COLUMBUS MCKINNON CORP

Previous wording

Our revenue base is geographically diverse with approximately 43% of net sales derived from customers outside the U.S. for the three months ended June 30, 2024. We believe this diversity balances the impact of changes that occur in local economies, as well as benefits the Company by providing access to growing emerging markets. We monitor both U.S. and Eurozone Industrial Capacity Utilization statistics as well as the ISM Production Index as indicators of anticipated demand for our products. In addition, we continue to monitor the potential impact of other global and U.S. trends including, industrial production, trade tariffs, raw material cost inflation, interest rates, foreign currency exchange rates, and activity of end-user markets around the globe.

Current wording

Our revenue base is geographically diverse with approximately 45% of net sales derived from customers outside the U.S. for the six months ended September 30, 2024. We believe this diversity balances the impact of changes that occur in local economies, as well as benefits the Company by providing access to growing emerging markets. We monitor both U.S. and Eurozone Industrial Capacity Utilization statistics as well as the ISM Production Index as indicators of anticipated demand for our products. In addition, we continue to monitor the potential impact of other global and U.S. trends including, industrial production, trade tariffs, raw material cost inflation, interest rates, foreign currency exchange rates, and activity of end-user markets around the globe.

Previous wording

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

Current wording

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

Previous wording

Gross profit in the three months ended June 30, 2024 was $89,030,000, an increase of $2,381,000 or 2.7% from the three months ended June 30, 2023 gross profit of $86,649,000. Gross profit margin was 37.1% in the fiscal 2025 first quarter compared to 36.8% in the fiscal 2024 first quarter. The increase in gross profit was due to $3,442,000 of price increases net of manufacturing costs changes including inflation and other cost changes, $799,000 as a result of the acquisition of montratec, and $197,000 due to favorable sales mix. These increases in gross margin were offset by $1,625,000 of start-up costs related to the new Monterrey, Mexico facility and $196,000 of net business realignment costs. The translation of foreign currencies had a $236,000 unfavorable impact on gross profit in the three months ended June 30, 2024.

Current wording

Gross profit in the three months ended September 30, 2024 was $74,743,000, a decrease of $25,233,000 or 25.2% from the three months ended September 30, 2023 gross profit of $99,976,000. Gross profit margin was 30.9% in the fiscal 2025 second quarter compared to 38.7% in the fiscal 2024 second quarter. The decrease in gross profit was due to start-up costs totaling $2,185,000 related to the Monterrey, Mexico facility, $10,763,000 of asset impairment and other costs related to the closure of our Charlotte Manufacturing Operations and $12,302,000 of lower gross profit due to lower sales volumes. In addition, we incurred $171,000 of additional costs due to Hurricane Helene's impact on one of our facilities and $76,000 of net business realignment costs. These were offset by $97,000 of price increases net of material inflation and other manufacturing costs changes. The translation of foreign currencies had a $167,000 favorable impact on gross profit in the three months ended September 30, 2024.

Previous wording

Amortization of intangibles was $7,500,000 and $6,877,000 in the fiscal 2025 and 2024 first quarters, respectively, with the increase related to new intangible assets recorded from the montratec acquisition.

Current wording

Amortization of intangibles was $7,547,000 and $7,508,000 in the fiscal 2025 and 2024 second quarters, respectively, with the fluctuations related to foreign currency during the respective periods.

Previous wording

Interest and debt expense was $8,235,000 in the first quarter ended June 30, 2024 compared to $8,625,000 in the first quarter ended June 30, 2023. The decrease is a result of a reduction of the Company's long term debt as a result of accelerated principal payments.

Current wording

Interest and debt expense was $8,352,000 in the second quarter ended September 30, 2024 compared to $10,211,000 in the second quarter ended September 30, 2023. The decrease is a result of a reduction of the Company's long term debt as a result of accelerated principal payments.

Previous wording

Investment income of $209,000 compared to $543,000 in the first quarter ended June 30, 2024 and June 30, 2023. Investment income relates to the mark-to-market adjustments on the marketable securities held in the Company’s wholly owned captive insurance subsidiary and the Company's equity method investment in EMC, described in Note 6 of the financial statements.

Current wording

Investment income of $610,000 compared to an investment loss of $88,000 in the second quarter ended September 30, 2024 and September 30, 2023. Investment income relates to the mark-to-market adjustments on the marketable securities held in the Company’s wholly owned captive insurance subsidiary and the Company's equity method investment in EMC, described in Note 6 of the financial statements.

Previous wording

Income tax expense as a percentage of income from continuing operations before income tax expense was 28% and 27% in the first quarters ended June 30, 2024 and June 30, 2023, respectively. Typically, these percentages vary from the U.S. statutory rate of 21% primarily due to varying statutory tax rates at the Company's foreign subsidiaries, and the jurisdictional mix of income for these subsidiaries. Further, the impact of equity compensation increased the rate by 3 percentage points for the quarter ended June 30, 2024.

Current wording

Income tax as a percentage of the pre-tax loss was 25% and income tax as a percentage of the pre-tax income was 24% in the second quarters ended September 30, 2024 and September 30, 2023, respectively. Typically, these percentages vary from the U.S. statutory rate of 21% primarily due to varying statutory tax rates at the Company's foreign subsidiaries, and the jurisdictional mix of income for these subsidiaries.

Previous wording

Net sales in the three months ended June 30, 2024 were $239,726,000, up $4,234,000 or 1.8% from the three months ended June 30, 2023 net sales of $235,492,000. Net sales were positively impacted by $3,546,000 due to price increases, $2,655,000 of revenue from the montratec acquisition, offset by $1,374,000 of unfavorable sales volume. Foreign currency translation unfavorably impacted sales by $593,000 for the three months ended June 30, 2024.

Current wording

Net sales in the six months ended September 30, 2024 were $482,000,000, a decrease of $11,892,000 or 2.4% from the six months ended September 30, 2023 net sales of $493,892,000. Net sales were positively impacted by $7,341,000 due to price increases, $2,655,000 of revenue from the montratec acquisition, offset by $21,542,000 of unfavorable sales volume. Foreign currency translation unfavorably impacted sales by $346,000 for the six months ended September 30, 2024.

Previous wording

Selling expenses were $27,770,000 and $24,981,000, or 11.6% and 10.6% of net sales, in the fiscal 2025 and 2024 first quarters, respectively. Selling expenses increased by $909,000 related to the montratec acquisition and $802,000 primarily related to trade show and travel costs including the Company's strategic partner conference that was not held in the prior year. The remaining increase is due to higher employee related costs during the three months ended June 30, 2024. Foreign currency translation had a $99,000 favorable impact on selling expenses in the three months ended June 30, 2024.

Current wording

Selling expenses were $54,696,000 and $51,848,000, or 11.3% and 10.5% of net sales, in the six months ended September 30, 2024 and 2023, respectively. Selling expenses increased by $909,000 related to the montratec acquisition, $802,000 primarily related to trade show and travel costs including the Company's strategic partner conference that was not held in the prior year and $635,000 of net factory and warehouse consolidation costs. The remaining increase is due to higher employee related costs during the six months ended September 30, 2024. Foreign currency translation had a $80,000 favorable impact on selling expenses in the six months ended September 30, 2024.

Previous wording

General and administrative expenses were $26,447,000 and $27,443,000, or 11.0% and 11.7% of net sales, in the fiscal 2025 and 2024 first quarters, respectively. General and administrative expenses decreased by $2,501,000 related to prior year acquisition deal related costs which did not recur and $1,132,000 of net headquarter realignment costs. Additionally, the Company had lower stock based compensation costs of $622,000 compared to the prior year. These cost decreases were offset by $1,852,000 of start-up costs related to the new Monterrey, Mexico facility and $694,000 from the montratec acquisition. The remaining increase is due to higher employee related costs during the three months ended June 30, 2024. Foreign currency translation had a $40,000 favorable impact on general and administrative expenses in the three months ended June 30, 2024.

Current wording

General and administrative expenses were $49,810,000 and $53,152,000, or 10.3% and 10.8% of net sales, in the six months ended September 30, 2024 and 2023, respectively. General and administrative expenses decreased by $3,095,000 related to prior year acquisition deal related costs which did not recur and $1,227,000 of lower net headquarter relocation costs compared to the prior year. Additionally, the Company had lower stock based compensation costs of $842,000 compared to the prior year. These cost decreases were offset by $3,314,000 of start-up costs related to the Monterrey, Mexico facility, $694,000 from the montratec acquisition and $222,000 of current year factory and warehouse consolidation costs. The remaining decrease is due to lower employee related costs during the six months ended September 30, 2024. Foreign currency translation had a $62,000 favorable impact on general and administrative expenses in the six months ended September 30, 2024.

Previous wording

Cash, cash equivalents, and restricted cash totaled $68,623,000 at June 30, 2024, a decrease of $45,753,000 from the March 31, 2024 balance of $114,376,000.

Current wording

Cash, cash equivalents, and restricted cash totaled $55,933,000 at September 30, 2024, a decrease of $58,443,000 from the March 31, 2024 balance of $114,376,000.

Previous wording

Net cash used for operating activities was $10,758,000 for the three months ended June 30, 2024 compared to $17,247,000 for the three months ended June 30, 2023. Net income of $8,629,000 along with non-cash adjustments to net income of $16,868,000 contributed to cash used for operations. The non-cash adjustments included $11,840,000 of depreciation and amortization, $2,584,000 of non-cash lease expense and $1,101,000 of stock-based compensation. Changes in working capital reduced cash from operations by $34,729,000 as a result of an increase of $15,613,000 in inventories, a decrease in accrued expenses of $11,600,000, a decrease of $8,640,000 in trade payables, and an increase in prepaid expenses of $2,222,000 offset by a decrease in trade accounts receivable of $3,346,000. The increase in inventories relates to purchases required for expected future customer demand. The decrease in accrued expenses primarily consists of the fiscal 2024 annual incentive plan payments, which were paid in the quarter ended June 30, 2024 as well as a payment to the former owners of STAHL related to a tax indemnity agreement. Refer to our Fiscal 2024 10-K for further discussion of this tax payment. Cash used for operations also included a decrease of $1,399,000 in other non-current liabilities primarily due to lease payments for the three months ended June 30, 2024.

Current wording

Net cash used for operating activities was $1,370,000 for the six months ended September 30, 2024 compared to $558,000 for the six months ended September 30, 2023. Net loss of $6,414,000 along with non-cash adjustments to net loss of $47,222,000 contributed to cash used for operations. The non-cash adjustments included $24,028,000 of depreciation and amortization, $23,201,000 related to the settlement of one of the Company's pension plans, $5,202,000 of non-cash lease expense, $4,175,000 of stock-based compensation, and $3,268,000 related to the impairment of Charlotte Manufacturing Operation's lease. Changes in working capital reduced cash from operations by $38,472,000 as a result of an increase of $12,277,000 in inventories, an increase in prepaid expenses and other current assets of $11,714,000, a decrease of $10,711,000 in trade payables and a decrease in accrued expenses of $6,154,000, offset by a decrease in trade accounts receivable of $2,384,000. The increase in inventories relates to purchases required for expected future customer demand. Cash used for operations also included a decrease of $3,889,000 in other non-current liabilities primarily due to lease payments for the six months ended September 30, 2024.

Previous wording

Net cash used for investing activities was $4,041,000 for the three months ended June 30, 2024 compared to $112,684,000 for the three months ended June 30, 2023. The use of cash for the three months ended June 30, 2024 primarily consisted of $4,629,000 in capital expenditures. In the three months ended June 30, 2023, the most significant use of cash in the period related to the Company's purchase of montratec for $107,605,000.

Current wording

Net cash used for investing activities was $8,908,000 for the six months ended September 30, 2024 compared to $119,029,000 for the six months ended September 30, 2023. The use of cash for the six months ended September 30, 2024 primarily consisted of $10,068,000 in capital expenditures. In the six months ended September 30, 2023, the most significant use of cash in the period related to the Company's purchase of montratec for $108,145,000.

Previous wording

Net cash used for financing activities was $30,583,000 for the three months ended June 30, 2024 and net cash provided by financing activities was $103,985,000 for the three months ended June 30, 2023. The most significant uses of cash were for $20,158,000 in debt repayments, a $6,711,000 payment to the former owners of montratec for the contingent consideration agreement (refer to Note 2 for additional information) and a $2,016,000 dividend payment in the quarter. Cash flows from hedging activities related to the Company's cross currency swap are classified as financing activities in the Statement of Cash Flows which resulted in a net cash inflow of $122,000 during the three months ended June 30, 2024. In the three months ended June 30, 2023, the significant source of cash was $120,000,000 in gross proceeds from the issuance of long-term debt, which was used to fund the montratec acquisition.

Current wording

Net cash used for financing activities was $47,839,000 for the six months ended September 30, 2024 and net cash provided by financing activities was $85,794,000 for the six months ended September 30, 2023. The most significant uses of cash were for $30,326,000 in debt repayments, a $6,711,000 payment to the former owners of montratec for the contingent consideration agreement (refer to Note 2 for additional information), $4,945,000 of shares repurchased as treasury stock during the quarter and a $4,038,000 dividend payment in the quarter. Cash flows from hedging activities related to the Company's cross currency swap are classified as financing activities in the Statement of Cash Flows which resulted in a net cash inflow of $53,000 during the six months ended September 30, 2024. In the six months ended September 30, 2023, the significant source of cash was $120,000,000 in gross proceeds from the issuance of long-term debt, which was used to fund the montratec acquisition.

Previous wording

We believe that our cash on hand, cash flows, and borrowing capacity under our Amended and Restated Credit Revolving Credit Facility will be sufficient to fund our ongoing operations and debt obligations, and capital expenditures for at least the next twelve months. This belief is dependent upon successful execution of our current business plan and effective working capital utilization. No material restrictions exist in accessing cash held by our non-U.S. subsidiaries. We expect to meet our funding needs with cash provided by our U.S. operations, as well as by repatriating non-U.S. cash. We do not expect to incur significant incremental U.S. taxes as we repatriate funds. As of June 30, 2024, $51,126,000 of cash and cash equivalents were held by foreign subsidiaries.

Current wording

We believe that our cash on hand, cash flows, and borrowing capacity under our Amended and Restated Credit Revolving Credit Facility will be sufficient to fund our ongoing operations and debt obligations, and capital expenditures for at least the next twelve months. This belief is dependent upon successful execution of our current business plan and effective working capital utilization. No material restrictions exist in accessing cash held by our non-U.S. subsidiaries. We expect to meet our funding needs with cash provided by our U.S. operations, as well as by repatriating non-U.S. cash. We do not expect to incur significant incremental U.S. taxes as we repatriate funds. As of September 30, 2024, $44,387,000 of cash and cash equivalents were held by foreign subsidiaries.

Previous wording

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations. Consolidated capital expenditures for the three months ended June 30, 2024 and June 30, 2023 were $4,629,000 and $5,273,000, respectively. We expect capital expenditure spending in fiscal 2025 to range from $20,000,000 to $30,000,000.

Current wording

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations. Consolidated capital expenditures for the six months ended September 30, 2024 and September 30, 2023 were $10,068,000 and $10,319,000, respectively. We expect capital expenditure spending in fiscal 2025 to range from $20,000,000 to $25,000,000.

Previous wording

We test goodwill at the reporting unit level, which is one level below our operating segment. We identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes, classes of customers, etc.). We have three reporting units: the Linear Motion Products reporting unit, the Rest of Products reporting unit, and the Precision Conveyance reporting unit, which have goodwill totaling $9,699,000, $303,499,000, and $395,373,000, respectively, as of June 30, 2024.

Current wording

We test goodwill at the reporting unit level, which is one level below our operating segment. We identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes, classes of customers, etc.). We have three reporting units: the Linear Motion Products reporting unit, the Rest of Products reporting unit, and the Precision Conveyance reporting unit, which have goodwill totaling $9,699,000, $310,300,000, and $397,983,000, respectively, as of September 30, 2024.