SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-11288
APPLIED POWER INC.
(Exact name of Registrant as specified in its charter)
WISCONSIN 39-0168610
(State of incorporation) (I.R.S. Employer Id. No.)
13000 WEST SILVER SPRING DRIVE
BUTLER, WISCONSIN 53007
MAILING ADDRESS: P. O. BOX 325, MILWAUKEE, WISCONSIN 53201
(Address of principal executive offices) (Zip
Code)
(414) 781-6600
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Number of outstanding shares of Class A Common Stock: 13,121,591 as of
June 30, 1994.
The Exhibit Index appears on Page 12.
INDEX
APPLIED POWER INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Earnings -
Three and Nine Months Ended
May 31, 1994 and 1993 . . . . . . . . . 3
Condensed Consolidated Balance Sheet -
May 31, 1994 and August 31, 1993 . . . . 4
Condensed Consolidated Statement of Cash Flows -
Ninth Months Ended
May 31, 1994 and 1993 . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K . . . . 10
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . 11
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APPLIED POWER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In thousands except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1994 1993 1994 1993
-------------------------- -------------------------
Net sales . . . . . . . . . . . . . . . . . . $111,328 $102,453 $316,801 $299,640
Cost of products sold . . . . . . . . . . . . 68,796 62,914 198,004 186,022
--------- --------- --------- --------
Gross profit . . . . . . . . . . . . . . . 42,532 39,539 118,797 113,618
Operating Expenses:
Engineering . . . . . . . . . . . . . . . 3,726 2,744 9,992 8,202
Selling & administrative . . . . . . . . . 26,612 26,759 79,147 79,989
--------- --------- --------- --------
Total . . . . . . . . . . . . . . . . . 30,338 29,503 89,139 88,191
Operating profit . . . . . . . . . . . . . . 12,194 10,036 29,658 25,427
Other expense (income):
Interest expense . . . . . . . . . . . . . 2,959 2,948 8,478 9,591
Amortization of intangible assets . . . . . 1,235 1,232 3,770 3,666
Other, net . . . . . . . . . . . . . . . . 95 48 246 (886)
--------- --------- --------- --------
Earnings before income taxes . . . . . . . . 7,905 5,808 17,164 13,056
Income tax expense . . . . . . . . . . . . . 2,562 1,955 5,596 4,153
--------- --------- --------- --------
Net earnings from continuing operations before
cumulative effect of accounting change . . . 5,343 3,853 11,568 8,903
Cumulative effect of accounting change -
postretirement benefits . . . . . . . . . . . - - - (4,355)
--------- --------- -------- --------
Earnings from continuing operations . . . . . 5,343 3,853 11,568 4,548
Discontinued operations, net of taxes -
(Earnings) loss from operations previously
offset against reserve for estimated loss
on disposition . . . . . . . . . . . . . . - 30 (348) 833
--------- --------- --------- --------
Net earnings . . . . . . . . . . . . . . . . $ 5,343 $ 3,883 $11,220 $ 5,381
========= ========= ========= =======
Net earnings (loss) per share:
Continuing operations . . . . . . . . . . . $ 0.40 $ 0.29 $ 0.87 $ 0.68
Cumulative effect of accounting change . . - - - (0.33)
Discontinued operations . . . . . . . . . . - - (0.03) 0.06
--------- --------- --------- --------
Net earnings . . . . . . . . . . . . . . . . $ 0.40 $ 0.30 $ 0.85 $ 0.41
========= ========= ========= =========
Weighted average shares outstanding. . . . . 13,375 13,130 13,233 13,097
========= ========= ========= =========
Cash dividends paid per share . . . . . . . . $ 0.03 $ 0.03 $ 0.09 $ 0.09
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
APPLIED POWER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
May 31, August 31,
1994 1993
----------------------------------
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 2,865 $ 1,320
Net accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 58,887 49,463
Net inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,680 85,730
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,020 14,743
Net assets held for sale . . . . . . . . . . . . . . . . . . . . . . . - 12,035
-------- --------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,452 163,291
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,181 8,181
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . 67,134 61,988
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . 69,625 72,457
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $313,392 $305,917
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,250 $ 20,401
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 29,809 26,176
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . 14,233 12,551
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 6,649 6,500
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 23,505 25,454
Current maturities of long-term debt . . . . . . . . . . . . . . . . . 29,485 10,745
-------- ---------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . 118,931 101,827
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . 64,700 86,785
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,171 17,649
Other deferred liabilities . . . . . . . . . . . . . . . . . . . . . . . . 11,475 11,646
Shareholders' Equity
Class A common stock, $0.20 par value, authorized
40,000 shares, issued and outstanding 13,088
and 13,005 shares, respectively . . . . . . . . . . . . . . . . . . 2,617 2,601
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 22,685 21,654
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,869 60,823
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . 3,944 2,932
-------- --------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . 100,115 88,010
-------- --------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . $313,392 $305,917
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
APPLIED POWER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended May 31,
1994 1993
----------------------------
Operating Activities
Net earnings from continuing operations . . . . . . . . $11,568 $4,548
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 14,733 14,191
Non-cash charge - adoption SFAS 106 . . . . . . . . - 4,355
Changes in operating assets and liabilities, excluding
effect of business acquisitions:
Net receivables . . . . . . . . . . . . . . . . (8,846) (5,191)
Net inventories . . . . . . . . . . . . . . . . (7,085) (8,258)
Prepaid expenses . . . . . . . . . . . . . . . (270) (962)
Other assets . . . . . . . . . . . . . . . . . 1,800 111
Trade accounts payable . . . . . . . . . . . . 3,504 2,501
Income taxes payable . . . . . . . . . . . . . 68 1,130
Other liabilities . . . . . . . . . . . . . . . (947) (5,488)
--------- --------
Net Cash Provided by Operating Activities . . . . . . . . 14,525 6,937
Investing Activities
Proceeds on sale of property, plant and equipment . . . 449 1,441
Acquisition of Palmer Industries . . . . . . . . . . . (1,534) -
Acquisition of Applied Power Korea . . . . . . . . . . (912) -
Other investing activities . . . . . . . . . . . . . . 97 775
--------- --------
Net Cash Used in Investing Activities . . . . . . . . . . (10,968) (5,589)
Financing Activities
Net short-term borrowings (repayments) . . . . . . . . (4,976) 403
Net repayments of long-term debt . . . . . . . . . . . (8,801) (2,731)
Net borrowings of commercial paper . . . . . . . . . . 4,969 -
Capital stock transactions . . . . . . . . . . . . . . 1,047 200
Dividends paid on common stock . . . . . . . . . . . . (1,174) (1,168)
-------- --------
Net Cash Used in Financing Activities . . . . . . . . . . (8,935) (3,296)
Effect of Exchange Rate Changes on Cash . . . . . . . . . 38 (382)
-------- --------
Net Cash Used in Continuing Operations . . . . . . . . . (5,340) (2,330)
Discontinued Operation Activities
Proceeds from sale of Datafile . . . . . . . . . . . . 6,222 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . 663 (475)
-------- --------
Net Cash Provided by (Used In) Discontinued Operations . 6,885 (475)
-------- --------
Net Increase/(Decrease) in Cash and Cash Equivalents . . 1,545 (2,805)
Cash and Cash Equivalents at Beginning of Period . . . . 1,320 3,447
-------- ---------
Cash and Cash Equivalents at End of Period . . . . . . . $2,865 $ 642
======== =========
See accompanying Notes to Condensed Consolidated Financial Statements
APPLIED POWER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Applied Power Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and with the instructions of Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For additional
information, refer to the consolidated financial statements and footnotes
thereto in the Company's 1993 Annual Report.
Operating results for the three and nine months ended May 31, 1993 have
been restated to reflect the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", and SFAS No. 109, "Accounting for Income
Taxes", both effective September 1, 1992. The condensed consolidated
financial statements have also been adjusted to reflect the retention of
certain Wright Line operations, as described in Note B - Discontinued
Operations.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been made. Such adjustments consist of only those
of a recurring nature. Operating results for the three and nine months
ended May 31, 1994 are not necessarily indicative of the results that may
be expected for the fiscal year ending August 31, 1994.
NOTE B - DISCONTINUED OPERATIONS
During the third quarter of fiscal 1992, a formal plan was authorized to
offer for sale the Company's Wright Line business ("Wright Line").
On October 8, 1993, the Company completed the sale of Wright Line's
Datafile business for approximately $6,222 of cash, plus future
compensation. Proceeds from this transaction were used to reduce debt.
Also during the first quarter of fiscal 1994, an agreement was reached to
sell the real estate (the "Worcester Real Estate") at Wright Line's
headquarters and manufacturing operations in Worcester, Massachusetts.
During the second quarter of fiscal 1994, the Company announced its
decision to return the remainder of the Wright Line business to continuing
operations. The retained business, whose sales are primarily in North
America, has refocused its business strategy on technical furniture
solutions for the information technology environment. The introduction of
the new Local Area Network Management System in early 1993, and the
benefits of restructuring in 1993 have contributed to Wright Line's
improved operating performance. The retained Wright Line business' net
assets and results of operations for all periods have been reclassified
from discontinued operations to continuing operations in the accompanying
financial statements.
The contract to sell the Worcester Real Estate was terminated in the third
quarter, as it was determined that the sale would not be in the best
interest of the Company. The Company intends to retain the Worcester Real
Estate, and accordingly, has reclassified it from Net assets held for sale
to Net property, plant and equipment.
The following represents the impact of the retained Wright Line operations
on reported results:
Three Months Ended Nine Months Ended
May 31, May 31,
1994 1993 1994 1993
----------------------- -------------------------
Sales
Sales from continuing operations excluding
Wright Line . . . . . . . . . . . . . . . . . $99,776 $92,577 $281,339 $270,705
Sales from retained Wright Line operations . 11,552 9,876 35,462 28,935
--------- --------- --------- -------
Adjusted sales from continuing operations. . $111,328 $102,453 $316,801 $299,640
========= ========= ========= ===========
Three Months Ended Nine Months Ended
May 31, May 31,
Earnings 1994 1993 1994 1993
---------------------------- ------------------------
Net income from continuing operations before
cumulative effect of accounting change,
excluding Wright Line. . . . . . . . . . . . $4,592 $3,883 $10,044 $9,736
Net income (loss) from retained Wright Line
operations . . . . . . . . . . . . . . . . . 751 (30) 1,524 (833)
------- ------- -------- -------
Adjusted net income from continuing
operations before cumulative effect of
accounting change. . . . . . . . . . . . . . $5,343 $3,853 $11,568 $8,903
======= ======= ======== ========
Earnings Per Share
Earnings per share from continuing operations
before cumulative effect of accounting
change, excluding Wright Line. . . . . . . . $ 0.34 $ 0.30 $ 0.76 $ 0.74
Earnings per share from retained Wright Line
operations. . . . . . . . . . . . . . . . . . 0.06 (0.00) 0.12 (0.06)
-------- -------- -------- ------
Adjusted earnings per share from continuing
operations before cumulative effect of
accounting change . . . . . . . . . . . . . $ 0.40 $ 0.29 $ 0.87 $ 0.68
======== ======== ======== =======
NOTE C - ACQUISITIONS
Effective October 1, 1993, the Company completed the acquisition of
certain assets of Palmer Industries, Inc. ("Palmer") for approximately
$1,534 in cash and a $350 note. Approximately $490 of the purchase price
was assigned to goodwill. Palmer, based in Alexandria, Minnesota, is a
leading manufacturer of plastic and metal staples, fasteners and straps.
The operating results of Palmer subsequent to October 1, 1993 are included
in the Condensed Consolidated Statement of Earnings.
On March 21, 1994, the Company increased its ownership interest in Applied
Power Korea to 90%. Cash of $912 was used in the acquisition which
generated goodwill of $572. The results of operations of this subsidiary
have historically been included in the accompanying condensed consolidated
financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
Net earnings from continuing operations before accounting change for the
third quarter of 1994 were $5,343, or $.40 per share, compared to $3,853,
or $.29 per share in the comparable prior year period. For the first nine
months of 1994, net earnings from continuing operations before accounting
change were $11,568, or $.87 per share, compared to $8,903, or $.68 per
share, for the comparable period last year. The benefits of prior
restructuring at Barry Controls, Wright Line and Power-Packer, coupled
with significant sales gains at APITECH, Wright Line, Power-Packer and GB
were primary reasons for the improved results.
Third quarter sales of $111,328 were 8.7% higher than that recorded in the
comparable prior year period. All units posted year-over-year third
quarter sales gains. Sales for the first nine months of 1994 were
$316,801, up 5.7% over last year.
The Company's gross profit margins for the three and nine month periods
ended May 31, 1994 were slightly lower than comparable prior year periods
due to a shift in product mix.
Consistent with its emphasis on technological advancement, the Company has
increased engineering expenditures on development projects and prototypes.
As a result, engineering expense has increased 22% from the first nine
months of last year. The reduction in selling and administrative expenses
resulted from cost containment programs and the benefits of restructuring
initiatives.
Interest expense for the nine months ended May 31, 1994 declined from the
comparable prior year period due to reductions in outstanding indebtedness
and lower market interest rates.
Other - net operating expenses incurred during the first nine months of
fiscal 1993 included certain non-recurring gains.
A $4,355 net charge was recorded in the quarter ended November 30, 1992 to
reflect the Company's adoption of SFAS No. 106 - "Employers' Accounting
for Postretirement Benefits Other Than Pensions".
In the second quarter of fiscal 1994, the Company announced its decision
to return the non-divested portion of the Wright Line business to
continuing operations. Included under the caption "Discontinued
Operations, net of tax" in the Condensed Consolidated Statement of
Earnings is (income)/loss generated by the retained Wright Line operations
which had previously been charged against the discontinued operations
reserve. Refer to Note B - Discontinued Operations in the Notes to
Condensed Consolidated Financial Statements for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totalled $2,865 at May 31, 1994 and $1,320 at
August 31, 1993. In order to minimize interest expense, the Company
intentionally maintains low cash balances and uses available cash to
reduce short-term bank borrowings. Funds available under unused credit
lines totalled $84,565 as of May 31, 1994.
Cash generated from operations, after considering non-cash items and
changes in operating assets and liabilities, totalled $14,525 for the nine
month period ended May 31, 1994. Earnings from continuing operations of
$11,568, coupled with non-cash charges of $14,733, generated $26,301 of
cash during the first nine months of 1994. Increased sales volume and
seasonal demands resulted in higher receivable and inventory levels which
used $8,846 and $7,085 of cash, respectively.
Cash used in investing activities totalled $10,968 for the first nine
months of 1994, of which $9,068 was used for capital expenditures. Cash
of $1,534 and $912 was used for the acquisitions of Palmer Industries and
Applied Power Korea, respectively.
The Company reduced debt from $117,931 at August 31, 1993 to $109,435 at
May 31, 1994, its lowest level since 1989. Dividends of $1,174 were paid
during the first nine months of 1994.
The Company's two revolving credit agreements expire in the first quarter
of fiscal 1995. Accordingly, all outstanding indebtedness under such
agreements, totalling approximately $18,560, has been included in "Current
maturities of long-term debt" in the Condensed Consolidated Balance Sheet.
The Company anticipates entering into a new facility prior to the
expiration of the agreements.
The Company's first installment payment on its Senior Unsecured Notes is
due August 15, 1994. This $10,650 cash requirement will be funded by
operating cash flow and funds available under other credit facilities.
The Company generated $6,885 of cash from discontinued operations in the
current year, of which $6,222 was received in conjunction with the sale of
Datafile.
In the fourth quarter of fiscal 1993, the Company recorded a $6,700 ($.33
per share) pre-tax charge, primarily related to consolidating certain
manufacturing, distribution and administrative functions at its European
operations as well as idle facility costs at Barry Controls.
Approximately $3,194 of such costs had been incurred as of May 31, 1994.
The majority of the remaining $3,506 will be incurred during the next six
months on severance and consolidation expenditures.
The Company anticipates that funds generated from operations and available
under credit facilities will be adequate to meet anticipated operating,
restructuring, debt service and capital expenditure requirements for the
foreseeable future.
ACCOUNTING PRONOUNCEMENTS
In December 1992, the Financial Accounting Standards Board issued
Statement No. 112, "Employers' Accounting for Postemployment Benefits",
which requires accrual of postemployment benefits during the years an
employee provides services. Management has determined that the adoption
of this pronouncement will not have a material impact on the Company's
financial position and results of operations.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits on page 12, which is incorporated herein by
reference.
(b) There were no reports on Form 8-K filed during the three months
ended May 31, 1994 or thereafter through the date of this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED POWER INC.
(Registrant)
Date: July 15, 1994 By: /s/ David L. Harbert
------------------------
David L. Harbert
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
------------------------------------------------------
11 Computation of Earnings Per Share 13