-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fggk8Y13qd6nddLRUImIZJiE6glbkw13sRxFV+iWmKZyVSmZ2deALxjY9rBYRCW8 q+s32xJp+x0NDLK3qxQUcQ== 0001005229-98-000009.txt : 19980630 0001005229-98-000009.hdr.sgml : 19980630 ACCESSION NUMBER: 0001005229-98-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBUS MCKINNON CORP CENTRAL INDEX KEY: 0001005229 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 160547600 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27618 FILM NUMBER: 98656421 BUSINESS ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PKWY CITY: AMHERST STATE: NY ZIP: 14228-1197 BUSINESS PHONE: 7166895400 MAIL ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PARKWAY CITY: AMHERST STATE: NY ZIP: 14228-1197 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from_______to_______ Commission file number 0-27618 COLUMBUS MCKINNON CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 16-0547600 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 140 JOHN JAMES AUDUBON PARKWAY, AMHERST, N.Y. 14228-1197 - ----------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (716) 689-5400 Securities registered pursuant to Section 12(b) of the Act: NAME OF EXCHANGE ON TITLE OF CLASS WHICH REGISTERED -------------- ---------------- Common Stock, $0.01 Par Value NASDAQ National Market Securities pursuant to section 12(g) of the Act: NONE Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the voting stock held by non-affiliates of the registrant as of May 31, 1998 was $306,824,186. The number of shares of common stock outstanding as of May 31, 1998 was: 13,756,858 shares. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the proxy statement for the annual shareholders meeting to be held August 17, 1998 are incorporated by reference into Part III of this report. COLUMBUS McKINNON CORPORATION 1998 Annual Report on Form 10-K PART I This annual report may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic, and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services and other factors disclosed in the Company's periodic reports filed with the Commission. Consequently such forward-looking statements should be regarded as the Company's current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. ITEM 1. BUSINESS. OVERVIEW Columbus McKinnon ("Columbus McKinnon" or the "Company"), established in 1875, is a leading designer, manufacturer and distributor of a broad range of material handling, lifting and positioning products. The Company sells its products both domestically and internationally, primarily to third-party distributors and, to a lesser extent, directly to manufacturers and end-users for a wide range of applications. The Company's major commercial markets include the general manufacturing, crane building, mining, construction, transportation, entertainment, power generation, waste management, agricultural, marine, automotive, and logging markets. Additionally, the Company sells its products to the consumer market through hardware and farm equipment distributors, mass merchandisers and rental outlets. For the year ended March 31, 1998, the Company generated net sales and income from operations of $510.7 million and $67.9 million, respectively. The Company's products include a wide variety of electric, lever, hand and air-powered hoists; hoist trolleys; alloy, carbon steel and kiln chain; closed-die forgings, such as hooks, shackles and loadbinders; electric, hydraulic and pneumatic operator-controlled manipulators; industrial components, such as mechanical and electromechanical actuators, mechanical jacks and rotary unions; scissor lifts; below-the-hook lifters; circuit protection devices; logging tools and chain making and chain repair equipment. Through innovative design and manufacturing expertise developed by the Company and through selective acquisitions, the Company has established a leading market share in many of its product lines. As a result of its recent acquisitions of Univeyor A/S ("Univeyor") and LICO, Inc. ("LICO"), the Company has also positioned itself as a leader in the project design, management and implementation of automated material handling systems. Columbus McKinnon believes it has more overhead hoists in use in North America than all of its competitors combined. The Company's products and customer base are highly diversified; no single product accounted for more than 1% and no individual customer accounted for more than 5% of net sales for the year ended March 31, 1998. The Company believes that the demand for its products has increased in recent years and will continue to increase in the future as a result of several favorable trends impacting a broad array of industries that have enabled the Company to expand into new product areas and markets. These trends include: PRODUCTIVITY ENHANCEMENT. In recent years employers have responded to competitive pressures by seeking to maximize productivity and efficiency. The Company's hoists and other lifting and positioning products allow loads to be lifted and placed quickly, precisely, with little effort, and with fewer people. -2- SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace safety regulations such as the Occupational Safety and Health Act ("OSHA") and the Americans with Disabilities Act, and by the general competitive need to reduce costs such as health insurance premiums and workers' compensation expenses, employers seek safer ways to lift and position loads. The Company's lifting and positioning products enable these tasks to be performed with reduced risk of personal injury. WORKFORCE DIVERSITY. The percentages of women, disabled and older persons in the work force and the tasks they perform are continuing to increase. The Company's products enable many workplace tasks to be performed safely, efficiently and with less physical stress. The Company believes that increasing diversity in the workforce will continue to increase demand for its products. OUTSOURCING OF MATERIAL HANDLING PROJECT DESIGN AND MANAGEMENT. More of the Company's customers and end-users are outsourcing non-core business functions to improve productivity and cost efficiency. This has created opportunities for the Company to assume the project design, management and implementation responsibilities for both workstation and facility-wide material handling systems. The Company's opportunity to capitalize on this trend has been enhanced by the recent acquisitions of Univeyor and LICO. Through the combination of the Company's expertise and technological know-how with that of Univeyor and LICO, the Company believes that it will be able to position itself as a leader in the project design, management and implementation of automated material handling systems. As a result, many of the Company's existing products may be utilized in these systems. The Company has extended its product lines and penetrated new markets in recent years through several acquisitions which have been successfully integrated into the Company. In November 1995 and October 1996, the Company acquired Lift-Tech International, Inc. ("Lift-Tech") and Yale Industrial Products, Inc. ("Yale"), respectively, manufacturers of hoist and crane components, and in December 1996, the Company acquired Lister Bolt & Chain Ltd. ("Lister"), a specialty bolt and chain manufacturer. These, together with other acquisitions made by the Company, have enhanced the Company's position as the largest North American manufacturer of overhead hoists, operator-controlled manipulators and alloy chain. As a result of internal growth and acquisitions, the Company's net sales and income from operations have increased to $510.7 million and $67.9 million, respectively, for the year ended March 31, 1998 from $128.3 million and $12.2 million, respectively, in fiscal 1993, representing compound annual growth rates of approximately 31.8% and 41.0%, respectively. KEY STRENGTHS The Company attributes its strong competitive position to the following key strengths: LEADING MARKET POSITION. Columbus McKinnon is the largest manufacturer of hoists, alloy and high strength carbon steel chain and operator-controlled manipulators in North America. The Company has developed its leading market position over its 123-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale service. -3- PREFERRED PROVIDER TO MAJOR DISTRIBUTORS. The Company enjoys long-standing relationships with and is a preferred provider to many of its largest distributors. Since 1990, during a period of significant consolidation among distributors of material handling equipment, the Company has benefited from this consolidation as it has maintained and enhanced its relationships with the leading distributors. The Company believes that its ability to retain existing customers and attract new customers is attributable to its ongoing commitment to customer service and satisfaction. For example, the Company maintains close contact with its customers and provides prompt aftermarket service to end-users of its products through a network of independent distributors staffed with Company-trained professionals at over 300 hoist repair centers, over 100 repair parts distribution centers and 11 chain service centers. Additionally, to ensure continuing product development and market awareness, the Company sponsors advisory boards composed of representatives of its largest distributors and aftermarket sales and service network. DIVERSIFIED PRODUCTS, MARKETS, AND CUSTOMER BASE. The Company believes that it offers the most extensive product line of material handling products in the markets which it serves. No single product accounted for more than 1% of net sales for the year ended March 31, 1998. The Company's products are sold to over 10,000 general, specialty and service-after-sale distributors and original equipment manufacturers ("OEMs") for various applications in the general manufacturing, overhead crane, construction, transportation, entertainment, power generation, waste management, agricultural, marine, automotive and logging markets. Additionally, the Company sells its products for consumer use to over 100 hardware, trucking and transportation, farm hardware and rental outlets. No single customer accounted for more than 5% of net sales for the year ended March 31, 1998. The Company believes that the breadth of its products, the diversity of its markets and the strength of its distribution relationships minimize its dependence on any particular product, market or customer. LARGE INSTALLED PRODUCT BASE; STRONG BRAND NAMES. Columbus McKinnon believes it has more overhead hoists in use in North America than all of its competitors combined. In addition, the Company's brand names, including Big Orange, Budgit, Chester, CM, Coffing, Cyclone, Duff-Norton, Hammerlok, Herc-Alloy, Little Mule, Lodestar, Puller, Shaw-Box, Valustar and Yale, are among the most recognized and respected in the industry. The Company believes that its strong brand name recognition, together with the Company's large installed base of products, provide it with a significant competitive advantage in selling its full product line to existing and new customers as well as providing repair and replacement parts. EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT OWNERSHIP INTEREST. The Company's management team provides a depth and continuity of experience. The Company's directors and executive officers own an aggregate of approximately 21% of the Company's outstanding common stock. In addition, in April 1997 Columbus McKinnon implemented economic value added ("EVA(R)") as a performance measure and is using EVA(R) goals to, among other things, determine incentive-based compensation for all of its employees. BUSINESS STRATEGY The Company's strategic objective is to further enhance its position as a leading designer, manufacturer and distributor of material handling, lifting and positioning products both domestically and internationally. The Company plans to achieve this objective through the continued implementation of the following three-pronged strategy: ENHANCE EXISTING BUSINESS. The Company continually strives to enhance its existing business through the following: -4- * Leverage Strong Competitive Position. The Company's position as a leading provider of material handling equipment has resulted in a substantial installed base of its products. The Company's close relationships with its distributors permit it to obtain customer information and product requirements in order to respond to and anticipate future needs of end-users of the Company's products, which the Company believes allows it to maintain its market leadership position. The repair and replacement of parts and complementary products for the Company's large installed base of products represents additional revenue growth potential. The Company believes that it can expand the market and customer base for new and acquired products by introducing these products through its existing distribution channels. In addition, the Company believes it can achieve product and marketing synergies by selling its products into the markets of acquired businesses. * Increase Productivity and Realize Cost Savings. In addition to developing and introducing new products, the Company focuses on improving the quality and reliability of its products and increasing manufacturing efficiency. Fourteen of the Company's existing manufacturing facilities and six of its distribution facilities have achieved ISO 9000 certification, and substantially all of the Company's remaining manufacturing and distribution facilities are in the process of obtaining such certification. The Company improves productivity by reducing cycle times, increasing employee involvement in production and investing in new, more efficient manufacturing processes, including computer-aided design capabilities. The Company has implemented EVA(R) to analyze the utilization of its assets and productivity in order to improve all aspects of the Company's operations, and to determine incentive-based compensation for its employees. Further, the Company believes additional cost savings can be realized through the continued integration of the operations of recent acquisitions with those of the Company. For example, through its increased critical mass, the Company has been able to achieve raw material purchasing efficiencies. INCREASE PENETRATION OF INTERNATIONAL MARKETS. The Company maintains a distributor network in approximately 50 countries and has manufacturing facilities in Canada, Mexico, Germany, Denmark, France and China. The Company intends to increase its international presence, with a primary focus on enhancing its existing presence in Europe and expanding its operations into the Pacific Rim, South America and Africa. The Company intends to accomplish this growth by strengthening its international distribution network and by making additional strategic acquisitions and alliances. The recent acquisition of Univeyor has provided the Company with another European operating location, and will enable the Company to market Univeyor's material handling systems expertise to the Company's customer base. The Company has increased its international net sales from approximately 12.9% ($16.6 million) of net sales in fiscal 1993 to approximately 21.1% ($107.5 million) of net sales for the year ended March 31, 1998. PURSUE SELECTIVE ACQUISITIONS. The Company intends to selectively pursue strategic acquisitions, joint ventures and alliances. Potential strategic combinations will be evaluated based on their ability to, among other things: (i) complement existing businesses and further expand product lines; (ii) strengthen the Company's leadership position in the material handling and lifting industry; (iii) provide synergistic opportunities; (iv) enhance and broaden distribution channels; (v) increase the Company's international presence; and (vi) enhance shareholder value and be EVA(R) positive. -5- PRODUCTS AND SERVICES The Company primarily designs, manufactures and distributes a broad range of material handling, lifting and positioning products for various applications in industry and for consumer use. The following table sets forth certain sales data for the Company's products, expressed as a percentage of net sales, for the periods presented: FISCAL YEAR ENDED MARCH 31, PRODUCTS 1997 1998 -------- ---- ---- Hoists.......................................... 57% 58% Chain........................................... 15 12 Forged products................................. 15 11 Industrial components........................... 5 8 Circuit protection devices...................... 2 4 Scissor lifts................................... 2 3 Manipulators.................................... 2 2 Tire shredders.................................. 2 1 Conveyors....................................... -- 1 -- -- 100% 100% ==== ==== Hoists. The Company manufactures a variety of hand-operated hoists and lever tools, air-powered hoists, electric chain hoists, and electric wire rope hoists. Load capacities for the Company's hoist product lines range from less than one ton to 100 tons. These products are sold under its Budgit, Chester, CM, Coffing, Cyclone, Little Mule, Lodestar, Puller, Shaw-Box, Valustar, Yale and other recognized trademarks. The Company's hoists are sold for use in a variety of general industrial applications, as well as for use in the entertainment, consumer, rental, health care and other emerging product markets. The Company also supplies hoist trolleys, driven manually or by electric motors, for the industrial, consumer and OEM markets. The Company also offers a line of custom-designed, below-the-hook tooling. Below-the-hook tooling is specialized lifting apparatus used in a variety of lifting activities performed in conjunction with hoist and chain applications. Chain. The Company manufactures alloy chain for various industrial applications. Federal regulations in the United States favor the use of alloy chain, which the Company first developed, for overhead lifting applications because of its strength and wear characteristics. A line of the Company's alloy chain is sold under the Herc-Alloy brand name for use in overhead lifting, pulling and restraining applications. The Company also sells specialized load chain for use in hoists. Three grades and multiple sizes of carbon steel welded-link chain are sold by the Company in the industrial and consumer markets for various load securement and other non-overhead lifting applications. As a result of the acquisition of Lister, the Company now also manufactures kiln chain sold primarily to the cement and lime kiln manufacturing market and anchor and buoy chain sold primarily to the United States and Canadian governments. The Company also designs and manufactures its own chain making and chain repair equipment. -6- Forged Products. The Company manufactures a complete line of alloy and carbon steel forgings, including hooks, shackles, hitch pins, master links and loadbinders. These forgings are used in virtually all types of chain and wire rope rigging applications in a variety of industries, including transportation, mining, railroad, construction, marine, logging, petrochemical and agriculture. The Company also manufactures carbon steel forged and stamped products, such as loadbinders, hooks, shackles and other securement devices, for sale to the industrial, consumer and logging markets through industrial distributors, hardware distributors, mass merchandiser outlets and OEMs. Industrial Components. The Company, through the Duff-Norton Division of Yale, designs and manufactures industrial components such as mechanical and electromechanical actuators, mechanical jacks and rotary unions for sale domestically and abroad. Actuators are linear motion devices used in a variety of industries, including the paper, steel and aerospace industries. Mechanical jacks are heavy duty lifting devices whose uses include the repair and maintenance of railroad tracks, locomotives and industrial machinery. Rotary unions are piping devices which introduce heating or cooling liquids into the interiors of rotating drums in industrial processes in the paper, textiles, rubber, plastics, printing and machine tool industries. Circuit Protection Devices. The Mechanical Products Division of Yale develops circuit protection devices for various aerospace and commercial applications. Circuit protection devices are sold to manufacturers of private, commercial and military aircraft, as well as NASA. In addition, they are also sold to OEMs, electrical distributors and outlets for power supplies for use in medical equipment, motor vehicles and other electrical components and equipment. Scissor Lifts. The American Lifts Division of Yale manufactures hydraulic scissor lift tables and other engineered lifting products. These products enhance workplace ergonomics and are sold primarily to customers in the manufacturing, construction, general industrial and air cargo industries. Manipulators. The Company manufactures a line of sophisticated operator-controlled manipulators. These products are articulated mechanical arms with specialized end tooling designed to perform lifting, rotating, turning, tilting, reaching and positioning tasks in a manufacturing process. Utilizing various models and size configurations, the Company can offer custom-designed hydraulic, pneumatic, and electric manipulators for a wide variety of applications where the user requires multi-axial movement in a harsh or repetitive environment. The Company also has the capability to manufacture more sophisticated, semi-robotic manipulators for specialized, repetitive motion applications and has manufactured simple pick and place robots. Tire Shredders. The Company manufactures a line of tire shredders, capable of reducing tires of up to 48 inch diameter to 2 inch or 1 inch square chips. Tire shredding allows for a broad range of recovery and recycling functions, including the use of granulated rubber for chips in pavement and in waste management systems, and as fuel in boilers and cement kilns. Steel in belted tires also can be recovered and recycled, further reducing waste from disposal of worn tires. In addition, tire shredding reduces required landfill space. -7- Conveyors. Commencing with its January 1998 acquisition of Univeyor, the Company designs, manufactures and installs automated material handling systems for a variety of industries including automotive, consumer products manufacturing and warehousing. SALES AND MARKETING The Company supports its commercial and consumer sales through its sales forces and through independent manufacturing agents worldwide, including approximately 120 dedicated salespersons who sell hoists, chain, forged products, manipulators, lift-tables, rotary unions, actuators, jacks, circuit breakers and related material handling accessories. Consumer sales are supported through approximately 25 independent manufacturers representative companies. Commercial and consumer sales are further supported by over 100 Company-trained customer service correspondents and sales application engineers. The Company promotes its products by advertising in trade journals and by participating in more than 50 trade shows each year throughout the United States and abroad. Trade shows are central to promotion of the Company's products and, in certain cases, for actual sale of the Company's products, particularly to hardware retailers. Shows in which the Company participates range from global events held in Hanover, Germany, Cologne, Germany and Chicago, Illinois to local "markets" and "open houses" put on by individual hardware and industrial distributors. The Company also attends specialty shows for the entertainment, rental, safety, environmental recycling and health care markets, as well as general purpose industrial and consumer hardware shows. In fiscal 1998, the Company participated in trade shows in Canada, Mexico, Germany, England, Japan, Singapore, Malaysia, Greece, South Africa, China and Peru, as well as in the United States. The Company's communication program encompasses advertisements in leading trade journals as well as producing and distributing high quality information catalogs. On-site distributors and end-user training programs are held worldwide to promote and reinforce the attributes of the Company's products. The Company also has a Web site on the Internet (http://www.cmworks.com). The Company supports its product distribution by running cooperative "pull-through" advertising in over 60 vertical trade magazines and directories targeted to the theatrical, international, consumer, medical, tire shredder and crane builder markets. The Company has separate ads for chain, hoists, forgings, lifters, manipulators, lift tables, actuators, hydraulic jacks, tire shredders, mobility systems and hardware programs. DISTRIBUTION AND MARKETS Commercial Distribution. In 1998, commercial sales of industrial products totaled approximately $484.0 million or 95% of total sales, as compared to approximately $332.7 million or 93% in 1997. Commercial distribution channels include industrial wholesale distributors, rigging shops, crane builders, catalog houses, material handling specialists, entertainment equipment riggers, service-after-sale distributors and other general and specialty distributors. General Distribution Channels: -8- * Industrial distributors sell a variety of products for maintenance, repair, operation and production ("MROP") applications through their own direct sales force. * Rigging shops are distributors who are experts in the rigging, lifting, positioning and load securement areas of material handling. Most rigging shops manufacture and distribute chain, wire rope and synthetic slings and distribute off-the-shelf hoists and attachments, chain slings and other off-the-shelf products. * Crane builders design, build and install overhead crane and light-rail systems for general industry and sell a wide variety of hoists and lifting attachments. Specialty Distribution Channels: * Catalog houses market a variety of MROP supplies and material handling products either exclusively through large, nationally distributed catalogs, or through a combination of catalog sales and a field sales force. The customer base of catalog houses, which traditionally included smaller industrial companies and consumers, has expanded to include large industrial accounts and integrated suppliers. * Material handling specialists design and assemble systems incorporating hoists, overhead rail systems, trolleys, lift tables, manipulators, air balancers, jib arms and other products. * Entertainment equipment riggers design, supply and install a variety of material handling equipment for concerts, theaters, ice shows, sports arenas, convention centers and discos. Service-After-Sale Distribution Channel: * Service-after-sale distributors include over 100 hoist master parts depots, 11 chain repair service stations and over 300 hoist and other product service and repair stations. This service network is designed for easy parts and service access for the Company's large installed base of hoists and related equipment in North America. Other Sales Channels: * Original equipment manufacturers supply various component parts to other industrial manufacturers as well as private branding and packaging of traditional Company products for material handling and lifting. Sales in this area have grown with the addition of the Mechanical Products Division of Yale, which manufactures industrial and commercial circuit breakers, and with the Duff-Norton Division of Yale, which manufactures rotary unions and actuators. * Government sales are sold directly by the Company and have expanded with the acquisition of Lister, which manufactures anchor, buoy and mooring chain for the United States and Canadian Navies and Coast Guards. -9- Consumer Distribution. The Company's consumer sales, consisting primarily of carbon steel chain and assemblies, forged attachments and hand-powered hoists, were approximately $26.8 million or 5% of total sales in 1998 and approximately $26.7 million or 7% in 1997. Distribution of these products is primarily comprised of five channels: two-step wholesale hardware distribution (such as Distribution America and Ace Hardware); one-step distribution (such as Fastenal and Canadian Tire); trucking and transportation distributors (such as U-Haul and Fruehauf); farm hardware distributors (such as J. I. Case and Tractor Supply Company); and rental outlets. CUSTOMER SERVICE AND TRAINING The Company maintains well-trained customer service departments for all of its sales divisions, and regularly schedules product and service training schools for all customer service representatives and field sales forces. In addition, training schools for distribution, service stations, and end-users are held on a regular basis at most of the Company's facilities, as well as in the field. The Company has more than 300 service stations worldwide that provide local and regional repair, warranty and general service work for distributors and end-users. End-user trainees attending various training schools maintained by the Company include representatives of General Motors, DuPont, 3M, GTE, Cummins Engine, General Electric and many other large industrial manufacturers. The Company also provides a variety of collateral material in video, cassette, CD-ROM, slide and literature format addressing such relevant material handling topics as the care, use and inspection of chains and hoists, and overhead lifting and positioning safety. The Company also sponsors eight separate advisory boards made up of representatives of its primary distributors and service-after-sale network members who are invited to participate in discussions focused on improving products and service. These boards enable the Company and its primary distributors to exchange product and market information relevant to industry trends. RECENT ACQUISITIONS LICO Acquisition. On March 31, 1998, the Company acquired all of the outstanding capital stock of LICO for $155.0 million in cash, adjusted for outstanding borrowings at closing. Founded in 1981 in Kansas City, Missouri, LICO is a leading designer, manufacturer and installer of custom conveyers and material handling systems primarily for the automotive industry and, to a lesser extent, the steel, construction and other industrial markets. The Company believes that the LICO Acquisition will complement its recent acquisition of Univeyor and further strengthen its position as a leader in providing project design, management and implementation of automated material handling systems, and will provide the Company with an established platform for increasing sales of its products to the automotive and industrial manufacturing markets. LICO provides custom conveyor and material handling systems for its customers as either a prime contractor with turnkey responsibility for its systems, or as a supplier working closely with the customer's general contractor. LICO concentrates its sales efforts on engineer-to-engineer interactions. The typical LICO product cycle begins with an initial consultation between the customer and a LICO engineer or project manager. After the project parameters have been defined, LICO prepares an estimate and submits a formal bid to complete the project. -10- LICO recognizes revenues from its projects on a percentage of completion basis. LICO is paid by its customers typically on a progress payment basis upon achieving certain milestones as specified in the contracts. If a project is terminated prior to completion, LICO is contractually entitled to recover its costs plus a profit for work performed. Historically, very few of the projects undertaken by LICO have been terminated. To ensure that its bidding estimation process is accurate and that its products and systems satisfy customer expectations, LICO maintains an active staff of approximately 130 in-house and contract engineers with backgrounds and degrees in electrical, structural and mechanical engineering and systems analysis. Many of LICO's designed systems are proprietary in nature or contain parts unique to LICO's material handling systems thereby providing it with a significant competitive advantage. LICO places significant emphasis on the development of new technology and products, and its designed systems often include overhead power and free conveyors, inverted power and free conveyors, electrified monorail systems and robotic indexing systems and automatic body transfer systems. LICO's customers have aggressively implemented programs to consolidate their material handling system suppliers, relying on fewer qualified companies to bid on and provide these systems. In addition these customers are requiring qualified suppliers to be able to complete increasingly larger projects. LICO has become a leading provider of custom conveyors and material handling systems to many of its customers, including its two largest customers, General Motors and Ford, which represented approximately 58% and 24%, respectively, of LICO's sales for the twelve months ended March 31, 1998. In recognition of its quality service and products, LICO has received several awards from some of its customers. The automotive manufacturers are an attractive market for LICO's products and systems, given: (i) the trend by these customers to shorten new model life cycles and emphasize rapid plant change-overs; (ii) the coordination of customer demand with manufacturing capacity which requires flexible assembly operations; and (iii) the expanding international auto manufacturing market. The consolidation of material handling system suppliers coupled with the favorable trends impacting the implementation of automated material handling systems by the automotive manufacturers and other industrial manufacturers, as well as LICO's preferred provider status for many of these customers, has resulted in LICO enjoying increased market shares in its respective markets and has generated significant increases in LICO's backlog. As of March 31, 1998, LICO's total backlog was $136.3 million, an increase of $44.1 million from its backlog as of March 31, 1997. LICO's backlog has generally been recognized as revenue over the next 12 to 18 months. -11- The following table sets forth certain information for LICO for the fiscal periods indicated. SIX MONTHS YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, ------------------------------ ------------------ 1995 1996 1997 1997 1998 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) Revenues.............. $84,137 $129,733 $126,551 $58,609 $97,931 Operating income...... 2,811 3,317 6,919 2,442 7,626 Net income............ 1,799 2,061 3,817 1,273 4,649 Acquisitions since November 1995. Since November 1995 in addition to LICO, the Company has acquired four operations: *In January 1998, the Company acquired Univeyor, which is engaged in the design and manufacture of automated material handling systems, for approximately $15.0 million plus assumed liabilities. This transaction enabled the Company, which previously has designed solutions only for individual workstations, to offer automated material handling systems, predominantly using powered roller conveyors, for the entire workplace. For its latest fiscal year ended June 30, 1997, Univeyor had sales of approximately $24.8 million. *In December 1996, the Company acquired Lister, a manufacturer of cement kiln, anchor and buoy chain and mining bolts, for approximately $7.0 million. This transaction complemented the Company's line of chain products and provided the Company with access to new markets, particularly in the international marketplace. Lister's sales for its latest fiscal year ended December 31, 1996 were approximately $11.6 million. *In October 1996, the Company acquired the majority of the outstanding common equity of Yale, a manufacturer of a variety of lifting and positioning products, including hoists and scissor lifts, industrial components such as actuators, jacks and rotary unions and circuit protection devices, for approximately $270.0 million through a cash tender offer. In January 1997, the Company acquired the remaining common equity of Yale and effected a merger. This acquisition further complemented the Company's product line and also provided the Company with international operations and distribution facilities in Europe, South Africa and China. For its latest fiscal year ended June 30, 1996, Yale generated sales of approximately $187.0 million. *In November 1995, the Company acquired Lift-Tech, a manufacturer and distributor of hoists and crane components, including wire rope and air-powered hoists, for approximately $63.0 million. Lift-Tech's products complemented the Company's existing hoist product lines, thereby enabling the Company to offer a broader product line to the marketplace. Lift-Tech's sales for its latest fiscal year ended March 31, 1995 were approximately $64.4 million. Acquisitions prior to November 1995. -12- Between February 1994 and October 1995 the Company also acquired (i) the remaining 51% equity interest in Endor, a Mexican manufacturer of hoists, for approximately $2.0 million, (ii) certain assets of Cady Lifters, Inc., a manufacturer of "below the hook" lifters, for approximately $0.8 million, (iii) the assets of the Conco Division of McGill Industries, Inc., a manufacturer of manipulators, for approximately $0.8 million and (iv) the assets of Durbin-Durco, Inc., a manufacturer of load securement equipment and attachments, for approximately $2.4 million. COMPETITION The markets in which the Company operates are highly competitive and the Company faces competition from a number of different manufacturers in each of its product areas and geographic markets, domestic and foreign. The Company competes in the sale of hoists with Demag, Kito-Harrington, Ingersoll-Rand and Morris Material Handling; in chain with Campbell, Peerless Chain Company and American Chain and Cable Company; in forged products with the Crosby Group, Chicago Hardware and Cooper; and in actuators and rotary unions with Deublin and Joyce-Dayton. The principal competitive factors affecting the market for the Company's products include performance, functionality, price, brand recognition, customer service and support and product availability. Some of the Company's competitors have greater financial and other resources than the Company. EMPLOYEES At March 31, 1998, the Company had approximately 4,100 employees, 3,440 in the United States, 215 in Canada, 120 in Mexico and 325 in Europe. Approximately 1,460 of the Company's employees are represented under twelve separate collective bargaining agreements which terminate at various times between August 22, 1998 and April 30, 2003. A collective bargaining agreement covering approximately 130 employees at the Company's Cedar Rapids, Iowa facility expires on August 22, 1998. During the past five years, the only interruptions or curtailments of the Company's business due to labor disputes was a 29-day work stoppage at the Cobourg, Ontario plant in fiscal 1994, and a five-day work stoppage at a Yale plant in Charlotte, North Carolina in fiscal 1997. The Company believes that its relationship with its employees is good. In support of this relationship, the Company has maintained an Employee Stock Ownership Plan since 1988 and also uses incentive-based compensation programs that are linked to the Company's profitability and increase in shareholder value. BACKLOG The Company's backlog of orders at March 31, 1998 was approximately $198.2 million compared to approximately $58.9 million at March 31, 1997. The March 31, 1998 amount includes $136.3 million of LICO backlog. The Company's orders for standard products are generally shipped within one week. Orders for products that are manufactured to customers' specifications are generally shipped within four to twelve weeks. Revenues from the Company's contracts for automated systems are generally recognized within 12 to 18 months. The Company does not believe that the amount of its backlog orders is a reliable indication of its future sales. RAW MATERIALS AND COMPONENTS -13- The principal raw materials used by the Company are structural steel and processed steel bar, forging bar steel, steel rod and wire, steel pipe and tubing and tool steel which are available from multiple sources. The Company purchases these various forms of steel from a number of suppliers under long-term agreements which are negotiated on a company-wide basis to take advantage of volume discounts. Although the steel industry is cyclical and steel prices can be volatile, the Company has not been significantly impacted in recent years by increases in steel prices. The Company also purchases components such as motors, bearings and gear housings and castings. These components are generally available from several suppliers. The Company estimates that its total materials cost, including steel products and components, represented approximately 32% of net sales in fiscal 1998. The Company generally seeks to pass on materials price increases to its customers, although a lag period often exists. The Company's ability to pass on these increases is determined by competitive conditions. ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION Like many 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 facilities owned or leased by the Company shall, and all employees of the Company 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 that would result in a material adverse effect on the Company's results of operations or financial condition and, accordingly, has not budgeted any material capital expenditures for environmental compliance for fiscal 1999. Certain federal and state laws, sometimes referred to as Superfund laws, require certain companies to remediate sites that are contaminated by hazardous substances. These laws apply to sites owned or operated by a company, as well as certain off-site areas for which a company may be jointly and severally liable with other companies or persons. The required remedial activities are usually performed in the context of administrative or judicial enforcement proceedings brought by regulatory authorities. The Company has recently been involved in eight administrative enforcement proceedings in connection with the remediation of certain facilities, two of which it owns and operates and six of which it neither owns nor operates but with regard to which it has been identified as one of several potentially responsible parties ("PRPs"). The Company has been and is cooperating with the regulatory authorities in connection with these environmental proceedings. From the perspective of the Company, with the exception of the two environmental administrative proceedings discussed below, these matters have been, and are expected to continue to be, minor matters not requiring substantial effort or expenditure on the part of the Company. -14- The first environmental administrative proceeding is one in which the Company has been identified by the New York State Department of Environmental Conservation ("NYSDEC"), along with other companies, as a PRP at the Frontier Chemical Site in Pendleton, New York ("Pendleton Site"), a site listed on NYSDEC's Registry. From 1958 to 1977, the Pendleton Site had been operated as a commercial waste treatment and disposal facility. The Company sent waste pickling liquor generated at its facility in Tonawanda, New York to the Pendleton Site during the period from approximately 1969 to 1977, and the Company is participating with other PRPs in conducting the remediation of the Pendleton Site under a consent order with NYSDEC. As a result of a negotiated cost allocation among the participating PRPs, the Company has paid its pro rata share of the remediation costs and accrued its share of the ongoing operations and maintenance costs. As of March 31, 1998, the Company has paid approximately $1.0 million in remediation and ongoing operations and maintenance costs associated with the Pendleton Site. The participating PRPs have identified and commenced a cost recovery action against a number of other parties who sent hazardous substances to the Pendleton Site. If any of the currently nonparticipating parties identified by the participating PRPs pay their pro rata shares of the remediation costs, then the Company's share of total site remediation costs will decrease. Settlements have been reached with 39 of the 113 defendants in the cost recovery action, and additional settlements are expected in the future. However, the Company has not yet received payment in connection with such settlements. The Company also has entered into a settlement agreement with one of its insurance carriers in the amount of approximately $734,130 in connection with the Pendleton Site and has received payment in full of the settlement amount. The second environmental administrative proceeding involves Mechanical Products, Inc., a subsidiary of Yale ("MPI"). In 1987, MPI discovered that groundwater and certain soils at and near its Jackson, Michigan plant contained certain organic chemical compounds in concentrations above those permitted by applicable law. MPI conducted an extensive investigation of the site and entered into an Administrative Order by Consent with the State of Michigan Department of Natural Resources which provides for further investigation and the development and implementation of a plan for remedial action. Since 1991, MPI has been engaged in efforts to investigate and remediate the impacted areas. As of March 31, 1998, the Company has paid approximately $3.4 million in remediation and ongoing operations and maintenance costs associated with this site. For all of the currently known environmental matters, the Company has accrued a total of approximately $4.9 million as of March 31, 1998, which, in the opinion of the Company's management, is sufficient to deal with such matters. Further, the Company's management believes that the environmental matters known to, or anticipated by, the Company should not, individually or in the aggregate, have a material adverse effect on the Company's cash flow, results of operations 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 the Company. The Company's operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally OSHA and regulations thereunder. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse effect on its cash flow, results of operations or financial condition. -15- ITEM 2. PROPERTIES. The Company maintains its corporate headquarters in Amherst, New York and conducts its principal manufacturing and distribution operations at the following facilities:
LOCATION UTILIZATION SQUARE FOOTAGE OWNED OR LEASED - -------- ------------- ---------------- --------------- UNITED STATES: Amherst, NY................... Headquarters 52,000(1) Leased(2) Muskegon, MI.................. Hoist manufacturing 500,000 Owned Forrest City, AR.............. Hoist manufacturing 257,000 Leased Charlotte, NC................. Industrial component manufacturing 250,000 Leased Tonawanda, NY................. Patient lifter, manipulator and forged product 187,630(3) Owned Wadesboro, NC................. Hoist manufacturing 180,000 Owned Lexington, TN................. Chain manufacturing 153,230 Owned Cedar Rapids, IA.............. Forging 100,000 Owned Reform, AL.................... Stamping factory 99,760 Owned Damascus, VA.................. Hoist manufacturing 87,400 Owned Abingdon, VA.................. Hoist manufacturing 87,000 Owned Chattanooga, TN............... Forging 77,000 Owned Greensburg, IN................ Scissor lift manufacturing 60,000 Owned Jackson, MI................... Circuit device manufacturing 53,000 Owned Hollywood, MD................. Circuit device manufacturing 53,000 Owned Laurens, IA................... Manipulator manufacturing 50,350 Owned Lisbon, OH.................... Hoist manufacturing 37,000 Owned Kansas City, MO............... Conveyor project administration 33,325 Owned Chattanooga, TN............... Forging 33,000 Owned Kansas City, MO............... Conveyor project design, management and manufacturing 27,630 Owned Kansas City, MO............... Construction management 25,000 Leased Sarasota, FL.................. Tire shredder manufacturing 24,954 Owned Kansas City, MO............... Conveyor manufacturing 22,000 Leased Kansas City, MO............... Conveyor project design, management and manufacturing 20,520 Owned Kansas City, KS............... Conveyor manufacturing 17,000 Leased Blaine, WA.................... Chain manufacturing 15,800 Owned Romeoville, IL................ Chain warehouse 12,800 Leased Ontario, CA................... Chain warehouse 12,600 Leased Woodland, CA.................. Hoist warehouse 12,000 Leased Raytown, MO................... Conveyor manufacturing 9,500 Leased Brighton, MI.................. Engineering 8,400 Leased Houston, TX................... Chain warehouse 7,800 Leased Milwaukie, OR................. Warehouse 7,500 Leased Atlanta, GA................... Chain warehouse 6,679 Leased Seattle, WA................... Chain warehouse Space as needed Leased INTERNATIONAL: Cobourg, Ontario, Canada...... Chain and hoist manufacturing 125,016 Owned Santiago, Tianguistenco, Mexico..................... Hoist manufacturing 85,000 Owned Arden, Denmark................ Project design and conveyor manufacturing 70,500 Owned Richmond, British Columbia, Canada........... Chain manufacturing 56,000 Owned Velbert, Germany.............. Hoist manufacturing 54,000 Leased Hangzhou, China............... Metal fabrication and textile manufacturing 37,000 Leased Hangzhou, China............... Textile strapping manufacturing 20,000 Leased Arden, Denmark................ Project construction 19,500 Leased Hobro, Denmark................ Electronic control design and manufacturing 15,000 Owned Vierzon, France............... Hoist manufacturing 14,000 Leased Cambridge, Ontario, Canada..................... Warehouse 11,200 Leased Edmonton, Alberta, Canada..................... Distribution center 3,150 Leased Rotterdam, Netherlands........ Distribution center Space as needed Leased (footnotes on following page) -16- (1) Approximately 26,000 square feet of the building is sublet through June 30, 2003. (2) Title to the property is vested in the Town of Amherst Industrial Development Agency pursuant to an Industrial Development Bond transaction. The Company has the right and obligation to purchase the property at the expiration of the lease term for $1.00. (3) Approximately 15,000 square feet of this facility is subject to leases which expire at various times through 2001.
The Company also leases a number of sales offices and minor warehouses located throughout North America, Europe, Asia and South Africa. The Company believes that its properties have been adequately maintained, are in generally good condition and are suitable for the Company's business as presently conducted. The Company believes its existing facilities provide sufficient production capacity for its present needs and for its anticipated needs in the foreseeable future. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or enter into leases for alternative locations at market terms. ITEM 3. LEGAL PROCEEDINGS. From time to time, 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 the resolution of which the management of the Company believes will have a material adverse effect on the Company's cash flow, results of operations or financial condition or to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business. On November 18, 1996, an action entitled Milliken & Company vs. Duff-Norton Company, Inc. and Industrial Distribution Group, Inc. d/b/a Dixie Industrial Supply Company was commenced in the Superior Court of Troup County, Georgia. In its complaint in this action, the plaintiff alleges that a rotary union coupler manufactured by a subsidiary of Yale failed, causing a fire resulting in alleged damages to the plaintiff's carpet manufacturing facility and equipment in excess of $500 million. This action has been turned over to the Company's insurer and is in the early stages of discovery. The Company's insurance coverage applicable to this matter is limited to $100 million plus the costs and expenses of defending the action. The Company has denied all of the material allegations contained in the complaint and has asserted certain affirmative defenses and counterclaims. Based upon the advice of its counsel, the Company believes it has meritorious defenses to the causes of action specified in the complaint and intends to vigorously defend this action. Further, the Company believes that its potential liability, if any, arising out of this action will be within the limits of its insurance coverage. However, there can be no assurance as to the outcome of this litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. -17- PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Company's Common Stock is listed on the National Association of Securities Dealers Automated Quotation System - National Market System ("NASDAQ") under the trading symbol "CMCO". The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of the Company's Common Stock as reported by NASDAQ. FISCAL 1998 FISCAL 1997 HIGH LOW HIGH LOW ---- --- ---- --- 1st Quarter 19 17 16 3/4 15 1/4 2nd Quarter 26 1/4 18 5/8 15 5/8 13 7/8 3rd Quarter 26 1/2 22 1/2 16 5/8 14 1/4 4th Quarter 27 7/8 22 3/16 18 3/8 15 1/4 As of March 31, 1997, there were 155 holders of record of the Company's Common Stock. Approximately 2,000 additional shareholders hold shares of the Company's Common Stock in "street name". The Company declared total cash dividends of $.28 per share in fiscal 1998 and $.27 per share in fiscal 1997. -18- ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected consolidated financial information of the Company for each of the five fiscal years in the period ended March 31, 1998. This information includes (i) the results of operations of Lift-Tech since its acquisition on November 1, 1995, (ii) the results of operations of Yale since its acquisition on October 17, 1996, (iii) the results of operations of Lister since its acquisition on December 19, 1996 and (iv) the results of operations of Univeyor since its acquisition on January 8, 1998. This table should be read in conjunction with the "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements of the Company, including the notes thereto, included elsewhere herein. Refer to the "Description of Business and Business Acquisitions" note to the Consolidated Financial Statements regarding the unaudited pro forma information presented which reflects the LICO, Univeyor, Yale and Lister acquisitions and related borrowings and also the private placement of senior subordinated notes, as if they occurred on April 1, 1996, which is the beginning of fiscal 1997.
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales.................................................... $142,313 $172,330 $209,837 $359,424 $510,731 Cost of products sold........................................ 103,527 124,492 149,511 251,987 363,117 -------- -------- -------- -------- -------- Gross profit................................................. 38,786 47,838 60,326 107,437 147,614 Selling expenses............................................. 13,828 15,915 19,120 32,550 45,181 General and administrative expenses.......................... 10,105 11,449 13,941 24,636 24,342 Amortization of intangibles.................................. 378 600 791 5,197 10,201 Other charges................................................ 2,055 1,598 672 -- -- ------ ------ ---- --- --- Income from operations....................................... 12,420 18,276 25,802 45,054 67,890 Interest and debt expense.................................... 2,126 2,352 5,292 11,930 23,975 Interest and other income.................................... 371 472 1,134 1,168 1,940 ---- ---- ------ ------ ----- Income before income taxes, minority interest, extraordinary charge, and cumulative effect of accounting change........... 10,665 16,396 21,644 34,292 45,855 Income tax expense........................................... 4,637 5,892 8,657 15,617 22,434 Minority interest............................................ -- -- -- (323) -- Extraordinary charge for early debt extinguishment........... -- -- -- (3,198) (4,520) Cumulative effect of accounting change....................... 1,001 -- -- -- -- ------ --- --- --- --- Net income................................................... $ 7,029 $ 10,504 $ 12,987 $ 15,154 $ 18,901 ======= ======== ========= ========= ========= Earnings per share data, both basic and diluted(1): Income before extraordinary charge and cumulative effect of accounting change.......................... $ 0.85 $ 1.48 $ 1.69 $ 1.39 $ 1.75 Net income.............................................. 0.99 1.48 1.69 1.15 1.41 Cash dividend per common share(1) ........................... 0.18 0.21 0.24 0.27 0.28 PRO FORMA STATEMENT OF INCOME DATA: Net sales.................................................... $ 627,107 $ 693,269 Income from operations....................................... 55,340 80,673 Income before extraordinary charge........................... 7,035 23,508 Net income................................................... 3,837 18,988 Earnings per share data, both basic and diluted(1): Income before extraordinary charge...................... 0.53 1.75 Net income.............................................. 0.29 1.41 BALANCE SHEET DATA (AT END OF PERIOD): Total assets................................................. $ 93,378 $ 97,822 $ 188,734 $ 548,245 $763,748 Total long-term debt (including current maturities).......... 20,222 22,587 9,744 286,288 448,312 Total liabilities............................................ 60,914 56,972 51,112 398,089 597,226 Total shareholders' equity................................... 32,464 40,850 137,622 150,156 166,522 (1) Reflects a 17 to 1 stock split of the common stock effected on February 15, 1996
-19- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. OVERVIEW Excluding the recent acquisitions of LICO and Univeyor on March 31, 1998 and January 7, 1998, respectively, the Company's products are sold, domestically and internationally, principally to third party distributors in commercial and consumer distribution channels, and to a lesser extent directly to manufacturers and other end-users. Commercial distribution channels include general distributors, specialty distributors, service-after-sale distributors and OEMs. The general distributors are comprised of industrial distributors, rigging shops and crane builders. Specialty distributors include catalog houses, material handling specialists and entertainment equipment riggers. The service-after-sale network includes repair parts distribution centers, chain service centers, and hoist repair centers. Company products are also sold to OEMs, and to the U.S. and Canadian governments. Consumer distribution channels include mass merchandisers, hardware distributors, trucking and transportation distributors, farm hardware distributors and rental outlets. LICO and Univeyor sales are made primarily to end-users. LICO's sales are concentrated in the domestic automotive industry and, to a lesser extent, the steel, construction and other industrial markets. Univeyor's sales are made to automotive, consumer products manufacturing, warehousing and other industrial markets, primarily in Europe. This section should be read in conjunction with the consolidated financial statements of the Company included elsewhere herein. RESULTS OF OPERATIONS The following table sets forth certain income statement data for the Company, expressed as a percentage of net sales, for each of the periods presented: FISCAL YEARS ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- Commercial sales.............................. 94.8% 92.6% 87.8% Consumer sales................................ 5.2 7.4 12.2 --- ---- ---- Net sales..................................... 100.0 100.0 100.0 Cost of products sold......................... 71.1 70.1 71.3 --- ---- ---- Gross profit.................................. 28.9 29.9 28.7 Selling expenses.............................. 8.8 9.1 9.1 General and administrative expenses........... 4.8 6.9 6.6 Amortization of intangibles................... 2.0 1.4 0.4 Other charges................................. 0.0 0.0 0.3 --- ---- ---- Income from operations........................ 13.3 12.5 12.3 Interest and debt expense..................... 4.7 3.3 2.5 Interest and other income..................... 0.4 0.3 0.5 --- ---- ---- Income before income taxes, minority interest and extraordinary charge........... 9.0 9.5 10.3 Income tax expense............................ 4.4 4.3 4.1 --- ---- ---- Income before minority interest and extraordinary charge........................ 4.6% 5.2% 6.2% ==== ==== ==== -20- Fiscal Years Ended March 31, 1998, 1997, and 1996 Sales growth during the periods was primarily due to the October 1996 Yale acquisition and the November 1995 Lift-Tech acquisition as well as increased volume in nearly all distribution channels. Sales in 1998 of $510,731,000 increased $151,307,000 or 42.1% over 1997, and sales in 1997 of $359,424,000 increased $149,587,000 or 71.3% over 1996. The 1998 sales include $204.5 million of Yale sales and $86.0 million of Lift-Tech sales; 1997 sales include $88.3 million of Yale sales and $81.5 million of Lift-Tech sales; 1996 sales include $29.6 million of Lift-Tech sales. In addition, during these periods the Company introduced list price increases of approximately 4% between November and January of each year affecting many of its hoist, chain and forged products sold in its domestic commercial markets. Sales in the commercial and the consumer distribution channels were as follows, in thousands of dollars and with percentage changes for each market group:
CHANGE CHANGE FISCAL YEARS ENDED MARCH 31, 1998 VS 1997 1997 VS 1996 ----------------------------------- ------------------ ------------------ 1998 1997 1996 AMOUNT % AMOUNT % ---- ---- ---- ------ - ------ - (IN THOUSANDS, EXCEPT PERCENTAGES) Commercial sales Domestic............... $378,107 $267,426 $152,245 $110,681 41.4 $115,181 75.7 International.......... 105,862 65,302 31,995 40,560 62.1 33,307 104.1 ------- ------- ------- ------- ----- ------- ----- 483,969 332,728 184,240 151,241 45.5 148,488 80.6 Consumer sales Domestic............... 25,086 24,022 23,282 1,064 4.4 740 3.2 International.......... 1,676 2,674 2,315 (998) (37.3) 359 15.5 ------- ------- ------- ------- ----- ------- ----- 26,762 26,696 25,597 66 0.2 1,099 4.3 ------- ------- ------- ------- ----- ------- ----- Consolidated net sales...... $510,731 $359,424 $209,837 $151,307 42.1 $149,587 71.3 ======== ======== ======== ======== ==== ======== =====
The 41.4% growth in domestic commercial sales and the 62.1% growth in international commercial sales in 1998 resulted primarily from the inclusion of Yale and Lister for the full year, and the addition of Univeyor in January 1998. These acquisitions contributed to the general distribution, specialty distribution, service-after-sale and OEM distribution channels. In addition to the effects of acquisitions, the Company also experienced increased sales volume through all of its commercial distribution channels due to continued demand in the marketplace, except for the waste management sector. The only other market channel experiencing softness in fiscal 1998 was the international consumer channel due to a shift in demand from small retail hardware stores to larger do-it-yourself superstores, to which the Company supplies only a small share. The 75.7% growth in domestic commercial sales in 1997 resulted almost entirely from the Yale and Lift-Tech acquisitions. The Company also experienced increased sales volume primarily in the specialty distributors marketing channel. The 104.1% growth in international commercial sales in 1997 resulted almost entirely from the addition of the European operations of Yale, and also from the Company's existing Canadian operations. Consumer sales in fiscal 1997 were strongest in the Company's Canadian markets. -21- The Company's gross profit margins were approximately 28.9%, 29.9% and 28.7% for 1998, 1997 and 1996, respectively. The decrease in gross profit margin in fiscal 1998 resulted from a change in the classification of approximately $7.6 million of costs into cost of products sold which previously had been classified as general and administrative expenses. This change was made for intracorporate consistency and had a minimal effect on income from operations. After isolating the effect of that classification change, the 1998 gross profit margin increased by .5% compared to 1997; 1997 increased by 1.2% over 1996. The increase in gross profit margin in each of the periods resulted from the effects of the Company's cost control efforts, integration of acquisitions and the economies of scale resulting from increasing production levels. Selling expenses were $45,181,000, $32,550,000 and $19,120,000 in fiscal 1998, 1997, and 1996, respectively. The 1998 expenses included the full year of Yale activity; 1997 expenses were impacted by the addition of Yale and the full year of Lift-Tech activity. As a percentage of consolidated net sales, selling expenses were 8.8%, 9.1% and 9.1% in fiscal 1998, 1997 and 1996, respectively. Sales per employee increased to $168,600 in fiscal 1998 from $126,100 in fiscal 1996. General and administrative expenses were $24,342,000, $24,636,000 and $13,941,000 in fiscal 1998, 1997 and 1996, respectively. The 1998 expenses included the full year of Yale activity; 1997 expenses were impacted by the addition of Yale and the full year of Lift-Tech activity. As a percentage of consolidated net sales, general and administrative expenses were 4.8%, 6.9% and 6.6% in fiscal 1998, 1997 and 1996, respectively. As noted above, the improved percentage in fiscal 1998 was due primarily to a change that reclassified approximately $7.6 million of expenses previously classified as general and administrative into cost of products sold for intracorporate consistency. The improved percentage also resulted from the fixed nature of costs in relation to the increased sales and integration of acquisitions. Amortization of intangibles was $10,201,000, $5,197,000 and $791,000 in fiscal 1998, 1997 and 1996, respectively. Fiscal 1998 included a full year of goodwill amortization resulting from the Yale acquisition; fiscal 1997 included a partial year of Yale and a full year of goodwill amortization resulting from the Lift-Tech acquisition; fiscal 1996 included a partial year of Lift-Tech. Environmental remediation costs were $672,000 in fiscal 1996, and resulted primarily from the Pendleton, New York site remediation, construction of which is complete. Interest and debt expense was $23,975,000, $11,930,000 and $5,292,000 in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 and 1997 increases were primarily due to the financing required to complete the Yale acquisition, reflecting a full year in 1998. As a percentage of consolidated net sales, interest and debt expense was 4.7%, 3.3% and 2.5% in fiscal 1998, 1997 and 1996, respectively. Interest and other income was $1,940,000, $1,168,000 and $1,134,000 in fiscal 1998, 1997 and 1996, respectively. The 1998 and 1997 improvements reflect increases in the investment return on marketable securities held for settlement of a portion of the Company's general and products liability claims. Income taxes as a percentage of pre-tax accounting income were 48.9%, 45.5% and 40.0% in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 and 1997 percentages reflect the effect of non-deductible goodwill amortization resulting from the Yale and Lift-Tech acquisitions. -22- In fiscal 1997, the minority interest share of Yale earnings of $323,000 resulted from the fact that the Company acquired 72% of the outstanding Yale shares on a fully diluted basis in October 1996 and the remainder in January 1997. As a result of the above, income before extraordinary charges increased $5,069,000 or 27.6% in 1998 and $5,365,000 or 41.3% in 1997. This is based on income before extraordinary charges of $23,421,000, $18,352,000 and $12,987,000 or 4.6%, 5.1% and 6.2% as a percentage of consolidated net sales in fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, the extraordinary charge for early debt extinguishment of $4,520,000 resulted from the non-cash write-off of unamortized deferred financing costs upon refinancing of the Company's bank debt effective March 31, 1998. The charge is net of $3,012,000 of tax benefit. In 1997, the extraordinary charge for early debt extinguishment of $3,198,000 resulted from the tender in December 1996 for 11.5% acquired Yale notes. The charge consisted of redemption premiums, costs to exercise the tender offer, and write-off of previously incurred deferred financing costs, and was net of $2,133,000 of tax benefit. Net income, therefore, increased $3,747,000 or 24.7% in 1998 and $2,167,000 or 16.7% in 1997. This is based on net income of $18,901,000, $15,154,000 and $12,987,000 in fiscal 1998, 1997 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES On March 31, 1998, the Company acquired all of the outstanding stock of LICO for approximately $155 million of cash, which was financed by proceeds from the Company's new revolving credit facility and a private placement of senior subordinated notes, both of which also closed effective March 31, 1998. The Company's previously existing Term Loan A, Term Loan B and revolving credit facility were repaid and retired on March 31, 1998. On January 7, 1998, the Company acquired all of the outstanding stock of Univeyor for approximately $15 million of cash financed by the Company's revolving credit facility, plus the assumption of certain debt. The new 1998 Revolving Credit Facility provides availability up to $300 million, due March 31, 2003, against which $240 million was outstanding at March 31, 1998. Interest is payable at varying Eurodollar rates based on LIBOR plus a spread determined by the Company's leverage ratio, amounting to 125 basis points at March 31, 1998. The 1998 Revolving Credit Facility is secured by all equipment, inventory, receivables and subsidiary stock (limited to 65% for foreign subsidiaries). To manage its exposure to interest rate fluctuations, the Company has interest rate swaps and caps. -23- The senior subordinated 8 1/2% Notes issued on March 31, 1998 amounted to $199,468,000, net of original issue discount of $532,000 and are due March 31, 2008. Interest is payable semi-annually based on an effective rate of 8.45%, considering $1,902,000 of proceeds from rate hedging in advance of the placement. Provisions of the 8 1/2% Notes include, without limitation, restrictions of liens, indebtedness, asset sales, and dividends and other restricted payments. Prior to April 1, 2003, the 8 1/2% Notes are redeemable at the option of the Company, in whole or in part, at the Make-Whole Price (as defined). On or after April 1, 2003, they are redeemable at prices declining annually from 108.5% to 100% on and after April 1, 2006. In addition, on or prior to April 1, 2001, the Company may redeem up to 35% of the outstanding notes at a redemption price of 108.5% with the proceeds of equity offerings, subject to certain restrictions. In the event of a Change of Control (as defined), each holder of the 8 1/2% Notes may require the Company to repurchase all or a portion of such holder's 8 1/2% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 1/2% Notes are not subject to any sinking fund requirements. The Company believes that its cash on hand, cash flows, and borrowing capacity under its revolving credit facility will be sufficient to fund its ongoing operations, budgeted capital expenditures, and business acquisitions for the next twelve months. Net cash provided by operating activities increased to $40,217,000 in fiscal 1998 from $28,886,000 in 1997 and $18,338,000 in 1996. The $11,331,000 increase in net cash provided by operating activities in fiscal 1998 resulted primarily from increased net income of $3,747,000, increased depreciation and amortization of $7,804,000, reduced deferred tax expense of $4,818,000 and a smaller increase in net operating assets than fiscal 1997. The $10,548,000 increase in net cash provided by operating activities in fiscal 1997 resulted primarily from increased depreciation and amortization of $6,057,000, increased deferred income tax expense of $3,920,000 and an extraordinary charge for early debt extinguishment of $3,198,000. Operating assets net of liabilities increased $2,291,000, $5,905,000 and $1,027,000 in fiscal 1998, 1997 and 1996, respectively. Net cash used in investing activities was $176,494,000 in fiscal 1998 compared to $215,851,000 in 1997 and $73,721,000 in 1996. The 1998 amount includes the acquisitions of LICO and Univeyor for $168,051,000, net of cash acquired; it is reduced by $4,575,000 of proceeds from the sale of non-operating assets acquired with Yale in fiscal 1997. The net cash used in investing activities in fiscal 1997 includes $196,113,000 and $7,464,000 for the Yale and Lister acquisitions, respectively, net of cash acquired. The 1996 amount includes $64,927,000 for the acquisition of Lift-Tech, net of cash acquired. CAPITAL EXPENDITURES In addition to keeping its current equipment and plants properly maintained, the Company is committed to replacing, enhancing, and upgrading its property, plant, and equipment to reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety, and promote ergonomically correct work stations. Consolidated capital expenditures for fiscal 1998, 1997 and 1996 were $10,501,000, $9,392,000 and $6,988,000, respectively, excluding those capital assets acquired in conjunction with business acquisitions. INFLATION AND OTHER MARKET CONDITIONS -24- The Company's costs are affected by inflation in the U.S. economy, and to a lesser extent, in foreign economies including those of Europe, Canada, Mexico, and the Pacific Rim. The Company does not believe that inflation has had a material effect on results of operations over the periods presented because of low inflation levels over the periods and because the Company has generally been able to pass on rising costs through price increases. However, in the future there can be no assurance that the Company's business will not be affected by inflation or that it will be able to pass on cost increases. SEASONALITY AND QUARTERLY RESULTS Lower than average orders and shipments during the December holiday period have a slight effect on the Company. In addition, quarterly results may be materially affected by the timing of large customer orders, by periods of high vacation concentrations, and by acquisitions and the magnitude of acquisition costs. Therefore, the operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year. YEAR 2000 CONVERSIONS The Company continues to move forward with its Year 2000 readiness project. This project is addressing all components of its information technology infrastructure. Currently, corporate-wide assessment is underway with specific areas already complete. The assessment of Year 2000 on the Company's customized business information system has been completed with modifications and enhancements underway. The Company does not believe that the costs associated with these modifications and enhancements will be material. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," which the Company will adopt for the year ended March 31, 1999. Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components. This includes unrealized gains or losses on the Company's available-for-sale securities, foreign currency translation adjustments, and minimum pension liability adjustments, which currently are reported in shareholders' equity, and will be included and disclosed in total comprehensive income upon adoption of the Statement. The impact of compliance with this Statement will not impact financial position, net income or cash flows. The FASB also issued FAS Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information," which the Company will adopt for the year ended March 31, 1999. Statement No. 131 superseded FAS Statement No. 14 "Financial Reporting for Segments of a Business Enterprise." Statement No. 131 established new standards for determining segment criteria and annual and interim reporting of that data. It also established new disclosures about products, geographic areas and major customers. Currently, the Company reports one operating segment under Statement No. 14 and, while the impact of compliance with Statement No. 131 has not yet been determined, the Company expects to report at least two segments upon its adoption. -25- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBUS MCKINNON CORPORATION Audited Consolidated Financial Statements as of March 31, 1998: Report of Independent Auditors............................ F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Income......................... F-4 Consolidated Statements of Shareholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 -26- REPORT OF INDEPENDENT AUDITORS Board of Directors Columbus McKinnon Corporation We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation as of March 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbus McKinnon Corporation at March 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ ERNST & YOUNG LLP Buffalo, New York May 15, 1998 -27-
COLUMBUS MCKINNON CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................................................. $ 22,841 $ 8,907 Trade accounts receivable, less allowance for doubtful accounts ($2,522 and $1,884, respectively).......................................... 113,509 74,446 Unbilled revenues..................................................................... 19,634 -- Inventories........................................................................... 107,673 94,409 Net assets held for sale.............................................................. 10,396 14,971 Prepaid expenses...................................................................... 9,969 13,638 -------- -------- Total current assets....................................................................... 284,022 206,371 Net property, plant, and equipment......................................................... 81,927 63,942 Goodwill and other intangibles, net........................................................ 368,137 250,062 Marketable securities...................................................................... 16,665 13,590 Deferred taxes on income................................................................... 7,534 8,935 Other assets............................................................................... 5,463 5,345 -------- -------- Total assets............................................................................... $763,748 $548,245 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to banks................................................................ $ 2,801 $ 1,562 Trade accounts payable................................................................ 53,901 28,330 Excess billings....................................................................... 3,290 -- Accrued liabilities................................................................... 43,065 35,761 Current portion of long-term debt..................................................... 1,456 22,344 ------- ------- Total current liabilities.................................................................. 104,513 87,997 Senior debt, less current portion.......................................................... 247,388 263,944 Subordinated debt.......................................................................... 199,468 -- Other non-current liabilities.............................................................. 45,857 46,148 ------- ------- Total liabilities.......................................................................... 597,226 398,089 ------- ------- Shareholders' equity: Class A voting common stock; 50,000,000 shares authorized; 13,755,858 and 13,748,358 shares issued...................................... 137 137 Additional paid-in capital............................................................ 96,544 95,254 Retained earnings..................................................................... 76,187 60,999 ESOP debt guarantee; 325,092 and 426,508 shares....................................... (3,203) (4,201) Unearned restricted stock; 134,550 and 134,550 shares................................. (538) (821) Net unrealized investment gains....................................................... 1,598 1,040 Minimum pension liability adjustment.................................................. (988) (541) Foreign currency translation adjustment............................................... (3,215) (1,711) -------- -------- Total shareholders' equity................................................................. 166,522 150,156 -------- -------- Total liabilities and shareholders' equity................................................. $763,748 $548,245 ======== ======== See accompanying notes. -28-
COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............................................................ $510,731 $359,424 $209,837 Cost of products sold................................................ 363,117 251,987 149,511 -------- -------- -------- Gross profit......................................................... 147,614 107,437 60,326 Selling expenses..................................................... 45,181 32,550 19,120 General and administrative expenses.................................. 24,342 24,636 13,941 Amortization of intangibles.......................................... 10,201 5,197 791 Environmental remediation costs...................................... -- -- 672 -------- -------- -------- 79,724 62,383 34,524 -------- -------- -------- Income from operations............................................... 67,890 45,054 25,802 Interest and debt expense............................................ 23,975 11,930 5,292 Interest and other income............................................ 1,940 1,168 1,134 -------- -------- -------- Income before income taxes, minority interest and extraordinary charge.............................................. 45,855 34,292 21,644 Income tax expense................................................... 22,434 15,617 8,657 -------- -------- -------- Income before minority interest and extraordinary charge............. 23,421 18,675 12,987 Minority interest.................................................... -- (323) -- -------- -------- -------- Income before extraordinary charge................................... 23,421 18,352 12,987 Extraordinary charge for early debt extinguishment................... (4,520) (3,198) -- -------- -------- -------- Net income........................................................... $ 18,901 $ 15,154 $ 12,987 ======== ======== ======== Earnings per share data, both basic and diluted: Income before extraordinary charge for debt extinguishment...... $ 1.75 $ 1.39 $ 1.69 Extraordinary charge for debt extinguishment.................... (0.34) (0.24) -- ------ ------ ------ Net income...................................................... $ 1.41 $ 1.15 $ 1.69 ====== ====== ====== See accompanying notes.
-29-
COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) PREFERRED COMMON ADDI- NET MINIMUM FOREIGN STOCK AT STOCK TIONAL ESOP UNEARNED UNREALIZED PENSION CURRENCY TREASURY REDEMPTION ($.01 PAID-IN RETAINED DEBT RESTRICTED INVESTMENT LIABILITY TRANSLATION STOCK VALUE PAR CAPITAL EARNINGS GUARANTEE STOCK GAINS ADJUSTMENT ADJUSTMENT AT COST VALUE) Balance at March 31, 1995.... $ 100 $ 78 $11,876 $38,443 $(6,279) $ (958) $ 273 $ (62) $ (543) $ (2,078) Earned 122,816 ESOP shares... -- -- 222 -- 1,041 -- -- -- -- -- Issued 108,375 common shares for purchase of affiliated company.................... -- -- 319 -- -- -- -- -- -- 1,056 Repurchase of 24,582 common shares held by ESOP........ -- -- -- -- -- -- -- -- -- (312) Restricted common stock canceled, 17,000 shares.... -- -- 9 -- -- 45 -- -- -- (127) Restricted common stock granted, 14,450 shares..... -- -- 44 -- -- (183) -- -- -- 139 Earned portion of restricted stock...................... -- -- -- -- -- 260 -- -- -- -- Restricted stock market value adjustment........... -- -- 45 -- -- -- -- -- -- -- Sold 850 common shares....... -- -- 3 -- -- -- -- -- -- 9 Exchanged 850 common shares to retire preferred shares. (100) -- 2 -- -- -- -- -- -- 9 Canceled treasury shares..... -- -- (1,304) -- -- -- -- -- -- 1,304 Issued 6,037,500 common shares under initial public offering............ -- 59 83,067 -- -- -- -- -- -- -- Net income 1996.............. -- -- -- 12,987 -- -- -- -- -- -- Net unrealized gain on investments................ -- -- -- -- -- -- 449 -- -- -- Change in minimum pension liability adjustment....... -- -- -- -- -- -- -- (368) -- -- Change in foreign currency translation adjustment..... -- -- -- -- -- -- -- -- 141 -- Preferred dividends declared $75 per share.............. -- -- -- (7) -- -- -- -- -- -- Common dividends declared $0.236 per share........... -- -- -- (2,037) -- -- -- -- -- -- ------- ------ ------- ------- ------ ------ -------- -------- ------ ------- Balance at March 31, 1996.... -- 137 94,283 49,386 (5,238) (836) 722 (430) (402) -- Earned 105,601 ESOP shares... -- -- 665 -- 1,037 -- -- -- -- -- Restricted common stock granted, 19,800 shares; net of 3,111 shares canceled................... -- -- 289 -- -- (280) -- -- -- -- Earned portion of restricted stock...................... -- -- 17 -- -- 295 -- -- -- -- Net income 1997.............. -- -- -- 15,154 -- -- -- -- -- -- Net unrealized gain on investments................ -- -- -- -- -- -- 318 -- -- -- Change in minimum pension liability adjustment....... -- -- -- -- -- -- -- (111) -- -- Change in foreign currency translation adjustment..... -- -- -- -- -- -- -- -- (1,309) -- Common dividends declared $0.27 per share............ -- -- -- (3,541) -- -- -- -- -- -- -------- ------ ------- ------- ------ ------ -------- ------- ------ ------- Balance at March 31, 1997.... -- 137 95,254 60,999 (4,201) (821) 1,040 (541) (1,711) -- Earned 101,416 ESOP shares... -- -- 1,270 -- 998 -- -- -- -- -- Earned portion of restricted stock...................... -- -- 20 -- -- 283 -- -- -- -- Net income 1998.............. -- -- -- 18,901 -- -- -- -- -- -- Net unrealized gain on investments................ -- -- -- -- -- -- 558 -- -- -- Change in minimum pension liability adjustment....... -- -- -- -- -- -- -- (447) -- -- Change in foreign currency translation adjustment..... -- -- -- -- -- -- -- -- (1,504) -- Common dividends declared $0.28 per share............ -- -- -- (3,713) -- -- -- -- -- -- -------- ------ ------- ------- ------ ------ -------- ------- ------ ------- Balance at March 31, 1998.... $ -- $ 137 $96,544 $76,187 $(3,203) $(538) $1,598 $(988) $(3,215) $ -- ======== ====== ======= ======= ======= ====== ======== ======= ======= ====== See accompanying notes.
-30-
COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) OPERATING ACTIVITIES: Net income ........................................................................ $ 18,901 $ 15,154 $12,987 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary charge for early debt extinguishment.............................. 4,520 3,198 -- Minority interest............................................................... -- 323 -- Depreciation and amortization................................................... 19,089 11,285 5,228 Deferred income taxes........................................................... (2) 4,816 896 Other ........................................................................ -- 15 254 Changes in operating assets and liabilities net of effects from businesses purchased: Trade accounts receivable.................................................. (8,512) (3,320) 567 Inventories................................................................ (4,244) (2,177) (2,365) Prepaid expenses........................................................... 3,906 (1,721) 1,373 Other assets............................................................... 2,135 (949) 682 Trade accounts payable..................................................... 817 (586) (913) Accrued and non-current liabilities........................................ 3,607 2,848 (371) ------- ------- ------- Net cash provided by operating activities............................................ 40,217 28,886 18,338 ------- ------- ------- INVESTING ACTIVITIES: Purchase of marketable securities, net............................................... (2,517) (2,098) (1,806) Capital expenditures................................................................. (10,501) (9,392) (6,988) Purchase of businesses, net of cash acquired......................................... (168,051) (203,577) (64,927) Net assets held for sale............................................................. 4,575 (784) -- --------- --------- -------- Net cash used in investing activities................................................ (176,494) (215,851) (73,721) --------- --------- -------- FINANCING ACTIVITIES: Proceeds from issuance of common stock, net.......................................... -- -- 83,126 Net (payments) borrowings under revolving line-of-credit agreements.................. 156,550 75,293 (2,956) Repayment of debt.................................................................... (196,967) (78,528) (62,944) Proceeds from issuance of long-term debt, net........................................ 196,120 206,000 50,000 Deferred financing costs incurred.................................................... (1,273) (10,000) (1,405) Dividends paid....................................................................... (3,713) (4,390) (1,688) Repurchase of stock.................................................................. -- -- (391) Change in ESOP debt guarantee........................................................ 998 (1,596) 1,041 --------- --------- -------- Net cash provided by financing activities............................................ 151,715 186,779 64,783 Effect of exchange rate changes on cash.............................................. (1,504) (1,078) 384 --------- --------- -------- Net change in cash and cash equivalents.............................................. 13,934 (1,264) 9,784 Cash and cash equivalents at beginning of year....................................... 8,907 10,171 387 --------- -------- -------- Cash and cash equivalents at end of year............................................. $ 22,841 $ 8,907 $10,171 ========= ========= ======== Supplementary cash flows data: Interest paid................................................................... $ 25,666 $ 8,683 $ 5,256 Income taxes paid............................................................... $ 13,086 $ 14,993 $ 5,555 See accompanying notes.
-31- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BUSINESS ACQUISITIONS Columbus McKinnon Corporation (the Company) is a leading designer, manufacturer and distributor of a broad range of material handling, lifting and positioning products. The Company sells its products both domestically and internationally, primarily to third-party distributors and, to a lesser extent, directly to manufacturers and end-users for a wide range of applications. During fiscal 1998, approximately 79% of sales were to customers in the United States. On March 31, 1998, the Company acquired all of the outstanding stock of LICO, Inc. ("LICO"), a leading designer, manufacturer and installer of custom conveyor and automated material handling systems primarily for the automotive industry, and to a lesser extent, the steel, construction and other industrial markets. The total cost of the acquisition, which was accounted for as a purchase, was approximately $155 million of cash, which was financed by proceeds from the Company's new revolving debt facility and a private placement of senior subordinated notes, both of which also closed effective March 31, 1998. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1998 do not include any LICO activity. On January 7, 1998, the Company acquired all of the outstanding stock of Univeyor A/S ("Univeyor"), a Denmark-based designer, manufacturer and distributor of automated material handling systems, and has accounted for the acquisition as a purchase. The cost of the acquisition was approximately $15 million of cash financed by the Company's revolving debt facility, plus certain debt. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1998 include Univeyor activity since its January 7, 1998 acquisition by the Company. On October 17, 1996, through a tender offer, the Company acquired approximately 72% of the outstanding stock (on a fully diluted basis) of Spreckels Industries, Inc., now known as Yale Industrial Products, Inc. ("Yale"), a manufacturer of a wide range of industrial products, including hoists, scissor lift tables, mechanical jacks, rotating joints, actuators and circuit protection devices. On January 3, 1997 the Company acquired the remaining outstanding shares, effected a merger, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $270 million, consisting of $200 million of cash and $70 million of acquired Yale debt. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1997 include Yale activity since its October 17, 1996 acquisition by the Company. The minority interest share of Yale's earnings since acquisition through January 3, 1997 has been appropriately segregated from consolidated net income. Included with the Yale acquired assets were real estate properties and equipment retained from Yale's April 19, 1996 sale of two of its subsidiaries in unrelated businesses. Certain assets were sold during fiscal 1998 and the remaining assets held for sale are expected to be sold in fiscal 1999. They have been recorded at their estimated realizable values net of disposal costs, separately reflected on the consolidated balance sheet and amounting to $10,396,000 and $14,971,000 as of March 31, 1998 and 1997, respectively. -32- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On December 19, 1996, the Company acquired all of the outstanding stock of Lister Bolt & Chain Ltd. and of Lister Chain & Forge, Inc. (together known as "Lister"), a chain and forgings manufacturer, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $7 million of cash, which was financed by the Company's revolving debt facility. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1997 include Lister activity since its December 19, 1996 acquisition by the Company. On November 1, 1995, the Company acquired all of the outstanding stock of LTI Holdings, Inc., now known as Lift-Tech International ("Lift-Tech"), a hoist manufacturer, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $63 million, consisting of $43 million in cash and $20 million for the refinancing of Lift-Tech bank debt. The consolidated statement of income and consolidated statement of cash flows for the year ended March 31, 1996 include Lift-Tech activity since its November 1, 1995 acquisition by the Company. The following table presents pro forma summary information, which is not covered by the report of independent auditors, for the years ended March 31, 1998 and 1997, as if the LICO, Univeyor, Yale, and Lister acquisitions and related borrowings and also the private placement of senior subordinated notes, had occurred as of April 1, 1996 which is the beginning of fiscal 1997. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprise: YEAR ENDED MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Pro forma: Net sales................................. $693,269 $627,107 Income from operations.................... 80,673 55,340 Income before extraordinary charge........ 23,508 7,035 Net income................................ 18,988 3,837 Earnings per share, both basic and diluted: Income before extraordinary charge........ 1.75 0.53 Extraordinary charge...................... (0.34) (0.24) Net income................................ 1.41 0.29 2. ACCOUNTING PRINCIPLES AND PRACTICES Consolidation These consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries; all significant intercompany accounts and transactions have been eliminated. -33- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Foreign Currency Translations The Company translates foreign currency financial statements as described in Financial Accounting Standards (FAS) No. 52. Under this method, all items of income and expense are translated at average exchange rates for the year. All assets and liabilities are translated at the year-end exchange rate. Gains or losses on translations are accumulated in the shareholders' equity section of the balance sheet. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses. Actual results could differ from those estimates. Revenue Recognition and Concentration of Credit Risk Sales are recorded when products are shipped to a 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. The Company established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors. LICO and Univeyor recognize contract revenues under the percentage of completion method, measured by comparing direct costs incurred to total estimated direct costs. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. In the event that a loss is anticipated on an uncompleted contract, a provision for the estimated loss is made at the time it is determined. Billings on contracts may precede or lag revenues earned, and such differences are reported in the balance sheet as current liabilities (excess billings) and current assets (unbilled revenues), respectively. As of March 31, 1998, approximately $26 million of trade accounts receivable was concentrated in the automotive industry, including retainages amounting to $7,870,000. The accounts receivable included $13,840,000 due from General Motors. Concentrations of Labor Approximately 35% of the Company's employees are represented by twelve separate domestic and Canadian collective bargaining agreements which terminate at various times between August 22, 1998 and April 30, 2003. Approximately 5% of the labor force is covered by collective bargaining agreements that will expire within one year. In addition, the Company hires union production workers for field installation under its material handling systems contracts. -34- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Cash and Cash Equivalents The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. Inventories Inventories are valued at the lower of cost or market. Costs of approximately 53% and 60% of inventories at March 31, 1998 and 1997, 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. 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. Goodwill It is the Company's policy to account for goodwill and other intangible assets at the lower of amortized cost, or fair value if indicators of impairment exist. As a result of the Lift-Tech, Yale, Lister, Univeyor and LICO acquisitions, the Company recorded approximately $42 million, $200 million, $2 million, $9 million and $123 million of goodwill, respectively, which is being amortized on a straight-line basis over twenty-five years. At March 31, 1998 and 1997 accumulated amortization was $14,979,000 and $5,644,000, respectively. Marketable Securities All of the Company's investments, which consist of equity securities and corporate and governmental obligations, have been classified as available-for-sale securities and are therefore recorded at their fair values with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Estimated fair value is based on published trading values at the balance sheet dates. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The cost of securities sold is based on the specific identification method. Interest and dividend income are included in interest and other income on the consolidated statements of income. The marketable securities are carried as long-term assets since they are retained for the settlement of a portion of the Company's general liability and products liability insurance claims filed through CM Insurance Company, Inc., a wholly owned captive insurance subsidiary. -35- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Fair Value of Financial Instruments The fair value of interest rate swap and cap agreements is the amount that the Company would receive or pay to terminate the agreements, based on quoted market prices and considering current interest rates and remaining maturities. Research and Development Research and development costs as defined in FAS No. 2, for the years ended March 31, 1998, 1997 and 1996 were $1,497,000, $1,283,000 and $662,000, respectively. 3. UNBILLED REVENUES AND EXCESS BILLINGS MARCH 31, 1998 -------------- (IN THOUSANDS) Costs incurred on uncompleted contracts.... $ 194,359 Estimated earnings......................... 38,255 ------- Revenues earned to date.................... 232,614 Less billings to date...................... 216,270 ------- $ 16,344 ======== The net amount above is included in the consolidated balance sheet at March 31 under the following captions: Unbilled revenues.................................... $ 19,634 Excess billings...................................... (3,290) ------- $ 16,344 ======== 4. INVENTORIES Inventories consisted of the following: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) At cost--FIFO basis: Raw materials........................... $ 52,158 $43,526 Work-in-process......................... 22,188 17,206 Finished goods.......................... 37,089 36,633 ------- ------- 111,435 97,365 LIFO cost less than FIFO cost................ (3,762) (2,956) ------- -------- Net inventories.............................. $107,673 $94,409 ======== ======= 5. MARKETABLE SECURITIES Marketable securities are retained for the settlement of a portion of the Company's general liability and products liability insurance claims filed through CM Insurance Company, Inc. (see Notes 2 and 13). The following is a summary of available-for-sale securities at March 31, 1998: -36- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) Government securities........................................ $10,180 $ 285 $ 13 $10,452 U. S. corporate securities................................... 1,107 36 1 1,142 ------- ------ ---- ------- Total debt securities................................... 11,287 321 14 11,594 Equity securities............................................ 2,847 2,247 23 5,071 ------- ------ ---- ------- $14,134 $2,568 $ 37 $16,665 ======= ====== ==== =======
The following is a summary of available-for-sale securities at March 31, 1997: GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) Government securities........................................ $ 9,039 $ 74 $ 75 $ 9,038 U. S. corporate securities................................... 738 7 3 742 ------- ------- ---- ------- Total debt securities................................... 9,777 81 78 9,780 Equity securities............................................ 2,213 1,600 3 3,810 ------- ------- ---- ------- $11,990 $ 1,681 $ 81 $13,590 ======= ======= ==== =======
The amortized cost and estimated fair value of debt and equity securities at March 31, 1998, by contractual maturity, are shown below: ESTIMATED FAIR COST VALUE ---- ----- (IN THOUSANDS) Due in one year or less..................... $ 880 $ 880 Due after one year through three years...... 1,101 1,108 Due after three years....................... 9,306 9,606 ----- ----- 11,287 11,594 Equity securities........................... 2,847 5,071 ------- ------- $14,134 $16,665 ======= ======= Net unrealized gains included in the balance sheet amounted to $2,531,000 and $1,600,000 at March 31, 1998 and 1997, respectively. The amounts, net of related income taxes of $933,000 and $560,000 at March 31, 1998 and 1997, respectively, are reflected as a separate component of equity. -37- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. PROPERTY, PLANT, AND EQUIPMENT Consolidated property, plant, and equipment of the Company consisted of the following: MARCH 31, 1998 1997 (IN THOUSANDS) Land and land improvements......................... $ 4,073 $ 2,892 Buildings.......................................... 26,706 14,986 Machinery, equipment, and leasehold improvements... 78,862 65,431 Construction in progress........................... 3,162 3,003 ------- ------ 112,803 86,312 Less accumulated depreciation...................... 30,876 22,370 ------- ------ Net property, plant, and equipment................. $81,927 $63,942 ======= ======= 7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES Consolidated accrued liabilities of the Company included the following: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Accrued payroll.............................. $ 16,713 $ 12,298 Accrued pension cost......................... 5,195 5,489 Income taxes payable......................... 5,730 2,875 Other accrued liabilities.................... 15,427 15,099 -------- -------- $ 43,065 $ 35,761 ======== ======== Consolidated other non-current liabilities of the Company included the following: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Accumulated postretirement benefit obligation...... $ 17,154 $ 17,057 Accrued general and product liability costs........ 11,688 11,874 Other non-current liabilities...................... 17,015 17,217 ------ ------ $ 45,857 $ 46,148 ======== ======== -38- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. LONG-TERM DEBT Consolidated long-term debt payable to banks (except as noted) of the Company consisted of the following: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Revolving Credit Facility with availability up to $300 million, due March 31, 2003 with interest payable at varying Eurodollar rates based on LIBOR plus a spread determined by the Company's leverage ratio, amounting to 125 basis points at March 31, 1998 (7.0% at March 31, 1998)..................... $240,000 $ -- Term Loan A, Term Loan B and revolving credit facility repaid and retired March 31, 1998.............................................. -- 277,750 Industrial Development Revenue Bonds payable annually at $625,000 through 1999, $620,000 thereafter through 2001, $315,000 in 2002, and $52,000 in 2003 in quarterly sinking fund installments plus interest payable at varying effective rates (3.98% and 3.81% at March 31, 1998 and 1997).......................... 2,232 2,857 Employee Stock Ownership Plan term loans payable in quarterly installments of $148,000 plus an annual minimum of $23,000 through July 1999 and $2,854,000 in October 1999 plus interest payable at a Eurodollar rate based on LIBOR plus a spread determined by the Company's leverage ratio (7.34% and 8.06% at March 31, 1998 and 1997)............................................. 3,765 4,682 Other senior debt................................... 2,847 999 ----- ----- Total senior debt.............................. 248,844 286,288 8 1/2% Senior Subordinated Notes due March 31, 2008 with interest payable in semi-annual installments at 8.45% effective rate, recorded net of unamortized discount of $532,000....................................... 199,468 -- ------- ------- Total............................................... 448,312 286,288 Less current portion................................ 1,456 22,344 ------- ------- $446,856 $263,944 ======== ======== On March 31, 1998, the Company entered into a new revolving credit facility ("1998 Revolving Credit Facility") with a group of financial institutions. Concurrently, the Company issued $200 million of 8 1/2% Senior Subordinated Notes ("the 8 1/2% Notes") due March 31, 2008. Proceeds from both the bank refinancing and the note offering were used to finance the acquisition of LICO, and to repay the outstanding balances and retire the Company's then existing Term Loan A, Term Loan B and revolving credit facility. The 1998 Revolving Credit Facility is secured by all equipment, inventory, receivables and subsidiary stock (limited to 65% for foreign subsidiaries). The corresponding credit agreement places certain debt covenant restrictions on the Company including, but not limited to, maximum annual cash dividends of $10 million. Upon refinancing its bank debt, the Company wrote off unamortized financing costs of $7,532,000 and recorded an extraordinary charge of $4,520,000, which is net of $3,012,000 of tax. -39- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) To manage its exposure to interest rate fluctuations, the Company has interest rate swaps with a notional amount of $22 million through January 2, 1999 and $3.5 million from January 2, 1999 through July 2, 2000, both based on LIBOR at 5.9025%. In order to comply with its credit agreements, the Company also has LIBOR-based interest rate caps on $40 million of debt through December 16, 1998 and on an additional $49.5 million of debt through December 16, 1999 at 9% and 10%, respectively. Net payments or receipts under the swap and cap agreements are recorded as adjustments to interest expense. The carrying amount of the Company's debt instruments approximates the fair values. The Industrial Development Revenue Bonds are held by institutional investors and are guaranteed by a bank letter of credit (IDRB letter of credit), which is collateralized by the assets also securing the 1998 Revolving Credit Facility. The Employee Stock Ownership Plan term loans (ESOP loans) are guaranteed by the Company and are collateralized by an equivalent number of shares of Company common stock. The ESOP loans are not further collateralized. Provisions of the 8 1/2% Notes include, without limitation, restrictions of liens, indebtedness, asset sales, and dividends and other restricted payments. Prior to April 1, 2003, the 8 1/2% Notes are redeemable at the option of the Company, in whole or in part, at the Make-Whole Price (as defined in the 8 1/2% Notes agreement). On or after April 1, 2003, they are redeemable at prices declining annually to 100% on and after April 1, 2006. In addition, on or prior to April 1, 2001, the Company may redeem up to 35% of the outstanding notes at a redemption price of 108.5% with the proceeds of equity offerings, subject to certain restrictions. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 1/2% Notes may require the Company to repurchase all or a portion of such holder's 8 1/2% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 1/2% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. The principal payments expected to be made as of March 31, 1998 on the above debt, for the next five annual periods subsequent thereto, are as follows (dollars in thousands): 1999.......................................... $ 1,456 2000.......................................... 3,973 2001.......................................... 1,299 2002.......................................... 486 2003.......................................... 240,223 In December 1996, the Company tendered to purchase the outstanding Yale Senior Secured Notes at a premium and redeemed $69,480,000 of the $70,000,000 face value which was outstanding. The Company recorded an extraordinary charge of $5,331,000 ($3,198,000 net of taxes), consisting of redemption premiums, costs to exercise the tender offer, and write-off of deferred financing costs related to early retirement of debt. The debt extinguishment was funded by the Company's revolving credit facility. As of March 31, 1998, the Company had letters of credit outstanding of $7.0 million, including those issued as security for the IDRBs as referred to above. -40- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. RETIREMENT PLANS Most domestic employees of the Company, excluding Lift-Tech and Lister union employees and LICO employees, are covered under defined benefit retirement plans and most domestic non-union employees, excluding Yale and LICO employees, are included in an Employee Stock Ownership Plan (See Note 10). Benefits under the plans vary, based on formulas applied to career earnings, compensation for a period immediately prior to retirement, compensation at the date benefits are earned, or pre-established benefit rates. The Company's funding policy with respect to the plans is to contribute annually at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (ERISA). At March 31, 1998, eight (six at March 31, 1997) of the Company's plans had market values of plan assets in excess of the accumulated benefits of those respective plans; the Company's remaining five plans (seven at March 31, 1997) had accumulated benefits in excess of plan assets. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheets:
MARCH 31, 1998 1998 1997 1997 ---- ---- ---- ---- PLANS WITH PLANS WITH PLANS WITH PLANS WITH ASSETS IN ACCUMULATED ASSETS IN ACCUMULATED EXCESS BENEFITS IN EXCESS BENEFITS IN OF ACCUMULATED EXCESS OF OF ACCUMULATED EXCESS OF BENEFITS ASSETS BENEFITS ASSETS -------- ------ -------- ------ (IN THOUSANDS) Actuarial present value of obligations: Accumulated benefit obligation, vested............................... $ (49,746) $ (10,719) $ (24,551) $ (26,825) Accumulated benefit obligation, non-vested........................... (1,530) (592) (1,190) (766) ------- ----- ------- ----- Accumulated benefit obligation......... $ (51,276) $ (11,311) $ (25,741) $ (27,591) ---------- ---------- ---------- ---------- Projected benefit obligation.............. $ (57,530) $ (12,150) $ (32,150) $ (30,172) Plan assets at fair value................. 60,113 9,090 30,861 23,986 ------- ------ ------- ------ Plan assets in excess of (less than) projected benefit obligation......... 2,583 (3,060) (1,289) (6,186) Unrecognized transition assets............ (113) -- -- (142) Unrecognized net (gain) loss from past experience different from that assumed........................... (4,757) 1,720 958 1,356 Unrecognized prior service cost........... 305 550 300 1,286 Adjustment required to recognize additional minimum liability........... -- (2,423) -- (1,772) --- ------- --- ------- Accrued pension cost included in accrued liabilities.................. $ (1,982) $ (3,213) $ (31) $ (5,458) ======== ======== ===== ========
-41- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net periodic pension cost included the following components: YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) Service costs-benefits earned during the period. $3,244 $2,354 $1,129 Interest cost on projected benefit obligation... 4,787 2,744 1,011 Actual return on plan assets.................... (6,670) (2,966) (1,439) Net amortization................................ 1,951 475 759 ------ ------ ------ Net periodic pension cost....................... $3,312 $2,607 $1,460 ====== ====== ====== The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation of all of the defined benefit plans was 7 1/2% and 8% as of March 31, 1998 and 1997, respectively. Future average compensation increases are assumed to be 4.3% and 5 1/4% per year as of March 31, 1998 and 1997, respectively. The weighted-average expected long-term rate of return on plan assets used in determining the expected return on plan assets included in net periodic pension cost was 8 7/8%, 8 7/8%, and 8 1/2% for the years ended March 31, 1998, 1997 and 1996, respectively. Plan assets consist of equities, corporate and government securities, and fixed income annuity contracts. 10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" requires that compensation expense for ESOP shares be measured based on the fair value of those shares when committed to be released to employees, rather than based on their original cost. Also, dividends on those ESOP shares that have not been allocated or committed to be released to ESOP participants are not reflected as a reduction of retained earnings. Rather, since those dividends are used for debt service, a charge to compensation expense is recorded. Furthermore, ESOP shares that have not been allocated or committed to be released are not considered outstanding for purposes of calculating earnings per share. The obligation of the ESOP to repay borrowings incurred previously to purchase shares of the Company's common stock is guaranteed by the Company; the unpaid balance of such borrowings, therefore, has been reflected in the accompanying consolidated balance sheet as a liability. An amount equivalent to the cost of the collateralized common stock and representing deferred employee benefits has been recorded as a deduction from shareholders' equity. Substantially all of the Company's domestic non-union employees, excluding Yale and LICO employees, are participants in the ESOP. Contributions to the plan result from the release of collateralized shares as debt service payments are made. Compensation expense amounting to $2,268,000, $1,704,000 and $1,120,000 in fiscal 1998, 1997 and 1996, respectively, is recorded based on the guarantee release of the ESOP shares at their fair market value. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings and are applied toward debt service. -42- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At March 31, 1998 and 1997, 855,337 and 798,528 of ESOP shares, respectively, were allocated or available to be allocated to participants' accounts. At March 31, 1998 and 1997, 325,092 and 426,508 of ESOP shares were pledged as collateral to guarantee the ESOP term loans. The fair market value of unearned ESOP shares at March 31, 1998 amounted to $8,940,000. 11. POSTRETIREMENT BENEFIT OBLIGATION The Company sponsors defined benefit postretirement health care plans that provide medical and life insurance coverage to Yale domestic retirees and their dependents. Prior to the acquisition of Yale, the Company did not sponsor any postretirement benefit plans. The Company pays the majority of the medical costs for retirees and their spouses who are under age 65. For retirees and dependents of retirees who retired prior to January 1, 1989, and are age 65 or over, the Company contributes 100% toward the American Association of Retired Persons ("AARP") premium frozen at the 1992 level. For retirees and dependents of retirees who retired after January 1, 1989, the Company contributes $35 per month toward the AARP premium. The life insurance plan is noncontributory. The Company's postretirement health benefit plans are not funded. In accordance with FAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," the following table sets forth the plans' combined accumulated postretirement health benefit obligation recognized in the Company's balance sheets: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Accumulated postemployment benefit obligation: Current retirees............................. $(10,380) $(10,211) Employees eligible to retire................. (2,315) (2,159) Active employees not eligible to retire...... (3,814) (4,687) -------- -------- (16,509) (17,057) Unrecognized (gains)/losses....................... (645) -- -------- -------- Total accumulated postretirement benefit obligation, included in other non-current liabilities. $(17,154) $(17,057) ======== ======== Net periodic postretirement benefit cost included the following components since the October 17, 1996 Yale acquisition: YEAR ENDED MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Service cost-benefits attributed to service during the period................................... $ 348 $187 Interest cost........................................ 1,203 609 ----- --- Net periodic postretirement benefit cost........ $1,551 $796 ====== ==== -43- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For measurement purposes, a 7% annual rate of increase in the per capita cost of postretirement medical benefits was assumed at the beginning of the period; the rate was assumed to decrease 0.5% per year to 5.5% by 2001. A 1% increase in this annual trend rate would have increased the accumulated postretirement benefit obligation at March 31, 1998 by $997,000 with a corresponding increase in the 1998 postretirement benefit expense of $120,000. The discount rate used in determining the accumulated postretirement benefit obligation was 7 1/2% and 8% as of March 31, 1998 and 1997, respectively. 12. COMMON STOCK, EARNINGS PER SHARE AND STOCK PLANS Common Stock Effective February 22, 1996, the Company issued 6,037,500 shares of its common stock at $15.00 per share in an initial public offering. Proceeds from the offering, net of commissions and other related expenses totaling approximately $7.5 million, were approximately $83.1 million. The proceeds were primarily used to reduce the Company's outstanding indebtedness, a significant portion of which arose from the Lift-Tech acquisition. Earnings per Share In 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128). FAS No. 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the FAS No. 128 requirements. The following table sets forth the computation of basic and diluted earnings per share before extraordinary charge for debt extinguishment: YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) Numerator for basic and diluted earnings per share: Income before extraordinary charge.......... $23,421 $18,352 $12,987 ======= ======= ======= Denominators: Weighted-average common stock outstanding --denominator for basic EPS............... 13,363 13,210 7,662 Effect of dilutive employee stock options... 58 5 -- ------ ------ ----- Adjusted weighted-average common stock outstanding and assumed conversions --denominator for diluted EPS............. 13,421 13,215 7,662 ====== ====== ===== The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 10). -44- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock Plans The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the grant date, no compensation expense is recognized. The Company maintains two stock option plans, a Non-Qualified Stock Option Plan ("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive Plan"). At March 31, 1998, 250,000 shares and 1,050,000 shares were reserved for grant under the Non-Qualified Plan and Incentive Plan, respectively. Under the Non-Qualified Plan, options may be granted to officers and other key employees of the Company as well as to non-employee directors and advisors. The Company has not granted any options under the Non-Qualified Plan. Options granted under the Incentive Plan become exercisable over a four-year period at the rate of 25% per year commencing one year from the date of grant at an exercise price of not less than 100% of the fair market value of the common stock on the date of grant. Any option granted under this plan may be exercised not earlier than one year and not later than ten years from the date such option is granted. During 1997, the Company granted 200,000 options at an exercise price of $15.50 per share which was the market value on the grant date, representing the only options outstanding at March 31, 1998 and 1997. Twenty-five percent of those options became exercisable January 1, 1998 and will expire January 1, 2007; none were exercised during the year ended March 31, 1998. Pro forma information regarding net income and earnings per share is required by FAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for those options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the options issued in fiscal 1997: risk-free interest rate of 5.5%, dividend yield of 1.8%, volatility factor of the expected market price of the Company's common stock of .245, and a weighted-average expected life of the option of 4 years. 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. -45- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: YEAR ENDED MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE DATA) Pro forma net income......................... $ 18,791 $15,127 Pro forma earnings per share, both basic and diluted..................... 1.40 1.14 The Company maintains a Restricted Stock Plan, under which the Company has reserved 80,200 shares at March 31, 1998. The Company charges unearned compensation, a component of shareholders' equity, for the market value of shares, as they're issued. It is then ratably amortized over the restricted period. Grantees who remain continuously employed with the Company become vested in their shares five years after the date of the grant. 13. LOSS CONTINGENCIES General and Product Liability--$9,688,000 of the accrued general and product liability costs which are included in other non-current liabilities at March 31, 1998 ($8,262,000 at March 31, 1997) are the actuarial present value of estimated reserves based on an amount determined from loss reports and individual cases filed with the Company and an amount, based on past experience, for losses incurred but not reported. The accrual in these consolidated financial statements was determined by applying a discount factor based on interest rates customarily used in the insurance industry, between 6.33% and 8.42%, to the undiscounted reserves of $12,685,000 and $11,154,000 at March 31, 1998 and 1997, respectively. This liability is funded by investments in marketable securities (see Notes 2 and 5). Prior to its acquisition by the Company, Yale was self-insured for product liability claims up to a maximum of $500,000 per occurrence and maintained product liability insurance with a $100 million cap per occurrence. The Company has been advised that a customer has alleged that one of Yale's products was the cause of a fire which occurred in January 1995 at a manufacturing facility, resulting in losses in excess of Yale's policy limits. A formal complaint has been filed seeking damages in excess of $500 million. However, it is the opinion of management that there was no manufacturing defect and that the claim will in all likelihood be settled within the Company's policy limits. -46- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. INCOME TAXES The following is a reconciliation of the difference between the effective tax rate and the statutory federal tax rate: YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) Computed statutory provision............... $16,049 $12,002 $7,575 State income taxes net of federal benefit.. 1,983 1,700 743 Nondeductible goodwill amortization........ 2,858 1,961 -- Foreign taxes greater than statutory provision...................... 904 301 332 Other...................................... 640 (347) 7 ----- ------ ----- Actual tax provision....................... $22,434 $15,617 $8,657 ======= ======== ====== The provision for income tax expense consisted of the following: YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) Current income tax expense: Federal taxes........................ $16,169 $ 8,399 $6,336 State taxes.......................... 3,082 1,124 975 Foreign.............................. 3,185 1,278 450 Deferred income tax (benefit) expense: Domestic............................. (248) 4,736 627 Foreign.............................. 246 80 269 ------ ------- ------ $22,434 $15,617 $8,657 ======= ======= ====== The Company applies the liability method of accounting for income taxes as required by FAS Statement No. 109, "Accounting for Income Taxes." The gross composition of the net current deferred tax asset, included in prepaid expenses within the consolidated balance sheet, is as follows: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Inventory........................................ $ (5,557) $ (5,177) Accrued vacation and incentive costs............. 1,724 2,157 Other............................................ 4,749 3,562 ------ ------ Net current deferred tax asset.............. $ 916 $ 542 ======= ======== The gross composition of the net non-current deferred tax asset is as follows: MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS) Insurance reserves............................... $11,087 $11,711 Property, plant, and equipment................... (7,620) (8,010) Other............................................ 4,067 5,234 ------ ------- Net non-current deferred tax asset.......... $ 7,534 $ 8,935 ======== ======== -47- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income before income taxes, minority interest and extraordinary charge includes foreign subsidiary income of $7,220,000, $3,650,000 and $1,188,000 for the years ended March 31, 1998, 1997, and 1996 respectively. United States income taxes have not been provided on unremitted earnings of the Company's foreign subsidiaries as such earnings are considered to be permanently reinvested. 15. RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense for the years ended March 31, 1998, 1997 and 1996 was $3,714,000, $2,805,000 and $1,668,000, respectively. The following amounts represent future minimum payment commitments as of March 31, 1998 under non-cancelable operating leases extending beyond one year (in thousands): VEHICLES REAL AND YEAR ENDED MARCH 31, PROPERTY EQUIPMENT TOTAL -------------------- -------- --------- ------ 1999................................ $ 1,954 $ 1,429 $3,383 2000................................ 1,895 1,284 3,179 2001................................ 1,671 956 2,627 2002................................ 1,585 568 2,153 2003................................ 1,399 29 1,428 -48- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 16. SUMMARY FINANCIAL INFORMATION The summary financial information of the parent, domestic subsidiaries (guarantors) and foreign subsidiaries (nonguarantors) of the 8 1/2% senior subordinated notes follows:
DOMESTIC FOREIGN PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ (IN THOUSANDS) As of March 31, 1998: Current assets: Cash .................................... $18,035 $ 768 $ 4,038 $ -- $ 22,841 Trade accounts receivable.................... 41,651 71,244 20,248 -- 133,143 Inventories.................................. 47,201 36,912 23,712 (152) 107,673 Other current assets......................... 5,050 12,505 2,810 -- 20,365 ------ ------ ------ ----- -------- Total current assets.................... 111,937 121,429 50,808 (152) 284,022 Net property, plant, and equipment................ 32,159 32,135 17,633 -- 81,927 Goodwill and other intangibles, net............... 43,404 275,470 49,263 -- 368,137 Intercompany balances............................. 237,011 (400,381) (66,353) 229,723 -- Other assets ..................................... 214,997 166,167 494 (351,996) 29,662 ------- -------- ------ ------- ------ Total assets............................ $639,508 $194,820 $ 51,845 $(122,425) $ 763,748 ======== ======== ======== ========= ========= Current liabilities ............................. $ 35,854 $ 47,240 $ 21,158 $ 261 $ 104,513 Long-term debt, less current portion.............. 444,225 483 2,148 -- 446,856 Other non-current liabilities..................... 10,576 30,465 4,816 -- 45,857 ------- -------- -------- --------- --------- Total liabilities....................... 490,655 78,188 28,122 261 597,226 Shareholders' equity.............................. 148,853 116,632 23,723 (122,686) 166,522 ------- -------- -------- --------- --------- Total liabilities and shareholders' equity............................... $639,508 $194,820 $ 51,845 $(122,425) $ 763,748 ======== ======== ======== ========= ========= For the Year Ended March 31, 1998: Net sales .............................. . $269,677 $171,173 $ 82,515 $ (12,634) $ 510,731 Cost of products sold............................. 192,686 124,958 58,107 (12,634) 363,117 -------- -------- -------- --------- --------- Gross profit ............................. . 76,991 46,215 24,408 -- 147,614 Selling, general and administrative expenses...... 36,804 17,805 14,914 -- 69,523 Amortization of intangibles....................... 1,892 6,382 1,927 -- 10,201 -------- -------- -------- --------- --------- 38,696 24,187 16,841 -- 79,724 -------- -------- -------- --------- --------- Income from operations............................ 38,295 22,028 7,567 -- 67,890 Interest and debt expense......................... 24,125 (332) 182 -- 23,975 Interest and other income......................... 1,764 7 169 -- 1,940 -------- -------- -------- --------- --------- Income before income taxes and extraordinary charge ..................................... . 15,934 22,367 7,554 -- 45,855 Income tax expense................................ 7,326 11,524 3,584 -- 22,434 -------- -------- -------- --------- --------- Income before extraordinary charge................ 8,608 10,843 3,970 -- 23,421 Extraordinary charge for early debt extinguishment................................. (4,520) -- -- -- (4,520) -------- -------- -------- --------- --------- Net income ..................................... . $ 4,088 $ 10,843 $ 3,970 $ -- $ 18,901 ======== ======== ======== ========= =========
-49- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DOMESTIC FOREIGN ELIMIN- PARENT SUBSIDIARIES SUBSIDIARIES ATIONS CONSOLIDATED ------ ------------ ------------ ------ ------------ (IN THOUSANDS) For the Year Ended March 31, 1998: OPERATING ACTIVITIES: Cash provided by (used in) operating activities............................................. $ 40,272 $ (3,725) $ 3,019 $ 651 $ 40,217 INVESTING ACTIVITIES: Purchase of marketable securities, net.................... (2,517) -- -- -- (2,517) Capital expenditures...................................... (6,518) (2,259) (1,724) -- (10,501) Purchase of businesses, net of cash acquired.............. (170,277) 1,716 510 -- (168,051) Net assets held for sale.................................. -- 4,575 -- -- 4,575 -------- ------ ------- ----- -------- Net cash (used in) provided by investing activities............................................. (179,312) 4,032 (1,214) -- (176,494) FINANCING ACTIVITIES: Net (payments) borrowings under revolving line-of-credit agreements.............................. 157,058 -- (508) -- 156,550 Repayment of debt......................................... (196,353) (50) (564) -- (196,967) Proceeds from issuance of long-term debt, net.................................................... 196,120 -- -- -- 196,120 Dividends paid............................................ (3,713) -- -- -- (3,713) Other..................................................... (275) -- 561 (561) (275) -------- ------ ------- ----- -------- Net cash provided by (used in) financing activities............................................. 152,837 (50) (511) ( 561) 151,715 Effect of exchange rate changes on cash................... -- -- (1,414) (90) (1,504) -------- ------ ------- ----- -------- Net change in cash and cash equivalents................... 13,797 257 (120) -- 13,934 Cash and cash equivalents at beginning of year................................................... 4,238 511 4,158 -- 8,907 -------- ------ ------- ----- -------- Cash and cash equivalents at end of year.................. $18,035 $ 768 $ 4,038 $ -- $ 22,841 ======== ====== ======== ===== ========
17. FOREIGN OPERATIONS UNITED ELIMIN- CONSOLI- STATES CANADA EUROPE MEXICO ATIONS DATED ------ ------ ------ ------ ------ ----- (IN THOUSANDS) Year ended March 31, 1998: Sales to unaffiliated customers........ $429,792 $36,603 $39,208 $5,128 $ -- $510,731 Transfers between geographic areas..... 10,949 1,574 -- -- (12,523) -- -------- ------- ------- ------ -------- -------- Total net sales........................ $440,741 $38,177 $39,208 $5,128 (12,523) $510,731 ======== ======= ======= ====== ======== ======== Income from operations................. $ 60,311 $ 3,124 $ 3,869 $ 586 $-- $ 67,890 Net income............................. 14,910 2,021 1,620 350 -- 18,901 Identifiable and total assets.......... 645,555 23,960 90,036 4,197 -- 763,748 Total liabilities...................... 569,109 3,268 23,576 1,273 -- 597,226 Year ended March 31, 1997: Sales to unaffiliated customers........ $313,705 $27,951 $14,146 $3,622 $-- $359,424 Transfers between geographic areas..... 10,411 547 -- -- (10,958) -- -------- ------- ------- ------ ------- -------- Total net sales........................ $324,116 $28,498 $14,146 $3,622 (10,958) $359,424 ======== ======= ======= ====== ======= ======== Income from operations................. $ 41,190 $ 1,955 $ 1,548 $ 361 $-- $ 45,054 Net income............................. 13,073 1,129 730 222 -- 15,154 Identifiable and total assets.......... 457,501 26,191 61,696 2,857 -- 548,245 Total liabilities...................... 382,762 4,600 9,949 778 -- 398,089 Year ended March 31, 1996: Sales to unaffiliated customers........ $191,178 $18,659 $ -- $ -- $ -- $209,837 Transfers between geographic areas..... 5,453 1,278 -- -- (6,731) -- -------- ------- ------- ------- ------- -------- Total net sales........................ $196,631 $19,937 $ -- $ -- $(6,731) $209,837 ======== ======= ======= ======= ======= ======== Income from operations................. $ 24,451 $ 1,351 $ -- $ -- $-- $ 25,802 Net income............................. 12,489 498 -- -- -- 12,987 Identifiable and total assets.......... 177,055 11,679 -- -- -- 188,734 Total liabilities...................... 47,233 3,879 -- -- -- 51,112
-50- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) U.S. operations' sales to unaffiliated customers include $26,599,000, $23,075,000 and $15,074,000 for the years ended March 31, 1998, 1997 and 1996, respectively, for export. Transfers between geographic areas are recorded at amounts generally above cost and in accordance with the rules and regulations of the respective governing tax authorities. 18. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," which the Company will adopt for the year ended March 31, 1999. Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components. This includes unrealized gains or losses on the Company's available-for-sale securities, foreign currency translation adjustments, and minimum pension liability adjustments, which currently are reported in shareholders' equity, and will be included and disclosed in total comprehensive income upon adoption of the Statement. The impact of compliance with this Statement will not impact the financial position, net income or cashflows. The FASB also issued FAS Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information," which the Company will adopt for the year ended March 31, 1999. Statement No. 131 superseded FAS Statement No. 14 "Financial Reporting for Segments of a Business Enterprise." Statement No. 131 established new standards for determining segment criteria and annual and interim reporting of that data. It also established new disclosures about products, geographic areas and major customers. Currently, the Company reports one operating segment under Statement No. 14 and, while the impact of compliance with Statement No. 131 has not yet been determined, the Company may be required to report more than one segment upon its adoption. -51- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED YEAR ENDED ------------------------------------------------------------ ---------- JUNE 29, SEPTEMBER 28, DECEMBER 28, MARCH 31, MARCH 31, 1997 1997 1997 1998(a) 1998(a) ---- ---- ---- ------ ------ Net sales................................ $124,442 $ 123,907 $ 124,093 $138,289 $510,731 Gross profit............................. 35,203 35,836 35,413 41,162 147,614 Income from operations................... 15,146 16,670 15,610 20,464 67,890 Income before extraordinary charge....... 4,431 5,630 5,485 7,875 23,421 Net income............................... 4,431 5,630 5,485 3,355(b) 18,901(b) Income per share before extraordinary charge................................ 0.33 0.42 0.41 0.58 1.75 Net income per share..................... 0.33 0.42 0.41 0.25(b) 1.41(b) THREE MONTHS ENDED YEAR ENDED ------------------------------------------------------------- ---------- JUNE 30, SEPTEMBER 29, DECEMBER 29, MARCH 31, MARCH31, 1996 1996 1996(c, d) 1997(c, d) 1997(c, d) ---- ---- --------- --------- --------- Net sales................................ $ 65,735 $ 64,426 $ 103,393 $125,870 $359,424 Gross profit............................. 20,017 19,184 30,104 38,132 107,437 Income from operations................... 8,681 8,910 11,240 16,223 45,054 Income before extraordinary charge....... 5,032 5,211 3,219 4,890 18,352 Net income............................... 5,032 5,211 118(e) 4,793(e) 15,154(e) Income per share before extraordinary charge................................ 0.38 0.39 0.24 0.37 1.39 Net income per share..................... 0.38 0.39 0.01(e) 0.36(e) 1.15(e) - -------- (a) Includes the results of operations of Univeyor since its acquisition on January 7, 1998 and related interest on revolver borrowings to finance the acquisition. (b) Includes extraordinary charges for early debt extinguishment amounting to $4,520 in the quarter ended March 31, 1998, net of the tax effect. (c) Includes the results of operations of Yale since its acquisition on October 17, 1996, except for the minority interest share of earnings amounting to $323 in the quarter ended December 29, 1996; also reflects the related interest and debt expense on borrowings to finance the acquisition. (d) Includes the results of operations of Lister since its acquisition on December 19, 1996 and related interest on revolver borrowings to finance the acquisition. (e) Includes extraordinary charges for early debt extinguishment amounting to $3,101 and $97 in the quarters ended December 29, 1996 and March 31, 1997, respectively, net of the tax effect.
-52- COLUMBUS MCKINNON CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS MARCH 31, 1998, 1997 AND 1996 DOLLARS IN THOUSANDS ADDITIONS --------- BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------- ---------- ------ Year ended March 31, 1998: Deducted from asset accounts: Allowance for doubtful accounts $ 1,884 $1,381 $ 225(4) $ 968(1) $ 2,522 Slow-moving and obsolete inventory 3,356 1,115 335(4) 641(2) 4,165 Reserve against non-current receivable 600 -- -- -- 600 ------- ------ ----- ------- ------- Total $ 5,840 $2,496 $ 560 $ 1,609 $ 7,287 ======= ====== ===== ======= ======= Reserves on balance sheet: Accrued general and product liability costs $ 11,973 $1,522 $ -- $ 1,807(3) $11,688 ======== ====== ===== ======= ======= Year ended March 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts $ 917 $ 905 $ 1,189(4) $ 1,127(1) $ 1,884 Slow-moving and obsolete inventory 2,467 325 1,770(4) 1,206(2) 3,356 Reserve against non-current receivable 600 -- -- -- 600 -------- ------ ------- ------- ------- Total $ 3,984 $1,230 $ 2,959 $ 2,333 $ 5,840 ======== ====== ======= ======= ======= Reserves on balance sheet: Accrued general and product liability costs $ 7,110 $1,775 $ 3,806(4) $ 718(3) $11,973 ======== ====== ======= ======= ======= Year ended March 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts $ 537 $ 358 $ 289(4) $ 267(1) $ 917 Slow-moving and obsolete inventory 1,815 487 370(4) 205(2) 2,467 Reserve against non-current receivable -- 600 -- -- 600 -------- ------ ----- ------- ------- Total $ 2,352 $1,445 $ 659 $ 472 $ 3,984 ======== ====== ===== ======= ======= Reserves on balance sheet: Accrued general and product liability costs $ 5,758 $1,555 $ -- $ 203(3) $ 7,110 ======== ====== ===== ======= ======= - -------- (1) Uncollectible accounts written off, net of recoveries (2) Obsolete inventory disposals (3) Insurance claims and expenses paid (4) Reserves at date of acquisition of subsidiaries
-53- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information regarding Directors and Executive Officers of the Registrant will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1998. ITEM 11. EXECUTIVE COMPENSATION The information regarding Executive Compensation will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information regarding Security Ownership of Certain Beneficial Owners and Management will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding Certain Relationships and Related Transactions will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) FINANCIAL STATEMENTS: The following consolidated financial statements of Columbus McKinnon Corporation are included in Item 8: REFERENCE PAGE NO. --------- -------- Report of Independent Auditors 27 -54- Consolidated balance sheets - March 31, 1998 and 1997 28 Consolidated statements of income - Years ended March 31, 1998, 1997 and 1996 29 Consolidated statements of shareholders' equity - Years ended March 31, 1998, 1997 and 1996 30 Consolidated statements of cash flows - Years ended March 31, 1998, 1997 and 1996 31 Notes to consolidated financial statements 32 - 52 (a)(2) FINANCIAL STATEMENT SCHEDULE: PAGE NO. ----------------------------- -------- Report of Independent Auditors 27 Schedule II - Valuation and qualifying accounts 53 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. (a)(3) EXHIBITS: EXHIBIT NUMBER 2.1 Agreement and Plan of Merger dated August 24, 1996 among Columbus McKinnon Corporation, L Acquisition Corporation and Spreckels Industries, Inc. (known as Yale International, Inc.) (incorporated by reference to Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated August 30, 1996). 2.2 Offer to Purchase by L Acquisition Corporation dated August 30, 1997, as revised (incorporated by reference to Exhibit (a)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated August 30, 1997, as amended by Amendment No. 1 dated September 18, 1996, Amendment No. 2 dated September 27, 1996, Amendment No. 3 dated October 4, 1996, Amendment No. 4 dated October 9, 1996 Amendment No. 5 dated October 13, 1996 and Amendment No. 6 dated October 17, 1996). 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 3.2 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). -55- 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 October 20, 1997, between Columbus McKinnon Corporation and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated October 27, 1997). 4.3 Indenture among Columbus McKinnon Corporation, the guarantors named on the signature pages thereto and State Street Bank and Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 9, 1998). 4.4 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products, Inc., Mechanical Products, Inc., Minitec Corporation and State Street Bank and Trust Company, N.A., as trustee, dated March 31, 1998 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on form 8-K dated April 9, 1998). 4.5 A/B Registration Rights Agreement among Columbus McKinnon Corporation, the guarantors named on the signature pages thereto and Bear, Stearns & Co., Inc. and Goldman, Sachs & Co., as initial purchasers (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated April 9, 1998). 10.1 Stock Purchase Agreement by and among Columbus McKinnon Corporation and all of the shareholders of LTI Holdings, Inc., dated as of November 1, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.2 Amended and Restated Term Loan Agreement by and among Fleet Bank of New York, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr., as Trustees under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated March 31, 1993 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.3 Amendment No. 1 to Amended and Restated Term Loan Agreement, dated March 31, 1993, by and among Fleet Bank of New York, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr. as trustees under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated October 27, 1994 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.4 Amendment No. 2 to Amended and Restated Term Loan Agreement by and among Fleet Bank, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr. under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated November 2, 1995 (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). -56- 10.5 Loan Agreement by and among Columbus McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon Corporation and Marine Midland Bank, dated October 27, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.6 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). 10.7 Credit Agreement, dated as of March 31, 1998, among Columbus McKinnon Corporation, as Borrower, the banks, financial institutions and other institutional lenders named therein, as Initial Lenders, Fleet National Bank, as the Initial Issuing Bank, Fleet National Bank, as the Swing Line Bank, and Fleet National Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated April 9, 1998). 10.8 Series Lease, dated as of November 1, 1993, between Town of Amherst Industrial Development Agency as Lessor and Columbus McKinnon Corporation as Lessee (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.9 Lease Agreement between Warehouse Associates of Texas, as lessor, and Columbus McKinnon Corporation, as lessee, dated February 8, 1994 (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.10 Real Estate Lease between C.M. Realty Company, as lessor, and Columbus McKinnon Corporation, as lessee, dated April 5, 1993 (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.11 Lease between Grub & Ellis Industrial Properties Fund II as lessor, and Columbus McKinnon Corporation, as lessee, dated June 19, 1992 (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.12 Second Amendment to Lease by and between Adaya Asset Archibald, L.P. (as transferee of Crow-Eaves-Ontario #1 Limited Partnership), as Landlord, and Columbus McKinnon, as Tenant, dated October 27, 1994; Amendment to Lease Agreement by and between Crow-Eaves-Ontario #1 Limited Partnership, dated October 1, 1989; Lease Agreement by and between Crow-Eaves-Ontario Limited Partnership and Columbus McKinnon Corporation (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). -57- 10.13 Lease dated September 10, 1986 between Lift-Tech International Cranes & Hoists, Inc. as lessee and 638037 Ontario Limited, as lessor as assigned to Lift-Tech International Cranes & Hoists Ltd. by Assignment of Lease dated April 1, 1991 (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 10.14 Lease between Atlanta Structures L.P., as lessor and Lift-Tech International, Inc., as lessee, dated September 1, 1995. (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.15 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). *10.16 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). *10.17 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). *10.18 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement (formerly known as the Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement) effective November 1, 1988 (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.19 Columbus McKinnon Corporation 1995 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.20 Columbus McKinnon Corporation Restricted Stock Plan (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.21 Columbus McKinnon Corporation Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.22 Columbus McKinnon Corporation Thrift [401(k) Plan] 1989 Restatement Effective January 1, 1989 (incorporated by reference to Exhibit 10.30 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). -58- *10.23 Amendment No. 1 to Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement Effective January 1, 1989 (incorporated by reference to Exhibit 10.31 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.24 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). *10.25 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Tax Reform Restatement Effective April 1, 1989 (incorporated by reference to Exhibit 10.33 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.26 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). *10.27 Columbus McKinnon Corporation Description of Corporate Incentive Plan (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). *10.28 Amendment No. 1 to the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated March 27, 1996 (incorporated by reference to Exhibit 10.37 to the Company's annual report on Form 10-K dated June 27, 1997). *10.29 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 dated June 27, 1997). *10.30 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 dated June 27, 1997). *10.31 Amendment No. 2 to the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March 27, 1996 (incorporated by reference to Exhibit 10.40 to the Company's annual report on Form 10-K dated June 27, 1997). *10.32 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.) *#10.33 Form of Change in Control Agreement as entered into between Columbus McKinnon Corporation and each of Herbert P. Ladds, Jr., Timothy T. Tevens, Robert L. Montgomery, Jr., Ned T. Librock, Ivan E. Shawvan, Jr., Karen L. Howard, Lois H. Demler and Timothy R. Harvey. -59- 10.34 Stock Purchase Agreement, dated as of March 11, 1998, among Columbus McKinnon Corporation and the shareholders of LICO, Inc. identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 9, 1998). *#10.35 Amendment No. 3 to the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March 27, 1998. *#10.36 Amendment No. 2 to the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated March 13, 1998. *#10.37 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. *#10.38 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. #21.1 Subsidiaries of the Registrant. #23.1 Consent of Ernst & Young LLP. #27.1 Financial Data Schedule #99.1 Form 11-K Columbus McKinnon Corporation Employee Stock Ownership Plan Annual Report for the year ended March 31, 1998. - -------------------------------- * Indicates a management contract or compensation plan or arrangement. # Filed herewith (b) Reports on Form 8-K: During the fourth quarter of fiscal 1998, the Company filed a current Report on form 8-K dated March 23, 1998 announcing that it had entered into a definitive purchase agreement in connection with its acquisition of LICO, Inc. -60- SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Buffalo, State of New York on June 29, 1998. COLUMBUS McKINNON CORPORATION By: /S/ HERBERT P. LADDS, JR. --------------------------- Herbert P. Ladds, Jr. Chairman of the Board of Directors and Chief Executive Officer 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. SIGNATURE TITLE DATE --------- ----- ---- /s/ Herbert P. Ladds, Jr. Chairman of the Board of Directors June 29, 1998 ----------------------- Herbert P. Ladds, Jr. (Principal Executive Officer) /s/ Timothy T. Tevens President, Chief Operating Officer June 29, 1998 ----------------------- Timothy T. Tevens and Director /s/ Robert L. Montgomery, Jr. Executive Vice President, Chief June 29, 1998 ----------------------- Robert L. Montgomery, Jr. Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer) /s/ Edward W. Duffy Director June 29, 1998 ----------------------- Edward W. Duffy /s/ Randolph A. Marks Director June 29, 1998 ----------------------- Randolph A. Marks /s/ L. David Black Director June 29, 1998 ----------------------- L. David Black -61- EX-10.33 2 FORM OF CHANGE IN CONTROL AGREEMENT EXHIBIT 10.33 PRIVILEGED AND CONFIDENTIAL Date [ Name ] [ Title ] Columbus McKinnon Corporation 140 John James Audubon Parkway Amherst, New York l4228-1197 Dear _________: Columbus McKinnon Corporation (the "Company") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including you, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company in your current executive position, the Company agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment in your current executive position with the Company is terminated under the circumstances described below subsequent to a "change in control of the Company" (as defined in Section 2). 1. TERM OF AGREEMENT. This agreement shall commence on November 1, 1997, and shall continue in effect through October 31, 1998; provided, however, that commencing on November 1, 1998, and each November 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than August 31 of such year, the Company shall have given notice that it does not wish to extend this Agreement (provided that no such notice may be given during the pendency of a potential change in control of the Company, as defined in Section 2); and provided, further, that if a change in control of the Company, as defined in Section 2, shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of not less than thirty-six (36) months beyond the month in which such change in control occurred. Notwithstanding anything provided herein to the contrary, the term of this Agreement shall not extend beyond the end of the month in which you attain "normal retirement age" under the provisions of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan (or any amendment, restatement or successor thereto) or any other tax-qualified retirement plan of the Company or any of its subsidiaries in which you are participating (any such plan being referred to herein as the "Company Pension Plan"). 2. CHANGE IN CONTROL, POTENTIAL CHANGE IN CONTROL. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (a) any "Person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of either (i) the then outstanding shares of common stock of the Company or (ii) the combined voting power of the Company's then outstanding voting securities; (b) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c), (d) or (e) of this Section) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve a reorganization, merger or consolidation of the Company with any other Company, other than (1) a reorganization, merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such reorganization, merger or consolidation or (2) a reorganization, merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the Company's then outstanding voting securities; (d) any Person or Persons acquire all or substantially all of the assets of the Company, whether in a single transaction or series of transactions; or (e) the stockholders of the Company approve a plan of dissolution or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if: (a) the Company enters in an agreement, the consummation of which would result in the occurrence of a change in control of the Company; (b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (c) any person (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), or a person who is then currently properly eligible to file and has properly filed a Schedule 13G (or any successor filing) pursuant to the Exchange Act and the rules and regulations thereunder, indicating beneficial ownership of securities of the Company and stating that the securities were acquired in the ordinary course of business and were not acquired with the purpose nor with the effect of changing or influencing the control of the Company, for so long as such statement is true and correct) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities and, without the written consent of the Company, increases within a one-year period his beneficial ownership of such securities by 3 percentage points or more; or (d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. (i) GENERAL. If any of the events described in Section 2 constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 4(iii) upon termination of your employment within thirty-six (36) months following such a change in control of the Company unless such termination is (a) because of your death or Disability, (b) by the Company for Cause, or (c) by you other than for Good Reason. In the event your employment with the Company is terminated for any reason and subsequently a change in control of the Company should have occurred, you shall not be entitled to any benefits hereunder. (ii) DISABILITY. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (iii) CAUSE. Termination by the Company of your employment for "Cause" shall mean termination (a) upon the commission by you of a willful serious act, such as embezzlement, against the Company which is intended to enrich you at the expense of the Company or upon your conviction of a felony involving moral turpitude or (b) in the event of willful, gross neglect or willful, gross misconduct resulting in either case in material harm to the Company. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. (iv) GOOD REASON. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 3(vi)) specified in the Notice of Termination (as defined in Section 3(v)) given in respect thereof: (a) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting, all management personnel of the Company; (b) the Company's requiring you to be based at a Company office more than 50 miles from the Company's offices at which you are principally employed immediately prior to the date of the change in control except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (c) the failure by the Company to pay to you any portion of your current compensation within seven (7) days of the date such compensation is due or any portion of your compensation under any deferred compensation program of the Company within thirty (30) days of the date such compensation is due; (d) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (v) hereof (and, if applicable, the requirements of Subsection (iii) hereof), which purported termination shall not be effective for purposes of this Agreement; or (e) the assignment to you of any duties or responsibilities that are inconsistent with your position, duties, responsibilities or status immediately preceding such change in control. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (v) NOTICE OF TERMINATION. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6. "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (vi) DATE OF TERMINATION, ETC. "Date of Termination" shall mean (a) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (b) if your employment is terminated pursuant to Subsection (iii) or (iv) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days from the date such Notice of Termination is given, and in the case of a termination for Good Reason shall not be less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given); provided, however, that if within fifteen (15) days after any Notice of Termination is given, or, if the Notice of Termination is not properly given, prior to the Date of Termination (as determined without regard to an extension of such Date of Termination as described in this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, then the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding arbitration award; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. During the pendency of any dispute, (i) the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection and (ii) you will have no obligation to perform any duties as an employee of the Company on or after the Date of Termination (as determined without regard to an extension of such Date of Termination as described in the preceding sentence). Amounts paid under this Subsection are in addition to all other amounts due under this Agreement, and shall not be offset against or reduce any other amounts due under this Agreement and shall not be reduced by any compensation earned by you as the result of employment by another employer. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Company, you shall be entitled to the following benefits during a period of disability, or upon termination of your employment as the case may be, provided that such period of disability or termination occurs during the term of this Agreement: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under the Company's disability plan or program or other similar plan during such period, until this Agreement is terminated pursuant to Section 3(ii) hereof. Thereafter, or in the event your employment shall be terminated by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company should be terminated by the Company other than for Cause or Disability or if you should terminate your employment for Good Reason, you shall be entitled to the benefits provided below: (a) the Company shall pay to you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due; (b) in lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you, at the time specified in Subsection (iv), a lump sum severance payment (together with the payments provided in paragraphs (c), (d), (e) and (f) below, the "Severance Payments") equal to three (3) times the sum of (x) your annual rate of base salary in effect on the Date of Termination and (y) the greater of (a) the annual target bonus (annualized in the case of any bonus paid with respect to a partial year) under the Company's then current Executive Incentive Plan and Corporate Incentive Plan or any then current similar plans (the "Management Incentive Plans") in effect on the Date of Termination or (b) the annual target bonus (annualized in the case of any bonus paid with respect to a partial year) under the Management Incentive Plans in effect immediately prior to such change in control; (c) the Company shall pay to you all reasonable legal fees and expenses incurred by you as a result of such termination, including all such fees and expenses, if any, as incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement if you prevail in a legal or arbitration proceeding with respect thereto on its merits; (d) for a period of thirty-six (36) months after such termination, the Company shall (i) arrange to provide you with all benefits under the Company's medical, prescription, dental, employee life and group life plans and programs, which are substantially similar to those which you were receiving immediately prior to the change in control or (ii) reimburse you for your out-of-pocket costs for providing yourself with any medical, prescription, dental, employee life and group life plans and programs which are substantially similar to those which you were receiving immediately prior to the change in control; (e) at your option, you may either elect in writing (i) to continue to participate in the Company Pension Plan (and be deemed to have continued to be employed by the Company for a period of three (3) additional years and deemed to have accumulated three (3) additional calendar years of compensation (for purposes of determining your pension benefits under the Company Pension Plan), in an amount equal to the amount determined under clause (1) of Section 4(iii)(b) hereof), in which case you would be fully vested under the Company Pension Plan as of the Date of Termination, but in no event shall you be deemed to have continued to be employed by the Company after your normal retirement age, or (ii) to receive from the Company a lump sum payment, in cash, equal to the actuarial equivalent of the retirement pension (determined as a straight life annuity commencing at age 65) which you would have accrued under the terms of the Company Pension Plan (without regard to the limitations imposed by section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), or any amendment to the Plan made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if you were fully vested thereunder and had continued to be employed by the Company (after the Date of Termination) for three (3) additional years and as if you had accumulated three (3) additional calendar years of compensation (for purposes of determining your pension benefits thereunder), each in an amount equal to the amount determined under clause (1) of Section 4(iii)(b) hereof, but in no event shall you be deemed to have continued to be employed by the Company after your normal retirement age. For purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company Pension Plan immediately prior to the change in control of the Company; (f) the Company shall provide to you outplacement services with an outplacement firm selected by you for a period of up to six months and for an amount not to exceed $25,000; and (g) notwithstanding anything to the contrary contained in any stock option agreement, you shall be fully vested as of the date of the change in control in any and all stock options held by you immediately prior to such change in control; and (iv) The payments provided for in Subsection (iii) shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable on the fifth day after demand therefor by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. (vi) Notwithstanding any provision of this Agreement to the contrary, the aggregate present value of all "payments in the nature of compensation" (within the meaning of Section 28OG of the Code) provided to you in connection with a change in control of the Company or the termination of your employment shall be one dollar less than the amount that is fully deductible by the Company under Section 28OG of the Code and, to the extent necessary, payments and benefits under this Agreement shall be reduced in order that this limitation not be exceeded. It is the intention of this Subsection (vi) to avoid excise taxes on you under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 28OG of the Code. 5. SUCCESSORS, BINDING AGREEMENT. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms to which you would be entitled hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. (iii) The Company expressly acknowledges and agrees that you shall have a contractual right to the benefits provided hereunder, and the Company expressly waives any ability, if possible, to deny liability for any breach of its contractual commitment hereunder upon the grounds of lack of consideration, accord and satisfaction or any other defense. In any dispute arising after a change in control of the Company as to whether you are entitled to benefits under this Agreement, there shall be a presumption that you are entitled to such benefits and the burden of proving otherwise shall be on the Company. (iv) All benefits to be paid hereunder shall be in addition to any disability, workers' compensation, or other Company benefit plan distribution, unpaid vacation or other unpaid benefits that you have at the Date of Termination. (v) Notwithstanding anything to the contrary contained in this Agreement, in the event that the scope or extent of your employment duties or responsibilities with the Company are reduced as determined by the Company in its sole discretion, this Agreement shall terminate and the Company shall have no further obligations to you hereunder. The Company shall deliver to you a written notice (the "Termination Notice") of such determination and this Agreement shall terminate effective upon your receipt of the Termination Notice; provided, however, that no Termination Notice shall be effective if delivered within thirty (30) days of a change in control of the Company. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oklahoma without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. In the event of a change in control of the Company during the term of this Agreement, the obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement consistent with the periods referenced in Section 4. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of the Agreement supersedes the provisions of all prior change in control agreements entered into between you and the Company and all other prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto with respect to the subject matter hereof. 12. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within such State, except with respect to the internal affairs of the Company and its stockholders, which shall be governed by the General Corporation Law of the State of Delaware. If this letter sets forth our agreement on the subject matter thereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. Sincerely, COLUMBUS McKINNON CORPORATION By: ---------------------------- Name: Title: Agreed as of the --------- day of --------------- - ------------------------------------- Executive EX-10.35 3 AMENDMENT NO.3 TO THRIFT [401(K)] PLAN AMENDMENT NO. 3 TO THE COLUMBUS MCKINNON CORPORATION THRIFT 401(K) PLAN Columbus McKinnon Corporation (the "Corporation") hereby amends the Columbus McKinnon Corporation Thrift 401(K) Plan (the "Plan"), as amended and restated in its entirety effective January 1, 1989 and as amended by Amendment No. 1 effective February 24, 1995 and Amendment No. 2 effective April 1, 1996, as permitted under Section 13.1 of the Plan, as follows: 1. New Section 1.8A of the Plan, entitled "Break in Service," is added to the Plan effective January 1, 1998 to read as follows: "1.8A "BREAK IN SERVICE." (a) IN GENERAL. An Employee shall incur a one-year Break in Service for each 12 month computation period in which an Employee is credited with less than 501 Hours of Service. For purposes of determining Years of Vesting Service the computation period shall be the calendar year. (b) SPECIAL RULE FOR MATERNITY OR PATERNITY ABSENCE. Solely for the purpose of determining whether a Break in Service has occurred, an Employee who is absent from service by reason of the Employee's pregnancy, the birth of the Employee's child, the placement of a child with the Employee by reason of adoption, or care for such child immediately following such birth or adoption, shall be credited with up to 501 Hours of Service at the rate such Hours of Service would normally have been credited to the Employee but for such absence. The Hours of Service shall be credited to the Employee in the computation period in which the absence commenced if necessary to avoid a Break in Service in that period or, in any other case, in the immediately following computation period." 2. Section 1.12 of the Plan, entitled "Eligible Employee," is amended effective April 1, 1998 to read as follows: "1.12 "ELIGIBLE EMPLOYEE." (a) IN GENERAL. "Eligible Employee" means any Employee who is employed by an Employer and who is regularly employed at a facility located within the United States of America. (b) EXCLUSION OF CERTAIN EMPLOYEES. The term "Eligible Employee" shall not include any employee: (1) COLLECTIVE BARGAINING EMPLOYEES -- who is employed in any bargaining unit covered under a collective bargaining agreement which does not provide for participation by employees of such unit in this Plan; (2) LEASED EMPLOYEES -- who is employed as a Leased Employee; (3) CONTRACT EMPLOYEE -- whose services are performed in the capacity of a consultant or contractor or other capacity pursuant to a written contract which provides that his services are to be rendered in a capacity other than as a regular employee, or who is compensated by fees or similar charges requiring the submission of invoices, as opposed to being compensated by a regular fixed salary or wage; (4) EMPLOYEES TEMPORARILY ASSIGNED TO U.S. LOCATIONS -- who [1] is regularly employed outside the United States, [2] is employed within the United States by an Employer pursuant to a temporary assignment, [3] was not covered under the Plan immediately prior to such temporary assignment, and [4] is continuing to accrue benefits under one or more foreign retirement plans during such temporary assignment." 3. New Section 1.21A of the Plan, entitled "Matching Contribution," is added to the Plan effective January 1, 1998 to read as follows: "1.27A MATCHING CONTRIBUTION means a contribution made for the benefit of a Participant pursuant to Section 3.3." 4. New Section 1.33 of the Plan, entitled "Year of Vesting Service," is added to the Plan effective January 1, 1998 to read as follows: "1.33 "YEAR OF VESTING SERVICE." (a) IN GENERAL. An Employee shall be credited with a Year of Vesting Service for each calendar year ending on or after the Employee's 18th birthday in which the Employee is credited with at least 1,000 Hours of Service, subject to the exclusions set forth in Section 1.33(b). (b) EFFECT OF A BREAK IN SERVICE. In the event that an Employee is reemployed following a one-year Break in Service, service completed by the Employee prior to the Break in Service shall be excluded from his Years of Vesting Service in accordance with this Section 1.33(b): (1) ONE YEAR HOLD-OUT. If an Employee who has not become partially vested in his Matching Contribution Account incurs a one-year Break in Service, the service credited prior to the Break in Service shall thereafter be excluded from his Years of Vesting Service until the Employee has completed a Year of Vesting Service after the Break in Service. (2) FIVE YEAR BREAK IN SERVICE. If an Employee who has not become partially vested in his Matching Contribution Account incurs a number of consecutive one-year Breaks in Service which equals or exceeds the greater of five or the aggregate number of the Employee's prior Years of Vesting Service (determined without regard to his age but excluding therefrom any Years of Vesting Service disregarded by reason of any prior Break in Service), the service credited prior to the Break in Service shall thereafter be excluded from his Years of Vesting Service." 5. Section 2.1 of the Plan, entitled "In General," is amended effective April 1, 1998 to read as follows: "2.1 IN GENERAL. Each Eligible Employee who was not a Participant in the Plan on March 31, 1998 shall be eligible to become a Participant on the first day of the month coinciding with or next following the expiration of 90 calendar days since his Employment Commencement Date, provided he is then an Eligible Employee. If the first day on which an Eligible Employee may commence participation occurs during a period the Eligible Employee is not performing any services as an Eligible Employee for any reason except a termination of employment, then such Eligible Employee may commence participation as of the date he again begins performing such services, or as of the first day of any subsequent month, provided he is then an Eligible Employee." 6. New Section 3.3 of the Plan, entitled "Matching Contributions," is added to the Plan effective January 1, 1998 to read as follows: "3.3 MATCHING CONTRIBUTIONS. (a) CONTRIBUTION REQUIRED. The Employer of each person who is an Employee on the last day of a Plan Year and on whose behalf a Salary Reduction Contribution was made during the Plan Year shall contribute to the Plan on behalf of such Employee a Matching Contribution in an amount determined under Section 3.3(b). (b) AMOUNT OF CONTRIBUTION. The Matching Contribution required to be made on behalf of an Employee under Section 3.3(a) shall be an amount equal to 50 percent of the Salary Reduction Contributions made on behalf of the Employee during the Plan Year provided, however, that Matching Contributions shall not exceed 3 percent of the Employee's Base Pay for the Plan Year. (c) PAYMENT TO THE TRUSTEE. Matching Contributions shall be transmitted to the Trustee and credited to each Participant's Matching Contribution Account as soon as may be reasonably practicable following the last day of the Plan Year for which the Matching Contributions are made. (d) NONDISCRIMINATION. Matching Contributions shall satisfy the actual contribution percentage test of Code Section 401(m). To the extent practicable, the Committee shall cause Matching Contributions on behalf of a Highly Compensated Employee to be reduced before the contribution is made to the Trust, in order to satisfy such test. In the event of excess aggregate contributions (within the meaning of treasury regulations promulgated under Section 401(m) of the Code) then, notwithstanding Section 3.3(e), such excess aggregate contributions shall be forfeited and treated as a forfeiture under Section 8.6 of the Plan. (d) VESTING. A Participant shall be fully vested in his Matching Contribution Account upon attaining Normal Retirement Age or in the event the Participant dies when he is an Employee. In addition, a Participant shall become vested in his Matching Contribution Account before Normal Retirement Age in accordance with the MATCHING CONTRIBUTION ACCOUNT less than one year 0 percent one year but less than two years 20 percent two years but less than three years 40 percent three years but less than four years 60 percent four years but less than five years 80 percent five or more years 100 percent" 7. Section 8.1 of the Plan, entitled "Separation from Service," is amended effective January 1, 1998 to read as follows: "8.1 SEPARATION FROM SERVICE. A Participant shall have a fully vested and nonforfeitable interest in his Salary Reduction Account and Rollover Account at all times. Upon a Participant's separation from service with the Corporation and all Affiliates for any reason except death, and including resignation, retirement, disability or other termination of employment, his Salary Reduction Account and Rollover Account, and the vested portion of his Matching Contribution Account shall be subject to distribution in accordance with Article IX." 8. Section 8.2 of the Plan, entitled "Death," is amended effective January 1, 1998 to read as follows: "8.2 DEATH. If a Participant dies before separating from service with the Corporation and all Affiliates, or after such separation from service but before his Accounts have been distributed to him in accordance with Article IX, his Salary Reduction Account and Rollover Account, and the vested portion of his Matching Contribution Account, shall be distributed to his Beneficiary or Beneficiaries in accordance with Article IX" 9. New Section 8.6 of the Plan, entitled "Forfeiture of Matching Contributions," is added to the Plan effective January 1, 1998 to read as follows: "8.6 FORFEITURE OF MATCHING CONTRIBUTION ACCOUNT. (a) FORFEITURE FOLLOWING BREAK IN SERVICE. If a Participant ceases to be an Employee for any reason other than death before his Matching Contribution Account has become fully vested in accordance with Section 3.3, the nonvested portion of his Matching Contribution Account shall be forfeited as of the last day of the Plan Year in which the Participant receives a distribution (including a direct rollover) of his vested Account Balances under the Plan or, if sooner, as of the last day of the Plan Year in which he incurs his fifth consecutive one-year Break in Service. If the Participant incurs a forfeiture following a distribution of his vested Account Balances, he shall obtain a restoration of the forfeited amount by becoming an Employee and repaying to the Plan the amount distributed before he incurs five consecutive one-year Breaks in Service. (b) FORFEITURE FOLLOWING DEATH. If a Participant dies before his Matching Contribution Account has become fully vested in accordance with Section 3.3, the nonvested portion of his Matching Contribution Account shall be forfeited as of the last day of the Plan Year in which his death occurs. (c) FORFEITURES USED TO REDUCE EMPLOYER CONTRIBUTIONS. The portion of a Matching Contribution Account that is forfeited under this Section 8.4 shall be used to reduce Employer contributions required for Matching Contributions in a manner determined by the Committee." 10. Section 10.3 of the Plan, entitled "Loans," is amended effective April 1, 1998 by amending subsections (c) and (e) thereof to read as follows: "(c) AMOUNT OF LOAN. A loan must be at least $1,000 and may not exceed the Participant's Salary Reduction Account balance determined as of the Valuation Date immediately preceding the date of the loan (adjusted for any subsequent withdrawals but not for any subsequent additions). In addition, a loan may not exceed $50,000, reduced by the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which the loan will be made. Further, a loan may not exceed one-half of the value of the borrower's Accounts, exclusive of any rollover account, determined as of the Valuation Date specified in Section 10.3(d), with adjustment for any distributions made after such Valuation Date. Loans will be granted only in increments of $100. (e) NUMBER OF LOANS. A Participant may have only one loan outstanding at one time. In addition, a Participant may not take out more than one loan in any 12- month period." IN WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorized officer of the Corporation this 27th day of March, 1998. COLUMBUS McKINNON CORPORATION ATTEST:/s/ Lois H. Demler By /s/ Robert L. Montgomery ------------------ ------------------------ Title Executive Vice President ------------------------ EX-10.36 4 AMENDMENT NO.2 TO MONTHLY RETIREMENT BENEFIT PLAN AMENDMENT NO. 2 TO THE COLUMBUS MCKINNON CORPORATION MONTHLY RETIREMENT BENEFIT PLAN Columbus McKinnon Corporation (the "Company") hereby amends the Columbus McKinnon Corporation Monthly Retirement Benefit Plan (the "Plan"), as amended and restated in its entirety effective April 1, 1989, as permitted under Section 8.1 of the Plan, as follows: 1. New Section 1.14A, entitled "Covered Compensation", is added effective as of April 1, 1998 to read as follows: 1.14A "COVERED COMPENSATION." (a) IN GENERAL. "Covered Compensation" means the average (without indexing prior taxable wage bases) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Participant attains (or will attain) Social Security Retirement Age. (b) ASSUMPTIONS AND RULES. In determining a Participant's Covered Compensation for a given year, the taxable wage base for the current year and any subsequent year shall be assumed to be the same as the taxable wage base in effect as of the beginning of the year for which the determination is being made. A Participant's Covered Compensation for a year after the 35-year period described in Section is the Participant's Covered Compensation for the year during which the Participant attained Social Security Retirement Age. A Participant's Covered Compensation for a year before the 35-year period described in Section is the taxable wage base in effect at the beginning of that year. A Participant's Covered Compensation shall be adjusted automatically for each year. (c) USE OF TREASURY TABLES. The Committee shall determine Covered Compensation from tables published by the Secretary of the Treasury that calculate Covered Compensation to the nearest dollar or by such other method as the Committee may consider appropriate. 2. New Section 1.14B, entitled "Earnings", is added effective as of April 1, 1998 to read as follows: 1.14B "EARNINGS." (a) IN GENERAL. "Earnings" means the total wages and other cash compensation paid to a Participant during a measuring period (normally, the calendar year) by his Employer and any Affiliate and reportable on IRS Form W-2 (within the meaning of Treasury Regulation ss.1.415-2(d)(11)(i)). (1) SPECIFIC INCLUSIONS. "Earnings" shall include all elective contributions paid into a cash or deferred arrangement maintained by the Employer under Code Section 401(k) and all salary reduction contributions under a cafeteria plan that are excluded from income under Code Section 125. (2) SPECIFIC EXCLUSIONS. "Earnings" shall exclude the following items (even if includible in gross income): reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, welfare benefits, severance pay (including, without limitation, cash in lieu of vacation), any special payments, and any amounts treated as wages with respect to restricted stock granted to a Participant). (b) CODE SECTION 401(A)(17) LIMITATION. In addition to all other applicable limitations set forth in the Plan, and notwithstanding any other provision in the Plan to the contrary, for any Plan Year or other 12-month period beginning on or after January 1, 1989, the Earnings of each Employee taken into account under the Plan shall not exceed the "Code Section 401(a)(17) Limit." If a Plan Year or other determination period consists of fewer than 12 months, the "Code Section 401(a)(17) Limit" shall be multiplied by a fraction, the numerator of which is the number of months in the Plan Year or other determination period and the denominator of which is 12. (1) LIMIT EFFECTIVE JANUARY 1, 1989. The "Code Section 401(a)(17) Limit" for any Plan Year or other 12-month period commencing on or after January 1, 1989 shall be $200,000 or such larger amount as the Secretary of the Treasury may determine for such Plan Year under Code Section 401(a)(17). (2) LIMIT EFFECTIVE JANUARY 1, 1994. The "Code Section 401(a)(17) Limit" for the Plan Year or any other 12-month period beginning in the 1994 calendar year or any subsequent calendar year shall be $150,000 or such larger amount as the Secretary of the Treasury may determine for such calendar year under Code Section 401(a)(17).1.14A "Covered Compensation." 3. New Section 1.19A, entitled "Final Average Earnings", is added effective as of April 1, 1998 to read as follows: 1.19A "FINAL AVERAGE EARNINGS" (a) IN GENERAL. "Final Average Earnings" means a Participant's average 12-consecutive month Earnings during the last 60 consecutive months of the Participant's Benefit Service or, if higher, his average 12- consecutive month Earnings during the any 60 consecutive month period within the last 120 months of his Benefit Service. Final Average Earnings shall be calculated using the operating rules in Section 1.19A(b) and shall be subject to the limitation of Section 1.19A(c). (b) OPERATING RULES. (1) EMPLOYEE DURING ENTIRE CALENDAR YEAR: MONTHLY EARNINGS. If a Participant was an Employee during an entire calendar year, his Earnings with respect to each month in that calendar year shall equal his Earnings for the entire calendar year divided by 12. (2) EMPLOYEE DURING PARTIAL CALENDAR YEAR: MONTHLY EARNINGS. If a Participant was an Employee during only part of a calendar year, his Earnings with respect to each month in that partial calendar year shall equal his Earnings for the partial calendar year divided by the number of months in that year during which he was an Employee for at least 15 days. (3) BREAKS DURING 60-CONSECUTIVE MONTH PERIOD. The Committee shall establish rules consistent with this Section 1.19A, that are applied in a uniform and nondiscriminatory manner, to determine the Final Average Earnings of Participants who [1] are employed for less than 60 months in the period of employment immediately preceding retirement; [2] are employed for the full 60 months immediately preceding retirement but who did not earn Benefit Service for that entire period; or [3] are employed for the full 60 months immediately preceding retirement but who did not receive Earnings for that entire period. (c) APPLICATION OF CODE SECTION 401(A)(17) LIMITATION. (1) IN GENERAL. For purposes of determining a Participant's Final Average Earnings, the Earnings for any 12- consecutive month period within the 60-consecutive month period used in Section 1.19A(a) shall not exceed the Code Section 401(a)(17) Limitation under Section 1.14B applicable for such 12 month period. If a Participant's Final Average Earnings are determined after the effective date of Code Section 401(a)(17) (or after the effective date of any amendment thereto) but the 60- consecutive month period used in Section includes one or more 12-consecutive month periods beginning before such effective date, the limitation for each such 12-consecutive month period shall be the limitation in effect as of such effective date. This Section 1.19A(c) shall be applied in accordance with applicable Treasury Regulations. (2) PROTECTION OF ACCRUED BENEFITS. The Accrued Benefit of a Participant whose Final Average Earnings are determined by giving effect to the limitation in Code Section 401(a)(17), as enacted or as amended, shall not be less than the Participant's Accrued Benefit determined as of the day preceding the effective date of such enactment or amendment. 4. Section 3.1, entitled "Normal Retirement Benefit", is amended effective as of April 1, 1998 to read as follows: 3.1 NORMAL RETIREMENT BENEFIT. (a) ELIGIBILITY FOR BENEFIT. A Participant who attains Normal Retirement Age while he is an Employee shall have a fully vested right to a normal retirement benefit described in Section 3.1(b). (b) DESCRIPTION OF BENEFIT. A Participant's normal retirement benefit shall be an annual benefit commencing as of the Participant's Normal Retirement Date and payable in the form of a Straight Life Annuity in the amount determined under Section 3.1(c), or payable in a different form in a reduced amount as provided under Section 4.3 or 4.4. (c) AMOUNT OF BENEFIT. The Participant's normal retirement benefit shall be equal to the sum of [1] his "base benefit" determined under Section 3.1(c)(1), and [2] his "excess benefit" determined under Section 3.1(c)(2). (1) BASE BENEFIT. A Participant's "base benefit" is 1.00 percent of the Participant's Final Average Earnings multiplied by his years of Benefit Service (not to exceed 35 years). (2) EXCESS BENEFIT. A Participant's "excess benefit" is 0.50 percent of the Participant's Final Average Earnings in excess of his Covered Compensation (determined as of the last day of the Benefit Service taken into account in determining the benefit) multiplied by his years of Benefit Service (not to exceed 35 years). (d) BENEFIT NOT LESS THAN IMMEDIATE EARLY RETIREMENT BENEFIT. Notwithstanding the foregoing provisions of this Section 3.1, if the immediate early retirement benefit that the Participant could have received, if he had retired at any earlier date pursuant to another section of this Article III, is greater than his normal retirement benefit as computed above (for reasons other than increases in Social Security Benefits or Covered Compensation occurring between such earlier retirement date and his Normal Retirement Date), then his normal retirement benefit shall be no less than such immediate early retirement benefit. (e) BENEFIT ACCRUED ON MARCH 31, 1998. The Accrued Benefit of a Participant on and after April 1, 1998 shall not be less than the Accrued Benefit of the Participant determined as of March 31, 1998 under the terms and provisions of the Plan in effect on that date. IN WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorized officer of the Corporation this 13th day of March, 1998, to be effective April 1, 1998. COLUMBUS McKINNON CORPORATION By: /s/ Robert L. Montgomery ------------------------ Title: Executive Vice President ------------------------ EX-10.37 5 AMENDMENT NO.5 TO EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 5 TO THE COLUMBUS MCKINNON CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN IRS Technical Amendment Columbus McKinnon Corporation (the "Corporation") hereby amends the Columbus McKinnon Corporation Employee Stock Ownership Plan (the "Plan"), as amended and restated in its entirety effective April 1, 1989, and as further amended by Amendment Nos. 1-4, in accordance with Section 11.1 of the Plan, as follows: 1. Subsection (f) of Section 14.2, entitled "Required Aggregation Group", is amended effective as of April 1, 1989 to read as follows: "(f) "REQUIRED AGGREGATION GROUP" means [1] each qualified plan of the Section 416 Employer in which at least one Key Employee participates or participated at any time during the 5-year period ending on the Determination Date (regardless of whether the plan has terminated), and [2] any other qualified plan of the Section 416 Employer which enables a plan described in [1] to meet the requirements of Sections 401(a)(4) or 410(b) of the Code." 2. Section 14.7, entitled "Minimum Benefits", is amended effective as of April 1, 1989 to read as follows: "14.7 MINIMUM CONTRIBUTIONS. For each Plan Year in which the Plan is a Top-Heavy Plan, a Participant who is an Employee of a Section 416 Employer on the last day of the Plan Year shall receive a minimum contribution as provided in this Section 14.7. (a) EMPLOYEES WHO DO NOT PARTICIPATE IN A DEFINED BENEFIT PLAN. In the case of a Participant who is a Non-key Employee and who does not participate in any defined benefit plan of the Section 416 Employer, the Section 416 Employer shall provide an additional contribution under this Plan (or under another defined contribution plan) equal to the difference between the aggregate contributions made on his behalf under this Plan and all other defined contribution plans of the Section 416 Employer for the Plan Year and 3 percent of the Participant's Section 416 Compensation for the Plan Year (the "minimum contribution"). (b) EMPLOYEES WHO PARTICIPATE IN A DEFINED BENEFIT PLAN. (1) ACCRUAL OF MINIMUM BENEFIT UNDER DEFINED BENEFIT PLAN. It is contemplated that each Participant who is a Non-key Employee and who participates in a defined benefit plan of the Section 416 Employer will accrue a minimum benefit under the top-heavy minimum benefit accrual provisions of the defined benefit plan of the Section 416 Employer. (2) FAILURE TO ACCRUE MINIMUM BENEFIT UNDER DEFINED BENEFIT PLAN. In the case of a Participant who is a Non-key Employee, who participates in a defined benefit plan of the Section 416 Employer, and who does not accrue a minimum benefit under the top-heavy minimum benefit provisions of such plan, the Section 416 Employer shall provide an additional contribution under this Plan (or under another defined contribution plan) equal to the difference between the aggregate contributions made on his behalf under this Plan and all other defined contribution plans of the Section 416 Employer for the Plan Year and 5 percent of the Participant's Section 416 Compensation for the Plan Year (the "minimum contribution"). For any Plan Year that includes the last day of a Limitation Year (as defined in Section 13.2(e)) in which Employer elects to use 1.25 in the denominators of the defined benefit fraction and defined contribution fraction in applying Code Section 415(e), the term "7.5 percent" shall be substituted for "5 percent" in the preceding sentence. (c) ADDITIONAL RULES. The following additional rules shall apply in determining the amount of any minimum contribution to be made with respect to a Participant under this Section 14.7. (1) SOCIAL SECURITY CONTRIBUTIONS DISREGARDED. The minimum contribution is determined without regard to any social security contribution. (2) MINIMUM SERVICE AND COMPENSATION RULES DISREGARDED. The minimum contribution shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive a contribution, or would have received a lesser contribution of the year because of [1] the Participant's failure to complete 1,000 Hours of service (or any equivalent provided in the Plan), or [2] Compensation less than a stated amount." IN WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorized officer of the Corporation this 28th day of August, 1997. COLUMBUS McKINNON CORPORATION By /s/ Ivan E. Shawvan ------------------- Title V.P. Human Resources -------------------- EX-10.38 6 AMENDMENT NO.6 TO EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 6 TO THE COLUMBUS MCKINNON CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN Columbus McKinnon Corporation (the "Corporation") hereby amends the Columbus McKinnon Corporation Employee Stock Ownership Plan (the "Plan"), as amended and restated in its entirety effective April 1, 1989, and as further amended by Amendment Nos. 1-5, in accordance with Section 11.1 of the Plan, as follows: 1. Section 1.16, entitled "Eligible Employee", is amended effective as of April 1, 1998 to read as follows: "1.16 "ELIGIBLE EMPLOYEE." (a) IN GENERAL. "Eligible Employee" means any Employee who is employed by an Employer and who is regularly employed at a facility located within the United States of America. (b) EXCLUSION OF CERTAIN EMPLOYEES. The term "Eligible Employee" shall not include any employee: (1) COLLECTIVE BARGAINING EMPLOYEES -- who is employed in any bargaining unit covered under a collective bargaining agreement which does not provide for participation by employees of such unit in this Plan; (2) LEASED EMPLOYEES -- who is employed as a Leased Employee; (3) CONTRACT EMPLOYEE -- whose services are performed in the capacity of a consultant or contractor or other capacity pursuant to a written contract which provides that his services are to be rendered in a capacity other than as a regular employee, and/or who is compensated by fees or similar charges requiring the submission of invoices, as opposed to being compensated by a regular fixed salary or wage; (4) EMPLOYEES TEMPORARILY ASSIGNED TO U.S. LOCATIONS -- who [1] is regularly employed outside the United States, [2] is employed within the United States by an Employer pursuant to a temporary assignment, and [3] was not covered under the Plan immediately prior to such temporary assignment." IN WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorized officer of the Corporation this 24th day of June, 1998. COLUMBUS McKINNON CORPORATION By /s/Robert L. Montgomery ------------------------ Title Executive Vice President ------------------------ EX-21.1 7 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 COLUMBUS MCKINNON CORPORATION SUBSIDIARIES OF THE REGISTRANT ASI of Australia Pty. Ltd. (Australia) Audubon Export, Inc. (FSC) (US) Automatic Systems, Inc. (US) Automatic Systems Conveyors Limited (Canada) CM Insurance Company, Inc. (US) Columbus McKinnon Limited (Canada) Columbus McKinnon Finance Corporation (Canada) Duff-Norton Asia Pacific Pty. Ltd. (Singapore) Egyptian-American Crane Co. (joint venture) (Egypt) Endor S.A. de C.V. (Mexico) Hangzhou (LILA) Lifting and Lashing Co. Ltd. (China) Kunming Duff-Norton Machinery Co. Ltd. (joint venture) (China) LICO, Inc. (US) LICO Conveyor Company (US) LICO International Corporation (FSC) (US) LICO Steel, Inc. (US) Manutention Connection (France) Mechanical Products, Inc. (US) Minitec Corporation (US) Spreckels Development Company, Inc. (US) Spreckels Land Company, Inc. (US) Spreckels Water Company, Inc. (US) Univeyor A/S (Denmark) Univeyor Conveying Systems Ltd. (England) Univeyor Electronic A/S (Denmark) Yale Industrial Products Asia (Thailand) Co. Ltd. (Thailand) Yale Industrial Products GmbH (Austria) Yale Industrial Products GmbH (Germany) Yale Industrial Products, Inc. (US) Yale Industrial Products, Ltd. (UK) Yale Industrial Products Pty. Ltd. (South Africa) -63- EX-23.1 8 CONSENT OF ERNST & YOUNG LLP Exhibit 23 .1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the 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 of our report dated May 15, 1998, with respect to the consolidated financial statements and financial statement schedule of Columbus McKinnon Corporation included in this Annual Report (Form 10-K) for the year ended March 31, 1998. /s/ Ernst & Young LLP Buffalo, New York June 29, 1998 EX-99.1 9 FORM 11-K EMPLOYEE STOCK OWNERSHIP PLAN ANNUAL RPT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 11-K /X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended March 31, 1998 / / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: COLUMBUS McKINNON CORPORATION 140 John James Audubon Parkway Amherst, NY 14228-1197 Financial Statements and Schedules Columbus McKinnon Corporation Employee Stock Ownership Plan Years ended March 31, 1998 and 1997 with Report of Independent Auditors Columbus McKinnon Corporation Employee Stock Ownership Plan Financial Statements and Schedules Years ended March 31, 1998 and 1997 CONTENTS Report of Independent Auditors ..............................................1 Financial Statements Statements of Net Assets Available for Plan Benefits.........................2 Statements of Changes in Net Assets Available for Plan Benefits..............3 Notes to Financial Statements................................................4 Schedules Item 27a - Schedule of Assets Held for Investment Purposes..................10 Item 27d - Schedule of Reportable Transactions..............................11 Report of Independent Auditors The Pension Committee Columbus McKinnon Corporation Employee Stock Ownership Plan We have audited the accompanying statements of net assets available for plan benefits of the Columbus McKinnon Corporation Employee Stock Ownership Plan (ESOP) as of March 31, 1998 and 1997, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the ESOP's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the ESOP at March 31, 1998 and 1997, and the changes in its net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of plan assets held for investment purposes as of March 31, 1998, and reportable transactions for the year then ended, are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the 1998 financial statements and, is our opinion, are fairly stated in all material respects in relation to the 1998 financial statements taken as a whole. /S/ ERNST & YOUNG LLP Buffalo, New York June 8, 1998 1 Columbus McKinnon Corporation Employee Stock Ownership Plan Statements of Net Assets Available for Plan Benefits MARCH 31 1998 1997 ---------------------- ASSETS Cash $ 50 $ 50 Investments: Columbus McKinnon Corporation common stock at market: Allocated (cost - $6,124,294 in 1998 and $5,417,940 in 1997) 23,521,768 14,173,872 Unallocated (cost - $3,202,156 in 1998 and $4,201,084 in 1997; held in suspense account) 8,940,030 7,570,482 ------------------------ 32,461,798 21,744,354 Stable asset fund at market 85,604 72,644 Employer contribution receivable 18,116 18,985 Interest receivable 2,127 1,970 ------------------------ Total assets $32,567,695 $21,838,003 ======================== LIABILITIES AND NET ASSETS AVAILABLE FOR PLAN BENEFITS Exempt loans payable $ 3,764,789 $ 4,681,950 Accrued interest payable 18,116 18,985 ------------------------ Total liabilities 3,782,905 4,700,935 Net assets available for plan benefits: Allocated 23,609,549 14,248,536 Unallocated 5,175,241 2,888,532 ------------------------ Total net assets available for plan benefits 28,784,790 17,137,068 ------------------------ Total liabilities and net assets available for plan benefits $32,567,695 $ 21,838,003 ======================== See accompanying notes. 2 Columbus McKinnon Corporation Employee Stock Ownership Plan Statements of Changes in Net Assets Available for Plan Benefits YEAR ENDED MARCH 31 1998 1997 -------------------------- Additions: Employer contributions $ 1,007,383 $ 1,081,335 Dividend income 338,861 331,507 Interest income 5,436 2,737 --------------------------------- Total additions 1,351,680 1,415,579 Deductions: Participant termination payments 923,965 414,376 Interest expense on exempt loans payable 415,383 489,335 Administrative expense 2,814 2,868 --------------------------------- Total deductions 1,342,162 906,579 Net appreciation in fair value of investments 11,638,204 2,143,810 --------------------------------- Net increase in assets available for plan benefits 11,647,722 2,652,810 Net assets available for plan benefits: Beginning of year 17,137,068 14,484,258 --------------------------------- End of year $ 28,784,790 $ 17,137,068 ================================= See accompanying notes. 3 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements March 31, 1998 and 1997 1. DESCRIPTION OF THE PLAN AND MAJOR PLAN PROVISIONS The Columbus McKinnon Corporation Employee Stock Ownership Plan (ESOP), a defined contribution plan, was established as a result of amending the previously existing Columbus McKinnon Corporation Personal Retirement Account Plan (PRA Plan), effective November 1, 1988. The PRA Plan was restated and its assets became part of the ESOP. The ESOP is an employee stock ownership plan and a stock bonus plan within the meanings of the applicable sections of the Internal Revenue Code of 1986, as amended. It is also an eligible individual account plan as defined in the applicable section of the Employee Retirement Income Security Act of 1974 (ERISA). The plan was amended effective April 1, 1989 to incorporate the Tax Reform Act of 1986 and subsequent legislation, and to extend coverage to all hourly non-union employees of Columbus McKinnon Corporation (the Company). The plan was amended effective February 23, 1996 and October 1, 1996 to incorporate valuation and distribution procedures as required for a public entity. The plan was amended effective April 1, 1989 to include IRS-requested amendments in conjunction with qualification review of the plan. A summary of the ESOP's provisions follows. Refer to the ESOP document or the summary plan description (SPD) for a complete description of provisions. PARTICIPATION Substantially all of the Company's domestic non-union employees are eligible to participate in the ESOP, excluding domestic employees of certain companies acquired in fiscal 1997 and 1998. Eligible employees must have attained age 21 and completed one year of eligibility service to be a participant. VESTING OF PARTICIPANTS A participant will be fully vested and will have a non-forfeitable interest in the participant's account balance upon completion of five years of vesting service, excluding any service rendered prior to the calendar year in which he/she attained age 18, or upon attainment of normal retirement age while in the employ of the Company or any affiliated company. For participants with prior employment with the Company in an ineligible classification or with an affiliate of the Company, such employment shall be included in the calculation of eligibility and vesting service. 4 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF THE PLAN AND MAJOR PLAN PROVISIONS (CONTINUED) RETIREMENT AND TERMINATION OF EMPLOYMENT Upon a vested participant's termination, the value of his/her account will be distributed if the value of the account is less than $3,500 or, at the participant's option, either immediately or at any valuation date until retirement, as provided in the ESOP. A retiree may elect to defer distribution up to 69 1/2 years of age, where at the following valuation date distribution is mandatory. Valuation dates for share distribution are September 30 and March 31. During fiscal 1998, $923,965, or 44,617 shares, were distributed to vested participants in the form of stock certificates ($406,359 or 25,857 shares distributed in fiscal 1997). This resulted in the sale of 27 shares held by the ESOP back to the Company for $578 in fiscal 1998 as a result of fractional shares (11 shares for $172 in fiscal 1997). At March 31, 1998, $792,339 ($521,167 at March 31, 1997) is included in the ESOP assets for future distribution to terminated participants. Forfeiture of a non-vested interest shall occur in the fifth consecutive calendar year following a break in service. The forfeited accounts will be allocated among the accounts of active participants. At March 31, 1998, the ESOP assets include $249,682 ($161,569 at March 31, 1997) of undistributed forfeited accounts. ALLOCATION TO PARTICIPANT ACCOUNTS As of each valuation date (March 31), each participant account is appropriately adjusted to reflect any contributions or stock to be allocated as of such date, the income of the trust fund during the period and the increase or decrease in the fair market value of the trust fund during the period. The allocation will be based on the fraction, the numerator of which is the participant's annual earnings for the preceding calendar year and the denominator of which is the aggregate annual earnings for such calendar year of all participants entitled to an allocation. 5 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS The ESOP's investment in Columbus McKinnon Corporation common stock is at fair market value as of March 31, 1998 and 1997 based on quoted market prices. The investment in the Stable Asset Fund is also reported at market value as determined by open trading. CONTRIBUTIONS The Company will contribute to the ESOP such amount as its Board of Directors shall determine. Each participant (a) who is actively employed as an employee on the allocation date (December 31) and who has earned at least 1,000 hours of service as an employee in the calendar year ending on the allocation date, or (b) who terminates employment on or after January 1 during a plan year after attaining age 60 and completing at least five years of eligibility service, or (c) who dies on or after January 1 during a plan year, after attaining age 60 and completing at least five years of eligibility service, shall be entitled to share in the contributions made for such plan year. Contributions shall be made in cash or in shares of stock as determined by the Company, and need not be made out of current or accumulated earnings and profits. DIVIDENDS Dividends paid on stock allocated to a participant's stock account will be allocated to the participant's nonstock account. The pension committee may direct that such dividends shall be either (a) paid directly to the participant, former participant, or beneficiary within 90 days after the close of the plan year in which such dividend was paid, or (b) applied as payment on the exempt loans. Dividends paid on unallocated stock held by the trustee and acquired with the proceeds of an exempt loan shall be held by the trustee until the end of the plan year in which it was paid, and then, along with any interest or earnings, be applied as payment on the exempt loans which shall trigger a release of stock from the suspense account. ESOP TERMINATION The Company intends to continue the ESOP indefinitely, but reserves the right to terminate it at any time. If the ESOP is terminated, each participant shall be fully and nonforfeitably vested in his interest in the ESOP trust fund. 6 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses. Actual results could differ from those estimates. 3. EMPLOYER CONTRIBUTIONS The employer contribution to the ESOP for the March 31, 1998 plan year end was $1,007,383 ($1,081,335 in 1997). This includes interest on the exempt loans payable April 1, 1998; therefore, a contribution receivable from the ESOP sponsor in the amount of $18,116 has been recognized at March 31, 1998 ($18,985 at March 31, 1997 for interest due April 1, 1997). Participants are not permitted to make contributions to the ESOP. 4. INVESTMENTS At March 31, 1998 and 1997, the assets of the ESOP Plan consist of Columbus McKinnon Corporation common stock and a stable asset fund with Fleet Bank. The fair value of individual investments that represent 5% or more of the Plan's assets at the plan years ended March 31, 1998 and 1997, are as follows: 1998 1997 -------------------------- Columbus McKinnon Corporation common stock $ 32,461,798 $ 21,744,354 7 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 5. EXEMPT LOANS PAYABLE On December 13, 1988, the ESOP purchased 611,524 shares of common stock of the Company with the debt proceeds, which were recorded by the trustee in the suspense account. As of March 31, 1998 and 1997, these shares have been allocated to the participants' accounts. On October 27, 1994, the ESOP obtained $6,000,000 of new debt ($2,000,000 from Marine Midland Bank and $4,000,000 from Fleet Bank). The Fleet loan is payable in quarterly installments of $103,000 through July 1999, and $2,003,089 in October 1999, plus interest at a Eurodollar rate based on LIBOR plus a spread determined by the Company's leverage ratio (7.34% at March 31, 1998). The Marine loan is payable in quarterly installments of $45,000 plus an annual minimum of $22,917 through July 1999, and $850,783 in October 1999, plus interest at a Eurodollar rate based on LIBOR plus a spread determined by the Company's leverage ratio (7.34% at March 31, 1998). Employer contributions of $592,000 ($412,000 Fleet and $180,000 Marine) in 1998 and 1997, and $415,383 ($288,632 Fleet and $126,751 Marine) in 1998, and $489,335 ($339,279 Fleet and $150,056 Marine) in 1997 were applied to principal and interest, respectively. Dividend and interest income of $325,161 ($220,599 Fleet and $104,562 Marine) in 1998 and $316,725 ($211,394 Fleet and $105,331 Marine) in 1997 was applied to principal. The loans, which are guaranteed by the Company, are collateralized by an equivalent number of shares of common stock recorded by the trustees in a suspense account. On October 27, 1994, the ESOP purchased 609,144 shares of common stock of the Company with the debt proceeds, which were recorded by the trustee in the suspense account. Such stock ceases to be collateral and is released from the suspense account as the exempt loan is repaid. In each year prior to full payment of the loan, the number of shares of stock released will equal the number of shares of stock held as collateral immediately before the release for such plan year multiplied by the release fraction. 8 Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 5. EXEMPT LOANS PAYABLE (CONTINUED) The numerator of the release fraction is the amount of principal and interest payments made toward the loan during the plan year and the denominator is the sum of the numerator plus the principal and interest payments to be made on the loan in the future, using the interest rate applicable at the end of the plan year. Shares of stock released from the suspense account for a plan year shall be held in the trust on an unallocated basis until allocated by the pension committee as of the last day of that plan year. That allocation shall be consistent with the method for allocating contributions to participants' accounts, which is based on a fraction of each participant's annual earnings during the preceding calendar year to the total earnings of those participants during such calendar year. The allocation of shares released resulting from dividends on participants' allocated shares, however, was based upon the fraction of each participant's allocated shares to the total number of allocated shares. As of March 31, 1998, 325,092 shares were held as collateral for the loan (426,508 shares were held as collateral as of March 31, 1997); 101,416 shares were released from the suspense account during 1998 (105,603 released in 1997). These shares were allocated to participant accounts as of March 31, 1998. 6. TAX STATUS The ESOP is qualified under Section 401(a) of the Internal Revenue Code and therefore is exempt from Federal income taxes under provisions of Section 501(a) of the Code. The plan has received a determination letter from the Internal Revenue Service (IRS) concurring with this qualification dated July 28, 1997, and effective for the amendments adopted on or before August 28, 1997. The ESOP is required to operate in conformity with the Code to maintain its qualification. Management is not aware of any course of action or series of events that have occurred that might adversely affect the ESOP's qualified status. 9 Schedules Columbus McKinnon Corporation Employee Stock Ownership Plan EIN: 16-0547600 Plan No. 016 Item 27a - Schedule of Assets Held for Investment Purposes March 31, 1998 Identity of Issue Description of Investment Cost Current Value - ----------------- ------------------------- ---- ------------- Columbus McKinnon Corporation Employer Common Stock, 1,180,429 shares $9,326,450 $32,461,798 Fleet Investment Services Stable Asset Fund $ 85,604 $ 85,604 10 Columbus McKinnon Corporation Employee Stock Ownership Plan EIN: 16-0547600 Plan No. 016 Item 27d - Schedule of Reportable Transactions For the year ended March 31, 1998 Identity of Description Number of Number Total Total Net Party Involved of Assets Purchases of Sales Purchases Sales Gain/Loss - -------------- ---------- --------- -------- --------- ----- --------- Fleet Bank Fleet Money Market Deposit A/C - NY 11 11 $606,096 $606,096 $ - SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. COLUMBUS McKINNON CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN RESTATEMENT EFFECTIVE APRIL 1, 1989 By /s/ Timothy R. Harvey --------------------- Timothy R. Harvey, Trustee /s/ Karen L. Howard ------------------- Karen L. Howard, Trustee /s/ Robert L. Montgomery, Jr. ---------------------------- Robert L. Montgomery, Jr., Trustee 11 EX-27 10 FDS MAR-31-98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001005229 COLUMBUS MCKINNON CORPORATION 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 22,841 0 113,509 2,522 107,673 284,022 81,927 30,876 763,748 104,513 446,856 0 0 137 166,385 763,748 510,731 510,731 363,117 363,117 79,724 0 23,975 45,855 22,434 23,421 0 (4,520) 0 18,901 1.41 1.41
-----END PRIVACY-ENHANCED MESSAGE-----