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 December 30, 2007 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to ------------------- -------------------- Commission File Number: 0-27618 ------- COLUMBUS MCKINNON CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 16-0547600 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 140 JOHN JAMES AUDUBON PARKWAY, AMHERST, NY 14228-1197 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (716) 689-5400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. : [X] Yes [ ] No Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Act. Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No The number of shares of common stock outstanding as of January 31, 2008 was: 18,961,663 shares.
FORM 10-Q INDEX COLUMBUS MCKINNON CORPORATION DECEMBER 30, 2007 PAGE # ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed consolidated balance sheets - December 30, 2007 and March 31, 2007 2 Condensed consolidated statements of operations and retained earnings - Three months and nine months ended December 30, 2007 and December 31, 2006 3 Condensed consolidated statements of cash flows - Nine months ended December 30, 2007 and December 31, 2006 4 Condensed consolidated statements of comprehensive income - Three months and nine months ended December 30, 2007 and December 31, 2006 5 Notes to condensed consolidated financial statements - December 30, 2007 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. 22 Item 1A. Risk Factors 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - none. 22 Item 3. Defaults upon Senior Securities - none. 22 Item 4. Submission of Matters to a Vote of Security Holders - none. 22 Item 5. Other Information - none. 22 Item 6. Exhibits 22 - 1 -
PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 30, MARCH 31, 2007 2007 ---------- ---------- ASSETS: (IN THOUSANDS) Current assets: Cash and cash equivalents $ 61,073 $ 48,655 Trade accounts receivable 93,928 97,269 Unbilled revenues 11,181 15,050 Inventories 91,612 77,179 Prepaid expenses 17,753 18,029 ---------- ---------- Total current assets 275,547 256,182 Property, plant, and equipment, net 56,684 55,231 Goodwill and other intangibles, net 186,705 185,903 Marketable securities 30,213 28,920 Deferred taxes on income 20,549 34,460 Other assets 6,595 4,942 ---------- ---------- Total assets $ 576,293 $ 565,638 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Notes payable to banks $ 10,356 $ 9,598 Trade accounts payable 36,014 35,896 Accrued liabilities 57,698 52,344 Restructuring reserve 15 599 Current portion of long-term debt 460 297 ---------- ---------- Total current liabilities 104,543 98,734 Senior debt, less current portion 6,072 26,168 Subordinated debt 133,000 136,000 Other non-current liabilities 53,019 63,411 ---------- ---------- Total liabilities 296,634 324,313 ---------- ---------- Shareholders' equity Common stock 189 188 Additional paid-in capital 177,296 174,654 Retained earnings 114,018 85,237 ESOP debt guarantee (2,995) (3,417) Accumulated other comprehensive loss (8,849) (15,337) ---------- ---------- Total shareholders' equity 279,659 241,325 ---------- ---------- Total liabilities and shareholders' equity $ 576,293 $ 565,638 ========== ========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 2 -
<TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31, 2007 2006 2007 2006 ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> Net sales $ 155,196 $ 142,044 $ 454,716 $ 432,963 Cost of products sold 108,522 103,421 318,116 313,040 ----------- ----------- ----------- ----------- Gross profit 46,674 38,623 136,600 119,923 ----------- ----------- ----------- ----------- Selling expenses 17,818 14,989 51,208 45,095 General and administrative expenses 9,516 8,566 27,839 26,195 Restructuring charges 149 128 894 (278) Amortization of intangibles 29 44 82 131 ----------- ----------- ----------- ----------- 27,512 23,727 80,023 71,143 ----------- ----------- ----------- ----------- Income from operations 19,162 14,896 56,577 48,780 Interest and debt expense 3,445 4,034 11,250 12,722 Cost of bond redemptions 177 359 1,620 4,942 Investment income (261) (3,774) (812) (4,560) Other income (835) (151) (2,312) (1,444) ----------- ----------- ----------- ----------- Income before income tax expense 16,636 14,428 46,831 37,120 Income tax expense 6,781 5,510 18,281 14,673 ----------- ----------- ----------- ----------- Income from continuing operations 9,855 8,918 28,550 22,447 Income from discontinued operations (net of tax) 139 208 417 565 ----------- ----------- ----------- ----------- Net income 9,994 9,126 28,967 23,012 Retained earnings - beginning of period 104,024 65,038 85,237 51,152 Change in accounting principle (note 6) - - (186) - ----------- ----------- ----------- ----------- Retained earnings - end of period $ 114,018 $ 74,164 $ 114,018 $ 74,164 =========== =========== =========== =========== Basic income per share: Income from continuing operations $ 0.52 $ 0.48 $ 1.53 $ 1.21 Income from discontinued operations 0.01 0.01 0.02 0.03 ----------- ----------- ----------- ----------- Net income $ 0.53 $ 0.49 $ 1.55 $ 1.24 =========== =========== =========== =========== Diluted income per share: Income from continuing operations $ 0.51 $ 0.47 $ 1.49 $ 1.19 Income from discontinued operations 0.01 0.01 0.02 0.03 ----------- ----------- ----------- ----------- Net income $ 0.52 $ 0.48 $ 1.51 $ 1.22 =========== =========== =========== =========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 3 -
<TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED ----------------- DECEMBER 30, DECEMBER 31, 2007 2006 ----------- ----------- (IN THOUSANDS) OPERATING ACTIVITIES: <S> <C> <C> Income from continuing operations $ 28,550 $ 22,447 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 6,378 6,306 Deferred income taxes 13,911 12,526 Gain on sale of real estate/investments (433) (4,745) Loss on early retirement of bonds 1,244 4,069 Stock compensation expense 944 1,040 Amortization/write-off of deferred financing costs 814 1,385 Changes in operating assets and liabilities: Trade accounts receivable and unbilled revenues 8,351 4,178 Inventories (13,317) (10,890) Prepaid expenses 349 (1,564) Other assets (1,045) (297) Trade accounts payable (502) (2,033) Accrued and non-current liabilities (7,259) (5,192) ---------- ---------- Net cash provided by operating activities 37,985 27,230 ---------- ---------- INVESTING ACTIVITIES: Proceeds from sale of marketable securities 12,876 22,077 Purchases of marketable securities (14,273) (20,025) Capital expenditures (7,421) (6,825) Proceeds from sale of facilities and surplus real estate 5,504 2,051 Proceeds from discontinued operations note receivable 417 565 ---------- ---------- Net cash used by investing activities (2,897) (2,157) ---------- ---------- FINANCING ACTIVITIES: Proceeds from stock options exercised 1,309 2,334 Net (repayments) borrowings under revolving line-of-credit agreements (182) 2,294 Repayment of debt and payment of debt premiums (27,728) (43,668) Deferred financing costs incurred (2) (456) Other 422 438 ---------- ---------- Net cash used by financing activities (26,181) (39,058) EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,511 512 ---------- ---------- Net change in cash and cash equivalents 12,418 (13,473) Cash and cash equivalents at beginning of period 48,655 45,598 ---------- ---------- Cash and cash equivalents at end of period $ 61,073 $ 32,125 ========== ========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 4 -
<TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31, 2007 2006 2007 2006 ---- ---- ---- ---- (IN THOUSANDS) <S> <C> <C> <C> <C> Net income $ 9,994 $ 9,126 $ 28,967 $ 23,012 Other comprehensive income, net of tax: Foreign currency translation adjustments 1,262 425 6,637 3,081 Unrealized gain (loss) on investments: Unrealized holding (losses) gains arising during the period (211) 1,999 (104) 2,328 Reclassification adjustment for gains included in net income - (3,544) (45) (4,013) ---------- ---------- ---------- ---------- (211) (1,545) (149) (1,685) ---------- ---------- ---------- ---------- Total other comprehensive income 1,051 (1,120) 6,488 1,396 ---------- ---------- ---------- ---------- Comprehensive income $ 11,045 $ 8,006 $ 35,455 $ 24,408 ========== ========== ========== ========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 5 -
COLUMBUS MCKINNON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 30, 2007 1. DESCRIPTION OF BUSINESS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of Columbus McKinnon Corporation (the Company) at December 30, 2007 and the results of its operations and its cash flows for the three and nine-month periods ended December 30, 2007 and December 31, 2006, have been included. Results for the period ended December 30, 2007 are not necessarily indicative of the results that may be expected for the year ended March 31, 2008. The balance sheet at March 31, 2007 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. 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, 2007. The Company is a leading manufacturer and marketer of material handling products, systems and services which lift, secure, position and move material ergonomically, safely, precisely and efficiently. Key products include hoists, cranes, chain and forged attachments. The Company's material handling products are sold, domestically and internationally, principally to third party distributors through diverse distribution channels, and to a lesser extent directly to manufacturers and other end-users. The Company's integrated material handling solutions businesses deal primarily with end users and sales are concentrated, domestically and internationally (primarily Europe), in the consumer products, manufacturing, warehousing and, to a lesser extent, the steel, construction, automotive and other industrial markets. 2. INVENTORIES Inventories consisted of the following: DECEMBER 30, MARCH 31, 2007 2007 ---------- ---------- At cost - FIFO basis: Raw materials............................ $ 51,360 $ 45,006 Work-in-process.......................... 12,350 9,050 Finished goods........................... 43,821 36,606 ---------- ---------- 107,531 90,662 LIFO cost less than FIFO cost............ (15,919) (13,483) ---------- ---------- Net inventories.......................... $ 91,612 $ 77,179 ========== ========== 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. RESTRUCTURING CHARGES During the nine-month period ended December 30, 2007, the Company recorded restructuring costs of $894 for facility demolition costs and severance. These costs are related to two separate businesses within the Solutions segment. The liability as of December 30, 2007 was $15, consisting primarily of environmental remediation costs which were accrued in accordance with SFAS No. 143. - 6 -
4. NET PERIODIC BENEFIT COST The following table sets forth the components of net periodic pension cost for the Company's defined benefit pension plans: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31, 2007 2006 2007 2006 ---- ---- ---- ---- <S> <C> <C> <C> <C> Service costs................... $1,094 $1,049 $3,282 $3,147 Interest cost................... 2,019 1,879 6,057 5,636 Expected return on plan assets.. (2,043) (1,831) (6,129) (5,492) Net amortization................ 450 623 1,350 1,869 ------ ------ ------ ------ Net periodic pension cost....... $1,520 $1,720 $4,560 $5,160 ====== ====== ====== ====== </TABLE> The following table sets forth the components of net periodic postretirement benefit cost for the Company's defined benefit postretirement plans: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31, 2007 2006 2007 2006 ---- ---- ---- ---- <S> <C> <C> <C> <C> Service costs................... $ - $ 2 $ 2 $ 5 Interest cost .................. 147 160 439 482 Amortization of plan net losses. 96 100 288 300 ------ ------ ------ ------ Net periodic postretirement cost $ 243 $ 262 $ 729 $ 787 ====== ====== ====== ====== </TABLE> For additional information on the Company's defined benefit pension and postretirement benefit plans, refer to Note 11 in the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 2007. 5. FOREIGN DEBT GUARANTEE Effective August 1, 2007, the Company issued a guarantee to a third party lender which secures any borrowing by one of the Company's wholly-owned foreign subsidiaries under the subsidiary's credit facility. The credit facility provides availability up to a maximum of approximately $11,750. The outstanding borrowings on this credit facility were approximately $10,240 at December 30, 2007. 6. INCOME TAXES Income tax expense as a percentage of income from continuing operations before income tax expense was 40.8%, 38.2%, 39.0%, and 39.5% in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The fiscal 2008 percentages vary from the U.S. statutory note due to a $479 deferred tax asset valuation allowance recorded in the third quarter related to our Univeyor business. The nine month fiscal 2007 percentage varies from the U.S. statutory rate due to $1,040 of non-deductible stock option expense in the period. As of December 30, 2007, the Company had U.S. federal net operating loss carry-forwards of approximately $6,200 representing approximately $2,200 of cash tax savings in future periods. On April 1, 2007, the Company adopted the provisions of Financial Standards Accounting Board ("FASB") Interpretation ("FIN") No. 48 "Accounting for Uncertainty in Income Taxes," ("FIN 48") an interpretation of FASB Statement of Financial Accounting Standards ("SFAS") No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized under SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. - 7 -
Upon adoption of FIN 48, the Company recorded a reduction in retained earnings for the cumulative effect adjustment of $186 to its $2,600 of unrecognized tax benefits, all of which would favorably impact the effective tax rate if recognized. During the second quarter of fiscal 2008, the balance of unrecognized tax benefits increased $223 as a result of certain intercompany transactions that have not been audited by the various tax jurisdictions and a matter that arose during a state income tax audit. There was no change in the balance of unrecognized tax benefits during the first or third quarter of fiscal 2008. The Company does not anticipate that total unrecognized tax benefits will change significantly due to the settlement of audits or the expiration of statutes of limitations prior to December 30, 2008. The Company had $207 accrued for the payment of interest and penalties at December 30, 2007. The Company recognizes interest expense or penalties related to uncertain tax positions as a part of income tax expense in its Consolidated Statement of Operations. The Company is currently open to audit by the Internal Revenue Service for the years ending March 31, 2004 through 2007. 7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31, 2007 2006 2007 2006 ---- ---- ---- ---- Numerator for basic and diluted earnings per share: <S> <C> <C> <C> <C> Net income $ 9,994 $ 9,126 $ 28,967 $ 23,012 ======== ======== ======== ======== Denominators: Weighted-average common stock outstanding - denominator for basic EPS 18,753 18,544 18,702 18,491 Effect of dilutive employee stock options 447 410 442 438 -------- -------- -------- -------- Adjusted weighted-average common stock outstanding and assumed conversions - denominator for diluted EPS 19,200 18,954 19,144 18,929 ======== ======== ======== ======== </TABLE> During the first nine months of fiscal 2008, a total of 123,550 shares of stock were issued upon the exercising of stock options related to the Company's stock option plans, and 11,801 shares of stock were issued under the Company's Long Term Incentive Plan to the Company's non-executive directors as part of their annual compensation. 8. 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. Intersegment sales are not significant. The Company evaluates performance based on operating income of the respective business units. - 8 -
Segment information as of and for the nine months ended December 30, 2007 and December 31, 2006, is as follows: <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 30, 2007 ----------------------------------- PRODUCTS SOLUTIONS TOTAL -------- --------- ----- <S> <C> <C> <C> Sales to external customers...................... $ 417,556 $ 37,160 $ 454,716 Income from operations........................... 57,380 (803) 56,577 Depreciation and amortization.................... 5,739 639 6,378 Total assets..................................... 537,479 38,814 576,293 NINE MONTHS ENDED DECEMBER 31, 2006 ----------------------------------- PRODUCTS SOLUTIONS TOTAL -------- --------- ----- Sales to external customers...................... $ 384,039 $ 48,924 $ 432,963 Income from operations........................... 49,991 (1,211) 48,780 Depreciation and amortization.................... 5,657 649 6,306 Total assets..................................... 515,053 36,536 551,589 </TABLE> - 9 -
9. SUMMARY FINANCIAL INFORMATION The following information sets forth the condensed consolidating summary financial information of the parent and guarantors, which guarantee the 8 7/8% Senior Subordinated Notes, and the nonguarantors. The guarantors are wholly owned and the guarantees are full, unconditional, joint and several. <TABLE> <CAPTION> Parent Guarantors Nonguarantors Eliminations Consolidated -------------------------------------------------------------------- AS OF DECEMBER 30, 2007 Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 19,408 $ (1,292) $ 42,957 $ - $ 61,073 Trade accounts receivable and unbilled revenues 59,096 159 45,854 - 105,109 Inventories 38,986 20,566 34,220 (2,160) 91,612 Other current assets 8,081 1,576 8,096 - 17,753 -------------------------------------------------------------------- Total current assets 125,571 21,009 131,127 (2,160) 275,547 Property, plant, and equipment, net 25,545 11,237 19,902 - 56,684 Goodwill and other intangibles, net 88,757 57,035 40,913 - 186,705 Intercompany 51,067 (61,797) (62,865) 73,595 - Other assets 82,398 193,540 31,275 (249,856) 57,357 -------------------------------------------------------------------- Total assets $ 373,338 $ 221,024 $ 160,352 $ (178,421) $ 576,293 ==================================================================== Current liabilities $ 35,836 $ 18,143 $ 52,135 $ (1,571) $ 104,543 Long-term debt, less current portion 133,000 2,881 3,191 - 139,072 Other non-current liabilities 16,847 11,303 24,869 - 53,019 -------------------------------------------------------------------- Total liabilities 185,683 32,327 80,195 (1,571) 296,634 Shareholders' equity 187,655 188,697 80,157 (176,850) 279,659 -------------------------------------------------------------------- Total liabilities and shareholders' equity $ 373,338 $ 221,024 $ 160,352 $ (178,421) $ 576,293 ==================================================================== FOR THE NINE MONTHS ENDED DECEMBER 30, 2007 Net sales $ 218,182 $ 130,388 $ 135,943 $ (29,797) $ 454,716 Cost of products sold 159,021 96,563 92,329 (29,797) 318,116 -------------------------------------------------------------------- Gross profit 59,161 33,825 43,614 - 136,600 -------------------------------------------------------------------- Selling, general and administrative expenses 35,096 13,293 30,658 - 79,047 Restructuring charges 551 - 343 - 894 Amortization of intangibles 80 2 - - 82 -------------------------------------------------------------------- 35,727 13,295 31,001 - 80,023 -------------------------------------------------------------------- Income from operations 23,434 20,530 12,613 - 56,577 Interest and debt expense 7,432 2,994 824 - 11,250 Other (income) and expense, net 678 (298) (1,884) - (1,504) -------------------------------------------------------------------- Income before income tax expense 15,324 17,834 13,673 - 46,831 Income tax expense 6,818 7,209 4,254 - 18,281 -------------------------------------------------------------------- Income from continuing operations 8,506 10,625 9,419 - 28,550 Income from discontinued operations 417 - - - 417 -------------------------------------------------------------------- Net income $ 8,923 $ 10,625 $ 9,419 $ - $ 28,967 ==================================================================== - 10 -
Parent Guarantors Nonguarantors Eliminations Consolidated -------------------------------------------------------------------- FOR THE NINE MONTHS ENDED DECEMBER 30, 2007 OPERATING ACTIVITIES: Net cash provided (used) by operating activities $ 30,010 $ (3,697) $ 11,672 $ - $ 37,985 -------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of marketable securities, net - - (1,397) - (1,397) Capital expenditures (4,495) (1,664) (1,262) - (7,421) Proceeds from sale of facilities and surplus real estate - 5,504 - - 5,504 Proceeds from discontinued operations note receivable 417 - - - 417 -------------------------------------------------------------------- Net cash (used) provided by investing activities (4,078) 3,840 (2,659) - (2,897) -------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from stock options exercised 1,309 - - - 1,309 Net payments under revolving line-of-credit agreements - - (182) - (182) Repayment of debt (26,619) (84) (1,025) - (27,728) Other 420 - - - 420 -------------------------------------------------------------------- Net cash used by financing activities (24,890) (84) (1,207) - (26,181) EFFECT OF EXCHANGE RATE CHANGES ON CASH - (189) 3,700 - 3,511 -------------------------------------------------------------------- Net change in cash and cash equivalents 1,042 (130) 11,506 - 12,418 Cash and cash equivalents at beginning of period 18,366 (1,162) 31,451 - 48,655 -------------------------------------------------------------------- Cash and cash equivalents at end of period $ 19,408 $ (1,292) $ 42,957 $ - $ 61,073 ==================================================================== AS OF MARCH 31, 2007 Current assets: Cash and cash equivalents $ 18,366 $ (1,162) $ 31,451 $ - $ 48,655 Trade accounts receivable and unbilled revenues 64,849 45 47,425 - 112,319 Inventories 34,548 17,175 27,616 (2,160) 77,179 Other current assets 6,237 2,707 9,085 - 18,029 -------------------------------------------------------------------- Total current assets 124,000 18,765 115,577 (2,160) 256,182 Property, plant, and equipment, net 24,662 11,508 19,061 - 55,231 Goodwill and other intangibles, net 88,703 57,037 40,163 - 185,903 Intercompany 66,971 (77,385) (63,602) 74,016 - Other assets 93,609 194,922 29,647 (249,856) 68,322 -------------------------------------------------------------------- Total assets $ 397,945 $ 204,847 $ 140,846 $ (178,000) $ 565,638 ==================================================================== Current liabilities $ 36,388 $ 15,376 $ 48,120 $ (1,150) $ 98,734 Long-term debt, less current portion 158,125 - 4,043 - 162,168 Other non-current liabilities 27,646 11,143 24,622 - 63,411 -------------------------------------------------------------------- Total liabilities 222,159 26,519 76,785 (1,150) 324,313 Shareholders' equity 175,786 178,328 64,061 (176,850) 241,325 -------------------------------------------------------------------- Total liabilities and shareholders' equity $ 397,945 $ 204,847 $ 140,846 $ (178,000) $ 565,638 ==================================================================== - 11 -
Parent Guarantors Nonguarantors Eliminations Consolidated -------------------------------------------------------------------- FOR THE NINE MONTHS ENDED DECEMBER 31, 2006 Net sales $ 208,814 $ 125,574 $ 134,320 $ (35,745) $ 432,963 Cost of products sold 153,144 94,092 101,139 (35,335) 313,040 -------------------------------------------------------------------- Gross profit 55,670 31,482 33,181 (410) 119,923 -------------------------------------------------------------------- Selling, general and administrative expenses 31,715 12,650 26,925 - 71,290 Restructuring charges (331) - 53 - (278) Amortization of intangibles 79 2 50 - 131 -------------------------------------------------------------------- 31,463 12,652 27,028 - 71,143 -------------------------------------------------------------------- Income (loss) from operations 24,207 18,830 6,153 (410) 48,780 Interest and debt expense 9,453 2,975 294 - 12,722 Other (income) and expense, net 4,591 (407) (5,246) - (1,062) -------------------------------------------------------------------- Income (loss) before income tax expense (benefit) 10,163 16,262 11,105 (410) 37,120 Income tax expense (benefit) 5,264 6,444 3,175 (210) 14,673 -------------------------------------------------------------------- Income (loss) from continuing operations 4,899 9,818 7,930 (200) 22,447 Income from discontinued operations 565 - - - 565 -------------------------------------------------------------------- Net income (loss) $ 5,464 $ 9,818 $ 7,930 $ (200) $ 23,012 ==================================================================== FOR THE NINE MONTHS ENDED DECEMBER 31, 2006 OPERATING ACTIVITIES: Net cash provided by operating activities $ 24,998 $ 1,424 $ 808 $ - $ 27,230 -------------------------------------------------------------------- INVESTING ACTIVITIES: Sale of marketable securities, net - - 2,052 - 2,052 Capital expenditures (4,195) (710) (1,920) - (6,825) Proceeds from sale of facilities and surplus real estate 1,655 396 - - 2,051 Proceeds from discontinued operations note receivable 565 - - - 565 -------------------------------------------------------------------- Net cash (used) provided by investing activities (1,975) (314) 132 - (2,157) -------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from stock options exercised 2,334 - - - 2,334 Net borrowings under revolving line-of-credit agreements - - 2,294 - 2,294 (Repayment) borrowings of debt (46,321) - 2,653 - (43,668) Deferred financing costs incurred (456) - - - (456) Other 438 - - - 438 -------------------------------------------------------------------- Net cash (used) provided by financing activities (44,005) - 4,947 - (39,058) EFFECT OF EXCHANGE RATE CHANGES ON CASH - (135) 647 - 512 -------------------------------------------------------------------- Net change in cash and cash equivalents (20,982) 975 6,534 - (13,473) Cash and cash equivalents at beginning of period 27,531 (1,461) 19,528 - 45,598 -------------------------------------------------------------------- Cash and cash equivalents at end of period $ 6,549 $ (486) $ 26,062 $ - $ 32,125 ==================================================================== </TABLE> - 12 -
10. LOSS CONTINGENCIES Like many industrial manufacturers, the Company is involved in asbestos-related litigation. In continually evaluating costs associated with 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. Based on actuarial information, the Company has estimated its asbestos-related aggregate liability through March 31, 2025 and March 31, 2037 to range between $5,000 and $15,000 using actuarial parameters of continued claims for a period of 18 to 30 years. The Company's estimation of its asbestos-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted accounting principles approximates $8,400 which has been reflected as a liability in the consolidated financial statements as of December 30, 2007. The recorded liability does not consider the impact of any potential favorable federal legislation. This liability may fluctuate based on the 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. Of this amount, management expects to incur asbestos liability payments of approximately $380 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. The Company's non-asbestos related product liability reserves decreased approximately $1,500 during the quarter ended December 30, 2007 as a result of decreases in the estimated losses for claims. Product liability costs, which are reflected as cost of sales, were approximately $1,200 lower in the third quarter of fiscal 2008 when compared to the fiscal 2007 third quarter. 11. NEW ACCOUNTING STANDARDS In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements," ("SFAS 157") to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS 157 will be effective for fiscal years beginning after November 15, 2007. The Company is assessing the impact the adoption of SFAS 157 will have on the Company's consolidated financial position and results of operations. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). Among other items, SFAS 158 requires recognition of the overfunded or underfunded status of an entity's defined benefit postretirement plan as an asset or liability in the financial statements and requires recognition of the funded status of defined benefit postretirement plans in other comprehensive income. We adopted all of the currently required provisions of SFAS 158 in fiscal 2007. This statement also requires an entity to measure a defined benefit postretirement plan's assets and obligations that determine its funded status as of the end of the employers' fiscal year. This requirement is effective for fiscal years ending after December 15, 2008. The Company does not expect the adoption of this requirement to have a material impact on the Company's consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 allows the irrevocable election of fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities and other items on an instrument-by-instrument basis. Changes in fair value would be reflected in earnings as they occur. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply - 13 -
complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. The Company is currently evaluating if it will elect the fair value option for any of its eligible financial instruments and other items. In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose all of the information required to evaluate and understand the nature and financial effect of the business combination. This statement is effective for acquisition dates on or after the beginning of the first annual reporting period beginning after December 15, 2008. The Company is currently evaluating the impact the adoption of SFAS 141(R) will have on the Company's consolidated financial statements. 12. SUBSEQUENT EVENTS During January 2008 the Company used cash on hand to redeem $3,145 of the outstanding 8 7/8% Notes. The redemption required a $134 premium payment to Noteholders and $40 of unamortized financing costs were written-off. - 14 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (DOLLAR AMOUNTS IN THOUSANDS) EXECUTIVE OVERVIEW We are a leading manufacturer and marketer of hoists, cranes, chain, material handling systems, lift tables and industrial components serving a wide variety of commercial and industrial end-user 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 or standard 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 size and leadership position through organic growth and the acquisition of 14 businesses between February 1994 and April 1999. We have developed our leading market position over our 132-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. Ongoing operation of these businesses includes improving our productivity and extending our sales activities to the European and Asian marketplaces. We are executing those initiatives through our Lean Manufacturing efforts, new product development and expanded sales activities. Shareholder value will be enhanced through continued emphasis on improvement of the fundamentals including manufacturing efficiency, cost containment, efficient capital investment, market expansion and excellent customer satisfaction. We maintain a strong domestic market share with significant leading North American market positions in hoists, lifting and sling chain, and forged attachments. To broaden our product offering in markets where we have a strong competitive position as well as to facilitate penetration into new geographic markets, we have heightened our new product development activities. Over the past two years, this includes the introduction of powered hoist lines in accordance with international standards, to complement our current offering of hoist products designed in accordance with U.S. standards. To further expand our global sales, we are introducing certain of our products that historically have been distributed only in North America and also introducing new products through our existing European distribution network. Furthermore, we are working to build a distribution network in China to capture an anticipated growing demand for material handling products as that economy continues to industrialize. Additionally, we are targeting the high growth sectors of energy and commercial construction as growing users of our products. We have recently reorganized and expanded our management team to align with these strategic initiatives. These investments in international markets and new products are part of our focus on our greatest opportunities for growth and reducing the impact of industrial cyclicality on our business. As a result of these efforts and the continued strong industrial economy in our important markets of interest, we believe we can sustain our expected Products segment growth rate in the mid-to-high single-digit range for fiscal 2008. Management monitors U.S. Industrial Capacity Utilization, which has approximated 80% for the past 1 1/2 years, as an indicator of anticipated demand for our product. In addition, we continue to monitor the potential impact of other global and domestic trends, including energy costs, steel price fluctuations, interest rates and activity in a variety of end-user markets around the globe. Our Lean Manufacturing efforts continue to fundamentally change our manufacturing processes to be more responsive to customer demand and improve on-time delivery and productivity. During fiscal 2007, in furtherance of our facility rationalization projects, we completed the sale of one of our less strategic businesses, a specialty crane manufacturer, and sold two pieces of excess real estate, generating $4.5 million of proceeds. During the nine months of fiscal 2008, we completed the sale and partial leaseback of a manufacturing facility in Charlotte, North Carolina, generating $5.2 million of proceeds. The proceeds have been used to repay our outstanding debt. We recently announced that we are evaluating strategic alternatives, including potential sale of Univeyor, our material handling systems business. - 15 -
We keep a close watch on the costs of fringe benefits such as health insurance, workers compensation insurance and pension. Combined, those benefits cost us over $35,000 in fiscal 2007 and we work diligently to balance cost control with the need to provide competitive employee benefits packages for our associates. Another cost area of focus is steel. We utilize approximately $35,000 to $40,000 of steel annually in a variety of forms including rod, wire, bar, structural and others. With increases in worldwide demand for steel and fluctuating scrap steel prices, as we experience fluctuations in our costs, we reflect them as price increases to our customers. We implemented a price increase on our steel-intensive products in September which fully capture recent steel cost increases. Additionally, in January 2008 we instituted an annual price increase covering most of our product offering. We will continue to monitor our costs and reevaluate our pricing policies. We continue to operate in a highly competitive business environment in the markets and geographies served. Our performance will be impacted by our ability to address a variety of challenges and opportunities in those markets and geographies, including trends towards increased utilization of the global labor force and the expansion of market opportunities in Asia and other emerging markets. RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED DECEMBER 30, 2007 AND DECEMBER 31, 2006 Net sales in the fiscal 2008 quarter ended December 30, 2007 were $155,196, up $13,152 or 9.3% from the fiscal 2007 quarter ended December 31, 2006. Net sales for the nine months ended December 30, 2007 were $454,716, an increase of $21,753 or 5.0% from the nine months ended December 31, 2006. Sales in the Products segment increased by $13,615 or 10.7% from the previous year's quarter and $33,517 or 8.7% from the previous year's nine-month period then ended. These increases are due to the continued strength of the U.S. and European industrial markets, as well as the impact of price increases of $6,100 in the nine months ended December 30, 2007. Translation of foreign currencies, particularly the Euro and Canadian dollar, into U.S. dollars contributed $3,700 and $7,500 toward the Products segment increase in sales for the quarter and nine-month period ended December 30, 2007, respectively. Sales in the Solutions segment decreased 3.0% or $463 for the quarter and 24.0% or $11,764 for the nine months ended December 30, 2007 when compared with the same periods in the prior year. The decreases in this segment are primarily due to lower volume in our European conveyor business as revenue has been intentionally held back as a result of historically unacceptable returns on certain types of projects. We have restructured that business and are converting it into a more products and services orientated model while we evaluate strategic alternatives, including its potential sale. Translation of foreign currencies into U.S. dollars contributed an additional $1,000 and $1,900 toward the Solutions segment sales for the quarter and nine-months ended December 30, 2007. Sales in the segments are summarized as follows: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------- ------------------------------------------- DEC. 30, DEC. 31, CHANGE DEC. 30, DEC. 31, CHANGE 2007 2006 AMOUNT % 2007 2006 AMOUNT % ---- ---- ------ --- ---- ---- ------ --- <S> <C> <C> <C> <C> <C> <C> <C> <C> Products $ 140,478 $ 126,863 $ 13,615 10.7 $ 417,556 $ 384,039 $ 33,517 8.7 Solutions 14,718 15,181 (463) -3.0 37,160 48,924 (11,764) -24.0 ---------- ---------- -------- ---------- --------- --------- Net sales $ 155,196 $ 142,044 $ 13,152 9.3 $ 454,716 $ 432,963 $ 21,753 5.0 ========== ========== ======== ========== ========= ========= </TABLE> Gross profit and gross profit margins by reporting segment are summarized as follows: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------ -------------------------------------- DEC. 30, 2007 DEC. 31, 2006 DEC. 30, 2007 DEC. 31, 2006 ------------- ------------- ------------- ------------- $ % $ % $ % $ % --- --- --- --- --- --- --- --- <S> <C> <C> <C> <C> <C> <C> <C> <C> Products $ 44,199 31.5 $ 37,654 29.7 $ 130,530 31.3 $ 114,967 29.9 Solutions 2,475 16.8 969 6.4 6,070 16.3 4,956 10.1 --------- --------- ---------- ---------- Total Gross Profit $ 46,674 30.1 $ 38,623 27.2 $ 136,600 30.0 $ 119,923 27.7 ========= ========= ========== ========== </TABLE> The increase in the gross profit margin for the Products segment is the result of product mix, the realization of operational leverage at increased sales volumes, favorable trends in our product liability and workers compensation costs, ongoing cost containment activities and the translation of foreign currencies into U.S. dollars, which contributed $1,400 and $3,000 toward the Products segment increase in gross margin for the quarter and nine-months ended December 30, 2007, respectively. The Solutions segment reflected gross margin improvement due to restructuring activities and focus on profitable core business undertaken at our Univeyor business. - 16 -
Selling expenses were $17,818, $14,989, $51,208 and $45,095 in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The changes in selling expense dollars were impacted by our increased investment to support our strategic growth initiatives including investments in new markets and strategic sales initiatives ($1,400 and $3,000 for the quarter and nine-month period ended December 30, 2007, respectively), translation of foreign currencies into U.S. dollars ($700 and $1,600 for the quarter and nine-month period ended December 30, 2007, respectively) and increased variable selling costs as a result of higher sales volume. As a percentage of consolidated net sales, selling expenses were 11.5%, 10.6%, 11.3%, and 10.4% in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. General and administrative expenses were $9,516, $8,566, $27,839 and $26,195 in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The change in administrative expenses was primarily the result of increased research and development costs ($210 and $640 for the quarter and nine-month period ended December 30, 2007, respectively) and the translation of foreign currencies into U.S. dollars ($350 and $850 for the quarter and nine-month period ended December 30, 2007, respectively). The quarter ended December 30, 2007 also included the recognition of $135 of stock based compensation expense related to our Long Term Incentive Plan. As a percentage of consolidated net sales, general and administrative expenses were 6.1%, 6.0%, 6.1%, and 6.1% in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. Restructuring charges were $149, $128, $894, and ($278) in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The 2008 restructuring charges include $551 of costs related to the partial demolition of an older and underutilized domestic facility and $343 of costs incurred to reduce ongoing operating costs and change our Univeyor business model to increase its focus on offering products as packaged solutions rather than engineered-to-order systems. The reversal of restructuring charges in fiscal 2007 resulted from the sale of a previously closed facility and included $216 of gain on the sale of the property that had been written down in previous periods. Interest and debt expense was $3,445, $4,034, $11,250, and $12,722 in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. This decrease is the result of lower debt levels. As a percentage of consolidated net sales, interest and debt expense was 2.2%, 2.8%, 2.5%, and 2.9% in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. Cost of bond redemptions was $177, $359, $1,620, and $4,942 in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively, supporting our debt reduction initiatives. Investment income was $261, $3,774, $812, and $4,560 in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The fiscal 2007 quarter and nine month period includes $3,400 of realized gains on sale of the investments resulting from the reallocation of our captive insurance company's investment portfolio. Income tax expense as a percentage of income from continuing operations before income tax expense was 40.8%, 38.2%, 39.0%, and 39.5% in the fiscal 2008 and 2007 quarters and the nine-month periods then ended, respectively. The fiscal 2008 percentages vary from the U.S. statutory note due to a $479 deferred tax asset valuation allowance recorded in third quarter related to our Univeyor business. The nine month fiscal 2007 percentage varies from the U.S. statutory rate due to $1,040 of non-deductible stock option expense in the period. As of December 30, 2007, the Company had U.S. federal net operating loss carry-forwards of approximately $6,200 representing approximately $2,200 of cash tax savings in future periods. On April 1, 2007, the Company adopted the provisions of Financial Standards Accounting Board ("FASB") Interpretation ("FIN") No. 48 "Accounting for Uncertainty in Income Taxes," ("FIN 48") an interpretation of FASB Statement of Financial Accounting Standards ("SFAS") No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized under SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. - 17 -
Upon adoption of FIN 48, the Company recorded a reduction in retained earnings for the cumulative effect adjustment of $186 to its $2,600 of unrecognized tax benefits, all of which would favorably impact the effective tax rate if recognized. During the second quarter of fiscal 2008, the balance of unrecognized tax benefits increased $223 as a result of certain intercompany transactions that have not been audited by the various tax jurisdictions and a matter that arose during a state income tax audit. There was no change in the balance of unrecognized tax benefits during the first or third quarter of fiscal 2008. The Company does not anticipate that total unrecognized tax benefits will change significantly due to the settlement of audits or the expiration of statutes of limitations prior to December 30, 2008. The Company had $207 accrued for the payment of interest and penalties at December 30, 2007. The Company recognizes interest expense or penalties related to uncertain tax positions as a part of income tax expense in its Consolidated Statement of Operations. The Company is currently open to audit by the Internal Revenue Service for the years ending March 31, 2004 through 2007. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $61,073 at December 30, 2007, an increase of $12,418 from the March 31, 2007 balance of $48,655. Net cash provided by operating activities was $37,985 for the nine months ended December 30, 2007 compared to $27,230 for the nine months ended December 31, 2006. The $10,755 increase is primarily the result of a $6,103 increase in income from continuing operations to $28,550 in fiscal 2008 from $22,447 in fiscal 2007, an increase of $4,173 of cash from the change of accounts receivables and unbilled revenues as a result of improved collection activities, and a $1,385 increase in the use of deferred tax assets for net operating loss carry-forwards. The resulting increase in cash from operations was partially offset by a $2,427 increase in cash used for the change in inventory resulting from support for upcoming new product launches, an increase for longer term capital projects equipment and timing of offshore purchases. Net cash used by investing activities was $2,897 for the nine months ended December 30, 2007 compared to $2,157 for the nine months ended December 31, 2006. The net cash used in investing activities for the nine months ended December 30, 2007 was the result of $7,421 used for capital expenditures and $1,397 for the net purchases of marketable securities, partially offset by $5,504 of proceeds from the sale of facilities and surplus real estate and $417 of proceeds from discontinued operations. The net cash used in investing activities for the nine months ended December 31, 2006 was the result of $6,825 used for capital expenditures, partially offset by $2,051 of proceeds from the sale of facilities and surplus real estate, $2,052 received from the net sale of marketable securities, and $565 of proceeds from discontinued operations. Net cash used by financing activities was $26,181 for the nine months ended December 30, 2007 compared to $39,058 for the nine months ended December 31, 2006. The net cash used in financing activities for the nine months ended December 30, 2007 consisted primarily of $27,910 of net debt repayments, partially offset by $1,309 of proceeds from stock options exercised. The net cash used in financing activities for the nine months ended December 31, 2006 consisted primarily of $41,374 of net debt repayments, partially offset by $2,334 of proceeds from stock options exercised. 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 includes focus on cash generation for debt repayment. The business plan includes continued implementation of new market penetration, new product development, lean manufacturing and improving working capital utilization. Our Revolving Credit Facility provides availability up to $75,000. Provided there is no default, the Company may request an increase in the availability of the Revolving Credit Facility by an amount not exceeding $50,000. The Revolving Credit Facility matures February 2011. - 18 -
The unused portion of the Revolving Credit Facility totaled $63,586, net of outstanding borrowings of zero and outstanding letters of credit of $11,414 of December 30, 2007. Interest is payable at a Eurodollar Rate or a prime rate plus an applicable margin determined by our leverage ratio. At our current leverage ratio, we qualify for the lowest applicable margin level, which amounts to 87.5 basis points for Eurodollar borrowings and zero basis points for prime rate based borrowings. 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 corresponding credit agreement associated with the Revolving Credit Facility places certain debt covenant restrictions on us, including certain financial requirements and a limitation on dividend payments. The Senior Subordinated 8 7/8% Notes (8 7/8% Notes) issued on September 2, 2005 amounted to $133,000 at December 30, 2007 and are due November 1, 2013. Provisions of the 8 7/8% Notes include limitations on indebtedness, asset sales, and dividends and other restricted payments. Until November 1, 2008, we may redeem up to 35% of the outstanding notes at a redemption price of 108.875% with the proceeds of equity offerings, subject to certain restrictions. On or after November 1, 2009, the 8 7/8% Notes are redeemable at the option of the Company, in whole or in part, at prices declining annually from 104.438% to 100% on and after November 1, 2011. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 7/8% Notes may require us to repurchase all or a portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 7/8% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. During the fiscal 2008 third quarter ending December 30, 2007 the Company used cash on hand to redeem $3,000 of the outstanding 8 7/8% Notes. The redemption required a $138 premium payment to Noteholders and $39 of unamortized financing costs were written-off. During January 2008 the Company used cash on hand to redeem an additional $3,145 of the outstanding 8 7/8% Notes which required a $134 premium payment to Noteholders and $40 of unamortized financing costs were written-off. On August 1, 2007 the Company used cash on hand to redeem all of the outstanding Senior Secured 10% Notes at a price of 105% of the principal amount. The redemption required a $1,106 premium payment to Noteholders and $337 of unamortized financing costs were written-off in the fiscal 2008 second quarter ending September 30, 2007. International lines of credit are available to meet short-term working capital needs for our subsidiaries operating outside of the United States. The lines of credit are available on an offering basis, meaning that transactions under the line of credit will be on such terms and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction. As of December 30, 2007, amounts available under significant foreign credit lines totaled approximately $11,750 of which $10,240 was drawn. In addition to the above facilities, our foreign subsidiaries have certain fixed term bank loans. As of December 30, 2007, significant secured loans totaled $3,040. 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. Consolidated capital expenditures for the nine months ended December 30, 2007 and December 31, 2006 were $7,421 and $6,825, respectively. We expect capital spending for fiscal 2008 to be approximately $11 to $12 million compared with $10.7 million in fiscal 2007. Incremental capital expenditures for fiscal 2008 will be primarily directed toward new product development and productivity improvement. 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, South America, and the Pacific Rim. We do not believe that general inflation has had a material effect on results of operations over the periods presented primarily due to overall low inflation levels of most costs over such periods and our ability to - 19 -
generally pass on rising costs through price increases. However, we have been impacted by fluctuations in steel costs, which vary by type of steel and we continue to monitor them. In addition, U.S. employee benefits costs such as health insurance and workers compensation insurance as well as energy costs have exceeded general inflation levels. We generally incorporate those cost increases into our sales price increases and consider surcharges on certain products, as determined necessary. In the future, we may be further affected by inflation that we may not be able to pass on as price increases or surcharges. SEASONALITY AND QUARTERLY RESULTS Quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, gains or losses on early retirement of bonds, restructuring charges, divestitures and acquisitions. Therefore, the operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements," ("SFAS 157") to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS 157 will be effective for fiscal years beginning after November 15, 2007. The Company is assessing the impact the adoption of SFAS 157 will have on the Company's consolidated financial position and results of operations. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). Among other items, SFAS 158 requires recognition of the overfunded or underfunded status of an entity's defined benefit postretirement plan as an asset or liability in the financial statements and requires recognition of the funded status of defined benefit postretirement plans in other comprehensive income. We adopted all of the currently required provisions of SFAS 158 in fiscal 2007. This statement also requires an entity to measure a defined benefit postretirement plan's assets and obligations that determine its funded status as of the end of the employers' fiscal year. This requirement is effective for fiscal years ending after December 15, 2008. The Company does not expect the adoption of this requirement to have a material impact on the Company's consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 allows the irrevocable election of fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities and other items on an instrument-by-instrument basis. Changes in fair value would be reflected in earnings as they occur. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. The Company is currently evaluating if it will elect the fair value option for any of its eligible financial instruments and other items. In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose all of the information required to evaluate and understand the nature and financial effect of the business combination. This statement is effective for acquisition dates on or after the beginning of the first annual reporting period beginning after December 15, 2008. The Company is currently evaluating the impact the adoption of SFAS 141(R) will have on the Company's consolidated financial statements. - 20 -
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause 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, our asbestos-related liability, the integration of acquisitions and other factors disclosed in our periodic reports filed with the Commission. Consequently such forward-looking statements should be regarded as our current plans, estimates and beliefs. 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 events. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the market risks since the end of Fiscal 2007. Item 4. Controls and Procedures As of December 30, 2007, an evaluation was performed under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures were effective as of December 30, 2007. There were no changes in the Company's internal controls or other factors during our third quarter ended December 30, 2007. - 21 -
PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. Item 1A. Risk Factors No material changes from risk factors as previously disclosed in the Company's Form 10-K for the year ended March 31, 2007. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - none. Item 3. Defaults upon Senior Securities - none. Item 4. Submission of Matters to a Vote of Security Holders - none. Item 5. Other Information - none. Item 6. Exhibits (a) Exhibits: Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 22 -
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBUS MCKINNON CORPORATION ----------------------------- (Registrant) Date: FEBRUARY 8, 2008 /S/ KAREN L. HOWARD ---------------- ---------------------------------------- Karen L. Howard Vice President and Chief Financial Officer (Principal Financial Officer) - 23 -