Add
CMCO to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CMCO > SEC Filings for CMCO > Form 10-Q on 6-Nov-2008 | All Recent SEC Filings |
6-Nov-2008
Quarterly Report
Executive Overview
We are a leading manufacturer and marketer of a wide variety of powered and manually operated wire rope and chain hoists, industrial crane systems, chain, hooks and attachments, actuators, rotary unions, lift tables and industrial components serving a wide variety of commercial and industrial end-user markets. Our products are used to efficiently and ergonomically move, lift, position or secure objects and loads.
Founded in 1875, we have grown to our current size and leadership position through organic growth and acquisitions. We have developed our leading market position over our 133-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale service. In addition, acquisitions have significantly broadened our product lines and services and expanded our geographic reach, end-user markets and customer base. Ongoing operation of these businesses includes extending our sales activities to the European and Asian marketplaces and improving our productivity. We are executing those initiatives through expanded sales activities, our Lean manufacturing efforts and new product development. Shareholder value will be enhanced through continued emphasis on improvement of the fundamentals including manufacturing efficiency, cost containment, efficient capital investment, market expansion and excellent customer satisfaction.
We maintain a strong North American market share with significant leading market positions in hoists, lifting and sling chain, and forged attachments. To broaden our product offering in markets where we have a strong competitive position as well as to facilitate penetration into new geographic markets, we have heightened our new product development activities. Such activities have been focused on product line offerings of hoist and rigging products in accordance with international standards, to complement our offering of products designed in accordance with U.S. standards. Our efforts to expand our global sales are being accomplished through the introduction of certain of our products that historically have been distributed only in North America and also by introducing new products through our existing European distribution network. Furthermore, we continue to leverage our on-the-ground sales forces as well as distribution relationships in China to capture the growing demand for material handling products as that economy continues to industrialize. Our internal organization supports these strategic initiatives through division of responsibility for North America, Europe, Latin America and Asia Pacific. Strategically, the investments in international markets and new products are part of our focus on our greatest opportunities for growth. To compliment our organic growth activities, we are also seeking acquisitions or joint ventures. Over the long term, the focus of our acquisition strategy centers on opportunities for international revenue growth and product line expansion in alignment with our existing offering.
The recently evolved global credit crisis has caused us to reflect on the current state of our business. First, we currently stand with a strong capital structure which includes excess cash reserves, significant revolver availability with expiration dating to 2011, fixed-rate long-term debt which doesn't expire until 2013 and a strong free cash flow business profile. We believe our liquidity strength will enable us to withstand the external credit crisis. Secondly, we are prepared to manage our business through this cycle, with a lower fixed cost footprint than prior cycles and flexibility to manage costs and deliveries enabled through our Lean manufacturing profile. Additionally, our revenue base is more geographically diverse than in our Company's history, with approximately 40% derived outside the U.S., pro forma for the effects of our October 1, 2008 Pfaff acquisition, which we believe will help to balance the impact of changes that will occur in different global economies at different times. As in the past, we monitor U.S. Industrial Capacity Utilization, which has weakened over recent months, as an indicator of anticipated U.S. demand for our product. In addition, we continue to monitor the potential impact of other global and U.S. trends, including energy costs, steel price fluctuations, interest rates, currency impact and activity in a variety of end-user markets around the globe, which have been volatile of late.
We constantly explore ways to manage our operating margins as well as further improve our productivity and competitiveness, regardless of the point in the economic cycle. We have specific initiatives related to improved customer satisfaction, reduction of defects, shortened lead times, improved inventory turns and on-time deliveries, reduction of warranty costs, and improved working capital utilization. The initiatives are being driven by the continued
implementation of our Lean manufacturing efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity. In addition to Lean manufacturing, we are working to achieve these strategic initiatives through product simplification, the creation of centers of excellence, and improved supply chain management.
We continuously monitor market prices of steel. We utilize approximately $40,000 to $45,000 of steel annually in a variety of forms including rod, wire, bar, structural and others. Generally, as we experience fluctuations in our costs, we reflect them as price increases or surcharges to our customers with the goal of being margin neutral. However, during the second quarter of fiscal 2009, we were impacted by rapid increases in the cost of materials (steel and other components), freight, and utilities, especially in the latter half of the quarter. Certain of these costs are expected to decline in the fiscal third quarter, and we are taking aggressive measures to manage our pricing practices and fine tune our cost structure to be prepared for potential slower demand for our products.
As part of the continuing evaluation of our business strategy, we determined that our integrated material handling conveyor systems business (Univeyor A/S) no longer provided a strategic fit with our long-term growth and operational objectives. On July 25, 2008, we completed the sale of our Univeyor business. The results of this business were accounted for as discontinued operations for the quarters presented herein.
Also, as part of our strategic growth plan, on October 1, 2008, we acquired Pfaff Beteiligungs GmbH ("Pfaff-silberblau"), a leading European supplier of lifting, material handling and actuator products with revenue of approximately $90 million USD, in 2007. Pfaff-silberblau is a leading European hoist material handling equipment and actuator brand which complements our existing business in the region. Its actuator business provides us with technical engineering expertise, access to the growing European market and diversifies our existing North American business. The Pfaff-silberblau acquisition will strengthen our global sales and meet our strategic objectives. We acquired the Kissing, Germany based Pfaff-silberblau for approximately $53 million USD, funded with existing cash.
We continue to operate in a highly competitive and global business environment faced with significant uncertainty at the present time. We face a variety of challenges and opportunities in those markets and geographies, including trends toward increased utilization of the global labor force and the expansion of market opportunities in Asia and other emerging markets. While we continue to execute our growth strategy, we are prepared to weather a downturn with our strong capital structure, solid cash position and flexible cost base. We are aggressively addressing costs to buffer the impact on margins and will rapidly implement change where needed.
Results of Operations
Three Months and Six Months Ended September 28, 2008 and September 30, 2007 Net sales in the fiscal 2009 quarter ended September 28, 2008 were $154,680, up $9,703 or 6.7% from the fiscal 2008 quarter ended September 30, 2007 net sales of $144,977. Net sales for the six month period ended September 28, 2008 were $305,844, up $19,417 or 6.8% from the six months ended September 30, 2007 net sales of $286,427. The increase is due to the continued strength of the U.S. and European industrial markets, as well as the impact of price increases/surcharges of $7,200 and $10,900 in the quarter and six month period ended September 28, 2008, respectively. Translation of foreign currencies, particularly the Euro and Canadian dollar, into U.S. dollars contributed $2,000 and $6,000 toward the increase in sales for the quarter and six month period ended September 28, 2008, respectively.
Gross profit in the fiscal 2009 quarter ended September 28, 2008 was $45,572, up $276 or 0.6% from the fiscal 2008 quarter ended September 30, 2007 gross profit of $45,296. Gross profit margin decreased to 29.5% in the fiscal 2009 quarter from 31.2% in the fiscal 2008 quarter. Gross profit in the six month period ended September 28, 2008 was $94,097, up $5,469 or 6.2% from the six month period ended September 30, 2007 gross profit of $88,628. Gross profit margin decreased to 30.8% in the six month period ended September 28, 2008 from 30.9% in the six month period ended September 30, 2007. The fiscal 2009 quarter gross profit margin was negatively impacted by rapid unrecovered increases in the cost of materials, freight, and utilities and the effect of hurricane Ike in the United States gulf coast region.
Selling expenses were $17,164, $16,882, $35,366 and $32,426 in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively. The increase in fiscal 2009 quarter compared to the fiscal 2008 quarter is primarily due
to an additional $400 resulting from translation of foreign currencies into U.S. dollars. The increase in fiscal 2009 six-month period compared to the fiscal 2008 six-month period is primarily due to our increased investment to support our strategic growth initiatives which include international markets, especially Eastern Europe, Southeast Asia, and Latin America ($1,100), the Company's marketing efforts in the energy and non-residential construction markets in North America ($800), and translation of foreign currencies into U.S. dollars ($1,100). As a percentage of consolidated net sales, selling expenses were 11.1%, 11.6%, 11.6%, and 11.3% in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively.
General and administrative expenses were $9,446, $8,311, $19,347 and $16,588 in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively. The increase in administrative expenses was primarily the result of increased personnel costs for new market investments and global management ($400 for the six-month period ended September 28, 2008), increased new product development costs ($100 and $250 for the quarter and six-month period ended September 28, 2008, respectively), an increase in our accounts receivable reserves ($600 and $1,400 for the quarter and six-month period ended September 28, 2008, respectively) and the translation of foreign currencies into U.S. dollars ($100 and $400 for the quarter and six-month period ended September 28, 2008, respectively). As a percentage of consolidated net sales, general and administrative expenses were 6.1%, 5.7%, 6.3%, and 5.8% in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively.
Restructuring charges were $155, $394, $155, and $402 in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively. The fiscal 2009 restructuring costs were related to the consolidation of a U.S. crane manufacturing facility into another existing crane manufacturing facility. The 2008 restructuring costs related to the partial demolition of an older and underutilized U.S. facility.
Interest and debt expense was $3,132, $3,369, $6,325, and $7,329 in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively. This decrease is the result of lower debt levels.
Cost of bond redemptions of $1,443 in both the quarter and six-month periods ended September 30, 2007 were related to the redemption of all of our outstanding Senior Secured 10% Notes. There were no bond redemptions in the fiscal 2009 six-month period ended September 28, 2008.
Income tax expense as a percentage of income from continuing operations before income tax expense was 35.9%, 36.6%, 35.8%, and 37.1% in the fiscal 2009 and 2008 quarters and the six-month periods then ended, respectively. The percentages vary from the U.S. statutory rate due to varying effective tax rates at our foreign subsidiaries and the jurisdictional mix of taxable income forecasted for these subsidiaries.
Liquidity and Capital Resources
Cash and cash equivalents totaled $82,034 at September 28, 2008, an increase of $6,040 from the March 31, 2008 balance of $75,994. On October 1, 2008, we used approximately $53 million of cash on hand to acquire Pfaff-silberblau.
Net cash provided by operating activities from continuing operations was $31,243 for the six months ended September 28, 2008 compared with $27,521 for the six months ended September 30, 2007. The net cash provided by operating activities from continuing operations for the six months ended September 28, 2008 is primarily the result of $22,273 of income from continuing operations plus non-cash charges for depreciation and amortization of $4,512, deferred income taxes of $8,016, and $591 of other non-cash charges. These amounts were partially offset by $4,149 of cash used for changes in operating assets and liabilities, primarily the result of a $5,301 increase in inventory. The net cash provided by operating activities from continuing operations for the six months ended September 30, 2007 is primarily the result of $20,324 of income from continuing operations plus a $1,106 loss on early retirement of bonds and non-cash charges for depreciation and amortization of $4,057 and deferred income taxes of $10,115. These amounts were partially offset by $8,786 of cash used for changes in operating assets and liabilities, primarily the result of a $12,146 increase in inventory offset by a $2,643 increase in accounts payable. The increase in inventory in both periods resulted from support for penetration of new European markets, upcoming new product launches, longer-duration projects and timing of offshore purchases. Net cash used by operating activities from discontinued operations, attributable to our Univeyor business, was $2,214 and $3,637 for the six months ended September 28, 2008 and September 30, 2007, respectively.
Net cash used by investing activities from continuing operations was $4,431 for the six months ended September 28, 2008 compared with $211 for the six months ended September 30, 2007. The net cash used by investing activities from continuing operations for the six ended September 28, 2008 was the result of $5,014 used for capital expenditures and $686 for the net purchases of marketable securities, partially offset by $1,269 of proceeds from the sale of facilities and surplus real estate. The net cash used by investing activities from continuing operations for the six months ended September 30, 2007 was the result of $4,954 used for capital expenditures and $711 for the net purchases of marketable securities, partially offset by $5,454 of proceeds from the sale of facilities and surplus real estate. Net cash provided by investing activities from discontinued operations, primarily attributable to payments received on our note receivable related to our sale of Automatic Systems, Inc, was $265 and $253 for the six months ended September 28, 2008 and September 30, 2007, respectively.
Net cash provided by financing activities from continuing operations was $688 for the six months ended September 28, 2008 compared with $22,761 of cash used by financing activities from continuing operations for the six months ended September 30, 2007. The net cash provided by financing activities from continuing operations for six months ended September 28, 2008 consisted primarily of $391 of proceeds from stock options exercised, $187 of tax benefit from exercise of stock options and $254 from the change in ESOP debt guarantee, partially offset by $144 of net debt repayments. The net cash provided by financing activities from continuing operations for the six months ended September 30, 2007 consisted primarily of $24,103 of net debt repayments, including the repurchase of all $22,125 of our outstanding 10% notes in August 2007. Cash used for debt repayments was partially offset by $1,061 of proceeds from stock options exercised and $281 from the change in ESOP debt guarantee. Net cash provided by financing activities from discontinued operations, attributable to borrowings on revolving lines of credit agreements at our Univeyor business, was $579 for the six months ended September 28, 2008, compared with $780 for the six months ended September 30, 2007. In addition, the Company repaid $15,191 of amounts outstanding on Univeyor's lines of credit and fixed term bank debt during the six months ended September 28, 2008.
We believe that our cash on hand, cash flows, and borrowing capacity under our Revolving Credit Facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months. This belief is dependent upon successful execution of our current business plan which includes continued implementation of new market penetration, new product development, Lean manufacturing and improving working capital utilization. This is complemented by the fact that throughout the last economic recession spanning 2000 - 2004, we generated positive cash flows from operating activities.
Our Revolving Credit Facility provides availability up to $75,000. Provided there is no default, the Company may request an increase in the availability of the Revolving Credit Facility by an amount not exceeding $50,000 subject to lender approval. The Revolving Credit Facility matures February 2011.
The unused portion of the Revolving Credit Facility totaled $64,187, net of outstanding borrowings of zero and outstanding letters of credit of $10,813 as of September 28, 2008. Interest is payable at a Eurodollar Rate or a prime rate plus an applicable margin determined by our leverage ratio. At our current leverage ratio, we qualify for the lowest applicable margin level, which amounts to 87.5 basis points for Eurodollar borrowings and zero basis points for prime rate based borrowings. The Revolving Credit Facility is secured by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. The corresponding credit agreement associated with the Revolving Credit Facility places certain debt covenant restrictions on us, including certain financial requirements and a limitation on dividend payments. The financial covenants are limited to a senior leverage ratio and a fixed charge coverage ratio with which the Company is in compliance as of September 28, 2008. These covenants are set at levels which allow the Company extreme flexibility relative to deteriorating market conditions given the Company's low level of outstanding senior debt and its favorable cash flow profile.
The Senior Subordinated 8 7/8% Notes (8 7/8% Notes) issued on September 2, 2005 amounted to $129,855 at September 28, 2008 and are due November 1, 2013. Provisions of the 8 7/8% Notes include limitations on indebtedness, asset sales, and dividends and other restricted payments. Until November 1, 2008, we may redeem up to 35% of the outstanding notes at a redemption price of 108.875% with the proceeds of equity offerings, subject to certain restrictions. On or after November 1, 2009, the 8 7/8% Notes are redeemable at the option of the Company, in whole or in part, at prices
declining annually from 104.438% to 100% on and after November 1, 2011. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 7/8% Notes may require us to repurchase all or a portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 7/8% Notes are guaranteed by certain existing and future U.S. subsidiaries and are not subject to any sinking fund requirements. On October 8, 2008 the Company used cash on hand to redeem $5,000 of the outstanding 8 7/8% Notes. The redemption included a $300 discount. As a result of the redemption, $56 of unamortized financing costs were written-off in the third quarter of fiscal 2009.
International lines of credit are available to meet short-term working capital needs for our subsidiaries operating outside of the United States. The lines of credit are available on an offering basis, meaning that transactions under the line of credit will be on such terms and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction. In addition to these facilities, our foreign subsidiaries have certain fixed term bank loans. The outstanding balance of international lines of credit and foreign subsidiary fixed bank debt was $348 at September 28, 2008.
Prior to the disposal of Univeyor A/S, during the past year as part of Univeyor's ongoing business, the Company had provided performance guarantees to certain customers and a third party for the satisfactory completion of contracts to design, manufacture and install its integrated material handling conveyor systems. Pursuant to the terms of the share purchase agreement, the Company has agreed to continue to provide performance guarantees on certain pre-existing contracts totaling approximately $9,200 as of September 28, 2008 based on current exchange rates. Approximately $5,000 of these guarantees is expected to expire by the end of fiscal 2009 unless released by the third parties prior thereto, with the remaining guarantees expiring at various times during 2010 through fiscal 2012. Historically, none of Univeyor's customers has ever made a claim against either Univeyor A/S or the Company for indemnification on the performance guarantees. The terms of the share purchase agreement provide that the purchaser indemnify the Company for and hold it harmless against any loss, liability, or claim arising from the guarantees after the date of sale. However, as a result of the global credit crisis, liquidity has become an area of growing concern as it affects Univeyor, the purchaser and the purchaser's affiliated companies. Performance under these guarantees is dependent upon Univeyor's ability to generate sufficient cash flow and secure performance bonds for future projects. Accordingly, the Company's potential loss under these guarantees, if any, cannot be reasonably estimated at this time, and no liability has been recorded in the accompanying condensed consolidated balance sheets relating to these guarantees.
Capital Expenditures
In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing, and upgrading our property, plant, and equipment to support new product development, 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 28, 2008 and September 30, 2007 were $5,014 and $4,954, respectively. We expect capital spending for fiscal 2009 to be approximately $12 to $14 million compared with $13.1 million in fiscal 2008. Capital expenditures for fiscal 2009 are primarily directed toward new product development and productivity improvement.
Inflation and Other Market Conditions
Our costs are affected by inflation in the U.S. economy and, to a lesser extent, in foreign economies including those of Europe, Canada, Mexico, South America, and the Asia Pacific region. We have been impacted by fluctuations in steel costs, which vary by type of steel and we continue to monitor them and address our pricing policies accordingly. In addition, U.S. employee benefits costs such as health insurance as well as energy costs have exceeded general inflation levels. Otherwise, we do not believe that general inflation has had a material effect on results of operations over the periods presented primarily due to overall low inflation levels of most costs over such periods and our ability to generally pass on rising costs through price increases or surcharges. In the future, we may be further affected by inflation that we may not be able to offset with price increases or surcharges. Additionally, we are impacted by fluctuations in currency exchange rates which are primarily translational, but transactional fluctuations could also impact our financial results.
Seasonality and Quarterly Results
Quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, gains or losses on early retirement of bonds, restructuring charges, divestitures and acquisitions. 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
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"), which requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of SFAS No. 161 to have a material impact on our financial statements.
On April 1, 2007, we adopted the provisions of FASB Interpretation ("FIN") No.
48 "Accounting for Uncertainty in Income Taxes," ("FIN 48") an interpretation of
SFAS No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized under SFAS 109. FIN 48 prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return and also provides
guidance on various related matters such as derecognition, interest and
penalties, and disclosure. The adoption of FIN 48 resulted in a $186 reduction
to the opening balance of retained earnings, recorded on April 1, 2007, the date
of adoption.
On April 1, 2008, we adopted the provisions of FASB Emerging Issues Task Force ("EITF") Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements" ("EITF 06-10"). In accordance with EITF 06-10, an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either SFAS No. 106, Employers' Accounting for Postretirement Benefits . . .
|
|