FISCAL YEAR 2018 ANNUAL REPORT
Material Handling - Easily and Safely
Columbus McKinnon (NASDAQ: CMCO) is a leading worldwide designer,
manufacturer and marketer of motion control products, technologies, systems
and services that efficiently and ergonomically move, lift, position and secure
materials.
Headquartered in Buffalo, New York, our key products include hoists, cranes,
actuators, rigging tools, light rail work stations, and digital power and motion
control systems. We are focused on commercial and industrial applications
that require the safety and quality provided by our superior design and
engineering know-how.
Financial Summary
(in thousands, except per share, margin and ratio data)
Fiscal Year Ended March 31,
2018
2017
2016
2015
2014
Income Statement Data
Net sales
Gross profit
Gross margin
Income from operations
Operating margin
Net income
Net income per diluted share
Non-GAAP adjusted net income per diluted share1
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
Operating cash flow
Depreciation and amortization
Capital expenditures
Working capital (excl. cash and debt)/sales 2 3 4
Days sales outstanding 4
Inventory turns 4
Employees
$
839,419
284,574
$
637,123
192,932
$
597,103
187,263
33.9 %
70,099
8.4 %
22,065
0.95
2.01
$
$
30.3 %
25,973
4.1 %
8,984
0.43
1.47
$
$
$ 1,142,446
734,217
363,318
300,297
408,229
$
$ 1,113,843
772,493
421,319
343,728
341,350
$
47.1 %
42.4 %
55.2 %
50.2 %
$
$
69,661
36,136
(14,515)
$
$
60,450
25,162
(14,368)
17.9 %
54.3
3.7
3,328
18.6 %
46.2
4.1
3,380
$
$
$
$
$
$
31.4 %
40,570
6.8 %
19,579
0.96
1.72
772,851
486,542
267,632
216,029
286,309
48.3 %
43.0 %
52,645
20,531
(22,320)
21.5 %
49.2
3.6
2,896
$
$
$
$
$
$
$
579,643
181,607
31.3 %
54,648
9.4 %
27,190
1.34
1.81
566,324
297,605
126,712
63,656
268,719
32.0 %
19.2 %
38,254
14,562
(17,243)
20.8 %
49.2
4.0
2,747
$
$
$
$
$
$
$
583,290
181,048
31.0 %
54,350
9.3 %
30,421
1.52
1.74
598,674
307,388
152,293
39,984
291,286
34.3 %
12.1 %
29,507
13,380
(20,846)
21.7 %
52.9
4.5
2,626
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/sales excludes the impact of the Stahlhammer Bommern acquisition, which closed on Decemb er 30, 2014.
3 FY2016 working capital/sales excludes the impact of the Magnetek acquisition, which closed on Septemb er 2, 2015.
4 FY2017 working capital/sales, days sales outstanding and inventory turns exclude the impact of the STAHL acquisition, which closed on January 31, 2017.
Sales by Geographic Market
Sales by Product Category
Latin America &
Asia Pacific
Canada
4%
10%
Engineered
Products
~10%
Europe,
Middle
East &
Africa
33%
53%
U.S.
Crane
Solutions
~45%
~45%
Industrial
Products
FY2018 Sales: $839.4 million
Industrial Products
• Manual Chain Hoist
• Electric Chain Hoist
• Rigging / Clamps
• Industrial Winches
• High Capacity Hooks
Crane Solutions
• Cranes, Wire Rope Hoists
• Drives and Controls
• Crane Kits & Components
• Jibs, Workstations
Engineered Products
• Linear & Mechanical Actuators
• Lifting Tables
• Rail & Road Lifting Systems
• Actuation Systems
Backlog
(in millions)
Cash Flow
from Operations
(in millions)
Total Debt,
Net of Cash
(in millions)
$177.4
$154.5
$69.7
$60.5
$52.6
$343.7
$300.3
$216.0
$98.6
$86.8 $85.2
$38.3
$29.5
$63.7
$40.0
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
Dear Shareholders,
We had an exceptionally strong year in fiscal 2018, supported by healthy industrial conditions globally
and the actions we took to regain market share and drive growth. Revenue was up 32% to $839 million,
including the acquisition of STAHL CraneSystems, which closed in January 2017. Organic revenue
growth, excluding the impact of foreign currency exchange, was a notable 7%.
Solid execution drove margin expansion as well. Adjusted operating margin1 expanded to 9.6%
compared with 7.8% in the prior year. Net income was $22.1 million. Excluding the impact related to
the acquisition, changes in the tax law and other unusual items, adjusted net income2 was up 52% to
$46.8 million. On a per diluted share basis, adjusted net income was $2.01, up from $1.47 in fiscal 2017.
Empowering our improvements was the decision to narrow our focus in fiscal 2018 to the areas that
would deliver the best results for us:
(cid:120) STAHL value creation: We exceeded our goal of $5 million in synergies.
(cid:120) Leverage Magnetek technology: We launched the full-featured Lodestar smart hoist, ideally
suited to address the industrial automation trend.
(cid:120) Strengthen our core: We improved product availability and reduced lead times.
(cid:120) Pay down debt: We surpassed our initial $45 million to $50 million goal and paid down
$60 million in debt, reducing our net leverage ratio to 2.6x at fiscal year-end.
Importantly, we established our business operating system: E-PAS™ (Earnings Power Acceleration
System). A critical element of strengthening our core, E-PAS enabled decision-making that both
facilitated growth at a faster pace than the market and better conversion to the bottom line.
Building a Better Business Model: Blueprint 2021
We offer a strong value proposition. We hold the leading position in attractive end markets in the U.S.
and Latin America, and are not far behind the leaders in Europe. Our brands are trusted in the markets
we serve and provide exceptionally strong customer retention. However, to create a business model
that provides a stronger earnings profile and opportunity for greater growth, we needed a roadmap that
will lead to a more customer-focused organization, creating greater value for our shareholders.
With the introduction of our new strategy, Blueprint 2021, we have set the direction for furthering our
pivot into an industrial technology company through a three-phased process. Our strategy is to
transform into a high-performing industrial technology company and to increase our earnings power
by self-funding select key initiatives.
Phase I: Get Control and Achieve Results delivered the outstanding results of fiscal 2018, which
were a validation of our overall strategy and an indication of the strength of our approach.
Phase II is focused on Operational Excellence and Profitable Growth. We initiated actions under
this phase in the latter half of fiscal 2018. Activities in fiscal 2019 will be focused on this phase.
Phase III of the plan is about Business Development. Our vision is to become a leading industrial
technology company in intelligent, safe and productive motion control. During this phase, we will
assess our current product portfolio and identify where we can be an active consolidator of fragmented
1 See the reconciliation of non-GAAP operating income and margins to GAAP operating income and margins in
the tables included in this annual report.
2 See the reconciliation of non-GAAP net income to GAAP net income in the tables included in this annual report.
niche markets for the positioning and control of materials. This phase will include the disposition of
assets that are not aligned with our vision or business profile.
Advancing Phase II: Four Focus Areas for Fiscal 2019
1.
Simplify the business: In November 2017, we restructured the Company into three product
groups. We looked from the customer back to assess how we can be more responsive to
customers and be in the best position to identify solutions that address their most challenging
problems in motion control for material handling. Encompassing our global focus, our new
structure is comprised of the following:
o
Industrial Products
o Crane Solutions
o Engineered Products
We plan to further simplify our business through product line and platform rationalization. We
currently support an overly complicated product offering that has been put together over many
years from the consolidation of the hoist industry, especially in the U.S. In fact, the proliferation of
our products is confusing to our customers and has driven a higher cost structure. As an example
of simplification, we expect to leverage a global wire rope hoist platform to streamline our products,
which we believe will resonate well with our customers and capture greater market share.
Success will be recognized by achieving EBITDA3 margins greater than 15% throughout market
cycles and delivering returns on invested capital in the double digits.
Improve productivity: We plan to exceed our original objective of $11 million in synergies from
the STAHL acquisition and provide an incremental $4 million in annual savings. By simplifying
the organization and leveraging STAHL’s product platform and go-to-market strategy, we expect
to achieve our $15 million goal while creating a more profitable business model.
This effort should result in lower material costs, reduced labor requirements, improved working
capital utilization and shortened product lead times. We believe that expanding gross margin
and free cash flow will validate our success in this focus area.
Ramp the growth engine: Future growth will be driven by focusing on solving tough customer
problems. To do a good job of addressing customer needs, we must leverage online resources
for ease of doing business. We will also incorporate relevant technologies that enable higher
yield, better productivity and improved safety. This includes how we go to market, how we
interface with customers, and the value added capabilities of the products we develop. This has
everything to do with investing in the right technologies and positioning the business for growth.
Our measure of success will be in the level and quality of inquiries, our response time with
quotes, and the contribution of new products and engineered-to-order products to sales growth.
Transform the culture: Columbus McKinnon is undergoing significant change and this
involves a great deal of commitment by our team. We have defined our mission and vision, and
established new values that we must embrace to fully execute our strategy. While it may
appear simple, the intensity to affect this change is not easy, although we are making excellent
progress. We applaud our team for their effort and dedication to the Company, to our
customers and to the strong legacy of value that Columbus McKinnon represents.
2.
3.
4.
3 EBITDA is defined as adjusted earnings before interest, taxes and depreciation and amortization.
We expect fiscal 2019 to be another strong year, but not without its challenges. It is a critical year for
effective execution in order to position us for Phase III of Blueprint 2021, where we further drive toward
a high-performing industrial technology company.
In parallel with significant initiatives in the business, your Board of Directors has been advancing our
governance plans. This included elimination of the shareholder rights agreement and the plurality
voting policy. The Board has also been systematically implementing its long-term succession plan to
provide for continuity and to enable a composition best suited not only for now, but well into the future.
Within the last year, we have appointed new Audit Committee and Compensation Committee Chairs,
due to the planned retirement of Stephen Rabinowitz at our Annual Meeting in July. Stephen has been
a great contributor over the 14 years he has served on our Board and we appreciate the wisdom and
experience he has provided. Two new directors, Kathy Roedel and Aziz Aghili, are already in place,
bringing additional diversity and critical skill sets that support our current and future direction. In
addition, we have rotations planned for the Governance Chair and Board Chair positions later this year.
We believe we are well positioned to provide both the leadership and oversight needed for success as
we continue executing our business strategy.
These are exciting times for Columbus McKinnon and we hope you share in our excitement.
Sincerely,
Mark D. Morelli
President and
Chief Executive Officer
June 7, 2018
Ernest R. Verebelyi
Chairman of the Board of Directors
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, 2018
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)
205 Crosspoint Parkway
Getzville, New York 14068
(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
Emerging Growth Company
Accelerated filer
Smaller reporting company
If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act.
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, 2017 (the second
fiscal quarter in which this Form 10-K relates) was approximately $868 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 25, 2018 was 23,090,255 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s proxy statement for its 2018 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, 2018 are incorporated by reference into Part III of this report.
2
COLUMBUS McKINNON CORPORATION
2018 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
5
12
15
16
17
17
18
20
22
33
34
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87
89
89
89
89
89
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90
Item 1.
Business
General
PART I
Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of motion control products, technologies,
systems and services that efficiently and ergonomically move, lift, position and secure materials. Key products include hoists,
cranes, actuators, rigging tools, light rail work stations, and digital power and motion control systems. The Company is focused
on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-
how. Our products are used for mission critical industrial applications where we have established trusted brands with significant
customer retention. Our targeted market verticals includes general industrial, construction and infrastructure, mining, oil & gas,
energy, aerospace, transportation, automotive, heavy equipment manufacturing and entertainment.
In the U.S., we are the market leader for hoists and material handling drive systems, our principal line of products, as well as
certain chain, forged fittings, and actuator 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 believe
the breadth of our product offering and expansive distribution channels provide us a strategic advantage in our markets. Additionally,
we believe we are the market leader for manual hoist and actuator products in Europe. Our market leadership and strong brands
enable us to sell more products than our competition through our extensive distribution channels in the U.S. and Europe. The
acquisition of STAHL CraneSystems (STAHL) in fiscal 2017, which is well renowned for its custom engineering of lifting solutions
and hoisting technology, advanced our position as a global leader in the production of explosion-protected hoists. STAHL serves
independent crane builders and Engineering Procurement and Construction (EPC) firms, providing products to a variety of end
markets including automotive, general manufacturing, oil and gas, steel and concrete, power generation, as well as process industries
such as chemical and pharmaceuticals.
Our business strategy, Blueprint 2021, is a three-phased strategy to increase the earnings power of the company and transform us
into a growth-oriented industrial technology company. The goal of our strategy is to increase our earnings power and expand
EBITDA margins, as well as improve our Return on Invested Capital. Phase I, which began early in fiscal 2018, was focused on
attaining operational control and instilling a performance based culture to drive results. We formed four teams of cross-functional
experts (tiger teams) to address specific areas:
• Grow the North American core business,
• Leverage the Magnetek acquisition,
• Create value with the STAHL acquisition, and
•
Pay down debt incurred as a result of the STAHL acquisition.
We also instituted a new operating system, Earnings Power Acceleration or “E-PAS™.” E-PAS™ includes a set of tools that we
will use to improve the efficiency of our business and deliver meaningful profit improvement.
We completed Phase I during fiscal 2018. In doing so, we believe we grew market share in the U.S. and achieved $6 million of
synergies related to the STAHL acquisition. In addition, we introduced several new products incorporating smart hoist technologies
and repaid $60 million of our long-term debt.
We began Phase II of the strategy in November 2017. This phase is focused on operational excellence and profitable growth and
is about simplifying the business structure and product platforms, improving operating performance, and focusing our R&D
expenditures to grow profitably. Investment in R&D will advance our smart hoist technology and enhance our customers’ digital
experience so we can capitalize on the automation megatrend. We expect to double R&D expenditures by fiscal 2021 from fiscal
2017 levels, including approximately $5 million related to STAHL. Research and development costs were $13,617,000,
$10,482,000, and $7,393,000 in fiscal years 2018, 2017, and 2016, respectively.
Phase III of the strategy is centered on business development including the assessment of our current product portfolio as well as
an acquisition strategy to advance our transformation into a leading industrial technology company. Our acquisitions of Magnetek,
Inc. and STAHL and our efforts to leverage their technology are well aligned with our transformation efforts. We have demonstrated
our ability to acquire companies and achieve significant synergies and growth. We will look for acquisitions in the material
handling and motion control markets. We believe the automation megatrend will provide a deep pipeline of attractive, high margin
companies that will continue to transform us.
5
Our business is cyclical in nature and sensitive to changes in general economic conditions, including changes in industrial capacity
utilization, industrial production, and general economic activity indicators, like GDP growth. Both U.S. and Eurozone capacity
utilization are leading market indicators for our Company.
Business Description
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, explosion-protected hoists, winches, industrial crane
systems such as steel bridge, gantry, and jib cranes, and aluminum work stations; alloy and carbon steel chain; forged attachments,
such as hooks, shackles, textile slings, clamps, and load binders; mechanical and electromechanical actuators and rotary unions;
below-the-hook special purpose lifters and tire shredders; power and motion control systems, such as AC and DC drive systems,
radio remote controls, push button pendant stations, brakes, and collision avoidance and power delivery subsystems. 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 acquisition of STAHL brings market leadership with
independent crane builders and EPC firms. 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
Of our fiscal 2018 sales, $443,433,000 or 53% were U.S. and $395,986,000 or 47% were non-U.S. The following table sets forth
certain sales data for our products, expressed as a percentage of net sales for fiscal 2018 and 2017:
Hoists
Chain and rigging tools
Digital power control and delivery systems
Actuators and rotary unions
Industrial cranes
Elevator application drive systems
Other
Fiscal Years Ended
March 31,
2018
2017
63%
10
10
9
4
3
1
100%
56%
11
12
11
5
3
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 nearly 140 tons with
the acquisition of STAHL. These products are sold under our Budgit, Chester, CM, Coffing, Little Mule, Pfaff, Shaw-Box, Yale,
STAHL, 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.
STAHL primarily manufactures explosion-protected hoists and custom engineered hoists, including wire rope and manual and
electric chain hoists. STAHL products are sold to a variety of end markets including automotive, general manufacturing, oil and
gas, steel and concrete, power generation as well as process industries such as chemical and pharmaceuticals.
6
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-AlloyTM brand name for use in overhead lifting, pulling,
and restraining applications. In addition, we also sell specialized load chain for use in hoists, as well as three grades and multiple
sizes of carbon steel welded-link chain for various load securing and other non-overhead lifting applications.
We produce a broad line of alloy and carbon steel closed-die forged chain attachments, including hooks, shackles, HammerloksTM,
and master links. These forged attachments are used in chain, wire rope, and textile rigging applications in a variety of industries,
including transportation, mining, construction, marine, logging, petrochemical, and agriculture.
In addition, we manufacture carbon steel forged and stamped products, such as 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.
Digital Power Control and Delivery Systems - Through our fiscal 2016 acquisition of Magnetek, we are a leading provider of
innovative power control and delivery systems and solutions for overhead material handling applications used in a number of
diverse industries, including aerospace, automotive, steel, aluminum, paper, logging, mining, ship loading, nuclear power plants,
and heavy movable structures. We are a major supplier in North America of power and motion control systems, which include AC
and DC drive systems, radio remote controls, push button pendant stations, brakes, and collision avoidance and power delivery
subsystems. While we sell primarily to OEMs of overhead cranes and hoists, we spend a great deal of effort understanding the
needs of end users to gain specification. We can combine our products with engineered services to provide complete customer-
specific systems solutions.
We are also a leading independent supplier of AC and DC digital motion control systems for underground coal mining equipment.
Our systems are used in coal hauling vehicles, shuttle cars, scoops, and other heavy mining equipment.
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.
Industrial Cranes - We participate in the crane industry, predominately in the U.S. market, but also globally in certain product
offerings, through our offering of overhead steel jib and gantry cranes. Our products are marketed under the Unified, 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. We also manufacture and market overhead aluminum light rail workstations primarily
used in automotive and other industrial applications.
Elevator Application Drive Systems - We design, build, sell, and support elevator application-specific drive products that efficiently
deliver power used to control motion, primarily in high-rise, high-speed elevator applications. We are recognized as an industry
leader for DC high-performance elevator drives, as well as for AC drives used with low- and high-performance traction elevators,
due to our extensive application expertise and product reliability. Our elevator product offerings are comprised of highly integrated
subsystems and drives, sold mainly to elevator OEMs. In addition, our product options include a number of regenerative controls
for both new building installations and elevator modernization projects that help building owners save energy.
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 are used as
aggregate for playgrounds, sports surfaces, landscaping, and other such applications, as well as scrap steel.
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.
7
— 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.
Pfaff International Direct - Our German-based Pfaff business markets and sells most of its actuators directly 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 includes the Abell-Howe and Washington Equipment brands.
CES 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 18 chain repair
service stations and over 221 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 primarily purchase
load securing chain and forged attachments. We also provide our products to the U.S. and other governments
for a variety of military applications.
Independent Crane Builders and Engineering Procurement and Construction (EPC) firms - In addition to the Distribution
channels mentioned above, STAHL sells explosion-protected hoists and custom engineered off-standard hoists to independent
crane builders and EPC firms. Independent crane builders are lifting solution developers and final crane assemblers that source
hoists as components. EPC firms are responsible for project management or construction management of production facilities that
purchase lifting solutions from crane and hoist builders.
Backlog
Our backlog of orders at March 31, 2018 was approximately $177,387,000 compared to approximately $154,450,000 at March
31, 2017. 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 can reflect the project
oriented nature of certain aspects of our business.
8
Competitive Conditions
The material handling industry remains 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.
We believe we have leading U.S. market share in various products categories including: hoists, trolleys and components, AC and
DC material handling drives, screw jacks, tire shredders, and elevator DC drives. These product categories represent 64% of our
U.S. net sales.
Major competitors for hoists are Konecranes, which acquired Terex's Material Handling and Part Solutions business segment, and
Kito (and its U.S. subsidiary Harrington); for chain are Campbell Chain, Peerless Chain Company (acquired by Kito), and American
Chain and Cable Company; for digital power control systems are Konecranes, Power Electronics International, Inc., Cattron Group
International (a division of Laird Technologies), Conductix-Wampfler (a division of Delachaux Group), Control Techniques (a
division of Emerson Electric), OMRON Corporation, KEB GmbH, and Fujitec; for forged attachments are The Crosby Group and
Brewer Tichner Company; for cranes are Konecranes and a variety of independent crane builders; for actuators and rotary unions
are Deublin, Joyce-Dayton, and Nook Industries; and for tire shredders, Granutech.
Employees
At March 31, 2018, we had 3,328 employees globally. Approximately 10% of our employees are represented under three separate
U.S. or Canadian collective bargaining agreements which terminate at various times between May 2020 and September 2021. We
also have various labor agreements with our non-U.S. employees which we negotiate from time to time. We have good relationships
with our employees and positive, productive relationships with our unions. The risk of employee or union led disruption in
production 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; steel and aluminum enclosures
and wire harnesses; electro-mechanical components and standard variable drives. 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 have historically passed 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. Although raw materials and some components such as motors, bearings, gear reducers, steel and aluminum enclosures
and wire harnesses, castings, electro-mechanical components, and standard variable drives are purchased, our vertical integration
enables us to produce many of the components used in the manufacturing of our products.
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 the State accepted our proposal. We investigated under the supervision
9
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 be material and are fully reserved.
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. The total 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.
Our subsidiary Magnetek has also been identified by the United States Environmental Protection Agency and certain state agencies
as a potentially responsible party for cleanup costs associated with alleged past waste disposal practices at several previously
utilized, owned or leased facilities and offsite locations. Its remediation activities as a potentially responsible party were not
material in fiscal year 2018. Although the materiality of future expenditures for environmental activities may be affected by the
level and type of contamination, the extent and nature of cleanup activities required by governmental authorities, the nature of
Magnetek's alleged connection to the contaminated sites, the number and financial resources of other potentially responsible
parties, the availability of indemnification rights against third parties and the identification of additional contaminated sites,
Magnetek's estimated share of liability, if any, for environmental remediation, including its indemnification obligations, is not
expected to be material.
In 1986, Magnetek acquired the stock of Universal Manufacturing Corporation (“Universal”) from a predecessor of Fruit of the
Loom (“FOL”), and the predecessor agreed to indemnify Magnetek against certain environmental liabilities arising from pre-
acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement
included completion of additional cleanup activities, if any, at the Bridgeport facility and defense and indemnification against
liability for potential response costs related to offsite disposal locations. Magnetek's leasehold interest in the Bridgeport facility
was assigned to the buyer in connection with the sale of Magnetek's transformer business in June 2001. FOL, the successor to the
indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and Magnetek
filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. Magnetek believes
that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy
filing. In November 2001, Magnetek and FOL entered into an agreement involving the allocation of certain potential tax benefits
and Magnetek withdrew its claims in the bankruptcy proceeding. FOL's obligation to the state of Connecticut was not discharged
in the reorganization proceeding.
In January 2007, the Connecticut Department of Environmental Protection (“DEP”) requested parties, including Magnetek, to
submit reports summarizing the investigations and remediation performed to date at the site and the proposed additional
investigations and remediation necessary to complete those actions at the site. The DEP then requested additional information
relating to site investigations and remediation. Magnetek and the DEP agreed to the scope of the work plan in November 2010.
The Company has implemented the work plan and has recorded a liability of $283,000 related to the Bridgeport facility, representing
the best estimate of future site investigation costs and remediation costs which are expected to be incurred in the future.
In September of 2017, Magnetek received a request for defense and indemnification from Monsanto Company, Pharmacia, LLC,
and Solutia, Inc. (collectively, “Monsanto”) with respect to: (1) lawsuits brought by plaintiffs claiming that Monsanto manufactured
polychlorinated biphenyls ("PCBs"), exposure to which allegedly caused injury to plaintiffs; (2) lawsuits brought by municipalities
and municipal entities claiming that Monsanto should be responsible for a variety of damages due to the presence of PCBs in
bodies of water in those municipalities and/or in water treated by those municipal entities. Monsanto claims to be entitled to
defense and indemnification from Magnetek under a so-called “Special Undertaking” apparently executed by Universal in January
of 1972, which purportedly required Universal to defend and indemnify Monsanto from liabilities “arising out of or in connection
with the receipt, purchase, possession, handling, use, sale or disposition of” PCBs by Universal.
Magnetek has declined Monsanto’s tender, and believes that it has meritorious legal and factual defenses to the demands made by
Monsanto. Magnetek is vigorously defending against those demands and has commenced litigation to, among other things, declare
the Special Undertaking void and unenforceable. Monsanto has, in turn, commenced an action to enforce the Special Undertaking.
Magnetek intends to continue to vigorously prosecute its declaratory judgment action and to defend against Monsanto’s action
against it. As of March 31, 2018 the Company has recorded $400,000 for legal costs incurred to date and expected to be incurred
related to this matter. We cannot reasonably estimate a potential range of loss with respect to Monsanto’s tender because there is
insufficient information regarding the underlying matters. Management believes, however, that the potential additional costs
related to such matters, if any, 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.
10
For all of the currently known environmental matters, we have accrued as of March 31, 2018 a total of $1,029,000 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.
11
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.
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 revenue 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 revenue
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.
The acquisition of STAHL on January 31, 2017 resulted in a significant increase to the Company’s long term borrowings.
The increased amount of long term borrowings could, among other things, require the Company to dedicate a large portion of its
cash flow to the servicing and repayment of its outstanding indebtedness, thereby reducing funds available for other operating
activities, which could adversely affect our financial condition and results of operations, and adversely affect our ability to pay
dividends.
In connection with the acquisition of STAHL, we assumed an unfunded pension obligation which will further require cash flow to
pay benefit obligations as they become due.
The STAHL pension obligation assumed in the acquisition is an unfunded pension plan valued at $85,851,000 at March 31, 2018.
Therefore, the Company will be required to make current and future benefit payment obligations in addition to payments required
to pay down other long term borrowings.
12
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, 2018, approximately 47% 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 15 to our March 31, 2018 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.
13
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 $395,986,000 in our
fiscal year ended March 31, 2018) are generated in foreign currencies, including principally the Euro, the British Pound, the
Canadian Dollar, the South African Rand, the Brazilian Real, the Mexican Peso, and the Chinese Yuan, 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 may face claims of infringement on the intellectual property of others, or others may infringe upon our intellectual property.
Our future success depends in part on our ability to prevent others from infringing on our proprietary rights, as well as our ability
to operate without infringing upon the proprietary rights of others. We may be required at times to take legal action to protect our
proprietary rights and, despite our best efforts, we may be sued for infringing on the patent rights of others. Patent litigation is
costly and, even if we prevail, the cost of such litigation could adversely affect our financial condition. In addition, we could be
adversely affected financially should we be judged to have infringed upon the intellectual property of others.
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
14
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.
We are subject to debt covenant restrictions.
Our revolving credit facility and Term Loan contain a financial leverage covenant and other restrictive covenants. A significant
decline in our operating income or cash generating ability could cause us to violate our leverage ratio in our bank credit facility.
Other material adverse changes in our business could cause us to be in default of our debt covenants. 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 indebtedness.
Our business operations may be adversely affected by information systems interruptions or intrusion.
We depend on various information technologies throughout our company to administer, store, and support multiple business
activities. If these systems are damaged, cease to function properly, or are subject to cyber-security attacks, such as those involving
unauthorized access, malicious software and/or other intrusions, we could experience production downtimes, operational delays,
other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of
confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper
use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our
reputation. While we attempt to mitigate these risks by employing a number of measures, including employee training, technical
security controls, and maintenance of backup and protective systems, our systems, networks, products, and services remain
potentially vulnerable to known or unknown threats, any of which could have a material adverse affect on our business, financial
condition or results of operations.
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 entered into employment agreements with the following senior management personnel: Werner Wagner (our STAHL
Managing Director) and Mark D. Morelli (our President and CEO).
Item 1B.
Unresolved Staff Comments
None.
15
Item 2.
Properties
We maintain our corporate headquarters in Getzville, New York (an owned property) and, as of March 31, 2018, conducted our
principal manufacturing at the following facilities:
Location
Kunzelsau, Germany
Wadesboro, NC
Lexington, TN
Asia operation:
Hangzhou, China
Hangzhou, China
Charlotte, NC
Menomonee Falls, WI
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
Romeny-sur-Marne, France
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Products/Operations
Hoists
Hoists
Chain
Hoists
Hoists
Actuators and Rotary Unions
Power control systems
Forged attachments
Forged attachments
Hoists
Hoists, winches, and actuators
Hoists
Cranes
Hoists
Hoists
Lifting tools and forged parts
Plate clamps
Hoists
Overhead light rail workstations
Tire shredders
Textiles and textile strappings
Rotary unions
Square
Footage
Owned or
Leased
345,000
180,000
164,000
70,000
82,000
146,000
144,000
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
22,000
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
In addition, we have a total of 45 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.
16
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 2018. We obtain additional insurance coverage from
independent insurers to cover potential losses in excess of these limits.
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.
The Company believes that a share of its previously incurred asbestos-related expenses and future asbestos-related expenses are
covered by pre-existing insurance policies. The Company has engaged in a legal action against the insurance carriers of those
policies to recover past expenses and to recover future costs incurred. The Company recovered $2,362,000 from insurance carriers
during fiscal 2018. When the Company resolves this legal action, it is expected that an additional gain will be recorded for
previously expensed cost that is recovered.
See Note 15 to our March 31, 2018 consolidated financial statements for more information on our matters involving litigation.
Item 4.
Mine Safety Disclosures.
Not Applicable.
17
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, 2018, there were
381 holders of record of our common stock.
During fiscal 2018, the Company declared quarterly cash dividends totaling $3,903,000. On March 26, 2018, the Company's
Board of Directors declared regular quarterly dividends of $0.05 per common share. The dividend was paid on May 14, 2018 to
shareholders of record on May 4, 2018 and totaled approximately $1,150,000.
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, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended March 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Price Range of
Common Stock
High
Low
$
17.05
$
18.54
27.59
28.63
$
28.98
$
37.74
40.20
44.31
13.93
14.34
17.18
24.05
23.54
24.12
36.18
34.60
On May 25, 2018 the closing price of our common stock on the Nasdaq Global Select Market was $37.75 per share.
18
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, 2013 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.
19
Item 6.
Selected Financial Data
The consolidated balance sheets as of March 31, 2018 and 2017, and the related statements of operations, cash flows, and
shareholders’ equity for each of the three years ended March 31, 2018 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.
2018
(In million's, except per share data)
2016
2015
2017
Statements of Operations Data:
Net sales
Cost of products sold
Gross profit
Selling expenses
General and administrative expenses (1)
Research and development expenses (1)
Impairment of intangible asset
Amortization of intangibles
Income (loss) from operations
Interest and debt expense
Cost of debt refinancing
Other (income) and expense, net
Income (loss) before income taxes
Income tax expense (benefit)
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
$
$
$
$
$
$
$
$
839.4
554.8
284.6
102.0
83.4
13.6
—
15.6
70.0
19.7
—
0.6
49.7
27.6
22.1
0.95
0.97
23.3
22.8
637.1
444.2
192.9
77.3
69.9
10.5
1.1
8.1
26.0
11.0
1.3
0.7
13.0
4.0
9.0
0.43
0.44
20.9
20.6
Balance Sheet Data (at end of period):
Total assets
Total debt (2)
Total debt, net of cash and cash equivalents
Total shareholders’ equity
$ 1,142.4
363.3
300.3
408.2
$ 1,113.8
421.3
343.7
341.4
$
$
$
$
$
$
$
$
$
$
597.1
409.8
187.3
72.9
61.4
7.4
—
5.0
40.6
7.9
—
1.1
31.6
12.0
19.6
0.96
0.98
20.3
20.1
772.9
267.6
216.0
286.3
Other Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing
activities
Capital expenditures
69.7
(32.3)
(59.5)
(14.5)
60.5
(224.0)
190.1
(14.4)
52.6
(203.2)
137.0
(22.3)
$
$
$
$
$
579.6
398.0
181.6
69.8
49.7
5.2
—
2.3
54.6
12.4
8.6
(2.4)
36.0
8.8
27.2
1.34
1.36
20.2
19.9
566.1
126.5
63.5
268.7
38.3
(34.1)
(48.4)
(17.2)
20
2014
583.3
402.2
181.1
69.0
50.3
5.5
—
2.0
54.3
13.5
—
(1.9)
42.7
12.3
30.4
1.52
1.55
20.0
19.7
596.9
150.5
38.2
291.3
29.5
(40.4)
1.7
(20.8)
(1) For its fiscal 2018 financial statements, the Company has reclassified research and development expenses previously
recorded in general and administrative expense into a separate line item on the consolidated statements of operations. All
periods presented above have been revised to reflect this presentation. Please refer to Note 2 of the Company's financial
statements for additional information regarding research and development expenses.
(2) Total debt includes all debt, including the current portion, notes payable, term loan, and subordinated debt.
21
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.
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 materials. Key products include hoists, rigging tools, cranes, digital power
control systems, and actuators. We are focused on serving commercial and industrial applications that require the safety and quality
in moving material provided by our 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 143-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 to increase earnings power include operational
excellence and profitable growth. In accordance with Blueprint 2021, we are simplifying the business structure and product
platforms, improving operating performance, and focusing our R&D expenditures to grow profitably. Shareholder value will be
enhanced by expanding EBITDA margins and return on invested capital (ROIC).
On January 31, 2017 we completed our acquisition of STAHL. STAHL is a leading manufacturer of explosion-protected hoists
and crane components and is well known for providing lifting solutions utilizing its custom engineering and hoisting technology.
STAHL serves independent crane builders and Engineering Procurement and Construction (EPC) firms, providing products to a
variety of end markets including oil and gas, automotive, general manufacturing, steel & concrete, power generation as well as
process industries such as chemical and pharmaceuticals. We believe STAHL is an excellent expansion of our global product
offering. STAHL's strong position with wire rope and electric chain hoists in Europe immediately complements our leadership
position in handheld hoists in that region, and their broad portfolio of ATEX certified explosion-protected products serving the
oil and gas, mining, and chemical processing industries significantly extends our global offerings in capability and capacities.
Our revenue base is geographically diverse with approximately 47% derived from customers outside the U.S. for the year ended
March 31, 2018. Our expansion within the European market with the acquisition of STAHL further expands our geographic
diversity. 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. We monitor both U.S. and Eurozone Industrial Capacity Utilization statistics as indicators of
anticipated demand for our products. 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 leveraging our recent acquisitions and investing in 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, actuators, and digital power and motion control systems for the material handling
industry. 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 general industrial, 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 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 implementation of our operating system E-PAS™.
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 pursuing cost reduction opportunities to enhance future margins.
We continuously monitor market prices of steel. We purchase approximately $25,000,000 to $30,000,000 of steel annually in a
variety of forms including rod, wire, bar, structural, and other forms of steel. 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.
We operate in a highly competitive and global business environment. We face a variety of opportunities in those markets and
geographies, including trends toward increasing productivity of the global labor force and the expansion of market opportunities
in Asia and other emerging markets. While we execute our long-term growth strategy, we are supported by our solid free cash
flow as well as our liquidity position and flexible debt structure.
22
RESULTS OF OPERATIONS
Fiscal 2018 Compared to 2017
Fiscal 2018 sales were $839,419,000, an increase of 31.8%, or $202,296,000 compared with fiscal 2017 sales of $637,123,000.
Sales for the year were positively impacted by $144,670,000 due to our acquisition of STAHL, $40,993,000 due to an increase in
sales volume, and $2,529,000 by price increases. Favorable foreign currency translation increased sales by $14,104,000.
Our gross profit was $284,574,000 and $192,932,000 or 33.9% and 30.3% of net sales in fiscal 2018 and 2017, respectively. The
fiscal 2018 increase in gross profit of $91,642,000 or 47.5% is the result of $53,794,000 from the acquisition of STAHL, $4,828,000
in increased productivity and favorable manufacturing costs, $1,361,000 of price increases net of material inflation, $13,227,000
in increased volume, $2,964,000 in decreased product liability costs, $8,852,000 in STAHL inventory amortization related to
purchase accounting adjustments incurred in fiscal 2017 that did not reoccur in fiscal 2018, a $2,362,000 increase due to an
insurance settlement, offset by $307,000 in STAHL integration costs that are classified as cost of products sold. The translation
of foreign currencies had a $4,561,000 favorable impact on gross profit for the year ended March 31, 2018.
Selling expenses were $101,956,000 and $77,319,000, or 12.1% of net sales in fiscal years 2018 and 2017. STAHL contributed
an additional $18,396,000 in selling expense and $616,000 of integration costs were incurred related to the acquisition of STAHL
that are classified as selling expense, offset by $247,000 in expense that did not reoccur related to the Canadian lump sum pension
settlement in the year ended March 31, 2018. The remainder of the increase is largely due to the increase in sales volume, additional
marketing expenses, and the transition to a new warehouse in North America. Additionally, foreign currency translation had a
$2,151,000 unfavorable impact on selling expenses.
General and administrative expenses were $83,350,000 and $69,928,000 or 9.9% and 11.0% of net sales in fiscal 2018 and 2017,
respectively. The fiscal 2018 increase was primarily the result of the STAHL acquisition which added $9,477,000 in recurring
general and administrated expenses and $7,840,000 of integration costs were incurred related to the acquisition of STAHL that
are classified as general and administrative expense, offset by $8,815,000 in STAHL related acquisition and integration costs
incurred in the year ended March 31, 2017. Additionally, $1,589,000 in net legal costs were incurred for a legal action against our
product liability insurance carriers, $400,000 in expected litigation costs for a former subsidiary of Magnetek, $619,000 in debt
repricing fees, offset by CEO retirement and search costs of $3,085,000 that did not reoccur in fiscal 2018. The remainder of the
increase is largely due to higher annual incentive plan costs expected in fiscal 2018 compared to fiscal 2017. Foreign currency
translation had a $1,178,000 unfavorable impact on general and administrative expenses.
Research and development expenses were $13,617,000 and $10,482,000 in fiscal 2018 and 2017, respectively. As a percentage
of consolidated net sales, research and development expenses were 1.6% in fiscal 2018 and 2017. STAHL contributed an additional
$1,683,000 to research and development expenses in the year ended March 31, 2018. The remainder of the increase relates to
global initiatives to develop new products.
Impairment of intangible assets of $1,125,000 in fiscal 2017 relates to the impairment of the indefinite-lived trademark of STB.
After performing our annual indefinite-lived intangible asset impairment test, the Company determined that the indefinite-lived
STB intangible trademark asset was fully impaired due to lower revenue and resulting cash flows than projected at the time of the
acquisition. No impairment was recorded in fiscal 2018.
Amortization of intangibles was $15,552,000 and $8,105,000 in fiscal 2018 and 2017, respectively. The increase relates to additional
amortization of intangibles related to the STAHL acquisition.
Interest and debt expense was $19,733,000 and $10,966,000 in fiscal 2018 and 2017, respectively. The increase in interest and
debt expense relates to additional debt to fund the STAHL acquisition.
The fiscal 2017 debt extinguishment costs of $1,303,000 relates to the write off of unamortized deferred financing costs associated
with our previous term loan and revolving credit facility refinanced as part of the STAHL acquisition. This transaction is discussed
in more detail in the Liquidity and Capital Resources section. There were no debt extinguishment costs recorded in fiscal 2018.
Investment income of $157,000 and $462,000, in fiscal 2018 and 2017, respectively, related to earnings on marketable securities
held in the Company’s wholly owned captive insurance subsidiary.
Foreign currency exchange loss was $1,539,000 and $1,232,000 in fiscal 2018 and 2017, respectively, as a result of foreign currency
volatility related to foreign currency denominated sales and purchases and intercompany debt.
23
Other income, net, includes various non-operating income and expense related activities. The balance was $701,000 and $93,000
in fiscal 2018 and 2017, respectively.
Income tax expense as a percentage of income from continuing operations before income tax expense was 55.6% and 31.0% in
fiscal 2018 and 2017, 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. Income tax expense as
a percentage of income from continuing operations for fiscal 2018 increased by $17,602,000 or 35 percentage points as a result
of accounting for the enactment of the Tax Cuts and Jobs Act (the Act).
The Company revised its annual effective rate to reflect a change in the U.S. federal statutory rate from 35% to 21%, resulting
from the enactment of the Act on December 22, 2017. The rate change is administratively effective upon enactment, resulting in
a blended rate for fiscal year 2018. As a result, the U.S. blended statutory tax rate for fiscal 2018 is 31.55%.
The Act requires companies to remeasure certain deferred tax assets and liabilities based on the rates at which they are expected
to reverse in the future, pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred,
and creates new taxes on certain foreign sourced earnings. The Company recognized a provisional amount of $17,602,000, which
is included as a component of income tax expense on the Company's statement of operations for fiscal 2018. See Note 16 for
additional information regarding how the provisional amount was calculated.
Included within the provisional amount, as described above, is a one-time transition tax on the Company's total foreign post-1986
earnings and profits (E&P) that it previously deferred from U.S. income taxes. The Company recorded a provisional amount for
its one-time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $1,500,000. The
one-time transition tax is payable over an 8-year period (8% in each of the first five years, 15% in year six, 20% in year seven,
and 25% in year 8). The difference between the provisional amount, as noted above, and the one-time transition tax relates to
remeasuring the Company's deferred tax assets and liabilities at the new U.S. Federal statutory tax rate.
Fiscal 2017 Compared to 2016
Fiscal 2017 sales were $637,123,000, an increase of 6.7%, or $40,020,000 compared with fiscal 2016 sales of $597,103,000. Sales
for the year were positively impacted by $64,993,000 due to acquisitions and $730,000 by price increases. Sales for the year were
negatively impacted $20,638,000 due to a decrease in sales volume. Unfavorable foreign currency translation reduced sales by
$5,065,000.
Our gross profit was $192,932,000 and $187,263,000 or 30.3% and 31.4% of net sales in fiscal 2017 and 2016, respectively. The
fiscal 2017 increase in gross profit of $5,669,000 or 3.0% is the result of $22,553,000 from our recent acquisitions, $2,044,000
in increased productivity and favorable manufacturing costs, and $3,902,000 in fiscal 2016 acquisition purchase accounting
amortization and other one-time adjustments which did not recur in fiscal 2017, offset by $9,387,000 in decreased volume,
$8,852,000 in STAHL inventory amortization related to purchase accounting adjustments, $2,546,000 in increased product liability
costs due to legal settlements, and material inflation net of price increases of $474,000. The translation of foreign currencies had
a $1,571,000 unfavorable impact on gross profit for the year ended March 31, 2017.
Selling expenses were $77,319,000 and $72,858,000 or 12.1% and 12.2% of net sales in fiscal years 2017 and 2016, respectively.
The acquisitions of STAHL and Magnetek which added an incremental $7,947,000 in selling expense for the year ended March 31,
2017. The fiscal 2016 consolidation of two warehouses and the closure of another added $859,000 in the prior year, which did
not recur in fiscal 2017. Additionally, foreign currency translation had a $589,000 favorable impact on selling expenses.
General and administrative expenses were $69,928,000 and $61,418,000 or 11.0% and 10.3% of net sales in fiscal 2017 and 2016,
respectively. The fiscal 2017 increase was primarily the result of our recent acquisitions of STAHL and Magnetek which added
$2,272,000 in recurring general and administrated expenses. STAHL acquisition and integration costs of $8,815,000 offset prior
year non-recurring Magnetek acquisition and severance costs of $8,046,000, netting to a $769,000 increase in fiscal 2017. Additional
increase to general and administrative expenses were the result of CEO retirement and search costs of $3,085,000 and additional
legal costs incurred for a legal action against our prior product liability insurance carriers of $1,359,000. Foreign currency translation
had a $371,000 favorable impact on general and administrative expenses.
Research and development expenses were $10,482,000 and $7,393,000 in fiscal 2017 and 2016, respectively. As a percentage of
consolidated net sales, research and development expenses were 1.6% and 1.2% in fiscal 2017 and 2016. The fiscal 2017 increase
was primarily the result of our recent acquisitions of STAHL and Magnetek which added $2,006,000 in research and development
expenses. The remainder of the increase relates to global initiatives to develop new products.
24
Impairment of intangible assets of $1,125,000 in fiscal 2017 relates to the impairment of the indefinite-lived trademark of STB.
After performing our annual indefinite-lived intangible asset impairment test, the Company determined that the indefinite-lived
STB intangible trademark asset was fully impaired due to lower revenue and resulting cash flows than projected at the time of the
acquisition.
Amortization of intangibles was $8,105,000 and $5,024,000 in fiscal 2017 and 2016, respectively. The increase relates to additional
amortization of intangibles related to the STAHL and Magnetek acquisitions.
Interest and debt expense was $10,966,000 and $7,904,000 in fiscal 2017 and 2016, respectively. The increase in interest and
debt expense relates to additional debt from the Magnetek and STAHL acquisitions.
The fiscal 2017 debt extinguishment costs of $1,303,000 relates to the write off of unamortized deferred financing costs associated
with our previous term loan and revolving credit facility refinanced as part of the STAHL acquisition. This transaction is discussed
in more detail in the Liquidity and Capital Resources section.
Investment income of $462,000 and $796,000 in fiscal 2017 and 2016, respectively, related to earnings on marketable securities
held in the Company’s wholly owned captive insurance subsidiary.
Foreign currency exchange loss was $1,232,000 and $2,215,000 in fiscal 2017 and 2016, respectively, as a result of foreign currency
volatility related to foreign currency denominated purchases and intercompany debt. Fiscal 2017 foreign currency exchange loss
includes a loss on a foreign currency option related to the acquisition of STAHL in the amount of $1,590,000.
Other income (expense), net remained relatively stable and was $93,000 and $377,000 in fiscal 2017 and 2016, respectively.
Income tax expense as a percentage of income from continuing operations before income tax expense was 31.0% and 38.1% in
fiscal 2017 and 2016, 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. The effective tax rate
for the fiscal 2017 was affected unfavorably by 16.3 percentage points due to non-deductible STAHL acquisition costs which were
offset by 11.3 percentage points due to the reversal of a deferred tax asset valuation allowance within our foreign subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $63,021,000, $77,591,000, and $51,603,000 at March 31, 2018, 2017, and 2016, respectively.
Cash flow provided by operating activities
Net cash provided by operating activities was $69,661,000, $60,450,000, and $52,645,000 in fiscal 2018, 2017, and 2016,
respectively. In fiscal 2018, in addition to net income and non-cash adjustments to net income, net cash provided by operating
activities increased as a result of an increase in accrued liabilities of $11,918,000 (of which approximately $7,900,000 is due to
additional annual incentive plan accruals), offset by an increase in inventories and decrease in non-current liabilities of $12,249,000
and $16,700,000, respectively. The decrease in non-current liabilities was primarily due to $11,211,000 in contributions made to
our pension plans.
In addition to net income and non-cash adjustments to net income in fiscal 2017, net cash provided by operating activities increased
as a result of an overall decrease in inventories of $8,173,000, excluding the effects of acquisitions. This increase in cash was
offset by a decrease in accrued liabilities and non-current liabilities of $2,380,000 and $3,085,000, respectively. The decrease in
non-current liabilities was primarily due to $6,140,000 in contributions made to our pension plans, excluding the effects of
acquisitions.
Cash flow used by investing activities
Net cash used by investing activities was $32,298,000, $224,039,000, and $203,229,000 in fiscal 2018, 2017, and 2016, respectively.
In fiscal 2018, the most significant use of cash used by investing activities was $14,750,000 in net cash paid to the former owner
of STAHL related to a profit sharing agreement, net of a purchase price working capital refund. Capital expenditures for fiscal
2018 totaled $14,515,000. Further, the Company paid cash for an investment accounted for under the equity method in the amount
of $3,359,000. Offsetting these uses of cash is $326,000 in net cash proceeds from the sale of marketable equity securities.
25
The most significant use of cash for investing activities in fiscal 2017 relates to our acquisition of STAHL which totaled
$218,846,000, net of cash acquired. Capital expenditures for fiscal 2017 totaled $14,368,000. Offsetting these uses of cash is
$10,765,000 in net cash proceeds from the sale of marketable equity securities.
Cash flow (used) provided by financing activities
Net cash provided (used) by financing activities was $(59,502,000), $190,121,000, and $137,003,000 in fiscal 2018, 2017, and
2016, respectively. In fiscal 2018, the most significant uses of cash were repayments on debt of $60,144,000, of which $57,037,000
was principal payments on our Term Loan, and $619,000 in fees paid for the debt repricing. The remaining net cash used for
financing activities primarily relates to dividends paid of $3,658,000 and $1,413,000 in net outflows from stock related transactions,
offset by $6,332,000 in proceeds from the exercise of stock options.
The most significant sources of cash in fiscal 2017 were borrowings under our New Credit Facility of $445,000,000 and the
issuance of additional equity resulting in gross proceeds of approximately $50,000,000 which were used to repay the previous
credit facility and fund the STAHL acquisition. The Company paid $19,409,000 in debt and equity related fees related to these
transactions. In connection with the acquisition of Ergomatic, the Company withheld $588,000 to be paid to the seller upon
satisfaction of certain conditions. This cash was classified as other assets on the Company's balance sheet and was classified as a
use of cash for financing activities. The remaining net cash used for financing activities in fiscal 2017 primarily relates to dividends
paid of $3,326,000 and $1,265,000 from stock related transactions, offset by $439,000 in proceeds from the exercise of stock
options.
26
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 restriction exists in
accessing cash held by our non-U.S. subsidiaries. As of March 31, 2018, $52,636,000 of cash and cash equivalents were held by
foreign subsidiaries. The Company is evaluating the possibility of repatriating foreign cash as a result of the Act.
Through January 31, 2017 the Company had outstanding $131,500,000 under a revolving credit facility ("Replaced Revolving
Credit Facility"). The Replaced Revolving Credit Facility provided availability up to a maximum of $225,000,000 and had an
initial term ending January 23, 2020.
Through January 31, 2017 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"), had outstanding $103,125,000 principal
amount of a senior secured Term Loan ("Replaced Term Loan") which was to mature on February 19, 2020.
As described in Note 2, on January 31, 2017 the Company entered into a New Credit Agreement ("New Credit Agreement") and
$545,000,000 of new debt facilities ("New Facilities") in connection with the STAHL acquisition. The New Facilities consisted
of a New Revolving Facility ("Revolver") in the amount of $100,000,000 and a $445,000,000 1st Lien Term Loan ("New Term
Loan"). Proceeds from the New Facilities were used to fund the STAHL acquisition, pay fees and expenses associated with the
acquisition, and refinance the Company's Replaced Revolving Credit Facility and Replaced Term Loan. The New Term Loan has
a seven-year term maturing in 2024 and the Revolver has a five-year term maturing in 2022. At March 31, 2018 the Company has
not drawn from the Revolver.
The key terms of the agreement are as follows:
• Term Loan: An aggregate $445,000,000 1st Lien Term Loan which requires quarterly principal amortization of 0.25%
with the remaining principal due at maturity date. In addition, if the Company has Excess Cash Flow ("ECF") as defined
in the New Credit Agreement, the ECF Percentage of the Excess Cash Flow for such fiscal year minus optional prepayment
of the Loans (except prepayments of Revolving Loans that are not accompanied by a corresponding permanent reduction
of Revolving Commitments) pursuant to Section 2.10(a) of the New Credit Agreement other than to the extent that any
such prepayment is funded with the proceeds of Funded Debt, shall be applied toward the prepayment of the New Term
Loan. The ECF Percentage is defined as 50% stepping down to 25% or 0% based on the Secured Leverage Ratio as of
the last day of the fiscal year.
• Revolver: An aggregate $100,000,000 secured revolving 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).
Prepayments: Provisions permitting a Borrower to voluntarily prepay either the Term Loan or Revolver in whole or in
part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or Revolver 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. A prepayment premium of 1% of the principal amount
of the First Lien Term Loans is required if the prepayment is associated with a Repricing Transaction and it were to occur
within the first twelve months.
• Covenants: Provisions containing covenants required of the Corporation and its subsidiaries including various affirmative
and negative financial and operational covenants. The key financial covenant is triggered only on any date when any
Extension of Credit under the Revolving Facility is outstanding (excluding any Letters of Credit) (the “Covenant Trigger”),
and permits the Total Leverage Ratio for the Reference Period ended on such date to not exceed (i) 4.50:1.00 as of any
date of determination prior to December 31, 2017, (ii) 4.00:1.00 as of any date of determination on December 31, 2017
and thereafter but prior to December 31, 2018, (iii) 3.50:1.00 as of any date of determination on December 31, 2018 and
thereafter but prior to December 31, 2019 and (iv) 3.00:1.00 as of any date of determination on December 31, 2019 and
thereafter. As there is no amount drawn on the Revolver as of March 31, 2017 the covenant is not triggered. Had we been
required to determine the covenant ratio as of March 31, 2018, we would have been in compliance with the covenant
provisions.
27
The New 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 26, 2018, the Company amended the New Credit Agreement (known as the "Amended Credit Agreement"). The
Amended Credit Agreement has the same terms mentioned above except for a reduction in interest rates. The applicable rate for
the repriced term loan was reduced from 3.00% to 2.50%. The Company has accounted for the Amended Credit Agreement as a
debt modification, therefore, debt repricing fees incurred in fiscal 2018 were expensed as general and administrative expenses and
the deferred financing fees incurred as part of the New Credit Agreement (discussed below) remain unchanged.
As mentioned above, on January 31, 2017 the Company borrowed $445,000,000 under the New Term Loan. The Company repaid
the amount outstanding for the Replaced Revolving Credit Facility and Replaced Term Loan ($131,500,000 and $103,125,000,
respectively) plus $652,000 in accrued interest and fees. The cost of debt refinancing on the Company's consolidated statement
of operations includes the write-off of previously unamortized deferred financing costs and other expenses of $1,303,000 in fiscal
2017.
The outstanding balance of the New Term Loan was $375,463,000 and $432,500,000 as of March 31, 2018 and 2017, respectively.
The Company made $57,037,000 of principal payment on the New Term Loan during fiscal 2018 and $9,375,000 of principal
payments on the Replaced Term Loan and $12,500,000 of principal payment on the New Term Loan during fiscal 2017. The
Company is obligated to make $4,450,000 of principal payments over the next 12 months, however, plans to pay down $60,000,000
in total. This amount has been recorded within the current portion of long term debt on the Company's consolidated balance sheet
with the remaining balance recorded as long-term debt.
There was $0 outstanding on the New Revolving Credit Facility and $4,478,000 outstanding letters of credit as of March 31,
2018. The outstanding letters of credit at March 31, 2018 consisted of $745,000 in commercial letters of credit and $3,733,000 of
standby letters of credit.
In connection with the acquisition of STAHL, the Company assumed a loan that STAHL CraneSystems Shanghai Co Ltd ("STAHL
China") entered into on November 22, 2016 with Dalian Konecranes Co Ltd ("Konecranes"). The principal amount loaned to
STAHL China in the amount of 18,000,000 Yuan (approximately $2,608,000 as of March 31, 2017) was used to meet working
capital needs. The annual interest rate was 4.35% with an original maturity date of February 24, 2017. The term of the loan was
extended through a loan amendment with a new maturity date of May 24, 2017. Therefore, this loan was classified in current
portion of long-term debt at March 31, 2017. The Company repaid the loan in full in fiscal 2018.
The gross balance of deferred financing costs on the term loan was $14,690,000 as of March 31, 2018 and 2017. The accumulated
amortization balances were $2,447,000 and $350,000 as of March 31, 2018 and 2017, respectively. All of the deferred financing
costs on the Replaced Term Loan were extinguished and are included in the cost of debt refinancing on the Company's consolidated
statement of operations as of March 31, 2017.
The gross balance of deferred financing costs associated with the New Revolving Credit Facility and Replaced Revolving Credit
Facility are included in other assets is $2,789,000 as of March 31, 2018 and March 31, 2017. The accumulated amortization
balances were $651,000 and $93,000 as of March 31, 2018 and March 31, 2017 respectively. The balance includes $605,000 and
$763,000 as of March 31, 2018 and March 31, 2017, respectively, related to the Replaced Revolving Credit Facility as certain
lenders in the Replaced Revolving Credit Facility participate in the New Revolving Credit Facility. These balances are classified
in other assets since no funds were drawn on the New Revolving Credit Facility in fiscal 2018 and 2017.
On June 22, 2007, the Company recorded a capital lease resulting from the sale and partial leaseback of its facility in Charlotte,
North Carolina 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 $98,000 and $551,000 as of March 31, 2018 and 2017,
respectively, are included in senior debt in the consolidated balance sheets. $64,000 of the capital lease liability has been recorded
within the current portion of long term debt on the Company's consolidated balance sheet with the remaining balance recorded as
long term debt.
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, 2018,
unsecured credit lines totaled approximately $5,176,000, of which $0 was drawn. In addition, unsecured lines of $17,877,000
were available for bank guarantees issued in the normal course of business of which $11,668,000 was utilized.
28
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual obligations in millions of dollars as of March 31, 2018, by period of
estimated payments due:
Long-term debt obligations (a)
Operating lease obligations (b)
Purchase obligations (c)
Interest obligations (d)
Letter of credit obligations
Bank guarantees
Uncertain tax positions
Total
Fiscal
2019
Fiscal
2020-
Fiscal 2021
Fiscal
2022-
Fiscal 2023
$
375.5
$
4.5
$
8.9
$
39.5
—
121.8
4.5
11.7
0.6
10.2
—
18.0
1.4
11.7
0.6
—
46.4
$
12.7
—
35.6
3.1
—
—
17.8
78.1
More
Than
Five Years
$
353.2
8.8
—
33.2
—
—
—
8.9
7.8
—
35.0
—
—
—
Other long-term liabilities reflected on the
Company’s balance sheet under GAAP (e)
Total
224.0
777.6
$
$
55.3
107.0
$
150.9
546.1
$
(a) As described in Note 11 to consolidated financial statements.
(b) As described in Note 17 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 cancelable open purchase orders to be executed in the normal course of business approximate $54 million.
(d) Estimated for our Term Loan and Revolving Credit Facility and interest rate swaps as described in Note 9 and Note 11 to
our consolidated financial statements. Calculated using a Eurocurrency rate of 2.30% plus an applicable margin of 2.50%.
(e) For additional details, see Note 10 to our consolidated financial statements. Excludes uncertain tax positions of $0.1 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 2018, 2017, and 2016 were $14,515,000,
$14,368,000, and 22,320,000 respectively. Excluded from fiscal 2018 capital expenditures is $0, $0, and $1,638,000 in property,
plant and equipment purchases included in accounts payable at March 31, 2018, 2017, and 2016, respectively. We expect capital
expenditure spending in fiscal 2019 to range between $15,000,000 and $20,000,000, 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.
29
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.
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 12 to our fiscal 2018 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 and these differences are typically accounted for as actuarial gains or losses that are amortized over future
periods.
The weighted average pension discount rate assumptions of 3.49%, 3.65%, and 4.30%, as of March 31, 2018, 2017, and 2016,
respectively, are based on long-term AA rated corporate and municipal bond rates. The weighted average expected long term rate
of return on plan assets assumptions of 6.77%, 7.23%, and 7.22% for the years ended March 31, 2018, 2017, and 2016, respectively,
is based on the targeted plan asset allocation which follows a sliding risk scale based on funding levels (approximately 46% - 42%
equities and 54% - 58% fixed income) and their long-term historical returns. Our under-funded status for all pension plans as of
March 31, 2018 and 2017 was $135,539,000 and $150,431,000, or 29.3% and 31.9% of the projected benefit obligation, respectively.
Our pension contributions during fiscal 2018 and 2017 were approximately $11,211,000 and $6,140,000, respectively. The under-
funded status may result in future pension expense increases. Pension expense (benefit) for the March 31, 2019 fiscal year is
expected to approximate a benefit of ($602,000), compared to fiscal 2018 expense of $690,000. The benefit expected in fiscal
2019 is the result of amendments to two of the Company's U.S pension plans which froze benefits. Pension funding contributions
for the March 31, 2019 fiscal year are expected to approximate $11,353,000. The weighted-average compensation increase
assumption of 0.39%, 0.39%, and 0.44% as of March 31, 2018, 2017, and 2016, respectively is based on expected wage trends
and historical patterns.
The healthcare costs inflation assumptions of 6.3%, 6.5%, and 6.8% for fiscal 2018, 2017, and 2016, 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.
Insurance Reserves. Our accrued general and product liability reserves as described in Note 15 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.
30
Goodwill and indefinite-lived intangible asset impairment testing. Our goodwill balance of $347,434,000 as of March 31, 2018
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, or in circumstances where the components share assets or other
resources and have other economic interdependencies). We have four reporting units, only two of which have goodwill. Duff-
Norton and Rest of Products reporting units have goodwill totaling $9,721,000, and $337,713,000, respectively, at March 31,
2018.
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 quantitative impairment test. We also proceed to the quantitative model when
economic or other business factors indicate that the fair value of our reporting units may have declined since our last quantitative
test. We performed the qualitative assessment as of February 28, 2018 and determined that it was not more likely than not that
the fair value of each of our reporting units was less than that its applicable carrying value. Accordingly, we did not perform the
quantitative goodwill impairment test for any of our reporting units during fiscal 2018.
We further test our indefinite-lived intangible asset balance of $48,874,000 consisting of trademarks on our recent acquisitions
on an annual basis for impairment. Similar to goodwill, we first assess various qualitative factors in the analysis. If, after completing
this assessment, it is determined that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than
its carrying value, we proceed to a quantitative impairment test. We performed the qualitative assessment as of February 28, 2018
and determined that it was not more likely than not that the fair value of each of our indefinite-lived intangible assets was less
than that its applicable carrying value, other than Magnetek's indefinite-lived trademark. We proceeded to the quantitative test for
this intangible asset. The methodology used to value the Magnetek indefinite-lived trademark is the relief from royalty method.
If the recorded book value of the trademark is in excess of the calculated fair value, an impairment is indicated. The key estimate
used in this calculation consists of an overall royalty rate applied to the sales covered by the trademark. After performing the
analysis, it was determined that the fair value of the Magnetek indefinite-lived trademark exceeded its carrying value, and as such,
no other impairment was recorded.
Purchase Price Allocations for Business Combinations. During the fiscal year ended March 31, 2017, we completed a business
combination for a total purchase price of $248,246,000. 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, favorable
supply agreements, backlog, and technology. 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 $143,039,000. The resulting goodwill was
$150,386,000.
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, 2018 the allowance for doubtful accounts totaled $3,520,000.
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):
31
Property, plant and equipment, net
Acquired intangibles with estimable useful lives
Other assets
Balance as of
March 31,
2018
$
113.1
214.9
17.8
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.
Effects of New Accounting Pronouncements
Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated
financial statements included in this March 31, 2018 10-K report.
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.
32
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 2018, 47% 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. With our fiscal year 2017 acquisition of STAHL, we have an increased presence
in the United Arab Emirates, with total assets of approximately $15,200,000. 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 $3,000,000 on our income from operations. In addition, the majority of our export sale transactions are
denominated in U.S. dollars.
The Company has cross currency swap agreements that are designated as cash flow hedges to hedge changes in the value of
intercompany loans to a foreign subsidiary due to changes in foreign exchange rates. This intercompany loan is related to the
acquisition of STAHL. The notional amount of these derivatives is $215,130,000, and all of the contracts mature by January 31,
2022. From its March 31, 2018 balance of accumulated other comprehensive gain (loss), or “AOCL,” the Company expects to
reclassify approximately $132,000 out of AOCL, and into foreign currency exchange loss (gain), during the next 12 months based
on the contractual payments due under these intercompany loans.
The Company has foreign currency forward agreements in place to offset changes in the value of other intercompany loans to
foreign subsidiaries due to changes in foreign exchange rates. The notional amount of these derivatives is $3,500,000 and all of
the contracts mature by June 30, 2018. 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 foreign currencies. The notional amount of those derivatives is $13,474,000 and all contracts
mature by March 31, 2019. From its March 31, 2018 balance of AOCL, the Company expects to reclassify approximately $10,000
out of AOCL during the next 12 months based on the underlying transactions of the sales of the goods purchased.
The Company's policy is to maintain a capital structure that is comprised of 50-70% of fixed rate long-term debt and 30-50% of
variable rate long-term debt. The Company entered into two interest rate swap agreements in which the Company receives interest
at a variable rate and pays interest at a fixed rate. These interest rate swap agreements are designated as cash flow hedges to hedge
changes in interest expense due to changes in the variable interest rate of the senior secured term loan. The amortizing interest
rate swaps mature by December 31, 2023 and have a total notional amount of $229,830,000 as of March 31, 2018. The effective
portion of the changes in fair values of the interest rate swaps is reported in AOCL and will be reclassified to interest expense over
the life of the swap agreements. The ineffective portion was not material and was recognized in the current period interest expense.
From its March 31, 2018 balance of AOCL, the Company expects to reclassify approximately $503,000 out of AOCL, and into
interest expense, during the next 12 months.
33
Item 8.
Financial Statements and Supplemental Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Columbus McKinnon Corporation
Audited Consolidated Financial Statements as of March 31, 2018:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements Of Comprehensive Income
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
Description of Business
Accounting Principles and Practices
Acquisitions
Fair Value Measurements
Inventories
Marketable Securities and Other Investments
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.
34
35
36
37
38
39
40
41
41
45
47
50
50
52
52
54
57
58
60
67
67
72
76
79
80
81
82
84
86
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Columbus McKinnon Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation (the Company) as of March
31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 2018, and the related notes and the financial statement schedule listed
in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2018 and 2017,
and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2018, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of March 31, 2018, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated May 30, 2018, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since at least 1917, but we are unable to determine the specific year.
Buffalo, New York
May 30, 2018
35
COLUMBUS McKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful accounts ($3,520 and $2,676,
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
Term loan and revolving credit facility
Other non-current liabilities
Total liabilities
Shareholders’ equity:
Voting common stock: 50,000,000 shares authorized; 23,045,479 and 22,565,613 shares issued
and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes.
March 31,
2018
2017
(In thousands, except
share data)
$
63,021
$
77,591
127,806
152,886
16,582
360,295
113,079
347,434
263,764
7,673
32,442
17,759
$ 1,142,446
111,569
130,643
21,147
340,950
113,028
319,299
256,183
7,686
61,857
14,840
$ 1,113,843
$
$
46,970
99,963
60,064
206,997
33
303,221
223,966
734,217
40,994
97,397
52,568
190,959
41
368,710
212,783
772,493
230
269,360
197,897
(59,258)
408,229
$ 1,142,446
226
258,853
179,735
(97,464)
341,350
$ 1,113,843
36
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
2017
(In thousands, except per share data)
2016
2018
Net sales
Cost of products sold
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Impairment of intangible asset
Amortization of intangibles
Income from operations
Interest and debt expense
Cost of debt refinancing
Investment (income) loss, net
Foreign currency exchange loss (gain), net
Other (income) expense, net
Income from continuing operations before income tax expense
Income tax expense
Net income
Average basic shares outstanding
Average diluted shares outstanding
Basic income per share
Diluted income per share
Dividends declared per common share
$
$
$
$
$
839,419
554,845
284,574
101,956
83,350
13,617
—
15,552
70,099
19,733
—
(157)
1,539
(701)
49,685
27,620
22,065
22,841
23,335
0.97
0.95
0.17
$
$
$
$
$
637,123
444,191
192,932
77,319
69,928
10,482
1,125
8,105
25,973
10,966
1,303
(462)
1,232
(93)
13,027
4,043
8,984
20,591
20,888
0.44
0.43
0.16
$
$
$
$
$
597,103
409,840
187,263
72,858
61,418
7,393
—
5,024
40,570
7,904
—
(796)
2,215
(377)
31,624
12,045
19,579
20,079
20,315
0.98
0.96
0.16
See accompanying notes.
37
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss), net of tax:
March 31,
2017
2016
2018
(In thousands)
$ 22,065
$
8,984
$
19,579
Foreign currency translation adjustments
Pension liability adjustments, net of taxes of $(4,981), $(6,043), and $4,635
Other post retirement obligations adjustments, net of taxes of $(153), $(317), and
$(372)
Split-dollar life insurance arrangement adjustments, net of taxes of $(70), $(82), and
$(66)
Change in derivatives qualifying as hedges, net of taxes of $(1,519), $900, and $430
21,717
12,047
(9,379)
9,453
3,650
(5,394)
484
524
604
206
3,563
131
(3,514)
105
(1,031)
Change in investments:
Unrealized holding (loss) gain arising during the period, net of taxes of $(124), $(93),
and $43
Reclassification adjustment for gain included in net income, net of taxes of $0, $56, and
$83
Net change in unrealized gain (loss) on investments
Total other comprehensive income (loss)
Comprehensive income
189
—
189
38,206
$ 60,271
$
173
(79)
(105)
68
(2,717)
6,267
$
(154)
(233)
(2,299)
17,280
See accompanying notes.
38
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
Common
Stock
($0.01 par
value)
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance at April 1, 2015
Net income 2016
Dividends declared
$
Change in foreign currency translation adjustment
Change in net unrealized gain on investments, net of tax of $126
Change in derivatives qualifying as hedges, net of tax of $430
Change in pension liability and postretirement obligations, net
of tax of $4,197
Stock compensation - directors
Stock options exercised, 16,033 shares
Stock compensation expense
Tax effect of exercise of stock options
Shares retired
Restricted stock units released, 75,370 shares, net of shares
withheld for minimum statutory tax obligation
Balance at March 31, 2016
Net income 2017
Dividends declared
Change in foreign currency translation adjustment
Change in net unrealized gain on investments, net of tax of $(37)
Change in derivatives qualifying as hedges, net of tax of $900
Change in pension liability and postretirement obligations, net
of tax of $(6,442)
Stock compensation - directors
Stock options exercised, 27,848 shares
Stock compensation expense
Tax effect of exercise of stock options
Issuance of 2,273,000 shares of common stock in January 2017
offering at $22.00 per share, net of issuance costs of $2,700
Restricted stock units released, 154,897 shares, net of shares
withheld for minimum statutory tax obligation
Balance at March 31, 2017
Net income 2018
Dividends declared
Change in foreign currency translation adjustment
Change in net unrealized gain on investments, net of tax of
$(124)
Change in derivatives qualifying as hedges, net of tax of
$(1,519)
Change in pension liability and postretirement obligations, net
of tax of $(5,205)
Stock compensation - directors
Stock options exercised, 363,091 shares
Stock compensation expense
Restricted stock units released, 116,775 shares, net of shares
withheld for minimum statutory tax obligation
200
—
—
—
—
—
—
—
1
—
—
—
—
$
203,156
$ 157,811
$
(92,448) $
268,719
—
—
—
—
—
—
440
242
3,623
118
(10)
(887)
19,579
(3,217)
—
—
—
—
—
—
—
—
—
—
—
—
3,650
(233)
(1,031)
(4,685)
—
—
—
—
—
—
19,579
(3,217)
3,650
(233)
(1,031)
(4,685)
440
243
3,623
118
(10)
(887)
$
201
$
206,682
$ 174,173
$
(94,747) $
286,309
—
—
—
—
—
—
—
2
—
—
23
—
—
—
—
—
—
—
440
439
5,474
(197)
47,283
(1,268)
8,984
(3,422)
—
—
—
—
—
—
—
—
—
—
—
—
(9,379)
68
(3,514)
10,108
—
—
—
—
—
—
8,984
(3,422)
(9,379)
68
(3,514)
10,108
440
441
5,474
(197)
47,306
(1,268)
$
226
$
258,853
$ 179,735
$
(97,464) $
341,350
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
430
6,328
5,156
(1,407)
22,065
(3,903)
—
—
—
—
—
—
—
—
—
—
21,717
189
3,563
12,737
—
—
—
—
22,065
(3,903)
21,717
189
3,563
12,737
430
6,332
5,156
(1,407)
Balance at March 31, 2018
$
230
$
269,360
$ 197,897
$
(59,258) $
408,229
See accompanying notes.
39
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 and related valuation allowance
Loss on sale of real estate/investments and other
Cost of debt repricing/refinancing
Impairment of tangible assets
Amortization of deferred financing costs and discount on debt
Stock-based compensation
Purchase accounting adjustment related to working capital amortization
Net loss on foreign exchange option
Impairment of intangible asset
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 sales of marketable securities
Purchases of marketable securities
Capital expenditures
Net loss on foreign exchange option
Purchases of businesses, net of cash acquired
Net payment to former STAHL owner
Cash paid for equity investment
Net cash used for investing activities
Financing activities:
Proceeds from the issuance of common stock
Payment of dividends
Restricted cash related to purchase of business
Net borrowings (repayments) under lines of credit
Repayment of debt
Proceeds from issuance of long term debt
Fees related to debt repricing/refinancing and equity offerings
Other
Net cash (used for) provided by 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
Non cash release of restricted cash
$
$
$
$
$
See accompanying notes.
40
Year ended March 31,
2018
2017
2016
(In thousands)
$
22,065
$
8,984
$
19,579
36,136
19,968
47
619
—
2,681
5,586
—
—
—
(9,308)
(12,249)
1,727
3,338
3,833
11,918
(16,700)
69,661
653
(327)
(14,515)
—
25,162
489
14
1,303
—
1,015
5,914
8,852
1,590
1,125
(785)
8,173
6,121
(3,044)
1,002
(2,380)
(3,085)
60,450
12,336
(1,571)
(14,368)
(1,590)
20,531
7,336
34
—
429
600
4,063
—
—
—
12,409
2,483
(375)
3,179
(5,308)
(5,799)
(6,516)
52,645
5,869
(4,311)
(22,320)
—
—
(218,846)
(182,467)
—
—
—
—
(224,039)
(203,229)
(14,750)
(3,359)
(32,298)
6,332
(3,658)
—
—
(60,144)
—
(619)
(1,413)
(59,502)
7,569
(14,570)
77,591
63,021
18,914
706
$
$
$
50,439
(3,326)
(588)
(155,000)
(125,730)
445,000
(19,409)
(1,265)
190,121
(544)
25,988
51,603
77,591
10,633
1,893
$
$
$
242
(3,212)
—
154,057
(13,187)
—
—
(897)
137,003
2,128
(11,453)
63,056
51,603
7,649
4,175
1,638
822
— $
294
$
— $
— $
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 global designer, manufacturer and marketer of hoists, actuators,
cranes, rigging tools, digital power control systems, and other material handling products, which efficiently and safely move, lift,
position, and secure materials. Key products include hoists, rigging tools, cranes, actuators, digital power control and delivery
systems, and elevator application drive systems. On January 31, 2017, the Company acquired STAHL CraneSystems (“STAHL”).
STAHL is a leading manufacturer of explosion-protected hoists and crane components specializing in custom engineering of lifting
solutions and hoisting technology. STAHL serves independent crane builders and Engineering Procurement and Construction
(EPC) firms, providing products to a variety of end markets including automotive, general manufacturing, oil & gas, steel &
concrete, power generation as well as process industries such as chemical and pharmaceuticals.
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 2018, approximately 53% 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 $2,683,000, $1,748,000, and $1,690,000 in fiscal 2018, 2017, and 2016, respectively.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less.
Concentrations of Labor
Approximately 10% of the Company’s employees are represented by three separate U.S. collective bargaining agreements which
expire May 2020, April 2021, and September 2021.
Consolidation
These consolidated financial statements include the accounts of the Company and its global subsidiaries; all significant
intercompany accounts and transactions have been eliminated.
Equity Method Investment
The Company has an investment in Eastern Morris Cranes Company Limited (EMC) whose principal activity is to manufacture
various electrical overhead traveling cranes. This investment represents a minority ownership interest that is accounted for under
the equity method of accounting since the Company has significant influence over the investee. As a result, the Company records
its portion of the gains and losses incurred by this entity in Investment (income) loss in the consolidated statements of operations.
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
41
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
conduct their business. Gains and losses from foreign currency transactions are reported in foreign currency exchange loss (gain).
There were net losses, including changes in the fair value of derivatives, on foreign currency transactions of approximately
$1,539,000, $1,232,000, and $2,215,000 in fiscal 2018, 2017, and 2016, respectively.
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 and interdependencies 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. Further, as discussed in Note 21,
in January 2017 the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment (Topic 350)," which removes
the requirement to compare the implied fair value of goodwill with its carrying value amount as part of step two of the goodwill
test. Therefore, an impairment charge is the amount by which the carrying value is greater than the reporting unit's fair value (step
one).
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 or if economic or other business factors indicate that the fair value of our reporting
units may have declined since our last quantitative test, the Company performs a quantitative test.
To perform the quantitative 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, 2018 and determined that the quantitative goodwill
impairment test was not required for both the Rest of Products reporting unit and the Duff-Norton reporting unit. Based on various
conditions in the current fiscal year, such as the Company's financial performance, macroeconomic conditions, and other company
specific events, the Rest of Products and Duff Norton reporting units' fair value was likely not less than its applicable carrying
value. See Note 8 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 over its remaining
useful life. 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. The fair values are
determined in accordance with ASC 820.
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
42
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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. No impairment was
recorded related to long-lived assets in the current year.
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 1 to 25 years.
Similar to goodwill, indefinite-lived intangible assets (including trademarks on our acquisitions) are tested for impairment on an
annual basis. When the Company evaluates the potential for impairment of intangible assets, 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 or if economic or other business factors indicate that the
fair value of our reporting units may have declined since our last quantitative test, the Company performs a new quantitative test.
The methodology used to value trademarks is the relief from royalty method. The recorded book value of these trademarks in
excess of the calculated fair value triggers an impairment. The key estimate used in this calculation consists of an overall royalty
rate applied to the sales covered by the trademark. After performing this analysis, it was determined that the fair value of trademarks
exceeded their book values, and as such, no impairment was recorded.
Inventories
Inventories are valued at the lower of cost or market. Cost of approximately 30% and 29% of inventories at March 31, 2018 and
March 31, 2017, 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 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 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.
43
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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 $425,000 at March 31, 2018 and 2017. The building was closed as part of the Company's fiscal 2010 restructuring
activities. During the year ended March 31, 2018 the Company did not change the assets held for sale value.
Research and Development
For its fiscal 2018 financial statements, the Company has reclassified research and development (R&D) expenses previously
recorded in general and administrative expense into a separate line item on the consolidated statements of operations. All periods
presented have been revised to reflect this presentation. With the acquisitions of Magnetek in September 2015 and STAHL
CraneSystems (“STAHL”) in January 2017, the Company expects R&D costs to factor more prominently in our cost structure.
Therefore, the new presentation of R&D costs provides transparency into these costs. Consistent with prior periods, the Company
continues to account for R&D expenses in accordance with the provisions of ASC 730 and are expensed as incurred.
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 standard 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 depending on the nature of the service of the employee
receiving the award. 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 14 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.
44
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:
Balance at beginning of year
Accrual for warranties issued
Warranties settled
Warranties assumed in STAHL acquisition
Balance at end of year
3.
Acquisitions
March 31,
2018
2017
$
$
4,081
2,716
(3,006)
—
3,791
$
$
1,229
1,988
(2,084)
2,948
4,081
On July 15, 2016, the Company purchased 100% of the assets of Ergomatic Products LLC ("Ergomatic"), a designer and
manufacturer of ergonomic lift assists, articulating arms, torque tubes, and pneumatic control systems for material handling and
tool suspension applications. The purchase price of the transaction was $1,175,000, of which $587,000 was paid to the seller on
the day of closing with the remainder due to the seller over a two year period.
In connection with the acquisition of Ergomatic, the Company withheld $588,000 to be paid to the seller upon satisfaction of
certain conditions. Of this amount, $294,000 was paid to the seller in July 2017 and the remaining $294,000 is expected to be paid
in July 2018. The Company has recorded short term restricted cash on its consolidated balance sheets of $294,000 within prepaid
expenses and a short term liability of $294,000 within accrued liabilities at March 31, 2018.
The allocation of the purchase price to the assets and liabilities of Ergomatic is now complete as the measurement period has
closed. The identifiable intangible assets acquired primarily includes engineered drawings of $677,000 with an estimated useful
life of 20 years. The assignment of the purchase consideration to the assets acquired and liabilities assumed is as follows (in
thousands):
Working capital
Property, plant, and equipment
Intangible assets
Total purchase consideration
$
$
212
246
717
1,175
On January 31, 2017, the Company completed its acquisition of STAHL for $217,773,000, net of cash acquired. STAHL is a
leading manufacturer of explosion-protected hoists and crane components as well as provides custom engineered lifting solutions
and hoisting technology with annual sales of approximately $170,000,000. STAHL serves independent crane builders and
Engineering Procurement and Construction (EPC) firms, providing products to a variety of end markets including automotive,
general manufacturing, oil & gas, steel & concrete, power generation, as well as process industries such as chemical and
pharmaceuticals.
The results of STAHL included in the Company’s consolidated financial statements from the date of acquisition are net sales and
income (loss) from operations of $24,682,000 and ($6,022,000), respectively for the year ended March 31, 2017 and $173,166,000
and $18,553,000, respectively for the year ended March 31, 2018. STAHL's loss from operations for the year ended March 31,
45
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
2017 includes acquisition-related inventory amortization of $8,852,000. These costs have been included in cost of goods sold.
Acquisition expenses incurred by the Company total $8,454,000 and were all incurred in fiscal 2017 and have been recorded in
general and administrative expenses. Additionally, in fiscal 2018 the Company incurred $8,763,000 in STAHL integration costs.
To finance the STAHL acquisition, the Company, completed securing a $545,000,000 debt facility (New Facilities) with JPMorgan
Chase Bank, N.A. (JP Morgan Chase Bank). The New Facilities consist of a New Revolving Facility in the amount of $100,000,000
and a $445,000,000 1st Lien Term Loan. Proceeds from the New Facility were used to fund the STAHL acquisition, pay fees and
expenses associated with the acquisition, and refinance the Company’s existing Term Loan and Credit Facility. During fiscal 2018
and 2017 the Company had not drawn on the New Revolving Facility and had repaid $57,037,000 and $12,500,000, respectively
on the 1st Lien Term Loan. Please refer to Note 11 for additional information related to the Company's debt facilities.
In addition to the debt borrowing described above, the Company entered into an agreement to sell in aggregate 2,273,000 shares
of Common Shares to the following purchasers: Adage Capital Management, LP; Heights Capital Management, Inc.; and UBS
O'Connor LLC. The sale of the shares closed on January 30, 2017 at a price per Common Share of $22.00, generating gross
proceeds of approximately $50,000,000. The purchase agreement for the shares required the Company to file an initial registration
statement registering the common shares issued to the purchasers for resale. The filing of the registration statement was completed
and declared effective on April 28, 2017.
The allocation of the purchase price to the assets and liabilities of STAHL is now complete as the measurement period has closed.
The excess consideration of $150,386,000 recorded as goodwill reflects an increase of $64,000 from that which was recorded as
of March 31, 2017. The increase is due to an adjustment to the amount allocated to STAHL's other assets and other liabilities offset
by a decrease due to a payment received in the first quarter of fiscal 2018 from the prior owner of STAHL as a result of a working
capital true up. The identifiable intangible assets acquired include customer relationships of $120,220,000, trademark and trade
names of $18,191,000, patents and technology of $2,660,000, and other intangibles totaling $1,968,000. The weighted average
life of the acquired identifiable intangible assets subject to amortization was estimated at 16 years at the time of acquisition.
Goodwill recorded in connection with the acquisition is not deductible for income tax purposes.
The assignment of purchase consideration to the assets acquired and liabilities assumed is as follows:
Cash
Working capital
Property, plant, and equipment
Intangible assets
Other assets
Other liabilities
Deferred taxes, net
Goodwill
Total
$
$
30,473
18,593
14,234
143,039
233
(75,162)
(33,550)
150,386
248,246
For each of the Company's acquisitions disclosed, 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 acquired companies.
Included within accrued liabilities at March 31, 2017 is $14,103,000 due to the former owner of STAHL related to a profit distribution
agreement in place prior to the acquisition. This was paid to the former owner during the first quarter of fiscal 2018.
See Note 4 for assumptions used in determining the fair values of of the intangible assets acquired.
The following unaudited pro forma financial information presents the combined results of operations as if the acquisitions had
occurred as of April 1, 2016. The pro forma information includes certain adjustments, including depreciation and amortization
expense, interest expense, and certain other adjustments, together with related income tax effects. The pro forma amounts may
not be indicative of the results that actually would have been achieved had the acquisitions occurred as of April 1, 2016 and are
not necessarily indicative of future results of the combined companies (in thousands, except per share data):
46
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Net sales
Net income
Net income per share - Basic
Net income per share - Diluted
March 31,
2018
2017
$
$
$
$
839,419 $
22,065 $
777,847
20,699
0.97 $
0.95 $
0.92
0.91
4.
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.
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 amount of the Company's annuity contract is recorded at net asset value of the contract and,
consequently, its fair value is based on Level 2 inputs and is included in other assets on the Company's consolidated balance sheet.
The Company uses quoted prices in an inactive market when valuing its term loan and, consequently, the fair value is based on
Level 2 inputs. The carrying value of the Company’s senior debt approximates fair value based on current market interest rates
for debt instruments of similar credit standing and, consequently, its fair value is based on Level 2 inputs.
47
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The following table provides information regarding financial assets and liabilities measured or disclosed at fair value on a recurring
basis:
Description
Assets/(Liabilities)
Measured at fair value:
Marketable securities
Annuity contract
Derivative assets (liabilities):
Foreign exchange contracts
Interest rate swap asset
Cross currency swap liability
Cross currency swap asset
Disclosed at fair value:
Term loan
Senior debt
Description
Assets/(Liabilities)
Measured at fair value:
Marketable securities
Annuity contract
Derivative assets (liabilities):
Foreign exchange contracts
Interest rate swap liability
Interest rate swap asset
Cross currency swap liability
Cross currency swap asset
Disclosed at fair value:
Term loan
Senior debt
Fair value measurements at reporting date using
Quoted prices in
active markets for
identical assets
Significant
other observable
inputs
Significant
unobservable
inputs
At March
31, 2018
(Level 1)
(Level 2)
(Level 3)
$
$
7,673
2,575
$
7,673
—
— $
2,575
107
3,961
(40,237)
2,204
—
—
—
—
107
3,961
(40,237)
2,204
$ (378,504) $
(98)
— $
—
(378,504) $
(98)
—
—
—
—
—
—
—
—
Fair value measurements at reporting date using
Quoted prices in
active markets for
identical assets
Significant
other observable
inputs
Significant
unobservable
inputs
At March
31, 2017
(Level 1)
(Level 2)
(Level 3)
$
$
7,686
2,898
$
7,686
—
— $
2,898
18
(1,808)
1,394
(7,580)
3,237
—
—
—
—
—
18
(1,808)
1,394
(7,580)
3,237
$ (436,555) $
(3,159)
— $
—
(436,555) $
(3,159) $
—
—
—
—
—
—
—
—
—
The Company did not have any non-financial assets and liabilities that are recognized at fair value on a recurring basis.
At March 31, 2018, the term loan, revolving credit facility, and senior debt have been recorded at carrying value which approximates
fair value.
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
48
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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.
Fiscal 2018 Non-Recurring Measurements
During fiscal 2018, the Company terminated certain employees in connection with its overall STAHL integration plan. The Company
incurred $4,163,000 in severance and other employee termination costs. The costs incurred were calculated at fair value on a non-
recurring basis using Level 3 inputs which included expected payments. Of this, $1,809,000 is unpaid and included within accrued
liabilities on the Company's consolidated balance sheets.
During fiscal 2018 the Company performed a qualitative analysis of the fair value of its Rest of Products and Duff-Norton reporting
units for its goodwill impairment testing. The qualitative analysis did not require the use of non-recurring fair value measurements.
A similar qualitative analysis was also performed for the Company's STAHL and Unified Industries indefinite-lived intangible
assets.
The Company performed a quantitative analysis to evaluate whether the indefinite-lived intangible assets of Magnetek were
impaired. In performing this analysis, a royalty rate of 2.7% and a discount rate of 10.0% was used.
Fiscal 2017 Non-Recurring Measurements
Assets and liabilities that were measured on a non-recurring basis during fiscal 2017 include assets and liabilities acquired in
connection with the acquisition of STAHL and Ergomatic described in Note 3. 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. For identifiable intangible assets these techniques included
the excess earnings approach, cost approach, relief from royalty 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 Ergomatic, the most significant valuation inputs included an engineering cost per hour of $40.86 for engineered drawings.
For STAHL significant valuation inputs included an attrition rate of 10.0% for customer relationships, an estimated useful life of
15 years and royalty rate of 2.0% for developed technology, a royalty rate of 1.0% for trademark and trade names, and a weighted
average cost of capital of 10.5%.
Additional assets and liabilities that were measured on a non-recurring basis during fiscal 2017 include the net assets of the
Company’s Rest of Products and Duff-Norton reporting units. 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.”
The fiscal 2017 Step 1 goodwill impairment test consisted of determining a fair value of the Company’s Rest of Products and Duff-
Norton reporting units on a quantitative basis. The fair value for the Company’s Rest of Products and Duff-Norton reporting units
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 and Duff-Norton reporting units, using Level 3 inputs. To estimate the fair value of the Rest of Products and Duff-Norton
reporting units, 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.
For Rest of Products the compound annual growth rate for revenue during the first five years of the projections was approximately
3.2%. The terminal value was calculated assuming a projected growth rate of 3.0% after five years. The estimated weighted-
average cost of capital for the reporting unit was determined to be 10.0% based upon an analysis of similar companies and their
debt to equity mix, their related volatility and the size of their market capitalization.
For the Duff-Norton reporting unit the compound annual growth rate for revenue during the first five years of the projections was
approximately 3.9%. The terminal value was calculated assuming a projected growth rate of 3.5% after five years. The estimated
49
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
weighted-average cost of capital for the reporting units was determined to be 10.2% based upon an analysis of similar companies
and their debt to equity mix, their related volatility, and the size of their market capitalization.
The Company also measured indefinite-lived intangible assets from the Magnetek, STB, and Unified Industries acquisitions on a
non-recurring basis. The fair value measurements were calculated using discounted cash flow analyses which rely upon
unobservable inputs classified as Level 3 inputs. In performing these analyses, royalty rates of 2.5%, 0.3%, and 1.3% were used
for the indefinitely-lived intangible assets of Magnetek, STB, and Unified Industries, respectively. A discount rate of 11.4% was
used for each analysis.
After performing the valuation above, the Company determined that the indefinite-lived STB intangible trademark asset was fully
impaired in fiscal 2017. The impairment was due to lower cash flows and royalty rates than at the time of the acquisition. The
total impairment loss of $1,125,000 was recorded within intangible asset impairment on the Company's statement of operations.
See Note 8 for additional discussion on the Company's goodwill impairment assessment and the conclusions reached.
5.
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,
2018
2017
$
$
84,492
43,140
40,321
167,953
(15,067)
152,886
$
$
74,716
39,117
33,666
147,499
(16,856)
130,643
There were LIFO liquidations resulting in $547,000 and $384,000 of additional income in fiscal 2017 and 2016 income,
respectively. LIFO liquidations were not material during fiscal 2018.
6.
Marketable Securities and Other Investments
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. (CMIC), 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,
50
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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 2018, 2017, or 2016.
During fiscal 2017, CMIC obtained approval from the New York State Department of Finance Services to loan up to $10,000,000
to the Company based on arms-length terms and conditions. CMIC initially loaned $6,000,000 to the Company during fiscal 2017.
To fund this intercompany loan, CMIC sold a portion of its marketable security portfolio with a cost of $5,938,000 and a fair value
of $6,000,000 resulting in a realized gain of $62,000. During fiscal 2018 the loan was increased to $10,000,000 to settle
intercompany payables due to CMIC.
The following is a summary of available-for-sale securities at March 31, 2018 (In thousands):
Marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
7,149
$
588
$
64
Estimated
Fair Value
7,673
$
The aggregate fair value of investments and unrealized losses on available-for-sale securities in an unrealized loss position at
March 31, 2018 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
1,859
$
1,285
3,144
$
Unrealized
Losses
$
$
26
38
64
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, 2018 were temporary in nature.
Net realized gains and losses related to sales of marketable securities are included in investment (income) loss in the consolidated
statements of operations. There were no material net realized gains and losses in fiscal 2018. Net realized gains were $161,000,
and $235,000, in fiscal years 2017 and 2016, respectively.
The following is a summary of available-for-sale securities at March 31, 2017 (In thousands):
Marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
7,475
$
248
$
37
Estimated
Fair Value
7,686
$
The aggregate fair value of investments and unrealized losses on available-for-sale securities in an unrealized loss position at
March 31, 2017 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
2,050
$
—
2,050
$
Unrealized
Losses
$
$
37
—
37
51
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Net unrealized gains included in the balance sheet amounted to $524,000 at March 31, 2018 and $211,000 at March 31, 2017. The
amounts, net of related deferred tax liabilities of $110,000 and $74,000 at March 31, 2018 and 2017, respectively, are reflected as
a component of accumulated other comprehensive loss within shareholders’ equity.
On December 21, 2017, the Company purchased a 49% ownership of Eastern Morris Cranes Company Limited (EMC), a limited
liability company organized and existing under the laws and regulations of the Kingdom of Saudi Arabia, for $3,359,000. This
represents an equity investment in a strategic customer of STAHL serving the Kingdom of Saudi Arabia. The investment value
was increased for the Company's ownership percentage of income earned by EMC during the fiscal year. The investment's carrying
value as of March 31, 2018 is $3,404,000 and has been accounted for as an equity method investment. It is presented in other
assets in the consolidated balance sheet. The March 31, 2018 trade accounts receivable balance due from EMC is $4,930,000 and
is comprised of amounts due for the sale of goods and services in the ordinary course of business. In trade accounts payable there
is $196,000 due to EMC as of March 31, 2018 for services performed.
7.
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,
2018
2017
7,031
42,330
275,685
13,461
338,507
225,428
113,079
$
$
6,585
41,536
221,569
10,543
280,233
167,205
113,028
$
$
Buildings include assets recorded under capital leases amounting to $4,838,000 as of March 31, 2018 and 2017. Machinery,
equipment, and leasehold improvements include assets recorded under capital leases amounting to $1,434,000 and $1,017,000 as
of March 31, 2018 and 2017, respectively. Accumulated depreciation includes accumulated amortization of the assets recorded
under capital leases amounting to $4,329,000 and $3,953,000 at March 31, 2018 and 2017, respectively.
Depreciation expense, including amortization of assets recorded under capital leases, was $20,584,000, $17,057,000, and
$15,507,000 for the years ended March 31, 2018, 2017, and 2016, respectively.
Gross property, plant, and equipment includes capitalized software costs of $38,937,000 and $34,386,000 at March 31, 2018 and
2017, respectively. Accumulated depreciation includes accumulated amortization on capitalized software costs of $17,754,000
and $14,792,000 at March 31, 2018 and 2017, respectively. Amortization expense on capitalized software costs was $3,151,000,
$4,357,000, and $2,085,000 during the years ended March 31, 2018, 2017, and 2016, respectively.
During fiscal year 2019, the Company initiated a process to sell the assets of two of its product lines. The assets of these product
lines totaled $4,701,000 at March 31, 2018. The asset sales are expected to be completed within the next 12 months.
8.
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 and interdependencies 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
52
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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, 2018 and 2017. Only two of the four reporting units carried goodwill at March 31, 2018
and March 31, 2017. The Duff-Norton reporting unit (which designs, manufactures, and sources mechanical and electromechanical
actuators and rotary unions) had goodwill of $9,721,000 and $9,555,000 at March 31, 2018 and 2017, respectively, and the Rest
of Products reporting unit (representing the hoist, chain, and forgings, digital power control systems, and distribution businesses)
had goodwill of $337,713,000 and $309,744,000 at March 31, 2018 and 2017, respectively. During fiscal 2017 STAHL was
determined to be part of the Rest of Products reporting unit.
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 or if economic or other business factors indicate that the fair value of our reporting units may
have declined since our last quantitative test, we proceed to a quantitative impairment test. We performed the qualitative assessment
as of February 28, 2018 and determined that it was not more likely than not that the fair value of each of our reporting units was
less than their applicable carrying value. Accordingly, we did not perform the quantitative goodwill impairment test for any of
our reporting units during fiscal 2018.
In accordance with ASC Topic 350-30-35, indefinite-lived intangible assets that are not subject to amortization shall be tested for
impairment annually or more frequently if events or circumstances indicate that it is more likely than not that an asset is impaired.
Similar to goodwill, we first assess various qualitative factors in the analysis. If, after completing this assessment, it is determined
that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we proceed
to a quantitative impairment test. We performed the qualitative assessment as of February 28, 2018 and determined that it was not
more likely than not that the fair value of each of our indefinite-lived intangible assets was less than that its applicable carrying
value, other than Magnetek's indefinite-lived trademark. We proceeded to the quantitative test for this intangible asset. The
methodology used to value the Magnetek indefinite-lived trademark is the relief from royalty method. If the recorded book value
of the trademark is in excess of the calculated fair value, an impairment is indicated. The key estimate used in this calculation
consists of an overall royalty rate applied to the sales covered by the trademark. After performing the analysis, it was determined
that the fair value of the Magnetek indefinite-lived trademark exceeded its carrying value, and as such, no impairment was recorded.
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, 2018 and 2017 is as follows:
Balance at April 1, 2016
Acquisition of STAHL (See Note 3)
Currency translation
Balance at March 31, 2017
STAHL measurement period adjustment (see Note 3)
Currency translation
Balance at March 31, 2018
$
$
$
170,716
150,322
(1,739)
319,299
64
28,071
347,434
Goodwill is recognized net of accumulated impairment losses of $107,000,000 as of March 31, 2018 and 2017, respectively.
There were no goodwill impairment losses recorded in fiscal 2018, 2017, or 2016.
Intangible assets at March 31, 2018 are as follows:
53
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Trademark
Indefinite-lived trademark
Customer relationships
Acquired technology
Other
Balance at March 31, 2018
Intangible assets at March 31, 2017 were as follows:
Trademark
Indefinite-lived trademark
Customer relationships
Acquired technology
Other
Balance at March 31, 2017
Gross
Carrying
Amount
5,875
$
48,874
199,045
46,898
3,936
$ 304,628
Gross
Carrying
Amount
5,151
$
46,018
177,983
46,574
3,471
$ 279,197
$
$
Accumulated
Amortization
$
Net
(3,299) $
2,576
48,874
—
(27,887)
171,158
(7,436)
39,462
(2,242)
1,694
(40,864) $ 263,764
Accumulated
Amortization
$
Net
(2,616) $
—
(14,873)
(4,603)
(922)
2,535
46,018
163,110
41,971
2,549
(23,014) $ 256,183
The Company’s intangible assets that are considered to have finite lives are amortized over the period in which the assets are
expected to generate future cash flows. The weighted-average amortization periods are 17 years for trademarks, 18 years for
customer relationships, 18 years for acquired technology, 6 years for other, and 18 years in total. Trademarks with a book value
of $48,874,000 have an indefinite useful life and are therefore not being amortized. Total amortization expense was $15,552,000,
$8,105,000, and $5,024,000 for fiscal 2018, 2017, and 2016, 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 $16,000,000.
Intangible assets are recognized net of accumulated impairment losses of $1,125,000 as of March 31, 2018 and 2017, respectively.
9.
Derivative Instruments
The Company uses derivative instruments to manage selected foreign currency and interest rate 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 foreign currency forward agreements
is reported in foreign currency exchange loss (gain) in the Company’s consolidated statement of operations. The ineffective portion
of changes in the fair value of the interest rate swap agreements is reported in interest expense. For derivatives not designated as
cash flow hedges, all changes in market value are recorded as a foreign currency exchange (gain) loss 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 is exposed to credit losses in the event of non-performance by the counterparties on its financial instruments. The
counterparties have investment grade credit ratings. The Company anticipates that these counterparties will be able to fully satisfy
their obligations under the contracts. The Company has derivative contracts with four counterparties as of March 31, 2018.
The Company's agreements with its counterparties contain provisions pursuant to which the Company could be declared in default
of its derivative obligations. As of March 31, 2018, the Company had not posted any collateral related to these agreements. If the
Company had breached any of these provisions as of March 31, 2018, it could have been required to settle its obligations under
54
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
these agreements at amounts which approximate the March 31, 2018 fair values reflected in the table below. During the year
ended March 31, 2018, the Company was not in default of any of its derivative obligations.
As of March 31, 2018 and 2017, the Company had no derivatives designated as net investments or fair value hedges in accordance
with ASC Topic 815, “Derivatives and Hedging.”
The Company has cross currency swap agreements that are designated as cash flow hedges to hedge changes in the value of
intercompany loans to a foreign subsidiary due to changes in foreign exchange rates. These intercompany loans are related to the
acquisition of STAHL. The notional amount of these derivatives is $215,130,000, and all of the contracts mature by January 31,
2022. From its March 31, 2018 balance of AOCL, the Company expects to reclassify approximately $132,000 out of AOCL, and
into foreign currency exchange loss (gain), during the next 12 months based on the contractual payments due under these
intercompany loans.
The Company has foreign currency forward agreements in place to offset changes in the value of other intercompany loans to
foreign subsidiaries due to changes in foreign exchange rates. The notional amount of these derivatives is $3,500,000 and all of
the contracts mature by June 30, 2018. 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 foreign currencies. The notional amount of those derivatives is $13,474,000 and all contracts
mature by March 31, 2019. From its March 31, 2018 balance of AOCL, the Company expects to reclassify approximately $10,000
out of AOCL during the next 12 months based on the underlying transactions of the sales of the goods purchased.
The Company's policy is to maintain a capital structure that is comprised of 50-70% of fixed rate long-term debt and 30-50% of
variable rate long-term debt. The Company has two interest rate swap agreements in which the Company receives interest at a
variable rate and pays interest at a fixed rate. These interest rate swap agreements are designated as cash flow hedges to hedge
changes in interest expense due to changes in the variable interest rate of the senior secured term loan. The amortizing interest rate
swaps mature by December 31, 2023 and have a total notional amount of $229,830,000 as of March 31, 2018. The effective
portion of the changes in fair values of the interest rate swaps is reported in AOCL and will be reclassified to interest expense over
the life of the swap agreements. The ineffective portion was not material and was recognized in the current period interest expense.
From its March 31, 2018 balance of AOCL, the Company expects to reclassify approximately $503,000 out of AOCL, and into
interest expense, during the next 12 months.
The following is the effect of derivative instruments on the consolidated statements of operations for the years ended March 31,
2018, 2017, and 2016 (in thousands):
55
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Derivatives
Designated as
Cash Flow
Hedges
March 31,
2018
2018
2018
2017
2017
2017
2016
2016
Type of Instrument
Foreign exchange contracts
Interest rate swap
Cross currency swap
Foreign exchange contracts
Interest rate swap
Cross currency swap
Foreign exchange contracts
Interest rate swap
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)
$
$
$
$
$
$
$
$
(219) Cost of products sold
Interest expense
1,339
Foreign currency
exchange loss (gain)
(24,838)
200 Cost of products sold
Interest expense
281
Foreign currency
exchange loss (gain)
(3,686)
(186) Cost of products sold
Interest Expense
(2,025)
$
$
$
$
$
$
$
$
(196)
(1,879)
(25,206)
(40)
(819)
1,168
74
(1,254)
Derivatives Not Designated as
Hedging Instruments (Foreign
Exchange Contracts)
March 31,
2018
2017
2016
Location of Gain or (Loss)
Recognized in
Income on Derivatives
Amount of
Gain or (Loss)
Recognized in
Income on
Derivatives
Foreign currency exchange loss (gain)
Foreign currency exchange loss (gain)
Foreign currency exchange loss (gain)
$
$
$
(11)
(110)
32
The following is information relative to the Company’s derivative instruments in the consolidated balance sheets as of March 31,
2018 and 2017 (in thousands):
Derivatives Designated as
Hedging Instruments
Foreign exchange contracts
Foreign exchange contracts
Interest rate swap
Interest rate swap
Interest rate swap
Cross currency swap
Cross currency swap
Cross currency swap
Fair Value of Asset
(Liability)
March 31,
2018
2017
$
$
213
(75)
662
3,299
—
2,204
(2,028)
(38,209)
161
(123)
—
1,394
(1,808)
3,237
(121)
(7,459)
Balance Sheet Location
Prepaid expenses and other
Accrued Liabilities
Prepaid expenses and other
Other Assets
Accrued Liabilities
Prepaid expenses and other
Accrued liabilities
Other non current liabilities
56
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Derivatives Not Designated as
Hedging Instruments
Foreign exchange contracts
Foreign exchange contracts
Balance Sheet Location
2018
2017
Prepaid expenses and other
$
Accrued Liabilities
— $
(31)
2
(22)
Fair Value of Asset
(Liability)
March 31,
10.
Accrued Liabilities and Other Non-current Liabilities
Consolidated accrued liabilities of the Company consisted of the following:
Accrued payroll
Accrued income taxes payable
Accrued health insurance
Accrued general and product liability costs
Customer advances, deposits, and rebates
Profit sharing
Other accrued liabilities
March 31,
2018
2017
37,391
5,568
1,606
3,500
18,911
—
32,987
99,963
$
$
25,151
2,287
2,982
3,500
19,210
14,103
30,164
97,397
$
$
Accrued liabilities at March 31, 2017 included $14,103,000 due to the former owner of STAHL related to a profit distribution
agreement in place prior to the acquisition. This liability was paid in full during fiscal 2018.
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
Cross currency swap
Deferred income tax
Other non-current liabilities
March 31,
2018
2017
2,835
10,082
131,725
38,209
30,262
10,853
223,966
$
$
3,615
9,835
147,121
7,459
28,689
16,064
212,783
$
$
57
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
11.
Debt
Consolidated long-term debt of the Company consisted of the following:
Capital lease obligations
Total senior debt
Debt assumed in the acquisition of STAHL
Term loan
Unamortized deferred financing costs, net
Total debt
Less: current portion
Total debt, less current portion
March 31,
2018
2017
$
$
98
98
—
375,463
(12,243)
363,318
60,064
551
551
2,608
432,500
(14,340)
421,319
52,568
$
303,254
$
368,751
Through January 31, 2017 the Company had $131,500,000 outstanding under a revolving credit facility ("Replaced Revolving
Credit Facility"). The Replaced Revolving Credit Facility provided availability up to a maximum of $225,000,000 and had an
initial term ending January 23, 2020.
Through January 31, 2017 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"), had outstanding $103,125,000 principal
amount of a senior secured Term Loan ("Replaced Term Loan") which matured on February 19, 2020.
As described in Note 2, on January 31, 2017 the Company entered into a New Credit Agreement ("New Credit Agreement") and
$545,000,000 of new debt facilities ("New Facilities") in connection with the STAHL acquisition. The New Facilities consist of
a New Revolving Facility ("Revolver") in the amount of $100,000,000 and a $445,000,000 1st Lien Term Loan ("New Term
Loan"). Proceeds from the New Facilities were used to fund the STAHL acquisition, pay fees and expenses associated with the
acquisition, and refinance the Company's Replaced Revolving Credit Facility and Replaced Term Loan. The New Term Loan has
a seven-year term maturing in 2024 and the Revolver has a five-year term maturing in 2022. At March 31, 2018 the Company has
not drawn from the Revolver.
The key terms of the agreement are as follows:
• Term Loan: An aggregate $445,000,000 1st Lien Term Loan which requires quarterly principal amortization of 0.25%
with the remaining principal due at maturity date. In addition, if the Company has Excess Cash Flow ("ECF") as defined
in the New Credit Agreement, the ECF Percentage of the Excess Cash Flow for such fiscal year minus optional prepayment
of the Loans (except prepayments of Revolving Loans that are not accompanied by a corresponding permanent reduction
of Revolving Commitments) pursuant to Section 2.10(a) of the New Credit Agreement other than to the extent that any
such prepayment is funded with the proceeds of Funded Debt, shall be applied toward the prepayment of the New Term
Loan. The ECF Percentage is defined as 50% stepping down to 25% or 0% based on the Secured Leverage Ratio as of
the last day of the fiscal year.
• Revolver: An aggregate $100,000,000 secured revolving 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).
Prepayments: Provisions permitting a Borrower to voluntarily prepay either the Term Loan or Revolver in whole or in
part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or Revolver on the occurrence
58
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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. A prepayment premium of 1% of the principal amount
of the First Lien Term Loans is required if the prepayment is associated with a Repricing Transaction and it were to occur
within the first twelve months.
• Covenants: Provisions containing covenants required of the Corporation and its subsidiaries including various affirmative
and negative financial and operational covenants. The key financial covenant is triggered only on any date when any
Extension of Credit under the Revolving Facility is outstanding (excluding any Letters of Credit) (the “Covenant Trigger”),
and permits the Total Leverage Ratio for the Reference Period ended on such date to not exceed (i) 4.50:1.00 as of any
date of determination prior to December 31, 2017, (ii) 4.00:1.00 as of any date of determination on December 31, 2017
and thereafter but prior to December 31, 2018, (iii) 3.50:1.00 as of any date of determination on December 31, 2018 and
thereafter but prior to December 31, 2019 and (iv) 3.00:1.00 as of any date of determination on December 31, 2019 and
thereafter. As there is no amount drawn on the Revolver as of March 31, 2017 the requirement to comply with the covenant
is not triggered. Had we been required to determine the covenant ratio we would have been in compliance with the
covenant provisions as of March 31, 2018 and 2017.
The New 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 26, 2018, the Company amended the New Credit Agreement (known as the "Amended Credit Agreement"). The
Amended Credit Agreement has the same terms mentioned above except for a reduction in interest rates. The applicable rate for
the repriced term loan was reduced from 3.00% to 2.50%. The Company has accounted for the Amended Credit Agreement as a
debt modification, therefore, debt repricing fees incurred in fiscal 2018 were expensed as general and administrative expenses and
the deferred financing fees incurred as part of the New Credit Agreement (discussed below) remain unchanged.
As mentioned above, on January 31, 2017 the Company borrowed $445,000,000 under the New Term Loan. The Company repaid
the amount outstanding for the Replaced Revolving Credit Facility and Replaced Term Loan ($131,500,000 and $103,125,000,
respectively) plus $652,000 in accrued interest and fees. The cost of debt refinancing on the Company's consolidated statement
of operations includes the write-off of previously unamortized deferred financing costs and other expenses of $1,303,000 in fiscal
2017.
The outstanding balance of the New Term Loan was $375,463,000 and $432,500,000 as of March 31, 2018 and 2017, respectively.
The Company made $57,037,000 of principal payment on the New Term Loan during fiscal 2018 and $9,375,000 of principal
payments on the Replaced Term Loan and $12,500,000 of principal payment on the New Term Loan during fiscal 2017. The
Company is obligated to make $4,450,000 of principal payments over the next 12 months, however, plans to pay down $60,000,000
in total. This amount has been recorded within the current portion of long term debt on the Company's consolidated balance sheet
with the remaining balance recorded as long-term debt.
There was $0 outstanding on the New Revolving Credit Facility and $4,478,000 outstanding letters of credit as of March 31,
2018. The outstanding letters of credit at March 31, 2018 consisted of $745,000 in commercial letters of credit and $3,733,000 of
standby letters of credit.
In connection with the acquisition of STAHL, the Company assumed a loan that STAHL CraneSystems Shanghai Co Ltd ("STAHL
China") entered into on November 22, 2016 with Dalian Konecranes Co Ltd ("Konecranes"). The principal amount loaned to
STAHL China in the amount of 18,000,000 Yuan (approximately $2,608,000 as of March 31, 2017) was used to meet working
capital needs. The annual interest rate was 4.35% with an original maturity date of February 24, 2017. The term of the loan was
extended through a loan amendment with a new maturity date of May 24, 2017. Therefore, this loan was classified in current
portion of long-term debt at March 31, 2017. The Company repaid the loan in full in fiscal 2018.
The gross balance of deferred financing costs on the term loan was $14,690,000 as of March 31, 2018 and 2017. The accumulated
amortization balances were $2,447,000 and $350,000 as of March 31, 2018 and 2017, respectively. All of the deferred financing
costs on the Replaced Term Loan were extinguished and are included in the cost of debt refinancing on the Company's consolidated
statement of operations as of March 31, 2017.
59
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The gross balance of deferred financing costs associated with the New Revolving Credit Facility and Replaced Revolving Credit
Facility are included in other assets is $2,789,000 as of March 31, 2018 and March 31, 2017. The accumulated amortization
balances were $651,000 and $93,000 as of March 31, 2018 and March 31, 2017 respectively. The balance includes $605,000 and
$763,000 as of March 31, 2018 and March 31, 2017, respectively, related to the Replaced Revolving Credit Facility as certain
lenders in the Replaced Revolving Credit Facility participate in the New Revolving Credit Facility. These balances are classified
in other assets since no funds were drawn on the New Revolving Credit Facility in fiscal 2018 and 2017.
On June 22, 2007, the Company recorded a capital lease resulting from the sale and partial leaseback of its facility in Charlotte,
North Carolina 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 $98,000 and $551,000 as of March 31, 2018 and 2017,
respectively, are included in senior debt in the consolidated balance sheets. $64,000 of the capital lease liability has been recorded
within the current portion of long term debt on the Company's consolidated balance sheet with the remaining balance recorded as
long term debt.
The principal payments obligated to be made as of March 31, 2018 on the above debt are as follows:
FY 2019
FY 2020
FY 2021
FY 2022
FY 2023
Thereafter
$
$
4,515
4,483
4,450
4,450
4,450
353,213
375,561
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, 2018, unsecured credit
lines totaled approximately $5,176,000, of which $0 was drawn. In addition, unsecured lines of $17,877,000 were available for
bank guarantees issued in the normal course of business of which $11,668,000 was utilized.
12.
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.
60
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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
Benefit obligation assumed in STAHL acquisition
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Settlement
Curtailment
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 (loss) on plan assets
Employer contribution
Benefits paid
Settlement
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
March 31,
2018
2017
$
$
$
$
471,871
—
2,580
16,488
(2,467)
(35,888)
(65)
(4,082)
13,847
462,284
321,440
29,930
11,211
(35,888)
(65)
117
326,745
$
$
$
$
421,147
72,638
1,779
16,648
(4,475)
(31,757)
(883)
—
(3,226)
471,871
317,868
30,164
6,140
(31,757)
(883)
(92)
321,440
$ (135,539) $ (150,431)
83,030
8
(67,393)
65,832
—
(69,707) $
$
Amounts recognized in the consolidated balance sheets are as follows:
Accrued liabilities
Other non-current liabilities
Accumulated other comprehensive loss, before tax
Net amount recognized
March 31,
2018
$
$
(3,814) $
(131,725)
65,832
(69,707) $
2017
(3,310)
(147,121)
83,038
(67,393)
In fiscal 2019, an estimated net loss of $2,379,000 and no prior service costs for the defined benefit pension plans will be amortized
from accumulated other comprehensive loss to net periodic benefit cost.
61
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Net periodic pension cost included the following components:
Service costs—benefits earned during the period
Interest cost on projected benefit obligation
Expected return on plan assets
Net amortization
Curtailment
Settlement
Other
Net periodic pension cost (benefit)
2018
2017
2016
2,580
16,488
(21,483)
3,083
5
—
17
690
$
$
$
1,779
16,648
(22,428)
3,190
—
247
(57)
(621) $
2,187
13,926
(19,783)
10
—
—
2,452
(1,208)
$
$
During the second quarter of fiscal 2018, the Company amended two of its domestic pension plans. As a result of these amendments,
the Company remeasured the pension obligation and net periodic pension cost and recognized a $5,000 curtailment loss. These
amendments reduced the pension obligation by $4,082,000 (offset in accumulated other comprehensive loss before income tax
effects) during fiscal 2018.
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,
$
2018
462,284
326,745
$
2017
471,871
321,440
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,
$
2018
457,323
326,745
$
2017
463,412
321,440
Unrecognized gains and losses are amortized through March 31, 2018 on a straight-line basis over the average remaining service
period of active participants. Starting in fiscal 2016, the Company changed 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.
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
2018
2017
2016
3.49%
6.77%
0.39%
3.65%
7.23%
0.39%
4.30%
7.22%
0.44%
The expected rates of return on plan asset assumptions are determined considering long-term historical averages and real returns
on each asset class.
62
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company’s retirement plan target and actual asset allocations are as follows:
Equity securities
Fixed income
Total plan assets
Target
2019
46% - 42%
54% - 58%
100%
Actual
2018
46%
54%
100%
2017
69%
31%
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 Company's policy is to de-risk the portfolio by increasing
liability-hedging investments as the pension liability funded status increases, which is known as the glide path method. Within the
table above, cash equivalents are categorized as fixed income as they earn lower returns than equity securities which includes
alternative real estate funds (shown in the fair value tables below).
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 $11,353,000 to its pension plans in fiscal 2019.
Information about the expected benefit payments for the Company’s defined benefit plans is as follows:
2019
2020
2021
2022
2023
2024-2028
Postretirement Benefit Plans
$
26,964
27,493
27,781
27,925
28,332
138,531
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.
63
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:
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 gain
Net amount recognized
Amounts recognized in the consolidated balance sheets are as follows:
Accrued liabilities
Other non-current liabilities
Accumulated other comprehensive gain, before tax
Net amount recognized
March 31,
2018
2017
4,111
126
(642)
(311)
3,284
$
$
5,144
152
(841)
(344)
4,111
(3,284) $
(660)
(3,944) $
(4,111)
(23)
(4,134)
March 31,
2018
2017
(449) $
(2,835)
(660)
(3,944) $
(519)
(3,592)
(23)
(4,134)
$
$
$
$
$
$
In fiscal 2019, an estimated loss of $47,000 for the defined benefit postretirement health care plans will be amortized from
accumulated other comprehensive loss to net periodic benefit cost. In fiscal 2018, net periodic postretirement benefit cost included
the following:
Interest cost
Net amortization
Net periodic postretirement benefit cost
Year Ended March 31,
2017
2016
2018
$
$
126
(5)
121
$
$
152
—
152
$
$
189
89
278
For measurement purposes, healthcare costs are assumed to increase 6.25% in fiscal 2019, grading down over time to 5.0% in five
years. The discount rate used in determining the accumulated postretirement benefit obligation was 3.75% and 3.60% as of March
31, 2018 and 2017, respectively.
Information about the expected benefit payments for the Company’s postretirement health benefit plans is as follows:
2019
2020
2021
2022
2023
2024-2028
$
458
422
376
342
317
1,186
64
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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
One
Percentage
Point
Decrease
$
$
6
161
(5)
(147)
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 and their spouse, the Company will receive all of the premiums paid to-date. The net periodic pension cost for
fiscal 2018 was $226,000 and the liability at March 31, 2018 is $4,457,000 with $4,320,000 included in other non-current liabilities
and $137,000 included in accrued liabilities in the consolidated balance sheet. The cash surrender value of the policies is $3,060,000
and $2,917,000 at March 31, 2018 and 2017, 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 $4,198,000, $3,543,000, and $3,485,000 for the years
ended March 31, 2018, 2017, and 2016, respectively. The Company expects its contributions for the defined contribution plans in
future years to remain comparable to its fiscal 2018 contributions.
Fair Values of Plan Assets
The Company classified its investments within the categories of equity securities, fixed income securities, alternative real estate,
and cash equivalents, as the Company’s management bases its investment objectives and decisions from these four categories. The
Company’s investment policy is to use its glide-path method to de-risk the portfolio by increasing liability-hedging investments
as the pension liability funded status increases.
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
Alternative real estate
Cash equivalents
Total
March 31,
2018
2017
$
$
136,777
174,359
13,230
2,379
326,745
$
$
220,497
99,700
—
1,243
321,440
The fair values of our defined benefit plans’ consolidated assets were determined using the fair value hierarchy of inputs described
in Note 4. The fair values by category of inputs as of March 31, 2018 and March 31, 2017 were as follows:
65
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Measured at
NAV (1)
Significant
other
observable
Inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
Total
$
$
58,433
34,620
8,945
—
101,998
$
$
78,344
—
4,285
2,379
85,008
$
$
— $
— $
121,271
—
—
121,271
$
18,468
—
—
18,468
$
136,777
174,359
13,230
2,379
326,745
As of March 31, 2018:
Asset categories:
Equity securities
Fixed income securities
Alternative real estate
Cash equivalents
Total
(1) Reflects the net asset value (NAV) practical expedient used to approximate fair value. These equity investments were purchased
in the current year therefore, not shown in the prior year table below.
As of March 31, 2017:
Asset categories:
Equity securities
Fixed income securities
Cash equivalents
Total
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
other
observable
Inputs
Significant
unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
$
$
149,435
32,010
1,243
182,688
$
$
71,062
49,524
—
120,586
$
$
— $
18,166
—
18,166
$
220,497
99,700
1,243
321,440
During fiscal 2018, the Company sold a portion of equity and fixed income securities categorized as level 1 and level 2 in the prior
year. These funds were reinvested in equity, fixed income, and alternative real estate investment funds categorized as level 1 and
level 2 as of March 31, 2018. A portion of these funds are valued using the NAV practical expedient as the fair value is not publicly
available.
Level 1 securities consist of mutual funds with quoted market prices.
The Level 2 fixed income securities are investments in a combination of funds whose underlying investments are in a variety of
fixed income securities including foreign and domestic corporate bonds, securities issued by the U.S. government, U.S. and foreign
government obligations, and other similar fixed income investments. The fair values of the underlying investments in these funds
are generally based on independent broker dealer bids, or by comparison to other debt securities having similar durations, yields,
and credit ratings. The fair values of these funds are determined based on their net asset values which are published daily. We are
not aware of any significant restrictions on the issuances or redemption of shares of these funds
Fair value of Level 3 fixed income securities at the beginning of the year was $18,166,000. During fiscal 2018 fixed income
securities earned investment return of $670,000 and had disbursements of $368,000 resulting in an ending balance of
$18,468,000. 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.
66
13.
Employee Stock Ownership Plan (ESOP)
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 and there was no compensation expense recorded in fiscal years 2018, 2017, or 2016.
At March 31, 2018 and 2017, 308,000 and 366,000 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,
2018 and no ESOP shares were pledged as collateral to guarantee the ESOP term loans.
14.
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. There were no stock
options and performance shares excluded from the computation of diluted earnings per share for fiscal 2018 because they were
antidilutive. Stock options and performance shares with respect to 340,000 and 282,000 common shares were not included in the
computation of diluted earnings per share for fiscal 2017 and 2016, respectively, because they were antidilutive. For the year ended
March 31, 2018 an additional 127,000 in contingently issuable shares were not included in the computation of diluted earnings
per share because a performance condition had not yet been met.
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,
2017
2016
2018
$
22,065
$
8,984
$
19,579
Weighted-average common stock outstanding— denominator for basic EPS
Effect of dilutive employee stock options, RSU's and performance shares
22,841
494
20,591
297
20,079
236
Adjusted weighted-average common stock outstanding and assumed
conversions— denominator for diluted EPS
23,335
20,888
20,315
The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 13).
During fiscal 2018, the Company adopted ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting" (ASU No. 2016-09). Among other modifications to accounting for stock based
compensation, this ASU requires that assumed proceeds from excess tax benefits and deficiencies are no longer included in the
calculation of weighted-average diluted common stock outstanding and are recorded as income tax expense or benefit in the
statement of operations. Refer to Note 16 for the impact the adoption had on the Company's financial statements.
During fiscal 2017, the Company entered into an agreement to sell in aggregate 2,273,000 shares of Common Shares to the following
purchasers: Adage Capital Management, LP; Heights Capital Management, Inc.; and UBS O'Connor LLC. The sale of the shares
closed on January 30, 2017 at a price per Common Share of $22.00, generating gross proceeds of approximately $50,000,000.
The purchase agreement for the shares requires the Company to file an initial registration statement registering the common shares
issued to the purchasers for resale. The filing of the registration statement was completed and declared effective on April 28, 2017.
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
67
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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 $5,586,000, $5,914,000, and $4,063,000 for fiscal 2018, 2017, and 2016, respectively.
Stock compensation expense is included in cost of goods sold, selling, and general and administrative expenses depending on the
nature of the service of the employee receiving the award. 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.
Long Term Incentive Plan
On July 18, 2016, the shareholders of the Company approved the 2016 Long Term Incentive Plan (“LTIP” or the "Plan") which
replaced the 2010 Long Term Incentive Plan. The Company grants share based compensation to eligible participants under the
2016 LTIP. The total number of shares of common stock with respect to which awards may be granted under the plan is 2,000,000
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, 2018, 903,975 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.
In connection with the acquisition of Magnetek, the Company agreed to continue the 2014 Stock Incentive Plan of Magnetek, Inc.
(the "Magnetek Stock Plan"). In doing so, the Company has available under the Magnetek Stock Plan 164,461 of the Company's
shares which can be granted to certain employees as stock based compensation.
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.
68
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
A summary of option transactions during each of the three fiscal years in the period ended March 31, 2018 is as follows:
Outstanding at April 1, 2015
Granted
Exercised
Cancelled
Outstanding at March 31, 2016
Granted
Exercised
Cancelled
Outstanding at March 31, 2017
Granted
Exercised
Cancelled
Outstanding at March 31, 2018
Exercisable at March 31, 2018
Weighted-
average
Exercise Price
18.86
$
24.94
15.07
21.90
20.13
17.00
15.76
19.06
19.10
24.33
17.43
19.83
21.04
20.84
$
Shares
612,149
157,999
(16,033)
(35,314)
718,801
398,945
(27,848)
(26,004)
1,063,894
227,783
(363,091)
(6,136)
922,450
306,218
Weighted-
average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
6.64 $
465
6.98 $
6,477
7.56 $
5.94 $
13,654
4,585
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, 2018. The aggregate intrinsic value of outstanding options as of March 31, 2018 is calculated as the difference
between the exercise price of the underlying options and the market price of our common shares for the 922,450 options that were
in-the-money at that date. The aggregate intrinsic value of exercisable options as of March 31, 2018 is calculated as the difference
between the exercise price of the underlying options and the market price of our common shares for the 306,218 exercisable options
that were in-the-money at that date. The Company's closing stock price was $35.84 as of March 31, 2018. The total intrinsic value
of stock options exercised was $5,851,000, $252,000, and $81,000 during fiscal 2018, 2017, and 2016, respectively.
The grant date fair value of options that vested was $7.42, $8.56, and $8.85 during fiscal 2018, 2017, and 2016, respectively.
Cash received from option exercises under all share-based payment arrangements during fiscal 2018 and 2017 was approximately
$6,332,000 and $439,000, 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, 2018, $2,515,000 of unrecognized compensation cost related to non-vested stock options is expected to be
recognized over a weighted-average period of approximately 2.7 years.
Exercise prices for options outstanding as of March 31, 2018, ranged from $13.10 to $28.45. The following table provides certain
information with respect to stock options outstanding at March 31, 2018:
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
15.55
25.19
21.04
6.92
8.04
7.56
397,220
525,230
922,450
$
$
69
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The following table provides certain information with respect to stock options exercisable at March 31, 2018:
Range of Exercise Prices
Stock Options
Exercisable
Weighted- average
Exercise Price
$10.01 to $20.00
$20.01 to $30.00
159,766
146,452
306,218
$
$
16.13
26.04
20.84
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 $7.66, $5.59, and $8.58 for options
granted during fiscal 2018, 2017, and 2016, respectively. The following table provides the weighted-average assumptions used to
value stock options granted during fiscal 2018, 2017, and 2016:
Assumptions:
Risk-free interest rate
Dividend yield
Volatility factor
Expected life
Year Ended
March 31,
2018
Year Ended
March 31,
2017
Year Ended
March 31,
2016
1.42%
0.66%
0.343
5.5 years
1.07%
0.98%
0.379
5.5 years
0.82%
0.60%
0.391
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 2018, 2017, and 2016 to employees as well as to the
Company’s non-executive directors as part of their annual compensation. Restricted stock units for employees prior to fiscal 2018
vest ratably based on service one-third after each of years three, four, and five. Beginning in fiscal 2018 restricted stock units for
employees vest ratably based on service one-quarter after each of years one, two, three, and four.
70
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
A summary of the restricted stock unit awards granted under the Company’s LTIP plan as of March 31, 2018 is as follows:
Unvested at April 1, 2015
Granted
Vested
Forfeited
Unvested at March 31, 2016
Granted
Vested
Forfeited
Unvested at March 31, 2017
Granted
Vested
Forfeited
Unvested at March 31, 2018
Weighted-average
Grant Date
Fair Value
$
$
$
$
20.99
19.86
20.20
22.65
20.26
18.06
19.93
22.81
19.32
29.38
20.39
17.99
22.62
Shares
181,015
287,585
(87,380)
(9,718)
371,502
171,407
(162,502)
(10,151)
370,256
120,271
(157,448)
(12,954)
320,125
Total unrecognized compensation cost related to unvested restricted stock units as of March 31, 2018 is $4,994,000 and is expected
to be recognized over a weighted average period of 2.4 years. The fair value of restricted stock units that vested during the year
ended March 31, 2018 and 2017 was $3,210,000 and $3,238,000, respectively.
Performance Shares
The Company granted performance shares under the LTIP during fiscal 2018, 2017, and 2016. Performance shares granted are
based upon the Company’s Consolidated Net Revenue for the two year period ended March 31, 2018, March 31, 2017, and March
31, 2016, respectively. Fiscal year 2018, 2017, and 2016 performance based nonvested shares are recognized as compensation
expense based upon their grant date fair value. This expense is recognized ratably over the three year period that these shares are
restricted. During fiscal 2017, the Company determined that the fiscal year 2017 and 2016 performance shares would not vest
due to the performance condition not being met.
A summary of the performance shares transactions during each of the three fiscal years in the period ended March 31, 2018 is
as follows:
Unvested at April 1, 2015
Granted
Vested
Forfeited
Unvested at March 31, 2016
Granted
Vested
Forfeited
Unvested at March 31, 2017
Granted
Forfeited
Unvested at March 31, 2018
71
Weighted-average
Grant Date
Fair Value
Shares
113,447
41,504
(53,298)
—
101,653
77,349
(25,148)
(35,001)
118,853
49,221
(41,504)
126,570
$
$
$
$
23.35
24.94
19.25
—
26.15
15.69
26.79
27.12
18.92
25.28
24.94
19.42
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
The Company had $946,000 in unrecognized compensation costs related to the unvested performance share awards as of March
31, 2018 as the performance criteria is not expected to be met.
Directors Stock
During fiscal 2018, 2017, and 2016, a total of 16,667, 27,960, and 19,384 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 $25.80, $15.74, and $22.70 for fiscal 2018, 2017, and 2016, respectively. The expense related to the shares
for fiscal 2018, 2017, and 2016 was $430,000 for each of the three years.
Shareholder Rights Plan
On March 29, 2018 the Company announced that its Board of Directors had amended the Company's Shareholder Rights Plan,
which accelerated the expiration of the Company's preferred share purchase rights to March 31, 2018. Prior to its expiration,
preferred share purchase right holders could exercise their rights if a person or group acquired 20% or more of the Company’s
common shares or announced a tender offer for 20% or more of the common shares.
Dividends
On March 26, 2018 the Company's Board of Directors approved payment of a quarterly dividend of $0.05 per common share,
representing an annual dividend rate of $0.20 per share. The dividend was paid on May 14, 2018 to shareholders of record on May
4, 2018 and totaled approximately $1,150,000.
15.
Loss Contingencies
From time to time, the Company is named a defendant in legal actions arising out of the normal course of business. The Company
is not a party to any pending legal proceeding other than ordinary, routine litigation incidental to our business. The Company does
not believe that any of our pending litigation will have a material impact on its business.
Accrued general and product liability costs are 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 $13,582,000 and $13,335,000 of which $10,082,000 and $9,835,000 are included in Other non current liabilities and
$3,500,000 in Accrued liabilities for both years as of March 31, 2018 and 2017, respectively. The liability for accrued general
and product liability costs are funded by investments in marketable securities (see Notes 2 and 6).
The following table provides a reconciliation of the beginning and ending balances for accrued general and product liability:
Accrued general and product liability, beginning of year
Add provision for claims
Additional product liability assumed from Magnetek
Deduct payments for claims
Accrued general and product liability, end of year
Year Ended March 31,
2017
2016
2018
$
$
13,335
3,965
—
(3,718)
13,582
$
$
14,535
7,223
—
(8,423)
13,335
$
$
12,530
5,277
1,523
(4,795)
14,535
The per occurrence limits on the self-insurance for general and product liability coverage to Columbus McKinnon through its
wholly-owned captive insurance company 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
2018.
72
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 2019.
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 $4,000,000 and $7,700,000 using actuarial parameters of continued claims for a period of 37 years from March 31,
2018. 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 $6,235,000, which has been reflected as a liability in the consolidated
financial statements as of March 31, 2018. 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 believes that a share of its previously incurred asbestos-related expenses and future asbestos-related expenses are
covered by pre-existing insurance policies. The Company has engaged in a legal action against the insurance carriers for those
policies to recover these expenses and future costs incurred. When the Company resolves this legal action, it is expected that a
gain will be recorded for previously expensed cost that is recovered. In July 2017, the Company received a $1,741,000 settlement
payment, net of legal fees, from one of its insurance carriers as partial reimbursement for asbestos-related expenses. This partial
payment has been recorded as a gain in cost of products sold. In February 2018, an additional settlement payment of $621,000
was received from another insurance carrier as partial reimbursement for asbestos-related expenses. The Company is continuing
its actions to recover further past costs and to cover future costs.
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 $6,273,000, which has been reflected as a liability in the consolidated financial statements as
of March 31, 2018. 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.
The following loss contingencies relate to the Company's Magnetek subsidiary:
73
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Product Liability
Magnetek has been named, along with multiple other defendants, in asbestos-related lawsuits associated with business operations
previously acquired but which are no longer owned. During Magnetek's ownership, none of the businesses produced or sold
asbestos-containing products. For such claims, Magnetek is uninsured and either contractually indemnified against liability, or
contractually obligated to defend and indemnify the purchaser of these former business operations. The Company aggressively
seeks dismissal from these proceedings. Based on actuarial information, the asbestos related liability including legal costs is
estimated to be approximately $1,074,000 which has been reflected as a liability in the consolidated financial statements at March
31, 2018.
Litigation-Other
In October 2010, Magnetek received a request for indemnification from Power-One, Inc. ("Power-One") for an Italian tax matter
arising out of the sale of Magnetek's power electronics business to Power-One in October 2006. With a reservation of rights,
Magnetek affirmed its obligation to indemnify Power-One for certain pre-closing taxes. The sale included an Italian company,
Magnetek, S.p.A., and its wholly owned subsidiary, Magnetek Electronics (Shenzhen) Co. Ltd. (the “Power-One China
Subsidiary”). The tax authority in Arezzo, Italy, issued a notice of audit report in September 2010 wherein it asserted that the
Power-One China Subsidiary had its administrative headquarters in Italy with fiscal residence in Italy and, therefore, is subject to
taxation in Italy. In November 2010, the tax authority issued a notice of tax assessment for the period of July 2003 to June 2004,
alleging that taxes of approximately $2,300,000 (Euro 1,900,000) were due in Italy on taxable income earned by the Power-One
China Subsidiary during this period. In addition, the assessment alleges potential penalties together with interest in the amount
of approximately $3,200,000 (Euro 2,600,000) for the alleged failure of the Power-One China Subsidiary to file its Italian tax
return. The Power-One China Subsidiary filed its response with the provincial tax commission of Arezzo, Italy in January 2011.
The tax authority in Arezzo, Italy issued a tax inspection report in January 2011 for the periods July 2002 to June 2003 and July
2004 to December 2006 claiming that the Power-One China Subsidiary failed to file Italian tax returns for the reported periods.
A hearing before the Tax Court was held in July 2012 on the tax assessment for the period of July 2003 to June 2004. In September
2012, the Tax Court ruled in favor of the Power-One China Subsidiary dismissing the tax assessment for the period of July 2003
to June 2004. In February 2013, the tax authority filed an appeal of the Tax Court's September 2012 ruling. The Regional Tax
Commission of Florence heard the appeal of the tax assessment dismissal for the period of July 2003 to June 2004 and thereafter
issued its ruling finding in favor of the tax authority. Magnetek believes the court’s decision was based upon erroneous interpretations
of the applicable law and appealed the ruling to the Italian Supreme Court in April 2015.
In August 2012, the tax authority in Arezzo, Italy issued notices of tax assessment for the periods July 2002 to June 2003 and July
2004 to December 2006, alleging that taxes of approximately $8,300,000 (Euro 6,700,000) were due in Italy on taxable income
earned by the Power-One China Subsidiary together with an allegation of potential penalties in the amount of approximately
$3,500,000 (Euro 2,800,000) for the alleged failure of the Power-One China Subsidiary to file its Italian tax returns. On June 3,
2015, the Tax Court ruled in favor of the Power-One China Subsidiary dismissing the tax assessments for the periods of July 2002
to June 2003 and July 2004 to December 2006. On July 27, 2015, the tax authority filed an appeal of the Tax Court's ruling of June
3, 2015. In May 2016, the Regional Tax Court of Florence rejected the appeal of the tax authority and at the same time canceled
the notices of assessment for the fiscal years of 2004/2005 and 2005/2006. The tax authority had up to six months to appeal the
decision. In December 2016, Magnetek was served by the Italian Revenue Service with two appeals to the Italian Supreme Court
regarding the two positive judgments on the tax assessments for the fiscal periods 2004/2005 and 2005/2006. In March 2017, the
tax authority rejected the appeal of the assessment for 2005/2006 fiscal year. The tax authority had until October 2017 to appeal
this decision. In October 2017, Magnetek was served by the Italian Revenue Service with an appeal to the Italian Supreme Court
against the positive judgment on the tax assessment for fiscal year 2005/2006. In November 2017 Magnetek filed a memorandum
with the Italian Revenue Service and the Italian Supreme Court in response to the appeal made by the tax authority. In February
2018 an appeal hearing was held at the Regional Tax Court of Florence regarding the Italian tax authority's claim for taxes due for
fiscal 2002/2003. The tax court rejected the appeal of the tax authority and canceled the notice of assessment for fiscal 2002/2003.
The tax authority may appeal this decision before the Italian Supreme Court by October 15, 2018. The Company believes it will
be successful and does not expect to incur a liability related to these assessments.
Environmental Matters
From time to time, Magnetek has taken action to bring certain facilities associated with previously owned businesses into compliance
with applicable environmental laws and regulations. Upon the subsequent sale of certain businesses, Magnetek agreed to indemnify
the buyers against environmental claims associated with the divested operations, subject to certain conditions and limitations.
Remediation activities, including those related to indemnification obligations, did not involve material expenditures during fiscal
year 2018.
74
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Magnetek has also been identified by the United States Environmental Protection Agency and certain state agencies as a potentially
responsible party for cleanup costs associated with alleged past waste disposal practices at several previously utilized, owned or
leased facilities and offsite locations. Its remediation activities as a potentially responsible party were not material in fiscal year
2018. Although the materiality of future expenditures for environmental activities may be affected by the level and type of
contamination, the extent and nature of cleanup activities required by governmental authorities, the nature of Magnetek's alleged
connection to the contaminated sites, the number and financial resources of other potentially responsible parties, the availability
of indemnification rights against third parties, and the identification of additional contaminated sites, Magnetek's estimated share
of liability, if any, for environmental remediation, including its indemnification obligations, is not expected to be material.
In 1986, Magnetek acquired the stock of Universal Manufacturing Corporation (“Universal”) from a predecessor of Fruit of the
Loom (“FOL”), and the predecessor agreed to indemnify Magnetek against certain environmental liabilities arising from pre-
acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement
included completion of additional cleanup activities, if any, at the Bridgeport facility and defense and indemnification against
liability for potential response costs related to offsite disposal locations. Magnetek's leasehold interest in the Bridgeport facility
was assigned to the buyer in connection with the sale of Magnetek's transformer business in June 2001. FOL, the successor to the
indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and Magnetek
filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. Magnetek believes
that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy
filing. In November 2001, Magnetek and FOL entered into an agreement involving the allocation of certain potential tax benefits
and Magnetek withdrew its claims in the bankruptcy proceeding. Magnetek further believes that FOL's obligation to the state of
Connecticut was not discharged in the reorganization proceeding.
In January 2007, the Connecticut Department of Environmental Protection (“DEP”) requested parties, including Magnetek, to
submit reports summarizing the investigations and remediation performed to date at the site and the proposed additional
investigations and remediation necessary to complete those actions at the site. DEP requested additional information relating to
site investigations and remediation. Magnetek and the DEP agreed to the scope of the work plan in November 2010. The Company
has recorded a liability of $283,000, included in the amount specified above, related to the Bridgeport facility, representing the
best estimate of future site investigation costs and remediation costs which are expected to be incurred in the future.
FOL's inability to satisfy its remaining obligations to the state of Connecticut related to the Bridgeport facility and any offsite
disposal locations, or the discovery of additional environmental contamination at the Bridgeport facility is not expected to have a
material adverse effect on the Company's financial position, cash flows or results of operations.
In September of 2017, Magnetek received a request for defense and indemnification from Monsanto Company, Pharmacia, LLC,
and Solutia, Inc. (collectively, “Monsanto”) with respect to: (1) lawsuits brought by plaintiffs claiming that Monsanto manufactured
polychlorinated biphenyls ("PCBs"), exposure to which allegedly caused injury to plaintiffs; (2) lawsuits brought by municipalities
and municipal entities claiming that Monsanto should be responsible for a variety of damages due to the presence of PCBs in
bodies of water in those municipalities and/or in water treated by those municipal entities. Monsanto claims to be entitled to
defense and indemnification from Magnetek under a so-called “Special Undertaking” apparently executed by Universal in January
of 1972, which purportedly required Universal to defend and indemnify Monsanto from liabilities “arising out of or in connection
with the receipt, purchase, possession, handling, use, sale or disposition of” PCBs by Universal.
Magnetek has declined Monsanto’s tender, and believes that it has meritorious legal and factual defenses to the demands made by
Monsanto. Magnetek is vigorously defending against those demands and has commenced litigation to, among other things, declare
the Special Undertaking void and unenforceable. Monsanto has, in turn, commenced an action to enforce the Special Undertaking.
Magnetek intends to continue to vigorously prosecute its declaratory judgment action and to defend against Monsanto’s action
against it. As of March 31, 2018 the Company has recorded $400,000 for legal costs incurred to date and expected to be incurred
related to this matter. We cannot reasonably estimate a potential range of loss with respect to Monsanto’s tender because there is
insufficient information regarding the underlying matters. Management believes, however, that the potential additional costs
related to such matters, if any, 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 has recorded total liabilities of $804,000 for all environmental matters related to Magnetek in the consolidated
financial statements as of March 31, 2018 on an undiscounted basis.
75
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
16.
Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act tax reform legislation (the Act), which among
other matters reduced the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. As a result of
the reduction in the U.S. corporate income tax rate from 35% to 21%, under the Act, the Company revalued its ending U.S. net
deferred tax assets and recognized a provisional $16,102,000 tax expense in the Company’s consolidated statement of operations
for the fiscal year 2018.
The Act implements a territorial tax system and imposes a one-time transition tax based on the Company's total post-1986 earnings
and profits (E&P) that it previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-
time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $1,500,000. The Company
has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based
in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company
finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held
in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings
not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to
be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any
remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities
(i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable.
The Company originally recorded a provisional amount for its one-time transition tax liability of $2,500,000 recorded at December
31, 2017. Upon further analysis of certain aspects of the Act and refinement of our calculations for these foreign subsidiaries during
the three months ended March 31, 2018, we decreased that provisional amount by $1,000,000, which is included as a component
of income tax expense.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S.
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company has recognized
the provisional tax impacts related to the one-time transition tax, withholding tax and the revaluation of deferred tax assets and
liabilities and included these amounts in its consolidated financial statements for the year ended March 31, 2018. Our preliminary
estimate of the one-time transition tax and the re-measurement of our deferred tax assets and liabilities is subject to the finalization
of management’s analysis related to certain matters, such as developing interpretations of the provisions of the Act, changes to
certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S.
Treasury regulations, administrative interpretations or court decisions interpreting the Act may require further adjustments and
changes in our estimates.
The final determination of the one-time transition tax and the re-measurement of our deferred assets and liabilities will be completed
as additional information becomes available, but no later than one year from the enactment of the Act.
76
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
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:
Statutory federal income tax rate (1)
Expected tax at statutory rate
Effect of Tax Reform Act (2)
State income taxes net of federal benefit
Foreign taxes less than statutory federal rate
Permanent items
Valuation allowance
(Utilization)/Expiration of foreign tax credits
Research and development credits
Other
Actual tax provision expense
Year Ended March 31,
2017
2016
2018
31.55%
15,676
17,602
(37)
(2,667)
(2,220)
(104)
—
(612)
(18)
27,620
$
$
$
$
35.00%
4,560
—
893
(1,921)
2,521
(829)
—
(643)
(538)
4,043
$
$
35.00%
11,068
—
717
(2,370)
1,187
2,860
(945)
(200)
(272)
12,045
(1) For fiscal 2018, represents the blended rate of 35 percent for the first three quarters of the fiscal year and 21 percent for
the fourth quarter.
(2) Represents the discrete expense of the one-time transition tax ($1,500,000) and the remeasurement of our net U.S.
deferred tax assets at the new lower U.S. corporate income tax rate ($16,102,000).
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
Year Ended March 31,
2017
2016
2018
$
$
1,109
402
6,141
21,177
(1,209)
27,620
$
$
41
217
3,296
5,797
(5,308)
4,043
$
$
1,905
441
2,363
7,235
101
12,045
77
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:
Federal net operating loss carryforwards
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,
2018
2017
$
$
26,450
10,376
28,390
3,578
4,625
2,476
2,285
3,666
(4,671)
77,175
50,786
12,151
42,694
5,355
3,984
1,601
3,711
5,330
(4,585)
121,027
(2,785)
(72,210)
(74,995)
2,180
$
(4,016)
(83,843)
(87,859)
33,168
$
The net deferred tax asset decreased in fiscal 2018 primarily as a result of the revaluation of the U.S. deferred tax assets and
liabilities to the lower U.S. federal tax rate provided in the Act, discussed above.
The gross amount of the Company’s deferred tax assets were $81,846,000 and $125,612,000 at March 31, 2018 and 2017,
respectively.
The valuation allowance includes $3,837,000, $4,370,000, and $3,426,000 related to foreign net operating losses at March 31,
2018, 2017, and 2016, respectively. The decrease in the foreign valuation allowance is primarily due to the use of net operating
losses which had valuation allowances recorded against them for certain foreign subsidiaries of the Company. The Company’s
foreign subsidiaries have net operating loss carryforwards that expire in periods ranging from five years to indefinite.
The federal net operating losses arose from the acquisition of Magnetek and have expiration dates ranging from 2020 through
2035. The state net operating losses have expiration dates ranging from 2019 through 2038. The federal tax credits have expiration
dates ranging from 2036 to indefinite.
Deferred income taxes are classified within the consolidated balance sheets based on the following breakdown:
Net non-current deferred tax assets
Net non-current deferred tax liabilities
Net deferred tax assets (liabilities)
Net non-current deferred tax liabilities are included in other non-current liabilities.
March 31,
2018
2017
$
$
32,442
(30,262)
2,180
$
$
61,857
(28,689)
33,168
78
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Income from continuing operations before income tax expense includes foreign subsidiary income of $25,144,000, $3,071,000,
and $5,448,000 for the years ended March 31, 2018, 2017, and 2016, respectively. As of March 31, 2018, the Company had
unrecognized deferred tax liabilities related to approximately $120,000,000 of cumulative undistributed earnings of foreign
subsidiaries. These earnings are considered to be permanently invested in operations outside the U.S. with the exception of the
current earnings from two foreign subsidiaries. Any repatriation of these amounts would not be expected to result in a material
increase to income tax expense. Determination of the amount of unrecognized deferred U.S. income tax liability with respect to
such earnings is not practicable.
During fiscal 2018, the Company adopted ASU No. 2016-09. 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, 2018 and 2017. The tax effect to the Company from these share transactions during fiscal 2018 was a (reduction
to) income tax expense of ($1,230,000). Prior to the adoption of this ASU, in fiscal 2017 the tax effect to the Company from these
transactions, recorded in additional paid-in capital rather than recognized as a (reduction to) income tax expense, was $(197,000).
Changes in the Company’s uncertain income tax positions, excluding the related accrual for interest and penalties, are as follows:
2018
2017
2016
Beginning balance
Additions for tax positions of the current year
Reductions for prior year tax positions
Settlements
Foreign currency translation
Lapses in statutes of limitation
Ending balance
$
$
975
444
—
—
20
(847)
592
$
$
1,092
$
1,833
—
—
—
(9)
(108)
975
—
—
(771)
30
—
$
1,092
The Company had $33,000 and $21,000 accrued for the payment of interest and penalties at March 31, 2018 and 2017, 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, 2018 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 2015 resulting in no adjustments.
The Company has no current U.S. income tax examinations or audits.
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, 2015 and in Germany for tax years prior
to March 31, 2011. The Company has a current tax examination in Germany for fiscal years 2012 to 2014.
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, 2019.
17.
Rental Expense and Lease Commitments
Rental expense for the years ended March 31, 2018, 2017, and 2016 was $13,020,000, $9,216,000, and $7,532,000, respectively.
The fiscal 2018 increase is largely due to the transition to and rental of a new warehouse in North America. The following amounts
represent future minimum payment commitments as of March 31, 2018 under non-cancelable operating leases extending beyond
one year:
79
Year Ended March 31,
2019
2020
2021
2022
2023
Thereafter
Total
Real
Property
8,412
5,741
4,789
3,800
3,242
8,463
34,447
$
Vehicles/
Equipment
1,776
1,316
847
421
309
303
4,972
$
Total
10,188
7,057
5,636
4,221
3,551
8,766
39,419
$
18.
Business Segment Information
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
Asia Pacific
Latin America
Total
Year Ended March 31,
2017
2016
2018
$
$
455,483
316,694
20,672
19,082
27,488
839,419
$
$
408,911
169,074
19,718
13,857
25,563
637,123
$
$
382,923
151,702
20,750
14,310
27,418
597,103
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.
Total assets:
United States
Europe
Canada
Asia Pacific
Latin America
Total
Long-lived assets:
United States
Europe
Canada
Asia Pacific
Latin America
Total
Year Ended March 31,
2018
2017
2016
$
477,712
$
474,440
$
519,168
613,842
581,981
7,469
23,630
19,793
$ 1,142,446
9,825
23,260
24,337
$ 1,113,843
$
199,385
9,665
21,481
23,152
772,851
Year Ended March 31,
2017
2016
2018
$
$
293,576
421,183
$
301,715
377,285
308,504
78,831
1,172
6,847
1,499
1,156
6,853
1,501
1,129
7,683
1,488
$
724,277
$
688,510
$
397,635
80
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Note: Long-lived assets include net property, plant, and equipment, goodwill, and other intangibles, net.
Sales by major product group are as follows:
Hoists
Chain and rigging tools
Industrial cranes
Actuators and rotary unions
Digital power control and delivery systems
Elevator application drive systems
Other
Total
19.
Selected Quarterly Financial Data (Unaudited)
Below is selected quarterly financial data for fiscal 2018 and 2017:
$
$
$
$
Year Ended March 31,
2017
357,447
71,832
29,151
67,468
78,660
21,998
10,567
637,123
2018
532,925
79,884
35,071
71,525
84,565
24,423
11,026
839,419
$
$
2016
351,965
75,432
30,526
63,923
50,361
14,554
10,342
597,103
Net sales
Gross profit
Income (loss) from operations
Net income (loss)
Net income (loss) per share – basic
Net income (loss) per share – diluted
Net sales
Gross profit
Income from operations
Net income (loss)
Net income (loss) per share – basic
Net income (loss) per share – diluted
June 30,
2017
203,726
69,308
20,015
11,656
0.52
0.51
June 30,
2016
149,013
48,047
11,201
6,401
0.32
0.32
$
$
$
$
$
$
$
$
81
Three Months Ended
September 30,
2017
December 31,
2017
$
$
$
$
212,828
71,619
19,587
12,508
0.55
0.54
$
$
$
$
March 31,
2018
214,140
74,602
16,324
8,466
$
208,725
69,045
14,173
(10,565) $
(0.46) $
0.37
(0.46) $
0.36
Three Months Ended
September 30,
2016
December 31,
2016
$
$
$
$
151,925
49,729
12,619
6,816
0.34
0.33
$
$
$
$
March 31,
2017
183,688
50,335
(3,164)
(4,738)
$
$
152,497
44,821
5,317
505
0.02
0.02
$
$
(0.22)
(0.22)
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
20.
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,
2018
(8,647) $
(49,889)
1,372
(1,462)
(1,515)
883
(59,258) $
2017
(30,364)
(61,936)
888
(1,668)
(5,078)
694
(97,464)
$
$
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 $(6,848,000), $(5,579,000), and $4,753,000 for fiscal 2018, 2017, and 2016
respectively. Refer to Note 16 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 Act as described in Note 16, the Company recorded as an offsetting entry a ($9,477,000) stranded tax effect in
the minimum pension liability component, ($194,000) stranded tax effect in the split dollar life insurance arrangement component,
and a ($88,000) stranded tax effect in the net unrealized investment gain component of other comprehensive income. The stranded
tax effect related to the other post retirement obligations component was not material.
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 stranded tax effect in the minimum pension liability component, $935,000 stranded tax effect in the other post
retirement obligations component, $747,000 stranded tax effect in the split dollar life insurance arrangement component, and a
$557,000 stranded tax effect 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.
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 stranded tax effect 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.
The stranded tax effects described above are in accordance with ASC Topic 740, “Income Taxes” even though the impact of the
act and the deferred tax asset valuation allowance described above were initially established as an adjustment to comprehensive
income. This amount will remain indefinitely as a component of accumulated other comprehensive loss. As described in Note 21,
the Company is evaluating the impact ASU 2018-02 will have accumulated other comprehensive income. Refer to Note 21 for
additional information.
The activity by year related to investments, including reclassification adjustments for activity included in earnings are as follows
(all items shown net of tax):
82
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
Net unrealized investment gain (loss) at beginning of year
Unrealized holdings gain (loss) 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
Year Ended March 31,
2017
2016
2018
$
$
694
189
—
189
883
$
$
626
173
(105)
68
694
$
$
859
(79)
(154)
(233)
626
Changes in accumulated other comprehensive income by component for the year ended March 31, 2018 are as follows (in
thousands):
Unrealized
Investment
Gain
Beginning balance net of tax
Other comprehensive income (loss) before
reclassification
Amounts reclassified from other comprehensive
loss to net income
Net current period other comprehensive (loss)
income
Ending balance
$
$
694
189
—
189
883
March 31, 2018
Foreign
Currency
Change in
Derivatives
Qualifying
as Hedges
(30,364) $
(5,078)
Retirement
Obligations
$
(62,716) $
Total
(97,464)
10,722
21,717
(23,718)
8,910
2,015
—
27,281
29,296
12,737
(49,979) $
$
21,717
(8,647) $
3,563
(1,515) $
38,206
(59,258)
Details of amounts reclassified out of accumulated other comprehensive loss for the year ended March 31, 2018 are as follows
(in thousands):
Details of AOCL Components
Net pension amount unrecognized
Amount
reclassified
from AOCL
Affected line item on consolidated statement of
operations
Change in derivatives qualifying as hedges
$
$
$
$
(1)
3,100
3,100 Total before tax
(1,085) Tax benefit
2,015 Net of tax
264 Cost of products sold
2,530
Interest expense
33,935 Foreign currency
36,729 Total before tax
(9,448) Tax benefit
27,281 Net of tax
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension
cost. (See Note 12 — Pensions and Other Benefit Plans for additional details.)
83
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
21.
Effects of New Accounting Pronouncements
In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118." This ASU adds guidance to ASC 740, Income Taxes, that contain SEC guidance related
to SAB 118 (codified as SEC SAB Topic 5.EE, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”). The standard
is effective upon issuance. Refer to Note 16 for further information regarding the impact of the standard.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU amends ASC 220, Income
Statement — Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. In addition, under the ASU, an entity will be
required to provide certain disclosures regarding stranded tax effects. The ASU is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact
the standard will have on our 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. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, “Revenue
from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which delays the effective date of ASU 2014-09 by
one year. This ASU and various other amendments below which clarify the new revenue standard are effective for fiscal years,
and interim periods within those years, beginning after December 15, 2017.
In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net)." This ASU amends the principal-versus-agent implementation guidance
and illustrations in the FASB’s new revenue standard (ASC 606). The FASB issued the ASU in response to concerns identified by
stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-
versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue
standard’s control principle. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017, with early adoption permitted.
In May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients." ASU 2016-12 provides for amendments to ASU No. 2014-09, Revenue from Contracts
with Customers, amending the guidance on transition, collectability, noncash consideration and the presentation of sales and other
similar taxes. Specifically, ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially
all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should
evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an
arrangement does not meet the standard’s contract criteria.
In November 2017, the FASB issued ASU No. 2017-14, "Income Statement - Reporting Comprehensive Income (Topic 220),
Revenue Recognition (Topic 605), and Revenue From Contracts With Customers (Topic 606)." The standard amends various
paragraphs in ASC 220, ASC 605, and ASC 606 that contains SEC guidance, specifically Staff Accounting Bulletin No. 116 (SAB
116). The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted.
The new revenue standard is effective for the Company on April 1, 2018 and the Company plans to adopt using the modified
retrospective method whereas prior periods are not restated. We have evaluated revenue from contracts with customers and have
concluded that the new standard will not have a material impact on the Company's financial statements at transition. Therefore,
we do not expect to record a material cumulative catch up adjustment to retained earnings for revenue differences identified due
to the timing or amount of revenue. We have updated our policies and internal control framework and implemented additional
controls to facilitate accounting for certain projects under the new standard, specifically for certain rail and road and other custom
projects in the EMEA region. Lastly, the Company is still evaluating the impact of certain disclosures which are required under
the new standard during the first quarter in fiscal 2019.
84
COLUMBUS McKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(tabular amounts in thousands, except share data)
In August 2017, the FASB issued ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities (Topic 815)."
The standard better aligns an entity’s financial reporting for hedging relationships with risk management activities and reduces
the complexity for the application of hedge accounting. Changes include the ability to elect to perform subsequent effectiveness
assessments qualitatively and the elimination of the concept of recognizing periodic hedge ineffectiveness for cash flow hedges.
The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating
the impact the standard will have on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-10, "Service Concession Arrangements (Topic 853)." The standard clarifies how
an operating entity determines the customer of the operation services for transactions within the scope of ASC 853 by clarifying
that the grantor is the customer of the operation services in all cases for those arrangements. The effective date is aligned with that
of ASC 606, "Revenue from Contracts with Customers," which is April 1, 2018 for the Company. We do not anticipate that this
standard will have a material effect on the consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718)." The standard provides
guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value,
vesting conditions, and classification of the awards are the same immediately before and after the modification. The ASU is effective
for fiscal years beginning after December 15, 2017 and interim periods within the fiscal year, with early adoption permitted. The
Company does not expect that the adoption of this standard will have a material effect on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment (Topic 350)." The standard
removes the requirement to compare the implied fair value of goodwill with its carrying value amount as part of step 2 of the
goodwill test. Therefore, the impairment charge is the amount by which the carrying value is greater than the reporting unit's fair
value. The ASU is effective prospectively for fiscal years beginning after December 15, 2019, with early adoption permitted for
interim and annual goodwill impairment tests performed after January 1, 2017. The Company has adopted this standard effective
April 1, 2017. The adoption of this standard did not have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, "Interest Held Through Related Parties That Are Under Common Control."
The standard requires that a single decision maker consider indirect interests held by related parties under common control on a
proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. The ASU is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption
permitted. The adoption of this standard did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting." This ASU makes several modifications to Topic 718 related to the accounting for
forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits
or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards.
The Company adopted this standard effective April 1, 2017. Refer to Note 14 for further information regarding the impact of the
standard in fiscal 2018.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This standard will require all leases with durations
greater than twelve months to be recognized on the balance sheet. This ASU is effective for interim and annual reporting periods
beginning after December 15, 2018, although early adoption is permitted. We are currently evaluating the impact that the standard
will have on our consolidated financial statements and internal control framework and have started gathering lease agreements in
order to compile a complete list. Information about our undiscounted future lease payments and the timing of those payments is
included in Note 17.
85
COLUMBUS McKINNON CORPORATION
SCHEDULE II—Valuation and qualifying accounts
March 31, 2018, 2017, and 2016
Dollars in thousands
Description
Year ended March 31, 2018:
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, 2017:
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, 2016:
Deducted from asset accounts:
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Total
Reserves on balance sheet:
Accrued general and product liability costs
_________________
Additions
Balance at
Beginning
of Period
Charged
to Costs
and
Expenses
Charged
to Other
Accounts Acquisition Deductions
Balance
at End of
Period
$
$
$
$
$
$
$
$
$
2,676
$
1,184
$
153 $
— $
493 (1)
$
3,520
4,585
(104)
190
7,261
$
1,080
$
343 $
—
— $
—
493
$
4,671
8,191
13,335
$
3,965
$
— $
— $
3,718 (2)
$
13,582
2,177
4,131
6,308
$
$
484
$
1,368 $
— $
1,353 (1)
$
(829)
547
(345) $
1,915 $
736
736
—
$
1,353
$
2,676
4,585
7,261
14,535
$
7,223
$
— $
— $
8,423 (2)
$
13,335
2,155
1,977
4,132
$
$
(13) $
401 $
2,860
(706)
2,847
$
(305) $
— $
—
— $
366 (1)
$
—
366
$
2,177
4,131
6,308
12,530
$
5,277
$
— $
1,523
$
4,795 (2)
$
14,535
(1) Uncollectible accounts written off, net of recoveries
(2) Insurance claims and expenses paid
86
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, 2018, 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, 2018.
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, 2016 based on the framework in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on that evaluation,
our management concluded that our internal control over financial reporting was effective as of March 31, 2018.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2018 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
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, 2018 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
87
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Columbus McKinnon Corporation
Opinion on Internal Control over Financial Reporting
We have audited Columbus McKinnon Corporation’s internal control over financial reporting as of March 31, 2018, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Columbus McKinnon Corporation (the Company)
maintained, in all material respects, effective internal control over financial reporting as of March 31, 2018, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets as of March 31, 2018 and 2017, the related consolidated statements of operations,
comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2018, and
the related notes and the financial statement schedule listed in the Index at Item 15(2) (collectively referred to as the “consolidated
financial statements”) of the Company and our report dated May 30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Buffalo, New York
May 30, 2018
88
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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 and upon the filing of such Proxy Statement, is incorporated by reference herein.
89
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(1)
Financial Statements:
The following consolidated financial statements of Columbus McKinnon Corporation are included in Item 8:
Reference
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets - March 31, 2018 and 2017
Consolidated statements of operations – Years ended March 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income (Loss)
Consolidated statements of shareholders’ equity – Years ended March 31, 2018, 2017, and 2016
Consolidated statements of cash flows – Years ended March 31, 2018, 2017, and 2016
Notes to consolidated financial statements
(2) Financial Statement Schedule:
Schedule II - Valuation and qualifying accounts
Page
No.
35
36
37
38
39
40
41
Page
No.
86
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(3)
Exhibits:
Exhibit
Number
Exhibit
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s
Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995).
3.2 Amended By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
dated March 28, 2013).
3.3 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).
3.4 Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.5 to the Company’s Current Report
on Form 8-K dated March 29, 2018).
4.1 Specimen common share certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement No.
33-80687 on Form S-1 dated December 21, 1995.)
4.2 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).
4.3
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)
90
4.4 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)
#10.1 Agreement by and among Columbus McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon
Corporation and Marine Midland Bank, dated November 2, 1995 (incorporated by reference to Exhibit 10.6 to the Company’s
Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995).
#10.2 Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 (incorporated by
reference to Exhibit 10.23 to the Company’s Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995).
#10.3 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated March 2, 1995 (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement No.
33-80687 on Form S-1 dated December 21, 1995).
#10.4 Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated October 17, 1995
(incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the fiscal year ended March
31, 1997).
#10.5 Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated March 27, 1996
(incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the fiscal year ended March
31, 1997).
#10.6 Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated September 30, 1996 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1996).
#10.7 Amendment No. 5 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated August 28, 1997 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 1998).
#10.8 Amendment No. 6 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated June 24, 1998 (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-
K for the fiscal year ended March 31, 1998).
#10.9 Amendment No. 7 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated April 30, 2000 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-
K for the fiscal year ended March 31, 2000).
#10.10 Amendment No. 8 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated March 26, 2002 (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
#10.11 Amendment No. 9 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of
April 1, 1989, dated March 27, 2003 (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2003).
#10.12 Amendment No. 10 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as
of April 1, 1989, dated February 28, 2004 (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2004).
#10.13 Amendment No. 11 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as
of April 1, 1989, dated December 19, 2003 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended December 28, 2003).
#10.14 Amendment No. 12 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as
of April 1, 1989, dated March 17, 2005 (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2005).
#10.15 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).
#10.16 Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement, dated April 1, 1987 (incorporated by
reference to Exhibit 10.25 to the Company’s Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995).
#10.17 Second Amendment to the Columbus McKinnon Corporation Restricted Stock Plan (incorporated by reference to Exhibit
10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2002).
#10.18 Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement Effective January 1, 1998 (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 27,
1998).
#10.19 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).
91
#10.20 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401 (k)] Plan, dated June 1,
2000 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
#10.21 Amendment No. 3 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401 (k)] Plan, dated March
26, 2002 (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
#10.22 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated May 10,
2002 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended September 29, 2002).
#10.23 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated
December 20, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended December 29, 2002).
#10.24 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated May 22,
2003 (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2003).
#10.25 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated April
14, 2004 (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2004).
#10.26 Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated
December 19, 2003 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended December 28, 2003).
#10.27 Amendment No. 9 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March
16, 2004 (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2004).
#10.28 Amendment No. 10 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated July
12, 2004 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly
period ended July 4, 2004).
#10.29 Amendment No. 11 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March
31, 2005 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2005).
#10.30 Amendment No. 12 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated
December 27, 2005 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2006).
#10.31 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).
#10.32 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).
#10.33 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).
#10.34 Columbus McKinnon Corporation Thrift 401(k) Plan Trust Agreement Restatement Effective August 9, 1994 (incorporated
by reference to Exhibit 10.32 to the Company’s Registration Statement No. 33-80687 on Form S-1 dated December 21,
1995).
#10.35 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Restatement Effective April 1, 1998 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 27,
1998).
#10.36 Amendment No. 1 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated December 10, 1998 (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 1999).
#10.37 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated May 26, 1999 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 1999).
#10.38 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).
92
#10.39 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated December 20, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended December 29, 2002).
#10.40 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated February 28, 2004 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2004).
#10.41 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated March 17, 2005 (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2005).
#10.42 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated December 28, 2005 (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2006).
#10.43 Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan,
dated December 28, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 2006).
#10.44 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).
#10.45 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).
#10.46 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust Agreement Effective as of April 1, 1987
(incorporated by reference to Exhibit 10.34 to the Company’s Registration Statement No. 33-80687 on Form S-1 dated
December 21, 1995).
#10.47 Columbus McKinnon Corporation 2006 Long Term Incentive Plan (incorporated by reference to Appendix A to the definitive
Proxy Statement for the Annual Meeting of Stockholders of Columbus McKinnon Corporation held on July 31, 2006).
#10.48 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).
#10.49 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).
#10.50 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).
#10.51 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)
#10.52
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.
#10.53 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)
#10.54 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)
#10.55 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)
#10.56 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)
#10.57 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)
#10.58 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)
#10.59 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)
#10.60 Amendment to Credit Agreement, dated as of September 2, 2015. (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed on September 2, 2015)
93
#10.61 Agreement and Plan of Merger, dated July 26, 2015 and completed on September 2, 2015. (incorporated by reference to
Exhibit 2.1 and 2.2 of the Company’s Current Report on Form 8-K filed on September 2, 2015)
#10.62
2016 Long Term Incentive Plan effective August 3, 2016 (incorporated by reference to Exhibit 4.1 of the Company’s S-8 filed
on August 3, 2016.
#10.63 Share Purchase Agreement, dated November 30, 2016 and completed on January 31, 2017. (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on January 26, 2017)
#10.64 Credit agreement dated January 31, 2017. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed on January 31, 2017)
#10.65 Share Purchase Agreement dated December 18, 2016 and completed on January 30, 2017. (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K filed on December 19, 2016.
#10.66 Registration Rights Agreement dated December 18, 2016 and completed on January 30, 2017. (incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K filed on December 19, 2016.
*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
94
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 30, 2018
COLUMBUS McKINNON CORPORATION
By:
/s/ Mark D. Morelli
Mark D. Morelli
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.
95
Signature
Title
Date
/s/ Mark D. Morelli
President, Chief Executive Officer and Director
May 30, 2018
(Principal Executive Officer)
Mark D. Morelli
/s/ Gregory P. Rustowicz
Gregory P. Rustowicz
Vice President and Chief Financial Officer
(Principal Financial Officer)
May 30, 2018
/s/ Ernest R. Verebelyi
Chairman of the Board of Directors
May 30, 2018
Ernest R. Verebelyi
/s/ Richard H. Fleming
Director
May 30, 2018
Richard H. Fleming
/s/ Liam G. McCarthy
Director
May 30, 2018
Liam G. McCarthy
/s/ Heath A. Mitts
Director
May 30, 2018
Heath A. Mitts
/s/ Nicholas T. Pinchuk
Director
May 30, 2018
Nicholas T. Pinchuk
/s/ Stephen Rabinowitz
Director
May 30, 2018
Stephen Rabinowitz
/s/ Kathryn V. Roedel
Director
May 30, 2018
Kathryn V. Roedel
/s/ R. Scott Trumbull
Director
May 30, 2018
R. Scott Trumbull
96
Exhibit 21.1
COLUMBUS McKINNON CORPORATION
SUBSIDIARIES
(as of March 31, 2018)
CM Insurance Company, Inc. (US-NY)
Crane Equipment & Service, Inc. (US-OK)
Unified Industries Inc. (US-MI)
Magnetek, Inc. (US-DE)
Magnetek National Electric Coil, Inc. (US-DE)
STAHL Cranesystems Inc. (US-SC)
Yale Industrial Products, Inc. (US-DE)
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)
Morris Middle East, Ltd. (Cayman Islands)
Eastern Morris Cranes Company Limited (49% Investment) (Saudi Arabia)
Columbus McKinnon Limited (Canada)
Magnetek Canada ULC (Canada)
Columbus McKinnon Asia Pacific Pte. Ltd. (Singapore)
Columbus McKinnon (Shanghai) International Trading Co. LTD (China)
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)
STAHL Cranesystems Pte. Ltd. (Singapore)
STAHL Cranesystems India Private Ltd. (India)
Columbus McKinnon EMEA GmbH (Germany)
Columbus McKinnon Industrial Products GmbH (Germany)
Columbus McKinnon Corporation Ltd. (England)
Magnetek (UK) Limited (England)
Stahl Cranesystems Ltd. (England)
Columbus McKinnon France S.a.r.l. (France)
STAHL Cranesystems S.A.S (France)
Columbus McKinnon Maghreb S.a.r.l AAU (Morocco)
Société d’Exploitation des Raccords Gautier (France)
Columbus McKinnon Italia S.r.l. (Italy)
Columbus McKinnon Ibérica S.L.U. (Spain)
STAHL Cranesystems S.L. (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)
Yale Lifting Solutions Industrial (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 Polska Sp.z.o.o (Poland)
Columbus McKinnon Switzerland AG (Switzerland)
Columbus McKinnon Ireland, Ltd. (Ireland)
Stahlhammer Bommern GmbH (Germany)
Ferromet al Limitada (Portugal)
Stahl Cranesystems GmbH (Germany)
STAHL Cranesystems FZE (UAE)
STAHL Cranesystems Shanghai Co. Ltd. (China)
Columbus McKinnon Engineered Products GmbH (Germany)
Pfaff Silberblau Utilaje de Ridicat si Transportat S.R.L. (Romania)
Verkehrstechnik Gmbh (Germany)
Columbus McKinnon Latin America B.V. (The Netherlands)
Columbus McKinnon de Mexico, S.A. de C.V. (Mexico)
Columbus McKinnon de Uruguay, S.A. (Uruguay)
Columbus McKinnon do Brazil Ltda. (Brazil)
Columbus McKinnon de Panama S.A. (Panama)
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(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,
(4) Registration Statement (Form S-8 No. 333-207165) pertaining to the 2014 Incentive Plan of Magnetek, Inc.,
(5) Registration Statement (Form S-8 No. 333-212865) pertaining to the Columbus McKinnon Corporation 2016 Long Term
Incentive Plan,
(6) Registration Statement (Form S-3 No. 333-212862) and related Prospectus of Columbus McKinnon Corporation for the
registration of common stock, preferred stock, warrants, rights, stock purchase contracts, debt securities, units and guarantees
of debt securities of Columbus McKinnon Corporation, and
(7) Registration Statement (Form S-3 No. 333-217382) and related Prospectus of Columbus McKinnon Corporation for the
registration of 2,273,000 shares of common stock of Columbus McKinnon Corporation;
of our reports dated May 30, 2018, 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) of Columbus McKinnon Corporation for the year ended March 31, 2018.
/s/ Ernst & Young LLP
Buffalo, New York
May 30, 2018
CERTIFICATION
I, Mark D. Morelli, certify that:
1.
I have reviewed this report on Form 10-K of Columbus McKinnon Corporation;
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 30, 2018
/s/ MARK D. MORELLI
Mark D. Morelli
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, Gregory P. Rustowicz, certify that:
1.
I have reviewed this report on Form 10-K of Columbus McKinnon Corporation;
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 30, 2018
/s/ GREGORY P. RUSTOWICZ
Gregory P. Rustowicz
Chief Financial Officer
(Principal Financial Officer)
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, 2018, 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 30, 2018
/s/ MARK D. MORELLI
Mark D. Morelli
Chief Executive Officer
(Principal Executive Officer)
/s/ GREGORY P. RUSTOWICZ
Gregory P. Rustowicz
Chief Financial Officer
(Principal Financial Officer)
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Executive Officers
Board of Directors
Mark D. Morelli
President and Chief Executive Officer
Gregory P. Rustowicz
Vice President and Chief Financial Officer
Benjamin AuYeung
Vice President - Asia Pacific
Ernest R. Verebelyi, Chairman
Terex Corporation (NYSE: TEX) (retired)
Mark D. Morelli
Columbus McKinnon Corporation
Richard H. Fleming 1,3*
USG Corporation (NYSE: USG) (retired)
Bert A Brant
Vice President - Global Manufacturing Operations
Liam G. McCarthy 2,3
Molex Inc. (retired)
Alan S. Korman
Vice President Corporate Development, General Counsel
and Chief Human Resources Officer
Peter M. McCormick
Vice President - Crane Solutions
Mark R. Paradowski
Vice President - Information Services
John H. Stewart
Vice President - Engineered Solutions
Kurt F. Wozniak
Vice President - Industrial Products
Heath A. Mitts 1*,3
TE Connectivity Ltd. (NYSE: TEL)
Nicholas T. Pinchuk 2,3
Snap-on Inc. (NYSE: SNA)
Stephen Rabinowitz 1,2
General Cable Corporation (NYSE: BGC) (retired)
Kathryn V. Roedel 1,2
Sleep Number Corporation (NASDAQ: SCSS) (retired)
R. Scott Trumbull 1,2*
Franklin Electric Company (NASDAQ: FELE) (retired)
1 Audit
2 Compensation and Succession
3 Corporate Governance and Nomination
* Chairperson
Reconciliation of GAAP Net Income & EPS to
Non-GAAP Net Income & EPS
2018
Year Ended March 31,
2016
2017
2015
2014
$
22,065
$
8,984
$
19,579
$
27,190
$
30,421
Net Income
Add back (deduct):
Acquisition inventory step-up expense & real estate transfer taxes
Acquisition deal, integration and severance costs
CEO retirement pay and search costs
Insurance recovery legal costs
Impairment of intangible asset
Cost of debt refinancing
Loss on foreign exchange option for acquisition
Canadian pension lump sum settlements
Product liability costs for legal settlement
Building held for sale impairment charge
Facility consolidation costs
Acquisition amortization of backlog
Debt repricing fees
Magnatek litigation
Insurance settlement
Normalize tax rate to 22% *
-
8,763
-
2,948
-
-
-
-
-
-
-
-
619
400
(2,362)
14,408
8,852
8,815
3,085
1,359
1,125
1,303
1,590
247
-
-
-
-
-
-
-
(4,626)
1,446
8,046
-
-
-
-
-
-
1,100
429
1,444
581
-
-
-
2,218
659
-
-
-
-
8,567
-
-
-
-
1,726
-
-
-
-
(1,508)
-
1,657
-
-
-
-
-
-
-
-
-
-
-
-
-
2,538
Non-GAAP adjusted net income
$
46,841
$
30,734
$
34,843
$
36,634
$
34,616
Average diluted shares outstanding
23,335
20,888
20,315
20,224
19,950
Net income per diluted share - GAAP
Net income per diluted share - Non-GAAP
0.95
2.01
0.43
1.47
0.96
1.72
1.34
1.81
1.52
1.74
* Applies a normalized tax rate of 22% to GAAP pre-tax income and non-GAAP adjustments above, pre-tax.
Shareholder and Corporate Information
Common Stock
Columbus McKinnon’s common stock is traded
on NASDAQ under the symbol CMCO. As of
June 1, 2018, there were 364 shareholders
of record and 23,137,457 total shares of common
stock outstanding. According to SEC filings, as
of March 31, 2018, there were 188 institutional
and mutual fund investors who own approximately
96.4% of Columbus McKinnon’s outstanding
common shares.
Annual Meeting of Shareholders
July 23, 2018
10:00 a.m. Central Time
Four Seasons Hotel Chicago
120 East Delaware Place
Chicago, Illinois 60611
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
205 Crosspoint Parkway
Buffalo, New York 14068
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
Reconciliation of GAAP Income from Operations & Margin to
Non-GAAP Income from Operations & Margin
Income from operations
Add back (deduct):
Year Ended March 31,
2018
70,099
$
2017
25,973
$
Acquisition inventory step-up expense & real estate transfer taxes
Acquisition deal, integration and severance costs
CEO retirement pay and search costs
Insurance recovery legal costs
Impairment of intangible asset
Canadian pension lump sum settlements
Debt repricing fees
Magnatek litigation
Insurance settlement
-
8,763
-
2,948
-
-
619
400
(2,362)
8,852
8,815
3,085
1,359
1,125
247
-
-
-
Non-GAAP income from operations
$
80,467
$
49,456
Adjusted operating margin
9.6%
7.8%
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.
205 Crosspoint Parkway | Buffalo, New York 14068
General 716-689-5400 | Investor Relations 716-689-5442
cmworks.com | NASDAQ: CMCO