Item 1A. Risk Factors
Columbus McKinnon is subject to a number of risks that could negatively affect our business, financial condition or results from business operations or cause our actual results to differ materially from those projected or indicated in any forward-looking statement. You should carefully consider the risks described below, as well as the other information contained elsewhere in this Form 10-K, in evaluating your investment in us. The risks and uncertainties described below are those that we have identified as material, but are not the only risks or uncertainties facing Columbus McKinnon. This list is not all-inclusive, and our business could also be materially adversely affected by additional risks that are not presently known to us or that we currently consider to be immaterial. As a result, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock.
Business Risks
Our business is affected by industrial economic and macroeconomic conditions.
Many of the end-users of our products are in industries affected by changes in industrial economic and macroeconomic conditions, such as manufacturing, power generation and distribution, commercial construction, oil and gas exploration and refining, transportation, agriculture, logging, and mining that are sensitive to changes in general macroeconomic conditions. Their demand for our products, and thus our results of operations, are directly related to the level of production in their facilities, which changes as a result of changes in general macroeconomic conditions, including, among others, movements in interest rates, tariffs and other trade regulations, inflation, changes in currency exchange rates, higher fuel and other energy costs, and other factors beyond our control, and is vulnerable to economic downturns. Decreased capital and maintenance spending by these customers has in the past, and could in the future, have a material adverse effect on the demand for our products and our business, financial condition, and results of operations. In particular, higher interest rates have in the past, and could in the future, result in decreased demand for our products from end-users, which would have a material adverse effect on our business and results of operations, and concurrently result in higher interest expense related to borrowings under our credit facilities. In addition, inflation can also result in higher interest rates and negatively impact our results of operation. During an inflationary period, the cost of capital will often increase, and the purchasing power of our end users’ cash resources will decline, which can negatively affect demand from our customers. Current or future efforts by the government to stimulate the economy may increase the risk of significant inflation, which could have a direct and indirect adverse impact on our business and results of operations. If there is deterioration in the general economy or in the industries we serve, our business, results of operations, and financial condition could be materially adversely affected. Furthermore, even if demand for our products improves, it is difficult to predict whether any improvement represents a long-term improving trend or the extent or timing of improvement. There can be no assurance that historically improving cycles are representative of actual future demand. In addition, general macro-economic conditions could at times also adversely affect our liquidity and ability to borrow under our Amended and Restated Revolving Credit Facility (as defined herein) and limits our ability to make accurate long-term predictions about the performance of the Company.
Our business, particularly with respect to our material handling and precision conveyance products, is highly competitive and subject to consolidation of competitors. Increased competition could reduce our sales, earnings, and profitability.
The principal markets that we serve within the material handling and precision conveyance industries are fragmented and highly competitive. Competition is based primarily on customer service and support as well as product availability, performance, functionality, brand reputation, reliability, and price. Our competition in the markets in which we participate comes from companies of various sizes, some of which have greater financial and other resources than we do. Increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could reduce our gross margins and net income.
The greater financial resources or the lower amount of debt of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that could put us at a disadvantage. In addition to the general competitive challenges we face, tariffs and other international trade policies could negatively affect the demand for our products and services and reduce our competitive position in such markets. In addition, through consolidation, some of our competitors have achieved substantially greater market penetration in certain of the markets in which we operate than we have been able to achieve. If we are unable to compete successfully against other manufacturers of material handling equipment and precision conveyors, we could customers and our revenues may . There can also be no assurance that customers will continue to regard our products , that we will be to develop new products or product developments that appeal to customers, that we will be to or maintain our profit margins on sales to our customers or that we will be to continue to compete in our core markets.
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Our growth strategy depends on successful integration of acquisitions, including upon closing of such transaction, the Kito Acquisition.
Acquisitions are a key part of our growth strategy. Our historical growth has depended, and our future growth is likely to depend, on our ability to successfully execute our acquisition strategy, and the successful integration of acquired businesses into our existing business, including, upon closing of such transaction, the Kito Acquisition. Such a strategy involves the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities, and potential profitability of acquisition candidates and in integrating the operations of acquired companies. Furthermore, the price we pay for any business acquired may overstate the value of that business or otherwise be too high. In addition, any acquisitions of businesses with foreign operations or sales may increase our exposure to risks inherent in doing business outside the U.S.
We intend to continue to seek additional acquisition opportunities in accordance with our acquisition strategy, both to expand into new markets and to enhance our position in existing markets throughout the world. If we are unable to successfully integrate acquired businesses into our existing business or expand into new markets, our sales and earnings growth could be reduced. Inherent in connection with any acquisition is the risk of transitioning company cultures and facilities and the corresponding risk of management and employee turnover. In addition, the focus on the integration of operations of acquired entities may divert management’s attention from the day-to-day operation of our businesses. The failure to efficiently and effectively achieve such transitions could increase our costs and decrease our profitability. Furthermore, the failure to achieve the anticipated synergies of our recent significant acquisitions or recognize the anticipated market or integration from our recent acquisitions, could have a material effect on our business, financial condition and results of operations.
Our future operating results may be affected by price fluctuations and trade tariffs on steel, aluminum, and other raw materials purchased to manufacture our products. We may not be able to pass on increases in raw material costs to our customers.
The primary raw materials used in our chain, forging and crane building operations are steel, aluminum, and other raw materials such as motors, electrical and electronic components, castings and machined parts and components. The industries that produce these critical components and materials are also themselves highly cyclical and at times pricing and availability can be volatile due to a number of factors beyond our control, including general macroeconomic conditions, inflation, labor costs, competition, import duties, quotas, tariffs, trade regulations and agreements, and currency exchange rates. This volatility can significantly affect our raw material costs.
The United States has maintained tariffs on certain imported steel, aluminum and items originating from China, which have increased the cost of raw materials we purchase. The imposition of tariffs by the United States has resulted in retaliatory tariffs from a number of countries, including China, which also increase the cost of raw materials we purchase. The new U.S. presidential administration has implemented or announced plans to implement, as the case may be, new or increased tariffs, particularly relating to imports from China, the European Union and other Asian countries, though it remains unclear exactly what actions will be taken or implemented. Any escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments or shifts in U.S. or international trade policies could adversely impact our supply chain, increase our costs for raw materials, including significantly, or reduce demand for our products. A trade war or other significant changes in trade regulations could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In an environment of increasing raw material prices and trade tariffs, duties and quotas, competitive conditions will determine how much of the price increases we can pass on to our customers. In the future, to the extent we are unable to pass on any steel, aluminum, or other raw material price increases to our customers, our profitability could be adversely affected, including materially.
Our results of operations could be materially adversely affected if we are unable to obtain sufficient pricing for our products and service to meet our profitability expectations.
If we are unable to obtain favorable pricing for our products and services in a timely manner, our revenues and profitability could be materially adversely affected. For example, current conditions in our supply chain have resulted in rapid increases in the prices for the raw materials we use. Furthermore, the prices we are able to charge for our products and services are affected by a number of other factors, including:
• general macroeconomic and political conditions;
• our customers' desires to reduce their costs;
• the competitive environment in our industry;
• our ability to accurately estimate our costs, including our ability to estimate the impact of inflation on our costs over long-term contracts; and
• the procurement practices of our customers.
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Our inability to pass increased prices along to our customers in a timely manner could have a material adverse effect on our business, financial condition or results of operations.
If critical components or raw materials used to manufacture our products become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products, which has damaged, and could continue to damage, our business, results of operations and financial condition.
Due to increased demand across a range of industries, the global supply chain for certain critical components and raw materials used in the manufacture of our products has experienced significant constraints in recent periods. Particularly, the markets for motors, computer chips, and other components are experiencing increased demand, creating substantial uncertainty regarding the availability of key components and raw materials used to manufacture our products. This constrained supply environment has materially adversely affected, and could further materially adversely affect, availability, lead times and cost of components and raw material, and has materially impacted, and could continue to materially impact, our ability to respond to accelerated or quick-turn delivery requests from customers, or meet customer demand and product delivery dates for our end customers where we cannot timely secure adequate supply of these components and raw materials. Moreover, if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials or components, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to redesign our products to accommodate components from different suppliers. We cannot predict if we will be to obtain replacement components within the timeframes that we require at an acceptable cost, if at all. In addition, we have experienced, and may continue to experience, significant in receiving shipments of key component and raw materials and in shipping our completed products to customers. We have incurred, and may continue to incur, additional shipping and delivery costs to seek to expedite the delivery of components and raw materials.
In an effort to mitigate these risks, in some cases, we have incurred higher costs to secure available inventory, or have extended or placed non-cancellable purchase commitments with suppliers, which introduces inventory risk if our forecasts and assumptions prove inaccurate. While we may attempt to recover the increased costs through price increases to our customers, we may be unable to mitigate the effect on our results of operations. We also have multi-sourced and pre-ordered components and raw materials inventory in some cases in an effort to reduce the impact of the adverse supply chain conditions we have experienced. Despite our attempts to mitigate the impact on our business, these constrained supply conditions are expected to adversely impact our costs of goods sold. Limits on manufacturing availability or capacity or delays in production or delivery of components or raw materials for our suppliers could further delay or inhibit our ability to obtain supply of components and raw materials and produce finished goods. These supply chain constraints and their related challenges could result in , increased material costs or use of cash, engineering design changes, and in new product introductions, each of which could impact our growth, gross margins and financial results. These types of financial impacts on our business may become more acute as supply chain pressures increase.
Our backlog is subject to modification, termination or reduction of orders, which could negatively impact our sales.
Our backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments received from customers that we have not recognized as sales. The dollar amount of backlog as of March 31, 2025 was $323 million. Our backlog can be significantly affected by the timing of orders for large projects, and the amount of our backlog at March 31, 2025 is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Although modifications and terminations of our orders may be partially offset by cancellation fees, customers can, and sometimes do, terminate or modify these orders. We cannot predict whether cancellations will accelerate or diminish in the future. Cancellations of purchase orders, indications that the customers will not perform under their existing purchase orders or contracts or reductions of product quantities in existing contracts could substantially and materially reduce our backlog and, consequently, our future sales. Our failure to replace canceled orders could negatively impact our sales and results of operations.
We rely in large part on independent distributors for sales of our products.
We depend on independent distributors to sell our products and provide service and aftermarket support to our end-user customers. Distributors play a significant role in determining which of our products are stocked at their locations, and hence are most readily accessible to aftermarket buyers, and the price at which these products are sold. Almost all of the distributors with whom we transact business offer competitive products and services to our end-user customers. For the most part, we do not have written agreements with our distributors. The loss of a substantial number of these distributors or an increase in the distributors' sales of our competitors' products to our ultimate customers could materially reduce our sales and profits.
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Our future success depends, in part, on our ability to continue to attract, develop, engage and retain qualified employees.
Because of the complex nature of many of our products and services, we are generally dependent on an educated and highly skilled workforce, including our engineering talent and our sales professionals. Failure to attract, develop, engage and retain qualified employees, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new employees, or inadequate resources to train, integrate and retain qualified employees, could impair our ability to execute our business strategy, and could adversely affect our business, financial condition, results of operations or cash flows. Low rates of unemployment in key geographic areas in which we operate may lead to high rates of turnover and loss of critical talent, which could lead to higher labor costs.
Our ability to understand our customers’ specific preferences and requirements, and to develop, manufacture and market products that meet customer demand as we expand into additional international markets, could significantly affect our business results.
Our ability to match new product offerings to diverse global customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough understanding of our existing and potential customers on a global basis. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on our business.
Financial Risks
In connection with the completion of the Precision Conveyance acquisitions, our indebtedness has increased significantly. Our indebtedness could limit our cash flow available for operations and our flexibility.
In connection with the montratec acquisition, the Company entered into an Amended and Restated Credit Agreement increasing the size of the Revolving Credit Facility by $75,000,000 to a total of $175,000,000. 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 in both fiscal years 2022 and 2024. The Company also borrowed an additional $25,000,000 under a new credit agreement secured by the Company's U.S. accounts receivable balances (the "AR Securitization Facility"). As of March 31, 2025, the outstanding principal balance of the Term Loan B facility was $437,560,000, which includes $75,000,000 in principal balance from the Accordion exercised in the first quarter of fiscal 2024 as described above. We had $175,000,000 available for borrowing under the Amended and Restated Revolving Credit Facility (before deducting approximately $15,417,000 of letters of credit outstanding as of March 31, 2025).
The degree to which we are leveraged could have important consequences to our shareholders, including the following:
• we may have greater difficulty satisfying our obligations with respect to our indebtedness;
• we must dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, reducing the funds available for our operations;
• our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other purposes may be impaired;
• we may be limited in our ability to make additional acquisitions or pay dividends on our common stock;
• our flexibility in planning for, or reacting to, changes in the markets in which we compete may be limited;
• we may be at a competitive disadvantage relative to our competitors with less indebtedness; our inability to comply with covenants in, and potential for default under, our debt instruments
• we may be rendered more vulnerable to general adverse economic and industry conditions;
• we may be unable to pay off in full or refinance any of our indebtedness at maturity;
• our credit ratings may be downgraded; and
• we are exposed to increased interest rate risk given that a portion of our indebtedness obligations are at variable interest rates.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. We may be unable to consummate those asset sales to raise capital or sell assets at prices that we believe are fair and proceeds that we do receive may be inadequate to meet any debt service obligations then due.
Furthermore, we may be able to incur substantial additional indebtedness in the future and, in connection with the completion of the Kito Acquisition, expect to incur substantial additional indebtedness. The terms of our current debt instruments do not fully prohibit us from doing so and the terms of any new debt instruments we enter into in the future, including in connection
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with the incurrence of indebtedness for the Kito Acquisition, may not fully prohibit us from doing so. Any additional indebtedness we incur could further exacerbate the risks that we face.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt, or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to holders of our common stock to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities or securities convertible into equity securities, existing shareholders will experience dilution and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings and their impact on the market price of our common stock.
Our operations outside the U.S. pose certain risks that may adversely impact sales and earnings.
We have operations and assets located outside of the U.S., primarily in Germany, the United Kingdom, Hungary, China, Malaysia and Mexico, including our new facility in Monterrey, Mexico. In addition, we import a portion of our hoist product line from Asia and sell our products to distributors located in approximately 50 countries. In our fiscal year ended March 31, 2025, approximately 44% of our net sales were derived from non-U.S. markets. These non-U.S. operations are subject to a number of special risks, in addition to the risks of our U.S. business, including but not limited to differing protections of intellectual property, trade barriers, labor unrest, geopolitical conflicts, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, U.S. and foreign customs, quotas and duties, and tariffs ( in particular, the new tariffs implemented and additional tariffs proposed to be implemented by the new U.S. presidential administration on goods imported into the U.S. from Mexico and other countries where we have manufacturing operations), political and economic instability in the jurisdictions in which we operate, foreign receivables collection risk, current and changing regulatory environments, in obtaining distribution support, in staffing and managing widespread operations, differences in the availability, and terms of financing, political and risks of increases in taxes. In particular, in connection with our Mexican manufacturing operations, as a result of the tariffs or other trade restrictions implemented or proposed to be implemented by the U.S. or other countries, the cost of our products manufactured in Mexico or other countries and imported into the U.S. or other countries have increased and could continue to increase further, which, in turn, has affected, and could continue to affect, the demand for these products, make our products less competitive and have an effect on our business, results of operations and margins. Any of these factors, individually or together, could have a material effect on our business, financial condition, results of operations and cash flows. Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. These factors may affect our future profits.
Part of our strategy is to expand our worldwide market share and reduce costs by strengthening our international distribution capabilities and sourcing components in lower cost countries, such as China, Mexico, Hungary and Malaysia, including through the use of our new facility in Monterey, Mexico. Implementation of this strategy may increase the impact of the risks described above, and we cannot assure you that such risks will not have a material adverse effect on our business, results of operations or financial condition.
Other risks of doing business in international markets include the increased risks and burdens of complying with different legal and regulatory standards, difficulties in managing and staffing foreign operations, recruiting and retaining talented direct sales personnel, limitations on the repatriation of funds and fluctuations of foreign exchange rates, varying levels of internet technology adoption and infrastructure and our ability to enforce contracts and our intellectual property rights in foreign jurisdictions. Additionally, there are risks associated with fundamental changes to international markets, such as those that may occur as a result of the Russian invasion of Ukraine.
In addition, in connection with Russia’s invasion of Ukraine, the U.S. has imposed, and is likely to impose material additional, financial and economic sanctions and export controls against Russia and certain Russian organizations and individuals, with similar actions either implemented or planned by the European Union and the U.K. and other jurisdictions. While the Company’s business operations relating to Russia constitute an immaterial part of the Company’s overall business, we may decide to, or be required to, exit from our operations in Russia in their entirety, which could result in a loss of revenues from our Russian operations (approximately $836,000 for the fiscal year ended March 31, 2025) or may necessitate the need to incur a bad debt reserve or an asset write-off related to our Russian operations. Furthermore, there is no guarantee that the current Russian invasion of Ukraine will not draw military intervention from other countries or further retaliation from Russia, which,
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in turn, could lead to a much larger conflict beyond its current geographic, political and economic scope. If such escalation should occur, supply chain, trade routes and markets currently served by the Company could be adversely affected and other risks discussed in this Form 10-K may be exacerbated. In addition, a further escalation could disrupt the supply of oil and natural gas in Europe, impacting our ability to operate our European manufacturing facilities, which, in turn, could materially adversely affect the Company’s business operations and financial performance.
In addition, our success in international expansion could be limited by barriers to international expansion such as adverse tax consequences and export controls. Changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and profitability. Certain provisions of the Inflation Reduction Act passed in 2022, including a 15% corporate alternative minimum tax, as well as the similar 15% global minimum tax under the Organization for Economic Cooperation and Development’s Pillar Two Global Anti-Base Erosion Rules, may impact our income tax expense, profitability, and capital allocation decisions and may negatively impact our effective tax rate. If we cannot manage these risks effectively, the costs of doing business in some international markets may be prohibitive or our costs may increase disproportionately to our revenue.
We are subject to currency fluctuations from our sales outside the U.S.
Our products are sold in many countries around the world. Thus, a portion of our revenues (approximately $425,478,000 in our fiscal year ended March 31, 2025) are generated in foreign currencies, including principally the Euro, the British Pound, the Canadian Dollar, the South African Rand, the Brazilian Real, the Mexican Peso, and the Chinese Yuan, and while much of the costs incurred to generate those revenues are incurred in the same currency, a portion is incurred in other currencies. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, a currency translation impact on our earnings. Currency fluctuations may impact our financial performance in the future.
We are subject to debt covenant restrictions.
Our Amended and Restated Revolving Credit Facility contains a financial leverage covenant, which will only be tested if any extensions of credit (other than letters of credit) are outstanding under the Amended and Restated Revolving Credit Facility at the end of any fiscal quarter, and other restrictive covenants. A significant decline in our operating income or cash generating ability could cause us to violate our leverage covenant in our bank credit facilities. Other material adverse changes in our business could also cause us to be in default of our debt covenants. Any breach of any such covenants or restrictions would result in a default under such agreement that could result in our being unable to borrow under our bank credit facilities and would permit the lenders to declare all borrowings under such agreement to be immediately due and payable and, through cross-default provisions, could entitle other lenders to accelerate their loans to us. In such an event, the Company would need to modify or all or a portion of its indebtedness. Depending on prevailing economic conditions at the time, the Company might find it to modify or the debt on terms, or at all.
A ratings downgrade or other negative action by a ratings organization could adversely affect the trading price of our common stock.
Credit rating agencies continually revise their ratings for companies they follow, and we have faced, and may continue to face, downgrades from credit rating agencies. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. In addition, developments in our business and operations, including with respect to sustainability matters, could lead to further ratings downgrades for us or our subsidiaries. Any fluctuation in the rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt, which could have a material adverse effect on our operations and financial condition and may adversely affect the trading price of shares of our common stock.
Risks related to the Kito Acquisition
The Kito Acquisition is contingent upon the satisfaction of a number of conditions, including regulatory approval, that may be outside either party’s control and that either party may be unable to satisfy or obtain that could cause the stock purchase agreement to be terminated in accordance with its terms.
The closing of our acquisition of Kito remains subject to the satisfaction or waiver of certain closing conditions, including the expiration or early termination of the waiting period applicable to the consummation of the Kito Acquisition under the HSR Act and the receipt of certain other regulatory approvals. These conditions to the completion of the Kito Acquisition, some of which are beyond our control and/or the control of Kito, may not be satisfied or waived in a timely manner or at all; accordingly, the Kito Acquisition may be delayed or not completed.
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As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations, obligations or costs or place restrictions on our conduct after the closing of the Kito Acquisition. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the Kito Acquisition or of imposing additional costs or limitations on us following the Kito Acquisition, any of which may have an adverse effect on us.
Additionally, either we or Kito may terminate the stock purchase agreement under certain circumstances specified therein, subject to the payment of a “termination fee” in certain cases.
The Kito Acquisition may present certain risks to our business and operations prior to the closing.
Our business and operations are subject to various risks related to the Kito Acquisition prior to closing, including:
• uncertainty about the effect of the Kito Acquisition on employees, customers, suppliers and other persons with whom we or Kito Crosby have a business relationship having an adverse effect on our business, operations and stock price;
• our operations may be restricted by the terms of the stock purchase agreement for the Kito Acquisition, which may cause us to forgo otherwise beneficial business opportunities;
• the proposed transaction may disrupt our current business plans and operations;
• our management’s attention may be directed toward the completion of the Kito Acquisition and diverted away from our day-to-day business operations;
• we may incur significantly higher transaction costs than we currently anticipate, such as legal, financing and accounting fees, and other costs, fees, expenses and charges related to the Kito Acquisition, whether or not the transaction is completed; and
• the Kito Acquisition may not be completed, which may have an adverse effect on our stock price and future business and financial results.
We may fail to successfully close the Kito Acquisition, and if we do successfully close the Kito Acquisition, we may fail to realize all of the anticipated benefits of the Kito Acquisition or those benefits may take longer to realize than expected.
We expect to devote significant management attention to closing the Kito Acquisition and, if it closes, integrating the business practices and operations of Kito with Columbus McKinnon. In the event the Kito Acquisition successfully closes, we may experience disruptions to our business and, if integrated ineffectively, such disruptions could restrict the realization of the full expected benefits of the Kito Acquisition. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Kito Acquisition could cause an interruption or loss of momentum in our operations.
If the Kito Acquisition successfully closes, difficulties in integrating Kito into our business may include rationalizing the operations, processes and systems of the acquired business, retaining and motivating key management and employees, and integrating existing business relationships with suppliers and customers. Even an integration of Kito is successful, the financial and operational results may differ materially from our assumptions and forecasts due to unforeseen expenses, delays, conditions and liabilities. In addition, we may incur unanticipated costs or expenses following an acquisition, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, and other liabilities.
Furthermore, the successful closing of the Kito Acquisition and the subsequent integration of Kito into our business may result in material unanticipated problems, expenses, charges, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s attention. Additional integration challenges may include difficulty in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition; difficulties in the integration of operations and systems, including pricing and marketing strategies; and difficulties in conforming standards, controls, procedures, financial reporting and accounting and other policies, business cultures and compensation structures. Many of these factors will be outside of our control and any one of them could result in increased costs, including restructuring charges, decreases in revenues and of management’s time and energy, which could affect our business, financial condition and results of operations.
Upon closing of the Kito Acquisition, the Kito business may underperform relative to our expectations.
Following completion of the Kito Acquisition, we may not be able to maintain the levels of revenue, earnings or operating efficiency that Kito and we have achieved or might achieve separately. The business and financial performance of Kito are subject to certain risks and uncertainties, including the risk of the loss of, or changes to, its relationships with its customers.
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Upon the closing of the Kito Acquisition, we may be unable to achieve the same growth, revenues and profitability that Kito has achieved in the past.
We will issue a substantial number of Preferred Shares (as defined below) and incur a substantial amount of indebtedness in connection with the financing of the Kito Acquisition.
We expect to finance a portion of the purchase price for the Kito Acquisition through the issuance of 800,000 Series A Cumulative Convertible Participating Preferred Shares, par value $1.00 per share (the “Preferred Shares”), in connection with the closing of the Kito Acquisition, to CD&R XII Keystone Holdings, L.P., a Cayman Islands exempted limited partnership (together with its affiliated funds, the “CD&R Investors”) pursuant to the terms of an investment agreement, dated February 10, 2025 (the “Investment Agreement”). Once issued, the Preferred Shares will have rights, preferences, and privileges that are not held by, and are preferential to, the rights of our common stock and will reduce the relative voting power of the holders of our common stock. Subject to certain restrictions on conversion and voting as described in greater detail in the Investment Agreement and the form of Certificate of Amendment to the Company’s Certificate of Incorporation for the Preferred Shares (the "Certificate of Amendment"), the aggregate number of shares of common stock of the Company into which the Preferred Shares may be converted will initially be equal to 21,231,440 common shares, based on the initial conversion price for the Preferred Shares of $37.68, and result in the CD&R Investors owning, on an as converted basis, approximately 43% of the Company’s outstanding common stock upon completion of the issuance. Under the terms of the Investment Agreement, the CD&R Investors will have the right to designate up to three directors on our Board of Directors, subject to specified ownership requirements. With such representation on our Board of Directors, the CD&R Investors will have influence over the appointment of Company management and any action requiring the vote of our Board of Directors. If the Preferred Shares are issued, circumstances may occur in which the interests of the CD&R Investors could with the interests of our other shareholders.
We also expect to finance a portion of the purchase price for the Kito Acquisition by incurring additional third-party indebtedness. We face risks associated with increases in overall indebtedness. We cannot guarantee that the combination of Kito and Columbus McKinnon will be able to generate sufficient cash flow to pay dividends at a rate of 7% per annum, compounded quarterly on our Preferred Shares (but subject to an increase to 10% per annum if certain events occur) and service and repay this indebtedness, or that we will be able to refinance such indebtedness on favorable terms, or at all. If we are unable to service our indebtedness and fund our operations, we may be forced to, among other things, reduce or delay capital expenditures, seek additional capital, sell assets, or refinance our indebtedness. Any such action may not be successful, and we may be unable to service such indebtedness. Any of the above risks could have a material adverse effect on our business, financial condition, results of operation, cash flows and/or stock price.
We expect to incur substantial expenses related to the Kito Acquisition and to the integration of Kito into our business, and the expenses may be greater than anticipated due to unexpected events.
We have incurred and expect to incur a number of significant non-recurring costs associated with the Kito Acquisition and, upon closing of the Kito Acquisition, the integration of Kito into our business. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs and other related costs. In addition, we expect to incur integration costs following the closing of the Kito Acquisition as we integrate Kito’s business with ours, including facilities and systems consolidation costs and employment-related costs. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits.
While we have assumed that a certain level of costs will be incurred, there are many factors beyond our control that could affect the total amount or the timing of these expenses. Moreover, many of the expenses that we will incur are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale. These expenses may result in us recording increased expenses as a result of the Kito Acquisition or the integration of Kito into our business, and the amount and timing of such charges are uncertain at the present and could exceed initial estimates.
Pursuant to the terms of the Investment Agreement, we are required to recommend that our shareholders approve certain matters and terms relating to the Preferred Shares. We cannot guarantee that our shareholders will approve these matters.
Under the terms of the Investment Agreement and the Certificate of Amendment, we have agreed to seek to obtain, at our first meeting of shareholders following the date of the Investment Agreement (the “First Meeting”), among other things, shareholder approval of (i) the issuance of the common shares underlying the Preferred Shares to be issued in connection with the Kito Acquisition in excess of 19.99% of the number of common shares outstanding prior to the transaction, in accordance with
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NASDAQ Listing Rule 5635, and (ii) an amendment to our Certificate of Incorporation to increase the number of authorized but unissued common shares to 100 million and permit certain preemptive rights (collectively, the “Requisite Shareholder Approval”). If the Requisite Shareholder Approval is not obtained at the First Meeting, subject to applicable law and the exercise of the fiduciary duties of our Board of Directors, we will continue to use our reasonable best efforts to obtain such approval at each subsequent meeting of shareholders, and if the Requisite Shareholder Approval is not obtained on or prior to July 31, 2026, we have agreed to hold a special meeting of our shareholders to be held between August 1, 2026 and December 31, 2026 to seek such approval, which would be time consuming and costly.
Legal Risks
Our products involve risks of personal injury and property damage, which exposes us to potential liability.
Our business exposes us to possible claims for personal injury or death, property damage or economic loss resulting from the products that we sell and to potential warranty, contractual or other claims. These product liability risks are inherent in the design, manufacture and sale of our products. Our products are complex and may contain defects, errors, or experience failures or unsatisfactory performance, due to any number of issues, including issues in materials, design, fabrication, packaging and/or use within a system or item of equipment. Further, because of the complexity of our products, defects or errors might only be detected when the products are in use. As a result, we could experience material product liability or warranty costs in the future and incur significant costs to defend ourselves associated . Development of new products increases complexity and adds risk to manufacturing reliability, and increases the likelihood of product or . In addition, in our products could result in to market acceptance, a shifting of business to our competitors, and or regulatory action us, and could our reputation or the reputation of the various brands under which we sell our products, our relationships with customers and our ability to attract new customers, as well as the perceptions of our brands. Other potential impacts of product include shipment , write-offs of property, plant and equipment and intangible assets, and on purchase commitments.
We maintain insurance through a combination of self-insurance retentions and excess insurance coverage. We monitor claims and potential claims of which we become aware and establish accrued liability reserves for the self-insurance amounts based on our liability estimates for such claims. We cannot give any assurance that existing or future claims will not exceed our estimates for self-insurance or the amount of our excess insurance coverage. In addition, we cannot give any assurance that insurance will continue to be available to us on economically reasonable terms or that our insurers would not require us to increase our self-insurance amounts. Claims brought against us that are not covered by insurance or that are in excess of insurance coverage could have a material adverse effect on our results, financial condition, or liquidity. In addition, warranty and certain other claims are not typically covered by insurance.
In addition, like many industrial manufacturers, we are also involved in asbestos-related litigation. In continually evaluating costs relating to our estimated asbestos-related liability, we review, 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, our recent and historical resolution of the cases, the number of cases pending against us, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on this review, we estimate our 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 range of the liability. We 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. We believe that the potential additional costs for 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. See Note 16 to our March 31, 2025 consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
As indicated above, our self-insurance coverage is provided through our captive insurance subsidiary. The reserves of our captive insurance subsidiary are subject to periodic adjustments based upon actuarial evaluations, which adjustments impact our overall results of operations and financial condition. These periodic adjustments can be favorable or unfavorable.
We are subject to various environmental laws, which may require us to expend significant capital, incur substantial cost and could lower our margins.
Our operations and facilities are subject to various federal, state, local, and foreign requirements relating to the protection of the environment, including those governing the discharges of pollutants in the air and water, the generation, management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. Increased public awareness and concern regarding climate change and other ESG matters at numerous levels of government in various jurisdictions may lead to additional international, national, regional and local legislative and regulatory responses, and compliance with any new rules could be difficult and costly. We have made, and will continue to make, expenditures to comply with such requirements.
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Violations of, or liabilities under, environmental laws and regulations, or changes in such laws and regulations (such as the imposition of more stringent standards for discharges into the environment), could result in substantial costs to us, including operating costs and capital expenditures, fines and civil and criminal sanctions, third party claims for property damage or personal injury, clean-up costs, or costs relating to the temporary or permanent discontinuance of operations. Certain of our facilities have been in operation for many years, and we have remediated contamination at some of our facilities. Over time, we and other predecessor operators of such facilities have generated, used, handled, and disposed of hazardous and other regulated wastes. Additional environmental liabilities could exist, including clean-up obligations at these locations or other sites at which materials from our operations were disposed, which could result in substantial future expenditures that cannot be currently quantified and which could reduce our profits or have a material effect on our financial condition, operations, or liquidity.
We may face claims of infringement on the intellectual property of others, or others may infringe upon our intellectual property.
Our future success depends in part on our ability to prevent others from infringing on our proprietary rights, as well as our ability to operate without infringing upon the proprietary rights of others. Our efforts to protect our intellectual property through patents, trademarks, service marks, domain names, copyrights, trade secrets and confidentiality agreements may not adequately protect us against infringements, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications, if any, may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents. This could reduce demand for our products, reduce our market share and materially decrease our revenues. We may need to spend significant resources monitoring and enforcing our intellectual property rights and we may not be aware of or able to detect or prove infringement by third parties. We may be required at times to take legal action to protect our proprietary rights and, our efforts, we may be for on the intellectual property rights of others. Intellectual property-related is and, even if we prevail, the cost of such could affect our financial condition. The protection and enforceability of our intellectual property rights is also subject to uncertainty in certain countries where we operate that have less rigorous intellectual property protection laws than the U.S. In addition, we could be affected financially should we be judged to have upon the intellectual property of others, and we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products.
We rely on subcontractors or suppliers to perform their contractual obligations.
Some of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by our subcontractor or customer concerns about the subcontractor. Failure by our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. A delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers' needs and may have a material adverse effect upon our profitability.
General Risks
The market price of our common stock has been, and may in the future continue to be, volatile.
The market price of our common stock has been volatile in the past and may become volatile again in the future. The closing prices of our common stock on Nasdaq during fiscal 2025 ranged from $15.95 to $45.78 per share. The market price of our common stock could fluctuate significantly for many reasons, including: fluctuations in our quarterly operating results; reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance; general stock market and industry conditions; general financial, economic and political instability; and in response to the risks described in this Item 1A, Risk Factors, and elsewhere in this Form 10-K. The volatility in the market price of our common stock may make it difficult for you to resell your shares of our common stock when desired or at attractive prices.
In addition, our quarterly operating results are likely to fluctuate in the future While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares.
Adverse changes in global economic conditions may negatively affect our industry, business, and results of operations.
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Our industry is affected by changes in economic conditions outside our control, which can result in a general decrease in product demand from our customers. Such economic developments, like inflationary pressures in the U.S. and elsewhere, the China trade wars, the war between Russia and Ukraine may affect our business in a number of ways. Reduced demand may drive us and our competitors to offer products at promotional prices, which would have a negative impact on our profitability. In addition, the tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations and could result in a decrease in, or cancellation of, orders for our products. If demand for our products slows down or decreases, we will not be able to maintain our revenue and we may run the risk of failing to satisfy the financial and other restrictive covenants to which we are subject under our existing indebtedness. Reduced revenue as a result of decreased demand may also reduce our planned growth and otherwise our ability to our performance in connection with our long-term business strategy.
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.
Climate change resulting from increased concentrations of greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires, droughts or flooding. Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may impact operational costs. The impacts of climate change on global water resources may result in water scarcity, which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs. Furthermore, the potential physical impacts of climate change on our customers, and therefore on our operations, are speculative and highly uncertain, and would be particular to the circumstances developing in various geographical regions.
Concern over climate change may result in new legal or regulatory requirements designed to reduce greenhouse gas emissions and mitigate the effects of climate change. For example, the European Union (“EU”) recently adopted the European Sustainability Reporting Standards and the Corporate Sustainability Reporting Directive (“CSRD”) that may require robust disclosure of certain social and environmental information and data. However, the European Commission has also proposed an “Omnibus simplification package” aimed at simplifying sustainability regulatory requirements, which may introduce changes to regulations such as the CSRD (among possible other EU sustainability-related regulations). It is currently unclear to what extent any such changes will be implemented, and the extent to which these changes could impact Columbus McKinnon. We are evaluating and will continue to evaluate the applicability of the CSRD as regulatory guidance is issued and as the European countries in which we operate adopt implementing legislation, and we will establish a compliance program to address any applicable requirements. Further, our customers and the markets we serve may impose emissions reduction or other environmental standards and requirements. These requirements could result in a need to change our manufacturing processes or product offerings, or undertake other activities which may require us to incur additional expense. In addition, we may experience increased compliance burdens and operational costs and raw material sourcing, manufacturing operations and the distribution of our products may be affected. Moreover, we may not be to timely meet these requirements due to the required level of capital investment or technological . While we have been committed to continuous to meet anticipated regulations and preferences, there can be no assurance that our commitments will be , that our products will be accepted by the market, that proposed regulations will not have a competitive impact or that economic returns will reflect our investments in new product development. There also continues to be a of consistent climate legislation, which creates economic and regulatory uncertainty. These factors may impact the demand for our products, of certain products and affect our results of operations. A , or perceived , to respond to investor or customer expectations related to ESG in areas such as climate change and supply chain management could materially affect our business and reputation.
Our business operations may be adversely affected by information technology systems interruptions or intrusion.
We depend on various information technology systems throughout the Company to administer, store, and support multiple business activities, including to process the data we collect, store and use in connection with our business. If these systems are damaged, cease to function properly, or are subject to cyber-security attacks, such as those involving unauthorized access, malicious software and/or other intrusions, and if our systems for protecting against such cybersecurity attacks prove insufficient, we could experience production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or use of our systems or networks, financial from remedial actions, of business or potential liability, , including individual , consumer class actions and commercial ; regulatory intervention and sanctions or ; and publicity and/or to our reputation. Our information technology systems may be or to function properly due to any number of causes, such as events, power and security (including malware such as ransomware) resulting in access or cyber-security attacks. As the breadth and complexity of our information technology systems continue to grow, including as a result of the increasing reliance on, and use of, mobile technologies and cloud-based services, the risk of security and cyber-security attacks has increased. While we attempt to mitigate these risks by employing a number of measures, including employee training, technical security controls, and maintenance of backup
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and protective systems, our systems, networks, products, and services remain potentially vulnerable to known or unknown cybersecurity threats, any of which could have a material adverse effect on our business, financial condition or results of operations. Furthermore, cybersecurity threats are constantly expanding and evolving and becoming increasingly sophisticated and complex, including attacks from highly organized adversaries such as nation state actors and attacks using emerging technologies, such as generative artificial intelligence, which create more targeted and sophisticated phishing narratives or otherwise strengthen social engineering capabilities. These new risks increase the costs associated with our cyber-security defense measures and procedures and increasing the difficulty of detecting and defending against them and maintaining effective security measures and protocols. Further, third-party providers we utilize may incorporate generative artificial intelligence or other emerging technologies into their operations, and these tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection, and it is possible that these providers may a cyber-security attack that impacts us.
We are also subject to a variety of laws and regulations in the U.S., Europe and around the world, as well as contractual obligations, regarding data privacy, security and protection. For example, in 2023, the SEC adopted new cybersecurity rules requiring disclosure of material cybersecurity incidents and processes assessing, identifying, and managing material cybersecurity risks and the corporate governance structure designed to address such risks. These laws and regulations continue to evolve, are increasing in complexity and number and increasingly conflict among the various countries in which we operate, which has resulted in greater compliance risk for us. In addition, the costs of compliance with, and other burdens imposed by, such data privacy laws and regulations, including those of the EU and the UK which are, in some respects, more stringent than U.S. standards, could be significant. Any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy policies, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which we or such third parties are or may become subject, may result in actions or other us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant , or other liabilities. In addition, any such action, particularly to the extent we were found to be of or otherwise liable for , could our reputation and affect our business, financial condition and results of operations. In addition, our liability insurance, which includes cyber insurance, might not be sufficient in type or amount to cover us related to security , cyber-security attacks and other related .
We operate in many different jurisdictions, and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws, and we incur meaningful costs complying with these laws. We operate in many parts of the world that have experienced corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from reckless or criminal acts committed by our employees or agents. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti- laws, including the FCPA, we may be required to or have outside counsel the relevant facts and circumstances. In addition, we are subject to and must comply with all applicable export controls and economic sanctions laws and imposed by the U.S. and certain other governments. Changes in export control or trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs and increase compliance costs, and of these laws or regulations may subject us to , and other sanctions, such as of authorizations needed to conduct aspects of our international business or from export privileges. of the FCPA or export controls or sanctions laws and regulations may result in or civil sanctions, and we may be subject to other liabilities, which could affect our business, financial condition, results of operations, and cash flows. Our continued expansion outside the U.S., including in developing countries, could increase these risks in the future.
We depend on our management team and the loss of any member could adversely affect our operations.
Our success is dependent on the management and leadership skills of our management team, including our senior team. The loss of any of these individuals or an inability to attract, retain, and maintain additional personnel could prevent us from implementing our business strategy. We cannot assure you that we will be able to retain our existing management personnel or to attract additional qualified personnel when needed.
