UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 2)
[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, 2006
COMMISSION FILE NUMBER 0-27618
-----------------
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)
-----------------
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 [ ] No [X]
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, 2005 was approximately $315 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 May 31, 2006 was 18,708,522 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its 2006 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, 2006 are incorporated by reference into Part III of this
report.
EXPLANATORY NOTE
This amendment on Form 10-K/A (Amendment No. 2) amends our annual report on Form
10-K for the fiscal year ended March 31, 2006, as filed with the Securities and
Exchange Commission on June 7, 2006 and previously amended on June 29, 2006.
This Amendment No. 2 is being filed to correct an error in the referenced 10-K
report in the Section 906 Certifications of our principal executive and
principal financial officer. No other changes have been made. This amendment is
not intended to update other information presented in the annual report as
originally filed or amended by Amendment No 1.
1
COLUMBUS MCKINNON CORPORATION
2006 ANNUAL REPORT ON FORM 10-K
This annual report contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements involve
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from the results expressed or implied by
such statements, including general economic and business conditions, conditions
affecting the industries served by us and our subsidiaries, conditions affecting
our customers and suppliers, competitor responses to our products and services,
the overall market acceptance of such products and services, the integration of
acquisitions and other factors set forth herein under "Management's Discussion
and Analysis of Results of Operations and Financial Condition - Factors
Affecting Our Operating Results." We use words like "will," "may," "should,"
"plan," "believe," "expect," "anticipate," "intend," "future" and other similar
expressions to identify forward looking statements. These forward looking
statements speak only as of their respective dates and we do not undertake and
specifically decline any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated changes. Our actual operating
results could differ materially from those predicted in these forward-looking
statements, and any other events anticipated in the forward-looking statements
may not actually occur.
PART I
------
ITEM 1. BUSINESS
GENERAL
We are a leading manufacturer and marketer of hoists, cranes, chain,
conveyors, material handling systems, lift tables and component parts serving a
wide variety of commercial and industrial end-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 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
largely as the result of the 14 businesses we acquired since February 1994.
These acquisitions have significantly broadened our product lines and services
and expanded our geographic, end-user markets and our customer base. Our senior
management has substantial experience in the acquisition and integration of
businesses, aggressive cost management, efficient manufacturing techniques and
global operations, all of which are critical to our long-term growth strategy.
We have a proven track record of acquiring complementary businesses and product
lines, integrating their activities into our organization, and aggressively
managing their cost structures to improve operating efficiencies. The history of
our Products and Solutions acquisitions since 1994 is outlined below (purchase
price in millions):
2
PURCHASE
DATE OF ACQUISITION ACQUIRED COMPANY PRICE PRODUCTS/SERVICES
------------------- ---------------- ----- -----------------
April 1999 Washington Equipment Company $ 6.4 Overhead cranes
March 1999 GL International (1) 20.6 Overhead cranes
January 1999 Camlok/Tigrip 10.6 Plate clamps, crane weighers
December 1998 Gautier 2.9 Rotary unions, swivel joints
August 1998 Abell-Howe Crane 7.0 Overhead cranes
March 1998 ASI (2) 155.0 Design and manufacture of custom conveyor systems
January 1998 Univeyor 15.0 Design and manufacture of powered roller conveyor
systems
December 1996 Lister (3) 7.0 Cement kiln, anchor and buoy chain
October 1996 Yale (4) 270.0 Hoists, scissor lift tables, actuators, jacks and
rotary
unions
November 1995 Lift-Tech 63.0 Hoists
October 1995 Endor 2.0 Hoists
January 1995 Cady Lifters 0.8 Below-the-hook lifters
December 1994 Conco 0.8 Operator controlled manipulators
February 1994 Durbin-Durco 2.4 Load securing equipment and attachments
--------------------
(1) In January 2002, we sold Handling Systems & Conveyors, Inc., a subsidiary
of GL International.
(2) In May 2002, we sold substantially all of the assets of Automatic Systems,
Inc. ("ASI") and in March 2003, we sold LICO Steel, Inc., a subsidiary of
Audubon West, formerly ASI.
(3) In February 2004, we sold the assets of the Lister Chain & Forge division.
(4) In August 1998, we sold the Mechanical Products division of Yale.
OUR POSITION IN THE INDUSTRY
The $60 billion U.S. material handling industry is generally divided into
the following sectors:
o overhead material handling and lifting devices;
o continuous materials movement;
o wheeled handling devices;
o pallets, containers and packaging;
o storage equipment and shop furniture;
o automation systems and robots; and
o services and unbundled software.
The breadth of our products and services enables us to participate in each
of these sectors, except for pallets, containers and packaging and storage
equipment and shop furniture. This diversification, together with our extensive
and varied distribution channels, minimizes our dependence on any particular
product, market or customer. We believe that none of our competitors offers the
variety of products or services in the markets we serve.
We believe that the demand for our products and services has increased
during the last twelve months and we believe the demand will continue to
increase in the future as a result of several favorable trends. These trends
include:
FAVORABLE INDUSTRY TRENDS. The U.S. industrial economy has improved since
2003, as U.S. industrial capacity utilization rates have increased from cyclical
lows. Our business performance is influenced by the state of the U.S. industrial
economy.
PRODUCTIVITY ENHANCEMENT. In recent years, employers have responded to
competitive pressures by seeking to maximize productivity and efficiency. Our
hoists and other lifting and positioning products allow loads to be lifted and
placed quickly, precisely, with little effort and fewer people, thereby
increasing productivity and reducing cycle time.
3
SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace
safety regulations such as the Occupational Safety and Health Act and the
Americans with Disabilities Act, and by the general competitive need to reduce
costs such as health insurance premiums and workers' compensation expenses,
employers seek safer ways to lift and position loads. Our lifting and
positioning products enable these tasks to be performed with reduced risk of
personal injury.
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 in North America. We have developed our
leading market positions over our 131-year history by emphasizing technological
innovation, manufacturing excellence and superior after-sale service.
Approximately 74% of our domestic net sales for the year ended March 31, 2006
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 market leader:
PERCENTAGE OF
PRODUCT CATEGORY U.S. MARKET SHARE U.S. MARKET POSITION DOMESTIC NET SALES
---------------- ----------------- -------------------- ------------------
Powered Hoists (1) 53% #1 27%
Manual Hoists & Trolleys (1) 66% #1 14%
Forged Attachments (1) 46% #1 10%
Lifting and Sling Chains (1) 59% #1 6%
Hoist Parts (2) 60% #1 9%
Mechanical Actuators (3) 40% #1 5%
Tire Shredders (4) 80% #1 2%
Jib Cranes (5) 45% #1 1%
-----
74%
-------------
(1) Market share and market position data are internal estimates derived
from survey information collected and provided by our trade
associations.
(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
based on discussions with that competitor, and to estimates of total
market sales from a trade association.
(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.
(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.
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, research and development and marketing costs over a larger sales
base and (iii) achieve purchasing efficiencies on common materials used across
our product lines.
4
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 product 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. We enjoy long-standing
relationships with, and are a preferred provider to, the majority of our largest
distributors and industrial buying groups. Over the past decade, there has been
significant consolidation among distributors of material handling equipment. We
have benefited from this consolidation and have maintained and enhanced our
relationships with our leading distributors, as well as formed new
relationships. We believe our extensive North American distribution channels
provide a significant competitive advantage and allow us to effectively market
new product line extensions and promote cross-selling.
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 $198.3 million (representing 36% of our total sales) during the year
ended March 31, 2006. 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 will continue to consolidate our
manufacturing operations and reduce our manufacturing costs through the
initiatives summarized below. Our low-cost manufacturing capability continues to
positively impact our operating performance as volumes increase.
-- RATIONALIZATION AND CONSOLIDATION. From fiscal 2002 through fiscal
2004, we closed 10 manufacturing plants and three warehouses, as more
fully described in "Our Strategy" below.
-- LEAN MANUFACTURING. In fiscal 2002, we 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.
-- 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.
-- INTERNATIONAL EXPANSION. Our continued expansion of our manufacturing
facilities in China and Mexico provides us with another cost efficient
platform to manufacture and distribute certain of our products. We now
operate 26 manufacturing facilities in nine countries, with 26 stand
alone sales and service offices in 12 countries, and nine stand alone
warehouse facilities in five countries.
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
reducing our costs, increasing our inventory turnover and reducing the capital
intensity of our manufacturing operations. From the beginning of fiscal 2004
through fiscal 2006, we have reduced total debt by $106.5 million, from $316.3
million to $209.8 million, which includes application of $47.6 million of net
proceeds from our November 2005 secondary offering.
5
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT 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 7% of our outstanding common stock.
OUR STRATEGY
INCREASE OUR DOMESTIC ORGANIC GROWTH. We intend to leverage our strong
competitive advantages to increase our domestic market share across all of our
product lines by:
-- LEVERAGING OUR STRONG COMPETITIVE POSITION. Our large diversified
customer base, our extensive distribution channels and our close
relationship 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 customer needs.
Over the past three years, we have developed over 100 new or
cross-branded products, representing approximately $27.5 million in
fiscal 2006 revenues. During fiscal 2004, we established a dedicated
hoist product development team. The majority of the hoist products
under development are guided by the Federation of European
Manufacturing, or FEM, standard. We believe these FEM hoist products
will facilitate our global sales expansion strategy as well as improve
our cost competitiveness against internationally made products
imported into the U.S.
Recent new product introductions include:
o global wire rope hoists used in overhead cranes;
o Hand hoists and lever tools manufactured at our Chinese
plants;
o a variety of new forged lifting attachments;
o pallet layer picking systems;
o high-speed, light-weight, mini-load cranes, used in
warehouse applications; and
o Techlink crane and hoist maintenance and inspection
software.
-- 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
$198.3 million comprised 36% of our net sales for the year ended March 31, 2006,
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 and China. In addition to new product introductions, we
continue to expand our sales and service presence in the major market areas of
Europe, Asia-Pacific and South America through our sales offices and warehouse
facilities in Europe, 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 and
China for distribution in Europe and Asia-Pacific. We have developed and are
continuing to expand upon new hoist products in compliance with FEM standards 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 and China. In furtherance of this objective, we have
undertaken the following:
6
-- RATIONALIZATION OF FACILITIES. From fiscal 2002 through fiscal 2004,
we 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. We are currently investigating opportunities for further
facility rationalization.
-- IMPLEMENTATION OF LEAN MANUFACTURING. We expect to continue to
identify potential efficiencies in our operations through Lean
Manufacturing initiated in fiscal 2002. Through fiscal 2006, we have
instituted Lean Manufacturing at 16 of our 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, we have reduced inventories by
approximately $34.1 million, or 31.3%, improved productivity and
achieved significant reductions in product lead times. Specifically,
in fiscal 2006 and 2005, we improved inventory turns by 7.5% to 5.7x
for the fourth quarter of fiscal 2006 from 5.3x for the fourth quarter
of fiscal 2004. Our Lean Manufacturing initiative has complemented our
strategy of rationalizing our manufacturing facilities.
-- LEVERAGE 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.
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 reduce 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. We further believe that such operating leverage will result
in increased operating cash flow available for debt reduction, as well
as investment into new products and new markets.
-- 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
believe our improved working capital management and increased
productivity will further result in increased free cash flow available
for debt reduction.
-- SALE OF EXCESS REAL ESTATE. As a result of our Lean Manufacturing and
plant rationalization initiatives, we have identified excess real
estate to be sold. During fiscal 2006, we generated $2.1 million from
such real estate sales. The proceeds of such sales have been, and will
continue to be, used to repay our outstanding debt.
OUR SEGMENTS
We currently report our operations in two business segments, Products and
Solutions.
Our Products segment designs, manufactures and distributes a broad range of
material handling products for various industrial applications and for consumer
use. Products in this segment include a wide variety of electric, lever, hand
and air-powered hoists; hoist trolleys; industrial crane systems such as bridge,
gantry and jib cranes; alloy, carbon steel and kiln chain; closed-die forged
attachments, such as hooks, shackles, logging tools and loadbinders; industrial
components, such as mechanical and electromechanical actuators, mechanical jacks
and rotary unions; and below-the-hook special purpose lifters. These products
are typically manufactured for stock or assembled to order from standard
components and are sold through a variety of commercial distributors and to
end-users. The end-users of our products are in manufacturing plants, power
utility facilities and warehouses. Some of our products have farming, mining and
logging applications, and we serve a niche market for the entertainment
industry. We also sell some of our products to the consumer market through a
variety of retailers and wholesalers.
Our Solutions segment is engaged primarily in the design, fabrication and
installation of integrated workstation and facility-wide material handling
systems and in the design and manufacture of tire shredders. This segment also
included our Positech manipulator business which was divested in February 2004.
The products and services of this segment are highly engineered, are typically
built to order and are primarily sold directly to end-users for specific
applications in a variety of industries.
7
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 2006, 2005 and 2004 is set forth below.
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------
2006 2005 2004
--------------------------------- ----------------------------- -----------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------------- ---------- --------------- ----------- ------------- ------------
(DOLLARS IN MILLIONS)
Net Sales
Products.................$ 493.9 88.8 $ 453.1 88.0 $ 394.2 88.7
Solutions................. 62.1 11.2 61.7 12.0 50.4 11.3
--------------- ---------- --------------- ----------- ------------- ------------
Total...............$ 556.0 100.0 $ 514.8 100.0 $ 444.6 100.0
=============== ========== =============== =========== ============= ============
% OF % OF % OF
SEGMENT SEGMENT SEGMENT
/TOTAL /TOTAL /TOTAL
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------------- ---------- --------------- ----------- ------------- ------------
Income from Operations
Products.................$ 55.9 11.3 $ 39.4 8.7 $ 32.3 8.2
Solutions................. 2.0 3.2 1.3 2.1 (2.4) (4.9)
--------------- ---------- --------------- ----------- ------------- ------------
Total...............$ 57.9 10.4 $ 40.7 7.9 $ 29.9 6.7
=============== ========== =============== =========== ============= ============
PRODUCTS SEGMENT
PRODUCTS
Our Products segment primarily designs, manufactures and distributes a
broad range of material handling, lifting and positioning products for various
applications in industry and for consumer use and has total assets of
approximately $530.6 million as of March 31, 2006. These products are typically
manufactured for stock or assembled to order from standard components and are
sold through a variety of distributors. Approximately 75% of our Products
segment net sales is derived from the sale of products that we sell at a unit
price of less than $5,000. In fiscal 2006, net sales of the Products segment
were approximately $493.9 million or approximately 88.8% of our net sales, of
which approximately $342.5 million, or 69.4% were domestic and $151.4 million,
or 30.6% 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 2006 and 2005:
FISCAL YEARS ENDED MARCH 31,
----------------------------
2006 2005
------------ ------------
Hoists........................ 52% 50%
Chain......................... 15 16
Forged attachments............ 12 12
Industrial cranes............. 13 14
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 a variety of general industrial applications, as well as for use in
the entertainment, consumer, rental and other markets. We also supply hoist
trolleys, driven manually or by electric motors, for the industrial, consumer
and OEM markets.
8
We offer a line 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.
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.
In addition, we previously sold anchor and buoy chain to the U.S. and Canadian
governments through our Lister Chain & Forge division which was sold in February
2004.
FORGED ATTACHMENTS. We also 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 crane manufacturing market through our
August 1998 acquisition of Abell-Howe, a Chicago-based regional manufacturer of
jib and overhead bridge cranes. Our March 1999 acquisition of GL International,
which included the Gaffey and Larco brands, and our April 1999 acquisition of
Washington Equipment Company established us as a significant participant in the
crane building and servicing markets. Crane builders represent a specialized
distribution channel for electric wire rope hoists, chain hoists and other crane
components.
INDUSTRIAL COMPONENTS. Through our Duff-Norton division, we design and
manufacture industrial components such as mechanical and electromechanical
actuators, mechanical jacks and rotary unions for sale domestically and abroad.
Actuators are linear motion devices used in a variety of industries, including
the paper, steel and aerospace industries. Mechanical jacks are heavy duty
lifting devices used in the repair and maintenance of railroad equipment,
locomotives and industrial machinery. Rotary unions are devices that transfer a
liquid or gas from a fixed pipe or hose to a rotating drum, cylinder or other
device. These unions are unique in that they connect a moving or rotating
component of a machine to fixed plumbing without major spillage or leakage.
Rotary unions are used in a variety of industries including pulp and paper,
printing, textile and fabric manufacturing, rubber and plastic.
SALES AND MARKETING
Our sales and marketing efforts in support of our Products segment consist
of the following programs:
FACTORY-DIRECT FIELD SALES AND CUSTOMER SERVICE. We sell our products
through our direct sales forces of more than 125 salespersons and through
independent sales agents worldwide. Our sales are further supported by our more
than 230 company-trained customer service correspondents and sales application
engineers. We compensate our sales force through a combination of base salary
and a commission plan based on top line sales and a pre-established sales quota.
PRODUCT ADVERTISING. We promote our products by regular advertising in
leading trade journals as well as producing and distributing high quality
information catalogs. We support our product distribution by running cooperative
"pull-through" advertising in over 15 vertical trade magazines and directories
aimed toward theatrical, international, consumer and crane builder markets. We
run targeted advertisements for chain, hoists, forged attachments, scissor lift
tables, actuators, hydraulic jacks, hardware programs, cranes and light-rail
systems.
TRADE SHOW PARTICIPATION. Trade shows are central to the promotion of our
products, and we participate in more than 30 regional, national and
international trade shows each year. Shows in which we participate range from
global events held in Germany to local "markets" and "open houses" organized by
individual hardware and industrial distributors. We also attend specialty shows
for the entertainment, rental and safety markets, as well as general purpose
industrial and consumer hardware shows. In fiscal 2006, we participated in trade
shows in the U.S., Canada, Mexico, Germany, the United Kingdom, France, China
and Brazil.
9
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
(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. Our web site at www.cmindustrial.com
currently includes electronic catalogs of CM brand hoist and chain products and
list prices. Current and potential customers can browse through our diverse
product offering or search for specific products by name or classification code
and obtain technical product specifications. We continue to add additional
product catalogs, maintenance manuals, advertisements and customer service
information on our various web sites. Many of the web sites allow distributors
to search for personalized pricing information, order status and product serial
number data 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. Our products are sold through the following
distribution channels:
GENERAL DISTRIBUTION CHANNELS. Our general distribution channels consist
of:
-- Industrial distributors that serve local or regional industrial
markets and sell a variety of products for maintenance, repair,
operating and production, or MROP, applications through their own
direct sales force.
-- Rigging shops that are distributors with expertise in rigging,
lifting, positioning and load securing. Most rigging shops assemble
and distribute chain, wire rope and synthetic slings and distribute
off-the-shelf hoists and attachments, chain slings and other
off-the-shelf products.
-- Independent crane builders that design, build, install and service
overhead crane and light-rail systems for general industry and also
sell a wide variety of hoists and lifting attachments. We sell
electric wire rope hoists and chain hoists as well as crane
components, such as end trucks, trolleys, drives and electrification
systems to crane builders.
CRANE END-USERS. We sell overhead bridge, jib and gantry cranes, parts and
services to end-users through our wholly owned crane builders (Abell-Howe,
Gaffey, Larco 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 specialty distribution channels
consist of:
-- Catalog houses that market a variety of MROP supplies, including
material handling products, either exclusively through large,
nationally distributed catalogs, or through a combination of catalog
and internet sales and a field sales force. More recently, catalog
houses, particularly W.W. Grainger, Inc., are pursuing e-commerce
through their web sites. The customer base served by catalog houses,
which traditionally included smaller industrial companies and
consumers, has grown to include large industrial accounts and
integrated suppliers.
-- Material handling specialists and integrators that design and assemble
systems incorporating hoists, overhead rail systems, trolleys, scissor
lift tables, manipulators, air balancers, jib arms and other material
handling products to provide end-users with solutions to their
material handling problems.
10
-- 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.
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.
INTERNATIONAL DISTRIBUTION. We distribute virtually all of our products in
over 50 countries on six continents through a variety of distribution channels.
CUSTOMER SERVICE AND TRAINING
We maintain customer service departments staffed by trained personnel for
all of our Products segment sales divisions, and regularly schedule product and
service training schools for all customer service representatives and field
sales personnel. Training programs for distribution and service station
personnel, as well as for end-users, are scheduled on a regular basis at most of
our facilities and in the field. We have more than 350 service and repair
stations worldwide that provide local and regional repair, warranty and general
service work for distributors and end-users. End-user trainees attending our
various programs include representatives of General Motors, DuPont, 3M, GTE,
Cummins Engine, General Electric and many other industrial and entertainment
organizations.
We also provide, in multiple languages, a variety of collateral material in
video, cassette, CD-ROM, slide and print format addressing relevant material
handling topics such as the care, use and inspection of chains and hoists, and
overhead lifting and positioning safety. In addition, we sponsor advisory boards
made up of representatives of our primary distributors and service-after-sale
network members who are invited to participate in discussions focused on
improving products and service. These boards enable us and our primary
distributors to exchange product and market information relevant to industry
trends.
BACKLOG
Our Products segment backlog of orders at March 31, 2006 was approximately
$53.6 million compared to approximately $42.3 million at March 31, 2005. Our
orders for standard products are generally shipped within one week. Orders for
products that are manufactured to customers' specifications are generally
shipped within four to twelve weeks. Given the short product lead times, we do
not believe that the amount of our Products segment backlog of orders is a
reliable indication of our future sales.
COMPETITION
Despite recent consolidation, the material handling industry remains highly
fragmented. We face competition from a wide range of regional, national and
international manufacturers in both domestic and international markets. In
addition, we often compete with individual operating units of larger, highly
diversified companies.
The principal competitive factors affecting our Products segment include
product performance, functionality, price, brand, reputation, reliability and
availability, as well as customer service and support. Other important factors
include distributor relationships, territory coverage and the ability to service
the distributor with on-time delivery and repair services.
11
Major competitors with our Products segment for hoists are Demag,
Kito-Harrington, Ingersoll-Rand, KCI Konecranes and Morris Material Handling;
for chain are Campbell Chain, Peerless Chain Company and American Chain and
Cable Company; for forged attachments are The Crosby Group and Brewer Tichner
Company; for crane building are Demag, KCI Konecranes, Morris Material Handling
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 work station and facility-wide material handling
systems and in the manufacture and distribution of lift tables and tire
shredders and has total assets of $35.4 million as of March 31, 2006. Net sales
of the Solutions segment in fiscal 2006 were $62.1 million, or 11.2% of our
total net sales, of which $15.1 million, or 24.4% were domestic and $47.0
million, or 75.6% were international. The following table sets forth certain
sales data for the products and services of our Solutions segment, expressed as
a percentage of this segment's net sales for fiscal 2006 and 2005:
FISCAL YEARS ENDED MARCH 31,
----------------------------
2006 2005
------------ ------------
Integrated material handling conveyor systems.. 69% 70%
Lift tables.................................... 12 13
Light-rail systems............................. 4 4
Other.......................................... 15 13
------------ ------------
100% 100%
PRODUCTS AND SERVICES
INTEGRATED MATERIAL HANDLING CONVEYOR SYSTEMS. Conveyors are an important
component of many material handling systems, reflecting their high functionality
for transporting material throughout manufacturing and warehouse facilities. We
specialize in designing computer-controlled and automated powered roller
conveyors for use in warehouse operations and distribution systems. Since fiscal
2003, we have been executing a revenue growth strategy by developing our
capabilities to function as a turnkey integrator of material handling systems,
while continuing to provide the conveyors required for the systems.
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, UPS, United
Biscuits, Lego, John Deere, Lowe's and other industrial companies, systems
integrators and distributors. In the sale of our integrated material handling
conveyor systems, we act as a prime contractor with turnkey responsibility or as
a supplier working closely with the customer's general contractor. Sales are
generated by internal sales personnel and rely heavily on engineer-to-engineer
interactions with the customer. The process of generating client contract awards
for integrated conveyor systems generally entails receiving a
request-for-quotation from customers and undergoing a competitive bidding
process. The Solutions segment also sells light-rail systems and scissor lift
tables through its internal sales force and through specialized independent
distributors and manufacturers representatives.
CUSTOMER SERVICE AND TRAINING
The Solutions segment offers a wide range of value-added services to
customers including: an engineering review of the customer's processes; an
engineering solution for identified material handling problems; project
management; and custom design, manufacturing and installation services. We also
offer after-sales services including operator training, maintenance and hot-line
support. The typical length of after-sales service varies depending on customer
requirements and supplemental training courses are offered as needed.
12
BACKLOG
Revenues from our Solutions segment are generally recognized within one to
six months. Our backlog of orders at March 31, 2006 was approximately $13.0
million compared to approximately $9.6 million at March 31, 2005.
COMPETITION
The principal competitive factors affecting the market for the products and
services of our Solutions segment include application solutions, performance and
price. The process of generating client contract awards for these businesses
generally entails receiving a request-for-quotation from end-users and
undergoing a competitive bidding process. Our Solutions segment competes
primarily with Crisplant, Diafuku, Swisslog, Gorbel and Southworth.
EMPLOYEES
At March 31, 2006, our continuing operations had 3,081 employees; 1,957 in
the U.S., 122 in Canada, 159 in Mexico/South America and 843 in Europe and Asia.
Approximately 698 of our employees are represented under seven separate U.S. or
Canadian collective bargaining agreements which terminate at various times
between August 2006 and May 2009. The contract which expires in August 2006
currently covers 137 employees. Preliminary informal negotiations for an
extension of this agreement have begun. There is another contract which expires
in March 2007 and currently covers 156 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. As the steel industry is cyclical
and steel prices can fluctuate significantly, beginning in approximately January
2004 we saw significant cost increases in certain types of steel in certain
markets. We generally seek to pass on materials price increases to our
distribution channel partners and end-user customers, although a lag period
often exists. We 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. Our ability to pass on
these increases is determined by market conditions.
MANUFACTURING
We manufacture approximately 90% of the products we sell. Additionally, we
outsource components and finished goods from an established global network of
suppliers. We regularly upgrade our manufacturing facilities and invest in
tooling, equipment and technology. We have implemented Lean Manufacturing in our
plants which has resulted in inventory reductions, reductions in required
manufacturing floor area, shorter product lead time and increased productivity.
Our manufacturing operations are highly integrated. Although raw materials
and some components such as motors, bearings, gear reducers, castings and
electro-mechanical components, are purchased, our vertical integration enables
us to produce many of the components used in the manufacturing of our products.
We manufacture hoist lifting chain, steel forged gear blanks, lift wheels,
trolley wheels, and hooks and other attachments for incorporation into our hoist
products. These products are also sold as spare parts for hoist repair.
Additionally, our hoists are used as components in the manufacture of crane
systems by us and by our 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.
13
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 2007.
Certain environmental laws, such as the U.S. federal Superfund laws and
similar state statutes, can impose liability on current or former owners or
operators of a site, or on parties who disposed of waste at a site, for the
entire cost of cleaning up a site contaminated by hazardous substances. These
costs may be assessed regardless of whether the party owned or operated the site
at the time of the releases or the lawfulness of the original disposal activity.
The required remedial activities are usually performed in the context of
administrative or judicial enforcement proceedings brought by regulatory
authorities, or in the context of voluntary cleanup agreements entered into with
such regulatory authorities. We could incur substantial costs, including cleanup
costs and third-party claims, as a result of liabilities under such
environmental laws. For example, we have been identified by the New York State
Department of Environmental Conservation, or NYSDEC, along with other companies,
as a potentially responsible party, or PRP, at the Frontier Chemical Site in
Pendleton, New York, a site listed on NYSDEC's Registry of Inactive Hazardous
Waste Disposal sites. From 1958 to 1977, the Pendleton Site had been operated as
a commercial waste treatment and disposal facility. We sent waste pickling
liquor generated at our facility in Tonawanda, New York, to the Pendleton Site
during the period from approximately 1969 to 1977, and we participated with
other PRPs in conducting the remediation of the Pendleton Site under a consent
order with NYSDEC. Construction in connection with the remediation has been
completed and this project is currently in its operations and maintenance phase.
As a result of a negotiated cost allocation among the participating PRPs, we
have paid our pro rata share of the remediation construction costs and accrued
our share of the ongoing operations and maintenance costs. As of March 31, 2006,
we have paid approximately $1.0 million in remediation and ongoing operations
and maintenance costs associated with the Pendleton Site. The participating PRPs
have identified and commenced a cost recovery action against a number of other
parties who sent hazardous substances to the Pendleton Site. Full settlements
have been reached with all defendants in the cost recovery action. All
settlement payments in connection with the Pendleton Site litigation have been
made, and we have received $0.2 million as our share of the settlement proceeds.
We have also entered into a settlement agreement with one of our insurance
carriers in the amount of $0.7 million in connection with the Pendleton Site and
have received payment in full of the settlement amount.
We are investigating past waste disposal activities at a facility in
Cleveland, Texas, operated by our subsidiary, Crane Equipment and Service, Inc.,
and we 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.
For all of the currently known environmental matters, we have accrued a
total of $0.8 million as of March 31, 2006, 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.
14
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, AND
OVER THE PAST SEVERAL YEARS WE EXPERIENCED SUBSTANTIALLY REDUCED DEMAND FOR OUR
PRODUCTS.
Many of the end-users of our products are in highly cyclical industries,
such as general manufacturing and construction, that are sensitive to changes in
general economic conditions. Their demand for our products, and thus our results
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 resulted in a 24.2% 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 in fiscal 2005 and 2006. Our net sales for fiscal
2006 were $556.0 million, up $111.4 million or 25.1% from fiscal 2004 sales.
If the current upturn 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.
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 $161.4 million in fiscal year 2006) is generated
in foreign currencies, including principally the euro and the Canadian dollar,
while a portion of the costs incurred to generate those revenues are incurred in
other currencies. Since our financial statements are denominated in U.S.
dollars, changes in currency exchange rates between the U.S. dollar and other
currencies have had, and will continue to have, an impact on our earnings. We
currently do not have exchange rate hedges in place to reduce the risk of an
adverse currency exchange movement. Currency fluctuations may impact our
financial performance in the future.
15
OUR INTERNATIONAL OPERATIONS POSE CERTAIN RISKS THAT MAY ADVERSELY IMPACT SALES
AND EARNINGS.
We have operations and assets located outside of the United States,
primarily in Canada, Mexico, Germany, the United Kingdom, Denmark, France and
China. In addition, we import a portion of our hoist product line from Asia, and
sell our products to distributors located in approximately 50 countries. In
fiscal year 2006, approximately 36% of our net sales were derived from non-U.S.
markets. These international operations are subject to a number of special
risks, in addition to the risks of our domestic business, including currency
exchange rate fluctuations, differing protections of intellectual property,
trade barriers, labor unrest, exchange controls, regional economic uncertainty,
differing (and possibly more stringent) labor regulation, risk of governmental
expropriation, domestic and foreign customs and tariffs, current and changing
regulatory environments, difficulty in obtaining distribution support,
difficulty in staffing and managing widespread operations, differences in the
availability and terms of financing, political instability and risks of
increases in taxes. Also, in some foreign jurisdictions we may be subject to
laws limiting the right and ability of entities organized or operating therein
to pay dividends or remit earnings to affiliated companies unless specified
conditions are met. These factors may adversely affect our future profits.
Part of our strategy is to expand our worldwide market share and reduce
costs by strengthening our international distribution capabilities and sourcing
basic components in foreign countries, in particular in Mexico and China.
Implementation of this strategy may increase the impact of the risks described
above, and we cannot assure you that such risks will not have an adverse effect
on our business, results of operations or financial condition.
OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR
SALES, EARNINGS AND PROFITABILITY.
The principal markets that we serve within the material handling industry
are fragmented and highly competitive. Competition is based primarily on
performance, functionality, price, brand recognition, customer service and
support, and product availability. Our competition in the markets in which we
participate comes from companies of various sizes, some of which have greater
financial and other resources than we do. Increased competition could force us
to lower our prices or to offer additional services at a higher cost to us,
which could reduce our gross margins and net income.
The greater financial resources or the lower amount of debt of certain of
our competitors may enable them to commit larger amounts of capital in response
to changing market conditions. Certain competitors may also have the ability to
develop product or service innovations that could put us at a disadvantage. In
addition, some of our competitors have achieved substantially more market
penetration in certain of the markets in which we operate, 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
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.
16
OUR FUTURE OPERATING RESULTS MAY BE AFFECTED BY FLUCTUATIONS IN STEEL PRICES. WE
MAY NOT BE ABLE TO PASS ON INCREASES IN RAW MATERIAL COSTS TO OUR CUSTOMERS.
The principal raw material used in our chain, forging and crane building
operations is steel. The steel industry as a whole is highly cyclical, and at
times pricing can be volatile due to a number of factors beyond our control,
including general economic conditions, labor costs, competition, import duties,
tariffs and currency exchange rates. During 2004, the market price of steel
increased significantly but has stabilized, or even decreased in some steel
categories during 2005 and 2006. 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 2004 through 2006, we were successful in
adding and maintaining a surcharge to the prices of our high steel content
products or incorporating them as price increases, reflecting the increased cost
of steel. 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. Effective August 4, 2005, our former Chief
Financial Officer, Robert R. Friedl, resigned as an employee of the company. We
have not entered into employment agreements with any of our senior management
personnel.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS WHICH MAY REQUIRE US TO EXPEND
SIGNIFICANT CAPITAL AND INCUR SUBSTANTIAL COST.
Our operations and facilities are subject to various federal, state, local
and foreign requirements relating to the protection of the environment,
including those governing the discharges of pollutants in the air and water, the
generation, management and disposal of hazardous substances and wastes and the
cleanup of contaminated sites. We have made, and will continue to make,
expenditures to comply with such requirements. Violations of, or liabilities
under, environmental laws and regulations, or changes in such laws and
regulations (such as the imposition of more stringent standards for discharges
into the environment), could result in substantial costs to us, including
operating costs and capital expenditures, fines and civil and criminal
sanctions, third party claims for property damage or personal injury, clean-up
costs or costs relating to the temporary or permanent discontinuance of
operations. Certain of our facilities have been in operation for many years, and
we have remediated contamination at some of our facilities. Over time, we and
other predecessor operators of such facilities have generated, used, handled and
disposed of hazardous and other regulated wastes. Additional environmental
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.
17
ITEM 2. PROPERTIES
We maintain our corporate headquarters in Amherst, New York and, as of
March 31, 2006, 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 77,000 Owned Products
Greensburg, IN Scissor lifts 70,000 Owned Solutions
Lisbon, OH Hoists 36,600 Owned Products
Cleveland, TX Cranes 35,000 Owned Products
Tonawanda, NY Light-rail crane systems 35,000 Owned Solutions
Chattanooga, TN Forged attachments 33,000 Owned Products
Sarasota, FL Tire shredders 24,954 Owned Solutions
INTERNATIONAL:
Santiago, Tianguistenco, Mexico Hoists and chain 85,000 Owned Products
Velbert, Germany Hoists 72,200 Leased Products
Arden, Denmark Project design and conveyors 71,500 Owned Solutions
Hangzhou, China Hoists and hand pallet trucks 50,000 Leased Products
Stoney Creek, Ontario, Canada Cranes 44,255 Owned Products
Hangzhou, China Metal fabrication, textiles and textile
strappings 37,000 Leased Products
Hangzhou, China Textile strappings 30,000 Leased Products
Chester, United Kingdom Plate clamps 28,100 Leased Products
Romeny-sur-Marne, France Rotary unions 21,550 Owned 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
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.
18
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Our common stock is traded on the Nasdaq Stock Market under the symbol
"CMCO." As of May 31, 2006, there were 488 holders of record of our common
stock.
We paid quarterly cash dividends on our common stock from 1988 through the
second quarter of fiscal 2002. In January 2002, we announced that we were
indefinitely suspending the payment of cash dividends on our common stock in
order to dedicate our cash resources to the repayment of outstanding
indebtedness. Our current credit agreement 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, 2004
First Quarter................................. $ 2.72 $ 1.30
Second Quarter................................ 4.84 2.31
Third Quarter................................. 7.80 4.58
Fourth Quarter............................. 11.72 6.35
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
On May 31, 2006, the closing price of our common stock on the Nasdaq Stock
Market was $26.30 per share.
19
ITEM 6. SELECTED FINANCIAL DATA
The consolidated balance sheets as of March 31, 2006 and 2005 and the
related statements of operations, cash flows and shareholders' equity for the
three years ended March 31, 2006 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,
-------------------------------------------------------------
2006 2005 2004 2003 2002
----------- --------- --------- ---------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA (1):
Net sales $ 556.0 $ 514.8 $ 444.6 $ 453.3 $ 480.0
Cost of products sold 408.4 388.9 339.8 346.0 359.5
-------------------------------------------------------------
Gross profit 147.6 125.9 104.8 107.3 120.5
Selling expenses 54.3 52.3 48.3 47.4 43.5
General and administrative expenses 33.6 31.7 25.0 26.6 28.3
Restructuring charges (2) 1.6 0.9 1.2 3.7 9.6
Write-off/amortization of intangibles (3) 0.2 0.3 0.4 4.2 11.0
-------------------------------------------------------------
Income from operations 57.9 40.7 29.9 25.4 28.1
Interest and debt expense 24.7 27.6 28.9 32.0 29.4
Other (income) and expense, net 5.0 (5.2) (4.2) (2.1) 2.4
-------------------------------------------------------------
Income (loss) before income taxes 28.2 18.3 5.2 (4.5) (3.7)
Income tax (benefit) expense (30.9) 2.2 4.0 1.5 2.3
-------------------------------------------------------------
Income (loss) from continuing operations 59.1 16.1 1.2 (6.0) (6.0)
Income (loss) from discontinued operations (1) 0.7 0.6 -- -- (7.9)
Loss on disposition of discontinued operations (1) -- -- -- -- (121.4)
-------------------------------------------------------------
Total income (loss) from discontinued operations 59.8 0.6 -- -- (129.3)
Cumulative effect of change in accounting
principle (3) -- -- -- (8.0) --
-------------------------------------------------------------
Net income (loss) $ 59.8 $ 16.7 $ 1.2 $ (14.0) $ (135.3)
=============================================================
Diluted earnings (loss) per share from continuing $ 3.56 $ 1.09 $ 0.08 $ (0.42) $ (0.41)
operations
Basic earnings (loss) per share from continuing
operations $ 3.69 $ 1.10 $ 0.08 $ (0.42) $ (0.41)
Weighted average shares outstanding - assuming
dilution 16.6 14.8 14.6 14.5 14.4
Weighted average shares outstanding - basic 16.1 14.6 14.6 14.5 14.4
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets (4) $ 566.0 $ 480.9 $ 473.4 $ 482.6 $ 524.3
Total debt (5) 209.8 270.9 293.4 316.3 350.4
Total shareholders' equity 204.4 81.8 63.0 52.7 71.6
OTHER FINANCIAL DATA:
Net cash provided by operating activities 48.5 17.2 26.4 14.2 49.8
Net cash provided by (used in) investing activities (6.4) 3.1 4.3 16.0 (1.6)
Net cash used in financing activities (6.4) (21.9) (21.5) (41.9) (48.5)
Capital expenditures 8.4 5.9 3.6 5.0 4.7
Cash dividends per common share 0.00 0.00 0.00 0.00 0.14
-------------
20
(1) Statement of Operations data represents our continuing operations for
all periods presented and has been restated to remove ASI results from
the continuing operations data. 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. The Company recorded an after-tax loss of
$121,475,000 or $8.43 per diluted share and reflected ASI as a
discontinued operation in the fourth quarter of fiscal 2002. The loss
included closing costs from the transaction and estimated operating
losses of the discontinued operation through the date of the sale, May
10, 2002. The loss was due primarily to the write-off of $104,000,000
of goodwill and a $17,475,000 loss related to the write-off of the
remaining net assets in excess of the selling price. Refer to Note 3
to our consolidated financial statements for additional information on
Discontinued Operations.
(2) 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 2006, 2005,
and 2004. 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. Restructuring
charges for 2002 include exit costs of $2.4 million for severance
relating to approximately 250 employees and $7.2 million of lease
termination, facility wind-down, and maintenance of non-operating
facilities prior to disposal. Included in the restructuring charges
was approximately $8.3 million to terminate a facility lease,
resulting in the purchase of the property with an estimated fair value
of approximately $2.3 million which was recorded as an offset to the
restructuring charges.
(3) 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.
(4) Total assets include net assets of discontinued operations of $21.5
million as of March 31, 2002.
(5) 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 131-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 of these businesses includes
improving our productivity, further reducing our excess manufacturing capacity
and extending our sales activities to the European and Asian marketplaces. We
are executing those initiatives through our Lean Manufacturing efforts, facility
rationalization program, 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.
21
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 development of 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. These investments in international markets
and new products are part of our focus on our greatest opportunities for growth.
International sales increased 3.7% from approximately $191,300 to $198,300
during fiscal 2006 and overall sales increased 8.0% over the same period last
year. Management believes that the growth rate of total sales may moderate in
future periods due to more difficult comparisons with our fiscal 2006 periods.
We monitor such indicators as U.S. Industrial Capacity Utilization, which has
been increasing since July 2003. In addition, we continue to monitor the
potential impact of global and domestic trends, including rising energy costs,
steel price fluctuations, rising interest rates and uncertainty in some end-user
markets around the globe.
Our Lean Manufacturing efforts are fundamentally changing our manufacturing
processes to be more responsive to customer demand and improving 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 also continue to undergo assessments for possible
divestiture of several less-strategic businesses. Our manipulator and specialty
marine chain businesses were sold in fiscal 2004 and two others remain as
possible divestiture candidates, our conveyor business which comprises a
majority of our Solutions segment and a specialty crane business within our
Products segment. During fiscal 2006, we completed the sale and partial
leaseback of 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. Additionally during 2005, we sold a small
parcel of land in Virginia. We will continue to sell surplus real estate
resulting from our facility rationalization projects and those sales may result
in gains or losses.
Consistent with most 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 2006 and we work diligently to balance cost
control with the need to provide competitive employee benefits packages for our
associates. Another cost area of focus is steel. We utilize approximately $35
million to $40 million of steel annually in a variety of forms including rod,
wire, bar, structural and others. With increases in worldwide demand for steel
and fluctuating scrap steel prices, we experienced fluctuations in our costs
that we 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.
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, 2006 VS. 2005 2005 VS. 2004
---------------------------- ------------- -------------
2006 2005 2004 AMOUNT % AMOUNT %
---- ---- ---- ------ - ------ -
Products segment............. $ 493.9 $ 453.1 $ 394.2 $ 40.8 9.0 $ 58.9 14.9
Solutions segment............ 62.1 61.7 50.4 0.4 0.6 11.3 22.4
-------- -------- -------- --------- ------ --------- ------
Total net sales......... $ 556.0 $ 514.8 $ 444.6 $ 41.2 8.0 $ 70.2 15.8
======== ======== ======== ========= =========
22
Fiscal 2006 saw continued improvement in the industrial sector of North
America and Europe which began in fiscal 2005 compared to the downturn in the
general North American and European economies and the industrial sectors in
particular that had been occurring through fiscal 2004. In addition, sales
growth was fostered by the expansion of international selling efforts. Net sales
for fiscal 2006 of $556.0 increased by $41.2 million or 8.0% from fiscal 2005,
and net sales for fiscal 2005 of $514.8 million increased by $70.2 million, or
15.8%, from fiscal 2004. 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). The Products
segment for fiscal 2005 experienced a net sales increase of 14.9% over the prior
year. The increase was due to a combination of higher volume as the North
American industrial economy recovered as well as price increases ($19.7 million)
including surcharges specifically in response to rising steel costs. Fiscal 2005
was impacted by the weakening U.S. dollar relative to other currencies,
particularly the euro, and reported Products segment sales were favorably
affected by $6.2 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. For fiscal
2005, our Solutions segment net sales increased 22.4% as a result of increased
volume in Europe at our conveyor business.
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,
--------------------------------------------------------------
2006 2005 2004
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Products segment............ $ 138.1 28.0 $ 117.1 25.8 $ 99.2 25.2
Solutions segment........... 9.5 15.3 8.8 14.3 5.6 11.1
--------- ---- --------- ---- -------- ----
Total gross profit..... $ 147.6 26.5 $ 125.9 24.5 $ 104.8 23.6
========= ========= ========
Our gross profit margins were approximately 26.5%, 24.5% and 23.6% in
fiscal 2006, 2005 and 2004, respectively. The Products segment for fiscal 2006
and fiscal 2005 continues to see improved gross margins as a result of
operational leverage at increased volumes from the prior years and the impact of
previous facility rationalization projects and lean manufacturing activities.
The Solutions segment's gross profit margins increased in Fiscal 2006 as a
result of a shift in product mix at our European conveyor business to more
internally developed product costs from resale products, increased volume at
certain facilities, and some rationalization cost savings. The Solutions
segment's gross profit margins increased in Fiscal 2005 as a result of the
recovery of European markets which led to increased volume for one division, as
well as the divestiture of a poor performing, non-strategic business at the end
of fiscal 2004.
Selling expenses were $54.3 million, $52.3 million and $48.3 million in
fiscal 2006, 2005 and 2004, respectively. As a percentage of net sales, selling
expenses were 9.8%, 10.2% and 10.9% in fiscal 2006, 2005 and 2004, respectively.
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). Fiscal 2005 includes a
$1.2 million increase resulting from the weakening of the U.S. dollar relative
to foreign currencies, particularly the euro, upon translation of foreign
operating results into U.S. dollars for reporting purposes. Fiscal 2005 also
includes increases related to variable costs associated with the increase sales
volume, mainly commissions ($1.3 million), increased foreign pension costs ($0.5
million) and increased investments in international markets ($0.5 million).
General and administrative expenses were $33.6 million, $31.7 million and
$25.0 million in fiscal 2006, 2005 and 2004, respectively. As a percentage of
net sales, general and administrative expenses were 6.1%, 6.2% and 5.6% in
fiscal 2006, 2005 and 2004, respectively. 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
savings ($0.9 million) and currency translation ($0.2 million). Fiscal 2005
increases include variable compensation ($2.3 million), compliance costs
associated with Sarbanes-Oxley Section 404 implementation ($1.4 million),
increasing foreign pension costs ($1.2 million), translation of foreign
currencies into the weaker U.S. dollar for reporting purposes ($0.7 million) and
increases in bad debt reserves based on increased accounts receivable levels
($0.5 million).
Restructuring charges of $1.6 million, $0.9 million and $1.2 million, or
0.3%, 0.2% and 0.3% of net sales in fiscal 2006, 2005 and 2004, respectively,
were primarily attributable to the ongoing organizational rationalizations
occurring at the company. 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
23
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. During fiscal 2004, we recorded restructuring charges of $1.2
million related to various employee termination benefits and facility costs as a
result of our continued closure, merging and reorganization and completion of
two open projects from fiscal 2003. The remaining liability of as of March 31,
2006 relates to the accrued costs for the removal of the environmentally
hazardous materials ($0.5 million) and the ongoing maintenance costs of a
non-operating facility ($0.3 million).
Write-off/amortization of intangibles was $0.2 million, $0.3 million and
$0.4 million in fiscal 2006, 2005 and 2004, respectively.
Interest and debt expense was $24.7 million, $27.6 million and $28.9
million in fiscal 2006, 2005 and 2004, respectively. As a percentage of net
sales, interest and debt expense was 4.4%, 5.4% and 6.5% in fiscal 2006, 2005
and 2004, respectively. The fiscal 2006 and 2005 decreases primarily resulted
from lower debt levels as we continue to execute our strategy of debt reduction
and increasing our financial flexibility.
Other (income) and expense, net was $5.0 million, ($5.2) million and ($4.2)
million in fiscal 2006, 2005 and 2004, respectively. Fiscal 2006 includes $9.2
million of redemption costs associated with the repurchase of outstanding senior
secured and senior subordinated notes, offset by $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, $2.1 million from
investment and interest income, offset by $0.3 million of additional losses from
2004 business divestitures. The income in fiscal 2004 included $5.7 million from
asset sales and $1.9 million from an interest rate swap partially offset by $3.9
million of losses upon business divestitures.
Income taxes as a percentage of income before income taxes were not
reflective of U.S statutory rates in fiscal 2006, 2005 or 2004. 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 fully
reserved and jurisdictional mix. Income tax expense primarily results from
non-U.S. taxable income and state taxes on U.S. taxable income. The fiscal 2004
effective tax rate varies due to jurisdictional mix and the existence of losses
at certain subsidiaries for which no benefit was recorded.
LIQUIDITY AND CAPITAL RESOURCES
In March 2006, we amended and expanded our revolving credit facility. The
Revolving Credit Facility currently provides availability up to a maximum of $75
million with an opportunity for expansion up to $125 million. At March 31, 2006,
the unused Revolving Credit Facility totaled $64.8 million, net of outstanding
borrowings of $0.0 million and outstanding letters of credit of $10.2 million.
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 100 or 0
basis points, respectively, at March 31, 2006. 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.
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 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 10% Senior Secured Notes
(10% Notes). The repurchase of the 10% Notes occurred at a premium resulting in
a pre-tax loss on early extinguishment of debt of $4.8 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 is available for other general corporate purposes to
advance our strategy of global growth, including additional debt repayment,
investments and acquisitions.
24
In September 2005, we issued $136 million 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 to repurchase all of the outstanding 8 1/2% Senior
Subordinated Notes (8 1/2% Notes). The repurchase of the 8 1/2% Notes occurred
at a premium resulting in a pre-tax loss on early extinguishment of debt of $2.3
million. As a result of the repurchase of the 8 1/2% Notes, $0.9 million of
pre-tax deferred financing costs and $0.1 million of the original issue discount
were written-off. The net effect of these items, a $3.3 million pre-tax loss in
fiscal 2006, is shown as part of other (income) and expense, net. 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.
The 8 7/8% Notes are redeemable at the option of us, 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.
In July 2003, we issued $115.0 million of 10% Senior Secured Notes due
August 1, 2010 of which $67.8 million remain outstanding at March 31, 2006.
During April and May of 2006, the Company repurchased an additional $32.1
million of the outstanding 10% Senior Secured Notes, resulting in a remaining
balance of $35.7 million. The proceeds from the 10% Notes offering were used for
the repayment in full of a then outstanding Senior Second Secured Term Loan
($66.8 million), the repurchase of $35.7 million of Senior Subordinated 8 1/2%
Notes at a discount ($30.1 million), the repayment of a portion of the
outstanding Revolving Credit Facility ($10.0 million), the repayment of a
portion of the Term Loan ($3.9 million), the payment of financing costs ($2.8
million) and the payment of accrued interest ($1.4 million). Provisions of the
10% Notes include, without limitation, restrictions on liens, indebtedness,
asset sales, and dividends and other restricted payments. The 10% Notes are
redeemable at our option, in whole or in part, at prices declining annually from
the Make-Whole Price (as defined in the Indenture for the Notes). In the event
of a Change of Control (as defined), each holder of the 10% Notes may require us
to repurchase all or a portion of such holder's 10% Notes at a purchase price
equal to 101% of the principal amount thereof. The 10% Notes are guaranteed by
certain existing and future domestic subsidiaries and are not subject to any
sinking fund requirements. The 10% Notes are also secured, in a second lien
position, by all domestic inventory, receivables, equipment, real property,
subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual
property.
The redemption in fiscal 2004 of the 8 1/2% Senior Subordinated Notes
occurred at a discount resulting in a $5.6 million pre-tax gain on early
extinguishment of debt. As a result of the repayment of the Senior Second
Secured Term Loan and a portion of the Term Loan and 8 1/2% Senior Subordinated
Notes, $4.9 million of pre-tax deferred financing costs were written-off in
fiscal 2004. The net effect of these two items, a $0.7 million pre-tax gain, is
shown as part of other (income) and expense, net.
The corresponding credit agreement associated with the Revolving Credit
Facility places certain debt covenant restrictions on us, including certain
financial requirements and a restriction on dividend payments, with which we
were in compliance as of March 31, 2006.
From time to time, we manage our debt portfolio by using interest rate
swaps to achieve an overall desired position of fixed and floating rates. In
June 2001, we entered into an interest rate swap agreement to effectively
convert $40 million of variable-rate debt to fixed-rate debt, which matured in
June 2003. That cash flow hedge was considered effective and the gain or loss on
the change in fair value was reported in other comprehensive income, net of tax.
In August 2003, we entered into an interest rate swap agreement to convert $93.5
million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis
points) through August 2008 and $57.5 million from August 2008 through August
2010 at the same rate. That interest rate swap was considered an ineffective
hedge and therefore the change in fair value was recognized in income as a gain.
The swap was terminated in January 2004 and a pre-tax gain of $1.9 million was
recognized in fiscal 2004 as other income, net as a result of changes in the
fair value of the swap.
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,
possible facility rationalization projects, divestiture of excess facilities,
improving working capital components, including inventory reductions, and new
market and new product development.
Net cash provided by operating activities was $48.5 million, $17.2 million
and $26.4 million in fiscal 2006, 2005 and 2004, respectively. 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
25
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). The $9.2 million decrease in
fiscal 2005 relative to fiscal 2004 was primarily due to stronger operating
performance in fiscal 2005 ($4.0 million) offset by changes in working capital
components ($13.2 million). The working capital changes come from favorable
changes in prepaids/other ($3.3 million), accounts payable and accrued
liabilities ($6.7 million), offset by unfavorable changes in and accounts
receivables ($8.0 million) and inventory ($15.2 million).
Net cash (used) provided by investing activities was ($6.4) million, $3.1
million and $4.3 million in fiscal 2006, 2005 and 2004, respectively. 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
2005 change in cash (used) provided by investing activities is primarily the
result of increased capital expenditures. The fiscal 2006, 2005 and 2004 amounts
included $2.1 million, $7.1 million and $7.8 million, respectively, from
business and property divestitures.
Net cash used in financing activities was $6.4 million, $21.9 million and
$21.5 million in fiscal 2006, 2005 and 2004, respectively. The decrease for
fiscal 2006 was the result of $56.6 million of proceeds from the November 2005
stock offering and $7.0 million from the exercise of employee stock options. The
fiscal 2006, 2005 and 2004 amounts included $67.8 million, $22.9 million and
$17.7 million of debt repayment, respectively. We also paid $2.8 million and
$4.4 million of financing costs in fiscal 2006 and 2004, respectively, to effect
the capital transactions previously described.
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual obligations in
millions of dollars as of March 31, 2006, by period of estimated payments due:
FISCAL FISCAL 2008- FISCAL 2010- MORE THAN
TOTAL 2007 FISCAL 2009 FISCAL 2011 FIVE YEARS
----- ---- ----------- ----------- ----------
Long-term debt obligations (a). $ 204.0 $ 0.1 $ 0.2 $ 67.4 $ 136.3
Operating lease obligations (b) 13.3 3.4 5.6 3.5 0.8
Purchase obligations (c) ...... -- -- -- -- --
Interest obligations (d)....... 119.8 18.8 37.6 32.2 31.2
Letter of credit obligations... 10.2 10.2 -- -- --
Other long-term liabilities
reflected on the Company's
balance sheet under GAAP (e)... 50.7 0.0 29.0 20.0 1.7
-------- ------ ------- -------- -------
Total..................... $ 398.0 $ 32.5 $ 72.4 $ 123.1 $ 170.0
======== ====== ======= ======== =======
(a) As described in note 10 to our consolidated financial statements.
(b) As described in note 18 to our consolidated financial statements.
(c) We have no purchase obligations specifying fixed or minimum quantities
to be purchased. We estimate that, at any given point in time, our
open purchase orders to be executed in the normal course of business
approximate $40 million.
(d) Estimated for our 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, reduce production costs,
increase flexibility to respond effectively to market fluctuations and changes,
meet environmental requirements, enhance safety and promote ergonomically
correct work stations. Further, our facility rationalization program underway
between fiscal 2002-2004 reduced our annual capital expenditure requirements and
also provided for transfers of equipment from the rationalized facilities to
other operating facilities. Our capital expenditures for fiscal 2006, 2005 and
2004 were $8.4 million, $5.9 million and $3.6 million, respectively. Higher
capital expenditures in fiscal 2006 and 2005 were the result of new product
development and productivity enhancing equipment along with normal maintenance
items. We expect capital expenditure spending in fiscal 2007 to be in the range
of $8-$10 million.
26
INFLATION AND OTHER MARKET CONDITIONS
Our costs are affected by inflation in the U.S. economy and, to a lesser
extent, in foreign economies including those of Europe, Canada, Mexico and the
Pacific Rim. We do not believe that general inflation has had a material effect
on our results of operations over the periods presented primarily due to overall
low inflation levels over such periods and our ability to generally pass on
rising costs through annual price increases 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
rationalization integration costs. Therefore, our operating results for any
particular fiscal quarter are not necessarily indicative of results for any
subsequent fiscal quarter or for the full fiscal year.
DISCONTINUED OPERATIONS
In May 2002, we completed the divestiture of substantially all of the
assets of ASI which comprised the principal business unit in our former
Solutions - Automotive segment. Proceeds from this sale included cash of $15.9
million and an 8% subordinated note in the principal amount of $6.8 million
payable over 10 years. Due to the uncertainty surrounding the financial
viability of the new organization, 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 2006. 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 Notes 11 and 13, respectively,
to our fiscal 2006 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 5 3/4%, 6%, 6 1/4% as of March 31,
2006, 2005 and 2004, respectively, are based on long-term bond rates. 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%,
8 1/4% and 8.4% for the years ended March 31, 2006, 2005 and 2004, respectively,
are based on the composition of the asset portfolios (approximately 56% equities
and 44% fixed income at March 31, 2006) and their long-term historical returns.
The actual assets realized gains of $6.8 and $5.5 million in fiscal 2006 and
2005. Our funded status as of March 31, 2006 and 2005 was negative by $33.9
million and $29.3 million, or 25.3% and 24.3%, respectively. Our pension
contributions during fiscal 2006 and 2005 were approximately $7.8 and $9.7
million, respectively. The negative funded status may result in future pension
expense increases. Pension expense for the March 31, 2007 fiscal year is
expected to approximate $7.8 million, which is up from the fiscal 2006 amount of
$7.0 million. The factors outlined above will result in increases in funding
requirements over time, unless there is continued significant market
appreciation in the asset values. However, pension funding contributions for the
March 31, 2007 fiscal year are expected to decrease by approximately $1.8
million compared to fiscal 2006. The compensation increase assumption of 4% as
of March 31, 2006, 2005 and 2004 is based on historical trends.
27
The healthcare inflation assumptions of 9 3/4%, 10 1/2% and 12% for fiscal
2006, 2005 and 2004, respectively are based on anticipated trends. Healthcare
costs in the United States have increased substantially over the last several
years. If this trend continues, the cost of postretirement healthcare will
increase in future years.
INSURANCE RESERVES. Our accrued general and product liability reserves as
described in Note 15 to our consolidated financial statements involve actuarial
techniques including the methods selected to estimate ultimate claims, and
assumptions including emergence patterns, payment patterns, initial expected
losses and increased limit factors. Other insurance reserves such as workers
compensation and group health insurance are based on actual historical and
current claim data provided by third party administrators or internally
maintained.
INVENTORY AND ACCOUNTS RECEIVABLE RESERVES. Slow-moving and obsolete
inventory reserves are judgmentally determined based on historical and expected
future usage within a reasonable timeframe. We reassess trends and usage on a
regular basis and if we identify changes, we revise our estimated allowances.
Allowances for doubtful accounts and credit memo reserves are also judgmentally
determined based on historical bad debt write-offs and credit memos issued,
assessing potentially uncollectible customer accounts and analyzing the accounts
receivable agings.
LONG-LIVED ASSETS. Property, 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, 2006, we had $56.7
million of total net deferred tax assets before valuation allowances. As
described in Note 17 to the consolidated financial statements, $29.1 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 $5.2 million as a result of utilizing U.S. federal NOLs in fiscal
2006. As a result of our increased operating performance over the past several
years, 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 is 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 November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs,"
as an amendment to ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted materials (spoilage). This Statement requires that these items
be recognized as current-period charges and requires the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. This Statement becomes effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We do not expect the adoption of
SFAS No. 151 to have a material impact on our consolidated financial statements.
28
In December 2004, the FASB issued SFAS No. 123(R) (revised 2004),
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) was to be adopted for interim or annual periods beginning
after June 15, 2005. On April 14th, 2005, the SEC announced that it would
provide for a phased-in implementation process for FASB statement No. 123(R).
The SEC is requiring that registrants adopt statement 123(R)'s fair value method
of accounting for share-based payments to employees no later than the beginning
of the first fiscal year beginning after June 15, 2005. We expect to adopt
123(R) in the first quarter of Fiscal 2007. Statement 123(R) permits public
companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of
Statement 123(R) for all share-based payments granted to employees
prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on amounts previously recognized under
Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of
adoption.
We are still evaluating the method we plan to use when we adopt statement
123(R).
As permitted by Statement 123, we currently account for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
recognize no compensation cost for employee stock options. Accordingly, adoption
of Statement 123(R)'s fair value method will have an impact on our results of
operations, although it will have no impact on our overall financial position.
The impact of adoption of 123(R) cannot be predicted at this time because it
will depend on levels of share based payments granted in the future. However,
had we adopted Statement 123(R) in prior periods, the impact of that standard
would have approximated the impact of statement 123 as described in the
disclosure of pro forma net income and earnings per share in Note 2 to our
consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" which replaces APB Opinion No. 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No.
154 changes the requirements for and reporting of a change in accounting
principle. This Statement becomes effective for changes in accounting methods
during fiscal years beginning after December 15, 2005. We do not expect the
adoption of SFAS No. 154 will have a material impact on our consolidated results
of operations and financial condition.
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 2006, 29% of our net sales were from manufacturing plants and
sales offices in foreign jurisdictions. We manufacture our products in the
United States, Mexico, China, Denmark, the United Kingdom, France and Germany
and sell our products and solutions in over 50 countries. Our results of
operations could be affected by factors such as changes in foreign currency
rates or weak economic conditions in foreign markets. Our operating results are
exposed to fluctuations between the U.S. dollar and the Canadian dollar,
European currencies and the Mexican peso. For example, when the U.S. dollar
strengthens against the Canadian dollar, the value of our net sales and net
income denominated in Canadian dollars decreases when translated into U.S.
dollars for inclusion in our consolidated results. We are also exposed to
foreign currency fluctuations in relation to purchases denominated in foreign
currencies. Our foreign currency risk is mitigated since the majority of our
29
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 $0.5 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, 2006, we do not have any material swap agreements or similar financial
instruments in place. At March 31, 2006 and 2005, approximately 97% and 96%,
respectively, of our outstanding debt had fixed interest rates. At those dates,
we had approximately $6.4 million and $11.4 million, respectively, of
outstanding variable rate debt. A 1% fluctuation in interest rates in fiscal
2006 and 2005 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.
Based on actuarial information, we have estimated our asbestos-related
aggregate liability through March 31, 2031 and March 31, 2082 to range between
$5.5 million and $19.0 million using actuarial parameters of continued claims
for a period of 25 to 76 years. Our estimation of our asbestos-related aggregate
liability that is probable and estimable, in accordance with U.S. generally
accepted accounting principles, is through March 31, 2031 and ranges from $5.5
million to $6.5 million as of March 31, 2006. The range of probable and
estimable liability reflects uncertainty in the number of future claims that
will be filed and the cost to resolve those claims, which may be influenced by a
number of factors, including the outcome of the ongoing broad-based settlement
negotiations, defensive strategies, and the cost to resolve claims outside the
broad-based settlement program. Based on the underlying actuarial information,
we have reflected $6.3 million as a liability in the consolidated financial
statements in accordance with U.S. generally accepted accounting principles. The
increase in the recorded liability from the amount of $4.8 million at March 31,
2005 is due to a change in actuarial parameters used to calculate required
asbestos liability reserve levels. The recorded liability does not consider the
impact of any potential favorable federal legislation such as the "FAIR Act". Of
this amount, management expects to incur asbestos liability payments of
approximately $0.5 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.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBUS MCKINNON CORPORATION
Audited Consolidated Financial Statements as of March 31, 2006:
Report of Independent Registered Public Accounting Firm.......... F-2
Consolidated Balance Sheets...................................... F-3
Consolidated Statements of Operations............................ F-4
Consolidated Statements of Shareholders' Equity.................. F-5
Consolidated Statements of Cash Flows............................ F-6
Notes to Consolidated Financial Statements
1. Description of Business................................. F-7
2. Accounting Principles and Practices..................... F-7
3. Discontinued Operations................................. F-11
4. Unbilled Revenues and Excess Billings................... F-11
5. Inventories............................................. F-12
6. Marketable Securities................................... F-12
7. Property, Plant, and Equipment.......................... F-13
8. Goodwill and Intangible Assets.......................... F-14
9. Accrued Liabilities and Other Non-current Liabilities... F-15
10. Debt.................................................... F-16
11. Retirement Plans........................................ F-18
12. Employee Stock Ownership Plan (ESOP).................... F-20
13. Postretirement Benefit Obligation....................... F-20
14. Earnings per Share and Stock Plans...................... F-22
15. Loss Contingencies...................................... F-24
16. Restructuring Charges................................... F-26
17. Income Taxes............................................ F-27
18. Rental Expense and Lease Commitments.................... F-29
19. Summary Financial Information........................... F-30
20. Business Segment Information............................ F-34
21. Selected Quarterly Financial Data (unaudited)........... F-36
22. Accumulated Other Comprehensive Loss.................... F-37
23. Effects of New Accounting Pronouncements................ F-38
24. Subsequent Events....................................... F-39
Schedule II - Valuation and Qualifying Accounts............... F-40
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 and subsidiaries as of March 31, 2006 and 2005, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 2006. Our audits
also included the financial statement schedule listed in the Index at Item 15.
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 and subsidiaries at March 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2006, 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.
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,
2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated June 1, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
June 1, 2006
Buffalo, New York
F-2
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------------------------
MARCH 31,
----------------------------------
2006 2005
---- ----
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 45,598 $ 9,479
Trade accounts receivable, less allowance for doubtful accounts
($3,417 and $3,015, respectively).......................................... 95,726 88,974
Unbilled revenues.............................................................. 12,061 8,848
Inventories.................................................................... 74,845 77,626
Prepaid expenses................................................................. 15,676 14,198
----------------------------------
Total current assets.................................................................. 243,906 199,125
Net property, plant, and equipment.................................................... 55,132 57,237
Goodwill, net......................................................................... 184,917 185,443
Other intangibles, net................................................................ 2,410 1,842
Marketable securities................................................................. 27,596 24,615
Deferred taxes on income.............................................................. 46,065 6,122
Other assets.......................................................................... 6,018 6,487
----------------------------------
Total assets.......................................................................... $ 566,044 $ 480,871
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks........................................................... $ 5,798 $ 4,839
Trade accounts payable........................................................... 39,311 33,688
Accrued liabilities.............................................................. 61,264 52,328
Restructuring reserve............................................................ 793 144
Current portion of long-term debt................................................ 127 5,819
----------------------------------
Total current liabilities............................................................. 107,293 96,818
Senior debt, less current portion..................................................... 67,841 115,735
Subordinated debt..................................................................... 136,000 144,548
Other non-current liabilities......................................................... 50,489 42,003
----------------------------------
Total liabilities..................................................................... 361,623 399,104
Shareholders' equity:
Voting common stock; 50,000,000 shares authorized;
18,575,454 and 14,948,172 shares issued................................... 185 149
Additional paid-in capital....................................................... 170,081 104,078
Retained earnings (accumulated deficit).......................................... 51,152 (8,644)
ESOP debt guarantee; 249,821 and 284,695 shares.................................. (3,996) (4,554)
Unearned restricted stock; 2,000 and 1,000 shares................................ (22) (6)
Accumulated other comprehensive loss............................................. (12,979) (9,256)
----------------------------------
Total shareholders' equity............................................................ 204,421 81,767
----------------------------------
Total liabilities and shareholders' equity............................................ $ 566,044 $ 480,871
==================================
See accompanying notes.
F-3
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2006 2005 2004
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 556,007 $ 514,752 $ 444,591
Cost of products sold.............................................. 408,385 388,844 339,745
-----------------------------------------------------------
Gross profit....................................................... 147,622 125,908 104,846
Selling expenses................................................... 54,255 52,291 48,331
General and administrative expenses................................ 33,640 31,730 25,026
Restructuring charges.............................................. 1,609 910 1,239
Amortization of intangibles........................................ 249 312 383
-----------------------------------------------------------
Income from operations............................................. 57,869 40,665 29,867
Interest and debt expense.......................................... 24,667 27,620 28,856
Other (income) and expense, net.................................... 5,048 (5,218) (4,191)
-----------------------------------------------------------
Income from continuing operations before income tax
(benefit) expense.......................................... 28,154 18,263 5,202
Income tax (benefit) expense....................................... (30,946) 2,196 4,009
-----------------------------------------------------------
Income from continuing operations.................................. 59,100 16,067 1,193
Income from discontinued operations (net of tax)................... 696 643 -
-----------------------------------------------------------
Net income......................................................... $ 59,796 $ 16,710 $ 1,193
===========================================================
Average basic shares outstanding................................... 16,052 14,594 14,553
Average diluted shares outstanding................................. 16,628 14,803 14,554
Basic income per share:
Income from continuing operations............................. $ 3.69 $ 1.10 $ 0.08
Income from discontinued operations........................... 0.04 0.04 -
-----------------------------------------------------------
Basic income per share........................................ $ 3.73 $ 1.14 $ 0.08
===========================================================
Diluted income per share:
Income from continuing operations............................. $ 3.56 $ 1.09 $ 0.08
Income from discontinued operations........................... 0.04 0.04 -
-----------------------------------------------------------
Diluted income per share...................................... $ 3.60 $ 1.13 $ 0.08
===========================================================
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, 2003.......... $ 149 $104,412 $ (26,547) $ (5,709) $ (208) $ (19,390) $ 52,707
Comprehensive income:
Net income 2004.................... -- -- 1,193 -- -- -- 1,193
Change in foreign currency
translation adjustment........... -- -- -- -- -- 6,389 6,389
Net unrealized gain on
investments, net of tax of $918.. -- -- -- -- -- 1,706 1,706
Net change in unrealized loss
on derivatives qualifying as
hedges, net of tax of $127....... -- -- -- -- -- 191 191
Change in minimum pension
liability adjustment, net of
tax of $352...................... -- -- -- -- -- 528 528
---------
Total comprehensive income......... 10,007
Earned 37,049 ESOP shares.......... -- (393) -- 593 -- -- 200
Earned portion and adjustment of
restricted shares................ -- (105) -- -- 169 -- 64
----------------------------------------------------------------------------------------
Balance at March 31, 2004.......... $ 149 $103,914 $ (25,354) $ (5,116) $ (39) $ (10,576) $ 62,978
Comprehensive income:
Net income 2005.................... -- -- 16,710 -- -- -- 16,710
Change in foreign currency
translation adjustment........... -- -- -- -- -- 2,830 2,830
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)
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
========================================================================================
See accompanying notes.
F-5
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------
2006 2005 2004
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations....................................... $ 59,100 $ 16,067 $ 1,193
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization...................................... 8,824 9,171 10,126
Deferred income taxes.............................................. (36,968) (971) 6,413
Loss on divestitures............................................... 87 330 3,875
Gain on sale of real estate/investments............................ (2,100) (4,632) (5,143)
Loss (gain) on early retirement of bonds........................... 7,083 40 (5,590)
Amortization/write-off of deferred financing costs................. 3,297 1,575 6,613
Tax benefit from exercise of stock options......................... 2,154 -- --
Other.............................................................. -- -- 67
Changes in operating assets and liabilities
net of effects of business divestitures:
Trade accounts receivable and unbilled revenues.............. (11,025) (6,896) 1,140
Inventories................................................... 2,518 (6,834) 8,351
Prepaid expenses.............................................. (2,026) 1,796 (1,332)
Other assets.................................................. 207 10 (181)
Trade accounts payable........................................ 6,099 3,192 (976)
Accrued and non-current liabilities........................... 11,267 4,313 1,813
------------------------------------------------
Net cash provided by operating activities............................... 48,517 17,161 26,369
------------------------------------------------
INVESTING ACTIVITIES:
(Purchase) sale of marketable securities, net........................... (888) 1,314 110
Capital expenditures.................................................... (8,430) (5,925) (3,619)
Proceeds from sale of facilities and surplus real estate................ 2,091 6,742 4,015
Proceeds from sale of property, plant, and equipment.................... -- -- 387
Proceeds from net assets held for sale.................................. -- 375 3,376
Proceeds from discontinued operations note receivable - revised......... 857 643 --
------------------------------------------------
Net cash (used) provided by investing activities........................ (6,370) 3,149 4,269
------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................................. 56,619 -- --
Proceeds from exercise of stock options................................. 7,149 428 --
Payments under revolving line-of-credit agreements...................... (47,669) (345,664) (332,218)
Borrowings under revolving line-of-credit agreements.................... 49,030 344,541 325,326
Repayment of debt....................................................... (205,167) (21,745) (125,764)
Proceeds from issuance of long-term debt................................ 136,000 -- 115,000
Payment of deferred financing costs..................................... (2,877) (24) (4,432)
Change in ESOP debt guarantee........................................... 558 562 593
------------------------------------------------
Net cash used in financing activities................................... (6,357) (21,902) (21,495)
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. 329 (30) 15
------------------------------------------------
Net change in cash and cash equivalents................................. 36,119 (1,622) 9,158
Cash and cash equivalents at beginning of year.......................... 9,479 11,101 1,943
------------------------------------------------
Cash and cash equivalents at end of year................................ $ 45,598 $ 9,479 $ 11,101
================================================
Supplementary cash flows data:
Interest paid...................................................... $ 26,565 $ 28,133 $ 30,002
Income taxes paid (received), net.................................. $ 5,035 $ 2,029 $ (9,683)
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
2006, approximately 64% 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 $3,343,000, $2,521,000, and $2,406,000 in fiscal 2006, 2005, and 2004,
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 23% of the Company's employees are represented by seven
separate domestic and Canadian collective bargaining agreements which terminate
at various times between August 2006 and May 2009. Approximately 10% 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 derivates
are carried at fair value in the balance sheet. The fair values of derivatives
are determined by reference to quoted market prices. The Company's use of
derivative instruments has historically been limited to cash flow hedges of
certain interest rate risks.
The carrying value of the Company's current assets and current liabilities
approximate their fair values based upon the relatively short maturity of those
instruments. For the fair value of the Company's marketable securities and debt
instruments, see Notes 6 and 10, respectively.
F-7
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATIONS
The Company translates foreign currency financial statements as described
in Financial Accounting Standards (FAS) No. 52. Under this method, all items of
income and expense are translated to U.S. dollars at average exchange rates for
the year. All assets and liabilities are translated to U.S. dollars at the
year-end exchange rate. Gains or losses on translations are recorded in
accumulated other comprehensive loss in the shareholders' equity section of the
balance sheet. The functional currency is the foreign currency in which the
foreign subsidiaries conduct their business. Gains and losses from foreign
currency transactions are reported in other income and expense, net. There was
an approximate $100,000 loss, $200,000 gain and $600,000 loss on transactions
with foreign subsidiaries in fiscal 2006, 2005 and fiscal 2004, respectively.
GOODWILL
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. 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 58% of inventories at March 31, 2006 (57% in 2005) has been
determined using the LIFO (last-in, first-out) method. Costs of other
inventories have been determined using the FIFO (first-in, first-out) or average
cost method. FIFO cost approximates replacement cost.
MARKETABLE SECURITIES
All of the Company's marketable securities, which consist of equity
securities and corporate and governmental obligations, have been classified as
available-for-sale securities and are therefore recorded at their fair values
with the unrealized gains and losses, net of tax, reported in accumulated other
comprehensive loss within shareholders' equity unless unrealized losses are
deemed to be other than temporary. In such instance, the unrealized losses are
reported in the statement of operations within other (income) and expense, net.
Estimated fair value is based on published trading values at the balance sheet
dates. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. The cost of securities sold is
based on the specific identification method. Interest and dividend income are
included in other (income) and expense, net in the consolidated statements of
operations.
The marketable securities are carried as long-term assets since they are
held for the settlement of 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.
In 2006, the Company has disclosed the investing portions of the cash flows
attributable to its discontinued operations within the investing section of the
consolidated statements of cash flows, whereas in prior years they were reported
as a separate component on the consolidated statements of cash flows.
RESEARCH AND DEVELOPMENT
Research and development costs as defined in FAS No. 2, for the years ended
March 31, 2006, 2005 and 2004 were $1,614,000, $1,289,000 and $1,625,000,
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.
F-9
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are a component of cost of products sold.
STOCK-BASED COMPENSATION
At March 31, 2006, the Company has two stock-based employee compensation
plans in effect, which are described more fully in Note 14. The Company accounts
for these plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations. No stock based employee compensation cost is
reflected in net income, as all options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant and the number of options granted was fixed. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition of SFAS No. 123 "Accounting for Stock-Based
Compensation", to stock-based employee compensation:
-----------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------
2006 2005 2004
-----------------------------------------------
Net income, as reported..................................... $ 59,796 $ 16,710 $ 1,193
Deduct: Total stock based employee compensation
expenses determined under fair value based method
for all awards, net of related tax effects............... (577) (1,135) (504)
-----------------------------------------------
Net income, pro forma.................................... $ 59,219 $ 15,575 $ 689
===============================================
Basic income per share:
As reported.............................................. $ 3.73 $ 1.14 $ 0.08
===============================================
Pro forma................................................ $ 3.69 $ 1.07 $ 0.05
===============================================
Diluted income per share:
As reported.............................................. $ 3.60 $ 1.13 $ 0.08
===============================================
Pro forma................................................ $ 3.56 $ 1.05 $ 0.05
===============================================
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.
F-10
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
---------------------------------
2006 2005
---- ----
Balance at beginning of year....... $ 832 $ 889
Accrual for warranties issued...... 4,658 2,475
Warranties settled................. (3,358) (2,532)
---------------------------------
Balance at end of year............. $ 2,132 $ 832
=================================
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 new organization, 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, 2006 is approximately $5,100,000.
4. UNBILLED REVENUES AND EXCESS BILLINGS
--------------------
MARCH 31,
--------------------
2006 2005
---- ----
Costs incurred on uncompleted contracts........... $ 52,615 $ 34,154
Estimated earnings................................ 15,361 11,498
--------------------
Revenues earned to date........................... 67,976 45,652
Less billings to date............................. 56,331 37,133
--------------------
$ 11,645 $ 8,519
====================
The net amounts above are included in the consolidated balance sheets under the
following captions:
--------------------
MARCH 31,
--------------------
2006 2005
---- ----
Unbilled revenues................................... $ 12,061 $ 8,848
Accrued liabilities................................. (416) (329)
--------------------
$ 11,645 $ 8,519
====================
F-11
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVENTORIES
Inventories consisted of the following:
-----------------------------
MARCH 31,
-----------------------------
2006 2005
---- ----
At cost--FIFO basis:
Raw materials......................... $ 41,134 $ 42,283
Work-in-process....................... 12,199 10,238
Finished goods........................ 33,424 35,800
-----------------------------
86,757 88,321
LIFO cost less than FIFO cost.............. (11,912) (10,695)
-----------------------------
Net inventories............................ $ 74,845 $ 77,626
=============================
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 15). On a quarterly basis, 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.
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 FAS No. 115, the Company reduced
the cost bases of certain equity securities since it was determined that the
unrealized losses on those securities were other than temporary in nature. This
determination resulted in the recognition of a pre-tax charge to earnings of
$78,000 for the year ended March 31, 2006, classified within other (income) and
expense, net. The above schedule reflects the reduced cost bases.
The aggregate fair value of investments and unrealized losses on
available-for-sale securities in an unrealized loss position at March 31, 2006
are as follows:
AGGREGATE UNREALIZED
FAIR VALUE LOSSES
---------------------------------------------
Equity securities held for less than 12 months in a loss position $ 1,553 $ 154
Equity securities held for more than 12 months in a loss position 1,012 75
---------------------------------------------
$ 2,565 $ 229
=============================================
The net gain related to sales of marketable securities totaled $1,436,000,
$706,000 and $1,861,000 in fiscal 2006, 2005 and 2004, respectively.
F-12
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of available-for-sale securities at March 31,
2005:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------
Government securities................................ $ 7,967 $ 251 $ - $ 8,218
Equity securities.................................... 14,751 2,076 430 16,397
------------------------------------------------------------
$ 22,718 $ 2,327 $ 430 $ 24,615
============================================================
As of March 31, 2005, in accordance with FAS No. 115, the Company reduced
the cost bases of certain equity securities since it was determined that the
unrealized losses on those securities were other than temporary in nature. This
determination resulted in the recognition of a pre-tax charge to earnings of
$280,000 and $110,000 for the years ended March 31, 2005 and 2004, respectively,
classified within other (income) and expense, net. The above schedule reflects
the reduced cost bases.
The amortized cost and estimated fair value of debt and equity securities
at March 31, 2006, by contractual maturity, are shown below:
ESTIMATED
FAIR
COST VALUE
----------------------
Due in one year or less............................ $ 5,064 $ 5,068
Due in one to five years........................... 2,008 2,015
Due in five to ten years........................... 3,787 3,901
----------------------
10,859 10,984
Equity securities.................................. 13,828 16,612
----------------------
$ 24,687 $ 27,596
======================
Net unrealized gain included in the balance sheet amounted to $2,909,000 at
March 31, 2006 and $1,897,000 at March 31, 2005. The amounts, net of related
income taxes of $1,018,000 and $664,000 at March 31, 2006 and 2005,
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,
---------------------------
2006 2005
---- ----
Land and land improvements......................................................... $ 4,564 $ 5,183
Buildings.......................................................................... 33,755 33,991
Machinery, equipment, and leasehold improvements................................... 102,485 99,147
Construction in progress........................................................... 1,736 2,089
---------------------------
142,540 140,410
Less accumulated depreciation...................................................... 87,408 83,173
---------------------------
Net property, plant, and equipment................................................. $ 55,132 $ 57,237
===========================
Depreciation expense was $8,575,000, $8,859,000, and $9,743,000 for the
years ended March 31, 2006, 2005 and 2004, respectively.
F-13
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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 2006, 2005 or 2004.
A summary of changes in goodwill during the years ended March 31, 2006 and
2005 by business segment is as follows:
PRODUCTS SOLUTIONS TOTAL
-------------------------------------------
Balance at March 31, 2004............................. $ 184,994 $ - $ 184,994
Currency translation.................................. 449 - 449
-------------------------------------------
Balance at March 31, 2005............................. $ 185,443 $ - $ 185,443
Currency translation.................................. (526) - (526)
-------------------------------------------
Balance at March 31, 2006............................. $ 184,917 $ - $ 184,917
===========================================
Other intangibles, net consists of the following:
-------------------
MARCH 31,
-------------------
2006 2005
---- ----
Intangible pension assets............................. $ 2,148 $ 1,537
Patents and other, net................................ 262 305
-------------------
Other intangibles, net................................ $ 2,410 $ 1,842
===================
Only the patents and other, net is subject to amortization. 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 $100,000, $75,000, $50,000,
$28,000, and 9,000, respectively.
F-14
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
Consolidated accrued liabilities of the Company consisted of the following:
------------------------
MARCH 31,
------------------------
2006 2005
---- ----
Accrued payroll.................................. $ 18,736 $ 15,895
Accrued pension cost............................. 5,987 4,325
Interest payable................................. 6,199 8,097
Accrued workers compensation..................... 2,959 2,959
Accrued income taxes payable..................... 6,493 4,237
Accrued postretirement benefit obligation........ 1,620 2,100
Accrued health insurance......................... 2,891 2,550
Accrued general and product liability costs...... 4,000 3,500
Other accrued liabilities........................ 12,379 8,665
------------------------
$ 61,264 $ 52,328
========================
Consolidated other non-current liabilities of the Company consisted of the
following:
------------------------
MARCH 31,
------------------------
2006 2005
---- ----
Accumulated postretirement benefit obligation.... $ 4,856 $ 5,273
Accrued general and product liability costs...... 16,969 12,594
Accrued pension cost............................. 20,285 18,637
Accrued workers compensation..................... 5,383 3,134
Other non-current liabilities.................... 2,996 2,365
------------------------
$ 50,489 $ 42,003
========================
F-15
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DEBT
Consolidated debt of the Company consisted of the following:
-------------------------------
MARCH 31,
-------------------------------
2006 2005
---- ----
Revolving Credit Facility due February 22, 2010..................................... $ - $ -
Previous Term Loan repaid and retired April 2005.................................... - 5,819
10% Senior Secured Notes due August 1, 2010 with interest
payable in semi-annual installments ............................................. 67,384 115,000
Other senior debt................................................................... 584 735
-------------------------------
Total senior debt................................................................... 67,968 121,554
8 7/8% Senior Subordinated Notes due November 1, 2013 with interest
payable in semi-annual installments.............................................. 136,000 -
8 1/2% Senior Subordinated Notes repaid and retired in October 2005................. - 144,548
-------------------------------
Total............................................................................... 203,968 266,102
Less current portion................................................................ 127 5,819
-------------------------------
$ 203,841 $ 260,283
===============================
On March 16, 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. 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 100 or 0 basis points,
respectively, at March 31, 2006. 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 to repurchase all of the outstanding 8 1/2%
Senior Subordinated Notes (8 1/2% Notes). The repurchase of the 8 1/2% Notes
occurred at a premium resulting in a pre-tax loss on early extinguishment of
debt of $2,298,000. As a result of the repurchase of the 8 1/2% Notes, $922,000
of pre-tax deferred financing costs and $110,000 of the original issue discount
were written-off. The net effect of these items, a $3,330,000 pre-tax loss in
fiscal 2006, is shown as part of other (income) and expense, net.
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 various outstanding debt instruments including the repurchase
of $35,700,000 of the 8 1/2% Notes at a discount ($30,060,000). The redemption
in fiscal 2004 of the 8 1/2% Notes occurred at a discount resulting in a
$5,640,000 pre-tax gain on early extinguishment of debt. As a result of the
repayment of the various outstanding debt instruments including the 8 1/2%
Notes, $4,925,000 of pre-tax deferred financing costs were written-off in fiscal
2004. The net effect of these two items, a $715,000 pre-tax gain, is shown as
part of other (income) and expense, net.
During fiscal 2006, the Company used a portion of the proceeds from its
stock offering (see Note 14) 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, a $5,871,000 pre-tax loss in fiscal
2006, is shown as part of other (income) and expense, net.
During April and May of 2006, the Company repurchased an additional
$32,128,000 of the outstanding 10% Notes (see Note 24).
F-16
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 2006.
From time to time, the Company manages its debt portfolio by using interest
rate swaps to achieve an overall desired position of fixed and floating rates.
In June 2001, the Company entered into an interest rate swap agreement to
effectively convert $40,000,000 of variable-rate debt to fixed-rate debt, which
matured in June 2003. This cash flow hedge was considered effective and the gain
or loss on the change in fair value was reported in other comprehensive income,
net of tax.
In August 2003, the Company entered into an interest rate swap agreement to
convert $93,500,000 of fixed-rate debt (10%) to variable-rate debt (LIBOR plus
578.2 basis points) through August 2008 and $57,500,000 from August 2008 through
August 2010. This interest rate swap was considered an ineffective hedge and
therefore the change in fair value was recognized in income as a gain. The swap
was terminated in January 2004 and a pre-tax gain of $1,900,000 was recognized
as other income as a result of changes in the fair value of the swap.
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 10% Notes are redeemable at the option of the Company, in whole or in part,
at prices declining annually from the Make-Whole Price (as defined in the 10%
Notes agreement) to 100% on and after August 1, 2009. In the event of a Change
of Control (as defined in the indenture for such notes), each holder of the 10%
Notes may require the Company to repurchase all or a portion of such holder's
10% Notes at a purchase price equal to 101% of the principal amount thereof. The
10% Notes are guaranteed by certain existing and future domestic subsidiaries
and are not subject to any sinking fund requirements. The 10% Notes are also
secured, in a second lien position, by all domestic inventory, receivables,
equipment, real property, subsidiary stock (limited to 65% for foreign
subsidiaries) and intellectual property.
The carrying amount of the Company's revolving credit facility 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
$74,207,000 and $142,800,000, respectively, based on quoted market prices, the
total of which is more than their aggregate carrying amount of $203,384,000.
The principal payments scheduled to be made as of March 31, 2006 on the
above debt, for the next five annual periods subsequent thereto, are as follows
(in thousands):
2007 $ 127
2008 117
2009 53
2010 33
2011 67,411
F-17
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RETIREMENT PLANS
The Company provides defined benefit pension plans to certain employees.
The Company uses December 31 as the measurement date for all of its pension
plans. The following provides a reconciliation of benefit obligation, plan
assets, and funded status of the plans:
----------------------------------
MARCH 31,
----------------------------------
2006 2005
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year..................................... $ 120,634 $ 110,865
Service cost................................................................ 4,004 4,285
Interest cost............................................................... 7,213 6,718
Actuarial loss.............................................................. 7,003 2,888
Benefits paid............................................................... (4,860) (4,410)
Foreign exchange rate changes............................................... 154 288
----------------------------------
Benefit obligation at end of year........................................... $ 134,148 $ 120,634
==================================
Change in plan assets:
Fair value of plan assets at beginning of year.............................. $ 91,323 $ 80,564
Actual gain on plan assets.................................................. 5,795 5,250
Employer contribution....................................................... 7,816 9,673
Benefits paid............................................................... (4,860) (4,410)
Foreign exchange rate changes............................................... 132 246
----------------------------------
Fair value of plan assets at end of year.................................... $ 100,206 $ 91,323
==================================
Funded status .............................................................. $ (33,942) $ (29,311)
Unrecognized actuarial loss................................................. 35,282 29,744
Unrecognized prior service cost............................................. 2,148 1,537
----------------------------------
Net amount recognized....................................................... $ 3,488 $ 1,970
==================================
Amounts recognized in the consolidated balance sheets are as follows:
----------------------------------
MARCH 31,
----------------------------------
2006 2005
---- ----
Intangible asset............................................................ $ 2,148 $ 1,537
Accrued liabilities......................................................... (5,987) (4,325)
Other non-current liabilities............................................... (20,284) (18,637)
Deferred tax effect of accumulated other comprehensive loss................. 11,038 8,823
Accumulated other comprehensive loss........................................ 16,573 14,572
----------------------------------
Net amount recognized....................................................... $ 3,488 $ 1,970
==================================
Net periodic pension cost included the following components:
------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------
2006 2005 2004
---- ---- ----
Service costs--benefits earned during the period.................... $ 4,004 $ 4,285 $ 3,921
Interest cost on projected benefit obligation....................... 7,213 6,719 6,711
Expected return on plan assets...................................... (6,753) (6,666) (5,404)
Net amortization.................................................... 2,518 4,033 1,978
------------------------------------------------
Net periodic pension cost........................................... $ 6,982 $ 8,371 $ 7,206
================================================
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 accumulated benefit obligation for all defined benefit plans was
$126,196,000 and $113,486,000 as of March 31, 2006 and 2005, respectively.
F-18
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information for pension plans with a projected benefit obligation in excess
of plan assets is as follows:
--------------------------
MARCH 31,
--------------------------
2006 2005
---- ----
Projected benefit obligation.............. $ 134,148 $ 120,634
Fair value of plan assets................. 100,206 91,323
Information for pension plans with an accumulated benefit obligation in
excess of plan assets is as follows:
--------------------------
MARCH 31,
--------------------------
2006 2005
---- ----
Accumulated benefit obligation............ $ 126,196 $ 113,486
Fair value of plan assets................. 100,206 91,323
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,
--------------------------------------------------------
2006 2005 2004 2003
--------------------------------------------------------
Discount rate........................................ 5.75% 6.00% 6.25% 6.75%
Expected long-term rate of return on plan assets..... 7.50 8.25 8.40 8.50
Rate of compensation increase........................ 4.00 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
--------------- -----------------------------
2007 2006 2005
--------------- -----------------------------
Equity securities.................................... 70% 56% 55%
Fixed income......................................... 30 44 45
--------------- -----------------------------
Total plan assets.................................... 100% 100% 100%
=============== =============================
The Company has an investment objective for domestic pension plans to
adequately provide for both the growth and liquidity needed to support all
current and future benefit payment obligations. The investment strategy is to
invest in a diversified portfolio of assets which are expected to satisfy the
aforementioned objective and produce both absolute and risk adjusted returns
competitive with a benchmark that is a blend of the S&P 500 and an aggregate
bond fund. The shift to the targeted allocation is the result of 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
2007.
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 $5,987,000 to its pension plans in fiscal 2007.
F-19
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information about the expected benefit payments for the Company's defined
benefit plans is as follows:
2007 $ 5,079
2008 6,174
2009 5,888
2010 6,487
2011 7,084
2012-2016 46,221
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 $1,476,000, $673,000 and $635,000 for the years ended March 31,
2006, 2005 and 2004, 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 $653,000, $296,000 and $200,000 in fiscal 2006, 2005 and 2004,
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, 2006 and 2005, 723,618 and 795,791 of ESOP shares,
respectively, were allocated or available to be allocated to participants'
accounts. At March 31, 2006 and 2005, 249,821 and 284,695 of ESOP shares were
pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares at March 31, 2006 amounted to
$6,728,000.
13. POSTRETIREMENT BENEFIT OBLIGATION
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to certain domestic retirees and
their dependents 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.
F-20
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 8, 2003, Congress passed the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 ("Medicare Act"). In March 2004, the
FASB issued Staff Position No FAS 106-2 "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug Improvement and Modernization Act of
2003 ("FSP No 106-2")," which provides accounting guidance on how to account for
the effects of the Medicare Act on postretirement plans that provide
prescription drug benefits. The Medicare Act also requires certain disclosures
regarding the effect of the subsidy provided by the Medicare Act. Additionally,
FSP 106-2 provides two transition methods - retroactive to the date of enactment
or prospective from the date of adoption. The Company elected to adopt FAS 106-2
and apply the prospective transition method in the second quarter of fiscal
2005. The accumulated post retirement benefit obligation decreased $2,339,000 as
of July 4, 2004 and net periodic postretirement benefit cost decreased by
$225,000 for fiscal 2005. As a result of delays in filing the required paperwork
to receive the prescription drug benefits under the Medicare Act, the benefit
obligation has been adjusted at March 31, 2006 to reflect an increase in the
liability that will be charged to net periodic postretirement benefit cost over
the average remaining service period of the participants. The Company still
expects to file the required paperwork at some point in the future to receive
the benefit. The impact of the delayed filing was not material to the benefit
obligation at March 31, 2006 or net periodic postretirement benefit cost for the
year end March 31, 2006.
The Company's postretirement health benefit plans are not funded. In
accordance with FAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits," the following sets forth a reconciliation of benefit
obligation and the funded status of the plan:
----------------------------------
MARCH 31,
----------------------------------
2006 2005
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year................................. $ 12,927 $ 15,984
Service cost............................................................ 6 17
Interest cost........................................................... 751 834
Amendment............................................................... - (2,339)
Actuarial loss.......................................................... 601 460
Benefits paid........................................................... (2,064) (2,029)
----------------------------------
Benefit obligation at end of year.................................... $ 12,221 $ 12,927
==================================
Funded status .......................................................... $ (12,221) $ (12,927)
Unrecognized actuarial loss............................................. 5,745 5,554
----------------------------------
Net amount recognized in accrued and other non-current liabilities...... $ (6,476) $ (7,373)
==================================
Net periodic postretirement benefit cost included the following:
---------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------
2006 2005 2004
---- ---- ----
Service cost--benefits attributed to service during the period.......... $ 6 $ 17 $ 11
Interest cost........................................................... 751 834 869
Amortization of prior service gain...................................... - - (153)
Amortization of plan net losses......................................... 411 460 643
---------------------------------------
Net periodic postretirement benefit cost........................... $1,168 $1,311 $1,370
=======================================
For measurement purposes, healthcare costs were assumed to increase 9% in
fiscal 2007, grading down over time to 5% in seven years. The discount rate used
in determining the accumulated postretirement benefit obligation was 5.75% and
6.00% as of March 31, 2006 and 2005, respectively.
F-21
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information about the expected benefit payments for the Company's
postretirement health benefit plans is as follows:
2007 $ 1,620
2008 1,529
2009 1,441
2010 1,323
2011 1,315
2012-2016 5,250
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........ $ 40 $ (36)
Effect on postretirement obligation............................ 724 (656)
14. EARNINGS PER SHARE AND STOCK PLANS
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128).
Basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share includes any dilutive effects
of stock options.
The following table sets forth the computation of basic and diluted
earnings per share:
-----------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------
2006 2005 2004
---- ---- ----
Numerator for basic and diluted earnings per share:
Income from continuing operations........................... $ 59,100 $ 16,067 $ 1,193
Income from discontinued operations......................... 696 643 -
-----------------------------------------------------
Net income ............................................... $ 59,796 $ 16,710 $ 1,193
=====================================================
Denominators:
Weighted-average common stock outstanding--
denominator for basic EPS................................. 16,052 14,594 14,553
Effect of dilutive employee stock options................... 576 209 1
-----------------------------------------------------
Adjusted weighted-average common stock
outstanding and assumed conversions--
denominator for diluted EPS............................... 16,628 14,803 14,554
=====================================================
The weighted-average common stock outstanding shown above is net of
unallocated ESOP shares (see Note 12).
During fiscal 2006, the Company registered an additional 3,350,000 shares
of its common stock which were sold at $20.00 per share. The number of shares
offered by the Company was 3,000,000 and 350,000 were offered by a selling
shareholder. The Company did not receive any proceeds from the sale of shares by
the selling shareholder. This stock offering increased the Company's weighted
average common stock outstanding by 1,134,000 shares for fiscal 2006. A portion
of the proceeds received by the Company were used to redeem $47,616,000
principal amount of the Company's outstanding 10% Senior Secured Notes. The
balance of the proceeds is available for other general corporate purposes to
advance the Company's strategy of global growth, additional debt repayment,
investments and acquisitions.
F-22
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK PLANS
The Company maintains two stock option plans, a Non-Qualified Stock Option
Plan (Non-Qualified Plan) and an Incentive Stock Option Plan (Incentive Plan).
Under the Non-Qualified Plan, options may be granted to officers and other key
employees of the Company as well as to non-employee directors and advisors. As
of March 31, 2006, 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, 2006 is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------------------------------------------------
Balance at March 31, 2003....................................... 1,311,750 $ 14.05
Granted...................................................... 45,000 6.92
Cancelled.................................................... (126,900) 14.28
--------------------------------------------------
Balance at March 31, 2004....................................... 1,229,850 $ 13.77
Granted...................................................... 741,500 6.41
Exercised.................................................... (52,000) 8.25
Cancelled.................................................... (116,550) 13.82
--------------------------------------------------
Balance at March 31, 2005....................................... 1,802,800 $ 10.89
Granted...................................................... 45,000 21.61
Exercised.................................................... (626,282) 11.41
Cancelled.................................................... (89,400) 7.76
--------------------------------------------------
Balance at March 31, 2006....................................... 1,132,118 $ 11.28
==================================================
A summary of exercisable and available for grant options is as follows:
----------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------
2006 2005 2004
---- ---- ----
Exercisable at end of year........................................... 605,243 926,050 851,425
Available for grant at end of year................................... 172,100 127,700 752,650
Exercise prices for options outstanding as of March 31, 2006, ranged from
$5.46 to $29.00. The following table provides certain information with respect
to stock options outstanding at March 31, 2006:
WEIGHTED-AVERAGE
STOCK OPTIONS WEIGHTED-AVERAGE REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE
------------------------ ----------- -------------- ----
Up to $10.00...................... 702,000 $ 6.91 7.3
$10.01 to $20.00.................. 175,568 14.32 4.9
$20.01 to $30.00.................. 254,550 21.25 4.1
-------------------------------------------------------------------------
1,132,118 $ 11.28 6.2
=========================================================================
The following table provides certain information with respect to stock
options exercisable at March 31, 2006:
STOCK OPTIONS WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- --------------
Up to $10.00............................................. 276,375 $ 8.95
$10.01 to $20.00......................................... 119,318 14.51
$20.01 to $30.00......................................... 209,550 21.18
-------------- ------------
605,243 $ 14.28
============== ============
F-23
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under FAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the grant date and the number of options granted is fixed,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The fair value
for issued options in fiscal 2006, 2005 and 2004 was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2004
-------------------------------------------------------
Assumptions:
Risk-free interest rate.................... 4.5 % 4.9 % 4.5 %
Dividend yield--Incentive Plan............. 0.0 % 0.0 % 0.0 %
Volatility factor.......................... 0.615 0.569 0.567
Expected life--Incentive Plan.............. 5 years 5 years 5 years
The weighted-average fair value of options granted in 2006, 2005 and 2004
was $12.13, $3.45 and $3.68 per share, respectively.
The Company maintains a Restricted Stock Plan, under which the Company had
48,000 and 49,000 shares reserved for issuance at March 31, 2006 and 2005,
respectively. The Company charges unearned compensation, a component of
shareholders' equity, for the market value of shares, as they are issued. It is
then ratably amortized over the restricted period. Grantees that remain
continuously employed with the Company become vested in their shares five years
after the date of the grant. 1,000 shares were issued during the year ended
March 31, 2006. No shares were issued during the years ended March 31, 2005 or
2004.
15. 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 the fourth quarter of 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, 2006 and 2005 were $23,329,000 and $19,653,000, respectively. This
liability is funded by investments in marketable securities (see Notes 2 and 6).
F-24
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a reconciliation of the beginning and ending
balances for accrued general and product liability:
---------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------
2006 2005 2004
---- ---- ----
Accrued general and product liability, beginning of year.. $ 16,094 $ 15,930 $ 14,439
Add impact of change in discount estimate................. 1,578 - -
Add provision for claims.................................. 6,342 5,780 5,398
Deduct payments for claims................................ (3,045) (5,616) (3,907)
---------------------------------------------------
Accrued general and product liability, end of year........ $ 20,969 $ 16,094 $ 15,930
===================================================
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 2006.
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 2007.
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 review, the Company has
estimated its share of liability to defend and resolve probable asbestos-related
personal injury claims. This estimate is highly uncertain due to the limitations
of the available data and the difficulty of forecasting with any certainty the
numerous variables that can affect the range of the liability. The Company will
continue to study the variables in light of additional information in order to
identify trends that may become evident and to assess their impact on the range
of liability that is probable and estimable.
F-25
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Based on actuarial information, the Company has estimated its
asbestos-related aggregate liability through March 31, 2031 and March 31, 2082
to range between $5,500,000 and $19,000,000 using actuarial parameters of
continued claims for a period of 25 to 76 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, is through March
31, 2031 and ranges from $5,500,000 to $6,500,000 as of March 31, 2006. The
range of probable and estimable liability reflects uncertainty in the number of
future claims that will be filed and the cost to resolve those claims, which may
be influenced by a number of factors, including the outcome of the ongoing
broad-based settlement negotiations, defensive strategies, and the cost to
resolve claims outside the broad-based settlement program. Based on the
underlying actuarial information, the Company has reflected $6,300,000 as a
liability in the consolidated financial statements in accordance with U.S.
generally accepted accounting principles. The increase in the recorded liability
from the amount of $4,800,000 at March 31, 2005 is due to a change in actuarial
parameters used to calculate required asbestos liability reserve levels. The
recorded liability does not consider the impact of any potential favorable
federal legislation such as the "FAIR Act." Of this amount, management expects
to incur asbestos liability payments of approximately $500,000 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.
16. RESTRUCTURING CHARGES
The Company has analyzed its global capacity requirements and, as a result,
began a series of facility rationalization projects in early fiscal 2002. The
decision to close or significantly reorganize the facilities identified was
based upon the cost structure of those facilities relative to others within the
Company. Production operations were transferred to other facilities within the
same reporting segment, to better utilize their available capacity.
During fiscal 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 SFAS No. 146 "Accounting for the Costs
Associated with Exit or Disposal Activities." As of March 31, 2006, the
liability primarily consists 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 has one facility
that is 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 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.
During fiscal 2004, the Company recorded restructuring costs of $1,239,000
related to various employee termination benefits and facility costs as a result
of the continued closure, merging and reorganization of the Company and
completion of the two open projects from fiscal 2003. $800,000 and $400,000 of
these costs are related to the Products and Solutions segments, respectively.
Approximately 130 employees were terminated at the various facilities. As of
March 31, 2004, the liability consisted of severance payments and costs
associated with the preparation and maintenance of non-operating facilities
prior to disposal which were accrued prior to the adoption of SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities."
F-26
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following provides a reconciliation of the activity related to
restructuring reserves:
---------------------------------------
EMPLOYEE FACILITY TOTAL
Reserve at March 31, 2003................................................. $ 922 $ 1,409 $ 2,331
Fiscal 2004 restructuring charges......................................... 1,005 234 1,239
Cash payments............................................................. (1,766) (1,243) (3,009)
---------------------------------------
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
=======================================
17. 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,
----------------------------------------------
2006 2005 2004
---- ---- ----
Expected tax at 35%.................................................. $ 9,854 $ 6,617 $ 1,821
State income taxes net of federal benefit............................ 705 363 614
Foreign taxes greater (less) than statutory provision................ 41 (579) 905
Permanent items...................................................... 370 - -
Benefit of worthless stock deduction................................. - - (44,815)
Research and development credit...................................... - - (1,058)
Valuation allowance.................................................. (44,237) (4,435) 46,974
Other................................................................ 2,321 230 (432)
----------------------------------------------
Actual tax (benefit) provision....................................... $ (30,946) $ 2,196 $ 4,009
==============================================
The provision for income tax (benefit) expense consisted of the following:
----------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------
2006 2005 2004
---- ---- ----
Current income tax expense (benefit):
United States Federal........................................... $ 856 $ (426) $ 147
State taxes..................................................... 1,084 559 928
Foreign......................................................... 4,082 3,034 2,779
Deferred income tax (benefit) expense:
United States................................................... (37,099) - 880
Foreign......................................................... 131 (971) (725)
----------------------------------------------
$ (30,946) $ 2,196 $ 4,009
==============================================
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 FAS Statement No. 109, "Accounting for Income Taxes." The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are as follows:
-----------------------------------
MARCH 31,
-----------------------------------
2006 2005
---- ----
Deferred tax assets:
Federal net operating loss carryforwards..................................... $ 29,075 $ 34,292
State net operating loss carryforwards....................................... 6,301 6,750
Employee benefit plans....................................................... 9,518 7,929
Asset reserves............................................................... 2,384 2,596
Insurance reserves........................................................... 7,283 6,558
Accrued vacation and incentive costs......................................... 1,980 2,077
Capital loss carryforwards................................................... - 708
Other........................................................................ 6,337 6,543
Valuation allowance.......................................................... (6,301) (50,538)
-----------------------------------
Gross deferred tax assets 56,577 16,915
-----------------------------------
Deferred tax liabilities:
Inventory reserves........................................................... (3,398) (3,050)
Property, plant, and equipment............................................... (2,822) (4,321)
-----------------------------------
Gross deferred tax liabilities............................................. (6,220) (7,371)
-----------------------------------
Net deferred tax assets................................................. $ 50,357 $ 9,544
===================================
As of March 31, 2006, the Company had U.S. federal net operating loss
carryforwards of approximately $83,070,000. 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.
A valuation allowance of $50,538,000 existed at March 31, 2005 due to the
uncertainly of whether the Company's operating loss carryforwards, deferred tax
assets and capital loss carryforwards might ultimately be realized. We were able
to utilize $14,906,000 of the federal operating loss carryforwards in fiscal
2006 which reduced the valuation allowance by $5,217,000. As a result of the
increased operating performance of the Company over the past several years, the
Company reevaluated the certainty as to whether the Company's remaining net
operating loss carryforwards and other deferred tax assets may ultimately be
realized. As a result of the determination that it is more likely than not that
all of the remaining deferred tax assets will be realized with the exception of
state net operating loss carryforwards, a significant portion of the remaining
valuation allowance was reversed in fiscal 2006.
Deferred income taxes are classified within the consolidated balance sheets
based on the following breakdown:
--------------------------
MARCH 31,
--------------------------
2006 2005
---- ----
Net current deferred tax asset................ $ 6,513 $ 4,977
Net non-current deferred tax asset............ 46,065 6,122
Net current deferred tax liability............ (1,189) (816)
Net non-current deferred tax liability........ (1,032) (739)
--------------------------
Net deferred tax asset................... $ 50,357 $ 9,544
==========================
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.
F-28
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income from continuing operations before income tax (benefit) expense
includes foreign subsidiary income of $13,034,000, $8,588,000 and $3,687,000 for
the years ended March 31, 2006, 2005, and 2004, respectively. As of March 31,
2006, the Company had unrecognized deferred tax liabilities related to
approximately $24 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.
In the year ended March 31, 2006, 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. The total 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
$2,154,000 in 2006. This tax benefit has also been recognized in the
consolidated balance sheet as a reduction of deferred income taxes payable.
The Company reviewed the provisions of the American Jobs Creation Act of
2004. The American Jobs Creation Act had no material impact on the operations of
the Company for fiscal year 2006.
18. RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for the years ended March 31, 2006, 2005 and 2004 was
$3,914,000, $3,718,000, and $3,594,000, respectively. The following amounts
represent future minimum payment commitments as of March 31, 2006 under
non-cancelable operating leases extending beyond one year:
VEHICLES AND
YEAR ENDED MARCH 31, REAL PROPERTY EQUIPMENT TOTAL
-------------------- ------------- --------- -----
2007.................... $ 1,279 $ 2,156 $ 3,435
2008.................... 1,333 1,645 2,978
2009.................... 1,267 1,305 2,572
2010.................... 1,108 975 2,083
2011.................... 704 676 1,380
F-29
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SUMMARY FINANCIAL INFORMATION
The following information sets forth the condensed consolidating summary
financial information of the parent and guarantors, which guarantee the 10%
Senior Secured Notes and the 8 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, 2006:
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
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
==========================================================================
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
==========================================================================
F-30
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31, 2006:
OPERATING ACTIVITIES:
Cash provided by operating activities........ $ 28,512 $ 8,418 $ 11,587 $ -- $ 48,517
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 - revised...................... 857 -- -- -- 857
--------------------------------------------------------------------------
Net cash used in 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........................................ 558 -- -- -- 558
--------------------------------------------------------------------------
Net cash provided by (used in) financing
activities................................ 1,924 (8,854) 573 -- (6,357)
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
==========================================================================
As of and for the year ended March 31, 2005:
AS OF MARCH 31, 2005:
Current assets:
Cash.................................... $ 1,019 $ (697) $ 9,157 $ -- $ 9,479
Trade accounts receivable and unbilled
revenues............................. 57,707 197 39,918 -- 97,822
Inventories............................. 33,651 18,919 26,028 (972) 77,626
Prepaid expenses........................ 7,297 973 5,928 -- 14,198
--------------------------------------------------------------------------
Total current assets................. 99,674 19,392 81,031 (972) 199,125
Net property, plant, and equipment........... 25,107 12,847 19,283 -- 57,237
Goodwill and other intangibles, net.......... 90,027 57,287 39,971 -- 187,285
Intercompany balances........................ 98,964 (102,189) (70,216) 73,441 --
Other non-current assets..................... 55,396 197,864 24,159 (240,195) 37,224
--------------------------------------------------------------------------
Total assets......................... $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871
==========================================================================
Current liabilities.......................... $ 47,189 $ 14,450 $ 36,653 $ (1,474) $ 96,818
Long-term debt, less current portion......... 259,520 -- 763 -- 260,283
Other non-current liabilities................ 11,032 8,199 22,772 -- 42,003
--------------------------------------------------------------------------
Total liabilities.................... 317,741 22,649 60,188 (1,474) 399,104
Shareholders' equity......................... 51,427 162,552 34,040 (166,252) 81,767
--------------------------------------------------------------------------
Total liabilities and shareholders'
equity.......................... $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871
==========================================================================
F-31
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 - revised...................... 643 -- -- -- 643
--------------------------------------------------------------------------
Net cash provided by (used in) 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 by (used in) 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-32
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the year ended March 31, 2004:
NON
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31, 2004:
Net sales.................................... $ 226,631 $ 114,987 $ 124,116 $ (21,143) $ 444,591
Cost of products sold........................ 173,269 94,677 93,785 (21,986) 339,745
--------------------------------------------------------------------------
Gross profit................................. 53,362 20,310 30,331 843 104,846
--------------------------------------------------------------------------
Selling, general and administrative expenses. 35,046 12,854 25,457 -- 73,357
Restructuring charges........................ 1,281 -- (42) -- 1,239
Amortization of intangibles.................. 245 3 135 -- 383
--------------------------------------------------------------------------
Income from operations....................... 16,790 7,453 4,781 843 29,867
Interest and debt expense.................... 28,390 (263) 729 -- 28,856
Other (income) and expense, net.............. 888 (12,573) (1,456) 8,950 (4,191)
--------------------------------------------------------------------------
(Loss) income from continuing operations
before income tax (benefit) expense....... (12,488) 20,289 5,508 (8,107) 5,202
Income tax (benefit) expense................. (1,306) 3,181 2,134 -- 4,009
--------------------------------------------------------------------------
Net (loss) income............................ $ (11,182) $ 17,108 $ 3,374 $ (8,107) $ 1,193
==========================================================================
FOR THE YEAR ENDED MARCH 31, 2004:
OPERATING ACTIVITIES:
Cash provided by (used in) operating
activities................................ $ 19,359 $ (2,644) $ 18,623 $ (8,969) $ 26,369
INVESTING ACTIVITIES:
Proceeds from marketable securities, net..... -- -- 110 -- 110
Capital expenditures......................... (2,635) (700) (284) -- (3,619)
Proceeds from sale of businesses............. 4,015 -- -- -- 4,015
Proceeds from sale of property, plant and
equipment................................. -- 387 -- -- 387
Net assets held for sale..................... -- 3,376 -- -- 3,376
--------------------------------------------------------------------------
Net cash provided by (used in) investing
activities................................ 1,380 3,063 (174) -- 4,269
FINANCING ACTIVITIES:
Proceeds from issuance of common stock....... -- -- (19) 19 --
Net (payments) borrowings under revolving
line-of-credit agreements................. (9,925) -- 3,033 -- (6,892)
Repayment of debt............................ (115,147) -- (10,617) -- (125,764)
Proceeds from issuance of long term debt..... 115,000 -- -- -- 115,000
Deferred financing costs incurred............ (4,432) -- -- -- (4,432)
Dividends paid............................... 174 -- (9,124) 8,950 --
Other........................................ 593 -- -- -- 593
--------------------------------------------------------------------------
Net cash (used in) provided by financing
activities................................ (13,737) -- (16,727) 8,969 (21,495)
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (78) 72 21 -- 15
--------------------------------------------------------------------------
Net change in cash and cash equivalents...... 6,924 491 1,743 -- 9,158
Cash and cash equivalents at
beginning of year....................... 57 (820) 2,706 -- 1,943
--------------------------------------------------------------------------
Cash and cash equivalents at end of year..... $ 6,981 $ (329) $ 4,449 $ -- $ 11,101
==========================================================================
F-33
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. BUSINESS SEGMENT INFORMATION
As a result of the way the Company manages the business, its reportable
segments are strategic business units that offer products with different
characteristics. The most defining characteristic is the extent of customized
engineering required on a per-order basis. In addition, the segments serve
different customer bases through differing methods of distribution. The Company
has two reportable segments: Products and Solutions. The Company's Products
segment sells hoists, industrial cranes, chain, attachments, and other material
handling products principally to third party distributors through diverse
distribution channels, and to a lesser extent directly to end-users. The
Solutions segment sells engineered material handling systems such as conveyors
and lift tables primarily to end-users in the consumer products, manufacturing,
warehousing, and, to a lesser extent, the steel, construction, automotive, and
other industrial markets. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
Intersegment sales are not significant. The Company evaluates performance based
on the operating earnings of the respective business units.
Segment information as of and for the years ended March 31, 2006, 2005 and
2004 is as follows:
---------------------------------------------
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
---------------------------------------------
YEAR ENDED MARCH 31, 2004
---------------------------------------------
PRODUCTS SOLUTIONS TOTAL
-------- --------- -----
Sales to external customers...... $ 394,160 $ 50,431 $ 444,591
Income from operations........... 32,326 (2,459) 29,867
Depreciation and amortization.... 8,996 1,130 10,126
Total assets..................... 446,069 27,294 473,363
Capital expenditures............. 3,362 257 3,619
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,
-------------------------------------------------
2006 2005 2004
---- ---- ----
NET SALES:
United States.......................................................... $ 394,657 $ 360,917 $ 319,815
Europe................................................................. 112,868 108,717 86,518
Canada................................................................. 30,492 28,778 27,736
Other.................................................................. 17,990 16,340 10,522
-------------------------------------------------
Total.................................................................. $ 556,007 $ 514,752 $ 444,591
=================================================
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2006 2005 2004
---- ---- ----
TOTAL ASSETS:
United States.......................................................... $ 411,199 $ 341,645 $ 347,488
Europe................................................................. 123,694 115,241 105,120
Canada................................................................. 20,444 17,442 14,628
Other.................................................................. 10,707 6,543 6,127
-------------------------------------------------
Total.................................................................. $ 566,044 $ 480,871 $ 473,363
=================================================
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2006 2005 2004
---- ---- ----
LONG-LIVED ASSETS:
United States.......................................................... $ 184,448 $ 185,518 $ 187,202
Europe................................................................. 53,357 54,181 53,051
Canada................................................................. 1,869 2,672 3,283
Other.................................................................. 2,785 2,151 1,979
-------------------------------------------------
Total.................................................................. $ 242,459 $ 244,522 $ 245,515
=================================================
Sales by major product group are as follows:
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2006 2005 2004
---- ---- ----
Hoists ............................................................... $ 258,082 $ 227,789 $ 197,400
Chain and forged attachments........................................... 134,301 127,300 110,681
Industrial cranes...................................................... 61,967 62,468 53,276
Other.................................................................. 101,657 97,195 83,234
-------------------------------------------------
Total.......................................................... $ 556,007 $ 514,752 $ 444,591
=================================================
F-35
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Below is selected quarterly financial data for fiscal 2006 and 2005:
----------------------------------------------------------------
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.
----------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------------
JULY 4, OCTOBER 3, JANUARY 2, MARCH 31,
2004 2004 2005 2005
---- ---- ---- ----
Net sales................................ $ 121,658 $ 122,711 $ 125,913 $ 144,470
Gross profit............................. 31,451 29,943 29,999 34,515
Income from operations................... 11,156 9,896 9,456 10,157
Net income............................... $ 3,362 $ 2,594 $ 2,405 $ 8,349
================================================================
Net income per share - basic............. $ 0.23 $ 0.18 $ 0.16 $ 0.57
================================================================
Net income per share - diluted........... $ 0.23 $ 0.18 $ 0.16 $ 0.56
================================================================
Results for the quarter ended March 31, 2005 include a one-time, non-cash
charge of $2,037,000 ($1,170,000 net of tax) relating to a defined benefit plan
at one of our foreign operations and $3,919,000 of gains from the sale of
surplus real estate.
F-36
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows:
--------------------------------
MARCH 31,
--------------------------------
2006 2005
--------------------------------
Net unrealized investment gains - net of tax................................. $ 1,891 $ 1,233
Minimum pension liability adjustment - net of tax............................ (17,107) (14,572)
Foreign currency translation adjustment...................................... 2,237 4,083
--------------------------------
Accumulated other comprehensive loss......................................... $ (12,979) $ (9,256)
================================
The deferred taxes associated with the items included in accumulated other
comprehensive loss were $9,486,000 and $8,159,000 for 2006 and 2005,
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 17), 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,
-------------------------------------------
2006 2005 2004
-------------------------------------------
Net unrealized investment gains (losses) at beginning of year..... $ 1,233 $ 1,364 $ (342)
Unrealized holdings gains arising during the period............ 1,591 328 2,916
Reclassification adjustments for (gains)
included in earnings......................................... (933) (459) (1,210)
-------------------------------------------
Net change in unrealized gains (losses) on investments............ 658 (131) 1,706
-------------------------------------------
Net unrealized investment gains at end of year.................... $ 1,891 $ 1,233 $ 1,364
===========================================
F-37
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs,"
as an amendment to ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted materials (spoilage). This Statement requires that these items
be recognized as current-period charges and requires the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. This Statement becomes effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The Company does not expect the
adoption of SFAS No. 151 to have a material impact on the Company's consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) was to be adopted for interim or annual periods beginning
after June 15, 2005. On April 14th, 2005, the SEC announced that it would
provide for a phased-in implementation process for FASB statement No. 123(R).
The SEC is requiring that registrants adopt statement 123(R)'s fair value method
of accounting for share-based payments to employees no later than the beginning
of the first fiscal year beginning after June 15, 2005. We expect to adopt
123(R) in the first quarter of Fiscal 2007. Statement 123(R) permits public
companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of
Statement 123(R) for all share-based payments granted to employees
prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on amounts previously recognized under
Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of
adoption.
The Company is still evaluating the method it plans to use when it adopts
statement 123(R).
As permitted by Statement 123, the Company currently accounts for
share-based payments to employees using Opinion 25's intrinsic value method and,
as such, recognizes no compensation cost for employee stock options.
Accordingly, adoption of Statement 123(R)'s fair value method will have an
impact on our results of operations, although it will have no impact on our
overall financial position. The impact of adoption of 123(R) cannot be predicted
at this time because it will depend on levels of share based payments granted in
the future. However, had we adopted Statement 123(R) in prior periods, the
impact of that standard would have approximated the impact of statement 123 as
described in the disclosure of pro forma net income and earnings per share in
Note 2 to the Company's consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" which replaces APB Opinion No. 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No.
154 changes the requirements for and reporting of a change in accounting
principle. This Statement becomes effective for changes in accounting methods
during fiscal years beginning after December 15, 2005. The Company does not
expect the adoption of SFAS No. 154 will have a material impact on the Company's
consolidated results of operations and financial condition.
F-38
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
24. SUBSEQUENT EVENTS
During April and May of 2006, the Company repurchased $32,128,000 of the
outstanding 10% Senior Secured Notes. The repurchase of the 10% Notes occurred
at a premium resulting in a pre-tax loss on early extinguishment of debt of
$3,194,000. As a result of the repurchase of the 10% Notes, approximately
$671,000 of pre-tax deferred financing costs was written-off. The net effect of
these items, a $3,865,000 pre-tax loss will be shown as part of other (income)
and expense, net for the first quarter of fiscal 2007.
F-39
COLUMBUS MCKINNON CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MARCH 31, 2006, 2005 AND 2004
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, 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
======== ========== ======== ======= ========
Year ended March 31, 2004: Deducted from asset accounts:
Allowance for doubtful accounts $ 2,743 $ 1,761 $ -- $ 1,693 (1) $ 2,811
Slow-moving and obsolete inventory 5,699 2,333 (126) (4) 2,028 (2) 5,878
Deferred tax asset valuation allowance -- 55,456 -- -- 55,456
-------- ---------- -------- ------- --------
Total $ 8,442 $ 59,550 $ (126) $ 3,721 $ 64,145
======== ========== ======== ======= ========
Reserves on balance sheet:
Accrued general and product liability costs $ 14,439 $ 5,398 $ -- $ 3,907 (3) $ 15,930
======== ========== ======== ======= ========
--------
(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-40
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, 2006, 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, 2006. There were no changes in our internal controls or in other factors
during our fourth quarter ended March 31, 2006.
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, 2006 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, 2006.
Management's assessment of the effectiveness of our internal control over
financial reporting as of March 31, 2006 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 and subsidiaries maintained effective internal control over
financial reporting as of March 31, 2006, 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.
31
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 the Columbus McKinnon Corporation
maintained effective internal control over financial reporting as of March 31,
2006, 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,
2006, 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, 2006 and 2005,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 2006 of
Columbus McKinnon Corporation and subsidiaries, and our report dated June 1,
2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
June 1, 2006
Buffalo, New York
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, 2006 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, 2006 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, 2006 and upon the filing of such Proxy Statement,
is incorporated by reference herein.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Certain Relationships and Related Transactions
will be included in a Proxy Statement to be filed with the Commission prior to
July 29, 2006 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,
2006 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, 2006 and 2005 F-3
Consolidated statements of operations - Years ended
March 31, 2006, 2005 and 2004 F-4
Consolidated statements of shareholders' equity - Years ended
March 31, 2006, 2005 and 2004 F-5
Consolidated statements of cash flows - Years ended
March 31, 2006, 2005 and 2004 F-6
Notes to consolidated financial statements F-7 to F-39
(2) FINANCIAL STATEMENT SCHEDULE: PAGE NO.
Schedule II - Valuation and qualifying accounts F-40
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
(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.)
33
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).
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).
34
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).
#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).
35
#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).
#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).
36
#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 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).
#10.36 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).
#10.37 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).
#10.38 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).
#10.39 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).
#10.40 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).
#10.41 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).
#10.42 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).
37
#10.43 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).
#10.44 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).
#10.45 Form of Change in Control Agreement as entered into between Columbus
McKinnon Corporation and each of Timothy T. Tevens, Derwin R.
Gilbreath, Ned T. Librock, 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).
10.46 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).
10.47 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).
#10.48 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).
10.49 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 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).
10.50 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).
38
10.51 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).
10.52 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).
10.53 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).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2006).
*23.1 Consent of Ernst & Young LLP.
*31.1 Certification of the principal executive officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
*31.2 Certification of the principal financial officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
*32.1 Certification of the principal executive officer and the principal
financial officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. Section 1350, as
adopted by pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. The information contained in this exhibit shall not be deemed
filed with the Securities and Exchange Commission nor incorporated
by reference in any registration statement foiled by the Registrant
under the Securities Act of 1933, as amended.
-----------------
* Filed herewith
# 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: August 4, 2006
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 August 4, 2006
------------------------- Officer and Director
TIMOTHY T. TEVENS (PRINCIPAL EXECUTIVE OFFICER)
/S/ KAREN L. HOWARD Vice President - Finance August 4, 2006
------------------------- and Chief Financial Officer
KAREN L. HOWARD (PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
/S/ ERNEST R. VEREBELYI Chairman of the Board of Directors August 4, 2006
-------------------------
ERNEST R. VEREBELYI
/S/ CARLOS PASCUAL Director August 4, 2006
-------------------------
CARLOS PASCUAL
/S/ RICHARD H. FLEMING Director August 4, 2006
-------------------------
RICHARD H. FLEMING
/S/ HERBERT P. LADDS, JR. Director August 4, 2006
-------------------------
HERBERT P. LADDS, JR.
/S/ WALLACE W. CREEK Director August 4, 2006
-------------------------
WALLACE W. CREEK
/S/ LINDA A. GOODSPEED Director August 4, 2006
-------------------------
LINDA A. GOODSPEED
/S/ STEPHEN RABINOWITZ Director August 4, 2006
-------------------------
STEPHEN RABINOWITZ
40