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 July 1, 2001 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 July 31, 2001 was: 14,895,172 shares.
FORM 10-Q INDEX COLUMBUS MCKINNON CORPORATION JULY 1, 2001 PAGE # ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed consolidated balance sheets - July 1, 2001 and March 31, 2001 2 Condensed consolidated statements of income and retained earnings - Three months ended July 1, 2001 and July 2, 2000 3 Condensed consolidated statements of cash flows - Three months ended July 1, 2001 and July 2, 2000 4 Condensed consolidated statements of comprehensive income - Three months ended July 1, 2001 and July 2, 2000 5 Notes to condensed consolidated financial statements - July 1, 2001 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. 18 Item 2. Changes in Securities - none. 18 Item 3. Defaults upon Senior Securities - none. 18 Item 4. Submission of Matters to a Vote of Security Holders - none. 18 Item 5. Other Information - none. 18 Item 6. Exhibits and Reports on Form 8-K 18 - 1 -
PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) <TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) JULY 1, MARCH 31, 2001 2001 ---------- ----------- ASSETS: (IN THOUSANDS) Current assets: <S> <C> <C> Cash and cash equivalents $ 1,974 $ 14,015 Trade accounts receivable 133,723 140,234 Unbilled revenues 41,158 26,813 Inventories 109,984 113,218 Net assets held for sale 4,733 4,270 Prepaid expenses 5,900 5,655 ---------- ----------- Total current assets 297,472 304,205 Property, plant, and equipment, net 83,283 85,272 Goodwill and other intangibles, net 317,987 322,196 Marketable securities 23,709 22,326 Deferred taxes on income 5,155 5,696 Other assets 7,225 7,318 ---------- ----------- Total assets $ 734,831 $ 747,013 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Notes payable to banks $ 3,055 $ 3,012 Trade accounts payable 38,103 44,936 Excess billings 5,055 1,623 Accrued liabilities 43,996 48,465 Restructuring reserve 8,840 - Current portion of long-term debt 1,142 3,092 --------- ----------- Total current liabilities 100,191 101,028 Senior debt, less current portion 198,954 204,326 Subordinated debt 199,640 199,628 Other non-current liabilities 33,156 34,067 ---------- ----------- Total liabilities 531,941 539,149 ---------- ----------- Shareholders' equity Common stock 149 149 Additional paid-in capital 105,367 105,418 Retained earnings 119,139 124,806 ESOP debt guarantee (7,342) (7,527) Unearned restricted stock (874) (955) Total accumulated other comprehensive loss (13,549) (14,027) ---------- ----------- Total shareholders' equity 202,890 207,864 ---------- ----------- Total liabilities and shareholders' equity $ 734,831 $ 747,013 ========== =========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 2 -
<TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) THREE MONTHS ENDED ------------------ JULY 1, JULY 2, 2001 2000 ---------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> Net sales $ 175,905 $ 188,378 Cost of products sold 140,947 141,164 ---------- ----------- Gross profit 34,958 47,214 ---------- ----------- Selling expenses 11,634 12,482 General and administrative expenses 7,367 10,340 Restructuring Charges 8,840 - Amortization of intangibles 4,033 4,014 ---------- ----------- 31,874 26,836 ---------- ----------- Income from operations 3,084 20,378 Interest and debt expense 8,576 9,281 Interest income and other (expense) income (112) 941 ---------- ----------- (Loss) income before income taxes (5,604) 12,038 Income tax (benefit) expense (943) 6,092 ---------- ----------- Net (loss) income (4,661) 5,946 Retained earnings - beginning of period 124,806 113,582 Cash dividends of $0.07 per share (1,006) (999) ---------- ----------- Retained earnings - end of period $ 119,139 $ 118,529 ========== =========== Earnings per share data, basic and diluted $ (0.32) $ 0.42 ========== =========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 3 -
<TABLE> <CAPTION> COLUMBUS MCKINNON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED ------------------ JULY 1, JULY 2, 2001 2000 ---------- ----------- (IN THOUSANDS) OPERATING ACTIVITIES: <S> <C> <C> Net (loss) income $ (4,661) $ 5,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,247 7,140 Deferred income taxes 541 (96) Other 403 334 Changes in operating assets and liabilities: Trade accounts receivable 6,453 (9,598) Unbilled revenues and excess billings (10,913) 4,774 Inventories 3,186 (2,391) Prepaid expenses (245) (238) Other assets 135 (155) Trade accounts payable (6,731) (7,011) Accrued and non-current liabilities 3,334 (2,547) ---------- ----------- Net cash used in operating activities (1,251) (3,842) ---------- ----------- INVESTING ACTIVITIES: Purchase of marketable securities, net (787) (1,065) Capital expenditures (1,309) (1,929) Net assets held for sale (463) (258) ---------- ----------- Net cash used in investing activities (2,559) (3,252) ---------- ----------- FINANCING ACTIVITIES: Net (payments) borrowings under revolving line-of-credit agreements (6,577) 4,289 Repayment of debt (570) (1,201) Dividends paid (1,006) (999) Reduction of ESOP debt guarantee 185 209 Other (474) - ---------- ----------- Net cash (used in) provided by financing activities (8,442) 2,298 Effect of exchange rate changes on cash 11 276 ---------- ----------- Net decrease in cash and cash equivalents (12,241) (4,520) Cash and cash equivalents at beginning of period 14,215 7,582 ---------- ----------- Cash and cash equivalents at end of period $ 1,974 $ 3,062 ========== =========== 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 ------------------ JULY 1, JULY 2, 2001 2000 ---------- ----------- (IN THOUSANDS) <S> <C> <C> Net (loss) income $ (4,661) $ 5,946 ---------- ----------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (241) 291 Unrealized gain on derivatives qualifying as hedges 123 - Unrealized gain (loss) on investments Unrealized holding gain arising during the period 199 147 Less: reclassification adjustment for (gain) loss included in net income 397 (575) ---------- ----------- 596 (428) ---------- ----------- Total other comprehensive income (loss) 478 (137) ---------- ----------- Comprehensive (loss) income $ (4,183) $ 5,809 ========== =========== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. </TABLE> - 5 -
COLUMBUS MCKINNON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 1, 2001 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 July 1, 2001, and the results of its operations and its cash flows for the three month periods ended July 1, 2001 and July 2, 2000, have been included. Results for the period ended July 1, 2001 are not necessarily indicative of the results that may be expected for the year ended March 31, 2002. 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, 2001. The Company is a broad-line designer, manufacturer and supplier of sophisticated material handling products that are widely distributed to industrial, automotive, and consumer markets globally; integrated material handling solutions for industrial markets; and integrated material handling solutions for the automotive markets. 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 industrial businesses also 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. The Company's integrated material handling solutions automotive business primarily deals with end users and sales are concentrated domestically and internationally (primarily North America), in the automotive industry. 2. Inventories consisted of the following: <TABLE> <CAPTION> JULY 1, MARCH 31, 2001 2001 ---------- ----------- (IN THOUSANDS) At cost - FIFO basis: <S> <C> <C> Raw materials.................................................. $ 59,970 $ 60,908 Work-in-process................................................ 18,291 17,110 Finished goods................................................. 38,692 41,850 ---------- ----------- 116,953 119,868 LIFO cost less than FIFO cost..................................... (6,969) (6,650) ---------- ----------- Net inventories ................................................ $ 109,984 $ 113,218 ========== =========== </TABLE> 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. - 6 -
3. Property, plant, and equipment is net of $68,827,000 and $65,613,000 of accumulated depreciation at July 1, 2001 and March 31, 2001, respectively. 4. Goodwill and other intangibles is net of $66,272,000 and $62,239,000 of accumulated amortization at July 1, 2001 and March 31, 2001, respectively. 5. General and Product Liability - The accrued general and product liability costs, which are included in other non-current liabilities, are the actuarial present value of estimated expenditures based on amounts determined from loss reports and individual cases filed with the Company, and an amount, based on experience, for losses incurred but not reported. The accrual in these condensed consolidated financial statements was determined by applying a discount factor based on interest rates customarily used in the insurance industry. 6. The carrying amount of the Company's senior debt instruments approximates the fair value. The Company's subordinated debt has an approximate fair value of $180,000,000, which is less than its carrying amount of $199,640,000. 7. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> THREE MONTHS ENDED ------------------ JULY 1, JULY 2, 2001 2000 ---------- ----------- (IN THOUSANDS) Numerator for basic and diluted earnings per share: <S> <C> <C> Net income..................................................... $ (4,661) $ 5,946 =========== =========== Denominators: Weighted-average common stock outstanding - denominator for basic EPS.................................... 14,391 14,287 Effect of dilutive employee stock options...................... - - ---------- ----------- Adjusted weighted-average common stock outstanding and assumed conversions - denominator for diluted EPS........ 14,391 14,287 ========== =========== </TABLE> 8. Income tax (benefit) expense for the three-month periods ended July 1, 2001 and July 2, 2000 differs from the customary relationship between income tax (benefit) expense and (loss) income before income taxes due to nondeductible amortization of goodwill of $3,076,000 during both periods. 9. On April 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by reference to quoted market prices. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company's use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks. - 7 -
In order to provide interest rate risk protection, the Company entered into an interest rate swap agreement in June of 2001 to effectively convert $40 million of variable-rate debt to fixed-rate debt. The $40 million interest rate swap agreement matures in June 2003. The cash flow hedge is considered effective and the gain or loss on the change in fair value is reported in other comprehensive income, net of tax. The June 2001 interest rate swap is the only derivative instrument held by the Company, as such there is no impact on the adoption of SFAS No. 133 at April 1, 2001. The net impact of the derivative instrument was an increase to other comprehensive income of $123,000 at June 30, 2001. The fair value of the derivative at July 1, 2001 was a $205,000 asset. 10. As a result of the way the Company manages the business, its reportable segments are strategic business units that offer products with different characteristics. The most defining characteristic is the extent of customized engineering required on a per-order basis. In addition, the segments serve different customer bases through differing methods of distribution. The Company has three reportable segments: material handling products, material handling solutions - industrial, and material handling solutions - automotive. The Company's material handling products segment sells hoists, industrial cranes, chain, attachments, and other material handling products principally to third party distributors through diverse distribution channels. The material handling solutions - industrial segment sells engineered material handling systems such as conveyors, manipulators, and lift tables primarily to end-users in the consumer products, manufacturing, warehousing, and, to a lesser extent, the steel, construction, automotive, and other industrial markets. The material handling solutions - automotive segment sells engineered material handling systems, mainly conveyors, primarily to end-users in the automotive industry. Intersegment sales are not significant. The Company evaluates performance based on operating income of the respective business units prior to the effects of amortization. Segment information as of and for the three months ended July 1, 2001 and July 2, 2000, is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED JULY 1, 2001 ------------------------------- SOLUTIONS - SOLUTIONS - PRODUCTS INDUSTRIAL AUTOMOTIVE TOTAL ----------- ----------- ----------- ----------- (IN THOUSANDS) <S> <C> <C> <C> <C> Sales to external customers................. $ 109,618 $ 13,622 $ 52,665 $ 175,905 Operating income before amortization and restructuring charges................ 16,478 42 (563) 15,957 Depreciation and amortization............... 5,127 744 1,376 7,247 Total assets................................ 463,995 64,072 206,764 734,831 Capital expenditures........................ 879 313 117 1,309 - 8 -
THREE MONTHS ENDED JULY 2, 2000 ------------------------------- SOLUTIONS - SOLUTIONS - PRODUCTS INDUSTRIAL AUTOMOTIVE TOTAL ----------- ----------- ----------- ----------- (IN THOUSANDS) Sales to external customers................. $ 125,196 $ 17,513 $ 45,669 $ 188,378 Operating income before amortization and restructuring charges................ 19,618 1,841 2,933 24,392 Depreciation and amortization............... 5,012 729 1,399 7,140 Total assets................................ 493,176 69,943 197,161 760,280 Capital expenditures........................ 1,915 16 (2) 1,929 </TABLE> The following schedule provides a reconciliation of operating income before amortization with (loss) income before income taxes: <TABLE> <CAPTION> THREE MONTHS ENDED ------------------ JULY 1, JULY 1, 2000 2000 ---- ---- (IN THOUSANDS) <S> <C> <C> Operating income before amortization............................ $ 15,957 $ 24,392 Restructuring charges........................................... (8,840) - Amortization of intangibles..................................... (4,033) (4,014) Interest and debt expense....................................... (8,576) (9,281) Interest income and other (expense) income...................... (112) 941 ------------ ----------- (Loss) income before income taxes............................... $ (5,604) $ 12,038 ============ =========== </TABLE> - 9 -
11. The summary financial information of the parent, domestic subsidiaries (guarantors) and foreign subsidiaries (nonguarantors of the 8.5% senior subordinated notes) follows: <TABLE> <CAPTION> Domestic Foreign Elimina- Consoli- (In thousands) Parent Subsidiaries Subsidiaries tions dated ----------------------------------------------------------------------- AS OF JULY 1, 2001 Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 2,717 $ (4,096) $ 3,353 $ - $ 1,974 Trade accounts receivable 60,111 53,550 20,062 - 133,723 Unbilled revenues - 41,158 - - 41,158 Inventories 44,719 37,250 28,989 (974) 109,984 Other current assets 5,471 1,836 3,326 - 10,633 ----------------------------------------------------------------------- Total current assets 113,018 129,698 55,730 (974) 297,472 Net property, plant, and equipment 33,845 31,765 17,673 - 83,283 Goodwill and other intangibles, net 38,600 233,698 45,689 - 317,987 Intercompany 167,439 (332,476) (61,985) 227,022 - Other assets 227,772 161,325 (2,129) (350,879) 36,089 ----------------------------------------------------------------------- Total assets $ 580,674 $ 224,010 $ 54,978 $ (124,831) $ 734,831 ======================================================================= Current liabilities $ 33,400 $ 50,663 $ 19,168 $ (3,040) $ 100,191 Long-term debt, less current portion 394,941 1 3,652 - 398,594 Other non-current liabilities 15,484 14,973 2,699 - 33,156 ----------------------------------------------------------------------- Total liabilities 443,825 65,637 25,519 (3,040) 531,941 Shareholders' equity 136,849 158,373 29,459 (121,791) 202,890 ----------------------------------------------------------------------- Total liabilities and shareholders' equity $ 580,674 $ 224,010 $ 54,978 $ (124,831) $ 734,831 ======================================================================= FOR THE THREE MONTHS ENDED JULY 1, 2001 Net sales $ 57,177 $ 96,569 $ 26,816 $ (4,657) $ 175,905 Cost of products sold 41,149 84,340 20,115 (4,657) 140,947 ----------------------------------------------------------------------- Gross profit 16,028 12,229 6,701 - 34,958 ----------------------------------------------------------------------- Selling, general and administrative expenses 8,195 6,012 4,794 - 19,001 Restructuring charges 8,840 - - - 8,840 Amortization of intangibles 547 2,886 600 - 4,033 ----------------------------------------------------------------------- 17,582 8,898 5,394 - 31,874 ----------------------------------------------------------------------- (Loss) income from operations (1,554) 3,331 1,307 - 3,084 Interest and debt expense 8,431 - 145 - 8,576 Interest income and other (expense) income (219) 56 51 - (112) ----------------------------------------------------------------------- (Loss) income before income taxes (10,204) 3,387 1,213 - (5,604) Income tax (benefit) expense (3,888) 2,459 486 - (943) ----------------------------------------------------------------------- Net (loss) income $ (6,316) $ 928 $ 727 $ - $ (4,661) ======================================================================= - 10 -
Domestic Foreign Elimina- Consoli- (In thousands) Parent Subsidiaries Subsidiaries tions dated ----------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JULY 1, 2001 OPERATING ACTIVITIES: Net cash provided by (used in) operating activities $ 1,492 $ (1,597) $ (1,146) $ - $ (1,251) ----------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of marketable securities, net (787) - - - (787) Capital expenditures (741) (170) (398) - (1,309) Other - (463) - - (463) ----------------------------------------------------------------------- Net cash used in investing activities (1,528) (633) (398) - (2,559) ----------------------------------------------------------------------- FINANCING ACTIVITIES: Net borrowings under revolving line-of-credit agreements (6,700) - 123 - (6,577) Repayment of debt (451) (1) (118) - (570) Dividends paid (1,006) - - - (1,006) Other (289) - - - (289) ----------------------------------------------------------------------- Net cash (used in) provided by financing (8,446) (1) 5 - (8,442) activities Effect of exchange rate changes on cash (18) - 29 - 11 ----------------------------------------------------------------------- Net change in cash and cash equivalents (8,500) (2,231) (1,510) - (12,241) Cash and cash equivalents at beginning of period 11,217 (1,865) 4,863 - 14,215 ----------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,717 $ (4,096) $ 3,353 $ - $ 1,974 ======================================================================= AS OF JULY 2, 2000 Current assets: Cash and cash equivalents $ (1,261) $ 299 $ 4,024 $ - $ 3,062 Trade accounts receivable 61,550 65,485 25,964 - 152,999 Unbilled revenues - 21,567 - - 21,567 Inventories 48,203 38,221 25,137 (879) 110,682 Other current assets 4,025 7,923 4,001 - 15,949 ----------------------------------------------------------------------- Total current assets 112,517 133,495 59,126 (879) 304,259 Net property, plant, and equipment 35,262 31,873 18,965 - 86,100 Goodwill and other intangibles, net 40,569 245,230 49,526 - 335,325 Intercompany 195,212 (358,845) (64,463) 228,096 - Other assets 225,603 161,656 (1,984) (350,679) 34,596 ----------------------------------------------------------------------- Total assets $ 609,163 $ 213,409 $ 61,170 $ (123,462) $ 760,280 ======================================================================= Current liabilities $ 32,860 $ 48,036 $ 20,298 $ (1,928) $ 99,266 Long-term debt, less current portion 409,755 10 5,877 - 415,642 Other non-current liabilities 15,190 18,549 2,797 - 36,536 ----------------------------------------------------------------------- Total liabilities 457,805 66,595 28,972 (1,928) 551,444 Shareholders' equity 151,358 146,814 32,198 (121,534) 208,836 ----------------------------------------------------------------------- Total liabilities and shareholders' equity $ 609,163 $ 213,409 $ 61,170 $ (123,462) $ 760,280 ======================================================================= - 11 -
Domestic Foreign Elimina- Consoli- (In thousands) Parent Subsidiaries Subsidiaries tions dated ----------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JULY 2, 2000 Net sales $ 66,979 $ 97,534 $ 29,742 $ (5,877) $ 188,378 Cost of products sold 45,737 79,350 21,958 (5,881) 141,164 ----------------------------------------------------------------------- Gross profit 21,242 18,184 7,784 4 47,214 ----------------------------------------------------------------------- Selling, general and administrative expenses 9,747 8,098 4,977 - 22,822 Amortization of intangibles 508 2,894 612 - 4,014 ----------------------------------------------------------------------- 10,255 10,992 5,589 - 26,836 ----------------------------------------------------------------------- Income from operations 10,987 7,192 2,195 4 20,378 Interest and debt expense 9,130 - 151 - 9,281 Interest and other income 773 60 108 - 941 ----------------------------------------------------------------------- Income before income taxes 2,630 7,252 2,152 4 12,038 Income tax expense 1,233 3,852 1,006 1 6,092 ----------------------------------------------------------------------- Net income $ 1,397 $ 3,400 $ 1,146 $ 3 $ 5,946 ======================================================================= FOR THE THREE MONTHS ENDED JULY 2, 2000 OPERATING ACTIVITIES: Net cash (used in) provided by operating activities $ (7,060) $ 3,061 $ 157 $ - $ (3,842) ----------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of marketable securities, net (1,065) - - - (1,065) Capital expenditures (865) (794) (270) - (1,929) Other - (258) - - (258) ----------------------------------------------------------------------- Net cash used in investing activities (1,930) (1,052) (270) - (3,252) ----------------------------------------------------------------------- FINANCING ACTIVITIES: Net borrowings under revolving line-of-credit agreements 3,900 - 389 - 4,289 Repayment of debt (1,135) (9) (57) - (1,201) Dividends paid (999) - - - (999) Other 209 - - - 209 ----------------------------------------------------------------------- Net cash provided by (used in) financing 1,975 (9) 332 - 2,298 activities Effect of exchange rate changes on cash - - 276 - 276 ----------------------------------------------------------------------- Net change in cash and cash equivalents (7,015) 2,000 495 - (4,520) Cash and cash equivalents at beginning of period 5,754 (1,701) 3,529 - 7,582 ----------------------------------------------------------------------- Cash and cash equivalents at end of period $ (1,261) $ 299 $ 4,024 $ - $ 3,062 ======================================================================= </TABLE> 12. The Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" in June of 2001. SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and indefinite lived intangible assets no longer be amortized, but tested for impairment. This statement, which will be effective for the Company's fiscal year beginning after April 1, 2002, must be adopted at the beginning of the fiscal year. At the present time, the Company has not determined the impact of adoption. - 12 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company is a broad-line designer, manufacturer, and supplier of sophisticated material handling products that are distributed to industrial, automotive and consumer markets globally; integrated material handling solutions for industrial markets worldwide; and integrated material handling solutions for the automotive markets. The Company's material handling products are sold, domestically and internationally, principally to third party distributors through diverse distribution channels. Distribution channels include general distributors, specialty distributors, crane end users, service-after-sale distributors, original equipment manufacturers ("OEMs"), government, consumer and international. The general distributors are comprised of industrial distributors, rigging shops and crane builders. Specialty distributors include catalog houses, material handling specialists and entertainment equipment riggers. The service-after-sale network includes repair parts distribution centers, chain service centers, and hoist repair centers. Consumer distribution channels include mass merchandisers, hardware distributors, trucking and transportation distributors, farm hardware distributors and rental outlets. The Company's integrated material handling solutions segments primarily deal directly with end-users. Material handling solutions - industrial sales are concentrated, domestically and internationally (primarily Europe), in consumer products manufacturing, warehousing and, to a lesser extent, the steel, construction, automotive, and other industrial markets. Material handling solutions - automotive sales are concentrated, domestically and internationally (primarily North America) in the automotive industry. RESULTS OF OPERATIONS THREE MONTHS ENDED JULY 1, 2001 AND JULY 2, 2000 Net sales in the fiscal 2002 quarter ended July 1, 2001 were $175,905,000, a decrease of $12,473,000 or 6.6% from the fiscal 2001 quarter ended July 2, 2000. Sales in the Products segment were down roughly 12.4% and sales in the Solutions-Industrial segment decreased by 22.2% as a result of the ongoing softness in industrial markets, particularly domestically. The Solutions-Automotive segment had a sales increase of 15.3% as a result of improving contract bookings. Sales in the individual segments were as follows, in thousands of dollars and with percentage changes for each group: <TABLE> <CAPTION> THREE MONTHS ENDED ------------------ JULY 1, JULY 2, CHANGE ------ 2001 2000 AMOUNT % ---- ---- ------ ------- (IN THOUSANDS, EXCEPT PERCENTAGES) <S> <C> <C> <C> <C> Products $ 109,618 $ 125,196 $ (15,578) (12.4) Solutions-Industrial 13,622 17,513 (3,891) (22.2) Solutions-Automotive 52,665 45,669 6,996 15.3 ----------- ----------- ----------- ------- Consolidated net sales $ 175,905 $ 188,378 $ (12,473) (6.6) =========== =========== =========== ======= </TABLE> - 13 -
The Company's gross profit margins were approximately 19.9% and 25.1% for the fiscal 2002 and 2001 quarters, respectively. The decline in gross profit margin is a combination of decreased volume and a shifting in sales mix to the lower margin solutions segments. The gross profit margin in the Products segment remained stable, considering the effects of a reclassification to cost of goods sold from general and administrative expense, despite lower sales volume. The Solutions-Industrial segment experienced decreased gross profit margins for the fiscal 2002 quarter as a result of decreased volume. Gross profit margins in the Solutions-Automotive segment were lower for the first quarter of 2002 compared to the same period in the prior year due to continuing competitive pressures and installation/staffing issues with respect to a series of contracts at a particular site. Selling expenses were $11,634,000 and $12,482,000 in the fiscal 2002 and 2001 quarters, respectively. As a percentage of consolidated net sales, selling expenses were 6.6% for both the fiscal 2002 and 2001 quarters. The reduction is due to cost control efforts and decreased volume in the Products segment. General and administrative expenses were $7,367,000, and $10,340,000 in the fiscal 2002 and 2001 quarters, respectively. As a percentage of consolidated net sales, general and administrative expenses were 4.2% and 5.5% in the fiscal 2002 and 2001 quarters, respectively. The decrease is the result of a reclassification to cost of goods sold from general and administrative expense and lower product liability expense recorded by the Company's captive insurance company. This decreased product liability expense is the result of and offset by the lower investment income shown on the interest income and other (expense) income line. Amortization of intangibles was $4,033,000 and $4,014,000 in the fiscal 2002 and 2001 quarters, respectively. In conjunction with the continuation of its strategic integration process, the Company incurred restructuring charges of $8,840,000 as a result of its decision to close the Forrest City, Arkansas plant during the first quarter of fiscal 2002. The charges consist mainly of lease termination and employee separation costs. Income from operations decreased $17,294,000 or 84.9% in the fiscal 2002 quarter, compared to the fiscal 2001 quarter. This is based on income from operations of $3,084,000 and $20,378,000 or 1.8% and 10.8% of consolidated net sales for the fiscal 2002 and 2001 quarters, respectively. Interest and debt expense was $8,576,000, and $9,281,000 in the fiscal 2002 and 2001 quarters, respectively. The fiscal 2002 decrease is the result of a combination of decreasing debt levels and interest rates. As a percentage of consolidated net sales, interest and debt expense was 4.9% for both the fiscal 2002 and 2001 quarters. Interest income and other (expense) income was ($112,000) and $941,000 in the fiscal 2002 and 2001 quarters, respectively. The decrease in the current year fiscal quarter is the result of lower investment earnings on assets in the Company's captive insurance company. Income taxes as a percentage of (loss) income before income taxes were (16.8)% and 50.6% in the fiscal 2002 and 2001 quarters, respectively. The percentages differ from the U.S. statutory rate as a result of the effect of nondeductible amortization of goodwill resulting from acquisitions. - 14 -
LIQUIDITY AND CAPITAL RESOURCES The Revolving Credit Facility provides availability up to $225 million, due March 31, 2003, against which $195.3 million was outstanding at July 1, 2001. Interest is payable at varying Eurodollar rates based on LIBOR plus a spread determined by the Company's leverage ratio amounting to 250 basis points at July 31, 2001. The Revolving Credit Facility is secured by all equipment, inventory, receivables, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. The senior subordinated 8 1/2% Notes issued on March 31, 1998 amounted to $199,468,000, net of original issue discount of $532,000 and are due March 31, 2008. Interest is payable semi-annually based on an effective rate of 8.45%, considering $1,902,000 of proceeds from rate hedging in advance of the placement. Provisions of the 8 1/2% Notes include, without limitation, restrictions of liens, indebtedness, asset sales, and dividends and other restricted payments. Prior to April 1, 2003, the 8 1/2% Notes are redeemable at the option of the Company, in whole or in part, at the Make-Whole Price (as defined in the 8 1/2% Notes agreement). On or after April 1, 2003, they are redeemable at prices declining annually to 100% on and after April 1, 2006. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 1/2% Notes may require the Company to repurchase all or a portion of such holder's 8 1/2% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 1/2% Notes are guaranteed by certain domestic subsidiaries and are not subject to any sinking fund requirements. On April 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company's use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks. In order to provide interest rate risk protection the Company entered into an interest rate swap agreement in June of 2001, to effectively convert $40 million of variable-rate debt to fixed-rate debt. The $40 million interest rate swap agreement matures in June 2003. 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, budgeted capital expenditures, and business acquisitions for the next twelve months. Net cash used by operating activities was $1,251,000 for the three months ended July 1, 2001 compared to $3,842,000 for the three months ended July 2, 2000. The $2,591,000 difference is due to the current loss from operations offset by changes in net working capital components. Net cash used in investing activities decreased to $2,559,000 for the three months ended July 1, 2001 from $3,252,000 for the three months ended July 2, 2000. Net cash used in provided by financing activities was $8,442,000 for the three months ended July 1, 2001 compared to net cash provided by financing activities of $2,298,000 for the three months ended July 2, 2000. The $10,740,000 decrease is primarily the result of excess cash from year-end used to pay down debt. - 15 -
CAPITAL EXPENDITURES In addition to keeping its current equipment and plants properly maintained, the Company is committed to replacing, enhancing, and upgrading its property, plant, and equipment to reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety, and promote ergonomically correct work stations. Consolidated capital expenditures for the three months ended July 1, 2001 and July 2, 2000 were $1,309,000 and $1,929,000, 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 Europe, Canada, Mexico, and the Pacific Rim. The Company does not believe that inflation has had a material effect on results of operations over the periods presented because of low inflation levels over the periods and because the Company has generally been able to pass on rising costs through price increases. However, in the future there can be no assurance that the Company's business will not be affected by inflation or that it will be able to pass on cost increases. SEASONALITY AND QUARTERLY RESULTS Quarterly results may be materially affected by the timing of large customer orders, by periods of high vacation and holiday concentrations, and by acquisitions and the magnitude of acquisition costs. Therefore, the operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" in June of 2001. SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and indefinite lived intangible assets no longer be amortized, but tested for impairment. This statement, which will be effective for the Company's fiscal year beginning after April 1, 2002, must be adopted at the beginning of the fiscal year. At the present time, the Company has not determined the impact of adoption. - 16 -
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the integration of acquisitions and other factors disclosed in the Company's periodic reports filed with the Commission. Consequently such forward-looking statements should be regarded as the Company's current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. - 17 -
PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. Item 2. Changes in Securities - none. Item 3. Defaults upon Senior Securities - none. Item 4. Submission of Matters to a Vote of Security Holders - none. Item 5. Other Information - none. Item 6. Exhibits and Reports on Form 8-K Exhibit 10.1 Columbus McKinnon Corporation Corporate Incentive Plan. There are no reports on Form 8-K. - 18 -
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBUS MCKINNON CORPORATION ----------------------------- (Registrant) Date: AUGUST 15, 2001 /S/ ROBERT L. MONTGOMERY, JR. --------------- --------------------------------- Robert L. Montgomery, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) - 19 -