10-Q 1 q204.txt 10Q SECOND QUARTER OF FISCAL 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT 1934 For the quarterly period ended September 28, 2003 or [ ] 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, NY 14228-1197 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (716) 689-5400 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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. : [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934): [ ] Yes [X] No The number of shares of common stock outstanding as of October 31, 2003 was: 14,896,172 shares. FORM 10-Q INDEX COLUMBUS MCKINNON CORPORATION SEPTEMBER 28, 2003 PAGE # ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed consolidated balance sheets - September 28, 2003 and March 31, 2003 2 Condensed consolidated statements of operations and accumulated deficit - Three months and six months ended September 28, 2003 and September 29, 2002 3 Condensed consolidated statements of cash flows - Six months ended September 28, 2003 and September 29, 2002 4 Condensed consolidated statements of comprehensive income - Three months and six months ended September 28, 2003 and September 29, 2002 5 Notes to condensed consolidated financial statements - September 28, 2003 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4. Disclosure Controls and Procedures 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. 19 Item 2. Changes in Securities - none. 19 Item 3. Defaults upon Senior Securities - none. 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information - none. 19 Item 6. Exhibits and Reports on Form 8-K 19 - 1 - PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited)

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 2 -

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 3 -

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 4 -

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 5 - COLUMBUS MCKINNON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 28, 2003 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of Columbus McKinnon Corporation (the Company) at September 28, 2003, and the results of its operations and its cash flows for the three and six-month periods ended September 28, 2003 and September 29, 2002, have been included. Results for the period ended September 28, 2003 are not necessarily indicative of the results that may be expected for the year ended March 31, 2004. The balance sheet at March 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Columbus McKinnon Corporation annual report on Form 10-K for the year ended March 31, 2003. The Company is a leading U.S. designer and manufacturer of material handling products, systems and services which efficiently and ergonomically move, lift, position and secure material. Key products include hoists, cranes, chain and forged attachments. The Company's material handling products are sold, domestically and internationally, principally to third party distributors through diverse distribution channels, and to a lesser extent directly to manufacturers and other end-users. The Company's integrated material handling solutions businesses deal primarily with end users and sales are concentrated, domestically and internationally (primarily Europe), in the consumer products, manufacturing, warehousing and, to a lesser extent, the steel, construction, automotive and other industrial markets. 2. The Company has two stock option-based employee compensation plans in effect. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. No stock option-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant and the number of options granted was fixed. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition of SFAS No. 123 "Accounting for Stock-Based Compensation", to stock-based employee compensation:

- 6 - 3. Inventories consisted of the following: SEPTEMBER 28, MARCH 31, 2003 2003 ---------- ---------- At cost - FIFO basis: Raw materials.................... $ 37,746 $ 42,707 Work-in-process.................. 11,646 10,361 Finished goods................... 31,701 33,072 ---------- ---------- 81,093 86,140 LIFO cost less than FIFO cost......... (7,706) (7,527) ---------- ---------- Net inventories .................... $ 73,387 $ 78,613 ========== ========== An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. 4. On November 21, 2002, the Company refinanced its credit facilities. The new arrangement consisted of a Revolving Credit Facility, a Term Loan, and a Senior Second Secured Term Loan. The Revolving Credit Facility provides availability up to a maximum of $57 million. At September 28, 2003, $5.0 million was outstanding for borrowings and the unused portion totaled $27.4 million. Interest is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by the Company's leverage ratio amounting to 275 (LIBOR) or 150 (prime) basis points, respectively, at September 28, 2003. The Revolving Credit Facility is secured by all domestic and Canadian inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. At September 28, 2003, the Term Loan has a balance of $9,500 and requires quarterly payments of $1,179, which would result in repayment in full on October 1, 2005. Interest is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by the Company's leverage ratio amounting to 325 (LIBOR) or 200 (prime) basis points at September 28, 2003. The Term Loan is secured by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. On July 22, 2003, the Company issued $115 million of 10% Senior Secured Notes (10% Notes) due August 1, 2010. Proceeds from this offering were used for the repayment in full of the Senior Second Secured Term Loan ($66.8 million), the repurchase of $35.7 million of Senior Subordinated Notes at a discount ($30.1 million), the repayment of a portion of the outstanding Revolving Credit Facility ($10.0 million), the repayment of a portion of the Term Loan ($3.9 million), the payment of financing costs ($2.8 million), and the payment of accrued interest ($1.4 million). The Senior Second Secured Term loan was repaid in its entirety on July 22, 2003. As a result of the repayment occurring prior to the first anniversary of the loan, $1.1 million of accrued interest expense was reversed in the second quarter of fiscal 2004 and is reflected as a reduction of interest expense. The redemption of the 8 1/2% Senior Subordinated Notes occurred at a discount resulting in a pre-tax gain on early extinguishment of debt of $5.6 million. As a result of the repayment of the Senior Second Secured Term Loan and a portion of the Term Loan and 8 1/2% Senior Subordinated Notes, $4.9 million of pre-tax deferred financing costs were written-off in the second quarter of fiscal 2004. The net effect of these two items, a $0.7 pre-tax million gain, is shown as part of other (income) and expense, net. The corresponding credit agreements associated with the Revolving Credit Facility and the Term Loan place certain debt covenant restrictions on the Company including certain financial requirements and a restriction on dividend payments. - 7 - From time to time, the Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. In June 2001, the Company entered into an interest rate swap agreement to effectively convert $40 million of variable-rate debt to fixed-rate debt, which matured in June 2003. This cash flow hedge was considered effective and the gain or loss on the change in fair value was reported in other comprehensive income, net of tax. Effective August 4, 2003, the Company entered into an interest rate swap agreement to effectively convert $93.5 million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis points) through August 2008 and $57.5 million from August 2008 through August 2010. This fair value hedge is considered effective and the change in fair value is recognized in income as a gain or loss. In addition, the change in the fair value of the hedged item, the 10% Notes, is also recognized in income as an exactly offsetting gain or loss resulting in no impact on net income. As of September 28, 2003, the fair value hedge resulted in the recognition of an asset of $3.0 million and a corresponding increase in the recorded amount of the 10% Notes of $3.0 million. 5. Upon the adoption of SFAS No. 142, the Company recorded a one-time, non-cash charge of $8,000,000 to reduce the carrying value of its goodwill as of April 1, 2002. Such charge is reflected as a cumulative effect of a change in accounting principle in the accompanying consolidated statement of operations. The impairment charge was related to the Cranebuilder reporting unit in the Products segment and the Univeyor reporting unit in the Solutions segment. In relation to the initial adoption of SFAS No. 142, goodwill was allocated among the reporting units so that goodwill was allocated to the units that benefited from the acquisitions. The Company will record any future impairment charges as a component of operating income. 6. During the second quarter of fiscal 2004, the Company continued the implementation of its Corporate-wide reorganization plan. During the quarter, the Company recorded restructuring costs of $0.6 million related to various employee termination benefits. These costs were evenly split between the Products and Solutions segments and approximately 15 employees were terminated at a foreign facility. As of September 28, 2003, all of the terminations had occurred and the liability consists of severance payments and costs associated with the preparation and maintenance of non-operating facilities prior to disposal which were accrued prior to the adoption of SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". Currently, we anticipate that our restructuring charges for the remainder of fiscal 2004 related to these plans to be between $0.2 and $0.5 million. The Company has several facilities being completely closed and prepared for disposal, of which one was sold during the second quarter of fiscal 2004, one is expected to be disposed of in the fourth quarter of fiscal 2004, and two others in the second half of Fiscal 2005. The following table provides a reconciliation of the activity related to restructuring reserves, segregated by year and between employee costs ("employee") and facility closure related costs ("facility"):

- 8 - 7. Income tax expense as a percentage of income before income tax expense was 46.2%, 34.8%, 42.5% and 37.7% in the fiscal 2004 and 2003 quarters and six-month periods ended September 28, 2003 and September 29, 2002, respectively. The percentages vary from the U.S. statutory rate due to jurisdictional mix and the existence of losses at certain subsidiaries for which no benefit has been recorded. 8. The following table sets forth the computation of basic and diluted earnings per share:

9. As a result of the way the Company manages the business, its reportable segments are strategic business units that offer products with different characteristics. The most defining characteristic is the extent of customized engineering required on a per-order basis. In addition, the segments serve different customer bases through differing methods of distribution. The Company has two reportable segments: Products and Solutions. The Company's Products segment sells hoists, cranes, chain, forged attachments, and other material handling products principally to third party distributors through diverse distribution channels, and to a lesser extent directly to manufacturers and other end-users. The Solutions segment sells engineered material handling systems such as conveyors, manipulators, and lift tables primarily to end-users in the consumer products, manufacturing, warehousing, and, to a lesser extent, the steel, construction, automotive, and other industrial markets. Intersegment sales are not significant. The Company evaluates performance based on operating income of the respective business units prior to the effects of restructuring charges and amortization. - 9 - Segment information as of and for the six months ended September 28, 2003 and September 29, 2002, is as follows:

The following schedule provides a reconciliation of operating income before restructuring charges and amortization with income from operations before income tax expense and cumulative effect of accounting change:

- 10 - 10. The summary financial information of the parent, guarantors and nonguarantors of the 8.5% senior subordinated notes and 10% senior secured notes is as follows:

- 13 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (AMOUNTS IN THOUSANDS) The Company is a leading U.S. designer and manufacturer 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's material handling Products are sold, domestically and internationally, principally to third party distributors through diverse distribution channels, and to a lesser extent directly to manufacturers and other end-users. Distribution channels include general distributors, specialty distributors, crane end users, service-after-sale distributors, original equipment manufacturers (OEMs), government, consumer and international. The Company's integrated material handling Solutions businesses primarily deal directly with end-users and sales are concentrated, domestically and internationally (primarily Europe), in the consumer products, manufacturing, warehousing and, to a lesser extent, the steel, construction, automotive, and other industrial markets. RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002 Net sales in the fiscal 2004 quarter ended September 28, 2003 were $106,584, a decrease of $6,654 or 5.9% from the fiscal 2003 quarter ended September 29, 2002. Net sales for the six months ended September 28, 2003 were $213,159, a decrease of $13,970 or 6.2% from the six months ended September 29, 2002. Sales in the Products segment decreased by $2,393 or 2.5% from the previous year's quarter and $8,290 or 4.3% from the previous year's six-month period then ended. This is primarily due to continued softness in all industrial markets (particularly domestically), offset by $2.4 million and $5.1 million attributable to translation of foreign currencies, particularly the Euro and Canadian dollar, into U.S. dollars for the quarter and six-month period ended September 28, 2003, respectively. Sales in the Solutions segment decreased 26.2% or $4,261 for the quarter and 17.6% or $5,680 for the six months ended September 28, 2003 when compared to the same periods in the prior year. The decreases in this segment are primarily due to continued softness in domestic industrial markets and the divestiture of a subsidiary on March 31, 2003 ($1.7 million for the quarter and $3.4 million for the six-month period ended September 28, 2003, respectively), offset by an increase of $0.8 million and $2.3 million attributable to translation of the Euro into U.S. dollars for the quarter and six-month period ended September 28, 2003, respectively. Sales in the individual segments were as follows:

The Company's gross profit margins were 23.5%, 23.5%, 23.9%, and 23.9% for the fiscal 2004 and 2003 quarters and the six-month periods ended September 28, 2003 and September 29, 2002, respectively. Gross profit margins in the Products segment were 25.0%, 24.9%, 25.4%, 25.2% for the fiscal 2004 and 2003 quarters and the six-month periods ended September 28, 2003 and September 29, 2002, respectively. The maintenance of gross profit margins in the Products segment despite lower sales volume is the result of cost containment activities. Gross profit margins in the Solutions segment were 11.8%, 15.0%, 13.5%, 15.8% for the fiscal 2004 and 2003 quarters and the six-month periods ended September 28, 2003 and September 29, 2002, respectively. The decrease in the gross profit margins for the Solutions segment is the result of a shift in sales mix to larger integrated solutions projects which typically carry lower gross profit margins, pricing pressure, and the impact of a divestiture of a relatively small subsidiary on March 31, 2003. - 14 - Selling expenses were $11,536, $11,662, $23,458, and $22,985 in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The changes in expense dollars were impacted by translation from changes in foreign exchange rates ($0.5 million and $1.0 million for the quarter and six-month period ended September 28, 2003, respectively), offset by cost containment activities. As a percentage of consolidated net sales, selling expenses were 10.8%, 10.3%, 11.0%, and 10.1% in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The increase in percentages in fiscal 2004 is the result of the fixed nature of selling expense, including investments in new markets, relative to a decrease in sales volume. General and administrative expenses were $5,712, $6,238, $11,479, and $12,942 in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. As a percentage of consolidated net sales, general and administrative expenses were 5.4%, 5.5%, 5.4% and 5.7% in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The decrease in the current quarter is the result of general cost containment. The decrease in the six-month period expenses are the result of having no bonus expense in the current year compared to the prior year ($0.4 million), the divestiture of a subsidiary on March 31, 2003 ($0.5 million) and general cost containment. During the second quarter of fiscal 2004, the Company continued the implementation of its Corporate-wide reorganization plan. During the quarter, the Company recorded restructuring costs of $0.6 million related to various employee termination benefits. These costs were evenly split between the Products and Solutions segments and approximately 15 employees were terminated at a foreign facility. As of September 28, 2003, all of the terminations had occurred and the outstanding liability consists of severance payments and costs associated with the preparation and maintenance of facilities prior to disposal which were accrued prior to the adoption of SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". We anticipate that our restructuring charges for the remainder of fiscal 2004 related to these plans to be between $0.2 and $0.5 million. The company has several facilities being completely closed and prepared for disposal, of which one was sold during the second quarter of fiscal 2004, one is expected to be disposed of in the fourth quarter of fiscal 2004, and two others in the second half of Fiscal 2005. Amortization of intangibles was $78, $134, $220, and $263 in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. Interest and debt expense was $5,730, $7,207, $15,402, and $14,484 in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The Company renegotiated its credit facility in November of 2002, a portion of which was subsequently replaced by the July 2003 bond offering. Part of the new credit facility has a higher effective interest rate than the Company's pre-November 2002 credit facility. The fiscal 2004 quarterly decrease is the result of the reversal of previously accrued deferred interest expense ($1.1 million) and lower debt levels, offset by the impact of a higher average effective interest rate. The higher average effective interest rate for fiscal 2004 caused an increase in interest expense for the six-month period ended September 28, 2003 in comparison to the prior year, despite decreasing debt levels. As a percentage of consolidated net sales, interest and debt expense was 5.4%, 6.4%, 7.2%, and 6.4% in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. Other (income) and expense, net was $(1,353), $(225), $(4,447), and $(3,718) in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The current quarter income consists primarily of a net $0.7 million consisting of a $5.6 million gain from the early extinguishment of debt offset by the $4.9 million deferred financing cost write-off associated with extinguished debt and $0.6 million of realized gains on investments within the Company's captive insurance company portfolio. For the six-month period ended September 28, 2003, other income consists primarily of a $3.3 million gain on the sale of real estate, the net $0.7 million gain from the early extinguishment of debt described above, and $0.4 million of income from investments within the Company's captive insurance company. This compares primarily to income of $3.2 million, specifically realized gains, on investments within the Company's captive insurance company portfolio for the six-month period ended September 29, 2002. - 15 - Income tax expense as a percentage of income before income tax expense was 46.2%, 34.8%, 42.5%, and 37.7% in the fiscal 2004 and 2003 quarters and the six-month periods then ended, respectively. The percentages for fiscal 2004 vary from the U.S. statutory rate due to jurisdictional mix and the existence of losses at certain subsidiaries for which no benefit has been recorded. LIQUIDITY AND CAPITAL RESOURCES On November 21, 2002, the Company refinanced its credit facilities. The new arrangement consisted of a Revolving Credit Facility, a Term Loan, and a Senior Second Secured Term Loan. The Revolving Credit Facility provides availability up to a maximum of $57 million. At September 28, 2003, $5.0 million was outstanding for borrowings and the unused portion totaled $27.4 million. Interest is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by the Company's leverage ratio amounting to 275 (LIBOR) or 150 (prime) basis points, respectively, at September 28, 2003. The Revolving Credit Facility is secured by all domestic and Canadian inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. At September 28, 2003, the Term Loan has a balance $9,500 and requires quarterly payments of $1,179, which would result in repayment in full on October 1, 2005. Interest is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by the Company's leverage ratio amounting to 325 (LIBOR) or 200 (prime) basis points at September 28, 2003. The Term Loan is secured by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. On July 22, 2003, the Company issued $115 million of 10% Senior Secured Notes (10% Notes) due August 1, 2010. Proceeds from this offering were used for the repayment in full of the Senior Second Secured Term Loan ($66.8 million), the repurchase of $35.7 million of Senior Subordinated Notes at a discount ($30.1 million), the repayment of a portion of the outstanding Revolving Credit Facility ($10.0 million), the repayment of a portion of the Term Loan ($3.9 million), the payment of financing costs ($2.8 million), and the payment of accrued interest ($1.4 million). The Senior Second Secured Term loan was repaid in its entirety on July 22, 2003. As a result of the repayment occurring prior to the first anniversary of the loan, $1.1 million of accrued interest expense was reversed in the second quarter of fiscal 2004 and is reflected as a reduction of interest expense. The redemption of the 8 1/2% Senior Subordinated Notes occurred at a discount resulting in a pre-tax gain on early extinguishment of debt of $5.6 million. As a result of the repayment of the Senior Second Secured Term Loan and a portion of the Term Loan and 8 1/2% Senior Subordinated Notes, $4.9 million of pre-tax deferred financing costs were written-off in the second quarter of fiscal 2004. The net effect of these two items, a $0.7 pre-tax million gain, is shown as part of other (income) and expense, net. The corresponding credit agreements associated with the Revolving Credit Facility and the Term Loan place certain debt covenant restrictions on the Company including certain financial requirements and a restriction on dividend payments. From time to time, the Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. In June 2001, the Company entered into an interest rate swap agreement to effectively convert $40 million of variable-rate debt to fixed-rate debt, which matured in June 2003. This cash flow hedge was considered effective and the gain or loss on the change in fair value was reported in other comprehensive income, net of tax. - 16 - Effective August 4, 2003, the Company entered into an interest rate swap agreement to effectively convert $93.5 million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis points) through August 2008 and $57.5 million from August 2008 through August 2010. This fair value hedge is considered effective and the change in fair value is recognized in income as a gain or loss. In addition, the change in the fair value of the hedged item, the 10% Notes, is also recognized in income as an exactly offsetting gain or loss resulting in no impact on net income. As of September 28, 2003, the fair value hedge resulted in the recognition of an asset of $3.0 million and a corresponding increase in the recorded amount of the 10% Notes of $3.0 million. We believe that our cash on hand, cash flows from operations, 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 a steady economy and successful execution of our current business plan which is focused on cash generation for debt repayment. The business plan includes continued implementation of lean manufacturing, facility rationalization projects, possible divestiture of excess facilities and certain non-strategic operations, and improving working capital components, including inventory reductions. Net cash provided by operating activities was $24,565 for the six months ended September 28, 2003 compared to $655 for the six months ended September 29, 2002. The difference of $23,910 is due to changes in net working capital components particularly inventories ($6.7 million) and accrued and non-current liabilities ($14.6 million). Net cash provided by investing activities was $377 for the six months ended September 28, 2003 compared to $16,743 for the six months ended September 29, 2002 as a result of the proceeds from the sale of ASI in fiscal 2003. Net cash used in financing activities was $14,013 for the six months ended September 28, 2003 compared to $26,282 for the six months ended September 29, 2002. The $12,269 change is primarily the result of $24.6 million in cash flow from operations, net of the cash increase of $11.2 million being used to pay down debt in fiscal 2004 versus $16.0 million of proceeds from the sale of ASI and a cash decrease of $8.5 million used to pay down debt in fiscal 2003. 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 the six months ended September 28, 2003 and September 29, 2002 were $2,094 and $2,270, respectively. 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 general inflation has had a material effect on results of operations over the periods presented primarily due to overall low inflation levels over the periods and because the Company has generally been able to pass on rising costs through price increases. However, employee benefit costs such as health insurance, workers compensation insurance, pensions as well as energy and business insurance have exceeded general inflation levels. In the future, we may be further affected by inflation that we may not be able to pass on as price increases. - 17 - SEASONALITY AND QUARTERLY RESULTS Quarterly results may be materially affected by the timing of large customer orders, by periods of high vacation and holiday concentrations, by the timing and extent of restructuring projects, 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. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements 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 integration of acquisitions and other factors disclosed in the Company's periodic reports filed with the Commission. Consequently such forward-looking statements should be regarded as the Company's current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Item 3. Quantitative and Qualitative Disclosures About Market Risk From time to time, the Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. Effective August 4, 2003, the Company entered into an interest rate swap agreement to effectively convert $93.5 million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis points) through August 2008 and $57.5 million from August 2008 through August 2010. As a result of this floating rate basis, changes in short-term interest rates could have a significant impact on the Company's earnings and funds from operations. There have been no other material changes in the reported market risks since the end of Fiscal 2003. Item 4. Disclosure Controls and Procedures As of September 28, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures were effective as of September 28, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to September 28, 2003. - 18 - PART II. OTHER INFORMATION Item 1. Legal Proceedings - none. Item 2. Changes in Securities - none. Item 3. Defaults upon Senior Securities - none. Item 4. Submission of Matters to a Vote of Security Holders On August 18, 2003, the Annual Meeting of Shareholders was held and the following directors were elected: 13,093,396 votes cast for: Herbert P. Ladds, Jr.; 12,994,414 votes cast for: Timothy T. Tevens; 13,106,901 votes cast for: Robert L. Montgomery, Jr.; 12,724,403 votes cast for: Wallace W. Creek; 12,723,181 votes cast for: Richard J. Fleming; 12,706,231 votes cast for: Carlos Pasqual; 13,011,519 votes cast for: Ernest R. Verebelyi. Item 5. Other Information - none. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. (b) Reports on Form 8-K: On August 14, 2003, the Company filed a Current Report on Form 8-K with respect to its adoption of an Audit Committee Policy regarding non-audit fees. On October 21, 2003, the Company filed a Current Report on Form 8-K with respect to its financial results for the second quarter of fiscal 2004. - 19 - SIGNATURES Pursuant to the requirements 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 ----------------------------------- (Registrant) Date: NOVEMBER 12, 2003 /S/ ROBERT L. MONTGOMERY, JR. ------------------ ----------------------------------- Robert L. Montgomery, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) - 20 -

AUDUBON WEST INC 10-Q