UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT 1934 For the quarterly period ended September 28, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to ________ Commission File Number: 0-27618 ------- Columbus McKinnon Corporation - -------------------------------------------- (Exact name of registrant as specified in its charter) New York 16-0547600 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 140 John James Audubon Parkway, Amherst, NY 14228-1197 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (716) 689-5400 - -------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. : [X] Yes [ ] No The number of shares of common stock outstanding as of October 31, 1997 was: 13,755,858 shares.
FORM 10-Q INDEX COLUMBUS MCKINNON CORPORATION SEPTEMBER 28, 1997 Page # PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed consolidated balance sheets - September 28, 1997 and March 31, 1997 2 Condensed consolidated statements of income and retained earnings Three months and six months ended September 28, 1997 and September 29, 1996 3 Condensed consolidated statements of cash flows - Six months ended September 28, 1997 and September 29, 1996 4 Notes to condensed consolidated financial statements - September 28, 1997 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities - none. 11 Item 3. Defaults upon Senior Securities - none. 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information - none. 11 Item 6. Exhibits and Reports on Form 8-K 11
PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 28, MARCH 31, 1997 1997 --------------------------- (IN THOUSANDS) ASSETS: Current assets: Cash and cash equivalents $ 8,070 $ 8,907 Trade accounts receivable 78,653 74,446 Inventories 94,199 94,409 Net assets held for sale 15,295 14,971 Prepaid expenses 12,869 13,638 ---------------------------- Total current assets 209,086 206,371 Net property, plant, and equipment 62,814 63,942 Goodwill and other intangibles, net 244,635 250,062 Marketable securities 15,685 13,590 Deferred taxes on income 9,495 8,935 Other assets 5,328 5,345 ---------------------------- Total assets $ 547,043 $ 548,245 ============================ LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Notes payable to banks $ 36 $ 1,562 Trade accounts payable 22,564 28,330 Accrued liabilities 48,264 35,761 Current portion of long-term debt 22,547 22,344 ---------------------------- Total current liabilities 93,411 87,997 Long-term debt, less current portion 256,646 263,944 Other non-current liabilities 38,009 46,148 ---------------------------- Total liabilities 388,066 398,089 Shareholders' equity: Common stock 137 137 Additional paid-in capital 95,677 95,254 Retained earnings 69,194 60,999 ESOP debt guarantee (3,757) (4,201) Other (2,274) (2,033) ---------------------------- Total shareholders' equity 158,977 150,156 ---------------------------- Total liabilities and shareholders' equity $ 547,043 $ 548,245 ============================ See accompanying notes to condensed consolidated financial statements. (2)
COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- SEPT 28, SEPT 29, SEPT 28, SEPT 29, 1997 1996 1997 1996 ----------------- ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales $123,907 $ 64,426 $248,349 $130,161 Cost of products sold 88,071 45,242 177,310 90,960 ----------------- ----------------- Gross profit 35,836 19,184 71,039 39,201 Selling expenses 10,628 5,310 21,793 11,312 General and administrative expenses 5,993 4,507 12,336 9,399 Amortization of intangibles 2,545 457 5,094 899 ----------------- ----------------- 19,166 10,274 39,223 21,610 ----------------- ----------------- Income from operations 16,670 8,910 31,816 17,591 Interest and debt expense 5,910 223 12,435 479 Interest and other income 328 232 644 415 ----------------- ----------------- Income before income taxes 11,088 8,919 20,025 17,527 Income tax expense 5,458 3,708 9,964 7,284 ------------------ ----------------- Net income 5,630 5,211 10,061 10,243 Retained earnings - beginning of period 64,497 53,632 60,999 49,386 Cash dividends of $0.07, $0.07, $0.14 and $0.13 per share (933) (933) (1,866) (1,719) ------------------ ----------------- Retained earnings - end of period $ 69,194 $ 57,910 $ 69,194 $ 57,910 ================== ================= Earnings per share, both primary and fully diluted $ 0.42 $ 0.39 $ 0.75 $ 0.77 ================== ================= See accompanying notes to condensed consolidated financial statements. (3)
COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED ---------------- SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ----------------------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income $ 10,061 $ 10,243 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,539 3,338 Other 347 161 Changes in operating assets and liabilities: Trade accounts receivable (4,906) 1,201 Inventories 210 (217) Prepaid expenses 769 11 Other assets (284) (426) Trade accounts payable (4,900) (2,788) Accrued and non-current liabilities 5,132 (1,123) ---------- --------- Net cash provided by operating activities 15,968 10,400 INVESTING ACTIVITIES: Purchases of marketable securities, net of sales (1,687) (996) Net assets held for sale (324) - Capital expenditures (3,280) (3,281) Other (148) (789) ---------- --------- Net cash used in investing activities (5,439) (5,066) FINANCING ACTIVITIES: Net payments under revolving line-of-credit agreements (1,526) (1,624) Repayment of debt (7,093) (1,231) Deferred financing costs incurred (558) (500) Dividends paid (1,866) (1,572) Reduction of ESOP debt guarantee 407 723 ---------- --------- Net cash used in financing activities (10,636) (4,204) Effect of exchange rate changes on cash (730) (63) ---------- --------- Net change in cash and cash equivalents (837) 1,067 Cash and cash equivalents at beginning of period 8,907 10,171 ---------- --------- Cash and cash equivalents at end of period $ 8,070 $ 11,238 ========== ========= See accompanying notes to condensed consolidated financial statements. (4)
COLUMBUS MCKINNON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 28, 1997 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at September 28, 1997, and the results of its operations and its cash flows for the three and six month periods ended September 28, 1997 and September 29, 1996, have been included. Results for the period ended September 28, 1997 are not necessarily indicative of the results that may be expected for the year ended March 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Columbus McKinnon Corporation annual report on Form 10-K for the year ended March 31, 1997. 2. Inventories consisted of the following: September 28, March 31, 1997 1997 -------------------------- (in thousands) At cost--FIFO basis: Raw materials $ 23,410 $ 35,815 Work-in-process 27,124 17,206 Finished goods 47,267 44,344 ------- ------- 97,801 97,365 LIFO cost less than FIFO cost (3,602) (2,956) ------- ------- $ 94,199 $ 94,409 ======= ======= An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. 3. Property, plant, and equipment is net of $26,815,000 and $16,822,000 of accumulated depreciation at September 28, 1997 and March 31, 1997, respectively. 4. Goodwill and other intangibles, net includes $27,464,000 and $22,370,000 of accumulated amortization at September 28, 1997 and March 31, 1997, respectively. (5)
5. General and Product Liability - The accrued general and product liability costs which are included in other non-current liabilities are the actuarial present value of estimated reserves based on an amount determined from loss reports and individual cases filed with the Company and an amount, based on past experience, for losses incurred but not reported. The accrual in these condensed consolidated financial statements was determined by applying a discount factor based on interest rates customarily used in the insurance industry. Yale was self-insured for product liability claims up to a maximum of $500,000 per occurrence and maintained product liability insurance with a $100 million cap per occurrence through July 31, 1997 when Yale was added to the Company's coverage as described above. The Company has been advised that a customer has alleged that one of Yale's products was the cause of a fire that occurred in January 1995 at a manufacturing facility, resulting in losses in excess of Yale's policy limits. A formal complaint has been filed seeking damages in excess of $500 million. However, it is the opinion of management that there was no manufacturing defect and that the claim will in all likelihood be settled within the Company's policy limits. 6. Primary and fully diluted earnings per share were based on the following: THREE MONTHS ENDED SIX MONTHS ENDED SEPT 28, SEPT 29, SEPT 28, SEPT 29, 1997 1996 1997 1996 ----------------------- -------------------- Weighted-average common stock outstanding 13,352,000 13,236,000 13,340,000 13,218,000 Common stock equivalents - Primary 41,000 - 41,000 - Common stock equivalents - Fully diluted 42,000 - 42,000 - 7. Income tax expense for the three month periods ended September 28, 1997 and September 29, 1996 and also for the six month periods then ended exceeds the customary relationship between income tax expense and income before income taxes due to nondeductible amortization of goodwill of $2,545,000, $457,000, $5,094,000 and $899,000, respectively. 8. On October 17, 1996, through a tender offer, the Company acquired approximately 72% of the outstanding stock (on a fully diluted basis) of Spreckels Industries, Inc., now known as Yale Industrial Products, Inc. ("Yale"), a manufacturer of a wide range of industrial products including hoists, scissor lifts, mechanical jacks, rotating joints, actuators and circuit protection devices. On January 3, 1997 the Company acquired the remaining outstanding shares, effected a merger, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $270 million, consisting of $200 million of cash and $70 million of acquired Yale debt. On December 19, 1996, the Company acquired all of the outstanding stock of Lister Bolt & Chain Ltd. and of Lister Chain & Forge, Inc. (together known as "Lister"), a chain and forgings manufacturer, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $7 million of cash. (6)
The following table presents pro forma summary information for the three and six month periods ended September 29, 1996 as if the Yale and Lister acquisitions and related borrowings had occurred as of April 1, 1996, which is the beginning of fiscal 1997. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprise: THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- SEPTEMBER 29, 1996 ------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Pro forma: Net sales $ 113,720 $ 230,431 Income from operations 12,407 26,854 Net income 2,919 7,205 Earnings per share, both primary and fully diluted 0.22 0.55 (7)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Three Months and Six Months Ended September 28, 1997 and September 29, 1996 Net sales in the fiscal 1998 quarter ended September 28, 1997 were $123,907,000, an increase of $59,481,000 or 92.3% over the fiscal 1997 quarter ended September 29, 1996. Net sales for the six months ended September 28, 1997 were $248,349,000, an increase of 90.8% over the six months ended September 29, 1996. Sales growth during the current quarter and six month periods was due primarily to the October 1996 Yale acquisition and December 1996 Lister acquisition which affected the general distribution, specialty distribution, service-after-sale, and original equipment manufacturers distribution channels. The Company categorizes all of those distribution channels as "commercial" sales. In addition to the effects of the acquisitions, the Company also experienced increased sales volume in the quarter through all of its commercial distribution channels due to strong demand in the marketplace. The only market channel experiencing softness was the domestic consumer channel due to foreign-lead price competition and a shift in demand from small retail hardware stores to larger do-it-yourself superstores, to which the Company supplies only a small share. In addition, list price increases of approximately 4% were introduced in November/December 1996 affecting many of the Company's hoist, chain and forged products sold in its domestic commercial markets. Sales in the commercial and the consumer distribution channel groups were as follows, in thousands of dollars and with percentage changes for each group: THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- SEPT 28, SEPT 29, CHANGE SEPT 28, SEPT 29, CHANGE ------- ------ 1997 1996 AMOUNT % 1997 1996 AMOUNT % ------------------------------- ------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) Commercial sales: Domestic $ 92,960 $48,673 $44,287 91.0 $182,593 $ 97,058 $ 85,535 88.1 International 24,526 9,683 14,843 153.3 51,967 19,995 31,972 159.9 ------ ------ ------ ------- ------- ------- 117,486 58,356 59,130 101.3 234,560 117,053 117,507 100.4 Consumer sales: Domestic 5,502 5,465 37 0.7 12,566 11,877 689 5.8 International 919 605 314 51.9 1,223 1,231 (8) (0.6) ------- ------ ------ ------- ------- ------- 6,421 6,070 351 5.8 13,789 13,108 681 5.2 ------- ------ ------ ------- ------- ------- Net sales $123,907 $64,426 $59,481 92.3 $248,349 $130,161 $118,188 90.8 ======= ====== ====== ======= ======= ======= The Company's gross profit margins were approximately 28.9%, 29.8%, 28.6% and 30.1% for the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The decrease in gross profit margin in the current quarter and six month periods resulted primarily from a change in the classification of approximately $1.9 million and $3.8 million, respectively, of costs into cost of products sold which previously had been classified as general and administrative expenses. This change was made for intracorporate consistency. The current quarter's gross profit margin was favorably impacted by slight fluctuations in product mix. The fiscal 1998 six month period was impacted by a temporary two week slow-down in production and shipments at one of its facilities during a computer systems conversion in the first quarter, amounting to approximately $400,000 of gross profit. Also, one of the Yale facilities acquired in fiscal 1997 is realizing lower-than-average gross profit due to temporary production workflow inefficiencies, amounting to approximately $900,000 year-to-date. Selling expenses were $10,628,000, $5,310,000, $21,793,000 and $11,312,000 in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The 1998 expenses were impacted by the addition of Yale and Lister sales. As a percentage of consolidated net sales, selling expenses were 8.6%, 8.2%, 8.8% and 8.7% in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The lower percentage in the fiscal 1997 quarter is due primarily to the timing of various marketing related expenses. (8)
General and administrative expenses were $5,993,000, $4,507,000, $12,336,000 and $9,399,000 in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The 1998 expenses were impacted by the addition of Yale and Lister activities. As a percentage of consolidated net sales, general and administrative expenses were 4.8%, 7.0%, 5.0% and 7.2% in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. As noted above, the improved percentages in fiscal 1998 are due primarily to a change that reclassifies approximately $1.9 million and $3.8 million for the three and six month periods, respectively, of expenses previously classified as general and administrative into cost of products sold for intracorporate consistency. The improved percentage also results from the fixed nature of costs in relation to the increased sales. Amortization of intangibles was $2,545,000, $457,000, $5,094,000 and $899,000 in the fiscal 1998 and 1997 quarters and the six months then ended, respectively; increases are due to the amortization of goodwill resulting from the acquisitions of Yale and of Lister. Interest and debt expense was $5,910,000, $223,000, $12,435,000 and $479,000 in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The fiscal 1998 increase is primarily due to debt incurred to fund the Yale acquisition. As a percentage of consolidated net sales, interest and debt expense was 4.8%, 0.3%, 5.0% and 0.4% in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. Interest and other income was $328,000, $232,000, $644,000 and $415,000 in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The fiscal 1998 increase is due to additional investment holdings to fund the Company's general and products liability self-insurance reserves. Income taxes as a percentage of pre-tax accounting income were 49.2%, 41.6%, 49.8% and 41.6% in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. The fiscal 1998 percentages reflect the effect of nondeductible amortization of goodwill resulting from the Yale, Lister and Lift-Tech acquisitions. The fiscal 1997 percentages reflect the effect of Lift-Tech nondeductible goodwill. As a result of the above, net income increased $419,000 or 8.0% for the quarter and decreased $182,000 or 1.8% for the six months then ended. As a percentage of consolidated net sales, net income was 4.5%, 8.1%, 4.1% and 7.9% in the fiscal 1998 and 1997 quarters and the six months then ended, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company believes that its cash on hand, cash flows, and borrowing capacity under its revolving credit facility will be sufficient to fund its ongoing operations, debt service and budgeted capital expenditures for the next twelve months. Effective July 17, 1997 the interest rates on the Company's credit facility were revised as follows: Term Loan A and the Revolving Credit facility rates vary based on the Company's leverage ratio, and are currently at a Eurodollar rate based on LIBOR ("Eurodollar rate") plus 175 basis points; the Term Loan B rate also varies based on the Company's leverage ratio, and is currently at a Eurodollar rate plus 225 basis points. At September 28, 1997 $83,000,000 was outstanding under the revolving credit facility. Net cash provided by operating activities increased to $15,968,000 for the six months ended September 28, 1997 from $10,400,000 for the six months ended September 29, 1996. The $5,568,000 increase in net cash provided by operating activities resulted primarily from a $6,201,000 increase in depreciation and amortization offset somewhat by an increase in working capital. These fluctuations are primarily a result of including the Yale and Lister operations in the current fiscal period. (9)
Net cash used in investing activities increased to $5,439,000 for the six months ended September 28, 1997 from $5,066,000 for the six months ended September 29, 1996. The $373,000 increase is due primarily to normal purchases of marketable securities to fund general and products liability self-insurance reserves. Net cash used in financing activities increased to $10,636,000 for the six months ended September 28, 1997 from $4,204,000 for the six months ended September 29, 1996. The $6,432,000 increase is primarily due to scheduled debt repayments under the Company's term loan agreements. CAPITAL EXPENDITURES In addition to keeping its current equipment and plants properly maintained, the Company is committed to replacing, enhancing, and upgrading its property, plant, and equipment to reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety, and promote ergonomically correct work stations. Consolidated capital expenditures for the six months ended September 28, 1997 and September 29, 1996 were $3,280,000 and $3,281,000, respectively. INFLATION AND OTHER MARKET CONDITIONS The Company's costs are affected by inflation in the U.S. economy, and to a lesser extent, in foreign economies including those of Canada, Mexico, Europe, and the Pacific Rim. The Company does not believe that inflation has had a material effect on results of operations over the periods presented because of low inflation levels over the periods and because the Company has generally been able to pass on rising costs through price increases. However, in the future there can be no assurance that the Company's business will not be affected by inflation or that it will be able to pass on cost increases. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS In 1998, the Company will adopt FAS No. 128, "Earnings per Share," which is not expected to have a material effect on the financial statements. (10)
PART II. OTHER INFORMATION Item 1. Legal Proceedings - none other than that previously disclosed within "Notes to Condensed Consolidated Financial Statements" footnote number 5 contained herein. Item 2. Changes in Securities - none. Item 3. Defaults upon Senior Securities - none. Item 4. Submission of Matters to a Vote of Security Holders On August 18, 1997, the following directors were elected at an Annual Meeting of Shareholders with: 13,344,069 votes cast for and 4,856 against: Edward W. Duffy, Chairman 13,346,569 votes cast for and 2,356 against: Herbert P. Ladds, Jr.; Robert L. Montgomery, Jr.; Randolph A. Marks; and L. David Black. Item 5. Other Information - none. Item 6. Exhibits and Reports on Form 8-K Exhibit 10.1 - Third Amendment to the Credit Agreement By and Among THE BANKS, FINANCIAL INSTITUTIONS AND OTHER INSTITUTIONAL LENDERS NAMED THEREIN, as Lenders, FLEET BANK, as Initial Issuing Bank, FLEET BANK, As Swing Line Bank, FLEET BANK, as Administrative Agent and Columbus McKinnon Corporation as the Borrower, Dated as of July 17, 1997 Exhibit 11.1 - Columbus McKinnon Corporation Computation of Earnings per Share On October 29, 1997 the Company filed Form 8-K dated October 29, 1997 with respect to Stockholder Rights Agreement. (11)
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBUS McKINNON CORPORATION ----------------------------- (Registrant) Date: November 12, 1997 \s\Robert L. Montgomery, Jr. ----------------- ----------------------------- Robert L. Montgomery, Jr. Executive Vice President and Chief Financial Officer (12)
EXHIBIT INDEX EXHIBIT EXHIBIT DESCRIPTION LOCATION 10.1 Third Amendment to the Credit Agreement By and Among THE BANKS, FINANCIAL INSTITUTIONS AND OTHER INSTITUTIONAL LENDERS NAMED THEREIN, as Lenders, FLEET BANK, as Initial Issuing Bank, FLEET BANK, as Swing Line Bank, FLEET BANK, as Administrative Agent and Columbus McKinnon Corporation as the Borrower, Dated as of July 17, 1997 E-10.1 11.1 Columbus McKinnon Corporation Computation of Earnings per Share E-11.1 (13)