-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaQQwtUssdXtwRq7ueQeVWDWRYk7AzdfNCUq/RDt2GH4TUonnWjJ7ok7qO/QsRJ3 eNEHrfEECALNHDG9YTB76A== 0001005229-97-000004.txt : 19970630 0001005229-97-000004.hdr.sgml : 19970630 ACCESSION NUMBER: 0001005229-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBUS MCKINNON CORP CENTRAL INDEX KEY: 0001005229 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 160547600 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27618 FILM NUMBER: 97631847 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 FORM 10-K ANNUAL REPORT YEAR ENDED MAR-31-97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-27618 COLUMBUS McKINNON CORPORATION (Exact name of registrant as specified in its charter) New York 16-0547600 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 140 John James Audubon Parkway, Amherst, N.Y. 14228-1197 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (716) 689-5400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $0.01 Par Value NASDAQ National Market Securities pursuant to section 12(g) of the Act: None (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by non-affiliates of the registrant as of May 31, 1997 was $185,471,640. The number of shares of common stock outstanding as of May 31, 1997 was: 13,755,858 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual shareholders meeting to be held August 18, 1997 are incorporated by reference into Part III of this report. COLUMBUS McKINNON CORPORATION 1997 Annual Report on Form 10-K PART I ------ Item 1. Business. - ------- --------- Overview The Company, established in 1875, designs, manufactures and distributes a broad range of material handling, lifting and positioning products, which the Company sells in an increasing number of domestic and international markets. The Company's products are sold to distributors and end-users for various applications in the general manufacturing, overhead crane, mining, construction, transportation, entertainment, power generation, waste management, agriculture, marine, logging and medical markets. The Company also sells to the consumer market through hardware and farm equipment distributors, mass merchandisers and rental outlets. In fiscal 1997, the Company's total sales were approximately $359.4 million, of which commercial sales and consumer sales accounted for approximately $332.7 million and $26.7 million, respectively. Through innovative design and selective acquisitions, the Company has expanded its product lines to include specialized hoists for the entertainment industry, operator-controlled manipulators for a variety of manufacturing applications, patient lifters sold to health care providers, scissor lift tables, actuators, rotary unions and mechanical jacks. The Company believes that the demand for its products has increased in recent years and will continue to increase in the future as a result of trends in a broad array of industries that have enabled the Company to expand into new product areas and markets. These trends include: Productivity enhancement. In recent years employers have responded to competitive pressures by seeking to maximize productivity and efficiency. The Company's hoists and other lifting and positioning products allow loads to be lifted and placed quickly, precisely, with little effort, and with reduced personnel requirements. Safety regulations and concerns. Driven by federal and state workplace safety regulations such as the Occupational Safety and Health Act ("OSHA") and the Americans with Disabilities Act and by the general competitive need to reduce costs, such as health insurance premiums and workers' compensation expenses and by insurance concerns, employers seek safer ways to lift and position loads. The Company's lifting and positioning products enable these tasks to be performed with reduced risk of personal injury. Workforce diversity. The percentages of women, disabled and older persons in the work force are continuing to grow, as are the number of workplace tasks traditionally performed by men that are now performed by women. The Company's products enable many workplace tasks to be performed safely, efficiently and with less physical stress. The Company believes that increasing diversity in the workforce will continue to increase demand for its products. The Company believes that new competitors entering its various markets would face a number of obstacles. The Company has a large installed base of its products in place in a wide variety of settings, favorable brand name recognition, an active service-after-sale network through which end-users -2- purchase parts and service and an established network of distributors with many of whom the Company has preferred supplier status. The Company was incorporated under the laws of the State of New York in 1929. Its executive offices are located at 140 John James Audubon Parkway, Amherst, New York 14228-1197, and its telephone number is (716) 689-5400. Recent Acquisitions Over the last ten years, the Company has acquired eight (8) operations: o In 1989, the Company acquired Positech Corporation, a publicly-held designer and manufacturer of manipulators. This acquisition expanded the Company's product lines to include manipulators, which are designed to safely lift, grab and position loads, and expanded its markets for hoists and lifters. o In February 1994, the Company purchased the assets of Durbin-Durco, Inc., a manufacturer of load securement equipment and attachments. This acquisition provided the Company with metal stamping capabilities and a broad range of complementary products. o In December 1994, the Company purchased the assets of the Conco division of McGill Industries, Inc., a manufacturer of manipulators. This acquisition enhanced the Company's existing product line of manipulators. o In January 1995, the Company purchased certain assets of Cady Lifters, Inc., a manufacturer of "below the hook" lifters. Cady had 30 years experience in lifter technology. Cady pallet lifters, crane forks, steel coil lifters and C-hooks are used to help move heavy loads. o In October 1995, the Company purchased the remaining equity interest in Endor, a Mexican manufacturer of hoists. The Company had been a 49% owner of this company since 1979. This acquisition provides the Company with a manufacturing presence in Mexico and greater access to the Mexican marketplace for all of its products. o In November 1995, the Company acquired Lift-Tech, which is engaged in the manufacture and distribution of hoists and crane components, including wire rope and air-powered hoists. Lift-Tech's products complemented the Company's existing product lines, thereby enabling the Company to offer a broad product line to the marketplace. o In October 1996, the Company acquired the majority of the outstanding common equity of Spreckels Industries, Inc. ("Spreckels") through a cash tender offer. In January 1997, the Company acquired the remaining common equity of Spreckels and effected a merger. Spreckels, which has subsequently changed its name to Yale Industrial Products, Inc.("Yale"), manufactures a variety of lifting and positioning products, including hoists and scissor lifts; industrial components such as actuators, jacks and rotary unions; and circuit protection devices. This acquisition further complemented the Company's product line and also provided the Company with international operations and distribution facilities in Europe, South Africa and China. -3- o In December 1996, the Company acquired Lister Bolt & Chain, Ltd. ("Lister"), which is engaged in the manufacture of cement kiln, anchor and buoy chain and mining bolts. This transaction complemented the Company's line of chain products and provided the Company with access to new markets, particularly in the international marketplace. Products and Services The Company primarily designs, manufactures and distributes a broad range of material handling, lifting and positioning products for various applications in industry and for consumer use. Hoists. The Company manufactures a variety of hand-operated hoists and lever tools, air-powered hoists, electric chain hoists, and electric wire rope hoists. Load capacities for the Company's hoist product lines range from less than one ton to 30 tons. These products are sold under its Budgit, Chester, Coffing, Cyclone, Little Mule, Lodestar, Meteor, Puller, Shaw-Box, Valustar, Yale and other recognized trademarks. The Company's hoists are sold for use in a variety of general industrial applications, as well as for use in the entertainment, consumer, rental, health care and other emerging product markets. The Company also offers a line of custom-designed, below-the-hook tooling. Below-the-hook tooling is specialized lifting apparatus used in a variety of lifting activities performed in conjunction with hoist and chain applications. Lift-Tech's principal products, which include electric wire rope hoists, air-powered hoists, and chain hoists, generally complement the Company's other product offerings. The Company also supplies hoist trolleys, driven manually or by electric motors, for the industrial, consumer and OEM markets. Sales of hoists accounted for approximately 58% of the Company's revenues in fiscal 1997. Chain. The Company manufactures alloy chain for various industrial applications. Federal regulations in the United States favor the use of alloy chain, which the Company first developed, for overhead lifting applications because of its strength and wear characteristics. A line of the Company's alloy chain is sold under the Herc-Alloy brand name for use in overhead lifting, pulling and restraining applications. The Company also sells specialized load chain for use in hoists. Three grades and multiple sizes of carbon steel welded-link chain are sold by the Company in the industrial and consumer markets for various load securement and other non-overhead lifting applications. As a result of the acquisition of Lister, the Company now also manufactures kiln chain sold primarily to the cement and lime kiln manufacturing market and anchor and buoy chain sold primarily to the United States and Canadian governments. The Company also designs and manufactures its own chain making and chain repair equipment. Sales of chain represented approximately 15% of the Company's revenues in fiscal 1997. Forged Products. The Company manufactures a complete line of alloy and carbon steel forgings, including hooks, shackles, hitch pins, master links and loadbinders. These forgings are used in virtually all types of chain and wire rope rigging applications in a variety of industries, including transportation, mining, railroad, construction, marine, logging, petrochemical and agriculture. The Company also manufactures carbon steel forged and stamped products, such as loadbinders, hooks, shackles and other securement devices, for sale to the industrial, consumer and logging -4- markets through industrial distributors, hardware distributors, mass merchandiser outlets and original equipment manufacturers. Sales of forged products were approximately 15% of Company revenues in fiscal 1997. Industrial Components. The Company, through the Duff-Norton division of Yale, designs and manufactures industrial components such as mechanical and electromechanical actuators, mechanical jacks and rotary unions for sale domestically and abroad. Actuators are linear motion devices used in a variety of industries, including the paper, steel and aerospace industries. Mechanical jacks are heavy duty lifting devices whose uses include the repair and maintenance of railroad tracks, locomotives and industrial machinery. Rotary unions are piping devices which introduce heating or cooling liquids into the interiors of rotating drums in industrial processes in the paper, textiles, rubber, plastics, printing and machine tool industries. Sales of industrial components represented approximately 5% of the Company's revenues in fiscal 1997. Manipulators. The Company manufactures a line of sophisticated operator-controlled manipulators. These products are articulated mechanical arms with specialized end tooling designed to perform lifting, rotating, turning, tilting, reaching and positioning tasks in a manufacturing process. Utilizing various models and size configurations, the Company can offer custom-designed hydraulic, pneumatic, and electric manipulators for a wide variety of applications where the user requires multi-axial movement in a harsh or repetitive environment. The Company also has the capability to manufacture more sophisticated, semi-robotic manipulators for specialized, repetitive motion applications and has manufactured simple pick and place robots. Sales of manipulators represented approximately 2% of Company revenues in fiscal 1997. Scissor Lifts. The American Lifts division of Yale manufactures hydraulic scissor lift tables and other engineered lifting products. These products enhance workplace ergonomics and are sold primarily to customers in the manufacturing, construction, general industrial and air cargo industries. Sales of scissor lifts and engineered lifting products represented approximately 2% of the Company's revenues in fiscal 1997. Tire Shredders. The Company manufactures a line of tire shredders, capable of reducing tires of up to 48 inch diameter to 2 inch or 1 inch square chips. Tire shredding allows for a broad range of recovery and recycling functions, including the use of granulated rubber from chips in pavement and in waste management systems, and as fuel in boilers and cement kilns. Steel in belted tires also can be recovered and recycled, further reducing waste from disposal of worn tires. In addition, tire shredding reduces required landfill space. As more uses are developed for tire chips and granulated rubber, the Company believes that the market for its tire shredders will grow. Sales of tire shredders accounted for approximately 2% of Company revenues in fiscal 1997. Circuit Protection Devices. The Mechanical Products division of Yale develops circuit protection devices for various aerospace and commercial applications. Circuit protection devices are sold to manufacturers of private, commercial and military aircraft, as well as NASA. In addition, they are also sold to original equipment manufacturers, electrical distributors -5- and for use in medical equipment, motor vehicles and other electrical components and equipment. Sales of circuit protection devices represented approximately 2% of the Company's revenues in fiscal 1997. Sales and Marketing The Company supports its commercial and consumer sales through independent sales forces and through independent manufacturing agents worldwide, including over 125 factory-trained salespersons who sell hoists, chain, forged products, manipulators, lift-tables, rotary unions, actuators, jacks, circuit breakers and related material handling accessories. Sales are supported through over 150 independent manufacturers representatives. Commercial and consumer sales are further supported by over 140 Company-trained customer service correspondents and sales application engineers. The Company promotes its products by advertising in trade journals and by participating in more than 50 trade shows each year throughout the United States and abroad. Trade shows are central to promotion of the Company's products and, in certain cases, for actual sale of the Company's products, particularly to hardware distributors. Shows in which the Company participates range from global events held in Hanover, Germany ("Hanover Fair"), Cologne, Germany ("Cologne Show") and Chicago, Illinois ("International Machine Tool Show") to local "markets" and "open houses" put on by individual hardware and industrial distributors. The Company also attends specialty shows for the entertainment, rental, safety, environmental recycling and health care markets, as well as general purpose industrial and consumer hardware shows. In fiscal 1997 the Company participated in trade shows in Canada, Mexico, Germany, England, Japan, Singapore, Malaysia, Greece, South Africa, China and Peru, as well as in the United States. The Company's communication program encompasses advertisements in leading trade journals as well as producing and distributing high quality information catalogs. On-site distributors and end-user training programs are held worldwide to promote and reinforce the attributes of the Company's products. The Company has two Web sites on the Internet (http://www.cmworks.com and http://www.Industry.net/cm). The Company supports its product distribution by running cooperative "pull-through" advertising in over 60 vertical trade magazines and directories targeted to the theatrical, international, consumer, medical, tire shredder and crane builder markets. The Company has separate ads for chain, hoists, forgings, lifters, manipulators, lift tables, actuators, hydraulic jacks, tire shredders, mobility systems and hardware programs. Distribution and Markets Commercial Distribution. In fiscal 1997, commercial sales of industrial products totalled approximately $332.7 million or 93% of total sales. The Company supports industrial products sales to distribution channels and end-users with a direct sales force of approximately 125 salespersons worldwide. Commercial distribution channels include industrial wholesale distributors, rigging -6- shops, crane builders, catalog distributors, material handling specialists, entertainment equipment distributors, service-after-sale distributors and other general and specialty distributors. General Distribution Channels: o Industrial distributors sell a variety of products for maintenance, repair, operation and production ("MROP") applications through their own direct sales force. o Rigging shops are distributors who are experts in the rigging, lifting, positioning and load securement areas of material handling. Most rigging shops manufacture and distribute chain, wire rope and synthetic slings and distribute off-the-shelf hoists and attachments, chain slings, and sell off-the-shelf products. o Crane builders design, build and install overhead crane and light-rail systems for general industry and sell a wide variety of hoists and lifting attachments. Specialty Distribution Channels: o Catalog distributors market a variety of maintenance, repair, operation and production supplies and material handling products either exclusively through catalogs, or through a combination of catalog sales and a field sales force. The customer base of catalog distributors, which traditionally included smaller industrial companies and consumers, has expanded to include large industrial accounts and integrated suppliers. o Material handling distributors design and assemble systems incorporating hoists, overhead rail systems, trolleys, lift tables, manipulators, air balancers, jib arms and other products. o Entertainment equipment distributors design, supply and install a variety of material handling equipment for concerts, theaters, ice shows, sports arenas, convention centers and discos. Service-After-Sale Distribution Channel: o Service-after-sale distributors include over 150 repair parts distribution centers, 13 chain repair service stations and over 300 hoist and other product service and repair stations worldwide. This service network is designed for easy parts and service access for the Company's large installed base of hoists and related equipment. Other Sales Channels: o Original equipment manufacturers supply various component parts for industrial manufacturers as well as private branding and packaging of traditional Company products for material handling and lifting. Sales in this area have grown with the addition of the Mechanical Products division of Yale which manufactures industrial and commercial circuit breakers, and with Duff-Norton division of Yale which manufactures rotary unions and actuators. o Government sales are sold direct by the Company and have expanded with the acquisition of Lister which manufactures anchor, buoy and mooring chain for the American and Canadian Navy and Coast Guard. -7- Consumer Distribution. The Company's consumer sales, consisting primarily of carbon steel chain and assemblies, forged attachments and hand-powered hoists, were approximately $26.7 million or 7% of total sales in fiscal 1997. Distribution of these products is primarily comprised of five channels: hardware distribution (such as Servistar, Distribution America and Ace Hardware); one step retailers (such as Menards and Canadian Tire); trucking and transportation distributors (such as Trail Mobile and Fruehauf); farm hardware distributors (such as Case and TSC); and the newly targeted rental sales distributors. Customer Service and Training The Company maintains well-trained customer service departments for all of its sales divisions, and regularly schedules product and service training schools for all customer service representatives and field sales forces. In addition, training schools for distribution, service stations, and end-users are held on a regular basis at most of the Company's facilities as well as in the field. The Company has more than 300 service stations worldwide that provide local and regional repair, warranty and general service work for distribution and end-users. End-user trainees attending various training schools maintained by the Company include General Motors, Dupont, 3M, GTE, Cummins Engines, General Electric and many other large industrial manufacturers. The Company also provides a variety of collateral material in video, cassette, CD-ROM, slide and literature format addressing such relevant material handling topics as the care, use and inspection of chains and hoists, and overhead lifting and positioning safety. The Company also sponsors seven separate advisory boards made up of representatives of its primary distributors and service-after-sale network members who are invited to participate in discussions focused on improving products and service. These boards enable the Company and its primary distributors to exchange product and market information relevant to industry trends. Competition The markets in which the Company operates are highly competitive and the Company faces competition from a number of different manufacturers in each of its product areas and geographic markets, domestic and foreign. The Company competes in the sale of hoists with Demag, Kito-Harrington, Ingersoll-Rand and P&H; in chain and attachments with Cooper Tools, Peerless Chain Company and American Chain and Cable Company; in forged products with the Crosby Group, Chicago Hardware and Cooper Tools; and in actuators and rotary unions with Deublin and Joyce-Dayton. The principal competitive factors affecting the market for the Company's products include performance, functionality, price, brand recognition, customer service and support and product availability. Some of the Company's competitors have greater financial and other resources than the Company. Production The Company emphasizes efficient, safe production in all of its manufacturing operations. Seven of the Company's manufacturing facilities have been certified as ISO 9000 qualified, and all -8- of the others are preparing for qualification review. At several of its facilities, the Company employs continuous flow manufacturing analytical techniques to support manufacturing process improvements. Employees At May 31, 1997, the Company had 3,479 employees, 2,973 in the United States, 237 in Canada, 118 in Mexico, 26 in China and 125 in Europe. Approximately 1,225 of the Company's employees are represented under eleven separate collective bargaining agreements which terminate at various times between January 31, 1998 and June 1, 2001. During the past five years, the only interruption or curtailment of the Company's business due to labor dispute was a 29-day work stoppage at the Cobourg, Ontario plant in fiscal 1994, and a five-day work stoppage at a Yale plant in Charlotte, North Carolina in fiscal 1997. The Company believes that its relationship with its employees is good. In support of this relationship, the Company has maintained an Employee Stock Ownership Plan since 1988 and also uses incentive-based compensation programs that are linked to the Company's profitability. Backlog The Company's backlog of orders at March 31, 1997 was approximately $58.9 million. The Company's orders for standard products are generally shipped within one week. Orders for products that are manufactured to customer's specifications are generally shipped within four weeks. Accordingly, the Company does not believe that the amount of its backlog orders is a reliable indication of its future sales. Environmental and Other Governmental Regulation Like many manufacturing companies, the Company is subject to various federal, state and local laws relating to the protection of the environment. To address the requirements of such laws, the Company has adopted a corporate environmental protection policy which provides that all facilities owned or leased by the Company shall, and all employees of the Company have the duty to, comply with all applicable environmental regulatory standards, and the Company has initiated an environmental auditing program for its facilities to ensure compliance with such regulatory standards. The Company has also established managerial responsibilities and internal communication channels for dealing with environmental compliance issues that may arise in the course of its business. Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time-to-time requiring the Company to incur expenditures in order to ensure environmental regulatory compliance. However, the Company is not aware of any environmental condition or any operation at any of its facilities, either individually or in the aggregate, which would cause expenditures that would result in a material adverse effect on the Company's results of operations or financial condition and, accordingly, has not budgeted any material capital expenditures for environmental compliance for fiscal 1998. Certain federal and state laws, sometimes referred to as Superfund laws, require certain companies to remediate, or clean up, sites that are contaminated by hazardous substances. This -9- applies to sites owned or operated by a company, as well as certain off-site areas for which a company may be jointly and severally liable with other companies or persons. The required remedial activities are usually performed in the context of administrative or judicial enforcement proceedings brought by regulatory authorities. The Company is involved in one judicial environmental enforcement proceeding regarding a site that it neither owns nor operates but with regard to which it has been identified by a governmental authority as one of several potentially responsible parties ("PRPs"). The Company has recently been involved in seven administrative enforcement proceedings in connection with the remediation of certain facilities, two of which it owns and operates and five of which it neither owns nor operates but with regard to which it is one of several identified PRPs. The Company has been and is cooperating with the regulatory authorities in connection with these environmental proceedings. From the perspective of the Company, with the exception of the three environmental administrative proceedings discussed below, these matters have been, and are expected to continue to be, minor matters not requiring substantial effort or expenditure on the part of the Company. The first environmental administrative proceeding is one in which the Company has completed a site remediation project at its manufacturing facility located in Tonawanda, New York ("Tonawanda Site") under a consent order with the New York State Department of Environmental Conservation ("NYSDEC"). The presence of certain contaminants in the soil and nearby stream sediments resulted in the listing of the Tonawanda Site on NYSDEC's registry of inactive hazardous waste disposal sites ("Registry"). The costs of the remediation of approximately $7.0 million have been paid in full by the Company, and NYSDEC has approved the final engineering report and certification submitted by the Company's technical consultant. The Tonawanda Site has officially been removed from the Registry as of June 1996. The second environmental administrative proceeding is one in which the Company has been identified by NYSDEC, along with other companies, as a PRP at the Frontier Chemical Site in Pendleton, New York ("Pendleton Site"), a site listed on NYSDEC's Registry. From 1958 to 1977, the Pendleton Site had been operated as a commercial waste treatment and disposal facility by Frontier Chemical Waste Process, Inc. ("Frontier"). The Company sent waste pickle liquor generated at its facility in Tonawanda, New York to the Pendleton Site during the period from approximately 1969 to 1977, and the Company is participating with other PRPs in conducting the remediation of the Pendleton site under a consent order with NYSDEC. The approved remedial action plan consisted of excavation, consolidation and encapsulation at the Pendleton Site of contaminated sediments and soils, as well as pumping and, to the extent necessary, treating impacted groundwater. As a result of a negotiated cost allocation among the participating PRPs, the Company has paid its pro rata share of the remediation costs and accrued its share of the ongoing operations and maintenance costs. As of March 31, 1997, the Company has paid or accrued approximately $1.1 million in remediation and ongoing operations and maintenance costs associated with the Pendleton Site. The participating PRPs have identified and commenced a cost recovery action against a number of other parties who sent hazardous substances to the Pendleton site and who, in the view of participating PRPs, should bear their pro rata shares of the site remediation costs. If any of the currently nonparticipating parties identified by the participating PRPs pay their pro rata shares of the remediation costs, then the Company's share of total site remediation costs will decrease. The Company also believes that some or all of its costs associated with the Pendleton Site may be covered by policies of liability insurance purchased by the Company. All of the Company's liability insurance carriers have been notified of this occurrence and, with certain exceptions, all have denied coverage in connection with the Pendleton Site. The Company is in the process of negotiating a settlement with one of its insurance carriers for a portion of the past and anticipated future costs. -10- However, there can be no assurance that any of the Company's past or present insurers will pay any portion of the Company's pro rata share of the remediation costs for the Pendleton Site. The third environmental administrative proceeding involves Mechanical Products, Inc., a subsidiary of Yale ("MPI"). In 1987, MPI discovered that groundwater and certain soils at and near its Jackson, Michigan plant contained certain organic chemical compounds in concentrations above those permitted by applicable law. MPI conducted an extensive investigation of the site and entered into an Administrative Order by Consent with the State of Michigan Department of Natural Resources which provides for further investigation and the development and implementation of a plan for remedial action. Since 1991, MPI has been engaged in efforts to investigate and remediate the impacted areas. As of March 31, 1997, the Company has paid or accrued approximately $ 5.0 million in remediation and ongoing operations and maintenance costs associated with this site. For all of the currently known environmental matters, the Company has accrued a total of approximately $5.35 million as of March 31, 1997, which, in the opinion of the Company's management, is sufficient to deal with such matters. Further, the Company's management believes that the environmental matters known to, or anticipated by, the Company should not, individually or in the aggregate, have a material adverse effect on the Company's cash flow, results of operations or financial condition. However, there can be no assurance that potential liabilities and expenditures associated with unknown environmental matters, unanticipated events, or future compliance with environmental laws and regulations will not have a material adverse effect on the Company. The Company's operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally OSHA and regulations thereunder. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse effect on its cash flow, results of operations or financial condition. Item 2. Properties. - ------- ----------- The Company maintains its corporate headquarters in Amherst, New York and conducts its principal manufacturing and distribution operations at the following facilities: Location Utilization Square Footage Owned or Leased United States: Amherst, NY Headquarters 52,000(a) Leased(b) Muskegon, MI Hoist manufacturing 500,000 Owned Forrest City, AR Hoist manufacturing 257,000 Leased Charlotte, NC Industrial component 250,000 Leased manufacturing Tonawanda, NY Patient lifter, 187,630(c) Owned manipulator and forged product manufacturing and warehouse -11- Wadesboro, NC Hoist manufacturing 180,000 Owned Lexington, TN Chain manufacturing 153,230 Owned Cedar Rapids, IA Forging 100,000 Owned Reform, AL Stamping factory 99,760 Owned Damascus, VA Hoist manufacturing 87,400 Owned Abingdon, VA Hoist manufacturing 87,000 Owned Chattanooga, TN Forging 77,000 Owned Greensburg, IN Scissor lift 60,000 Owned manufacturing Jackson, MI Circuit device 53,000 Owned manufacturing Hollywood, MD Circuit device 53,000 Owned manufacturing Laurens, IA Manipulator 50,350 Owned manufacturing Lisbon, OH Hoist manufacturing 37,000 Owned Chattanooga, TN Forging 33,000 Owned Sarasota, FL Tire shredder 24,954 Owned manufacturing Blaine, WA Chain manufacturing 15,800 Owned Romeoville, IL Chain warehouse 12,800 Leased Ontario, CA Chain warehouse 12,600 Leased Woodland, CA Hoist warehouse 10,000 Leased Houston, TX Chain warehouse 7,800 Leased Milwaukie, OR Warehouse 7,500 Leased Atlanta, GA Chain warehouse 6,679 Leased Edmonton, Alberta Distribution center 3,150 Leased Seattle, WA Chain warehouse Space as needed Leased International: Cobourg, Ontario, Chain and hoist 125,016 Owned Canada manufacturing Santiago Hoist manufacturing 85,000 Owned Tianguistenco, Mexico D.F. Richmond, British Chain manufacturing 56,000 Owned Columbia, Canada Velbert, Germany Hoist manufacturing 54,000 Leased Hangzhou, China Textile strapping 20,000 Leased manufacturing Cambridge, Ontario, Warehouse 11,200 Leased Canada -12- Rotterdam, Distribution center Space as needed Leased Netherlands ================================================================================ - ---------- (a) Approximately 26,000 square feet of the building are sublet through June 30, 1998. (b) Title to the property is vested in the Town of Amherst Industrial Development Agency pursuant to an Industrial Development Bond transaction. The Company has the right and obligation to purchase the property at the expiration of the lease term for $1.00. (c) Approximately 15,000 square feet of this facility are subject to leases which expire at various times through 1998. The Company also leases a number of sales offices and minor warehouses located throughout North America, Europe, Asia and South Africa. The Company believes that its properties have been adequately maintained, are in generally good condition and are suitable for the Company's business as presently conducted. The Company believes its existing facilities provide sufficient production capacity for its present needs and for its anticipated needs in the foreseeable future. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or enter into leases for alternative locations at market terms. Item 3. Legal Proceedings. - ------- ------------------ From time to time, the Company is named a defendant in legal actions arising out of the normal course of business. The Company is not a party to any pending legal proceeding the resolution of which the management of the Company believes will have a material adverse effect on the Company's cash flow, results of operations or financial condition or to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business. On November 18, 1996, an action entitled Miliken & Company vs. Duff-Norton Company, Inc. and Industrial Distribution Group, Inc. d/b/a Dixie Industrial Supply Company was commenced in the Superior Court of Troup County, Georgia. In its complaint in this action, the plaintiff alleges that a rotary union coupler manufactured by a subsidiary of Yale failed, causing a fire resulting in alleged damages to the plaintiff's carpet manufacturing facility and equipment in excess of $500 million. This action has been turned over to the Company's insurer and is in the early stages of discovery. The Company has denied all of the material allegations contained in the complaint and has asserted certain affirmative defenses. Based upon the advice of its counsel, the Company believes it has meritorious defenses to the causes of action specified in the complaint and intends to vigorously defend this action. Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- Not applicable. -13- PART II Item 5. Market for the Company's Common Stock and Related Security Holder - ------- ----------------------------------------------------------------- Matters. -------- The Company's Common Stock is listed on the National Association of Securities Dealers Automated Quotation System - National Market System ("NASDAQ") under the trading symbol "CMCO". The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of the Company's Common Stock as reported by NASDAQ. Fiscal 1997 Fiscal 1996 ---------------- ---------------- Low High Low High ------ ------ ------ ------ 1st Quarter 15-1/4 16-3/4 -- -- 2nd Quarter 13-7/8 15-5/8 -- -- 3rd Quarter 14-1/4 16-5/8 -- -- 4th Quarter 15-1/4 18-3/8 15-1/8 16-5/8 As of March 31, 1997, there were 149 holders of record of the Company's Common Stock. Over 2,000 additional shareholders hold shares of the Company's Common Stock in "street name". The Company declared total cash dividends on its common stock of $.27 per share and $.236 per share in fiscal 1997 and 1996, respectively. -14- Item 6. Selected Financial Data - ------- ----------------------- The selected financial data set forth below should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included elsewhere. Refer to the "Description of Business and Business Acquisitions" note to the consolidated financial statements regarding the unaudited pro forma information presented, which reflects the Yale, Lister and Lift-Tech acquisitions and related borrowings, and also the initial public offering as if they occurred on April 1, 1995, which is the beginning of fiscal 1996. 1997 1996 1995 1994 1993 --------------------------------------------------- (In thousands, except per share data) Income Statement Data: Net sales $ 359,424 $ 209,837 $ 172,330 $ 142,313 $ 128,338 Gross profit 107,437 60,326 47,838 38,786 35,118 Unusual charges (a) - 672 1,598 2,055 26 Income from operations before amortization 50,251 26,593 18,876 12,798 12,480 Income from operations 45,054 25,802 18,276 12,420 12,173 Interest and debt expense 11,930 5,292 2,352 2,126 2,464 Income before income taxes, minority interest, extraordinary charge, and cumulative effect of accounting change 34,292 21,644 16,396 10,665 9,975 Extraordinary charge for early debt extinguishment (3,198) - - - - Cumulative effect of accounting change - - - 1,001 - Net income 15,154 12,987 10,504 7,029 6,272 Net income per common share (b) 1.15 1.69 1.48 0.99 0.87 Cash dividend declared per common share (b) $ 0.27 $ 0.24 $ 0.21 $ 0.18 $ 0.18 Pro Forma Income Statement Data: Income before income taxes, minority interest, and extraordinary charge $31,133 $21,231 Net income 11,415 9,903 Net income per share, both primary and fully diluted: Income before extra- ordinary charge 1.11 0.75 Net income $ 0.86 $ 0.75 Weighted average common -15- shares assumed outstanding, - primary 13,215 13,188 - fully diluted 13,216 13,188 March 31, 1997 1996 1995 1994 1993 --------------------------------------------------- (In thousands) Balance Sheet Data: Current assets $204,371 $ 99,003 $ 63,649 $ 63,269 $ 58,231 Total assets 548,245 188,734 97,822 93,378 83,026 Current liabilities: Notes payable to banks and current portion of long- term debt 23,906 3,081 8,169 15,154 8,899 Other 64,091 31,464 23,374 22,969 18,944 --------------------------------------------------- 87,997 34,545 31,543 38,123 27,843 Long-term debt 263,944 8,298 18,973 16,726 20,492 Shareholders' equity $150,156 $137,622 $ 40,850 $ 32,464 $ 27,131 (a) Unusual charges consist of $672, $1,598, $264, and $26 of environmental remediation costs in 1996 through 1992, respectively, and also $1,791 of goodwill write-off in 1994. (b) Reflects a 17 to 1 stock split of the common stock effected on February 15, 1996. -16- Item 7. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations. --------------------- Results of Operations Fiscal Years Ended March 31, 1997, 1996, and 1995 Sales growth during the periods was due primarily to the October 1996 Yale acquisition and the November 1995 Lift-Tech acquisition as well as increased volume in nearly all distribution channels. Sales in 1997 increased $149,587,000 or 71.3% over 1996, and sales in 1996 increased $37,507,000 or 21.8% over 1995. The 1997 sales include $88.3 million in Yale sales and $81.5 million in Lift-Tech sales; the 1996 sales include $29.6 million in Lift-Tech sales. In addition, during this period the Company introduced list price increases of approximately 4% between November and January of each year affecting many of its hoist, chain and forged products sold in its domestic commercial markets. Sales in the commercial and the consumer distribution channels were as follows, in thousands of dollars and with percentage changes for each market group: Fiscal years ended ------------------ 1997 1996 1995 ---- ---- ---- (In thousands, except percentages) Commercial sales Domestic $ 267,426 $ 152,245 $ 126,388 International 65,302 31,995 19,736 ------- ------- ------- 332,728 184,240 146,124 Consumer sales Domestic 24,022 23,282 24,136 International 2,674 2,315 2,070 ------- ------ ------- 26,696 25,597 26,206 ------- ------ ------- Consolidated net sales $ 359,424 $ 209,837 $ 172,330 ======= ======= ======= Change Change 1997 vs 1996 1996 vs 1995 ------------ ------------ Amount % Amount % --------- ----- -------- ----- Commercial sales Domestic $ 115,181 75.7 $ 25,857 20.5 International 33,307 104.1 12,259 62.1 --------- -------- 148,488 80.6 38,116 26.1 Consumer sales Domestic 740 3.2 (854) (3.5) International 359 15.5 245 11.8 --------- -------- 1,099 4.3 (609) (2.3) --------- -------- Consolidated net sales $ 149,587 71.3 $ 37,507 21.8 ========= ======== The 75.7% growth in domestic commercial sales in 1997 resulted almost entirely from the Yale and Lift-Tech acquisitions. The Company also experienced increased sales volume primarily in the specialty distributors marketing channel, which consists of catalog houses, entertainment product distributors and material handling specialists. The 104.1% growth in international commercial sales in 1997 resulted almost entirely from the addition of the European operations of Yale, and also from the Company's existing Canadian operations. Consumer sales have been strongest in the Company's Canadian markets. -17- The 20.5% growth in domestic commercial sales during 1996 resulted almost entirely from the acquisition of Lift-Tech. The 62.1% growth in international commercial sales in 1996 included a 37.0% increase from operations other than Lift-Tech. These increases resulted principally from increased demand in Canada by industrial wholesale distributors, and in Europe, South America and Asia by industrial wholesale distributors and entertainment equipment distributors caused by improving economies in these regions. In addition, the Company also believes that it increased its market share in many of these regions, particularly in sales to general distributors in Canada and sales of hoists to the European entertainment industry. The growth also included 10.5% due to higher sales of tire shredders internationally. Exclusive of the tire shredders and Lift-Tech, international commercial sales grew 26.5% in fiscal 1996. The Company believes that the decrease in its domestic consumer sales in fiscal 1996 reflects reduced consumer activity in the U.S. economy, particularly in the second and third quarters. The Company's gross profit margin was approximately 29.9%, 28.7% and 27.8% for 1997, 1996, and 1995, respectively. The increase in gross profit margin in each of the periods resulted from the effects of the Company's cost control efforts and the economies of scale resulting from increasing production levels. The 1997 improvement was offset by approximately $1.5 million of corporate-wide incentive compensation. Selling expenses increased to $32,550,000 in fiscal 1997 from $19,120,000 in 1996, and from $15,915,000 in 1995. The 1997 expenses were impacted by the addition of Yale and the full year of Lift-Tech sales; the 1996 expenses were impacted by the addition of Lift-Tech sales. However, it should be noted that as a percentage of consolidated net sales, selling expenses were 9.1%, 9.1% and 9.2% in fiscal 1997, 1996 and 1995, respectively. Sales per employee increased to $134,400 in 1997 from $113,200 in 1995. General and administrative expenses increased to $24,636,000 in fiscal 1997 from $13,941,000 in fiscal 1996, and from $11,449,000 in 1995. The 1997 expenses were impacted by the addition of Yale and the full year of Lift-Tech activities; the 1996 expenses were impacted by the addition of Lift-Tech activities. As a percentage of consolidated net sales, general and administrative expenses were 6.9%, 6.6% and 6.6% in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, these expenses included approximately $1,200,000 of corporate-wide incentive compensation. Amortization of intangibles increased $4,406,000 in fiscal 1997 to $5,197,000 due to the goodwill resulting from the Yale and Lift-Tech acquisitions; the $191,000 increase in 1996 was also due to the partial year of goodwill amortization resulting from the acquisition of Lift-Tech. Environmental remediation costs were $672,000 in fiscal 1996 and $1,598,000 in 1995. The 1996 costs resulted primarily from the Pendleton, New York site remediation, which is complete. The 1995 costs included approximately $1.4 million for the Tonawanda plant site remediation which has also been completed. Interest and debt expense increased by $6,638,000 to $11,930,000 in fiscal 1997 from $5,292,000 in 1996 and by $2,940,000 from $2,352,000 in 1995. The fiscal 1997 and 1996 increases were due to the financing required to complete the Yale and Lift-Tech acquisitions, respectively. The 1996 financing was repaid in full with the proceeds from the Company's initial public offering. As a percentage of -18- consolidated net sales, interest and debt expense was 3.3%, 2.5% and 1.4% in fiscal 1997, 1996 and 1995, respectively. Interest and other income increased by $34,000 to $1,168,000 in fiscal 1997 from $1,134,000 in 1996, and by $662,000 from $472,000 in fiscal 1995. The 1997 income reflects increases in the investment return on marketable securities held for settlement of a portion of the Company's general and products liability claims. The fiscal 1996 increase is primarily due to a $625,000 gain recognized upon the sale of an uncontrolled foreign subsidiary. Income taxes as a percentage of pre-tax accounting income were 45.5%, 40.0% and 35.9% in fiscal 1997, 1996 and 1995, respectively. The fiscal 1997 and 1996 percentages reflect the effect of non-deductible goodwill amortization resulting from the Yale and Lift-Tech acquisitions. The lower rate in fiscal 1995 reflects the use of all remaining net operating loss carryforwards by one of the Company's subsidiaries. The minority interest share of Yale earnings of $323,000 resulted from the fact that the Company acquired 72% of the outstanding Yale shares on a fully diluted basis in October 1996 and the remainder in January 1997. The extraordinary charge for early debt extinguishment of $3,198,000 resulted from the tender in December 1996 for 11.5% acquired Yale notes. The charge consisted of redemption premiums, costs to exercise the tender offer, and write-off of previously incurred deferred financing costs, and is net of $2,133,000 of tax benefit. As a result of the above, net income increased $2,167,000 or 16.7% in 1997 and $2,483,000 or 23.6% in 1996. This is based on net income of $15,154,000, $12,987,000 and $10,504,000 or 4.2%, 6.2% and 6.1% as a percentage of consolidated net sales in fiscal 1997, 1996 and 1995, respectively. Liquidity and Capital Resources The Company believes that its cash on hand, cash flows, and borrowing capacity under its revolving credit facility will be sufficient to fund its ongoing operations, budgeted capital expenditures, and business acquisitions for the next twelve months. In October 1996, primarily to finance the Yale acquisition, the Company refinanced and modified its then existing credit facilities. The existing revolving lines of credit were replaced with a $125 million revolving credit facility bearing interest at varying Eurodollar rates based on LIBOR plus 250 basis points. The Company also obtained $125 million and $75 million term loans bearing interest at varying Eurodollar rates based on LIBOR plus 250 and 300 basis points, respectively. These new credit facilities are secured by all equipment, inventory, receivables, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. To manage its exposure to interest rate fluctuations, the Company has interest rate swaps and caps. Net cash provided by operating activities increased to $28,886,000 in fiscal 1997 from $18,338,000 in 1996 and $15,529,000 in fiscal 1995. The $10,548,000 increase in net cash provided by operating activities in fiscal 1997 resulted primarily from depreciation and amortization of $6,057,000, deferred income taxes of $3,920,000 and an extraordinary charge for early debt extinguishment of $3,198,000. The $2,809,000 increase in net cash provided by operating activities in fiscal 1996 resulted primarily from improved operating results of $2,483,000. Operating assets net of liabilities increased $5,905,000 in fiscal 1997 compared to a $1,027,000 increase in 1996 and $160,000 decrease in 1995. -19- Net cash used in investing activities increased to $222,382,000 in fiscal 1997 from $73,721,000 in 1996 and $8,083,000 in 1995. The $148,661,000 increase in net cash used in investing activities in fiscal 1997 compared to fiscal 1996 includes $202,644,000 and $7,464,000 for the Yale and Lister acquisitions, respectively. The $65,692,000 increase in net cash used in investing activities in fiscal 1996 compared to fiscal 1995 was primarily due to the acquisition of Lift-Tech for $62,950,000, acquisition of the remaining 51% interest in Endor, and a $1,640,000 increase in capital expenditures. Capital Expenditures In addition to keeping its current equipment and plants properly maintained, the Company is committed to replacing, enhancing, and upgrading its property, plant, and equipment to reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety, and promote ergonomically correct work stations. Consolidated capital expenditures for fiscal 1997, 1996 and 1995 were $9,392,000, $6,988,000 and $5,348,000, respectively, excluding those capital assets acquired in conjunction with business acquisitions. Inflation and Other Market Conditions The Company's costs are affected by inflation in the U.S. economy, and to a lesser extent, in foreign economies including those of Europe, Canada, Mexico, and the Pacific Rim. The Company does not believe that inflation has had a material effect on results of operations over the periods presented because of low inflation levels over the period and because the Company has generally been able to pass on rising costs through price increases. However, in the future there can be no assurance that the Company's business will not be affected by inflation or that it will be able to pass on cost increases. Seasonality and Quarterly Results Lower than average orders and shipments during the December holiday period have a slight effect on the Company. In addition, quarterly results may be materially affected by the timing of large customer orders, by periods of high vacation concentrations, and by acquisitions and the magnitude of acquisition costs. Therefore, the operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year. Effects of New Accounting Pronouncements The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its employee stock options and has presented the disclosures required by FAS No. 123 "Accounting for Stock-Based Compensation." Accordingly, there has been no impact on the financial statements. In fiscal 1998, the Company will adopt FAS No. 128, "Earnings per Share" which is not expected to have a material effect on the financial statements. -20- Item 8. Financial Statements and Supplementary Data. - ------- -------------------------------------------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Columbus McKinnon Corporation Audited Consolidated Financial Statements as of March 31, 1997: Page No. -------- Report of Independent Auditors.............................22 Consolidated Balance Sheets................................23 Consolidated Statements of Income..........................24 Consolidated Statements of Shareholders' Equity............25 Consolidated Statements of Cash Flows......................27 Notes to Consolidated Financial Statements.................28 -21- Report of Independent Auditors Board of Directors Columbus McKinnon Corporation We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation as of March 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbus McKinnon Corporation at March 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with 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, present fairly in all material respects the information set forth therein. /s/Ernst & Young LLP Buffalo, New York May 12, 1997 -22- COLUMBUS MCKINNON CORPORATION CONSOLIDATED BALANCE SHEETS March 31, 1997 1996 ------------------- (In thousands) Assets Current assets: Cash and cash equivalents $ 8,907 $ 10,171 Trade accounts receivable, less allowance for doubtful accounts ($1,884 and $917 respectively) 74,446 38,741 Inventories 94,409 48,303 Net assets held for sale 14,971 - Prepaid expenses 13,638 1,788 ------------------- Total current assets 206,371 99,003 Net property, plant, and equipment 63,942 30,909 Goodwill and other intangibles, net 250,062 42,951 Marketable securities 13,590 11,174 Deferred taxes on income 8,935 2,881 Other assets 5,345 1,816 ------------------- Total assets $ 548,245 $ 188,734 =================== Liabilities and Shareholders' Equity Current liabilities: Notes payable to banks $ 1,562 $ 1,635 Trade accounts payable 28,330 15,661 Accrued liabilities 35,761 15,803 Current portion of long-term debt 22,344 1,446 ------------------- Total current liabilities 87,997 34,545 Long-term debt, less current portion 263,944 8,298 Other non-current liabilities 46,148 8,269 ------------------- Total liabilities 398,089 51,112 ------------------- Shareholders' equity: Class A voting common stock; 50,000,000 shares authorized; 13,748,358 and 13,731,669 shares issued 137 137 Additional paid-in capital 95,254 94,283 Retained earnings 60,999 49,386 ESOP debt guarantee; 426,508 and 532,109 shares (4,201) (5,238) Unearned restricted stock; 134,550 and 136,850 shares (821) (836) Net unrealized investment gains 1,040 722 Minimum pension liability adjustment (541) (430) Foreign currency translation adjustment (1,711) (402) ------------------- Total shareholders' equity 150,156 137,622 ------------------- Total liabilities and shareholders' equity $ 548,245 $ 188,734 =================== See accompanying notes. -23- COLUMBUS McKINNON CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended March 31, 1997 1996 1995 ------------------------------------ (In thousands, except per share data) Net sales $ 359,424 $ 209,837 $ 172,330 Cost of products sold 251,987 149,511 124,492 ------------------------------------ Gross profit 107,437 60,326 47,838 Selling expenses 32,550 19,120 15,915 General and administrative expenses 24,636 13,941 11,449 Amortization of intangibles 5,197 791 600 Environmental remediation costs - 672 1,598 ------------------------------------ 62,383 34,524 29,562 ------------------------------------ Income from operations 45,054 25,802 18,276 Interest and debt expense 11,930 5,292 2,352 Interest and other income 1,168 1,134 472 ------------------------------------ Income before income taxes, minority interest and extraordinary charge 34,292 21,644 16,396 Income tax expense 15,617 8,657 5,892 ------------------------------------ Income before minority interest and extraordinary charge 18,675 12,987 10,504 Minority interest (323) - - ------------------------------------ Income before extraordinary charge 18,352 12,987 10,504 Extraordinary charge for early debt extinguishment (3,198) - - ------------------------------------ Net income $ 15,154 $ 12,987 $ 10,504 ==================================== Earnings per share data, both primary and fully diluted: Income before extraordinary charge for debt extinguishment $ 1.39 $ 1.69 $ 1.48 Extraordinary charge for debt extinguishment (0.24) - - ------------------------------------ Net income $ 1.15 $ 1.69 $ 1.48 ==================================== See accompanying notes. -24-
COLUMBUS McKINNON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share and per share data) Preferred Common Addi- Net Minimum Foreign Stock at Stock tional ESOP Unearned Unrealized Pension Currency Treasury Redemption ($.01 Paid-in Retained Debt Restricted Investment Liability Translation Stock Value par value) Capital Earnings Guarantee Stock Gains Adjustment Adjustment At Cost ---------------------------------------------------------------------------------------------------------- Balance at March 31, 1994 $ 100 $ 72 $ 5,662 $ 29,418 $ (893) $ (131) $ 156 $ (114) $(485) $ (1,321) Earned 86,139 ESOP shares - - - - 614 - - - - - Sale of 609,144 common shares to ESOP - 6 5,995 - (6,000) - - - - - Repurchase of 23,800 common shares held by ESOP - - - - - - - - - (250) Repurchase of 124,899 common shares - - - - - - - - - (1,310) Restricted common stock granted, 105,400 shares - - 219 - - (1,014) - - - 803 Earned portion of restricted stock - - - - - 187 - - - - Net income 1995 - - - 10,504 - - - - - - Net unrealized gain on investments - - - - - - 117 - - - Change in minimum pension liability adjustment - - - - - - - 52 - - Change in foreign currency translation adjustment - - - - - - - - (58) - Preferred dividends declared $100 per share - - - (10) - - - - - - Common dividends declared $0.21 per share - - - (1,469) - - - - - - ---------------------------------------------------------------------------------------------------------- Balance at March 31, 1995 100 78 11,876 38,443 (6,279) (958) 273 (62) (543) (2,078) Earned 122,816 ESOP shares - - 222 - 1,041 - - - - - Issued 108,375 common shares for purchase of affiliated company - - 319 - - - - - - 1,056 Repurchase of 24,582 common shares held by ESOP - - - - - - - - - (312) Restricted common stock canceled, 17,000 shares - - 9 - - 45 - - - (127) Restricted common stock granted, 14,450 shares - - 44 - - (183) - - - 139 Earned portion of restricted stock - - - - - 260 - - - - Restricted stock market value adjustment - - 45 - - - - - - - Sold 850 common shares - - 3 - - - - - - 9 Exchanged 850 common shares to retire preferred shares (100) - 2 - - - - - - 9 Canceled treasury shares - - (1,304) - - - - - - 1,304 Issued 6,037,500 common shares under initial public offering - 59 83,067 - - - - - - - Net income 1996 - - - 12,987 - - - - - - Net unrealized gain on investments - - - - - - 449 - - - Change in minimum pension liability adjustment - - - - - - - (368) - - Change in foreign currency translation adjustment - - - - - - - - 141 - Preferred dividends declared $75 per share - - - (7) - - - - - - Common dividends declared $0.236 per share - - - (2,037) - - - - - - ---------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 - 137 94,283 49,386 (5,238) (836) 722 (430) (402) - ==========================================================================================================
-25-
COLUMBUS McKINNON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share and per share data) Preferred Common Addi- Net Minimum Foreign Stock at Stock tional ESOP Unearned Unrealized Pension Currency Treasury Redemption ($.01 Paid-in Retained Debt Restricted Investment Liability Translation Stock Value par value) Capital Earnings Guarantee Stock Gains Adjustment Adjustment At Cost ---------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 - 137 94,283 49,386 (5,238) (836) 722 (430) (402) - Earned 105,601 ESOP shares - - 665 - 1,037 - - - - - Restricted common stock granted, 19,800 shares; net of 3,111 shares canceled - - 289 - - (280) - - - - Earned portion of restricted stock - - 17 - - 295 - - - - Net income 1997 - - - 15,154 - - - - - - Net unrealized gain on investments - - - - - - 318 - - - Change in minimum pension liability adjustment - - - - - - - (111) - - Change in foreign currency translation adjustment - - - - - - - - (1,309) - Common dividends declared $0.27 per share - - - (3,541) - - - - - - ---------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $ - $ 137 $ 95,254 $ 60,999 $ (4,201) $ (821) $ 1,040 $ (541) $ (1,711) $ - ========================================================================================================== See accompanying notes.
-26- COLUMBUS McKINNON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended March 31, 1997 1996 1995 ----------------------------- (In thousands) Operating activities: Net income $ 15,154 $ 12,987 $ 10,504 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary charge for early debt extinguishment 3,198 - - Minority interest 323 - - Depreciation and amortization 11,285 5,228 3,285 Deferred income taxes 4,816 896 1,434 Other 15 254 146 Changes in operating assets and liabilities net of effects from businesses purchased: Trade accounts receivable (3,320) 567 (961) Inventories (2,177) (2,365) 2,728 Prepaid expenses (1,721) 1,373 (173) Other assets (949) 682 117 Trade accounts payable (586) (913) 298 Accrued and non-current liabilities 2,848 (371) (1,849) ------------------------------ Net cash provided by operating activities 28,886 18,338 15,529 ------------------------------ Investing activities: Purchase of marketable securities, net (2,098) (1,806) (1,334) Capital expenditures (9,392) (6,988) (5,348) Purchase of businesses, net of cash acquired (210,108) (64,927) (1,401) Net assets held for sale (784) - - ------------------------------ Net cash used in investing activities (222,382) (73,721) (8,083) ------------------------------ Financing activities: Proceeds from issuance of common stock, net - 83,126 - Net (payments) borrowings under revolving line-of-credit agreements 81,293 (2,956) (7,103) Repayment of debt (78,528) (62,944) (3,635) Proceeds from issuance of long-term debt 200,000 50,000 6,000 Deferred financing costs incurred (10,000) (1,405) (21) Dividends paid (4,390) (1,688) (1,348) Repurchase of stock - (391) (1,553) Reduction of ESOP debt guarantee (1,596) 1,041 614 ------------------------------ Net cash provided by (used in) financing activities 186,779 64,783 (7,046) Effect of exchange rate changes on cash (1,078) 384 (57) ------------------------------ Net change in cash and cash equivalents (7,795) 9,784 343 Cash and cash equivalents at beginning of year 16,702 387 44 ------------------------------ Cash and cash equivalents at end of year $ 8,907 $ 10,171 $ 387 ============================== Supplementary cash flows data: Interest paid $ 8,683 $ 5,256 $ 2,439 Income taxes paid $ 14,993 $ 5,555 $ 7,587 See accompanying notes. -27- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Business Acquisitions Columbus McKinnon Corporation (the Company) manufacturers and sells hoists, chain, forgings, operator-controlled manipulators, scissor lifts, mechanical jacks, rotating joints, actuators, circuit protection devices and tire shredders primarily within the material handling industry. Approximately 78% of sales are to customers in the United States. On October 17, 1996, through a tender offer, the Company acquired approximately 72% of the outstanding stock (on a fully diluted basis) of Spreckels Industries, Inc., now known as Yale Industrial Products, Inc. ("Yale"), a manufacturer of a wide range of industrial products, including hoists, scissor lifts, mechanical jacks, rotating joints, actuators and circuit protection devices. On January 3, 1997 the Company acquired the remaining outstanding shares, effected a merger, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $270 million, consisting of $200 million of cash and $70 million of acquired Yale debt. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1997 include Yale activity since its October 17 acquisition by the Company. The minority interest share of Yale's earnings since acquisition through January 3, 1997 has been appropriately segregated from consolidated net income. Included with the Yale acquired assets were real estate properties and equipment retained from Yale's April 19, 1996 sale of two of its subsidiaries in unrelated businesses. These assets held for sale are expected to be sold in fiscal 1998 and have been recorded at their estimated realizable values net of disposal costs, separately reflected on the consolidated balance sheet and amounting to $14,971,000 as of March 31, 1997. On December 19, 1996, the Company acquired all of the outstanding stock of Lister Bolt & Chain Ltd. and of Lister Chain & Forge, Inc. (together known as "Lister"), a chain and forgings manufacturer, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $7 million of cash, which was financed by the Company's revolving debt facility. The consolidated statement of income and the consolidated statement of cash flows for the year ended March 31, 1997 include Lister activity since its December 19 acquisition by the Company. -28- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Business Acquisitions (continued) On November 1, 1995, the Company acquired all of the outstanding stock of LTI Holdings, Inc., parent company of Lift-Tech International, Inc. ("Lift-Tech"), a hoist manufacturer, and has accounted for the acquisition as a purchase. The total cost of the acquisition was approximately $63 million, consisting of $43 million in cash and $20 million for the refinancing of Lift-Tech bank debt. The consolidated statement of income and consolidated statement of cash flows for the year ended March 31, 1996 include Lift-Tech activity since its November 1, 1995 acquisition by the Company. The following table presents pro forma summary information, which is not covered by the report of independent auditors, for the years ended March 31, 1997 and 1996, as if the Yale, Lister and Lift-Tech acquisitions and related borrowings, and also the initial public offering had occurred as of April 1, 1995 which is the beginning of fiscal 1996. The pro forma net income for the year ended March 31, 1996, as if the Yale, Lister and Lift-Tech acquisitions and related borrowings (but not the initial public offering) occurred as of April 1, 1995, is $5,280,000. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprise: Year Ended March 31, 1997 1996 -------------------------------- (In thousands, except per share data) Pro forma: Net sales $ 470,325 $ 449,309 Income from operations 54,862 46,188 Income before extraordinary charge 14,613 9,903 Net income 11,415 9,903 Earnings per share, both primary and fully diluted: Income before extraordinary charge 1.11 0.75 Extraordinary charge (0.25) - Net income 0.86 0.75 -29- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting Principles and Practices Consolidation These consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries; all significant intercompany accounts and transactions have been eliminated. Foreign Currency Translations The Company translates foreign currency financial statements as described in Financial Accounting Standards (FAS) No. 52. Under this method, all items of income and expense are translated at average exchange rates for the year. All assets and liabilities are translated at the year-end exchange rate. Gains or losses on translations are accumulated in the shareholders' equity section of the balance sheet. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses. Actual results could differ from those estimates. Revenue Recognition and Concentration of Credit Risk Sales are recorded when products are shipped to a customer. The Company performs ongoing credit evaluations of its customers' financial condition, but generally does not require collateral to support customer receivables. The Company established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors. Cash and Cash Equivalents The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. Inventories Inventories are valued at the lower of cost or market. Costs of approximately 60% of inventories have been determined using the LIFO (last-in, first-out) method. Costs of other inventories have been determined using the FIFO (first-in, first-out) method. FIFO cost approximates replacement cost. -30- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting Principles and Practices (continued) Property, Plant, and Equipment Property, plant, and equipment are stated at cost and depreciated principally using the straight-line method over their respective estimated useful lives (buildings and building equipment - 15 to 40 years; machinery and equipment - 3 to 18 years). When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operating results. Goodwill It is the Company's policy to account for goodwill and other intangible assets at the lower of amortized cost, or fair value if indicators of impairment exist. As a result of the Lift-Tech, Yale and Lister acquisitions, the Company recorded approximately $42 million, $200 million and $2 million of goodwill, respectively, which is being amortized on a straight-line basis over twenty five years. At March 31, 1997 and 1996 accumulated amortization was $5,644,000 and $689,000, respectively. Marketable Securities All of the Company's investments, which consist of equity securities and corporate and governmental obligations, have been classified as available-for-sale securities and are therefore recorded at their fair values with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Estimated fair value is based on published trading values at the balance sheet dates. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The cost of securities sold is based on the specific identification method. Interest and dividend income are included in interest and other income on the consolidated statements of income. The marketable securities are carried as long-term assets since they are retained for the settlement of a portion of the Company's general liability and products liability insurance claims filed through CM Insurance Company, Inc., a wholly owned captive insurance subsidiary. -31- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting Principles and Practices (continued) Fair Value of Financial Instruments The fair value of interest rate swap and cap agreements is the amount that the Company would receive or pay to terminate the agreements, based on quoted market prices and considering current interest rates and remaining maturities. Research and Development Research and development costs as defined in FAS No. 2, for the years ended March 31, 1997, 1996 and 1995 were $1,283,000, $662,000 and $491,000, respectively. 3. Inventories Inventories consisted of the following: March 31, 1997 1996 --------------------------- (In thousands) At cost - FIFO basis: Raw materials $ 35,815 $ 24,596 Work-in-process 17,206 11,533 Finished goods 44,344 15,180 --------------------------- 97,365 51,309 LIFO cost less than FIFO cost (2,956) (3,006) --------------------------- Net inventories $ 94,409 $ 48,303 =========================== 4. Marketable Securities Marketable securities are retained for the settlement of a portion of the Company's general liability and products liability insurance claims filed through CM Insurance Company, Inc. (see Notes 2 and 12). The following is a summary of available-for-sale securities at March 31, 1997: -32- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Marketable Securities (continued) Cost Gross Gross Estimated Unrealized Unrealized Fair Gains Losses Value ----------------------------------------------- (In thousands) Government securities $ 9,039 $ 74 $ 75 $ 9,038 U. S. corporate securities 738 7 3 742 ----------------------------------------------- Total debt securities 9,777 81 78 9,780 Equity securities 2,213 1,600 3 3,810 ----------------------------------------------- $11,990 $1,681 $ 81 $13,590 =============================================== The following is a summary of available-for-sale securities at March 31, 1996: Cost Gross Gross Estimated Unrealized Unrealized Fair Gains Losses Value ----------------------------------------------- (In thousands) Government securities $ 7,346 $ 104 $ 54 $ 7,396 U. S. corporate securities 100 10 - 110 ----------------------------------------------- Total debt securities 7,446 114 54 7,506 Equity securities 2,617 1,059 8 3,668 ----------------------------------------------- $10,063 $1,173 $ 62 $11,174 =============================================== The amortized cost and estimated fair value of debt and equity securities at March 31, 1997, by contractual maturity, are shown below: Estimated Fair Cost Value ----------------------------------- (In thousands) Due in one year or less $ 1,358 $ 1,352 Due after one year through three years 1,705 1,693 Due after three years 6,714 6,735 ----------------------------------- 9,777 9,780 Equity securities 2,213 3,810 ----------------------------------- $ 11,990 $ 13,590 =================================== -33- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Marketable Securities (continued) Net unrealized gains included in the balance sheet amounted to $1,600,000 and $1,111,000 at March 31, 1997 and 1996, respectively. The amounts, net of related income taxes of $560,000 and $389,000 at March 31, 1997 and 1996, respectively, are reflected as a separate component of equity. 5. Property, Plant, and Equipment Consolidated property, plant, and equipment of the Company consisted of the following: March 31, 1997 1996 ----------------------- (In thousands) Land and land improvements $ 2,892 $ 1,740 Buildings 14,986 7,834 Machinery, equipment, and leasehold improvements 65,431 34,767 Construction in progress 3,003 2,224 ----------------------- 86,312 46,565 Less accumulated depreciation 22,370 15,656 ----------------------- Net property, plant, and equipment $ 63,942 $ 30,909 ======================= 6. Accrued Liabilities and Other Non-current Liabilities Consolidated accrued liabilities of the Company included the following: March 31, 1997 1996 ----------------------- (In thousands) Accrued payroll $ 12,298 $ 5,487 Accrued pension cost 5,583 3,088 Accrued interest 3,211 149 Income taxes payable 2,875 2,061 Other accrued liabilities 11,794 5,018 ----------------------- $ 35,761 $ 15,803 ======================= -34- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Accrued Liabilities and Other Non-current Liabilities (continued) Consolidated other non-current liabilities of the Company included the following: March 31, 1997 1996 ---------------------- (In thousands) Accumulated postretirement benefit obligation $ 17,057 $ - Accrued general and product liability costs 11,874 7,110 Other non-current liabilities 17,217 1,159 ---------------------- $ 46,148 $ 8,269 ====================== 7. Notes Payable and Long-Term Debt Consolidated notes payable and long-term debt payable to banks (except as noted) of the Company consisted of the following: March 31, 1997 1996 ----------------------- (In thousands) Term Loan A payable in quarterly installments of $5,000,000 through March 1998, $6,250,000 through March 1999, $6,875,000 through March 2001 and $10,000,000 through September 2001 plus interest payable at varying Eurodollar rates based on LIBOR plus 250 basis points (8.12% at March 31, 1997). $ 120,000 $ - Term Loan B payable in quarterly installments of $250,000 through March 2001, $187,500 through March 2002, $8,750,000 through March 2003, and $17,500,000 through September 2003 plus interest payable at varying Eurodollar rates based on LIBOR plus 300 basis points (8.62% at March 31, 1997). 74,750 - -35- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Notes Payable and Long-Term Debt (continued) March 31, 1997 1996 --------------------------- (In thousands) Revolving Credit Facility with availability up to $125 million, due October 17, 1999 with interest payable at varying Eurodollar rates based on LIBOR plus 250 basis points. $ 83,000 $ - Industrial Development Revenue Bonds payable annually at $625,000 through 1999, $620,000 thereafter through 2001, $315,000 in 2002, and $52,000 in 2003 in quarterly sinking fund installments plus interest payable at varying effective rates (3.81% and 3.78% at March 31, 1997 and 1996). 2,857 3,482 Employee Stock Ownership Plan term loans payable in quarterly installments of $148,000 plus an annual minimum of $23,000 through July 1999 and $3,156,000 in October 1999 plus interest payable at prime plus 1% or a Eurodollar rate plus 250 basis points (8.06% and 9.25% at March 31, 1997 and 1996). 4,682 5,591 Other 999 671 ------------------------- Total 286,288 9,744 Less current portion 22,344 1,446 ------------------------- $ 263,944 $ 8,298 ========================= The Term Loan A, Term Loan B, and Revolving Credit Facility are secured by all equipment, inventory, receivables, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. The corresponding credit agreement places certain debt covenant restrictions on the Company including, but not limited to, maximum cash dividends of $5.5 million in fiscal 1998 and $6 million thereafter. -36- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Notes Payable and Long-Term Debt (continued) To manage its exposure to interest rate fluctuations, the Company has interest rate swaps with a notional amount of $22 million through January 2, 1999 and $3.5 million from January 2, 1999 through July 2, 2000, both based on LIBOR at 5.9025%. In order to comply with its credit agreements, the Company also has LIBOR-based interest rate caps on $40 million of debt through December 16, 1998 and on an additional $49.5 million of debt through December 16, 1999 at 9% and 10%, respectively. Net payments or receipts under the swap and cap agreements are recorded as adjustments to interest expense. The carrying amount of the Company's debt instruments approximates the fair values. The Industrial Development Revenue Bonds are held by institutional investors and are guaranteed by a bank letter of credit (IDRB letter of credit). The Employee Stock Ownership Plan term loans (ESOP loans) are guaranteed by the Company and are collateralized by an equivalent number of shares of Company common stock. The IDRB letter of credit and the ESOP loans are not further collateralized. The principal payments expected to be made as of March 31, 1997 on the above long-term debt, for the next five annual periods subsequent thereto, are as follows (dollars in thousands): 1998 $ 22,344 1999 27,418 2000 115,640 2001 29,178 2002 21,656 In December 1996, the Company tendered to purchase the outstanding Yale Senior Secured Notes at a premium and redeemed $69,480,000 of the $70,000,000 face value which was outstanding. The Company recorded an extraordinary charge of $5,331,000 ($3,198,000 net of taxes), consisting of redemption premiums, costs to exercise the tender offer, and write-off of deferred financing costs related to early retirement of debt. The debt extinguishment was funded by the Company's revolving credit facility. As of March 31, 1997, the Company had letters of credit outstanding of $6.4 million, including those issued as security for the IDRBs as referred to above. -37- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Retirement Plans Most domestic employees of the Company, excluding Lift-Tech and Lister union employees, are covered under defined benefit retirement plans and most domestic non-union employees, excluding Yale and Lister employees, are included in an Employee Stock Ownership Plan (See Note 9). Benefits under the plans vary, based on formulas applied to career earnings, compensation for a period immediately prior to retirement, compensation at the date benefits are earned, or pre-established benefit rates. The Company's funding policy with respect to the plans is to contribute annually at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (ERISA). At March 31, 1997, six of the Yale plans had market values of plan assets in excess of the accumulated benefits of those respective plans; the Company's remaining plans had accumulated benefits in excess of plan assets. At March 31, 1996, all of the Company's plans had accumulated benefits in excess of plan assets. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheets: March 31, 1997 1997 1996 ------------------------ ----------- Plans with Plans with Plans with Assets in Accumulated Accumulated Excess of Benefits in Benefits in Accumulated Excess of Excess of Benefits Assets Assets ----------- ---------- ----------- (In thousands) Actuarial present value of obligations: Accumulated benefit obligation, vested $ (24,551) $ (26,825) $ (12,646) Accumulated benefit obligation, non-vested (1,190) (766) (574) ------------------------------------- Accumulated benefit obligation $ (25,741) $ (27,591) $ (13,220) ===================================== Projected benefit obligation $ (32,150) $ (30,172) $ (14,913) Plan assets at fair value 30,861 23,986 11,226 ------------------------------------- Plan assets less than projected benefit obligation (1,289) (6,186) (3,687) Unrecognized transition assets - (142) (170) Unrecognized net loss from past experience different from that assumed 958 1,356 1,502 Unrecognized prior service cost 300 1,286 932 Adjustment required to recognize additional minimum liability - (1,772) (1,683) ------------------------------------- (31) (5,458) (3,106) Income tax effect of accrued pension cost - (94) 18 ------------------------------------- Accrued pension cost included in accrued liabilities $ (31) $ (5,552) $ (3,088) ===================================== -38- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Retirement Plans (continued) Net periodic pension cost included the following components: Year Ended March 31, 1997 1996 1995 -------------------------------------- (In thousands) Service costs-benefits earned during the period $ 2,354 $ 1,129 $ 1,078 Interest cost on projected benefit obligation 2,744 1,011 831 Actual return on plan assets (2,966) (1,439) (653) Net amortization 475 759 125 Income tax effect of accrued pension costs (192) (175) (166) -------------------------------------- Net periodic pension cost $ 2,415 $ 1,285 $ 1,215 ====================================== The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation of all of the defined benefit plans was 8 percent for the years ended March 31, 1997 and 1996 and 8.5 percent for the year ended March 31, 1995. Plan assets consist of equities, corporate and government securities, and fixed income annuity contracts. The weighted-average expected long-term rate of return on plan assets used in determining the expected return on plan assets included in net periodic pension cost was 8.875 percent. Future average compensation increases are assumed to be 5.25 percent per year. 9. Employee Stock Ownership Plan (ESOP) Beginning April 1, 1994, the Company prospectively adopted the provisions of AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans." SOP 93-6 requires that compensation expense for ESOP shares acquired after 1992 and not committed to be released before April 1, 1994 (609,144 shares, referred to as the "New ESOP shares"), be measured based on the fair value of those shares when committed to be released to employees, rather than based on their original cost. Also, dividends on those New ESOP shares that have not been allocated or committed to be released to ESOP participants are not reflected as a reduction of retained earnings. Rather, since those dividends are used for debt service, a charge to compensation expense is recorded. As a result of such changes, net income in the year ended March 31, 1995 has been reduced by $36,000. In addition, under the SOP the average number of ESOP shares considered outstanding for earnings per share purposes in fiscal 1995 was 258,638 lower because unallocated New ESOP shares are excluded from the calculation. The combination of these two factors caused a net increase in earnings per share of $0.05 in 1995. These new rules have not been applied to the ESOP shares issued prior to 1993, referred to as the "Old ESOP shares". -39- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Employee Stock Ownership Plan (ESOP) (continued) The obligation of the ESOP to repay borrowings incurred previously to purchase shares of the Company's common stock is guaranteed by the Company; the unpaid balance of such borrowings, therefore, has been reflected in the accompanying consolidated balance sheet as a liability. An amount equivalent to the cost of the collateralized common stock and representing deferred employee benefits has been recorded as a deduction from shareholders' equity. Substantially all of the Company's domestic non-union employees, excluding Yale and Lister employees, are participants in the ESOP. Contributions to the plan result from the release of collateralized shares as debt service payments are made. Compensation expense amounting to $1,704,000, $1,120,000 and $487,000 in fiscal 1997, 1996 and 1995, respectively, is recorded based on the guarantee release of the New ESOP shares at their fair market value. Dividends on allocated New ESOP shares are recorded as a reduction of retained earnings and are applied toward debt service. At March 31, 1997, 618,071 and 180,457 of Old ESOP shares and New ESOP shares, respectively, and at March 31, 1996, 641,818 and 77,035 of Old ESOP shares and New ESOP shares, respectively, were allocated or available to be allocated to participants' accounts. At March 31, 1997, 426,508 of New ESOP shares and at March 31, 1996, 532,109 of New ESOP shares were pledged as collateral to guarantee the ESOP term loans. The fair market value of unearned ESOP shares at March 31, 1997 amounted to $7,570,000. Regarding the debt associated with the Old ESOP shares, $14,000 and $46,000 of interest was incurred during fiscal 1996 and 1995, respectively. Associated with that same debt, ESOP contributions amounted to $406,000 and $487,000, which included $117,000 and $127,000 of dividends which were used for debt service for fiscal 1996 and 1995, respectively. 10. Postretirement Benefit Obligation The Company sponsors defined benefit postretirement health care plans that provide medical and life insurance coverage to Yale domestic retirees and their dependents. The Company pays the majority of the medical costs for retirees and their spouses who are under age 65. For retirees and dependents of retirees who retired prior to January 1, 1989, and are age 65 or over, the Company contributes 100% toward the American Association of Retired Persons ("AARP") premium frozen at the 1992 level. For retirees and dependents of retirees who retired after January 1, 1989, the Company contributes $35 per month toward the AARP premium. The life insurance plan is noncontributory. -40- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Postretirement Benefit Obligation (continued) The Company's postretirement health benefit plans are not funded. In accordance with FAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," the following table sets forth the plans' combined accumulated postretirement health benefit obligation recognized in the Company's March 31, 1997 balance sheet (in thousands): Current retirees $ 10,211 Employees eligible to retire 2,159 Active employees not eligible to retire 4,687 --------- Total accumulated postretirement benefit obligation, included in other non-current liabilities $ 17,057 ========= Net periodic postretirement benefit cost included the following components for the year ended March 31, 1997, since the October 17, 1996 Yale acquisition (in thousands): Service cost - benefits attributed to service during the period $ 187 Interest cost 609 --------- Net periodic postretirement benefit cost $ 796 ========= For measurement purposes, a 7.5% annual rate of increase in the per capita cost of postretirement medical benefits was assumed at the beginning of the period; the rate was assumed to decrease 0.5% per year to 5.5% by 2000. A 1% increase in this annual trend rate would have increased the accumulated postretirement benefit obligation at March 31, 1997 by $1,009,000 with a corresponding increase in the 1997 postretirement benefit expense of $57,000. The discount rate used in determining the accumulated postretirement benefit obligation was 8.0% for 1997. -41- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Common Stock, Earnings per Share and Stock Plans Common Stock Effective February 22, 1996, the Company issued 6,037,500 shares of its common stock at $15.00 per share in an initial public offering. Proceeds from the offering, net of commissions and other related expenses totaling approximately $7.5 million, were approximately $83.1 million. The proceeds were primarily used to reduce the Company's outstanding indebtedness, a significant portion of which arose from the Lift-Tech acquisition. Earnings per Share Earnings per share were based on the following: Year Ended March 31, 1997 1996 1995 ------------------------------------- Weighted-average common stock outstanding 13,210,001 7,662,310 7,089,240 Common stock equivalents-primary 5,200 - - Common stock equivalents-fully diluted 5,634 - - The weighted-average common stock outstanding shown above is net of unallocated New ESOP shares (see Note 9). Beginning December 31, 1997, the Company will be required to comply with FAS No. 128, "Earnings per Share," which is not expected to have a material effect on the Company's financial statements. Stock Plans The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the grant date, no compensation expense is recognized. -42- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Common Stock, Earnings per Share and Stock Plans (continued) Stock Plans (continued) The Company maintains two stock option plans, a Non-Qualified Stock Option Plan ("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive Plan"). At March 31, 1997, 250,000 shares and 1,050,000 shares were reserved for grant under the Non-Qualified Plan and Incentive Plan, respectively. Under the Non-Qualified Plan, options may be granted to officers and other key employees of the Company as well as to non-employee directors and advisors. The Company has not granted any options under the Non-Qualified Plan. Options granted under the Incentive Plan become exercisable over a four-year period at the rate of 25% per year commencing one year from the date of grant at an exercise price of not less than 100% of the fair market value of the common stock on the date of grant. Any option granted under this plan may be exercised not earlier than one year and not later than ten years from the date such option is granted. During 1997, the Company granted 200,000 options at an exercise price of $15.50 per share which was the market value on the grant date, representing the only options outstanding at March 31, 1997. Those options become exercisable January 1, 1998 and expire January 1, 2007. Pro forma information regarding net income and earnings per share is required by FAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for those options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for fiscal 1997: risk-free interest rate of 5.5%, dividend yield of 1.8%, volatility factor of the expected market price of the Company's common stock of .245, and a weighted-average expected life of the option of 4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. -43- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Common Stock, Earnings per Share and Stock Plans (continued) Stock Plans (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information for the year ended March 31, 1997 follows (in thousands, except for earnings per share data): Pro forma net income $ 15,127 Pro forma earnings per share, both primary and fully diluted 1.14 The Company maintains a Restricted Stock Plan, under which the Company has reserved 80,200 shares at March 31, 1997. During fiscal 1997, 19,800 shares were issued under the Restricted Stock Plan at a purchase price of $0.01 - $1.00 per share. The weighted-average grant-date market value of those shares granted was $14.74. Grantees who remain continuously employed with the Company become vested in their shares five years after the date of the grant. -44- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Loss Contingencies General and Product Liability - $8,262,000 of the accrued general and product liability costs which are included in other non-current liabilities at March 31, 1997 ($7,110,000 at March 31, 1996) are the actuarial present value of estimated reserves based on an amount determined from loss reports and individual cases filed with the Company and an amount, based on past experience, for losses incurred but not reported. The accrual in these consolidated financial statements was determined by applying a discount factor based on interest rates customarily used in the insurance industry, of 6.63% to 8.42%, to the undiscounted reserves of $11,154,000 and $9,373,000 at March 31, 1997 and 1996, respectively. This liability is funded by investments in marketable securities (see Notes 2 and 4). Yale is self-insured for product liability claims up to a maximum of $500,000 per occurrence and maintains product liability insurance with a $100 million cap per occurrence. The Company has been advised that a customer has alleged that one of Yale's products was the cause of a fire which occurred in January 1995 at a manufacturing facility, resulting in losses in excess of Yale's policy limits. A formal complaint has been filed seeking damages in excess of $500 million. However, it is the opinion of management that there was no manufacturing defect and that the claim will in all likelihood be settled within the Company's policy limits. 13. Income Taxes The following is a reconciliation of the difference between the effective tax rate and the statutory federal tax rate: Year Ended March 31, 1997 1996 1995 -------------------------------- (In thousands) Computed statutory provision $ 12,002 $ 7,575 $ 5,639 State income taxes net of federal benefit 1,700 743 561 Nondeductible goodwill amortization 1,961 - - Other (46) 339 (308) -------------------------------- Actual tax provision $ 15,617 $ 8,657 $ 5,892 ================================ The provision for income tax expense consisted of the following: Year Ended March 31, 1997 1996 1995 ------------------------------- (In thousands) Current income tax expense: Federal taxes $ 8,399 $ 6,336 $ 3,801 State taxes 1,124 975 657 Foreign 1,278 450 - Deferred income tax expense: Domestic 4,736 627 977 Foreign 80 269 457 -------------------------------- $ 15,617 $ 8,657 $ 5,892 ================================ -45- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Income Taxes (continued) The Company applies the liability method of accounting for income taxes as required by FAS Statement No. 109, "Accounting for Income Taxes." The gross composition of the net current deferred tax asset (liability) is as follows: March 31, 1997 1996 ----------------------- (In thousands) Inventory $ (5,177) $ (2,721) Bad debt allowance 440 449 Accrued vacation and incentive costs 2,157 997 Other 3,122 931 ----------------------- Net current deferred tax asset (liability) $ 542 $ (344) ======================= The gross composition of the net non-current deferred tax asset is as follows: March 31, 1997 1996 ----------------------- (In thousands) Insurance reserves $ 11,711 $ 2,804 Property, plant, and equipment (8,010) (1,687) Other 5,234 1,764 ----------------------- Net non-current deferred tax asset $ 8,935 $ 2,881 ======================= Income before income taxes, minority interest and extraordinary charge includes foreign subsidiary net income of $3,650,000, $1,188,000 and $1,162,000 for the years ended March 31, 1997, 1996, and 1995 respectively. United States income taxes have not been provided on unremitted earnings of the Company's foreign subsidiaries as such earnings are considered to be permanently reinvested. -46- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Rental Expense and Lease Commitments Rental expense for the years ended March 31, 1997, 1996 and 1995 was $2,805,000, $1,668,000 and $1,535,000, respectively. The following amounts represent future minimum payment commitments as of March 31, 1997 under non-cancelable operating leases extending beyond one year (in thousands): Year ended Vehicles and March 31, Real Property Equipment Total - ----------- ------------- ------------ ---------- 1998 $ 1,514 $ 1,534 $ 3,048 1999 1,545 1,358 2,903 2000 1,477 994 2,471 2001 1,430 737 2,167 2002 1,417 278 1,695
15. Foreign Operations United Elimin- Consoli- States Canada Europe Mexico ations dated -------------------------------------------------------------------------- (In thousands) Year ended March 31, 1997 Sales to unaffiliated customers $ 313,705 $ 27,951 $ 14,146 $ 3,622 $ - $ 359,424 Transfers between geographic areas 10,411 547 - - (10,958) - -------------------------------------------------------------------------- Total net sales $ 324,116 $ 28,498 $ 14,146 $ 3,622 $ (10,958) $ 359,424 ========================================================================== Income from operations $ 41,190 $ 1,955 $ 1,548 $ 361 $ - $ 45,054 Net income 13,073 1,129 730 222 - 15,154 Identifiable and total assets 457,501 26,191 61,696 2,857 - 548,245 Total liabilities 382,762 4,600 9,949 778 - 398,089 Year ended March 31, 1996 Sales to unaffiliated customers $ 191,178 $ 18,659 $ - $ - $ - $ 209,837 Transfers between geographic areas 5,453 1,278 - - (6,731) - -------------------------------------------------------------------------- Total net sales $ 196,631 $ 19,937 $ - $ - $ (6,731) $ 209,837 ========================================================================== Income from operations $ 24,451 $ 1,351 $ - $ - $ - $ 25,802 Net income 12,489 498 - - - 12,987 Identifiable and total assets 177,055 11,679 - - - 188,734 Total liabilities 47,233 3,879 - - - 51,112
-47- COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Foreign Operations (continued) United Elimin- Consoli- States Canada Europe Mexico ations dated -------------------------------------------------------------------------- (In thousands) Year ended March 31, 1995 Sales to unaffiliated customers $ 158,906 $ 13,424 $ - $ - $ - $ 172,330 Transfers between geographic areas 3,853 3,327 - - (7,180) - ---------------------------------------------------------------------------- Total net sales $ 162,759 $ 16,751 $ - $ - $ (7,180) $ 172,330 ============================================================================ Income from operations $ 16,942 $ 1,334 $ - $ - $ - $ 18,276 Net income 9,799 705 - - - 10,504 Identifiable and total assets 88,227 9,595 - - - 97,822 Total liabilities 52,979 3,993 - - - 56,972
U.S. operations' sales to unaffiliated customers include $23,075,000, $15,074,000 and $8,464,000 for the years ended March 31, 1997, 1996 and 1995, respectively, for export. Transfers between geographic areas are recorded at amounts generally above cost and in accordance with the rules and regulations of the respective governing tax authorities. -48-
Schedule II - Valuation and qualifying accounts March 31, 1997, 1996 and 1995 Dollars in thousands Additions ----------------------- Charged to Balance at Charged to Other Balance at Beginning of Costs and Accounts - Deductions - End of Description Period Expenses Describe Describe period - ------------------------------------------------------------------------------------------------------------------- Year ended March 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts $ 917 $ 905 $ 1,189 (4) $ 1,127 (1) $ 1,884 Slow-moving and obsolete inventory 2,467 325 1,770 (4) 1,206 (2) 3,356 Reserve against non-current receivable 600 600 - -------------------------------------------------------------------------------------------------------------------- Total $ 3,984 $ 1,230 $ 2,959 $ 2,333 $ 5,840 ==================================================================================================================== Reserves on balance sheet: Accrued general & product liability costs $ 7,110 $ 1,775 $ 3,806 (4) $ 718 (3) $ 11,973 ==================================================================================================================== Year ended March 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts $ 537 $ 358 $ 289 (4) $ 267 (1) $ 917 Slow-moving obsolete inventory 1,815 487 370 (4) 205 (2) 2,467 Reserve against non-current receivable 0 600 600 - -------------------------------------------------------------------------------------------------------------------- Total $ 2,352 $ 1,445 $ 659 $ 472 $ 3,984 ==================================================================================================================== Reserves on balance sheet: Accrued general & product liability costs $ 5,758 $ 1,555 $ 203 (3) $ 7,110 ==================================================================================================================== Year ended March 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts $ 495 $ 511 $ 469 (1) $ 537 Slow-moving and obsolete inventory 1,603 946 734 (2) 1,815 - -------------------------------------------------------------------------------------------------------------------- Total $ 2,098 $ 1,457 $ 1,203 $ 2,352 ==================================================================================================================== Reserves on balance sheet: Accrued general & product liability costs $ 4,833 $ 1,210 $ 285 (3) $ 5,758 ==================================================================================================================== (1) Uncollectible accounts written off, net of recoveries (2) Obsolete inventory disposals (3) Insurance claims and expenses paid (4) Reserves at date of acquisition of subsidiaries
-49 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure. --------------------- None. PART III Item 10. Directors and Executive Officers of the Registrant. - -------- --------------------------------------------------- The information regarding Directors and Executive Officers of the Registrant will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1997. Item 11. Executive Compensation - -------- ---------------------- The information regarding Executive Compensation will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- The information regarding Security Ownership of Certain Beneficial Owners and Management will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1997. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- The information regarding Certain Relationships and Related Transactions will be included in a Proxy Statement to be filed with the Commission prior to July 29, 1997. -50- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - -------- ----------------------------------------------------------------- (a)(1) Financial Statements: --------------------- The following consolidated financial statements of Columbus McKinnon Corporation are included in Item 8: Reference Page No. --------- -------- Report of Independent Auditors 22 Consolidated balance sheets - March 31, 1997 and 1996 23 Consolidated statements of income - Years ended March 31, 1997, 1996 and 1995 24 Consolidated statements of shareholders' equity Years ended March 31, 1997, 1996 and 1995 25 Consolidated statements of cash flows - Years ended March 31, 1997, 1996 and 1995 27 Notes to consolidated financial statements 28 (a)(2) Financial Statement Schedule: Page No. ----------------------------- -------- Report of Independent Auditors 22 Schedule II - Valuation and qualifying accounts 49 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. -51- (a)(3) Exhibits: Exhibit Number - ------- 2.1 Agreement and Plan of Merger dated August 24, 1996 among Columbus McKinnon Corporation, L Acquisition Corporation and Spreckels Industries, Inc. (known as Yale International, Inc.) (incorporated by reference to Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated August 30, 1996.) 2.2 Offer to Purchase by L Acquisition Corporation dated August 30, 1997, as revised (incorporated by reference to Exhibit (a)(1) to the Company's Tender Offer Statement on Schedule 14D-1 dated August 30, 1997, as amended by Amendment No. 1 dated September 18, 1996, Amendment No. 2 dated September 27, 1996, Amendment No. 3 dated October 4, 1996, Amendment No. 4 dated October 9, 1996 Amendment No. 5 dated October 13, 1996 and Amendment No. 6 dated October 17, 1996.) 3.1 Restated Certificate of Incorporation of the Registrant. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 3.2 Amended By-Laws of the Registrant. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 4.1 Specimen Common Share Certificate. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.1 Stock Purchase Agreement by and among Columbus McKinnon Corporation and all of the shareholders of LTI Holdings, Inc., dated as of November 1, 1995. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.2 Amended and Restated Term Loan Agreement by and among Fleet Bank of New York, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr., as Trustees under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated March 31, 1993. (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.3 Amendment No. 1 to Amended and Restated Term Loan Agreement, dated March 31, 1993, by and among Fleet Bank of New York, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr. as trustees under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated October 27, 1994. (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) -52- 10.4 Amendment No. 2 to Amended and Restated Term Loan Agreement by and among Fleet Bank, Columbus McKinnon Corporation and Kenneth G. McCreadie, Peter A. Grant and Robert L. Montgomery, Jr. under the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement, dated November 2, 1995. (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.5 Loan Agreement by and among Columbus McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon Corporation and Marine Midland Bank, dated October 27, 1994. (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.6 Agreement by and among Columbus McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon Corporation and Marine Midland Bank, dated November 2, 1995. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.7 Credit Agreement between Marine Midland Bank, N.A. and Columbus McKinnon Corporation, dated March 31, 1993. (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.8 Amendment No. 1 to Credit Agreement, dated March 31, 1993, between Marine Midland Bank, as successor by conversion from Marine Midland Bank, N.A. and Columbus McKinnon Corporation, dated January 26, 1994. (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.9 Amendment No. 2 to Credit Agreement, dated March 31, 1993, between Marine Midland Bank as successor by conversion from Marine Midland Bank, N.A. and Columbus McKinnon Corporation, dated October 27, 1994. (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.10 Agreement between Columbus McKinnon Corporation and Marine Midland Bank, dated November 2, 1995. (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.11 Series Loan Agreement, dated as of November 1, 1993, between City of Cedar Rapids, Iowa and Columbus McKinnon Corporation. (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.12 Series Letter of Credit Reimbursement Agreement between Marine Midland Bank, N.A. and Columbus McKinnon Corporation, dated as of November 1, 1993. (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) -53- 10.13 Series Lease, dated as of November 1, 1993, between Issuer as Lessor: Town of Amherst Industrial Development Agency and Company as Lessee: Columbus McKinnon Corporation. (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.14 Series Letter of Credit Reimbursement Agreement between Marine Midland Bank, N.A. and Columbus McKinnon Corporation, dated as of November 1, 1993. (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.15 Agreement between Columbus McKinnon Corporation and Marine Midland Bank, dated November 2, 1995. (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.16 Credit Agreement, dated as of November 2, 1995, by and among Fleet Bank, Marine Midland Bank, Fleet Bank, as Administrative Agent, Marine Midland Bank, as Collateral Agent, and Columbus McKinnon Corporation. (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.17 Lease Agreement between Warehouse Associates of Texas, as lessor, and Columbus McKinnon Corporation, as lessee, dated February 8, 1994. (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.18 Real Estate Lease between C.M. Realty Company, as lessor, and Columbus McKinnon Corporation, as lessee, dated April 5, 1993. (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.19 Lease between Grub & Ellis Industrial Properties Fund II as lessor, and Columbus McKinnon Corporation, as lessee, dated June 19, 1992. (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.20 Second Amendment to Lease by and between Adaya Asset Archibald, L.P. (as transferee of Crow-Eaves-Ontario #1 Limited Partnership), as Landlord, and Columbus McKinnon, as Tenant, dated October 27, 1994; Amendment to Lease Agreement by and between Crow-Eaves-Ontario #1 Limited Partnership, dated October 1, 1989; Lease Agreement by and between Crow-Eaves-Ontario Limited Partnership and Columbus McKinnon Corporation. (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement No. 33- 80687 on Form S-1 dated December 21, 1995) 10.21 Lease dated September 10, 1986 between Lift-Tech International Cranes & Hoists, Inc. as lessee and 638037 Ontario Limited, as lessor as assigned to Lift-Tech International Cranes & Hoists Ltd. by Assignment of Lease dated April 1, 1991. (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) -54- 10.22 Lease between Atlanta Structures L.P., as lessor and Lift-Tech International, Inc., as lessee, dated September 1, 1995. (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.23* Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989. (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.24* Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated March 2, 1995. (incorporated by reference to Exhibit 10.24 to the Company's Registration Statement No. 33-80687 on Form S- 1 dated December 21, 1995) 10.25* Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement, dated April 1, 1987. (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.26* Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement (formerly known as the Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement) effective November 1, 1988. (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.27* Columbus McKinnon Corporation 1995 Incentive Stock Option Plan. (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No. 33-80687 on Form S- 1 dated December 21, 1995) 10.28* Columbus McKinnon Corporation Restricted Stock Plan. (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.29* Columbus McKinnon Corporation Non-Qualified Stock Option Plan. (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement No. 33-80687 on Form S- 1 dated December 21, 1995) 10.30* Columbus McKinnon Corporation Thrift [401(k) Plan] 1989 Restatement Effective January 1, 1989. (incorporated by reference to Exhibit 10.30 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.31* Amendment No. 1 to Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement Effective January 1, 1989. (incorporated by reference to Exhibit 10.31 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.32* Columbus McKinnon Corporation Thrift [401(k)] Plan Trust Agreement Restatement Effective August 9, 1994. (incorporated by reference to Exhibit 10.32 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) -55- 10.33* Columbus McKinnon Corporation Monthly Retirement Benefit Plan Tax Reform Restatement Effective April 1, 1989. (incorporated by reference to Exhibit 10.33 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.34* Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust Agreement effective as of April 1, 1987. (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.35* Columbus McKinnon Corporation Executive Incentive Compensation Plan - Fiscal 1996. (incorporated by reference to Exhibit 10.35 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995) 10.36* Columbus McKinnon Corporation Description of Corporate Incentive Plan. (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement No. 33-80687 on Form S- 1 dated December 21, 1995) 10.37* Amendment No. 1 to the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated March 27, 1996. 10.38* Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated October 17, 1995. 10.39* Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated March 27, 1996.(E-10.39) 10.40* Amendment No. 2 to the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March 27, 1996.(E-10.40) 10.41* Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated September 30, 1996 (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on form 10-Q for the quarterly period ended September 30, 1996.) 10.42 Credit Agreement dated as of August 5, 1996 by and among Fleet Bank, Marine Midland Bank, Fleet Bank, as Administrative Agent and Columbus McKinnon Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996.) 11.1** Columbus McKinnon Computation of Earnings per Share. 21.1** Subsidiaries of the Registrant. 23.1** Consent of Ernst & Young LLP. -56- 99.1** Form 11-K Columbus McKinnon Corporation Employee Stock Ownership Plan Annual Report for the year ended March 31, 1997. - -------------- * Indicates a management contract or compensation plan or arrangement. ** Filed herewith (b) Reports on Form 8-K: On January 9, 1997, the Company filed a current Report on form 8-K dated January 9, 1997 announcing the completion of its acquisition of Spreckels Industries, Inc. through a subsidiary merger. -57- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBUS McKINNON CORPORATION Dated: June 27, 1997 By: /s/ Herbert P. Ladds, Jr. Herbert P. Ladds, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Herbert P. Ladds, Jr. President, Chief Executive June 27, 1997 Herbert P. Ladds, Jr. Officer and Director /s/ Robert L. Montgomery, Jr. Executive Vice President, June 27, 1997 Robert L. Montgomery, Jr. Chief Financial Officer, Chief Accounting Officer and Director /s/ Edward W. Duffy Chairman of the Board of June 27, 1997 Edward W. Duffy Directors /s/ Randolph A. Marks Director June 27, 1997 Randolph A. Marks /s/ L. David Black Director June 27, 1997 L. David Black -58- EX-11.1 2 10-K EXH 11.1 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 COLUMBUS McKINNON CORPORATION COMPUTATION OF EARNINGS PER SHARE Year Ended March 31, ------------------------------------------- 1997 1996 1995 Primary: ------------------------------------------- Weighted average common shares outstanding 13,210,001 7,656,067 7,077,588 Weighted average shares issued (1) - 67,036 124,525 Weighted average shares issued which can be repurchased (2) - (60,793) (112,873) Common Stock Equivalents (stock options) 5,200 - - ------------------------------------------ Total 13,215,201 7,662,310 7,089,240 ========================================== Net income applicable to common shareholders $15,154,000 $12,979,500 $10,494,000 Net income per common share (primary) 1.15 1.69 1.48 Year Ended March 31, ------------------------------------------ 1997 1996 1995 Primary: ------------------------------------------ Weighted average common shares outstanding 13,210,001 7,656,067 7,077,588 Weighted average shares issued (1) - 67,036 124,525 Weighted average shares issued which can be repurchased (2) - (60,793) (112,873) Common Stock Equivalents (stock options) 5,634 - - ------------------------------------------ Total 13,215,635 7,662,310 7,089,240 ========================================== Net income applicable to common shareholders $15,154,000 $12,979,500 $10,494,000 Net income per common share (fully diluted) 1.15 1.69 1.48 - ----------------------------------- (1) Includes shares issued since December 20, 1994 (one year prior to the initial filing of the IPO registration statement) at $12.69 per share which is less than the initial public offering price of $15 deemed outstanding for all periods presented in accordance with Staff Accounting Bulletin No. 83. (2) Represents the number of shares assumed to be purchased at $14 per share, the IPO mid-point price, with proceeds from the shares issued in 1996. -59- EX-23.1 3 CONSENT OF ERNST & YOUNG LLP Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No, 333-3212) pertaining to the Columbus McKinnon Corporation 1995 Incentive Stock Option Plan, the Columbus McKinnon Corporation Non-Qualified Stock Option Plan, the Columbus McKinnon Corporation Restricted Stock Plan, and the Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 of Columbus McKinnon Corporation of our report dated May 12, 1997, with respect to the consolidated financial statements and financial statement schedule of Columbus McKinnon Corporation included in this Annual Report (Form 10-K) for the year ended March 31, 1997. /s/Ernst & Young LLP Buffalo, New York June 27, 1997 -60- EX-21.1 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Columbus McKinnon Corporation Subsidiaries of the Registrant Columbus McKinnon Limited (Canada) Columbus McKinnon Finance Corporation (Canada) Endor S.A. de C.V. (Mexico) CM Insurance Company, Inc. (US) Audubon Export, Inc. (FSC) (US) Yale Industrial Products, Inc. (US) Mechanical Products, Inc. (US) Minitec Corporation (US) Yale Industrial Products, Ltd. (UK) Egyptian-American Crane Co. (joint venture) (Egypt) Duff-Norton Asia Pacific Pty. Ltd. (Singapore) Kunming Duff-Norton Machinery Co. Ltd. (joint venture) (China) Yale Industrial Products GmbH (Germany) Yale Industrial Products Asia (Thailand) Co. Ltd. (Thailand) Manutention Connection (France) Yale Industrial Products Pty. Ltd. (South Africa) Yale Industrial Products GmbH (Austria) Hangzhou (LILA) Lifting and Lashing Co. Ltd. (China) -61- EX-99.1 5 FORM 11-K ESOP ANNUAL REPORT FOR MAR-31-97 EXHIBIT 99.1 Financial Statements and Schedule Columbus McKinnon Corporation Employee Stock Ownership Plan Years ended March 31, 1997 and 1996 with Report of Independent Auditors -62- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: COLUMBUS McKINNON CORPORATION 140 John James Audubon Parkway Amherst, NY 14228-1197 -63- Columbus McKinnon Corporation Employee Stock Ownership Plan Financial Statements and Schedule Years ended March 31, 1997 and 1996 Contents Report of Independent Auditors ...........................................65 Financial Statements Statements of Net Assets Available for Plan Benefits......................66 Statements of Changes in Net Assets Available for Plan Benefits ..........67 Notes to Financial Statements.............................................68 Schedule Item 27a - Schedule of Assets Held for Investment Purposes................75 -64- Report of Independent Auditors The Pension Committee Columbus McKinnon Corporation Employee Stock Ownership Plan We have audited the accompanying statements of net assets available for plan benefits of the Columbus McKinnon Corporation Employee Stock Ownership Plan (ESOP) as of March 31, 1997 and 1996, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the ESOP's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the ESOP at March 31, 1997 and 1996, and the changes in its net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of plan assets held for investment purposes as of March 31, 1997 is presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and is not a required part of the financial statements. The supplemental schedule has been subjected to the auditing procedures applied in our audit of the 1997 financial statements and, in our opinion, is fairly stated in all material respects in relation to the 1997 financial statements taken as a whole. /s/ Ernst & Young LLP May 21, 1997 -65- Columbus McKinnon Corporation Employee Stock Ownership Plan Statements of Net Assets Available for Plan Benefits March 31 1997 1996 ------------------------ Assets Cash $ 50 $ 50 Investments: Columbus McKinnon Corporation common stock at market: Allocated (cost - $5,417,940 in 1997, and $4,539,103 in 1996) 14,173,872 11,501,648 Unallocated (cost - $4,201,084 in 1997, $5,241,274 in 1996; held in suspense account) 7,570,482 8,513,744 ------------------------ 21,744,354 20,015,392 Stable asset fund at market 72,644 58,302 Employer contribution receivable 18,985 7,413 Interest receivable 1,970 1,189 ------------------------ Total assets $ 21,838,003 $ 20,082,346 ======================== Liabilities and net assets available for plan benefits Exempt loans payable $ 4,681,950 $ 5,590,675 Accrued interest payable 18,985 7,413 ------------------------ Total liabilities 4,700,935 5,598,088 Net assets available for plan benefits: Allocated 14,248,536 11,561,189 Unallocated 2,888,532 2,923,069 ------------------------ Total net assets available for plan benefits 17,137,068 14,484,258 ------------------------ Total liabilities and net assets available for plan benefits $ 21,838,003 $ 20,082,346 ======================== See accompanying notes. -66- Columbus McKinnon Corporation Employee Stock Ownership Plan Statements of Changes in Net Assets Available for Plan Benefits Year ended March 31 1997 1996 ---------------------------- Additions: Employer contributions $ 1,081,335 $ 1,023,118 Dividend income 331,507 304,176 Interest income 2,737 2,518 ---------------------------- Total additions 1,415,579 1,329,812 Deductions: Participant termination payments 414,376 313,318 Interest expense on exempt loans payable 489,335 550,799 Administrative expense 2,868 2,091 ---------------------------- Total deductions 906,579 866,208 Net appreciation in fair value of investments 2,143,810 4,140,685 ---------------------------- Net increase in assets available for plan benefits 2,652,810 4,604,289 Net assets available for plan benefits: Beginning of year 14,484,258 9,879,969 ---------------------------- End of year $ 17,137,068 $ 14,484,258 ============================ See accompanying notes. -67- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements March 31, 1997 and 1996 1. Description of the Plan and Major Plan Provisions The Columbus McKinnon Corporation Employee Stock Ownership Plan (ESOP), a defined contribution plan, was established as a result of amending the previously existing Columbus McKinnon Corporation Personal Retirement Account Plan (PRA Plan), effective November 1, 1988. The PRA Plan was restated and its assets became part of the ESOP. The ESOP is an employee stock ownership plan and a stock bonus plan within the meanings of the applicable sections of the Internal Revenue Code of 1986, as amended. It is also an eligible individual account plan as defined in the applicable section of the Employee Retirement Income Security Act of 1974 (ERISA). The plan was amended effective April 1, 1989 to incorporate the Tax Reform Act of 1986 and subsequent legislation, and to extend coverage to all hourly non-union employees of Columbus McKinnon Corporation (the Company). Effective April 1, 1996 the plan includes the employees of Lift-Tech International, Inc. The plan was amended effective February 23, 1996 and October 1, 1996 to incorporate valuation and distribution procedures as required for a public entity. A summary of the ESOP's provisions follows. Refer to the ESOP document or the summary plan description (SPD) for a complete description of provisions. Participation Substantially all of the Company's domestic non-union employees are eligible to participate in the ESOP, excluding domestic employees of companies acquired in fiscal 1997. Participant Age Eligible employees must have attained age 21 and completed one year of eligibility service to be a participant. Vesting of Participants A participant will be fully vested and will have a non-forfeitable interest in the participant's account balance upon completion of five years of vesting service, excluding any service rendered prior to the calendar year in which he/she attained age 18, or upon attainment of normal retirement age while in the employ of the Company or any affiliated company. For participants with prior employment with the Company in an ineligible classification or with an affiliate of the Company, such employment shall be included in the calculation of eligibility service. -68- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 1. Description of the Plan and Major Plan Provisions (continued) Retirement and Termination of Employment Upon a vested participant's termination, the value of his/her account will be distributed if the value of the account is less than $3,500 or, at the participant's option, either immediately or at any valuation date until retirement, as provided in the ESOP. A retiree may elect to defer distribution up to 69 1/2 years of age, where at the following valuation date distribution is mandatory. During 1995, $313,318 was payable to vested participants who elected immediate distribution upon their termination. This resulted in the sale of 1,445.70 shares in 1996 of common stock held by the ESOP back to the Company for $311,915. Valuation dates for share distribution are September 30 and March 31. During 1996, $406,359 was distributed to vested participants in the form of stock certificates (25,857 shares). This resulted in the sale of 11 shares held by the ESOP back to the Company for $172 as a result of fractional shares. At March 31, 1997, $34,990 ($32,924 at March 31, 1996) is included in the ESOP assets for deferred distribution to terminated participants upon their retirement. Forfeiture of a non-vested interest shall occur in the fifth consecutive calendar year following a break in service. The forfeited accounts will be allocated among the accounts of active participants. At March 31, 1997, the ESOP assets include $161,569 of undistributed forfeited accounts ($80,403 at March 31, 1996). Allocation to Participant Accounts As of each valuation date (March 31), each participant account is appropriately adjusted to reflect any contributions or stock to be allocated as of such date, the income of the trust fund during the period and the increase or decrease in the fair market value of the trust fund during the period. The allocation will be based on the fraction, the numerator of which is the participant's annual earnings for the preceding calendar year and the denominator of which is the aggregate annual earnings for such calendar year of all participants entitled to an allocation. -69- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies Investments The ESOP's investment in Columbus McKinnon Corporation common stock is at fair market value as of March 31, 1997 and 1996 based on quoted market prices. The investment in the Stable Asset Fund is also reported at market value as determined by open trading. Contributions The Company will contribute to the ESOP such amount as its Board of Directors shall determine. Each participant (a) who is actively employed as an employee on the allocation date (December 31) and who has earned at least 1,000 hours of service as an employee in the calendar year ending on the allocation date, or (b) who terminates employment on or after January 1 during a plan year after attaining age 60 and completing at least five years of eligibility service, or (c) who dies on or after January 1 during a plan year, after attaining age 60 and completing at least five years of eligibility service, shall be entitled to share in the contributions made for such plan year. Contributions shall be made in cash or in shares of stock as determined by the Company, and need not be made out of current or accumulated earnings and profits. Dividends Dividends paid on stock allocated to a participant's stock account will be allocated to the participant's nonstock account. The pension committee may direct that such dividends shall be either (a) paid directly to the participant, former participant, or beneficiary within 90 days after the close of the plan year in which such dividend was paid, or (b) applied as payment on the exempt loans. Dividends paid on unallocated stock held by the trustee and acquired with the proceeds of an exempt loan shall be held by the trustee until the end of the plan year in which it was paid, and then, along with any interest or earnings, be applied as payment on the exempt loans which shall trigger a release of stock from the suspense account. ESOP Termination The Company intends to continue the ESOP indefinitely, but reserves the right to terminate it at any time. If the ESOP is terminated, each participant shall be fully and nonforfeitably vested in his interest in the ESOP trust fund. -70- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses. Actual results could differ from those estimates. 3. Employer Contributions The employer contribution to the ESOP for the March 31, 1997 plan year end was $1,081,335 ($1,023,118 in 1996). This includes interest on the exempt loans payable April 1, 1997; therefore, a contribution receivable from the ESOP sponsor in the amount of $18,985 has been recognized at March 31, 1997 ($7,413 at March 31, 1996 for interest due April 1, 1996). Participants are not permitted to make contributions to the ESOP. 4. Exempt Loans Payable On December 13, 1988, the ESOP entered into a term note agreement in the amount of $3,600,000 (repaid in full in January 1996). Employer contributions of $292,319 and $13,646 were applied to principal and interest, respectively, in 1996. Dividend and interest income of $113,189 was also applied to principal in 1996. On December 13, 1988, the ESOP purchased 611,524 shares (referred to as the "Old" ESOP shares) of common stock of the Company with the debt proceeds, which were recorded by the trustee in the suspense account. Such stock ceases to be collateral and is released from the suspense account as the exempt loan is repaid. In each year prior to full payment of the loan, the number of shares of stock released will equal the number of shares of stock held as collateral immediately before the release for such plan year multiplied by the release fraction. -71- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 4. Exempt Loans Payable (continued) On October 27, 1994, the ESOP obtained $6,000,000 of new debt ($2,000,000 from Marine Midland Bank and $4,000,000 from Fleet Bank). The Fleet loan is payable in quarterly installments of $103,000 through July 1999, and $2,435,083 in October 1999, plus interest at prime plus 1% (9.5% at March 31, 1997). The Marine loan is payable in quarterly installments of $45,000 plus an annual minimum of $22,917 through July 1999, and $1,014,842 in October 1999, plus interest at prime plus 1% (9.5% at March 31, 1997). Employer contributions of $592,000 ($412,000 Fleet and $180,000 Marine) and $489,335 ($339,279 Fleet and $150,055 Marine) in 1997, and $180,000 (Marine) and $537,153 ($367,854 Fleet and $169,299 Marine) in 1996 were applied to principal and interest, respectively. Dividend and interest income of $316,725 ($211,394 Fleet and $105,331 Marine) in 1997 and $147,948 ($98,666 Fleet and $49,282 Marine) in 1996 was applied to principal. The loans, which are guaranteed by the Company, are collateralized by an equivalent number of shares of common stock recorded by the trustees in a suspense account. On October 27, 1994, the ESOP purchased 609,144 shares (referred to as the "New" ESOP shares) of common stock of the Company with the debt proceeds, which were recorded by the trustee in the suspense account. Such stock ceases to be collateral and is released from the suspense account as the exempt loan is repaid. In each year prior to full payment of the loan, the number of shares of stock released will equal the number of shares of stock held as collateral immediately before the release for such plan year multiplied by the release fraction. The numerator of the release fraction is the amount of principal and interest payments made toward the loan during the plan year and the denominator is the sum of the numerator plus the principal and interest payments to be made on the loan in the future, using the interest rate applicable at the end of the plan year. Shares of stock released from the suspense account for a plan year shall be held in the trust on an unallocated basis until allocated by the pension committee as of the last day of that plan year. That allocation shall be consistent with the method for allocating contributions to participants' accounts, which is based on a fraction of each participant's annual earnings during the preceding calendar year to the total earnings of those participants during such calendar year. The allocation of shares released resulting from dividends on participants' allocated shares, however, was based upon the fraction of each participant's allocated shares to the total number of allocated shares. -72- Columbus McKinnon Corporation Employee Stock Ownership Plan Notes to Financial Statements (continued) 4. Exempt Loan Payable (continued) As of March 31, 1997, 426,506 shares were held as collateral for the loan (532,109 shares were held as collateral as of March 31, 1996); 105,603 New shares were released from the suspense account during 1997 (58,667 and 64,149 of the Old and New shares, respectively, were released from the suspense account in 1996). These shares were allocated to participant accounts as of March 31, 1997. 5. Tax Status The ESOP is qualified under Section 401(a) of the Internal Revenue Code and therefore is exempt from Federal income taxes under provisions of Section 501(a) of the Code. The plan has received a determination letter from the Internal Revenue Service (IRS) concurring with this qualification dated October 23, 1995, and effective for the amendments adopted on March 2, 1995. A new determination letter is currently pending with the IRS for the amendments adopted during the year. The ESOP is required to operate in conformity with the Code to maintain its qualification. Management is not aware of any course of action or series of events that have occurred that might adversely affect the ESOP's qualified status. -73- Schedule -74- Columbus McKinnon Corporation Employee Stock Ownership Plan Item 27a - Schedule of Assets Held for Investment Purposes March 31, 1997 Identity of Issue Description of Investment Cost Current Value - ----------------- ------------------------- ----------------------------- Columbus McKinnon Corporation Employer Common Stock, 1,225,045 shares $ 9,619,024 $ 21,744,354 Fleet Investment Services Stable Asset Fund $ 72,644 $ 72,644 -75- SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. COLUMBUS McKINNON CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN RESTATEMENT EFFECTIVE APRIL 1, 1989 By /s/ Timothy R. Harvey Timothy R. Harvey, Trustee /s/ Karen L. Howard Karen L. Howard, Trustee /s/ Robert L. Montgomery, Jr. Robert L. Montgomery, Jr., Trustee /s/ Ivan E. Shawvan Ivan E. Shawvan, Trustee Date: June 27, 1997 -76- Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-3212) pertaining to the Columbus McKinnon Corporation 1995 Incentive Stock Option Plan, the Columbus McKinnon Corporation Non-Qualified Stock Option Plan, the Columbus McKinnon Corporation Restricted Stock Plan, and the Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 of Columbus McKinnon Corporation of our report dated May 21, 1997, with respect to the financial statements and schedule of the Columbus McKinnon Corporation Employee Stock Ownership Plan included in this Annual Report (Form 11-K) for the year ended March 31, 1997. /s/ Ernst & Young LLP Buffalo, New York June 27, 1997 -77- EX-27 6 FDS MAR-31-97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001005229 COLUMBUS MCKINNON CORPORATION 1,000 12-MOS MAR-31-1997 APR-01-1996 MAR-31-1997 8,907 0 76,330 1,884 94,409 206,371 86,312 22,370 548,245 87,997 0 0 0 137 150,019 548,245 359,424 359,424 251,987 251,987 62,383 0 11,930 34,292 15,617 18,352 0 (3,198) 0 15,154 1.15 1.15
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