Columbus McKinnon(CMCO) - 2021 Q1 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited statements detail the company's financial position, operations, equity, and cash flows for the period ended June 30, 2020 Condensed Consolidated Balance Sheets Total assets increased to $1,102,589 thousand, driven by higher cash balances offset by lower receivables and inventories Condensed Consolidated Balance Sheets | Metric | June 30, 2020 (in thousands) | March 31, 2020 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Total Assets | $1,102,589 | $1,093,272 | $9,317 | | Cash and cash equivalents | $152,236 | $114,450 | $37,786 | | Trade accounts receivable | $96,464 | $123,743 | $(27,279) | | Inventories | $124,572 | $127,373 | $(2,801) | | Current portion of long term debt | $29,450 | $4,450 | $25,000 | | Total Liabilities | $635,987 | $629,687 | $6,300 | | Total Shareholders' Equity | $466,602 | $463,585 | $3,017 | Condensed Consolidated Statements of Operations The company reported a net loss of $2,969 thousand, a significant decline from the prior year due to lower sales and a pension charge Condensed Consolidated Statements of Operations | Metric (Three Months Ended June 30) | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Net sales | $139,070 | $212,712 | $(73,642) | -34.6% | | Cost of products sold | $94,273 | $137,100 | $(42,827) | -31.2% | | Gross profit | $44,797 | $75,612 | $(30,815) | -40.8% | | Income from operations | $1,789 | $27,043 | $(25,254) | -93.4% | | Net income (loss) | $(2,969) | $18,579 | $(21,548) | -115.9% | | Basic income (loss) per share | $(0.12) | $0.79 | $(0.91) | -115.2% | | Diluted income (loss) per share | $(0.12) | $0.78 | $(0.90) | -115.4% | - Other expense increased significantly to $3,026 thousand in Q1 FY2021 from $162 thousand in Q1 FY2020, primarily due to a $2,722 thousand pension settlement charge[11][173] Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income fell to $1,689 thousand, as the net loss was partially offset by positive foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (Three Months Ended June 30) | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Net income (loss) | $(2,969) | $18,579 | $(21,548) | -115.9% | | Total other comprehensive income (loss) | $4,658 | $538 | $4,120 | 765.8% | | Comprehensive income (loss) | $1,689 | $19,117 | $(17,428) | -91.2% | - Foreign currency translation adjustments contributed positively to other comprehensive income, increasing from $1,395 thousand in 2019 to $2,802 thousand in 2020[13] Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased slightly to $466,602 thousand, as comprehensive income offset the period's net loss Condensed Consolidated Statements of Shareholders' Equity | Metric (in thousands) | March 31, 2020 | June 30, 2020 | Change | | :-------------------------------- | :------------- | :------------ | :----- | | Total Shareholders' Equity | $463,585 | $466,602 | $3,017 | | Net income (loss) | N/A | $(2,969) | N/A | | Change in foreign currency translation adjustment | N/A | $2,802 | N/A | | Change in pension liability and postretirement obligations | N/A | $1,869 | N/A | | Stock compensation expense | N/A | $2,071 | N/A | Condensed Consolidated Statements of Cash Flows The company generated positive cash flow from operating, investing, and financing activities, boosting total cash reserves Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Three Months Ended June 30) | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | | :---------------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by (used for) operating activities | $9,516 | $(2,160) | $11,676 | | Net cash provided by (used for) investing activities | $5,429 | $(2,420) | $7,849 | | Net cash provided by (used for) financing activities | $21,719 | $(10,942) | $32,661 | | Net change in cash and cash equivalents | $37,786 | $(15,377) | $53,163 | | Cash, cash equivalents, and restricted cash at end of period | $152,486 | $55,966 | $96,520 | - Operating cash flow improved due to a decrease in trade accounts receivable ($27,955 thousand) and inventory ($3,924 thousand), despite a net loss[178] - Investing cash flow was positively impacted by $6,363 thousand in proceeds from the pending sale of a building in China[180] - Financing cash flow was significantly boosted by $25,000 thousand in borrowings from the Revolver[181] Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue, debt, derivatives, and various loss contingencies Note 1. Description of Business The company is a global designer and marketer of motion control products, with U.S. customers representing 54% of total sales - The Company is a leading worldwide designer, manufacturer, and marketer of motion control products, technologies, systems, and services[26] - Key products include hoists, actuators, rigging tools, light rail work stations, and digital power and motion control systems[26] - Sales to customers in the United States were approximately 54% for the three months ended June 30, 2020, and 55% for the same period in 2019[27] Note 2. Disposals The company is consolidating its manufacturing footprint and selling a facility in China, from which it received cash proceeds - The Company is consolidating its manufacturing footprint, including the closure of its Salem, Ohio facility (completed in Q1 FY2020) and the planned consolidation of its Lisbon, Ohio facility (expected next quarter)[28] - Costs related to these consolidations, included in Cost of products sold, were $1,113 thousand for Q1 FY2021 and $506 thousand for Q1 FY2020[28] - The Company is selling a manufacturing facility in China and received $6,363 thousand in cash proceeds during Q1 FY2021, with the sale expected to be completed in Q2 FY2021 at a gain[30] Note 3. Revenue & Receivables Net sales decreased by 34.6% year-over-year, with revenue recognized at shipment for standard products and upon completion for custom projects Revenue Recognition Revenue is recognized when control transfers to the customer, which is at shipment for standard products and upon project completion for custom work - Revenue for standard products is recognized at shipment when legal title and significant risks and rewards transfer to the customer[33] - Revenue for custom engineered products is generally recognized upon project completion, when products and services are controlled by the customer[34] - Sales incentives (volume discounts, rebates, early payment discounts) are accounted for as variable consideration, reducing revenue[33] Reconciliation of contract balances Contract liabilities (customer advances) increased to $13,223 thousand due to additional advances received during the period Reconciliation of contract balances | Customer Advances (contract liabilities) (in thousands) | June 30, 2020 | June 30, 2019 | | :---------------------------------------------------- | :------------ | :------------ | | March 31, beginning balance | $10,796 | $11,501 | | Additional customer advances received | $9,873 | $11,339 | | Revenue recognized from customer advances | $(7,775) | $(8,380) | | June 30, ending balance | $13,223 | $14,512 | - Contract assets, representing revenue recognized prior to the right to invoice, increased to $3,386 thousand at June 30, 2020, from $2,361 thousand at March 31, 2020[40] Remaining Performance Obligations Unsatisfied performance obligations totaled approximately $3,256 thousand, with 70% expected to be recognized over the next twelve months - Unsatisfied performance obligations totaled approximately $3,256 thousand as of June 30, 2020[41] - Approximately 70% of these sales are expected to be recognized over the next twelve months[41] Disaggregated revenue Net sales decreased significantly across all product categories, with Industrial Products and Crane Solutions seeing the largest declines Disaggregated revenue | Net Sales by Product Grouping (Three Months Ended June 30) | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | Change (%) | | :------------------------------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Industrial Products | $53,717 | $93,489 | $(39,772) | -42.5% | | Crane Solutions | $68,988 | $98,643 | $(29,655) | -30.1% | | Engineered Products | $16,327 | $20,561 | $(4,234) | -20.6% | | All other | $38 | $19 | $19 | 100.0% | | Total | $139,070 | $212,712 | $(73,642) | -34.6% | Practical expedients The company expenses sales commissions as incurred for contracts of one year or less and does not disclose their performance obligations - Incremental costs to obtain contracts (sales commissions for contracts < 1 year) are expensed as incurred in Selling expenses[44] - Unsatisfied performance obligations for contracts with an expected length of one year or less are not disclosed[45] Accounts Receivable The allowance for doubtful accounts increased to $6,430 thousand, reflecting higher bad debt expense amid the COVID-19 pandemic - The Company adopted ASU 2016-13 on April 1, 2020, with no significant impact on consolidated financial statements[46] - In response to COVID-19, the Company is reducing credit limits and increasing bad debt expense as necessary[47] Accounts Receivable | Allowance for doubtful accounts (in thousands) | June 30, 2020 | March 31, 2020 | | :------------------------------------------- | :------------ | :------------- | | Beginning balance | $5,056 | N/A | | Bad debt expense | $1,559 | N/A | | Less uncollectible accounts written off, net of recoveries | $(225) | N/A | | Other (1) | $40 | N/A | | Ending balance | $6,430 | $5,056 | Note 4. Fair Value Measurements Financial instruments are measured at fair value, with marketable securities valued using Level 1 inputs and derivatives using Level 2 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than active market prices), and Level 3 (unobservable inputs)[49][53][54] - Marketable securities are valued using Level 1 inputs, while derivatives and the annuity contract are valued using Level 2 inputs[57] Fair Value Measurements | Financial Instrument (in thousands) | June 30, 2020 Fair Value | Level 1 | Level 2 | Level 3 | | :---------------------------------- | :----------------------- | :------ | :------ | :------ | | Marketable securities | $7,510 | $7,510 | — | — | | Annuity contract | $2,109 | — | $2,109 | — | | Foreign exchange contracts (asset) | $72 | — | $72 | — | | Interest rate swap liability | $(3,178) | — | $(3,178)| — | | Cross currency swap liability | $(7,817) | — | $(7,817)| — | | Cross currency swap asset | $1,281 | — | $1,281 | — | | Term loan (disclosed at fair value) | $(250,490) | — | $(250,490)| — | Note 5. Inventories Net inventories decreased to $124,572 thousand, with the LIFO cost being $20,169 thousand less than the FIFO cost Inventories | Inventories (in thousands) | June 30, 2020 | March 31, 2020 | Change | | :------------------------- | :------------ | :------------- | :----- | | Raw materials | $89,168 | $85,452 | $3,716 | | Work-in-process | $22,223 | $25,876 | $(3,653)| | Finished goods | $33,350 | $33,216 | $134 | | Total at cost FIFO basis | $144,741 | $144,544 | $197 | | LIFO cost less than FIFO cost | $(20,169) | $(17,171) | $(2,998)| | Net inventories | $124,572 | $127,373 | $(2,801)| Note 6. Marketable Securities and Other Investments The company holds marketable securities for insurance claims and a 49% equity method investment in Eastern Morris Cranes Company - Marketable securities are recorded at fair value, with unrealized gains/losses recognized in Investment (income) loss[66] - Unrealized gains on marketable securities were $341 thousand in Q1 FY2021, up from $137 thousand in Q1 FY2020[66] - The Company holds a 49% equity method investment in Eastern Morris Cranes Company Limited (EMC), with a carrying value of $3,657 thousand at June 30, 2020[69] - Income from the EMC equity method investment was $194 thousand in Q1 FY2021, compared to $110 thousand in Q1 FY2020[69] Note 7. Goodwill and Intangible Assets Goodwill increased to $322,914 thousand due to currency translation, while net identifiable intangible assets were $217,109 thousand - Goodwill is tested for impairment at least annually; no impairment indicators were present in Q1 FY2021[70][71] - Total amortization expense was $3,115 thousand for Q1 FY2021, with an estimated annual expense of $12,500 thousand for the next five years[77] Goodwill | Goodwill (in thousands) | April 1, 2020 | June 30, 2020 | Change | | :---------------------- | :------------ | :------------ | :----- | | Balance | $319,679 | $322,914 | $3,235 | | Currency translation | N/A | $3,235 | N/A | Identifiable Intangible Assets | Identifiable Intangible Assets (in thousands) | June 30, 2020 Net | March 31, 2020 Net | Change | | :-------------------------------------------- | :---------------- | :----------------- | :----- | | Trademark | $1,751 | $1,778 | $(27) | | Indefinite lived trademark | $47,007 | $46,670 | $337 | | Customer relationships | $135,204 | $135,666 | $(462) | | Acquired technology | $32,676 | $33,363 | $(687) | | Other | $471 | $485 | $(14) | | Total | $217,109 | $217,962 | $(853) | Note 8. Derivative Instruments The company uses derivative instruments to manage foreign currency and interest rate exposures, not for speculation - Derivatives are used to manage foreign currency and interest rate exposures, not for speculative trading[78] - A cross-currency swap ($175,923 thousand notional) hedges an intercompany loan, with $961 thousand expected to be reclassified from AOCL to earnings in the next 12 months[81] - Interest rate swaps ($150,623 thousand notional) hedge variable interest rates on the term loan, with $1,128 thousand expected to be reclassified from AOCL to interest expense in the next 12 months[86] Derivative Instruments | Derivative Instrument (in thousands) | June 30, 2020 Fair Value (Asset/Liability) | March 31, 2020 Fair Value (Asset/Liability) | | :----------------------------------- | :----------------------------------------- | :------------------------------------------ | | Foreign exchange contracts (net) | $90 | $285 | | Interest rate swap (net) | $(3,178) | $(3,296) | | Cross currency swap (net) | $(6,536) | $(3,504) | Note 9. Debt The company's debt includes a Revolving Facility and a Term Loan, with $25,000 thousand drawn from the Revolver for liquidity - The company's debt facilities include a $100,000 thousand Revolving Facility (maturing 2022) and a $445,000 thousand 1st Lien Term Loan (maturing 2024)[91][185] - As of June 30, 2020, the outstanding principal balance of the Term Loan was $258,238 thousand[93][187] - The Company drew $25,000 thousand from the Revolver for liquidity and working capital purposes during Q1 FY2021 and remains in compliance with its Total Leverage Ratio covenant[92][186] - The Company repaid $1,113 thousand of Term Loan principal payments in Q1 FY2021 and expects to make $4,450 thousand in principal payments over the next 12 months[93][187] Note 10. Net Periodic Benefit Cost Net periodic pension cost increased significantly to $3,500 thousand due to a $2,722 thousand non-cash pension settlement expense - A $2,722 thousand non-cash pension settlement expense was recorded in Q1 FY2021 as part of a plan to terminate one of the U.S. pension plans[101] - The Company plans to contribute approximately $5,010 thousand to its pension plans in fiscal 2021[102] Net Periodic Benefit Cost | Net Periodic Pension Cost (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----- | | Service costs | $261 | $267 | $(6) | | Interest cost | $3,115 | $3,699 | $(584) | | Expected return on plan assets | $(3,479) | $(3,973) | $494 | | Net amortization | $881 | $569 | $312 | | Settlement | $2,722 | — | $2,722 | | Net periodic pension (benefit) cost | $3,500 | $562 | $2,938 | Note 11. Earnings Per Share Basic and diluted EPS were a loss of $0.12, with 1,155,000 common shares from equity awards excluded as antidilutive - 1,155,000 common shares from stock options, restricted stock units, and performance shares were antidilutive and excluded from diluted EPS computation in Q1 FY2021 due to the net loss[104] - The Board declared a dividend of $0.06 per common share on July 20, 2020, expected to be approximately $1,435 thousand[107] Earnings Per Share | EPS Metric (Three Months Ended June 30) | 2020 | 2019 | Change | | :-------------------------------------- | :--- | :--- | :----- | | Basic income (loss) per share | $(0.12)| $0.79 | $(0.91)| | Diluted income (loss) per share | $(0.12)| $0.78 | $(0.90)| Note 12. Loss Contingencies The company faces various legal actions, including product liability, environmental matters, and asbestos-related litigation Accrued general and product liability Accrued general and product liability costs were $11,902 thousand, funded by marketable securities and based on actuarial estimates - Accrued general and product liability costs totaled $11,902 thousand at June 30, 2020 ($8,402 thousand non-current, $3,500 thousand current)[109] Accrued general and product liability | Accrued General and Product Liability (in thousands) | June 30, 2020 | March 31, 2020 | | :--------------------------------------------------- | :------------ | :------------- | | Beginning balance | $11,944 | $12,686 | | Add provision for claims | $825 | $3,233 | | Deduct payments for claims | $(867) | $(3,975) | | Ending balance | $11,902 | $11,944 | Environmental Matters The company has accrued $857 thousand for known environmental matters and anticipates no material adverse effects in fiscal 2021 - The Company has accrued $857 thousand for all currently known environmental matters as of June 30, 2020[114] - No material capital expenditures are budgeted for environmental compliance for fiscal 2021, as no material adverse effects are anticipated[114] Asbestos-related litigation The company has recorded a $4,434 thousand liability for asbestos-related litigation and expects a settlement with insurers - Estimated asbestos-related aggregate liability ranges from $3,800 thousand to $6,900 thousand, with $4,434 thousand recorded as probable and estimable at June 30, 2020[116] - Approximately $2,000 thousand of asbestos liability payments are expected over the next 12 months[116] - A tentative settlement with insurance carriers for asbestos-related defense costs (65% coverage up to $1,650 thousand annually) and past defense costs ($2,650 thousand expected payout) is expected to finalize in fiscal 2021[119] Other unresolved legal actions The company's estimated product-related aggregate liability from other legal actions is $6,761 thousand - Estimated product-related aggregate liability is $6,761 thousand as of June 30, 2020[120] Magnetek subsidiary contingencies The Magnetek subsidiary faces asbestos, environmental, and tax-related contingencies, with liabilities recorded for known issues Product Liability (Magnetek) Magnetek has recorded a $708 thousand liability for asbestos-related lawsuits associated with previously acquired businesses - Magnetek has recorded an asbestos-related liability of approximately $708 thousand for lawsuits related to previously acquired businesses[121] Litigation-Other (Magnetek - Italian tax matter) Magnetek is appealing an Italian tax claim of approximately $10.6 million and does not expect to incur a liability - Magnetek is involved in an Italian tax dispute for periods from 2002-2006, with claims totaling approximately $7.5 million in taxes and $3.1 million in penalties[124] - Magnetek believes it will be successful in its appeals and does not expect to incur a liability related to these assessments[125] Environmental Matters (Magnetek) Magnetek has recorded $484 thousand in liabilities for environmental matters and is in litigation to secure insurance coverage - Magnetek has recorded total liabilities of $484 thousand for all environmental matters as of June 30, 2020[131] - A liability of $305 thousand is recorded for future site investigation and remediation costs at the Bridgeport facility[129] - Magnetek is engaged in litigation to enforce insurance coverage for defense costs related to PCB-related lawsuits, with a District Court ruling in July 2019 obligating Travelers to defend Magnetek[134] Note 13. Income Taxes The income tax expense as a percentage of pre-tax income was 24%, with the full-year effective tax rate estimated at 21% to 22% - Income tax expense (benefit) as a percentage of income (loss) before tax was 24% for Q1 FY2021 and 22% for Q1 FY2020[136] - The effective tax rate for fiscal 2021 is estimated to be approximately 21% to 22%[137] Note 14. Changes in Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased to $(109,692) thousand, driven by positive foreign currency translation adjustments - Foreign currency translation adjustments contributed $2,802 thousand in other comprehensive income during the period[140] - Amounts reclassified out of AOCL totaled $5,318 thousand before tax, primarily from retirement obligations ($3,551 thousand) and derivatives ($3,291 thousand)[140] Changes in Accumulated Other Comprehensive Loss | AOCL Component (in thousands) | Beginning Balance (March 31, 2020) | Net Current Period Other Comprehensive Income (Loss) | Ending Balance (June 30, 2020) | | :---------------------------- | :--------------------------------- | :--------------------------------------------------- | :----------------------------- | | Retirement Obligations | $(79,041) | $1,869 | $(77,172) | | Foreign Currency | $(34,359) | $2,802 | $(31,557) | | Change in Derivatives | $(950) | $(13) | $(963) | | Total | $(114,350) | $4,658 | $(109,692) | Note 15. Leases The company's operating leases resulted in ROU assets of $37,086 thousand and lease liabilities of $37,635 thousand - Operating lease expense was $2,233 thousand for the three months ended June 30, 2020, compared to $2,313 thousand in the prior year[145] - Cash paid for operating lease liabilities was $2,160 thousand in Q1 FY2021[146] Leases | Lease Metric (in thousands) | June 30, 2020 | March 31, 2020 | Change | | :-------------------------- | :------------ | :------------- | :----- | | ROU Assets | $37,086 | $38,125 | $(1,039)| | Total Lease Liabilities | $37,635 | $38,553 | $(918) | Note 16. Effects of New Accounting Pronouncements The company adopted new standards for credit losses and fair value disclosures with no material impact on its financial statements ASU 2016-13 (Topic 326) - Adopted in fiscal 2021 The adoption of ASU 2016-13 for credit losses on April 1, 2020, did not have a significant impact on the financial statements - The Company adopted ASU 2016-13 and related standards effective April 1, 2020, using the modified retrospective method[150] - The adoption of ASU 2016-13 did not have a significant impact on the Company's consolidated financial statements[46][150] Other Topics adopted in fiscal 2021 The adoption of ASU 2018-13 for fair value measurement disclosures did not materially impact the financial statements - ASU 2018-13, changing fair value measurement disclosure requirements, was adopted effective April 1, 2020[153] - The adoption of ASU 2018-13 did not have a material impact on the financial statements for Q1 FY2021[153] Other Topics not yet adopted The company is evaluating the potential impact of ASU 2020-04 related to reference rate reform for contracts referencing LIBOR - The Company is evaluating ASU 2020-04, "Reference Rate Reform," which offers optional expedients for contracts and hedging relationships referencing LIBOR[154] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Net sales and gross profit declined significantly in Q1 FY2021 due to lower sales volume exacerbated by the COVID-19 pandemic EXECUTIVE OVERVIEW The company is leveraging its "Blueprint for Growth Strategy" to drive profitable growth while managing the impacts of COVID-19 - The Company is a leading worldwide designer, manufacturer, and marketer of motion control products, focused on commercial and industrial applications[156] - The "Blueprint for Growth Strategy" focuses on business simplification (80/20 process), operational excellence, and ramping the growth engine through new product development and a digital platform[157] - Approximately 46% of revenue is derived from customers outside the U.S., with expansion in the European market through the STAHL acquisition[158] - The Company is taking measures to protect cash flow and liquidity in response to COVID-19, including cost reduction, working capital reduction, and capital expenditure reduction[163] Results of Operations Net sales decreased 34.6% to $139,070 thousand, and gross profit margin fell to 32.2% due to lower sales volume and productivity Three Months Ended June 30, 2020 and June 30, 2019 Net sales and gross profit declined significantly due to lower volume, while a pension settlement charge drove a net loss - Net sales were negatively impacted by $74,126 thousand due to decreased sales volume and $1,951 thousand from foreign currency translation[166] - Gross profit decrease was attributed to lower sales volume ($26,993 thousand), decreased productivity ($4,296 thousand), and factory closure costs ($1,422 thousand)[167] - Other expense increased significantly due to a $2,722 thousand pension settlement charge[173] Three Months Ended June 30, 2020 and June 30, 2019 | Metric (Three Months Ended June 30) | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Net sales | $139,070 | $212,712 | $(73,642) | -34.6% | | Gross profit | $44,797 | $75,612 | $(30,815) | -40.8% | | Gross profit margin | 32.2% | 35.5% | -3.3 pp | | | Selling expenses | $18,695 | $22,755 | $(4,060) | -17.9% | | General and administrative expenses | $18,429 | $19,600 | $(1,171) | -6.0% | | Income from operations | $1,789 | $27,043 | $(25,254) | -93.4% | | Net income (loss) | $(2,969) | $18,579 | $(21,548) | -115.9% | Liquidity and Capital Resources Cash and cash equivalents increased by $37,786 thousand, driven by positive cash flows from all activities and Revolver borrowings Cash flow from operating activities Net cash from operations was $9,516 thousand, a significant improvement driven by decreases in receivables and inventory - Net cash provided by operating activities was $9,516 thousand in Q1 FY2021, compared to net cash used of $2,160 thousand in Q1 FY2020[178] - Key drivers for the increase in operating cash were a $27,955 thousand decrease in trade accounts receivable and a $3,924 thousand decrease in inventory[178] Cash flow from investing activities Net cash from investing was $5,429 thousand, primarily from $6,363 thousand in proceeds from the sale of a building in China - Net cash provided by investing activities was $5,429 thousand in Q1 FY2021, compared to net cash used of $2,420 thousand in Q1 FY2020[180] - The most significant source of cash was $6,363 thousand from the pending sale of a building in China[180] - Capital expenditures for Q1 FY2021 were $1,088 thousand[180] Cash flow from financing activities Net cash from financing was $21,719 thousand, driven by $25,000 thousand in borrowings from the Revolver - Net cash provided by financing activities was $21,719 thousand in Q1 FY2021, compared to net cash used of $10,942 thousand in Q1 FY2020[181] - The most significant source of cash was $25,000 thousand from borrowings on the Revolver[181] - Debt repayments totaled $1,112 thousand, and dividends paid were $1,427 thousand[181] Debt Facilities The company drew $25 million from its Revolver, maintains a Term Loan balance of $258,238 thousand, and is in covenant compliance - The company has a $100,000 thousand Revolving Facility (maturing 2022) and a $445,000 thousand Term Loan (maturing 2024)[185] - $25,000 thousand was drawn from the Revolver for liquidity during Q1 FY2021, and the company is in compliance with its Total Leverage Ratio covenant[186] - The Term Loan outstanding principal balance was $258,238 thousand as of June 30, 2020[187] Capital Expenditures Capital expenditures were $1,088 thousand in Q1 FY2021, with full-year spending expected to be approximately $15,000 thousand - Expected capital expenditure spending for fiscal 2021 is approximately $15,000 thousand, excluding acquisitions and strategic alliances[192] Capital Expenditures | Capital Expenditures (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change | | :---------------------------------- | :------------------------------- | :------------------------------- | :----- | | Consolidated Capital Expenditures | $1,088 | $1,854 | $(766) | Inflation and Other Market Conditions The company is affected by raw material inflation but has generally been able to pass on rising costs through price increases - The Company's costs are affected by inflation, especially in raw materials such as steel[193] - The Company has generally been successful in passing on rising costs through annual price increases to maintain margin neutrality[193][195] Goodwill Impairment Testing The company tests goodwill for impairment annually and does not believe any reporting units are currently at risk of impairment - Goodwill is tested for impairment at least annually at the reporting unit level (Duff Norton and Rest of Products)[196][197] - As of June 30, 2020, the Company does not believe any reporting units are at risk of failing the goodwill impairment test[198] Seasonality and Quarterly Results Quarterly results can be materially affected by various factors, making any single quarter not indicative of future performance - Quarterly results can be materially affected by factors including large customer orders, vacation/holiday concentrations, legal settlements, market security gains/losses, restructuring charges, and foreign currency translation[200] - Operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or the full fiscal year[200] Effects of New Accounting Pronouncements Information regarding new accounting pronouncements is detailed in Note 16 to the condensed consolidated financial statements - Details on new accounting pronouncements are provided in Note 16 of the financial statements[201] Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The report contains forward-looking statements subject to various risks and uncertainties, including economic and industry factors - The report includes forward-looking statements subject to known and unknown risks and uncertainties[202] - Risks include general economic conditions, industry factors, competitor responses, facility consolidations, asbestos-related liability, and acquisition integration[202] Item 3. Quantitative and Qualitative Disclosures About Market Risk The COVID-19 pandemic represents a material adverse market risk, disrupting operations, supply chains, and product demand - No material changes to market risks previously disclosed, except for the material and adverse impact of COVID-19[204] - COVID-19 causes disruption to domestic and international operations and sales activities, supply chains, and demand for products[204] - The continued spread of COVID-19 will adversely impact business, financial condition, operating results, and cash flows[204] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Disclosure controls and procedures were effective as of June 30, 2020, as concluded by management, including the CEO and CFO[205] - No material changes in internal control over financial reporting occurred during the most recent quarter[206] Part II. Other Information Item 1. Legal Proceedings – none. The company reported no legal proceedings for the period - No legal proceedings to report[208] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's 2020 Form 10-K - No material changes from the risk factors disclosed in the 2020 10-K[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – none. The company reported no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds[210] Item 3. Defaults upon Senior Securities – none. The company reported no defaults upon senior securities - No defaults upon senior securities[211] Item 4. Mine Safety Disclosures. Mine Safety Disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[212] Item 5. Other Information – none. The company reported no other information for the period - No other information to report[212] Item 6. Exhibits This section lists the exhibits filed with the report, including CEO/CFO certifications and iXBRL-formatted financial statements - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32)[214] - Financial statements (Balance Sheets, Statements of Operations, Comprehensive Income, Shareholders' Equity, Cash Flows) are provided in iXBRL format (Exhibit 101)[214]