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 MAY 31, 1996
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
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(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: 13,582,874 as of June 30,
1996.
The Index to Exhibits appears on Page 14.
1
APPLIED POWER INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Earnings -
Three and Nine Months Ended
May 31, 1996 and May 31, 1995 ........................... 3
Condensed Consolidated Balance Sheet -
May 31, 1996 and August 31, 1995 ........................ 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended May 31, 1996 and May 31, 1995 ......... 5
Notes to Condensed Consolidated Financial Statements ..... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................ 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ............................. 12
SIGNATURE ............................................................. 13
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------- ----------------------------
MAY 31, May 31, MAY 31, May 31,
1996 1995 1996 1995
--------- ----------- ----------- -----------
Net Sales $ 147,569 $ 139,353 $ 423,919 $ 389,653
Cost of Products Sold 92,124 85,717 262,727 240,553
--------- ---------- ---------- ----------
Gross Profit 55,445 53,636 161,192 149,100
Engineering, Selling and Administrative Expenses 38,871 39,378 116,529 110,199
--------- ---------- ---------- ----------
Operating Earnings 16,574 14,258 44,663 38,901
Other Expense(Income):
Net interest expense 1,977 2,508 6,091 8,162
Amortization of intangible assets 1,096 611 2,804 2,656
Other - net 37 236 (284) 1,650
--------- ---------- ---------- ----------
Earnings Before Income Tax Expense 13,464 10,903 36,052 26,433
Income Tax Expense 4,319 3,598 11,547 9,049
--------- ---------- ---------- ----------
Earnings Before Extraordinary Item 9,145 7,305 24,505 17,384
Extraordinary Loss from Early Extinguishment
of Debt, net of income taxes of $2,423 - - - (4,920)
--------- ---------- ---------- ----------
Net Earnings $ 9,145 $ 7,305 $ 24,505 $ 12,464
========= ========== ========== ==========
Primary Earnings(Loss) Per Share:
Earnings Before Extraordinary Item $ .65 $ .53 $ 1.75 $ 1.27
Extraordinary Loss - - - (0.36)
--------- ---------- ---------- ----------
Earnings Per Share $ .65 $ .53 $ 1.75 $ 0.91
========= ========== ========== ==========
Weighted Average Common and Equivalent Shares 13,994 13,764 13,968 13,685
========= ========== ========== ==========
Fully Diluted Earnings(Loss) Per Share:
Earnings Before Extraordinary Item $ .65 $ .53 $ 1.75 $ 1.27
Extraordinary Loss - - - (0.36)
--------- ---------- ---------- ----------
Earnings Per Share $ .65 $ .53 $ 1.75 $ 0.91
========= ========== ========== ==========
Weighted Average Common and Equivalent Shares 13,994 13,768 13,968 13,736
========= ========== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
3
APPLIED POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
MAY 31, August 31,
1996 1995
----------- ----------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 4,118 $ 911
Net accounts receivable 71,403 71,000
Net inventories 116,028 103,358
Prepaid taxes and expenses 15,556 15,195
-------- --------
Total Current Assets 207,105 190,464
Other Assets 6,264 6,274
Goodwill 59,001 57,346
Other Intangibles 31,349 10,427
Net Property, Plant and Equipment 75,164 68,435
-------- --------
Total Assets $378,883 $332,946
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 17,987 $ 12,620
Trade accounts payable 40,060 37,530
Accrued compensation and benefits 16,993 19,707
Income taxes payable 9,522 7,575
Current maturities of long-term debt - 187
Other current liabilities 24,695 19,828
-------- --------
Total Current Liabilities 109,257 97,447
Long-Term Debt, less current maturities 84,188 74,156
Deferred Income Taxes 14,496 16,386
Other Deferred Liabilities 13,462 13,271
Shareholders' Equity
Common stock, $0.20 par value per share, authorized 40,000,000
shares, issued and outstanding 13,573,874 and 13,406,590 shares,
respectively 2,714 2,681
Additional paid-in capital 32,828 28,328
Retained earnings 117,578 94,285
Cumulative translation adjustments 4,360 6,392
-------- --------
Total Shareholders' Equity 157,480 131,686
-------- --------
Total Liabilities and Shareholders' Equity $378,883 $332,946
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
4
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
MAY 31, May 31,
1996 1995
-------- --------
Operating Activities
- - --------------------
Net Earnings $ 24,505 $ 12,464
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Non-cash charge - Extraordinary loss on debt extinguishment - 4,920
Depreciation and amortization 15,785 13,749
Provision for deferred taxes (1,847) (1,663)
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and disposals:
Accounts receivable (4,598) (8,913)
Inventories (8,477) (6,525)
Prepaid expenses and other assets (173) 160
Trade accounts payable 1,043 1,011
Other liabilities (726) 3,806
Income taxes payable 1,782 (3,888)
-------- --------
Net Cash Provided By Operating Activities 27,294 15,121
Investing Activities
- - --------------------
Proceeds on the sale of property, plant and equipment 758 595
Additions to property, plant and equipment (17,628) (10,618)
Cash used for business acquisitions (35,848) (699)
Proceeds from sale of product lines 5,181 -
Other 3 151
-------- --------
Net Cash Used In Investing Activities (47,534) (10,571)
Financing Activities
- - --------------------
Extinguishment of private placement debt - (64,350)
Make-whole provision - extinguishment - (3,960)
Net borrowings under long-term credit agreements 13,119 58,356
Net borrowings on short-term credit facilities 5,600 5,733
Net commercial paper repayments (3,276) (5,691)
Additional receivables financed 9,033 5,000
Dividends paid on common stock (1,212) (1,194)
Stock options exercised 603 2,670
Other (48) -
-------- --------
Net Cash Provided By (Used In) Financing Activities 23,819 (3,436)
Effect of Exchange Rate Changes on Cash (372) 222
-------- --------
Net Increase in Cash and Cash Equivalents 3,207 1,336
Cash and Cash Equivalents - Beginning of Period 911 1,907
-------- --------
Cash and Cash Equivalents - End of Period $ 4,118 $ 3,243
======== ========
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, other than the extraordinary charge discussed in Note D -
"Extraordinary Charge" and the foreign exchange loss discussed in Note E -
"Foreign Currency Exchange Loss." Operating results for the three and nine
months ended May 31, 1996 are not necessarily indicative of the results that
may be expected for the fiscal year ending August 31, 1996.
NOTE B - ACQUISITIONS
On May 15, 1996, CalTerm, Inc. was merged with a wholly-owned subsidiary of the
Company. Consideration included 122,810 shares of Applied Power Inc. Class A
Common Stock (valued at approximately $3,930) and approximately $1,038 in cash.
In addition, the Company assumed approximately $6,000 of outstanding debt which
was extinguished by the Company shortly after the merger. In conjunction with
the acquisition, a warehouse operated by CalTerm in Reno, Nevada was purchased
for approximately $2,300 and there were payments of $1,000 for non-compete
agreements. Three individuals received employment agreements and related stock
options. Cash payments required were funded through borrowings under existing
credit facilities. Goodwill of $2,151 was recorded as a result of this
transaction. Headquartered in San Diego, California, CalTerm is a supplier of
electrical consumables and tools primarily to the retail automotive
aftermarket. The results of operations of CalTerm subsequent to the acquisition
date are included in the Condensed Consolidated Statement of Earnings.
On February 23, 1996, the Company's Wright Line division acquired the European
distribution rights for its products for cash of $1,250 plus forgiveness of
accounts receivable outstanding of $723 from its European distributor. Goodwill
of approximately $1,900 was generated in conjunction with the transaction.
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 results of operations of this
subsidiary have historically been included in the Condensed Consolidated
Statement of Earnings.
On October 26, 1995, the Company's Enerpac division acquired the assets of
Designed Fluid-Air Systems, Inc. ("DFAS"). Consideration included $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. The operating results of DFAS subsequent to the acquisition date
are included in the Condensed Consolidated Statement of Earnings
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. On January 10, 1996, in a separate
transaction, the Company acquired certain proprietary technology rights and
patents related to Vision. Total consideration for the two transactions of
approximately $21,500 was funded by proceeds from borrowings under existing
credit facilities. Intangible assets of $19,942 were recorded which included
approximately $950 of Goodwill. Vision, based in San Diego, California,
manufactures plastic cable ties which are sold through electrical wholesale,
retail and OEM channels. The operating results of Vision subsequent to
September 29, 1995 are included in the Condensed Consolidated Statement of
Earnings.
6
On June 28, 1995, the Company acquired all of the outstanding stock of New
England Controls, Inc. ("NECON") 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. The operating results of NECON
subsequent to the acquisition date are included in the Condensed Consolidated
Statement of Earnings.
All acquisitions were accounted for using the purchase method.
NOTE C - SALES OF PRODUCT LINES
On January 24, 1996, the Company sold substantially all of the assets and
liabilities of its APITECH mobile equipment product line. Total consideration
from the transaction, which included future collection of retained accounts
receivable, is approximately $5,200, which approximated the book value of the
product line.
On December 13, 1995, the Company's GB Electrical subsidiary sold its HIT
spring steel product line for approximately $2,400 in cash. Proceeds from the
sale approximated the book value of the product line.
NOTE D - EXTRAORDINARY CHARGE
During the second quarter of fiscal 1995, the Company recorded an extraordinary
loss of $4,920 ($0.36 per share) in anticipation of the March 30, 1995
extinguishment of $64,350 of 9.92% Senior Unsecured Notes. The pre-tax
extraordinary loss of $7,343 is comprised of a make whole provision of $4,050,
costs associated with the cancellation of underlying interest rate swap
agreements of $3,047 and the write-off of deferred finance costs of $246.
The funds used to retire the debt and pay the make whole obligation were
obtained from new borrowings under an existing $40,000 multi-currency revolving
credit agreement and a temporary $40,000 expansion to the existing
multi-currency revolving credit agreement. These borrowings were extinguished
on August 21, 1995, and all amounts outstanding were simultaneously reborrowed
under a new $120,000 multi-currency revolving credit agreement. In conjunction
with the refinancing, the Company entered into interest rate caps on a notional
$60,000 in borrowings that limit the maximum applicable base rate (three month
LIBOR) to 8.0%. Currently the Company incurs interest at .3% - .45% above three
month LIBOR. The interest rate caps expire in March, 1997.
NOTE E - FOREIGN CURRENCY EXCHANGE LOSS
Earnings from continuing operations for the nine months ended May 31, 1995
include a $1,331 foreign currency exchange loss ($0.06 per share, after tax)
for the devaluation of the Mexican peso. Applied Power S.A. de C.V., the
Company's Mexican subsidiary, had certain U.S. Dollar denominated liabilities
which were impacted by the devaluation. During the second quarter of fiscal
1995, the Company restructured various financial obligations of its Mexican
subsidiary to reduce the earnings impact of any potential further devaluation
of the peso.
7
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 per share for the quarter ended
May 31, 1996, despite being negatively impacted approximately 3% by the
strengthening U.S. Dollar. Net earnings for the quarter were $9,145, or $0.65
per share, compared to $7,305, or $0.53 per share, for the third quarter of the
prior year. For the first nine months of fiscal 1996, earnings before
extraordinary charges were $24,505, or $1.75 per share, a 38% improvement over
comparable prior year earnings of $17,384, or $1.27 per share. A combination of
increased sales and lower financing costs contributed to the improved results.
Foreign currency translation had a negligible impact on results for the nine
month period ended May 31, 1996. Operating results for the nine month period
ended May 31, 1995 include a $1,331, or $0.06 per share, foreign exchange loss
related to the devaluation of the Mexican peso (discussed below).
- - ------------------------------------------------------------------------------------------------------------
SALES BY SEGMENT
- - ------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
- - ------------------------------------------------------------------------------------------------------------
MAY 31, May 31, MAY 31, May 31,
1996 1995 Change 1996 1995 Change
- - ------------------------------------------------------------------------------------------------------------
Distributed Products $ 71,120 $ 69,257 3% $207,790 $194,109 7%
Engineered Solutions 54,223 52,555 3% 148,511 144,832 3%
Wright Line 22,226 17,541 27% 67,618 50,712 33%
- - ------------------------------------------------------------------------------------------------------------
Total $147,569 $139,353 6% $423,919 $389,653 9%
============================================================================================================
All three business segments posted year-over-year third quarter sales gains. In
addition, sales for the first nine months of fiscal 1996 increased 9% over the
comparable prior year period, again showing increases at all business segments.
Sales from Distributed Products grew by 3% and 7% for the three and nine month
periods ended May 31, 1996, respectively. The third quarter figures include the
effect of the strengthening U.S. Dollar, which negatively impacted current
period sales by approximately 3%. Of the $13,681 year-to-date increase in
Distributed Products sales, approximately $7,600 was the net result of
acquisitions and dispositions subsequent to the third quarter of fiscal 1995.
The remaining incremental sales dollars were primarily brought about by the
strengthening of several European economies through the second quarter of
fiscal 1996 and continued geographic expansion into developing markets.
Engineered Solutions generated 3% sales increases for both the three and nine
months ended May 31, 1996 over the prior year comparable periods. Excluding the
foreign currency effect, a 6% growth in Engineered Solutions sales was noted
for the third quarter. The sale of its APITECH mobile equipment product line in
January, 1996 resulted in $3,000 in reduced sales in year-to-date totals
compared to the corresponding prior year nine month period. The introduction of
new vibration isolation technology as well as increased sales in commercial
aerospace components more than offset the sales loss of the mobile equipment
product line and combined to produce the overall increase.
The year-to-year sales growth of 33% experienced by Wright Line is attributable
to the continued strong demand for its existing and new technical environment
solutions, its expanded direct sales force throughout 1996 and geographic
expansion throughout the U.S. and into Europe and Asia.
8
- - ---------------------------------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT
- - ---------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
- - ---------------------------------------------------------------------------------------------------------
MAY 31, May 31, MAY 31, May 31,
1996 1995 Change 1996 1995 Change
- - ---------------------------------------------------------------------------------------------------------
Distributed Products $27,782 $29,790 (7)% $ 84,486 $ 82,516 2%
Engineered Solutions 16,973 15,221 12 % 44,671 41,505 8%
Wright Line 10,690 8,625 24 % 32,035 25,079 28%
- - ---------------------------------------------------------------------------------------------------------
Total $55,445 $53,636 3 % $161,192 $149,100 8%
=========================================================================================================
The Company's third quarter and year-to-date gross profit increased 3% and 8%,
respectively, over the comparable prior year periods, which was primarily
attributable to the increased sales volume. The Company's overall nine month
gross profit percentage remained relatively constant at approximately 38%.
As with sales, Distributed Products gross profit was negatively impacted by the
currency fluctuations discussed previously. In addition, certain warehousing
costs were reclassified in fiscal 1996 from selling expenses to gross profit,
thereby reducing margins in comparison to the prior year with no net effect on
overall profitability.
The increases noted in gross profit at Engineered Solutions and Wright Line
were primarily due to the sales increases generated within these segments.
- - ---------------------------------------------------------------------------------------------------
OPERATING EXPENSES
- - ---------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
- - ---------------------------------------------------------------------------------------------------
MAY 31, May 31, MAY 31, May 31,
1996 1995 Change 1996 1995 Change
- - ---------------------------------------------------------------------------------------------------
Engineering $ 4,540 $ 4,223 8 % $ 13,530 $ 11,828 14 %
Selling 24,930 23,054 8 % 74,943 65,050 15 %
Administration 9,401 12,101 (22)% 28,056 33,321 (16)%
- - ---------------------------------------------------------------------------------------------------
Total $38,871 $39,378 (1)% $116,529 $110,199 6 %
===================================================================================================
Third quarter operating expenses decreased 1% from the third quarter of fiscal
1995. The prior year amount included costs associated with the downsizing
within Distributed Products. Alternately, year-to-date operating expenses were
6% higher than that reported in the comparable prior year period, reflecting
the impact of higher sales levels, acquisitions and continued emphasis on
development of new product technology. In total, operating expenses are
approximately 28% of sales for each of the nine month periods presented.
Engineering expenses have continued to increase over prior year comparable
periods and are up 14% for the nine months ended May 31, 1996. Acquisitions
completed during the year have added insignificant amounts to engineering
expenses for the nine month period ended May 31, 1996. The increase is
attributable to new product development expenditures, primarily within
Engineered Solutions. The Company believes that its investment in technology in
all businesses will continue to provide it with growth opportunities and will
enhance its competitive advantage.
Selling expense increases of 8% and 15% for the three and nine month periods
ended May 31,1996, respectively, are primarily sales volume driven, consisting
of incremental commissions, advertising and general selling costs. Wright Line
has a direct sales force whose compensation is substantially commission-based.
As a result of its 33% sales growth over the comparable prior year nine month
period, its selling expenses increased at a similar rate, from $15,709 to
$21,490. Businesses acquired have added approximately $469 in selling expenses
for the nine month period ended May 31, 1996.
9
The Company's administrative expenses for the third quarter decreased 22% from
the prior year. The prior year third quarter included approximately $1,100 of
costs associated with downsizing the European operations. The third quarter and
year-to-date fiscal 1996 results include approximately $347 and $711,
respectively, of additional administrative expenses resulting from
acquisitions, which were partially offset by decreases due to the product line
dispositions. Overall, administrative expenses for the nine month period ended
May 31, 1996 decreased $5,265, or 16%, over the comparable prior year period.
The reduction was distributed throughout all business segments and reflects the
results of cost control measures initiated in anticipation of the slowing
economy predicted for both the U.S. and Europe.
Interest expense for the three and nine months ended May 31, 1996 decreased
significantly from comparable prior year periods due to the combination of
lower borrowing rates and lower debt outstanding for a substantial portion of
the period. Debt increased in the second and third quarters of fiscal 1996 as a
result of the Vision and CalTerm acquisitions. For further information, refer
to the Liquidity and Capital Resources discussion below.
Amortization expense for the quarter ended May 31, 1996 increased substantially
from the comparable prior year period primarily due to the patents and
trademarks purchased from Vision in January, 1996. Year-to-date amortization
was only slightly above the fiscal 1995 amount due to the GB Electrical
intangible assets which became fully amortized during the second quarter of
fiscal 1995.
Included in other expense for the nine months ended May 31, 1995 is a $1,331
loss attributable to the Mexico peso devaluation which occurred during the
second quarter of fiscal 1995. The Company's Mexican subsidiary had certain
U.S. Dollar denominated liabilities which were impacted by the devaluation. At
that time, the Company restructured various financial obligations of its
Mexican subsidiary to reduce the earnings impact of any potential further
devaluation of the peso, which has subsequently been insignificant.
The Company recorded an extraordinary loss, net of tax, of $4,920 ($0.36 per
share) in February, 1995 in anticipation of the March 30, 1995 extinguishment
of $64,350 of 9.92% Senior Unsecured Notes. The pre-tax extraordinary loss of
$7,343 was comprised of a make whole provision of $4,050, costs associated with
the cancellation of underlying interest rate swap agreements of $3,047, and the
write-off of deferred financing costs of $246. The refinancing provided the
Company more flexibility as to prepayment and geographic placement of debt, as
well as lower interest rate costs. For further information, refer to Liquidity
and Capital Resources below.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4,118 and $911 at May 31, 1996 and August
31, 1995, respectively. In order to minimize interest expense, the Company
maintains low cash balances by using available cash to reduce short-term debt.
The higher cash balance on hand at the end of the third quarter of fiscal 1996
represented the timing of cash received during the last few days of the quarter
which was subsequently applied to the debt balance in early June, 1996.
Cash generated from operations, after considering non-cash items and changes in
operating assets and liabilities, totaled $27,294 for the nine months ended May
31, 1996, compared to $15,121 for the comparable prior year period. Stronger
earnings from continuing operations coupled with improved management of
accounts receivable and the collection of receivables retained from completed
dispositions accounted for the majority of the year-over-year operating cash
flow increase.
Cash used in investing activities totaled $47,534 for the first nine months of
fiscal 1996, of which $35,848 was used for the acquisitions of Vision, CalTerm,
the remaining interest in the Company's Korean subsidiary, DFAS and the
European distribution rights for Wright Line. Acquisition costs were partially
offset by the proceeds received on the sale of the HIT and APITECH mobile
equipment product lines totaling $5,181. In addition, $17,628 was used for
capital expenditures. Higher capital expenditures relative to the prior year
reflect the paint line and building additions at Wright Line and warehouse
improvements at GB Electrical.
10
TOTAL CAPITALIZATION MAY 31, 1996 August 31, 1995
- - -------------------------------------------------------------------------
Shareholders' Equity $157,480 58% $131,686 56%
Total Debt 102,175 37% 86,963 37%
Deferred Taxes 14,496 5% 16,386 7%
- - ------------------------------------------------------------------------
Total $274,151 100% $235,035 100%
========================================================================
During the nine months ended May 31, 1996, outstanding debt increased $15,212,
due primarily to cash outflow for business acquisitions completed during the
period. The short-term portion of total debt outstanding was $17,987 and
$12,807 at May 31, 1996 and August 31, 1995, respectively. Incremental debt
requirements were kept minimal by virtue of strong operating cash inflows,
proceeds from sales of product lines and an increase in accounts receivable
financed. As a result, debt as a percentage of total capitalization at May 31,
1996, at 37%, is consistent with the ratio at the beginning of fiscal 1996.
Dividends of $1,212 were paid, while the exercise of stock options generated an
additional $603 of cash, in the nine month period ended May 31, 1996.
The Company entered into an interest rate swap agreement on a notional $15,000
in debt 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%. In
May, 1996, three additional swap agreements were initiated. The first switched
the interest rate on another notional $10,000 in debt from a variable rate to a
fixed rate of 7.12% for a period of five years. For the same five year period,
the interest rate on approximately $5,500 in debt denominated in Japanese Yen
was changed from a floating rate to a fixed 3.38% rate. Approximately $5,000 in
debt denominated in German Marks was also converted from a floating rate to a
fixed rate of 4.35% for a two year period.
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.
OUTLOOK
The Company believes that it is positioned to continue to deliver strong
year-over-year improvements in operating results. Including the effect of the
recent CalTerm merger, the fourth quarter is expected to have stronger sales
growth than the third quarter, ending fiscal 1996 with sales between $570,000
and $580,000 and earnings of $2.35 to $2.45 per share.
The above estimates for fiscal 1996 represent forward looking statements
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. Management cautions that these projections are based on current
estimates of future performance and are highly dependent upon a variety of
factors which could cause actual results to differ from these estimates. These
factors include the economic environment in the industrial production,
trucking, construction, aerospace, automotive, and defense industries in both
North America and Europe. The Company's results are also subject to continued
market acceptance of Wright Line's technical environment solutions, operating
margin risk due to competitive pricing, foreign currency fluctuations, and
interest rate risk.
11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits on page 14, which is incorporated herein by
reference.
(b) There were no reports on Form 8-K filed during the three months ended
May 31, 1996 or thereafter through the date of this report.
12
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 12, 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)
13
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1996 THIRD QUARTER 10-Q
Exhibit
Number Description Page No.
------- --------------------------------- --------
11 Computation of Earnings Per Share 15
27 Financial Data Schedule 16
14