UNITED STATES 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 NOVEMBER 30, 1995 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: 13,418,965 as of December 31, 1995. The Index to Exhibits appears on Page 12. 1 APPLIED POWER INC. INDEX
Page No. --------- PART I - FINANCIAL INFORMATION Item 1 - Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Statement of Earnings - Three Months Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Balance Sheets - November 30, 1995 and August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statement of Cash Flows - Three Months Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APPLIED POWER INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended November 30, ------------------------------- 1995 1994 ------------- -------------- Net Sales $ 139,270 $ 125,799 Cost of Products Sold 85,189 77,627 ------------- -------------- Gross Profit 54,081 48,172 Engineering, Selling and Administrative Expenses 39,856 35,693 ------------- -------------- Operating Earnings 14,225 12,479 Other Expense (Income): Net interest expense 2,067 2,738 Amortization of intangible assets 720 1,161 Other - net 100 201 ------------- -------------- Earnings Before Income Tax Expense 11,338 8,379 Income Tax Expense 3,628 2,938 ------------- -------------- Net Earnings $ 7,710 $ 5,441 ============= ============== Earnings Per Share $ 0.55 $ 0.40 ============= ============== Weighted Average Shares Outstanding (In thousands) 13,993 13,622 ============= ==============
See accompanying Notes to Condensed Consolidated Financial Statements 3 APPLIED POWER INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOVEMBER 30, August 31, 1995 1995 ----------------- -------------- (UNAUDITED) ASSETS Current Assets Cash and cash equivalents $ 1,953 $ 911 Net accounts receivable 65,502 71,000 Net inventories 107,317 103,358 Prepaid taxes and expenses 14,649 15,195 ----------------- -------------- Total Current Assets 189,421 190,464 Other Assets 6,297 6,274 Goodwill 58,483 57,346 Other Intangibles 10,198 10,427 Net Property, Plant and Equipment 72,925 68,435 ----------------- -------------- Total Assets $ 337,324 $ 332,946 ================= ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 5,572 $ 12,620 Trade accounts payable 38,182 37,530 Accrued compensation and benefits 14,734 19,707 Income taxes payable 9,973 7,575 Current maturities of long-term debt - 187 Other current liabilities 20,262 19,828 ----------------- -------------- Total Current Liabilities 88,723 97,447 Long-Term Debt, less current maturities 80,803 74,156 Deferred Income Taxes 15,849 16,386 Other Deferred Liabilities 13,303 13,271 Shareholders' Equity Common stock, $0.20 par value, authorized 40,000,000 shares, issued and outstanding 13,417,015 and 13,406,590 shares, respectively 2,683 2,681 Additional paid-in capital 28,496 28,328 Retained earnings 101,592 94,285 Cumulative translation adjustments 5,875 6,392 ----------------- -------------- Total Shareholders' Equity 138,646 131,686 ----------------- -------------- Total Liabilities and Shareholders' Equity $ 337,324 $ 332,946 ================= ==============
See accompanying Notes to Condensed Consolidated Financial Statements 4 APPLIED POWER INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Three Months Ended November 30, ------------------------------------ 1995 1994 ----------------- ----------------- OPERATING ACTIVITIES Net Earnings $ 7,710 $ 5,441 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,067 4,651 Changes in operating assets and liabilities, excluding the effects of business acquisitions and disposals: Accounts receivable 627 (4,767) Inventories (2,641) 8 Prepaid expenses and other assets (754) 704 Trade accounts payable 251 (2,422) Other liabilities (5,602) 1,738 Income taxes payable 2,396 (955) ----------------- ----------------- Net Cash Provided by Operating Activities 7,054 4,398 INVESTING ACTIVITIES Proceeds on the sale of property, plant and equipment 98 29 Additions to property, plant and equipment (6,387) (2,637) Cash used for business acquisitions (3,855) (699) Other - 152 ----------------- ----------------- Net Cash Used In Investing Activities (10,144) (3,155) FINANCING ACTIVITIES Net borrowings (repayments) under credit agreements 5,831 (644) Net (repayments) borrowings on short-term credit facilities (7,003) 2,583 Net commercial paper repayments (308) (8,662) Additional receivables financed 5,791 5,000 Dividends paid on common stock (403) (396) Stock options exercised 170 1,160 Other (42) - ----------------- ----------------- Net Cash Provided By (Used In) Financing Activities 4,036 (959) Effect of Exchange Rate Changes on Cash 96 10 ----------------- ----------------- Net Increase in Cash and Cash Equivalents 1,042 294 Cash and Cash Equivalents - Beginning of Period 911 1,907 ----------------- ----------------- Cash and Cash Equivalents - End of Period $ 1,953 $ 2,201 ================= =================
See accompanying Notes to Condensed Consolidated Financial Statements 5 APPLIED POWER INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Applied Power Inc. (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 1995 Annual Report on Form 10-K. 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 months ended November 30, 1995 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 1996. NOTE B - ACQUISITIONS The Company's Enerpac division acquired the assets of Designed Fluid-Air Systems, Inc. ("DFAS") on October 26, 1995, for $298 in cash, plus future royalties over the next five years not to exceed $500 in the aggregate. Approximately $100 of the purchase price was assigned to Goodwill. DFAS, located in Oswego, Illinois, designs, fabricates and assembles customized quick die change systems utilizing hydraulic, pneumatic and electrical components. On September 29, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of Vision Plastics Manufacturing Company ("Vision") for $3,557 in cash. Included in the liabilities assumed was $1,357 of outstanding mortgage debt which was subsequently extinguished by the Company during the first quarter. Certain proprietary technology rights and patents related to the business are to be acquired in a separate transaction that is expected to close in January, 1996. Total consideration for the two transactions is approximately $21,500, and will be funded by proceeds from borrowings under existing credit facilities. Vision, based in San Diego, California, manufactures plastic cable ties which are sold through electrical wholesale, retail and OEM channels. The Company acquired all of the outstanding stock of New England Controls, Inc. ("NECON") on June 28, 1995 for approximately $2,059 in cash. Approximately $1,536 of the purchase price was assigned to Goodwill. NECON, based in Milford, Connecticut, manufactures electrical switches for the electrical wholesale, retail and OEM markets. All acquisitions were accounted for using the purchase method. NOTE C - SUBSEQUENT EVENTS On December 8, 1995, the Company acquired the remaining 10% minority interest in Applied Power Korea. Cash of $388 was used in the acquisition which generated goodwill of approximately $340. The Company's GB Electrical subsidiary sold its HIT spring steel product line in early December, 1995 for $2,500 in cash, which approximated its book value. 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS The Company reported record sales and earnings for the quarter ended November 30, 1995. Net earnings for the most recent quarter were $7,710, or $0.55 per share, compared to $5,441, or $0.40 per share, recorded in the comparable prior year period. Increased sales and greater leverage on fixed costs were the key factors in the improved results. Foreign currency translation had a negligible impact on results for the quarter ended November 30, 1995.
Three Months Ended November 30, ---------------------------------------------- SALES BY SEGMENT 1995 1994 Change ------------- -------------- ------------- Distributed Products $ 67,026 $ 62,740 7% Engineered Solutions 47,924 45,707 5% Wright Line 24,320 17,352 40% ------------- -------------- ------------- Total $ 139,270 $ 125,799 11% ============= ============== =============
All of the Company's businesses reported sales increases over the prior year for the three months ended November 30, 1995. Sales from Distributed Products, which consists of Enerpac and GB Electrical, grew 7%, benefiting from further expansion into developing markets and approximately $1,723 from businesses acquired subsequent to the first quarter of fiscal 1995. Engineered Solutions, consisting of Barry Controls, Power-Packer and APITECH, reported a first quarter sales gain of 5% over the comparable prior year period. The majority of the growth took place in Power-Packer which continued to experience strong demand from European OEM truck and automobile manufacturers. Wright Line's 40% year-to-year sales growth reflects continued success with the LMS product line as well as other new product introductions into the engineering and laboratory markets. In addition, Wright Line continued to grow through expansion of its direct sales force during the first quarter of fiscal 1995.
Three Months Ended November 30, ---------------------------------------------- GROSS PROFIT BY SEGMENT 1995 1994 Change ------------- ------------- ----------- Distributed Products $ 28,563 $ 26,439 8 % Engineered Solutions 13,826 13,200 5 % Wright Line 11,692 8,533 37 % ------------- ------------- ----------- Total $ 54,081 $ 48,172 12 % ============= ============= ===========
Total gross profit increased 12% from the first quarter of fiscal 1995, primarily due to increased sales volume and fixed manufacturing cost leverage. Overall, the Company's gross profit percentage increased to 38.8% from 38.3% for the three months ended November 30, 1995 and 1994, respectively. The improvement is primarily due to favorable product mix and the impact of higher production levels on fixed manufacturing costs.
Three Months Ended November 30, ---------------------------------------------- OPERATING EXPENSES 1995 1994 Change ------------- ------------ ----------- Engineering $ 4,462 $ 3,722 20 % Selling 25,709 21,319 21 % Administration 9,685 10,652 (9)% ------------- ------------ ----------- Total $ 39,856 $ 35,693 12 % ============= ============ ===========
7 First quarter operating expenses were 12% higher than that reported in the first quarter of 1995, reflecting the impact of geographic expansion into developing markets, acquisitions, increased product development programs, and higher sales levels. Engineering expenses increased 20%, reflecting higher new product development expenditures at a number of locations. The Company believes that its investment in technology in all businesses will continue to provide it with a competitive advantage and growth opportunities. The increase in selling and marketing expense was primarily sales volume driven, consisting of higher commissions and advertising. Wright Line has a direct sales force whose compensation is substantially commission-based. As a result of its 40% sales growth over the comparable prior year period, its selling and marketing expenses increased at a similar rate, from $5,164 to $7,461. In addition, acquisitions generated approximately $80 in selling and marketing expenses for the quarter ended November 30, 1995. Administration expenses totaled $9,685 for the quarter ended November 30, 1995, the lowest for any three month period in over a year, and included approximately $121 of additional administrative expenditures related to the new acquisitions. The reduction in expenses was primarily at the Barry Controls and Corporate locations. Interest expense for the three months ended November 30, 1995 declined substantially from the comparable prior year period as a result of the combination of lower borrowing rates and debt outstanding. During the first quarter of fiscal 1995, the majority of debt outstanding represented Senior Unsecured Notes bearing fixed 9.92% interest rates. The Company refinanced the Senior Unsecured Notes in March, 1995 with lower variable rate debt. Amortization expense for the quarter ended November 30, 1995 was lower than that reported in the comparable prior year period due to certain GB Electrical intangible assets becoming fully amortized during the second quarter of fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $1,953 at November 30, 1995 and $911 at August 31, 1995. In order to minimize interest expense, the Company intentionally maintains low cash balances by using available cash to reduce short-term bank borrowings. Cash generated from operations, after considering non-cash items and changes in operating assets and liabilities, totaled $7,054 and $4,398 for the three month periods ended November 30, 1995 and 1994, respectively. Increased sales volume resulted in higher operating earnings and higher primary working capital levels. Cash used in investing activities totaled $10,144 for the first quarter of fiscal 1996, $6,387 of which was used for capital expenditures and $3,855 for the acquisitions of DFAS and Vision. Higher capital expenditures relative to the prior year reflect the paint line and building additions at Wright Line and warehouse improvements at GB Electrical. Both of these projects are anticipated to be completed during the second quarter of fiscal 1996.
TOTAL CAPITALIZATION NOVEMBER 30, 1995 August 31, 1995 --------------------- ------------------- Shareholders' Equity $ 138,646 58% $ 131,686 56% Total Debt 86,375 36% 86,963 37% Deferred Taxes 15,849 6% 16,386 7% --------------------- ------------------- Total $ 240,870 100% $ 235,035 100% ===================== ===================
8 Outstanding debt at November 30, 1995 totaled $86,375, a reduction of $588 since the beginning of the year. The continued decrease was possible due to the strong operating cash inflows for the quarter and incremental accounts receivable financed. Debt as a percentage of total capitalization declined to 36% at the end of the quarter, its lowest point since 1989, compared to 37% at the beginning of the current fiscal year. Dividends of $403 were paid, while the exercise of stock options generated an additional $170 of cash. The Company entered into an interest rate swap agreement on a notional $15,000 in debt early in December, 1995. The swap converts the interest rate for a term of seven years from a floating rate to a fixed rate of approximately 6.18%. The Company expects to complete the acquisition of certain technology rights related to the Vision business during the second quarter of fiscal 1996. The remaining purchase price of approximately $18,000 will be generated from additional borrowings. The Company anticipates that the funds generated from operations and available under credit facilities will be adequate to meet operating, debt service and capital expenditure requirements for the foreseeable future. 9 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 November 30, 1995 or thereafter through the date of this report. 10 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: January 9, 1996 By: /s/Robert C. Arzbaecher Robert C. Arzbaecher Vice President and Chief Financial Officer (Principal Financial Officer and duly authorized to sign on behalf of the registrant) 11 APPLIED POWER INC. INDEX TO EXHIBITS FISCAL 1996 FIRST QUARTER 10-Q
Exhibit Number Description Page No. - ------- --------------------------------------- -------- 11 Computation of Earnings Per Share 13 27 Financial Data Schedule 14
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