect to the defined benefit pension
plans is to contribute annually at least the minimum amount required by the
Employee Retirement Income Security Act of 1974 (ERISA). Additional
contributions may be made to minimize PBGC premiums. The Company expects to
contribute $7,716,000 to its domestic pension plans in fiscal 2005.
The Company also sponsors defined contribution plans covering
substantially all domestic employees. Participants may elect to contribute basic
contributions. These plans provide for employer contributions based primarily on
employee participation. The Company recorded a charge for such contributions of
approximately $635,000, $1,430,000 and $1,790,000 for the years ended March 31,
2004, 2003 and 2002, respectively.
F-20
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The AICPA Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" requires that compensation expense for ESOP shares be
measured based on the fair value of those shares when committed to be released
to employees, rather than based on their original cost. Also, dividends on those
ESOP shares that have not been allocated or committed to be released to ESOP
participants are not reflected as a reduction of retained earnings. Rather,
since those dividends are used for debt service, a charge to compensation
expense is recorded. Furthermore, ESOP shares that have not been allocated or
committed to be released are not considered outstanding for purposes of
calculating earnings per share.
The obligation of the ESOP to repay borrowings incurred to purchase shares
of the Company's common stock is guaranteed by the Company; the unpaid balance
of such borrowings, if any, would be reflected in the consolidated balance sheet
as a liability. An amount equivalent to the cost of the collateralized common
stock and representing deferred employee benefits has been recorded as a
deduction from shareholders' equity.
Substantially all of the Company's domestic non-union employees are
participants in the ESOP. Contributions to the plan result from the release of
collateralized shares as debt service payments are made. Compensation expense
amounting to $200,000, $341,000 and $844,000 in fiscal 2004, 2003 and 2002,
respectively, is recorded based on the guaranteed release of the ESOP shares at
their fair market value. Dividends on allocated ESOP shares, if any, are
recorded as a reduction of retained earnings and are applied toward debt
service.
At March 31, 2004 and 2003, 836,949 and 941,321 of ESOP shares,
respectively, were allocated or available to be allocated to participants'
accounts. At March 31, 2004 and 2003, 319,802 and 356,851 of ESOP shares were
pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares at March 31, 2004 amounted
to $2,450,000.
13. POSTRETIREMENT BENEFIT OBLIGATION
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to certain domestic retirees and
their dependents. Prior to the acquisition of this subsidiary, the Company did
not sponsor any postretirement benefit plans. The Company pays the majority of
the medical costs for certain retirees and their spouses who are under age 65.
For retirees and dependents of retirees who retired prior to January 1, 1989,
and are age 65 or over, the Company contributes 100% toward the American
Association of Retired Persons ("AARP") premium frozen at the 1992 level. For
retirees and dependents of retirees who retired after January 1, 1989, the
Company contributes $35 per month toward the AARP premium. The life insurance
plan is noncontributory.
The Company's postretirement health benefit plans are not funded. In
accordance with FAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits," the following sets forth a reconciliation of benefit
obligations and the funded status of the plan:
------------------------
MARCH 31,
------------------------
2004 2003
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year.... $ 13,800 $ 12,538
Service cost............................... 11 13
Interest cost.............................. 869 832
Actuarial loss............................. 3,692 2,390
Benefits paid.............................. (2,388) (1,973)
------------------------
Benefit obligation at end of year....... $ 15,984 $ 13,800
========================
Funded status ............................. $ (15,984) $ (13,800)
Unrecognized actuarial loss................ 7,894 4,845
Unrecognized prior service gain............ - (153)
------------------------
Net amount recognized in accrued and
other non-current liabilities........... $ (8,090) $ (9,108)
========================
F-21
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefit cost included the following:
--------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------
2004 2003 2002
---- ---- ----
Service cost--benefits attributed to service during the period.......... $ 11 $ 13 $ 82
Interest cost........................................................... 869 832 891
Amortization of prior service gain...................................... (153) (154) (807)
Amortization of plan net losses......................................... 643 209 162
Curtailment gain........................................................ - - (1,307)
--------------------------------------
Net periodic postretirement benefit cost (credit).................. $ 1,370 $ 900 $ (979)
======================================
For measurement purposes, healthcare costs were assumed to increase 12.0%
in fiscal 2005, grading down over time to 5% in seven years. The discount rate
used in determining the accumulated postretirement benefit obligation was 6.25%
and 6.75% as of March 31, 2004 and 2003, respectively.
Assumed medical claims cost trend rates have an effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
---------------------------------------------
Effect on total of service and interest cost components......... $ 43 $ (40)
Effect on postretirement obligation............................. 803 (728)
During fiscal 2002, the company closed the Forrest City, Arkansas
production facility (see Note 16). As a result of the closure, the size of the
workforce reduction resulted in the application of curtailment accounting with
respect to the postretirement benefit plan. The curtailment gain resulted from
the acceleration of the unrecognized prior service gain.
On December 28, 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 was enacted that introduces a prescription drug
benefit under Medicare as well as a subsidy to sponsors of retiree healthcare
benefit plans. In March 2004, the FASB issued Staff Position No FAS 106-2
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003 ("FSP No 106-2")," which provides
accounting guidance on how to account for the effects of the Act on
postretirement plans. The provisions of FSP No. 106-2 are effective for periods
beginning after June 15, 2004. Any measures of the accumulated postretirement
benefit obligation or net periodic postretirement benefit costs in the Company's
financial statements do not reflect the effect of the Act.
14. EARNINGS PER SHARE AND STOCK PLANS
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128).
Basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share includes any dilutive effects
of stock options. The effect of dilutive employee stock options has not been
included for the years ended March 31, 2003 and 2002 since this would be
antidilutive as a result of the Company's net losses.
F-22
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share:
---------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------
2004 2003 2002
---- ---- ----
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations..................... $ 1,193 $ (6,011) $ (6,018)
Total loss from discontinued operations...................... - - (129,348)
Loss from cumulative effect of change in
accounting principle....................................... - (8,000) -
--------------------------------------------
Net income (loss) ......................................... $ 1,193 $ (14,011) $ (135,366)
============================================
Denominators:
Weighted-average common stock outstanding--
denominator for basic EPS.................................. 14,553 14,496 14,414
Effect of dilutive employee stock options.................... 1 - -
--------------------------------------------
Adjusted weighted-average common stock
outstanding and assumed conversions--
denominator for diluted EPS................................ 14,554 14,496 14,414
============================================
The weighted-average common stock outstanding shown above is net of
unallocated ESOP shares (see Note 12).
STOCK PLANS
The Company maintains two stock option plans, a Non-Qualified Stock Option
Plan (Non-Qualified Plan) and an Incentive Stock Option Plan (Incentive Plan).
Under the Non-Qualified Plan, options may be granted to officers and other key
employees of the Company as well as to non-employee directors and advisors.
Options granted under the Non-Qualified and Incentive Plans become exercisable
over a four-year period at the rate of 25% per year commencing one year from the
date of grant at an exercise price of not less than 100% of the fair market
value of the common stock on the date of grant. Any option granted under the
Non-Qualified plan may be exercised not earlier than one year from the date such
option is granted. Any option granted under the Incentive Plan may be exercised
not earlier than one year and not later than 10 years from the date such option
is granted.
A summary of option transactions during each of the three fiscal years in
the period ended March 31, 2004 is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------------------------------------
Balance at March 31, 2001............. 671,535 $ 19.46
Granted............................ 762,000 10.07
Cancelled.......................... (27,375) 21.06
------------------------------------
Balance at March 31, 2002............. 1,406,160 $ 14.34
Cancelled.......................... (94,410) 18.31
------------------------------------
Balance at March 31, 2003............. 1,311,750 $ 14.05
Granted............................ 45,000 6.92
Cancelled.......................... (126,900) 14.28
------------------------------------
Balance at March 31, 2004............. 1,229,850 $ 13.77
====================================
A summary of exercisable and available for grant options is as follows:
----------------------------------
YEAR ENDED MARCH 31,
----------------------------------
2004 2003 2002
---- ---- ----
Exercisable at end of year.............. 851,425 653,887 394,153
Available for grant at end of year...... 752,650 670,750 76,340
F-23
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding as of March 31, 2004, ranged from
$6.92 to $29.00. The following table provides certain information with respect
to stock options outstanding at March 31, 2004:
WEIGHTED-AVERAGE
STOCK OPTIONS WEIGHTED-AVERAGE REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE
------------------------ ----------- -------------- ----
Up to $10.00..................... 683,950 $ 9.77 7.6
$10.01 to $20.00.................. 194,100 14.63 3.9
$20.01 to $30.00.................. 351,800 21.06 5.0
-------------------------------------------------------------------------
1,229,850 $ 13.77 6.2
=========================================================================
The following table provides certain information with respect to stock
options exercisable at March 31, 2004:
STOCK OPTIONS WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- ----------------
Up to $10.00....................... 325,213 $ 9.95
$10.01 to $20.00.................... 174,412 14.98
$20.01 to $30.00.................... 351,800 21.06
----------- ----------------
851,425 $ 15.57
=========== ================
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under FAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the grant date and the number of options granted is fixed,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. No options
were granted in fiscal 2003. The fair value for issued options in fiscal 2004
and 2002 was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
YEAR ENDED YEAR ENDED
MARCH 31, 2004 MARCH 31, 2002
---------------- ----------------
Assumptions:
Risk-free interest rate........... 4.5 % 4.5 %
Dividend yield--Incentive Plan.... 0.0 % 0.0 %
Volatility factor................. 0.567 0.444
Expected life--Incentive Plan..... 5 years 5 years
The weighted-average fair value of options granted in 2004 and 2002 was
$3.68 and $4.66 per share, respectively.
F-24
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company maintains a Restricted Stock Plan, under which the Company had
49,000 shares reserved for issuance at March 31, 2004 and 2003. The Company
charges unearned compensation, a component of shareholders' equity, for the
market value of shares, as they are issued. It is then ratably amortized over
the restricted period. Grantees who remain continuously employed with the
Company become vested in their shares five years after the date of the grant.
There were 1,000 shares issued during the year ended March 31, 2003. No shares
were issued during the year ended March 31, 2004 or 2002.
15. LOSS CONTINGENCIES
GENERAL AND PRODUCT LIABILITY--$15,810,000 of the accrued general and
product liability costs which are included in other non-current liabilities at
March 31, 2004 ($14,314,000 at March 31, 2003) are the actuarial present value
of estimated reserves based on an amount determined from loss reports and
individual cases filed with the Company and an amount, based on experience, for
losses incurred but not reported. The accrual in these consolidated financial
statements was determined by applying a discount factor based on interest rates
customarily used in the insurance industry, between 5.27% and 6.63%, to the
undiscounted reserves of $19,535,000 and $17,700,000 at March 31, 2004 and 2003,
respectively. This liability is funded by investments in marketable securities
(see Notes 2 and 6).
Along with other manufacturing companies, we are subject to various
federal, state and local laws relating to the protection of the environment. To
address the requirements of such laws, we have adopted a corporate environmental
protection policy which provides that all of our owned or leased facilities
shall, and all of our employees have the duty to, comply with all applicable
environmental regulatory standards, and we have initiated an environmental
auditing program for our facilities to ensure compliance with such regulatory
standards. We have also established managerial responsibilities and internal
communication channels for dealing with environmental compliance issues that may
arise in the course of our business. Because of the complexity and changing
nature of environmental regulatory standards, it is possible that situations
will arise from time to time requiring us to incur expenditures in order to
ensure environmental regulatory compliance. However, we are not aware of any
environmental condition or any operation at any of our facilities, either
individually or in the aggregate, which would cause expenditures having a
material adverse effect on our results of operations, financial condition or
cash flows and, accordingly, have not budgeted any material capital expenditures
for environmental compliance for fiscal 2005.
Like most industrial manufacturers, the Company is involved in
asbestos-related litigation. In continually evaluating its estimated
asbestos-related liability, the Company reviews, among other things, the
incidence of past and recent claims, the historical case dismissal rate, the mix
of the claimed illnesses and occupations of the plaintiffs, its recent and
historical resolution of the cases, the number of cases pending against it, the
status and results of broad-based settlement discussions, and the number of
years such activity might continue. Based on this review, the Company has
estimated its share of liability to defend and resolve probable asbestos-related
personal injury claims. This estimate is highly uncertain due to the limitations
of the available data and the difficulty of forecasting with any certainty the
numerous variables that can affect the range of the liability. The Company will
continue to study the variables in light of additional information in order to
identify trends that may become evident and to assess their impact on the range
of liability that is probable and estimable.
F-25
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Our actuaries have estimated our asbestos-related liability to range from
$2.8 million to $12.3 million through approximately March 31, 2034. The
Company's estimate of its asbestos-related liability that is probable and
estimable through fiscal 2012 ranges from $2.8 million to $4.0 million as of
March 31, 2004. The range of probable and estimable liability reflects
uncertainty in the number of future claims that will be filed and the cost to
resolve those claims, which may be influenced by a number of factors, including
the outcome of the ongoing broad-based settlement negotiations, defensive
strategies, and the cost to resolve claims outside the broad-based settlement
program. The Company has concluded that no amount within that range is more
likely than any other, and therefore has reflected $3.0 million as a liability
in the consolidated financial statements in accordance with generally accepted
accounting principles. The recorded liability does not consider the impact of
any potential favorable federal legislation such as the "FAIR Act". Of this
amount, management expects to incur asbestos liability payments of approximately
$0.2 million over the next 12 months. Because payment of the liability is likely
to extend over many years, management believes that the potential additional
costs for claims will not have a material after-tax effect on the financial
condition of the Company or its liquidity, although the net after-tax effect of
any future liabilities recorded could be material to earnings in a future
period.
16. RESTRUCTURING CHARGES
The Company has analyzed its global capacity requirements and, as a
result, began a series of facility rationalization projects in early fiscal
2002. The decision to close or significantly reorganize the facilities
identified was based upon the cost structure of those facilities relative to
others within the Company. Production operations were transferred to other
facilities within the same reporting segment, to better utilize their available
capacity.
During fiscal 2004, the Company recorded restructuring costs of $1.2
million related to various employee termination benefits and facility costs as a
result of the continued closure, merging and reorganization of the Company and
completion of the two open projects from fiscal 2003. $0.8 and $0.4 million of
these costs are related to the Products and Solutions segments, respectively.
Approximately 130 employees were terminated at the various facilities. As of
March 31, 2004, the liability consists of severance payments and costs
associated with the preparation and maintenance of non-operating facilities
prior to disposal which were accrued prior to the adoption of SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities." Currently,
we anticipate that our restructuring charges for fiscal 2005 related to these
plans to be between $0.4 and $0.7 million strictly related to facility costs.
The Company has two facilities that are completely closed and prepared for
disposal and are recorded as assets held for sale.
During fiscal 2003, the Company recorded restructuring costs of $3.7
million related to various employee termination benefits and facility costs as a
result of the decision to close, merge or significantly reorganize five
manufacturing facilities. Three of the five projects were completed as planned
in the fourth quarter of 2003 while two others were completed in the second
quarter of fiscal 2004. All of these costs are related to the Products segment,
with the exception of approximately $0.1 million. Approximately 215 employees
were to be terminated at the various facilities. As of March 31, 2003,
approximately one half of the terminations had occurred with the remaining
terminations completed in fiscal 2004. The liability as of March 31, 2003
consisted of severance payments and costs associated with the preparation and
maintenance of non-operating of facilities prior to disposal which were accrued
prior to the adoption of SFAS No. 146 "Accounting for Costs Associated with Exit
or Disposal Activities".
F-26
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During fiscal 2002, the Company recorded restructuring costs of $9.6
million related to various employee and contractual terminations as a result of
the decision to close two manufacturing facilities. All of the costs are related
to the Products segment. Included in the restructuring charges was approximately
$8.3 million to terminate a facility lease, resulting in the purchase of
property with an estimated fair value of approximately $2.3 million which was
recorded as an offset to the restructuring charges. The $2.3 million fair value
of the property was classified as net assets available for sale as of March 31,
2002. Due to changes in the real estate market and a reassessment of the fair
value of the property, the net asset held for sale was adjusted by $0.5 million
as a further restructuring charge during fiscal 2003. Approximately 250
employees were to be terminated at the Company's hoist manufacturing facility in
Forrest City, Arkansas and chain manufacturing facility in Richmond, British
Columbia, Canada when those facilities were closed in the third and fourth
quarter of fiscal 2002, respectively. As of March 31, 2002, substantially all of
the terminations had occurred and the remaining liability consisted of severance
payments and costs associated with the operation of the facilities until
disposal. In addition to those facilities, the Company closed, merged or
restructured three smaller facilities and three warehouse facilities during
fiscal 2002.
The following provides a reconciliation of the activity related to
restructuring reserves:
-------------------------------------------------------------------------------
FISCAL 2002 PROJECTS FISCAL 2003 PROJECTS FISCAL 2004 TOTAL
-------------------------------------------------------------------------------
EMPLOYEE FACILITY EMPLOYEE FACILITY EMPLOYEE
RELATED CLOSURE RELATED CLOSURE RELATED
-------------------------------------------------------------------------------
Reserve at March 31, 2001..... $ - $ - $ - $ - $ - $ -
Fiscal 2002 restructuring
Charges..................... 2,400 7,169 - - - 9,569
Cash payments................. (1,750) (9,170) - - - (10,920)
Reclassification to net
assets held for sale........ - 2,300 - - - 2,300
-------------------------------------------------------------------------------
Reserve at March 31, 2002 .... 650 299 - - - 949
Fiscal 2003 restructuring
charges..................... - 857 1,789 1,051 - 3,697
Cash payments................. (650) (296) (867) (2) - (1,815)
Write-down of non-operating
property.................... - (500) - - - (500)
-------------------------------------------------------------------------------
Reserve at March 31, 2003..... $ - $ 360 $ 922 $ 1,049 $ - $ 2,331
Fiscal 2004 restructuring
charges..................... - - (318) 234 1,323 1,239
Cash payments................. - (151) (558) (1,092) (1,208) (3,009)
-------------------------------------------------------------------------------
Reserve at March 31, 2004..... $ - $ 209 $ 46 $ 191 $ 115 $ 561
===============================================================================
17. INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income (loss) from continuing
operations before income tax expense and cumulative effect of accounting change.
The sources and tax effects of the difference were as follows:
-----------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------
2004 2003 2002
---- ---- ----
Expected tax at 35%................................................... $ 1,821 $ (1,568) $ (1,301)
State income taxes net of federal benefit............................. 614 715 501
Nondeductible goodwill write-off/amortization......................... - 1,398 2,752
Foreign taxes greater than statutory provision........................ 905 632 922
Benefit of worthless stock deduction.................................. (44,815) - -
Research and development credit....................................... (1,058) - (1,031)
Valuation allowance................................................... 46,974 1,249 -
Other................................................................. (432) (894) 458
-----------------------------------------
Actual tax provision.................................................. $ 4,009 $ 1,532 $ 2,301
=========================================
F-27
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income tax expense consisted of the following:
-----------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------
2004 2003 2002
---- ---- ----
Current income tax expense (benefit):
United States Federal.......................................... $ 147 $ (6,148) $ (198)
State taxes.................................................... 928 1,099 1,012
Foreign........................................................ 2,779 1,083 1,483
Deferred income tax expense (benefit):
United States.................................................. 880 5,715 (317)
Foreign........................................................ (725) (217) 321
-----------------------------------------
$ 4,009 $ 1,532 $ 2,301
=========================================
The Company applies the liability method of accounting for income taxes as
required by FAS Statement No. 109, "Accounting for Income Taxes." The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are as follows:
------------------------
MARCH 31,
------------------------
2004 2003
---- ----
Deferred tax assets:
Net operating loss carryforwards............ $ 39,741 $ -
Employee benefit plans...................... 9,629 11,471
Asset reserves.............................. 2,835 5,496
Insurance reserves.......................... 5,022 4,122
Accrued vacation and incentive costs........ 2,090 2,106
Capital loss carryforwards.................. 869 1,249
Other....................................... 4,607 3,777
Valuation allowance......................... (48,223) (1,249)
-------------------------
Gross deferred tax assets 16,570 26,972
-------------------------
Deferred tax liabilities:
Inventory reserves.......................... (3,577) (4,264)
Property, plant, and equipment.............. (4,908) (5,425)
-------------------------
Gross deferred tax liabilities............ (8,485) (9,689)
-------------------------
Net deferred tax assets................ $ 8,085 $ 17,283
=========================
As of March 31, 2004, the Company had federal net operating loss
carryforwards of approximately $113,540,000 and capital loss carryforwards of
$2,484,000. The net operating loss carryforwards arose in fiscal 2004 primarily
as a result of a worthless stock deduction taken on the Company's March 31, 2003
federal income tax return relating to the sale of ASI (see Note 3). If not
utilized, these carryforwards will expire in fiscal years 2023 and 2024. The
capital losses arose from $1,579,000 of losses on the sale of the Company's
marketable securities and a $905,000 loss on the disposition of a subsidiary.
Capital loss carryforwards of $1,470,000, $972,000, and $42,000 expire at March
31, 2007, 2008, and 2009, respectively. A valuation allowance of $48,223,000 was
recorded at March 31, 2004 due to the uncertainly of whether the Company's
operating loss carryforwards, deferred tax assets and capital loss carryforwards
may ultimately be realized
Deferred income taxes are classified within the consolidated balance
sheets based on the following breakdown:
-----------------------
MARCH 31,
-----------------------
2004 2003
---- ----
Net current deferred tax asset................... $ 3,662 $ 2,038
Net non-current deferred tax asset............... 6,388 15,245
Net current deferred tax liability............... (671) -
Net non-current deferred tax liability........... (1,294) -
-----------------------
Net deferred tax asset...................... $ 8,085 $ 17,283
=======================
F-28
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net current deferred tax asset, net current deferred tax liability,
and net non-current deferred tax liability are included in prepaid expenses,
accrued liabilities, and other non-current liabilities, respectively.
Income before income tax expense and cumulative effect of accounting
change includes foreign subsidiary income of $3,687,000, $649,000 and $2,436,000
for the years ended March 31, 2004, 2003, and 2002, respectively. As of March
31, 2004, the Company had unrecognized deferred tax liabilities related to
approximately $17 million of cumulative undistributed earnings of foreign
subsidiaries. These earnings are considered to be permanently invested in
operations outside the United States. Determination of the amount of
unrecognized deferred U.S. income tax liability with respect to such earnings is
not practicable.
18. RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for the years ended March 31, 2004, 2003 and 2002 was
$3,594,000, $3,109,000, and $3,225,000, respectively. The following amounts
represent future minimum payment commitments as of March 31, 2004 under
non-cancelable operating leases extending beyond one year (in thousands):
VEHICLES AND
YEAR ENDED MARCH 31, REAL PROPERTY EQUIPMENT TOTAL
-------------------- ------------- --------- -----
2005....................................... $ 1,525 $ 2,239 $ 3,764
2006....................................... 1,034 1,705 2,739
2007....................................... 779 1,384 2,163
2008....................................... 687 952 1,639
2009....................................... 647 601 1,248
F-29
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19. Summary Financial Information
The following information sets forth the condensed consolidating summary
financial information of the parent and guarantors, which guarantee the 10%
Senior Secured Notes and the 8 1/2% Senior Subordinated Notes, and the
nonguarantors. The guarantors are wholly owned and the guarantees are full,
unconditional, joint and several.
As of and for the year ended March 31, 2004:
Parent Guarantors Nonguarantors Eliminations Consolidated
-------------------------------------------------------------------
As of March 31, 2004: (In thousands)
Current assets:
Cash..................................... $ 6,981 $ (329) $ 4,449 $ - $ 11,101
Trade accounts receivable and unbilled
revenues.............................. 55,335 (47) 34,246 - 89,534
Inventories.............................. 29,147 18,210 22,734 (972) 69,119
Net assets held for sale................. 1,800 990 - - 2,790
Prepaid expenses......................... 8,383 691 6,412 - 15,486
-------------------------------------------------------------------
Total current assets.................. 101,646 19,515 67,841 (972) 188,030
Net property, plant, and equipment............ 26,016 13,718 19,039 - 58,773
Goodwill and other intangibles, net........... 96,114 57,325 39,524 - 192,963
Intercompany balances......................... 41,127 (44,864) (70,327) 74,064 -
Other non-current assets...................... 51,001 198,664 24,134 (240,202) 33,597
-------------------------------------------------------------------
Total assets.......................... $ 315,904 $ 244,358 $ 80,211 $ (167,110) $ 473,363
===================================================================
Current liabilities........................... $ 44,555 $ 13,078 $ 29,947 $ (851) $ 86,729
Long-term debt, less current portion.......... 284,871 - 863 - 285,734
Other non-current liabilities................. 3,628 10,467 23,827 - 37,922
-------------------------------------------------------------------
Total liabilities..................... 333,054 23,545 54,637 (851) 410,385
Shareholders' equity.......................... (17,150) 220,813 25,574 (166,259) 62,978
-------------------------------------------------------------------
Total liabilities and shareholders'
equity........................... $ 315,904 $ 244,358 $ 80,211 $ (167,110) $ 473,363
===================================================================
For the Year Ended March 31, 2004:
Net sales..................................... $ 226,631 $ 114,987 $ 124,116 $ (21,143) $ 444,591
Cost of products sold......................... 173,269 94,677 93,785 (21,986) 339,745
-------------------------------------------------------------------
Gross profit.................................. 53,362 20,310 30,331 843 104,846
-------------------------------------------------------------------
Selling, general and administrative expenses.. 35,046 12,854 25,457 - 73,357
Restructuring charges......................... 1,281 - (42) - 1,239
Amortization of intangibles................... 245 3 135 - 383
-------------------------------------------------------------------
Income from operations........................ 16,790 7,453 4,781 843 29,867
Interest and debt expense..................... 28,390 (263) 729 - 28,856
Other (income) and expense, net............... 888 (12,573) (1,456) 8,950 (4,191)
-------------------------------------------------------------------
(Loss) income from continuing operations
before income tax (benefit) expense........ (12,488) 20,289 5,508 (8,107) 5,202
Income tax (benefit) expense.................. (1,306) 3,181 2,134 - 4,009
-------------------------------------------------------------------
Net (loss) income............................. $ (11,182) $ 17,108 $ 3,374 $ (8,107) $ 1,193
===================================================================
F-30
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Parent Guarantors Nonguarantors Eliminations Consolidated
-------------------------------------------------------------------
For the Year Ended March 31, 2004:
Operating activities:
Cash provided by (used in) operating
activities................................. $ 19,359 $ (2,644) $ 18,623 $ (8,969) $ 26,369
Investing activities:
Proceeds from marketable securities, net...... - - 110 - 110
Capital expenditures.......................... (2,635) (700) (284) - (3,619)
Proceeds from sale of businesses.............. 4,015 - - - 4,015
Proceeds from sale of property, plant and
equipment.................................. - 387 - - 387
Net assets held for sale...................... - 3,376 - - 3,376
-------------------------------------------------------------------
Net cash provided by (used in) investing
activities.................................... 1,380 3,063 (174) - 4,269
Financing activities:
Proceeds from issuance of common stock........ - - (19) 19 -
Net (payments) borrowings under revolving
line-of-credit agreements.................. (9,925) - 3,033 - (6,892)
Repayment of debt............................. (115,147) - (10,617) - (125,764)
Proceeds from issuance of long term debt...... 115,000 - - - 115,000
Deferred financing costs incurred............. (4,432) - - - (4,432)
Dividends paid................................ 174 - (9,124) 8,950 -
Other......................................... 593 - - - 593
-------------------------------------------------------------------
Net cash (used in) provided by financing
activities................................. (13,737) - (16,727) 8,969 (21,495)
Effect of exchange rate changes on cash....... (78) 72 21 - 15
-------------------------------------------------------------------
Net change in cash and cash equivalents....... 6,924 491 1,743 - 9,158
Cash and cash equivalents at
beginning of year.......................... 57 (820) 2,706 - 1,943
-------------------------------------------------------------------
Cash and cash equivalents at end of year...... $ 6,981 $ (329) $ 4,449 $ - $ 11,101
===================================================================
As of and for the year ended March 31, 2003:
As of March 31, 2003:
Current assets:
Cash..................................... $ 56 $ (829) $ 2,716 $ - $ 1,943
Trade accounts receivable and unbilled
revenues.............................. 54,255 (81) 34,022 - 88,196
Inventories.............................. 38,126 19,667 21,792 (972) 78,613
Net assets held for sale................. 1,800 - - - 1,800
Other current assets..................... 5,000 1,439 4,380 - 10,819
-------------------------------------------------------------------
Total current assets.................. 99,237 20,196 62,910 (972) 181,371
Net property, plant, and equipment............ 31,761 16,551 18,983 - 67,295
Goodwill and other intangibles, net........... 98,853 57,364 38,912 - 195,129
Intercompany balances......................... 48,807 (75,044) (47,860) 74,097 -
Other non-current assets...................... 207,288 172,822 32,199 (373,498) 38,811
-------------------------------------------------------------------
Total assets.......................... $ 485,946 $ 191,889 $ 105,144 $ (300,373) $ 482,606
===================================================================
Current liabilities........................... $ 42,193 $ 8,613 $ 24,763 $ (818) $ 74,751
Long-term debt, less current portion.......... 297,690 - 11,399 - 309,089
Other non-current liabilities................. 27,786 14,034 4,239 - 46,059
-------------------------------------------------------------------
Total liabilities..................... 367,669 22,647 40,401 (818) 429,899
Shareholders' equity.......................... 118,277 169,242 64,743 (299,555) 52,707
-------------------------------------------------------------------
Total liabilities and shareholders
equity........................... $ 485,946 $ 191,889 $ 105,144 $ (300,373) $ 482,606
===================================================================
F-31
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Parent Guarantors Nonguarantors Eliminations Consolidated
For the Year Ended March 31, 2003: -------------------------------------------------------------------
Net sales..................................... $ 231,404 $ 124,218 $ 116,619 $ (18,921) $ 453,320
Cost of products sold......................... 172,214 102,655 90,015 (18,898) 345,986
-------------------------------------------------------------------
Gross profit.................................. 59,190 21,563 26,604 (23) 107,334
-------------------------------------------------------------------
Selling, general and administrative expenses.. 36,826 13,853 23,332 - 74,011
Restructuring charges......................... 1,960 - 1,737 - 3,697
Amortization of intangibles................... 242 4,003 1 - 4,246
-------------------------------------------------------------------
Income from operations........................ 20,162 3,707 1,534 (23) 25,380
Interest and debt expense..................... 30,957 153 898 - 32,008
Other (income) and expense, net............... (112) (1,804) (1,310) 1,077 (2,149)
-------------------------------------------------------------------
(Loss) income from continuing operations
before income tax (benefit) expense........ (10,683) 5,358 1,946 (1,100) (4,479)
Income tax (benefit) expense.................. (3,627) 4,313 855 (9) 1,532
-------------------------------------------------------------------
(Loss) income from continuing operations...... (7,056) 1,045 1,091 (1,091) (6,011)
Cumulative effect of accounting change........ - (1,930) (6,070) - (8,000)
-------------------------------------------------------------------
Net loss...................................... $ (7,056) $ (885) $ (4,979) $ (1,091) $ (14,011)
===================================================================
For the Year Ended March 31, 2003:
Operating activities:
Cash provided by (used in) operating
activities................................. $ 32,288 $ (7,709) $ (9,013) $ (1,387) $ 14,179
Investing activities:
Purchase of marketable securities, net........ (672) - - - (672)
Capital expenditures.......................... (1,901) (952) (2,187) - (5,040)
Proceeds from sale of business................ 1,108 16,154 - - 17,262
Net assets held for sale...................... - 4,418 - - 4,418
-------------------------------------------------------------------
Net cash (used in) provided by investing
activities................................. (1,465) 19,620 (2,187) - 15,968
Financing activities:
Proceeds from issuance of common stock........ - - 16 (16) -
Net (payments) borrowings under revolving
line-of-credit agreements.................. (31,437) (11,551) 9,858 - (33,130)
Repayment of debt............................. (564) - (831) - (1,395)
Payment of deferred financing costs........... (7,823) - (365) - (8,188)
Dividends paid................................ 234 - (1,647) 1,413 -
Other......................................... 805 - - - 805
-------------------------------------------------------------------
Net cash (used in) provided by financing
activities................................. (38,785) (11,551) 7,031 1,397 (41,908)
Effect of exchange rate changes on cash....... (6) 8 140 (10) 132
-------------------------------------------------------------------
Net cash (used in) provided by
continuing perations....................... (7,968) 368 (4,029) - (11,629)
Net cash provided by discontinued operations.. - 504 - - 504
-------------------------------------------------------------------
Net change in cash and cash equivalents....... (7,968) 872 (4,029) - (11,125)
Cash and cash equivalents at
beginning of year.......................... 8,024 (1,701) 6,745 - 13,068
-------------------------------------------------------------------
Cash and cash equivalents at end of year...... $ 56 $ (829) $ 2,716 $ - $ 1,943
===================================================================
F-32
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the year ended March 31, 2002:
Parent Guarantors Nonguarantors Eliminations Consolidated
-------------------------------------------------------------------
For the Year Ended March 31, 2002:
Net sales..................................... $ 222,957 $ 170,265 $ 107,944 $ (21,138) $ 480,028
Cost of products sold......................... 164,150 134,031 82,533 (21,163) 359,551
-------------------------------------------------------------------
Gross profit.................................. 58,807 36,234 25,411 25 120,477
-------------------------------------------------------------------
Selling, general and administrative expenses.. 34,539 17,163 20,065 - 71,767
Restructuring charges......................... 9,416 - 153 - 9,569
Amortization of intangibles................... 2,140 6,461 2,412 - 11,013
-------------------------------------------------------------------
Income from operations........................ 12,712 12,610 2,781 25 28,128
Interest and debt expense..................... 28,869 - 512 - 29,381
Other (income) and expense, net............... 4,773 (2,076) (233) - 2,464
-------------------------------------------------------------------
Income (loss) from continuing operations
before income tax expense.................. (20,930) 14,686 2,502 25 (3,717)
Income tax expense............................ (6,838) 7,419 1,710 10 2,301
-------------------------------------------------------------------
(Loss) income from continuing operations...... (14,092) 7,267 792 15 (6,018)
Loss on discontinued operations............... - (7,873) - - (7,873)
Loss on disposal of discontinued operations... - (121,475) - - (121,475)
-------------------------------------------------------------------
Net (loss) income............................. $ (14,092) $ (122,081) $ 792 $ 15 $ (135,366)
===================================================================
For the Year Ended March 31, 2002:
Operating activities:
Cash provided by (used in) operating
activities................................. $ 63,500 $ (17,965) $ 5,914 $ (1,652) $ 49,797
Investing activities:
Purchase of marketable securities, net........ (1,794) - - - (1,794)
Capital expenditures.......................... (6,923) 3,162 (992) - (4,753)
Proceeds from sale of business................ 890 - - - 890
Proceeds from sale of property, plant and
equipment.................................. - - 1,750 - 1,750
Net assets held for sale...................... - 2,280 - - 2,280
-------------------------------------------------------------------
Net cash (used in) provided by investing
activities................................. (7,827) 5,442 758 - (1,627)
Financing activities:
Net (payments) borrowings under revolving
line-of-credit agreements.................. (56,200) 13,016 (494) - (43,678)
Repayment of debt............................. (851) - (2,196) - (3,047)
Dividends paid................................ (1,808) - (1,820) 1,652 (1,976)
Other......................................... 219 - - - 219
-------------------------------------------------------------------
Net cash (used in) provided by financing
activities................................. (58,640) 13,016 (4,510) 1,652 (48,482)
Effect of exchange rate changes on cash....... (26) - (280) - (306)
-------------------------------------------------------------------
Net cash provided by (used in) continuing
operations................................. (2,993) 493 1,882 - (618)
Net cash used in discontinued operations...... - (329) - - (329)
-------------------------------------------------------------------
Net change in cash and cash equivalents....... (2,993) 164 1,882 - (947)
Cash and cash equivalents at
beginning of year......................... 11,017 (1,865) 4,863 - 14,015
-------------------------------------------------------------------
Cash and cash equivalents at end of year...... $ 8,024 $ (1,701) $ 6,745 $ - $ 13,068
===================================================================
F-33
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. BUSINESS SEGMENT INFORMATION
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 end-users. The
Solutions segment sells engineered material handling systems such as conveyors
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 the summary of significant accounting policies.
Intersegment sales are not significant. The Company evaluates performance based
on operating earnings of the respective business units prior to the effects of
restructuring charges and amortization.
Segment information as of and for the years ended March 31, 2004, 2003 and
2002 is as follows:
----------------------------------------------
YEAR ENDED MARCH 31, 2004
----------------------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers............................................ $ 394,160 $ 50,431 $ 444,591
Operating income before restructuring charges
and amortization.................................................... 33,511 (2,022) 31,489
Depreciation and amortization.......................................... 8,996 1,130 10,126
Total assets........................................................... 446,069 27,294 473,363
Capital expenditures................................................... 3,362 257 3,619
-------------------------------------------------
YEAR ENDED MARCH 31, 2003
-------------------------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers............................................ $ 388,076 $ 65,244 $ 453,320
Operating income before restructuring charges
and amortization.................................................... 33,593 (270) 33,323
Depreciation and amortization.......................................... 13,731 1,072 14,803
Total assets........................................................... 450,641 31,965 482,606
Capital expenditures................................................... 3,914 1,126 5,040
-------------------------------------------------
YEAR ENDED MARCH 31, 2002
-------------------------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers............................................. $ 404,731 $ 75,297 $ 480,028
Operating income before restructuring charges
and amortization..................................................... 47,045 1,665 48,710
Depreciation and amortization........................................... 19,515 2,947 22,462
Total assets............................................................ 438,294 64,504 502,798
Capital expenditures.................................................... 3,904 849 4,753
F-34
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following provides a reconciliation of operating income before
restructuring charges and amortization to consolidated income before income tax
expense:
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
2004 2003 2002
---- ---- ----
Operating income before restructuring charges and
amortization......................................................... $ 31,489 $ 33,323 $ 48,710
Restructuring charges................................................... (1,239) (3,697) (9,569)
Amortization of intangibles............................................. (383) (4,246) (11,013)
Interest and debt expense............................................... (28,856) (32,008) (29,381)
Other income and (expense).............................................. 4,191 2,149 (2,464)
-------------------------------------------
Income (loss) from continuing operations before
income tax expense................................................... $ 5,202 $ (4,479) $ (3,717)
===========================================
Financial information relating to the Company's operations by geographic
area is as follows:
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
2004 2003 2002
---- ---- ----
NET SALES:
United States........................................................... $ 319,815 $ 337,929 $ 374,070
Europe.................................................................. 86,518 82,999 70,097
Canada.................................................................. 27,736 24,104 29,340
Other................................................................... 10,522 8,288 6,521
-------------------------------------------
Total................................................................... $ 444,591 $ 453,320 $ 480,028
===========================================
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
2004 2003 2002
---- ---- ----
TOTAL ASSETS:
United States........................................................... $ 347,488 $ 363,331 $ 388,669
Europe.................................................................. 105,120 98,248 92,541
Canada.................................................................. 14,628 16,173 17,071
Other................................................................... 6,127 4,854 4,517
-------------------------------------------
Assets of continuing operations......................................... 473,363 482,606 502,798
Assets of discontinued operations....................................... - - 21,497
-------------------------------------------
Total................................................................... $ 473,363 $ 482,606 $ 524,295
===========================================
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
2004 2003 2002
---- ---- ----
LONG-LIVED ASSETS:
United States........................................................... $ 193,423 $ 204,529 $ 211,699
Europe.................................................................. 53,051 51,794 54,154
Canada.................................................................. 3,283 4,479 4,266
Other................................................................... 1,979 1,622 1,424
-------------------------------------------
Total................................................................... $ 251,736 $ 262,424 $ 271,543
===========================================
F-35
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
As a result of the adoption of SFAS 142, as of April 1, 2002, the Company
recorded a goodwill impairment charge of $8 million ($0.55 per share - basic and
diluted). The amount of the charge was determined in September 2002, which was
within the permissible six-month period following adoption of SFAS 142. Also
under the provisions of SFAS 142, the charge is retroactively recorded as of the
date of adoption of SFAS 142. This results in a difference in the first quarter
net income, as compared to the net income previously reported in the quarterly
Form 10-Q filed for the first quarter of Fiscal 2003. The net income as
previously reported was $3,499,000. The impairment charge results in a restated
net loss of $4,501,000 ($0.15 loss per share - basic and diluted) for the first
quarter of Fiscal 2003
Below is selected quarterly financial data for fiscal 2004 and 2003
including the restated amounts for the three months ended June 30, 2002 for the
cumulative effect of change in accounting principle:
------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------------------------------
JUNE 29, SEPTEMBER 28, DECEMBER 28, MARCH 31,
2003 2003 2003 2004
---- ---- ---- ----
Net sales................................ $ 106,575 $ 106,584 $ 110,253 $ 121,179
Gross profit............................. 25,898 25,067 24,558 29,323
Income from operations................... 7,266 7,167 5,651 9,783
Net income (loss)........................ $ 499 $ 1,500 $ 705 $ (1,511)
============================================================
------------------------------------------------------------
Net income (loss) per share - basic and .
diluted.................................. $ 0.03 $ 0.10 $ 0.05 $ (0.10)
============================================================
------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------------------------------
JUNE 30, SEPTEMBER 29, DECEMBER 29, MARCH 31,
2002 2002 2002 2003
---- ---- ---- ----
Net sales................................ $ 113,891 $ 113,238 $ 107,384 $ 118,807
Gross profit............................. 27,630 26,573 26,299 26,832
Income (loss) from operations............ 9,474 8,539 8,008 (641)
Income (loss) from continuing operations. 3,499 1,015 (2,473) (8,052)
Cumulative effect of change in
accounting principle.................. (8,000) - - -
Net (loss) income........................ $ (4,501) $ 1,015 $ (2,473) $ (8,052)
============================================================
Net (loss) income per share - basic anddiluted:
Continuing operations................. $ 0.24 $ 0.07 $ (0.17) $ (0.55)
Cumulative effect of change........... (0.55) - - -
------------------------------------------------------------
Net (loss) income..................... $ (0.31) $ 0.07 $ (0.17) $ (0.55)
============================================================
F-36
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows:
------------------------
MARCH 31,
------------------------
2004 2003
------------------------
Net unrealized investment gains (losses) - net of tax........................ $ 1,364 $ (342)
Derivatives qualifying as hedges - net of tax................................ - (191)
Minimum pension liability adjustment - net of tax............................ (13,193) (13,721)
Foreign currency translation adjustment...................................... 1,253 (5,136)
------------------------
Accumulated other comprehensive loss......................................... $ (10,576) $ (19,390)
========================
The deferred taxes associated with the items included in accumulated other
comprehensive loss were $8,061,000 and $9,459,000 for 2004 and 2003,
respectively.
The activity by year related to investments, including reclassification
adjustments for activity included in earnings is as follows (all items shown net
of tax):
--------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------
2004 2003 2002
--------------------------------------
Net unrealized investment gains (losses) at beginning of year...... $ (342) $ 2,069 $ (99)
Unrealized holdings gains (losses) arising during the period.... 496 (2,100) 4,513
.........................Reclassification adjustments for gains
(losses) included in earnings.................................. 1,210 (311) (2,345)
--------------------------------------
Net change in unrealized gains (losses) on investments............. 1,706 (2,411) 2,168
--------------------------------------
Net unrealized investment gains (losses) at end of year............ $ 1,364 $ (342) $ 2,069
======================================
The activity by year related to derivatives qualifying as hedges,
including reclassification adjustments for activity included in earnings is as
follows (all items shown net of tax):
------------------------
YEAR ENDED MARCH 31,
------------------------
2004 2003
---- ----
Derivatives qualifying as hedges at beginning of year........................ $ (191) $ (424)
Reclassification adjustments for losses included in earnings.............. 198 666
Change in fair value of derivative........................................ (7) (433)
------------------------
Net change in unrealized loss on derivatives
qualifying as hedges..................................................... 191 233
------------------------
Derivatives qualifying as hedges at end of year.............................. $ - $ (191)
========================
F-37
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments" (EITF 03-01) in November 2003. EITF 03-01 provides
guidance on other-than-temporary impairments and its application to debt and
equity investments and applies to investments in debt and marketable securities
that are accounted for under Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
EITF 03-01 requires additional disclosure of investments with unrealized losses.
See Note 6 for additional discussion. The requirements are effective for fiscal
years ending after December 15, 2003. The Company has expanded its disclosures
based on this EITF.
The Financial Accounting Standards Board (FASB) issued SFAS No. 132
(revised 2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (FAS 132R) in December 2003. SFAS No. 132R requires additional
disclosure regarding certain aspects of pension plans including, but not limited
to, asset and investment strategy, expected employer contributions and expected
benefit payments. The disclosure requirements of SFAS No. 132R are effective for
financial statements of periods ending after December 15, 2003. See Note 11 for
required disclosures. The Company has modified its disclosures as required.
F-38
COLUMBUS MCKINNON CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MARCH 31, 2004, 2003 AND 2002
DOLLARS IN THOUSANDS
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2004: Deducted from asset accounts:
Allowance for doubtful accounts $ 2,743 $ 1,761 $ -- $ 1,693 (1) $ 2,811
Slow-moving and obsolete inventory 5,699 2,333 (126) (4) 2,028 (2) 5,878
-------- ------- -------- ------- --------
Total $ 8,442 $ 4,094 $ (126) $ 3,721 $ 8,689
======== ======= ======== ======= ========
Reserves on balance sheet:
Accrued general and product liability costs $ 14,439 $ 5,398 $ -- $ 3,907 (3) $ 15,930
======== ======= ======= ======= ========
Year ended March 31, 2003: Deducted from asset accounts:
Allowance for doubtful accounts $ 2,337 $ 1,068 $ (78) (4) $ 584 (1) $ 2,743
Slow-moving and obsolete inventory 4,619 3,073 -- 1,993 (2) 5,699
-------- ------- ------- ------- --------
Total $ 6,956 $ 4,141 $ (78) $ 2,577 $ 8,442
======== ======= ======== ======= ========
Reserves on balance sheet:
Accrued general and product liability costs $ 16,013 $ 447 $ -- $ 2,021 (3) $ 14,439
======== ======= ======= ======= ========
Year ended March 31, 2002: Deducted from asset accounts:
Allowance for doubtful accounts $ 2,305 $ 1,399 $ -- $ 1,367 (1) $ 2,337
Slow-moving and obsolete inventory 3,787 3,331 (15) (4) 2,484 (2) 4,619
-------- ------- -------- ------- --------
Total $ 6,092 $ 4,730 $ (15) $ 3,851 $ 6,956
======== ======= ======== ======= ========
Reserves on balance sheet:
Accrued general and product liability costs $ 15,388 $ 2,563 $ -- $ 1,938 (3) $ 16,013
======== ======= ======= ======= ========
- --------
(1) Uncollectible accounts written off, net of recoveries (2) Obsolete inventory
disposals (3) Insurance claims and expenses paid (4) Reserves at date of
disposal of subsidiary
F-39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
As of March 31, 2004, an evaluation was performed under the supervision
and with the participation of our management, including the chief executive
officer and chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including the chief executive officer and chief financial
officer, concluded that our disclosure controls and procedures were effective as
of March 31, 2004. Furthermore, there were no significant changes in our
internal controls or in other factors during our fourth quarter ended March 31,
2004.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding Directors and Executive Officers of the
Registrant will be included in a Proxy Statement to be filed with the Commission
prior to July 29, 2004 and upon the filing of such Proxy Statement, is
incorporated by reference herein.
The charters of our Audit Committee, Compensation Committee,
Nomination/Succession Committee and Governance Committee are available on our
website at WWW.CMWORKS.COM and are available to any shareholder upon request to
the Corporate Secretary. The information on the Company's website is not
incorporated by reference into this Annual Report on Form 10-K.
We have adopted a code of ethics that applies to all of our employees,
including our principal executive officer, principal financial officer and
principal accounting officer, as well as our directors. Our code of ethics, the
Columbus McKinnon Corporation Legal Compliance & Business Ethics Manual, is
available on our website at WWW.CMWORKS.COM. We intend to disclose any amendment
to, or waiver from, the code of ethics that applies to our principal executive
officer, principal financial officer or principal accounting officer otherwise
required to be disclosed under Item 10 of Form 8-K by posting such amendment or
waiver, as applicable, on our website.
ITEM 11. EXECUTIVE COMPENSATION.
The information regarding Executive Compensation will be included in a
Proxy Statement to be filed with the Commission prior to July 29, 2004 and upon
the filing of such Proxy Statement, is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information regarding Security Ownership of Certain Beneficial Owners
and Management will be included in a Proxy Statement to be filed with the
Commission prior to July 29, 2004 and upon the filing of such Proxy Statement,
is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding Certain Relationships and Related Transactions
will be included in a Proxy Statement to be filed with the Commission prior to
July 29, 2004 and upon the filing of such Proxy Statement, is incorporated by
reference herein.
PART IV
-------
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information regarding Principal Accountant Fees and Services will be
included in a Proxy Statement to be filed with the Commission prior to July 29,
2004 and upon the filing of such Proxy Statement, is incorporated by reference
herein.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS:
---------------------
29
The following consolidated financial statements of Columbus McKinnon
Corporation are included in Item 8:
REFERENCE PAGE NO.
--------- --------
Report of Independent Registered Public Accounting Firm F-2
Consolidated balance sheets - March 31, 2004 and 2003 F-3
Consolidated statements of operations - Years ended
March 31, 2004, 2003 and 2002 F-4
Consolidated statements of shareholders' equity - Years
ended March 31, 2004, 2003 and 2002 F-5
Consolidated statements of cash flows - Years ended
March 31, 2004, 2003 and 2002 F-6
Notes to consolidated financial statements F-7 to F-39
(a)(2) FINANCIAL STATEMENT SCHEDULE: PAGE NO.
----------------------------- --------
Schedule II - Valuation and qualifying accounts F-40
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
(a)(3) EXHIBITS:
---------
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement No. 33-80687 on Form S-1 dated December 21,
1995).
3.2 Amended By-Laws of the Registrant (incorporated by reference to
Exhibit 3 to the Company's Current Report on Form 8-K dated May 17,
1999).
4.1 Specimen common share certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995.)
4.2 First Amendment and Restatement of Rights Agreement, dated as of
October 1, 1998, between Columbus McKinnon Corporation and American
Stock Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 29, 2003).
4.3 Indenture, dated as of March 31, 1998, among Columbus McKinnon
Corporation, the guarantors named on the signature pages thereto
and State Street Bank and Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated April 9, 1998).
4.4 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc.,
LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial
Products, Inc., Mechanical Products, Inc., Minitec Corporation and
State Street Bank and Trust Company, N.A., as trustee, dated March
31, 1998 (incorporated by reference to Exhibit 4.3 to the Company's
Current Report on form 8-K dated April 9, 1998).
4.5 Second Supplemental Indenture among Abell-Howe Crane, Inc., LICO,
Inc., Automatic Systems, Inc. LICO Steel, Inc., Columbus McKinnon
Corporation, Yale Industrial Products Inc. and State Street Bank
and Trust Company, N.A., as trustee, dated as of February 12, 1999
(incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
30
4.6 Third Supplemental Indenture among G.L. International, Inc.,
Gaffey, Inc., Handling Systems and Conveyors, Inc., Larco Material
Handling Inc., Abell-Howe Crane, Inc., LICO, Inc., Automatic
Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation,
Yale Industrial Products, Inc. and State Street Bank and Trust
Company, N.A., as trustee, dated as of March 1, 1999 (incorporated
by reference to Exhibit 4.7 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1999).
4.7 Fourth Supplemental Indenture among Washington Equipment Company,
G.L. International, Inc., Gaffey, Inc., Handling Systems and
Conveyors, Inc., Larco Material Handling Inc., Abell-Howe Crane,
Inc., Automatic Systems, Inc., LICO Steel, Inc., Columbus McKinnon
Corporation, Yale Industrial Products, Inc. and State Street Bank
and Trust Company, N.A., as trustee, dated as of November 1, 1999
(incorporated by reference to Exhibit 10.2 to the Company's
quarterly report on form 10-Q for the quarterly period ended
October 3, 1999).
4.8 Fifth Supplemental Indenture among Columbus McKinnon Corporation,
Crane Equipment & Service, Inc., Automatic Systems, Inc., LICO
Steel, Inc., Yale Industrial Products, Inc. and State Street Bank
and Trust Company, N.A., as trustee, dated as of April 4, 2002
(incorporated by reference to Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
4.9 Sixth Supplemental Indenture among Columbus McKinnon Corporation,
Audubon West, Inc., Crane Equipment & Service, Inc., LICO Steel,
Inc., Yale Industrial Products, Inc., Audubon Europe S.a.r.l. and
State Street Bank and Trust Company, N.A., as trustee, dated as of
August 5, 2002 (incorporated by reference to Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
4.10 Indenture, dated as of July 22, 2003, among Columbus McKinnon
Corporation, the guarantors named on the signature pages thereto
and U.S. Bank Trust National Association, as trustee (incorporated
by reference to Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 29, 2003).
4.11 First Supplemental Indenture, dated as of September 19, 2003, among
Columbus McKinnon Corporation, the guarantors named on the
signature pages thereto and U.S. Bank Trust National Association,
as trustee (incorporated by reference to Exhibit 4.13 to Amendment
No. 1 to the Company's Registration Statement No. 333-109730 on
Form S-4/A dated November 7, 2003).
4.12 Registration Rights Agreement dated as of July 15, 2003 among
Columbus McKinnon Corporation, the guarantors named on the
signature pages thereto, Credit Suisse First Boston LLC and Fleet
Securities, Inc. (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 2003).
10.1 Agreement by and among Columbus McKinnon Corporation Employee Stock
Ownership Trust, Columbus McKinnon Corporation and Marine Midland
Bank, dated November 2, 1995 (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement No. 33-80687 on Form
S-1 dated December 21, 1995).
#10.2 Columbus McKinnon Corporation Employee Stock Ownership Plan
Restatement Effective April 1, 1989 (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement No. 33-80687
on Form S-1 dated December 21, 1995).
#10.3 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 2, 1995 (incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.4 Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated October 17, 1995 (incorporated by reference
to Exhibit 10.38 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997).
#10.5 Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated March 27, 1996 (incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997).
#10.6 Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
September 30, 1996 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996).
31
#10.7 Amendment No. 5 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
August 28, 1997 (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
#10.8 Amendment No. 6 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
June 24, 1998 (incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
#10.9 Amendment No. 7 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
April 30, 2000 (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
#10.10 Amendment No. 8 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 26, 2002 (incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
#10.11 Amendment No. 9 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 27, 2003 (incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2003).
*#10.12 Amendment No. 10 to the Columbus McKinnon Corporation Employee
Stock Ownership Plan as Amended and Restated as of April 1, 1989,
dated February 28, 2004.
#10.13 Amendment No. 11 to the Columbus McKinnon Corporation Employee
Stock Ownership Plan as Amended and Restated as of April 1, 1989,
dated December 19, 2003 (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 28, 2003).
#10.14 Columbus McKinnon Corporation Personal Retirement Account Plan
Trust Agreement, dated April 1, 1987 (incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement No. 33-80687
on Form S-1 dated December 21, 1995).
#10.15 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Trust Agreement (formerly known as the Columbus McKinnon
Corporation Personal Retirement Account Plan Trust Agreement)
effective November 1, 1988 (incorporated by reference to Exhibit
10.26 to the Company's Registration Statement No. 33-80687 on Form
S-1 dated December 21, 1995).
#10.16 Amendment and Restatement of Columbus McKinnon Corporation 1995
Incentive Stock Option Plan (incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999).
#10.17 Second Amendment to the Columbus McKinnon Corporation 1995
Incentive Stock Option Plan, as amended and restated (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 29, 2002).
#10.18 Columbus McKinnon Corporation Restricted Stock Plan, as amended and
restated (incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.19 Second Amendment to the Columbus McKinnon Corporation Restricted
Stock Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 29, 2002).
#10.20 Amendment and Restatement of Columbus McKinnon Corporation
Non-Qualified Stock Option Plan (incorporated by reference to
Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999).
32
#10.21 Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement
Effective January 1, 1998 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 27, 1998).
#10.22 Amendment No. 1 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated December 10, 1998
(incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
#10.23 Amendment No. 2 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401 (k)] Plan, dated June 1, 2000
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2000).
#10.24 Amendment No. 3 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401 (k)] Plan, dated March 26, 2002
(incorporated by reference to Exhibit 10.39 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
#10.25 Amendment No. 4 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated May 10, 2002
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 29, 2002).
#10.26 Amendment No. 5 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated December 20, 2002
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 2002).
#10.27 Amendment No. 6 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated May 22, 2003
(incorporated by reference to Exhibit 10.46 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2003).
*#10.28 Amendment No. 7 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated April 14, 2004.
#10.29 Amendment No. 8 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated December 19, 2003
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 28, 2003).
*#10.30 Amendment No. 9 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Thrift [401(k)] Plan, dated March 16, 2004.
#10.31 Columbus McKinnon Corporation Thrift 401(k) Plan Trust Agreement
Restatement Effective August 9, 1994 (incorporated by reference to
Exhibit 10.32 to the Company's Registration Statement No. 33-80687
on Form S-1 dated December 21, 1995).
#10.32 Columbus McKinnon Corporation Monthly Retirement Benefit Plan
Restatement Effective April 1, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 27, 1998).
#10.33 Amendment No. 1 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Monthly Retirement Benefit Plan, dated
December 10, 1998 (incorporated by reference to Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999).
#10.34 Amendment No. 2 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Monthly Retirement Benefit Plan, dated May 26,
1999 (incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1999).
#10.35 Amendment No. 3 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Monthly Retirement Benefit Plan, dated March
26, 2002 (incorporated by reference to Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
#10.36 Amendment No. 4 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Monthly Retirement Benefit Plan, dated
December 20, 2002 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2002).
33
*#10.37 Amendment No. 5 to the 1998 Plan Restatement of the Columbus
McKinnon Corporation Monthly Retirement Benefit Plan, dated
February 28, 2004.
#10.38 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust
Agreement Effective as of April 1, 1987 (incorporated by reference
to Exhibit 10.34 to the Company's Registration Statement No.
33-80687 on Form S-1 dated December 21, 1995).
#10.39 Form of Change in Control Agreement as entered into between
Columbus McKinnon Corporation and each of Timothy T. Tevens, Robert
L. Montgomery, Jr., Ned T. Librock, Karen L. Howard, Lois H.
Demler, Timothy R. Harvey, John Hansen and Neal Wixson
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the fiscal year ended March, 31, 1998).
#10.40 Columbus McKinnon Corporation Corporate Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended July
1, 2001).
10.41 Asset Purchase Agreement dated as of May 10, 2002 by and among
Automatic Systems, Inc., Columbus McKinnon Corporation and ASI
Acquisition Corp (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated May 29, 2002).
10.42 Intercreditor Agreement dated as of July 22, 2003 among Columbus
McKinnon Corporation, the subsidiary guarantors as listed thereon,
Fleet Capital Corporation, as Credit Agent, and U.S. Bank Trust
National Association, as Trustee (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 29, 2003).
10.43 Second Amended and Restated Credit and Security Agreement, dated as
of November 21, 2002 and amended and restated as of January 2,
2004, among Columbus McKinnon Corporation, as Borrower, Larco
Industrial Services Ltd., Columbus McKinnon Limited, the Guarantors
Named Herein, the Lenders Party Hereto From Time to Time, Fleet
Capital Corporation, as Administrative Agent, Fleet National Bank,
as Issuing Lender, Congress Financial Corporation (Central),
Syndication Agent, Merrill Lynch Capital, a Division of Merrill
Lynch Business Financial Services Inc., as Documentation Agent, and
Fleet Securities, Inc., as Arranger (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 28, 2003).
*21.1 Subsidiaries of the Registrant.
*23.2 Consent of Ernst & Young LLP.
*31.1 Certification of the principal executive officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
*31.2 Certification of the principal financial officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
*32.1 Certification of the principal executive officer and the principal
financial officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. Section 1350, as
adopted by pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. The information contained in this exhibit shall not be deemed
filed with the Securities and Exchange Commission nor incorporated
by reference in any registration statement foiled by the Registrant
under the Securities Act of 1933, as amended.
- -----------------
* Filed herewith
** To be filed by amendment
# Indicates a Management contract or compensation plan or arrangement
(b) REPORTS ON FORM 8-K FOR THE QUARTER ENDED MARCH 31, 2004:
34
1. On March 4, 2004, the Registrant filed a Current Report on Form 8-K
under Items 2 and 7 with respect to the sale of its Lister Division.
2. On February 3, 2004, the Registrant filed a Current Report on Form
8-K under Items 2 and 7 with respect to the sale of its Positech
Division.
3. On January 21, 2004, the Registrant furnished a Current Report on
Form 8-K under Items 7 and 12 relating to its financial results for the
quarter ended December 28, 2003.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 22, 2004
COLUMBUS MCKINNON CORPORATION
By: /S/ TIMOTHY T. TEVENS
-----------------------------
Timothy T. Tevens
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ TIMOTHY T. TEVENS President, Chief Executive June 22, 2004
- -------------------------- Officer and Director
TIMOTHY T. TEVENS (PRINCIPAL EXECUTIVE OFFICER)
/S/ ROBERT R. FRIEDL Vice President - Finance and June 22, 2004
- -------------------------- Chief Financial Officer
ROBERT R. FRIEDL (PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER)
/S/ HERBERT P. LADDS, JR. Chairman of the Board June 22, 2004
- -------------------------- of Directors
HERBERT P. LADDS, JR.
/S/ CARLOS PASCUAL Director June 22, 2004
- --------------------------
CARLOS PASCUAL
/S/ RICHARD H. FLEMING Director June 22, 2004
- --------------------------
RICHARD H. FLEMING
/S/ ERNEST R. VEREBELYI Director June 22, 2004
- --------------------------
ERNEST R. VEREBELYI
/S/ WALLACE W. CREEK Director June 22, 2004
- --------------------------
WALLACE W. CREEK