UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 2007
COMMISSION FILE NUMBER 0-27618
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COLUMBUS MCKINNON CORPORATION
(Exact name of Registrant as specified in its charter)
NEW YORK 16-0547600
(State of Incorporation) (I.R.S. Employer Identification Number)
140 JOHN JAMES AUDUBON PARKWAY
AMHERST, NEW YORK 14228-1197
(Address of principal executive offices, including zip code)
(716) 689-5400
(Registrant's telephone number, including area code)
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Securities pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE (AND RIGHTS ATTACHED THERETO)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [ X ]
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
Indicate by 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 Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 30, 2006 was approximately $325 million, based
upon the closing price of the Company's common shares as quoted on the Nasdaq
Stock Market on such date. The number of shares of the Registrant's common stock
outstanding as of April 30, 2007 was 18,831,787 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its 2007 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the Registrant's fiscal
year ended March 31, 2007 are incorporated by reference into Part III of this
report.
COLUMBUS MCKINNON CORPORATION
2007 ANNUAL REPORT ON FORM 10-K
This annual report contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements involve
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from the results expressed or implied by
such statements, including general economic and business conditions, conditions
affecting the industries served by us and our subsidiaries, conditions affecting
our customers and suppliers, competitor responses to our products and services,
the overall market acceptance of such products and services, the integration of
acquisitions and other factors set forth herein under "Risk Factors." We use
words like "will," "may," "should," "plan," "believe," "expect," "anticipate,"
"intend," "future" and other similar expressions to identify forward looking
statements. These forward looking statements speak only as of their respective
dates and we do not undertake and specifically decline any obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated changes. Our actual operating results could differ materially from
those predicted in these forward-looking statements, and any other events
anticipated in the forward-looking statements may not actually occur.
PART I
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ITEM 1. BUSINESS
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GENERAL
We are a leading manufacturer and marketer of hoists, cranes, chain,
conveyors, material handling systems, lift tables and component parts serving a
wide variety of commercial and industrial end-user markets. Our products are
used to efficiently and ergonomically move, lift, position or secure objects and
loads. We are the domestic market leader in hoists, our principal line of
products, which we believe provides us with a strategic advantage in selling our
other products. We have achieved this leadership position through strategic
acquisitions, our extensive, diverse and well-established distribution channels
and our commitment to product innovation and quality. We have one of the most
comprehensive product offerings in the industry and we believe we have more
overhead hoists in use in North America than all of our competitors combined.
Our brand names, including CM, Coffing, Duff-Norton, Shaw-Box and Yale, are
among the most recognized and well-respected in our marketplace.
THE BUILDING OF OUR BUSINESS
Founded in 1875, we have grown to our current size and leadership position
through organic growth and acquiring 14 businesses between 1994 and 1999. These
acquisitions have significantly broadened our product lines and services and
expanded our geographic, reach end-user markets and our customer base. Our
senior management has substantial experience in the acquisition and integration
of businesses, aggressive cost management, efficient manufacturing techniques
and global operations, all of which are critical to our long-term growth
strategy. We have a proven track record of acquiring complementary businesses
and product lines, integrating their activities into our organization, and
aggressively managing their cost structures to improve operating efficiencies.
The history of our acquisitions between 1994 and 1999 is outlined below
(purchase price in millions):
1
PURCHASE
DATE OF ACQUISITION ACQUIRED COMPANY PRICE PRODUCTS/SERVICES
------------------- ---------------- ----- -----------------
April 1999 Washington Equipment Company $ 6.4 Overhead cranes
March 1999 GL International (1),(2) 20.6 Overhead cranes
January 1999 Camlok/Tigrip 10.6 Plate clamps, crane weighers
December 1998 Gautier 2.9 Rotary unions, swivel joints
August 1998 Abell-Howe Crane 7.0 Overhead cranes
March 1998 ASI (3) 155.0 Design and manufacture of custom conveyor systems
January 1998 Univeyor 15.0 Design and manufacture of powered roller conveyor
systems
December 1996 Lister (4) 7.0 Cement kiln, anchor and buoy chain
October 1996 Yale (5) 270.0 Hoists, scissor lift tables, actuators, jacks and
rotary unions
November 1995 Lift-Tech 63.0 Hoists
October 1995 Endor 2.0 Hoists
January 1995 Cady Lifters 0.8 Below-the-hook lifters
December 1994 Conco 0.8 Operator controlled manipulators
February 1994 Durbin-Durco 2.4 Load securing equipment and attachments
The following is a summary of our divestitures and property sales which occurred
between 1998 and 2007 as we focus on our core businesses and major business
segments as well as reduce our operating costs.
(1) In August 1998, we sold the Mechanical Products division of Yale.
(2) In January 2002, we sold Handling Systems & Conveyors, Inc., a subsidiary
of GL International.
(3) In May 2002, we sold substantially all of the assets of Automatic Systems,
Inc. ("ASI") and in March 2003, we sold LICO Steel, Inc., a subsidiary of
Audubon West, formerly ASI.
(4) In February 2004, we sold the assets of the Lister Chain & Forge division.
(5) In January 2005, we sold a Chicago area property.
(6) In March 2007, we sold LARCO Inc., a subsidiary of Crane, Equipment, &
Service, Inc.
OUR POSITION IN THE INDUSTRY
The broad, global material handling industry includes the following
sectors:
o overhead material handling and lifting devices;
o continuous materials movement;
o wheeled handling devices;
o pallets, containers and packaging;
o storage equipment and shop furniture;
o automation systems and robots; and
o services and unbundled software.
The breadth of our products and services enables us to participate in each
of these sectors, except for pallets, containers and packaging and storage
equipment and shop furniture. This diversification, together with our extensive
and varied distribution channels, minimizes our dependence on any particular
product, market or customer. We believe that none of our competitors offers the
variety of products or services in the markets we serve.
We believe that the demand for our products and services has increased
during the last twelve months and we believe the demand will continue to
increase in the future as a result of several macro-economic growth drivers.
These drivers include:
FAVORABLE INDUSTRY TRENDS. The U.S. industrial economy has improved since
2003 and the Eurozone industrial economy has improved since 2005. Industrial
capacity utilization currently exceeds 80% in both regions, generally indicative
of capital expansion and favorable industrial activity. Our business performance
is influenced by the state of the U.S. and Eurozone industrial economies.
2
PRODUCTIVITY ENHANCEMENT. We believe employers respond to competitive
pressures by seeking to maximize productivity and efficiency, among other
actions. Our hoists and other lifting and positioning products allow loads to be
lifted and placed quickly, precisely, with little effort and fewer people,
thereby increasing productivity and reducing cycle time.
SAFETY REGULATIONS AND CONCERNS. Driven by workplace safety regulations
such as the Occupational Safety and Health Act and the Americans with
Disabilities Act in the U.S., and by the general competitive need to reduce
costs such as health insurance premiums and workers' compensation expenses,
employers seek safer ways to lift and position loads. Our lifting and
positioning products enable these tasks to be performed with reduced risk of
personal injury.
CONSOLIDATION OF SUPPLIERS. In an effort to reduce costs and increase
productivity, our customers and end-users are increasingly consolidating their
suppliers. We believe that our competitive strengths will enable us to benefit
from this consolidation and enhance our market share.
OUR COMPETITIVE STRENGTHS
LEADING MARKET POSITIONS. We are a leading manufacturer of hoists and alloy
and high strength carbon steel chain and attachments in North America. We have
developed our leading market positions over our 132-year history by emphasizing
technological innovation, manufacturing excellence and superior after-sale
service. Approximately 78% of our domestic net sales for the year ended March
31, 2007 were from product categories in which we believe we hold the number one
market share. We believe that the strength of our established products and
brands and our leading market positions provide us with significant competitive
advantages, including preferred supplier status with a majority of our largest
customers. Our large installed base of products also provides us with a
significant competitive advantage in selling our products to existing customers
as well as providing repair and replacement parts.
The following table summarizes the product categories where we believe we
are the U.S. market leader:
PERCENTAGE OF
PRODUCT CATEGORY U.S. MARKET SHARE U.S. MARKET POSITION DOMESTIC NET SALES
---------------- ----------------- -------------------- ------------------
Powered Hoists (1) 50% #1 28%
Manual Hoists & Trolleys (1) 61% #1 14%
Forged Attachments (1) 42% #1 10%
Lifting and Sling Chains (1) 66% #1 8%
Hoist Parts (2) 60% #1 10%
Mechanical Actuators (3) 40% #1 5%
Tire Shredders (4) 80% #1 1%
Jib Cranes (5) 56% #1 2%
----
78%
====
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(1) Market share and market position data are internal estimates derived from
survey information collected and provided by our trade associations in
2006.
(2) Market share and market position data are internal estimates based on our
market shares of Powered Hoists and Manual Hoists & Trolleys, which we
believe are good proxies for our Hoist Parts market share because we
believe most end-users purchase Hoist Parts from the original equipment
supplier.
(3) Market share and market position data are internal estimates derived by
comparison of our net sales to net sales of one of our competitors and to
estimates of total market sales from a trade association in 2006.
(4) Market share and market position data are internal estimates derived by
comparing the number of our tire shredders in use and their capacity to
estimates of the total number of tires shredded published by a trade
association in 2006.
(5) Market share and market position are internal estimates derived from both
the number of bids we win as a percentage of the total projects for which
we submit bids and from estimates of our competitors' net sales based on
their relative position in distributor catalogues in 2006.
COMPREHENSIVE PRODUCT LINES AND STRONG BRAND NAME RECOGNITION. We believe
we offer the most comprehensive product lines in the markets we serve. We are
the only major supplier of material handling equipment offering full lines of
hoists, chain and attachments. Our capability as a full-line supplier has
allowed us to (i) provide our customers with "one-stop shopping" for material
handling equipment, which meets some customers' desires to reduce the number of
their supply relationships in order to lower their costs, (ii) leverage our
engineering, product development and marketing costs over a larger sales base
and (iii) achieve purchasing efficiencies on common materials used across our
product lines.
3
In addition, our brand names, including Budgit, Chester, CM, Coffing,
Duff-Norton, Little Mule, Shaw-Box and Yale, are among the most recognized and
respected in the industry. The CM name has been synonymous with overhead hoists
since manual hoists were first developed and marketed under the name in the
early 1900s. We believe that our strong brand name recognition has created
customer loyalty and helps us maintain existing business, as well as capture
additional business. No single SKU comprises more than 1% of our sales, a
testament to our broad and diversified product offering.
DISTRIBUTION CHANNEL DIVERSITY AND STRENGTH. Our products are sold to over
20,000 general and specialty distributors and OEMs globally. We enjoy
long-standing relationships with, and are a preferred provider to, the majority
of our largest distributors and industrial buying groups. There has been
consolidation among distributors of material handling equipment and we have
benefited from this consolidation by maintaining and enhancing our relationships
with our leading distributors, as well as forming new relationships. We believe
our extensive distribution channels provide a significant competitive advantage
and allow us to effectively market new product line extensions and promote
cross-selling.
EXPANDING INTERNATIONAL MARKETS. We have significantly grown our
international sales since becoming a public company in 1996. Our international
sales have grown from $34.3 million (representing 16% of total sales) in fiscal
1996 to $198.5 million (representing 34% of our total sales) during the year
ended March 31, 2007. This growth has occurred primarily in Europe, South
America and Asia-Pacific where we have recently opened additional sales offices.
Our international business has provided us, and we believe will continue to
provide us, with significant growth opportunities and new markets for our
products.
LOW-COST MANUFACTURING WITH SIGNIFICANT OPERATING LEVERAGE. We believe we
are a low-cost manufacturer and we have and will continue to generate
significant operating leverage due to the initiatives summarized below. Our
operating leverage goal is for each incremental sales dollar to generate 20%-30%
of operating income.
-- RATIONALIZATION AND CONSOLIDATION. During the last five years, we
have closed 10 manufacturing plants and three warehouses,
generating approximately $14 million of annual cost savings and
improving our fixed-variable cost relationship.
-- LEAN MANUFACTURING. We have initiated Lean Manufacturing
techniques, facilitating substantial inventory reductions, a
significant decline in required manufacturing floor area, a
decrease in product lead time and improved productivity and
on-time deliveries. We believe continued application of lean
manufacturing tools will generate benefits for many years to
come.
-- INTERNATIONAL EXPANSION. Our continued expansion of our
manufacturing facilities in China, Mexico and Hungary provides us
with another cost efficient platform to manufacture and
distribute certain of our products and components. We now operate
26 manufacturing facilities in eight countries, with 27 stand
alone sales and service offices in 13 countries, and nine stand
alone warehouse facilities in five countries.
-- PURCHASING COUNCIL. We continue to leverage our company-wide
purchasing power through our Purchasing Council to reduce our
costs.
-- SELECTIVE VERTICAL INTEGRATION. We manufacture many of the
critical parts and components used in the manufacture of our
hoists and cranes, resulting in reduced costs.
STRONG AFTER-MARKET SALES AND SUPPORT. We believe that we retain customers
and attract new customers due to our ongoing commitment to customer service and
satisfaction. We have a large installed base of hoists and chain that drives our
after-market sales for components and repair parts and is a stable source of
higher margin business. We maintain strong relationships with our customers and
provide prompt aftermarket service to end-users of our products through our
authorized network of 13 chain repair stations and over 350 hoist service and
repair stations.
LONG HISTORY OF FREE CASH FLOW GENERATION AND SIGNIFICANT DEBT REDUCTION.
We have consistently generated positive free cash flow (which we define as net
cash provided by operating activities less capital expenditures) by continually
controlling our costs, improving our working capital management, and reducing
the capital intensity of our manufacturing operations. In the past five years,
we have reduced total debt by $178.3 million, from $350.4 million to $172.1
million.
EXPERIENCED MANAGEMENT TEAM WITH EQUITY OWNERSHIP. Our senior management
team provides a depth and continuity of experience in the material handling
industry. Our management has experience in aggressive cost management, balance
sheet management, efficient manufacturing techniques, acquiring and integrating
businesses and global operations, all of which are critical to our long-term
growth. Our directors and executive officers, as a group, own an aggregate of
approximately 3% of our outstanding common stock.
4
OUR STRATEGY
GROW OUR CORE BUSINESS. We intend to leverage our strong competitive
advantages to increase our market shares across all of our product lines and
geographies by:
-- LEVERAGING OUR STRONG COMPETITIVE POSITION. Our large,
diversified, global customer base, our extensive distribution
channels and our close relationships with our distributors
provide us with insights into customer preferences and product
requirements that allow us to anticipate and address the future
needs of end-users.
-- INTRODUCING NEW AND CROSS-BRANDED PRODUCTS. We continue to expand
our business by developing new material handling products and
services and expanding the breadth of our product lines to
address material handling needs. Since fiscal 2004, we have had a
dedicated hoist product development team and we are in the
process of forming a similar group for our rigging products
(chain and forged attachments) in fiscal 2008. The majority of
the powered hoist products under development are guided by the
Federation of European Manufacturing, or FEM, standard. We
believe these FEM hoist products, as well as other international
design products will facilitate our global sales expansion
strategy as well as improve our cost competitiveness against
internationally made products imported into the U.S.
-- LEVERAGING OUR BRAND PORTFOLIO TO MAXIMIZE MARKET COVERAGE. Most
industrial distributors carry one or two lines of material
handling products on a semi-exclusive basis. Unlike many of our
competitors, we have developed and acquired multiple
well-recognized brands that are viewed by both distributors and
end-users as discrete product lines. As a result, we are able to
sell our products to multiple distributors in the same geographic
area. This strategy maximizes our market coverage and provides
the largest number of end-users with access to our products.
CONTINUE TO GROW IN INTERNATIONAL MARKETS. Our international sales of
$198.5 million comprised 34% of our net sales for the year ended March 31, 2007,
as compared to $34.3 million, or 16% of our net sales, in fiscal 1996, the year
we became a public company. We sell to distributors in over 50 countries and
have our primary international facilities in Canada, Mexico, Germany, the United
Kingdom, Denmark, France, Hungary and China. In addition to new product
introductions, we continue to expand our sales and service presence in the major
and developing market areas of Europe, Asia-Pacific and Latin America through
our sales offices and warehouse facilities in Europe, China, Thailand, Brazil,
Uruguay and Mexico. We intend to increase our sales by manufacturing and
exporting a broader array of high quality, low-cost products and components from
our facilities in Mexico, China and Hungary for distribution in Europe and
Asia-Pacific. We have developed and are continuing to expand upon new hoist and
other products in compliance with FEM standards and international designs to
enhance our global distribution.
FURTHER REDUCE OUR OPERATING COSTS AND INCREASE MANUFACTURING PRODUCTIVITY.
Our objective is to remain a low-cost producer. We continually seek ways to
reduce our operating costs and increase our manufacturing productivity including
through our on-going expansion of our manufacturing capacity in low-cost
regions, including Mexico, China and Hungary. In furtherance of this objective,
we have undertaken the following:
-- IMPLEMENTATION OF LEAN MANUFACTURING. We continuously identify
potential efficiencies in our operations through Lean
Manufacturing, initiated in fiscal 2002. Through fiscal 2007, we
have instituted Lean Manufacturing at our 16 major facilities
resulting in the recapture of approximately 164,000 square feet
of manufacturing floor area and the consolidation of an
additional 920,000 square feet from closed facilities.
Additionally since initiating lean in fiscal 2002, we have
reduced inventories by approximately $31.7 million, or 29.1%,
improved productivity and achieved significant reductions in
product lead times.
-- RATIONALIZATION OF FACILITIES. During the last five years, we
have closed 10 manufacturing plants and three warehouses,
consolidated a number of similar product lines and standardized
certain component parts resulting in an aggregate cost savings of
approximately $14 million. We have sufficient capacity to meet
current and future demand and we periodically investigate
opportunities for further facility rationalization.
-- LEVERAGING OF OUR PURCHASING POWER. Our Purchasing Council was
formed in fiscal 1998 to centralize and leverage our overall
purchasing power, which has grown through acquisitions and has
resulted in significant savings for our company.
5
REDUCE OUR DEBT. We intend to continue our focus on cash generation for
debt reduction through the following initiatives:
-- INCREASE OPERATING CASH FLOW. As a result of the execution of our
strategies to control our operating costs, increase our domestic
organic growth and increase our penetration of international
markets, we believe that we will continue to realize favorable
operating leverage. Our operating leverage goal is for each
incremental sales dollar to generate 20%-30% of operating income.
We believe that such operating leverage will result in increased
operating cash flow available for debt reduction, as well as
investment in new products and new markets, organically and via
acquisitions.
-- REDUCE WORKING CAPITAL. As described above, we believe that our
Lean Manufacturing activities are facilitating inventory
reduction, improving product lead times and increasing our
productivity. We have other initiatives underway to further
improve other routine working capital components, including
accounts payable, all initiatives driving toward our long-term
goal of total working capital (excluding cash and debt) of 15% of
latest 12 months' revenues. We believe our improved working
capital management and increased productivity will further result
in increased free cash flow.
CONSIDER POTENTIAL DIVESTITURES AND PURSUE STRATEGIC ACQUISITIONS AND
ALLIANCES. We intend to challenge the long-term fit of underperforming
businesses for potential divestiture and redeployment of capital. Further, we
intend to pursue synergistic acquisitions to complement our organic growth.
Priorities for such acquisitions include: 1) increasing international geographic
penetration, particularly in the Asia-Pacific region, and 2) further broadening
our offering with complementary products frequently used in conjunction with
hoists.
OUR SEGMENTS
We currently report our operations in two business segments, Products and
Solutions.
Our Products segment designs, manufactures and distributes a broad range of
material handling products for various applications. Products in this segment
include a wide variety of electric, lever, hand and air-powered hoists; hoist
trolleys; industrial crane systems such as bridge, gantry and jib cranes; alloy,
carbon steel and kiln chain; closed-die forged attachments, such as hooks,
shackles, logging tools and loadbinders; industrial components, such as
mechanical and electromechanical actuators, mechanical jacks and rotary unions;
and below-the-hook special purpose lifters. These products are typically
manufactured for stock or assembled to order from standard components and are
sold primarily through a variety of commercial distributors. The diverse
end-users of our products are in manufacturing plants, power utility facilities
and warehouses, on construction sites, oil rigs, ships and tractor trailers.
Some of our products have farming, mining and logging applications, and we serve
a niche market for the entertainment industry.
Our Solutions segment is engaged primarily in the design, fabrication and
installation of integrated workstation and facility-wide material handling
systems and in the design and manufacture of tire shredders, lift tables and
light-rail systems. The products and services of this segment have historically
been highly engineered, built to order and primarily sold directly to end-users
for specific applications in a variety of industries. We are strategically
redirecting the material handling systems business within this segment to focus
on more standardized products and service, to reduce its volatility and improve
its profitability and return on invested capital. Further, we are evaluating
strategic alternatives relative to this business within the Solutions segment.
Note 20 to our consolidated financial statements included elsewhere herein
provides information related to our business segments in accordance with U.S.
generally accepted accounting principles. Summary information concerning our
business segments for fiscal 2007, 2006 and 2005 is set forth below.
6
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------
2007 2006 2005
---------------------------------- ------------------------------ ----------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------------- ----------- -------------- ------------ ------------- ------------
(DOLLARS IN MILLIONS)
Net Sales
Products.................$ 527.1 89.4 $ 493.9 88.8 $ 453.1 88.0
Solutions................ 62.7 10.6 62.1 11.2 61.7 12.0
--------------- ----------- -------------- ------------ ------------- ------------
Total...............$ 589.8 100.0 $ 556.0 100.0 $ 514.8 100.0
=============== =========== ============== ============ ============= ============
% OF % OF % OF
SEGMENT SEGMENT SEGMENT
/TOTAL /TOTAL /TOTAL
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------------- ----------- -------------- ------------ ------------- ------------
Income from Operations
Products.................$ 71.5 13.6 $ 55.9 11.3 $ 39.4 8.7
Solutions................ (3.0) (4.8) 2.0 3.2 1.3 2.1
--------------- ----------- -------------- ------------ ------------- ------------
Total...............$ 68.5 11.6 $ 57.9 10.4 $ 40.7 7.9
=============== =========== ============== ============ ============= ============
PRODUCTS SEGMENT
PRODUCTS
Our Products segment primarily designs, manufactures and distributes a
broad range of material handling, lifting and positioning products for various
applications and has total assets of approximately $527 million as of March 31,
2007. These products are typically manufactured for stock or assembled to order
from standard components and are sold through a variety of distributors. In
excess of 75% of our Products segment net sales is derived from the sale of
products that we sell at a unit price of less than $5,000. In fiscal 2007, net
sales of the Products segment were approximately $527.1 million or approximately
89.4% of our net sales, of which approximately $372.8 million, or 70.7% were
domestic and $154.3 million, or 29.3% were international. The following table
sets forth certain sales data for the products of our Products segment,
expressed as a percentage of net sales of this segment for fiscal 2007 and 2006:
FISCAL YEARS ENDED MARCH 31,
------------------------------------------
2007 2006
------------------- -------------------
Hoists....................................................... 54% 52%
Chain........................................................ 14 15
Forged attachments........................................... 11 12
Industrial cranes............................................ 13 13
Industrial components........................................ 8 8
------------------- -------------------
100% 100%
HOISTS. We manufacture a variety of electric chain hoists, electric wire
rope hoists, hand-operated hoists, lever tools and air-powered balancers and
hoists. Load capacities for our hoist product lines range from one-eighth of a
ton to 100 tons. These products are sold under our Budgit, Chester, CM, Coffing,
Little Mule, Shaw-Box, Yale and other recognized trademarks. Our hoists are sold
for use in numerous general industrial applications, as well as for use in the
construction, energy, mining, entertainment and other markets. We also supply
hoist trolleys, driven manually or by electric motors, for the industrial,
consumer and OEM markets.
We also currently offer several lines of custom-designed, below-the-hook
tooling, clamps, pallet trucks and textile strappings. Below-the-hook tooling
and clamps are specialized lifting apparatus used in a variety of lifting
activities performed in conjunction with hoist and chain applications. Textile
strappings are below-the-hook attachments, frequently used in conjunction with
hoists.
7
CHAIN. We manufacture alloy and carbon steel chain for various industrial
and consumer applications. Federal regulations require the use of alloy chain,
which we first developed, for overhead lifting applications because of its
strength and wear characteristics. A line of our alloy chain is sold under the
Herc-Alloy brand name for use in overhead lifting, pulling and restraining
applications. In addition, we also sell specialized load chain for use in
hoists, as well as three grades and multiple sizes of carbon steel welded-link
chain for various load securing and other non-overhead lifting applications. We
also manufacture kiln chain sold primarily to the cement manufacturing market.
FORGED ATTACHMENTS. We produce a complete line of alloy and carbon steel
closed-die forged attachments, including hooks, shackles, hitch pins and master
links. These forged attachments are used in chain, wire rope and textile rigging
applications in a variety of industries, including transportation, mining,
construction, marine, logging, petrochemical and agriculture.
In addition, we manufacture carbon steel forged and stamped products, such
as loadbinders, logging tools and other securing devices, for sale to the
industrial, consumer and logging markets through industrial distributors,
hardware distributors, mass merchandiser outlets and OEMs.
INDUSTRIAL CRANES. We entered the U.S. crane manufacturing market through
our August 1998 acquisition of Abell-Howe, a Chicago-based regional manufacturer
of jib and overhead bridge cranes. Our March 1999 acquisition of GL
International, which included the Gaffey and Larco brands, and our April 1999
acquisition of Washington Equipment Company established us as a significant
participant in the U.S. crane building and servicing markets. Crane builders
represent a specific distribution channel for electric wire rope hoists, chain
hoists and other crane components. We divested of our Larco business in March
2007, which business provided cranes and service primarily to the steel industry
in southern Ontario, Canada.
INDUSTRIAL COMPONENTS. Through our Duff-Norton division, we design and
manufacture industrial components such as mechanical and electromechanical
actuators, rotary unions and mechanical jacks for sale domestically and abroad.
Actuators are linear motion devices used in a variety of industries, including
the paper, steel and aerospace industries. Rotary unions are devices that
transfer a liquid or gas from a fixed pipe or hose to a rotating drum, cylinder
or other device. Rotary unions are used in a variety of industries including
pulp and paper, printing, textile and fabric manufacturing, rubber and plastic.
Mechanical jacks are heavy duty lifting devices used in the repair and
maintenance of railroad equipment, locomotives and industrial machinery.
SALES AND MARKETING
Our sales and marketing efforts in support of our Products segment consist
of the following programs:
FACTORY-DIRECT FIELD SALES AND CUSTOMER SERVICE. We sell our products
through our direct sales forces of more than 125 salespersons and through
independent sales agents worldwide. Our sales are further supported by our more
than 350 company-trained customer service correspondents and sales application
engineers. We compensate our sales force through a combination of base salary
and a commission plan based on top line sales and a pre-established sales quota.
PRODUCT ADVERTISING. We promote our products by regular advertising in
leading trade journals as well as producing and distributing high quality
information catalogs. We support our product distribution by running cooperative
"pull-through" advertising in over 15 vertical trade magazines and directories
aimed toward theatrical, international, consumer and crane builder markets. We
run targeted advertisements for hoists, chain, forged attachments, scissor lift
tables, actuators, hydraulic jacks, hardware programs, cranes and light-rail
systems.
TARGET MARKETING. We are developing marketing literature to target specific
market sectors including construction and energy. This literature will display
our broad product offering applicable to those sectors to enhance awareness at
the end-user level within those sectors.
TRADE SHOW PARTICIPATION. Trade shows are central to the promotion of our
products, and we participate in more than 30 regional, national and
international trade shows each year. Shows in which we participate range from
global events held in Germany to local "markets" and "open houses" organized by
individual hardware and industrial distributors. We also attend specialty shows
for the entertainment, rental and safety markets, construction, as well as
general purpose industrial and hardware shows. In fiscal 2007, we participated
in trade shows in the U.S., Canada, Mexico, Germany, the United Kingdom, France,
China and Brazil.
INDUSTRY ASSOCIATION MEMBERSHIP AND PARTICIPATION. As a recognized industry
leader, we have a long history of work and participation in a variety of
industry associations. Our management is directly involved at the officer and
director levels of numerous industry associations including the following: ISA
(Industrial Supply Association), AWRF (Associated Wire Rope Fabricators), PTDA
8
(Power Transmission and Distributors Association), SCRA (Specialty Carriers and
Riggers Association), WSTDA (Web Sling and Tie Down Association), MHI (Material
Handling Institute), HMI (Hoist Manufacturers Institute), CMAA (Crane
Manufacturers Association of America), ESTA (Entertainment Services and
Technology Association), NACM (National Association of Chain Manufacturers) and
ARA (American Rental Association).
PRODUCT STANDARDS AND SAFETY TRAINING CLASSES. We conduct on-site training
programs worldwide for distributors and end-users to promote and reinforce the
attributes of our products and their safe use and operation in various material
handling applications.
WEB SITES. In addition to our main corporate web site at www.cmworks.com,
we currently sponsor an additional 25 brand specific web sites and sell hand
pallet trucks on one of these sites. Several of our brand web sites include
electronic catalogs of our various products and list prices. Current and
potential customers can browse through our diverse product offering or search
for specific products by name or classification code and obtain technical
product specifications. We continue to add additional product catalogs,
maintenance manuals, advertisements and customer service information on our
various web sites. Many of the web sites allow distributors to search for
personalized pricing information, order status and product serial number data
and to enter sales orders.
DISTRIBUTION AND MARKETS
The distribution channels for the Products segment include a variety of
commercial distributors. In addition, the Products segment sells overhead
bridge, jib and gantry cranes directly to end-users. We also sell to the
consumer market through wholesalers. The following describes our distribution
channels:
GENERAL DISTRIBUTION CHANNELS. Our global general distribution channels
consist of:
-- Industrial distributors that serve local or regional industrial
markets and sell a variety of products for maintenance, repair,
operating and production, or MROP, applications through their own
direct sales force.
-- Rigging shops that are distributors with expertise in rigging,
lifting, positioning and load securing. Most rigging shops
assemble and distribute chain, wire rope and synthetic slings and
distribute off-the-shelf hoists and attachments, chain slings and
other off-the-shelf products.
-- Independent crane builders that design, build, install and
service overhead crane and light-rail systems for general
industry and also distribute a wide variety of hoists and lifting
attachments. We sell electric wire rope hoists and chain hoists
as well as crane components, such as end trucks, trolleys, drives
and electrification systems to crane builders.
CRANE END-USERS. We sell overhead bridge, jib and gantry cranes, parts and
service to end-users through our wholly owned crane builders (Abell-Howe, Gaffey
and Washington Equipment) within the CraneMart(TM) network. Our wholly owned
crane builders design, manufacture, install and service a variety of cranes with
capacities up to 100 tons.
SPECIALTY DISTRIBUTION CHANNELS. Our global specialty distribution channels
consist of:
-- Catalog houses that market a variety of MROP supplies, including
material handling products, either exclusively through large,
nationally distributed catalogs, or through a combination of
catalog, internet and branch sales and a field sales force. The
customer base served by catalog houses such as W. W. Grainger,
which traditionally included smaller industrial companies and
consumers, has grown to include large industrial accounts and
integrated suppliers.
-- Material handling specialists and integrators that design and
assemble systems incorporating hoists, overhead rail systems,
trolleys, scissor lift tables, manipulators, air balancers, jib
arms and other material handling products to provide end-users
with solutions to their material handling problems.
-- Entertainment equipment distributors that design, supply and
install a variety of material handling and rigging equipment for
concerts, theaters, ice shows, sports arenas, convention centers
and night clubs.
SERVICE-AFTER-SALE DISTRIBUTION CHANNEL. Service-after-sale distributors
include our authorized network of 13 chain repair service stations and over 350
hoist service and repair stations. This service network is designed for easy
parts and service access for our large installed base of hoists and related
equipment in North America.
9
OEM/GOVERNMENT DISTRIBUTION CHANNELS. This channel consists of:
-- OEMs that supply various component parts directly to other
industrial manufacturers as well as private branding and
packaging of our traditional products for material handling,
lifting, positioning and special purpose applications.
-- Government agencies, including the U.S. and Canadian Navies and
Coast Guards, that purchase primarily load securing chain and
forged attachments.
CONSUMER DISTRIBUTION. Consumer sales, consisting primarily of carbon steel
chain and assemblies, forged attachments and hand powered hoists, are made
through five distribution channels: two-step wholesale hardware distribution;
one-step distribution direct to retail outlets; trucking and transportation
distributors; farm hardware distributors; and rental outlets.
CUSTOMER SERVICE AND TRAINING
We maintain customer service departments staffed by trained personnel for
all of our Products segment sales divisions, and regularly schedule product and
service training schools for all customer service representatives and field
sales personnel. Training programs for distribution and service station
personnel, as well as for end-users, are scheduled on a regular basis at most of
our facilities and in the field. We have more than 350 service and repair
stations worldwide that provide local and regional repair, warranty and general
service work for distributors and end-users. End-user trainees attending our
various programs include representatives of 3M, Cummins Engine, DuPont, GTE,
General Electric, General Motors and many other industrial and entertainment
organizations.
We also provide, in multiple languages, a variety of collateral material in
video, cassette, CD-ROM, slide and print format addressing relevant material
handling topics such as the care, use and inspection of chains and hoists, and
overhead lifting and positioning safety. In addition, we sponsor advisory boards
made up of representatives of our primary distributors and service-after-sale
network members who are invited to participate in discussions focused on
improving products and service. These boards enable us and our primary
distributors to exchange product and market information relevant to industry
trends.
BACKLOG
Our Products segment backlog of orders at March 31, 2007 was approximately
$53.2 million compared to approximately $53.6 million at March 31, 2006. Our
orders for standard products are generally shipped within one week. Orders for
products that are manufactured to customers' specifications are generally
shipped within four to twelve weeks. Given the short product lead times, we do
not believe that the amount of our Products segment backlog of orders is a
reliable indication of our future sales.
COMPETITION
The material handling industry remains highly fragmented. We face
competition from a wide range of regional, national and international
manufacturers in both domestic and international markets. In addition, we often
compete with individual operating units of larger, highly diversified companies.
The principal competitive factors affecting our Products segment include
customer service and support as well as product availability, performance,
functionality, brand reputation, reliability and price. Other important factors
include distributor relationships and territory coverage.
Major competitors with our Products segment for hoists are Konecranes,
Demag Cranes & Components and Kito-Harrington; for chain are Campbell Chain,
Peerless Chain Company and American Chain and Cable Company; for forged
attachments are The Crosby Group and Brewer Tichner Company; for crane building
are Konecranes, Demag Cranes & Components and a variety of independent crane
builders; and for industrial components are Deublin, Joyce-Dayton and Nook
Industries.
SOLUTIONS SEGMENT
The Solutions segment is engaged primarily in the design, fabrication and
installation of integrated workstation and facility-wide material handling
systems and in the design and manufacture of tire shredders, lift tables and
light-rail systems and has total assets of approximately $39 million as of March
31, 2007. Net sales of the Solutions segment in fiscal 2007 were $62.7 million,
or 10.6% of our total net sales, of which $18.5 million, or 29.5% were domestic
and $44.2 million, or 70.5% were international. The following table sets forth
10
certain sales data for the products and services of our Solutions segment,
expressed as a percentage of this segment's net sales for fiscal 2007 and 2006:
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------
2007 2006
------------------- ------------------
Integrated material handling conveyor systems................ 63% 69%
Tire Shredders............................................... 20 15
Lift tables.................................................. 13 12
Light-rail systems........................................... 4 4
------------------- ------------------
100% 100%
PRODUCTS AND SERVICES
INTEGRATED MATERIAL HANDLING CONVEYOR SYSTEMS. Through our Univeyor
business, we have historically specialized in designing highly customized,
computer-controlled and automated powered roller conveyors for use in warehouse
operations and distribution systems. We are strategically redirecting this
business to focus on more standardized products and service to reduce its
volatility and improve its profitability and return on invested capital.
Further, we are evaluating strategic alternatives relative to this business.
TIRE SHREDDERS. We have developed and patented a line of heavy equipment
that shreds worn tires, with the byproducts useful for fuel and recycled
products including aggregate filler, playgrounds, sports surfaces, landscaping
and other such applications, as well as scrap steel.
LIFT TABLES. Our American Lifts division manufactures powered lift tables.
These products enhance workplace ergonomics and are sold primarily to customers
in the manufacturing, construction, general industrial and air cargo industries.
LIGHT-RAIL SYSTEMS. Introduced in fiscal 2001, light-rail systems are
portable steel overhead beam configurations used at workstations, from which
hoists are frequently suspended.
SALES AND MARKETING
The products and services of the Solutions segment are sold primarily to
large sophisticated corporate end-users, including Federal Express, John Deere,
Lego, Lowe's, United Biscuits, UPS and other industrial companies, systems
integrators and distributors. Sales are generated by internal sales personnel
and rely heavily on engineer-to-engineer interactions with the customer or a
large systems integrator. The process of generating client contract awards for
integrated conveyor systems generally entails receiving a request-for-quotation
from customers and undergoing a competitive bidding process. The Solutions
segment also sells tire shredders, scissor lift tables and light-rail systems
through its internal sales force and through specialized independent
distributors and manufacturers representatives.
CUSTOMER SERVICE AND TRAINING
The Solutions segment offers a wide range of value-added services to
customers including: an engineering review of the customer's processes; an
engineering solution for identified material handling problems; project
management; and custom design, manufacturing and installation services. We also
offer after-sales services including operator training, maintenance and hot-line
support. The typical length of after-sales service varies depending on customer
requirements and supplemental training courses are offered as needed.
BACKLOG
Revenues from our Solutions segment are generally recognized within one to
six months. Our backlog of orders at March 31, 2007 was approximately $9.6
million compared to approximately $13.0 million at March 31, 2006. The decrease
is due to a conscious reduction in orders we're willing to accept due to an
overly competitive market and pricing environment.
COMPETITION
The principal competitive factors affecting the market for the products and
services of our Solutions segment include application solutions, performance and
price. The process of generating client contract awards for these businesses
generally entails receiving a request-for-quotation from end-users and
undergoing a competitive bidding process. Our Solutions segment competes
primarily with Crisplant, Gorbel, Moving, Schaffer, Southworth and Swisslog.
11
EMPLOYEES
At March 31, 2007, we had 3,250 employees; 2,136 in the U.S./Canada, 210 in
Latin America, 571 in Europe and 333 in Asia. Approximately 766 of our employees
are represented under seven separate U.S. or Canadian collective bargaining
agreements which terminate at various times between July 2007 and August 2010.
The contract which expires in July 2007 currently covers 11 employees. There is
another contract which expires in March 2008 and currently covers 43 employees.
We believe that our relationship with our employees is good.
RAW MATERIALS AND COMPONENTS
Our principal raw materials and components are steel, consisting of
structural steel, processed steel bar, forging bar steel, steel rod and wire,
steel pipe and tubing and tool steel; electric motors; bearings; gear reducers;
castings; and electro-mechanical components. These commodities are all available
from multiple sources. We purchase most of these raw materials and components
from a limited number of strategic and preferred suppliers under long-term
agreements which are negotiated on a company-wide basis through our Purchasing
Council to take advantage of volume discounts. We generally seek to pass on
materials price increases to our distribution channel partners and end-user
customers. We will continue to monitor our costs and reevaluate our pricing
policies. Our ability to pass on these increases is determined by market
conditions.
MANUFACTURING
We manufacture a significant percentage of the products we sell. We
complement our own manufacturing by outsourcing components and finished goods
from an established global network of suppliers. We regularly upgrade our global
manufacturing facilities and invest in tooling, equipment and technology. In
2001, we began implementing Lean Manufacturing in our plants which has resulted
in inventory reductions, reductions in required manufacturing floor area,
shorter product lead time and increased productivity.
Our manufacturing operations are highly integrated. Although raw materials
and some components such as motors, bearings, gear reducers, castings and
electro-mechanical components are purchased, our vertical integration enables us
to produce many of the components used in the manufacturing of our products. We
manufacture hoist lifting chain, steel forged gear blanks, lift wheels, trolley
wheels, and hooks and other attachments for incorporation into our hoist
products. These products are also sold as spare parts for hoist repair.
Additionally, our hoists are used as components in the manufacture of crane
systems by us as well as our crane-builder customers. We believe this vertical
integration results in lower production costs, greater manufacturing flexibility
and higher product quality, and reduces our reliance on outside suppliers.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
Like most manufacturing companies, we are subject to various federal, state
and local laws relating to the protection of the environment. To address the
requirements of such laws, we have adopted a corporate environmental protection
policy which provides that all of our owned or leased facilities shall, and all
of our employees have the duty to, comply with all applicable environmental
regulatory standards, and we have initiated an environmental auditing program
for our facilities to ensure compliance with such regulatory standards. We have
also established managerial responsibilities and internal communication channels
for dealing with environmental compliance issues that may arise in the course of
our business. We have made and could be required to continue to make significant
expenditures to comply with environmental requirements. Because of the
complexity and changing nature of environmental regulatory standards, it is
possible that situations will arise from time to time requiring us to incur
additional expenditures in order to ensure environmental regulatory compliance.
However, we are not aware of any environmental condition or any operation at any
of our facilities, either individually or in the aggregate, which would cause
expenditures having a material adverse effect on our results of operations,
financial condition or cash flows and, accordingly, have not budgeted any
material capital expenditures for environmental compliance for fiscal 2008.
We are investigating past waste disposal activities at a facility in
Cleveland, Texas, operated by our subsidiary, Crane Equipment and Service, Inc.,
and we have entered into a voluntary agreement with the Texas Commission on
Environmental Quality to investigate and, as appropriate, remediate
environmental conditions at this site. At this time, site investigation
activities are ongoing and it is not possible to determine the costs of site
remediation, if any, but we believe any such costs will not have a material
adverse effect on our operating results or financial condition. We have filed a
lawsuit in federal district court against the persons we believe are responsible
for the past waste disposal activities. The purpose of the lawsuit is to recover
our costs of investigating and remediating site conditions caused by such
activities.
12
In addition, we have notified the North Carolina Department of Environment
and Natural Resources (the "DENR") of the presence of certain contaminants in
excess of regulatory standards at our Coffing Hoist facility in Wadesboro, North
Carolina. We plan to file an application with the DENR to enter its voluntary
cleanup program. If accepted, we will be required to investigate and, if
appropriate, remediate site conditions at the facility. At this early stage, we
do not have an estimate of likely remediation costs, if any, but do not believe
that such costs would have a material adverse effect on our financial condition
or operating results.
We also discovered the presence of certain contaminants in excess of
regulatory standards at out Damascus, Virginia hoist plant and have notified the
Virginia Department of Environmental Quality (the "DEQ"). We are currently
investigating the possibility of applying to the DEQ to participate in its
voluntary cleanup program. Like the Wadesboro, North Carolina site, if accepted,
we will be required to investigate and, if appropriate, remediate site
conditions at the facility. At this early stage, we do not have an estimate of
likely remediation costs, if any, but do not believe that such costs would have
a material adverse effect on our financial condition or operating results.
For all of the currently known environmental matters, we have accrued a
total of $1.0 million as of March 31, 2007, which, in our opinion, is sufficient
to deal with such matters. Further, our management believes that the
environmental matters known to, or anticipated by, us should not, individually
or in the aggregate, have a material adverse effect on our operating results or
financial condition. However, there can be no assurance that potential
liabilities and expenditures associated with unknown environmental matters,
unanticipated events, or future compliance with environmental laws and
regulations will not have a material adverse effect on us.
Our operations are also governed by many other laws and regulations,
including those relating to workplace safety and worker health, principally OSHA
and regulations thereunder. We believe that we are in material compliance with
these laws and regulations and do not believe that future compliance with such
laws and regulations will have a material adverse effect on our operating
results or financial condition.
AVAILABLE INFORMATION
Our internet address is WWW.CMWORKS.COM. We make available free of charge
---------------
through our website our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such documents are
electronically filed with, or furnished to, the Securities and Exchange
Commission.
ITEM 1A. RISK FACTORS
------------
Columbus McKinnon is subject to a number of risk factors that could
negatively affect our results from business operations or cause actual results
to differ materially from those projected or indicated in any forward looking
statement. Such factors include, but are not limited to, the following:
OUR BUSINESS IS CYCLICAL AND IS AFFECTED BY INDUSTRIAL ECONOMIC CONDITIONS.
Many of the end-users of our products are in highly cyclical industries,
such as general manufacturing and construction that are sensitive to changes in
general economic conditions. Their demand for our products, and thus our results
of operations, is directly related to the level of production in their
facilities, which changes as a result of changes in general economic conditions
and other factors beyond our control. In fiscal 2003 and 2004, for example, we
experienced significantly reduced demand for our products, generally as a result
of the global economic slowdown, and more specifically as a result of the
dramatic decline in capital goods spending in the industries in which our
end-users operate. These lower levels of demand and the impact of divested
businesses resulted in a 24.2% (approximately 10.3% due to divested businesses)
decline in net sales from fiscal 2001 to fiscal 2004, from $586.2 million to
$444.6 million. This decline in net sales resulted in a 54.6% decrease in our
income from operations during the same period. We have seen a significant
improvement in demand for our products from fiscal 2005 and 2007. Our net sales
for fiscal 2007 were $589.8 million, up $145.2 million or 32.7% from fiscal 2004
sales.
If the current economic stability does not continue or if there is
deterioration in the general economy or in the industries we serve, our
business, results of operations and financial condition could be materially
adversely affected. In addition, the cyclical nature of our business could at
times also adversely affect our liquidity and ability to borrow under our
revolving credit facility.
13
WE RELY IN LARGE PART ON INDEPENDENT DISTRIBUTORS FOR SALES OF OUR PRODUCTS.
We depend on independent distributors to sell our products and provide
service and aftermarket support to our end-user customers. Distributors play a
significant role in determining which of our products are stocked at the branch
locations, and hence are most readily accessible to aftermarket buyers, and the
price at which these products are sold. Almost all of the distributors with whom
we transact business offer competitive products and services to our end-user
customers. We do not have written agreements with our distributors located in
the United States. The loss of a substantial number of these distributors or an
increase in the distributors' sales of our competitors' products to our ultimate
customers could materially reduce our sales and profits.
WE ARE SUBJECT TO CURRENCY FLUCTUATIONS FROM OUR INTERNATIONAL SALES.
Our products are sold in many countries around the world. Thus, a portion
of our revenues (approximately $179.2 million in fiscal year 2007) is generated
in foreign currencies, including principally the euro, the Canadian dollar, and
the Danish Krone, while a portion of the costs incurred to generate those
revenues are incurred in other currencies. Since our financial statements are
denominated in U.S. dollars, changes in currency exchange rates between the U.S.
dollar and other currencies have had, and will continue to have, an impact on
our earnings. We currently do not have exchange rate hedges in place to reduce
the risk of an adverse currency exchange movement. Currency fluctuations may
impact our financial performance in the future.
OUR INTERNATIONAL OPERATIONS POSE CERTAIN RISKS THAT MAY ADVERSELY IMPACT SALES
AND EARNINGS.
We have operations and assets located outside of the United States,
primarily in Canada, Mexico, Germany, the United Kingdom, Denmark, France,
Hungary and China. In addition, we import a portion of our hoist product line
from Asia, and sell our products to distributors located in approximately 50
countries. In fiscal year 2007, approximately 34% of our net sales were derived
from non-U.S. markets. These international operations are subject to a number of
special risks, in addition to the risks of our domestic business, including
currency exchange rate fluctuations, differing protections of intellectual
property, trade barriers, labor unrest, exchange controls, regional economic
uncertainty, differing (and possibly more stringent) labor regulation, risk of
governmental expropriation, domestic and foreign customs and tariffs, current
and changing regulatory environments, difficulty in obtaining distribution
support, difficulty in staffing and managing widespread operations, differences
in the availability and terms of financing, political instability and risks of
increases in taxes. Also, in some foreign jurisdictions we may be subject to
laws limiting the right and ability of entities organized or operating therein
to pay dividends or remit earnings to affiliated companies unless specified
conditions are met. These factors may adversely affect our future profits.
Part of our strategy is to expand our worldwide market share and reduce
costs by strengthening our international distribution capabilities and sourcing
basic components in foreign countries, in particular in Mexico, China and
Hungary. Implementation of this strategy may increase the impact of the risks
described above, and we cannot assure you that such risks will not have an
adverse effect on our business, results of operations or financial condition.
OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR
SALES, EARNINGS AND PROFITABILITY.
The principal markets that we serve within the material handling industry
are fragmented and highly competitive. Competition is based primarily on
customer service and support as well as product availability, performance,
functionality, brand reputation, reliability and price. Our competition in the
markets in which we participate comes from companies of various sizes, some of
which have greater financial and other resources than we do. Increased
competition could force us to lower our prices or to offer additional services
at a higher cost to us, which could reduce our gross margins and net income.
The greater financial resources or the lower amount of debt of certain of
our competitors may enable them to commit larger amounts of capital in response
to changing market conditions. Certain competitors may also have the ability to
develop product or service innovations that could put us at a disadvantage. In
addition, some of our competitors have achieved substantially more market
penetration in certain of the markets in which we operate, including crane
building. If we are unable to compete successfully against other manufacturers
of material handling equipment, we could lose customers and our revenues may
decline. There can also be no assurance that customers will continue to regard
our products favorably, that we will be able to develop new products that appeal
to customers, that we will be able to improve or maintain our profit margins on
sales to our customers or that we will be able to continue to compete
successfully in our core markets.
OUR PRODUCTS INVOLVE RISKS OF PERSONAL INJURY AND PROPERTY DAMAGE, WHICH EXPOSES
US TO POTENTIAL LIABILITY.
Our business exposes us to possible claims for personal injury or death and
property damage resulting from the products that we sell. We maintain insurance
through a combination of self-insurance retentions and excess insurance
coverage. We monitor claims and potential claims of which we become aware and
establish accrued liability reserves for the self-insurance amounts based on our
14
liability estimates for such claims. We cannot give any assurance that existing
or future claims will not exceed our estimates for self-insurance or the amount
of our excess insurance coverage. In addition, we cannot give any assurance that
insurance will continue to be available to us on economically reasonable terms
or that our insurers would not require us to increase our self-insurance
amounts. Claims brought against us that are not covered by insurance or that
result in recoveries in excess of insurance coverage could have a material
adverse effect on our results and financial condition.
OUR FUTURE OPERATING RESULTS MAY BE AFFECTED BY FLUCTUATIONS IN STEEL OR OTHER
MATERIAL PRICES. WE MAY NOT BE ABLE TO PASS ON INCREASES IN RAW MATERIAL COSTS
TO OUR CUSTOMERS.
The principal raw material used in our chain, forging and crane building
operations is steel. The steel industry as a whole is highly cyclical, and at
times pricing and availability can be volatile due to a number of factors beyond
our control, including general economic conditions, labor costs, competition,
import duties, tariffs and currency exchange rates. This volatility can
significantly affect our raw material costs. In an environment of increasing raw
material prices, competitive conditions will determine how much of the steel
price increases we can pass on to our customers. During historical rising cost
periods, we were successful in adding and maintaining a surcharge to the prices
of our high steel content products or incorporating them into price increases,
with a goal of margin neutrality. In the future, to the extent we are unable to
pass on any steel price increases to our customers, our profitability could be
adversely affected.
WE DEPEND ON OUR SENIOR MANAGEMENT TEAM AND THE LOSS OF ANY MEMBER COULD
ADVERSELY AFFECT OUR OPERATIONS.
Our success is dependent on the management and leadership skills of our
senior management team. The loss of any of these individuals or an inability to
attract, retain and maintain additional personnel could prevent us from
implementing our business strategy. We cannot assure you that we will be able to
retain our existing senior management personnel or to attract additional
qualified personnel when needed. We have not entered into employment agreements
with any of our senior management personnel with the exception of Wolfgang
Wegener, our Vice President and Managing Director of Columbus McKinnon Europe.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS WHICH MAY REQUIRE US TO EXPEND
SIGNIFICANT CAPITAL AND INCUR SUBSTANTIAL COST.
Our operations and facilities are subject to various federal, state, local
and foreign requirements relating to the protection of the environment,
including those governing the discharges of pollutants in the air and water, the
generation, management and disposal of hazardous substances and wastes and the
cleanup of contaminated sites. We have made, and will continue to make,
expenditures to comply with such requirements. Violations of, or liabilities
under, environmental laws and regulations, or changes in such laws and
regulations (such as the imposition of more stringent standards for discharges
into the environment), could result in substantial costs to us, including
operating costs and capital expenditures, fines and civil and criminal
sanctions, third party claims for property damage or personal injury, clean-up
costs or costs relating to the temporary or permanent discontinuance of
operations. Certain of our facilities have been in operation for many years, and
we have remediated contamination at some of our facilities. Over time, we and
other predecessor operators of such facilities have generated, used, handled and
disposed of hazardous and other regulated wastes. Additional environmental
liabilities could exist, including clean-up obligations at these locations or
other sites at which materials from our operations were disposed, which could
result in substantial future expenditures that cannot be currently quantified
and which could reduce our profits or have an adverse effect on our financial
condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
-------------------------
None.
15
ITEM 2. PROPERTIES
----------
We maintain our corporate headquarters in Amherst, New York and, as of
March 31, 2007, conducted our principal manufacturing at the following
facilities:
SQUARE OWNED OR BUSINESS
LOCATION PRODUCTS/OPERATIONS FOOTAGE LEASED SEGMENT
----------------------------------- -------------------------------------------------- ------------ ------------ ------------
UNITED STATES:
Muskegon, MI Hoists 441,225 Owned Products
Charlotte, NC Industrial components 243,750 Owned Products
Wadesboro, NC Hoists 186,057 Owned Products
Lexington, TN Chain 175,700 Owned Products
Cedar Rapids, IA Forged attachments 100,000 Owned Products
Eureka, IL Cranes 91,300 Owned Products
Damascus, VA Hoists 90,338 Owned Products
Chattanooga, TN Forged attachments 80,659 Owned Products
Greensburg, IN Scissor lifts 70,000 Owned Solutions
Chattanooga, TN Forged attachments 59,303 Owned Products
Claremore, OK Cranes, light-rail crane systems 42,000 Owned Products
Lisbon, OH Hoists and below-the-hook tooling 36,600 Owned Products
Cleveland, TX Cranes 35,000 Owned Products
Tonawanda, NY Light-rail crane systems 35,000 Owned Solutions
Sarasota, FL Tire shredders 24,954 Owned Solutions
INTERNATIONAL:
Santiago, Tianguistenco, Mexico Hoists and chain 91,000 Owned Products
Arden, Denmark Project design, conveyors, Layer Picker, EmptiCon 71,500 Owned Solutions
Velbert, Germany Hoists 56,000 Leased Products
Hangzhou, China Metal fabrication, textiles and textile
strappings 37,000 Leased Products
Chester, United Kingdom Plate clamps 25,400 Owned Products
Romeny-sur-Marne, France Rotary unions 21,550 Owned Products
Hangzhou, China Textile strappings 20,000 Leased Products
Arden, Denmark Project construction 19,500 Leased Solutions
Velbert, Germany Hoists 12,800 Leased Products
Szekesfeher, Hungary Textiles and textile strappings 10,000 Leased Products
Hangzhou, China Hoists and hand pallet trucks 7,200 Leased Products
In addition, we have a total of 35 sales offices, distribution centers and
warehouses. We believe that our properties have been adequately maintained, are
in generally good condition and are suitable for our business as presently
conducted. We also believe our existing facilities provide sufficient production
capacity for our present needs and for our anticipated needs in the foreseeable
future. Upon the expiration of our current leases, we believe that either we
will be able to secure renewal terms or enter into leases for alternative
locations at market terms.
ITEM 3. LEGAL PROCEEDINGS
-----------------
From time to time, we are named a defendant in legal actions arising out of
the normal course of business. We are not a party to any pending legal
proceeding other than ordinary, routine litigation incidental to our business.
We do not believe that any of our pending litigation will have a material impact
on our business. We maintain comprehensive general liability insurance against
risks arising out of the normal course of business through our wholly-owned
insurance subsidiary of which we are the sole policy holder. The limits of this
coverage are currently $3.0 million per occurrence ($2.0 million through March
31, 2003) and $6.0 million aggregate ($5.0 million through March 31, 2003) per
year. We obtain additional insurance coverage from independent insurers to cover
potential losses in excess of these limits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
16
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
----------------------------------------------------------
HOLDER MATTERS
--------------
Our common stock is traded on the Nasdaq Stock Market under the symbol
"CMCO." As of April 30, 2007, there were 463 holders of record of our common
stock.
We do not currently pay cash dividends. Our current credit agreement
allows, but limits our ability to pay dividends. We may reconsider or revise
this policy from time to time based upon conditions then existing, including,
without limitation, our earnings, financial condition, capital requirements,
restrictions under credit agreements or other conditions our Board of Directors
may deem relevant.
The following table sets forth, for the fiscal periods indicated, the high
and low sale prices per share for our common stock as reported on the Nasdaq
Stock Market.
PRICE RANGE OF
COMMON STOCK
------------
HIGH LOW
---- ---
YEAR ENDED MARCH 31, 2005
First Quarter................................. $ 8.62 $ 4.87
Second Quarter................................ 9.81 6.69
Third Quarter................................. 9.38 6.80
Fourth Quarter................................ 14.31 8.20
YEAR ENDED MARCH 31, 2006
First Quarter................................. $ 13.82 $ 8.35
Second Quarter................................ 25.15 10.70
Third Quarter................................. 26.00 18.64
Fourth Quarter................................ 28.64 20.86
YEAR ENDED MARCH 31, 2007
First Quarter................................. $ 30.56 $ 20.15
Second Quarter................................ 22.70 16.50
Third Quarter................................. 25.00 17.11
Fourth Quarter................................ 25.71 20.65
On April 30, 2007, the closing price of our common stock on the Nasdaq
Stock Market was $24.76 per share.
17
PERFORMANCE GRAPH
The Performance Graph shown below compares the cumulative total shareholder
return on our common stock based on its market price, with the total return of
the S&P MidCap 400 Index and the Dow Jones Industrial - Diversified Index. The
comparison of total return assumes that a fixed investment of $100 was invested
on March 31, 2002 in our common stock and in each of the foregoing indices and
further assumes the reinvestment of dividends. The stock price performance shown
on the graph is not necessarily indicative of future price performance.
[ILLUSTRATION OF PERFORMANCE GRAPH]
2002 2003 2004 2005 2006 2007
---- ---- ---- ---- ---- ----
Columbus McKinnon Corporation.............. 100 13 60 106 210 175
S&P Midcap 400 Index....................... 100 77 114 126 153 166
Dow Jones US Industrial - Diversified Index 100 71 96 115 114 121
18
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The consolidated balance sheets as of March 31, 2007 and 2006 and the
related statements of operations, cash flows and shareholders' equity for the
three years ended March 31, 2007 and notes thereto appear elsewhere in this
annual report. The selected consolidated financial data presented below should
be read in conjunction with, and are qualified in their entirety by
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," our consolidated financial statements and the notes thereto and
other financial information included elsewhere in this annual report.
FISCAL YEARS ENDED MARCH 31,
-------------------------------------------------------------
2007 2006 2005 2004 2003
----------- --------- --------- ---------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 589.8 $ 556.0 $ 514.8 $ 444.6 $ 453.3
Cost of products sold 425.2 408.4 388.9 339.8 346.0
-------------------------------------------------------------
Gross profit 164.6 147.6 125.9 104.8 107.3
Selling expenses 61.7 54.3 52.3 48.3 47.4
General and administrative expenses 34.1 33.6 31.7 25.0 26.6
Restructuring charges (1) 0.1 1.6 0.9 1.2 3.7
Write-off/amortization of intangibles (2) 0.2 0.2 0.3 0.4 4.2
-------------------------------------------------------------
Income from operations 68.5 57.9 40.7 29.9 25.4
Interest and debt expense 16.5 24.7 27.6 28.9 32.0
Other (income) and expense, net (1.9) 5.0 (5.2) (4.2) (2.1)
-------------------------------------------------------------
Income (loss) before income taxes 53.9 28.2 18.3 5.2 (4.5)
Income tax (benefit) expense 20.5 (30.9) 2.2 4.0 1.5
-------------------------------------------------------------
Income (loss) from continuing operations 33.4 59.1 16.1 1.2 (6.0)
Income (loss) from discontinued operations (3) 0.7 0.7 0.6 - -
Cumulative effect of change in accounting
principle (2) - - - - (8.0)
-------------------------------------------------------------
Net income (loss) $ 34.1 $ 59.8 $ 16.7 $ 1.2 $ (14.0)
=============================================================
Diluted earnings (loss) per share from continuing $ 1.76 $ 3.56 $ 1.09 $ 0.08 $ (0.42)
operations
Basic earnings (loss) per share from continuing
operations $ 1.80 $ 3.69 $ 1.10 $ 0.08 $ (0.42)
Weighted average shares outstanding - assuming
dilution 19.0 16.6 14.8 14.6 14.5
Weighted average shares outstanding - basic 18.5 16.1 14.6 14.6 14.5
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 565.6 $ 566.0 $ 480.9 $ 473.4 $ 482.6
Total debt (4) 172.1 209.8 270.9 293.4 316.3
Total shareholders' equity 241.3 204.4 81.8 63.0 52.7
OTHER FINANCIAL DATA:
Net cash provided by operating activities 45.5 46.4 17.2 26.4 14.2
Net cash provided by (used in) investing activities (3.4) (6.4) 3.1 4.3 16.0
Net cash used in financing activities (39.9) (4.2) (21.9) (21.5) (41.9)
Capital expenditures 10.7 8.4 5.9 3.6 5.0
Cash dividends per common share 0.00 0.00 0.00 0.00 0.00
19
-------------
(1) Refer to "Results of Operations" in "Item 7. Management's Discussion
and Analysis of Results of Operation and Financial Condition" for a
discussion of the restructuring charges related to fiscal 2007, 2006,
and 2005. During fiscal 2004, restructuring charges of $1.2 million
were recorded related to various employee termination benefits and
facility costs as a result of our continued closure, merging and
reorganization and completion of two open projects from fiscal 2003.
Restructuring charges for fiscal 2003 related to the closure, merging,
or significant reorganization of five facilities. These costs included
$1.8 million of severance relating to approximately 215 employees,
$1.0 million of lease termination, facility wind-down, preparation for
sale and maintenance of non-operating facilities prior to disposal and
$0.9 million for facility closure costs on projects begun in 2002.
(2) As a result of our adoption of SFAS 142 effective April 1, 2002,
goodwill is no longer amortized. The charge in fiscal 2003 represents
a $4.0 million impairment write-off. In addition, the cumulative
effect of change in accounting principle represents the impact of
adopting SFAS 142.
(3) In May 2002, the Company sold substantially all of the assets of ASI.
The Company received $20,600,000 in cash and an 8% subordinated note
in the principal amount of $6,800,000 which is payable over 10 years
beginning in August 2004. The full amount of this note has been
reserved due to the uncertainty of collection. Principal payments
received on the note are recorded as income from discontinued
operations at the time of receipt. All interest and principal payments
required under the note have been made to date. Refer to Note 3 to our
consolidated financial statements for additional information on
Discontinued Operations.
(4) Total debt includes long-term debt, including the current portion,
notes payable and subordinated debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
This section should be read in conjunction with our consolidated financial
statements included elsewhere in this annual report. Comments on the results of
operations and financial condition below refer to our continuing operations,
except in the section entitled "Discontinued Operations."
EXECUTIVE OVERVIEW
We are a leading manufacturer and marketer of hoists, cranes, chain,
conveyors, material handling systems, lift tables and component parts serving a
wide variety of commercial and industrial end-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 material handling systems and
solutions for end-users to improve workstation and facility-wide work flow.
Founded in 1875, we have grown to our current leadership position through
organic growth and also as the result of the 14 businesses we acquired between
February 1994 and April 1999. We have developed our leading market position over
our 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. Integration of the
operations of the acquired businesses with our previously existing businesses is
substantially complete. Ongoing integration activities include 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 the improvement of the
fundamentals including manufacturing efficiency, cost containment, efficient
capital investment, market expansion and renewed customer focus.
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. This
includes the recent 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. We have
20
recently reorganized 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. Management believes
that the growth rate of total sales may moderate in future periods due to more
difficult comparisons with our fiscal 2007 periods and a slower rate of U.S.
economic growth. We monitor such indicators as U.S. Industrial Capacity
Utilization, which has been increasing since July 2003, as an indicator of
anticipated demand for our product. In addition, we continue to monitor the
potential impact of global and domestic trends, including energy costs, steel
price fluctuations, rising 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. From 2001 to 2004 under our facility
rationalization program, we closed 13 facilities and consolidated several
product lines. During fiscal 2006, certain families within our mechanical jack
line were eliminated and several smaller sales offices were closed with
potential opportunity for further rationalization. We are evaluating strategic
alternatives of certain other businesses performing at levels below the
corporate average, including Univeyor, our material handling systems business.
In March 2007, we sold one of our less strategic businesses, a specialty crane
manufacturer. Additionally, our manipulator and specialty marine chain
businesses were sold in fiscal 2004. We sold two pieces of excess real estate in
fiscal 2007, generating $1.9 million of proceeds which were used to pay down
debt. During fiscal 2006, we completed the sale and partial leaseback of a
warehouse in Ontario, Canada at a $0.6 million gain as well as the sale of an
unused parcel of land in Charlotte, North Carolina. Fiscal 2005 saw the
completion of the sale of a Chicago-area property resulting in a $2.7 million
gain and the sale and partial leaseback of our corporate headquarters building
in Amherst, New York at a $2.2 million gain, of which $1.0 million was recorded
in fiscal 2005 and the remainder is being recognized pro-rata over the life of
the 10-year leaseback period.
Consistent with most U.S. companies, over the past several years we have
been facing significantly increased costs for fringe benefits such as health
insurance, workers compensation insurance and pension. Combined, those benefits
cost us over $35 million 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 currently utilize
approximately $35 million to $40 million of steel annually in a variety of forms
including rod, wire, bar, structural and others. We continuously 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
Net sales of our Products and Solutions segments, in millions of dollars
and with percentage changes for each segment, were as follows:
CHANGE CHANGE
FISCAL YEARS ENDED MARCH 31, 2007 VS. 2006 2006 VS. 2005
---------------------------- ------------- -------------
2007 2006 2005 AMOUNT % AMOUNT %
---- ---- ---- ------ - ------ -
Products segment............. $ 527.1 $ 493.9 $ 453.1 $ 33.2 6.7 $ 40.8 9.0
Solutions segment............ 62.7 62.1 61.7 0.6 1.0 0.4 0.6
-------- -------- -------- --------- ------ --------- ------
Total net sales......... $ 589.8 $ 556.0 $ 514.8 $ 33.8 6.1 $ 41.2 8.0
======== ======== ========= ========= =========
During fiscal 2007, the Company saw continued strength in the North
American economy as well as increased demand in Europe. This growth was a
continuation of improvement in the industrial sector of North America and Europe
that began in fiscal 2005 through the current period. In addition, sales growth
continues to be fostered by the expansion of international selling efforts. Net
sales for fiscal 2007 of $589.8 increased by $33.8 million or 6.1% from fiscal
2006, and net sales for fiscal 2006 of $556.0 million increased by $41.2
million, or 8.0%, from fiscal 2005. The Products segment for fiscal 2007
experienced a net sales increase of 6.7% over the prior year. The increase was
due to a combination of increased volume on the continued growth of the North
American industrial economy and robust business in our European markets as well
as price increases ($7.9 million). Fiscal 2007 was impacted by the continued
weakness of the U.S. dollar relative to other currencies, particularly the euro,
and reported Products segment sales were favorably affected by $4.2 million. The
Products segment for fiscal 2006 experienced a net sales increase of 9.0% over
the prior year. The increase was due to a combination of increased volume on the
continued growth of the North American industrial economy as well as price
increases ($17.8 million). Our fiscal 2007 Solutions segment net sales were flat
as increased volume in our U.S. operations was offset by a downsizing of our
21
European material handling systems business resulting from our decision to be
more selective in the projects we choose to accept due to a challenging market
and pricing environment. Foreign currency fluctuations of the U.S. dollar
relative to the Danish Krone resulted in a favorable impact of $2.0 million. For
fiscal 2006, our Solutions segment net sales were flat as increased volume was
offset by the strengthening U.S. dollar relative to the Danish Krone resulting
in an unfavorable impact of $0.9 million.
Gross profit of the Products and Solutions segments, in millions of dollars
and as a percentage of total segment net sales, was as follows:
FISCAL YEARS ENDED MARCH 31,
--------------------------------------------------------------
2007 2006 2005
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Products segment............ $ 159.2 30.2 $ 138.1 28.0 $ 117.1 25.8
Solutions segment........... 5.4 8.6 9.5 15.3 8.8 14.3
--------- --- --------- ---- -------- ----
Total gross profit..... $ 164.6 27.9 $ 147.6 26.5 $ 125.9 24.5
========= ========= ========
Our gross profit margins were approximately 27.9%, 26.5% and 24.5% in
fiscal 2007, 2006 and 2005, respectively. The Products segment for fiscal 2007
and fiscal 2006 continues to see improved gross margins as a result of
operational leverage at increased volumes from the prior years across all
businesses, the proportion of that increase in our most profitable products
sales (hoists), and the impact of previous facility rationalization projects and
ongoing lean manufacturing activities. The Solutions segment's gross profit
margins decreased in Fiscal 2007 as leverage on volume increases at our U.S.
operations was offset by losses at our European material handling systems
business. The European systems business losses were the result of performance
issues and cost overruns on certain projects, a challenging pricing environment
and an unfavorable sales mix of projects. The Solutions segment's gross profit
margins increased in Fiscal 2006 as a result of a shift in product mix at our
European material handling systems business to more internally developed product
costs from resale products, increased volume at certain facilities, and some
rationalization cost savings.
Selling expenses were $61.7 million, $54.3 million and $52.3 million in
fiscal 2007, 2006 and 2005, respectively. As a percentage of net sales, selling
expenses were 10.5%, 9.8% and 10.2% in fiscal 2007, 2006 and 2005, respectively.
The fiscal 2007 increase, driven by our strategic growth initiatives, includes
additional salaries ($2.5 million), increased advertising, marketing,
warehousing and travel ($1.4 million), investments in new markets ($1.6
million), translation of foreign currencies ($1.1 million), and commission
expense ($0.5 million). The fiscal 2006 increase includes additional salaries
($1.2 million), increased advertising, marketing, warehousing and travel ($1.3
million), and new market costs ($0.4 million) offset by a decrease in foreign
pension costs ($0.4 million) and lower commission expense ($0.8 million).
General and administrative expenses were $34.1 million, $33.6 million and
$31.7 million in fiscal 2007, 2006 and 2005, respectively. As a percentage of
net sales, general and administrative expenses were 5.8%, 6.1% and 6.2% in
fiscal 2007, 2006 and 2005, respectively. Fiscal 2007 includes increases in
salaries/personnel for new market investment ($1.3) million, increased research
and development costs ($1.0 million), and increased healthcare costs ($0.8
million) offset by lower variable compensation costs ($2.5 million). The Fiscal
2006 increase includes increases in salaries/personnel including variable
compensation ($3.0 million), employee development/professional fees ($0.7
million), offset by lower foreign pension costs ($1.0 million), decreased
external Sarbanes-Oxley Section 404 costs ($0.9 million) and currency
translation ($0.2 million).
Restructuring charges of $0.1 million, $1.6 million and $0.9 million, or
0.0%, 0.3% and 0.2% of net sales in fiscal 2007, 2006 and 2005, respectively,
were primarily attributable to the ongoing organizational rationalizations
occurring at the company. The fiscal 2007 charges represent severance costs
related to the reorganization of our European systems business ($0.3 million)
and demolition costs of the unused portion of a facility ($0.2 million) being
expensed on an as-incurred basis, offset by a recovery of a portion of previous
write-downs ($0.4 million) on a vacant facility that was sold during fiscal
2007. The fiscal 2006 charges consist of the cost of removal of certain
environmentally hazardous materials ($0.6 million), inventory disposal costs
related to the rationalization of certain product families within our mechanical
jack lines ($0.4 million), the ongoing maintenance costs of a non-operating
facility accrued based on anticipated sale date ($0.3 million) and other
facility rationalization projects ($0.3 million). The fiscal 2005 restructuring
charges consist of $0.5 million of costs related to facility rationalizations
being expensed on an as incurred basis as a result of the project timing being
subsequent to the adoption of SFAS No. 144. Fiscal 2005 also included $0.3
million of write-down on the net realizable value of a facility based on changes
in market conditions and a reassessment of its net realizable value. The
remaining liability of as of March 31, 2007 relates to the accrued costs for the
removal of environmentally hazardous materials ($0.6 million).
22
Write-off/amortization of intangibles was $0.2 million, $0.2 million and
$0.3 million in fiscal 2007, 2006 and 2005, respectively.
Interest and debt expense was $16.4 million, $24.7 million and $27.6
million in fiscal 2007, 2006 and 2005, respectively. As a percentage of net
sales, interest and debt expense was 2.8%, 4.4% and 5.4% in fiscal 2007, 2006
and 2005, respectively. The fiscal 2007 and 2006 decreases primarily resulted
from lower debt levels as we continue to execute our strategy of debt reduction
and increased financial flexibility.
Other (income) and expense, net was ($1.9) million, $5.0 million and ($5.2)
million in fiscal 2007, 2006 and 2005, respectively. Fiscal 2007 includes $6.4
million from investment and interest income and $0.5 million of gain from a
business divestiture offset by $5.2 million of redemption costs associated with
the repurchase of outstanding senior secured notes. Fiscal 2006 includes $9.2
million of redemption costs associated with the repurchase of outstanding senior
secured and senior subordinated notes against $3.1 million from investment and
interest income and $0.8 million of gains from sales of real estate. Fiscal 2005
includes $3.7 million in gains from sales of real estate and $2.1 million from
investment and interest income, offset by $0.3 million of additional losses from
2004 business divestitures.
Income taxes as a percentage of income before income taxes for fiscal 2007
was 38.1%. Income taxes as a percentage of income before income taxes were not
reflective of U.S statutory rates in fiscal 2006 or 2005. A valuation allowance
of $50.5 million existed at March 31, 2005 due to the uncertainly of whether our
U.S. federal net operating loss carryforwards ("NOLs"), deferred tax assets and
capital loss carryforwards might ultimately be realized. We utilized $14.9
million of the U.S. federal NOLs in fiscal 2006 reducing the valuation allowance
by $5.2 million. As a result of our increased operating performance over the
past several years, we reevaluated the certainty as to whether our remaining
U.S. federal NOLs and other deferred tax assets may ultimately be realized. As a
result of the determination that it is more likely than not that nearly all of
the remaining deferred tax assets will be realized, $38.6 million of the
remaining valuation allowance was reversed as of March 31, 2006. The fiscal 2005
effective tax rate varies due to the benefit received from the utilization of
the domestic net operating loss carry-forwards that had been fully reserved, and
jurisdictional mix. In that year, income tax expense primarily resulted from
non-U.S. taxable income and state taxes on U.S. taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $48,655 at March 31, 2007, an increase of
$3,057 from the March 31, 2006 balance of $45,598.
Net cash provided by operating activities was $45.5 million, $46.4 million
and $17.2 million in fiscal 2007, 2006 and 2005, respectively. The $0.9 million
decrease in fiscal 2007 relative to fiscal 2006 was primarily due to stronger
operating performance in fiscal 2007 ($16.2 million) offset by increased working
capital components ($17.1 million). Changes in net working capital include an
unfavorable change of $4.8 million on inventory (resulting from support for
upcoming new product launches, a surge in demand for larger capacity equipment,
and timing of offshore purchases) and an unfavorable change of $20.4 million in
accounts payable and accrued and non-current liabilities (resulting from timing
of disbursements, changing product liability reserves, and decreased variable
compensation accruals). These were offset by a favorable change of $7.5 million
on accounts receivables and unbilled revenues as a result of better collection
efforts. The $31.3 million increase in fiscal 2006 relative to fiscal 2005 was
primarily due to stronger operating performance in fiscal 2006 ($19.9 million)
and improved working capital components ($11.4 million). The working capital
changes come from favorable changes in inventory ($9.3 million), accounts
payable and accrued liabilities ($9.9 million), offset by unfavorable changes in
prepaids ($3.8 million) and accounts receivables ($4.1 million).
Net cash (used) provided by investing activities was ($3.4) million, ($6.4)
million and $3.1 million in fiscal 2007, 2006 and 2005, respectively. The fiscal
2007 change in cash (used) provided by investing activities is the result of
increased capital expenditures, offset by increased proceeds from the sale of
marketable securities and greater proceeds from asset sales. The fiscal 2006
change in cash (used) provided by investing activities is the result of
increased capital expenditures and lower proceeds from asset sales. The fiscal
2007, 2006 and 2005 amounts included $5.4 million, $2.1 million and $7.1
million, respectively, from business and property divestitures.
Net cash used in financing activities was $39.9 million, $4.2 million and
$21.9 million in fiscal 2007, 2006 and 2005, respectively. Fiscal 2007 includes
$2.8 million of proceeds from the exercise of employee stock options. Fiscal
2006 includes $56.6 million of proceeds from the November 2005 stock offering,
$7.1 million from the exercise of employee stock options, and $2.2 million of
tax benefit from the exercise of stock options. The fiscal 2007, 2006 and 2005
amounts included $42.9 million, $67.8 million and $22.9 million of debt
repayment, respectively. We also paid $2.8 million of financing costs in fiscal
2006 to effect the capital transaction previously described.
23
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 cash generation for debt repayment. The
business plan focuses on continued implementation of lean manufacturing,
improving working capital components, including inventory reductions, and new
market and new product development.
In March 2006, we entered into a Revolving credit facility, which provides
availability up to $75 million. 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 million if all the Senior Secured 10% Notes (10% Notes)
have been repaid in full or will be repaid in full contemporaneously with such
increase, or $25 million in the event that any 10% Notes remain outstanding,
subject to lender approval. The Revolving Credit Facility matures February 2010,
however the maturity date can be extended to February 2011 based on certain
conditions related to outstanding balances and the maturity date of the 10%
Notes.
At March 31, 2007, the Revolving Credit Facility was not drawn and the
available amount, net of outstanding letters of credit of $10.2 million, totaled
$64.8 million. 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, with which we were in compliance as of March
31, 2007.
The Senior Secured 10% Notes (10% Notes) issued on July 22, 2003 for
$115,000 amounted to $22,125 as of March 31, 2007 and are due August 1, 2010.
The reduction resulted from purchases during fiscal 2006 and 2007. Provisions of
the 10% Notes include, without limitation, restrictions on indebtedness,
restricted payments, asset and subsidiary stock sales, liens, and other
restricted transactions. The remaining 10% Notes are not entitled to redemption
at our option, prior to August 1, 2007. On and after August 1, 2007, they are
redeemable at prices declining annually from 105% to 100% on and after August 1,
2009. In the event of a Change of Control (as defined in the indenture for such
notes), each holder of the 10% Notes may require us to repurchase all or a
portion of such holder's 10% Notes at a purchase price equal to 101% of the
principal amount thereof. The 10% Notes are secured by a second-priority
interest in all domestic inventory, receivables, equipment, real property,
subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual
property. The 10% Notes are guaranteed by certain existing and future domestic
subsidiaries and are not subject to any sinking fund requirements.
The Senior Subordinated 8 7/8% Notes (8 7/8% Notes) issued on September 2,
2005 amounted to $136,000 and are due November 1, 2013. Provisions of the 8 7/8%
Notes include, without limitation, restrictions 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.
In November 2005, we registered an additional 3,350,000 shares of our
common stock which were sold at $20.00 per share. The number of shares offered
by us was 3,000,000 and 350,000 were offered by a selling shareholder. We did
not receive any proceeds from the sale of shares by the selling shareholder.
This secondary stock offering increased our weighted average common stock
outstanding by 1.8 million for the year ended March 31, 2006. A portion of the
proceeds received by us were used to redeem $47.6 million of our10% Notes. The
repurchase of the 10% Notes occurred at a premium resulting in a pre-tax loss on
early extinguishment of debt of $4.8 million. As a result of the repurchase of
the 10% Notes, $1.1 million of pre-tax deferred financing costs were
written-off. The net effect of these items, a $5.9 million pre-tax loss in
fiscal 2006, is shown as part of other (income) and expense, net. The balance of
the proceeds was subsequently used to purchase 10% Notes in open market
transactions.
Unsecured and uncommitted lines of credit are available to meet short-term
working capital needs for our subsidiaries operating outside of the U.S. 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
24
specific transaction. As of March 31, 2007, significant credit lines totaled
approximately $9,858 of which $7,894 was drawn.
In addition to the above facilities, our foreign subsidiaries have certain
fixed term bank loans. As of March 31, 2007, significant loans totaled $3,900 of
which $2,824 were secured loans.
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual obligations in
millions of dollars as of March 31, 2007, by period of estimated payments due:
FISCAL FISCAL 2009- FISCAL 2011- MORE THAN
TOTAL 2008 FISCAL 2010 FISCAL 2012 FIVE YEARS
----- ---- ----------- ----------- ----------
Long-term debt obligations (a). $ 162.5 $ 0.3 $ 0.4 $ 23.5 $ 138.3
Operating lease obligations (b) 18.6 4.8 7.8 4.0 2.0
Purchase obligations (c) ...... - - - - -
Interest obligations (d)....... 87.5 14.4 28.8 25.1 19.2
Letter of credit obligations... 10.2 10.2 - - -
Other long-term liabilities
reflected on the Company's
balance sheet under GAAP (e)... 63.4 0.0 27.5 23.5 12.4
-------- ------ ------- -------- -------
Total..................... $ 342.2 $ 29.7 $ 64.5 $ 76.1 $ 171.9
======== ====== ======= ======== =======
(a) As described in note 10 to our consolidated financial statements.
(b) As described in note 17 to our consolidated financial statements.
(c) We have no purchase obligations specifying fixed or minimum quantities
to be purchased. We estimate that, at any given point in time, our
open purchase orders to be executed in the normal course of business
approximate $40 million.
(d) Estimated for our Senior Secured Notes due 8/1/10 and Senior
Subordinated Notes due 11/1/13.
(e) As described in note 9 to our consolidated financial statements.
We have no additional off-balance sheet obligations that are not reflected
above.
CAPITAL EXPENDITURES
In addition to keeping our current equipment and plants properly
maintained, we are committed to replacing, enhancing and upgrading our property,
plant and equipment to support new product development, improve productivity and
customer responsiveness, reduce production costs, increase flexibility to
respond effectively to market fluctuations and changes, meet environmental
requirements, enhance safety and promote ergonomically correct work stations.
Our capital expenditures for fiscal 2007, 2006 and 2005 were $10.7 million, $8.4
million and $5.9 million, respectively. Higher capital expenditures in fiscal
2007 and 2006 were the result of new product development and productivity
enhancing equipment along with normal maintenance items. We expect capital
expenditure spending in fiscal 2008 to be in the range of $10-$12 million.
INFLATION AND OTHER MARKET CONDITIONS
Our costs are affected by inflation in the U.S. economy and, to a lesser
extent, in foreign economies including those of Europe, Canada, Mexico, South
America and Asia-Pacific. We do not believe that general inflation has had a
material effect on our results of operations over the periods presented
primarily due to overall low inflation levels over such periods and our ability
to generally pass on rising costs through annual price increases and surcharges.
However, employee benefits costs such as health insurance, workers compensation
insurance, pensions as well as energy and business insurance have exceeded
general inflation levels. In the future, we may be further affected by inflation
that we may not be able to pass on as price increases. With changes in worldwide
demand for steel and fluctuating scrap steel prices over the past several years,
we experienced fluctuations in our costs that we have reflected as price
increases and surcharges to our customers. We believe we have been successful in
instituting surcharges and price increases to pass on these material cost
increases. We will continue to monitor our costs and reevaluate our pricing
policies.
SEASONALITY AND QUARTERLY RESULTS
Our quarterly results may be materially affected by the timing of large
customer orders, periods of high vacation and holiday concentrations,
restructuring charges and other costs attributable to our facility
rationalization program, divestitures, acquisitions and the magnitude of
25
rationalization integration costs. Therefore, our operating results for any
particular fiscal quarter are not necessarily indicative of results for any
subsequent fiscal quarter or for the full fiscal year.
DISCONTINUED OPERATIONS
In May 2002, we completed the divestiture of substantially all of the
assets of ASI which comprised the principal business unit in our former
Solutions - Automotive segment. Proceeds from this sale included an 8%
subordinated note in the principal amount of $6.8 million payable over 10 years.
Due to the uncertainty of its collection, the note has been recorded at the
estimated net realizable value of $0. Principal payments received on the note
are recorded as income from discontinued operations at the time of receipt.
Accordingly, $0.7 million of income from discontinued operations was recorded in
fiscal 2007. All interest and principal payments required under the note have
been made to date.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial statements and
accompanying notes. We continually evaluate the estimates and their underlying
assumptions, which form the basis for making judgments about the carrying value
of our assets and liabilities. Actual results inevitably will differ from those
estimates. We have identified below the accounting policies involving estimates
that are critical to our financial statements. Other accounting policies are
more fully described in note 2 of notes to our consolidated financial
statements.
PENSION AND OTHER POSTRETIREMENT BENEFITS. The determination of the
obligations and expense for pension and postretirement benefits is dependent on
our selection of certain assumptions that are used by actuaries in calculating
such amounts. Those assumptions are disclosed in Note 11 to our fiscal 2007
consolidated financial statements and include the discount rates, expected
long-term rate of return on plan assets and rates of future increases in
compensation and healthcare costs.
The pension discount rate assumptions of 6%, 5 3/4%, and 6% as of March 31,
2007, 2006 and 2005, respectively, are based on long-term bond rates. The
increase in the discount rate for fiscal 2007 resulted in a $4.3 decrease in the
projected benefit obligation as of March 31, 2007. The decrease in discount
rates for fiscal 2006 and 2005 resulted in $3.9 million and $3.0 million
increases in the projected benefit obligations as of March 31, 2006 and 2005,
respectively. The rate of return on plan assets assumptions of 7 1/2%, 7 1/2%
and 8 1/4% for the years ended March 31, 2007, 2006 and 2005, respectively, are
based on the composition of the asset portfolios (approximately 61% equities and
39% fixed income at March 31, 2007) and their long-term historical returns. The
actual assets realized gains of $11.0 and $5.8 million in fiscal 2007 and 2006.
Our funded status as of March 31, 2007 and 2006 was negative by $28.8 million
and $33.9 million, or 20.6% and 25.3%, respectively. Our pension contributions
during fiscal 2007 and 2006 were approximately $6.0 and $7.8 million,
respectively. The negative funded status may result in future pension expense
increases. Pension expense for the March 31, 2008 fiscal year is expected to
approximate $6.1 million, which is down from the fiscal 2007 amount of $7.4
million due to an increase in the expected return on assets and lower
amortization of unrecognized losses. The factors outlined above will result in
increases in funding requirements over time, unless there is continued
significant market appreciation in the asset values. Pension funding
contributions for the March 31, 2008 fiscal year are expected to increase by
approximately $6.2 million compared to fiscal 2006 including a $5.0 million
discretionary contribution above the minimum amount required by ERISA. The
discretionary funding decision reflects an acceleration to comply with the
Pension Protection Act of 2006. The compensation increase assumption of 3% as of
March 31, 2007 and 4% as of March 31, 2006 and 2005 is based on historical
trends.
The healthcare inflation assumptions of 9%, 9 3/4% and 10 1/2% for fiscal
2007, 2006 and 2005, respectively are based on anticipated trends. Healthcare
costs in the United States have increased substantially over the last several
years. If this trend continues, the cost of postretirement healthcare will
increase in future years.
INSURANCE RESERVES. Our accrued general and product liability reserves as
described in Note 14 to our consolidated financial statements involve actuarial
techniques including the methods selected to estimate ultimate claims, and
assumptions including emergence patterns, payment patterns, initial expected
losses and increased limit factors. Other insurance reserves such as workers
compensation and group health insurance are based on actual historical and
current claim data provided by third party administrators or internally
maintained.
INVENTORY AND ACCOUNTS RECEIVABLE RESERVES. Slow-moving and obsolete
inventory reserves are judgmentally determined based on formulas applied to
historical and expected future usage within a reasonable timeframe. We reassess
trends and usage on a regular basis and if we identify changes, we revise our
estimated allowances. Allowances for doubtful accounts and credit memo reserves
are also judgmentally determined based on formulas applied to historical bad
debt write-offs and credit memos issued, assessing potentially uncollectible
customer accounts and analyzing the accounts receivable agings.
26
LONG-LIVED ASSETS. Property, plant and equipment and certain intangibles
are depreciated or amortized over their assigned lives. These assets as well as
goodwill are also periodically measured for impairment. The assigned lives and
the projected cash flows used to test impairment are subjective. If actual lives
are shorter than anticipated or if future cash flows are less than anticipated,
we could incur a future impairment charge or a loss on disposal relating to
these assets.
MARKETABLE SECURITIES. On a quarterly basis, we review our marketable
securities for declines in market value that may be considered other than
temporary. We consider market value declines to be other than temporary if they
are declines for a period longer than six months and in excess of 20% of
original cost.
DEFERRED TAX ASSET VALUATION ALLOWANCE. As of March 31, 2007, we had $48.3
million of gross deferred tax assets before valuation allowances. As described
in Note 16 to the consolidated financial statements, $13.5 million of the assets
pertain to U.S. federal net operating loss carryforwards ("NOLs") and the
remainder relate principally to liabilities including employee benefit plans,
insurance reserves, accrued vacation and incentive costs and also to asset
valuation reserves such as inventory obsolescence reserves and bad debt
reserves. The U.S. federal NOLs expire in 2023. We reduced the deferred tax
assets by $15.6 million as a result of utilizing U.S. federal NOLs in fiscal
2007. As a result of our increased operating performance in the past several
years, during fiscal 2006 we reevaluated the certainty as to whether our
remaining NOLs and other deferred tax assets may ultimately be realized. As a
result of the determination that it was more likely than not that nearly all of
the remaining deferred tax assets will be realized, a significant portion of the
remaining valuation allowance was reversed in fiscal 2006. Our ability to
realize our deferred tax assets is primarily dependent on generating sufficient
future taxable income. If we do not generate sufficient taxable income, we could
be required to record a valuation allowance.
REVENUE RECOGNITION. Sales are recorded when title passes to the customer,
which is generally at the time of shipment to the customer, except for long-term
construction-type contracts. For long-term construction-type contracts, we
recognize contract revenues under the percentage of completion method, measured
by comparing direct costs incurred to total estimated direct costs. Changes in
job performance, job conditions and estimated profitability, including those
arising from final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
In the event that a loss is anticipated on an uncompleted contract, a provision
for the estimated loss is made at the time it is determined. Billings on
contracts may precede or lag revenues earned, and such differences are reported
in the balance sheet as current liabilities (accrued liabilities) and current
assets (unbilled revenues), respectively. Customers do not routinely return
product. However, sales returns are permitted in specific situations and
typically include a restocking charge or the purchase of additional product. We
have established an allowance for returns based upon historical trends.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes".
FIN 48 is an interpretation of FASB Statement No. 109 "Accounting for Income
Taxes" and must be adopted by us no later than April 1, 2007. FIN 48 prescribes
a comprehensive model for recognizing, measuring, presenting, and disclosing in
the financial statements uncertain tax positions that the company has taken or
expects to take in our tax returns. We are required to apply the provisions of
FIN 48 to all tax positions upon initial adoption with any cumulative effect
adjustment to be recognized as an adjustment to retained earnings as of April 1,
2007. FIN 48 is effective beginning in fiscal 2008 and is not expected to have a
material impact on our consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, "Fair Value Measurements," 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 No. 157 will be effective for fiscal years beginning after
November 15, 2007. The Company is assessing the impact the adoption of SFAS No.
157 will have on our 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, requires the measurement of defined benefit postretirement plan
assets and obligations as of the end of the employer's fiscal year, and requires
recognition of the funded status of defined benefit postretirement plans in
other comprehensive income. We adopted Statement 158 in fiscal 2007 as discussed
in footnote 11 to the consolidated financial statements included elsewhere
within this Annual Report.
27
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, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. We are exposed to various market
risks, including commodity prices for raw materials, foreign currency exchange
rates and changes in interest rates. We may enter into financial instrument
transactions, which attempt to manage and reduce the impact of such changes. We
do not enter into derivatives or other financial instruments for trading or
speculative purposes.
Our primary commodity risk is related to changes in the price of steel. We
control this risk through negotiating purchase contracts on a consolidated basis
and by attempting to build changes in raw material costs into the selling prices
of our products. We also evaluate our steel cost increases and assess the need
for price increases and surcharges to our customers. We have not entered into
financial instrument transactions related to raw material costs.
In fiscal 2007, 28% of our net sales were from manufacturing plants and
sales offices in foreign jurisdictions. We manufacture our products in the
United States, Mexico, China, Denmark, the United Kingdom, France, Hungary and
Germany and sell our products and solutions in over 50 countries. Our results of
operations could be affected by factors such as changes in foreign currency
rates or weak economic conditions in foreign markets. Our operating results are
exposed to fluctuations between the U.S. dollar and the Canadian dollar,
European currencies, the Mexican peso and the Chinese yuan. For example, when
the U.S. dollar strengthens against the Canadian dollar, the value of our net
sales and net income denominated in Canadian dollars decreases when translated
into U.S. dollars for inclusion in our consolidated results. We are also exposed
to foreign currency fluctuations in relation to purchases denominated in foreign
currencies. Our foreign currency risk is mitigated since the majority of our
foreign operations' net sales and the related expense transactions are
denominated in the same currency so therefore a significant change in foreign
exchange rates would likely have a very minor impact on net income. For example,
a 10% decline in the rate of exchange between the euro and the U.S. dollar
impacts net income by approximately $0.8 million. In addition, the majority of
our export sale transactions are denominated in U.S. dollars. Accordingly, we
currently have not invested in derivative instruments, such as foreign exchange
contracts, to hedge foreign currency transactions.
We control risk related to changes in interest rates by structuring our
debt instruments with a combination of fixed and variable interest rates and by
periodically entering into financial instrument transactions as appropriate. At
March 31, 2007, we do not have any material swap agreements or similar financial
instruments in place. At March 31, 2007 and 2006, approximately 97% of our
outstanding debt had fixed interest rates. At those dates, we had approximately
$13.9 million and $6.4 million, respectively, of outstanding variable rate debt.
A 1% fluctuation in interest rates in fiscal 2007 and 2006 would have changed
interest expense on that outstanding variable rate debt by approximately $0.1
million for both years.
Like many industrial manufacturers, we are involved in asbestos-related
litigation. In continually evaluating costs relating to its estimated
asbestos-related liability, we review, among other things, the incidence of past
and recent claims, the historical case dismissal rate, the mix of the claimed
illnesses and occupations of the plaintiffs, 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, we have 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. We 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.
28
Based on actuarial information, we have estimated our asbestos-related
aggregate liability through March 31, 2025 and March 31, 2037 to range between
$5.0 million and $14.0 million using actuarial parameters of continued claims
for a period of 18 to 30 years. Our estimation of our asbestos-related aggregate
liability that is probable and estimable, in accordance with U.S. generally
accepted accounting principles approximates $8.4 million which has been
reflected as a liability in the consolidated financial statements as of March
31, 2007. The increase in the recorded liability from the amount of $6.3 million
at March 31, 2006 is due to the increase in historical data used to calculate
required asbestos liability reserve levels. The recorded liability does not
consider the impact of any potential favorable federal legislation. Of this
amount, management expects to incur asbestos liability payments of approximately
$0.3 million over the next 12 months. Because payment of the liability is likely
to extend over many years, management believes that the potential additional
costs for claims will not have a material after-tax effect on our financial
condition or our liquidity, although the net after-tax effect of any future
liabilities recorded could be material to earnings in a future period.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBUS MCKINNON CORPORATION
Audited Consolidated Financial Statements as of March 31, 2007:
Report of Independent Registered Public Accounting Firm........... F-2
Consolidated Balance Sheets....................................... F-3
Consolidated Statements of Operations............................. F-4
Consolidated Statements of Shareholders' Equity................... F-5
Consolidated Statements of Cash Flows............................. F-6
Notes to Consolidated Financial Statements
1. Description of Business.................................. F-7
2. Accounting Principles and Practices...................... F-7
3. Discontinued Operations.................................. F-11
4. Unbilled Revenues and Excess Billings.................... F-11
5. Inventories.............................................. F-12
6. Marketable Securities.................................... F-12
7. Property, Plant, and Equipment........................... F-13
8. Goodwill and Intangible Assets........................... F-13
9. Accrued Liabilities and Other Non-current Liabilities.... F-14
10. Debt..................................................... F-15
11. Pensions and Other Benefit Plans......................... F-17
12. Employee Stock Ownership Plan (ESOP)..................... F-21
13. Earnings per Share and Stock Plans....................... F-22
14. Loss Contingencies....................................... F-25
15. Restructuring Charges.................................... F-26
16. Income Taxes............................................. F-27
17. Rental Expense and Lease Commitments..................... F-29
18. Summary Financial Information............................ F-30
19. Business Segment Information............................. F-34
20. Selected Quarterly Financial Data (unaudited)............ F-36
21. Accumulated Other Comprehensive Loss..................... F-37
22. Effects of New Accounting Pronouncements................. F-38
Schedule II - Valuation and Qualifying Accounts................ F-39
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Columbus McKinnon Corporation
We have audited the accompanying consolidated balance sheets of Columbus
McKinnon Corporation as of March 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 2007. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Columbus McKinnon
Corporation at March 31, 2007 and 2006 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on April 1,
2006 the Company changed its method of accounting for stock-based compensation.
As discussed in Note 11 to the consolidated financial statements, on March 31,
2007 the Company changed its method of accounting for employee retirement plans
and other postretirement benefits.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Columbus
McKinnon Corporation's internal control over financial reporting as of March 31,
2007, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated May 25, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
May 25, 2007
F-2
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------------------------
MARCH 31,
----------------------------------
2007 2006
----- -----
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 48,655 $ 45,598
Trade accounts receivable, less allowance for doubtful accounts
($3,628 and $3,417, respectively).......................................... 97,269 95,726
Unbilled revenues.............................................................. 15,050 12,061
Inventories.................................................................... 77,179 74,845
Prepaid expenses................................................................. 18,029 15,676
----------------------------------
Total current assets.................................................................. 256,182 243,906
Net property, plant, and equipment.................................................... 55,231 55,132
Goodwill, net......................................................................... 185,634 184,917
Other intangibles, net................................................................ 269 2,410
Marketable securities................................................................. 28,920 27,596
Deferred taxes on income.............................................................. 34,460 46,065
Other assets.......................................................................... 4,942 6,018
----------------------------------
Total assets.......................................................................... $ 565,638 $ 566,044
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks........................................................... $ 9,598 $ 5,798
Trade accounts payable........................................................... 35,896 39,311
Accrued liabilities.............................................................. 52,344 61,264
Restructuring reserve............................................................ 599 793
Current portion of long-term debt................................................ 297 127
----------------------------------
Total current liabilities............................................................. 98,734 107,293
Senior debt, less current portion..................................................... 26,168 67,841
Subordinated debt..................................................................... 136,000 136,000
Other non-current liabilities......................................................... 63,411 50,489
----------------------------------
Total liabilities..................................................................... 324,313 361,623
Shareholders' equity:
Voting common stock; 50,000,000 shares authorized;
18,825,312 and 18,575,454 shares issued................................... 188 185
Additional paid-in capital....................................................... 174,654 170,081
Retained earnings................................................................ 85,237 51,152
ESOP debt guarantee; 213,667 and 249,821 shares.................................. (3,417) (3,996)
Unearned restricted stock; 0 and 2,000 shares.................................... - (22)
Accumulated other comprehensive loss............................................. (15,337) (12,979)
----------------------------------
Total shareholders' equity............................................................ 241,325 204,421
----------------------------------
Total liabilities and shareholders' equity............................................ $ 565,638 $ 566,044
==================================
See accompanying notes.
F-3
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2007 2006 2005
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 589,848 $ 556,007 $ 514,752
Cost of products sold.............................................. 425,248 408,385 388,844
-----------------------------------------------------------
Gross profit....................................................... 164,600 147,622 125,908
Selling expenses................................................... 61,731 54,255 52,291
General and administrative expenses................................ 34,097 33,640 31,730
Restructuring charges.............................................. 133 1,609 910
Amortization of intangibles........................................ 183 249 312
-----------------------------------------------------------
Income from operations............................................. 68,456 57,869 40,665
Interest and debt expense.......................................... 16,430 24,667 27,620
Cost of bond redemptions........................................... 5,188 9,201 191
Investment income.................................................. (5,257) (2,017) (1,232)
Other (income) and expense, net.................................... (1,825) (2,136) (4,177)
-----------------------------------------------------------
Income from continuing operations before income tax
expense (benefit)............................................. 53,920 28,154 18,263
Income tax expense (benefit)....................................... 20,539 (30,946) 2,196
-----------------------------------------------------------
Income from continuing operations.................................. 33,381 59,100 16,067
Income from discontinued operations (net of tax)................... 704 696 643
-----------------------------------------------------------
Net income......................................................... $ 34,085 $ 59,796 $ 16,710
===========================================================
Average basic shares outstanding................................... 18,517 16,052 14,594
Average diluted shares outstanding................................. 18,951 16,628 14,803
Basic income per share:
Income from continuing operations............................. $ 1.80 $ 3.69 $ 1.10
Income from discontinued operations........................... 0.04 0.04 0.04
-----------------------------------------------------------
Basic income per share........................................ $ 1.84 $ 3.73 $ 1.14
===========================================================
Diluted income per share:
Income from continuing operations............................. $ 1.76 $ 3.56 $ 1.09
Income from discontinued operations........................... 0.04 0.04 0.04
-----------------------------------------------------------
Diluted income per share...................................... $ 1.80 $ 3.60 $ 1.13
===========================================================
See accompanying notes.
F-4
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMMON ADDI- RETAINED ACCUMULATED
STOCK TIONAL EARNINGS ESOP UNEARNED OTHER TOTAL
($.01 PAID-IN (ACCUMULATED DEBT RESTRICTED COMPREHENSIVE SHAREHOLDERS'
PAR VALUE) CAPITAL DEFICIT) GUARANTEE STOCK LOSS EQUITY
---------------------------------------------------------------------------------------
Balance at March 31, 2004.......... $ 149 $103,914 $ (25,354) $ (5,116) $ (39) $ (10,576) $ 62,978
Comprehensive income:
Net income 2005.................... - - 16,710 - - - 16,710
Change in foreign currency
translation adjustment........... - - - - - 2,830 2,830
Change in net unrealized loss on
investments, net of tax benefit
of $70........................... - - - - - (131) (131)
Change in minimum pension
liability adjustment, net of
tax benefit of $27............... - - - - - (1,379) (1,379)
----------
Total comprehensive income......... 18,030
Earned 35,108 ESOP shares.......... - (266) - 562 - - 296
Stock options exercised, 52,000
shares........................... - 428 - - - - 428
Earned portion of restricted shares - 2 - - 33 - 35
---------------------------------------------------------------------------------------
Balance at March 31, 2005.......... $ 149 $104,078 $ (8,644) $ (4,554) $ (6) $ (9,256) $ 81,767
Comprehensive income:
Net income 2006.................... - - 59,796 - - - 59,796
Change in foreign currency
translation adjustment........... - - - - - (1,846) (1,846)
Change in net unrealized gain on
investments, net of tax of $354.. - - - - - 658 658
Change in minimum pension
liability adjustment, net of
tax benefit of $1,681............ - - - - - (2,535) (2,535)
----------
Total comprehensive income......... 56,073
Common stock issued, 3,000,000
shares........................... 30 56,589 - - - - 56,619
Stock options exercised, 626,282
shares........................... 6 7,143 - - - - 7,149
Tax benefit from exercise of
stock options................... - 2,154 - - - - 2,154
Earned 34,874 ESOP shares.......... - 95 - 558 - - 653
Restricted common stock
granted, 1,000 shares............ - 22 - - (22) - -
Earned portion of restricted shares - - - - 6 - 6
---------------------------------------------------------------------------------------
Balance at March 31, 2006.......... $ 185 $170,081 $ 51,152 $ (3,996) $ (22) $ (12,979) $ 204,421
Comprehensive income:
Net income 2007.................... - - 34,085 - - - 34,085
Change in foreign currency
translation adjustment........... - - - - - 4,093 4,093
Change in net unrealized gain on
investments, net of tax benefit
of $1,006........................ - - - - - (1,869) (1,869)
Change in pension liability, prior
to adoption of SFAS 158, net of
tax of $3,830.................... - - - - - 5,758 5,758
---------
Total comprehensive income........ 42,067
Adjustment to initially apply
SFAS 158, net of tax benefit
of $6,906........................ - - - - - (10,340) (10,340)
Stock compensation - directors..... - 180 - - - - 180
Stock options exercised, 240,468
shares........................... 3 2,598 - - - - 2,601
Stock compensation expense......... - 1,255 - - 22 - 1,277
Tax benefit from exercise of
stock options................... - 311 - - - - 311
Earned 36,154 ESOP shares.......... - 229 - 579 - - 808
---------------------------------------------------------------------------------------
Balance at March 31, 2007.......... $ 188 $174,654 $ 85,237 $ (3,417) $ - $ (15,337) $ 241,325
=======================================================================================
See accompanying notes.
F-5
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------
2007 2006 2005
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations....................................... $ 33,381 $ 59,100 $ 16,067
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization...................................... 8,289 8,824 9,171
Deferred income taxes.............................................. 12,438 (36,968) (971)
(Gain) loss on divestitures........................................ (504) 87 330
Gain on sale of real estate/investments............................ (5,373) (2,100) (4,632)
Loss on early retirement of bonds.................................. 4,263 7,083 40
Amortization/write-off of deferred financing costs................. 1,603 3,297 1,575
Stock-based compensation........................................... 1,457 - -
Changes in operating assets and liabilities
net of effects of business divestitures:
Trade accounts receivable and unbilled revenues.............. (3,521) (11,025) (6,896)
Inventories................................................... (2,260) 2,518 (6,834)
Prepaid expenses.............................................. (2,132) (2,026) 1,796
Other assets.................................................. 921 207 10
Trade accounts payable........................................ (3,849) 6,099 3,192
Accrued and non-current liabilities........................... 782 11,267 4,313
------------------------------------------------
Net cash provided by operating activities............................... 45,495 46,363 17,161
------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities............................. 36,853 15,913 19,342
Purchases of marketable securities...................................... (35,686) (16,801) (18,028)
Capital expenditures.................................................... (10,653) (8,430) (5,925)
Proceeds from sale of facilities and surplus real estate................ 2,813 2,091 6,742
Proceeds from sale of businesses........................................ 2,574 - -
Proceeds from net assets held for sale.................................. - - 375
Proceeds from discontinued operations note receivable................... 704 857 643
------------------------------------------------
Net cash (used) provided by investing activities........................ (3,395) (6,370) 3,149
------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................................. - 56,619 -
Proceeds from exercise of stock options................................. 2,601 7,149 428
Payments under revolving line-of-credit agreements...................... (62,930) (47,669) (345,664)
Borrowings under revolving line-of-credit agreements.................... 65,975 49,030 344,541
Repayment of debt....................................................... (45,964) (205,167) (21,745)
Proceeds from issuance of long-term debt................................ - 136,000 -
Payment of deferred financing costs..................................... (449) (2,877) (24)
Tax benefit from exercise of stock options.............................. 311 2,154 -
Change in ESOP debt guarantee........................................... 579 558 562
------------------------------------------------
Net cash used by financing activities................................... (39,877) (4,203) (21,902)
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. 834 329 (30)
------------------------------------------------
Net change in cash and cash equivalents................................. 3,057 36,119 (1,622)
Cash and cash equivalents at beginning of year.......................... 45,598 9,479 11,101
------------------------------------------------
Cash and cash equivalents at end of year................................ $ 48,655 $ 45,598 $ 9,479
================================================
Supplementary cash flows data:
Interest paid...................................................... $ 17,221 $ 26,565 $ 28,133
Income taxes paid, net............................................. $ 5,712 $ 5,035 $ 2,029
See accompanying notes.
F-6
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS
Columbus McKinnon Corporation (the Company) is a leading U.S. designer and
manufacturer of material handling products, systems and services which
efficiently and ergonomically move, lift, position and secure material. Key
products include hoists, cranes, chain and forged attachments. The Company's
material handling products are sold, domestically and internationally,
principally to third party distributors through diverse distribution channels,
and to a lesser extent directly to end-users. The Company's integrated material
handling solutions businesses deal primarily with end users and sales are
concentrated, domestically and internationally (primarily Europe), in the
consumer products, manufacturing, warehousing and, to a lesser extent, the
steel, construction, automotive and other industrial markets. During fiscal
2007, approximately 66% of sales were to customers in the United States.
2. ACCOUNTING PRINCIPLES AND PRACTICES
ADVERTISING
Costs associated with advertising are expensed in the year incurred and are
included in selling expense in the statement of operations. Advertising expenses
were $3,779,000, $3,343,000, and $2,521,000 in fiscal 2007, 2006, and 2005,
respectively.
CASH AND CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
CONCENTRATIONS OF LABOR
Approximately 24% of the Company's employees are represented by seven
separate domestic and Canadian collective bargaining agreements which terminate
at various times between July 2007 and August 2010. Approximately 2% of the
labor force is covered by collective bargaining agreements that will expire
within one year.
CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries; all significant intercompany accounts
and transactions have been eliminated.
DERIVATIVES AND FINANCIAL INSTRUMENTS
Derivative instruments held by the Company that have high correlation with
the underlying exposure and are highly effective in offsetting underlying price
movements are designated as hedges. Accordingly, gains and losses from changes
in derivatives fair values are deferred until the underlying transaction occurs
at which point they are then recognized in the statement of operations. When
derivatives are not designated as hedges, the gains and losses from changes in
fair value are recorded currently in the statement of operations. All
derivatives are carried at fair value in the balance sheet. The fair values of
derivatives are determined by reference to quoted market prices. The Company's
use of derivative instruments has historically been limited to cash flow hedges
of certain interest rate risks.
The carrying value of the Company's current assets and current liabilities
approximate their fair values based upon the relatively short maturity of those
instruments. For the fair value of the Company's marketable securities and debt
instruments, see Notes 6 and 10, respectively.
F-7
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATIONS
The Company translates foreign currency financial statements as described
in Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation." Under this method, all
items of income and expense are translated to U.S. dollars at average exchange
rates for the year. All assets and liabilities are translated to U.S. dollars at
the year-end exchange rate. Gains or losses on translations are recorded in
accumulated other comprehensive loss in the shareholders' equity section of the
balance sheet. The functional currency is the foreign currency in which the
foreign subsidiaries conduct their business. Gains and losses from foreign
currency transactions are reported in other income and expense, net. There was
approximately a $225,000 loss, a $100,000 loss and a $200,000 gain on foreign
currency transactions in fiscal 2007, 2006 and 2005, respectively.
GOODWILL
Goodwill is not amortized but is periodically tested for impairment, in
accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets." Goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value. The fair value of a reporting
unit is determined using a discounted cash flow methodology. The Company's
reporting units are determined based upon whether discrete financial information
is available and regularly reviewed, whether those units constitute a business,
and the extent of economic similarities between those reporting units for
purposes of aggregation. As a result of this analysis, the reporting units
identified under SFAS No. 142 were at the component level, or one level below
the reporting segment level as defined under SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Products segment was
subdivided into three reporting units and the Solutions segment was subdivided
into two reporting units. Identifiable intangible assets acquired in a business
combination are amortized over their useful lives unless their useful lives are
indefinite, in which case those intangible assets are tested for impairment
annually and not amortized until their lives are determined to be finite. See
Note 8 for further discussion of goodwill and intangible assets.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost of
approximately 60% of inventories at March 31, 2007 (58% in 2006) has been
determined using the LIFO (last-in, first-out) method. Costs of other
inventories have been determined using the FIFO (first-in, first-out) or average
cost method. FIFO cost approximates replacement cost.
MARKETABLE SECURITIES
All of the Company's marketable securities, which consist of equity
securities and corporate and governmental obligations, have been classified as
available-for-sale securities and are therefore recorded at their fair values
with the unrealized gains and losses, net of tax, reported in accumulated other
comprehensive loss within shareholders' equity unless unrealized losses are
deemed to be other than temporary. In such instance, the unrealized losses are
reported in the statement of operations within investment income. Estimated fair
value is based on published trading values at the balance sheet dates. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. The cost of securities sold is based on the
specific identification method. Interest and dividend income are included in
investment income in the consolidated statements of operations.
The marketable securities are carried as long-term assets since they are
held for the settlement of the Company's general and products liability
insurance claims filed through CM Insurance Company, Inc., a wholly owned
captive insurance subsidiary.
F-8
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and depreciated
principally using the straight-line method over their respective estimated
useful lives (buildings and building equipment--15 to 40 years; machinery and
equipment--3 to 18 years). When depreciable assets are retired, or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in operating results.
RECLASSIFICATION/REVISIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
RESEARCH AND DEVELOPMENT
Research and development costs as defined in SFAS No. 2, "Accounting for
Research and Development Costs" for the years ended March 31, 2007, 2006 and
2005 were $2,887,000, $1,614,000 and $1,289,000, respectively and are classified
as general and administrative expense in the consolidated statements of
operations.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Sales are recorded when title passes to the customer which is generally at
time of shipment to the customer, except for long-term construction contracts as
described below. The Company performs ongoing credit evaluations of its
customers' financial condition, but generally does not require collateral to
support customer receivables. The credit risk is controlled through credit
approvals, limits and monitoring procedures. Accounts receivable are reported at
net realizable value and do not accrue interest. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other factors. Accounts receivable
are charged against the allowance for doubtful accounts once all collection
efforts have been exhausted. The Company does not routinely permit customers to
return product. However, sales returns are permitted in specific situations and
typically include a restocking charge or the purchase of additional product. The
Company has established an allowance for returns based upon historical trends.
The Company recognizes contract revenues under the percentage of completion
method, measured by comparing direct costs incurred to total estimated direct
costs. Changes in job performance, job conditions and estimated profitability,
including those arising from final contract settlements, may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined. In the event that a loss is anticipated on an uncompleted contract,
a provision for the estimated loss is made at the time it is determined.
Billings on contracts may precede or lag revenues earned, and such differences
are reported in the balance sheet as current liabilities (accrued liabilities)
and current assets (unbilled revenues), respectively.
SALE-LEASEBACK TRANSACTIONS
On January 28, 2005, the Company sold its corporate headquarters property
and entered into a leaseback for a portion of the facility under a 10-year lease
agreement. Net proceeds to the Company for the sale of the property were
approximately $2.7 million and the gain on the transaction was $2.2 million. Of
the total gain, $1.0 million was recognized in 2005 under the caption other
income, and $1.2 million was deferred and will be recognized as income over the
10-year leaseback period. Additionally, $0.5 million of non-cash value (rent
abatement) will be recognized on a straight-line basis as lower operating
expenses over the 10-year leaseback period.
F-9
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SHIPPING AND HANDLING COSTS
Shipping and handling costs are a component of cost of products sold.
STOCK-BASED COMPENSATION
Effective April 1, 2006, the Company adopted SFAS 123(R), "Share-Based
Payment," applying the modified prospective method. This Statement requires all
equity-based payments to employees, including grants of employee stock options,
to be recognized in the statement of earnings based on the grant date fair value
of the award. Under the modified prospective method, the Company is required to
record equity-based compensation expense for all awards granted after the date
of adoption and for the unvested portion of previously granted awards
outstanding as of the date of adoption. The adoption of SFAS 123(R) resulted in
$1,230 of non-deductible incentive stock option expense in the year ended March
31, 2007. Stock compensation expense is included in cost of goods sold, selling,
and general and administrative expense. The Company uses a straight-line method
of attributing the value of stock-based compensation expense, subject to minimum
levels of expense, based on vesting.
Prior to April 1, 2006, the Company accounted for the stock option plans
under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations. No stock-based employee compensation cost was reflected in net
income, as all options granted under these plans had an exercise price equal to
the market value of the underlying common stock on the date of grant and the
number of options granted was fixed.
The Company's net income and earnings per share as if the fair value based
method had been applied to all outstanding and unvested awards for the
comparable prior years is as follows:
YEAR ENDED MARCH 31,
2006 2005
--------------------- -------------------
Net income, as reported................................ $ 59,796 $ 16,710
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects........................... (577) (1,135)
--------------------- -------------------
Net income, pro forma.................................. $ 59,219 $ 15,575
===================== ===================
Basic income per share:
As reported............................................ $ 3.73 $ 1.14
===================== ===================
Pro forma.............................................. $ 3.69 $ 1.07
===================== ===================
Diluted income per share:
As reported............................................ $ 3.60 $ 1.13
===================== ===================
Pro forma.............................................. $ 3.56 $ 1.05
===================== ===================
In November 2005, the Financial Accounting Standards Board (FASB) issued
Staff Position ("FSP") FAS 123(R)-3, "Transition Election Related to Accounting
for the Tax Effects of Share-Based Payment Awards." FSP FAS 123(R)-3 provides an
alternative transition method for establishing the beginning balance of the pool
of excess tax benefits available to absorb tax deficiencies recognized
subsequent to the adoption of SFAS No. 123(R) (the "APIC Pool"). Effective in
the fourth quarter of fiscal 2007, the Company elected to adopt the alternative
transition method provided in FSP FAS 123(R)-3 for establishing the beginning
balance of the APIC Pool. This method consists of a computational component that
establishes a beginning balance of the APIC Pool related to employee
compensation and a simplified method ("short-cut method") to determine the
subsequent impact on the APIC Pool of employee awards that are fully vested and
outstanding upon the adoption of SFAS No. 123(R).
See Note 13 for further discussion of stock-based compensation.
F-10
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
WARRANTIES
The Company offers warranties for certain of the products it sells. The
specific terms and conditions of those warranties vary depending upon the
product sold and the country in which the Company sold the product. The Company
generally provides a basic limited warranty, including parts and labor for any
product deemed to be defective for a period of one year. The Company estimates
the costs that may be incurred under its basic limited warranty, based largely
upon actual warranty repair costs history, and records a liability in the amount
of such costs in the month that the product revenue is recognized. The resulting
accrual balance is reviewed during the year. Factors that affect the Company's
warranty liability include the number of units sold, historical and anticipated
rate of warranty claims, and cost per claim.
Changes in the Company's product warranty accrual are as follows:
------------------------------
MARCH 31,
------------------------------
2007 2006
---- ----
Balance at beginning of year............. $ 2,132 $ 832
Accrual for warranties issued............ 3,770 4,658
Warranties settled....................... (4,639) (3,358)
------------------------------
Balance at end of year................... $ 1,263 $ 2,132
==============================
3. DISCONTINUED OPERATIONS
In May 2002, the Company sold substantially all of the assets of Automatic
Systems, Inc. (ASI). The ASI business was the principal business unit in the
Company's former Solutions - Automotive segment. The Company received
$20,600,000 in cash and an 8% subordinated note in the principal amount of
$6,800,000 which is payable at a rate of $214,000 per quarter over eight years
beginning August 2004. Due to the uncertainty surrounding the financial
viability of the debtor, the note has been recorded at the estimated net
realizable value of $0. Principal payments received on the note are recorded as
income from discontinued operations at the time of receipt. All interest and
principal payments required under the note have been made to date. The gross
value of the note as of March 31, 2007 is approximately $4,300,000.
4. UNBILLED REVENUES AND EXCESS BILLINGS
----------------------------
MARCH 31,
----------------------------
2007 2006
---- ----
Costs incurred on uncompleted contracts..... $ 50,014 $ 52,615
Estimated earnings.......................... 12,119 15,361
----------------------------
Revenues earned to date..................... 62,133 67,976
Less billings to date....................... 48,042 56,331
----------------------------
$ 14,091 $ 11,645
============================
The net amounts above are included in the consolidated balance sheets under
the following captions:
----------------------------
MARCH 31,
----------------------------
2007 2006
---- ----
Unbilled revenues........................... $ 15,050 $ 12,061
Accrued liabilities......................... (959) (416)
----------------------------
$ 14,091 $ 11,645
============================
F-11
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVENTORIES
Inventories consisted of the following:
------------------------------
MARCH 31,
------------------------------
2007 2006
---- ----
At cost--FIFO basis:
Raw materials......................... $ 45,006 $ 41,134
Work-in-process....................... 9,050 12,199
Finished goods........................ 36,606 33,424
------------------------------
90,662 86,757
LIFO cost less than FIFO cost.............. (13,483) (11,912)
------------------------------
Net inventories............................ $ 77,179 $ 74,845
==============================
6. MARKETABLE SECURITIES
Marketable securities are held for the settlement of the Company's general
and products liability insurance claims filed through the Company's subsidiary,
CM Insurance Company, Inc. (see Notes 2 and 14). In accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company reviews its marketable securities for declines in market value that may
be considered other than temporary. The Company considers market value declines
to be other than temporary if they are declines for a period longer than six
months and in excess of 20% of original cost. Based on our review as of March
31, 2007, no unrealized losses represent an other than temporary impairment.
The following is a summary of available-for-sale securities at March 31,
2007:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
Government securities.......... $ 24,926 $ 37 $ 22 $ 24,941
Equity securities.............. 3,960 31 12 3,979
--------------------------------------------------------
$ 28,886 $ 68 $ 34 $ 28,920
========================================================
The net gain related to sales of marketable securities totaled $4,360,000,
$1,436,000 and $706,000 in fiscal 2007, 2006 and 2005, respectively.
The following is a summary of available-for-sale securities at March 31,
2006:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
Government securities.......... $ 10,859 $ 150 $ 25 $ 10,984
Equity securities.............. 13,828 3,013 229 16,612
--------------------------------------------------------
$ 24,687 $ 3,163 $ 254 $ 27,596
========================================================
As of March 31, 2006, in accordance with SFAS No. 115, the Company reduced
the cost bases of certain equity securities since it was determined that the
unrealized losses on those securities were other than temporary in nature. This
determination resulted in the recognition of a pre-tax charge to earnings of
$78,000 and $280,000 for the years ended March 31, 2006 and 2005, respectively,
classified within other (income) and expense, net. The above schedule reflects
the reduced cost bases.
F-12
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net unrealized gain included in the balance sheet amounted to $34,000 at
March 31, 2007 and $2,909,000 at March 31, 2006. The amounts, net of related
income taxes of $12,000 and $1,018,000 at March 31, 2007 and 2006, respectively,
are reflected as a component of accumulated other comprehensive loss within
shareholders' equity.
7. PROPERTY, PLANT, AND EQUIPMENT
Consolidated property, plant, and equipment of the Company consisted of the
following:
---------------------------
MARCH 31,
---------------------------
2007 2006
---- ----
Land and land improvements.............................. $ 5,036 $ 4,564
Buildings............................................... 29,657 33,755
Machinery, equipment, and leasehold improvements........ 104,479 102,485
Construction in progress................................ 2,277 1,736
---------------------------
141,449 142,540
Less accumulated depreciation........................... 86,218 87,408
---------------------------
Net property, plant, and equipment...................... $ 55,231 $ 55,132
===========================
Depreciation expense was $8,106,000, $8,575,000, and $8,859,000 for the
years ended March 31, 2007, 2006 and 2005, respectively.
8. GOODWILL AND INTANGIBLE ASSETS
As discussed in Note 2, goodwill is not amortized but is periodically
tested for impairment, in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." Goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value. The fair value of a reporting
unit is determined using a discounted cash flow methodology. The Company's
reporting units are determined based upon whether discrete financial information
is available and regularly reviewed, whether those units constitute a business,
and the extent of economic similarities between those reporting units for
purposes of aggregation. As a result of this analysis, the reporting units
identified under SFAS No. 142 were at the component level, or one level below
the reporting segment level as defined under SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Products segment was
subdivided into three reporting units and the Solutions segment was subdivided
into two reporting units.
Identifiable intangible assets acquired in a business combination are
amortized over their useful lives unless their useful lives are indefinite, in
which case those intangible assets are tested for impairment annually and not
amortized until their lives are determined to be finite.
No impairment charges were recorded during fiscal 2007, 2006 or 2005.
All goodwill reported in fiscal 2007 and 2006 was related to the products
segment. A summary of changes in goodwill during the years ended March 31, 2007
and 2006 is as follows:
Balance at March 31, 2005......................... $ 185,443
Currency translation.............................. (526)
----------------
Balance at March 31, 2006......................... $ 184,917
Currency translation.............................. 717
----------------
Balance at March 31, 2007......................... $ 185,634
================
F-13
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other intangibles, net consists of the following:
---------------------------
MARCH 31,
---------------------------
2007 2006
---- ----
Intangible pension assets................ $ - $ 2,148
Patents and other, net................... 269 262
---------------------------
Other intangibles, net................... $ 269 $ 2,410
===========================
Based on the current amount of patents and other, net, the estimated
amortization expense for each of the succeeding five years is expected to be
$98,000, $74,000, $52,000, $33,000, and 12,000, respectively.
9. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
Consolidated accrued liabilities of the Company consisted of the following:
--------------------------
MARCH 31,
--------------------------
2007 2006
---- ----
Accrued payroll................................ $ 17,302 $ 18,736
Accrued pension cost........................... 245 5,987
Interest payable............................... 5,408 6,199
Accrued workers compensation................... 3,000 2,959
Accrued income taxes payable................... 7,723 6,493
Accrued postretirement benefit obligation...... 1,456 1,620
Accrued health insurance....................... 3,466 2,891
Accrued general and product liability costs.... 4,000 4,000
Other accrued liabilities...................... 9,744 12,379
--------------------------
$ 52,344 $ 61,264
==========================
Consolidated other non-current liabilities of the Company consisted of the
following:
--------------------------
MARCH 31,
--------------------------
2007 2006
---- ----
Accumulated postretirement benefit obligation.. $ 9,015 $ 4,856
Accrued general and product liability costs.... 17,078 16,969
Accrued pension cost........................... 28,531 20,284
Accrued workers compensation................... 6,104 5,383
Other non-current liabilities.................. 2,683 2,997
--------------------------
$ 63,411 $ 50,489
==========================
F-14
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DEBT
Consolidated long-term debt of the Company consisted of the following:
----------------------------
MARCH 31,
----------------------------
2007 2006
---- ----
Revolving Credit Facility due February 22, 2010........................... $ - $ -
10% Senior Secured Notes due August 1, 2010 with interest
payable in semi-annual installments ................................... 22,125 67,384
Other senior debt......................................................... 4,340 584
----------------------------
Total senior debt......................................................... 26,465 67,968
8 7/8% Senior Subordinated Notes due November 1, 2013 with interest
payable in semi-annual installments.................................... 136,000 136,000
----------------------------
Total..................................................................... 162,465 203,968
Less current portion...................................................... 297 127
----------------------------
$ 162,168 $ 203,841
============================
In March, 2006, the Company amended and expanded its revolving credit
facility. The Revolving Credit Facility provides availability up to a maximum of
$75,000,000. Provided there is no default, the Company may on a one-time basis,
request an increase in the availability of the Revolving Credit Facility by an
amount not exceeding $50,000,000 if all Senior Secured Notes have been repaid in
full or will be repaid in full contemporaneously with such increase, or
$25,000,000 in the event that any Senior Secured Notes remain outstanding,
subject to lender approval. The unused Revolving Credit Facility totaled
$64,800,000, net of outstanding borrowings of $0 and outstanding letters of
credit of $10,200,000. Interest on the revolver is payable at varying Eurodollar
rates based on LIBOR or prime plus a spread determined by our leverage ratio
amounting to 87.5 or 0 basis points, respectively, at March 31, 2007. 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.
On September 2, 2005, the Company issued $136,000,000 of 8 7/8% Senior
Subordinated Notes (8 7/8% Notes) due November 1, 2013. Proceeds from the 8 7/8%
Notes and cash on hand were used for the repayment of previously existing debt
instruments resulting in a $3,330,000 pre-tax loss on early extinguishment of
debt in fiscal 2006.
On July 22, 2003, the Company issued $115,000,000 of 10% Senior Secured
Notes (10% Notes) due August 1, 2010. Proceeds from this offering were used for
the repayment of previously existing debt instruments.
During fiscal 2006, the Company used a portion of the proceeds from its
stock offering (see Note 13) to repurchase $47,616,000 of the outstanding 10%
Notes. The repurchase of the 10% Notes occurred at a premium resulting in a
pre-tax loss on early extinguishment of debt of $4,786,000. As a result of the
repurchase of the 10% Notes, $1,085,000 of pre-tax deferred financing costs was
written-off. The net effect of these items was a $5,871,000 pre-tax loss in
fiscal 2006.
During fiscal 2007, the Company used cash on hand to repurchase $45,259,000
of the outstanding 10% Notes. The repurchase of the 10% Notes occurred at a
premium resulting in a pre-tax loss on early extinguishment of debt of
$4,263,000. As a result of the repurchase of the 10% Notes, $925,000 of pre-tax
deferred financing costs was written-off. The net effect of these items was a
$5,188,000 pre-tax loss in fiscal 2007.
The corresponding credit agreement associated with the Revolving Credit
Facility places certain debt covenant restrictions on the Company, including
certain financial requirements and a restriction on dividend payments, with
which the Company was in compliance as of March 31, 2007.
F-15
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Provisions of the 8 7/8% Notes include, without limitation, restrictions on
indebtedness, asset sales, and dividends and other restricted payments. Until
November 1, 2008, the Company 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. The 8 7/8% Notes are redeemable at the option of the
Company, in whole or in part, at prices declining annually from the Make-Whole
Price (as defined in the 8 7/8% Notes agreement) 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.
Provisions of the 10% Notes include, without limitation, restrictions on
liens, indebtedness, asset sales, and dividends and other restricted payments.
The remaining 10% Notes are not entitled to redemption at our option, prior to
August 1, 2007. On and after August 1, 2007, they are redeemable at a prices
declining annually from 105% to 100% on and after August 1, 2009. In the event
of a Change of Control (as defined in the indenture for such notes), each holder
of the 10% Notes may require the Company to repurchase all or a portion of such
holder's 10% Notes at a purchase price equal to 101% of the principal amount
thereof. The 10% Notes are guaranteed by certain existing and future domestic
subsidiaries and are not subject to any sinking fund requirements. The 10% Notes
are also secured, in a second lien position, by all domestic inventory,
receivables, equipment, real property, subsidiary stock (limited to 65% for
foreign subsidiaries) and intellectual property.
The carrying amount of the Company's revolving credit facility approximates
the fair value based on current market rates. The Company's Senior Secured Notes
and Senior Subordinated Notes have an approximate fair market value of
$23,563,000 and $144,160,000, respectively, based on quoted market prices, the
total of which is more than their aggregate carrying amount of $158,125,000.
The principal payments scheduled to be made as of March 31, 2007 on the
above debt, for the next five annual periods subsequent thereto, are as follows
(in thousands):
2008 $ 297
2009 194
2010 168
2011 23,342
2012 134
Thereafter 138,330
INTERNATIONAL LINES OF CREDIT AND LOANS
Unsecured and uncommitted 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 March 31, 2007, significant credit
lines totaled approximately $9,858 of which $7,894 was drawn.
In addition to the above facilities, our foreign subsidiaries have certain
fixed term bank loans. As of March 31, 2007, significant loans totaled $3,900 of
which $2,824 were secured loans.
F-16
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. PENSIONS AND OTHER BENEFIT PLANS
The Company provides retirement and pension plans, including defined
benefit and defined contribution plans, and postretirement benefit plans to
certain employees. Effective March 31, 2007, the Company adopted 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)," which
required the recognition in pension and other postretirement benefits
obligations and accumulated other comprehensive income of actuarial gains or
losses, prior service costs or credits and transition assets or obligations that
had previously been deferred under the reporting requirements of SFAS No. 87,
SFAS No. 106 and SFAS No. 132(R). 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.
PENSION PLANS
The Company provides defined benefit pension plans to certain employees.
The Company uses December 31 as the measurement date for all of its pension
plans. The following provides a reconciliation of benefit obligation, plan
assets, and funded status of the plans:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year..................................... $ 134,148 $ 120,634
Service cost................................................................ 4,147 4,004
Interest cost............................................................... 7,608 7,213
Actuarial loss............................................................ 22 7,003
Benefits paid............................................................... (6,346) (4,860)
Foreign exchange rate changes............................................... 42 154
----------------------------------
Benefit obligation at end of year........................................... $ 139,621 $ 134,148
==================================
Change in plan assets:
Fair value of plan assets at beginning of year.............................. $ 100,206 $ 91,323
Actual gain on plan assets.................................................. 10,989 5,795
Employer contribution....................................................... 5,960 7,816
Benefits paid............................................................... (6,346) (4,860)
Foreign exchange rate changes............................................... 36 132
----------------------------------
Fair value of plan assets at end of year.................................... $ 110,845 $ 100,206
==================================
Funded status .............................................................. $ (28,776) $ (33,942)
Unrecognized actuarial loss................................................. 27,918 35,282
Unrecognized prior service cost............................................. 2,213 2,148
----------------------------------
Net amount recognized....................................................... $ 1,355 $ 3,488
==================================
Amounts recognized in the consolidated balance sheets are as follows:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Intangible asset............................................................ $ - $ 2,148
Accrued liabilities......................................................... (245) (5,987)
Other non-current liabilities............................................... (28,531) (20,284)
Deferred tax effect of accumulated other comprehensive loss................. 12,059 11,038
Accumulated other comprehensive loss........................................ 18,072 16,573
----------------------------------
Net amount recognized....................................................... $ 1,355 $ 3,488
==================================
In fiscal 2008, an estimated net loss of $1,485,000 and prior service cost
of $330,000 for the defined benefit pension plans will be amortized from
accumulated other comprehensive income to net periodic benefit cost.
F-17
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension cost included the following components:
---------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
Service costs--benefits earned during the period..................... $ 4,147 $ 4,004 $ 4,285
Interest cost on projected benefit obligation....................... 7,608 7,213 6,719
Expected return on plan assets...................................... (7,244) (6,753) (6,666)
Net amortization.................................................... 2,773 2,518 4,033
Curtailment/settlement loss......................................... 156 - -
---------------------------------------------
Net periodic pension cost........................................... $ 7,440 $ 6,982 $ 8,371
=============================================
The fiscal 2005 pension expense includes a one-time, non-cash charge of
$2,037,000 relating to a defined benefit plan at one of our foreign operations.
The fiscal 2007 curtailment and settlement losses are the result of the
restructuring of one of our facilities in Canada.
Information for pension plans with a projected benefit obligation in excess
of plan assets is as follows:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Projected benefit obligation................. $ 139,621 $ 134,148
Fair value of plan assets.................... 110,845 100,206
Information for pension plans with an accumulated benefit obligation in
excess of plan assets is as follows:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Accumulated benefit obligation............... $ 124,508 $ 126,196
Fair value of plan assets.................... 105,345 100,206
Unrecognized gains and losses are amortized on a straight-line basis over
the average remaining service period of active participants.
The weighted-average assumptions in the following table represent the rates
used to develop the actuarial present value of the projected benefit obligation
for the year listed and also net periodic pension cost for the following year:
MARCH 31,
--------------------------------------------------------
2007 2006 2005 2004
--------------------------------------------------------
Discount rate........................................ 6.00% 5.75% 6.00% 6.25%
Expected long-term rate of return on plan assets..... 7.50 7.50 8.25 8.40
Rate of compensation increase........................ 3.00 4.00 4.00 4.00
The expected rate of return on plan asset assumptions are determined
considering historical averages and real returns on each asset class.
The Company's retirement plan target and actual asset allocations are as
follows:
MARCH 31,
--------------------------------------------------------
TARGET ACTUAL
--------------- -----------------------------
2008 2007 2006
--------------- -----------------------------
Equity securities.................................... 70% 62% 56%
Fixed income......................................... 30 38 44
--------------- -----------------------------
Total plan assets.................................... 100% 100% 100%
=============== =============================
F-18
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has an investment objective for domestic pension plans to
adequately provide for both the growth and liquidity needed to support all
current and future benefit payment obligations. The investment strategy is to
invest in a diversified portfolio of assets which are expected to satisfy the
aforementioned objective and produce both absolute and risk adjusted returns
competitive with a benchmark that is a blend of major US and international
equity indexes and an aggregate bond fund. The shift to the targeted allocation
is the result of management's re-evaluation of its investment allocation. The
targeted allocation will be accomplished as some plan assets governed by
collective bargaining contracts will be transferred from fixed income into
equity securities, as well as reallocation of remaining assets to achieve the
desired balance during fiscal 2008.
The Company's funding policy with respect to the defined benefit pension
plans is to contribute annually at least the minimum amount required by the
Employee Retirement Income Security Act of 1974 (ERISA). Additional
contributions may be made to minimize PBGC premiums. The Company expects to
contribute $12,208,000 to its pension plans in fiscal 2008.
Information about the expected benefit payments for the Company's defined
benefit plans is as follows:
2008 $ 5,485
2009 5,971
2010 6,567
2011 7,195
2012 8,038
2013-2017 51,099
POSTRETIREMENT BENEFIT PLANS
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to certain domestic retirees and
their dependents of one of its subsidiaries. Prior to the acquisition of this
subsidiary, the Company did not sponsor any postretirement benefit plans. The
Company pays the majority of the medical costs for certain retirees and their
spouses who are under age 65. For retirees and dependents of retirees who
retired prior to January 1, 1989, and are age 65 or over, the Company
contributes 100% toward the American Association of Retired Persons ("AARP")
premium frozen at the 1992 level. For retirees and dependents of retirees who
retired after January 1, 1989, the Company contributes $35 per month toward the
AARP premium. The life insurance plan is noncontributory.
The Company's postretirement health benefit plans are not funded. The
following sets forth a reconciliation of benefit obligation and the funded
status of the plan:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year................................. $ 12,221 $ 12,927
Service cost............................................................ 3 6
Interest cost........................................................... 658 751
Actuarial (gain) loss................................................... (193) 601
Benefits paid........................................................... (2,218) (2,064)
----------------------------------
Benefit obligation at end of year.................................... $ 10,471 $ 12,221
==================================
Funded status .......................................................... $ (10,471) $ (12,221)
Unrecognized actuarial loss............................................. 5,138 5,745
----------------------------------
Net amount recognized................................................... $ (5,333) $ (6,476)
==================================
F-19
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts recognized in the consolidated balance sheets are as follows:
----------------------------------
MARCH 31,
----------------------------------
2007 2006
---- ----
Accrued liabilities..................................................... $ (1,456) $ (1,620)
Other non-current liabilities........................................... (9,015) (4,856)
Deferred tax effect of accumulated other comprehensive loss............. 2,055 -
Accumulated other comprehensive loss.................................... 3,083 -
----------------------------------
Net amount recognized................................................... $ (5,333) $ (6,476)
==================================
In fiscal 2008, an estimated net loss of $384,000 for the defined benefit
postretirement health care plans will be amortized from accumulated other
comprehensive income to net periodic benefit cost.
Net periodic postretirement benefit cost included the following:
--------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------
2007 2006 2005
---- ---- ----
Service cost--benefits attributed to service during the period........... $ 3 $ 6 $ 17
Interest cost........................................................... 658 751 834
Amortization of plan net losses......................................... 414 411 460
--------------------------------------
Net periodic postretirement benefit cost........................... $1,075 $1,168 $1,311
======================================
For measurement purposes, healthcare costs were assumed to increase 8.25%
in fiscal 2008, grading down over time to 5% in six years. The discount rate
used in determining the accumulated postretirement benefit obligation was 6.00%
and 5.75% as of March 31, 2007 and 2006, respectively.
Information about the expected benefit payments for the Company's
postretirement health benefit plans is as follows:
2008 $ 1,456
2009 1,384
2010 1,269
2011 1,255
2012 1,182
2013-2017 4,674
Assumed medical claims cost trend rates have an effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
---------------------------------------------
Effect on total of service and interest cost components........ $ 35 $ (32)
Effect on postretirement obligation............................ 628 (570)
ADOPTION OF NEW ACCOUNTING STANDARD
Effective March 31, 2007, the Company adopted 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)," which required the
recognition in pension and other postretirement benefits obligations and
accumulated other comprehensive income of actuarial gains or losses, prior
service costs or credits and transition assets or obligations that had
previously been deferred under the reporting requirements of SFAS No. 87, SFAS
No. 106 and SFAS No. 132(R). The following table reflects the effects of the
adoption of SFAS No. 158 on our consolidated balance sheet as of March 31, 2007:
F-20
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BEFORE SFAS 158 AFTER
APPLICATION OF ADOPTION APPLICATION OF
SFAS 158 ADJUSTMENTS SFAS 158
Assets: -------------- ----------- --------------
Other intangibles, net................................ $ 2,482 $ (2,213) $ 269
Deferred taxes on income.............................. 27,554 6,906 34,460
Total assets....................................... 560,945 4,693 565,638
Liabilities and Shareholder's Equity
Accrued liabilities................................... 58,683 (6,339) 52,344
Other non-current liabilities......................... 42,039 21,372 63,411
Total liabilities................................. 309,280 15,033 324,313
Accumulated other comprehensive loss.................. (4,997) (10,340) (15,337)
Total liabilities and shareholder's equity........ 560,945 4,693 565,638
OTHER BENEFIT PLANS
The Company also sponsors defined contribution plans covering substantially
all domestic employees. Participants may elect to contribute basic
contributions. These plans provide for employer contributions based primarily on
employee participation. The Company recorded a charge for such contributions of
approximately $1,650,000, $1,476,000 and $673,000 for the years ended March 31,
2007, 2006 and 2005, respectively.
12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The AICPA Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" requires that compensation expense for ESOP shares be
measured based on the fair value of those shares when committed to be released
to employees, rather than based on their original cost. Also, dividends on those
ESOP shares that have not been allocated or committed to be released to ESOP
participants are not reflected as a reduction of retained earnings. Rather,
since those dividends are used for debt service, a charge to compensation
expense is recorded. Furthermore, ESOP shares that have not been allocated or
committed to be released are not considered outstanding for purposes of
calculating earnings per share.
The obligation of the ESOP to repay borrowings incurred to purchase shares
of the Company's common stock is guaranteed by the Company; the unpaid balance
of such borrowings, if any, would be reflected in the consolidated balance sheet
as a liability. An amount equivalent to the cost of the collateralized common
stock and representing deferred employee benefits has been recorded as a
deduction from shareholders' equity.
Substantially all of the Company's domestic non-union employees are
participants in the ESOP. Contributions to the plan result from the release of
collateralized shares as debt service payments are made. Compensation expense
amounting to $808,000, $653,000 and $296,000 in fiscal 2007, 2006 and 2005,
respectively, is recorded based on the guaranteed release of the ESOP shares at
their fair market value. Dividends on allocated ESOP shares, if any, are
recorded as a reduction of retained earnings and are applied toward debt
service.
At March 31, 2007 and 2006, 694,751 and 723,618 of ESOP shares,
respectively, were allocated or available to be allocated to participants'
accounts. At March 31, 2007 and 2006, 213,667 and 249,821 of ESOP shares were
pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares at March 31, 2007 amounted to
$4,784,000.
F-21
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EARNINGS PER SHARE AND STOCK PLANS
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
Basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share includes any dilutive effects
of stock options.
The following table sets forth the computation of basic and diluted
earnings per share:
--------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------
2007 2006 2005
---- ---- ----
Numerator for basic and diluted earnings per share:
Income from continuing operations........................... $ 33,381 $ 59,100 $ 16,067
Income from discontinued operations......................... 704 696 643
--------------------------------------------
Net income ............................................... $ 34,085 $ 59,796 $ 16,710
============================================
Denominators:
Weighted-average common stock outstanding-
denominator for basic EPS................................. 18,517 16,052 14,594
Effect of dilutive employee stock options................... 434 576 209
--------------------------------------------
Adjusted weighted-average common stock
outstanding and assumed conversions-
denominator for diluted EPS............................... 18,951 16,628 14,803
============================================
The weighted-average common stock outstanding shown above is net of
unallocated ESOP shares (see Note 12). The increase in the weighted-average
common stock outstanding is the result of the issuance of 3,000,000 shares in
fiscal 2006 and the exercising of stock options.
STOCK PLANS
Effective April 1, 2006, the Company adopted SFAS 123(R), "Share-Based
Payment," applying the modified prospective method. This Statement requires all
equity-based payments to employees, including grants of employee stock options,
to be recognized in the statement of earnings based on the grant date fair value
of the award. Under the modified prospective method, the Company is required to
record equity-based compensation expense for all awards granted after the date
of adoption and for the unvested portion of previously granted awards
outstanding as of the date of adoption. The adoption of SFAS 123(R) resulted in
$1,230,000 of non-deductible incentive stock option expense in the year ended
March 31, 2007. Stock compensation expense is included in cost of goods sold,
selling, and general and administrative expense. The Company uses a
straight-line method of attributing the value of stock-based compensation
expense, subject to minimum levels of expense, based on vesting.
LONG TERM INCENTIVE PLAN
Effective July 31, 2006, the shareholders of the Company approved the
adoption of our Long Term Incentive Plan (LTIP). The total number of shares of
common stock with respect to which awards may be granted under the plan is
850,000. The LTIP was designed as an omnibus plan and awards may consist of
non-qualified stock options, incentive stock options, stock appreciation rights,
restricted stock, restricted stock units, or stock bonuses. A maximum of 600,000
shares may be awarded as restricted stock, restricted stock units, or stock
bonuses.
During fiscal 2007, a total of 9,390 shares of stock and 7,200 restricted
stock units were granted under the LTIP to the Company's non-executive directors
as part of their annual compensation. The weighted average fair value grant
price of those shares and units was $19.17. The expense related to the shares
and restricted stock units for fiscal 2007 was $180,000 and $40,000,
respectively.
As of March 31, 2007, there were 833,410 shares available for future grants
under the Long Term Incentive Plan.
F-22
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTION PLANS
Existing prior to the adoption of the LTIP, the Company maintains two stock
option plans, a Non-Qualified Stock Option Plan (Non-Qualified Plan) and an
Incentive Stock Option Plan (Incentive Plan). Under the Non-Qualified Plan,
options may be granted to officers and other key employees of the Company as
well as to non-employee directors and advisors. As of March 31, 2007, no options
have been granted to non-employees. Options granted under the Non-Qualified and
Incentive Plans become exercisable over a four-year period at the rate of 25%
per year commencing one year from the date of grant at an exercise price of not
less than 100% of the fair market value of the common stock on the date of
grant. Any option granted under the Non-Qualified plan may be exercised not
earlier than one year from the date such option is granted. Any option granted
under the Incentive Plan may be exercised not earlier than one year and not
later than 10 years from the date such option is granted.
A summary of option transactions during each of the three fiscal years in
the period ended March 31, 2007 is as follows:
WEIGHTED-AVERAGE
REMAINING
WEIGHTED-AVERAGE CONTRACTUAL LIFE AGGREGATE
SHARES EXERCISE PRICE (IN YEARS) INTRINSIC VALUE
----------------------------------------------------------------------------
Outstanding at March 31, 2004...... 1,229,850 $ 13.77
Granted......................... 741,500 6.41
Exercised....................... (52,000) 8.25
Cancelled....................... (116,550) 13.82
----------------------------------------------------------------------------
Outstanding at March 31, 2005...... 1,802,800 $ 10.89
Granted......................... 45,000 21.61
Exercised....................... (626,282) 11.41
Cancelled....................... (89,400) 7.76
----------------------------------------------------------------------------
Outstanding at March 31, 2006...... 1,132,118 $ 11.28
Granted......................... 70,000 22.41
Exercised....................... (240,468) 10.82
Cancelled....................... (30,500) 9.85
----------------------------------------------------------------------------
Outstanding at March 31, 2007...... 931,150 $ 12.28 5.8 $ 9,576
============================================================================
Exercisable at March 31, 2007...... 561,150 $ 13.15 4.5 $ 5,252
============================================================================
We calculated intrinsic value for those options that had an exercise price
lower than the market price of our common shares as of March 31, 2007. The
aggregate intrinsic value of outstanding options as of March 31, 2007 is
calculated as the difference between the exercise price of the underlying
options and the market price of our common shares for the 884,050 options that
were in-the-money at that date. The aggregate intrinsic value of exercisable
options as of March 31, 2007 is calculated as the difference between the
exercise price of the underlying options and the market price of our common
shares for the 544,050 exercisable options that were in-the-money at that date.
The Company's closing stock price was $22.39 as of March 31, 2007. The total
intrinsic value of stock options exercised was $3,434,000, $6,487,000 and
$248,000 during fiscal 2007, 2006 and 2005, respectively. As of March 31, 2007,
there are 132,600 options available for future grants under the two stock option
plans.
The fair value of shares that vested was $3.87, $4.01 and $4.64 during
fiscal 2007, 2006 and 2005, respectively.
Cash received from option exercises under all share-based payment
arrangements during fiscal 2007 was $2,601,000. Proceeds from the exercise of
stock options under stock option plans are credited to common stock at par value
and the excess is credited to additional paid-in capital.
As of March 31, 2007, $1,461,000 of unrecognized compensation cost related
to non-vested stock options is expected to be recognized over a weighted-average
period of approximately 3 years.
F-23
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding as of March 31, 2007, ranged from
$5.46 to $29.00. The following table provides certain information with respect
to stock options outstanding at March 31, 2007:
WEIGHTED-AVERAGE
STOCK OPTIONS WEIGHTED-AVERAGE REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE
------------------------ ----------- -------------- ----
Up to $10.00..................... 542,100 $ 6.93 6.3
$10.01 to $20.00.................. 102,350 14.36 7.6
$20.01 to $30.00.................. 286,700 21.66 4.3
-------------------------------------------------------------------------
931,150 $ 12.28 5.8
=========================================================================
The following table provides certain information with respect to stock
options exercisable at March 31, 2007:
STOCK OPTIONS WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- --------------
Up to $10.00............................................ 308,350 $ 7.94
$10.01 to $20.00......................................... 49,850 12.86
$20.01 to $30.00......................................... 202,950 21.13
-------------- ------------
561,150 $ 13.15
============== ============
The fair value of stock options granted was estimated on the date of grant
using a Black-Scholes option pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. The weighted-average fair value of the options was
$12.93, $12.13 and $3.45 for options granted during fiscal 2007, 2006 and 2005,
respectively. The following table provides the weighted-average assumptions used
to value stock options granted during fiscal 2007, 2006 and 2005:
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2007 MARCH 31, 2006 MARCH 31, 2005
----------------------------------------------------------
Assumptions:
Risk-free interest rate.................... 4.9 % 4.5 % 4.9 %
Dividend yield--Incentive Plan.............. 0.0 % 0.0 % 0.0 %
Volatility factor.......................... 0.593 0.615 0.569
Expected life--Incentive Plan............... 5.5 years 5 years 5 years
To determine expected volatility, the Company uses historical volatility
based on daily closing prices of its Common Stock over periods that correlate
with the expected terms of the options granted. The risk-free rate is based on
the United States Treasury yield curve at the time of grant for the appropriate
term of the options granted. Expected dividends are based on the Company's
history and expectation of dividend payouts. The expected term of stock options
is based on vesting schedules, expected exercise patterns and contractual terms.
RESTRICTED STOCK
Also existing prior to the adoption of the LTIP, the Company maintains a
Restricted Stock Plan. The Company charges compensation expense and
shareholders' equity for the market value of shares ratably over the restricted
period. Grantees that remain continuously employed with the Company become
vested in their shares five years after the date of the grant. As of March 31,
2007, there were 48,000 shares available for future grants under the Restricted
Stock Plan.
F-24
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the Fiscal 2007, no shares of restricted stock were granted. As of
March 31, 2007, there are 2,000 shares of restricted stock outstanding with a
weighted average fair value grant price of $16.25. The expense related to
restricted stock was $7,000, $6,000 and $35,000 for fiscal 2007, 2006 and 2005,
respectively.
14. LOSS CONTINGENCIES
From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company is not a party to any
pending legal proceeding other than ordinary, routine litigation incidental to
our business. The Company does not believe that any of our pending litigation
will have a material impact on its business.
GENERAL AND PRODUCT LIABILITY-- During fiscal 2006, the Company reevaluated
the predictability of future cash flows associated with its self-insured product
liability and asbestos reserves and concluded that future cash payments related
to reserves for nonasbestos claims could no longer be discounted due to their
underlying uncertainty. Reserves for asbestos claims continue to be discounted
at a risk free rate. This change in estimate resulted in a reduction in the
discount recorded by the company of approximately $1,578,000 ($0.09 diluted EPS
impact for fiscal 2006). The gross reserves as of March 31, 2007 and 2006 were
$23,438,000 and $23,329,000, respectively. This liability is funded by
investments in marketable securities (see Notes 2 and 6).
The following table provides a reconciliation of the beginning and ending
balances for accrued general and product liability:
---------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------
2007 2006 2005
---- ---- ----
Accrued general and product liability, beginning of year.. $ 20,969 $ 16,094 $ 15,930
Add impact of change in discount estimate................. - 1,578 -
Add provision for claims.................................. 4,343 6,342 5,780
Deduct payments for claims................................ (4,234) (3,045) (5,616)
---------------------------------------------------
Accrued general and product liability, end of year........ $ 21,078 $ 20,969 $ 16,094
===================================================
The per occurrence limits on our self-insurance for general and product
liability coverage to Columbus McKinnon were $2,000,000 from inception through
fiscal 2003 and $3,000,000 for fiscal 2004 and thereafter. In addition to the
per occurrence limits, the Company's coverage is also subject to an annual
aggregate limit, applicable to losses only. These limits range from $2,000,000
to $6,000,000 for each policy year from inception through fiscal 2007.
Along with other manufacturing companies, the Company is subject to various
federal, state and local laws relating to the protection of the environment. To
address the requirements of such laws, the Company has adopted a corporate
environmental protection policy which provides that all of its owned or leased
facilities shall, and all of its employees have the duty to, comply with all
applicable environmental regulatory standards, and the Company has initiated an
environmental auditing program for our facilities to ensure compliance with such
regulatory standards. The Company has also established managerial
responsibilities and internal communication channels for dealing with
environmental compliance issues that may arise in the course of our business.
Because of the complexity and changing nature of environmental regulatory
standards, it is possible that situations will arise from time to time requiring
the Company to incur expenditures in order to ensure environmental regulatory
compliance. However, the Company is not aware of any environmental condition or
any operation at any of its facilities, either individually or in the aggregate,
which would cause expenditures having a material adverse effect on its results
of operations, financial condition or cash flows and, accordingly, has not
budgeted any material capital expenditures for environmental compliance for
fiscal 2008.
Like many industrial manufacturers, the Company is involved in
asbestos-related litigation. In continually evaluating costs relating to 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
F-25
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $5,000,000 and $14,000,000 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
$8,400,000 which has been reflected as a liability in the consolidated financial
statements as of March 31, 2007. The increase in the recorded liability from the
amount of $6,300,000 at March 31, 2006 is due to the increase in historical data
used to calculate required asbestos liability reserve levels. 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
$325,000 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.
15. RESTRUCTURING CHARGES
The Company analyzes its global capacity requirements in accordance with
its ongoing cost savings and consolidation efforts. As a result, facilities are
closed or significantly reorganized and production operations are transferred to
other facilities within the same reporting segment, to better utilize their
available capacity. During fiscal 2007, the Company recorded restructuring costs
of $543,000 for severance and the maintenance of non-operating facilities being
held for sale which are expensed on an as incurred basis in accordance with SFAS
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities."
$519,000 and $24,000 of these costs are related to the Solutions and Products
segments, respectively. The completion of the sale of a previously closed
facility resulted in the reversal of $410,000 of restructuring charges within
the Products segment, including $216,000 of gain on the sale of a non-operating
property that had been written down in previous years. The liability as of March
31, 2007 consists primarily of environmental remediation costs which were
accrued in accordance with SFAS No. 143.
During fiscal 2006, the Company recorded restructuring costs of $1,609,000
related to environmental remediation charges, inventory disposal costs, and
facility costs as a result of the continued closure, merging and reorganization
of the Company. $1,000,000 and $600,000 of these costs are related to the
Products and Solutions segments, respectively. The charges primarily relate to
the cost of removal of certain environmentally hazardous materials in accordance
with SFAS No. 143, "Accounting for Asset Retirement Obligations" and FIN 47
($600,000) and inventory disposal related to the rationalization of certain
product families within our mechanical jacks line ($400,000). In addition, we
have accrued additional costs of maintenance of a non-operating facility based
on anticipated sale date ($300,000). The costs associated with the disposal of
this facility were originally accrued as a result of the restructuring occurring
prior to the adoption of SFAS No. 146, "Accounting for the Costs Associated with
Exit or Disposal Activities." As of March 31, 2006, the liability primarily
consisted of costs associated with the preparation and maintenance of a
non-operating facility and environmental remediation costs which were accrued in
accordance with SFAS No. 143. The Company had one facility that was completely
closed and prepared for disposal.
During fiscal 2005, the Company recorded restructuring costs of $910,000
related to various employee termination benefits and facility costs as a result
of the continued closure, merging and reorganization of the Company. $600,000
and $300,000 of these costs are related to the Products and Solutions segments,
respectively. The charges primarily relate to the maintenance of facilities
being expensed on an as incurred basis in accordance with SFAS No. 146. As of
March 31, 2005, the liability primarily consisted of costs associated with the
preparation
F-26
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and maintenance of a non-operating facility prior to disposal which were accrued
prior to the adoption of SFAS No. 146. Due to changes in the real estate market
and a reassessment of the fair value of the property, the asset was written-down
by $300,000 during fiscal 2005.
The following provides a reconciliation of the activity related to
restructuring reserves:
-----------------------------------------
EMPLOYEE FACILITY TOTAL
-------- -------- -----
Reserve at March 31, 2004................................................. $ 161 $ 400 $ 561
Fiscal 2005 restructuring charges......................................... 81 829 910
Cash payments............................................................. (226) (801) (1,027)
Write-down of non-operating property...................................... - (300) (300)
-----------------------------------------
Reserve at March 31, 2005................................................. $ 16 $ 128 $ 144
Fiscal 2006 restructuring charges......................................... 358 1,251 1,609
Cash payments............................................................. (315) (645) (960)
-----------------------------------------
Reserve at March 31, 2006................................................. $ 59 $ 734 $ 793
Fiscal 2007 restructuring charges......................................... 289 254 543
Cash payments............................................................. (348) (195) (543)
Restructuring charge reversal............................................. - (410) (410)
Gain on sale of a non-operating facility.................................. - 216 216
-----------------------------------------
Reserve at March 31, 2007................................................. $ - $ 599 $ 599
=========================================
16. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income from continuing operations
before income tax expense. The sources and tax effects of the difference were as
follows:
----------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------
2007 2006 2005
---- ---- ----
Expected tax at 35%.................................................. $ 18,872 $ 9,854 $ 6,617
State income taxes net of federal benefit............................ 910 705 363
Foreign taxes greater (less) than statutory provision................ 961 41 (579)
Permanent items...................................................... 171 370 -
Valuation allowance.................................................. - (44,237) (4,435)
Other................................................................ (375) 2,321 230
----------------------------------------------
Actual tax provision (benefit)....................................... $ 20,539 $ (30,946) $ 2,196
==============================================
The provision for income tax expense (benefit) consisted of the following:
----------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------
2007 2006 2005
---- ---- ----
Current income tax expense (benefit):
United States Federal........................................... $ 1,228 $ 856 $ (426)
State taxes..................................................... 1,401 1,084 559
Foreign......................................................... 5,472 4,082 3,034
Deferred income tax expense (benefit):
United States................................................... 13,831 (37,099) -
Foreign......................................................... (1,393) 131 (971)
----------------------------------------------
$ 20,539 $ (30,946) $ 2,196
==============================================
F-27
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies the liability method of accounting for income taxes as
required by SFAS Statement No. 109, "Accounting for Income Taxes." The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are as follows:
-----------------------------------
MARCH 31,
-----------------------------------
2007 2006
---- ----
Deferred tax assets:
Federal net operating loss carryforwards..................................... $ 13,484 $ 29,075
State net operating loss carryforwards....................................... 2,064 3,564
Employee benefit plans....................................................... 12,343 9,518
Asset reserves............................................................... 1,711 2,384
Insurance reserves........................................................... 7,372 7,283
Accrued vacation and incentive costs......................................... 2,131 1,980
Other........................................................................ 9,237 6,337
Valuation allowance.......................................................... (2,064) (3,564)
-----------------------------------
Gross deferred tax assets 46,278 56,577
-----------------------------------
Deferred tax liabilities:
Inventory reserves........................................................... (2,068) (3,398)
Property, plant, and equipment............................................... (2,407) (2,822)
-----------------------------------
Gross deferred tax liabilities............................................. (4,475) (6,220)
-----------------------------------
Net deferred tax assets................................................. $ 41,803 $ 50,357
===================================
As of March 31, 2007, the Company had U.S. federal net operating loss
carryforwards of approximately $38,527,000. The net operating loss carryforwards
arose in fiscal 2004 primarily as a result of a worthless stock deduction taken
on the Company's March 31, 2003 federal income tax return relating to the sale
of substantially all of the assets of a domestic subsidiary. If not utilized,
these carryforwards will expire in fiscal years 2023 and 2024.
Deferred income taxes are classified within the consolidated balance sheets
based on the following breakdown:
-----------------------------------
MARCH 31,
-----------------------------------
2007 2006
---- ----
Net current deferred tax asset.................................................. $ 8,669 $ 6,513
Net non-current deferred tax asset.............................................. 34,460 46,065
Net current deferred tax liability.............................................. - (1,189)
Net non-current deferred tax liability.......................................... (1,326) (1,032)
-----------------------------------
Net deferred tax asset..................................................... $ 41,803 $ 50,357
===================================
The net current deferred tax asset, net current deferred tax liability, and
net non-current deferred tax liability are included in prepaid expenses, accrued
liabilities, and other non-current liabilities, respectively.
Income from continuing operations before income tax expense (benefit)
includes foreign subsidiary income of $10,067,000, $13,034,000 and $8,588,000
for the years ended March 31, 2007, 2006, and 2005, respectively. As of March
31, 2007, the Company had unrecognized deferred tax liabilities related to
approximately $20 million of cumulative undistributed earnings of foreign
subsidiaries. These earnings are considered to be permanently invested in
operations outside the United States. Determination of the amount of
unrecognized deferred U.S. income tax liability with respect to such earnings is
not practicable.
There were 136,511 and 581,064 shares of common stock were issued through
the exercise of non-qualified stock options or through the disqualifying
disposition of incentive stock options in the years ended March 31, 2007, and
2006, respectively. The tax benefit to the Company from these transactions,
which is credited to additional paid-in capital rather than recognized as a
reduction of income tax expense, was $311,000 and $2,154,000 in 2007 and 2006,
respectively. This tax benefit has also been recognized in the consolidated
balance sheet as an increase in deferred tax assets.
F-28
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for the years ended March 31, 2007, 2006 and 2005 was
$4,483,000, $3,914,000, and $3,718,000, respectively. The following amounts
represent future minimum payment commitments as of March 31, 2007 under
non-cancelable operating leases extending beyond one year:
VEHICLES AND
YEAR ENDED MARCH 31, REAL PROPERTY EQUIPMENT TOTAL
-------------------- ------------- --------- -----
2008................................. $ 1,731 $ 3,040 $ 4,771
2009................................. 1,595 2,733 4,328
2010................................. 1,195 2,260 3,455
2011................................. 946 1,633 2,579
2012................................. 391 1,050 1,441
F-29
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. SUMMARY FINANCIAL INFORMATION
The following information sets forth the condensed consolidating summary
financial information of the parent and guarantors, which guarantee the 10%
Senior Secured Notes and the 8 7/8% Senior Subordinated Notes, and the
nonguarantors. The guarantors are wholly owned and the guarantees are full,
unconditional, joint and several.
As of and for the year ended March 31, 2007:
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
AS OF MARCH 31, 2007:
Current assets:
Cash.................................... $ 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
Prepaid expenses........................ 6,237 2,707 9,085 - 18,029
--------------------------------------------------------------------------
Total current assets................. 124,000 18,765 115,577 (2,160) 256,182
Net property, plant, and equipment........... 24,662 11,508 19,061 - 55,231
Goodwill and other intangibles, net.......... 88,703 57,037 40,163 - 185,903
Intercompany balances........................ 66,971 (77,385) (63,602) 74,016 -
Other non-current 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
==========================================================================
FOR THE YEAR ENDED MARCH 31, 2007:
Net sales.................................... $ 287,223 $ 170,633 $ 179,235 $ (47,243) $ 589,848
Cost of products sold........................ 210,020 127,691 134,985 (47,448) 425,248
--------------------------------------------------------------------------
Gross profit................................. 77,203 42,942 44,250 205 164,600
--------------------------------------------------------------------------
Selling, general and administrative expenses. 42,503 17,490 35,835 - 95,828
Restructuring charges........................ (137) - 270 - 133
Amortization of intangibles.................. 109 3 71 - 183
--------------------------------------------------------------------------
Income from operations....................... 34,728 25,449 8,074 205 68,456
Interest and debt expense.................... 12,154 3,948 328 - 16,430
Other (income) and expense, net.............. 4,860 (913) (5,841) - (1,894)
--------------------------------------------------------------------------
Income from continuing operations before
income tax expense (benefit).............. 17,714 22,414 13,587 205 53,920
Income tax expense (benefit)................. 7,506 8,916 4,197 (80) 20,539
--------------------------------------------------------------------------
Income from continuous operations............ 10,208 13,498 9,390 285 33,381
Income from discontinued operations.......... 704 - - - 704
--------------------------------------------------------------------------
Net income................................... $ 10,912 $ 13,498 $ 9,390 $ 285 $ 34,085
==========================================================================
F-30
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31, 2007:
OPERATING ACTIVITIES:
Cash provided (used) by operating activities. $ 41,024 $ 925 $ (1,667) $ 5,213 $ 45,495
INVESTING ACTIVITIES:
Sales of marketable securities, net.......... - - 1,167 - 1,167
Capital expenditures......................... (6,319) (1,099) (3,235) - (10,653)
Proceeds from sale of businesses and surplus
real estate............................... 1,906 2,970 511 - 5,387
Proceeds from discontinued operations note
receivable................................ 704 - - - 704
--------------------------------------------------------------------------
Net cash (used) provided by investing
activities................................ (3,709) 1,871 (1,557) - (3,395)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options...... 2,601 (15) 13,489 (13,474) 2,601
Net borrowings under revolving line-of-credit
agreements................................ - - 3,045 - 3,045
(Repayment) borrowing of debt................ (49,522) - 3,558 - (45,964)
Deferred financing costs incurred............ (449) - - - (449)
Dividends paid............................... - (2,324) (5,937) 8,261 -
Other........................................ 890 - - - 890
--------------------------------------------------------------------------
Net cash (used) provided by financing
activities................................ (46,480) (2,339) 14,155 (5,213) (39,877)
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... - (158) 992 - 834
--------------------------------------------------------------------------
Net change in cash and cash equivalents...... (9,165) 299 11,923 - 3,057
Cash and cash equivalents at
beginning of year......................... 27,531 (1,461) 19,528 - 45,598
--------------------------------------------------------------------------
Cash and cash equivalents at end of year..... $ 18,366 $ (1,162) $ 31,451 $ - $ 48,655
==========================================================================
As of and for the year ended March 31, 2006:
AS OF MARCH 31, 2006:
Current assets:
Cash.................................... $ 27,531 $ (1,461) $ 19,528 $ - $ 45,598
Trade accounts receivable and unbilled
revenues............................. 60,808 157 46,822 - 107,787
Inventories............................. 32,708 18,177 26,325 (2,365) 74,845
Prepaid expenses........................ 4,777 1,446 8,903 550 15,676
--------------------------------------------------------------------------
Total current assets................. 125,824 18,319 101,578 (1,815) 243,906
Net property, plant, and equipment........... 24,651 11,703 18,778 - 55,132
Goodwill and other intangibles, net.......... 89,808 58,036 39,483 - 187,327
Intercompany balances........................ 92,325 (93,637) (73,697) 75,009 -
Other non-current assets..................... 96,548 197,328 25,939 (240,136) 79,679
--------------------------------------------------------------------------
Total assets......................... $ 429,156 $ 191,749 $ 112,081 $ (166,942) $ 566,044
==========================================================================
Current liabilities.......................... $ 48,146 $ 15,368 $ 43,306 $ 473 $ 107,293
Long-term debt, less current portion......... 203,384 - 457 - 203,841
Other non-current liabilities................ 16,305 8,676 25,508 - 50,489
--------------------------------------------------------------------------
Total liabilities.................... 267,835 24,044 69,271 473 361,623
Shareholders' equity......................... 161,321 167,705 42,810 (167,415) 204,421
--------------------------------------------------------------------------
Total liabilities and shareholders'
equity.......................... $ 429,156 $ 191,749 $ 112,081 $ (166,942) $ 566,044
==========================================================================
F-31
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31, 2006:
Net sales.................................... $ 268,570 $ 152,181 $ 163,787 $ (28,531) $ 556,007
Cost of products sold........................ 200,639 114,042 120,842 (27,138) 408,385
--------------------------------------------------------------------------
Gross profit................................. 67,931 38,139 42,945 (1,393) 147,622
--------------------------------------------------------------------------
Selling, general and administrative expenses. 40,811 16,003 31,081 - 87,895
Restructuring charges........................ 1,635 - (26) - 1,609
Amortization of intangibles.................. 179 3 67 - 249
--------------------------------------------------------------------------
Income from operations....................... 25,306 22,133 11,823 (1,393) 57,869
Interest and debt expense.................... 19,558 4,876 233 - 24,667
Other (income) and expense, net.............. 8,055 20 (3,027) - 5,048
--------------------------------------------------------------------------
(Loss) income from continuing operations
before income tax (benefit) expense....... (2,307) 17,237 14,617 (1,393) 28,154
Income tax (benefit) expense................. (37,950) 2,912 4,263 (171) (30,946)
--------------------------------------------------------------------------
Income from continuous operations............ 35,643 14,325 10,354 (1,222) 59,100
Income from discontinued operations.......... 696 - - - 696
--------------------------------------------------------------------------
Net income................................... $ 36,339 $ 14,325 $ 10,354 $ (1,222) $ 59,796
==========================================================================
FOR THE YEAR ENDED MARCH 31, 2006:
OPERATING ACTIVITIES:
Cash provided by operating activities........ $ 26,358 $ 8,418 $ 11,587 $ - $ 46,363
INVESTING ACTIVITIES:
Purchases of marketable securities, net...... - - (888) - (888)
Capital expenditures......................... (4,759) (800) (2,871) - (8,430)
Proceeds from sale of businesses and surplus
real estate............................... - 468 1,623 - 2,091
Proceeds from discontinued operations note
receivable................................ 857 - - - 857
--------------------------------------------------------------------------
Net cash used by investing activities........ (3,902) (332) (2,136) - (6,370)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock....... 56,619 - - - 56,619
Proceeds from exercise of stock options...... 7,149 - - - 7,149
Net borrowings under revolving line-of-credit
agreements................................ 240 - 1,121 - 1,361
Repayment of debt............................ (204,832) - (335) - (205,167)
Proceeds from issuance of long-term debt..... 136,000 - - - 136,000
Deferred financing costs incurred............ (2,877) - - - (2,877)
Dividends paid............................... 9,067 (8,854) (213) - -
Other........................................ 2,712 - - - 2,712
--------------------------------------------------------------------------
Net cash provided (used) by financing
activities................................ 4,078 (8,854) 573 - (4,203)
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... - 4 325 - 329
--------------------------------------------------------------------------
Net change in cash and cash equivalents...... 26,534 (764) 10,349 - 36,119
Cash and cash equivalents at
beginning of year......................... 997 (697) 9,179 - 9,479
--------------------------------------------------------------------------
Cash and cash equivalents at end of year..... $ 27,531 $ (1,461) $ 19,528 $ - $ 45,598
==========================================================================
F-32
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the year ended March 31, 2005:
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31, 2005:
Net sales.................................... $ 245,166 $ 141,324 $ 151,741 $ (23,479) $ 514,752
Cost of products sold........................ 188,499 110,455 113,369 (23,479) 388,844
--------------------------------------------------------------------------
Gross profit................................. 56,667 30,869 38,372 - 125,908
--------------------------------------------------------------------------
Selling, general and administrative expenses. 34,290 18,957 30,774 - 84,021
Restructuring charges........................ 782 - 128 - 910
Amortization of intangibles.................. 242 3 67 - 312
--------------------------------------------------------------------------
Income from operations....................... 21,353 11,909 7,403 - 40,665
Interest and debt expense.................... 23,916 3,378 326 - 27,620
Other income, net............................ (1,562) (2,560) (1,096) - (5,218)
--------------------------------------------------------------------------
(Loss) income from continuing operations
before income tax (benefit) expense....... (1,001) 11,091 8,173 - 18,263
Income tax (benefit) expense................. (1,424) 1,487 2,133 - 2,196
Income from continuous operations............ 423 9,604 6,040 - 16,067
Income from discontinued operations.......... 643 - - - 643
--------------------------------------------------------------------------
Net income................................... $ 1,066 $ 9,604 $ 6,040 $ - $ 16,710
==========================================================================
FOR THE YEAR ENDED MARCH 31, 2005:
OPERATING ACTIVITIES:
Cash (used in) provided by operating
activities................................ $ (54,146) $ 64,479 $ 6,828 $ - $ 17,161
INVESTING ACTIVITIES:
Proceeds from marketable securities, net..... 705 - 609 - 1,314
Capital expenditures......................... (3,718) (610) (1,597) - (5,925)
Proceeds from sale of businesses and surplus
real estate............................... 3,439 3,303 - - 6,742
Net assets held for sale..................... - 375 - - 375
Proceeds from discontinued operations note
receivable................................ 643 - - - 643
--------------------------------------------------------------------------
Net cash provided (used) by investing
activities................................ 1,069 3,068 (988) - 3,149
FINANCING ACTIVITIES:
Proceeds from exercise of stock options...... 428 - - - 428
Net payments under revolving line-of-credit
agreements................................ (219) - (904) - (1,123)
Repayment of debt............................ (21,666) - (79) - (21,745)
Deferred financing costs incurred............ (24) - - - (24)
Dividends paid............................... 68,168 (68,000) (168) - -
Other........................................ 562 - - - 562
--------------------------------------------------------------------------
Net cash provided (used) by financing
activities................................ 47,249 (68,000) (1,151) - (21,902)
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (134) 85 19 - (30)
--------------------------------------------------------------------------
Net change in cash and cash equivalents...... (5,962) (368) 4,708 - (1,622)
Cash and cash equivalents at
beginning of year......................... 6,981 (329) 4,449 - 11,101
--------------------------------------------------------------------------
Cash and cash equivalents at end of year..... $ 1,019 $ (697) $ 9,157 $ - $ 9,479
==========================================================================
F-33
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. BUSINESS SEGMENT INFORMATION
As a result of the way the Company manages the business, its reportable
segments are strategic business units that offer products with different
characteristics. The most defining characteristic is the extent of customized
engineering required on a per-order basis. In addition, the segments serve
different customer bases through differing methods of distribution. The Company
has two reportable segments: Products and Solutions. The Company's Products
segment sells hoists, industrial cranes, chain, attachments, and other material
handling products principally to third party distributors through diverse
distribution channels, and to a lesser extent directly to end-users. The
Solutions segment sells engineered material handling systems such as conveyors
and lift tables primarily to end-users in the consumer products, manufacturing,
warehousing, and, to a lesser extent, the steel, construction, automotive, and
other industrial markets. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
Intersegment sales are not significant. The Company evaluates performance based
on the operating earnings of the respective business units.
Segment information as of and for the years ended March 31, 2007, 2006 and
2005 is as follows:
-------------------------------------------------
YEAR ENDED MARCH 31, 2007
-------------------------------------------------
PRODUCTS SOLUTIONS TOTAL
Sales to external customers............................................ $ 527,089 $ 62,759 $ 589,848
Income (loss) from operations.......................................... 71,478 (3,022) 68,456
Depreciation and amortization.......................................... 7,431 858 8,289
Total assets........................................................... 526,660 38,978 565,638
Capital expenditures................................................... 10,399 254 10,653
-------------------------------------------------
YEAR ENDED MARCH 31, 2006
-------------------------------------------------
PRODUCTS SOLUTIONS TOTAL
Sales to external customers............................................ $ 493,896 $ 62,111 $ 556,007
Income from operations................................................. 55,849 2,020 57,869
Depreciation and amortization.......................................... 7,805 1,019 8,824
Total assets........................................................... 530,600 35,444 566,044
Capital expenditures................................................... 7,931 499 8,430
-------------------------------------------------
YEAR ENDED MARCH 31, 2005
-------------------------------------------------
PRODUCTS SOLUTIONS TOTAL
Sales to external customers............................................ $ 453,105 $ 61,647 $ 514,752
Income from operations................................................. 39,392 1,273 40,665
Depreciation and amortization.......................................... 8,092 1,079 9,171
Total assets........................................................... 449,284 31,587 480,871
Capital expenditures................................................... 4,203 1,722 5,925
F-34
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial information relating to the Company's operations by geographic
area is as follows:
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2007 2006 2005
---- ---- ----
NET SALES:
United States.......................................................... $ 424,696 $ 394,657 $ 360,917
Europe................................................................. 121,908 112,868 108,717
Canada 26,757 30,492 28,778
Other.................................................................. 16,487 17,990 16,340
-------------------------------------------------
Total.................................................................. $ 589,848 $ 556,007 $ 514,752
=================================================
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2007 2006 2005
---- ---- ----
TOTAL ASSETS:
United States.......................................................... $ 394,923 $ 411,199 $ 341,645
Europe................................................................. 143,712 123,694 115,241
Canada................................................................. 15,222 20,444 17,442
Other.................................................................. 11,781 10,707 6,543
-------------------------------------------------
Total.................................................................. $ 565,638 $ 566,044 $ 480,871
=================================================
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2007 2006 2005
---- ---- ----
LONG-LIVED ASSETS:
United States.......................................................... $ 182,160 $ 184,448 $ 185,518
Europe................................................................. 55,444 53,357 54,181
Canada................................................................. - 1,869 2,672
Other.................................................................. 3,530 2,785 2,151
-------------------------------------------------
Total.................................................................. $ 241,134 $ 242,459 $ 244,522
=================================================
Sales by major product group are as follows:
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2007 2006 2005
---- ---- ----
Hoists................................................................. $ 284,494 $ 258,082 $ 227,789
Chain and forged attachments........................................... 134,850 134,301 127,300
Industrial cranes...................................................... 67,003 61,967 62,468
Other.................................................................. 103,501 101,657 97,195
-------------------------------------------------
Total.................................................................. $ 589,848 $ 556,007 $ 514,752
=================================================
F-35
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Below is selected quarterly financial data for fiscal 2007 and 2006:
----------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------------
JULY 2, OCTOBER 1, DECEMBER 31, MARCH 31,
2006 2006 2006 2007
---- ---- ---- ----
Net sales................................ $ 146,694 $ 144,225 $ 142,044 $ 156,885
Gross profit............................. 42,283 39,017 38,623 44,677
Income from operations................... 17,780 16,104 14,896 19,676
Net income............................... $ 5,572 $ 8,314 $ 9,126 $ 11,073
================================================================
Net income per share - basic............. $ 0.30 $ 0.45 $ 0.49 $ 0.60
================================================================
Net income per share - diluted........... $ 0.29 $ 0.44 $ 0.48 $ 0.58
================================================================
Results include pre-tax losses on early extinguishment of debt of
$4,583,000, $359,000 and $246,000 for the quarters ended July 2, 2006, December
31, 2006 and March 31, 2007 respectively.
----------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------------
JULY 3, OCTOBER 2, JANUARY 1, MARCH 31,
2005 2005 2006 2006
---- ---- ---- ----
Net sales................................ $ 140,877 $ 134,712 $ 133,322 $ 147,096
Gross profit............................. 36,543 35,158 34,931 40,990
Income from operations................... 14,622 13,267 13,114 16,866
Net income............................... $ 7,322 $ 3,263 $ 1,413 $ 47,798
================================================================
Net income per share - basic............. $ 0.50 $ 0.22 $ 0.09 $ 2.63
================================================================
Net income per share - diluted........... $ 0.49 $ 0.21 $ 0.08 $ 2.53
================================================================
Results include pre-tax losses on early extinguishment of debt of
$3,341,000, $4,950,000 and $920,000 for the quarters ended October 2, 2005,
January 1, 2006 and March 31, 2006 respectively.
Net income includes tax benefit due to the reversal of a valuation
allowance of $38,571,000 for the quarter ended March 31, 2006.
F-36
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows:
--------------------------------
MARCH 31,
--------------------------------
2007 2006
--------------------------------
Net unrealized investment gains - net of tax................................. $ 22 $ 1,891
Adjustment to pension liability- net of tax.................................. (18,606) (17,107)
Adjustment to other postretirement obligations - net of tax.................. (3,083) -
Foreign currency translation adjustment...................................... 6,330 2,237
--------------------------------
Accumulated other comprehensive loss......................................... $ (15,337) $(12,979)
================================
The adjustment to pension liability in fiscal 2007 includes an adjustment
of $(7,257,000), net of tax, and the adjustment to other postretirement
obligations includes an adjustment of $(3,083,000), net of tax, relating to the
initial adoption of SFAS No. 158. Refer to Note 11.
The deferred taxes associated with the items included in accumulated other
comprehensive loss were $14,102,000 and $9,486,000 for 2007 and 2006,
respectively. As a result of the recording of a deferred tax asset valuation
allowance in fiscal 2005, the Company recorded as an offsetting entry a $534,000
charge in the minimum pension liability component of other comprehensive income.
With the reversal of that valuation allowance in fiscal 2006 (see Note 16), the
Company recorded the reversal of the valuation allowance as a reduction of
income taxes in the statement of operations. This is in accordance with FASB
Statement No. 109, "Accounting for Income Taxes," even though the valuation
allowance was initially established by a charge against comprehensive income.
This amount will remain indefinitely as a component of minimum pension liability
adjustment.
The activity by year related to investments, including reclassification
adjustments for activity included in earnings is as follows (all items shown net
of tax):
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
2007 2006 2005
-------------------------------------------
Net unrealized investment gains at beginning of year.............. $ 1,891 $ 1,233 $ 1,364
Unrealized holdings gains arising during the period............ 2,491 1,591 328
Reclassification adjustments for (gains)
included in earnings......................................... (4,360) (933) (459)
-------------------------------------------
Net change in unrealized gains on investments..................... (1,869) 658 (131)
-------------------------------------------
Net unrealized investment gains at end of year.................... $ 22 $ 1,891 $ 1,233
===========================================
F-37
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes".
FIN 48 is an interpretation of FASB Statement No. 109 "Accounting for Income
Taxes" and must be adopted by the Company no later than April 1, 2007. FIN 48
prescribes a comprehensive model for recognizing, measuring, presenting, and
disclosing in the financial statements uncertain tax positions that the company
has taken or expects to take in the Company's tax returns. The Company is
required to apply the provisions of FIN 48 to all tax positions upon initial
adoption with any cumulative effect adjustment to be recognized as an adjustment
to retained earnings as of April 1, 2007. FIN 48 was effective beginning in
fiscal 2008 and did not have a material impact on the Company's consolidated
financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, "Fair Value Measurements," 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 No. 157 will be effective for fiscal years beginning after
November 15, 2007. The Company is assessing the impact the adoption of SFAS No.
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
required provisions of Statement 158 in fiscal 2007 as discussed in footnote 11.
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.
F-38
COLUMBUS MCKINNON CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MARCH 31, 2007, 2006 AND 2005
DOLLARS IN THOUSANDS
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2007: Deducted from asset accounts:
Allowance for doubtful accounts $ 3,417 $ 1,359 $ - $ 1,148 (1) $ 3,628
Slow-moving and obsolete inventory 7,635 2,754 (240) (4) 1,306 (2) 8,843
Deferred tax asset valuation allowance 6,301 - - 4,237 2,064
-------- -------- -------- -------- --------
Total $ 17,353 $ 4,113 $ (240) $ 6,691 $ 14,535
======== ======== ======== ======== ========
Reserves on balance sheet:
Accrued general and product liability costs $ 20,969 $ 4,343 $ - $ 4,234 (3) $ 21,078
======== ======== ======== ======== ========
Year ended March 31, 2006: Deducted from asset accounts:
Allowance for doubtful accounts $ 3,015 $ 1,628 $ - $ 1,226 (1) $ 3,417
Slow-moving and obsolete inventory 6,413 2,617 - 1,395 (2) 7,635
Deferred tax asset valuation allowance 50,538 (38,571) - 5,666 6,301
-------- -------- -------- -------- --------
Total $ 59,966 $(34,326) $ - $ 8,287 $ 17,353
======== ======== ======== ======== ========
Reserves on balance sheet:
Accrued general and product liability costs $ 16,094 $ 7,920 $ - $ 3,045 (3) $ 20,969
======== ======== ======== ======== ========
Year ended March 31, 2005: Deducted from asset accounts:
Allowance for doubtful accounts $ 2,811 $ 2,191 $ - $ 1,987 (1) $ 3,015
Slow-moving and obsolete inventory 5,878 1,182 - 647 (2) 6,413
Deferred tax asset valuation allowance 55,456 1,175 - 6,093 50,538
-------- -------- -------- -------- --------
Total $ 64,145 $ 4,548 $ - $ 8,727 $ 59,966
======== ======== ======== ======== ========
Reserves on balance sheet:
Accrued general and product liability costs $ 15,930 $ 5,780 $ - $ 5,616 (3) $ 16,094
======== ======== ======== ======== ========
--------
(1) Uncollectible accounts written off, net of recoveries
(2) Obsolete inventory disposals
(3) Insurance claims and expenses paid
(4) Reserves at date of disposal of subsidiary
F-39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURES
-------------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
-----------------------
MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of March 31, 2007, an evaluation was performed under the supervision and
with the participation of our management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of March
31, 2007. There were no changes in our internal controls or in other factors
during our fourth quarter ended March 31, 2007.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of March 31, 2007 based on the
framework in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management concluded that our internal control over financial
reporting was effective as of March 31, 2007.
Management's assessment of the effectiveness of our internal control over
financial reporting as of March 31, 2007 has been audited by Ernst & Young LLP,
an independent registered public accounting firm, as stated in their report
which is included herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Columbus McKinnon Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Columbus
McKinnon Corporation maintained effective internal control over financial
reporting as of March 31, 2007, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Columbus McKinnon
Corporation's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
30
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Columbus McKinnon Corporation
maintained effective internal control over financial reporting as of March 31,
2007, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Columbus McKinnon Corporation maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Columbus McKinnon Corporation and subsidiaries as of March 31, 2007 and 2006,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 2007 of
Columbus McKinnon Corporation and subsidiaries, and our report dated May 25,
2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
May 25, 2007
ITEM 9B. OTHER INFORMATION
-----------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information regarding Directors and Executive Officers of the
Registrant will be included in a Proxy Statement to be filed with the Commission
prior to July 29, 2007 and upon the filing of such Proxy Statement, is
incorporated by reference herein.
The charters of our Audit Committee, Compensation Committee,
Nomination/Succession Committee and Governance Committee are available on our
website at WWW.CMWORKS.COM and are available to any shareholder upon request to
the Corporate Secretary. The information on the Company's website is not
incorporated by reference into this Annual Report on Form 10-K.
We have adopted a code of ethics that applies to all of our employees,
including our principal executive officer, principal financial officer and
principal accounting officer, as well as our directors. Our code of ethics, the
Columbus McKinnon Corporation Legal Compliance & Business Ethics Manual, is
available on our website at WWW.CMWORKS.COM. We intend to disclose any amendment
to, or waiver from, the code of ethics that applies to our principal executive
officer, principal financial officer or principal accounting officer otherwise
required to be disclosed under Item 10 of Form 8-K by posting such amendment or
waiver, as applicable, on our website.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information regarding Executive Compensation will be included in a
Proxy Statement to be filed with the Commission prior to July 29, 2007 and upon
the filing of such Proxy Statement, is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information regarding Security Ownership of Certain Beneficial Owners
and Management will be included in a Proxy Statement to be filed with the
Commission prior to July 29, 2007 and upon the filing of such Proxy Statement,
is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
31
The information regarding Certain Relationships and Related Transactions
will be included in a Proxy Statement to be filed with the Commission prior to
July 29, 2007 and upon the filing of such Proxy Statement, is incorporated by
reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
The information regarding Principal Accountant Fees and Services will be
included in a Proxy Statement to be filed with the Commission prior to July 29,
2007 and upon the filing of such Proxy Statement, is incorporated by reference
herein.
PART IV
-------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------
(1) FINANCIAL STATEMENTS:
---------------------
The following consolidated financial statements of Columbus McKinnon
Corporation are included in Item 8:
REFERENCE PAGE NO.
--------- --------
Report of Independent Registered Public Accounting Firm F-2
Consolidated balance sheets - March 31, 2007 and 2006 F-3
Consolidated statements of operations - Years ended March 31, 2007, 2006 and 2005 F-4
Consolidated statements of shareholders' equity - Years ended March 31, 2007, 2006 and 2005 F-5
Consolidated statements of cash flows - Years ended March 31, 2007, 2006 and 2005 F-6
Notes to consolidated financial statements F-7 to F-38
(2) FINANCIAL STATEMENT SCHEDULE: PAGE NO.
----------------------------- --------
Schedule II - Valuation and qualifying accounts F-39
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) EXHIBITS:
---------
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement
No. 33-80687 on Form S-1 dated December 21, 1995).
3.2 Amended By-Laws of the Registrant (incorporated by reference to
Exhibit 3 to the Company's Current Report on Form 8-K dated May 17,
1999).
4.1 Specimen common share certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995.)
32
4.2 First Amendment and Restatement of Rights Agreement, dated as of
October 1, 1998, between Columbus McKinnon Corporation and American
Stock Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 29, 2003).
4.3 Indenture, dated as of March 31, 1998, among Columbus McKinnon
Corporation, the guarantors named on the signature pages thereto and
State Street Bank and Trust Company, N.A., as trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 9, 1998).
4.4 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc., LICO
Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products,
Inc., Mechanical Products, Inc., Minitec Corporation and State Street
Bank and Trust Company, N.A., as trustee, dated March 31, 1998
(incorporated by reference to Exhibit 4.3 to the Company's Current
Report on form 8-K dated April 9, 1998).
4.5 Second Supplemental Indenture among Abell-Howe Crane, Inc., LICO,
Inc., Automatic Systems, Inc. LICO Steel, Inc., Columbus McKinnon
Corporation, Yale Industrial Products Inc. and State Street Bank and
Trust Company, N.A., as trustee, dated as of February 12, 1999
(incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
4.6 Third Supplemental Indenture among G.L. International, Inc., Gaffey,
Inc., Handling Systems and Conveyors, Inc., Larco Material Handling
Inc., Abell-Howe Crane, Inc., LICO, Inc., Automatic Systems, Inc.,
LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial
Products, Inc. and State Street Bank and Trust Company, N.A., as
trustee, dated as of March 1, 1999 (incorporated by reference to
Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999).
4.7 Fourth Supplemental Indenture among Washington Equipment Company, G.L.
International, Inc., Gaffey, Inc., Handling Systems and Conveyors,
Inc., Larco Material Handling Inc., Abell-Howe Crane, Inc., Automatic
Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation, Yale
Industrial Products, Inc. and State Street Bank and Trust Company,
N.A., as trustee, dated as of November 1, 1999 (incorporated by
reference to Exhibit 10.2 to the Company's quarterly report on form
10-Q for the quarterly period ended October 3, 1999).
4.8 Fifth Supplemental Indenture among Columbus McKinnon Corporation,
Crane Equipment & Service, Inc., Automatic Systems, Inc., LICO Steel,
Inc., Yale Industrial Products, Inc. and State Street Bank and Trust
Company, N.A., as trustee, dated as of April 4, 2002 (incorporated by
reference to Exhibit 4.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2002).
4.9 Sixth Supplemental Indenture among Columbus McKinnon Corporation,
Audubon West, Inc., Crane Equipment & Service, Inc., LICO Steel, Inc.,
Yale Industrial Products, Inc., Audubon Europe S.a.r.l. and State
Street Bank and Trust Company, N.A., as trustee, dated as of August 5,
2002 (incorporated by reference to Exhibit 4.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
4.10 Seventh Supplemental Indenture among Columbus McKinnon Corporation,
Crane Equipment & Service, Inc., Yale Industrial Products, Inc.,
Audubon Europe S.a.r.l. and U.S. Bank National Trust Association, as
trustee, dated as of August 30, 2005 (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended October 2, 2005).
4.11 Indenture, dated as of July 22, 2003, among Columbus McKinnon
Corporation, the guarantors named on the signature pages thereto and
U.S. Bank Trust National Association, as trustee (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 29, 2003).
4.12 First Supplemental Indenture, dated as of September 19, 2003, among
Columbus McKinnon Corporation, the guarantors named on the signature
pages thereto and U.S. Bank Trust National Association, as trustee
(incorporated by reference to Exhibit 4.13 to Amendment No. 1 to the
Company's Registration Statement No. 333-109730 on Form S-4/A dated
November 7, 2003).
33
4.13 Indenture among Columbus McKinnon Corporation, Audubon Europe
S.a.r.l., Crane Equipment & Service, Inc., Yale Industrial Products,
Inc.. and U.S. Bank National Association., as trustee, dated as of
September 2, 2005 (incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement No. 33-129142 on Form S-3 dated
October 19, 2005).
4.14 Registration Rights Agreement among Columbus McKinnon Corporation,
Audubon Europe S.a.r.l., Crane Equipment & Service, Inc., Yale
Industrial Products, Inc., and Credit Suisse First Boston LLC, acting
on behalf of itself and as Representative of the Initial Purchasers,
dated as of September 2, 2005 (incorporated by reference to Exhibit
4.6 to the Company's Registration Statement No. 33-129142 on Form S-3
dated October 19, 2005).
10.1 Agreement by and among Columbus McKinnon Corporation Employee Stock
Ownership Trust, Columbus McKinnon Corporation and Marine Midland
Bank, dated November 2, 1995 (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement No. 33-80687 on Form S-1
dated December 21, 1995).
#10.2 Columbus McKinnon Corporation Employee Stock Ownership Plan
Restatement Effective April 1, 1989 (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
#10.3 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 2, 1995 (incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.4 Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated October 17, 1995 (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997).
#10.5 Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan, dated March 27, 1996 (incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997).
#10.6 Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
September 30, 1996 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996).
#10.7 Amendment No. 5 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
August 28, 1997 (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1998).
#10.8 Amendment No. 6 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated June
24, 1998 (incorporated by reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998).
#10.9 Amendment No. 7 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
April 30, 2000 (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2000).
#10.10 Amendment No. 8 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 26, 2002 (incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2002).
#10.11 Amendment No. 9 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 27, 2003 (incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2003).
#10.12 Amendment No. 10 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
February 28, 2004 (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2004).
34
#10.13 Amendment No. 11 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
December 19, 2003 (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 28, 2003).
#10.14 Amendment No. 12 to the Columbus McKinnon Corporation Employee Stock
Ownership Plan as Amended and Restated as of April 1, 1989, dated
March 17, 2005 (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2005).
#10.15 Columbus McKinnon Corporation Personal Retirement Account Plan Trust
Agreement, dated April 1, 1987 (incorporated by reference to Exhibit
10.25 to the Company's Registration Statement No. 33-80687 on Form S-1
dated December 21, 1995).
#10.16 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock
Ownership Trust Agreement (formerly known as the Columbus McKinnon
Corporation Personal Retirement Account Plan Trust Agreement)
effective November 1, 1988 (incorporated by reference to Exhibit 10.26
to the Company's Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.17 Amendment and Restatement of Columbus McKinnon Corporation 1995
Incentive Stock Option Plan (incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999).
#10.18 Second Amendment to the Columbus McKinnon Corporation 1995 Incentive
Stock Option Plan, as amended and restated (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 29, 2002).
#10.19 Columbus McKinnon Corporation Restricted Stock Plan, as amended and
restated (incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement No. 33-80687 on Form S-1 dated December 21,
1995).
#10.20 Second Amendment to the Columbus McKinnon Corporation Restricted Stock
Plan (incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
29, 2002).
#10.21 Amendment and Restatement of Columbus McKinnon Corporation
Non-Qualified Stock Option Plan (incorporated by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999).
#10.22 Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement
Effective January 1, 1998 (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 27, 1998).
#10.23 Amendment No. 1 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated December 10, 1998
(incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
#10.24 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401 (k)] Plan, dated June 1, 2000 (incorporated by
reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2000).
#10.25 Amendment No. 3 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401 (k)] Plan, dated March 26, 2002 (incorporated
by reference to Exhibit 10.39 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
#10.26 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated May 10, 2002 (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 29, 2002).
35
#10.27 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated December 20, 2002
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 29, 2002).
#10.28 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated May 22, 2003 (incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2003).
#10.29 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated April 14, 2004 (incorporated
by reference to Exhibit 10.28 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2004).
#10.30 Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated December 19, 2003
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 28, 2003).
#10.31 Amendment No. 9 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated March 16, 2004 (incorporated
by reference to Exhibit 10.30 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2004).
#10.32 Amendment No. 10 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated July 12, 2004 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended July 4, 2004).
#10.33 Amendment No. 11 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated March 31, 2005 (incorporated
by reference to Exhibit 10.33 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2005).
#10.34 Amendment No. 12 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated December 27, 2005
(incorporated by reference to Exhibit 10.34 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2006).
*#10.35 Amendment No. 13 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Thrift [401(k)] Plan, dated December 21, 2006.
#10.36 Columbus McKinnon Corporation Thrift 401(k) Plan Trust Agreement
Restatement Effective August 9, 1994 (incorporated by reference to
Exhibit 10.32 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
#10.37 Columbus McKinnon Corporation Monthly Retirement Benefit Plan
Restatement Effective April 1, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 27, 1998).
#10.38 Amendment No. 1 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated December 10, 1998
(incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
#10.39 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated May 26, 1999
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999).
#10.40 Amendment No. 3 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated March 26, 2002
(incorporated by reference to Exhibit 10.44 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
#10.41 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated December 20, 2002
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 29, 2002).
36
#10.42 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated February 28, 2004
(incorporated by reference to Exhibit 10.37 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2004).
#10.43 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated March 17, 2005
(incorporated by reference to Exhibit 10.41 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2005).
#10.44 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated December 28, 2005
(incorporated by reference to Exhibit 10.43 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2006).
#10.45 Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon
Corporation Monthly Retirement Benefit Plan, dated December 28, 2005
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 2006).
#10.46 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust
Agreement Effective as of April 1, 1987 (incorporated by reference to
Exhibit 10.34 to the Company's Registration Statement No. 33-80687 on
Form S-1 dated December 21, 1995).
#10.47 Form of Change in Control Agreement as entered into between Columbus
McKinnon Corporation and each of Timothy T. Tevens, Derwin R.
Gilbreath, Karen L. Howard, Joseph J. Owen, Richard A. Steinberg, and
Timothy R. Harvey, (incorporated by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year ended March,
31, 1998).
*#10.48 Employment agreement with Wolfgang Wegener dated December 31, 1996.
10.49 Intercreditor Agreement dated as of July 22, 2003 among Columbus
McKinnon Corporation, the subsidiary guarantors as listed thereon,
Fleet Capital Corporation, as Credit Agent, and U.S. Bank Trust
National Association, as Trustee (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 29, 2003).
10.50 Second Amended and Restated Credit and Security Agreement, dated as of
November 21, 2002 and amended and restated as of January 2, 2004,
among Columbus McKinnon Corporation, as Borrower, Larco Industrial
Services Ltd., Columbus McKinnon Limited, the Guarantors Named Herein,
the Lenders Party Hereto From Time to Time, Fleet Capital Corporation,
as Administrative Agent, Fleet National Bank, as Issuing Lender,
Congress Financial Corporation (Central), Syndication Agent, Merrill
Lynch Capital, a Division of Merrill Lynch Business Financial Services
Inc., as Documentation Agent, and Fleet Securities, Inc., as Arranger
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 28, 2003).
#10.51 Columbus McKinnon Corporation Corporate Management Variable
Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
October 3, 2004).
#10.52 Columbus McKinnon Corporation 2006 Long Term Incentive Plan
(incorporated by reference to Appendix A to the definitive Proxy
Statement for the Annual Meeting of Stockholders of Columbus McKinnon
Corporation held on July 31, 2006).
#10.53 Columbus McKinnon Corporation Executive Management Variable
Compensation Plan (incorporated by reference to Appendix B to the
definitive Proxy Statement for the Annual Meeting of Stockholders of
Columbus McKinnon Corporation held on July 31, 2006).
10.54 First Amendment to that certain Second Amended and Restated Credit and
Security Agreement, dated as of November 21, 2002 and amended and
restated as of January 2, 2004, among Columbus McKinnon Corporation,
as Borrower, Larco Industrial Services Ltd., Columbus McKinnon
Limited, the Guarantors
37
From Time to Time Party Thereto, the Lenders From Time to Time Party
Thereto, Bank of America, N.A. as Administrative Agent for such
Lenders and as Issuing Lender dated April 29, 2005 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated April 29, 2005).
10.55 Second amendment, dated as of August 5, 2005, to that certain Second
Amended and Restated Credit and Security Agreement, dated as of
November 21, 2002 and amended and restated as of January 2, 2004 (as
amended by that certain First Amendment to that certain Second Amended
and Restated Credit and Security Agreement, dated as of April 29,
2005, and as further modified and supplemented and in effect from time
to time, the "Credit Agreement"), among Columbus McKinnon Corporation,
a corporation organized under the laws of New York (the "Borrower"),
Larco Industrial Services Ltd., a business corporation organized under
the laws of the Province of Ontario, Columbus McKinnon Limited, a
business corporation organized under the laws of Canada, the
Guarantors from time to time party thereto, the Lenders from time to
time party thereto (collectively, the "Lenders"), Bank of America,
N.A., as Administrative Agent for such Lenders (the "Agent") and as
Issuing Lender (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q dated October 2, 2005).
10.56 Third amendment, dated as of August 22, 2005, to that certain Second
Amended and Restated Credit and Security Agreement, dated as of
November 21, 2002 and amended and restated as of January 2, 2004 (as
amended by that certain First Amendment to that certain Second Amended
and Restated Credit and Security Agreement, dated as of April 29,
2005, by that certain Second Amendment to that certain Second Amended
and Restated Credit and Security Agreement, dated as of August 5,
2005, and as further modified and supplemented and in effect from time
to time, the "Credit Agreement"), among Columbus McKinnon Corporation,
a corporation organized under the laws of New York (the "Borrower"),
Larco Industrial Services Ltd., a business corporation organized under
the laws of the Province of Ontario, Columbus McKinnon Limited, a
business corporation organized under the laws of Canada, the
Guarantors from time to time party thereto, the Lenders from time to
time party thereto (collectively, the "Lenders"), Bank of America,
N.A., as Administrative Agent for such Lenders (the "Agent") and as
Issuing Lender (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q dated October 2, 2005).
10.57 Fourth amendment, dated as of October 17, 2005, to that certain Second
Amended and Restated Credit and Security Agreement, dated as of
November 21, 2002 and amended and restated as of January 2, 2004, and
amended by that certain First Amendment to the Credit Agreement, dated
as of April 29, 2005, and by that certain Second Amendment to the
Credit Agreement, dated as of August 5, 2005, and by that certain
Third Amendment to the Credit Agreement, dated as of August 22, 2005
(as further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Columbus McKinnon Corporation
(the "Borrower"), Larco Industrial Services Ltd., Columbus McKinnon
Limited, the Guarantors named therein, the lending institutions party
thereto, and Bank of America, N.A., as Administrative Agent and
Issuing Lender. Capitalized terms used herein and not defined herein
shall have the meanings ascribed thereto in the Credit Agreement
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q dated October 2, 2005).
10.58 Third Amended and Restated Credit and Security Agreement, dated as of
March 16, 2006 among Columbus McKinnon Corporation, as the Borrower,
Bank of America, N.A., as Administrative Agent and Issuing Lender, and
Other Lenders Party Hereto, and Bank of America Securities LLC, as
Arranger (incorporated by reference to Exhibit 10.53 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 2006).
*10.59 First amendment, dated as of January 8, 2007 to that certain Third
Amended and Restated Credit and Security Agreement, dated as of March
16, 2006 among Columbus McKinnon Corporation, as the Borrower, Bank of
America, N.A., as Administrative Agent and Issuing Lender, and Other
Lenders Party Hereto, and Bank of America Securities LLC, as Arranger.
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Independent Registered Public Accounting Firm.
*31.1 Certification of the principal executive officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
38
*31.2 Certification of the principal financial officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
*32.1 Certification of the principal executive officer and the principal
financial officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. Section 1350, as
adopted by pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The information contained in this exhibit shall not be deemed filed
with the Securities and Exchange Commission nor incorporated by
reference in any registration statement foiled by the Registrant under
the Securities Act of 1933, as amended.
-----------------
* Filed herewith
# Indicates a Management contract or compensation plan or arrangement
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 31, 2007
COLUMBUS MCKINNON CORPORATION
By: /S/ TIMOTHY T. TEVENS
-------------------------
Timothy T. Tevens
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ TIMOTHY T. TEVENS President, Chief Executive Officer and May 31, 2007
------------------------------------ Director (PRINCIPAL EXECUTIVE OFFICER)
TIMOTHY T. TEVENS
/S/ KAREN L. HOWARD Vice President - Finance and Chief May 31, 2007
------------------------------------ Financial Officer
KAREN L. HOWARD (PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
/S/ ERNEST R. VEREBELYI Chairman of the Board of Directors May 31, 2007
------------------------------------
ERNEST R. VEREBELYI
Director May 31, 2007
------------------------------------
CARLOS PASCUAL
/S/ RICHARD H. FLEMING Director May 31, 2007
------------------------------------
RICHARD H. FLEMING
/S/ NICHOLAS T. PINCHUK Director May 31, 2007
------------------------------------
NICHOLAS T. PINCHUK
/S/ WALLACE W. CREEK Director May 31, 2007
------------------------------------
WALLACE W. CREEK
/S/ LINDA A. GOODSPEED Director May 31, 2007
------------------------------------
LINDA A. GOODSPEED
/S/ STEPHEN RABINOWITZ Director May 31, 2007
------------------------------------
STEPHEN RABINOWITZ
40