0001005229-16-000350.txt : 20160601 0001005229-16-000350.hdr.sgml : 20160601 20160601164224 ACCESSION NUMBER: 0001005229-16-000350 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 122 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160601 DATE AS OF CHANGE: 20160601 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: 1934 Act SEC FILE NUMBER: 001-34362 FILM NUMBER: 161689753 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 cmco03311610k.htm 10-K Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý
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, 2016

Commission file number 0-27618
_________________

COLUMBUS McKINNON CORPORATION
(Exact name of Registrant as specified in its charter)

New York
 
16-0547600
(State of Incorporation)
 
(I.R.S. Employer Identification Number)

205 Crosspoint Parkway
Getzville, New York 14068
(Address of principal executive offices, including zip code)

(716) 689-5400
(Registrant’s telephone number, including area code)
_________________

Securities pursuant to section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value (and rights attached thereto)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   o     No   ý
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.   Yes   o   No   ý
 
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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    ý.
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.
 
Large accelerated filer  o
Accelerated filer x   
Non-accelerated filer o   
Smaller reporting company o
     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).        Yes o   No ý
 
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2015 (the second fiscal quarter in which this Form 10-K relates) was approximately $362 million, based upon the closing price of the Company’s common shares as quoted on the Nasdaq Stock Market on such date. The number of shares of the Registrant’s common stock outstanding as of May 27, 2016 was 20,163,999 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s proxy statement for its 2016 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Registrant’s fiscal year ended March 31, 2016 are incorporated by reference into Part III of this report.

1



COLUMBUS McKINNON CORPORATION
 
2016 Annual Report on Form 10-K
 
This annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by us and our subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall market acceptance of such products and services, the integration of acquisitions and other factors set forth herein under “Risk Factors.” We use words like “will,”  “may,”  “should,” “plan,”  “believe,”  “expect,” “anticipate,” “intend,” “future” and other similar expressions to identify forward looking statements.  These forward looking statements speak only as of their respective dates and we do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated changes. Our actual operating results could differ materially from those predicted in these forward-looking statements, and any other events anticipated in the forward-looking statements may not actually occur.


2


TABLE OF CONTENTS
 
Part I
 
 
 
 
 
 
Item 1.    
Business
 
 
 
 
 
Item 1A. 
Risk Factors
 
 
 
 
 
Item 1B.
Unresolved Staff Comments
 
 
 
 
 
Item 2.   
Properties
 
 
 
 
 
Item 3.   
Legal Proceedings
 
 
 
 
 
Item 4.    
Mine Safety Disclosures
 
 
 
 
Part II           
 
 
 
 
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
 
 
      
Item 6.  
Selected Financial Data
 
 
 
 
 
Item 7.   
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
Item 7A    
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
 
Item 8.       
Financial Statements and Supplemental Data
 
 
 
 
 
Item 9.   
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
 
 
 
 
 
Item 9A.
Controls and Procedures
 
 
 
 
 
Item 9B. 
Other Information
 
 
 
 
Part III.
 
 
 
 
 
 
Item 10.  
Directors and Executive Officers of Registrant
 
 
 
 
 
Item 11.   
Executive Compensation
 
 
 
 
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 
 
 
 
Item 13.         
Certain Relationships and Related Transactions, and Director Independence
 
 
 
 
 
Item 14.        
Principal Accountant Fees and Services
 
 
 
 
Part IV
 
 
 
 
 
 
Item 15 
Exhibits and Financial Statement Schedules

3


PART I

Item 1.        Business
 
General
 
We are a leading global designer, manufacturer and marketer of hoists, actuators, cranes, rigging tools, digital power control systems, and other material handling products serving a wide variety of commercial and industrial end-user markets. Our products are used to efficiently and ergonomically move, lift, position and secure objects and loads. We are the U.S. market leader in hoists and material handling drive systems, our principal line of products, as well as certain chain, forged fittings, and actuator products which we believe provides us with a strategic advantage in selling other products. We have achieved this leadership position through strategic acquisitions, our extensive, diverse and well-established distribution channels and our commitment to product innovation and quality. We have one of the most comprehensive product offerings in the industry and we believe we have more overhead hoists in use in North America than all of our competitors combined. Additionally, we believe we are the market leader of manual hoist and actuator products in Europe, which provides us further opportunity to sell other products through our existing distribution channels in that region.  In September 2015, we significantly expanded our product offering with the acquisition of Magnetek, Inc. (Magnetek). The acquisition combines Magnetek's technology with our broad line of lifting and positioning mechanical products to create a more comprehensive solution for customers. Magnetek's digital power control systems serve the needs of selected niches of traditional and emerging markets that are becoming increasingly dependent on “smart” power. Much of Magnetek's focus is on developing and introducing innovative electronic drive solutions that both enhance our customers' productivity, safety, and energy efficiency. Our products are sold globally and our brand names, including CM, Coffing, Chester, Duff-Norton, Electromotive Systems, Enrange, IMPULSE, M-FORCE, Mondel, OmniPulse, Pfaff, Quattro, Shaw-Box, Telemotive, Unified, STB, and Yale are among the most recognized and well-respected in the marketplace.

Our business is cyclical in nature and sensitive to changes in general economic conditions, including changes in industrial capacity utilization, industrial production and general economic activity indicators, like GDP.  Both U.S. and Eurozone capacity utilization are primary leading market indicators for our Company.  U.S. total industrial capacity utilization has declined to 74.9% in March 2016, compared to 77.3% in March 2015 and 75.4% in December 2015.  Eurozone capacity utilization was 81.9% in the quarter ended March 31, 2016, an increase from the quarter ended December 31, 2015 of 81.5% and March 31, 2015 of 81.0%.  The European indicator reflects the continued slow recovery from the 2013 recession in Europe, while the U.S. indicator is indicative of a declining industrial market. This was particularly evident in the mining and oil and gas sectors. In addition we follow the Emerging Markets Purchasing Managers’ Index (PMI) for other countries in which we have a strong sales and marketing presence including China, Brazil, Mexico, and South Africa.
 
Our Position in the Industry
 
We participate predominantly in the hoist, crane, digital power control systems, elevator, and monorail sector. We believe that the demand for our products and services will be aided by several growth drivers. These drivers include:
 
Productivity - We believe businesses respond to competitive pressures by seeking to maximize productivity and efficiency, among other actions. Our hoists and other lifting and positioning products allow loads to be lifted and placed quickly, precisely, with little effort and fewer people, thereby increasing productivity and reducing cycle time.  Further, our variable frequency AC drive products and DC digital controls are highly reliable, operate at high speeds, and improve production output, while reducing labor and energy costs. In addition, emphasis on “Lean” techniques by many companies increases demand for our lifting and positioning products for use in single-piece flow workstation applications.
 
Safety -   Driven by workplace safety regulations such as the Occupational Safety and Health Act (OSHA) and the Americans with Disabilities Act in the U.S. and other safety regulations around the world, and by the general competitive need to reduce costs such as health insurance premiums and workers’ compensation expenses, businesses seek safer ways to lift and position loads. Our lifting and positioning products enable these tasks to be performed with reduced risk of personal injury. Our recent acquisition of Magnetek provides us with additional opportunities to enhance workplace safety and reduce the risk of accidents and personal injury, including collision avoidance software, programmable acceleration and deceleration, and other safeguards that prevent overheating, eliminate load swing, and prevent uneven lifting.
 
Consolidation of Suppliers - In an effort to reduce costs and increase productivity, our channel partners and end-user customers are increasingly consolidating their suppliers. We believe that our broad product offering combined with our well established brand names will enable us to benefit from this consolidation and enhance our market share.


4


Modernization and Upgrade of Existing Equipment - Overhead cranes, elevators, and mining equipment represent significant investments in capital which in most cases operate under severe duty and in some cases, in harsh environments. Many of the structural components of these systems are manufactured to withstand significant mechanical forces, and to have useful lives in excess of 30 years. For example, it is not uncommon to find cranes that are more than 50 years old still operating today, or elevators or mining equipment operating with aging and inefficient power control equipment. Rather than scrap structurally sound but outdated equipment, it is often more cost-effective to modernize the equipment to meet current operational needs by upgrading the power control systems. Our recently acquired drive technology along with our application expertise can provide reduced energy consumption, greater reliability, improved throughput, lower operational costs, enhanced features, and prolonged equipment life over older drive technology. We believe our large installed base of product combined with our industry expertise provides us with opportunities to expand our business through modernization projects.

Conversion to Wireless Applications - Many industries, including the overhead material handling, mobile hydraulic, construction, and mining markets, are rapidly adopting remote wireless control solutions. While wireless control has been available for a number of years, technology has improved significantly in recent years, enabling enhancements that have resulted in products that are safer, more reliable, ergonomically designed, versatile, and cost-effective. Our recent acquisition of Magnetek provides us with an expanded wireless control product offering, which we believe will help us to meet demand, increase market share, and enter new markets in this growing field.

Communication and Diagnostic Features - In many electrical applications today, electronic devices controlled by microprocessors are increasingly being networked together, resulting in smart devices with greater productivity and user benefits. The benefits of this trend on control systems for industrial applications include lower installation costs, better monitoring of performance, improved integration with supervisory systems, and improved uptime. We believe the development of "smart" hoists with the power of embedded and connected microprocessors will provide a tremendous benefit for users at all levels from maintenance to production users to meet their productivity, uptime and safety needs today and into the future.

Our Competitive Strengths
 
Leading North American Market Positions -  We are a leading manufacturer and marketer of hoists, alloy and high strength carbon steel chain and forged fittings, digital power control systems, and actuators in North America.  We have developed our leading market positions over our 141-year history by emphasizing safety, manufacturing excellence and superior service. Approximately 71% of our U.S. net sales for the year ended March 31, 2016 were from product categories in which we believe we hold the number one market share. We believe that the strength of our established products and brands and our leading market positions provide us with significant competitive advantages, including preferred supplier status with a majority of our largest channel partners and end user customers. Our large installed base of products also provides us with a significant competitive advantage in selling our products to existing customers as well as providing repair and replacement parts.

The following table summarizes the product categories where we believe we are the U.S. market leader:

Product Category
 
U.S. Market Share
 
U.S. Market Position
 
Percentage of
U.S. Net Sales
Hoist, Trolleys and Components (1)
 
45% - 50%
 
#1
 
50
%
AC and DC Material Handling Drives (5)
 
55% - 60%
 
#1
 
10
%
Screw Jacks (2)
 
35% - 40%
 
#1
 
5
%
Tire Shredders (3)
 
50% - 55%
 
#1
 
3
%
Elevator DC Drives (5)
 
65% - 70%
 
#1
 
2
%
Jib Cranes (4)
 
25% - 30%
 
#1
 
1
%
 
 
 
 
 
 
71
%

5


_____________
(1)
Market share and market position data are internal estimates derived from survey information collected and provided by our trade associations in 2015.

(2)
Market share and market position data are internal estimates derived by comparison of our net sales to net sales of one of our competitors and to estimates of total market sales from a trade association in 2015.

(3)
Market share and market position data are internal estimates derived by comparing the number of our tire shredders in use and their capacity to estimates of the total number of tires shredded published by a trade association in 2015.

(4)
Market share and market position are internal estimates derived from both the number of bids we win as a percentage of the total projects for which we submit bids and from estimates of our competitors’ net sales based on their relative position in distributor catalog's in 2015.

(5)
Market share and market position are internal estimates derived from comparison of our net sales to the net sales of our competitors.

Comprehensive Product Lines and Strong Brand Name Recognition - We believe we offer the most comprehensive product lines in the markets we serve. We offer training, engineering and design services to help channel partners and end users solve material handling problems. Most of our products are maintenance, repair and operating tools which work in conjunction with each other to create a complete lifting system.  We complement our product offerings with training, engineering and design services to assist our channel partners and end-users in finding the optimal solution for their material handling needs. Our capability as a full-line supplier has allowed us to (i) provide our customers with “one-stop shopping” for material handling equipment, which meets some customers’ desires to reduce the number of their supply relationships in order to lower their costs, (ii) leverage our engineering, product development and marketing costs over a larger sales base and (iii) achieve purchasing efficiencies on common materials used across our product lines.  No single SKU comprises more than 1% of our sales, a testament to our broad and diversified product offering.
 
In addition, our brand names (including Budgit, Chester, CM, Coffing, Duff-Norton, Electromotive Systems, Enrange, IMPULSE, Little Mule, M-FORCE, Mondel, OmniPulse, Pfaff, Quattro, Shaw-Box, Unified, STB, Telemotive, and Yale) are among the most recognized and respected in the industry.  The CM and Yale names have been synonymous with powered and manual hoists and were first developed and marketed under these brand names in the early 1900's.  We believe that our strong brand name recognition and demonstrated performance have created customer loyalty and helps us maintain existing business, as well as capture additional business.  We innovate and continually introduce new products to meet our changing customer needs.  Products introduced or engineered for our customers during the last three fiscal years ended March 31, 2016 account for approximately 17.8% of our net sales.
 
Distribution Channel Diversity and Strength - Our products are sold to over 15,500 general and specialty distributors, end users and OEMs globally.  We enjoy long-standing relationships with, and are a preferred provider to, the majority of our distributors and industrial buying groups.  There has been consolidation among distributors of material handling equipment and we have benefited from this consolidation by maintaining and enhancing our relationships with leading distributors, as well as forming new relationships.  We believe our extensive distribution channels provide a significant competitive advantage and allow us to effectively market new product line extensions and promote cross-selling. Our largest customer represents approximately 2% of our total net sales and our top 10 customers represent approximately 15% of our total net sales.
 
Expanding Non-U.S. Markets - We have significantly grown our non-U.S. sales since becoming a public company in 1996.  Our non-U.S. sales have grown from $34,300,000 (representing 16% of net sales) in fiscal 1996 to $223,314,000 (representing 37% of our net sales) during the year ended March 31, 2016.  This growth has occurred primarily in Europe, Latin America and Asia-Pacific. We have ten sales offices in Asia to sell into this growing industrial market. Our non-U.S. business has provided us, and we believe will continue to provide us, with significant growth opportunities and new markets for our products.
 
"Non-U.S. sales" as expressed throughout Items 1 and 7 of this Form 10-K, are defined as sales to customers located outside of the United States.

Efficient Operations with Low-Cost Structure -    We are extremely focused on optimizing our cost structure and have taken a number of steps towards reducing our costs, including: consolidating facilities, promoting a “Lean” culture, manufacturing in low cost jurisdictions, coordinating purchasing activities across the organization and selectively outsourcing non-critical functions. The actions we have taken to date have eliminated fixed costs from our operations and provided us with significant operating leverage as the economic conditions in our markets continue to improve.

6



— 
Lean Culture -   We have been applying “Lean” techniques since 2001 and our efforts have resulted in reduced manufacturing floor space and an improvement in productivity and on-time deliveries. We have witnessed the benefits of “Lean” principles in our manufacturing operations and continue to work on developing a “Lean” culture throughout our organization—improving our processes and reducing waste in all forms in all of our business activities.
 
— 
Expansion Outside the U.S. - Our continued expansion of our manufacturing facilities in China and Europe provides us with a cost efficient platform to manufacture and distribute certain of our products and components. We now operate 19 principal manufacturing facilities in 7 countries, with 38 stand-alone sales and service offices in 23 countries and 9 warehouse facilities in 5 countries.
 
— 
Consolidated Purchasing Activities -   We continue to leverage our company-wide purchasing power through our global sourcing and commodity teams that improve our supply base to help reduce our overall costs and enhance our supplier quality and delivery.
 
— 
Selective Integration and Outsourcing - We manufacture many of the critical parts and components used in the manufacture of our hoists and lifting systems, resulting in reduced costs. We continue to evaluate outsourcing opportunities for non-critical operations and components.
 
Strong After-Market Sales and Support - We believe that we retain customers and attract new customers due to our ongoing commitment to customer service and satisfaction.  We have a large installed base of hoists and rigging tools that drives our after-market sales for replacement units and components and repair parts.  We maintain strong relationships with our distribution channel partners and provide prompt service to end-users of our products through our authorized network of 14 chain repair stations and over 250 certified hoist service and repair stations globally. We also work closely with end users to design the appropriate lifting systems using our products to help them solve their material handling problems.
 
We also provide a wide variety of training and certification programs to the users of our products.  These training and certification programs include crane inspection and operation training and certification, hoist inspection and repair training and certification, various rigging training courses, load securement training, and CM entertainment technology equipment training and certification classes. In addition to our training classes, we offer free monthly safety webinars to Channel Partners and end-users. These webinars are designed to provide information and promote best practices on the proper use, installation, inspection and maintenance for a variety of material handling products.

Industry Expertise and Technological Capabilities - We emphasize and leverage our ability to provide customized solutions for power and motion control applications through digital power technology. We have a long history of technical innovation and a highly skilled and experienced technical staff. Our technical personnel possess substantial expertise in disciplines central to digital power systems and applications. These include analog-to-digital circuit design, thermal management technology, and the application of microprocessors, digital signal processors, and software algorithms in the development of smart power products. We are widely recognized for our expertise in our served markets, regularly hosting training and technology seminars for customers and end users. We believe we are at the forefront of innovation in the industries we have traditionally served, continuously developing new products to provide cost-effective, value-added solutions to meet the changing needs of our customers.

Consistent Free Cash Flow Generation and Access to Capital—We have consistently generated positive free cash flow (which we define as net cash provided by operating activities less capital expenditures) through periods of economic uncertainty by continually controlling our costs, improving our working capital management and reducing the capital intensity of our manufacturing operations. During fiscal 2015, we significantly enhanced our capital structure by obtaining a $125 million term loan which replaced higher interest bearing notes and entering into a new $150 million revolving credit facility with an accordion feature allowing increases up to an additional $75 million with lender approval. This capital structure allows us to manage our liquidity in a low cost manner while maintaining flexibility to pursue attractive strategic growth opportunities. We exercised the accordion feature for $75 million and utilized the new $225 million revolving credit facility to obtain the funds necessary to acquire Magnetek in September of fiscal 2016. We borrowed $195 million under the revolving credit facility to fund the acquisition price and pay certain acquisition related fees. We have repaid $40 million of the amount borrowed for the Magnetek acquisition by March 31, 2016 and expect to repay an additional $30 million in fiscal 2017 in addition to our scheduled principal payments of $12.5 million required under our Term Loan agreement.
 

7



Experienced Management Team with Equity Ownership - Our senior management team provides significant depth and continuity of experience in the material handling industry, supplemented by expertise in growing businesses, aggressive cost management, balance sheet management, efficient manufacturing techniques, acquiring and integrating businesses and global operations. This diverse experience has been critical to our success to date and will be instrumental to our long-term growth. Our directors and management promote the ownership of company stock by the executive officers and directors to align the interests of our leadership team with those of our shareholders.

Our Strategy
 
Invest in New Products and Targeted Markets.    We intend to leverage our competitive advantages to increase our market shares across all of our product lines and geographies by:

— 
Introducing New Products—We continue to expand our business by developing new products and services and expanding the breadth of our products to address the material handling needs of our customers. We design our powered hoist products to meet applicable standards such as ASME, FEM, DIN and other region-specific/application-specific standards to maximize product utility across global markets. Our product development process starts with the voice-of-the-customer and results in products that meet or exceed our customers' needs. New product sales (defined as new products introduced within the last three years and products engineered for our customers) amounted to $106,000,000 in the fiscal year ended March 31, 2016, or 17.8% of total sales.  
 
— 
Leveraging Our Distribution Channel Relationships and Vertical Market Knowledge—Our large, diversified, global customer base, our extensive distribution channels and our close relationships with end-users and channel partners provide us with insights into customer preferences and product requirements that allow us to anticipate and address the future needs of the marketplace. We are also investing in key vertical markets that will help us increase our revenues.

— 
Broadening Our Product Offering—Developing and offering a broad range of products to our channel partners is an important element of our strategy. Industrial channel partners offer a broad array of industrial components that are used by many end-user markets. We continue to review and add new material handling products to broaden our offerings.

Continue to Grow in Non-U.S. Markets -   Our non-U.S. sales of $223,314,000 comprised 37% of our net sales for the year ended March 31, 2016, as compared with $244,033,000, or 42% in fiscal 2015 and as compared to 16% of our net sales in fiscal 1996, the year we became a public company.  Foreign currency translation unfavorably impacted sales by $29,330,000 during fiscal 2016. Although we have made significant progress, our goal is to continue to increase our presence outside the U.S to capitalize on the higher growth opportunities and continue to diversify our business profile. We presently sell to distributors in over 50 countries and have our primary non-U.S. manufacturing facilities in China, Germany, the United Kingdom, Hungary, Mexico and France.  In addition to new product introductions, we continue to expand our sales and service presence in the major and developing market areas of Asia-Pacific, Europe, and Latin America and have sales offices and warehouse facilities in Canada, various countries in Western and Eastern Europe, China, Thailand, Brazil, Uruguay, Panama and Mexico.  We intend to increase our sales in Asia-Pacific by manufacturing a broader array of high quality, low-cost products and components in China. We have developed and are continuing to expand our development of hoist and other products in compliance with global standards and international designs to enhance our global distribution.

Focus on Operational Excellence - Our objective is to provide the highest quality products and services at prices consistent with the value created for our customers. We continually evaluate our processes with a focus to reduce our costs. Our view is that a market-focused sales and marketing effort along with low operating costs will prove to be successful for both our customers and for the Company. We continually seek ways to reduce our operating costs and increase our manufacturing productivity, while improving our quality. Ongoing programs include our efforts to further develop our “Lean” culture throughout the organization, the expansion of our facilities in China, our continued search for new ways to leverage our purchasing power through combined sourcing and the continued focus on enhancing the efficiency of our global supply chain.
 

8



Pursue Strategic Acquisitions and Alliances; Evaluate Existing Business Portfolio -   We intend to pursue synergistic acquisitions to complement our organic growth.  Priorities for such acquisitions include:  i. increasing international geographic penetration, particularly in the Asia-Pacific region and other emerging markets, and ii. further broadening our offering with complementary products and capabilities.  Additionally, we continually challenge the long-term fit of our businesses for potential divestiture and redeployment of capital. We believe we achieved a highly synergistic acquisition with our acquisition of Magnetek during fiscal 2016. The acquisition of Magnetek was very strategic as it will support the development of "smart" and integrated technology into our hoisting systems and at the same time, deliver meaningful accretion to our bottom line. We have achieved our cost synergy targets and our plans to add to our revenue streams are on target through the end of FY16.
 
Our Business
 
ASC Topic 280 “Segment Reporting” establishes the standards for reporting information about operating segments in financial statements.   We provide our products and services through one operating and reportable segment.
 
We design, manufacture and distribute a broad range of material handling products for various applications. Products include a wide variety of electric, air-powered, lever, and hand hoists, hoist trolleys, winches, industrial crane systems such as steel bridge, gantry and jib cranes and aluminum work station cranes; alloy and carbon steel chain; forged attachments, such as hooks, shackles, textile slings, clamps, logging tools and load binders; mechanical and electromechanical actuators and rotary unions; below-the-hook special purpose lifters and tire shredders; power and motion control systems, such as AC and DC drive systems, radio remote controls, push button pendant stations, brakes, and collision avoidance and power delivery subsystems. These products are typically manufactured for stock or assembled to order from standard components and are sold primarily through a variety of commercial distributors and to a lesser extent, directly to end-users. The diverse end-users of our products are in a variety of industries including manufacturing, power generation and distribution, utilities, wind power, warehouses, commercial construction, oil and gas exploration and refining, petrochemical, marine, ship building, transportation and heavy duty trucking, agriculture, logging and mining. We also serve a niche market for the entertainment industry including permanent and traveling concerts, live theater and sporting venues.

Products
 
Nearly 80% of our net sales are derived from the sale of products that we sell at a unit price of less than $5,000. Of our fiscal 2016 sales, $373,789,000 or 63% were U.S. and $223,314,000, or 37% were non-U.S. The following table sets forth certain sales data for our products, expressed as a percentage of net sales for fiscal 2016 and 2015:
 
 
 
Fiscal Years Ended March 31,
 
 
2016
 
2015
Hoists
 
59
%
 
68
%
Chain and rigging tools
 
13

 
13

Industrial cranes
 
5

 
5

Actuators and rotary unions
 
11

 
12

Digital power control and delivery systems
 
8

 

Elevator application drive systems
 
2

 

Other
 
2

 
2

 
 
100
%
 
100
%
 
Hoists - We manufacture a wide variety of electric chain hoists, electric wire rope hoists, hand-operated hoists, winches, lever tools and air-powered hoists. Load capacities for our hoist product lines range from one-eighth of a ton to 80 tons. These products are sold under our Budgit, Chester, CM, Coffing, Little Mule, Pfaff, Shaw-Box, Yale and other recognized brands. Our hoists are sold for use in numerous general industrial applications, as well as for use in the construction, energy, mining, food services, entertainment and other markets. We also supply hoist trolleys, driven manually or by electric motors, that are used in conjunction with hoists.
 
We also offer several lines of standard and custom-designed, below-the-hook tooling, clamps, and textile strappings. Below-the-hook tooling, textile and chain slings and associated forgings, and clamps are specialized lifting apparatus used in a variety of lifting activities performed in conjunction with hoisting or lifting applications.

9


 
Chain and Rigging Tools -   We manufacture alloy and carbon steel chain for various industrial and consumer applications. U.S. federal regulations require the use of alloy chain, which we first developed, for overhead lifting applications because of its strength and wear characteristics. A line of our alloy chain is sold under the Herc-AlloyTM brand name for use in overhead lifting, pulling and restraining applications. In addition, we also sell specialized load chain for use in hoists, as well as three grades and multiple sizes of carbon steel welded-link chain for various load securing and other non-overhead lifting applications.
 
We produce a broad line of alloy and carbon steel closed-die forged chain attachments, including hooks, shackles, HammerloksTM, and master links. These forged attachments are used in chain, wire rope and textile rigging applications in a variety of industries, including transportation, mining, construction, marine, logging, petrochemical and agriculture.

Our fiscal 2015 acquisition of Stahlhammer Bommern GmbH (STB) expands our rigging tool offering by adding a variety of eye, shank and ramshorn lifting hooks and deepens our exposure to targeted global vertical markets, such as Oil & Gas, Mining, Construction and Heavy Equipment industries. We plan to further extend STB’s product reach through our established global sales and distribution network.
 
In addition, we manufacture carbon steel forged and stamped products, such as load binders, logging tools and other securing devices, for sale to the industrial and logging markets through industrial distributors, hardware distributors, mass merchandiser outlets and OEMs.
 
Industrial Cranes -   We participate in the crane industry, predominately in the US market, but also globally in certain product offerings, through our offering of overhead steel jib and gantry cranes.  Our products are marketed under the Unified, CES, Abell-Howe and Washington Equipment brands. Crane builders represent a specific distribution channel for electric wire rope hoists, chain hoists and other crane components. We also manufacture and market overhead aluminum light rail workstations primarily used in automotive and other industrial applications.

Actuators and Rotary Unions -    Through our Duff-Norton and Pfaff divisions, we design and manufacture industrial components such as mechanical and electromechanical actuators and rotary unions. Actuators are linear motion devices used in a variety of industries, including the transportation, paper, steel, energy, aerospace and many other commercial industries. Rotary unions are devices that transfer a liquid or gas from a fixed pipe or hose to a rotating drum, cylinder or other device. Rotary unions are used in a variety of industries including pulp and paper, printing, textile and fabric manufacturing, rubber and plastic.

Digital Power Control and Delivery Systems - Through our acquisition of Magnetek, we are a leading provider of innovative power control and delivery systems and solutions for overhead material handling applications used in a number of diverse industries, including aerospace, automotive, steel, aluminum, paper, logging, mining, ship loading, nuclear power plants, and heavy movable structures. We are a major supplier in North America of power and motion control systems, which include AC and DC drive systems, radio remote controls, push button pendant stations, brakes, and collision avoidance and power delivery subsystems. While we sell primarily to OEMs of overhead cranes and hoists, we spend a great deal of effort understanding the needs of end users to gain specification. We can combine our products with engineered services to provide complete customer-specific systems solutions.

We are also a leading independent supplier of AC and DC digital motion control systems for underground coal mining equipment. Our systems are used in coal hauling vehicles, shuttle cars, scoops, and other heavy mining equipment.

Elevator Application Drive Systems - We design, build, sell, and support elevator application-specific drive products that efficiently deliver power used to control motion, primarily in high-rise, high-speed elevator applications. We are recognized as an industry leader for DC high-performance elevator drives, as well as for AC drives used with low- and high-performance traction elevators, due to our extensive application expertise and product reliability. Our elevator product offerings are comprised of highly integrated subsystems and drives, sold mainly to elevator OEMs. In addition, our product options include a number of regenerative controls for both new building installations and elevator modernization projects that help building owners save energy.

Other -   This category primarily includes tire shredders.  We have developed and patented a line of heavy equipment that shred whole tires, for use in recycling the various components of a tire including rubber and steel. These recycled products are used as aggregate for playgrounds, sports surfaces, landscaping and other such applications, as well as scrap steel.
 

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Sales and Marketing
 
Our sales and marketing efforts consist of the following programs:
 
Factory-Direct Field Sales and Customer Service -   We sell our products through our sales force of more than 167 sales people and independent sales representatives worldwide. We compensate our sales force through a combination of base salary and a commission plan based on top line sales and a pre-established sales quota, or through a commission structure for our independent sales representatives.  
 
Product Advertising -    We promote our products by advertising in leading trade journals as well as producing and distributing high quality information catalogs. We place targeted advertisements for hoists, chain, forged attachments, actuators, and cranes in key industrial publications.
 
Target Marketing -   We provide marketing literature, and maintain a web presence as well as utilize social media to target specific end-user market sectors including entertainment, construction, energy, mining, and others.  This literature displays our broad product offering applicable to those sectors to enhance awareness at the end-user level within those sectors. We also employ vertical market specialists to support our field sales force to assist our customers with solving their material handling application needs.
 
Trade Show Participation -   Trade shows are an effective way to promote our products to distributors and end users. Shows can range in size from distributor open houses to large, global shows such as ProMat in the United States. Through partnerships with our distributors, we have expanded our reach to the end user while strengthening our distribution network. In fiscal 2016, we focused primarily on shows related to vertical markets. Examples include: PLASA (UK), Pro Light & Sound (Germany and China), LDI and InfoComm (USA) for the entertainment industry. Liftex (UK), CeMAT (India), Préventica (France) and Expo Manufactura (México) for manufacturing and industrial. Oil & Gas (Indonesia), OTC (USA), PECOM (México), Offshore Europe (Scotland) and Brazil Offshore (Brazil) for the oil and gas industry. AMTS (China) and Expo INA (México) for the automotive industry. AISTech (USA) and CONAC (Mexico) for the steel industry. Vertikal Days (UK) for the lifting equipment industry. Every Building Conference & Expo (USA), NAEC Convention (USA), and Interlift (Germany) for the elevator industry.

Industry Association Membership and Participation -   As a recognized industry leader, we have a long history of work and participation in a variety of industry associations. Our management is directly involved in numerous industry associations including the following: ISA (Industrial Supply Association), AWRF (Associated Wire Rope Fabricators), PTDA (Power Transmission and Distributors Association), SCRA (Specialty Carriers and Riggers Association), WSTDA (Web Sling and Tie Down Association), MHI (Material Handling Institute), HMI (Hoist Manufacturers Institute), CMAA (Crane Manufacturers Association of America), ESTA (Entertainment Services and Technology Association), NACM (National Association of Chain Manufacturers), ASME (American Society of Mechanical Engineers), AIST (Association for Iron & Steel Technology), ECMA (Electrification & Controls Manufacturers Association), and NAEC (National Association of Elevator Contractors).
 
Product Standards and Safety Training Classes -   We conduct on-site training and certification programs worldwide for distributors and end-users to promote and reinforce the attributes of our products and their safe use and operation in various material handling applications.  These training and certification programs include crane inspection and operation training and certification, hoist inspection and repair training and certification, various rigging training courses, load securement training, and entertainment technology equipment training and certification classes.

CMCO University - Launched in September 2013, CMCO University consists of several training programs designed to give our Channel Partners intimate knowledge of Columbus McKinnon products. Held at the Columbus McKinnon Niagara Training Center and other locations in Latin America and Europe, this program consists of classroom and hands-on training aimed at providing the sales and product information our Channel Partners need to select the right product for their end-users application and the tools to win in the marketplace.

Web Sites -    Our main corporate web site www.cmworks.com supports the Company’s broad product offering providing product data, maintenance manuals and related information for the brands within our product portfolio.  The sites also provide detailed search and simultaneous product comparisons, the ability to submit “Requests for Quotations” and allows users the ability to chat live with a member of our customer service department.  In addition to our main site we maintain an additional 20 sites supporting various product lines, industry segments and geographies.  Distributors also have access to a secure, extranet portal website allowing them to enter sales orders, search pricing information, check order status, and product serial number information.
 

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Distribution and Markets
 
Our distribution channels include a variety of commercial distributors. In addition, we sell overhead bridge, jib and gantry cranes and aluminum light rail systems, as well as certain motion technology products directly to end-users. The following describes our global distribution channels:
 
General Distribution Channels -   Our global general distribution channels consist of:

—     Industrial distributors that serve local or regional industrial markets and sell a variety of products for maintenance repair, operating and production, or MROP, applications through their own direct sales force.
 
— 
Rigging shops that are distributors with expertise in rigging, lifting, positioning and load securing. Most rigging shops assemble and distribute chain, wire rope and synthetic slings and distribute manual hoists and attachments, chain slings and other products.
 
— 
Independent crane builders that design, build, install and service overhead crane and light-rail systems for general industry and also distribute a wide variety of hoists and crane components. We sell electric wire rope hoists and chain hoists as well as crane components, such as end trucks, trolleys, drives and electrification systems to crane builders.
 
Specialty Distribution Channels -   Our global specialty distribution channels consist of:

— 
National and regional distributors that market a variety of MROP supplies, including material handling products, either exclusively through large, nationally distributed catalogs, or through a combination of catalog, internet and branch sales and a field sales force.

— 
Material handling specialists and integrators that design and assemble systems incorporating hoists, overhead rail systems, trolleys, scissor lift tables, manipulators, air balancers, jib arms and other material handling products to provide end-users with solutions to their material handling problems.

— 
Entertainment equipment distributors that design, supply and install a variety of material handling and rigging equipment for concerts, theaters, ice shows, sporting events, convention centers and night clubs.

Pfaff International Direct -   Our German-based Pfaff business markets and sells most of its actuators direct to end-users, providing an additional method to market for us in the European region.
 
Crane End-Users -   We market and sell overhead bridge, jib and gantry cranes, parts and service to end-users through our wholly owned crane builder, Crane Equipment & Service, Inc. (“CES”). CES which includes Abell-Howe and Washington Equipment brands designs, manufactures, installs and services a variety of cranes with capacities up to 100 tons.
 
Service-After-Sale Distribution Channel -   Service-after-sale distributors include our authorized network of 14 chain repair service stations and over 250 certified hoist service and repair stations globally. This service network is designed for easy parts and service access for our large installed base of hoists and related equipment in that region.
 
OEM/Government Distribution Channels -    This channel consists of:
 
— 
OEMs that supply various component parts directly to other industrial manufacturers as well as private branding and packaging of our traditional products for material handling, lifting, positioning and special purpose applications.

— 
Government agencies, including the U.S. and Canadian Navies and Coast Guards, that purchase primarily load securing chain and forged attachments. We also provide our products to the U.S. and other governments for a variety of military applications.


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Customer Service and Training
 
We maintain customer service departments staffed by trained personnel for all of our sales divisions, and regularly schedule product and service training schools for all customer service representatives and field sales personnel. Training programs for distribution and service station personnel, as well as for end-users, are scheduled on a regular basis at most of our facilities and in the field. We have over 250 service and repair stations worldwide that provide local and regional repair, warranty and general service work for distributors and end-users. End-user trainees attending our various programs include representatives of 3M, DuPont, General Electric, and many other industrial and entertainment organizations.
 
We also provide, in multiple languages, a variety of related material in video, CD-ROM, slide and print format addressing relevant material handling topics such as the care, use and inspection of chains and hoists, and overhead lifting and positioning safety. In addition, we sponsor advisory boards made up of representatives of our primary distributors and service-after-sale network members who are invited to participate in discussions focused on improving products and service. These boards enable us and our primary distributors to exchange product and market information relevant to industry trends.
 
Backlog
 
Our backlog of orders at March 31, 2016 was approximately $98,572,000 compared to approximately $85,170,000 at March 31, 2015. Magnetek accounted for $13,403,000 of our backlog at March 31, 2016. Our orders for standard products are generally shipped within one week. Orders for products that are manufactured to customer specifications are generally shipped within four to twelve weeks. Given the short product lead times, we do not believe that the amount of our backlog of orders is a reliable indication of our future sales.  Fluctuations in backlog reflect the project oriented nature of certain aspects of our business.

Competition
 
The material handling industry remains highly fragmented. We face competition from a wide range of regional, national and international manufacturers globally. In addition, we often compete with individual operating units of larger, highly diversified companies.
 
The principal competitive factors affecting our business include customer service and support as well as product availability, performance, functionality, brand reputation, reliability and price. Other important factors include distributor relationships and territory coverage.
 
Major competitors for hoists are Konecranes, Terex (acquired Demag Cranes) and Kito (and its U.S. subsidiary Harrington); for chain are Campbell Chain, Peerless Chain Company and American Chain and Cable Company; for digital power control systems are Konecranes, Terex (acquired Demag Cranes), Power Electronics International, Inc., Cattron Group International (a division of Laird Technologies), Conductix-Wampfler (a division of Delachaux Group), Control Techniques (a division of Emerson Electric), OMRON Corporation, KEB GmbH, and Fujitec; for forged attachments are The Crosby Group and Brewer Tichner Company; for cranes are Konecranes, Terex (acquired Demag Cranes) and a variety of independent crane builders; for actuators and rotary unions are Deublin, Joyce-Dayton and Nook Industries; and for tire shredders, Granutech.
 
Employees
 
At March 31, 2016, we had 2,896 employees; 1,655 in the U.S./Canada, 133 in Latin America, 883 in Europe and 225 in Asia. Approximately 13% of our employees are represented under three separate U.S. or Canadian collective bargaining agreements which terminate at various times between May 2017 and April 2018. We also have various labor agreements with our non-U.S. employees which we negotiate from time to time. We believe that our relationship with our employees is good and that the risk of a disruption in production related to these negotiations is remote.
 

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Raw Materials and Components
 
Our principal raw materials and components are steel, consisting of structural steel, processed steel bar, forging bar steel, steel rod and wire, steel pipe and tubing and tool steel; electric motors; bearings; gear reducers; castings; steel and aluminum enclosures and wire harnesses; electro-mechanical components and standard variable drives. These commodities are all available from multiple sources.  We purchase most of these raw materials and components from a limited number of strategic and preferred suppliers under long-term agreements which are negotiated on a company-wide basis through our global purchasing group to take advantage of volume discounts.  We generally seek to pass on materials price increases to our channel partners and end-user customers.  We continue to monitor our costs and reevaluate our pricing policies.  Our ability to pass on these increases is determined by market conditions. 
 
Hedging Activities
 
We use derivative instruments to manage selected foreign currency and interest rate risk exposures. The Company does not use derivative instruments for speculative trading purposes.
 
We use foreign currency forward agreements to i) hedge changes in the value of booked foreign currency liabilities due to changes in foreign exchange rates at the settlement date and ii) to hedge a portion of forecasted inventory purchases denominated in a foreign currency. We use interest rate swaps to maintain the Company's desired capital structure which is comprised of 50-70% of fixed rate long-term debt and 30-50% of variable rate long-term debt.

Manufacturing
 
We complement our own manufacturing by outsourcing components and finished goods from an established global network of suppliers. We regularly upgrade our global manufacturing facilities and invest in tooling, equipment and technology.
 
Our manufacturing operations are highly integrated. Although raw materials and some components such as motors, bearings, gear reducers, steel and aluminum enclosures and wire harnesses, castings, electro-mechanical components and standard variable drives are purchased, our vertical integration enables us to produce many of the components used in the manufacturing of our products. We manufacture hoist lifting chain, steel forged gear blanks, lift wheels, trolley wheels, overhead light rail workstations, and hooks and other attachments for incorporation into our hoist products. These products are also sold as spare parts for hoist repair. Additionally, our hoists are used as components in the manufacture of crane systems by us as well as our crane-builder customers. We also manufacture electronic systems to control cranes, hoists and various other powered equipment.
 
Environmental and Other Governmental Regulation
 
Like most manufacturing companies, we are subject to various federal, state and local laws relating to the protection of the environment. To address the requirements of such laws, we have adopted a corporate environmental protection policy which provides that all of our owned or leased facilities shall, and all of our employees have the duty to comply with all applicable environmental regulatory standards, and we have initiated an environmental auditing program for our facilities to ensure compliance with such regulatory standards. We have also established managerial responsibilities and internal communication channels for dealing with environmental compliance issues that may arise in the course of our business. We have made and could be required to continue to make significant expenditures to comply with environmental requirements.  Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time to time requiring us to incur additional expenditures to ensure environmental regulatory compliance. However, we are not aware of any environmental condition or any operation at any of our facilities, either individually or in the aggregate, which would cause expenditures having a material adverse effect on our results of operations, financial condition or cash flows.
 
We notified the North Carolina Department of Environment and Natural Resources (the “DENR”) in April 2006 of the presence of certain contaminants in excess of regulatory standards at our facility in Wadesboro, North Carolina. We filed an application with the DENR to enter its voluntary cleanup program and were accepted.  We investigated under the supervision of a DENR Registered Environmental Consultant (“the REC”) and have commenced voluntary clean-up at the facility. At this time, additional remediation costs are not expected to exceed the accrued balance of $47,000.
 

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We have been a part of the Pendleton Site PRP Group since about 1993.  Many years ago, we sent pickle liquor wastes from Tonawanda, NY to the Pendleton Site for treatment and disposal.  The Pendleton Site PRP Group signed an Order on Consent with the NYS DEC in 1996 and the cleanup was concluded in the early 2000s.  The Order on Consent required a post-construction operation and maintenance period of 30 years and we are required to pay our share of the costs associated with the operation and maintenance period.  These annual costs are approximately $50,000 of which we pay 13.4% or $6,700.  Reserves on the books are sufficient to cover these costs for the remainder of the operations and maintenance period.

Our recently acquired subsidiary Magnetek has also been identified by the United States Environmental Protection Agency and certain state agencies as a potentially responsible party for cleanup costs associated with alleged past waste disposal practices at several previously utilized, owned or leased facilities and offsite locations. Its remediation activities as a potentially responsible party were not material in fiscal year 2016. Although the materiality of future expenditures for environmental activities may be affected by the level and type of contamination, the extent and nature of cleanup activities required by governmental authorities, the nature of Magnetek's alleged connection to the contaminated sites, the number and financial resources of other potentially responsible parties, the availability of indemnification rights against third parties and the identification of additional contaminated sites, Magnetek's estimated share of liability, if any, for environmental remediation, including its indemnification obligations, is not expected to be material.

In 1986, Magnetek acquired the stock of Universal Manufacturing Corporation (“Universal”) from a predecessor of Fruit of the Loom (“FOL”), and the predecessor agreed to indemnify Magnetek against certain environmental liabilities arising from pre-acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement included completion of additional cleanup activities, if any, at the Bridgeport facility and defense and indemnification against liability for potential response costs related to offsite disposal locations. Magnetek's leasehold interest in the Bridgeport facility was assigned to the buyer in connection with the sale of Magnetek's transformer business in June 2001. FOL, the successor to the indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and Magnetek filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. Magnetek believes that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy filing. In November 2001, Magnetek and FOL entered into an agreement involving the allocation of certain potential tax benefits and Magnetek withdrew its claims in the bankruptcy proceeding. We believe that FOL's obligation to the state of Connecticut was not discharged in the reorganization proceeding.

In January 2007, the Connecticut Department of Environmental Protection (“DEP”) requested parties, including Magnetek, to submit reports summarizing the investigations and remediation performed to date at the site and the proposed additional investigations and remediation necessary to complete those actions at the site. DEP requested additional information relating to site investigations and remediation. Magnetek and the DEP agreed to the scope of the work plan in November 2010. The Company has recorded a liability of $422,000, included in the amount specified above, related to the Bridgeport facility, representing the best estimate of future site investigation costs and remediation costs which are expected to be incurred in the future.

FOL's inability to satisfy its remaining obligations to the state of Connecticut related to the Bridgeport facility and any offsite disposal locations, or the discovery of additional environmental contamination at the Bridgeport facility is not expected to have a material adverse effect on the Company's financial position, cash flows or results of operations.

The Company has recorded total liabilities of $890,000 for all environmental matters related to Magnetek in the consolidated financial statements as of March 31, 2016 on an undiscounted basis.

For all of the currently known environmental matters, we have accrued as of March 31, 2016 a total of $1,153,000 which, in our opinion, is sufficient to deal with such matters. Further, we believe that the environmental matters known to, or anticipated by us should not, individually or in the aggregate, have a material adverse effect on our operating results or financial condition. However, there can be no assurance that potential liabilities and expenditures associated with unknown environmental matters, unanticipated events, or future compliance with environmental laws and regulations will not have a material adverse effect on us.

Our operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally OSHA in the U.S. and others outside the U.S. and regulations thereunder. We believe that we are in substantial compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our operating results, financial condition, or liquidity.
 

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Available Information
 
Our internet address is www.cmworks.com.  We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission.


16


Item 1A.    Risk Factors
 
Columbus McKinnon is subject to a number of risk factors that could negatively affect our results from business operations or cause actual results to differ materially from those projected or indicated in any forward looking statement.  Such factors include, but are not limited to, the following:
 
Adverse changes in global economic conditions may negatively affect our industry, business and results of operations.
 
During the last five years, financial markets in the United States, Europe and Asia have experienced substantial disruption including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Governments have taken unprecedented actions intended to address these market conditions and the extent to which such government actions may prove effective remains unclear. The future economic environment may worsen.
 
Our industry is affected by changes in economic conditions outside our control, which can result in a general decrease in product demand from our customers. Such economic developments may affect our business in a number of ways. Reduced demand may drive us and our competitors to offer products at promotional prices, which would have a negative impact on our profitability. In addition, the tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations and could result in a decrease in, or cancellation of, orders for our products. If demand for our products slows down or decreases, we will not be able to maintain our revenues and we may run the risk of failing to satisfy the financial and other restrictive covenants to which we are subject under our existing indebtedness. Reduced revenues as a result of decreased demand may also reduce our planned growth and otherwise hinder our ability to improve our performance in connection with our long term strategy.
 
Our business is cyclical and is affected by industrial economic conditions.

Many of the end-users of our products are in highly cyclical industries, such as manufacturing, power generation and distribution, commercial construction, oil and gas exploration and refining, transportation, agriculture, logging, and mining that are sensitive to changes in general economic conditions. Their demand for our products, and thus our results of operations, is directly related to the level of production in their facilities, which changes as a result of changes in general economic conditions and other factors beyond our control. If there is deterioration in the general economy or in the industries we serve, our business, results of operations and financial condition could be materially adversely affected. In addition, the cyclical nature of our business could at times also adversely affect our liquidity and ability to borrow under our revolving credit facility.
 
Our business is highly competitive and subject to consolidation of competitors. Increased competition could reduce our sales, earnings, and profitability.
 
The principal markets that we serve within the material handling industry are fragmented and highly competitive. Competition is based primarily on customer service and support as well as product availability, performance, functionality, brand reputation, reliability and price. Our competition in the markets in which we participate comes from companies of various sizes, some of which have greater financial and other resources than we do. Increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could reduce our gross margins and net income.

The greater financial resources or the lower amount of debt of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that could put us at a disadvantage. In addition, through consolidation, some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate. If we are unable to compete successfully against other manufacturers of material handling equipment, we could lose customers and our revenues may decline. There can also be no assurance that customers will continue to regard our products favorably, that we will be able to develop new products that appeal to customers, that we will be able to improve or maintain our profit margins on sales to our customers or that we will be able to continue to compete successfully in our core markets.
 

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Our operations outside the U.S. pose certain risks that may adversely impact sales and earnings.
 
We have operations and assets located outside of the United States, primarily in China, Mexico, Germany, the United Kingdom, France, and Hungary. In addition, we import a portion of our hoist product line from Asia, and sell our products to distributors located in approximately 50 countries. In our fiscal year ended March 31, 2016, approximately 37% of our net sales were derived from non-U.S. markets. These non-U.S. operations are subject to a number of special risks, in addition to the risks of our U.S. business, differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, U.S. and foreign customs and tariffs, current and changing regulatory environments, difficulty in obtaining distribution support, difficulty in staffing and managing widespread operations, differences in the availability and terms of financing, political instability and risks of increases in taxes. Also, in some foreign jurisdictions we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. These factors may adversely affect our future profits.
 
Part of our strategy is to expand our worldwide market share and reduce costs by strengthening our international distribution capabilities and sourcing components in lower cost countries, in particular in China, Mexico, and Hungary. Implementation of this strategy may increase the impact of the risks described above, and we cannot assure you that such risks will not have an adverse effect on our business, results of operations or financial condition.
 
Our strategy depends on successful integration of acquisitions.
 
Acquisitions are a key part of our growth strategy. Our historical growth has depended, and our future growth is likely to depend on our ability to successfully implement our acquisition strategy, and the successful integration of acquired businesses into our existing business. We intend to continue to seek additional acquisition opportunities in accordance with our acquisition strategy, both to expand into new markets and to enhance our position in existing markets throughout the world. If we are unable to successfully integrate acquired businesses into our existing business or expand into new markets, our sales and earnings growth could be reduced.
 
Our products involve risks of personal injury and property damage, which exposes us to potential liability.
 
Our business exposes us to possible claims for personal injury or death and property damage resulting from the products that we sell. We maintain insurance through a combination of self-insurance retentions and excess insurance coverage. We monitor claims and potential claims of which we become aware and establish accrued liability reserves for the self-insurance amounts based on our liability estimates for such claims. We cannot give any assurance that existing or future claims will not exceed our estimates for self-insurance or the amount of our excess insurance coverage. In addition, we cannot give any assurance that insurance will continue to be available to us on economically reasonable terms or that our insurers would not require us to increase our self-insurance amounts. Claims brought against us that are not covered by insurance or that are in excess of insurance coverage could have a material adverse effect on our results, financial condition, or liquidity.

In addition, like many industrial manufacturers, we are also involved in asbestos-related litigation. In continually evaluating costs relating to our estimated asbestos-related liability, we review, among other things, the incidence of past and recent claims, the historical case dismissal rate, the mix of the claimed illnesses and occupations of the plaintiffs, our recent and historical resolution of the cases, the number of cases pending against us, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on this review, we estimate our share of liability to defend and resolve probable asbestos related personal injury claims. This estimate is highly uncertain due to the limitations of the available data and the difficulty of forecasting with any certainty the numerous variables that can affect the range of the liability. We continue to study the variables in light of additional information in order to identify trends that may become evident and to assess their impact on the range of liability that is probable and estimable. We believe that the potential additional costs for claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future period. See Note 15 to our March 31, 2016 consolidated financial statements included in Item 8 of this form 10K.
 
As indicated above, our self-insurance coverage is effected through our captive insurance subsidiary. The reserves of our captive insurance subsidiary are subject to periodic adjustments based upon actuarial evaluations, which adjustments impact our overall results of operations. These periodic adjustments can be favorable or unfavorable.
 

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We are subject to currency fluctuations from our sales outside the U.S.
 
Our products are sold in many countries around the world. Thus, a portion of our revenues (approximately $223,314,000 in our fiscal year ended March 31, 2016) are generated in foreign currencies, including principally the Euro, the British Pound, the Canadian Dollar, the South African Rand, and the Brazilian Real, and while much of the costs incurred to generate those revenues are incurred in the same currency, a portion is incurred in other currencies. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, a currency translation impact on our earnings. Currency fluctuations may impact our financial performance in the future.
 
Our future operating results may be affected by fluctuations in steel or other material prices. We may not be able to pass on increases in raw material costs to our customers.
 
The principal raw material used in our chain, forging and crane building operations is steel. The steel industry as a whole is highly cyclical, and at times pricing and availability can be volatile due to a number of factors beyond our control, including general economic conditions, labor costs, competition, import duties, tariffs and currency exchange rates. This volatility can significantly affect our raw material costs. In an environment of increasing raw material prices, competitive conditions will determine how much of the steel price increases we can pass on to our customers. During historical rising cost periods, we were generally successful in adding and maintaining a surcharge to the prices of our high steel content products or incorporating them into price increases, with a goal of margin neutrality. In the future, to the extent we are unable to pass on any steel price increases to our customers, our profitability could be adversely affected.
 
We rely in large part on independent distributors for sales of our products.
 
For the most part, we depend on independent distributors to sell our products and provide service and aftermarket support to our end-user customers. Distributors play a significant role in determining which of our products are stocked at their locations, and hence are most readily accessible to aftermarket buyers, and the price at which these products are sold. Almost all of the distributors with whom we transact business offer competitive products and services to our end-user customers. For the most part, we do not have written agreements with our distributors. The loss of a substantial number of these distributors or an increase in the distributors' sales of our competitors' products to our ultimate customers could materially reduce our sales and profits.

We are subject to various environmental laws which may require us to expend significant capital and incur substantial cost.
 
Our operations and facilities are subject to various federal, state, local and foreign requirements relating to the protection of the environment, including those governing the discharges of pollutants in the air and water, the generation, management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We have made, and will continue to make, expenditures to comply with such requirements. Violations of, or liabilities under, environmental laws and regulations, or changes in such laws and regulations (such as the imposition of more stringent standards for discharges into the environment), could result in substantial costs to us, including operating costs and capital expenditures, fines and civil and criminal sanctions, third party claims for property damage or personal injury, clean-up costs or costs relating to the temporary or permanent discontinuance of operations. Certain of our facilities have been in operation for many years, and we have remediated contamination at some of our facilities. Over time, we and other predecessor operators of such facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Additional environmental liabilities could exist, including clean-up obligations at these locations or other sites at which materials from our operations were disposed, which could result in substantial future expenditures that cannot be currently quantified and which could reduce our profits or have an adverse effect on our financial condition, operations, or liquidity.
 
We may face claims of infringement on the intellectual property of others, or others may infringe upon our intellectual property.

Our future success depends in part on our ability to prevent others from infringing on our proprietary rights, as well as our ability to operate without infringing upon the proprietary rights of others. We may be required at times to take legal action to protect our proprietary rights and, despite our best efforts, we may be sued for infringing on the patent rights of others. Patent litigation is costly and, even if we prevail, the cost of such litigation could adversely affect our financial condition. In addition, we could be adversely affected financially should we be judged to have infringed upon the intellectual property of others.


19



We rely on subcontractors or suppliers to perform their contractual obligations.
 
Some of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by our subcontractor or customer concerns about the subcontractor. Failure by our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. A delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers' needs and may have an adverse effect upon our profitability.
 
We are subject to debt covenant restrictions.
 
Our revolving credit facility and Term Loan contain several financial and other restrictive covenants. A significant decline in our operating income or cash generating ability could cause us to violate our leverage or fixed charge coverage ratios in our bank credit facility. This could result in our being unable to borrow under our bank credit facility or being obliged to refinance and renegotiate the terms of our bank indebtedness.
 
Our business operations may be adversely affected by information systems interruptions or intrusion.

We depend on various information technologies throughout our company to administer, store, and support multiple business activities. If these systems are damaged, cease to function properly, or are subject to cyber-security attacks, such as those involving unauthorized access, malicious software and/or other intrusions, we could experience production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation. While we attempt to mitigate these risks by employing a number of measures, including employee training, technical security controls, and maintenance of backup and protective systems, our systems, networks, products and services remain potentially vulnerable to known or unknown threats, any of which could have a material adverse affect on our business, financial condition or results of operations.

We depend on our senior management team and the loss of any member could adversely affect our operations.
 
Our success is dependent on the management and leadership skills of our senior management team. The loss of any of these individuals or an inability to attract, retain and maintain additional personnel could prevent us from implementing our business strategy. We cannot assure you that we will be able to retain our existing senior management personnel or to attract additional qualified personnel when needed.
 
We continually evaluate and assess our personnel and may make additional changes to the members or assignments of our senior management team in the future.
 
We have not entered into employment agreements with any of our senior management personnel with the exception of Dr. Ivo Celi, our Vice President, EMEA.

We have not completed an assessment of Magnetek's internal controls over financial reporting and therefore, significant deficiencies or material weaknesses may exist.

Under current SEC guidelines, the period in which management may omit an assessment of an acquired business's internal control over financial reporting from its assessment of the registrant's internal control may not extend beyond one year from the date of acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting.


20



Pursuant to this guidance, we have excluded Magnetek, which was acquired on September 2, 2015, from the scope of management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2016. However, we will be required to include Magnetek in the scope of our assessment beginning in fiscal 2017. In connection with our fiscal 2017 assessment, “significant deficiencies” or “material weaknesses” in Magnetek’s internal control over financial reporting may be detected. To the extent that such deficiencies are identified, we may incur costs associated with our efforts to address these deficiencies that could negatively affect our financial condition and operating results. Furthermore, if we are unable to correct such deficiencies in a timely manner, our ability to record, process, summarize and report financial data may be adversely affected, which may result in a material misstatement in our financial statements. Such failure could materially and adversely impact our business and subject us to potential investigations, liability, and penalties.

Item 1B.    Unresolved Staff Comments 

None.

21



Item 2.        Properties
 
We maintain our corporate headquarters in Getzville, New York (an owned property) and, as of March 31, 2016, conducted our principal manufacturing at the following facilities:

Location
 
Products/Operations
 
Square
Footage
 
Owned or
Leased
1
 
Wadesboro, NC
 
Hoists
 
180,000

 
Owned
2
 
Lexington, TN
 
Chain
 
164,000

 
Owned
3
 
Asia operation:
 
 
 
 

 
 
 
 
Hangzhou, China
 
Hoists
 
70,000

 
Owned
 
 
Hangzhou, China
 
Hoists
 
82,000

 
Owned
4
 
Charlotte, NC
 
Actuators and Rotary Unions
 
146,000

 
Leased
5
 
Menomonee Falls, WI
 
Power control systems
 
144,000

 
Leased
6
 
Tennessee forging operation:
 
 
 
 
 
 
 
 
Chattanooga, TN
 
Forged attachments
 
81,000

 
Owned
 
 
Chattanooga, TN
 
Forged attachments
 
59,000

 
Owned
7
 
Wuppertal, Germany
 
Hoists
 
124,000

 
Leased
8
 
Kissing, Germany
 
Hoists, winches, and actuators
 
107,000

 
Leased
9
 
Damascus, VA
 
Hoists
 
97,000

 
Owned
10
 
Eureka, IL
 
Cranes
 
91,000

 
Owned
11
 
Ohio hoist operation:
 
 
 
 
 
 
 
 
Salem, OH
 
Hoists
 
49,000

 
Leased
 
 
Lisbon, OH
 
Hoists and below-the-hook tooling
 
37,000

 
Owned
12
 
Hamm, Germany
 
Lifting tools and forged parts
 
82,000

 
Owned
13
 
Chester, England
 
Plate clamps
 
56,000

 
Owned
14
 
Santiago Tianguistenco, Mexico
 
Hoists
 
54,000

 
Owned
15
 
Howell, MI
 
Overhead light rail workstations
 
35,000

 
Leased
16
 
Sarasota, FL
 
Tire shredders
 
25,000

 
Owned
17
 
Szekesfehervar, Hungary
 
Textiles and textile strappings
 
24,000

 
Leased
18
 
Romeny-sur-Marne, France
 
Rotary unions
 
22,000

 
Owned
19
 
Pittsburgh, PA
 
Power control systems
 
11,000

 
Leased

In addition, we have a total of 47 sales offices, distribution centers and warehouses.  We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We also believe our existing facilities provide sufficient production capacity for our present needs and for our anticipated needs in the foreseeable future. Upon the expiration of our current leases, we believe that either we will be able to secure renewal terms or enter into leases for alternative locations at market terms.
 
Item 3.        Legal Proceedings
 
From time to time, we are named a defendant in legal actions arising out of the normal course of business. We are not a party to any pending legal proceeding other than ordinary, routine litigation incidental to our business. We do not believe that any of our pending litigation will have a material impact on our business. We maintain comprehensive general product liability insurance against risks arising out of the use of our products sold to customers through our wholly-owned New York State captive insurance subsidiary of which we are the sole policy holder.  The per occurrence limits on the self-insurance for general and product liability coverage were $2,000,000 from inception through fiscal 2003 and $3,000,000 for fiscal 2004 and thereafter.  In addition to the per occurrence limits, our coverage is also subject to an annual aggregate limit, applicable to losses only.  These limits range from $2,000,000 to $6,000,000 for each policy year from inception through fiscal 2016.  We obtain additional insurance coverage from independent insurers to cover potential losses in excess of these limits.


22



Like many industrial manufacturers, we are also involved in asbestos-related litigation. In continually evaluating costs relating to our estimated asbestos-related liability, we review, among other things, the incidence of past and recent claims, the historical case dismissal rate, the mix of the claimed illnesses and occupations of the plaintiffs, our recent and historical resolution of the cases, the number of cases pending against us, the status and results of broad-based settlement discussions, and the number of years such activity might continue.  Because this liability is likely to extend over many years, management believes that the potential additional costs for claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future period. 

The Company believes that a share of its previously incurred asbestos-related expenses and future asbestos-related expenses are covered by pre-existing insurance policies. The Company has engaged in a legal action against the insurance carriers for those policies to recover these expenses and future costs incurred. When the Company resolves this legal action, it is expected that a gain will be recorded for previously expensed cost that is recovered.

See Note 15 to our March 31, 2016 consolidated financial statements for more information on our asbestos claims.


Item 4.        Mine Safety Disclosures.

Not Applicable.    
 


 

23


PART II


Item 5.        Market for the Company’s Common Stock and Related Security Holder Matters

Our common stock is traded on the Nasdaq Global Select Market under the symbol ‘‘CMCO.” As of April 30, 2016, there were 467 holders of record of our common stock.

During fiscal 2016, the Company paid a quarterly cash dividend of $0.04 per common share totaling $3,212,000. On March 31, 2016, the Company's Board of Directors declared the payment a regular quarterly dividend of $0.04 per common share. The dividend was paid on May 16, 2016 to shareholders of record on May 6, 2016 and totaled approximately $804,000.

Our current credit agreement allows, but limits our ability to pay dividends.  

The following table sets forth, for the fiscal periods indicated, the high and low sale prices per share for our common stock as reported on the Nasdaq Global Select Market.
 
 
 
Price Range of
Common Stock
Year Ended March 31, 2015
 
High
 
Low
First Quarter
 
$
30.98

 
$
25.69

Second Quarter
 
28.66

 
21.99

Third Quarter
 
29.56

 
20.43

Fourth Quarter
 
27.79

 
24.03

Year Ended March 31, 2016
 
 

 
 

First Quarter
 
$
27.13

 
$
22.40

Second Quarter
 
24.98

 
17.40

Third Quarter
 
21.28

 
17.62

Fourth Quarter
 
18.29

 
13.51


On May 27, 2016 the closing price of our common stock on the Nasdaq Global Select Market was $15.12 per share.


24



PERFORMANCE GRAPH

The Performance Graph shown below compares the cumulative total shareholder return on our common stock based on its market price, with the total return of the S&P SmallCap 600 Index, and the Dow Jones U.S. Diversified Industrials.  The comparison of total return assumes that a fixed investment of $100 was invested on March 31, 2011 in our common stock and in each of the foregoing indices and further assumes the reinvestment of dividends.  The stock price performance shown on the graph is not necessarily indicative of future price performance.



25


Item 6.        Selected Financial Data

The consolidated balance sheets as of March 31, 2016 and 2015, and the related statements of operations, cash flows and shareholders’ equity for each of the three years ended March 31, 2016 and notes thereto appear elsewhere in this annual report. The selected consolidated financial data presented below should be read in conjunction with, and are qualified in their entirety by “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” our consolidated financial statements and the notes thereto and other financial information included elsewhere in this annual report.

 
 
Year ended March 31st
 
 
( In millions, except for per share data)
 
 
2016
 
2015
 
2014
 
2013
 
2012
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
597.1

 
$
579.6

 
$
583.3

 
$
597.3

 
$
591.9

Cost of products sold
 
409.8

 
398.0

 
402.2

 
423.1

 
434.2

Gross profit
 
187.3

 
181.6

 
181.1

 
174.2

 
157.7

Selling expenses
 
72.9

 
69.8

 
69.0

 
65.6

 
64.9

General and administrative expenses
 
68.8

 
54.9

 
55.8

 
52.2

 
46.7

Restructuring charges
 

 

 

 

 
(1.0
)
Amortization of intangibles
 
5.0

 
2.3

 
2.0

 
2.0

 
2.0

Income (loss) from operations
 
40.6

 
54.6

 
54.3

 
54.4

 
45.1

Interest and debt expense
 
7.9

 
12.4

 
13.5

 
13.8

 
14.2

Cost of bond redemption
 

 
8.6

 

 

 

Other (income) and expense, net
 
1.1

 
(2.4
)
 
(1.9
)
 
(2.0
)
 
(1.9
)
Income (loss) before income taxes
 
31.6

 
36.0

 
42.7

 
42.6

 
32.8

Income tax expense (benefit) (1)
 
12.0

 
8.8

 
12.3

 
(35.7
)
 
6.9

Income (loss) from continuing operations
 
19.6

 
27.2

 
30.4

 
78.3

 
25.9

Income (loss) from discontinued operations (2)
 

 

 

 

 
1.1

Net income (loss)
 
$
19.6

 
$
27.2

 
$
30.4

 
$
78.3

 
$
27.0

Diluted earnings (loss) per share from continuing operations
 
$
0.96

 
$
1.34

 
$
1.52

 
$
3.98

 
$
1.33

Basic earnings (loss) per share from continuing operations
 
$
0.98

 
$
1.36

 
$
1.55

 
$
4.03

 
$
1.35

Weighted average shares outstanding – assuming dilution
 
20.3

 
20.2

 
20.0

 
19.7

 
19.5

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
 
20.1

 
19.9

 
19.7

 
19.4

 
19.3

 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of period):
 
 
 
 

 
 

 
 

 
 

Total assets
 
$
773.0

 
$
566.3

 
$
598.7

 
$
566.9

 
$
515.4

Total debt (3)
 
267.8

 
126.7

 
152.3

 
152.1

 
153.1

Total debt, net of cash and cash equivalents
 
216.2

 
63.7

 
40.0

 
30.4

 
63.6

Total shareholders’ equity
 
286.3

 
268.7

 
291.3

 
240.0

 
160.5

 
 
 
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 

 
 

 
 

 
 

Net cash provided by operating activities
 
52.6

 
38.3

 
29.5

 
42.4

 
23.6

Net cash used in investing activities
 
(203.2
)
 
(34.1
)
 
(40.4
)
 
(10.1
)
 
(13.5
)
Net cash provided by (used in) financing activities
 
137.0

 
(48.4
)
 
1.7

 
(1.1
)
 
0.5

Capital expenditures
 
(22.3
)
 
(17.2
)
 
(20.8
)
 
(14.9
)
 
(13.8
)





26



(1)
The Company had a valuation allowance of $53,325,000 recorded as of March 31, 2012 due to the uncertainty of whether the Company's net operating loss carryforwards and deferred tax assets might ultimately be realized. The Company was able to utilize $14,567,000 of U.S. federal net operating loss carryforwards in fiscal 2013 which reduced the valuation allowance by $5,107,000.  As a result of the increased operating  performance of the Company over the past several years, the Company  reevaluated  the  certainty as to whether the  Company's  remaining net operating  loss  carryforwards  and other  deferred tax assets may ultimately be realized.  As a result of the determination that it was more likely than not that all of the remaining deferred tax assets will be realized with the exception of certain U.S. federal tax credit carryforwards, a significant portion of the remaining U.S. valuation allowance totaling $49,161,000 was reversed in fiscal 2013.

(2)
In May 2002, the Company sold substantially all of the assets of ASI.  As part of the sale of ASI, the Company received an 8% subordinated note in the principal amount of $6,800,000 which was payable over 10 years ending in May 2012.  The full amount of this note had been reserved due to the uncertainty of collection. Principal payments received on the note had been recorded as income from discontinued operations at the time of receipt.  As of March 31, 2013, the note was paid in full.  

(3)
Total debt includes all debt, including the current portion, notes payable, term loan, and subordinated debt.


27


Item 7.        Management’s Discussion and Analysis of Results of Operations and Financial Condition

This section should be read in conjunction with our consolidated financial statements included elsewhere in this annual report. Comments on the results of operations and financial condition below refer to our continuing operations, except in the section entitled “Discontinued Operations.”

EXECUTIVE OVERVIEW

We are a leading worldwide designer, manufacturer and marketer of material handling products, systems and services which efficiently and safely move, lift, position and secure materials and people. In September, we significantly expanded our product offering with the acquisition of Magnetek. Key products include hoists, actuators, cranes, rigging tools, and digital power control systems. The Company is focused on serving commercial and industrial applications that require the safety and quality provided by the Company’s superior design and engineering know-how.

Founded in 1875, we have grown to our current size and leadership position through organic growth and acquisitions. We developed our leading market position over our 141-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale service. In addition, acquisitions significantly broadened our product lines and services and expanded our geographic reach, end-user markets and customer base. Ongoing initiatives include growing revenue by increasing our penetration of the Asian, Latin American and European marketplaces, pursuing new products and targeted vertical markets, and by improving our productivity. In accordance with our strategy, we have been investing in our sales and marketing activities, new product development and “Lean” efforts across the Company. Shareholder value will be enhanced through continued emphasis on market expansion, customer satisfaction, new product development, manufacturing efficiency, cost containment, and efficient capital investment.

Our revenue base is geographically diverse with approximately 37% derived from customers outside the U.S. for the year ended March 31, 2016. We believe this will help balance the impact of changes that will occur in local economies, as well as, benefit the Company from growth in emerging markets. As in the past, we monitor both U.S. and Eurozone Industrial Capacity Utilization statistics as indicators of anticipated demand for our products. Since their June 2009 trough, these statistics have improved and have remained stable over the past year. In addition, we continue to monitor the potential impact of other global and U.S. trends including industrial production, energy costs, steel price fluctuations, interest rates, foreign currency exchange rates and activity of end-user markets around the globe.

From a strategic perspective, we are investing in global markets and new products as we focus on our greatest opportunities for growth. We maintain a strong North American market share with significant leading market positions in hoists, lifting and sling chain, forged attachments, actuators, and digital power and motion control systems for the material handling industry. We seek to maintain and enhance our market share by focusing our sales and marketing activities toward select North American and global market sectors including energy, automotive, heavy OEM, entertainment, and construction and infrastructure.

Regardless of the economic climate and point in the economic cycle, we constantly explore ways to increase our operating margins as well as further improve our productivity and competitiveness. We have specific initiatives related to improved customer satisfaction, reduced defects, shortened lead times, improved inventory turns and on-time deliveries, reduced warranty costs, and improved working capital utilization. The initiatives are being driven by the continued implementation of our “Lean” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity. In addition to “Lean,” we are working to achieve these strategic initiatives through product simplification, the creation of centers of excellence, and improved supply chain management. We are also aggressively pursuing cost reduction opportunities to enhance future margins.

We continuously monitor market prices of steel. We purchase approximately $30,000,000 to $40,000,000 of steel annually in a variety of forms including rod, wire, bar, structural and others. Generally, as we experience fluctuations in our costs, we reflect them as price increases or surcharges to our customers with the goal of being margin neutral.

We are also looking for opportunities for growth via strategic acquisitions or joint ventures. The focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-U.S. market penetration.

We operate in a highly competitive and global business environment. We face a variety of opportunities in those markets and geographies, including trends toward increased utilization of the global labor force and the expansion of market opportunities in Asia and other emerging markets. While we continue to execute our long-term growth strategy, we are supported by our solid capital structure, including our cash position and flexible debt structure.

28


RESULTS OF OPERATIONS

Fiscal 2016 Compared to 2015

Fiscal 2016 sales were $597,103,000, an increase of 3.0%, or $17,460,000 compared with fiscal 2015 sales of $579,643,000. Sales for the year were positively impacted by $74,267,000 due to acquisitions and $5,605,000 by price increases. Sales for the year were negatively impacted $33,082,000 due to a decrease in sales volume.  The decline in sales volume was due to industrial recessions caused by weakness in oil & gas, mining, heavy OEM, and commercial construction markets affecting our North American Hoist and Rigging and Latin American operations. Unfavorable foreign currency translation reduced sales by $29,330,000.

Our gross profit was $187,263,000 and $181,607,000 or 31.4% and 31.3% of net sales in fiscal 2016 and 2015, respectively.  The fiscal 2016 increase in gross profit of $5,656,000 or 3.1% is the result of $24,316,000 from our recent acquisitions, $5,605,000 in price increases, $769,000 in reduced material costs, and $830,000 in reduced plant consolidation activities, offset by $11,438,000 in decreased volume, $3,337,000 in lower productivity due to reduced fixed cost absorption and inventory adjustments, net of other manufacturing costs, $2,051,000 in increased product liability costs, and $429,000 in facility impairment costs for a property held for sale. The translation of foreign currencies had an unfavorable impact on gross profit of $8,609,000.

Selling expenses were $72,858,000 and $69,819,000 or 12.2% and 12.0% of net sales in fiscal years 2016 and 2015, respectively. The acquisitions of Magnetek and STB added an additional $7,640,000 in selling expense for the year ended March 31, 2016. The consolidation of two warehouses and the closure of another added $859,000 to selling costs. Additionally, foreign currency translation had a $5,036,000 favorable impact on selling expenses.
 
General and administrative expenses were $68,811,000 and $54,874,000 or 11.5% and 9.5% of net sales in fiscal 2016 and 2015, respectively. The fiscal 2016 increase was primarily the result of Magnetek acquisition transaction costs of $5,746,000 and acquisition-related severance costs of $2,300,000. In addition, Magnetek and STB added $5,774,000 in recurring general and administrated expenses. Additional increases are the result of lower information technology salaries capitalized as part of the global ERP systems project as well as general inflationary increases. Foreign currency translation had a $2,622,000 favorable impact on general and administrative expenses.
 
Amortization of intangibles was $5,024,000 and $2,266,000 in fiscal 2016 and 2015, respectively. The increase relates to additional amortization of intangibles related to the Magnetek and STB acquisitions.
 
Interest and debt expense was $7,904,000 and $12,390,000 or 1.3% and 2.1% of net sales in fiscal 2016 and 2015, respectively. The decrease in interest and debt expense relates to the redemption of the 7 7/8% Notes in the fourth quarter of fiscal 2015 with the lower interest bearing Term Loan despite the increased borrowings used to fund the Magnetek purchase beginning in the second quarter of fiscal 2016.
 
The fiscal 2015 cost of bond redemption of $8,567,000 relates to the call premium and write off of unamortized deferred financing costs associated with our 7 7/8% Notes which were redeemed in February 2015. This transaction is discussed in more detail in the Liquidity and Capital Resources section. There were no similar transactions in fiscal 2016.
 
Investment income of $796,000 and $2,725,000, in fiscal 2016 and 2015, respectively, related to earnings on marketable securities held in the Company’s wholly owned captive insurance subsidiary.

Foreign currency exchange loss (gain) was $2,215,000 and $863,000 in fiscal 2016 and 2015, respectively, as a result of foreign currency volatility related to foreign currency denominated purchases and intercompany debt.

Other income (expense), net remained relatively stable and was $377,000 and $462,000 in fiscal 2016 and 2015, respectively.

Income tax expense (benefit) as a percentage of income from continuing operations before income tax expense was 38.1% and 24.5% in fiscal 2016 and 2015, respectively. These percentages vary from the U.S. statutory rate primarily due to varying effective tax rates at the Company's foreign subsidiaries, and the jurisdictional mix of taxable income for these subsidiaries. For fiscal 2016, income tax expense as a percentage of income before income taxes was unfavorably affected due to the recording of a valuation allowance on the deferred tax assets of certain foreign subsidiaries of the Company of $2,860,000 and certain nondeductible expenses related to the acquisition of Magnetek.

29



Fiscal 2015 Compared to 2014

Fiscal 2015 sales were $579,643,000, down 0.6%, or $3,647,000 compared with fiscal 2014 sales of $583,290,000. Sales for the year were positively impacted by $6,625,000 of price increases and $16,024,000 due to acquisitions. Sales for the year were negatively impacted $13,453,000 due to a decrease in sales volume. The decline in sales volume was due to weakness in our North American Hoist and European operations. Unfavorable foreign currency translation impacted sales by $12,843,000.

Our gross profit was $181,607,000 and $181,048,000 or 31.3% and 31.0% of net sales in fiscal 2015 and 2014, respectively. The fiscal 2015 increase in gross profit of $559,000 or 0.3% is the result of $6,625,000 in price increases, $4,497,000 due to our recent acquisitions, and $573,000 in increased productivity net of other manufacturing cost increases, offset by $5,624,000 in decreased volume, $1,176,000 in costs associated with the consolidation of two European facilities, $794,000 in material inflation, and $434,000 in increased product liability costs. Foreign currency translation had a unfavorable impact on gross profit of $3,108,000.

Selling expenses were $69,819,000 and $68,963,000 or 12.0% and 11.8% of net sales in fiscal years 2015 and 2014, respectively. The incremental increase in selling expenses relates to our recent acquisitions resulting in $1,344,000 of additional selling expenses as well as additional investments to grow our business in Asia and Latin America. Additionally, foreign currency translation had a $2,270,000 favorable impact on selling expenses.

General and administrative expenses were $54,874,000 and $55,754,000 or 9.5% and 9.6% of net sales in fiscal 2015 and 2014, respectively. The fiscal 2014 general and administrative expenses included $1,657,000 of atypical professional services associated with a large acquisition that was not consummated. Foreign currency translation had a $1,096,000 favorable impact on general and administrative expenses.

Amortization of intangibles was $2,266,000 and $1,981,000 in fiscal 2015 and 2014, respectively and primarily relate to amortization of intangible assets acquired in connection with our fiscal 2009 acquisition of Pfaff. The increase in amortization of intangibles relates to our fiscal 2014 acquisition of Unified Industries, Inc. and the 2015 acquisition of Stahlhammer Bommern GmbH.

Interest and debt expense was $12,390,000 and $13,492,000 or 2.1% and 2.3% of net sales in fiscal 2015 and 2014, respectively. The decrease in interest and debt expense relates to the redemption of the 7 7/8% Notes in February with the lower interest bearing Term Loan.

The fiscal 2015 cost of bond redemption of $8,567,000 relates to the call premium and write off of unamortized deferred financing costs associated with our 7 7/8% Notes which were redeemed in February 2015. This transaction is discussed in more detail in the Liquidity and Capital Resources section.

Investment income of $2,725,000 and $1,595,000, in fiscal 2015 and 2014, respectively, related to earnings on marketable securities held in the Company’s wholly owned captive insurance subsidiary.

Foreign currency exchange loss (gain) was $863,000 and $1,124,000 in fiscal 2015 and 2014, respectively, as a result of foreign currency volatility related to foreign currency denominated purchases and intercompany debt.

Other income (expense), net was $462,000 and $1,393,000 in fiscal 2015 and 2014, respectively. The fiscal 2014 balance included a gain on the sale of equity securities received in an insurance company demutualization. No similar gain was recorded in fiscal 2015.

Income tax expense (benefit) as a percentage of income from continuing operations before income tax expense was 24.5% and 28.8% in fiscal 2015 and 2014, respectively. These percentages vary from the U.S. statutory rate primarily due to varying effective tax rates at the Company's foreign subsidiaries, and the jurisdictional mix of taxable income for these subsidiaries. For fiscal 2015, income tax expense as a percentage of income before income taxes was favorably effected by the utilization of certain tax credits relating to previous fiscal years. The credits result in an income tax benefit of $1,431,000 for the year ended March 31, 2015. In addition, the cost of the bond redemption resulted in lower taxable income in the U.S., our highest statutory tax rate jurisdiction.

30


LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $51,603,000, $63,056,000, and $112,309,000 at March 31, 2016, 2015 and 2014, respectively.
 
Cash flow provided by operating activities

Net cash provided by operating activities was $52,645,000, $38,254,000 and $29,507,000 in fiscal 2016, 2015 and 2014, respectively. In addition to net income and non-cash adjustments to net income, net cash provided by operating activities increased as a result of net collections of trade accounts receivable of $12,409,000 and an overall decrease in inventories of $2,483,000. This increase in cash was offset by a decrease in trade accounts payable, accrued liabilities, and non-current liabilities of $5,308,000, $5,799,000, and $6,516,000, respectively. The reduction in accrued liabilities was primarily due to reductions in employee payroll, incentive bonus accruals, and customer rebate accruals. The decrease in non-current liabilities was primarily due to $5,936,000 in contributions made to our pension plans.

In addition to net income and non-cash adjustments to net income including an $8,567,000 loss on the early retirement of bonds in fiscal 2015, net cash provided by operating activities in fiscal 2015 consisted of net collections of trade accounts receivable of $8,302,000 and an overall increase in trade accounts payable of $1,084,000. Net cash decreased primarily as a result of an increase in inventories of $9,080,000 and a decrease in non-current liabilities of $12,612,000. The reduction in non-current liabilities was primarily the result of $11,013,000 in pension contributions during the year.

Cash flow used by investing activities

Net cash used by investing activities was $203,229,000, $34,079,000 and $40,425,000 in fiscal 2016, 2015 and 2014, respectively. The most significant use of cash for investing activities relates to our acquisition of Magnetek which totaled $182,467,000, net of cash acquired. Capital expenditures for fiscal 2016 totaled $22,320,000, of which $5,400,000 related to the construction of the Getzville corporate headquarters and national training facility. Offsetting these uses of cash is $1,558,000 in net cash proceeds from the sale of marketable equity securities.

The most significant net cash used for investing activities in fiscal 2015 was $19,992,000 for the purchase of STB as described in Note 3 to the consolidated financial statements. Capital expenditures for fiscal 2015 were $17,243,000 (of which $1,990,000 relates to the expansion of our China operations and $3,449,000 relates to the implementation of our global ERP system). Offsetting these uses of cash is $3,230,000 in net cash proceeds from the sale of marketable equity securities by our captive insurance company. The other use of cash for investing activities of $74,000 primarily includes proceeds from an insurance settlement of $64,000 and cash received from the sale of an asset of $116,000 offset by an increase in restricted cash related to the Company's captive insurance company of $250,000.

Cash flow provided (used) by financing activities

Net cash provided (used) by financing activities was $137,003,000, $(48,387,000) and $1,739,000 in fiscal 2016, 2015 and 2014, respectively. The most significant source of cash was net borrowings under our revolving credit facility of $154,057,000. This borrowing was used to fund the Magnetek acquisition. Offsetting this source of cash was $13,187,000 used for the repayment of debt. The remaining net cash used for financing activities primarily relates to dividends paid of $3,212,000 and $655,000 in net outflows from stock related transactions.

The net cash used by financing activities in fiscal 2015 primarily consisted of the redemption of the 7 7/8% Notes of $150,000,000 and bond redemption tender fees of $5,907,000. Additionally the Company paid off the debt assumed in the purchase of STB of $6,487,000 and incurred $1,825,000 in financing fees associated with its New Credit Agreement. This was offset by proceeds on the Company's new Term Loan of $124,423,000. In connection with the acquisition of STB, the Company withheld $5,431,000 to be paid to the seller upon satisfaction of certain conditions. This cash was classified as other assets on the Company's balance sheet and was classified as a use of cash for financing activities. The remaining net cash used for financing activities for fiscal 2015 primarily relates to dividends paid of $3,192,000 offset by proceeds from the exercise of stock options of $1,607,000.



31



We believe that our cash on hand, cash flows, and borrowing capacity under our New Revolving Credit Facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months. This belief is dependent upon successful execution of our current business plan and effective working capital utilization. No material restriction exists in accessing cash held by our non-U.S. subsidiaries.  Additionally we expect to meet our U.S. funding needs without repatriating non-U.S. cash and incurring incremental U.S. taxes. As of March 31, 2016, $37,300,000 of cash and cash equivalents were held by foreign subsidiaries.

Through January 23, 2015 the Company had access to borrow funds under a revolving credit facility ("Replaced Revolving Credit Facility"). The Replaced Revolving Credit Facility provided availability up to a maximum of $100,000,000 and had an initial term ending October 31, 2017.

Through February 19, 2015, the Company had outstanding $150,000,000 principal amount of 7 7/8% Senior Subordinated Notes due 2019 registered under the Securities Act of 1933, as amended (7 7/8% Notes).

On January 23, 2015, the Company, Columbus McKinnon Dutch Holdings 3 B.V. (“BV 3”), and Columbus McKinnon EMEA GmbH (“EMEA GMBH”) as borrowers (collectively referred to as the "Borrowers"), entered into a new credit agreement (the "New Credit Agreement"). The Borrowers entered into a new $150,000,000 senior secured revolving credit facility ("New Revolving Credit Facility") and established a new $125,000,000 delayed draw senior secured term loan facility (“Term Loan”). The Company’s Replaced Revolving Credit Facility was terminated in connection with this transaction. Both the New Revolving Credit Facility and the Term Loan have five-year terms maturing in 2020. The New Revolving Credit Facility has an initial term ending January 23, 2020 and the Term Loan has a term ending February 19, 2020.

The terms of the New Credit Agreement include the following:

Term Loan: An aggregate $125,000,000 secured term loan facility which requires quarterly principal amortization of 2.5% with the remaining principal due at maturity date.

New Revolving Credit Facility: An aggregate $150,000,000 secured revolving credit facility which includes sublimits for the issuance of standby letters of credit, swingline loans and multi-currency borrowings in certain specified foreign currencies.

Fees and Interest Rates: Commitment fees and interest rates are determined on the basis of either a Eurocurrency rate or a Base rate plus an applicable margin based upon the Company's Total Leverage Ratio (as defined in the New Credit Agreement).

Accordion Feature: Provisions permitting a Borrower from time to time to increase the aggregate amount of the credit facility by up to $75,000,000, with a minimum increase of $20,000,000.

Prepayments: Provisions permitting a Borrower to voluntarily prepay either the Term Loan or New Revolving Credit Facility in whole or in part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or New Revolving Credit Facility on the occurrence of certain events which will permanently reduce the commitments under the New Credit Agreement, each without premium or penalty.

Reduction of Commitment: A Borrower may irrevocably cancel, in whole or in part, the unutilized portion of the commitments under the New Credit Agreement in excess of any outstanding loans, the stated amount of all outstanding letters of credit and all unreimbursed amounts drawn under any letters of credit.


32



Covenants: Provisions containing covenants required of the Company and its subsidiaries including various affirmative and negative financial and operational covenants. Key financial covenants include a minimum fixed charge coverage ratio of 1.25x; a maximum total leverage ratio, net of cash, of 3.50x (which may be temporarily increased following a material acquisition, which may be elected two times over the course of the New Credit Agreement, (i) if financed by secured debt the total leverage rate as at the end of the fiscal quarter in which such material acquisition occurs and the three fiscal quarters immediately thereafter, shall not be greater than 4.00:1.00 and as at the end of any fiscal quarter thereafter, the total leverage ratio shall not be greater than 3.50:1.00, and (ii) if financed with unsecured or subordinated indebtedness, the total leverage ratio at the end of the fiscal quarter in which such material acquisition occurs and at the end of any fiscal quarter thereafter, shall not be greater than 4.50:1.00, and permit the secured leverage ratio, to be greater than 3.25:1.00), and maximum capital expenditures of $30 million per fiscal year ($40 million following a material acquisition) with the ability to transfer any unused portion of expenditure to the immediately following fiscal year. Our actual fixed charges coverage ratio and total leverage ratio, as calculated per the terms of our New Revolving Credit Facility, were 3.20x and 2.90x, respectively, at March 31, 2016.

The New Revolving Credit Facility is secured by all U.S. inventory, receivables, equipment, real property, subsidiary stock (limited to 65% of non-U.S. subsidiaries) and intellectual property. The New Credit Agreement allows, but limits our ability to pay dividends.

On February 19, 2015, the Company borrowed $124,442,000 under the Term Loan. The Term Loan proceeds were net of fees paid to creditors of $558,000 which were accounted for as a debt discount. On February 23, 2015 the Company redeemed all of the outstanding $150,000,000 of the 7 7/8% Notes. The aggregated price paid for the redemption was $156,630,000, including a 3.938% call premium or $5,907,000, and $723,000 of accrued interest on the 7 7/8% Notes. The redemption was funded by the Term Loan and cash on hand.

The unused portion of the New Revolving Credit Facility totaled $64,341,000 net of outstanding borrowings of $155,000,000 and outstanding letters of credit of $5,659,000 as of March 31, 2016. The outstanding letters of credit at March 31, 2016 consisted of $1,136,000 in commercial letters of credit and $4,523,000 of standby letters of credit.

The gross balances of deferred financing costs were $1,825,000 as of March 31, 2016 and 2015, respectively.  The accumulated amortization balances were $425,000 and $61,000 as of March 31, 2016 and 2015, respectively.
 
On June 22, 2007, the Company recorded a capital lease resulting from the sale and partial leaseback of its facility in Charlotte, NC under a 10 year lease agreement. The Company also has capital leases on certain production machinery and equipment. The outstanding balance on the capital lease obligations of $1,590,000 and $2,270,000 as of March 31, 2016 and 2015, respectively, are included in current portion of long-term debt and senior debt in the consolidated balance sheets.

Unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating outside of the U.S. The lines of credit are available on an offering basis, meaning that transactions under the line of credit will be on such terms and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction. As of March 31, 2016, unsecured credit lines totaled approximately $7,623,000, of which $0 was drawn. In addition, unsecured lines of $8,651,000 were available for bank guarantees issued in the normal course of business of which $4,557,000 was utilized.


33



CONTRACTUAL OBLIGATIONS

The following table reflects a summary of our contractual obligations in millions of dollars as of March 31, 2016, by period of estimated payments due:

 
 
Total
 
Fiscal
2017
 
Fiscal
 2018-
Fiscal 2019
 
Fiscal
 2020-
Fiscal 2021
 
More
 Than
Five Years
Long-term debt obligations (a)
 
$
269.1

 
$
13.2

 
$
25.9

 
$
230.0

 
$

Operating lease obligations (b)
 
32.6

 
6.3

 
9.8

 
6.9

 
9.6

Purchase obligations (c)
 

 

 

 

 

Interest obligations (d)
 
29.6

 
9.1

 
16.4

 
4.1

 
 
Letter of credit obligations
 
5.7

 
5.7

 

 

 

Bank guarantees
 
4.6

 
4.6

 

 

 

Uncertain tax positions
 
1.1

 

 
1.1

 

 

Other long-term liabilities reflected on the Company’s balance sheet under GAAP (e)
 
129.6

 

 
8.9

 
5.4

 
115.3

Total
 
$
472.3

 
$
38.9

 
$
62.1

 
$
246.4

 
$
124.9


(a)
As described in Note 11 to consolidated financial statements.
(b)
As described in Note 17 to consolidated financial statements.
(c)
We have no purchase obligations specifying fixed or minimum quantities to be purchased. We estimate that, at any given point in time, our cancelable open purchase orders to be executed in the normal course of business approximate $50 million.
(d)
Estimated for our Term Loan and Revolving Credit Facility and interest rate swaps as described in Note 9 and Note 11 to our consolidated financial statements. Calculated using a 3-month LIBOR rate of 0.63% plus an applicable margin of 2.25%.
(e)
For additional details, see Note 10 to our consolidated financial statements. Excludes uncertain tax positions of $1.1 million shown separately above.

We have no additional off-balance sheet obligations that are not reflected above.

CAPITAL EXPENDITURES

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements and enhance safety. Our capital expenditures for fiscal 2016, 2015 and 2014 were $22,320,000, $17,243,000 and $20,846,000, respectively. Excluded from fiscal 2016 capital expenditures is $1,638,000 in property, plant and equipment purchases included in accounts payable at March 31, 2016. We expect capital expenditure spending in fiscal 2017 to be approximately $18,000,000, excluding acquisitions and strategic alliances.

INFLATION AND OTHER MARKET CONDITIONS

Our costs are affected by inflation in the U.S. economy and, to a lesser extent, in non-U.S. economies including those of Europe, Canada, Mexico, South America and Asia-Pacific. We do not believe that general inflation has had a material effect on our results of operations over the periods presented primarily due to overall low inflation levels over such periods and our ability to generally pass on rising costs through annual price increases and surcharges. However, increases in U.S. employee benefits costs such as health insurance and workers compensation insurance have exceeded general inflation levels. In the future, we may be further affected by inflation that we may not be able to pass on as price increases.  With changes in worldwide demand for steel and fluctuating scrap steel prices over the past several years, we experienced fluctuations in our costs that we have reflected as price increases and surcharges to our customers.  We believe we have been successful in instituting surcharges and price increases to pass on these material cost increases.  We will continue to monitor our costs and reevaluate our pricing policies.




34



SEASONALITY AND QUARTERLY RESULTS

Our quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, restructuring charges and other costs attributable to plan closures as well as divestitures and acquisitions. Therefore, our operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We continually evaluate the estimates and their underlying assumptions, which form the basis for making judgments about the carrying value of our assets and liabilities. Actual results inevitably will differ from those estimates. If interpreted differently under different conditions or circumstances, changes in our estimates could result in material changes to our reported results.  We have identified below the accounting policies involving estimates that are critical to our financial statements. Other accounting policies are more fully described in Note 2 of our consolidated financial statements.

Revenue Recognition. Sales are recorded when title passes to the customer which is generally at the time of shipment to the customer. The Company performs ongoing credit evaluations of its customers’ financial condition, but generally does not require collateral to support customer receivables. The credit risk is controlled through credit approvals, limits and monitoring procedures. Accounts receivable are reported at net realizable value and do not accrue interest. Sales tax is excluded from revenue.

Pension and Other Postretirement Benefits.    The determination of the obligations and expense for pension and postretirement benefits is dependent on our selection of certain assumptions that are used by actuaries in calculating such amounts. Those assumptions are disclosed in Note 12 to our fiscal 2016 consolidated financial statements and include the discount rates, expected long-term rate of return on plan assets and rates of future increases in compensation and healthcare costs. Changes in these assumptions can result in the calculation of different plan expense and liability amounts.  Further, actual experience can differ from the assumptions and these differences are typically accounted for as actuarial gains or losses that are amortized over future periods.

The weighted average pension discount rate assumptions of 4.03%, 3.83%, and 4.60%, as of March 31, 2016, 2015, and 2014, respectively, are based on long-term AA rated corporate and municipal bond rates. At September 2, 2015, the Company used a discount rate assumption of 4.30% in valuing the pension plan obligation acquired in the Magnetek acquisition. The change in the discount rate at March 31, 2016 did not result in a significant change in the total projected benefit obligation. The Company adopted updated mortality tables in calculating its U.S. pension obligation. The change in mortality tables resulted in a $5,700,000 increase in the projected benefit obligation. The rate of return on plan assets assumptions of 7.22% for the year ended March 31, 2016, and 7.50% for the years ended March 31, 2015 and 2014 is based on the targeted plan asset allocation (approximately 65% equities and 35% fixed income) and their long-term historical returns. Our under-funded status for all pension plans as of March 31, 2016 and 2015 was $103,279,000 and $57,339,000, or 24.5% and 21.9% of the projected benefit obligation, respectively. Our pension contributions during fiscal 2016 and 2015 were approximately $5,936,000 and $11,013,000, respectively. The under-funded status may result in future pension expense increases.  Pension benefit for the March 31, 2017 fiscal year is expected to approximate $983,000, comparable to the fiscal 2016 benefit of $1,208,000.  Pension funding contributions for the March 31, 2017 fiscal year are expected to approximate $5,961,000. The weighted-average compensation increase assumption of 0.44% as of March 31, 2016 and 2.30% and 2.00% as of March 31, 2015 and 2014, respectively is based on expected wage trends and historical patterns.
 
The healthcare costs inflation assumptions of 6.8% for fiscal 2016 and 7.0% for fiscal 2015 and 2014, respectively, are based on anticipated trends.  While the healthcare inflation rate assumptions have been decreasing, healthcare costs continue to outpace inflation in the U.S.


35



Insurance Reserves.  Our accrued general and product liability reserves as described in Note 15 to consolidated financial statements involve actuarial techniques including the methods selected to estimate ultimate claims, and assumptions including emergence patterns, payment patterns, initial expected losses and increased limit factors. These actuarial estimates are subject to a high degree of uncertainty due to a variety of factors, including extended lag time in the reporting and resolution of claims, trends or changes in claim settlement patterns, insurance industry practices, and legal interpretations. Changes to these estimates could result in material changes to the amount of expense and liabilities recorded in our financial statements. Further, actual costs could differ significantly from the estimated amounts.  Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs.  Other insurance reserves such as workers compensation and group health insurance are based on actual historical and current claim data provided by third party administrators or internally maintained.

Goodwill impairment testing.  Our goodwill balance of $170,716,000 as of March 31, 2016 is subject to impairment testing.  We test goodwill for impairment at least annually, as of the end of February, and more frequently whenever events occur or circumstances change that indicate there may be impairment.  These events or circumstances could include a significant long-term adverse change in the business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.

We test goodwill at the reporting unit level, which is one level below our operating segment.  We identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.  We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes, classes of customers, or in circumstances where the components share assets or other resources and have other economic interdependencies). We have four reporting units, only two of which have goodwill. Duff-Norton and Rest of Products reporting units have goodwill totaling $9,627,000, and $161,089,000, respectively, at March 31, 2016.

When we evaluate the potential for goodwill impairment, we assess a range of qualitative factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a two-step impairment test. We also proceed to the two-step model when economic or other business factors indicate that the fair value of our reporting units may have declined since our last quantitative test. We performed the qualitative assessment as of February 29, 2016 and determined that the two-step goodwill impairment test should be performed for both the Rest of Products reporting unit and the Duff-Norton reporting unit due to the decline in our stock price during fiscal 2016.

In order to perform the two-step impairment test, we use the discounted cash flow method and comparable market method to estimate fair value. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five-year period. In estimating the terminal growth rate, we consider our historical and projected results, as well as the economic environment in which the reporting unit operates. The discount rates utilized for each reporting unit reflect management’s assumptions of marketplace participants’ cost of capital and risk assumptions, both specific to the reporting unit and overall in the economy. The comparable market method estimates fair value based on prices obtained in actual transactions. The method consists of examining selling prices for comparable assets. After studying the selling prices, value adjustments are made for any dissimilarities.


36



We performed step one of the two-step impairment test for the Rest of Products and Duff Norton reporting units. Testing goodwill for impairment under the two-step method requires us to estimate fair values of reporting units using significant estimates and judgmental factors. The key estimates and factors used in our discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts, terminal value, and the weighted-average cost of capital used to discount future cash flows. The compound annual growth rate for revenue during the first five years of our projections was approximately 4.6% for the Rest of Products reporting unit and 4.0% for the Duff-Norton reporting unit. The terminal value was calculated assuming a projected growth rate of 3.0% after five years for both reporting units. These rates reflect our estimate of long-term growth into perpetuity and approximate the long-term gross domestic product growth expected on a global basis as well as our normal annual price increases. The estimated weighted-average cost of capital for the reporting units was determined to be 9.9% and 10.0% for the Rest of Products and Duff-Norton reporting units, respectively based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization. We also consider any additional risk of the Duff-Norton and Rest of Product reporting units achieving their forecast, and adjust the weighted-average cost of capital applied when determining the reporting unit’s estimated fair value. Future changes in these estimates and assumptions could materially affect the results of our goodwill impairment tests. For example, a decline in the terminal growth rate by 50 basis points would decrease fair market value by $10,210,000 and $1,775,000 and an increase in the weighted-average cost of capital by 100 basis points would result in a decrease in fair market value by $32,840,000 and $4,543,000 for the Rest of Products and Duff-Norton reporting units, respectively. Even with such changes the fair value of the reporting units would be greater than their net book values as of February 29, 2016, necessitating no Step 2 calculations.

Purchase Price Allocations for Business Combinations. During the fiscal year ended March 31, 2016, we completed a business combination for a total purchase price of $190,672,000. Under purchase accounting, we recorded assets and liabilities at fair value as of the acquisition dates. We identified and assigned value to trademarks and trade names, customer relationships, non-compete agreements, backlog, and patents. We estimated the useful lives over which these intangible assets would be amortized. Valuations of these assets were performed largely using discounted cash flow models and estimates of replacement cost. These valuations support the conclusion that identifiable intangible assets had a value of $105,998,000. The resulting goodwill was $49,204,000.

Assigning value to intangible assets requires estimates used in projecting relevant future cash flows and estimates of replacement costs, in addition to estimating useful lives of such assets.

Accounts Receivable Reserves.  Allowances for doubtful accounts and credit memo reserves are also judgmentally determined based on formulas applied to historical bad debt write-offs and credit memos issued, assessing potentially uncollectible customer accounts and analyzing the accounts receivable aging. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted.  At March 31, 2016 the allowance for doubtful accounts totaled $2,177,000.

Impairment of depreciable and amortizable long-lived assets.  Property, plant and equipment and certain intangibles are depreciated or amortized over their assigned lives. We test long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable and exceed their fair market value.  The following summarizes the value of long-lived assets subject to impairment testing when events or circumstances indicate potential impairment (amounts in millions):

 
Balance as of
March 31,
2016
Property, plant and equipment, net
$
104.8

Acquired intangibles with estimable useful lives
93.1

Other assets
11.3


Impairment may exist if the carrying amount of the asset in question exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.  The impairment loss, if any, would be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair market value as determined by appropriate valuation techniques.

Marketable Securities.  On a quarterly basis, we review our marketable securities for declines in market value that may be considered other than temporary.  We generally consider market value declines to be other than temporary if there are declines for a period longer than six months and in excess of 20% of original cost.  We also consider the nature of the underlying investments and other market conditions or when other evidence indicates impairment.


37


Effects of New Accounting Pronouncements

Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated financial statements included in this March 31, 2016 10K report.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by us and our subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall market acceptance of such products and services, facility consolidations and other restructurings, our asbestos-related liability, the integration of acquisitions and other factors disclosed in our periodic reports filed with the Commission. Consequently such forward-looking statements should be regarded as our current plans, estimates and beliefs. We do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.


38


Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
 
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We are exposed to various market risks, including commodity prices for raw materials, foreign currency exchange rates and changes in interest rates. We may enter into financial instrument transactions, which attempt to manage and reduce the impact of such changes. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Our primary commodity risk is related to changes in the price of steel.  We control this risk through negotiating purchase contracts on a consolidated basis and by attempting to build changes in raw material costs into the selling prices of or surcharges on our products.  We have not entered into financial instrument transactions related to raw material costs.

In fiscal 2016, 37% of our net sales were from manufacturing plants and sales offices in foreign jurisdictions. We manufacture our products in the United States, China, Germany, United Kingdom, Hungary, Mexico and France and sell our products in approximately 50 countries. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. Our operating results are exposed to fluctuations between the U.S. Dollar and the Canadian Dollar, European currencies, the South African Rand, the Mexican Peso, the Brazilian Real, and the Chinese Yuan. For example, when the U.S. dollar weakens against the Euro, the value of our net sales and net income denominated in Euros increases when translated into U.S. dollars for inclusion in our consolidated results. We are also exposed to foreign currency fluctuations in relation to purchases denominated in foreign currencies. Our foreign currency risk is mitigated since the majority of our foreign operations’ net sales and the related expense transactions are denominated in the same currency so therefore a significant change in foreign exchange rates would likely have a very minor impact on net income.  For example, a 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $800,000 on our income from operations. In addition, the majority of our export sale transactions are denominated in U.S. dollars.

The Company has foreign currency forward agreements in place to offset changes in the value of intercompany loans to foreign subsidiaries due to changes in foreign exchange rates. The notional amount of these derivatives is $2,118,000 and all of the contracts mature by June 30, 2016. These contracts are marked to market each balance sheet date and are not designated as hedges.

The Company has foreign currency forward agreements that are designated as cash flow hedges to hedge a portion of forecasted inventory purchases denominated in foreign currencies. The notional amount of those derivatives is $14,585,000 and all contracts mature within twelve months of March 31, 2016. From its March 31, 2016 balance of AOCL, the Company expects to reclassify approximately $207,000 out of AOCL during the next 12 months based on the underlying transactions of the sales of the goods purchased.

The Company's policy is to maintain a capital structure that is comprised of 50-70% of fixed rate long-term debt and 30-50% of variable rate long-term debt. The Company entered into two interest rate swap agreements in which the Company receives interest at a variable rate and pays interest at a fixed rate. These interest rate swap agreements are designated as cash flow hedges to hedge changes in interest expense due to changes in the variable interest rate of the senior secured term loan. The amortizing interest rate swaps mature on February 19, 2020 and have a total notional amount of $161,000,000 as of March 31, 2016. The effective portion of the changes in fair values of the interest rate swaps is reported in AOCL and will be reclassified to interest expense over the life of the swap agreements. The ineffective portion was not material and was recognized in the current period interest expense. From its March 31, 2016 balance of AOCL, the Company expects to reclassify approximately $700,000 out of AOCL, and into interest expense, during the next 12 months.


39


Item 8.        Financial Statements and Supplemental Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Columbus McKinnon Corporation

Audited Consolidated Financial Statements as of March 31, 2016:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements Of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
 
1
Description of Business
2
Accounting Principles and Practices
3
Acquisitions
4
Fair Value Measurements
5
Inventories
6
Marketable Securities
7
Property, Plant, and Equipment
8
Goodwill and Intangible Assets
9
Derivative Instruments
10
Accrued Liabilities and Other Non-current Liabilities
11
Debt
12
Pensions and Other Benefit Plans
13
Employee Stock Ownership Plan (ESOP)
14
Earnings per Share and Stock Plans
15
Loss Contingencies
16
Income Taxes
17
Rental Expense and Lease Commitments
18
Business Segment Information
19
Selected Quarterly Financial Data (unaudited)
20
Accumulated Other Comprehensive Loss
21
Effects of New Accounting Pronouncements
 
 
 
Schedule II – Valuation and Qualifying Accounts.

40


Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Shareholders of Columbus McKinnon Corporation

We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation as of March 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbus McKinnon Corporation at March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 16 to the consolidated financial statements, the Company changed its method of presenting deferred tax assets and liabilities in the consolidated balance sheet as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” effective March 31, 2016.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Columbus McKinnon Corporation’s internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 1, 2016 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP
 
Buffalo, New York
June 1, 2016

41


COLUMBUS McKINNON CORPORATION

CONSOLIDATED BALANCE SHEETS
 
 
 
March 31,
 
 
2016
 
2015
 
 
(In thousands, except share data)
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
51,603

 
$
63,056

Trade accounts receivable, less allowance for doubtful accounts ($2,177 and $2,155, respectively)
 
83,812

 
80,531

Inventories
 
118,049

 
103,187

Prepaid expenses and other
 
19,265

 
27,255

Total current assets
 
272,729

 
274,029

Net property, plant, and equipment
 
104,790

 
91,127

Goodwill
 
170,716

 
121,461

Other intangibles, net
 
122,129

 
19,104

Marketable securities
 
18,186

 
19,867

Deferred taxes on income
 
73,158

 
28,695

Other assets
 
11,336

 
12,041

Total assets
 
$
773,044

 
$
566,324

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Trade accounts payable
 
$
36,061

 
$
33,406

Accrued liabilities
 
53,210

 
50,263

Current portion of long-term debt
 
43,246

 
13,292

Total current liabilities
 
132,517

 
96,961

Senior debt, less current portion
 
844

 
1,478

Term loan and revolving credit facility
 
223,735

 
111,942

Other non-current liabilities
 
129,639

 
87,224

Total liabilities
 
486,735

 
297,605

Shareholders’ equity:
 
 

 
 

Voting common stock: 50,000,000 shares authorized; 20,109,868 and 19,989,548 shares issued and outstanding
 
201

 
200

Additional paid-in capital
 
206,682

 
203,156

Retained earnings
 
174,173

 
157,811

Accumulated other comprehensive loss
 
(94,747
)
 
(92,448
)
Total shareholders’ equity
 
286,309

 
268,719

Total liabilities and shareholders’ equity
 
$
773,044

 
$
566,324

 
See accompanying notes.

42


COLUMBUS McKINNON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Year Ended March 31,
 
 
2016
 
2015
 
2014
 
 
(In thousands, except per share data)
Net sales
 
$
597,103

 
$
579,643

 
$
583,290

Cost of products sold
 
409,840

 
398,036

 
402,242

Gross profit
 
187,263

 
181,607

 
181,048

Selling expenses
 
72,858

 
69,819

 
68,963

General and administrative expenses
 
68,811

 
54,874

 
55,754

Amortization of intangibles
 
5,024

 
2,266

 
1,981

Income from operations
 
40,570

 
54,648

 
54,350

Interest and debt expense
 
7,904

 
12,390

 
13,492

Cost of bond redemption
 

 
8,567

 

Investment (income) loss
 
(796
)
 
(2,725
)
 
(1,595
)
Foreign currency exchange loss (gain)
 
2,215

 
863

 
1,124

Other income, net
 
(377
)
 
(462
)
 
(1,393
)
Income from continuing operations before income tax expense
 
31,624

 
36,015

 
42,722

Income tax expense
 
12,045

 
8,825

 
12,301

Net income
 
$
19,579

 
$
27,190

 
$
30,421

 
 
 
 
 
 
 
Average basic shares outstanding
 
20,079

 
19,939

 
19,655

Average diluted shares outstanding
 
20,315

 
20,224

 
19,950

 
 
 
 
 
 
 
Basic income per share
 
$
0.98

 
$
1.36

 
$
1.55

 
 
 
 
 
 
 
Diluted income per share
 
$
0.96

 
$
1.34

 
$
1.52

 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.16

 
$
0.16

 
$
0.04

 
See accompanying notes.

43


COLUMBUS McKINNON CORPORATION
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
 
March 31,
 
 
2016
 
2015
 
2014
 
 
(In thousands)
Net income
 
$
19,579

 
$
27,190

 
$
30,421

Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

Foreign currency translation adjustments
 
3,650

 
(29,907
)
 
3,067

Pension liability adjustments, net of taxes of $4,635, $12,409, and $(8,086)
 
(5,394
)
 
(19,724
)
 
12,595

 
 
 
 
 
 
 
Other post retirement obligations adjustments, net of taxes of $(372), $233, and $(49)
 
604

 
(371
)
 
75

 
 
 
 
 
 
 
Split-dollar life insurance arrangement adjustments, net of taxes of $(66), $42, and $(43)
 
105

 
(67
)
 
68

 
 
 
 
 
 
 
Change in derivatives qualifying as hedges, net of taxes of $430, $233, and $(119)
 
(1,031
)
 
(334
)
 
254

Change in investments:
 
 

 
 

 
 

Unrealized holding (loss) gain arising during the period, net of taxes of $43, $(234), and $(35)
 
(79
)
 
433

 
395

Reclassification adjustment for gain included in net income, net of taxes of $83, $723, and $773
 
(154
)
 
(1,342
)
 
(1,435
)
Net change in unrealized gain (loss) on investments
 
(233
)
 
(909
)
 
(1,040
)
Total other comprehensive income (loss)
 
(2,299
)
 
(51,312
)
 
15,019

Comprehensive income (loss)
 
$
17,280

 
$
(24,122
)
 
$
45,440

 

 
See accompanying notes.

44


COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
 
 
Common
Stock
($0.01 par value)
 
Additional
 Paid-in
Capital
 
Retained
Earnings
 
ESOP
Debt
Guarantee
 
Accumulated
Other
 Comprehensive
 Loss
 
Total
Shareholders’
Equity
Balance at April 1, 2013
 
$
195

 
$
192,308

 
$
104,191

 
$
(552
)
 
$
(56,155
)
 
$
239,987

Net income 2014
 

 

 
30,421

 

 

 
30,421

Dividends declared
 

 

 
(792
)
 

 

 
(792
)
Change in foreign currency translation adjustment
 

 

 

 

 
3,067

 
3,067

Change in net unrealized gain on  investments, net of tax of $695
 

 

 

 

 
(1,040
)
 
(1,040
)
Change in derivatives qualifying as hedges, net of tax of $119
 

 

 

 

 
254

 
254

Change in pension liability and postretirement obligations, net of tax of $8,178
 

 

 

 

 
12,738

 
12,738

Stock compensation - directors
 

 
315

 

 

 

 
315

Stock options exercised, 229,516 shares
 
2

 
2,192

 

 

 

 
2,194

Stock compensation expense
 

 
3,318

 

 

 

 
3,318

Tax effect of exercise of stock options
 
 
 
613

 
 
 
 
 
 
 
613

Earned 25,611 ESOP shares
 

 
195

 

 
410

 

 
605

Restricted stock units released, 56,203 shares, net of shares withheld for minimum statutory tax obligation
 
1

 
(395
)
 

 

 

 
(394
)
Balance at March 31, 2014
 
$
198

 
$
198,546

 
$
133,820

 
$
(142
)
 
$
(41,136
)
 
$
291,286

Net income 2015
 

 

 
27,190

 

 

 
27,190

Dividends declared
 

 

 
(3,199
)
 

 

 
(3,199
)
Change in foreign currency translation adjustment
 

 

 

 

 
(29,907
)
 
(29,907
)
Change in net unrealized gain on  investments, net of tax of $489
 

 

 

 

 
(909
)
 
(909
)
Change in derivatives qualifying as hedges, net of tax of $233
 

 

 

 

 
(334
)
 
(334
)
Change in pension liability and postretirement obligations, net of tax of $12,684
 

 

 

 

 
(20,162
)
 
(20,162
)
Stock compensation - directors
 

 
440

 

 

 

 
440

Stock options exercised, 87,210 shares
 
2

 
1,605

 

 

 

 
1,607

Stock compensation expense
 

 
3,455

 

 

 

 
3,455

Tax effect of exercise of stock options
 

 
(65
)
 

 

 

 
(65
)
Earned 8,369 ESOP shares
 

 
109

 

 
142

 

 
251

Restricted stock units released,78,734 shares, net of shares withheld for minimum statutory tax obligation
 

 
(934
)
 

 

 

 
(934
)
Balance at March 31, 2015
 
$
200

 
$
203,156

 
$
157,811

 
$

 
$
(92,448
)
 
$
268,719

Net income 2016
 

 

 
19,579

 

 

 
19,579

Dividends declared
 

 

 
(3,217
)
 

 

 
(3,217
)
Change in foreign currency translation adjustment
 

 

 

 

 
3,650

 
3,650

Change in net unrealized gain on investments, net of tax of $126
 

 

 

 

 
(233
)
 
(233
)
Change in derivatives qualifying as hedges, net of tax of $430
 

 

 

 

 
(1,031
)
 
(1,031
)
Change in pension liability and postretirement obligations, net of tax of $4,197
 

 

 

 

 
(4,685
)
 
(4,685
)
Stock compensation - directors
 

 
440

 

 

 

 
440

Stock options exercised, 16,033 shares
 
1

 
242

 

 

 

 
243

Stock compensation expense
 

 
3,623

 

 

 

 
3,623

Tax effect of exercise of stock options
 

 
118

 

 

 

 
118

Shares retired
 

 
(10
)
 

 


 

 
(10
)
Restricted stock units released, 75,370 shares, net of shares withheld for minimum statutory tax obligation
 

 
(887
)
 

 

 

 
(887
)
Balance at March 31, 2016
 
$
201

 
$
206,682

 
$
174,173

 
$

 
$
(94,747
)
 
$
286,309

 See accompanying notes.

45


COLUMBUS McKINNON CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Year ended March 31,
 
 
2016
 
2015
 
2014
Operating activities:
 
(In thousands)
Net income
 
$
19,579

 
$
27,190

 
$
30,421

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

 
 

Depreciation and amortization
 
20,531

 
14,562

 
13,380

Deferred income taxes
 
7,336

 
2,074

 
5,031

Gain on sale of real estate/investments and other
 
34

 
(1,897
)
 
(2,332
)
Cost of bond redemption
 

 
8,567

 

Impairment of assets
 
429

 

 

Amortization of deferred financing costs and discount on debt
 
600

 
805

 
870

Stock-based compensation
 
4,063

 
3,895

 
3,633

Changes in operating assets and liabilities, net of effects  of business acquisitions and divestitures:
 
 

 
 

 
 

Trade accounts receivable
 
12,409

 
8,302

 
(9,318
)
Inventories
 
2,483

 
(9,080
)
 
1,312

Prepaid expenses and other
 
(375
)
 
(3,192
)
 
(3,750
)
Other assets
 
3,179

 
(572
)
 
(273
)
Trade accounts payable
 
(5,308
)
 
1,084

 
(2,821
)
Accrued liabilities
 
(5,799
)
 
(872
)
 
1,081

Non-current liabilities
 
(6,516
)
 
(12,612
)
 
(7,727
)
Net cash provided by operating activities
 
52,645

 
38,254

 
29,507

Investing activities:
 
 

 
 

 
 

Proceeds from sale of marketable securities
 
5,869

 
6,919

 
6,689

Purchases of marketable securities
 
(4,311
)
 
(3,689
)