Columbus McKinnon Announces 39% Increase in Operating Income on 6% Growth in Sales for Third Quarter Fiscal 200627 January 2006
Columbus McKinnon Corporation (Nasdaq: CMCO), a leading designer, manufacturer and marketer of material handling products, today announced net sales of $133.3 million for the third quarter of fiscal 2006, which ended January 1, 2006. This quarter's net sales represented a 5.9% increase over sales of $125.9 million in the third quarter of fiscal 2005 reflecting continued growth in global demand for most products, partially offset by timing and mix of conveyor project revenue. Income from operations grew $3.7 million, or 38.7%, to $13.1 million compared with last year's third quarter driven by operating leverage, lean manufacturing, operational efficiencies and improved pricing.
Net income of $1.4 million, or $0.08 per diluted share, for this fiscal year's third quarter was adversely affected by two major one-time items:
- A $4.0 million pretax premium expense (approximately $0.23 per share)
incurred upon the December 16, 2005 partial redemption of 10% Senior
Secured Notes due 2010 as previously disclosed; and
- the write-off of $1.0 million of deferred finance costs, (approximately
$0.06 per share), associated with the partial redemption as previously
disclosed.
Excluding the $5.0 million in charges associated with the partial redemption, net income would have been $6.4 million, or $0.37 per diluted share on 17.3 million shares, reflecting a $4.0 million, or 167%, increase over last year's third quarter net income of $2.4 million, or $0.16 per diluted share on 14.8 million shares.
Because the partial redemption of the notes occurred late in the third quarter, interest expense savings for the quarter were insignificant. However, going forward, as a result of its recent refinancing activities, the Company expects quarterly interest savings of approximately $1 million.
Timothy Tevens, President and Chief Executive Officer of Columbus McKinnon, commented, "The demand for our products continues to be strong as the economic climate worldwide continues its positive trend, and as a result of our increased focus on marketing and sales in international markets. Our lean manufacturing discipline and lower cost structure also continue to provide benefits. Gross profit margin this quarter improved by 240 basis points over the prior year's quarter to 26.2%. We continue to strengthen and make significant improvements in our balance sheet that favorably position our future financial performance. Debt to total capitalization is now 58.6%, down from 75.0% at the end of our second quarter fiscal 2006, providing us with the financial flexibility to better support our global growth initiatives."
Mr. Tevens continued, "Our longer-term goal is to operate with a 30-40% debt to total capitalization level, with the flexibility to expand up to the 50-60% range for shorter time frames given the right strategic opportunities."
THIRD QUARTER REVIEW
Third quarter fiscal 2006 consolidated sales of $133.3 million were up 5.9% over the prior year and down sequentially 1.0% from the 2006 second fiscal quarter due to fewer operating days. Increased sales continue to reflect the strength in end-user demand for our products on a global basis. Products segment sales grew by $8.5 million, or 7.8%, in the third quarter of fiscal 2006 compared with the same quarter in fiscal 2005, net of a $1.1 million reduction due to currency translation. Volume contributed approximately six percentage points while price changes contributed approximately three percentage points to the year-over-year sales increase. The growth in Products sales was spread worldwide. The Solutions segment recorded a $1.1 million decline in sales compared with the year-ago quarter, of which $0.9 million was unfavorable currency translation.
The Company's effective tax rate for the fiscal 2006 third quarter was 55.1% compared with 35.1% in the fiscal 2005 third quarter. The higher effective income tax rate in fiscal 2006 reflects the partial redemption charges of $5.0 million, which reduced U.S. taxable income in the fiscal 2006 third quarter, resulting in no associated tax benefit being recorded in the quarter. The Company has approximately $93 million of fully reserved U.S. federal net operating loss carryforwards available to offset future U.S. taxable income, allowing more of its U.S.-based margin expansion to be directly reflected in net income. Based on our more normal recent levels and mix of U.S.-based and foreign taxable income, our expected effective tax rate would approximate 38% to 39%.
Products Segment
Products segment sales for the third quarter of fiscal 2006 were $117.8 million, up $8.5 million from last year's third quarter of $109.3 million. Strong global growth has driven the increase in sales in this segment. Of note, U.S. industrial capacity utilization exceeded 79% as reported for the month of December 2005 and indications are that utilization will continue to climb. Domestic Products segment sales trends generally correlate with this key indicator of U.S. industrial strength.
Gross margin for this segment improved 210 basis points over the prior year's third quarter to 27.3%. Income from operations as a percentage of sales improved to 10.4% from 8.2% last year. Higher sales on a controlled cost base, favorable product mix and lower product liability costs drove that operating leverage.
At January 1, 2006, backlog was $46.5 million, up 1% from the backlog at the end of the prior year's third quarter. The conversion of backlog to sales for this segment can range from a few days to a few weeks, and the backlog represents approximately four to five weeks of shipments.
Solutions Segment
Solutions segment sales this quarter were down $1.1 million to $15.5 million compared with the prior year's period. This segment's sales are contract-driven and variations in sales are not uncommon quarter to quarter due to the nature and timing of projects. Gross margin was 18.0%, compared with 14.9% for the prior year. Income from operations improved to 5.5% from 3.1% last year due to favorable product mix.
Backlog for this segment at quarter end was $12.8 million, down $6.8 million from last year, due to the timing on various projects. However, quoting activity remains strong and the Company's success rate is consistent with historical results. The conversion of backlog to sales for this segment can range from one to six months.
NINE-MONTH REVIEW
Net sales for the nine-month period of fiscal 2006 were $408.9 million, up 10.4%, or $38.6 million, compared with the same period of fiscal 2005. Gross profit of $106.6 million was 16.7% higher for this fiscal year's first nine months, resulting in a 140 basis point improvement in gross profit margin to 26.1%. The improved margin was the result of continued operating leverage on higher sales volume and lean manufacturing improvements. The impact of lean manufacturing can also be seen in our balance sheet, where working capital as a percentage of the latest twelve-months' sales improved to 16.8% from 22.1% year-over-year. Selling, general and administrative expenses as a percent of sales improved to 15.9%, compared with 16.3% in the prior year.
Net income for the nine-month period of fiscal 2006 was $12.0 million, up $3.6 million, or 43.5%. On a diluted per share basis, net income was $0.75 for the first nine months of fiscal 2006 (or $1.27 excluding the $0.29 charge for the third quarter partial redemption and an additional $0.23 charge for the second quarter subordinated debt refinancing), a 31.6% increase from $0.57 for the same period in fiscal 2005.
Net cash provided by operating activities was $38.5 million for the nine- month period of fiscal 2006, compared with $8.4 million for the prior year period. The increase was driven by improved profits and working capital management.
Capital expenditures for fiscal 2006 through January 1, 2006 were $4.7 million, up from $3.2 million in the prior year period. Columbus McKinnon expects capital spending for fiscal 2006 to be in the range of $6.0 to $7.0 million compared with $5.2 million in fiscal 2005. Higher capital expenditures for fiscal 2006 have been primarily directed toward new product development and productivity improvement.
Outlook
Mr. Tevens noted, "Sales trends in our markets remain favorable, and we continue to anticipate growth in Products segment sales in the mid-to-high single digit range. Additionally, we will continue to focus on making further improvements in working capital utilization. Our strategic objectives remain to:
- Increase our domestic organic sales growth by introducing new products
and maximizing market coverage,
- Increase our global sales and market share by expanding our presence in
emerging and existing international industrial markets,
- Increase our profitability through lean manufacturing and facility
rationalization while increasing effective capacity on a reduced
manufacturing footprint,
- Pay down debt to reduce interest expense and enhance our strategic
flexibility, and
- Pursue strategic acquisitions and alliances."
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 or secure material. Key products include hoists, cranes, chain and forged attachments. 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 web site at http://www.cmworks.com.
Teleconference/webcast
A teleconference and webcast have been scheduled for January 24, 2006 at 10:00 AM Eastern Time at which the management of Columbus McKinnon will discuss the Company's financial results and strategy. Interested parties in the United States and Canada can participate in the teleconference by dialing 1-888-459-1579, and asking to be placed in the "Columbus McKinnon Quarterly Conference Call" and providing the password "Columbus McKinnon" and identifying conference leader, "Tim Tevens" when asked. The toll number for parties outside the United States and Canada is +1-210-234-7695.
The webcast will be accessible at Columbus McKinnon's web site: http://www.cmworks.com.
An audio recording of the call will be available two hours after its completion and until March 24, 2006 by dialing 1-866-356-3373. Alternatively, you may access an archive of the call until March 24, 2006 on Columbus McKinnon's web site at: http://www.cmworks.com/invrel/presentation.asp
Safe Harbor Statement
This press 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 likelihood that the Company can utilize its NOLs, the effect of operating leverage, the pace of bookings relative to shipments, 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.
Contact:
Karen L. Howard, Vice President, Treasurer and Interim Chief Financial
Officer
Columbus McKinnon Corporation
Phone: 716-689-5550
karen.howard@cmworks.com
Columbus McKinnon Corporation
Consolidated Statements of Operations
(In thousands,
except per share and percentage data)
Three Months Ended
1/1/06 1/2/05 Change
Net sales $133,322 $125,913 5.9%
Cost of products sold 98,391 95,914 2.6%
Gross profit 34,931 29,999 16.4%
Gross profit margin 26.2% 23.8%
Selling expense 13,281 13,356 -0.6%
General and administrative expense 8,392 6,918 21.3%
Restructuring charges 83 191 -56.5%
Amortization 61 78 -21.8%
Income from operations 13,114 9,456 38.7%
Interest and debt expense 6,268 6,837 -8.3%
Interest and other expense (income) 4,177 (755) -653.2%
Income from cont. ops. before
income tax expense 2,669 3,374 -20.9%
Income tax expense 1,471 1,183 24.3%
Income from cont. ops. 1,198 2,191 -45.3%
Income from disc. ops. 215 214
Net income $1,413 $2,405 -41.2%
Average basic shares outstanding 16,611 14,594 13.8%
Basic net income per share:
Continuing operations $0.08 $0.15 -46.7%
Discontinued operations 0.01 0.01
Net income $0.09 $0.16 -43.8%
Average diluted shares outstanding 17,287 14,803 16.8%
Diluted net income per share:
Continuing operations $0.07 $0.15 -53.3%
Discontinued operations 0.01 0.01
Net income $0.08 $0.16 -50.0%
Columbus McKinnon Corporation
Consolidated Statements of Operations
(In thousands,
except per share and percentage data)
Nine Months Ended
1/1/06 1/2/05 Change
Net sales $408,911 $370,282 10.4%
Cost of products sold 302,279 278,889 8.4%
Gross profit 106,632 91,393 16.7%
Gross profit margin 26.1% 24.7%
Selling expense 40,019 38,326 4.4%
General and administrative expense 25,106 21,920 14.5%
Restructuring charges 320 408 -21.6%
Amortization 184 231 -20.3%
Income from operations 40,103 30,508 34.4%
Interest and debt expense 19,617 21,026 -6.7%
Interest and other expense (income) 5,252 (1,344) -490.8%
Income from cont. ops. before
income tax expense 16,134 10,826 49.0%
Income tax expense 4,779 2,893 65.2%
Income from cont. ops. 11,355 7,933 43.1%
Income from disc. ops. 643 428
Net income $11,998 $8,361 43.5%
Average basic shares outstanding 15,368 14,585 5.4%
Basic net income per share:
Continuing operations $0.74 $0.54 37.0%
Discontinued operations 0.04 0.03
Net income $0.78 $0.57 36.8%
Average diluted shares outstanding 15,906 14,733 8.0%
Diluted net income per share:
Continuing operations $0.71 $0.54 31.5%
Discontinued operations 0.04 0.03
Net income $0.75 $0.57 31.6%
COLUMBUS McKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
1/1/06 3/31/05
ASSETS
Current assets:
Cash and cash equivalents $41,788 $9,479
Trade accounts receivable 82,059 88,974
Unbilled revenues 11,407 8,848
Inventories 75,078 77,626
Prepaid expenses 13,883 14,198
Total current assets 224,215 199,125
Net property, plant, and equipment 53,198 57,237
Goodwill and other intangibles, net 186,569 187,285
Marketable securities 25,809 24,615
Deferred taxes on income 4,353 6,122
Other assets 6,164 6,487
Total assets $500,308 $480,871
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $2,951 $4,839
Trade accounts payable 35,137 33,688
Accrued liabilities 54,434 51,962
Restructuring reserve 107 144
Current portion of long-term debt 192 5,819
Total current liabilities 92,821 96,452
Senior debt, less current portion 75,289 115,735
Subordinated debt 136,000 144,548
Other non-current liabilities 44,730 42,369
Total liabilities 348,840 399,104
Shareholders' equity:
Common stock 182 149
Additional paid-in capital 164,016 104,078
Retained earnings (accumulated deficit) 3,354 (8,644)
ESOP debt guarantee (4,108) (4,554)
Unearned restricted stock (29) (6)
Accumulated other comprehensive loss (11,947) (9,256)
Total shareholders' equity 151,468 81,767
Total liabilities and shareholders' equity $500,308 $480,871
COLUMBUS McKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended
1/1/06 1/2/05
(In Thousands)
Operating activities:
Income from continuing operations $11,355 $7,933
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities of continuing operations:
Depreciation and amortization 6,809 7,201
Deferred income taxes 1,769 1,823
Gain on sale of real estate/investments (1,794) -
Loss (gain) on early retirement of bonds 6,432 (93)
Amortization/write-off of deferred financing costs 2,786 1,029
Changes in operating assets and liabilities:
Trade accounts receivable 6,197 2,529
Unbilled revenues and excess billings (3,539) (2,701)
Inventories 2,139 (9,937)
Prepaid expenses 321 1,990
Other assets (197) (220)
Trade accounts payable 2,141 (447)
Accrued and non-current liabilities 4,090 (694)
Net cash provided by operating activities of
continuing operations 38,509 8,413
Investing activities:
Sale of marketable securities, net 90 957
Capital expenditures (4,738) (3,169)
Proceeds from sale of businesses and fixed assets 2,091 -
Net assets held for sale - 375
Net cash used in investing activities of
continuing operations (2,557) (1,837)
Financing activities:
Proceeds from stock offering/options exercised 59,944 -
Net payments under revolving line-of-credit
agreements (1,417) 2,906
Repayment of debt (196,881) (13,244)
Payment of deferred financing costs (2,357) (24)
Proceeds from issuance of long-term debt 136,000 -
Other 446 427
Net cash used in financing activities of
continuing operations (4,265) (9,935)
Effect of exchange rate changes on cash (21) 454
Net cash provided by (used in) continuing operations 31,666 (2,905)
Net cash provided by discontinued operations 643 428
Net change in cash and cash equivalents 32,309 (2,477)
Cash and cash equivalents at beginning of period 9,479 11,101
Cash and cash equivalents at end of period $41,788 $8,624
COLUMBUS McKINNON CORPORATION
Business Segment Data
($ in thousands)
Quarter ended Quarter ended %
1/1/06 1/2/05 Change
Products
Net sales $117,850 $109,309 7.8%
Gross profit 32,142 27,533 16.7%
Margin 27.3% 25.2%
Income from operations 12,269 8,936 37.3%
Margin 10.4% 8.2%
Solutions
Net sales $15,472 $16,604 -6.8%
Gross profit 2,789 2,466 13.1%
Margin 18.0% 14.9%
Income from operations 845 520 62.5%
Margin 5.5% 3.1%
Consolidated
Net sales $133,322 $125,913 5.9%
Gross profit 34,931 29,999 16.4%
Margin 26.2% 23.8%
Income from operations 13,114 9,456 38.7%
Margin 9.8% 7.5%
Nine-months Nine-months %
ended 1/1/06 ended 1/2/05 Change
Products
Net sales $362,405 $326,847 10.9%
Gross profit 99,027 84,583 17.1%
Margin 27.3% 25.9%
Income from operations 39,089 29,195 33.9%
Margin 10.8% 8.9%
Solutions
Net sales $46,506 $43,435 7.1%
Gross profit 7,605 6,810 11.7%
Margin 16.4% 15.7%
Income from operations 1,914 1,313 45.8%
Margin 4.1% 3.0%
Consolidated
Net sales $408,911 $370,282 10.4%
Gross profit 106,632 91,393 16.7%
Margin 26.1% 24.7%
Income from operations 41,003 30,508 34.4%
Margin 10.0% 8.2%
COLUMBUS McKINNON CORPORATION
Additional Data
January 1, 2006 January 2, 2005
Backlog (in thousands)
Products segment $46,534 $46,026
Solutions segment 12,796 19,558
Trade accounts receivable -
Days sales outstanding 56.0 60.4
Inventory turns per year (based on
cost of products sold) 5.2x 4.7x
Days per turn 69.6 77.3
Trade accounts payable -
Days payables outstanding 32.5 29.0
Working capital as a % of total sales 16.8% 22.1%
Debt to total capitalization percentage 58.6% 78.6%
Shipping Days by Quarter
Q1 Q2 Q3 Q4
FY06 65 63 58 65
FY05 65 63 58 63
Source: prnewswire
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