Columbus McKinnon Reports Gross Margin Expanded to 31.9% in Fiscal 2014 Second Quarter *Solid operating efficiencies expands gross margin to 31.9%, a 300 basis point improvement over prior-year period; operating margin steady at 8.8% *Sales to emerging markets increased to $14.2 million, or 10.2% of sales, up 10.9% from prior-year period *Order rate improved sequentially from fiscal 2014 first quarter, up 5% Business Wire AMHERST, N.Y. -- October 24, 2013 Columbus McKinnon Corporation (NASDAQ:CMCO), a leading designer, manufacturer and marketer of material handling products, today announced financial results for its fiscal 2014 second quarter which ended September 30, 2013. Timothy T. Tevens, President and Chief Executive Officer, commented, “We continue to realize the benefits of our lean manufacturing processes and continuous improvement efforts as demonstrated by the level of gross margin we achieved despite lower sales volume. Our growth in Asia, specifically China, continues to outpace the rest of the geographic markets we serve. We are also making excellent progress on the new facilities we are building to better serve that region. The facilities will enable us to compete in China on a better cost basis and provide more capacity to address this important market.” Net sales for the second quarter of fiscal 2014 were $138.9 million, down $7.6 million, or 5.2%, from the prior-year period as pricing improvements were more than offset by reductions in volume. Volume declines were mostly driven by reduced levels of investment on major capital projects by end users and the continued poor economy in Europe. The net effect of acquisitions and divestitures offset the impact of foreign currency translation. U.S. sales, which comprised 57% of total sales, were down by $6.1 million, or 7.1%, to $78.9 million compared with the second quarter of fiscal 2013. Lower volume and the impact of the crane business divestiture in August 2012 more than offset pricing improvements. Sales outside of the U.S. were down $1.6 million, or 2.5%, to $60.0 million, as growth in emerging markets, improved pricing and the $1.4 million contribution from the June 2013 Austrian acquisition were not sufficient to offset lower volume, primarily in Europe. Foreign currency translation had a positive impact of $0.3 million on sales during the quarter. The fluctuation in sales for the second quarter of fiscal 2014 compared with the second quarter of fiscal 2013 is summarized as follows: ($ in millions) $ Change % Change Volume (11.1 ) (7.6 ) % Acquisitions & divestitures (0.3 ) (0.2 ) % Foreign currency translation 0.3 0.2 % Pricing 3.5 2.4 % Total $ (7.6 ) (5.2 ) % Improved Gross Margin Gross profit in the second quarter of fiscal 2014 increased to $44.3 million, up $1.9 million from the prior-year period. Improved pricing net of raw material inflation and acquisitions and divestitures had a positive effect on gross profit. This more than offset the negative impact of lower volume and higher product liability costs resulting from a favorable reserve adjustment in the prior-year period. As a percentage of sales, gross margin improved 300 basis points to 31.9% compared with 28.9% for the prior-year period. Selling expense was $17.3 million, up 5.1%, or $0.8 million, from the same period of the prior year. The recent Austrian acquisition resulted in an increase in selling expense of approximately $1.0 million when compared with the prior year. As a percent of revenue, selling expense was 12.4% compared with 11.2% in the same period last year. General and administrative (G&A) expense was $14.2 million, up from $12.5 million in the prior-year period. Approximately $0.6 million in costs were non-recurring and included personnel related costs and professional services. As a percent of sales, G&A was 10.2%, compared with 8.6% in the prior-year period. Operating income in the fiscal 2014 second quarter was down $0.6 million, or 4.9%, to $12.3 million when compared with the second quarter of fiscal 2013. Operating margin of 8.8% was unchanged when compared with the prior-year period. Income before tax expense was positively impacted by approximately $1.0 million as a result of a gain on the sale of certain equity securities received in an insurance company demutualization when compared with the prior year. The effective tax rate in the 2014 second quarter was 30.6% compared with 15.6% in the prior-year period. The prior-year period effective tax rate was impacted by a valuation allowance on deferred tax assets, primarily in the U.S. Second quarter fiscal 2014 net income was $7.1 million, or $0.36 per diluted share, down from $8.3 million, or $0.42 per diluted share, in fiscal 2013’s second quarter. Adjusted for the current quarter’s tax rate, the prior-year period’s earnings per diluted share were $0.35. Further details of the reconciliation of GAAP EPS to adjusted EPS are shown on page 10 of this release. Strong cash position and financial flexibility Cash provided by operations was $3.6 million in the fiscal 2014 second quarter. Working capital as a percentage of sales was 21.5% at the end of the second quarter of 2014, up from 20.2% at the end of the trailing first quarter of fiscal 2014 on higher inventory related to a new in-stock guarantee customer program and the increase of approximately $2.9 million associated with large engineered projects. Capital expenditures for the first half of fiscal 2014 were $8.0 million compared with $4.1 million in the prior-year period. Approximately $1.4 million was associated with the implementation of a new enterprise management system. The Company continues to expect fiscal 2014 capital spending to be in the range of $20 million to $25 million which includes new facilities being constructed in China. Cash and cash equivalents was $111.8 million at September 30, 2013. Gross debt at September 30, 2013 was $152.0 million. Debt, net of cash, was $40.2 million, or 13.4% of net total capitalization, compared with $41.5 million, or 14.4% of net total capitalization, at June 30, 2013. First half fiscal 2014 review Net sales for the first six months of fiscal 2014 were $277.7 million, down 7.3%, or $21.7 million, from the prior-year period. Last year’s sales included the crane business that was divested in August 2012. The net effect of acquisitions and divestitures was a negative $4.1 million in the first half of fiscal 2014. Sales to the U.S., which represented 58% of total sales, were down 8.0% to $160.9 million. Non-U.S. sales decreased by $7.7 million, or 6.2%, in the first six months of fiscal 2014. Foreign currency translation had a $0.1 million positive impact on sales in the first six months of fiscal 2014. Despite lower sales, gross profit in the first half of fiscal 2014 increased 1.8% while gross margin expanded 280 basis points to 31.6%. Gross margin expansion reflects productivity gains, the net effect of acquisitions and divestitures and pricing. Selling expenses increased $1.2 million, or 3.7%, to $34.0 million when compared with the first half of fiscal 2013. As a percent of sales, selling expenses were 12.3% in the first half of fiscal 2014 compared with 11.0% in the prior-year period. G&A expenses were $27.0 million, up 1.1% from $26.7 million in the prior-year period. G&A expenses as a percent of sales were 9.7% in the first half of fiscal 2014 compared with 8.9% in the prior-year period. Operating income for the first six months of fiscal 2014 of $25.7 million was unchanged from the prior-year period while operating margin increased by 70 basis points to 9.3%. Net income for the first half of fiscal 2014 decreased by $2.5 million, or 15.3%, to $14.1 million due to the prior period’s unusually low tax rate as a result of a deferred tax asset valuation allowance. Earnings per diluted share for the first six months of fiscal 2014 were down by 16.5% to $0.71 compared with $0.85 for the prior-year period. Adjusted for the first half of fiscal 2014’s tax rate, adjusted earnings per diluted share for the first six months of fiscal 2013 were $0.72. Further details of the reconciliation of GAAP EPS to adjusted EPS are shown on page 10 of this release. Backlog was $91.9 million at September 30, 2013, slightly lower than $92.0 million at June 30, 2013. Although the time to convert the majority of backlog to sales typically ranges from one day to a few weeks, backlog can include project-type orders from customers that have defined deliveries that may extend out 12 to 24 months. As of September 30, 2013, project-type backlog of $34.4 million, or 37.4% of total backlog, was scheduled for shipment beyond December 31, 2013. Backlog at September 30, 2013 available for shipment in the quarter ended December 31, 2013 totaled $57.5 million. Both U.S. and Eurozone capacity utilization are leading market indicators for the Company. In August 2013, U.S. industrial capacity utilization was 76.8%, compared with 75.9% in September 2012, and unchanged from June 2013. Eurozone capacity utilization was 78.3% in the quarter ended September 30, 2013, up from 78.2% during the quarter ended September 30, 2012, and up from 77.5% in the quarter ended June 30, 2013. The Company’s sales tend to lag changes in these indicators by one to two quarters. Emerging market growth Mr. Tevens concluded, “Our biggest revenue growth opportunities remain the emerging markets of Latin America, China, Eastern Europe and Africa. We still see strength in targeted North American market verticals of oil & gas, as well as entertainment. Weakness continues in the heavy OEM verticals and general industrial markets in the U.S., while mining and construction markets remain weak around the world. Encouragingly, we are seeing signs of improvement in Western Europe and some initial indications of opportunity with infrastructure investment in the U.S.” He concluded, “As we look further out, we are focused on driving growth organically through new product development and further developing new markets, as well as making strategic investments that expand our market reach, extend our product offerings and grow market share.” Teleconference/webcast Columbus McKinnon will host a conference call and live webcast today at 10:00 AM Eastern Time, at which Timothy T. Tevens, President and Chief Executive Officer, and Gregory P. Rustowicz, Vice President - Finance and Chief Financial Officer, will review the Company’s financial results and strategy. The review will be accompanied by a slide presentation, which will be available on Columbus McKinnon’s website at http://www.cmworks.com/investors. A question and answer session will follow the formal discussion. Columbus McKinnon’s conference call can be accessed by calling 210-234-7695 and asking for the “Columbus McKinnon conference call.” The webcast can be monitored on Columbus McKinnon’s website at http://www.cmworks.com/investors. An audio recording of the call will be available two hours after its completion through November 21, 2013 by dialing 402-220-4169. Alternatively, an archived webcast of the call will be on Columbus McKinnon’s web site at: http://www.cmworks.com/investors until November 21, 2013. In addition, a transcript of the call will be posted to the website once available. About Columbus McKinnon Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of material handling products, systems and services, which efficiently and ergonomically move, lift, position and secure materials. Key products include hoists, cranes, actuators and rigging tools. The Company is focused on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-how. Comprehensive information on Columbus McKinnon is available on its website at http://www.cmworks.com. Safe Harbor Statement This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future revenue and earnings, involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the effect of operating leverage, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the speed at which shipments improve, and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update the forward-looking information contained in this release. COLUMBUS McKINNON CORPORATION Condensed Consolidated Income Statements (Unaudited) (In thousands, except per share and percentage data) Three Months Ended September 30, September 30, Change 2013 2012 Net sales $ 138,852 $ 146,472 -5.2 % Cost of products sold 94,592 104,070 -9.1 % Gross profit 44,260 42,402 4.4 % Gross profit margin 31.9 % 28.9 % Selling expense 17,281 16,447 5.1 % General and 14,167 12,546 12.9 % administrative expense Amortization 526 489 7.6 % Income from operations 12,286 12,920 -4.9 % Operating margin 8.8 % 8.8 % Interest and debt 3,372 3,505 -3.8 % expense Investment income (276 ) (382 ) -27.7 % Foreign currency 195 190 2.6 % exchange loss Other (income) expense, (1,261 ) (173 ) 628.9 % net Income before income tax 10,256 9,780 4.9 % expense Income tax expense 3,134 1,528 105.1 % Net income $ 7,122 $ 8,252 -13.7 % Average basic shares 19,655 19,419 1.2 % outstanding Basic income per share: Basic income per share $ 0.36 $ 0.42 -14.3 % Average diluted shares 19,959 19,581 1.9 % outstanding Diluted income per share: Diluted income per share $ 0.36 $ 0.42 -14.3 % COLUMBUS McKINNON CORPORATION Condensed Consolidated Income Statements (Unaudited) (In thousands, except per share and percentage data) Six Months Ended September 30, September 30, Change 2013 2012 Net sales $ 277,743 $ 299,485 -7.3 % Cost of products sold 189,992 213,259 -10.9 % Gross profit 87,751 86,226 1.8 % Gross profit margin 31.6 % 28.8 % Selling expense 34,028 32,814 3.7 % General and 27,017 26,724 1.1 % administrative expense Amortization 985 988 -0.3 % Income from operations 25,721 25,700 0.1 % Operating margin 9.3 % 8.6 % Interest and debt 6,743 7,004 -3.7 % expense Investment income (492 ) (662 ) -25.7 % Foreign currency 420 (146 ) NM exchange loss (gain) Other (income) expense, (1,172 ) (495 ) 136.8 % net Income before income tax 20,222 19,999 1.1 % expense Income tax expense 6,080 3,311 83.6 % Net income $ 14,142 $ 16,688 -15.3 % Average basic shares 19,587 19,384 1.0 % outstanding Basic income per share: Basic income per share $ 0.72 $ 0.86 -16.3 % Average diluted shares 19,866 19,546 1.6 % outstanding Diluted income per share: Diluted income per share $ 0.71 $ 0.85 -16.5 % COLUMBUS McKINNON CORPORATION Condensed Consolidated Balance Sheets (In thousands) September 30, March 31, 2013 2013 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 111,819 $ 121,660 Trade accounts receivable 76,852 80,224 Inventories 106,392 94,189 Prepaid expenses and other 19,082 17,905 Total current assets 314,145 313,978 Net property, plant, and equipment 69,112 65,698 Goodwill 111,901 105,354 Other intangibles, net 12,906 13,395 Marketable securities 22,612 23,951 Deferred taxes on income 39,084 37,205 Other assets 6,491 7,286 Total assets $ 576,251 $ 566,867 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade accounts payable $ 29,466 $ 34,329 Accrued liabilities 49,319 48,884 Current portion of long-term debt 1,119 1,024 Total current liabilities 79,904 84,237 Senior debt, less current portion 2,327 2,641 Subordinated debt 148,549 148,412 Other non-current liabilities 86,906 91,590 Total liabilities 317,686 326,880 Shareholders’ equity: Common stock 197 195 Additional paid-in capital 194,634 192,308 Retained earnings 118,333 104,191 ESOP debt guarantee (346 ) (552 ) Accumulated other comprehensive loss (54,253 ) (56,155 ) Total shareholders’ equity 258,565 239,987 Total liabilities and shareholders’ equity $ 576,251 $ 566,867 COLUMBUS McKINNON CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six Months Ended September 30, September 30, 2013 2012 Operating activities: Net income $ 14,142 $ 16,688 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,324 6,221 Deferred income taxes and related (1,249 ) 155 valuation allowance Gain on sale of real estate, investments, (1,543 ) (315 ) and other Stock based compensation 1,758 1,649 Amortization of deferred financing costs 436 192 and discount on debt Changes in operating assets and liabilities, net of effects of business acquisition and divestiture: Trade accounts receivable 5,074 4,618 Inventories (10,433 ) (7,231 ) Prepaid expenses (1,024 ) (3,477 ) Other assets 684 445 Trade accounts payable (5,366 ) (6,002 ) Accrued and non-current liabilities (7,094 ) (5,369 ) Net cash provided by operating activities 1,709 7,574 Investing activities: Proceeds from sale of marketable 3,724 3,101 securities Purchases of marketable securities (2,597 ) (1,936 ) Capital expenditures (8,033 ) (4,080 ) Purchase of business, net of cash acquired (5,847 ) - Proceeds from sale of assets - 1,482 Net cash used for investing activities (12,753 ) (1,433 ) Financing activities: Proceeds from stock options exercised 838 219 Net payments under lines-of-credit - (51 ) Repayment of debt (295 ) (393 ) Change in ESOP guarantee 206 213 Net cash provided by (used for) financing 749 (12 ) activities Effect of exchange rate changes on cash 454 (675 ) Net change in cash and cash equivalents (9,841 ) 5,454 Cash and cash equivalents at beginning of 121,660 89,473 year Cash and cash equivalents at end of period $ 111,819 $ 94,927 COLUMBUS McKINNON CORPORATION Additional Data (Unaudited) September September March 30, 30, 31, 2013 2012 2013 Backlog (in $91.9 $105.1 $99.0 millions) Trade accounts receivable days sales 50.4 days 51.5 days 50.5 days outstanding Inventory turns per year (based on cost of products 3.6 turns 3.7 turns 4.3 turns sold) Days' inventory 101.4 days 98.6 days 84.9 days Trade accounts payable days payables 28.3 days 29.6 days 31.1 days outstanding Working capital 21.5 % 19.4 % 18.3 % as a % of sales Debt to total capitalization 37.0 % 46.4 % 38.8 % percentage Debt, net of cash, to net 13.4 % 24.6 % 11.2 % total capitalization Shipping Days by Quarter Q1 Q2 Q3 Q4 Total FY 14 64 63 61 62 250 FY 13 63 63 60 62 248 COLUMBUS McKINNON CORPORATION Reconciliation Adjusted Diluted EPS to GAAP Diluted EPS Three Months Ended September 30, 2012 GAAP diluted EPS $0.42 Adjusted to reflect current quarter’s 30.6% tax rate ($0.07) Adjusted diluted EPS $0.35 Six Months Ended September 30, 2012 GAAP diluted EPS $0.85 Adjusted to reflect current year to date 30.1% tax rate ($0.13) Adjusted diluted EPS $0.72 Adjusted diluted EPS is defined diluted EPS as reported, adjusted to apply the current quarter’s tax rate. Adjusted diluted EPS is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Columbus McKinnon believes that providing non-GAAP information such as adjusted diluted EPS is important for investors and other readers of the Company’s financial statements, and assists in understanding the comparison of the current quarter’s diluted EPS to the historical period’s diluted EPS. Contact: Columbus McKinnon Corporation Gregory P. Rustowicz, 716-689-5442 Vice President - Finance and Chief Financial Officer firstname.lastname@example.org or Investor Relations: Kei Advisors LLC Deborah K. Pawlowski, 716-843-3908 email@example.com
Columbus McKinnon Reports Gross Margin Expanded to 31.9% in Fiscal 2014 Second Quarter
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