CMCO 10-Q
Columbus Mckinnon Corp (CMCO)
10-Q
2023-11-01
For: 2023-09-30
View Original
Added on
April 08, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
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 001-34362
| (Exact name of registrant as specified in its charter) | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip code) | |||||||||||||
| (Registrant's telephone number, including area code) | ||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report.) | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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. : ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares of common stock outstanding as of October 30, 2023 was: 28,738,064 shares.
FORM 10-Q INDEX
COLUMBUS McKINNON CORPORATION
For the quarterly period ended September 30, 2023
| Page # | ||||||||
| Part I. Financial Information | ||||||||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited). | |||||||
Condensed consolidated balance sheets - September 30, 2023 and March 31, 2023 | ||||||||
Condensed consolidated statements of operations - Three and six months ended September 30, 2023 and September 30, 2022 | ||||||||
Condensed consolidated statements of comprehensive income (loss) - Three and six months ended September 30, 2023 and September 30, 2022 | ||||||||
Condensed consolidated statements of shareholders' equity - Three and six months ended September 30, 2023 and September 30, 2022 | ||||||||
Condensed consolidated statements of cash flows - Six months ended September 30, 2023 and September 30, 2022 | ||||||||
Notes to condensed consolidated financial statements - September 30, 2023 | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II. Other Information | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited).
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | March 31, 2023 | |||||||||||||
| (unaudited) | ||||||||||||||
| ASSETS: | (In thousands) | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Trade accounts receivable, less allowance for doubtful accounts ($ | ||||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses and other | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant, and equipment, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Other intangibles, net | ||||||||||||||
| Marketable securities | ||||||||||||||
| Deferred taxes on income | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Trade accounts payable | $ | $ | ||||||||||||
| Accrued liabilities | ||||||||||||||
| Current portion of long-term debt and finance lease obligations | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Term loan, AR securitization facility and finance lease obligations | ||||||||||||||
| Other non current liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Shareholders' equity: | ||||||||||||||
Voting common stock; and | ||||||||||||||
| Treasury stock | ( | ( | ||||||||||||
| Additional paid in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||||||||
See accompanying notes.
3
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| Cost of products sold | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||||||||
| Income from operations | ||||||||||||||||||||||||||
| Interest and debt expense | ||||||||||||||||||||||||||
| Investment (income) loss | ( | |||||||||||||||||||||||||
| Foreign currency exchange (gain) loss | ||||||||||||||||||||||||||
| Other (income) expense, net | ( | |||||||||||||||||||||||||
| Income (loss) before income tax expense (benefit) | ||||||||||||||||||||||||||
| Income tax expense (benefit) | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ||||||||||||||||||||||
| Average basic shares outstanding | ||||||||||||||||||||||||||
| Average diluted shares outstanding | ||||||||||||||||||||||||||
| Basic income (loss) per share: | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted income (loss) per share: | $ | $ | $ | $ | ||||||||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes.
4
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | |||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | ||||||||||||||||||||||
Change in derivatives qualifying as hedges, net of taxes of $ | ( | |||||||||||||||||||||||||
Change in pension liability and postretirement obligation, net of taxes of $ | ( | ( | ||||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | ( | ( | ||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes.
5
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
| (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||
| Common Stock ($0.01 par value) | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | ||||||||||||||||||||||||||||||||||||||
Change in derivatives qualifying as hedges, net of tax of $( | ||||||||||||||||||||||||||||||||||||||
Change in pension liability and postretirement obligations, net of tax of $( | ||||||||||||||||||||||||||||||||||||||
Stock options exercised, | ||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||||||||
Restricted stock units released, | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||||||||||||||
| Dividends declared | ( | ( | ||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||||||||||||||
Change in derivatives qualifying as hedges, net of tax of $ | ( | ( | ||||||||||||||||||||||||||||||||||||
Change in pension liability and postretirement obligations, net of tax of $ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Stock compensation - directors | ||||||||||||||||||||||||||||||||||||||
Stock options exercised, | ||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||||||||
Restricted stock units released, | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
See accompanying notes.
6
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
| (In thousands, except share data) | ||||||||||||||||||||||||||||||||
| Common Stock ($0.01 par value) | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||||||||
Change in derivatives qualifying as hedges, net of tax of $( | ||||||||||||||||||||||||||||||||
Change in pension liability and postretirement obligations, net of tax of $( | ||||||||||||||||||||||||||||||||
Stock options exercised, | ||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||
Restricted stock units released, | ( | ( | ||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||||||||
| Dividends declared | ( | ( | ||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||||||||
Change in derivatives qualifying as hedges, net of tax of $( | ||||||||||||||||||||||||||||||||
Change in pension liability and postretirement obligations, net of tax of $( | ||||||||||||||||||||||||||||||||
| Stock compensation - directors | ||||||||||||||||||||||||||||||||
Stock options exercised, | ||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||
Restricted stock units released, | ( | ( | ||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
See accompanying notes.
7
COLUMBUS McKINNON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||
| OPERATING ACTIVITIES: | (In thousands) | |||||||||||||
| Net income (loss) | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Deferred income taxes and related valuation allowance | ( | ( | ||||||||||||
| Net loss (gain) on sale of real estate, investments and other | ( | |||||||||||||
| Stock-based compensation | ||||||||||||||
| Amortization of deferred financing costs | ||||||||||||||
| Loss (gain) on hedging instruments | ( | |||||||||||||
| Gain on sale of building | ( | |||||||||||||
| Loss on retirement of fixed asset | ||||||||||||||
| Non-cash lease expense | ||||||||||||||
| Changes in operating assets and liabilities, net of effects of business acquisitions: | ||||||||||||||
| Trade accounts receivable | ( | |||||||||||||
| Inventories | ( | ( | ||||||||||||
| Prepaid expenses and other | ( | |||||||||||||
| Other assets | ||||||||||||||
| Trade accounts payable | ( | ( | ||||||||||||
| Accrued liabilities | ( | ( | ||||||||||||
| Non-current liabilities | ( | ( | ||||||||||||
| Net cash provided by (used for) operating activities | ( | |||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||
| Proceeds from sales of marketable securities | ||||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Proceeds from sale of building, net of transaction costs | ||||||||||||||
| Dividend received from equity method investment | ||||||||||||||
| Purchase of businesses, net of cash acquired (See Note 2) | ( | ( | ||||||||||||
| Net cash provided by (used for) investing activities | ( | ( | ||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||
| Proceeds from the issuance of common stock | ||||||||||||||
| Repayment of debt | ( | ( | ||||||||||||
| Proceeds from issuance of long-term debt | ||||||||||||||
| Fees paid for borrowings on long-term debt | ( | |||||||||||||
| Cash inflows from hedging activities | ||||||||||||||
| Cash outflows from hedging activities | ( | ( | ||||||||||||
| Payment of dividends | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Net cash provided by (used for) financing activities | ( | |||||||||||||
| Effect of exchange rate changes on cash | ( | ( | ||||||||||||
| Net change in cash and cash equivalents | ( | ( | ||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of year | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||||||||
| Supplementary cash flow data: | ||||||||||||||
| Interest paid | $ | $ | ||||||||||||
| Income taxes paid, net of refunds | $ | $ | ||||||||||||
| Property, plant and equipment purchases included in trade accounts payable | $ | $ | ||||||||||||
| Restricted cash presented in Other assets | $ | $ | ||||||||||||
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2023
1. Description of Business
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") 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 30, 2023, the results of its operations for the three and six months ended September 30, 2023 and September 30, 2022, and cash flows for the six months ended September 30, 2023 and September 30, 2022, have been included. Results for the period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024. The balance sheet at March 31, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP 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 fiscal year ended March 31, 2023 (the “2023 10-K”).
The Company is a leading worldwide designer, manufacturer, and marketer of intelligent motion solutions that efficiently and ergonomically move, lift, position, and secure materials. Key products include hoists, crane components, precision conveyor systems, accumulation tables, rigging tools, light rail workstations, and digital power and motion control systems. The Company is focused on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-how.
2. Acquisitions & Disposals
On May 31, 2023, the Company completed its acquisition of montratec GmbH ("montratec") for $115,721,000 including $7,576,000 in cash acquired, a $540,000 working capital settlement, and a contingent payment that becomes payable if a certain EBITDA level for the twelve-month period December 31, 2023 is achieved as set forth in the purchase agreement for montratec. As of September 30, 2023, the Company has estimated this contingent liability to be $18,355,000 , a decrease of $6,738,000 from the prior quarter due to a refinement in the estimates used to value the liability at May 31, 2023. This liability has been established in the opening balance sheet for montratec. The Company initially financed the acquisition by borrowing $117,000,000 on its New Revolving Credit Facility, but later repaid the New Revolving Credit Facility by borrowing an additional $120,000,000 . Utilizing the Accordion feature under the Company's existing Term Loan B, the Company borrowed $75,000,000 and another $45,000,000 was borrowed through a new credit agreement secured by its U.S. accounts receivable balances. Refer to Note 9 for additional details on the Company's debt agreements.
montratec is a leading automation solutions company that designs and develops intelligent automation and transport systems for interlinking industrial production and logistics processes. montratec product offerings complement the Company's previous acquisitions of both Dorner Mfg. Corp. ("Dorner") and Garvey Corporation ("Garvey"), and furthers the Company's shift to intelligent motion and serves as a platform to expand capabilities in advanced, higher technology automation solutions. As the Company determined that the acquisition is not material to its existing operations, certain disclosures, including pro forma financial information, have not been included. montratec results have been included in the Company's results of operations from the acquisition date and the Company incurred $508,000 and $3,095,000 of acquisition and deal related costs classified as part of General and administrative expenses in the three and six months ended September 30, 2023.
The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed as of the date of acquisition. The excess consideration of $78,943,000 has been recorded as goodwill, a decrease of $6,414,000 from the amount preliminarily allocated to goodwill as of June 30, 2023 due to decreases of $6,738,000 for the Contingent liability, $577,000 related to a refinement in the calculation of deferred taxes within Other non current liabilities, and an increase of $108,000 in other assets as a result of refinements in estimates to calculate the right of use lease assets. Offsetting this were increases to goodwill as the result of the working capital settlement of $540,000 , $260,000 relating to adjustments to working capital, and $209,000 within Property, plant, and equipment, net related to refined estimates for lease-related assets. The identifiable intangible assets acquired include customer relationships valued at $33,471,000 , a tradename valued at $2,915,000 , and technology valued at $16,196,000 . The weighted average life of the acquired identifiable intangible assets subject to
9
amortization was estimated at 14 years at the time of acquisition. Of the $78,943,000 goodwill recorded from the acquisition, $7,531,000 is deductible for tax purposes.
The preliminary assignment of purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):
| Cash | $ | ||||
| Working capital | |||||
| Property, plant, and equipment, net | |||||
| Intangible assets | |||||
Contingent liability (see above) | ( | ||||
| Other assets | |||||
| Other non current liabilities | ( | ||||
| Goodwill | |||||
| Total | $ | ||||
3. Revenue & Receivables
Revenue Recognition:
Performance obligations
The Company has contracts with customers for standard products and custom engineered products and determines when and how to recognize revenue for each performance obligation based on the nature and type of contract.
Revenue from contracts with customers for standard products is recognized when legal title and significant risk and rewards has transferred to the customer, which is generally at the time of shipment. This is the point in time when control is deemed to transfer to the customer. The Company sells standard products to customers utilizing purchase orders. Payment terms for these types of contracts generally require payment within 30 to 60 days. Each standard product is deemed to be a single performance obligation and the amount of revenue recognized is based on the negotiated price. The transaction price for standard products is based on the price reflected in each purchase order. Sales incentives are offered to customers who purchase standard products and include offers such as volume-based discounts, rebates for priority customers, and discounts for early cash payments. These sales incentives are accounted for as variable consideration included in the transaction price. Accordingly, the Company reduces revenue for these incentives in the period which the sale occurs and is based on the most likely amount method for estimating the amount of consideration the Company expects to receive. These sales incentive estimates are updated each reporting period as additional information becomes available.
The Company also sells custom engineered products and services, which are contracts that are typically completed within one quarter but can extend beyond one year in duration. For custom engineered products, the transaction price is based upon the price stated in the contract. Variable consideration has not been identified as a significant component of transaction price for custom engineered products and services. The Company generally recognizes revenue for custom engineered products upon satisfaction of its performance obligation under the contract which typically coincides with project completion which is when the products and services are controlled by the customer. Control is typically achieved at the later of when legal title and significant risk and rewards have transferred to the customer or the customer has accepted the asset. These contracts often require either up front or installment payments. These types of contracts are generally accounted for as one performance obligation as the products and services are not separately identifiable. The promised services (such as inspection, commissioning, and installation) are essential in order for the delivered product to operate as intended on the customer’s site and the services are therefore highly interrelated with product functionality.
For most custom engineered products contracts, the Company determined that while there is no alternative use for the custom engineered products, the Company does not have an enforceable right to payment (which must include a reasonable profit margin) for performance completed to date in order to meet the over time revenue recognition criteria. Therefore, revenue is recognized at a point in time (when the contract is complete). For custom engineered products contracts that contain an enforceable right to payment (including reasonable profit margin) the Company satisfies the performance obligation over time and recognizes revenue based on the extent of progress towards completion of the performance obligation. The cost-to-cost measure of progress is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of work performed and transfer of control to the customers. Under the cost-to-cost measure of
10
progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recognized proportionally as costs are incurred.
Sales and other taxes collected with revenue are excluded from revenue. Shipping and handling costs incurred prior to shipment are considered activities required to fulfill the Company’s promise to transfer goods, and do not qualify as a separate performance obligation. Additionally, the Company offers standard warranties which are typically 12 months in duration for standard products and 24 to 36 months for custom engineered products. These types of warranties are included in the purchase price of the product and are deemed to be assurance-type warranties which are not accounted for as a separate performance obligation. Other performance obligations included in a contract (such as drawings, owner’s manuals, and training services) are immaterial in the context of the contract and are not recognized as a separate performance obligation.
For additional information on the Company’s revenue recognition policy refer to the consolidated financial statements included in the 2023 10-K.
Reconciliation of contract balances
The Company records a contract liability when cash is received prior to recording revenue. Some standard contracts require a down payment while most custom engineered contracts require installment payments. Installment payments for the custom engineered contracts typically require a portion due at inception while the remaining payments are due upon completion of certain performance milestones. For both types of contracts, these contract liabilities, referred to as customer advances, are recorded at the time payment is received and are included in Accrued liabilities on the Condensed Consolidated Balance Sheets. When the related performance obligation is satisfied and revenue is recognized, the contract liability is released into income.
The following table illustrates the balance and related activity for customer advances in the six months ended September 30, 2023 and September 30, 2022 (in thousands):
| Customer advances (contract liabilities) | September 30, 2023 | September 30, 2022 | ||||||
| March 31, beginning balance | $ | $ | ||||||
| Additional customer advances received | ||||||||
| Revenue recognized from customer advances included in beginning of period | ( | ( | ||||||
| Other revenue recognized from customer advances | (21,212) | (13,125) | ||||||
| Customer advances recorded from acquisitions | ||||||||
| Other (1) | ( | ( | ||||||
| September 30, ending balance | $ | $ | ||||||
Revenue was recognized prior to the right to invoice the customer which resulted in a contract asset balance in the amount of $2,772,000 and $2,944,000 as of September 30, 2023 and March 31, 2023, respectively. Contract assets are included in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets.
Remaining Performance Obligations
As of September 30, 2023, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) was approximately $10,470,000 . We expect to recognize approximately 42 % of these sales over the next twelve months.
Disaggregated revenue
In accordance with FASB ASC Topic 606, the Company is required to disaggregate revenue into categories that depict how economic factors affect the nature, amount, timing and uncertainty of revenue and cash flows.
11
The following table illustrates the disaggregation of revenue by product grouping for the three and six months ended September 30, 2023 and September 30, 2022 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| Net Sales by Product Grouping | September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||
| Industrial Products | $ | $ | $ | $ | ||||||||||||||||
| Crane Solutions | ||||||||||||||||||||
| Engineered Products | ||||||||||||||||||||
| Precision Conveyor Products | ||||||||||||||||||||
| All other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||
Industrial products include: manual chain hoists, electrical chain hoists, rigging/clamps, industrial winches, hooks, shackles, and other forged attachments. Crane solutions products include: wire rope hoists, drives and controls, crane kits and components, and workstations. Engineered products include: linear and mechanical actuators, lifting tables, rail projects, and actuation systems. Precision conveyor products include: low profile, flexible chain, large scale, sanitary and vertical elevation conveyor systems, pallet system conveyors, accumulation systems, asynchronous conveyors as well as other high-precision conveyance systems. The All other product grouping includes miscellaneous revenue.
Practical expedients
Incremental costs to obtain a contract incurred by the Company primarily relate to sales commissions for contracts with a duration of one year or less. Therefore, these costs are expensed as incurred and are recorded in Selling expenses on the Condensed Consolidated Statements of Operations.
Unsatisfied performance obligations for contracts with an expected length of one year or less are not disclosed. Further, revenue from contracts with customers do not include a significant financing component as payment is generally expected within one year from when the performance obligation is controlled by the customer.
Accounts Receivable:
Under ASU 2016-13, the Company is required to remeasure expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. In addition to these factors, the Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends, and other factors. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted. Due to the short-term nature of such accounts receivable, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances.
The following table illustrates the balance and related activity for the allowance for doubtful accounts that is deducted from accounts receivable to present the net amount expected to be collected in the six months ended September 30, 2023 and September 30, 2022 (in thousands):
| Allowance for doubtful accounts | September 30, 2023 | September 30, 2022 | ||||||
| March 31, beginning balance | $ | $ | ||||||
| Bad debt expense | ||||||||
| Less uncollectible accounts written off, net of recoveries | ( | ( | ||||||
| Allowance recorded from acquisitions | ||||||||
| Other (1) | ( | ( | ||||||
| September 30, ending balance | $ | $ | ||||||
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4. Fair Value Measurements
FASB ASC Topic 820 “Fair Value Measurements and Disclosures” establishes the standards for reporting financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value on a recurring basis (at least annually). Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date.
ASC 820-10-35-37 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the valuation techniques that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is separated into three levels based on the reliability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly, involving some degree of judgment.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The availability of observable inputs can vary and is affected by a wide variety of factors, including the type of asset/liability, whether the asset/liability is established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions are required to reflect those that market participants would use in pricing the asset or liability at the measurement date.
The Company uses quoted market prices when valuing its marketable securities and, consequently, the fair value is based on Level 1 inputs. These marketable securities consist of equity and fixed income securities. The Company primarily uses readily observable market data in conjunction with internally developed discounted cash flow valuation models when valuing its derivative portfolio and, consequently, the fair value of the Company’s derivatives is based on Level 2 inputs. The carrying amount of the Company's pension-related annuity contract is recorded at net asset value of the contract and, consequently, its fair value is based on Level 2 inputs and is included in Other assets on the Condensed Consolidated Balance Sheets. The carrying value of the Company’s Term Loan approximates fair value based on current market interest rates for debt instruments of similar credit standing and, consequently, their fair values are based on Level 2 inputs.
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The following table provides information regarding financial assets and liabilities measured or disclosed at fair value (in thousands):
| Fair value measurements at reporting date using | ||||||||||||||||||||||||||
| September 30, | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
| Assets/(Liabilities) measured at fair value: | ||||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Annuity contract | ||||||||||||||||||||||||||
| Derivative Assets (Liabilities): | ||||||||||||||||||||||||||
| Foreign exchange contracts | ( | ( | ||||||||||||||||||||||||
| Interest rate swap | ||||||||||||||||||||||||||
| Cross currency swap | ( | ( | ||||||||||||||||||||||||
| Disclosed at fair value: | ||||||||||||||||||||||||||
| Term Loan B | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| AR securitization facility | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Fair value measurements at reporting date using | ||||||||||||||||||||||||||
| March 31, | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
| Assets/(Liabilities) measured at fair value: | ||||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Annuity contract | ||||||||||||||||||||||||||
| Derivative assets (liabilities): | ||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||
| Interest rate swap | ||||||||||||||||||||||||||
| Cross currency swap | ( | ( | ||||||||||||||||||||||||
| Disclosed at fair value: | ||||||||||||||||||||||||||
| Term loan B | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
The Company does not have any non-financial assets and liabilities that are recognized at fair value on a recurring basis. At September 30, 2023, the Term Loan B has been recorded at carrying value, which approximates fair value. In fiscal 2024, the Company also borrowed an additional $45,000,000 under a new credit agreement secured by the Company's U.S. accounts receivable balances (the "AR Securitization Facility"). The AR Securitization Facility has been recorded at carrying value which approximates fair value. Refer to Note 9 for additional information regarding the Company's long-term debt.
Market gains, interest, and dividend income on marketable securities are recorded in Investment (income) loss on the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives are recorded in foreign currency exchange (gain) loss or other comprehensive income (loss), to the extent that the derivative qualifies as a hedge under the provisions of FASB ASC Topic 815. Interest and dividend income on marketable securities are measured based upon amounts earned on their respective declaration dates.
Assets and liabilities preliminarily recorded at fair value on a non-recurring basis during the six months ended September 30, 2023 include assets and liabilities acquired in connection with the acquisition of montratec described in Note 2. The estimated fair values allocated to the assets acquired and liabilities assumed relied upon fair value measurements based primarily on Level 3 inputs. The valuation techniques used to allocate fair values to working capital items; property, plant, and equipment, and
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identifiable intangible assets included the cost approach, market approach, and other income approaches. For identifiable intangible assets these techniques included the multi-period excess earnings approach, the relief from royalty approach, and other income approaches. The closed-form option price approach was used to calculate the contingent consideration. The valuation techniques relied on a number of inputs which included the cost and condition of property, plant, and equipment and forecasted net sales and income.
Significant valuation inputs included an attrition rate of 10.0 % for customer relationships, an estimated royalty rate of 5.0 % for technology, a royalty rate of 1.0 % for trademark and trade names, an asset volatility rate of 27 % for the contingent consideration, and a weighted average cost of capital of 12.5 %.
5. Inventories
Inventories consisted of the following (in thousands):
| September 30, 2023 | March 31, 2023 | |||||||||||||
| At cost - FIFO basis: | ||||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work-in-process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total at cost FIFO basis | ||||||||||||||
| LIFO cost less than FIFO cost | ( | ( | ||||||||||||
| Net inventories | $ | $ | ||||||||||||
The acquisition of montratec contributed $6,649,000 to the increase in inventory since March 31, 2023.
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 factors beyond management's control, estimated interim results are subject to change in the final year-end LIFO inventory valuation.
6. Marketable Securities and Other Investments
In accordance with ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) are measured at fair value through earnings. The Company's marketable securities are recorded at their fair value, with unrealized changes in market value realized within Investment (income) loss on the Condensed Consolidated Statements of Operations. The impact on earnings for unrealized gains and losses were losses of $349,000 and $372,000 in the three months ended September 30, 2023 and September 30, 2022, respectively and losses of $270,000 and $920,000 in the six months ended September 30, 2023 and September 30, 2022, respectively.
Consistent with prior periods, the estimated fair value is based on quoted market prices at the balance sheet dates. The cost of securities sold is based on the specific identification method. Interest and dividend income are included in Investment (income) loss in the Condensed Consolidated Statements of Operations.
Marketable securities are carried as long-term assets since they are held for the settlement of the Company’s general and product liability insurance claims filed through CM Insurance Company, Inc. ("CMIC"), a wholly owned captive insurance subsidiary. The marketable securities are not available for general working capital purposes.
Net realized gains related to sales of marketable securities were not
The Company owns a 49 % ownership interest in Eastern Morris Cranes Company Limited ("EMC"), a limited liability company organized and existing under the laws and regulations of the Kingdom of Saudi Arabia. The Company's ownership represents an equity investment in a strategic customer of STAHL serving the Kingdom of Saudi Arabia. The investment's
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7. Goodwill and Intangible Assets
Goodwill and indefinite lived trademarks are not amortized but are tested for impairment at least annually, in accordance with the provisions of ASC Topic 350-20-35-1. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The fair value of a reporting unit is determined using a discounted cash flow methodology. The Company’s reporting units are determined based upon whether discrete financial information is available and reviewed regularly, whether those units constitute a business, and the extent of economic similarities between those reporting units for purposes of aggregation. The Company’s reporting units identified under ASC Topic 350-20-35-33 are at the component level, or one level below the operating segment level as defined under ASC Topic 280-10-50-10 “Segment Reporting - Disclosure.” The Company has three reporting units as of September 30, 2023 and March 31, 2023. The Duff-Norton reporting unit (which designs, manufactures and sources mechanical and electromechanical actuators and rotary unions) had goodwill of $9,699,000 301,242,000 and $306,988,000 at September 30, 2023 and March 31, 2023, respectively. The Precision Conveyance reporting unit (which represents high-precision conveying systems) had goodwill of $406,631,000 and $327,942,000 at September 30, 2023 and March 31, 2023, respectively. The goodwill associated with the fiscal 2024 acquisition of montratec, as described in Note 2, is included in the Precision Conveyance reporting unit. The Company has recorded adjustments to goodwill related to montratec during the quarter ended September 30, 2023. Refer to Note 2 for additional details related to these adjustments.
Refer to the 2023 10-K for information regarding our annual goodwill and indefinite lived trademark impairment evaluation. Future impairment indicators, such as declines in forecasted cash flows, may cause impairment charges. Impairment charges could be based on such factors as the Company’s stock price, forecasted cash flows, assumptions used, control premiums or other variables. There were no such indicators during the three and six months ended September 30, 2023.
A summary of changes in goodwill during the six months ended September 30, 2023 is as follows (in thousands):
| Balance at April 1, 2023 | $ | ||||
| Acquisition of montratec (Refer to Note 2) | |||||
| Currency translation | ( | ||||
| Balance at September 30, 2023 | |||||
Goodwill is recognized net of accumulated impairment losses of $113,174,000
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Identifiable intangible assets acquired in a business combination are amortized over their estimated useful lives. Identifiable intangible assets are summarized as follows (in thousands):
| September 30, 2023 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||
| Trademark | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Indefinite lived trademark | — | — | ||||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||||||||
| Acquired technology | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
The Company’s intangible assets that are considered to have finite lives are amortized. The weighted-average amortization periods are 13 years for trademarks, 17 years for customer relationships, 15 years for acquired technology, 5 years for other, and 16 years in total. Trademarks with a carrying value of $45,878,000 as of September 30, 2023 have an indefinite useful life and are therefore not being amortized.
8. Derivative Instruments
The Company uses derivative instruments to manage selected foreign currency and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes. All derivative instruments must be recorded on the balance sheet at fair value. For derivatives designated as cash flow hedges, changes in the fair value of the derivative is recorded as accumulated other comprehensive loss, or “AOCL,” and is reclassified to earnings when the underlying transaction has an impact on earnings. For foreign currency derivatives not designated as cash flow hedges, all changes in market value are recorded as a foreign currency exchange loss (gain) in the Company’s Consolidated Statements of Operations. The cash flow effects of derivatives are reported within net cash (used for) provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
The Company is exposed to credit losses in the event of non-performance by the counterparties on its financial instruments. The counterparties have investment grade credit ratings. The Company anticipates that these counterparties will be able to fully satisfy their obligations under the contracts.
The Company's agreements with its counterparties contain provisions pursuant to which the Company could be declared in default of its derivative obligations. As of September 30, 2023, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 30, 2023, it could have been required to settle its obligations under these agreements at amounts which approximate the September 30, 2023 fair values reflected in the table below. During the three and six months ended September 30, 2023, the Company was not in default of any of its derivative obligations.
As of September 30, 2023, the Company had no derivatives designated as net investments or fair value hedges in accordance with FASB ASC Topic 815, “Derivatives and Hedging.”
The Company has a cross currency swap agreement that is designated as a cash flow hedge to hedge changes in the value of an intercompany loan to a foreign subsidiary due to changes in foreign exchange rates. This intercompany loan is related to the acquisition of Stahl Cranesystems GmbH ("STAHL"). As of September 30, 2023, the notional amount of this derivative is $104,845,000 , and this contract matures on March 31, 2028. From its September 30, 2023 balance of AOCL, the Company expects to reclassify approximately $508,000 out of AOCL, and into foreign currency exchange loss (gain), during the next 12 months based on the contractual payments due under this intercompany loan.
17
The Company has foreign currency forward agreements that are designated as cash flow hedges to hedge a portion of forecasted inventory purchases denominated in foreign currencies. As of September 30, 2023, the notional amount of those derivatives was $5,890,000 , and all contracts mature by September 30, 2024. From its September 30, 2023 balance of AOCL, the Company expects to reclassify approximately $59,000 out of AOCL during the next 12 months based on the expected payments for the goods purchased.
The Company's policy is to maintain a capital structure that is comprised of 50 -70 % of fixed rate long-term debt and 30 -50 % of variable rate long-term debt. The Company has three outstanding interest rate swap agreements in which the Company receives interest at a variable rate and pays interest at a fixed rate. The most recent interest rate swap agreement was entered into in fiscal year 2024 as a result of the additional debt from the montratec acquisition. The Company modified its historical interest rate swaps from LIBOR to SOFR in the first quarter of fiscal 2024. This modification had no impact on the Company's hedge accounting and hedge designation. These interest rate swap agreements are designated as cash flow hedges to hedge changes in interest expense due to changes in the variable interest rate of the Company's variable interest debt. The amortizing interest rate swaps mature by April 30, 2028 and had a total notional amount of $360,013,000 as of September 30, 2023. The effective portion of the changes in fair values of the interest rate swaps is reported in AOCL and will be reclassified to interest expense over the life of the swap agreements. From its September 30, 2023 balance of AOCL, the Company expects to reclassify approximately $7,035,000 of AOCL into interest and debt expense, during the next 12 months.
The following is the effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022 (in thousands):
| Derivatives Designated as Cash Flow Hedges | Type of Instrument | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Reclassified from AOCL into Income | ||||||||||
| September 30, 2023 | Foreign exchange contracts | $ | ( | Cost of products sold | $ | ( | ||||||||
| September 30, 2023 | Interest rate swaps | Interest expense | ||||||||||||
| September 30, 2023 | Cross currency swaps | Foreign currency exchange (gain) loss | ||||||||||||
| September 30, 2022 | Foreign exchange contracts | Cost of products sold | ( | |||||||||||
| September 30, 2022 | Interest rate swap | Interest expense | ||||||||||||
| September 30, 2022 | Cross currency swaps | Foreign currency exchange (gain) loss | ||||||||||||
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The following is the effect of derivative instruments on the Condensed Consolidated Statements of Operations for the six months ended September 30, 2023 and 2022 (in thousands):
| Derivatives Designated as Cash Flow Hedges | Type of Instrument | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Reclassified from AOCL into Income | ||||||||||
| September 30, 2023 | Foreign exchange contracts | $ | ( | Cost of products sold | $ | ( | ||||||||
| September 30, 2023 | Interest rate swaps | Interest expense | ||||||||||||
| September 30, 2023 | Cross currency swaps | Foreign currency exchange (gain) loss | ||||||||||||
| September 30, 2022 | Foreign exchange contracts | ( | Cost of products sold | ( | ||||||||||
| September 30, 2022 | Interest rate swap | Interest expense | ( | |||||||||||
| September 30, 2022 | Cross currency swaps | Foreign currency exchange (gain) loss | ||||||||||||
| Fair Value of Asset (Liability) | |||||||||||||||||
| Derivatives Designated as Hedging Instruments | Balance Sheet Location | September 30, 2023 | March 31, 2023 | ||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other | $ | $ | ||||||||||||||
| Foreign exchange contracts | Accrued liabilities | ( | ( | ||||||||||||||
| Interest rate swap | Prepaid expenses and other | ||||||||||||||||
| Interest rate swap | Other assets | ||||||||||||||||
| Interest rate swap | Accrued liabilities | ( | ( | ||||||||||||||
| Cross currency swap | Prepaid expenses and other | ||||||||||||||||
| Cross currency swap | Other non current liabilities | ( | ( | ||||||||||||||
9. Debt
During fiscal 2024, the Company amended its New Revolving Credit Facility increasing the size of the New Revolving Credit Facility by $75,000,000 to a total of $175,000,000 . The Company borrowed against the expanded New Revolving Credit Facility in May of fiscal 2024 to initially fund the montratec acquisition as described in Note 2. The Company subsequently borrowed additional funds in accordance with the Accordion feature under its existing Term Loan B facility to increase the principal amount of the Term Loan B facility by $75,000,000 . The Company also borrowed an additional $45,000,000 under a new credit agreement secured by the Company's U.S. accounts receivable balances (the "AR Securitization Facility"). The total U.S. accounts receivable balances which secure the AR Securitization Facility total $80,078,000 as of September 30, 2023. The Company used the proceeds from the $75,000,000 Accordion borrowing and the $45,000,000 AR Securitization Facility to fully repay borrowings on the New Revolving Credit Facility prior to June 30, 2023.
The key terms of the new AR Securitization Facility are as follows:
•The AR Securitization Facility Agreement provides for revolving loans to be made up to a maximum principal amount of $55,000,000 of which $45,000,000 was drawn as of as of September 30, 2023.
•The AR Securitization Facility borrowings bear interest at a floating rate equal to a one-month secured overnight funding rate (SOFR) plus 10 basis points of credit spread adjustment, plus 110 basis points.
19
•The AR Securitization Facility borrowings are secured by the Company's U.S. accounts receivables totaling $80,078,000 at September 30, 2023.
•The AR Securitization Facility Agreement contains customary events of default (referred to as “Amortization Events.”)
•Amounts drawn under the AR Securitization Facility may remain outstanding until the maturity date of the AR Securitization Facility on June 19, 2026. Prior to the maturity date, the Company is only required to repay principal to the extent necessary to maintain borrowing base compliance, unless an Amortization Event occurs.
As of September 30, 2023, there have been no Amortization Events triggered in the AR Securitization Facility. The Company has both the ability and intent to have the AR Securitization Facility remain outstanding for the next 12-months. As such, the Company has classified the full $45,000,000 outstanding borrowings under the AR Securitization Facility as long-term debt at September 30, 2023.
In addition to the above, the Company amended the variable interest component of its Term Loan B and New Revolving Credit Facility to transition from LIBOR to SOFR.
The outstanding principal balance of the Term Loan B facility was $512,560,000 as of September 30, 2023, which includes $75,000,000 in principal balance from the Accordion exercised in the first quarter of fiscal 2024 as described above. The Company made $25,000,000 in principal payments on the Term Loan B facility during the six months ended September 30, 2023 of which $3,058,000 was required. The Company is obligated to make $6,116,000 of principal payments on the Term Loan B facility over the next 12 months plus applicable Excess Cash Flow ("ECF") payments, if required, however, plans to pay down approximately $50,000,000 in principal payments in total during such 12 month period. This amount has been recorded within the current portion of long-term debt on the Company's Condensed Consolidated Balance Sheet with the remaining balance recorded as long-term debt. Refer to the 2023 10-K for further details on the Company's Term Loan B facility.
There were no outstanding borrowings and $15,719,000 in outstanding letters of credit issued against the New Revolving Credit Facility as of September 30, 2023. The outstanding letters of credit as of September 30, 2023 consisted of $194,000 in commercial letters of credit and $15,525,000 of standby letters of credit.
The gross balance of deferred financing costs on the Term Loan B facility was $7,845,000 , which includes $2,414,000 from the Accordion exercises, as of September 30, 2023 and $6,323,000 , which includes $892,000 from the Accordion exercise, as of March 31, 2023. The accumulated amortization balances were $2,356,000 and $1,815,000 as of September 30, 2023 and March 31, 2023, respectively. The gross balance of deferred financing costs associated with the AR Securitization Facility was $536,000 with an accumulated amortization balance of $60,000 as of September 30, 2023.
The gross balance of deferred financing costs associated with the New Revolving Credit Facility is $4,828,000 as of September 30, 2023 and $4,027,000 as of March 31, 2023, respectively, which are included in Other assets on the Condensed Consolidated Balance Sheet. The $801,000 increase in Fiscal 2024 relates to fees paid to increase the size of the New Revolving Credit Facility to $175,000,000 as described above. The accumulated amortization balances were $2,116,000 and $1,611,000 as of September 30, 2023 and March 31, 2023, respectively.
The Company has a finance lease for a manufacturing facility in Hartland, WI under a 23 -year lease agreement which terminates in 2035. The outstanding balance on the finance lease obligation is $13,247,000 as of September 30, 2023 of which $636,000 has been recorded within the Current portion of long-term debt and the remaining balance recorded within the Term loan, AR securitization facility and finance lease obligations on the Company's Condensed Consolidated Balance Sheet. See Note 15 for further details.
Unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating outside of the U.S. 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. As of September 30, 2023, unsecured credit lines totaled approximately $2,326,000 , of which nothing was drawn. In addition, unsecured lines of $12,847,000 were available for bank guarantees issued in the normal course of business of which $10,239,000 was utilized as of September 30, 2023.
Refer to the Company’s consolidated financial statements included in its 2023 10-K for further information on its debt arrangements.
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10. Net Periodic Benefit Cost
The following table sets forth the components of net periodic pension cost for the Company’s defined benefit pension plans (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| Service costs | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Net amortization | ||||||||||||||||||||||||||
| Settlement | $ | $ | $ | $ | ||||||||||||||||||||||
| Net periodic pension (benefit) cost | $ | $ | $ | $ | ||||||||||||||||||||||
Components of the net benefit costs other than the service cost component are recorded in Other (income) expense, net on the Condensed Consolidated Statements of Operations. Service costs are recorded as part of Income from operations. The Company currently plans to contribute approximately $6,744,000 to its pension plans in fiscal 2024.
For additional information on the Company’s defined benefit pension and postretirement benefit plans, refer to the consolidated
financial statements included in the 2023 10-K.
11. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||
| Numerator for basic and diluted earnings per share: | |||||||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | |||||||||||||||||||||||||
| Denominators: | |||||||||||||||||||||||||||||
| Weighted-average common stock outstanding – denominator for basic EPS | |||||||||||||||||||||||||||||
| Effect of dilutive employee stock options and other share-based awards | |||||||||||||||||||||||||||||
| Adjusted weighted-average common stock outstanding and assumed conversions – denominator for diluted EPS | |||||||||||||||||||||||||||||
Stock options with respect to 748,000 and 718,000 common shares for the three and six months ended September 30, 2023 and September 30, 2022, respectively, were not included in the computation of diluted income per share because they were antidilutive. For the three and six months ended September 30, 2023 and September 30, 2022 contingently issuable common shares of 168,000 and 179,000 , respectively, were excluded because a performance condition had not yet been met.
The Company grants share based compensation to eligible participants under the 2016 Long Term Incentive Plan, as Amended and Restated in June 2019 ("2016 LTIP"). The total number of shares of common stock with respect to which awards may be granted under the 2016 LTIP were increased by 2,500,000 as a result of the June 2019 amendment and restatement. Shares not previously authorized for issuance under any of the prior stock plans and any shares not issued or subject to outstanding awards under the prior stock plans are still available for issuance.
During fiscal 2024, the Company determined that the performance condition on its fiscal 2022 performance shares would not be fully met. The Company has adjusted its stock-based compensation expense accordingly in fiscal 2024.
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During fiscal 2023, the Company repurchased 31,000 shares of its common stock at an aggregate cost of $1,001,000 in accordance with the Company's previously adopted share repurchase program. The value of the shares purchased are reflected as Treasury stock on the Company's Condensed Consolidated Balance Sheet as of March 31, 2023. There were no such purchases in fiscal 2024.
During the first six months of fiscal 2024, there were 18,000 shares of stock issued upon the exercise of stock options that were issued under the Company’s 2016 LTIP. During the fiscal year ended March 31, 2023, 133,000 shares of restricted stock units vested and were issued.
On October 22, 2023, the Company's Board of Directors declared a dividend of $0.07 per common share. The dividend will be paid on November 20, 2023 to shareholders of record on November 10, 2023. The dividend payment is expected to be approximately $2,015,000 .
Refer to the Company’s consolidated financial statements included in its 2023 10-K for further information on its earnings per share and stock plans.
12. Loss Contingencies
From time to time, the Company is named a defendant in legal actions arising out of the normal course of business. The Company is not a party to any pending legal proceeding other than ordinary, routine litigation incidental to our business. The Company does not believe that any of its pending litigation will have a material impact on its business.
Accrued general and product liability costs are actuarially estimated reserves based on amounts determined from loss reports, individual cases filed with the Company, and an amount for losses incurred but not reported. The aggregate amounts of reserves were $21,809,000 (gross of estimated insurance recoveries of $8,265,000 ) as of September 30, 2023, of which $16,909,000 is included in Other non current liabilities and $4,900,000 in Accrued liabilities. The liability for accrued general and product liability costs are funded by investments in marketable securities (see Note 6).
The following table provides a reconciliation of the beginning and ending balances for accrued general and product liability:
| September 30, 2023 | March 31, 2023 | |||||||||||||
| Accrued general and product liability, beginning of period | $ | $ | ||||||||||||
| Estimated insurance recoveries | ( | ( | ||||||||||||
| Add provision for claims | ||||||||||||||
| Deduct payments for claims | ( | ( | ||||||||||||
| Accrued general and product liability, end of period | $ | $ | ||||||||||||
| Estimated insurance recoveries | ( | ( | ||||||||||||
| Net accrued general and product liability, end of period | $ | $ | ||||||||||||
The per occurrence limits on the self-insurance for general and product liability coverage to Columbus McKinnon through its wholly-owned captive insurance company were $2,000,000 from inception through fiscal 2003 and $3,000,000 for fiscal 2004 and thereafter. In addition to the per occurrence limits, the Company’s coverage is also subject to an annual aggregate limit, applicable to losses only. These limits range from $2,000,000 to $6,000,000 for each policy year from inception through fiscal 2024. The Company also purchases excess general and product liability insurance up to an aggregate $75,000,000 limit.
Asbestos
Like many industrial manufacturers, the Company is involved in asbestos-related litigation. In continually evaluating costs relating to its estimated asbestos-related liability, the Company reviews, among other things, the incidence of past and recent claims, the historical case dismissal rate, the mix of the claimed illnesses and occupations of the plaintiffs, its recent and historical resolution of the cases, the number of cases pending against it, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on this review, the Company has estimated its share of liability to defend and resolve probable asbestos-related personal injury claims. This estimate is highly uncertain due to the limitations of the available data and the difficulty of forecasting with any certainty the numerous variables that can affect the
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range of the liability. The Company will continue to study the variables in light of additional information in order to identify trends that may become evident and to assess their impact on the range of liability that is probable and estimable.
Based on actuarial information, the Company has estimated its net asbestos-related aggregate liability including related legal costs to range between $5,300,000 and $9,700,000 , net of insurance recoveries, using actuarial parameters of continued claims for a period of 38 years from September 30, 2023. The Company has estimated its asbestos-related aggregate liability that is probable and estimable, net of insurance recoveries, in accordance with U.S. generally accepted accounting principles approximates $7,047,000 . The Company has reflected the liability gross of insurance recoveries of $8,265,000 as a liability in the Condensed Consolidated Balance Sheet as of September 30, 2023. The recorded liability does not consider the impact of any potential favorable federal legislation. This liability will fluctuate based on the uncertainty in the number of future claims that will be filed and the cost to resolve those claims, which may be influenced by a number of factors, including the outcome of the ongoing broad-based settlement negotiations, defensive strategies, and the cost to resolve claims outside the broad-based settlement program. Of this amount, management expects to incur asbestos liability payments of approximately $2,900,000 over the next 12 months. Because payment of the liability is likely to extend over many years, management believes that the potential additional costs for claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future period.
A share of the Company’s previously incurred asbestos-related expenses and future asbestos-related expenses are covered by pre-existing insurance policies. The Company had been engaged in a legal action against the insurance carriers for those policies to recover past expenses and future costs incurred. The Company came to an agreement with the insurance carriers to settle its case against them for recovery of a portion of past costs and future costs for asbestos-related legal defense costs. The agreement was finalized during the quarter ended September 30, 2020. The terms of the settlement require the carriers to pay gross defense costs prior to retro-premiums of 65 % for future asbestos-related defense costs subject to an annual cap of $1,650,000 for claims covered by the settlement.
Further, the insurance carriers are expected to cover 100 % of indemnity costs related to all covered cases. Estimates of the future cost sharing have been included in the loss reserve calculation as of September 30, 2023 and March 31, 2023. The Company has recorded a receivable for the estimated future cost sharing in Other assets in the Condensed Consolidated Balance Sheet at September 30, 2023 in the amount of $8,265,000 , which offsets its asbestos reserves.
In addition, one of the Company's subsidiaries, Magnetek, Inc. ("Magnetek"), has been named, along with multiple other defendants, in asbestos-related lawsuits associated with business operations previously acquired but which are no longer owned. During Magnetek's ownership, none of the businesses produced or sold asbestos-containing products. For such claims, Magnetek is uninsured and either contractually indemnified against liability, or contractually obligated to defend and indemnify the purchaser of these former business operations. The Company aggressively seeks dismissal from these proceedings. The asbestos-related liability including legal costs is estimated to be approximately $781,000 which has been reflected as a liability in the Condensed Consolidated Balance Sheet at September 30, 2023.
Product Liability
The Company is also involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these unresolved actions involve disputes related to product design, manufacture and performance liability. The Company's estimation of its product-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted accounting principles approximates $5,717,000 , which has been reflected as a liability in the Condensed Consolidated Balance Sheet as of September 30, 2023. In some cases, the Company cannot reasonably estimate a range of loss because there is insufficient information regarding the matter. Management believes that the potential additional costs for claims will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future period.
Litigation-Other
In October 2010, Magnetek received a request for indemnification from Power-One, Inc. ("Power-One") for an Italian tax matter arising out of the sale of Magnetek's power electronics business to Power-One in October 2006. With a reservation of rights, Magnetek affirmed its obligation to indemnify Power-One for certain pre-closing taxes. The sale included an Italian company, Magnetek, S.p.A., and its wholly owned subsidiary, Magnetek Electronics (Shenzhen) Co. Ltd. (the “Power-One China Subsidiary”). The tax authority in Arezzo, Italy, issued a notice of audit report in September 2010 wherein it asserted that the Power-One China Subsidiary had its administrative headquarters in Italy and, therefore, it should be considered resident in Italy and subject to taxation in Italy. In November 2010, the tax authority issued a notice of tax assessment for the period of July 2003 to June 2004, alleging that taxes of approximately $2,000,000 (Euro 1,900,000 ), plus interest, were due in Italy on
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taxable income earned by the Power-One China Subsidiary during this period. In addition, the assessment alleges potential penalties in the amount of approximately $2,300,000 (Euro 2,200,000 ) for the alleged failure of the Power-One China Subsidiary to file its Italian tax return. The Power-One China Subsidiary filed its response with the provincial tax commission of Arezzo, Italy in January 2011. A hearing before the Tax Court was held in July 2012 on the tax assessment for the period of July 2003 to June 2004. In September 2012, the Tax Court ruled in favor of the Power-One China Subsidiary dismissing the tax assessment for the period of July 2003 to June 2004. In February 2013, the tax authority filed an appeal of the Tax Court's September 2012 ruling. The Regional Tax Commission of Florence heard the appeal of the tax assessment dismissal for the period of July 2003 to June 2004 and thereafter issued its ruling finding in favor of the tax authority. Magnetek believed the court’s decision was based upon erroneous interpretations of the applicable law and appealed the ruling to the Italian Supreme Court in April 2015. In April 2022, the Supreme Court upheld the appeal in favor of Power-One.
The tax authority in Arezzo, Italy also issued a tax inspection report in January 2011 for the periods July 2002 to June 2003 (fiscal period 2002/2003) and July 2004 to December 2006 (fiscal periods 2004/2005 and 2005/2006) claiming that the Power-One China Subsidiary failed to file Italian tax returns for the reported periods. In August 2012, the tax authority in Arezzo, Italy issued four notices of tax assessment for the periods July 2002 to June 2003 and July 2004 to December 2006, alleging that taxes of approximately $7,100,000 (Euro 6,700,000 ) were due in Italy on taxable income earned by the Power-One China Subsidiary together with an allegation of potential penalties in the amount of approximately $3,000,000 (Euro 2,800,000 ) for the alleged failure of the Power-One China Subsidiary to file its Italian tax returns. On June 3, 2015, the Tax Court, with four judgements, ruled in favor of the Power-One China Subsidiary dismissing the tax assessments for the periods of July 2002 to June 2003 and July 2004 to December 2006. On July 27, 2015, the tax authority filed four appeals of the Tax Court's ruling of June 3, 2015. In May 2016, the Regional Tax Court of Florence rejected the appeals of the tax authority and at the same time canceled the notices of assessment for the fiscal years of 2004/2005 and 2005/2006. The tax authority had up to six months to appeal the decisions. In December 2016, the Power-One China Subsidiary was served by the Italian Revenue Agency with two appeals to the Italian Supreme Court regarding the two positive judgments on the tax assessments for the fiscal periods 2004/2005 and 2005/2006. In February 2017 the Power-One China Subsidiary filed two memorandum before the Italian Supreme Court in response to the appeals made by the tax authority against the positive judgments on the tax assessments for fiscal years 2004/2005 and 2005/2006. In March 2017, the Regional Tax Court of Florence rejected the appeal of the assessment for 2006 fiscal year (period July 2006-December 2006). The tax authority had until October 2017 to appeal this decision. In October 2017, the Power-One China Subsidiary was served by the Italian Revenue Agency with an appeal to the Italian Supreme Court against the positive judgment on the tax assessment for fiscal year 2006. In November 2017 the Power-One China Subsidiary filed a memorandum before the Italian Supreme Court in response to the appeal made by the tax authority against the positive judgment on the tax assessment for fiscal year 2006. In February 2018 an appeal hearing was held at the Regional Tax Court of Florence regarding the Italian tax authority's claim for taxes due for fiscal year 2002/2003. In March 2018, the Regional Tax Court of Florence rejected the appeal of the assessment for 2002/2003 fiscal year. In October 2018 the Power-One China Subsidiary was served by the Italian Revenue Agency with an appeal to the Italian Supreme Court against the positive judgment on the tax assessment for fiscal year 2002/2003. In November 2018 the Power-One China Subsidiary filed a memorandum with the Italian Supreme Court in response to the appeal made by the tax authority. In April 2022, the Supreme Court filed judgments concerning the tax assessments for fiscal years 2002/2003 and 2006. Further, in July 2022, the Supreme Court filed judgments concerning the tax assessments for the fiscal periods 2004/2005 and 2005/2006. In all four judgments, the Supreme Court upheld the appeals of the Italian Tax Authority and remitted the proceedings back to the Regional Tax Court for a new evaluation of the substance of the dispute.
In December 2022 the Power One China Subsidiary resumed the proceedings concerning the tax assessments for fiscal years 2002/2003 and 2006 before the Regional Tax Court. A hearing was held before the Regional Tax Court in April 2023 and in May, with two decisions, the court ruled in favor of the Company. These decisions can be appealed through December 2023. In March 2023 the Power One China Subsidiary resumed the proceedings concerning the tax assessments for fiscal years 2004/2005 and 2005/2006 before the Regional Tax Court.
The Company believes it will be successful and does not expect to incur a liability related to these assessments.
In September of 2017, Magnetek received a request for defense and indemnification from Monsanto Company, Pharmacia, LLC, and Solutia, Inc. (collectively, “Monsanto”) with respect to: (1) lawsuits brought by plaintiffs claiming that Monsanto manufactured polychlorinated biphenyls ("PCBs"), exposure to which allegedly caused injury to plaintiffs; and (2) lawsuits brought by municipalities and municipal entities claiming that Monsanto should be responsible for a variety of damages due to the presence of PCBs in bodies of water in those municipalities and/or in water treated by those municipal entities. Monsanto claims to be entitled to defense and indemnification from Magnetek under a so-called “Special Undertaking” apparently executed by Magnetek’s predecessor Universal Manufacturing ("Universal") in January of 1972, which purportedly required Universal to defend and indemnify Monsanto from liabilities “arising out of or in connection with the receipt, purchase, possession, handling, use, sale or disposition of” PCBs by Universal.
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Magnetek has declined Monsanto’s tender, and believes that it has meritorious legal and factual defenses to the demands made by Monsanto. Magnetek is vigorously defending against those demands and commenced litigation in New Jersey to, among other things, declare the Special Undertaking void and unenforceable. Monsanto has, in turn, commenced an action to enforce the Special Undertaking in Missouri and joined five additional companies as co-defendants in that Missouri action.
The New Jersey action was recently dismissed in favor of the Missouri action. Magnetek has appealed that decision and intends to continue to vigorously prosecute its New Jersey declaratory judgment action, and to defend against Monsanto’s action against it. The Company cannot reasonably estimate a potential range of loss with respect to Monsanto’s tender because there is insufficient information regarding the underlying matters. Management believes, however, that the potential additional legal costs related to such matters will not have a material effect on the financial condition of the Company or its liquidity, although the effect of any future liabilities recorded could be material to earnings in a future period.
The Company had previously filed suit against Travelers in District Court seeking coverage under insurance policies in the name of Universal. In July 2019, the District Court ruled that Travelers is obligated to defend Magnetek under these policies in connection with Magnetek's litigation against Monsanto. The Court held that Monsanto's claims against Magnetek fall within the insuring agreement of the Travelers policies and that none of the policy exclusions precluded the possibility of coverage. The Court also held that Travelers prior settlements with other insureds under the policies did not cut off or release Magnetek's rights under the policies. Travelers moved for reconsideration which motion was denied. Travelers (though a third-party indemnitor) is currently defending the Company in its litigation with Monsanto.
The Company is also engaged in similar insurance coverage litigation against Transportation Insurance Company in the Circuit Court of Cook County, Illinois.
Environmental Matters
Along with other manufacturing companies, the Company is subject to various federal, state and local laws relating to the protection of the environment. To address the requirements of such laws, the Company has adopted a corporate environmental protection policy which provides that all of its owned or leased facilities shall, and all of its employees have the duty to, comply with all applicable environmental regulatory standards, and the Company utilizes an environmental auditing program for its facilities to ensure compliance with such regulatory standards. The Company has also established managerial responsibilities and internal communication channels for dealing with environmental compliance issues that may arise in the course of its business. Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time to time requiring the Company to incur expenditures in order to ensure environmental regulatory compliance. However, the Company is not aware of any environmental condition or any operation at any of its facilities, either individually or in the aggregate, which would cause expenditures having a material adverse effect on its results of operations, financial condition or cash flows and, accordingly, has not budgeted any material capital expenditures for environmental compliance for fiscal 2024.
In 1986, Magnetek acquired the stock of Universal Manufacturing Corporation (“Universal”) from a predecessor of Fruit of the Loom (“FOL”), and the predecessor agreed to indemnify Magnetek against certain environmental liabilities arising from pre-acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement included completion of additional cleanup activities, if any, at the Bridgeport facility and defense and indemnification against liability for potential response costs related to offsite disposal locations. Magnetek's leasehold interest in the Bridgeport facility was assigned to the buyer in connection with the sale of Magnetek's transformer business in June 2001. FOL, the successor to the indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and Magnetek filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. Magnetek believes that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy filing. In November 2001, Magnetek and FOL entered into an agreement involving the allocation of certain potential tax benefits and Magnetek withdrew its claims in the bankruptcy proceeding. Magnetek further believes that FOL's obligation to the state of Connecticut was not discharged in the reorganization proceeding.
In January 2007, the Connecticut Department of Environmental Protection (“DEP”) requested parties, including Magnetek, to submit reports summarizing the investigations and remediation performed to date at the site and the proposed additional investigations and remediation necessary to complete those actions at the site. DEP requested additional information relating to site investigations and remediation. Magnetek and the DEP agreed to the scope of the work plan in November 2010. The Company has recorded a liability of $314,000 included in the amount specified above, related to the Bridgeport facility,
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representing the best estimate of future site investigation costs and remediation costs which are expected to be incurred in the future.
For all of the currently known environmental matters, the Company has accrued as of September 30, 2023 a total of $739,000 which, in our opinion, is sufficient to deal with such matters. The Company is not aware of any environmental condition or any operation at any of its facilities, either individually or in the aggregate, which would cause expenditures to have a material adverse effect on its results of operations, financial condition or cash flows and, accordingly, has not budgeted any material capital expenditures for environmental compliance for fiscal 2024.
13. Income Taxes
Income tax expense (benefit) as a percentage of income (loss) from continuing operations before income tax expense was 24 % and 26 % in the three months ended September 30, 2023 and September 30, 2022, respectively and 25 % and 38 % in the six months ended September 30, 2023 and September 30, 2022. 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.
During the first six months of Fiscal 2023, the rate was unfavorably impacted 7 percentage points due to settlement of income tax assessments related to tax periods prior to the Company’s acquisition of Stahl Cranesystems GmbH (“STAHL"). In accordance with the tax indemnification clause of the share purchase agreement, the Company received full reimbursement from STAHL’s prior owner which was recorded as a gain in Other (income) expense, net on the Condensed Consolidated Statements of Operations during the period. The tax rate for the six months ended September 30, 2022 also reflects an unfavorable impact of 6 percentage points due to the recording of a U.S. state tax valuation allowance. The valuation allowance primarily relates to changes in the Company’s expectations regarding its ability to more likely than not utilize certain state net operating losses prior to their expiration. The tax rate for the three months ended September 30, 2022 was also unfavorably impacted by valuation allowances.
The Company estimates that the effective tax rate related to continuing operations will be approximately 24 % to 26 % for fiscal 2024.
Refer to the Company’s consolidated financial statements included in its 2023 10-K for further information on income taxes.
Changes in AOCL by component for the three and six months ended September 30, 2023 are as follows (in thousands):
| Three months ended September 30, 2023 | ||||||||||||||||||||||||||
| Retirement Obligations | Foreign Currency | Change in Derivatives Qualifying as Hedges | Total | |||||||||||||||||||||||
| Beginning balance net of tax | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ( | ( | |||||||||||||||||||||||
| Amounts reclassified from other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | ( | ||||||||||||||||||||||
| Ending balance net of tax | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
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| Six Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| Retirement Obligations | Foreign Currency | Change in Derivatives Qualifying as Hedges | Total | |||||||||||||||||||||||
| Beginning balance net of tax | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified from other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | |||||||||||||||||||||||
| Ending balance net of tax | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
Details of amounts reclassified out of AOCL for the three months ended September 30, 2023 are as follows (in thousands):
| Details of AOCL Components | Amount reclassified from AOCL | Affected line item on Condensed Consolidated Statement of Operations | ||||||||||||
| Net amortization of prior service cost and pension settlement expense | ||||||||||||||
| $ | ||||||||||||||
| Total before tax | ||||||||||||||
| ( | Tax (benefit) expense | |||||||||||||
| $ | Net of tax | |||||||||||||
| Change in derivatives qualifying as hedges | ||||||||||||||
| $ | Cost of products sold | |||||||||||||
| ( | Interest expense | |||||||||||||
| ( | Foreign currency | |||||||||||||
| ( | Total before tax | |||||||||||||
| Tax (benefit) expense | ||||||||||||||
| $ | ( | Net of tax | ||||||||||||
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Details of amounts reclassified out of AOCL for the six months ended September 30, 2023 are as follows (in thousands):
| Details of AOCL Components | Amount reclassified from AOCL | Affected line item on Condensed Consolidated Statement of Operations | ||||||||||||
| Net amortization of prior service cost and pension settlement expense | ||||||||||||||
| $ | ||||||||||||||
| Total before tax | ||||||||||||||
| ( | Tax (benefit) expense | |||||||||||||
| $ | Net of tax | |||||||||||||
| Change in derivatives qualifying as hedges | ||||||||||||||
| $ | Cost of products sold | |||||||||||||
| ( | Interest expense | |||||||||||||
| ( | Foreign currency | |||||||||||||
| ( | Total before tax | |||||||||||||
| Tax (benefit) expense | ||||||||||||||
| $ | ( | Net of tax | ||||||||||||
These AOCL components are included in the computation of net periodic pension cost. (See Note 10 for additional details.)
15. Leases
The Company’s lease arrangements generally include real estate (manufacturing facilities, sales offices, distribution centers, warehouses), vehicles, and equipment. Leases with a term greater than one year are recognized on the Consolidated Balance Sheet; the Company has elected not to recognize leases with terms of one year or less on the Consolidated Balance Sheet. Lease obligations and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The Company recognizes lease expense on a straight-line basis over the lease term.
The Company's leases have lease terms ranging from 1 to 23 years, some of which include options to extend or terminate the lease. The exercise of lease renew all options is at the Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term. The Company’s lease agreements do not contain material residual value guarantees or any material restrictive covenants.
The following table illustrates the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet (in thousands):
| September 30, 2023 | March 31, 2023 | |||||||
| Operating leases: | ||||||||
| Other assets | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Other non current liabilities | ||||||||
| Total operating liabilities | $ | $ | ||||||
| Finance lease: | ||||||||
| Net property, plant, and equipment | $ | $ | ||||||
| Current portion of long-term debt and finance lease obligation | ||||||||
| Term loan and finance lease obligations | ||||||||
| Total finance liabilities | $ | $ | ||||||
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Operating lease expense of $3,110,000 and $6,120,000 and $2,187,000 and $4,341,000 for the three and six months ended September 30, 2023 and September 30, 2022, respectively, is included in Income from operations on the Condensed Consolidated Statements of Operations. Short-term lease expense, sublease income, and variable lease expenses were not 250,000 501,000 151,000 and $302,000 and $157,000 and $315,000 is included the Company's Condensed Consolidated Statements of Operations in the three and six months ended September 30, 2023 and September 30, 2022, respectively.
Supplemental cash flow information related to leases is as follows (in thousands):
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | ||||||
| Cash paid for amounts included in the measurement of finance lease liabilities | $ | $ | ||||||
| ROU assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
16. Effects of New Accounting Pronouncements
Topics recently adopted
In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" from December 31, 2022 to December 31, 2024, which is superseding the date from ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU is elective and is relief to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Optional expedients are provided for contract modification accounting under topics such as debt, leases, and derivatives. The optional amendments are effective for all entities as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2024. The Company modified its interest rate swap contracts during the quarter to transition from LIBOR to SOFR. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ASU amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination and is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those years, with early adoption permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company adopted this standard effective April 1, 2023 and applied it in the purchase accounting for montratec. The adoption did not have a material impact on the Company's consolidated financial statements.
Topics Not Yet Adopted
We consider the applicability and impact of all Accounting Standard Updates ("ASU"). ASUs not listed were assessed and determined to be either not applicable, or had or are expected to have an immaterial impact on our financial statements and related disclosures.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Executive Overview
The Company is a leading worldwide designer, manufacturer and marketer of intelligent motion solutions, including motion control products, technologies, automated systems and services, that efficiently and ergonomically move, lift, position and secure materials. Our key products include hoists, crane components, precision conveyors, actuators, rigging tools, light rail workstations, and digital power and motion control systems. These are highly relevant, professional-grade solutions that solve customers’ critical material handling requirements.
Founded in 1875, we have grown to our current size and leadership position through organic growth and acquisitions. We developed our leading market position over our 149-year history by emphasizing technological innovation, manufacturing excellence and superior customer service. In accordance with our strategic framework, we are building out our business system (CMBS) and growth framework to be market-led, customer-centric, and operationally excellent with our people and values at the core. We believe this will transform Columbus McKinnon into a top-tier Intelligent Motion Solutions company. We expect our strategy will enhance shareholder value by expanding EBITDA margins and return on invested capital ("ROIC").
Our revenue base is geographically diverse with approximately 43% derived from customers outside the U.S. for the six months ended September 30, 2023. 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.
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.
On May 31, 2023, the Company completed its acquisition of montratec GmbH ("montratec"), a leading automation solutions company that designs and develops intelligent automation and transport systems for interlinking industrial production and logistics processes. montratec product offerings complement both Dorner and Garvey, and further the Company's shift to intelligent motion and serve as a platform to expand capabilities in advanced, higher technology automation solutions.
Regardless of the economic climate and point in the economic cycle, we constantly explore ways to increase operating margins as well as further improve our productivity and competitiveness. We have specific initiatives to reduce lead-times, improve on-time deliveries, reduce warranty costs, and improve material and factory productivity. The initiatives are being driven by the implementation of our business operating system, CMBS. We are working to achieve these strategic initiatives through business simplification, operational excellence, and profitable growth initiatives. We believe these initiatives will enhance future operating margins.
Our principal raw materials and components purchases were approximately $365 million in fiscal 2023 (or 61% of Cost of product sold) and include steel, consisting of rod, wire, bar, structural, and other forms of steel; electric motors; bearings; gear reducers; castings; steel and aluminum enclosures and wire harnesses; electro-mechanical components; and standard variable drives and controls. These commodities are all available from multiple sources. We purchase most of these raw materials and components from a limited number of strategic and preferred suppliers under agreements which are negotiated on a company-wide basis through our global purchasing group. Currently, we are seeing global inflation moderate and availability improve for select raw materials and components.
We operate in a highly competitive and global business environment. We see a variety of opportunities in our markets and geographies, including trends toward automation and increasing labor productivity and the expansion of market opportunities in Asia and other emerging markets. While we execute our long-term growth strategy, we are supported by our strong free cash flow as well as our liquidity position and flexible debt structure.
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Results of Operations
Three months ended September 30, 2023 and September 30, 2022
Net sales in the three months ended September 30, 2023 were $258,400,000, up $26,660,000 or 11.5% from the three months ended September 30, 2022 net sales of $231,740,000. Net sales were positively impacted by $10,556,000 due to price increases, $9,539,000 of revenue from the montratec acquisition and $1,013,000 of sales volume increases. Foreign currency translation favorably impacted sales by $5,552,000 for the three months ended September 30, 2023.
Gross profit in the three months ended September 30, 2023 was $99,976,000, an increase of $13,666,000 or 15.8% from the three months ended September 30, 2022 gross profit of $86,310,000. Gross profit margin was 38.7% in the fiscal 2024 second quarter compared to 37.2% in the fiscal 2023 second quarter. The increase in gross profit was due to $5,692,000 of price increases net of manufacturing costs changes including inflation, $5,474,000 as a result of the acquisition of montratec and $616,000 related to favorable sales volume mix. The translation of foreign currencies had a $1,884,000 favorable impact on gross profit in the three months ended September 30, 2023.
Selling expenses were $26,867,000 and $25,617,000, or 10.4% and 11.1% of net sales, in the fiscal 2024 and 2023 second quarters, respectively. Selling expense increased by $1,953,000 due to the montratec acquisition offset by $1,134,000 due to lower net business realignment costs during the three months ended September 30, 2023. Foreign currency translation had a $527,000 unfavorable impact on selling expenses in the three months ended September 30, 2023.
General and administrative expenses were $25,709,000 and $21,413,000, or 9.9% and 9.2% of net sales, in the fiscal 2024 and 2023 second quarters, respectively. General and administrative expenses increased by $1,896,000 due to higher employee related costs, $1,251,000 from the montratec acquisition, $489,000 of net acquisition and deal costs and $146,000 of headquarters relocation costs. Foreign currency translation had a $308,000 unfavorable impact on general and administrative expenses in the three months ended September 30, 2023.
Research and development expenses were $6,541,000 and $5,461,000, or 2.5% and 2.4% of net sales, in the fiscal 2024 and 2023 second quarters, respectively. The increase in research and development expenses was due to additional spending to achieve strategic goals related to new product development.
Amortization of intangibles was $7,508,000 and $6,447,000 in the fiscal 2024 and 2023 second quarters, respectively, with the increase related to new intangible assets recorded from the montratec acquisition.
Interest and debt expense was $10,211,000 in the second quarter ended September 30, 2023 compared to $6,768,000 in the second quarter ended September 30, 2022. The increase is related to higher variable interest rates, as well as increased borrowings to finance the montratec acquisition.
Investment loss of $88,000 in the second quarter ended September 30, 2023 compared to a loss of $312,000 in the second quarter ended September 30, 2022 is related to 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.
Foreign currency exchange losses were $1,746,000 and $1,003,000 in the fiscal 2024 and 2023 second quarters, respectively. These losses were primarily due to the weakening of the Euro in comparison to the U.S. Dollar.
Income tax expense as a percentage of income from continuing operations before income tax expense was 24% and 26% in the second quarters ended September 30, 2023 and September 30, 2022, 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.
Six Months Ended September 30, 2023 and September 30, 2022
Net sales in the six months ended September 30, 2023 were $493,892,000, up $41,865,000 or 9.3% from the six months ended September 30, 2022 net sales of $452,027,000. Net sales were positively impacted by $21,614,000 due to price increases, $12,194,000 of revenue from the montratec acquisition and $2,162,000 of sales volume increases. Foreign currency translation favorably impacted sales by $5,895,000 for the six months ended September 30, 2023.
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Gross profit in the six months ended September 30, 2023 was $186,626,000, an increase of $17,790,000 or 10.5% from the six months ended September 30, 2022 gross profit of $168,836,000. Gross profit margin was 37.8% in the six months ended September 30, 2023 compared to 37.4% in the six months ended September 30, 2022. The increase in gross profit was due to $11,216,000 of price increases net of manufacturing costs changes including inflation and $6,292,000 as a result of the acquisition of montratec. These gross profit increases were offset by $1,535,000 of unfavorable sales mix and $196,000 in current year business realignment costs. The translation of foreign currencies had a $2,013,000 favorable impact on gross profit in the six months ended September 30, 2023.
Selling expenses were $51,848,000 and $51,773,000, or 10.5% and 11.5% of net sales, in the six months ended September 30, 2023 and September 30, 2022, respectively. Selling expense increased by $2,466,000 due to the montratec acquisition offset by $1,981,000 due to lower net business realignment costs and $655,000 of lower employee related costs during the six months ended September 30, 2023. Foreign currency translation had a $483,000 unfavorable impact on selling expenses in the six months ended September 30, 2023.
General and administrative expenses were $53,152,000 and $43,299,000, or 10.8% and 9.6% of net sales, in the six months ended September 30, 2023 and September 30, 2022, respectively. General and administrative expenses increased by $2,990,000 of net acquisition deal related costs, $1,912,000 of higher stock compensation costs, $1,524,000 of higher employee related costs, $1,470,000 from the montratec acquisition and $1,374,000 of headquarters relocation costs. These increases were offset by lower net business realignment costs of $610,000. Foreign currency translation had a $351,000 unfavorable impact on general and administrative expenses in the six months ended September 30, 2023.
Research and development expenses were $12,442,000 and $10,591,000, or 2.5% and 2.3% of net sales, in the six months ended September 30, 2023 and September 30, 2022, respectively. The increase in research and development expenses was due to additional spending to achieve strategic goals related to new product development.
Amortization of intangibles was $14,385,000 and $12,982,000 in the six months ended September 30, 2023 and September 30, 2022, respectively, with the increase related to new intangible assets recorded from the montratec acquisition and foreign currency.
Interest and debt expense was $18,836,000 compared to $12,971,000 in the six months ended September 30, 2023 and September 30, 2022, respectively. The increase is related to higher variable interest rates, as well as increased borrowings to finance the montratec acquisition.
Investment income of $454,000 compared to investment expense of $742,000 in the six months ended September 30, 2023 and September 30, 2022, respectively, is related to 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.
Foreign currency exchange losses were $2,230,000 and $2,206,000 in the six months ended September 30, 2023 and September 30, 2022, respectively. This unfavorable change was due to the strengthening of the US Dollar in comparison to the Euro and other currencies where our businesses operate.
Other expense was $605,000 in the six months ended September 30, 2023 compared to other income of $2,079,000 in the six months ended September 30, 2022. As described in Note 13, Other income in fiscal 2023, was primarily related to a tax indemnification reimbursement received from STAHL's former owners in accordance with the share purchase agreement.
Income tax expense as a percentage of income from continuing operations before income tax expense was 25% and 38% in the six months ended September 30, 2023 and September 30, 2022, 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.
During the first six months of Fiscal 2023, the rate was unfavorably impacted 7 percentage points due to settlement of income tax assessments related to tax periods prior to the Company’s acquisition of Stahl Cranesystems GmbH (“STAHL"). In accordance with the tax indemnification clause of the share purchase agreement, the Company received full reimbursement from STAHL’s prior owner which was recorded as a gain in Other (income) expense, net on the Condensed Consolidated Statements of Operations during the period. The tax rate for the six months ended September 30, 2022 also reflects an unfavorable impact of 6 percentage points due to the recording of a U.S. state tax valuation allowance. The valuation allowance primarily relates to changes in the Company’s expectations regarding its ability to more likely than not utilize certain state net operating losses prior to their expiration.
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The Company estimates that the effective tax rate related to continuing operations will be approximately 24% to 26% for fiscal 2024.
Liquidity and Capital Resources
Cash, cash equivalents, and restricted cash totaled $99,308,000 at September 30, 2023, a decrease of $34,118,000 from the March 31, 2023 balance of $133,426,000.
Cash flow from operating activities
Net cash used for operating activities was $558,000 for the six months ended September 30, 2023 compared to net cash provided by operating activities of $6,149,000 for the six months ended September 30, 2022. Net income of $25,088,000 along with non-cash adjustments to net income of $27,691,000 were an offset to cash used for operations. The non-cash adjustments included $22,482,000 of depreciation and amortization, $5,264,000 of stock-based compensation, and $4,684,000 of non-cash lease expense offset by $6,097,000 of deferred income taxes and related valuation allowance. Changes in working capital reduced cash from operations by $48,773,000 as a result of an increase of $22,415,000 in inventories, an increase in trade accounts receivable $11,409,000, a decrease of $5,996,000 in trade payables, an increase in prepaid expenses of $5,868,000 and a decrease in accrued expenses of $3,085,000. The increase in inventories relates to purchases required for expected future customer demand. Cash used for operations also included a decrease of $4,921,000 in other non-current liabilities primarily due to lease payments for the six months ended September 30, 2023.
Cash flow from investing activities
Net cash used for investing activities was $119,029,000 for the six months ended September 30, 2023 compared to $7,027,000 for the six months ended September 30, 2022. The most significant use of cash in the year was $108,145,000 of cash used for purchase of montratec on May 31, 2023. Additionally, the Company used $10,319,000 for capital expenditures for the six months ended September 30, 2023 .
Cash flow from financing activities
Net cash provided by financing activities was $85,794,000 for the six months ended September 30, 2023 and net cash used for financing activities was $24,402,000 for the six months ended September 30, 2022. The most 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. This was offset by $25,294,000 in debt repayments, $4,015,000 in dividend payments and $2,859,000 in fees paid to secure the new debt borrowings. Associated cash flows from hedging activities are classified as financing activities in the Statement of Cash Flows which resulted in a net cash outflow of $576,000 during the six months ended September 30, 2023.
We believe that our cash on hand, cash flows, and borrowing capacity under our Amended and Restated Credit Agreement 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, 2023, $73,596,000, including $3,551,000 from montratec, of cash and cash equivalents were held by foreign subsidiaries.
Refer to Note 9 for further discussion of the Company's long-term debt and financing costs.
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, 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, 2023 and September 30, 2022 were $10,319,000 and $5,288,000, respectively. We expect capital expenditure spending in fiscal 2024 to range from $30,000,000 to $40,000,000.
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Inflation and Other Market Conditions
Our costs are affected by inflation in the U.S. economy and, to a lesser extent, in non-U.S. economies including those of Europe, Canada, Mexico, South America, and Asia-Pacific. We do not believe that general inflation has had a material effect on our results of operations over the periods presented despite rising inflation due to our ability to pass on rising costs through price increases. We are currently experiencing higher raw material, freight, and logistics costs than we have seen in recent years, which we have been able to recover with pricing actions. In the future, we may not be able to pass on these cost increases to our customers.
Goodwill Impairment Testing
We test goodwill for impairment at least annually and more frequently whenever events occur or circumstances change that indicate there may be impairment. These events or circumstances could include a significant long-term adverse change in the business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.
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 Duff Norton reporting unit, the Rest of Products reporting unit, and the Precision Conveyance reporting unit, which have goodwill totaling $9,699,000, $301,242,000, and $406,631,000, respectively, as of September 30, 2023.
We currently do not believe that it is more likely than not that the fair value of each of our reporting units is less than its applicable carrying value. Additionally, we currently do not believe that we have any significant impairment indicators or that any of our reporting units with goodwill are at risk of failing Step One of the goodwill impairment test. However, if the projected long-term revenue growth rates, profit margins, or terminal growth rates are significantly lower, and/or the estimated weighted-average cost of capital is considerably higher, future testing may indicate impairment of one or more of the Company’s reporting units and, as a result, the related goodwill may be impaired.
Refer to our 2023 10-K for additional information regarding our annual goodwill impairment process.
Seasonality and Quarterly Results
Quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, legal settlements, gains or losses in our portfolio of marketable securities, restructuring charges, favorable or unfavorable foreign currency translation, 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
Information regarding the effects of new accounting pronouncements is included in Note 16 to the accompanying consolidated financial statements included in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical or current fact, included in this Form 10-Q are forward-looking statements. Forward-looking statements reflect our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements can be identified by the use of forward-looking words, such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “future,” “likely” and other words and terms of similar meaning (including their negative counterparts or other various or comparable terminology). For example, all statements we make relating to our plans and objectives for future operations, growth or initiatives, strategies, pending acquisitions, our expected amount of capital expenditures for fiscal 2024, our expected effective tax rate for fiscal 2024, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
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•the cyclical nature of our business and general macroeconomic conditions;
•increased competition with respect to our business, including with respect to our material handling and precision conveyance products;
•our ability to successfully integrate our acquisitions;
•price fluctuations and trade tariffs on steel, aluminum, and other raw materials purchased to manufacture our products and our ability to pass on price increases to our customers;
•the scarcity or unavailability of the raw materials and critical components we use to manufacture our products and the impact of such scarcity or unavailability on our ability to operate our business;
•our ability to successfully manage our backlog;
•our ability to maintain relationships with the independent distributors we use to sell our products;
•our ability to continue to attract, develop, engage, and retain qualified employees;
•changing interest rates;
•our ability to manage our indebtedness, including compliance with debt covenant restrictions in our Term Loan B, AR Securitization Facility and our New Revolving Credit Facility (each as defined herein);
•our ability to manage the risks of conducting operations outside of the United States, including currency fluctuations, trade barriers, labor unrest, geopolitical conflicts, more stringent labor regulation, tariffs, political and economic instability and governmental expropriation;
•potential product liability, as our products involve risks of personal injury and property damage;
•compliance with federal, state and local environmental protection laws, including regulatory measures meant to address climate change, which may be burdensome and lower our margins;
•our ability to adequately protect our intellectual property and refrain from infringing on the intellectual property of others;
•our ability to adequately manage and rely on our subcontractors and suppliers;
•our ability to adequately protect our information technology systems from cyberattacks or other interruptions;
•our ability to comply with the U.S. Foreign Corrupt Practices Act and other anti-corruption laws; and
•our ability to retain key members of our management team.
While we believe that the forward-looking statements in this Form 10-Q are reasonable, we caution that it is very difficult to predict the effect of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the outcomes or affect us or our operations in the way we expect. The forward-looking statements included in this Form 10-Q are made only as of the date hereof and are based on our current expectations. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise except to the extent required by applicable law.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the market risks as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
Item 4. Controls and Procedures.
As of September 30, 2023, an evaluation was performed under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. These disclosure controls and procedures have been designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is made known to them on a timely basis, and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on that evaluation, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.
There have been no other changes in the Company’s internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings.
There have been no material developments from the legal proceedings as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and the notes to the consolidated financial statements thereto.
Item 1A. Risk Factors.
There have been no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents information with respect to purchase of common stock of the Company made during the three months ended September 30, 2023 by the Company:
Issuer Purchases of Equity Securities
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet be Purchased under the thousands Program (in thousands)1 | ||||||||||
| July 1 - 31, 2023 | — | $ | — | — | ||||||||||
| August 1 - 31, 2023 | — | $ | — | — | ||||||||||
| September 1 - 30, 2023 | — | $ | — | — | ||||||||||
| Total | — | $ | — | — | 19,000 | |||||||||
1The Company publicly announced on March 26, 2019 that its Board of Directors approved a share repurchase authorization for up to $20 million of shares of common stock of Columbus McKinnon Corporation, with no expiration. As of September 30, 2023, approximately $19 million remains available to repurchase shares of common stock under the current share repurchase authorization plan. There were no repurchases made in the quarter ended September 30, 2023.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information.
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits.
| First Amendment, to Credit and Security Agreement, dated as of September 20, 2023, by and among Columbus McKinnon FINCO, LLC as Borrower, Columbus McKinnon Corporation as Master Servicer and Performance Guarantor, and Wells Fargo Bank, National Association as Lender and Administrative Agent. | ||||||||
| Certification of principal 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. | ||||||||
| Certification of prinicipal 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. | ||||||||
| Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Exhibit 101* | The financial statements from the Company’s Quarterly Report on Form 10-Q for the six months ended | |||||||
| 101.INS* | XBRL Instance Document | |||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| Exhibit 104* | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) | |||||||
* Filed herewith
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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 1, 2023 | /S/ GREGORY P. RUSTOWICZ | ||||||
| Gregory P. Rustowicz | ||||||||
| Executive Vice President Finance and Chief Financial Officer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||
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