140 Years of Innovation.
Lifting. Positioning. Securing. Safely.
2015 ANNUAL REPORT
Material Handling - Easily and Safely
Columbus McKinnon (NASDAQ: CMCO) is a leading worldwide
designer, manufacturer and marketer of material handling products,
systems and services, which efficiently and ergonomically move, lift,
position and secure materials.
Headquartered in Amherst, New York, Columbus McKinnon’s key
products include hoists, cranes, actuators and rigging tools. The
Company is focused on commercial and industrial applications that
require the safety and quality provided by its superior design and
engineering know-how.
Financial Summary
(in thousands, except per share, margin and ratio data)
Fiscal Year Ended March 31,
2015
2014
2013
2012
2011
Income Statement Data
$
Net sales
Gross profit
Gross margin
Income from operations
Operating margin
Net income (loss)
Net income (loss) per diluted share
$
Non-GAAP adjusted net income (loss) per diluted share1 $
579,643
181,607
31.3 %
54,648
9.4 %
27,190
1.34
1.63
Balance Sheet Data
Total assets
Total liabilities
Total debt
Total debt, net of cash
Total shareholders’ equity
Total debt/capitalization
Total debt, net of cash/net total capitalization
Other Data
$
$
566,324
297,605
126,712
63,656
268,719
32.0 %
19.2 %
$
$
$
$
$
583,290
181,048
31.0 %
54,350
9.3 %
30,421
1.52
1.56
598,674
307,388
152,293
39,984
291,286
34.3 %
12.1 %
$
$
$
$
$
597,263
174,231
29.2 %
54,371
9.1 %
78,296
3.98
1.52
566,867
326,880
152,077
30,417
239,987
38.8 %
11.2 %
$
$
$
$
$
591,945
157,718
26.6 %
45,144
7.6 %
26,967
1.38
1.13
515,407
354,941
153,094
63,621
160,466
48.8 %
28.4 %
$
$
$
$
$
524,065
126,052
24.1 %
18,572
3.5 %
(35,950)
(1.89)
0.52
478,872
316,726
154,405
74,266
162,146
48.8 %
31.4 %
$
$
38,254
14,562
(17,243)
Operating cash flow
Depreciation and amortization
Capital expenditures
Working capital (excl. cash and debt)/revenue 2
Days sales outstanding
Inventory turns
1 The Company b elieves that non-GAAP adjusted net income per diluted share is a meaningful measure of financial performance in comparing period-to-period results. Please
see the tab le at the b ack of this report for a reconciliation of GAAP net income per diluted share to non-GAAP adjusted net income per diluted share. This information should b e
considered in addition to, b ut not as a sub stitute for, other measures of financial performance reported in accordance with GAAP.
2 FY2015 working capital/revenue excludes the impact of the Stahlhammer Bommern acquisition, which closed on Decemb er 30, 2014.
29,507
13,380
(20,846)
42,378
12,115
(14,879)
23,587
11,862
(13,765)
17.6 %
50.6
4.3
18.3 %
50.5
4.3
21.7 %
52.9
4.5
20.8 %
49.2
4.0
3,280
11,050
(12,543)
$
$
$
$
$
$
$
$
16.9 %
49.1
4.7
Operating Margin
Cash Flow from Operations
Total Debt, Net of Cash
(in millions)
(in millions)
9.1% 9.3% 9.4%
7.6%
3.5%
$42.4
$38.3
$29.5
$23.6
$74.3
$63.6
$63.7
$40.0
$30.4
'11
'12
'13
'14
'15
'11
'12
'13
'14
'15
'11
'12
'13
'14
'15
$3.3
Dear Fellow Shareholders,
Fiscal 2015 was a year of
many accomplishments
in the face of challenging
headwinds.
We achieved many objectives
that we believe enabled us to
continue to expand our market
reach and improve our market
penetration.
Fiscal 2015 Net Sales:
$579.6 million
Global Sales
Emerging market investments created more opportunity. Our newly
expanded facility in Hangzhou, China is now capable of producing a
wide range of lifting products, predominately for the Asia Pacific (APAC)
markets. By increasing our production capacity 40%, we are able to
produce a variety of Western-designed hoist product lines that have
been uniquely adjusted to address the standards and performance
expectations of the Asian market. This concept produces the highest
quality hoists at a lower price and allows us to compete effectively in this
expanding industrial market. We are also leveraging our global brand
names of Yale and CM to market these products and penetrate the
fastest growing marketplace in the world. As we do around the globe,
our focus remains on the premium market, where high quality, reliability
and lowest total life cycle costs are critical purchase-decision criteria.
We are gaining traction as customers, engineers and contractors with
critical lifting needs are specifying and purchasing our products by
brand. To date, we have supplied two nuclear power facilities in China
and have been awarded orders to supply 300 hoists to five new nuclear
facilities, or ten reactors, over the next few years. We expect many
more significant opportunities such as these to help us grow in the
region.
US
Europe, Middle East and Af rica
Latin America and Asia Pacif ic
Canada
Broad Product Offering
Our strategy to sell into China began 5 years ago. In that time, we have
realized a 22% compound annual growth rate. While APAC is yet a
relatively small segment of our business, we believe that there is
sufficient market opportunity to achieve $100 million in sales. From our
growing base in China, we are now also expanding our reach in the
Southeast Pacific region, specifically into India, Malaysia and Singapore.
Hoists
Chain and f orged attachments
Actuators and rotary unions
Industrial cranes
Other
New products remain a critical component to our growth. With the establishment of new executive
leadership for global product development, we have accelerated our efforts to create a clear product
path forward. We are working to improve our knowledge of customer needs as they relate to safe and
productive lifting systems. In fact, the iconic CM Lodestar® line, relied upon by professionals for the
most demanding applications around the world, now includes a 2-ton single-reeved option.
Consequently, its overall weight is decreased, making it easier to transport and rig compared with
traditional double-reeved hoists. We expect that expanding our product offering with products such as
this, as well as our more versatile manual ratchet-lever hoists, will help to gain greater market share,
address the changing needs of our customers and provide an option for every lifting challenge. Overall,
we are exceeding our goal of 20% revenue from new products. We can and will do more with new
products to support our growth objectives.
Acquisitions expand our product offerings, expand the applications we can serve and also
leverage our sales and marketing infrastructure. On December 30, 2014, we acquired privately-
owned Stahlhammer Bommern GmbH ("STB"), a manufacturer of a large range of lifting tools and
forged parts that are able to withstand particularly heavy, static and dynamic loads and include a variety
of lifting hooks. With revenue of approximately €14 million in calendar year 2014, STB’s geographic
reach has historically been limited to Europe. With this acquisition, we have expanded our lifting
capacity to 2,000 tons, well beyond our current maximum lifting limit of 35 tons. This business
combination provides Columbus McKinnon a new competitive edge around the world. Our pipeline of
acquisitions is replete with actionable opportunities such as this one.
Our financial strategy is a key component of our success. In February 2015, we redeemed our
outstanding 7 7/8% notes with more flexible bank loans at measurably lower rates, providing
approximately $7.6 million in cash interest savings annually. Not only does this reduce our cost of debt,
but it also provides us the financial flexibility to opportunistically address acquisitions as they present
themselves.
The headwinds we faced were strong, but lessened by fiscal year end. Not only did Europe, which
represents about one-third of our business, continue its industrial recession, but also Brazil showed no
signs of recovery. Growth in China slowed to its lowest level in many years, and there was a five-
month miners’ strike in South Africa, which led to much less servicing activity for us. Encouragingly, the
miners' strike ended during the year and Europe has begun to show signs of recovery. Another
headwind, which will continue into fiscal 2016, is the impact of foreign currency exchange. Total
currency translation had a $12.8 million negative effect on reported sales this past year.
Our financial results were resilient. Even as adversities challenged our Company, we achieved
annual revenue of $580 million, not much different than $583 million in the prior year. In this tough
environment, our gross margin improved appreciably by 30 basis points to $182 million, or 31.3% of
sales. Each year our lean manufacturing initiatives have both offset inflation and incrementally
improved our earnings power. We had adjusted earnings of $1.63 per diluted share compared with
$1.56 in fiscal 2014 and generated $38 million in operating cash flow, or $1.89 per diluted share.
(Adjusted earnings per share is a non-GAAP measure that management believes is a better reflection of the results of operations.
Please see the reconciliation of GAAP to non-GAAP on the inside back cover.)
The dedication of our people around the world makes Columbus McKinnon great. Our results are
reflections of our team of people who are dedicated to helping customers succeed in their quest for
safe and productive material handling. They create the value we deliver at Columbus McKinnon.
We welcome our newest Director, Heath Mitts, to our Board of Directors. As CFO of IDEX Corporation
(NYSE: IEX), we expect Heath’s business and financial experience will prove valuable to the Company
for many years to come.
We thank you for your interest and investment in Columbus McKinnon and look forward to a successful
fiscal 2016!
Sincerely,
Timothy T. Tevens
President and Chief Executive Officer
Ernest R. Verebelyi
Chairman of the Board of Directors
EXECUTIVE COMMITTEE
Timothy T. Tevens
President and Chief Executive Officer
Gregory P. Rustowicz
Vice President and Chief Financial Officer
Jeffrey S. Armfield
Executive Director - Global Product Strategy and
Development
Benjamin AuYeung
Managing Director - Asia Pacific
Gene P. Buer
Vice President - Global Services and Vertical Markets
Dr. Ivo Celi
Vice President - Europe, Middle East and Africa
Lawrence Gavin
Executive Director and Chief Procurement Officer
Alan S. Korman
Vice President - General Counsel and Corporate
Secretary
Mark R. Paradowski
Vice President - Information Services
Richard A. Steinberg
Vice President - Human Resources
Kurt F. Wozniak
Vice President - Americas
BOARD OF DIRECTORS
Ernest R. Verebelyi, Chairman
Terex Corporation (NYSE: TEX) (retired)
Timothy T. Tevens
Columbus McKinnon Corporation
Richard H. Fleming 1,3*
USG Corporation (NYSE: USG) (retired)
Linda A. Goodspeed 2,3
The ServiceMaster Company (NYSE: SERV) (retired)
Liam G. McCarthy 1,2
Molex Inc.
Heath A. Mitts 1,3
IDEX Corporation (NYSE: IEX)
Nicholas T. Pinchuk 2,3
Snap-on Inc. (NYSE: SNA)
Stephen Rabinowitz 1,2*
General Cable Corporation (NYSE: BGC) (retired)
R. Scott Trumbull 1*,2
Franklin Electric Company (NASDAQ: FELE) (retired)
1 Audit
2 Compensation and Succession
3 Corporate Governance and Nomination
* Chairperson
“Skies Painted With Unnumbered Sparks,” Vancouver 2014
CM’s channel partner American Crane relied on CM Master
Links and CM Master Rings, known for their strength and
durability, to suspend a local artist’s aerial art sculpture,
weighing more than 3,500 pounds, between two buildings.
As part of the new Santa Fe Springs, CA warehouse, Columbus
McKinnon opened a training center to meet the growing needs
and requests for CM entertainment training classes on the
West Coast.
Columbus McKinnon established the first regional Endurance
Test Center in its new facility in Hangzhou, China to shorten
the time to market for products designed in Asia. This facility
also enabled the Company to manufacture additional western-
designed products in China, such as Global King wire rope
hoists, for the Asia-Pacific region.
SEC FORM 10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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, 2015
Commission file number 0-27618
_________________
COLUMBUS McKINNON CORPORATION
(Exact name of Registrant as specified in its charter)
New York
(State of Incorporation)
16-0547600
(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
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
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.
1
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2014 (the second fiscal quarter in
which this Form 10-K relates) was approximately $439 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 26, 2015 was
20,067,724 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s proxy statement for its 2015 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, 2015 are
incorporated by reference into Part III of this report.
2
COLUMBUS McKINNON CORPORATION
2015 Annual Report on Form 10-K
This annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the
results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served
by us and our subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall
market acceptance of such products and services, the integration of acquisitions and other factors set forth herein under “Risk Factors.” We use
words like “will,” “may,” “should,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “future” and other similar expressions to identify
forward looking statements. These forward looking statements speak only as of their respective dates and we do not undertake and specifically
decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future
events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated changes. Our actual
operating results could differ materially from those predicted in these forward-looking statements, and any other events anticipated in the
forward-looking statements may not actually occur.
3
TABLE OF CONTENTS
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Part II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplemental Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III.
Item 10.
Directors and Executive Officers of Registrant
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Part IV
Item 15
Exhibits and Financial Statement Schedules
4
4
14
17
18
18
19
20
22
24
36
37
88
88
90
90
90
90
90
90
91
Item 1. Business
General
PART I
We are a leading global designer, manufacturer and marketer of hoists, rigging tools, cranes, actuators, and other material handling products
serving a wide variety of commercial and industrial end-user markets. Our products are used to efficiently and ergonomically move, lift,
position and secure objects and loads. We are the U.S. market leader in hoists, our principal line of products, as well as certain chain, forged
fittings, and actuator products which we believe provides us with a strategic advantage in selling other products. We have achieved this
leadership position through strategic acquisitions, our extensive, diverse and well-established distribution channels and our commitment to
product innovation and quality. We have one of the most comprehensive product offerings in the industry and we believe we have more
overhead hoists in use in North America than all of our competitors combined. Additionally, we believe we are the market leader of manual
hoist and actuator products in Europe, which provides us further opportunity to sell other products through our existing distribution channels in
that region. Our products are sold globally and our brand names, including CM, Coffing, Chester, Duff-Norton, Pfaff, Shaw-Box, Unified,
STB, and Yale, are among the most recognized and well-respected in the marketplace.
Our business is cyclical in nature and sensitive to changes in general economic conditions, including changes in the manufacturing industry
capacity utilization, industrial production and general economic activity indicators, like GDP. Both U.S. and Eurozone capacity utilization are
primary leading market indicators for our Company. U.S. industrial capacity utilization increased to 78.1% in March 2015, trending up slightly
from 77.6% in March 2014 but down slightly from 78.9% in December 2014. Eurozone capacity utilization was 81.0% in the quarter ended
March 31, 2015, an increase from 80.3% during both the quarters ended March 31, 2014 and December 31, 2014. The European indicator
reflects the continued slow recovery from the 2013 recession in Europe, while the U.S. indicator demonstrates relative stability in the U.S
industrial sector. In addition we follow the Emerging Markets Purchasing Managers’ Index (PMI) for other countries in which we have a strong
sales and marketing presence including China, Brazil, Mexico, South Africa and Russia.
Our Position in the Industry
We participate predominantly in the hoist, crane, and monorail sector. We believe that the demand for our products and services will be aided
by several growth drivers. These drivers include:
Productivity - We believe businesses respond to competitive pressures by seeking to maximize productivity and efficiency, among other
actions. Our hoists and other lifting and positioning products allow loads to be lifted and placed quickly, precisely, with little effort and fewer
people, thereby increasing productivity and reducing cycle time. Further, emphasis on “Lean” techniques by many companies increases
demand for our lifting and positioning products for use in single-piece flow workstation applications.
Safety - Driven by workplace safety regulations such as the Occupational Safety and Health Act (OSHA) and the Americans with Disabilities
Act in the U.S. and other safety regulations around the world, and by the general competitive need to reduce costs such as health insurance
premiums and workers’ compensation expenses, businesses 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 channel partners and end-user customers are
increasingly consolidating their suppliers. We believe that our broad product offering combined with our well established brand names will
enable us to benefit from this consolidation and enhance our market share.
Our Competitive Strengths
Leading North American Market Positions - We are a leading manufacturer and marketer of hoists, alloy and high strength carbon steel
chain and forged fittings, and actuators in North America. We have developed our leading market positions over our 140-year history by
emphasizing safety, manufacturing excellence and superior service. Approximately 72% of our U.S. net sales for the year ended March 31,
2015 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 channel partners and end user 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.
5
The following table summarizes the product categories where we believe we are the U.S. market leader:
Product Category
Hoist, Trolleys and Components (1)
Screw Jacks (2)
Tire Shredders (3)
Jib Cranes (4)
_____________
U.S. Market Share
U.S. Market Position
40% - 45%
35% - 40%
50% - 55%
25% - 30%
#1
#1
#1
#1
Percentage of
U.S. Net Sales
60 %
7 %
3 %
2 %
72 %
(1) Market share and market position data are internal estimates derived from survey information collected and provided by our trade
associations in 2014.
(2) Market share and market position data are internal estimates derived by comparison of our net sales to net sales of one of our
competitors and to estimates of total market sales from a trade association in 2014.
(3) Market share and market position data are internal estimates derived by comparing the number of our tire shredders in use and their
capacity to estimates of the total number of tires shredded published by a trade association in 2014.
(4) 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
catalog's in 2014.
Comprehensive Product Lines and Strong Brand Name Recognition - We believe we offer the most comprehensive product lines in the
markets we serve. We offer training, engineering and design services to help channel partners and end users solve material handling problems.
Most of our products are maintenance, repair and operating tools which work in conjunction with each other to create a complete lifting
system. We complement our product offerings with training, engineering and design services to assist our channel partners and end-users in
finding the optimal solution for their material handling needs. Our capability as a full-line supplier has allowed us to (i) provide our customers
with “one-stop shopping” for material handling equipment, which meets some customers’ desires to reduce the number of their supply
relationships in order to lower their costs, (ii) leverage our engineering, product development and marketing costs over a larger sales base and
(iii) achieve purchasing efficiencies on common materials used across our product lines. No single SKU comprises more than 1% of our sales,
a testament to our broad and diversified product offering.
In addition, our brand names, including Budgit, Chester, CM, Coffing, Duff-Norton, Little Mule, Pfaff, Shaw-Box, Unified, STB, and Yale, are
among the most recognized and respected in the industry. The CM and Yale names have been synonymous with powered and manual hoists
and were first developed and marketed under these brand names in the early 1900's. We believe that our strong brand name recognition and
demonstrated performance have created customer loyalty and helps us maintain existing business, as well as capture additional business. We
innovate and continually introduce new products to meet our changing customer needs. Products introduced or engineered for our customers
during the last three fiscal years ended March 31, 2015 account for approximately 21.2% of our net sales.
Distribution Channel Diversity and Strength - Our products are sold to over 15,000 general and specialty distributors, end users and OEMs
globally. We enjoy long-standing relationships with, and are a preferred provider to, the majority of our distributors and industrial buying
groups. There has been consolidation among distributors of material handling equipment and we have benefited from this consolidation by
maintaining and enhancing our relationships with leading distributors, as well as forming new relationships. We believe our extensive
distribution channels provide a significant competitive advantage and allow us to effectively market new product line extensions and promote
cross-selling. Our largest customer represents approximately 3% of our total net sales and our top 10 customers represent approximately 17%
of our total net sales.
Expanding Non-U.S. Markets - We have significantly grown our non-U.S. sales since becoming a public company in 1996. Our non-U.S.
sales have grown from $34,300,000 (representing 16% of total sales) in fiscal 1996 to $244,033,000 (representing 42% of our total sales)
during the year ended March 31, 2015. This growth has occurred primarily in Europe, Latin America and Asia-Pacific. We have nine sales
offices in China to sell into this growing industrial market and eight sales offices in Latin America. Our non-U.S. business has provided us, and
we believe will continue to provide us, with significant growth opportunities and new markets for our products.
6
"Non-U.S. sales" as expressed throughout Items 1 and 7 of this Form 10-K, are defined as sales to customers located outside of the United
States.
Efficient Operations with Low-Cost Structure - We are extremely focused on optimizing our cost structure and have taken a number of
steps towards reducing our costs, including: consolidating facilities, promoting a “Lean” culture, manufacturing in low cost jurisdictions,
coordinating purchasing activities across the organization and selectively outsourcing non-critical functions. The actions we have taken to date
have eliminated fixed costs from our operations and provided us with significant operating leverage as the economic conditions in our markets
continue to improve.
—
—
—
—
—
Rationalization and Consolidation - We have consolidated many manufacturing facilities resulting in lower annual operating costs
and improving our fixed-variable cost relationship. During the year ended March 31, 2015 we developed a plan to consolidate two
European facilities. We expect this plan to be completed by the end of June 2015.
Lean Culture - We have been applying “Lean” techniques since 2001 and our efforts have resulted in increased inventory turns,
reduced manufacturing floor space, and an improvement in productivity and on-time deliveries. We have witnessed the benefits of
“Lean” principles in our manufacturing operations and are now working to develop a “Lean” culture throughout our
organization—improving our processes and reducing waste in all forms in all of our business activities.
Expansion Outside the U.S. - Our continued expansion of our manufacturing facilities in China and Europe provides us with a cost
efficient platform to manufacture and distribute certain of our products and components. We now operate 18 principal manufacturing
facilities in 7 countries, with 37 stand-alone sales and service offices in 23 countries and 11 warehouse facilities in 5 countries.
Consolidated Purchasing Activities - We continue to leverage our company-wide purchasing power through our commodity
management teams that reduce our costs and manage fluctuations in commodity pricing, including steel.
Selective Integration and Outsourcing - We manufacture many of the critical parts and components used in the manufacture of our
hoists and lifting systems, resulting in reduced costs. We also continue to evaluate outsourcing opportunities for non-critical
operations and components.
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 ultimate satisfaction. We have a large installed base of hoists and rigging tools that drives our after-market sales for
replacement units and components and repair parts. We maintain strong relationships with our distribution channel partners and provide
prompt service to end-users of our products through our authorized network of 16 chain repair stations and over 250 certified hoist service and
repair stations globally. We also work closely with end users to design the appropriate lifting systems using our products to help them solve
their material handling problems.
We also provide a wide variety of training and certification programs to the users of our products. These training and certification programs
include crane inspection and operation training and certification, hoist inspection and repair training and certification, various rigging training
courses, load securement training, and CM entertainment technology equipment training and certification classes. In addition to our training
classes, we offer free monthly safety webinars to Channel Partners and end-users. These webinars are designed to provide information and
promote best practices on the proper use, installation, inspection and maintenance for a variety of material handling products.
Consistent Free Cash Flow Generation and Access to Capital —We have consistently generated positive free cash flow (which we define as
net cash provided by operating activities less capital expenditures) through periods of economic uncertainty by continually controlling our
costs, improving our working capital management and reducing the capital intensity of our manufacturing operations. During fiscal 2015, we
significantly enhanced our capital structure. We refinanced our 7 7/8% Senior Subordinated Notes due in 2019 with a $125 million term loan
which has a considerably lower interest rate than the notes. We expect to save over $7,600,000 in interest annually based on this refinancing.
Refer to Note 12 of the consolidated financial statements for additional information regarding our debt. Further we entered into a new $150
million revolving credit facility replacing our previous $100 million facility. This capital structure allows us to manage our liquidity in a low
cost manner while maintaining flexibility to pursue attractive strategic growth opportunities.
7
Experienced Management Team with Equity Ownership - Our senior management team provides significant depth and continuity of
experience in the material handling industry, supplemented by expertise in growing businesses, aggressive cost management, balance sheet
management, efficient manufacturing techniques, acquiring and integrating businesses and global operations. This diverse experience has been
critical to our success to date and will be instrumental to our long-term growth. Our directors and management promote the ownership of
company stock by the executive officers and directors to align the interests of our leadership team with those of our stakeholders.
Our Strategy
Invest in New Products and Targeted Markets. We intend to leverage our competitive advantages to increase our market shares across all
of our product lines and geographies by:
—
—
—
Introducing New Products —We continue to expand our business by developing new products and services and expanding the
breadth of our products to address the material handling needs of our customers. We design our powered hoist products to meet
applicable standards such as ASME, FEM, DIN and other region-specific/application-specific standards to maximize product utility
across global markets. We employ the StageGate process to enhance discipline and focus in our new product development program.
New product sales (defined as new products introduced within the last three years and products engineered for our customers)
amounted to $123,000,000 in the fiscal year ended March 31, 2015, or 21.2% of total sales exceeding our goal of having new
products amounting to at least 20% of total sales.
Leveraging Our Distribution Channel Relationships and Vertical Market Knowledge —Our large, diversified, global customer base,
our extensive distribution channels and our close relationships with end-users and channel partners provide us with insights into
customer preferences and product requirements that allow us to anticipate and address the future needs of the marketplace. We are
also investing in key vertical markets that will help us increase our revenues.
Broadening Our Product Offering— Developing and offering a broad range of products to our channel partners is an important
element of our strategy. Industrial channel partners offer a broad array of industrial components that are used by many end-user
markets. We continue to review and add new material handling products to broaden our offerings.
Continue to Grow in Non-U.S. Markets - Our non-U.S. sales of $244,033,000 comprised 42% of our net sales for the year ended March 31,
2015, as compared with $251,902,000, or 43% in fiscal 2014 and as compared to 16% of our net sales in fiscal 1996, the year we became a
public company. Foreign currency translation unfavorably impacted sales by $12,843,000 during fiscal 2015. Although we have made
significant progress, our goal is to continue to increase our presence outside the U.S to capitalize on the higher growth opportunities and
continue to diversify our business profile. We presently sell to distributors in over 50 countries and have our primary non-U.S. manufacturing
facilities in China, Germany, the United Kingdom, Hungary, Mexico and France. In addition to new product introductions, we continue to
expand our sales and service presence in the major and developing market areas of Asia-Pacific, Europe, and Latin America and have sales
offices and warehouse facilities in Canada, various countries in Western and Eastern Europe, China, Thailand, Brazil, Uruguay, Panama and
Mexico. We intend to increase our sales in Asia-Pacific by manufacturing a broader array of high quality, low-cost products and components
in China. We have developed and are continuing to expand our development of hoist and other products in compliance with global standards
and international designs to enhance our global distribution.
Focus on Operational Excellence - Our objective is to provide the highest quality products and services at prices consistent with the value
created for our customers. We continually evaluate our costs with a focus to reduce our costs. Our view is that a market-focused sales and
marketing effort along with low operating costs will prove to be successful for both our customers and for the Company. We continually seek
ways to reduce our operating costs and increase our manufacturing productivity, while improving our quality. Ongoing programs include our
efforts to further develop our “Lean” culture throughout the organization, the expansion of our facilities in China, our continued search for new
ways to leverage our purchasing power through combined sourcing and the continued focus on enhancing the efficiency of our global supply
chain.
8
Pursue Strategic Acquisitions and Alliances; Evaluate Existing Business Portfolio - We intend to pursue synergistic acquisitions to
complement our organic growth. Priorities for such acquisitions include: i. increasing international geographic penetration, particularly in the
Asia-Pacific region and other emerging markets, and ii. further broadening our offering with complementary products. Additionally, we
continually challenge the long-term fit of our businesses for potential divestiture and redeployment of capital.
Our Business
ASC Topic 280 “Segment Reporting” establishes the standards for reporting information about operating segments in financial
statements. We provide our products and services through one operating and reportable segment.
We design, manufacture and distribute a broad range of material handling products for various applications. Products include a wide variety of
electric, air-powered, lever, and hand hoists, hoist trolleys, winches, industrial crane systems such as steel bridge, gantry and jib cranes and
aluminum work station cranes ; alloy and carbon steel chain; forged attachments, such as hooks, shackles, textile slings, clamps, logging tools
and load binders; mechanical and electromechanical actuators and rotary unions; below-the-hook special purpose lifters and tire shredders.
These products are typically manufactured for stock or assembled to order from standard components and are sold primarily through a variety
of commercial distributors and to a lesser extent, directly to end-users. The diverse end-users of our products are in a variety of industries
including manufacturing, power generation and distribution, utilities, wind power, warehouses, commercial construction, oil and gas
exploration and refining, petrochemical, marine, ship building, transportation and heavy duty trucking, agriculture, logging and mining. We
also serve a niche market for the entertainment industry including permanent and traveling concerts, live theater and sporting venues.
Products
Nearly 80% of our net sales are derived from the sale of products that we sell at a unit price of less than $5,000. Of our fiscal 2015 sales,
$335,610,000 or 58% were U.S. and $244,033,000, or 42% were non-U.S. The following table sets forth certain sales data for our products,
expressed as a percentage of net sales for fiscal 2015 and 2014:
Hoists
Chain and rigging tools
Industrial cranes
Actuators and rotary unions
Other
Fiscal Years Ended March 31,
2015
68 %
13
5
12
2
100 %
2014
69 %
13
3
13
2
100 %
Hoists - We manufacture a wide variety of electric chain hoists, electric wire rope hoists, hand-operated hoists, winches, lever tools and
air-powered hoists. Load capacities for our hoist product lines range from one-eighth of a ton to 80 tons. These products are sold under our
Budgit, Chester, CM, Coffing, Little Mule, Pfaff, Shaw-Box, Yale and other recognized brands. Our hoists are sold for use in numerous general
industrial applications, as well as for use in the construction, energy, mining, food services, entertainment and other markets. We also supply
hoist trolleys, driven manually or by electric motors, that are used in conjunction with hoists.
We also offer several lines of standard and custom-designed, below-the-hook tooling, clamps, and textile strappings. Below-the-hook tooling,
textile and chain slings and associated forgings, and clamps are specialized lifting apparatus used in a variety of lifting activities performed in
conjunction with hoisting or lifting applications.
Chain and Rigging Tools - We manufacture alloy and carbon steel chain for various industrial and consumer applications. U.S. 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 TM 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.
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We produce a broad line of alloy and carbon steel closed-die forged chain attachments, including hooks, shackles, Hammerloks TM, 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.
Our recent acquisition of Stahlhammer Bommern GmbH (STB) expands our rigging tool offering by adding a variety of eye, shank and
ramshorn lifting hooks and deepens our exposure to targeted global vertical markets, such as Oil & Gas, Mining, Construction and Heavy
Equipment industries. We plan to further extend STB’s product reach through our established global sales and distribution network.
In addition, we manufacture carbon steel forged and stamped products, such as load binders, logging tools and other securing devices, for sale
to the industrial and logging markets through industrial distributors, hardware distributors, mass merchandiser outlets and OEMs.
Industrial Cranes - We participate in the U.S. crane manufacturing and servicing markets through our offering of overhead bridge, jib and
gantry cranes. Our products are sold under the CES, Abell-Howe and Washington Equipment brands. Crane builders represent a specific
distribution channel for electric wire rope hoists, chain hoists and other crane components.
Actuators and Rotary Unions - Through our Duff-Norton and Pfaff divisions, we design and manufacture industrial components such as
mechanical and electromechanical actuators and rotary unions. Actuators are linear motion devices used in a variety of industries, including the
transportation, paper, steel, energy, aerospace and many other commercial industries. Rotary unions are devices that transfer a liquid or gas
from a fixed pipe or hose to a rotating drum, cylinder or other device. Rotary unions are used in a variety of industries including pulp and
paper, printing, textile and fabric manufacturing, rubber and plastic.
Overhead light rail workstations - With our acquisition of Unified Industries, Inc in the prior year, we manufacture and market overhead
aluminum light rail workstations primarily used in automotive and other industrial applications. Our products are sold under the Unified brand
name.
Other - This category primarily includes tire shredders. We have developed and patented a line of heavy equipment that shred whole tires,
for use in recycling the various components of a tire including: rubber and steel. These recycled products also can be used as aggregate,
playgrounds, sports surfaces, landscaping and other such applications, as well as scrap steel.
Sales and Marketing
Our sales and marketing efforts consist of the following programs:
Factory-Direct Field Sales and Customer Service - We sell our products through our sales force of more than 131 sales people and through
independent sales agents worldwide. 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 advertising in leading trade journals as well as producing and distributing high quality
information catalogs. We place targeted advertisements for hoists, chain, forged attachments, actuators, and cranes in key industrial
publications.
Target Marketing - We provide marketing literature to target specific end-user market sectors including entertainment, construction, energy,
mining, and others. This literature displays our broad product offering applicable to those sectors to enhance awareness at the end-user level
within those sectors. We also employ vertical market specialists to support our field sales force to assist our customers with solving their
material handling application needs.
Trade Show Participation - Trade shows are an effective way to promote our products to distributors and end users. Shows can range in
size from distributor “open houses” to large, global shows such as CeMAT held in Hanover, Germany. Through partnerships with our
distributors, we have expanded our reach to the end user while strengthening our distribution network. In fiscal 2015, we focused primarily on
shows related to vertical markets. Examples include: OTC (US) for oil & gas, MINExpo (US) for mining industry, LDI (US) for the
entertainment industry, PALM Expo (China) for the entertainment industry, Promat (US) and CEMAT ASIA for material handling,
automation, transport/logistics industries, Prolight & Sound (Germany) for industrial equipment, Plasa (UK) for entertainment, Mecânica
(Brazil) for automation and process controls, Rio for oil & gas (Brazil) and Expo Manejo de Materiales y Logística (Mexico) for handling of
materials and logistics.
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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 in 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 ASME (American Society of Mechanical Engineers).
Product Standards and Safety Training Classes - We conduct on-site training and certification 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. These training and certification programs include crane inspection and operation training and certification, hoist inspection and
repair training and certification, various rigging training courses, load securement training, and entertainment technology equipment training
and certification classes.
CMCO University - Launched in September 2013, CMCO University consists of several training programs designed to give our Channel
Partners intimate knowledge of Columbus McKinnon products. Held at the Columbus McKinnon Niagara Training Center and other locations
in Latin America and Europe, this program consists of classroom and hands-on training aimed at providing the sales and product information
our Channel Partners need to select the right product for their end-users application and the tools to win in the marketplace.
Web Sites - Our main corporate web site www.cmworks.com supports the Company’s broad product offering providing product data,
maintenance manuals and related information for the brands within our product portfolio. The sites also provide detailed search and
simultaneous product comparisons, the ability to submit “Requests for Quotations” and allows users the ability to chat live with a member of
our customer service department. In addition to our main site we maintain an additional 20 sites supporting various product lines, industry
segments and geographies. Distributors also have access to a secure, extranet portal website allowing them to enter sales orders, search pricing
information, check order status, and product serial number information.
Distribution and Markets
Our distribution channels include a variety of commercial distributors. In addition, we sell overhead bridge, jib and gantry cranes and
aluminum light rail systems as well as certain motion technology products directly to end-users. The following describes our global distribution
channels:
General Distribution Channels - Our global general distribution channels consist of:
— Industrial distributors that serve local or regional industrial markets and sell a variety of products for maintenance
repair, operating and production, or MROP, applications through their own direct sales force.
—
Rigging shops that are distributors with expertise in rigging, lifting, positioning and load securing. Most rigging shops assemble and
distribute chain, wire rope and synthetic slings and distribute manual hoists and attachments, chain slings and other products.
—
Independent crane builders that design, build, install and service overhead crane and light-rail systems for general industry and also
distribute a wide variety of hoists and crane components. 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.
Specialty Distribution Channels - Our global specialty distribution channels consist of:
—
National and regional distributors that market a variety of MROP supplies, including material handling products, either exclusively
through large, nationally distributed catalogs, or through a combination of catalog, internet and branch sales and a field sales
force.
—
Material handling specialists and integrators that design and assemble systems incorporating hoists, overhead rail systems, trolleys,
scissor lift tables, manipulators, air balancers, jib arms and other material handling products to provide end-users with
solutions to their material handling problems.
—
Entertainment equipment distributors that design, supply and install a variety of material handling and rigging equipment for
concerts, theaters, ice shows, sporting events, convention centers and night clubs.
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Pfaff International Direct - Our German-based Pfaff business markets and sells most of its actuators direct to end-users, providing an
additional method to market for us in the European region.
Crane End-Users - We market and sell overhead bridge, jib and gantry cranes, parts and service to end-users through our wholly owned
crane builder, Crane Equipment & Service, Inc. (“CES”). CES which includes Abell-Howe and Washington Equipment brands designs,
manufactures, installs and services a variety of cranes with capacities up to 100 tons.
Service-After-Sale Distribution Channel - Service-after-sale distributors include our authorized network of 16 chain repair service stations
and over 250 certified hoist service and repair stations globally. This service network is designed for easy parts and service access for our large
installed base of hoists and related equipment in that region.
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. We also provide our products to the U.S. and other governments for a variety of military applications.
Customer Service and Training
We maintain customer service departments staffed by trained personnel for all of our 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 over 250 service and
repair stations worldwide that provide local and regional repair, warranty and general service work for distributors and end-users. End-user
trainees attending our various programs include representatives of 3M, DuPont, General Electric, and many other industrial and entertainment
organizations.
We also provide, in multiple languages, a variety of collateral material in video, 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 backlog of orders at March 31, 2015 was approximately $85,170,000 compared to approximately $86,801,000 at March 31, 2014 . Our
orders for standard products are generally shipped within one week. Orders for products that are manufactured to customer specifications are
generally shipped within four to twelve weeks. Given the short product lead times, we do not believe that the amount of our backlog of orders
is a reliable indication of our future sales. Fluctuations in backlog reflect the project oriented nature of certain aspects of our business.
Competition
The material handling industry remains highly fragmented. We face competition from a wide range of regional, national and international
manufacturers globally. In addition, we often compete with individual operating units of larger, highly diversified companies.
The principal competitive factors affecting our business include customer service and support as well as product availability, performance,
functionality, brand reputation, reliability and price. Other important factors include distributor relationships and territory coverage.
12
Major competitors for hoists are Konecranes, Terex (acquired Demag Cranes) and Kito (and its U.S. subsidiary Harrington); for chain are
Campbell Chain, Peerless Chain Company and American Chain and Cable Company; for forged attachments are The Crosby Group and
Brewer Tichner Company; for cranes are Konecranes, Terex (acquired Demag Cranes) and a variety of independent crane builders; for
actuators and rotary unions are Deublin, Joyce-Dayton and Nook Industries; and for tire shredders is Granutech.
Employees
At March 31, 2015, we had 2,747 employees; 1,446 in the U.S./Canada, 133 in Latin America, 943 in Europe and 225 in Asia. Approximately
13% of our employees are represented under four separate U.S. or Canadian collective bargaining agreements which terminate at various times
between August 2016 and April 2018. We also have various labor agreements with our non-U.S. employees which we negotiate from time to
time. We believe that our relationship with our employees is good and that the risk of a disruption in production related to these negotiations is
remote.
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 global purchasing group to take
advantage of volume discounts. We generally seek to pass on materials price increases to our channel partners and end-user customers. We
continue to monitor our costs and reevaluate our pricing policies. Our ability to pass on these increases is determined by market conditions.
Hedging Activities
We use derivative instruments to manage selected foreign currency and interest rate risk exposures. The Company does not use derivative
instruments for speculative trading purposes.
We use foreign currency forward agreements to i) hedge changes in the value of booked foreign currency liabilities due to changes in foreign
exchange rates at the settlement date and ii) to hedge a portion of forecasted inventory purchases denominated in a foreign currency. We use
interest rate swaps to maintain the Company's desired capital structure which is comprised of 50-70% of fixed rate long-term debt and 30-50%
of variable rate long-term debt.
Manufacturing
We complement our own manufacturing by outsourcing components and finished goods from an established global network of suppliers. We
regularly upgrade our global manufacturing facilities and invest in tooling, equipment and technology.
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, overhead light rail
workstations, and hooks and other attachments for incorporation into our hoist products. These products are also sold as spare parts for hoist
repair. Additionally, our hoists are used as components in the manufacture of crane systems by us as well as our crane-builder customers.
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 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.
We notified the North Carolina Department of Environment and Natural Resources (the “DENR”) in April 2006 of the presence of certain
contaminants in excess of regulatory standards at our facility in Wadesboro, North Carolina. We filed an application with the DENR to enter its
voluntary cleanup program and were accepted. We investigated under the supervision of a DENR Registered Environmental Consultant (“the
REC”) and have commenced voluntary clean-up at the facility. At this time, additional remediation costs are not expected to exceed the
accrued balance of $109,000.
We have been a part of the Pendleton Site PRP Group since about 1993. Many years ago, we sent pickle liquor wastes from Tonawanda, NY
to the Pendleton Site for treatment and disposal. The Pendleton Site PRP Group signed an Order on Consent with the NYS DEC in 1996 and
the cleanup was concluded in the early 2000s. The Order on Consent required a post-construction operation and maintenance period of 30
years and we are required to pay our share of the costs associated with the operation and maintenance period. These annual costs are
approximately $50,000 of which we pay 13.4% or $6,700. Reserves on the books are sufficient to cover these costs for the remainder of the
operations and maintenance period.
For all of the currently known environmental matters, we have accrued as of March 31, 2015 a total of $262,000 which, in our opinion, is
sufficient to deal with such matters. Further, we believe 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 in the U.S. and others outside the U.S. and regulations thereunder. We believe that we are in substantial 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, financial condition, or liquidity.
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.
14
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:
Adverse changes in global economic conditions may negatively affect our industry, business and results of operations.
During the last five years, financial markets in the United States, Europe and Asia have experienced substantial disruption including, among
other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments
and declining valuations of others. Governments have taken unprecedented actions intended to address these market conditions and the extent
to which such government actions may prove effective remains unclear. The future economic environment may worsen.
Our industry is affected by changes in economic conditions outside our control, which can result in a general decrease in product demand from
our customers. Such economic developments may affect our business in a number of ways. Reduced demand may drive us and our competitors
to offer products at promotional prices, which would have a negative impact on our profitability. In addition, the tightening of credit in
financial markets may adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations
and could result in a decrease in, or cancellation of, orders for our products. If demand for our products slows down or decreases, we will not
be able to maintain our revenues and we may run the risk of failing to satisfy the financial and other restrictive covenants to which we are
subject under our existing indebtedness. Reduced revenues as a result of decreased demand may also reduce our planned growth and otherwise
hinder our ability to improve our performance in connection with our long term strategy.
Our business is cyclical and is affected by industrial economic conditions.
Many of the end-users of our products are in highly cyclical industries, such as manufacturing, power generation and distribution, commercial
construction, oil and gas exploration and refining, transportation, agriculture, logging, and mining 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. 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.
Our business is highly competitive and subject to consolidation of competitors. Increased competition could reduce our sales, earnings, and
profitability.
The principal markets that we serve within the material handling industry are fragmented and highly competitive. Competition is based
primarily on customer service and support as well as product availability, performance, functionality, brand reputation, reliability and price.
Our competition in the markets in which we participate comes from companies of various sizes, some of which have greater financial and other
resources than we do. Increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could
reduce our gross margins and net income.
The greater financial resources or the lower amount of debt of certain of our competitors may enable them to commit larger amounts of capital
in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that could
put us at a disadvantage. In addition, through consolidation, some of our competitors have achieved substantially more market penetration in
certain of the markets in which we operate. 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.
15
Our operations outside the U.S. pose certain risks that may adversely impact sales and earnings.
We have operations and assets located outside of the United States, primarily in China, Mexico, Germany, the United Kingdom, France, and
Hungary. 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 our fiscal year ended March 31, 2015, approximately 42% of our net sales were derived from non-U.S. markets. These non-U.S.
operations are subject to a number of special risks, in addition to the risks of our U.S. business, 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, U.S. 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 components in lower cost countries, in particular in China, Mexico, and Hungary. Implementation of this strategy may increase the
impact of the risks described above, and we cannot assure you that such risks will not have an adverse effect on our business, results of
operations or financial condition.
Our strategy depends on successful integration of acquisitions.
Acquisitions are a key part of our growth strategy. Our historical growth has depended, and our future growth is likely to depend on our ability
to successfully implement our acquisition strategy, and the successful integration of acquired businesses into our existing business. We intend
to continue to seek additional acquisition opportunities in accordance with our acquisition strategy, both to expand into new markets and to
enhance our position in existing markets throughout the world. If we are unable to successfully integrate acquired businesses into our existing
business or expand into new markets, our sales and earnings growth could be reduced.
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 are in excess of insurance coverage could have a material adverse effect on our results, financial condition, or liquidity.
In addition, like many industrial manufacturers, we are also involved in asbestos-related litigation. In continually evaluating costs relating to
our 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, our recent and historical resolution of the cases, the number of cases
pending against us, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on
this review, we estimate our 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 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. We believe that the potential additional costs for
claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities
recorded could be material to earnings in a future period. See Note 16 to our March 31, 2015 consolidated financial statements included in Item
8 of this form 10K.
As indicated above, our self-insurance coverage is effected through our captive insurance subsidiary. The reserves of our captive insurance
subsidiary are subject to periodic adjustments based upon actuarial evaluations, which adjustments impact our overall results of operations.
These periodic adjustments can be favorable or unfavorable.
16
We are subject to currency fluctuations from our sales outside the U.S.
Our products are sold in many countries around the world. Thus, a portion of our revenues (approximately $244,033,000 in our fiscal year
ended March 31, 2015) are generated in foreign currencies, including principally the euro, the British Pound, the Canadian dollar, and the
Brazilian real, and while much of the costs incurred to generate those revenues are incurred in the same currency, a portion is 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, a currency translation impact on our earnings. Currency fluctuations may impact our
financial performance in the future.
Our future operating results may be affected by fluctuations in steel or other material prices. We may not be able to pass on increases in raw
material costs to our customers.
The principal raw material used in our chain, forging and crane building operations is steel. The steel industry as a whole is highly cyclical, and
at times pricing and availability can be volatile due to a number of factors beyond our control, including general economic conditions, labor
costs, competition, import duties, tariffs and currency exchange rates. This volatility can significantly affect our raw material costs. In an
environment of increasing raw material prices, competitive conditions will determine how much of the steel price increases we can pass on to
our customers. During historical rising cost periods, we were generally successful in adding and maintaining a surcharge to the prices of our
high steel content products or incorporating them into price increases, with a goal of margin neutrality. In the future, to the extent we are unable
to pass on any steel price increases to our customers, our profitability could be adversely affected.
We rely in large part on independent distributors for sales of our products.
For the most part, 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 their 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. For the most part, we do not have written agreements with our distributors.
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 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, operations, or liquidity.
We rely on subcontractors or suppliers to perform their contractual obligations.
Some of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to
our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of
work performed by our subcontractor or customer concerns about the subcontractor. Failure by our subcontractors to satisfactorily provide on a
timely basis the agreed-upon supplies or perform the agreed upon services may materially and adversely impact our ability to perform our
obligations as the prime contractor. A delay in our ability to obtain components and equipment parts from our suppliers may affect our ability
to meet our customers' needs and may have an adverse effect upon our profitability.
17
We are subject to debt covenant restrictions.
Our revolving credit facility and Term Loan contain several financial and other restrictive covenants. A significant decline in our operating
income or cash generating ability could cause us to violate our leverage or fixed charge coverage ratios in our bank credit facility. This could
result in our being unable to borrow under our bank credit facility or being obliged to refinance and renegotiate the terms of our bank
indebtedness.
We depend on our senior management team and the loss of any member could adversely affect our operations.
Our success is dependent on the management and leadership skills of our senior management team. The loss of any of these individuals or an
inability to attract, retain and maintain additional personnel could prevent us from implementing our business strategy. We cannot assure you
that we will be able to retain our existing senior management personnel or to attract additional qualified personnel when needed.
We continually evaluate and assess our personnel and may make additional changes to the members or assignments of our senior management
team in the future.
We have not entered into employment agreements with any of our senior management personnel with the exception of Dr. Ivo Celi, our Vice
President, EMEA.
Item 1B. Unresolved Staff Comments
None.
18
Item 2. Properties
We maintain our corporate headquarters in Amherst, New York and, as of March 31, 2015, conducted our principal manufacturing at the
following facilities:
Location
Wadesboro, NC
Lexington, TN
Asia operation:
Hangzhou, China
Hangzhou, China
Charlotte, NC
Tennessee forging operation:
Chattanooga, TN
Chattanooga, TN
Wuppertal, Germany
Kissing, Germany
Damascus, VA
Eureka, IL
Ohio hoist operation:
Salem, OH
Lisbon, OH
Hamm, Germany
Chester, England
Santiago Tianguistenco, Mexico
Howell, MI
Sarasota, FL
Szekesfehervar, Hungary
Heilbronn, Germany **
Romeny-sur-Marne, France
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Products/Operations
Hoists
Chain
Hoists
Hoists
Actuators and Rotary Unions
Forged attachments
Forged attachments
Hoists
Hoists, winches, and actuators
Hoists
Cranes
Hoists
Hoists and below-the-hook tooling
Lifting tools and forged parts
Plate clamps
Hoists
Overhead light rail workstations
Tire shredders
Textiles and textile strappings
Actuators
Rotary unions
Square
Footage
Owned or
Leased
180,000
164,000
70,000
82,000
146,000
81,000
59,000
124,000
107,000
97,000
91,000
49,000
37,000
82,000
56,000
54,000
35,000
25,000
24,000
23,000
22,000
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Owned
**Facility will be closed and consolidated into the Kissing, Germany facility during fiscal 2016.
In addition, we have a total of 48 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 product liability insurance against risks arising out of the use of our
products sold to customers through our wholly-owned New York State captive insurance subsidiary of which we are the sole policy
holder. The per occurrence limits on the self-insurance for general and product liability coverage 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, our 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
2015. We obtain additional insurance coverage from independent insurers to cover potential losses in excess of these limits.
19
Like many industrial manufacturers, we are also involved in asbestos-related litigation. In continually evaluating costs relating to our 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, our recent and historical resolution of the cases, the number of cases pending against us,
the status and results of broad-based settlement discussions, and the number of years such activity might continue. Because this liability is
likely to extend over many years, management believes that the potential additional costs for claims will not have a material effect on the
financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future
period. See Note 16 to our March 31, 2015 consolidated financial statements for more information on our asbestos claims.
Item 4. Mine Safety Disclosures.
Not Applicable.
20
PART II
Item 5. Market for the Company’s Common Stock and Related Security Holder Matters
Our common stock is traded on the Nasdaq Global Select Market under the symbol ‘‘CMCO.” As of April 30, 2015, there were 484 holders
of record of our common stock.
During fiscal 2015, the Company initiated and paid a quarterly cash dividend of $0.04 per common share totaling $3,191,000. On March 30,
2015, the Company's Board of Directors declared the payment a regular quarterly dividend of $0.04 per common share. The dividend was paid
on May 18, 2015 to shareholders of record on May 8, 2015 and totaled approximately $800,000.
Our current credit agreement allows, but limits our ability to pay dividends.
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 Global Select Market.
Year Ended March 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended March 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
Price Range of
Common Stock
High
Low
21.97 $
25.23
28.01
27.20
30.98 $
28.66
29.56
27.79
17.59
21.40
23.02
24.72
25.69
21.99
20.43
24.03
On May 26, 2015 the closing price of our common stock on the Nasdaq Global Select Market was $24.07 per share.
21
PERFORMANCE GRAPH
The Performance Graph shown below compares the cumulative total shareholder return on our common stock based on its market price, with
the total return of the S&P SmallCap 600 Index, and the Dow Jones U.S. Diversified Industrials. The comparison of total return assumes that a
fixed investment of $100 was invested on March 31, 2010 in our common stock and in each of the foregoing indices and further assumes the
reinvestment of dividends. The stock price performance shown on the graph is not necessarily indicative of future price performance.
22
Item 6. Selected Financial Data
The consolidated balance sheets as of March 31, 2015 and 2014, and the related statements of operations, cash flows and shareholders’ equity
for each of the three years ended March 31, 2015 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.
Year ended March 31st
( In millions, except for per share data)
2015
2014
2013
2012
2011
Statements of Operations Data:
Net sales
Cost of products sold
Gross profit
Selling expenses
General and administrative expenses
Restructuring charges
Amortization of intangibles
Income (loss) from operations
Interest and debt expense
Cost of bond redemption
Other (income) and expense, net
Income (loss) before income taxes
Income tax expense (benefit) (1) (2)
Income (loss) from continuing operations
Income (loss) from discontinued operations (3)
Net income (loss)
Diluted earnings (loss) per share from continuing
operations
Basic earnings (loss) per share from continuing
operations
Weighted average shares outstanding – assuming
dilution
Weighted average shares outstanding – basic
Balance Sheet Data (at end of period):
Total assets
Total debt (4)
Total debt, net of cash and cash equivalents
Total shareholders’ equity
$
$
$
$
$
Other Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Capital expenditures
$
$
$
$
579.6
398.0
181.6
69.8
54.9
—
2.3
54.6
12.4
8.6
(2.4 )
36.0
8.8
27.2
—
27.2
583.3
402.2
181.1
69.0
55.8
—
2.0
54.3
13.5
—
(1.9 )
42.7
12.3
30.4
—
30.4
597.3
423.1
174.2
65.6
52.2
—
2.0
54.4
13.8
—
(2.0 )
42.6
(35.7 )
78.3
—
78.3
591.9
434.2
157.7
64.9
46.7
(1.0 )
2.0
45.1
14.2
—
(1.9 )
32.8
6.9
25.9
1.1
27.0
524.1
398.0
126.1
62.9
40.6
2.2
1.8
18.6
13.5
3.9
(3.9 )
5.1
41.4
(36.3 )
0.4
(35.9 )
$
$
$
$
1.34
$
1.52
$
3.98
$
1.33
$
(1.91 )
1.36
$
1.55
$
4.03
$
1.35
$
(1.91 )
20.2
19.9
566.3
126.7
63.7
268.7
$
20.0
19.7
598.7
152.3
40.0
291.3
$
19.7
19.4
566.9
152.1
30.4
240.0
$
19.5
19.3
515.4
153.1
63.6
160.5
$
38.3
(34.1 )
(48.4 )
(17.2 )
29.5
(40.4 )
1.7
(20.8 )
42.4
(10.1 )
(1.1 )
14.9
23.6
(13.5 )
0.5
13.8
19.0
19.0
478.9
154.4
74.3
162.1
3.3
(4.3 )
15.8
12.5
23
(1) The Company had a valuation allowance of $53,325,000 recorded as of March 31, 2012 due to the uncertainty of whether the
Company's net operating loss carryforwards and deferred tax assets might ultimately be realized. The Company was able to
utilize $14,567,000 of U.S. federal net operating loss carryforwards in fiscal 2013 which reduced the valuation allowance
by $5,107,000. 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 certain U.S. federal tax credit carryforwards, a significant portion of the remaining U.S.
valuation allowance totaling $49,161,000 was reversed in fiscal 2013.
(2) During 2011, the Company recorded non-cash charge of $42,983,000 included within its provision for income taxes. As noted in
footnote number (1) above, this valuation allowance was reversed in fiscal 2013. The majority of this charge relates to the Company’s
determination that a full valuation allowance against its deferred tax assets generated in the U.S was necessary. Accounting rules
require a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available and objectively
verifiable evidence, it is more likely than not that such assets will not be realized. The existence of cumulative losses for a certain
threshold period is a significant form of negative evidence used in the assessment. If a cumulative loss threshold is met, the accounting
rules indicate that forecasts of future profitability are generally not sufficient positive evidence to overcome the presumption that a
valuation allowance is necessary.
(3) In May 2002, the Company sold substantially all of the assets of ASI. As part of the sale of ASI, the Company received an 8%
subordinated note in the principal amount of $6,800,000 which was payable over 10 years ending in May 2012. The full amount of this
note had been reserved due to the uncertainty of collection. Principal payments received on the note had been recorded as income from
discontinued operations at the time of receipt. As of March 31, 2013, the note was paid in full.
(4) Total debt includes all debt, including the current portion, notes payable, term loan, and subordinated debt.
24
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 worldwide designer, manufacturer and marketer of material handling products, systems and services which efficiently and
safely move, lift, position and secure material. Key products include hoists, actuators, cranes and rigging tools. The Company is focused on
serving commercial and industrial applications that require the safety and quality provided by the Company’s superior design and engineering
know-how.
Founded in 1875, we have grown to our current size and leadership position through organic growth and acquisitions. We developed our
leading market position over our 140-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale
service. In addition, acquisitions significantly broadened our product lines and services and expanded our geographic reach, end-user markets
and customer base. Ongoing initiatives include growing revenue by increasing our penetration of the Asian, Latin American and European
marketplaces, pursuing new products and targeted vertical markets, and by improving our productivity. In accordance with our strategy, we
have been investing in our sales and marketing activities, new product development and “Lean” efforts across the Company. Shareholder value
will be enhanced through continued emphasis on market expansion, customer satisfaction, new product development, manufacturing efficiency,
cost containment, and efficient capital investment.
During fiscal 2015, we significantly enhanced our capital structure. We elected to redeem our 7 7/8% Notes. In connection with this, we
entered into a new $150,000,000 senior secured revolving credit facility and established a new $125,000,000 delayed draw senior secured term
loan facility effective January 23, 2015. Our previous revolving credit facility was canceled as a result of this transaction. Both the revolver and
the new term loan have five-year terms maturing in 2020. The proceeds from the new term loan and $25,000,000 in cash were used to redeem
the 7 7/8% Notes. This refinancing provides additional flexibility to our capital structure by allowing prepayable debt and will significantly
reduce our cash interest expense by approximately $7,600,000 annually. The cash interest savings are based on a weighted average interest rate
of approximately 2.8% which reflects the Company’s policy of maintaining a fixed interest ratio of 50-70%.
Additionally, our revenue base is geographically diverse with approximately 42% derived from customers outside the U.S. for the year ended
March 31, 2015. We believe this will help balance the impact of changes that will occur in local economies as well as benefit the Company
from growth in emerging markets. As in the past, we monitor both U.S. and Eurozone Industrial Capacity Utilization statistics as indicators of
anticipated demand for our products. Since their June 2009 trough, these statistics have improved. However, over the past year, the Eurozone
statistics have been relatively flat as the outlook for the Eurozone appears to be for low growth in the coming year. In addition, we continue to
monitor the potential impact of other global and U.S. trends including industrial production, energy costs, steel price fluctuations, interest rates,
foreign currency exchange rates and activity of end-user markets around the globe.
From a strategic perspective, we are investing in global markets and new products as we focus on our greatest opportunities for growth. We
maintain a strong North American market share with significant leading market positions in hoists, lifting and sling chain, forged attachments
and actuators. We seek to maintain and enhance our market share by focusing our sales and marketing activities toward select North American
and global market sectors including energy, automotive, heavy OEM, entertainment, and construction and infrastructure.
Regardless of the economic climate and point in the economic cycle, we constantly explore ways to increase our operating margins as well as
further improve our productivity and competitiveness. We have specific initiatives related to improved customer satisfaction, reduced defects,
shortened lead times, improved inventory turns and on-time deliveries, reduced warranty costs, and improved working capital utilization. The
initiatives are being driven by the continued implementation of our “Lean” efforts which are fundamentally changing our manufacturing and
business processes to be more responsive to customer demand and improving on-time delivery and productivity. In addition to “Lean,” we are
working to achieve these strategic initiatives through product simplification, the creation of centers of excellence, and improved supply chain
management. We are also aggressively pursuing cost reduction opportunities to enhance future margins.
We continuously monitor market prices of steel. We purchase approximately $30,000,000 to $40,000,000 of steel annually in a variety of forms
including rod, wire, bar, structural and others. Generally, as we experience fluctuations in our costs, we reflect them as price increases or
surcharges to our customers with the goal of being margin neutral.
25
We are also looking for opportunities for growth via strategic acquisitions or joint ventures. The focus of our acquisition strategy centers on
product line expansion in alignment with our existing core product offering and opportunities for non-U.S. market penetration.
We operate in a highly competitive and global business environment. We face a variety of opportunities in those markets and geographies,
including trends toward increased utilization of the global labor force and the expansion of market opportunities in Asia and other emerging
markets. While we continue to execute our long-term growth strategy, we are supported by our solid capital structure, including our cash
position and flexible cost base.
RESULTS OF OPERATIONS
Fiscal 2015 Compared to 2014
Fiscal 2015 sales were $579,643,000, down 0.6%, or $3,647,000 compared with fiscal 2014 sales of $583,290,000. Sales for the year were
positively impacted by $6,625,000 of price increases and $16,024,000 due to acquisitions. Sales for the year were negatively impacted
$13,453,000 due to a decrease in sales volume. The decline in sales volume was due to weakness in our North American Hoist and European
operations. Unfavorable foreign currency translation impacted sales by $12,843,000.
Our gross profit was $181,607,000 and $181,048,000 or 31.3% and 31.0% of net sales in fiscal 2015 and 2014, respectively. The fiscal 2015
increase in gross profit of $559,000 or 0.3% is the result of $6,625,000 in price increases, $4,497,000 due to our recent acquisitions, and
$573,000 in increased productivity net of other manufacturing cost increases, offset by $5,624,000 in decreased volume, $1,176,000 in costs
associated with the consolidation of two European facilities, $794,000 in material inflation, and $434,000 in increased product liability
costs. Foreign currency translation had a unfavorable impact on gross profit of $3,108,000.
Selling expenses were $69,819,000 and $68,963,000 or 12.0% and 11.8% of net sales in fiscal years 2015 and 2014, respectively. The
incremental increase in selling expenses relates to our recent acquisitions resulting in $1,344,000 of additional selling expenses as well as
additional investments to grow our business in Asia and Latin America. Additionally, foreign currency translation had a $2,270,000 favorable
impact on selling expenses.
General and administrative expenses were $54,874,000 and $55,754,000 or 9.5% and 9.6% of net sales in fiscal 2015 and 2014, respectively.
The fiscal 2014 general and administrative expenses included $1,657,000 of atypical professional services associated with a large acquisition
that was not consummated. Foreign currency translation had a $1,096,000 favorable impact on general and administrative expenses.
Amortization of intangibles was $2,266,000 and $1,981,000 in fiscal 2015 and 2014, respectively and primarily relate to amortization of
intangible assets acquired in connection with our fiscal 2009 acquisition of Pfaff. The increase in amortization of intangibles relates to our
fiscal 2014 acquisition of Unified Industries, Inc. and the 2015 acquisition of Stahlhammer Bommern GmbH.
Interest and debt expense was $12,390,000 and $13,492,000 or 2.1% and 2.3% of net sales in fiscal 2015 and 2014, respectively. The decrease
in interest and debt expense relates to the redemption of the 7 7/8% Notes in February with the lower interest bearing Term Loan.
Cost of bond redemption of $8,567,000 relates to the call premium and write off of unamortized deferred financing costs associated with our 7
7/8% Notes which were redeemed in February 2015. This transaction is discussed in more detail in the Liquidity and Capital Resources section.
Investment income of $2,725,000 and $1,595,000, in fiscal 2015 and 2014, respectively, related to earnings on marketable securities held in the
Company’s wholly owned captive insurance subsidiary.
Foreign currency exchange loss (gain) was $863,000 and $1,124,000 in fiscal 2015 and 2014, respectively, as a result of foreign currency
volatility related to foreign currency denominated purchases and intercompany debt.
Other income (expense), net was $462,000 and $1,393,000 in fiscal 2015 and 2014, respectively. The fiscal 2014 balance included a gain on
the sale of equity securities received in an insurance company demutualization. No similar gain was recorded in fiscal 2015.
26
Income tax expense (benefit) as a percentage of income from continuing operations before income tax expense was 24.5% and 28.8% in fiscal
2015 and 2014, respectively. These percentages vary from the U.S. statutory rate primarily due to varying effective tax rates at the Company's
foreign subsidiaries, and the jurisdictional mix of taxable income for these subsidiaries. For fiscal 2015, income tax expense as a percentage of
income before income taxes was favorably effected by the utilization of certain tax credits relating to previous fiscal years. The credits result in
an income tax benefit of $1,431,000 for the year ended March 31, 2015. In addition, the cost of the bond redemption resulted in lower taxable
income in the U.S., our highest statutory tax rate jurisdiction. For fiscal 2014, income tax expense as a percentage of income before income
taxes was impacted by the reversal of a reserve on an uncertain tax position in the amount of $1,249,000. The reserve for the uncertain tax
position was reversed as a result of the expiration of the statute of limitations.
Fiscal 2014 Compared to 2013
Fiscal 2014 sales were $583,290,000, down 2.3%, or $13,973,000 compared with fiscal 2013 sales of $597,263,000. Sales for the year were
positively impacted by $10,218,000 by price increases, $4,983,000 by additional shipping days, and $470,000 due to net acquisition activity.
Sales for the year were negatively impacted $30,203,000 due to a decrease in sales volume. The decline in sales volume was due to weakness
in our European business resulting from the impact of the recession and declines in our crane business servicing the heavy OEM vertical
market. Favorable foreign currency translation impacted sales by $558,000.
Our gross profit was $181,048,000 and $174,231,000, or 31.0% and 29.2% of net sales in fiscal 2014 and 2013, respectively. The fiscal 2014
increase in gross profit of $6,817,000 or 3.9% is the result of $10,218,000 in price increases, $3,198,000 in increased productivity, and
$2,554,000 due to net acquisition and divestiture activity, partially offset by $6,561,000 in decreased volume, $1,536,000 in material inflation,
and $1,067,000 in increased product liability costs. Foreign currency translation had an favorable impact on gross profit of $11,000.
Selling expenses were $68,963,000 and $65,608,000 or 11.8% and 11.0% of net sales in fiscal years 2014 and 2013, respectively. The
incremental increase in selling expenses relates to our recent acquisitions of Hebetechnik and Unified resulting in $1,464,000 of additional
selling expenses as well as additional investments to grow our business in Europe and Latin America. Additionally, foreign currency
translation had a $378,000 favorable impact on selling expenses.
General and administrative expenses were $55,754,000 and $52,271,000 or 9.6% and 8.8% of net sales in fiscal 2014 and 2013, respectively.
The increase in fiscal 2014 general and administrative expenses was primarily the result of $1,657,000 of atypical professional services
associated with a large acquisition that was not consummated. Additional increases were primarily the result of investments in emerging
markets, the implementation of the Company’s new enterprise management system, as well as general inflationary increases. Foreign currency
translation had a $439,000 unfavorable impact on general and administrative expenses.
Amortization of intangibles was $1,981,000 and $1,981,000 fiscal 2014 and 2013, respectively and primarily relate to amortization of
intangible assets acquired in connection with our fiscal 2009 acquisition of Pfaff.
Interest and debt expense was $13,492,000 and $13,757,000 or 2.3% of net sales in both the 2014 and 2013 fiscal years.
Investment income of $1,595,000 and $1,546,000, in fiscal 2014 and 2013, respectively, related to marketable securities held in the Company’s
wholly owned captive insurance subsidiary.
Foreign currency exchange (gain) loss was $1,124,000 and ($45,000) in fiscal 2014 and 2013, respectively, as a result of foreign currency
volatility related to foreign currency denominated purchases and intercompany debt.
Other income (expense), net was $1,393,000 and $417,000 in fiscal 2014 and 2013, respectively. The increase in fiscal 2014 primarily relates
to the sale of equity securities received in an insurance company demutualization.
Income tax expense (benefit) as a percentage of income from continuing operations before income tax expense was 28.8% and (83.7%) in
fiscal 2014 and 2013, respectively. The unusual percentage experienced during the year ended March 31, 2013 is related to the reversal of a
U.S. deferred tax asset valuation allowance of $49,161,000.
27
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $63,056,000, $112,309,000, and $121,660,000 at March 31, 2015, 2014 and 2013, respectively.
Cash flow provided by operating activities
Net cash provided by operating activities was $38,254,000, $29,507,000 and $42,378,000 in fiscal 2015, 2014 and 2013, respectively. In
addition to net income and non-cash adjustments to net income including an $8,567,000 loss on the early retirement of bonds in fiscal 2015, net
cash provided by operating activities increased as a result of net collections of trade accounts receivable of $8,302,000 and an overall increase
in trade accounts payable of $1,084,000. Net cash decreased primarily as a result of an increase in inventories of $9,080,000 and a decrease in
non-current liabilities of $12,612,000. The reduction in non-current liabilities was primarily the result of $11,013,000 in pension contributions
during the year.
The net cash provided by operating activities in fiscal 2014 consisted of $30,421,000 in net income. The slight improvement in net income over
the prior year despite decreased sales (before a $49,161,000 reversal of a U.S. non-cash charge originally booked in fiscal 2011) is primarily
due to higher gross profit. Net cash provided by operating activities in fiscal 2014 decreased as a result of a decrease in non-current liabilities
of $7,727,000 and an increase in trade accounts receivable of $9,318,000 offset by a decrease in inventories of $1,312,000. The reduction in
non-current liabilities was primarily due to a net decrease in accrued pension costs as a result of an $11,041,000 pension contribution and a
decrease in accrued product liability costs. The increase in trade accounts receivable is primarily due to a significant increase in sales volume
during the last month of our 2014 fiscal year.
Cash flow used by investing activities
Net cash used by investing activities was $34,079,000, $40,425,000 and $10,087,000 in fiscal 2015, 2014 and 2013, respectively. The most
significant net cash used for investing activities in fiscal 2015 was $19,992,000 for the purchase of STB as described in Note 3 to the
consolidated financial statements. Capital expenditures for fiscal 2015 were $17,243,000 (of which $1,990,000 relates to the expansion of our
China operations and $3,449,000 relates to the implementation of our global ERP system). Offsetting these uses of cash is $3,230,000 in net
cash proceeds from the sale of marketable equity securities by our captive insurance company. The other use of cash for investing activities of
$74,000 primarily includes proceeds from an insurance settlement of $64,000 and cash received from the sale of an asset of $116,000 offset by
an increase in restricted cash related to the Company's captive insurance company of $250,000.
The net cash used by investing activities in fiscal 2014 consisted primarily of business acquisitions, net of cash acquired, of $22,169,000 and
capital expenditures of $20,846,000 (of which $4,365,000 relates to the expansion of our China operations and $2,749,000 relates to
implementation of our global ERP system) partially offset by $2,590,000 in net proceeds from the sale of marketable securities.
Cash flow provided (used) by financing activities
Net cash provided (used) by financing activities was $(48,387,000), $1,739,000 and $(1,086,000) in fiscal 2015, 2014 and 2013, respectively.
The net cash used by financing activities in fiscal 2015 primarily consisted of the redemption of the 7 7/8% Notes of $150,000,000 and bond
redemption tender fees of $5,907,000. Additionally the Company paid off the debt assumed in the purchase of STB of $6,487,000 and incurred
$1,825,000 in financing fees associated with its New Credit Agreement. This was offset by proceeds on the Company's new Term Loan of
$124,423,000. In connection with the acquisition of STB, the Company is withholding $5,431,000 to be paid to the seller upon satisfaction of
certain conditions. This cash has been classified as other assets on the Company's balance sheet and is classified as a use of cash for financing
activities. The remaining net cash used for financing activities for fiscal 2015 primarily relates to dividends paid of $3,192,000 offset by
proceeds from the exercise of stock options of $1,607,000.
The net cash provided by financing activities in fiscal 2014 primarily consisted of $2,194,000 from the issuance of stock options and offset by
$858,000 in the repayment of debt.
28
We believe that our cash on hand, cash flows, and borrowing capacity under our New 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 successful execution of
our current business plan and effective working capital utilization. No material restrictions exist in accessing cash held by our non-U.S.
subsidiaries. Additionally we expect to meet our U.S. funding needs without repatriating non-U.S. cash and incurring the incremental U.S.
taxes. As of March 31, 2015, $40,122,000 of cash and cash equivalents were held by foreign subsidiaries.
Through January 23, 2015 the Company had access to borrow funds under a revolving credit facility ("Replaced Revolving Credit Facility").
The Replaced Revolving Credit Facility provided availability up to a maximum of $100,000,000 and had an initial term ending October 31,
2017.
Through February 19, 2015, the Company had outstanding $150,000,000 principal amount of 7 7/8% Senior Subordinated Notes due 2019
registered under the Securities Act of 1933, as amended (7 7/8% Notes).
On January 23, 2015, the Company, Columbus McKinnon Dutch Holdings 3 B.V. (“BV 3”), and Columbus McKinnon EMEA GmbH
(“EMEA GMBH”) as borrowers (collectively referred to as the "Borrowers"), entered into a new credit agreement (the "New Credit
Agreement"). The Borrowers entered into a new $150,000,000 senior secured revolving credit facility ("New Revolving Credit Facility") and
established a new $125,000,000 delayed draw senior secured term loan facility (“Term Loan”). The Company’s Replaced Revolving Credit
Facility was terminated in connection with this transaction. Both the New Revolving Credit Facility and the Term Loan have five-year terms
maturing in 2020. The New Revolving Credit Facility has an initial term ending January 23, 2020 and the Term Loan has a term ending
February 19, 2020.
The terms of the New Credit Agreement include the following:
•
Term Loan: An aggregate $125,000,000 secured term loan facility which requires quarterly principal amortization of 2.5% with the
remaining principal due at maturity date.
• New Revolving Credit Facility: An aggregate $150,000,000 secured revolving credit facility which includes sublimits for the issuance
of standby letters of credit, swingline loans and multi-currency borrowings in certain specified foreign currencies.
•
Fees and Interest Rates: Commitment fees and interest rates are determined on the basis of either a Eurocurrency rate or a Base rate
plus an applicable margin based upon the Company's Total Leverage Ratio (as defined in the New Credit Agreement).
• Accordion Feature: Provisions permitting a Borrower from time to time to increase the aggregate amount of the credit facility by up to
$75,000,000, with a minimum increase of $20,000,000.
•
Prepayments: Provisions permitting a Borrower to voluntarily prepay either the Term Loan or New Revolving Credit Facility in
whole or in part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or New Revolving Credit
Facility on the occurrence of certain events which will permanently reduce the commitments under the New Credit Agreement, each
without premium or penalty.
• Reduction of Commitment: A Borrower may irrevocably cancel, in whole or in part, the unutilized portion of the commitments under
the New Credit Agreement in excess of any outstanding loans, the stated amount of all outstanding letters of credit and all
unreimbursed amounts drawn under any letters of credit.
29
• Covenants: Provisions containing covenants required of the Company and its subsidiaries including various affirmative and negative
financial and operational covenants. Key financial covenants include a minimum fixed charge coverage ratio of 1.25x; a maximum
total leverage ratio, net of cash, of 3.50x (which may be temporarily increased following a material acquisition, which may be elected
two times over the course of the New Credit Agreement, (i) if financed by secured debt the total leverage rate as at the end of the
fiscal quarter in which such material acquisition occurs and the three fiscal quarters immediately thereafter, shall not be greater than
4.00:1.00 and as at the end of any fiscal quarter thereafter, the total leverage ratio shall not be greater than 3.50:1.00, and (ii) if
financed with unsecured or subordinated indebtedness, the total leverage ratio at the end of the fiscal quarter in which such material
acquisition occurs and at the end of any fiscal quarter thereafter, shall not be greater than 4.50:1.00, and permit the secured leverage
ratio, to be greater than 3.25:1.00), and maximum capital expenditures of $30 million per fiscal year ($40 million following a material
acquisition) with the ability to transfer any unused portion of expenditure to the immediately following fiscal year. Our actual fixed
charges coverage ratio and total leverage ratio, as calculated per the terms of our New Revolving Credit Facility, were 0.89x and
4.52x, respectively, at March 31, 2015.
The New Revolving Credit Facility is secured by all U.S. inventory, receivables, equipment, real property, subsidiary stock (limited to 65% of
non-U.S. subsidiaries) and intellectual property. The New Credit Agreement allows, but limits our ability to pay dividends.
On February 19, 2015, the Company borrowed $124,442,000 under the Term Loan. The Term Loan proceeds were net of fees paid to creditors
of $558,000 which were accounted for as a debt discount. On February 23, 2015 the Company redeemed all of the outstanding $150,000,000 of
the 7 7 / 8% Notes. The aggregated price paid for the redemption was $156,630,000, including a 3.938% call premium or $5,907,000, and
$723,000 of accrued interest on the 7 7/8% Notes. The redemption was funded by the Term Loan and cash on hand.
The unused portion of the New Revolving Credit Facility totaled $143,546,000 net of outstanding borrowings of $0 and outstanding letters of
credit of $6,454,000 as of March 31, 2015. The outstanding letters of credit at March 31, 2015 consisted of $1,790,000 in commercial letters of
credit and $4,664,000 of standby letters of credit.
The gross balances of deferred financing costs were $1,825,000 and $4,133,000 as of March 31, 2015 and 2014, respectively. The accumulated
amortization balances were $61,000 and $1,531,000 as of March 31, 2015 and 2014, respectively.
On June 22, 2007, the Company recorded a capital lease resulting from the sale and partial leaseback of its facility in Charlotte, NC under a 10
year lease agreement. The Company also has capital leases on certain production machinery and equipment. The outstanding balance on the
capital lease obligations of $2,270,000 and $3,608,000 as of March 31, 2015 and 2014, respectively, are included in current portion of
long-term debt and senior debt in the consolidated balance sheets.
Unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating
outside of the U.S. The lines of credit are available on an offering basis, meaning that transactions under the line of credit will be on such terms
and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries
and the local bank at the time of each specific transaction. As of March 31, 2015, unsecured credit lines totaled approximately $4,508,000, of
which $0 was drawn. In addition, unsecured lines of $8,748,000 were available for bank guarantees issued in the normal course of business of
which $4,609,000 was utilized.
30
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual obligations in millions of dollars as of March 31, 2015, by period of estimated
payments due:
Total
Fiscal
2016
Fiscal
2017-
Fiscal 2018
Fiscal
2019-
Fiscal 2020
Long-term debt obligations (a)
Operating lease obligations (b)
Purchase obligations (c)
Interest obligations (d)
Letter of credit obligations
Bank guarantees
Uncertain tax positions
Other long-term liabilities reflected on the
Company’s balance sheet under GAAP (e)
Total
$
$
127.3 $
32.5
—
15.7
6.5
4.6
1.8
85.4
273.8 $
13.3 $
5.6
—
3.9
6.5
4.6
—
—
33.9 $
More
Than
Five Years
—
12.6
—
—
—
87.6 $
5.4
—
5.2
—
26.4 $
8.9
—
6.6
—
1.8
—
11.2
54.9 $
5.2
103.4 $
—
69.0
81.6
(a) As described in Note 12 to consolidated financial statements.
(b) As described in Note 18 to 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 Term Loan and interest rate swap as described in Note 10 and Note 12 to our consolidated financial statements.
Calculated using a 3-month LIBOR rate of 0.3% plus applicable margin of 1.5%.
(e) For additional details, see Note 11 to our consolidated financial statements. Excludes uncertain tax positions of $1.8 million shown
separately above.
We have no additional off-balance sheet obligations that are not reflected above.
CAPITAL EXPENDITURES
In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our
property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production
costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements and enhance safety. Our
capital expenditures for fiscal 2015, 2014 and 2013 were $17,243,000, $20,846,000 and $14,879,000, respectively. Excluded from fiscal 2015
capital expenditures is $1,216,000 in property, plant and equipment purchases included in accounts payable at March 31, 2015. We expect
capital expenditure spending in fiscal 2016 to be in the range of $18,000,000 to $22,000,000, excluding acquisitions and strategic alliances.
INFLATION AND OTHER MARKET CONDITIONS
Our costs are affected by inflation in the U.S. economy and, to a lesser extent, in non-U.S. economies including those of Europe, Canada,
Mexico, South America and Asia-Pacific. We do not believe that general inflation has had a material effect on our results of operations over the
periods presented primarily due to overall low inflation levels over such periods and our ability to generally pass on rising costs through annual
price increases and surcharges. However, increases in U.S. employee benefits costs such as health insurance and workers compensation
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.
31
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 plan closures as well as divestitures and acquisitions. 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.
DIVESTITURE
During the year ended March 31, 2013 the Company sold certain assets of the Gaffey division of Crane Equipment and Service, Inc. The sale
of the Gaffey assets did not have a material effect on the Company’s financial statements and therefore was not reclassified as a discontinued
operation.
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. If interpreted differently under different conditions or circumstances, changes in our
estimates could result in material changes to our reported results. 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 our consolidated financial statements.
Revenue Recognition. Sales are recorded when title passes to the customer which is generally at the time of shipment to the customer. 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. Sales tax is excluded from revenue.
Pension and Other Postretirement Benefits. The determination of the obligations and expense for pension and postretirement benefits is
dependent on our selection of certain assumptions that are used by actuaries in calculating such amounts. Those assumptions are disclosed in
Note 13 to our fiscal 2015 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. Changes in these assumptions can result in the calculation of different plan
expense and liability amounts. Further, actual experience can differ from the assumptions.
The weighted average pension discount rate assumptions of 3.83%, 4.60%, and 4.35%, as of March 31, 2015, 2014, and 2013, respectively, are
based on long-term AA rated corporate and municipal bond rates. The decrease in the discount rate for fiscal 2015 resulted in a $19,400,000
increase in the projected benefit obligation. Additionally, the Company adopted updated mortality tables in calculating its U.S. pension
obligation. The change in mortality tables resulted in a $15,400,000 increase in the projected benefit obligation. The increase in the discount
rates for fiscal 2014 resulted in a $9,300,000 decrease in the projected benefit obligation. The rate of return on plan assets assumptions of
7.50% for the years ended March 31, 2015, 2014 and 2013 is based on the targeted plan asset allocation (approximately 65% equities and 35%
fixed income) and their long-term historical returns. Our under-funded status for all pension plans as of March 31, 2015 and 2014 was
$57,339,000 and $37,457,000, or 21.9% and 16.6% of the projected benefit obligation, respectively. Our pension contributions during fiscal
2015 and 2014 were approximately $11,013,000 and $11,041,000, respectively. The under-funded status may result in future pension expense
increases. Pension expense for the March 31, 2016 fiscal year is expected to approximate $700,000, less than the fiscal 2015 amount of
$1,361,000. Pension funding contributions for the March 31, 2016 fiscal year are expected to approximate $5,908,000. The compensation
increase assumption of 2.3% as of March 31, 2015 and 2.0% as of March 31, 2014 and 2013 is based on expected wage trends and historical
patterns.
The healthcare costs inflation assumptions of 7.0% 7.0%, and 7.5% for fiscal 2015, 2014, and 2013, respectively, are based on anticipated
trends. While the healthcare inflation rate assumptions have been decreasing, healthcare costs continue to outpace inflation in the U.S.
32
Insurance Reserves. Our accrued general and product liability reserves as described in Note 16 to 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. These actuarial estimates are subject to a high degree of uncertainty due to a variety
of factors, including extended lag time in the reporting and resolution of claims, trends or changes in claim settlement patterns, insurance
industry practices, and legal interpretations. Changes to these estimates could result in material changes to the amount of expense and liabilities
recorded in our financial statements. Further, actual costs could differ significantly from the estimated amounts. Adjustments to estimated
reserves are recorded in the period in which the change in estimate occurs. 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.
Goodwill impairment testing. Our goodwill balance of $121,461,000 as of March 31, 2015 is subject to impairment testing. We test goodwill
for impairment at least annually, as of the end of February, and more frequently whenever events occur or circumstances change that indicate
there may be impairment. These events or circumstances could include a significant long-term adverse change in the business climate, poor
indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.
We test goodwill at the reporting unit level, which is one level below our operating segment. We identify our reporting units by assessing
whether the components of our operating segment constitute businesses for which discrete financial information is available and segment
management regularly reviews the operating results of those components. We also aggregate components that have similar economic
characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes,
classes of customers, etc.). We have four reporting units, only two of which have goodwill. Duff-Norton and Rest of Products reporting units
have goodwill totaling $9,563,000, and $111,898,000, respectively, at March 31, 2015.
When we evaluate the potential for goodwill impairment, we assess a range of qualitative factors including, but not limited to, macroeconomic
conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political
developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this
assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a
two-step impairment test.
We performed our qualitative assessment as of February 28, 2015 and determined that it was not more likely than not that the fair value of each
of our reporting units other than Rest of Products was less than its applicable carrying value. Accordingly, we did not perform the two-step
goodwill impairment test for any of our reporting units other than the Rest of Products reporting unit.
In order to perform the two-step impairment test, we use the discounted cash flow method and comparable market method to estimate fair
value. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating
profit margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates, operating margins
and cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five-year period. In
estimating the terminal growth rate, we consider our historical and projected results, as well as the economic environment in which the
reporting unit operates. The discount rates utilized for each reporting unit reflect management’s assumptions of marketplace participants’ cost
of capital and risk assumptions, both specific to the reporting unit and overall in the economy. The comparable market method estimates fair
value based on prices obtained in actual transactions. The method consists of examining selling prices for comparable assets. After studying the
selling prices, value adjustments are made for any dissimilarities.
33
We performed step one of the two-step impairment test for the Rest of Products reporting unit. Testing goodwill for impairment under the
two-step method requires us to estimate fair values of reporting units using significant estimates and judgmental factors. The key estimates and
factors used in our discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts, terminal value,
and the weighted-average cost of capital used to discount future cash flows. The compound annual growth rate for revenue during the first six
years of our projections was approximately 3.8%. The terminal value was calculated assuming a projected growth rate of 3.0% after six years.
These rates reflect our estimate of long-term growth into perpetuity and approximate the long-term gross domestic product growth expected on
a global basis as well as our normal annual price increases. The estimated weighted-average cost of capital for the reporting units was
determined to be 10.1% based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their
market capitalization. We also consider any additional risk of the Rest of Product reporting unit achieving its forecast, and adjust the
weighted-average cost of capital applied when determining the reporting unit’s estimated fair value. Future changes in these estimates and
assumptions could materially affect the results of our goodwill impairment tests. For example, a decline in the terminal growth rate by 50 basis
points would decrease fair market value by $10,851,000 and an increase in the weighted-average cost of capital by 100 basis points would
result in a decrease in fair market value by $33,478,000 for the Rest of Products reporting unit. Even with such changes the fair value of the
reporting unit would be greater than its net book value as of February 28, 2015, necessitating no Step 2 calculations.
Purchase Price Allocations for Business Combinations. During the fiscal year ended March 31, 2015, we completed a business combination for
a total purchase price of $25,423,000 plus $6,487,000 in the assumption of debt. Under purchase accounting, we recorded assets and liabilities
at fair value as of the acquisition dates. We identified and assigned value to trademarks and trade names, customer relationships, non-compete
agreements, backlog, and patents. We estimated the useful lives over which these intangible assets would be amortized. Valuations of these
assets were performed largely using discounted cash flow models and estimates of replacement cost. These valuations support the conclusion
that identifiable intangible assets had a value of $3,408,000. The resulting goodwill was $9,487,000.
Assigning value to intangible assets requires estimates used in projecting relevant future cash flows and estimates of replacement costs, in
addition to estimating useful lives of such assets.
Accounts Receivable Reserves. Allowances for doubtful accounts and credit memo reserves are also judgmentally determined based on
formulas applied to historical bad debt write-offs and credit memos issued, assessing potentially uncollectible customer accounts and analyzing
the accounts receivable aging. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have
been exhausted. At March 31, 2015 the allowance for doubtful accounts totaled $2,155,000.
Impairment of depreciable and amortizable long-lived assets. Property, plant and equipment and certain intangibles are depreciated or
amortized over their assigned lives. We test long-lived assets for impairment when events or changes in circumstances indicate that the
carrying amount of those assets may not be recoverable and exceed their fair market value. The following summarizes the value of long-lived
assets subject to impairment testing when events or circumstances indicate potential impairment (amounts in millions):
Property, plant and equipment, net
Acquired intangibles with estimable useful lives
Other assets
Balance as of
March 31,
2015
91.1
19.1
12.0
$
Impairment may exist if the carrying amount of the asset in question exceeds the sum of the undiscounted cash flows expected to result from
the use of the asset. The impairment loss, if any, would be measured as the amount by which the carrying amount of a long-lived asset exceeds
its fair market value as determined by appropriate valuation techniques.
Marketable Securities. On a quarterly basis, we review our marketable securities for declines in market value that may be considered other
than temporary. We generally consider market value declines to be other than temporary if there are declines for a period longer than six
months and in excess of 20% of original cost. We also consider the nature of the underlying investments and other market conditions or when
other evidence indicates impairment.
34
Deferred Tax Asset Valuation Allowance. In fiscal year 2013 income taxes as a percentage of income before income taxes was not reflective
of U.S. statutory rates. The Company had a valuation allowance of $53,325,000 at March 31, 2012 due to the uncertainty of whether U.S.
federal and certain foreign net operating loss carryforwards ("NOLs") and deferred tax assets might ultimately be realized. In fiscal year 2013,
we utilized the remaining U.S. federal NOLs thereby, reducing the valuation allowance by $5,107,000. 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. Management concluded that it is more likely than not that almost all of the remaining deferred tax assets will be
realized; therefore, $49,161,000 of the remaining U.S. valuation allowance was reversed as of March 31, 2013.
Effects of New Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The guidance also requires retrospective application to all prior periods presented.
ASU 2015-03 is effective for the first interim period for fiscal years beginning after December 15, 2015. The Company is evaluating the
potential impact of this adoption on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, "Amendments to the Consolidation Analysis." This update is intended to improve
certain areas of consolidation guidance by simplifying the consolidation evaluation process, and by placing more emphasis on risk of loss when
determining a controlling financial interest. The provisions of this ASU are effective for interim and annual periods beginning after December
15, 2015. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” ASU
2014-15 addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going
concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are
known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period
within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect that the
adoption of this guidance will have a material impact on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments
When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period." ASU 2014-12 requires
that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance
condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further
clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved
and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This ASU is
effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company does not
anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." ASU
2014-11 changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting,
which is consistent with the accounting for other repurchase agreements. ASU 2014-11 also requires new disclosures about transfers that are
accounted for as sales in transactions that are economically similar to repurchase agreements and increased transparency about the types of
collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. This ASU is effective for the first
interim or annual period beginning after December 15, 2014. The Company does not expect the adoption of this standard to have a material
impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 outlines a new, single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining
when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. This ASU is
effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating
the potential impact of this adoption on its consolidated financial statements.
35
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an
Entity." ASU 2014-08 changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of
both discontinued operations and certain other disposals that do not meet the new definition. This ASU is effective prospectively for fiscal
years, and interim periods within those years, beginning after December 15, 2014. The Company does not expect the adoption of this standard
to have a material impact on its consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or Tax Credit Carryforward Exists." ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward when settlement in this manner is available under the tax law. This ASU is effective prospectively for fiscal years, and interim
periods within those years, beginning after December 15, 2013. The adoption of this standard did not have a significant effect on the
Company's consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a
Foreign Entity.” This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its
investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a
business within a foreign entity. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after
December 15, 2013. The adoption of this standard did not have an effect on the Company's consolidated financial statements.
In February 2013, the FASB, issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability
Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date.” This ASU addresses the recognition,
measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other
contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods
within those years, beginning after December 15, 2013. The adoption of this standard did not have a significant effect on the Company's
consolidated financial statements.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the
results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served
by us and our subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall
market acceptance of such products and services, facility consolidations and other restructurings, our asbestos-related liability, the integration
of acquisitions and other factors disclosed in our periodic reports filed with the Commission. Consequently such forward-looking statements
should be regarded as our current plans, estimates and beliefs. We do not undertake and specifically decline any obligation to publicly release
the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated events.
36
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 or surcharges on our products. We have
not entered into financial instrument transactions related to raw material costs.
In fiscal 2015, 42% of our net sales were from manufacturing plants and sales offices in foreign jurisdictions. We manufacture our products in
the United States, China, Germany, United Kingdom, Hungary, Mexico and France and sell our products in approximately 50 countries. Our
results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets.
Our operating results are exposed to fluctuations between the U.S. dollar and the Canadian dollar, European currencies, the South African
Rand, the Mexican peso, the Brazilian real, and the Chinese yuan. For example, when the U.S. dollar weakens against the Euro, the value of
our net sales and net income denominated in Euros increases when translated into U.S. dollars for inclusion in our consolidated results. We are
also exposed to foreign currency fluctuations in relation to purchases denominated in foreign currencies. Our foreign currency risk is mitigated
since the majority of our foreign operations’ net sales and the related expense transactions are denominated in the same currency so therefore a
significant change in foreign exchange rates would likely have a very minor impact on net income. For example, a 10% change in the value of
the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $900,000 on our
income from operations. In addition, the majority of our export sale transactions are denominated in U.S. dollars.
The Company has a foreign currency forward agreement in place to offset changes in the value of an intercompany loan to a foreign subsidiary
due to changes in foreign exchange rates. The notional amount of this derivative is $590,000 and the contract matures on April 15, 2016. This
contract is marked to market each balance sheet date and is not designated as a hedge.
The Company has foreign currency forward agreements in place to hedge changes in the value of recorded foreign currency assets and
liabilities due to changes in foreign exchange rates at the settlement date. The notional amount of those derivatives is $672,000 and all contracts
mature within twelve months of March 31, 2015. These contracts are marked to market each balance sheet date and are not designated as
hedges.
The Company has foreign currency forward agreements that are designated as cash flow hedges to hedge a portion of forecasted inventory
purchases denominated in a foreign currency. The notional amount of those derivatives is $8,624,000 and all contracts mature within twelve
months of March 31, 2015. From its March 31, 2015 balance of accumulated other comprehensive loss, the Company expects to reclassify
approximately $54,000 out of accumulated other comprehensive loss during the next 12 months based on the underlying transaction of the sale
of the goods purchased.
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 evaluating the need to enter into financial instrument transactions as appropriate. On February 19, 2015, the Company entered into a
Term Loan, which has a variable interest rate. The Company's desired capital structure, is comprised of 50-70% of fixed rate long-term debt
and 30-50% of variable rate long-term debt. As such, the Company entered into an interest rate swap agreement that is designated as a cash
flow hedge to hedge changes in interest expense due to changes in the interest rate of the senior secured term loan. The amortizing interest rate
swap matures on February 19, 2020 and has a notional amount of $86,250,000 as of March 31, 2015. The effective portion of the change in fair
value of the interest rate swap is reported in AOCL and will be reclassified to interest expense over the life of the underlying debt obligation.
The ineffective portion was not material and was recognized in the current period interest expense. From its March 31, 2015 balance of
accumulated other comprehensive loss, the Company expects to reclassify approximately $1,026,000 out of accumulated other comprehensive
loss during the next 12 months.
37
Item 8. Financial Statements and Supplemental Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Columbus McKinnon Corporation
Audited Consolidated Financial Statements as of March 31, 2015 :
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements Of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Description of Business
Accounting Principles and Practices
Acquisitions
Divestitures
Fair Value Measurements
Inventories
Marketable Securities
Property, Plant, and Equipment
Goodwill and Intangible Assets
Derivative Instruments
Accrued Liabilities and Other Non-current Liabilities
Debt
Pensions and Other Benefit Plans
Employee Stock Ownership Plan (ESOP)
Earnings per Share and Stock Plans
Loss Contingencies
Income Taxes
Rental Expense and Lease Commitments
Business Segment Information
Selected Quarterly Financial Data (unaudited)
Accumulated Other Comprehensive Loss
Effects of New Accounting Pronouncements
Schedule II – Valuation and Qualifying Accounts.
38
39
40
41
42
43
44
44
48
50
50
53
53
55
55
57
59
60
63
69
70
75
77
80
80
82
83
85
87
38
The Board of Directors and Shareholders of Columbus McKinnon Corporation
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation as of March 31, 2015 and 2014, and the
related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in
the period ended March 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(2). These financial
statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbus
McKinnon Corporation at March 31, 2015 and 2014 and the consolidated results of its operations and its cash flows for each of the three years
in the period ended March 31, 2015, 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), Columbus
McKinnon Corporation’s internal control over financial reporting as of March 31, 2015, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our
report dated May 28, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
May 28, 2015
39
COLUMBUS McKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful accounts ($2,155 and $2,323, respectively)
Inventories
Prepaid expenses and other
$
Total current assets
Net property, plant, and equipment
Goodwill
Other intangibles, net
Marketable securities
Deferred taxes on income
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable
Accrued liabilities
Current portion of long-term debt
Total current liabilities
Senior debt, less current portion
Subordinated debt
Term loan
Other non-current liabilities
Total liabilities
Shareholders’ equity:
$
$
March 31,
2015
2014
(In thousands, except share
data)
$
$
$
63,056
80,531
103,187
27,255
274,029
91,127
121,461
19,104
19,867
28,695
12,041
566,324
33,406
50,263
13,292
96,961
1,478
—
111,942
87,224
297,605
112,309
93,223
97,576
23,444
326,552
78,687
119,303
20,842
21,941
23,406
7,943
598,674
35,359
52,348
1,588
89,295
2,020
148,685
—
67,388
307,388
Voting common stock: 50,000,000 shares authorized; 19,989,548 and 19,806,300 shares issued and
outstanding
Additional paid-in capital
Retained earnings
ESOP debt guarantee: 0 and 8,369 shares
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
200
203,156
157,811
—
(92,448 )
268,719
566,324
$
198
198,546
133,820
(142 )
(41,136 )
291,286
598,674
$
See accompanying notes.
40
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales
Cost of products sold
Gross profit
Selling expenses
General and administrative expenses
Amortization of intangibles
Income from operations
Interest and debt expense
Cost of bond redemption
Investment (income) loss
Foreign currency exchange loss (gain)
Other income, net
Income from continuing operations before income tax expense (benefit)
Income tax expense (benefit)
Net income
Average basic shares outstanding
Average diluted shares outstanding
Basic income per share:
Basic income per share
Diluted income per share:
Diluted income per share
$
$
$
2013
Year Ended March 31,
2015
2014
(In thousands, except per share data)
579,643
398,036
181,607
69,819
54,874
2,266
54,648
12,390
8,567
(2,725 )
863
(462 )
583,290
402,242
181,048
68,963
55,754
1,981
54,350
13,492
—
(1,595 )
1,124
(1,393 )
42,722
12,301
30,421
597,263
423,032
174,231
65,608
52,271
1,981
54,371
13,757
—
(1,546 )
(45 )
(417 )
42,622
(35,674 )
78,296
$
19,655
19,950
19,425
19,687
$
36,015
8,825
27,190
19,939
20,224
$
$
1.36
$
1.55
$
4.03
$
1.34
$
1.52
$
3.98
Dividends declared per common share
$
0.16
$
0.04
$
—
See accompanying notes.
41
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
2015
$
27,190
March 31,
2014
(In thousands)
$
30,421
$
(29,907 )
(19,724 )
3,067
12,595
(371 )
(67 )
(334 )
433
75
68
254
395
(1,342 )
(909 )
(51,312 )
(24,122 ) $
(1,435 )
(1,040 )
15,019
45,440
$
$
2013
78,296
(2,183 )
(362 )
381
76
(388 )
725
(497 )
228
(2,248 )
76,048
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Pension liability adjustments, net of taxes of $12,409, $(8,086), and $52
Other post retirement obligations adjustments, net of taxes of $233, $(49), and $(242)
Split-dollar life insurance arrangement adjustments, net of taxes of $42, $(43), and $(47)
Change in derivatives qualifying as hedges, net of taxes of $233, $(119), and $159
Change in investments:
Unrealized holding gain arising during the period, net of taxes of $(234), $(35), and
$(406)
Reclassification adjustment for gain included in net income, net of taxes of $723, $773,
and $268
Net change in unrealized gain (loss) on investments
Total other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes.
42
423
(552 )
—
$
—
(56,155 )
—
$
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
Common
Stock ($.01
par value)
$
193 $
—
Additional
Paid-in
Capital
189,260
—
Retained
Earnings
$
25,895 $
78,296
ESOP
Debt
Guarantee
(975 )
—
$
Accumulated
Other
Comprehensive
Loss
Balance at April 1, 2012
Net income 2013
Change in foreign currency translation
adjustment
Change in net unrealized gain on investments,
net of tax of $(138)
Change in derivatives qualifying as hedges, net
of tax of $159
Change in pension liability and postretirement
obligations, net of tax of $(237)
Stock compensation - directors
Stock options exercised, 39,878 shares
Stock compensation expense
Tax effect of exercise of stock options
Earned 26,480 ESOP shares
Balance at March 31, 2013
Net income 2014
Dividends declared
Change in foreign currency translation
adjustment
Change in net unrealized gain on investments,
net of tax of $695
Change in derivatives qualifying as hedges, net
of tax of $119
Change in pension liability and postretirement
obligations, net of tax of $8,178
Stock compensation - directors
Stock options exercised, 229,516 shares
Stock compensation expense
Tax effect of exercise of stock options
Earned 25,611 ESOP shares
Restricted stock units released, 56,203 shares,
net of shares withheld for minimum statutory
tax obligation
Balance at March 31, 2014
Net income 2015
Dividends declared
Change in foreign currency translation
adjustment
Change in net unrealized gain on investments,
net of tax of $489
Change in derivatives qualifying as hedges, net
of tax of $233
Change in pension liability and postretirement
obligations, net of tax of $12,684
Stock compensation - directors
Stock options exercised, 87,210 shares
Stock compensation expense
Tax effect of exercise of stock options
Earned 8,369 ESOP shares
Restricted stock units released, 78,734 shares,
net of shares withheld for minimum statutory
tax obligation
Balance at March 31, 2015
—
—
—
—
2
—
$
—
195 $
—
—
—
—
361
293
2,973
(576 )
(3 )
—
—
—
—
—
—
—
192,308
—
$ 104,191 $
30,421
(792 )
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
315
2,192
3,318
613
195
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
410
$
1
198 $
—
—
(395 )
198,546
—
—
$ 133,820 $
27,190
(3,199 )
$
(142 )
—
—
—
—
—
—
—
2
—
—
—
—
200 $
$
—
—
—
—
440
1,605
3,455
(65 )
109
(934 )
—
—
—
—
—
—
—
—
—
—
$ 157,811 $
203,156
See accompanying notes.
43
—
—
—
—
—
—
—
—
142
—
—
$
(53,907 )
—
(2,183 )
228
(388 )
95
—
—
—
3,067
(1,040 )
254
12,738
—
—
—
—
—
(41,136 )
—
—
(29,907 )
(909 )
(334 )
(20,162 )
—
—
—
—
—
$
Total
Shareholders’
Equity
160,466
78,296
(2,183 )
228
(388 )
95
361
295
2,973
(576 )
420
239,987
30,421
(792 )
3,067
(1,040 )
254
12,738
315
2,194
3,318
613
605
(394 )
291,286
27,190
(3,199 )
(29,907 )
(909 )
(334 )
(20,162 )
440
1,607
3,455
(65 )
251
(934 )
268,719
$
—
(92,448 )
$
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Gain on sale of real estate/investments and other
Cost of bond redemption
Amortization of deferred financing costs and discount on subordinated debt
Stock-based compensation
Changes in operating assets and liabilities, net of effects of business acquisitions and divestitures:
Trade accounts receivable
Inventories
Prepaid expenses and other
Other assets
Trade accounts payable
Accrued liabilities
Non-current liabilities
Net cash provided by operating activities
Investing activities:
Proceeds from sale of marketable securities
Purchases of marketable securities
Capital expenditures
Other
Purchases of businesses, net of cash acquired
Net cash used for investing activities
Financing activities:
Proceeds from exercise of stock options
Payment of dividends
Payment of bond redemption tender fees
Restricted cash related to purchase of business
Payments under line-of-credit agreements
Repayment of debt
Proceeds from issuance of long term debt
Payment of deferred financing costs
Change in ESOP debt guarantee and other
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary cash flows data:
Interest paid
Income taxes paid, net of refunds
Property, plant and equipment purchases included in trade accounts payable
See accompanying notes.
44
2015
Year ended March 31,
2014
(In thousands)
2013
$
27,190 $
30,421 $
78,296
14,562
2,074
(1,897 )
8,567
805
3,895
8,302
(9,080 )
(3,192 )
(572 )
1,084
(872 )
(12,612 )
38,254
6,919
(3,689 )
(17,243 )
(74 )
(19,992 )
(34,079 )
13,380
5,031
(2,332 )
—
870
3,633
(9,318 )
1,312
(3,750 )
(273 )
(2,821 )
1,081
(7,727 )
29,507
6,689
(4,099 )
(20,846 )
—
(22,169 )
(40,425 )
1,607
(3,192 )
(5,907 )
(5,431 )
—
(157,203 )
124,423
(1,825 )
(859 )
(48,387 )
(5,041 )
(49,253 )
112,309
63,056 $
2,194
—
—
—
(7 )
(858 )
—
—
410
1,739
(172 )
(9,351 )
121,660
112,309 $
12,115
(42,047 )
(827 )
—
592
3,334
6,712
10,106
(1,283 )
(354 )
(5,465 )
(12,268 )
(6,533 )
42,378
6,573
(4,138 )
(14,879 )
2,357
—
(10,087 )
295
—
—
—
(54 )
(1,066 )
—
(684 )
423
(1,086 )
982
32,187
89,473
121,660
13,750 $
10,215 $
1,216 $
13,003 $
11,769 $
2,624
13,115
9,419
—
$
$
$
$
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 designer, marketer and manufacturer of material handling products and services
which efficiently and safely move, lift, position and secure material. Key products include hoists, rigging tools, cranes, and actuators. The
Company’s material handling products are sold globally principally to third party distributors through diverse distribution channels, and to a
lesser extent directly to end-users. During fiscal 2015, approximately 58% of sales were to customers in the United States.
2. Accounting Principles and Practices
Advertising
Costs associated with advertising are expensed as incurred and are included in selling expense in the consolidated statements of operations.
Advertising expenses were $2,147,000, $2,492,000, and $2,900,000 in fiscal 2015, 2014, and 2013, 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
In the U.S., approximately 13% of the Company’s employees are represented by four separate collective bargaining agreements which
terminate at various times between August 2016 and April 2018. None of the collective bargaining agreements expire within 12 months.
Consolidation
These consolidated financial statements include the accounts of the Company and its global subsidiaries; all significant intercompany accounts
and transactions have been eliminated.
Foreign Currency Translations
The Company translates foreign currency financial statements as described in Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 830, “Foreign Currency Matters.” Under this method, all items of income and expense are translated to
U.S. dollars at average exchange rates during 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 foreign currency exchange loss (gain). There were losses/(gains), including changes in the fair value of
derivatives, on foreign currency transactions of approximately $863,000, $1,124,000, and $(45,000) in fiscal 2015, 2014, and 2013,
respectively.
45
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Goodwill
Goodwill is not amortized but is tested for impairment at least annually, or more frequently if indicators of impairment exist, in accordance
with the provisions of ASC Topic 350-20-35-1. 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 reviewed regularly, whether those units constitute a business,
and the extent of economic similarities between those reporting units for purposes of aggregation. The Company’s reporting units identified
under ASC Topic 350-20-35-33 are at the component level, or one level below the reporting segment level as defined under ASC Topic
280-10-50-10 “Segment Reporting – Disclosure.” The Company’s one segment is subdivided into four reporting units.
When the Company evaluates the potential for goodwill impairment, it assesses a range of qualitative factors including, but not limited to,
macroeconomic conditions, industry conditions, the competitive environment, changes in the market for its products and services, regulatory
and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after
completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value,
the Company proceeds to a two-step impairment test.
To perform the two-step impairment test, the Company uses the discounted cash flow method to estimate the fair value of the reporting units.
The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating profit
margins and cash flows, the terminal growth rate and the discount rate. The Company projects revenue growth rates, operating margins and
cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five-year period. In
estimating the terminal growth rate, the Company considers its historical and projected results, as well as the economic environment in which
its reporting units operate. The discount rates utilized for each reporting unit reflect the Company’s assumptions of marketplace participants’
cost of capital and risk assumptions, both specific to the reporting unit and overall in the economy.
The Company performed its qualitative assessment as of February 28, 2015 and determined that it was not more likely than not that the fair
value of each of its reporting units other than Rest of Products was less than that its applicable carrying value. Accordingly, the Company did
not perform the two-step goodwill impairment test for any of its reporting units other than the Rest of Products reporting unit.
The Company performed step one of the two-step impairment test for the Rest of Products reporting unit. Based on the results of the
impairment test, the Company determined that the Rest of Products reporting unit's fair value was not less than its applicable carrying value.
See Note 9 for further discussion of goodwill and intangible assets.
Impairment of Long-Lived Assets
The Company assesses impairment of its long-lived assets in accordance with the provisions of ASC Topic 360 “Property, Plant, and
Equipment.” This statement requires long-lived assets, such as property and equipment and purchased intangibles subject to amortization to be
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated
undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated
future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset group exceeds the fair
value of the asset group.
46
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
In assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Asset grouping requires a significant amount of
judgment. Accordingly, facts and circumstances will influence how asset groups are determined for impairment testing. In assessing long-lived
assets for impairment, management considered the Company’s product line portfolio, customers and related commercial agreements, labor
agreements and other factors in grouping assets and liabilities at the lowest level for which identifiable cash flows are independent. The
Company considers projected future undiscounted cash flows, trends and other factors in its assessment of whether impairment conditions
exist. While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such factors as future
production volumes, customer pricing, economics and productivity and cost initiatives, could significantly affect its estimates. In determining
fair value of long-lived assets, management uses management estimates, discounted cash flow calculations, and appraisals where necessary.
Intangible Assets
At acquisition, the Company estimates and records the fair value of purchased intangible assets which primarily consist of trade names,
customer relationships and technology. The fair values are estimated based on management’s assessment as well as independent third party
appraisals. Such valuations may include a discounted cash flow of anticipated revenues resulting from the acquired intangible asset.
Amortization of intangible assets with finite lives is recognized over their estimated useful lives using an amortization method that reflects the
pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. The straight line method is used for
customer relationships. As a result of the negligible attrition rate in our customer base, the difference between the straight line method and
attrition method is not considered significant. The estimated useful lives for our intangible assets range from 2 to 25 years.
Inventories
Inventories are valued at the lower of cost or market. Cost of approximately 35% and 40% of inventories at March 31, 2015 and March 31,
2014, respectively, have 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. Costs in inventory include components for direct
labor and overhead costs.
Marketable Securities
All of the Company’s marketable securities, which consist of equity securities, 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 in the
shareholders’ equity section of the consolidated balance sheet unless unrealized losses are deemed to be other than temporary. In such instance,
the unrealized losses are reported in the consolidated statements of operations within investment income. Estimated fair value is based on
published trading values at the balance sheet dates. The cost of securities sold is based on the specific identification method. Interest and
dividend income are included in investment income in the consolidated statements of operations.
The marketable securities are carried as long-term assets since they are held for the settlement of the Company’s general and products liability
insurance claims filed through CM Insurance Company, Inc., a wholly owned captive insurance subsidiary. The marketable securities are not
available for general working capital purposes.
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. Included within Other assets is a building that is held for sale in the amount of $854,000 at March 31, 2015 and
2014. The building was closed as part of the Company's fiscal 2010 restructuring activities.
47
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Research and Development
Research and development costs as defined in ASC Topic 730, “Research and Development,” were $5,242,000, $5,470,000, and $5,172,000 for
the years ended March 31, 2015, 2014 and 2013, respectively, and are classified as general and administrative expense in the consolidated
statements of operations.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Sales are recorded when title passes to the customer which is generally at time of shipment to the customer. 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. Sales tax is excluded from revenue.
Shipping and Handling Costs
Shipping and handling costs are a component of cost of products sold.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation.” This Statement
requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements
of operations based on the grant date fair value of the award. Stock compensation expense is included in cost of goods sold, selling, and
general and administrative expense. The Company uses a straight-line method of attributing the value of stock-based compensation expense,
subject to minimum levels of expense, based on vesting. See Note 15 for further discussion of stock-based compensation.
Leases
All leases are reviewed for capital or operating classification at their inception. Rent expense for leases that contain scheduled rent increases is
recognized on a straight-line basis over the lease term, including any option periods included in the determination of the lease term.
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.
48
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Warranties
The Company offers warranties for certain 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 and for certain products a lifetime warranty. 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,
2015
2014
Balance at beginning of year
Accrual for warranties issued
Warranties settled
Balance at end of year
3. Acquisitions
$
$
$
759
1,388
(1,492 )
655
$
791
1,573
(1,605 )
759
On June 1, 2013, the Company acquired 100% of the outstanding common shares of Hebetechnik Gesellschaft m.b.H (“Hebetechnik”) located
in Austria, a privately owned company with annual sales of approximately $10,000,000. Hebetechnik has been a value-added partner of the
Company in the lifting industry in the Austrian market for over 20 years. The results of Hebetechnik are included in the Company’s
consolidated financial statements from the date of acquisition. The acquisition of Hebetechnik is not considered significant to the Company’s
consolidated financial position and results of operations.
The acquisition of Hebetechnik was funded with existing cash. The purchase price has been allocated to the assets acquired and liabilities
assumed as of the date of acquisition. The excess consideration of $5,324,000 was recorded as goodwill. The identifiable intangible asset
consists of order backlog at the date of the acquisition and was estimated to have a three month useful life, all of which has been expensed as of
March 31, 2015. Goodwill recorded in connection with the acquisition is deductible for Austrian tax purposes. The assignment of purchase
consideration to the assets acquired and liabilities assumed is as follows (in thousands):
Working capital
Other current assets
Property, plant and equipment
Goodwill
Long term debt
Total purchase consideration
212
58
446
5,324
(193 )
5,847
$
On February 28, 2014 the Company acquired 100% of the outstanding common shares of Unified Industries, Inc. (“Unified”) located in
Howell, Michigan, a privately-owned company with annual sales of approximately $13,000,000. Unified designs, manufacturers and markets
overhead aluminum light rail workstations primarily used in automotive and other industrial applications. Unified's products are a natural
extension of the Company's hoist portfolio and are expected to broaden the scope of the Company's bundled product solutions. The results of
Unified are included in the Company’s consolidated financial statements from the date of acquisition. The acquisition of Unified is not
considered significant to the Company’s consolidated financial position and results of operations.
49
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The acquisition of Unified was funded with existing cash. The purchase price has been allocated to the assets acquired and liabilities assumed
as of the date of acquisition. The excess consideration of $6,980,000 was recorded as goodwill. The identifiable intangible assets acquired
include engineered drawings of $4,960,000, customer relationships of $2,300,000, trademark and trade names of $1,200,000, backlog of
$185,000, and non-compete agreements of $14,000. The weighted average life of the acquired identifiable intangible assets subject to
amortization was estimated at 20.3 years at the time of acquisition. Goodwill recorded in connection with the acquisition is not deductible for
U.S. income tax purposes.
The assignment of purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):
Working capital
Property, plant and equipment
Identifiable intangible assets
Other long term assets
Other long term liabilities
Goodwill
Total purchase consideration
3,854
210
8,659
97
(3,293 )
6,980
16,507
$
On December 30, 2014 the Company acquired 100% of the outstanding common shares of Stahlhammer Bommern GmbH (“STB”) located in
Hamm, Germany, a privately-owned company with annual sales of approximately $16,000,000. STB manufactures a large range of lifting tools
and forged parts that are able to withstand particularly heavy, static and dynamic loads, including single and ramshorn lifting hooks. The
Company believes STB is a strong strategic fit allowing further expansion of the rigging business globally. The results of STB are included in
the Company’s consolidated financial statements from the date of acquisition. The acquisition of STB is not considered significant to the
Company’s consolidated financial position and results of operations.
The acquisition of STB was funded with existing cash. The purchase price has been preliminarily allocated to the assets acquired and liabilities
assumed as of the date of the acquisition. The excess consideration of $9,487,000 has preliminarily been recorded as goodwill. The identifiable
intangible assets acquired include customer relationships of $1,730,000, trademark and trade names of $1,301,000, non-compete agreements of
$221,000, backlog of $74,000, and patents of $82,000. The weighted average life of the acquired identifiable intangible assets subject to
amortization was estimated at 9 years at the time of acquisition. Goodwill recorded in connection with the acquisition is not deductible for
income tax purposes. The terms of the acquisition require the Company to pay additional consideration to the seller if certain performance
measures are met by STB. The potential additional consideration ranges from $0 to $3,681,000. The Company has estimated the fair value of
the liability related to this contingent consideration to be $982,000. This liability is included in the Company's consolidated balance sheet
within other non-current liabilities. The value has been estimated by simulating the future performance of STB in a Geometric Brownian
Motion model. Key assumptions used in this model include a volatility factor of 45% and a credit risk adjusted discount rate of 3%. External
acquisition related costs totaling $150,000 have been expensed.
The preliminary assignment of purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):
Working capital
Property, plant and equipment
Intangible assets
Other long term assets
Debt
Other liabilities
Goodwill
Total purchase consideration
$
$
9,444
13,616
3,334
67
(6,487 )
(4,038 )
9,487
25,423
50
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
In connection with the acquisition of STB, the Company withheld $5,431,000 to be paid to the seller upon satisfaction of certain conditions. Of
this amount, $822,000 is expected to be paid to the seller within one year of the acquisition and the remaining $4,609,000 is expected to be paid
to the seller in a time period exceeding one year of the acquisition. The Company has recorded assets on its consolidated balance sheet
consisting of current restricted cash of $822,000 within prepaid expenses and other and long term restricted cash of $4,609,000 in other assets.
Further, the Company has recorded a short term liability to the seller of $822,000 within accrued liabilities and a long term liability to the seller
of $4,609,000 within other non current liabilities.
For each acquisition, goodwill represents future economic benefits arising from other assets acquired that do not meet the criteria for separate
recognition apart from goodwill, including assembled workforce, growth opportunities and increased presence in the markets served by the
target companies.
See Note 5 for assumptions used in the valuing of the intangible assets acquired.
4. Divestitures
During the year ended March 31, 2013, the Company sold certain assets of the Gaffey division of Crane Equipment and Service, Inc. The sale
of the Gaffey assets did not have a material effect on the Company’s financial statements for year ended March 31, 2013 and therefore was not
reclassified as a discontinued operation.
5. Fair Value Measurements
ASC Topic 820 “Fair Value Measurements and Disclosures” establishes the standards for reporting financial assets and liabilities and
nonfinancial assets and liabilities that are recognized or disclosed at fair value on a recurring basis (at least annually). Under these standards,
fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly
transaction between market participants at the measurement date.
ASC Topic 820-10-35-37 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs
that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the
Company. Unobservable inputs are inputs that reflect the Company's assumptions about the valuation techniques that market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is separated
into three levels based on the reliability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to
access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these
products does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either
directly or indirectly, involving some degree of judgment.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The degree of
judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The availability of observable inputs can vary and is affected by a wide variety of factors, including the type of asset/liability, whether the
asset/liability is established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the
level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is
significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, assumptions are required to reflect those that market participants would use in pricing
the asset or liability at the measurement date.
51
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
In fiscal 2014, the fair market value of unearned ESOP shares was determined based on the quoted market value of the Company’s stock and
consequently, the fair value was based on Level 1 inputs.
The Company primarily uses readily observable market data in conjunction with internally developed discounted cash flow valuation models
when valuing its derivative portfolio and, consequently, the fair value of the Company’s derivatives is based on Level 2 inputs. The carrying
value of the Company’s Term Loan and senior debt approximate fair value based on current market interest rates for debt instruments of similar
credit standing and, consequently, their fair values are based on Level 2 inputs. In fiscal 2014, the Company used quoted prices in an inactive
market when valuing its Subordinated Debt, represented by the 7 7/8% Notes due 2019, registered under the Securities Act of 1933, as
amended (unregistered 7 7/8% Notes) and, consequently, the fair value was based on Level 2 inputs.
The following table provides information regarding financial assets and liabilities measured or disclosed at fair value on a recurring basis:
Quoted prices in
active markets for
identical assets
Fair value measurements at reporting date using
Significant
other observable
inputs
Significant
unobservable
inputs
Description
Assets/(Liabilities)
Measured at fair value:
Marketable securities
Derivative assets (liabilities):
Foreign exchange contracts
Interest rate swap
Contingent purchase consideration (Note 3)
Disclosed at fair value:
Term loan
Senior debt
At March
31, 2015
(Level 1)
(Level 2)
(Level 3)
$
19,867
$
19,867 $
—
$
82
(955 )
(982 )
—
82
(955 )
$
(124,442 ) $
(2,270 )
— $
—
(124,442 ) $
(2,270 )
—
—
(982 )
—
—
Fair value measurements at reporting date using
Significant
other observable
inputs
Quoted prices in
active markets for
identical assets
Significant
unobservable
inputs
Description
Assets/(Liabilities)
Measured at fair value:
Marketable securities
Derivative liabilities
Disclosed at fair value:
Subordinated debt
Senior debt
Unearned ESOP shares
At March 31,
2014
(Level 1)
(Level 2)
(Level 3)
$
21,941
$
(42 )
21,941 $
—
$
—
(42 )
$
(161,250 ) $
(3,608 )
241
— $
—
241
(161,250 ) $
(3,608 )
—
—
—
—
—
—
The Company did not have any nonfinancial assets and liabilities that are recognized at fair value on a recurring basis.
At March 31, 2015, the term loan and senior debt have been recorded at carrying value which approximates fair value.
52
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Interest and dividend income on marketable securities are recorded in investment (income) loss. Changes in the fair value of derivatives are
recorded in foreign currency exchange (gain) loss or other comprehensive income (loss), to the extent that the derivative qualifies as a hedge
under the provisions of ASC Topic 815. Interest and dividend income on marketable securities are measured based upon amounts earned on
their respective declaration dates.
Assets and liabilities that were measured on a non-recurring basis during fiscal 2015 and 2014 include assets and liabilities acquired in
connection with the acquisition of STB, Unified and Hebetechnik described in Note 3. The long term debt of STB was measured at fair value
and subsequently repaid prior to March 31, 2015. The estimated fair values allocated to the assets acquired and liabilities assumed relied upon
fair value measurements based primarily on Level 3 inputs. The valuation techniques used to allocate fair values to working capital items;
property, plant, and equipment; and identifiable intangible assets included the cost approach, market approach, and other income
approaches. The valuation techniques relied on a number of inputs which included the cost and condition of property, plant, and equipment
and forecasted net sales and income. For STB significant valuation inputs included an attrition rate of 10.0% for customer relationships, a
royalty rate of 1.0% for trademarks and domain names. For Unified, significant valuation inputs included an attrition rate of 8.0% for customer
relationships, an engineering cost per hour of $57.20 for the engineered drawings, and a royalty rate of 1.5% for trademark and trade names.
For Hebetechnik, significant valuation inputs included a weighted average cost of capital of 12.3%.
Additional assets and liabilities that were measured on a non-recurring basis during fiscal 2015 and 2014 include the net assets of the
Company’s Rest of Products and Duff-Norton reporting unit, respectively. These measurements have been used to test goodwill for impairment
on an annual basis under the provisions of ASC Topic 350-20-35-1 “Intangibles, Goodwill and Other – Goodwill Subsequent Measurement.”
During fiscal 2015, Step 1 of the goodwill impairment test consisted of determining a fair value of the Company’s Rest of Products reporting
unit. The fair value for the Company’s Rest of Products reporting unit cannot be determined using readily available quoted Level 1 inputs or
Level 2 inputs that are observable in active markets. Therefore, the Company used a blended discounted cash flow and market-based valuation
model to estimate the fair value of its Rest of Products reporting unit, using Level 3 inputs. To estimate the fair value of the Rest of Products
reporting unit, the Company used significant estimates and judgmental factors. The key estimates and factors used in the discounted cash flow
valuation include revenue growth rates and profit margins based on internal forecasts, terminal value, and the weighted-average cost of capital
used to discount future cash flows. The compound annual growth rate for revenue during the first six years of the projections was
approximately 3.8%. The terminal value was calculated assuming a projected growth rate of 3.0% after six years. The estimated
weighted-average cost of capital for the reporting units was determined to be 10.1% based upon an analysis of similar companies and their debt
to equity mix, their related volatility and the size of their market capitalization.
Similarly during fiscal 2014, the Company performed Step 1 of the goodwill impairment test for it’s Duff-Norton reporting unit. The Company
used a blended discounted cash flow and market-based valuation model to estimate the fair value of its Duff-Norton reporting unit, using Level
3 inputs. The key estimates and factors used in the discounted cash flow valuation include revenue growth rates and profit margins based on
internal forecasts, terminal value, and the weighted-average cost of capital used to discount future cash flows. The compound annual growth
rate for revenue during the first five years of the projections was approximately 5%. The terminal value was calculated assuming a projected
growth rate of 4.5% after five years. The estimated weighted-average cost of capital for the reporting units was determined to be 12.8% based
upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization.
See Note 9 for additional discussion on the Company's goodwill impairment assessment and the conclusions reached.
53
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
6. Inventories
Inventories consisted of the following:
At cost—FIFO basis:
Raw materials
Work-in-process
Finished goods
LIFO cost less than FIFO cost
Net inventories
$
$
March 31,
2015
2014
$
62,513
16,893
41,807
121,213
(18,026 )
103,187
$
55,072
12,338
49,649
117,059
(19,483 )
97,576
There were LIFO liquidations resulting in $6,000, $830,000 and $1,482,000 of additional income in fiscal 2015, 2014 and 2013 income,
respectively.
7. Marketable Securities
All of the Company’s marketable securities, which consist of equity securities and fixed income securities, 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 in the shareholders’ equity section of the consolidated balance sheet unless unrealized losses are deemed
to be other-than-temporary. In such instances, the unrealized losses are reported in the consolidated statements of operations within investment
income. Estimated fair value is based on quoted market prices at the balance sheet dates. The cost of securities sold is based on the specific
identification method. Interest and dividend income are included in investment income in the consolidated statements of operations.
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. The marketable securities are not
available for general working capital purposes.
In accordance with ASC Topic 320-10-35-30 “Investments – Debt & Equity Securities – Subsequent Measurement,” the Company reviews its
marketable securities for declines in market value that may be considered other-than-temporary. The Company generally 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, or
when other evidence indicates impairment. We also consider the nature of the underlying investments, our intent and ability to hold the
investments until their market values recover, and other market conditions in making this assessment. Based on this assessment, no
other-than-temporary impairment charge has been recorded during fiscal 2015, 2014, or 2013.
During the year ended March 31, 2009, because of uncertain market conditions and the duration at which certain securities had been trading
below cost, the Company reduced the cost basis 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 $4,014,000 for the year
ended March 31, 2009, classified within investment (income) loss. There were no other than temporary impairments for the years ended March
31, 2015, 2014, and 2013. Since fiscal 2009, the Company has sold all of these previously written down investments, which resulted in the
recognition of gains of approximately $27,000, $350,000, and $242,000 in fiscal 2015, 2014, and 2013 respectively.
54
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The following is a summary of available-for-sale securities at March 31, 2015 (In thousands):
Marketable securities
$
19,402 $
525
$
60
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Estimated
Fair Value
19,867
The aggregate fair value of investments and unrealized losses on available-for-sale securities in an unrealized loss position at March 31, 2015
are as follows (In thousands):
Securities in a continuous loss position for less than 12 months
Securities in a continuous loss position for more than 12 months
Aggregate
Fair Value
Unrealized
Losses
$
$
45 $
4,155
4,200 $
26
34
60
The Company considered the nature of the investments, causes of previous impairments, the severity and duration of unrealized losses and
other factors and determined that the unrealized losses at March 31, 2015 were temporary in nature.
Net realized gains related to sales of marketable securities are included in investment (income) loss in the consolidated statements of operations
and were $2,065,000, $854,000, and $764,000, in fiscal 2015, 2014 and 2013, respectively.
The following is a summary of available-for-sale securities at March 31, 2014 (In thousands):
Marketable securities
$
20,078 $
2,013
$
150
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
21,941
The aggregate fair value of investments and unrealized losses on available-for-sale securities in an unrealized loss position at March 31, 2014
are as follows (In thousands):
Securities in a continuous loss position for less than 12 months
Securities in a continuous loss position for more than 12 months
Aggregate
Fair Value
Unrealized
Losses
$
$
2,971 $
2,963
5,934 $
55
95
150
In addition to the above, during the year ended March 31, 2014 the Company sold certain equity securities previously recorded on the
consolidated statement of operations in prepaid expenses and other resulting in a gain of $1,354,000. This gain has been recorded within other
income, net in the consolidated statement of operations.
Net unrealized gains included in the balance sheet amounted to $465,000 at March 31, 2015 and $1,863,000 at March 31, 2014. The amounts,
net of related deferred tax liabilities of $163,000 and $95,000 at March 31, 2015 and 2014, respectively, are reflected as a component of
accumulated other comprehensive loss within shareholders’ equity.
55
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
8. Property, Plant, and Equipment
Consolidated property, plant, and equipment of the Company consisted of the following:
Land and land improvements
Buildings
Machinery, equipment, and leasehold improvements
Construction in progress
Less accumulated depreciation
Net property, plant, and equipment
March 31,
2015
2014
3,238 $
35,633
164,843
13,342
217,056
125,929
91,127
$
3,428
25,143
150,449
17,891
196,911
118,224
78,687
$
$
Buildings include assets recorded under capital leases amounting to $4,838,000 and $4,779,000 for the years ended March 31, 2015 and
2014. Machinery, equipment, and leasehold improvements include assets recorded under capital leases amounting to $737,000 and $6,260,000
for the years ended March 31, 2015 and 2014, respectively. Accumulated depreciation includes accumulated amortization of the assets
recorded under capital leases amounting to $4,379,000 and $9,027,000 at March 31, 2015 and 2014, respectively.
Depreciation expense, including amortization of assets recorded under capital leases, was $12,296,000, $11,399,000, and $10,134,000, for the
years ended March 31, 2015, 2014 and 2013, respectively.
Gross property, plant, and equipment includes capitalized software costs of $22,892,000 and $20,972,000 at March 31, 2015 and 2014,
respectively. Accumulated depreciation includes accumulated amortization on capitalized software costs of $6,276,000 and $5,343,000 at
March 31, 2015 and 2014 respectively. Amortization expense on capitalized software costs was $1,514,000, $932,000, and $499,000 during
the years ended March 31, 2015, 2014, and 2013, respectively.
9. Goodwill and Intangible Assets
As discussed in Note 2, goodwill is not amortized but is tested for impairment at least annually, in accordance with the provisions of ASC
Topic 350-20-35-1. 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 reviewed regularly, whether those units constitute a business, and the extent of
economic similarities between those reporting units for purposes of aggregation. The Company’s reporting units identified under ASC Topic
350-20-35-33 are at the component level, or one level below the operating segment level as defined under ASC Topic 280-10-50-10 “Segment
Reporting – Disclosure.” The Company has four reporting units as of March 31, 2015 and five reporting units as of March 31, 2014. During
fiscal 2015, the Unified Industries reporting unit (which designs, manufacturers and markets overhead light rail workstations) was incorporated
into the Rest of Products reporting unit. It was considered a separate reporting unit in fiscal 2014, the fiscal year in which it was acquired. The
decision to incorporate the Unified Industries reporting unit into the Rest of Products reporting unit is consistent with the integration of Unified
Industries into the Company's operations during fiscal 2015. During fiscal 2014, Unified Industries had goodwill of $6,980,000. Only two of
the four reporting units carried goodwill at March 31, 2015 and only three of the five reporting units carried goodwill at March 31, 2014. The
Duff-Norton reporting unit (which designs, manufactures and sources mechanical and electromechanical actuators and rotary unions) had
goodwill of $9,563,000 and $9,865,000 at March 31, 2015 and 2014, respectively, and the Rest of Products reporting unit (representing the
hoist, chain, and forgings design, manufacturing, and distribution businesses) had goodwill of $111,898,000 and $102,458,000 at March 31,
2015 and 2014, respectively.
56
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
When we evaluate the potential for goodwill impairment, we assess a range of qualitative factors including, but not limited to, macroeconomic
conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political
developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this
assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a
two-step impairment test.
The Company performed its qualitative assessment as of February 28, 2015 and determined that it was not more likely than not that the fair
value of each of its reporting units other than Rest of Products was less than that its applicable carrying value. Accordingly, the Company did
not perform the two-step goodwill impairment test for any of its reporting units other than the Rest of Products reporting unit.
In accordance with ASC Topic 350-20-35-3, the measurement of impairment of goodwill consists of two steps. In the first step, the Company
compares the fair value of each reporting unit to its carrying value. As part of the impairment analysis, the Company determines the fair value
of each of its reporting units with goodwill using the income approach and market approach. The income approach uses a discounted cash flow
methodology to determine fair value. This methodology recognizes value based on the expected receipt of future economic benefits. Key
assumptions in the income approach include a free cash flow projection, an estimated discount rate, a long-term growth rate and a terminal
value. These assumptions are based upon the Company’s historical experience, current market trends and future expectations.
The Company performed step one of the two-step impairment test for the Rest of Products reporting unit as of February 28, 2015. Based on the
results of the two-step impairment test, the Company determined that the Rest of Products reporting unit's fair value was not less than its
applicable carrying value.
Future impairment indicators, such as declines in forecasted cash flows, may cause additional significant impairment charges. Impairment
charges could be based on such factors as the Company’s stock price, forecasted cash flows, assumptions used, control premiums or other
variables.
Identifiable intangible assets acquired in a business combination are amortized over their estimated useful lives.
A summary of changes in goodwill during the years ended March 31, 2015 and 2014 is as follows:
Balance at April 1, 2013
Acquisition of Hebetechnik (See Note 3)
Acquisition of Unified (See Note 3)
Currency translation
Balance at March 31, 2014
Acquisition of STB (See Note 3)
Currency translation
Balance at March 31, 2015
$
$
105,354
5,324
6,980
1,645
119,303
9,487
(7,329 )
121,461
Goodwill is recognized net of accumulated impairment losses of $107,000,000 as of March 31, 2015 and 2014, respectively. There were no
goodwill impairment losses recorded in fiscal 2015, 2014, or 2013.
57
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Intangible assets at March 31, 2015 are as follows:
Trademark
Indefinite lived trademark
Customer relationships
Acquired technology
Other
Balance at March 31, 2015
Intangible assets at March 31, 2014 were as follows:
Trademark
Indefinite lived trademark
Customer relationships
Acquired technology
Other
Balance at March 31, 2014
Gross
Carrying
Amount
$
$
4,656 $
2,338
15,653
4,960
1,251
28,858 $
Accumulated
Amortization
(1,657 )
—
(7,442 )
(218 )
(437 )
(9,754 )
$
Net
2,999
2,338
8,211
4,742
814
$ 19,104
Gross
Carrying
Amount
$
$
5,969 $
1,200
17,453
4,960
1,135
30,717 $
Accumulated
Amortization
(1,799 )
—
(7,779 )
(17 )
(280 )
(9,875 )
Net
$ 4,170
1,200
9,674
4,943
855
$ 20,842
The Company’s intangible assets that are considered to have finite lives are amortized. The weighted-average amortization periods are 18
years for trademarks, 11 years for customer relationships, 25 years for acquired technology, 11 years for other, and 17 years in total.
Trademarks with a book value of $2,338,000 have an indefinite useful life and are therefore not being amortized. Total amortization expense
was $2,266,000, $1,981,000, and $1,981,000 for fiscal 2015, 2014, and 2013, respectively. Based on the current amount of intangible assets,
the estimated amortization expense for each of the succeeding five years is expected to be approximately $2,200,000.
10. Derivative Instruments
The Company uses derivative instruments to manage selected foreign currency exposures. The Company does not use derivative instruments
for speculative trading purposes. All derivative instruments must be recorded on the balance sheet at fair value. For derivatives designated as
cash flow hedges, the effective portion of changes in the fair value of the derivative is recorded as accumulated other comprehensive gain
(loss), or “AOCL”, and is reclassified to earnings when the underlying transaction has an impact on earnings. The ineffective portion of
changes in the fair value of the derivative is reported in foreign currency exchange loss (gain) in the Company’s consolidated statement of
operations. For derivatives not classified as cash flow hedges, all changes in market value are recorded as a foreign currency exchange loss
(gain) in the Company’s consolidated statements of operations. The cash flow effects of derivatives are reported within net cash provided by
operating activities.
The Company has a foreign currency forward agreement in place to offset changes in the value of an intercompany loan to a foreign subsidiary
due to changes in foreign exchange rates. The notional amount of this derivative is $590,000 and the contract matures on April 15, 2016. This
contract is marked to market each balance sheet date and is not designated as a hedge.
The Company has foreign currency forward agreements in place to hedge changes in the value of recorded foreign currency assets and
liabilities due to changes in foreign exchange rates at the settlement date. The notional amount of those derivatives is $672,000 and all contracts
mature within twelve months of March 31, 2015. These contracts are marked to market each balance sheet date and are not designated as
hedges.
58
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company has foreign currency forward agreements that are designated as cash flow hedges to hedge a portion of forecasted inventory
purchases denominated in a foreign currency. The notional amount of those derivatives is $8,624,000 and all contracts mature within twelve
months of March 31, 2015. From its March 31, 2015 balance of AOCL, the Company expects to reclassify approximately $54,000 out of
AOCL during the next 12 months based on the underlying transaction of the sale of the goods purchased.
On February 19, 2015, the Company entered into the Term Loan, which has a variable interest rate. The Company's desired capital structure, is
comprised of 50-70% of fixed rate long-term debt and 30-50% of variable rate long-term debt. As such, the Company entered into an interest
rate swap agreement that is designated as a cash flow hedge to hedge changes in interest expense due to changes in the interest rate of the
senior secured term loan. The amortizing interest rate swap matures on February 19, 2020 and has a notional amount of $86,250,000 as of
March 31, 2015. The effective portion of the change in fair value of the interest rate swap is reported in AOCL and will be reclassified to
interest expense over the life of the underlying debt obligation. The ineffective portion was not material and was recognized in the current
period interest expense. From its March 31, 2015 balance of AOCL, the Company expects to reclassify approximately $1,026,000 out of
AOCL during the next 12 months.
The Company is exposed to credit losses in the event of non-performance by the counterparty on its financial instruments. The counterparty has
an investment grade credit rating. The Company anticipates that this counterparty will be able to fully satisfy their obligations under the
contracts. The Company has derivative contracts with one counterparty as of March 31, 2015.
The Company's agreements with its foreign exchange contract counterparty contains provisions pursuant to which the Company could be
declared in default of its derivative obligations. As of March 31, 2015, the Company had not posted any collateral related to these
agreements. If the Company had breached any of these provisions as of March 31, 2015, it could have been required to settle its obligations
under these agreements at amounts which approximate the March 31, 2015 fair values reflected in the table below. During the year ended
March 31, 2015, the Company was not in default of any of its derivative obligations.
The following is the effect of derivative instruments on the consolidated statement of operations for the years ended March 31, 2015, 2014, and
2013 (in thousands):
Derivatives
Designated as
Cash Flow
Hedges
March 31,
2015
2015
Type of Instrument
Foreign exchange contracts $
$
Interest rate swap
2014
2013
Foreign exchange contracts $
Foreign exchange contracts $
Amount of Gain or (Loss)
Recognized in Other
Comprehensive Income
(Loss) on Derivatives
(Effective Portion)
Location of Gain or
(Loss) Recognized
in Income on
Derivatives
Amount of Gain or (Loss)
Reclassified from AOCL
into Income (Effective
Portion)
81
(586 )
70
(256 )
Cost of products sold
Interest expense
Cost of products sold
Cost of products sold
$
$
$
$
Derivatives Not Designated as
Hedging Instruments (Foreign
Exchange Contracts)
March 31,
2015
2014
2013
Location of (Gain) or Loss Recognized in
Income on Derivatives
Foreign currency exchange (gain) loss
Foreign currency exchange (gain) loss
Foreign currency exchange (gain) loss
$
59
Amount of
(Gain) or Loss
Recognized in
Income on
Derivatives
(171 )
—
(184 )
132
122
55
(478 )
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
As of March 31, 2015 and 2014, the Company had no derivatives designated as net investments or fair value hedges in accordance with ASC
Topic 815, “Derivatives and Hedging.”
The following is information relative to the Company’s derivative instruments in the consolidated balance sheet as of March 31, 2015 and 2014
(in thousands):
Derivatives Designated as
Hedging Instruments
Foreign exchange contracts
Foreign exchange contracts
Interest rate swap
Interest rate swap
Derivatives Not Designated as
Hedging Instruments
Foreign exchange contracts
Foreign exchange contracts
Balance Sheet Location
Prepaid expenses and other
Accrued Liabilities
Other Assets
Accrued Liabilities
Fair Value of Asset (Liability)
March 31,
$
2015
2014
$
58
(34 )
71
(1,026 )
—
(141 )
—
—
Fair Value of Asset (Liability)
March 31,
Balance Sheet Location
Prepaid expenses and other
Accrued Liabilities
$
2015
2014
$
61
(3 )
163
(64 )
11. Accrued Liabilities and Other Non-current Liabilities
Consolidated accrued liabilities of the Company consisted of the following:
Accrued payroll
Interest payable
Accrued workers compensation
Accrued income taxes payable
Accrued health insurance
Accrued general and product liability costs
Customer advances, deposits, and rebates
Other accrued liabilities
March 31,
2015
2014
20,041 $
73
944
2,325
2,491
3,500
8,246
12,643
50,263 $
21,259
2,015
560
2,737
2,790
3,500
9,038
10,449
52,348
$
$
60
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Consolidated other non-current liabilities of the Company consisted of the following:
Accumulated postretirement benefit obligation
Accrued general and product liability costs
Accrued pension cost
Accrued workers compensation
Deferred income tax
Other non-current liabilities
12. Debt
Consolidated long-term debt of the Company consisted of the following:
March 31,
2015
2014
5,559 $
9,030
56,601
1,162
2,786
12,086
87,224 $
5,137
10,980
36,515
772
5,967
8,017
67,388
$
$
Capital lease obligations
Total senior debt
7 7/8% Senior Subordinated Notes due February 1, 2019 with interest payable
in semi-annual installments (net of the unamortized discount of $1,315)
Term loan (net of the unamortized discount of $558)
Total debt
Less: current portion
Total debt, less current portion
$
$
March 31,
2015
2014
2,270 $
2,270
—
124,442
126,712
13,292
113,420 $
3,608
3,608
148,685
—
152,293
1,588
150,705
Through January 23, 2015 and at March 31, 2014 the Company had access to borrow funds under a revolving credit facility ("Replaced
Revolving Credit Facility"). The Replaced Revolving Credit Facility provided availability up to a maximum of $100,000,000 and had an initial
term ending October 31, 2017.
Provided there was no default, the Company could request an increase in the availability of the Replaced Revolving Credit Facility by an
amount not exceeding $75,000,000, subject to lender approval.
Commitment fees were payable against the unused portion of the Replaced Revolving Credit Facility based on the applicable rate. Interest on
an outstanding borrowing used against the revolver was payable at varying rates depending on the type of outstanding borrowing and its
associated interest rate plus its associated applicable rate. The two potential interest rates used were either a Base Rate (equivalent to a
fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as
publicly announced from time to time by Bank of America as its “prime rate.”, or (c) LIBOR plus 100 basis points) or a Eurocurrency Rate
(equivalent to LIBOR plus a Mandatory Cost).
The applicable rate was determined based on the pricing grid in the Replaced Revolving Credit Facility which varied based on the Company’s
total leverage ratio and borrowing type through January 23, 2015. The mandatory cost was intended to compensate the lenders for the cost of
European banking requirements.
The Replaced Revolving Credit Facility was secured by all U.S. inventory, receivables, equipment, real property, subsidiary stock (limited to
65% of non-U.S. subsidiaries) and intellectual property.
61
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The corresponding credit agreement associated with the Replaced Revolving Credit Facility placed certain debt covenant restrictions on the
Company, including certain financial requirements and restrictions on dividend payments, with which the Company was in compliance through
January 23, 2015. Key financial covenants included a minimum fixed charge coverage ratio of 1.25 x, a maximum total leverage ratio, net of
cash, of 3.50 x and maximum annual capital expenditures of $30,000,000.
Through February 19, 2015 and at March 31, 2014, the Company had outstanding $150,000,000 principal amount of 7 7/8% Senior
Subordinated Notes due 2019 registered under the Securities Act of 1933, as amended (7 7/8% Notes). The offering price of the notes was
98.545% of par after adjustment for original issue discount.
Provisions of the 7 7/8% Notes included, without limitation, restrictions on indebtedness, asset sales, and dividends and other restricted
payments. On or after February 1, 2015, the 7 7/8% Notes were redeemable at the option of the Company, in whole or in part, at a redemption
price of 103.938%, reducing to 101.969% and 100% on February 1, 2016 and February 1, 2017, respectively and were due February 1, 2019. In
the event of a Change of Control (as defined in the indenture for such notes), each holder of the 7 7/8% Notes could require the Company to
repurchase all or a portion of such holder’s 7 7/8% Notes at a purchase price equal to 101% of the principal amount thereof. The 7 7/8% Notes
are guaranteed by certain existing and future U.S. subsidiaries and are not subject to any sinking fund requirements.
On January 23, 2015, the Company, Columbus McKinnon Dutch Holdings 3 B.V. (“BV 3”), and Columbus McKinnon EMEA GmbH
(“EMEA GMBH”) as borrowers (collectively referred to as the "Borrowers"), entered into a new credit agreement (the "New Credit
Agreement"). The Borrowers entered into a new $150,000,000 New Revolving Credit Facility and established a new $125,000,000 delayed
draw senior secured Term Loan. The Company’s Replaced Revolving Credit Facility was terminated in connection with this transaction. Both
the New Revolving Credit Facility and the Term Loan have five-year terms maturing in 2020. The New Revolving Credit Facility has an initial
term ending January 23, 2020 and the Term Loan has a term ending February 19, 2020.
The terms of the New Credit Agreement include the following:
•
Term Loan: An aggregate $125,000,000 secured term loan facility which requires quarterly principal amortization of 2.5% with the
remaining principal due at maturity date.
• New Revolving Credit Facility: An aggregate $150,000,000 secured revolving credit facility which includes sublimits for the issuance
of standby letters of credit, swingline loans and multi-currency borrowings in certain specified foreign currencies.
•
Fees and Interest Rates: Commitment fees and interest rates are determined on the basis of either a Eurocurrency rate or a Base rate
plus an applicable margin based upon the Company's Total Leverage Ratio (as defined in the New Credit Agreement).
• Accordion Feature: Provisions permitting a Borrower from time to time to increase the aggregate amount of the credit facility by up to
$75,000,000, with a minimum increase of $20,000,000 and with additional commitments from the Lenders, as they may agree, or new
commitments from financial institutions acceptable to the Administrative Agent and the Company.
•
Prepayments: Provisions permitting a Borrower to voluntarily prepay either the Term Loan or New Revolving Credit Facility in
whole or in part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or New Revolving Credit
Facility on the occurrence of certain events which will permanently reduce the commitments under the New Credit Agreement, each
without premium or penalty, subject to reimbursement of certain costs of the Lenders.
• Reduction of Commitment: A Borrower may irrevocably cancel, in whole or in part, the unutilized portion of the commitments under
the New Credit Agreement in excess of any outstanding loans, the stated amount of all outstanding letters of credit and all
unreimbursed amounts drawn under any letters of credit.
62
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
• Covenants: Provisions containing covenants required of the Company and its subsidiaries including various affirmative and negative
financial and operational covenants. Key financial covenants include a minimum fixed charge coverage ratio of 1.25 x; a maximum
total leverage ratio, net of cash, of 3.50 x (which may be temporarily increased following a material acquisition, which may be elected
two times over the course of the New Credit Agreement, (i) if financed by secured debt the total leverage rate as at the end of the
fiscal quarter in which such material acquisition occurs and the three fiscal quarters immediately thereafter, shall not be greater than
4.00:1.00 and as at the end of any fiscal quarter thereafter, the total leverage ratio shall not be greater than 3.50:1.00, and (ii) if
financed with unsecured or subordinated indebtedness, the total leverage ratio at the end of the fiscal quarter in which such material
acquisition occurs and at the end of any fiscal quarter thereafter, shall not be greater than 4.50:1.00, and permit the secured leverage
ratio, to be greater than 3.25:1.00), and maximum capital expenditures of $30 million per fiscal year ($40 million following a material
acquisition) with the ability to transfer any unused portion of expenditure to the immediately following fiscal year.
The New Revolving Credit Facility is secured by all U.S. inventory, receivables, equipment, real property, subsidiary stock (limited to 65% of
non-U.S. subsidiaries) and intellectual property. The New Credit Agreement allows, but limits our ability to pay dividends.
On February 19, 2015, the Company borrowed $124,442,000 under the Term Loan. The Term Loan proceeds were net of fees paid to the
lenders of $558,000 which were accounted for as a debt discount. On February 23, 2015 the Company redeemed all of the outstanding $150
million of the 7 7 / 8% Notes. The aggregated price paid for the redemption was $156,630,000, including a 3.938% call premium or
$5,907,000, and $723,000 of accrued interest on the Notes. The redemption was funded by the Term Loan and cash on hand. The cost of bond
redemption on the Company's consolidated statements of operations includes the call premium, write-off of previously unamortized deferred
financing costs, and other expenses.
The unused portion of the New Revolving Credit Facility totaled $143,546,000 net of outstanding borrowings of $0 and outstanding letters of
credit of $6,454,000 as of March 31, 2015. The outstanding letters of credit at March 31, 2015 consisted of $1,790,000 in commercial letters of
credit and $4,664,000 of standby letters of credit.
The gross balances of deferred financing costs were $1,825,000 and $4,133,000 as of March 31, 2015 and 2014, respectively. The accumulated
amortization balances were $61,000 and $1,531,000 as of March 31, 2015 and 2014, respectively. The balance at March 31, 2015 is related to
the New Credit Agreement.
On June 22, 2007, the Company recorded a capital lease resulting from the sale and partial leaseback of its facility in Charlotte, NC under a 10
year lease agreement. The Company also has capital leases on certain production machinery and equipment. The outstanding balance on the
capital lease obligations of $2,270,000 and $3,608,000 as of March 31, 2015 and 2014, respectively, are included in current portion of
long-term debt and senior debt in the consolidated balance sheets.
The principal payments scheduled to be made as of March 31, 2015 on the above debt are as follows:
FY 2016
FY 2017
FY 2018
FY 2019
FY 2020
Thereafter
$
$
13,294
13,213
13,147
12,607
75,009
—
127,270
63
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Non-U.S. Lines of Credit and Loans
Unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating
outside of the U.S. The lines of credit are available on an offering basis, meaning that transactions under the line of credit will be on such terms
and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries
and the local bank at the time of each specific transaction. As of March 31, 2015, unsecured credit lines totaled approximately $4,508,000, of
which $0 was drawn. In addition, unsecured lines of $8,748,000 were available for bank guarantees issued in the normal course of business of
which $4,609,000 was utilized.
13. Pensions and Other Benefit Plans
The Company provides retirement plans, including defined benefit and defined contribution plans, and other postretirement benefit plans to
certain employees. The Company applies ASC Topic 715 “Compensation – Retirement Benefits,” which required the recognition in pension
and other postretirement benefits obligations and accumulated other comprehensive income of actuarial gains or losses, prior service costs or
credits and transition assets or obligations that had previously been deferred. This statement also requires an entity to measure a defined benefit
postretirement plan’s assets and obligations that determine its funded status as of the end of the fiscal year.
Pension Plans
The Company provides defined benefit pension plans to certain employees. The Company uses March 31 as the measurement date. The
following provides a reconciliation of benefit obligation, plan assets, and funded status of the plans:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Foreign exchange rate changes
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual gain on plan assets
Employer contribution
Benefits paid
Foreign exchange rate changes
Fair value of plan assets at end of year
Funded status
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized
64
March 31,
2015
2014
$
$
225,685
2,153
9,850
39,131
(10,219 )
(5,060 )
$
261,540
$
$
$
$
$
$
188,228
15,799
11,013
(10,219 )
(620 )
204,201
$
(57,339 ) $
88,477
42
31,180
$
229,180
2,481
9,716
(6,108 )
(10,314 )
730
225,685
167,017
20,815
11,041
(10,314 )
(331 )
188,228
(37,457 )
56,516
179
19,238
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Amounts recognized in the consolidated balance sheets are as follows:
Accrued liabilities
Other non-current liabilities
Deferred tax effect of accumulated other comprehensive loss
Accumulated other comprehensive loss
Net amount recognized
March 31,
2015
(738 ) $
(56,601 )
22,524
65,995
31,180
$
2014
(942 )
(36,515 )
10,424
46,271
19,238
$
$
In fiscal 2016, an estimated net loss of $3,928,000 and prior service cost of $9,000 for the defined benefit pension plans will be amortized from
accumulated other comprehensive loss to net periodic benefit cost.
Net periodic pension cost included the following components:
2015
2014
2013
Service costs—benefits earned during the period
Interest cost on projected benefit obligation
Expected return on plan assets
Net amortization
Other
Net periodic pension cost
$
$
2,153
9,850
(14,241 )
3,517
82
1,361
2,481
9,716
(12,618 )
6,259
—
5,838
$
$
$
$
2,517
9,837
(11,195 )
6,305
—
7,464
Information for pension plans with a projected benefit obligation in excess of plan assets is as follows:
Projected benefit obligation
Fair value of plan assets
March 31,
2015
261,540 $
204,201
2014
225,685
188,228
$
Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:
Accumulated benefit obligation
Fair value of plan assets
March 31,
2015
255,295 $
204,201
2014
218,500
188,228
$
Unrecognized gains and losses are amortized through March 31, 2015 on a straight-line basis over the average remaining service period of
active participants. Starting in fiscal 2016, the Company will change the amortization period of its largest plan to the average remaining
lifetime of inactive participants as a significant portion of the plan population is now inactive. This change increases the amortization period of
the unrecognized gains and losses.
65
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
2015
3.83 %
7.50 %
2.30 %
2014
4.60 %
7.50 %
2.00 %
2013
4.35 %
7.50 %
2.00 %
The expected rates of return on plan asset assumptions are determined considering long-term historical averages and real returns on each asset
class.
The Company’s retirement plan target and actual asset allocations are as follows:
Equity securities
Fixed income
Total plan assets
Target
2016
65%
35%
100%
Actual
2015
65%
35%
100%
2014
66%
34%
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 major U.S. and international equity indexes and an aggregate bond fund.
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 approximately $5,908,000 to its pension plans in fiscal 2016.
Information about the expected benefit payments for the Company’s defined benefit plans is as follows:
2016
2017
2018
2019
2020
2021-2025
Postretirement Benefit Plans
$
10,693
11,194
11,799
12,394
13,061
72,574
The Company sponsors a defined benefit other postretirement health care plan that provide medical and life insurance coverage to certain U.S.
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.
66
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company’s postretirement health benefit plans are not funded. The following sets forth a reconciliation of benefit obligation and the
funded status of the plan:
March 31,
2015
2014
Change in benefit obligation:
Benefit obligation at beginning of year
Interest cost
Actuarial gain
Benefits paid
Benefit obligation at end of year
Funded status
Unrecognized actuarial loss
Net amount recognized
$
$
$
$
$
5,873
209
660
(508 )
6,234
$
(6,234 ) $
1,794
(4,440 ) $
6,102
254
(21 )
(462 )
5,873
(5,873 )
1,193
(4,680 )
Amounts recognized in the consolidated balance sheets are as follows:
Accrued liabilities
Other non-current liabilities
Deferred tax effect of accumulated other comprehensive loss
Accumulated other comprehensive loss
Net amount recognized
March 31,
2015
(675 ) $
$
(5,559 )
1,554
240
$
(4,440 ) $
2014
(735 )
(5,137 )
1,323
(131 )
(4,680 )
In fiscal 2016, an estimated net loss of $130,000 for the defined benefit postretirement health care plans will be amortized from accumulated
other comprehensive loss to net periodic benefit cost. In fiscal 2015, net periodic postretirement benefit cost included the following:
Interest cost
Net amortization
Net periodic postretirement benefit cost
Year Ended March 31,
2014
2015
2013
$
$
209 $
60
269 $
254 $
101
355 $
285
81
366
For measurement purposes, healthcare costs are assumed to increase 7.00% in fiscal 2016, grading down over time to 5.0% in five years. The
discount rate used in determining the accumulated postretirement benefit obligation was 3.45% and 3.90% as of March 31, 2015 and 2014,
respectively.
67
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Information about the expected benefit payments for the Company’s postretirement health benefit plans is as follows:
2016
2017
2018
2019
2020
2021-2025
$
675
660
614
599
561
2,238
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
Effect on total of service and interest cost components
Effect on postretirement obligation
One Percentage
Point Increase
10
391
$
One Percentage
Point Decrease
(9 )
(352 )
$
The Company has collateralized split-dollar life insurance arrangements with two of its former officers. Under these arrangements, the
Company pays certain premium costs on life insurance policies for the former officers. Upon the later of the death of the former officer or their
spouse, the Company will receive all of the premiums paid to-date. The net periodic pension cost for fiscal 2015 was $237,000 and the
liability at March 31, 2015 is $4,320,000 with $4,180,000 included in other non-current liabilities and $140,000 included in accrued liabilities
in the consolidated balance sheet. The cash surrender value of the policies is $2,528,000 and $2,388,000 at March 31, 2015 and 2014,
respectively. The balance is included in other assets in the consolidated balance sheet.
Other Benefit Plans
The Company also sponsors defined contribution plans covering substantially all domestic employees. Participants may elect to contribute
basic contributions. These plans provide for employer contributions based on employee eligibility and participation. The Company recorded a
charge for such contributions of approximately $2,998,000, $2,658,000, and $2,484,000 for the years ended March 31, 2015, 2014 and 2013,
respectively. The Company expects its contributions for the defined contribution plans in future years to remain comparable to its fiscal 2015
contributions.
Fair Values of Plan Assets
The Company classified its investments within the categories of equity securities, fixed income securities, and cash equivalents, as the
Company’s management bases its investment objectives and decisions from these three categories. The Company’s investment policy as it
relates to its pension assets is to invest in broad-based mutual funds, with an investment objective of being diversified. Further the Company’s
investment objective of its equity securities is long-term growth, its objective of the fixed income securities is long-term growth, consistency of
income and preservation of capital, and its objective of cash equivalents is preservation of capital. It is the Company’s position that its
investment policy and investment objectives as defined above reduce the risk of concentrations within its investments.
68
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The fair values of the Company’s defined benefit plans’ consolidated assets by asset category as of March 31 were as follows:
Asset categories:
Equity securities
Fixed income securities
Cash equivalents
Total
March 31,
2015
2014
$
$
132,743 $
70,493
965
204,201 $
123,801
63,572
855
188,228
The fair values of our defined benefit plans’ consolidated assets were determined using the fair value hierarchy of inputs described in Note 5.
The fair values by category of inputs as of March 31, 2015 and March 31, 2014 were as follows:
As of March 31, 2015:
Asset categories:
Equity securities
Fixed income securities
Cash equivalents
Total
As of March 31, 2014:
Asset categories:
Equity securities
Fixed income securities
Cash equivalents
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant other
observable
Inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
Total
$
$
73,853 $
53,022
965
127,840 $
58,890
—
—
58,890
$
$
—
17,471
—
17,471
$
$
132,743
70,493
965
204,201
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant other
observable
Inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
Total
$
$
68,276 $
46,466
855
115,597 $
55,525
—
—
55,525
$
$
—
17,106
—
17,106
$
$
123,801
63,572
855
188,228
Level 1 fixed income securities consist of fixed income mutual funds with quoted market prices.
The Level 2 securities are investments in common collective trust funds. The fair values of these securities are determined based on the net
asset value of these funds. Each of these investment funds has a stated performance objective to approximate as closely as practicable, before
expenses, the performance of the stated benchmark to which the funds are indexed, over the long term. Redemptions of the units held in these
funds may be made on the last business day of each month and on at least one other business day during the month, based on the net asset value
per unit of the funds. We are not aware of any significant restrictions on the issuances or redemptions of units of participation in these funds.
69
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Fair value of Level 3 fixed income securities at the beginning of the year was $17,106,000. During fiscal 2015 fixed income securities earned
investment return of $751,000 and had disbursements of $386,000 resulting in an ending balance of $17,471,000. These fixed income
securities consist primarily of insurance contracts which are carried at their liquidation value based on actuarial calculations and the terms of
the contracts. Significant inputs in determining the fair value for these contracts include company contributions, contract disbursements and
stated interest rates. Gains and losses on these contracts are recognized as part of net periodic pension cost and recorded as part of cost of sales,
selling, or general and administrative expense.
14. Employee Stock Ownership Plan (ESOP)
The guidance in ASC Topic 718 "Compensation - Stock Compensation" and covered in sub-topic 718-40 "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.
Effective January 1, 2012 the ESOP was closed to new hires. Prior to this date, substantially all of the Company’s U.S. non-union employees
were participants in the ESOP. Additionally, during the year ended March 31, 2015 the final loan payment was made by the ESOP to the
Company.
Contributions to the plan result from the release of collateralized shares as debt service payments are made. Compensation expense amounting
to $251,000, $608,000, and $422,000 in fiscal 2015, 2014 and 2013, 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, 2015 and 2014, 423,000 and 463,000 of ESOP shares, respectively, were allocated or available to be allocated to participants’
accounts. There are no shares of collateralized common stock related to the ESOP loan outstanding at March 31, 2015. At March 31, 2014,
8,000 ESOP shares were pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares amounted to $0 and $241,000 at March 31, 2015 and March 31, 2014, respectively as
determined based on the quoted market value of the Company’s stock.
70
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
15. Earnings per Share and Stock Plans
Earnings per Share
The Company calculates earnings per share in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted earnings per share include any dilutive effects of stock options,
unvested restricted stock units, unvested performance shares, and unvested restricted stock. Stock options and performance shares with respect
to 114,000, 16,000, and 189,000 common shares were not included in the computation of diluted earnings per share for fiscal 2015, 2014 and
2013, respectively, because they were antidilutive.
The following table sets forth the computation of basic and diluted earnings per share (share data presented in thousands):
Numerator for basic and diluted earnings per share:
Net income (loss)
Denominators:
Year Ended March 31,
2014
2015
2013
$
27,190 $
30,421 $
78,296
Weighted-average common stock outstanding— denominator for basic EPS
Effect of dilutive employee stock options, RSU's and performance shares
19,939
285
19,655
295
19,425
262
Adjusted weighted-average common stock outstanding and assumed conversions—
denominator for diluted EPS
20,224
19,950
19,687
The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 14).
Stock Plans
The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation,” applying the
modified prospective method. This Statement requires all equity-based payments to employees, including grants of employee stock options, to
be recognized in the statement of earnings based on the grant date fair value of the award. Under the modified prospective method, the
Company is required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested
portion of previously granted awards outstanding as of the date of adoption.
Prior to the adoptions of the 2010 Long Term Incentive Plan, the Company maintained several different stock plans, specifically: 1995
Incentive Stock Option Plan, Non-Qualified Stock Option Plan, Restricted Stock Plan and 2006 Long Term Incentive Plan, collectively
referred to as the “Prior Stock Plans”. The specifics of each of these plans are discussed below.
Stock based compensation expense was $3,895,000, $3,633,000, and $3,334,000 for fiscal 2015, 2014 and 2013, respectively. Stock
compensation expense is included in cost of goods sold, selling, and general and administrative expenses. The Company recognizes expense for
all share–based awards over the service period, which is the shorter of the period until the employees’ retirement eligibility dates or the service
period for the award, for awards expected to vest. Accordingly, expense is generally reduced for estimated forfeitures. ASC Topic 718
requires forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The Company recognized compensation expense for stock option awards and unvested restricted share awards that vest based on time or
market parameters straight-line over the requisite service period for vesting of the award.
71
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Long Term Incentive Plan
On July 26, 2010, the shareholders of the Company approved the 2010 Long Term Incentive Plan (“LTIP” or the "Plan"). The Company grants
share based compensation to eligible participants under the LTIP. The total number of shares of common stock with respect to which awards
may be granted under the plan is 1,250,000 including shares not previously authorized for issuance under any of the Prior Stock Plans and any
shares not issued or subject to outstanding awards under the Prior Stock Plans. As of March 31, 2015, 505,502 shares remain for future grants.
The LTIP was designed as an omnibus plan and awards may consist of non-qualified stock options, incentive stock options, stock appreciation
rights, restricted stock, restricted stock units, or stock bonuses.
Under the Plan, the granting of awards to employees may take the form of options, restricted shares, and performance shares. The
Compensation Committee of our Board of Directors determines the number of shares, the term, the frequency and date, the type, the exercise
periods, any performance criteria pursuant to which awards may be granted and the restriction and other terms and conditions of each grant in
accordance with terms of the Plan.
Stock Option Plans
Existing prior to the adoption of the LTIP, the Company maintained two stock option plans, a Non-Qualified Stock Option Plan
("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive Plan"). Effective with adoption of the LTIP no new grants can be made
from the Non-Qualified Plan or the Incentive Stock Plan. Options outstanding under the Non-Qualified Plan or the Incentive Stock Plan
generally become exercisable over a four -year period at a rate of 25% per year commencing one year from the date of grant and exercise price
of not less than 100% of the fair market value of the common stock on the date of grant. Options granted under the Non-Qualified Plan or the
Incentive Stock Plan are exercisable not earlier than one year and not later than ten years from the date such option was granted.
A summary of option transactions during each of the three fiscal years in the period ended March 31, 2015 is as follows:
Outstanding at April 1, 2012
Granted
Exercised
Cancelled
Outstanding at March 31, 2013
Granted
Exercised
Cancelled
Outstanding at March 31, 2014
Granted
Exercised
Cancelled
Outstanding at March 31, 2015
Exercisable at March 31, 2015
Weighted-
average
Exercise Price
Weighted-
average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
13.43
7.39
19.22
14.46
18.95
9.51
20.00
17.05
27.08
18.41
15.71
18.86
17.05
6.42 $
5.37 $
4,990
3,083
Shares
159,212
(39,858 )
(25,060 )
736,301
136,793
(230,619 )
(29,969 )
612,506
118,060
(87,210 )
(31,207 )
612,149
309,435
$
72
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company calculated intrinsic value for those options that had an exercise price lower than the market price of our common shares as of
March 31, 2015. The aggregate intrinsic value of outstanding options as of March 31, 2015 is calculated as the difference between the exercise
price of the underlying options and the market price of our common shares for the 483,698 options that were in-the-money at that date. The
aggregate intrinsic value of exercisable options as of March 31, 2015 is calculated as the difference between the exercise price of the
underlying options and the market price of our common shares for the 294,577 exercisable options that were in-the-money at that date. The
Company's closing stock price was $26.94 as of March 31, 2015. The total intrinsic value of stock options exercised was $839,000, $3,251,000,
and $332,000 during fiscal 2015, 2014 and 2013, respectively. As of March 31, 2015, there are no options available for future grants under the
two stock option plans.
The grant date fair value of options that vested was $8.52, $8.11, and $9.21 during fiscal 2015, 2014 and 2013, respectively.
Cash received from option exercises under all share-based payment arrangements during fiscal 2015 and 2014 was approximately $1,607,000
and $2,194,000, respectively. Proceeds from the exercise of stock options under stock option plans are credited to common stock at par value
and the excess is credited to additional paid-in capital.
As of March 31, 2015, $1,861,000 of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a
weighted-average period of approximately 2.5 years.
Exercise prices for options outstanding as of March 31, 2015, ranged from $13.10 to $28.45. The following table provides certain information
with respect to stock options outstanding at March 31, 2015 :
Range of Exercise Prices
$10.01 to 20.00
$20.01 to 30.00
Stock Options
Outstanding
Weighted-average
Exercise Price
Weighted-average
Remaining
Contractual Life
458,159
153,990
612,149
$
$
16.34
26.36
18.86
6.1
7.38
6.42
The following table provides certain information with respect to stock options exercisable at March 31, 2015 :
Range of Exercise Prices
$10.01 to $20.00
$20.01 to $30.00
Stock Options
Outstanding
Weighted- average
Exercise Price
272,168
37,267
309,435
$
$
16.08
24.14
17.05
73
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The fair value of stock options granted was estimated on the date of grant using a Black-Scholes option pricing model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price
volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted-average grant date fair value of the
options was $10.67, $8.98, and $6.70 for options granted during fiscal 2015, 2014 and 2013, respectively. The following table provides the
weighted-average assumptions used to value stock options granted during fiscal 2015, 2014 and 2013 :
Assumptions:
Risk-free interest rate
Dividend yield
Volatility factor
Expected life
Year Ended
March 31,
2015
Year Ended
March 31,
2014
Year Ended
March 31,
2013
0.70 %
0.6 %
0.453
5.5 years
0.41 %
— %
0.533
5.5 years
0.42 %
— %
0.566
5.5 years
To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods that
correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of
grant for the appropriate term of the options granted. Expected dividends are based on the Company's history and expectation of dividend
payouts. The expected term of stock options is based on vesting schedules, expected exercise patterns and contractual terms.
Restricted Stock Units
The Company granted restricted stock units under the LTIP during fiscal 2015, 2014 and 2013 to employees as well as to the Company’s
non-executive directors as part of their annual compensation. Restricted shares for employees vest ratably based on service one-third after each
of years three, four, and five.
A summary of the restricted stock unit awards granted under the Company’s LTIP plan as of March 31, 2015 is as follows:
Unvested at April 1, 2012
Granted
Vested
Forfeited
Unvested at March 31, 2013
Granted
Vested
Forfeited
Unvested at March 31, 2014
Granted
Vested
Forfeited
Unvested at March 31, 2015
74
Shares
170,600
99,795
(58,539 )
(8,212 )
203,644
97,095
(89,729 )
(10,416 )
200,594
85,821
(91,439 )
(13,961 )
181,015
$
$
Weighted-average
Grant Date
Fair Value
17.60
14.18
17.51
18.30
15.95
20.70
17.51
16.37
17.53
26.38
19.03
17.16
20.99
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Total unrecognized compensation cost related to unvested restricted stock units as of March 31, 2015 is $2,314,000 and is expected to be
recognized over a weighted average period of 2.9 years. The fair value of restricted stock units that vested during the year ended March 31,
2015 and 2014 was $1,740,000 and $1,571,000, respectively.
Performance Shares
The Company granted performance shares under the LTIP during fiscal 2015, 2014, and 2013. Fiscal year 2015 performance shares granted are
based upon the Company’s Consolidated Net Revenue for the two year period ended March 31, 2016. Fiscal 2014 and 2013 performance
shares granted are based upon the Company’s adjusted earnings before interest and taxes (EBIT) for the one year periods ended March 31,
2014 and 2013, respectively. Fiscal year 2015, 2014, and 2013 performance based nonvested shares are recognized as compensation expense
based upon the award earned and the fair market value as of March 31, 2015, 2014, and 2013 respectively. This expense is recognized ratably
over the three year period that these shares are restricted.
A summary of the performance shares transactions during each of the three fiscal years in the period ended March 31, 2015 is as follows:
Unvested at April 1, 2012
Granted
Forfeited
Unvested at March 31, 2013
Granted
Unvested at March 31, 2014
Granted
Vested
Forfeited
Unvested at March 31, 2015
Shares
95,118
61,106
(52,360 )
103,864
46,327
150,191
35,001
(37,627 ) $
(34,118 ) $
113,447
$
$
Weighted-average
Grant Date
Fair Value
23.36
19.25
21.90
21.47
26.79
23.11
27.12
24.65
24.74
23.35
Total unrecognized compensation costs related to the unvested performance share awards as of March 31, 2015 was $942,000 and is expected
be recognized over a weighted average period of 1.8 years. The fair value of performance shares that vested during the year ended March 31,
2015 was $928,000 and $0 both years ended March 31, 2014 and 2013.
Restricted Stock
The Company maintained a Restricted Stock Plan. The Company charges compensation expense and shareholders’ equity for the market value
of shares ratably over the restricted period. Grantees that remain continuously employed with the Company become vested in their shares five
years after the date of the grant. As of March 31, 2015, there were no shares available for future grants under the Restricted Stock Plan and no
further outstanding grants.
No restricted stock was granted in fiscal 2015, 2014, or 2013. During fiscal year 2013, 1,000 shares of restricted stock with a grant date fair
value of $30.72 vested.
Directors Stock
During fiscal 2015, 2014 and 2013, a total of 17,304, 12,642, and 25,552 shares of stock, respectively, were granted under the LTIP to the
Company’s non-executive directors as part of their annual compensation. The weighted average fair value grant price of those shares was
$25.43, $24.92, and $14.09 for fiscal 2015, 2014 and 2013, respectively. The expense related to the shares for fiscal 2015, 2014 and 2013 was
$440,000, $315,000, and $361,000, respectively.
75
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Shareholder Rights Plan
On May 19, 2009 the Company announced that its Board of Directors had adopted a Shareholder Rights Plan, pursuant to which a dividend
distribution was declared of one preferred share purchase right to each outstanding common share of the Company. Subject to limited
exceptions, the rights will be exercisable if a person or group acquires 20% or more of the Company’s common shares or announces a tender
offer for 20% or more of the common shares. Under certain circumstances, each right will entitle shareholders to buy one one-thousandth of a
share of the newly created series A junior participating preferred shares of the Company at an exercise price of $80.00 per share.
Dividends
On March 30, 2015 the Company's Board of Directors approved payment of a quarterly dividend of $0.04 per common share, representing an
annual dividend rate of $0.16 per share. The dividend was paid on May 18, 2015 to shareholders of record on May 8, 2015.
16. 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.
Accrued general and product liability costs are the actuarially estimated reserves based on amounts determined from loss reports, individual
cases filed with the Company, and an amount for losses incurred but not reported. The aggregate amounts of reserves were $12,530,000 and
$14,480,000 as of March 31, 2015 and 2014, respectively. The liability for accrued general and product liability costs are funded by
investments in marketable securities (see Notes 2 and 7).
The following table provides a reconciliation of the beginning and ending balances for accrued general and product liability:
Accrued general and product liability, beginning of year
Add provision for claims
Deduct payments for claims
Accrued general and product liability, end of year
$
$
Year Ended March 31,
2014
2015
$
14,480
3,726
(5,676 )
12,530
$
$
17,119
3,292
(5,931 )
14,480
$
2013
20,536
2,185
(5,602 )
17,119
The per occurrence limits on the 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 2015.
76
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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 its 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 its 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
2016.
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.
Based on actuarial information, the Company has estimated its asbestos-related aggregate liability including related legal costs to range
between $6,700,000 and $11,200,000 using actuarial parameters of continued claims for a period of 37 years from March 31, 2015. The
Company's estimation of its asbestos-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted
accounting principles approximates $8,065,000, which has been reflected as a liability in the consolidated financial statements as of March 31,
2015. The recorded liability does not consider the impact of any potential favorable federal legislation. This liability will fluctuate based on the
uncertainty in the number of future claims that will be filed and the cost to resolve those claims, which may be influenced by a number of
factors, including the outcome of the ongoing broad-based settlement negotiations, defensive strategies, and the cost to resolve claims outside
the broad-based settlement program. Of this amount, management expects to incur asbestos liability payments of approximately $2,000,000
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 effect on the financial condition of the Company or its liquidity, although the effect of any
future liabilities recorded could be material to earnings in a future period.
The Company is also involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these
unresolved actions involve disputes related to product design, manufacture and performance liability. The Company's estimation of its
product-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted accounting principles
approximates $4,465,000, which has been reflected as a liability in the consolidated financial statements as of March 31, 2015. In some cases,
we cannot reasonably estimate a range of loss because there is insufficient information regarding the matter. Management believes that the
potential additional costs for claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect
of any future liabilities recorded could be material to earnings in a future period.
77
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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 differences were as follows:
Year Ended March 31,
2014
2015
$
12,605
721
(2,471 )
(264 )
(18 )
—
(1,641 )
(107 )
8,825
$
$
14,953
1,119
(2,284 )
(384 )
(1,563 )
1,440
(521 )
(459 )
12,301
$
2013
14,919
284
(1,909 )
153
(48,985 )
—
(166 )
30
(35,674 )
Year Ended March 31,
2014
2015
2013
$
2,853
257
3,641
$
2,585
701
3,984
525
346
5,502
5,098
(3,024 )
8,825
$
6,587
(1,556 )
12,301
$
(40,868 )
(1,179 )
(35,674 )
Expected tax at 35%
State income taxes net of federal expense (benefit)
Foreign taxes less than statutory federal rate
Permanent items
Valuation allowance
Expiration of foreign tax credits
Research and development credits
Other
Actual tax provision expense (benefit)
The provision for income tax expense (benefit) consisted of the following:
Current income tax expense (benefit):
United States Federal
State taxes
Foreign
Deferred income tax expense (benefit):
United States
Foreign
$
$
$
$
78
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company applies the liability method of accounting for income taxes as required by ASC Topic 740, “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:
Deferred tax assets:
State and foreign net operating loss carryforwards
Employee benefit plans
Insurance reserves
Accrued vacation and incentive costs
Federal tax credit carryforwards
Equity compensation
Other
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities:
Property, plant, and equipment
Intangible assets
Total deferred tax liabilities
Net deferred tax assets (liabilities)
March 31,
2015
2014
$
6,283
21,641
5,661
3,516
2,134
2,496
3,814
(1,977 )
43,568
(3,568 )
(5,949 )
(9,517 )
34,051
$
5,495
13,221
6,185
3,516
2,543
2,468
4,337
(2,361 )
35,404
(3,421 )
(6,556 )
(9,977 )
25,427
$
$
The gross amount of the Company’s deferred tax assets were $45,545,000 and $37,765,000 at March 31, 2015 and 2014, respectively.
The Company had a valuation allowance of $53,325,000 recorded as of March 31, 2012 due to the uncertainty of whether the Company's net
operating loss carryforwards and deferred tax assets might ultimately be realized. The Company was able to utilize $14,567,000 of U.S. federal
net operating loss carryforwards in fiscal 2013 which reduced the valuation allowance by $5,107,000. As a result of the improved
operating performance of
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 certain U.S.
federal tax credit carryforwards, a significant portion of the remaining U.S. valuation allowance totaling $49,161,000 was reversed in fiscal
2013.
the Company reevaluated the certainty as
the past several years,
the Company over
The valuation allowance includes $1,207,000, $1,976,000 and $1,660,000 related to foreign net operating losses at March 31, 2015, 2014 and
2013, respectively. The decrease in the foreign valuation allowance is primarily due to the reversal of a valuation allowance at one of the
Company's subsidiaries. The Company’s foreign subsidiaries have net operating loss carryforwards that range from five years to indefinite.
The state net operating losses have expiration dates ranging from 2021 through 2034. The federal tax credits have indefinite expiration dates.
79
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Deferred income taxes are classified within the consolidated balance sheets based on the following breakdown:
Net current deferred tax assets
Net current deferred tax liabilities
Net non-current deferred tax assets
Net non-current deferred tax liabilities
Net deferred tax assets (liabilities)
March 31,
2015
2014
$
8,300
(158 )
28,695
(2,786 )
34,051
$
8,312
(324 )
23,406
(5,967 )
25,427
$
$
The net current deferred tax assets are included in prepaid expenses. The net current deferred tax liabilities are included in accrued liabilities.
Net non-current deferred tax liabilities are included in other non-current liabilities.
Income from continuing operations before income tax expense includes foreign subsidiary income of $10,570,000, $11,459,000, and
$18,322,000 for the years ended March 31, 2015, 2014, and 2013, respectively. As of March 31, 2015, the Company had unrecognized deferred
tax liabilities related to approximately $122,000,000 of cumulative undistributed earnings of foreign subsidiaries. These earnings are
considered to be permanently invested in operations outside the United States. Determination of the amount of unrecognized deferred U.S.
income tax liability with respect to such earnings is not practicable.
There were shares of common stock issued through restricted stock units, the exercise of non-qualified stock options, or through the
disqualifying disposition of incentive stock options in the years ended March 31, 2015 and 2014. The tax effects to the Company from these
transactions, recorded in additional paid-in capital rather than recognized as an increase in (reduction to) income tax expense, were $(65,000)
and $613,000 in fiscal 2015 and 2014, respectively. The fiscal 2015 tax shortfall was also recognized in the consolidated balance sheet as a
decrease in deferred tax assets.
Changes in the Company’s uncertain income tax positions, excluding the related accrual for interest and penalties, are as follows:
2015
2014
2013
Beginning balance
Additions for prior year tax positions
Additions for current year tax positions
Reductions for prior year tax positions
Settlements
Foreign currency translation
Lapses in statutes of limitation
Ending balance
$
$
2,357
—
—
(198 )
(50 )
(276 )
—
1,833
1,986
754
828
—
—
42
(1,253 )
2,357
$
$
$
$
2,428
—
334
(702 )
(30 )
(44 )
—
1,986
The Company had $200,000 and $214,000 accrued for the payment of interest and penalties at March 31, 2015 and 2014, respectively. The
Company recognizes interest expense or penalties related to uncertain tax positions as a part of income tax expense in its consolidated
statements of operations.
All of the unrecognized tax benefits as of March 31, 2015 would impact the effective tax rate if recognized.
The Company and its subsidiaries file income tax returns in the U.S., various state, local, and foreign jurisdictions. The Internal Revenue
Service has completed an examination of the Company’s U.S. income tax returns for fiscal 2009 and 2010 resulting in no adjustments. Current
examinations include various state audits and the ongoing audit of the German tax returns for fiscal years 2008 through 2011.
80
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company’s major tax jurisdictions are the United States and Germany. With few exceptions, the Company is no longer subject to tax
examinations by tax authorities in the United States for tax years prior to March 31, 2012 and in Germany for tax years prior to March 31,
2009.
The Company does not anticipate that total unrecognized tax benefits will change significantly due to the settlement of audits or the expiration
of statutes of limitation prior to March 31, 2016.
18. Rental Expense and Lease Commitments
Rental expense for the years ended March 31, 2015, 2014, and 2013 was $5,229,000, $5,397,000, and $5,811,000, respectively. The following
amounts represent future minimum payment commitments as of March 31, 2015 under non-cancelable operating leases extending beyond one
year:
Year Ended March 31,
2016
2017
2018
2019
2020
Thereafter
Total
19. Business Segment Information
Real Property Vehicles/Equipment
Total
4,262
3,771
3,501
2,622
2,341
12,570
29,067 $
$
1,310
1,033
617
292
186
—
3,438
5,572
4,804
4,118
2,914
2,527
12,570
32,505
$
ASC Topic 280, “Segment Reporting,” establishes the standards for reporting information about operating segments in financial statements.
The Company has one operating and reportable segment for both internal and external reporting purposes.
Financial information relating to the Company’s operations by geographic area is as follows:
Net sales:
United States
Europe
Canada
Other
Total
Year Ended March 31,
2014
2015
2013
$
$
345,244 $
161,620
21,731
51,048
579,643 $
338,744 $
171,605
21,723
51,218
583,290 $
353,565
173,851
21,637
48,210
597,263
Note: Net sales to external customers are attributed to geographic areas based upon the location from which the product was shipped from the
Company to the customer.
81
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Total assets:
United States
Europe
Canada
Other
Total
Long-lived assets:
United States
Europe
Other
Total
Year Ended March 31,
2014
2015
2013
$
$
304,888 $
208,015
8,055
45,366
566,324 $
374,033 $
156,101
15,635
52,905
598,674 $
365,497
136,493
26,952
37,925
566,867
Year Ended March 31,
2014
2015
2013
$
$
142,241 $
79,496
9,955
231,692 $
142,409 $
65,994
10,429
218,832 $
123,138
56,633
4,676
184,447
Note: Long-lived assets include net property, plant, and equipment and goodwill and other intangibles, net.
Sales by major product group are as follows:
Hoists
Chain and rigging tools
Industrial cranes
Actuators and rotary unions
Other
Total
Year Ended March 31,
2014
400,565 $
76,112
18,502
78,642
9,469
583,290 $
2015
393,571 $
76,604
26,595
72,021
10,852
579,643 $
$
$
2013
375,208
90,428
41,259
80,028
10,340
597,263
82
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
20. Selected Quarterly Financial Data (Unaudited)
Below is selected quarterly financial data for fiscal 2015 and 2014 :
Net sales
Gross profit
Income from operations
Net income
Net income per share – basic
Net income per share – diluted
Net sales
Gross profit
Income from operations
Net income
Net income per share – basic
Net income per share – diluted
June 30, 2014
$
142,932 $
45,565
13,006
6,733 $
Three Months Ended
September 30,
2014
December 31,
2014
146,991 $
47,156
16,134
10,599 $
140,791 $
43,409
12,615
7,861 $
March 31,
2015
148,929
45,477
12,893
1,997
$
$
$
$
$
$
$
0.34 $
0.34 $
0.53 $
0.39 $
0.53 $
0.39 $
0.10
0.08
June 30,
2013
138,891 $
43,491
13,436
7,020 $
Three Months Ended
September 30,
2013
December 31,
2013
138,852 $
44,260
12,286
7,122 $
145,072 $
42,997
11,101
6,664 $
March 31,
2014
160,475
50,300
17,527
9,615
0.36 $
0.35 $
0.36 $
0.34 $
0.36 $
0.33 $
0.49
0.48
83
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
21. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss is as follows:
Foreign currency translation adjustment – net of tax
Pension liability – net of tax
Postretirement obligations – net of tax
Split-dollar life insurance arrangements – net of tax
Derivatives qualifying as hedges – net of tax
Net unrealized investment gain – net of tax
Accumulated other comprehensive loss
March 31,
2015
(24,635 ) $
(65,995 )
(240 )
(1,904 )
(533 )
859
(92,448 ) $
2014
5,272
(46,271 )
131
(1,837 )
(199 )
1,768
(41,136 )
$
$
The deferred taxes related to the adjustments associated with the items included in accumulated other comprehensive loss, net of deferred tax
asset valuation allowances, were $13,406,000, $8,992,000, and $(216,000) for 2015, 2014, and 2013 respectively. Refer to Note 17 for
discussion of the deferred tax asset valuation allowance. In the period subsequent to our initial recording of the valuation allowance in fiscal
2011, increases and decreases to both the deferred tax assets associated with items in accumulated other comprehensive loss, and the valuation
allowance, have been recorded as offsets to comprehensive income.
As a result of the recording of a deferred tax asset valuation allowance in fiscal 2011, the Company recorded as an offsetting entry a
$10,006,000 charge in the minimum pension liability component, $(935,000) charge in the other post retirement obligations component,
$747,000 charge in the split dollar life insurance arrangement component, and a $557,000 charge in the net unrealized investment gain
component of other comprehensive income. With the reversal of that valuation allowance in fiscal 2013, the Company recorded the reversal of
the valuation allowance as a reduction of income taxes in the consolidated statement of operations. This is in accordance with ASC Topic 740,
“Income Taxes,” even though the valuation allowance was initially established by a charge against comprehensive income. These amounts will
remain indefinitely as a component of minimum pension liability adjustment.
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, the Company recorded the reversal of the valuation allowance as a reduction of income taxes in the consolidated statement of operations.
This is in accordance with ASC Topic 740, “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 are as follows (all items
shown net of tax):
Year Ended March 31,
2014
2015
2013
Net unrealized investment gain (loss) at beginning of year
Unrealized holdings gain arising during the period
Reclassification adjustments for gain included in earnings
Net change in unrealized gain (loss) on investments
Net unrealized investment gain at end of year
$
$
84
$
1,768
433
(1,342 )
(909 )
859
$
$
2,808
395
(1,435 )
(1,040 )
1,768
$
2,580
725
(497 )
228
2,808
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Changes in accumulated other comprehensive income by component for the year ended March 31, 2015 are as follows (in thousands):
Beginning balance net of tax
Other comprehensive income (loss) before
reclassification
Amounts reclassified from other
comprehensive loss
Net current period other comprehensive
(loss) income
Ending balance
March 31, 2015
Unrealized
Investment
Gain
1,768
$
Retirement
Obligations
(47,977 )
Foreign
Currency
5,272
$
$
$
Change in
Derivatives
Qualifying as
Hedges
(199 )
433
(1,342 )
(22,487 )
(29,907 )
2,325
—
$
(909 )
859
$
(20,162 )
(68,139 )
$
(29,907 )
(24,635 ) $
(356 )
22
(334 )
(533 )
$
Total
(41,136 )
(52,317 )
1,005
(51,312 )
(92,448 )
Details of amounts reclassified out of accumulated other comprehensive loss for the year ended March 31, 2015 are as follows (in thousands):
Details of AOCL Components
Unrealized gain on investments
Net amortization of prior service cost
Change in derivatives qualifying as hedges
Amount
reclassified from
AOCL
Affected line item on consolidated statement of
operations
$
$
$
$
$
$
(2,065 )
(2,065 )
723
(1,342 )
Investment income
Total before tax
Tax expense
Net of tax
3,577
3,577
1,252
2,325
(1)
Total before tax
Tax benefit
Net of tax
34
34
12
22
Cost of products sold
Total before tax
Tax benefit
Net of tax
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. (See Note
13 — Pensions and Other Benefit Plans for additional details.)
85
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
22. Effects of New Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The guidance also requires retrospective application to all prior periods presented.
ASU 2015-03 is effective for the first interim period for fiscal years beginning after December 15, 2015. The Company is evaluating the
potential impact of this adoption on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, "Amendments to the Consolidation Analysis." This update is intended to improve
certain areas of consolidation guidance by simplifying the consolidation evaluation process, and by placing more emphasis on risk of loss when
determining a controlling financial interest. The provisions of this ASU are effective for interim and annual periods beginning after December
15, 2015. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” ASU
2014-15 addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going
concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are
known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period
within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect that the
adoption of this guidance will have a material impact on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments
When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period." ASU 2014-12 requires
that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance
condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further
clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved
and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This ASU is
effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company does not
anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." ASU
2014-11 changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting,
which is consistent with the accounting for other repurchase agreements. ASU 2014-11 also requires new disclosures about transfers that are
accounted for as sales in transactions that are economically similar to repurchase agreements and increased transparency about the types of
collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. This ASU is effective for the first
interim or annual period beginning after December 15, 2014. The Company does not expect the adoption of this standard to have a material
impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 outlines a new, single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining
when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. This ASU is
effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating
the potential impact of this adoption on its consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an
Entity." ASU 2014-08 changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of
both discontinued operations and certain other disposals that do not meet the new definition. This ASU is effective prospectively for fiscal
years, and interim periods within those years, beginning after December 15, 2014. The Company does not expect the adoption of this standard
to have a material impact on its consolidated financial statements.
86
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or Tax Credit Carryforward Exists." ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward when settlement in this manner is available under the tax law. This ASU is effective prospectively for fiscal years, and interim
periods within those years, beginning after December 15, 2013. The adoption of this standard did not have a significant effect on the
Company's consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a
Foreign Entity.” This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its
investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a
business within a foreign entity. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after
December 15, 2013. The adoption of this standard did not have an effect on the Company's consolidated financial statements.
In February 2013, the FASB, issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability
Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date.” This ASU addresses the recognition,
measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other
contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods
within those years, beginning after December 15, 2013. The adoption of this standard did not have a significant effect on the Company's
consolidated financial statements.
87
COLUMBUS McKINNON CORPORATION
SCHEDULE II—Valuation and qualifying accounts
March 31, 2015, 2014 and 2013
Dollars in thousands
Additions
Charged
to Costs
and
Expenses
Charged
to Other
Accounts
Balance at
Beginning
of Period
Deductions
Balance
at End of
Period
$
$
2,323 $
2,361
4,684 $
$
876
(19 )
857
$
—
(365 )
(365 )
$
(3)
$
1,044
—
1,044
(1) $
$
2,155
1,977
4,132
$
14,480 $
3,726
$
—
$
5,676
(2) $
12,530
$
$
2,256 $
3,924
6,180 $
319
667
986
$
$
—
(2,230 )
(2,230 )
$
$
252
—
252
(1) $
$
2,323
2,361
4,684
$
17,119 $
3,292
$
—
$
5,931
(2) $
14,480
$
$
2,745 $
53,325
56,070 $
$
258
(48,985 )
(48,727 ) $
—
(416 )
(416 )
$
$
747
—
747
(1) $
$
2,256
3,924
6,180
$
20,536 $
2,185
$
—
$
5,602
(2) $
17,119
Description
Year ended March 31, 2015:
Deducted from asset accounts:
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Total
Reserves on balance sheet:
Accrued general and product liability costs
Year ended March 31, 2014:
Deducted from asset accounts:
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Total
Reserves on balance sheet:
Accrued general and product liability costs
Year ended March 31, 2013:
Deducted from asset accounts:
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Total
Reserves on balance sheet:
Accrued general and product liability costs
_________________
(1) Uncollectible accounts written off, net of recoveries
(2) Insurance claims and expenses paid
(3) Charged against accumulated other comprehensive loss
88
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, 2015, 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, 2015. There were no changes in our internal controls or in other factors during our fourth
quarter ended March 31, 2015.
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, 2015 based on the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 framework) (COSO). Based on that evaluation, our management concluded that our internal control over
financial reporting was effective as of March 31, 2015.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2015 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
The Company acquired 100% of the outstanding common shares of STB on December 30, 2014. STB was excluded from management’s
annual report on internal control over financial reporting as of March 31, 2015. The results of STB are included in the Company's fiscal 2015
consolidated financial statements and constituted $32,882,000 and $27,456,000 of total assets and net assets, respectively, as of March 31, 2015
and $3,571,000 and $(150,000) of net sales and net income (loss), respectively, for the year then ended.
Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will
prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
procedures.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the three months ended March 31, 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission issued an updated version of its Internal Control -
Integrated Framework ("2013 Framework"). Originally issued in 1992 ("1992 Framework"), the framework provides principles-based guidance
for designing and implementing effective internal controls. As of March 31, 2015, the Company continues to utilize the 1992 Framework.
89
The Board of Directors and Shareholders of Columbus McKinnon Corporation
Report of Independent Registered Public Accounting Firm
We have audited Columbus McKinnon Corporation’s internal control over financial reporting as of March 31, 2015, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) (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 included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, 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.
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.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Stahlhammer Bommern
GmbH (“STB”), which is included in the March 31, 2015 consolidated financial statements of Columbus McKinnon Corporation and
constituted $32,882,000 and $27,456,000 of total and net assets, respectively, as of March 31, 2015 and $3,571,000 and $(150,000) of net sales
and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Columbus McKinnon
Corporation also did not include an evaluation of the internal control over financial reporting of STB.
In our opinion, Columbus McKinnon Corporation maintained, in all material respects, effective internal control over financial reporting as of
March 31, 2015, 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 as of March 31, 2015 and 2014, and the related consolidated statements of operations,
comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2015 of Columbus
McKinnon Corporation, and our report dated May 28, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
May 28, 2015
90
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 31, 2015 and upon the filing of such Proxy Statement, is incorporated by reference herein.
The charters of our Audit Committee, Compensation and Succession Committee, and Governance and Nomination 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 31,
2015 and upon the filing of such Proxy Statement, is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding Security Ownership of Certain Beneficial Owners and Management and regarding equity compensation plan
incorporation will be included in a Proxy Statement to be filed with the Commission prior to July 31, 2015 and upon the filing of such Proxy
Statement, is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding Certain Relationships and Related Transactions will be included in a Proxy Statement to be filed with the
Commission prior to July 31, 2015 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 31, 2015 and upon the filing of such Proxy Statement, is incorporated by reference herein.
91
Item 15. Exhibits and Financial Statement Schedules
PART IV
(1)
Financial Statements:
The following consolidated financial statements of Columbus McKinnon Corporation are included in Item 8:
Reference
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets - March 31, 2015 and 2014
Consolidated statements of operations – Years ended March 31, 2015, 2014, and 2013
Consolidated Statements of Comprehensive Income (Loss)
Consolidated statements of shareholders’ equity – Years ended March 31, 2015, 2014 and 2013
Consolidated statements of cash flows – Years ended March 31, 2015, 2014, and 2013
Notes to consolidated financial statements
(2) Financial Statement Schedule:
Schedule II - Valuation and qualifying accounts
Page No.
38
39
40
41
42
43
44
Page No.
87
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
3.2
3.3
4.1
4.2
4.3
4.4
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).
Amended By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March
28, 2013).
Certificate of Amendment to the Restated Certificate of Incorporation of Columbus McKinnon Corporation, dated as of May 18, 2009
(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 18, 2009).
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.)
Rights Agreement, dated as of May 18, 2009, between Columbus McKinnon Corporation and American Stock Transfer & Trust
Company, LLC, which includes the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as
Exhibit C (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 18, 2009).
Indenture related to the Company’s 7.875% Senior Subordinated Notes due 2019 (incorporated by reference to exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on January 28, 2011)
Supplemental Indenture related to the Company’s subsidiary guarantors as defined in the Indenture agreement related to the Company’s
7.875% Senior Subordinated Notes due 2019 (incorporated by reference to exhibit 4.3 to the Company’s Current Report on Form 8-K filed
on January 28, 2011)
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#10.8
#10.9
#10.10
#10.11
#10.12
#10.13
#10.14
#10.15
#10.16
#10.17
#10.18
#10.19
#10.20
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
Amendment No. 13 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989,
dated December 19, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 28, 2008).
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).
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).
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).
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).
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).
93
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#10.33
#10.34
#10.35
#10.36
#10.37
#10.38
#10.39
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
Amendment No. 13 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 21, 2006
(incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended March, 31, 2007).
Amendment No. 14 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 21, 2007
(incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008).
Amendment No. 15 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated January 29, 2009
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 28,
2008).
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).
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).
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).
94
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#10.59
#10.60
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).
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).
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).
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).
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).
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).
Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated December
28, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2006).
Amendment No. 9 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated April 21,
2008 (incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008).
Amendment No. 10 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated
December 19, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended December 28, 2008).
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).
Columbus McKinnon Corporation 2006 Long Term Incentive Plan (incorporated by reference to Appendix A to the definitive Proxy
Statement for the Annual Meeting of Stockholders of Columbus McKinnon Corporation held on July 31, 2006).
Amendment No. 1 to the Columbus McKinnon Corporation 2006 Long Term Incentive Plan, dated December 30, 2008 (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 28, 2008).
Form of Change in Control Agreement as entered into between Columbus McKinnon Corporation and certain of its executive officers.
(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).
Form of Omnibus Code Section 409A Compliance Policy as entered into between Columbus McKinnon Corporation and certain of its
executive officers. (incorporated by reference to Appendix to the definitive Proxy Statement for the Annual Meeting of Stockholders of
Columbus McKinnon Corporation held on July 31, 2006).
Fourth amended and restated credit agreement dated as of December 31, 2009 (incorporated by reference to exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 14, 2010)
2010 Long Term Incentive Plan effective July 26, 2010 (incorporated by reference to Exhibit 4.1 of the Company’s S-8 filed on August 12,
2010.
First Amendment to the Company’s Fourth Amended and Restated Credit Agreement dated December 31, 2009. (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 26, 2010)
Second Amendment to the Company’s Fourth Amended and Restated Credit Agreement dated December 31, 2009. (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 22, 2010)
Third Amendment to the Company’s Fourth Amended and Restated Credit Agreement dated December 31, 2009. (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 20, 2011)
Fourth Amendment to the Company’s Fourth Amended and Restated Credit Agreement dated December 31, 2009. (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on February 15, 2012)
Amendment to the Company’s non-qualified deferred compensation plan, effective January 1, 2013. (incorporated by reference to Exhibit
5.02 of the Company’s Current Report on Form 8-K filed on July 19, 2012)
95
#10.61
#10.62
Fifth Amendment to the Company’s Fourth Amended and Restated Credit Agreement dated December 31, 2009. (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 24, 2012)
Credit agreement dated January 23, 2015. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
January 27, 2015)
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Independent Registered Public Accounting Firm.
*31.1 Certification of the principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
*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.
*101.INS XBRL Instance Document
*101.SCH XBRL Taxonomy Extension Schema Document
*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB XBRL Taxonomy Extension Label Linkbase Document
*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
# Indicates a Management contract or compensation plan or arrangement
96
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.
SIGNATURES
Date: May 28, 2015
COLUMBUS McKINNON CORPORATION
By:
/s/ Timothy T. Tevens
Timothy T. Tevens
President and Chief Executive Officer
(Principal 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.
97
Signature
Title
Date
/s/ Timothy T. Tevens
President, Chief Executive Officer and Director
May 28, 2015
(Principal Executive Officer)
Timothy T. Tevens
/s/ Gregory P. Rustowicz
Gregory P. Rustowicz
Vice President and Chief Financial Officer
(Principal Financial Officer)
May 28, 2015
/s/ Ernest R. Verebelyi
Chairman of the Board of Directors
May 28, 2015
May 28, 2015
May 28, 2015
May 28, 2015
May 28, 2015
May 28, 2015
May 28, 2015
May 28, 2015
Ernest R. Verebelyi
/s/ Richard H. Fleming
Director
Richard H. Fleming
/s/ Linda A. Goodspeed
Director
Linda A. Goodspeed
/s/ Liam G. McCarthy
Director
Liam G. McCarthy
/s/ Heath A. Mitts
Heath A. Mitts
Director
/s/ Nicholas T. Pinchuk
Director
Nicholas T. Pinchuk
/s/ Stephen Rabinowitz
Director
Stephen Rabinowitz
/s/ R. Scott Trumbull
Director
R. Scott Trumbull
98
Exhibit 21.1
COLUMBUS McKINNON CORPORATION
SUBSIDIARIES
(as of March 31, 2015)
CM Insurance Company, Inc. (US-NY)
Columbus McKinnon de Uruguay, S.A. (Uruguay)
Columbus McKinnon do Brazil Ltda. (Brazil)
Columbus McKinnon de Panama S.A. (Panama)
Crane Equipment & Service, Inc. (US-OK)
Unified Industries Inc. (US-MI)
Société d’Exploitation des Raccords Gautier (France)
Yale Industrial Products, Inc. (US-DE)
Egyptian-American Crane Co. (40% Joint Venture) (Egypt)
Yale Industrial Products Ltd. (England)
Columbus McKinnon Dutch Holdings 1 B.V. (The Netherlands)
Columbus McKinnon Dutch Holdings 2 B.V. (The Netherlands)
Columbus McKinnon Dutch Holdings 3 B.V. (The Netherlands)
Columbus McKinnon Limited (Canada)
Columbus McKinnon Asia Pacific Pte. Ltd. (Singapore)
Columbus McKinnon Asia Pacific Ltd. (Hong Kong)
Columbus McKinnon Industrial Products Co. Ltd. (China)
Columbus McKinnon (Hangzhou) Industries Co. Ltd. (China)
Yale Industrial Products Asia Co. Ltd. (Thailand)
Columbus McKinnon Singapore Pte. Ltd. (Singapore)
Columbus McKinnon EMEA GmbH (Germany)
Columbus McKinnon Industrial Products GmbH (Germany)
Columbus McKinnon Corporation Ltd. (England)
Columbus McKinnon France S.a.r.l. (France)
Columbus McKinnon Maghreb S.a.r.l AAU (Morocco)
Columbus McKinnon Italia S.r.l. (Italy)
Columbus McKinnon Ibérica S.L.U. (Spain)
Columbus McKinnon Benelux, B.V. (The Netherlands)
CMCO Material Handling (Pty), Ltd. (South Africa)
Yale Engineering Products (Pty.) Ltd. (South Africa)
Yale Lifting Solutions (Pty.) Ltd. (South Africa)
Pfaff Hoist & Rigging (Pty.) Ltd. (South Africa)
Columbus McKinnon Austria GmbH (Austria)
Hebetechnik Gesellschaft GmbH (Austria)
Columbus McKinnon Hungary Kft. (Hungary)
Columbus McKinnon Russia LLC (Russia)
Columbus McKinnon Kaldirma ESVT, Ltd. (Turkey)
Columbus McKinnon Industrial Products ME FZE (UAE)
Columbus McKinnon Polska Sp.z.o.o (Poland)
Columbus McKinnon Switzerland AG (Switzerland)
Columbus McKinnon Ireland, Ltd. (Ireland)
Stahlhammer Bommern GmbH (Germany)
Pfaff Beteiligungs GmbH (Germany)
Columbus McKinnon Engineered Products GmbH (Germany)
Pfaff Silberblau Utilaje de Ridicat si Transportat S.R.L. (Romania)
Verkehrstechnik Beteiligungs Gmbh (Germany)
Verkehrstechnik Gmbh & Co. KG (Germany)
Columbus McKinnon Latin America B.V. (The Netherlands)
Columbus McKinnon de Mexico, S.A. de C.V. (Mexico)
99
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-3212) pertaining to the Columbus McKinnon Corporation 1995 Incentive Stock Option Plan,
the Columbus McKinnon Corporation Non-Qualified Stock Option Plan, the Columbus McKinnon Corporation Restricted Stock Plan and
the Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 of Columbus McKinnon
Corporation,
(2) Registration Statement (Form S-8 No. 333-137212) pertaining to the Columbus McKinnon Corporation 2006 Long Term Incentive Plan,
(3) Registration Statement (Form S-8 No. 333-168777) pertaining to the Columbus McKinnon Corporation 2010 Long Term Incentive Plan,
and
(4) Registration Statement (Form S-3 No. 333-189924) of Columbus McKinnon Corporation and the related Prospectus;
of our reports dated May 28, 2015, with respect to the consolidated financial statements and schedule of Columbus McKinnon Corporation and
the effectiveness of internal control over financial reporting of Columbus McKinnon Corporation included in this Annual Report (Form 10-K)
for the year ended March 31, 2015.
/s/ Ernst & Young LLP
Buffalo, New York
May 28, 2015
100
I, Timothy T. Tevens, certify that:
1.
I have reviewed this report on Form 10-K of Columbus McKinnon Corporation;
CERTIFICATION
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter, the registrant’s fourth fiscal quarter in the case of an annual report, that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 28, 2015
/s/ TIMOTHY T. TEVENS
Timothy T. Tevens
Chief Executive Officer
(Principal Executive Officer)
101
I, Gregory P. Rustowicz, certify that:
1.
I have reviewed this report on Form 10-K of Columbus McKinnon Corporation;
CERTIFICATION
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter, the registrant’s fourth fiscal quarter in the case of an annual report, that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: May 28, 2015
/s/ GREGORY P. RUSTOWICZ
Gregory P. Rustowicz
Chief Financial Officer
(Principal Financial Officer)
102
CERTIFICATION
Exhibit 32.1
Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report of Columbus McKinnon Corporation (the "Company") on Form 10-K for the year ended
March 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information
contained in the such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and result of operations of
the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: May 28, 2015
/s/ TIMOTHY T. TEVENS
Timothy T. Tevens
Chief Executive Officer
(Principal Executive Officer)
/s/ GREGORY P. RUSTOWICZ
Gregory P. Rustowicz
Chief Financial Officer
(Principal Financial Officer)
103
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SHAREHOLDER AND CORPORATE INFORMATION
Common Stock
Columbus McKinnon’s common stock is traded
on NASDAQ under the symbol CMCO. As of
June 1, 2015, there were 508 shareholders of
record and, as of May 26, 2015, there were
20,067,724 total shares of common stock
outstanding. According to SEC filings as of
March 31, 2015, there were 133 institutional
and mutual fund investors who own approximately
93.3% of Columbus McKinnon’s outstanding
common shares.
Annual Meeting of Shareholders
July 27, 2015
10:00 a.m. Central Time
The Ritz-Carlton Chicago
160 E. Pearson Street at Water Tower Place
Chicago, Illinois
Transfer Agent
Please direct questions about lost certificates,
change of address and consolidation of accounts
to the Company’s transfer agent and registrar:
American Stock Transfer & Trust Company
620 15th Avenue
Brooklyn, New York 11219
800-937-5449
718-921-8124
www.amstock.com
Corporate Headquarters
Columbus McKinnon Corporation
140 John James Audubon Parkway
Amherst, New York 14228-1197
716-689-5400
www.cmworks.com
Investor Relations
Gregory P. Rustowicz
Vice President and Chief Financial Officer
Columbus McKinnon Corporation
716-689-5442
greg.rustowicz@cmworks.com
Deborah K. Pawlowski
Kei Advisors LLC
716-843-3908
dpawlowski@keiadvisors.com
Investor information is available on the
Company’s website: www.cmworks.com
Independent Auditors
Ernst & Young LLP
1500 Key Tower
50 Fountain Plaza
Buffalo, New York 14202-2297
Reconcilation of GAAP Net Income to Non-GAAP Adjusted Net Income
Year Ended March 31,
2015
2014
2013
2012
2011
$
$
27,190
per
share
$
1.34
$
$
30,421
per
share
$
1.52
$
$
78,296
per
share
$
3.98
$
$
26,967
per
share
$
1.38
$
$
(35,950)
per
share
$
(1.89)
461
1,208
5,997
-
-
-
-
-
-
-
(1,979)
0.02
0.06
0.30
-
-
-
-
-
-
-
(0.09)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,160
-
-
-
-
-
-
(516)
0.06
-
-
-
-
-
-
(0.02)
-
-
-
-
-
-
-
(48,461)
-
-
-
-
-
-
-
(2.46)
-
(630)
770
(1,050)
-
-
(1,052)
(2,947)
-
(0.03)
0.04
(0.05)
-
-
(0.05)
(0.16)
-
-
-
-
2,030
4,340
(396)
39,892
-
-
-
-
0.11
0.23
(0.02)
2.09
$
32,877
$
1.63
$
31,065
$
1.56
$
29,835
$
1.52
$
22,058
$
1.13
$
9,916
$
0.52
Net Income
Add back:
Acquisition inventory step-up expense and
real estate transfer taxes*
European facility consolidation costs*
Debt refinancing costs*
Atypical merger & acquisition expense*
Remeasurement of investment*
Pension curtailment charge *
Gain on asset sale *
Unusual product liability claims*
Restructuring-related costs*
Income from discontinued operations
Normalized 30% tax rate
Non-GAAP adjusted net income from
continuing operations
*Net of normalized 30% tax rate
Forward-Looking Information
The Columbus McKinnon annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include,
but are not limited to, statements concerning future revenue and earnings, involve known and unknown risks, uncertainties and other factors that could cause the actual results of the
Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served
by the Company and its subsidiaries, conditions affecting the Company’s customers and suppliers, competitor responses to the Company’s products and services, the overall market
acceptance of such products and services and other factors disclosed in the Company’s periodic reports filed with the Securities and Exchange Commission. The Company assumes
no obligation to update the forward-looking information contained in this report.
140 John James Audubon Parkway
Amherst, New York 14228-1197
General 716-689-5400 | Investor Relations 716-689-5442
cmworks.com | NASDAQ: CMCO