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 quarterly period ended February 28, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288
ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0168610
(State of incorporation) (I.R.S. Employer Id. No.)
6100 NORTH BAKER ROAD
MILWAUKEE, WISCONSIN 53209
Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(414) 352-4160
(Registrant's telephone number, including area code)
APPLIED POWER INC.
(Former name, former address and former fiscal year, if changed since last
report)
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 for 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 ____
-------
The number of shares outstanding of the registrant's Class A Common Stock as of
March 30, 2001 was 7,942,521.
1
TABLE OF CONTENTS
Page No.
-------
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (Unaudited)
Actuant Corporation-
Condensed Consolidated Statements of Earnings..........................................3
Condensed Consolidated Balance Sheets..................................................4
Condensed Consolidated Statements of Cash Flows........................................5
Notes to Condensed Consolidated Financial Statements...................................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................20
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings.................................................................21
Item 2 - Changes in Securities..............................................................*
Item 3 - Defaults Upon Senior Securities....................................................*
Item 4 - Submission of Matters to a Vote of Security Holders...............................21
Item 5 - Other Information..................................................................*
Item 6 - Exhibits and Reports on Form 8-K..................................................22
________________
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
Risk Factors That May Affect Future Results
- -------------------------------------------
This quarterly report on Form 10-Q contains certain statements, which are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The terms
"anticipate," "believe," "estimate," "expect," "objective," "plan," "project"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements are subject to inherent risks and uncertainties
that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements. In addition to the assumptions
and other factors referred to specifically in connection with such statements,
factors that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements include, without limitation,
general economic conditions and market conditions in the recreational vehicle,
trucking, automotive, industrial production, and construction industries in
North America, Europe and, to a lesser extent, Asia, market acceptance of
existing and new products, successful integration of acquisitions, competitive
pricing, foreign currency risk, interest rate risk, the Company's ability to
access capital markets, the high debt leverage of the Company which results in
less financial flexibility in terms of debt covenants and debt availability, and
other factors that may be referred to or noted in the Company's reports filed
with the Securities and Exchange Commission from time to time.
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
- -----------------------------------------
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
------------ ------------- ------------- --------------
Net Sales............................................ $ 113,335 $ 184,087 $ 230,855 $ 357,128
Cost of Products Sold................................ 72,359 118,396 148,049 229,319
------------ ----------- ----------- ------------
Gross Profit.................................... 40,976 65,691 82,806 127,809
Engineering, Selling and Administrative Expenses..... 21,698 34,930 43,268 68,568
Amortization of Intangible Assets.................... 1,369 1,977 2,868 3,956
Contract Termination Recovery........................ - - - (1,446)
Corporate Reorganization Expenses.................... - 3,487 - 3,487
------------ ----------- ----------- ------------
Operating Earnings.............................. 17,909 25,297 36,670 53,244
Other Expense(Income):
Net Financing Costs............................ 12,529 7,692 25,500 18,142
Other, net..................................... 165 (242) (1,297) (652)
------------ ----------- ----------- ------------
Earnings from Continuing Operations before Income Tax 5,215 17,847 12,467 35,754
Expense
Income Tax Expense................................... 2,116 5,953 5,084 12,869
------------ ----------- ----------- ------------
Earnings from Continuing Operations.................. 3,099 11,894 7,383 22,885
Discontinued Operations, net of Income Taxes........ - 8,648 - 21,339
------------ ----------- ----------- ------------
Net Earnings......................................... $ 3,099 $ 20,542 $ 7,383 $ 44,224
============ =========== =========== ============
Basic Earnings Per Share:
Continuing Operations.............................. $ 0.39 $ 1.52 $ 0.93 $ 2.93
Discontinued Operations............................ - 1.11 - 2.73
------------ ----------- ----------- ------------
Total.............................................. $ 0.39 $ 2.63 $ 0.93 $ 5.67
============ =========== =========== ============
Diluted Earnings Per Share:
Continuing Operations.............................. $ 0.37 $ 1.47 $ 0.89 $ 2.84
Discontinued Operations............................ - 1.07 - 2.64
------------ ----------- ----------- ------------
Total.............................................. $ 0.37 $ 2.54 $ 0.89 $ 5.48
============ =========== =========== ============
Weighted Average Common Shares Outstanding:
Basic.............................................. 7,934 7,810 7,931 7,805
Diluted............................................ 8,289 8,075 8,322 8,069
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
February 28, August 31,
2001 2000
---------------- ---------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents.............................................. $ 254 $ 9,896
Accounts receivable, net............................................... 87,276 83,553
Inventories, net....................................................... 62,458 67,599
Receivable from APW Ltd................................................ - 32,894
Prepaid expenses....................................................... 6,239 5,230
Deferred income taxes.................................................. 4,514 4,542
-------------- -------------
Total Current Assets........................................... 160,741 203,714
Property, Plant and Equipment, net.............................................. 47,045 49,168
Goodwill, net................................................................... 114,705 116,348
Other Intangibles, net.......................................................... 19,919 21,040
Other Long-term Assets.......................................................... 28,323 26,711
-------------- -------------
Total Assets.................................................................... $ 370,733 $ 416,981
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings.................................................. $ 802 $ 1,259
Trade accounts payable................................................. 38,877 43,455
Accrued compensation and benefits...................................... 13,339 16,365
Income taxes payable................................................... 15,018 39,852
Other current liabilities.............................................. 26,697 25,312
-------------- -------------
Total Current Liabilities...................................... 94,733 126,243
Long-term Debt.................................................................. 412,110 431,215
Deferred Income Taxes........................................................... 4,338 4,486
Other Long-term Liabilities..................................................... 16,670 17,992
Shareholders' Equity:
Class A common stock, $0.20 par value, authorized 16,000,000 shares,
issued and outstanding 7,942,521 and 7,922,910 shares, respectively 1,589 7,923
Additional paid-in capital............................................. (625,376) (632,050)
Accumulated other comprehensive income................................. (18,877) (16,991)
Retained earnings...................................................... 485,546 478,163
-------------- -------------
Total Shareholders' Deficit..................................................... (157,118) (162,955)
-------------- -------------
Total Liabilities and Shareholders' Equity...................................... $ 370,733 $ 416,981
============== =============
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
February 28, February 29,
2001 2000
----------------- ------------------
Operating Activities
- --------------------
Net earnings from continuing operations.................................... $ 7,383 $ 22,885
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................... 8,050 12,381
Other non-cash items............................................ (786) -
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable.................................... (3,458) (27,838)
Inventories............................................ 5,129 (1,745)
Prepaid expenses and other assets...................... (558) 341
Trade accounts payable................................. (4,232) 2,542
Other accrued liabilities.............................. (3,241) (2,899)
Receivable from APW Ltd................................ 30,894 -
Income taxes payable................................... (24,726) -
------------- ---------------
Cash provided by continuing operations................................ 14,455 5,667
Cash provided by discontinued operations.............................. - 19,751
------------- ---------------
Net cash provided by operating activities............................. 14,455 25,418
Investing Activities
- --------------------
Proceeds from the sale of property, plant and equipment.................... - 703
Additions to property, plant and equipment................................. (3,578) (5,744)
Product line dispositions and other........................................ 238 2,987
Net investing activities of discontinued operations........................ - (28,615)
------------- ---------------
Net cash used in investing activities................................. (3,340) (30,669)
Financing Activities
- --------------------
Net (repayments) borrowings of debt........................................ (20,895) 376,573
Additions to receivables financing facility................................ - 1,420
Dividends paid on common stock............................................. - (1,171)
Proceeds from stock option exercises....................................... 340 1,604
Net financing activities of discontinued operations........................ - (386,228)
------------- ---------------
Net cash used in financing activities................................. (20,555) (7,802)
Effect of exchange rate changes on cash.................................... (202) (186)
------------- ---------------
Net decrease in cash and cash equivalents.................................. (9,642) (13,239)
Effect of change in cash of discontinued operations........................ - 14,752
Cash and cash equivalents - beginning of period............................ 9,896 7,256
------------- ---------------
Cash and cash equivalents - end of period.................................. $ 254 $ 8,769
============= ===============
See accompanying Notes to Condensed Consolidated Financial Statements
5
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
- -------------------------
On January 9, 2001 Applied Power Inc. shareholders approved the change of the
name of the Company to Actuant Corporation. The accompanying unaudited condensed
consolidated financial statements of Actuant Corporation ("Applied Power,"
"Actuant," or 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. The condensed
consolidated balance sheet data as of August 31, 2000 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For additional information, refer to the
consolidated financial statements and related footnotes in the Company's fiscal
2000 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation of financial results have been made. Such adjustments consist of
only those of a normal recurring nature. Operating results for the six months
ended February 28, 2001 are not necessarily indicative of the results that may
be expected for the entire fiscal year ending August 31, 2001.
On January 9, 2001, our shareholders approved a reverse stock split whereby
every five shares of common stock were converted into one share of common stock.
In addition, our shareholders approved a reduction in our authorized class A
common shares from 80 million to 16 million with a similar reduction for other
capital stock. Where appropriate, these changes are reflected in these financial
statements for all periods presented.
(2) Distribution and Discontinued Operations
- --------------------------------------------
On January 27, 2000, Applied Power's board of directors authorized various
actions to enable Applied Power to distribute its Electronics segment ("APW
Ltd.") to its shareholders (the "Distribution"). In the Distribution, Applied
Power shareholders received, in the form of a special dividend, one share of APW
Ltd. common stock for each Applied Power common share. As a result, APW Ltd.
became a separately traded, publicly held company. The Distribution was approved
by the board of directors on July 7, 2000 and shares of APW Ltd. were
distributed to Applied Power shareholders of record at July 21, 2000, effective
July 31, 2000.
Accordingly, the Condensed Consolidated Statement of Earnings and the Condensed
Consolidated Statement of Cash Flows for the six months ended February 29, 2000
have been reclassified to reflect the Company's former Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, and cash flows
of the former Electronics segment have been excluded from the respective
captions in the accompanying condensed consolidated financial statements. The
net operating results of the former Electronics segment have been reported, net
of applicable taxes, as "Discontinued Operations, net of Income Taxes." The net
operating results of the discontinued operations include financing costs related
to the debt allocated to the Electronics segment.
(3) Divestitures and Product Line Dispositions
- ----------------------------------------------
During fiscal 2000, the Company divested several of its businesses and
discontinued certain product lines, which significantly impacts the
comparability of financial information presented. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion.
(4) Inventories, net
- --------------------
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any point
in time is minimal. In addition, many parts or components are ultimately either
sold individually or assembled with other parts making a distinction between raw
materials and finished goods impractical to determine. Several other locations
maintain and manage their inventories using a job cost system where the
distinction of categories of inventory by state of completion is also not
available.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only be
possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
6
(5) Earnings Per Share
- ----------------------
The reconciliations between basic and diluted earnings per share are as follows
(in thousands, except per share amounts):
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
--------------- ---------------- -------------- ---------------
Numerator:
Earnings from continuing operations.................. $ 3,099 $ 11,894 $ $ 22,885
Earnings from discontinued operations................ - 8,648 - 21,339
---------- ---------- --------- ------------
Net earnings......................................... $ 3,099 $ 20,542 $ 7,383 $ 44,224
========== ========== ========= ============
Denominator:
Weighted average common shares outstanding for
basic earnings per share........................... 7,934 7,810 7,931 7,805
Net effect of dilutive stock options based on the
treasury stock method using average market price... 355 265 391 264
---------- ---------- --------- ------------
Weighted average common and equivalent
shares outstanding for diluted earnings per share.. 8,289 8,075 8,322 8,069
========== ========== ========= ============
Basic Earnings Per Share:
Earnings from continuing operations.................. $ 0.39 $ 1.52 $ 0.93 $ 2.93
Earnings from discontinued operations................ - 1.11 - 2.73
---------- ---------- --------- ------------
Basic earnings per share............................. $ 0.39 $ 2.63 $ 0.93 $ 5.67
========== ========== ========= ============
Diluted Earnings Per Share:
Earnings from continuing operations.................. $ 0.37 $ 1.47 $ 0.89 $ 2.84
Earnings from discontinued operations................ - 1.07 - 2.64
---------- ---------- --------- ------------
Diluted earnings per share........................... $ 0.37 $ 2.54 $ 0.89 $ 5.48
========== ========== ========= ============
(6) Comprehensive Income
- ------------------------
The components of comprehensive income are as follows (in thousands):
Three Months Ended Six Months Ended
--------------------------------- --------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
--------------- ---------------- -------------- ----------------
Net earnings....................................... $ 3,099 $ 20,542 $ 7,383 $ 44,224
Foreign currency translation adjustments........... (370) (4,778) (1,886) (2,595)
------------- -------------- ------------ ------------
Comprehensive income............................... $ 2,729 $ 15,764 $ 5,497 $ 41,629
============= ============== ============ ============
7
(7) Fire Loss
- -------------
In February 2001, one of the Company's facilities in Oldenzaal, The Netherlands
was damaged by fire. The fire damaged a portion of the leased building, as well
as certain inventory and property, plant and equipment contained therein.
Additionally, the fire impacted the shipment of product produced on the truck
cab-tilt production line that is housed in the damaged facility. The Company is
party to an insurance contract that is expected to cover the damaged inventory
and equipment as well as the business interruption resulting from the fire. The
costs incurred through February 28, 2001 and the net book value of lost assets
total $0.7 million. This amount has been recorded as a receivable in the
Condensed Consolidated Balance Sheet, as the amounts are expected to be
recovered from our insurance carrier. Future insurance recoveries under our
replacement value policy are probable, and will be recorded net of additional
costs associated with the fire, once the amounts to be recovered are estimable.
(8) Segment Information
- -----------------------
The Company is organized and managed along the lines of its two business
segments: Tools & Supplies and Engineered Solutions. Tools & Supplies products
include high-force hydraulic tools, electrical tools and consumables, which are
sold to a variety of markets including general industrial, construction,
production automation, retail do-it-yourself ("DIY"), retail marine and retail
automotive aftermarket. Engineered Solutions works with customers to provide
customized solutions in the recreational vehicle ("RV"), truck, automotive,
medical, and other markets. Products include RV slide-out and leveling systems,
hydraulic cab-tilt systems for heavy-duty trucks, electro-hydraulic automotive
convertible top actuation systems and extruded and molded silicone products for
the medical market. "General corporate and other" as indicated below primarily
includes general corporate expenses, financing costs on third party debt and
foreign currency exchange adjustments.
The following table summarizes continuing operations financial information by
reportable segment (in thousands).
Three Months Ended Six Months Ended
--------------------------------- --------------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
---------------- --------------- ------------------ -----------------
Net Sales:
Tools & Supplies......................... $ 68,911 $ 79,516 $ 138,684 $ 150,575
Engineered Solutions..................... 44,424 104,571 92,171 206,553
---------------- --------------- ------------------ -----------------
Total.................................... $ 113,335 $ 184,087 $ 230,855 $ 357,128
---------------- --------------- ------------------ -----------------
Earnings Before Income Tax Expense:
Tools & Supplies......................... $ 11,940 $ 15,370 $ 23,435 $ 26,272
Engineered Solutions..................... 7,310 17,114 15,724 37,620
General corporate and other.............. (14,035) (14,637) (26,692) (28,138)
---------------- --------------- ------------------ -----------------
Total.................................... $ 5,215 $ 17,847 $ 12,467 $ 35,754
---------------- --------------- ------------------ -----------------
Results for the six months ended February 29, 2000 for the Engineered Solutions
segment include a $1.4 million recovery related to the resolution of a contract
termination originally recorded in fiscal 1999. In addition, results for the
three and six months ended February 29, 2000 include corporate reorganization
expenses of $3.5 million included in "General corporate and other." These
corporate reorganization expenses relate to costs incurred as a result of the
Distribution.
(9) Subsequent Events
- ---------------------
On March 1, 2001, the Company acquired substantially all of the net operating
assets of Dewald Manufacturing ("Dewald") for approximately $12.8 million.
Dewald is engaged in the design and manufacture of leveling and slide out
systems for the North American recreational vehicle market. Dewald operates a
manufacturing facility near South Bend, Indiana, and employs approximately 130
employees. Its annual revenues are approximately $20 million.
On March 21, 2001, the Company announced that it is in preliminary discussion
with a number of parties regarding the possible sale of its Mox-Med business.
Mox-Med provides molded and extruded silicone products for the medical and
housewares industries, and has annual net sales of approximately $20 million.
8
(10) Guarantor Condensed Financial Statements
- ---------------------------------------------
In connection with the Distribution, Actuant issued 13% Senior Subordinated
Notes due 2009. All of our material domestic wholly-owned subsidiaries (the
"Guarantors") fully and unconditionally guarantee the 13% notes on a joint and
several basis. We believe separate financial statements and other disclosures
concerning each of the Guarantors would not provide additional information that
is material to investors. Therefore, the Guarantors are combined in the
presentation below. There are no significant restrictions on the ability of the
Guarantors to make distributions to Actuant. The following tables present the
results of operations, financial position and cash flows of Actuant Corporation
and its subsidiaries, the Guarantors and non-guarantor entities, and the
eliminations necessary to arrive at the information for the Company on a
condensed consolidated basis.
9
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(Dollars in thousands)
Six Months Ended February 28, 2001
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales................................. $ 38,642 $ 112,902 $ 79,311 -- $ 230,855
Cost of products sold..................... 23,434 73,417 51,198 -- 148,049
------------ ----------- ----------- ------------ -----------
Gross profit......................... 15,208 39,485 28,113 -- 82,806
Operating expenses........................ 11,224 19,199 12,845 43,268
Amortization of intangible assets......... 5 2,731 132 -- 2,868
------------ ----------- ----------- ------------ -----------
Operating earnings................. 3,979 17,555 15,136 -- 36,670
Other expense (income):
Intercompany activity, net........ (2,288) 1,218 1,070 -- --
Net financing costs............... 25,031 -- 469 -- 25,500
Other, net........................ 182 14 (1,493) -- (1,297)
------------ ----------- ----------- ------------ -----------
Earnings (Loss) before income tax
(benefit) expense ........................ (18,946) 16,323 15,090 -- 12,467
Income tax (benefit) expense.............. (6,986) 6,249 5,821 -- 5,084
------------ ----------- ----------- ------------ -----------
Net (loss) earnings....................... $ (11,960) $ 10,074 $ 9,269 -- $ 7,383
============ =========== =========== ============ ===========
Six Months Ended February 29, 2000
---------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales.................................... $ 41,367 $ 103,698 $ 212,063 $ -- $ 357,128
Cost of products sold........................ 24,449 68,243 136,627 -- 229,319
------------ ----------- ----------- ------------ ------------
Gross profit............................ 16,918 35,455 75,436 -- 127,809
Operating expenses........................... 17,292 14,969 38,348 70,609
Amortization of intangible assets............ 5 2,045 1,906 -- 3,956
------------ ----------- ----------- ------------ ------------
Operating earnings.................... (379) 18,441 35,182 -- 53,244
Other expense (income):
Intercompany activity, net........... (155) 6,177 3,614 (9,636) --
Net financing costs.................. 13,962 3,361 819 -- 18,142
Other, net........................... (513) 139 (278) -- (652)
------------ ----------- ----------- ------------ -------------
Earnings (Loss) from continuing operations
before income tax (benefit) expense.......... (13,673) 8,764 31,027 9,636 35,754
Income tax (benefit) expense................. (5,927) 5,959 9,746 3,091 12,869
------------ ----------- ----------- ------------ ------------
Earnings (Loss) from continuing operations... (7,746) 2,805 21,281 6,545 22,885
Earnings from discontinued operations........ -- -- 21,339 -- 21,339
------------ ----------- ----------- ------------ ------------
Net (loss) earnings.......................... $ (7,746) $ 2,805 $ 42,620 $ 6,545 $ 44,224
============ =========== =========== ============ ============
10
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in thousands)
February 28, 2001
----------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
ASSETS
Current assets
Cash and cash equivalents................... $ 853 $ (150) $ (449) -- $ 254
Accounts receivable, net.................... 11,808 39,674 35,794 -- 87,276
Inventories, net............................ 10,942 40,097 11,419 -- 62,458
Prepaid expenses............................ 1,164 740 4,335 -- 6,239
Deferred income taxes....................... 3,165 7 1,342 -- 4,514
----------- ----------- ----------- ----------- -----------
Total current assets.................. 27,932 80,368 52,441 -- 160,741
Property, plant and equipment, net................ 4,717 33,074 9,254 -- 47,045
Goodwill, net..................................... -- 109,607 5,098 -- 114,705
Other intangibles, net............................ 14 19,820 85 -- 19,919
Other long-term assets............................ 27,652 166 505 -- 28,323
----------- ----------- ----------- ----------- -----------
Total assets...................................... $ 60,315 $ 243,035 $ 67,383 -- $ 370,733
=========== =========== =========== =========== ===========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings....................... $ -- $ -- $ 802 -- $ 802
Trade accounts payable...................... 6,440 18,700 13,737 -- 38,877
Accrued compensation and benefits........... 4,346 3,826 5,167 -- 13,339
Income taxes payable........................ 5,707 5,941 3,370 -- 15,018
Other current liabilities................... 13,156 6,316 7,225 -- 26,697
----------- ----------- ----------- ----------- -----------
Total current liabilities............ 29,649 34,783 30,301 -- 94,733
Long-term debt.................................... 397,723 540 13,847 -- 412,110
Deferred income taxes............................. 2,969 (860) 2,229 -- 4,338
Other long-term liabilities....................... 16,611 (262) 321 -- 16,670
Intercompany balances, net........................ 747,497 (24,765) (722,732) -- --
Total shareholders' (deficit) equity.............. (1,134,134) 233,599 743,417 -- (157,118)
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity........ $ 60,315 $ 243,035 $ 67,383 -- $ 370,733
=========== =========== =========== =========== ===========
11
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in thousands)
August 31, 2000
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
ASSETS
Current assets
Cash and cash equivalents.............. $ 5,076 $ 721 $ 4,099 -- $ 9,896
Accounts receivable, net............... 13,837 36,870 32,846 -- 83,553
Inventories, net....................... 10,528 45,317 11,754 -- 67,599
Receivable from APW Ltd................ 32,894 -- -- -- 32,894
Prepaid expenses....................... 699 567 3,964 -- 5,230
Deferred income taxes.................. 3,965 6 571 -- 4,542
----------- ----------- ----------- ----------- -----------
Total current assets............. 66,999 83,481 53,234 -- 203,714
Property, plant and equipment, net........... 5,010 35,473 8,685 -- 49,168
Goodwill, net................................ -- 111,246 5,102 -- 116,348
Other intangibles, net....................... 19 20,911 110 -- 21,040
Other long-term assets....................... 26,098 133 480 -- 26,711
----------- ----------- ----------- ----------- -----------
Total assets................................. $ 98,126 $ 251,244 67,611 -- $ 416,981
=========== =========== =========== =========== ===========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings.................. $ -- $ -- $ 1,259 -- $ 1,259
Trade accounts payable................. 6,602 25,210 11,643 -- 43,455
Accrued compensation and benefits...... 7,405 4,164 4,796 -- 16,365
Income taxes payable................... (23,518) 30,660 32,710 -- 39,852
Other current liabilities.............. 7,671 8,534 9,107 -- 25,312
----------- ----------- ----------- ----------- -----------
Total current liabilities....... (1,840) 68,568 59,515 -- 126,243
Long-term debt............................... 430,675 540 -- -- 431,215
Deferred income taxes........................ 5,769 (741) (542) -- 4,486
Other long-term liabilities.................. 17,818 (462) 636 -- 17,992
Intercompany balances, net................... 687,060 (51,241) (635,819) -- --
Total shareholders' (deficit) equity......... (1,041,356) 234,580 643,821 -- (162,955)
----------- ----------- ----------- ----------- ----------
Total liabilities and shareholders' equity... $ 98,126 $ 251,244 67,611 -- $ 416,981
=========== =========== =========== =========== ===========
12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in thousands)
Six Months Ended February 28, 2001
--------------------------------------------------------------------------
Actuant
Corporation Guarantors Non Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
Operating activities
Net earnings(loss) ............................ $ (11,960) $ 10,074 $ 9,269 -- $ 7,383
Adjustments to reconcile net earnings(loss) to
cash provided by operating activities:
Depreciation and amortization............... 1,000 5,689 1,361 -- 8,050
Other non-cash items........................ (786) -- -- -- (786)
Changes in operating assets and 59,507 (31,756) (27,943) -- (192)
liabilities, net.......................... ----------- --------- ----------- ------------ -----------
Cash provided by (used in) operating activities .. 47,761 (15,993) (17,313) -- 14,455
Investing activities
Additions to property, plant and equipment.. (538) (1,380) (1,660) -- (3,578)
Product line dispositions and other......... -- 238 -- -- 238
----------- --------- ----------- ------------ -----------
Cash used in investing activities................. (538) (1,142) (1,660) (3,340)
Financing activities
Net (repayments)borrowings of debt.......... (31,729) -- 10,834 -- (20,895)
Stock option exercises and other............ 340 -- -- -- 340
Intercompany (receivables) payables......... (20,057) 16,264 3,793 -- --
----------- --------- ----------- ------------ -----------
Cash (used in) provided by financing activities... (51,446) 16,264 14,627 -- (20,555)
Effect of exchange rate changes on cash........... -- -- (202) -- (202)
----------- --------- ----------- ------------ -----------
Net decrease in cash and cash equivalents........ (4,223) (871) (4,548) -- (9,642)
Cash and cash equivalents--beginning of period..... 5,076 721 4,099 9,896
----------- --------- ----------- ------------ -----------
Cash and cash equivalents--end of period........... $ 853 $ (150) $ (449) -- $ 254
=========== ========= =========== ============ ===========
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in thousands)
Six Months Ended February 29, 2000
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
------------ ---------- ---------- ------------ ------------
Operating activities
Net earnings(loss) from continuing operations.. $ (7,746) $ 2,805 $ 21,281 $ 6,545 $ 22,885
Adjustments to reconcile net earnings(loss)
from continuing operations to cash provided
by (used in) operating activities of
continuing operations:
Depreciation and amortization............... 1,351 4,262 6,768 -- 12,381
Changes in operating assets and
liabilities, net.......................... 6,250 (2,244) (27,060) (6,545) (29,599)
----------- --------- --------- ----------- -----------
Cash provided by (used in) operating activities
of continuing operations.......................... (145) 4,823 989 -- 5,667
Discontinued operations........................... -- -- 19,751 -- 19,751
----------- --------- --------- ----------- -----------
Total cash provided by (used in) operating
activities...................................... (145) 4,823 20,740 -- 25,418
Investing activities
Proceeds from the sale of property, plant
and equipment............................. 4 129 570 -- 703
Additions to property, plant and equipment.. (445) (2,971) (2,328) -- (5,744)
Product line dispositions and other......... -- -- 2,987 -- 2,987
Discontinued operations..................... -- -- (28,615) -- (28,615)
----------- --------- --------- ----------- -----------
Cash used in investing activities................. (441) (2,842) (27,386) (30,669)
Financing activities
Net repayments of debt...................... 376,573 -- -- -- 376,573
Additions to (decreases in) receivables
financing facility........................ (269) 2,375 (686) -- 1,420
Dividends paid on common stock.............. (1,171) -- -- -- (1,171)
Stock option exercises and other............ 1,604 -- -- -- 1,604
Intercompany (receivables) payables......... (376,402) (4,740) 381,142 -- --
Discontinued operations..................... -- -- (386,228) -- (386,228)
----------- --------- --------- ----------- -----------
Cash (used in) provided by financing activities... 335 (2,365) (5,772) -- (7,802)
Effect of exchange rate changes on cash........... -- -- (186) -- (186)
----------- --------- --------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents..................................... (251) (384) (12,604) -- (13,239)
Effect of change in cash of discontinued
operations...................................... -- -- 14,752 -- 14,752
Cash and cash equivalents--beginning of period.... (721) (209) 8,186 7,256
----------- --------- --------- ----------- -----------
Cash and cash equivalents--end of period.......... $ (972) $ (593) $ 10,334 $ -- $ 8,769
=========== ========= ========= =========== ===========
14
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
On January 9, 2001 Applied Power Inc. changed its name to Actuant Corporation.
Throughout this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" when we refer to "Actuant", "Applied Power", or the
"Company", we mean Actuant Corporation and its subsidiaries. Also on January 9,
2001, our shareholders approved a reverse stock split whereby every five shares
of common stock were converted into one share of common stock. Where
appropriate, this change is reflected in this Form 10-Q for all periods
presented.
The Distribution
- ----------------
On January 27, 2000, Applied Power's board of directors authorized various
actions to enable Applied Power to distribute its Electronics segment ("APW
Ltd.") to its shareholders (the "Distribution"). In the Distribution, Applied
Power shareholders received, in the form of a special dividend, one share of APW
Ltd. common stock for each Applied Power common share. As a result, APW Ltd.
became a separately traded, publicly held company. The Distribution was approved
by the board of directors on July 7, 2000 and shares of APW Ltd. were
distributed to Applied Power shareholders of record at July 21, 2000, effective
July 31, 2000. Applied Power now trades separately on The New York Stock
Exchange ("NYSE") under the ticker symbol "ATU." APW Ltd. trades on the NYSE
under the ticker symbol "APW."
As a result of the Distribution, the Company's Electronics segment is presented
as "discontinued operations" in the accompanying financial statements.
Results of Operations
- ---------------------
During fiscal year 2000, we divested several businesses and discontinued certain
product lines that were no longer considered integral to our business strategy,
collectively referred to as the "non-continuing businesses". The following table
summarizes the significant divestitures that were completed:
Approximate
Divestitures Segment Date Annual Sales (1)
- ------------ ------- ---- ----------------
(in millions)
Norelem Tools & Supplies August 2000 $ 8
Barry Controls Engineered Solutions June 2000 120
Air Cargo Engineered Solutions May 2000 22
Samuel Groves Engineered Solutions October 1999 9
________
(1) At the time of the transactions.
The comparability of operating results from period to period is impacted by the
non-continuing businesses. The tables included in "Results of Continuing
Operations" below show the effect, by segment, of the non-continuing businesses
on reported results.
Results from Continuing Operations
- ----------------------------------
Earnings from continuing operations were $3.1 million, or $0.37 per diluted
share, and $11.9 million, or $1.47 per diluted share, for the second quarter of
fiscal 2001 and 2000, respectively. Earnings from continuing operations for the
six months ended February 28, 2001 were $7.4 million, or $0.89 per diluted
share, compared to $22.9 million, or $2.84 per diluted share, for the prior year
period. Our first half and second quarter results in the prior year included the
operating results of Norelem, Barry Controls, and Air Cargo, which we divested
in the second half of fiscal 2000. Furthermore, our current capital structure is
different than that which existed during the comparable periods in the prior
year since we entered into new credit agreements and issued new subordinated
debt in conjunction with the Distribution. As a result, certain adjustments must
be made to make the results in the Condensed Consolidated Statements of Earnings
comparable. Our fiscal 2000 results, reflecting the removal of the divested
businesses and the impact of our new capital structure, were $6.6 million, or
$0.81 per diluted share, and $12.0 million, or $1.49 per diluted share, for the
quarter and six months ended February 29, 2000, respectively. Our operating
results in the current fiscal year are lower than prior year results due to the
impact of currency rates on translated results and slowing economic conditions,
most notably in the North American recreational vehicle market. The remainder of
this section is a discussion of comparative operating results for the second
quarter and six-month periods.
15
Net Sales by Segment
(in thousands)
Three Months Ended Six Months Ended
--------------------------- -------------------------
February 28, February 29, February 28, February 29,
2001 2000 Change 2001 2000 Change
------------ ------------ --------- ------------ ------------ --------
Tools & Supplies ...................... $ 68,911 $ 79,516 (13.3)% $138,684 $150,575 (7.9)%
Less: non-continuing /(1)/ ............ - 3,559 - 7,955
-------- -------- -------- --------
Adjusted Tools & Supplies ............ $ 68,911 $ 75,957 (9.3)% $138,684 $142,620 (2.8)%
======== ======== ======== ========
Engineered Solutions .................. $ 44,424 $104,571 (57.5)% $ 92,171 $206,553 (55.4)%
Less: non-continuing /(2)/ ............ - 47,322 - 88,543
-------- -------- -------- --------
Adjusted Engineered Solutions......... 44,424 57,249 (22.4)% $ 92,171 $118,010 (21.9)%
======== ======== ======== ========
Total net sales ....................... $113,335 $184,087 (38.4)% $230,855 $357,128 (35.4)%
Less: Non-continuing /(1)(2)/ ......... - 50,881 - 96,498
-------- -------- -------- --------
Adjusted net sales .................... $113,335 $133,206 (14.9)% $230,855 $260,630 (11.4)%
======== ======== ======== ========
________
(1) "Non-continuing" represents the divested Tools & Supplies businesses, which
include Norelem, Enerpac's automotive line of business and Gardner Bender's
TAM product line.
(2) "Non-continuing" represents the divested Engineered Solutions businesses,
which include Barry Controls, Air Cargo, Samuel Groves and Magnets.
Adjusted net sales declined $19.9 million, or 14.9%, in the second quarter and
$29.8 million, or 11.4%, for the six months ended February 28, 2001, compared to
the prior year periods. The $29.8 million decline in revenue from the first
half of the fiscal 2000 resulted from a $14 million reduction in RV market
sales, negative currency impact of $9 million due to the impact of foreign
currency rate changes on translated results, and overall weaker economic
conditions. Excluding foreign currency rate changes and the impact of our lower
sales to North American RV manufacturers, sales declined 7.7% and 3.1% in the
three and six-month periods ended February 28, 2001, respectively, compared to
the prior year.
Tools & Supplies
Adjusted net sales for the Tools & Supplies segment declined from the comparable
prior year periods by $7.0 million and $3.9 million for the three and six-month
periods ended February 28, 2001, respectively. Excluding the effect of foreign
currency rate changes, which caused $1.1 million of the quarter over quarter
decline, Tools & Supplies sales decreased 8% compared to the fiscal 2000 second
quarter. This decline was driven primarily from Gardner Bender's 16% decrease,
offset by an increase of 2% in Enerpac sales. Approximately $4.0 million, or
half, of the sales decline in Gardner Bender was caused by the implementation of
a new computer system in the first quarter of fiscal 2000, which resulted in
shipments being delayed from the fiscal 2000 first quarter into the second
quarter. Additionally, Gardner Bender sales to OEM customers and the automotive
aftermarket were lower, reflecting the softening U.S. economy.
The net sales decline experienced during the six-months ended February 28, 2001
primarily resulted from the effects of the strengthening US dollar, which
comprised $3.4 million of the $3.9 million decrease.
Engineered Solutions
Adjusted net sales for the Engineered Solutions segment decreased from the prior
year periods by $12.8 million, or 22.4%, for the quarter and $25.8 million, or
21.9%, for the first half of fiscal 2001. Approximately $8.6 million of the
fiscal second quarter decline is attributable to lower sales into the RV market,
while $1.4 million was due to the impact of foreign currency rate changes. The
North American RV market started slowing in the third quarter of fiscal 2000,
with the slowing continuing into the current quarter. Our Power Gear unit's
sales into this market were 50% lower in the second quarter of this year than
the record shipments made in the second quarter of the prior year. Excluding
foreign currency rate changes and the impact of our lower sales to RV
manufacturers, our Engineered Solutions second quarter sales declined $2.8
million, primarily reflecting the impact of the slowing economy in North
America.
The $25.8 million adjusted net sales decline experienced during the six months
ended February 28, 2001 primarily resulted from a $14.1 million reduction in
sales to the RV market and $5.5 million from foreign currency rate
16
changes. The remainder of the decline resulted from slower economic conditions.
Gross Profit Margins By Segment Three Months Ended Six Months Ended
----------------------------------- -----------------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
----------------- --------------- ----------------- --------------------
Tools & Supplies............................ 41.6% 40.7% 41.0% 40.1%
Adjusted Tools & Supplies................... 41.6% 40.7% 41.0% 40.3%
Engineered Solutions........................ 27.7% 31.9% 28.2% 32.6%
Adjusted Engineered Solutions............... 27.7% 29.6% 28.2% 29.7%
Total gross profit margin................... 36.2% 35.7% 35.9% 35.8%
Total adjusted gross profit margin.......... 36.2% 35.9% 35.9% 35.5%
Second quarter and year-to-date adjusted gross profit margins improved compared
to the prior fiscal year periods, driven by strong Tools & Supplies performance
offset by weaker Engineered Solutions performance.
Tools & Supplies
Adjusted gross profit margins in our Tools & Supplies segment improved in the
quarter, and year-to-date, as compared to the prior fiscal year periods. The
improvement results from the elimination of lower margin SKUs within the Tools &
Supplies product portfolio, and cost reductions generated from direct labor
improvements, Asian sourcing of components and finished goods, as well as lower
fixed costs resulting from closing the NECON manufacturing plant.
Engineered Solutions
Engineered Solutions adjusted gross profit margins decreased in the quarter and
year-to-date as compared to the prior fiscal year periods. The significant
sales reductions to the RV industry negatively impacted margins as we
experienced lower production volumes over which we could spread the fixed
manufacturing costs of our RV plants. We are reducing employment costs at these
plants to minimize the impact of the sales slowdown.
17
Engineering, Selling, and Administrative by Segment
(in thousands)
Three Months Ended Six Months Ended
--------------------------------- --------------------------------
February 28, February 29, February 28, February 29,
2001 2000 Change 2001 2000 Change
--------------- --------------- -------- -------------- -------------- ---------
Tools & Supplies ............. $ 15,915 $ 16,061 (0.9)% $ 31,720 $ 32,319 (1.9)%
Less: non-continuing /(1)/ ... - 933 - 2,050
-------- -------- -------- --------
Adjusted Tools & Supplies ... $ 15,915 $ 15,128 5.2 % $ 31,720 $ 30,269 4.8 %
======== ======== ======== ========
Engineered Solutions ......... $ 4,441 $ 15,170 (70.7)% $ 9,058 $ 27,642 (67.2)%
Less: non-continuing /(2)/ ... - 9,876 - 18,053
-------- -------- -------- --------
Adjusted Engineered Solutions $ 4,441 $ 5,294 (16.1)% $ 9,058 $ 9,589 (5.5)%
======== ======== ======== ========
General Corporate ............ $ 1,342 3,699 (63.7)% $ 2,490 $ 8,607 (71.1)%
======== ======== ======== ========
Total ESA .................... $ 21,698 $ 34,930 (37.9)% $ 43,268 $ 68,568 (36.9)%
Less: Non-continuing ......... - 10,809 - 21,549
-------- -------- -------- --------
Adjusted ESA ................. $ 21,698 $ 24,121 (10.0)% $ 43,268 $ 47,019 (8.0)%
======== ======== ======== ========
________
(1) "Non-continuing" represents the divested Tools & Supplies businesses, which
include Norelem, Enerpac's automotive line of business and Gardner Bender's
TAM product line.
(2) "Non-continuing" represents the divested Engineered Solutions businesses,
which include Barry Controls, Air Cargo, Samuel Groves and Magnets.
Total engineering, selling and administrative ("ESA") expenses decreased $3.7
million, from $47.0 million to $43.3 million for the six months ended February
29, 2000 and February 28, 2001, respectively. Fiscal 2001 second quarter
adjusted ESA expenses were 10% percent lower than those reported in the second
quarter of fiscal 2000, resulting from lower corporate expenses. In the prior
year periods, corporate expenses included costs related to both the former
Industrial and Electronics business segments of Applied Power. None of these
expenses have been allocated to the discontinued operation's financial results.
Management believes general corporate expenses will approximate $5.0 million for
fiscal year 2001.
Tools & Supplies
Tools & Supplies adjusted ESA expenses increased over the prior period amounts
by 5.2% and 4.8% for the quarter and six months ended February 28, 2001,
respectively. This increase in adjusted Tools & Supplies ESA expenses is
primarily caused by increased sales, marketing, and information technology
("IT") expenses in Enerpac and increased engineering and IT expenses at Gardner
Bender.
Engineered Solutions
Compared to the prior year periods, Engineered Solutions adjusted ESA expenses
decreased by 16.1% for the fiscal 2001 second quarter and 5.5% for the six
months ended February 28, 2001. These reductions resulted from lower expenses
attributable to the sales decline, as well as cost reduction program benefits.
Amortization Expense
Amortization expense was lower in the current year periods compared to the prior
year primarily due to the non-continuing businesses.
Contract Termination Recovery
During the first quarter of fiscal 2000, the Company recovered approximately
$1.4 million of a contract termination charge originally expensed in fiscal 1999
by the Engineered Solutions segment.
Other Expense(Income)
Net financing costs for the three and six-month periods ended February 28, 2001
increased $4.8 million and $7.4 million, respectively, compared to the prior
fiscal year periods. The increased costs are the result of the realignment of
debt in the Distribution. The current credit facilities have higher interest
rates than that which had been previously
18
incurred by the Company. Current borrowings consist of those under a senior
secured credit agreement (the "Senior Credit Agreement") and new Senior
Subordinated Notes, which carry a 13% interest rate.
Other, net is primarily comprised of foreign currency gains and losses.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $0.3 million at February 28, 2001 and $9.9
million at August 31, 2000. In order to minimize net financing costs, the
Company intentionally maintains low cash balances by using available cash to
reduce borrowings.
Net cash generated by operating activities of continuing operations totaled
$14.5 million and $5.7 million for the six-month periods ended February 28, 2001
and February 29, 2000, respectively. Discontinued operations generated $19.8
million of cash from operating activities in the six months ended February 29,
2000. Net cash used in investing and financing activities for the six months
ended February 28, 2001 totaled $3.3 million and $20.6 million, respectively.
Cash used for investing activities primarily consisted of capital expenditures.
Cash used for financing activities primarily consisted of debt repayments.
Debt February 28, 2001 August 31, 2000
-------------------- -------------------
(in thousands)
Senior secured debt........................................ $ 200,049 $ 233,300
Senior subordinated notes, net of discount................. 197,527 197,375
Euro term loan............................................. 13,847 -
Other...................................................... 1,489 1,799
------------------ ---------------
Total Debt................................................. $ 412,912 $ 432,474
================== ===============
During the first quarter of fiscal 2001, a European subsidiary of the Company
completed a bank term loan financing of 15.0 million EURO. Amortization of the
loan begins on January 31, 2003 with semi-annual repayments thereafter and a
final maturity of July 31, 2007. The loan interest rate is based on three month
EURIBOR with a spread of 1.10%. Proceeds from the borrowing were used to prepay
15.0 million EURO of the Euro denominated term borrowings under the Company's
Senior Credit Agreement, which carried a higher rate of interest.
The Company is focused on debt reduction. In the seven months since the
Distribution, debt has been reduced by $37.6 million. During the first six
months of fiscal 2001 debt was reduced $19.6 million. The Company expects total
debt reduction (excluding proceeds or repayments from business divestitures or
acquisitions) of $35.0 million in fiscal 2001. The Company plans to use all cash
provided from operations to fund capital expenditures and debt reduction. In
addition to cash from operations, the Company is exploring alternative sources
of financing, which could reduce total financing costs. For example, we are in
the process of implementing an accounts receivable securitization program from
which we hope to generate at least $25 million of proceeds at lower financing
costs. No dividend payments were made in fiscal 2001, nor do we expect to pay
dividends in the near future, so that cash flow from operations can be used to
reduce debt. At February 28, 2001, the Company had approximately $41.5 million
of availability under its credit facilities, and was in compliance with all
covenants under its debt agreements. The Company believes that availability
under its credit facilities, plus funds generated from operations, will be
adequate to meet operating, debt service and capital expenditure requirements
for the foreseeable future.
New Accounting Pronouncements
- -----------------------------
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. The SEC staff expressed its view that revenue is realized or
realizable and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services have been
rendered; the seller's price to the buyer is fixed or determinable; and
collectability is reasonably assured. The Company believes that the adoption of
SAB 101 will not have a material effect on its financial statements.
Effective September 1, 2000, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement requires all derivative instruments
19
to be recorded in the balance sheet at fair value. The initial adoption of this
statement did not have a material effect on the Company's earnings or financial
position.
Recent Events
- -------------
In February 2001, one of the Company's facilities in Oldenzaal, The Netherlands
was damaged by fire. The fire damaged a portion of the leased building, as well
as certain inventory and property, plant and equipment contained therein.
Additionally, the fire impacted the shipment of product produced on the truck
cab-tilt production line that is housed in the damaged facility. The Company is
party to an insurance contract that is expected to cover the damaged inventory
and equipment as well as the business interruption resulting from the fire. The
costs incurred through February 28, 2001 and the net book value of lost assets
total $0.7 million. This amount has been recorded as a receivable in the
Condensed Consolidated Balance Sheet, as the amounts are expected to be
recovered from our insurance carrier. Future insurance recoveries under our
replacement value policy are probable, and will be recorded net of additional
costs associated with the fire, once the amounts to be recovered are estimable.
On March 1, 2001, the Company acquired substantially all of the net operating
assets of Dewald Manufacturing ("Dewald") for approximately $12.8 million.
Dewald is engaged in the design and manufacture of leveling and slide out
systems for the North American recreational vehicle market. Dewald operates a
manufacturing facility near South Bend, Indiana, and employs approximately 130
employees. Its annual revenues are approximately $20 million.
On March 21, 2001, the Company announced that it is in preliminary discussion
with a number of parties regarding the possible sale of its Mox-Med business.
Mox-Med provides molded and extruded silicone products for the medical and
housewares industries, and has annual net sales of approximately $20 million.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for trading purposes.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2000 within Note A - "Summary of Significant
Accounting Policies" in Notes to Consolidated Financial Statements.
Currency Risk - The Company has significant international operations. In most
- -------------
instances, the Company's products are produced at manufacturing facilities
located near the customer. As a result, significant volumes of finished goods
are manufactured in countries for sale into those markets. For goods purchased
from other Company affiliates, the Company denominates the transaction in the
functional currency of the producing operation.
The Company has adopted the following guidelines to manage its foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose purchase
price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through the use of naturally offsetting
positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the producing
operation.
The Company's identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of intercompany loans with foreign subsidiaries denominated
in foreign currencies. The Company periodically identifies areas where we do not
have naturally occurring offsetting positions and then purchases hedging
instruments to protect against anticipated exposures. There are no such hedging
instruments in place at February 28, 2001 or through the date of this filing.
The Company's financial position is not materially sensitive to fluctuations in
exchange rates as any gains or losses on foreign currency exposures are
generally offset by gains and losses on underlying payables, receivables and net
investments in foreign subsidiaries.
Interest Rate Risk - Given our leverage, we are exposed to interest rate risk
- ------------------
from changes in interest rates. We have periodically utilized interest rate swap
agreements historically to manage overall financing costs and interest
20
rate risk. We had no such agreements in place at February 28, 2001 or through
the date of this filing. Our Senior Credit Agreement stipulates that the lower
of 50% of our total debt or $200.0 million be fixed interest rate obligations.
We are in compliance with this requirement.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
In connection with the disposition of Barry Wright Corporation in June 2000,
Actuant indemnified the buyer for certain matters. The buyer made an
indemnification claim for damages of approximately $6 million involving a
specific contract. Actuant is investigating the claim and investigating the
purchaser's compliance with the purchase agreement, but believes that it has
viable defenses to the claim. The Company intends to vigorously defend the
claim. Based on the information presently available, management believes the
claim will not have a material impact on its financial position or results of
operations.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders was held on January 9, 2001 to elect a board
of seven directors and to vote on a number of proposals. Each director nominee
was elected. The number of votes for each nominee is set forth below:
Share Votes For Share Votes Withheld
----------------------- ------------------------
H. Richard Crowther 35,073,306 413,687
Richard A. Kashow 35,076,677 410,316
Richard G. Sim 35,037,148 449,845
Gustav H.P. Boel 35,053,218 433,775
Bruce S. Chelberg 35,066,742 420,251
William P. Sovey 35,063,901 423,092
Robert C. Arzbaecher 35,072,315 414,678
In addition, the following proposals were voted on at the January 9, 2001 annual
meeting:
(a) Proposal to approve the Actuant Corporation 2001 Stock Plan.
FOR AGAINST ABSTAIN
20,252,025 8,787,896 113,335
(b) Proposal to approve the Actuant Corporation 2001 Outside Directors' Stock
Option Plan.
FOR AGAINST ABSTAIN
24,514,377 4,382,099 256,780
(c) Proposal to approve the Articles of Amendment to change the name of the
Company.
FOR AGAINST ABSTAIN
35,119,127 162,485 205,381
(d) Proposal to approve the Articles of Amendment to effect a five-for-one
reverse split.
FOR AGAINST ABSTAIN
34,052,083 1,194,260 240,650
21
(e) Proposal to approve the Articles of Amendment to reduce the number of
shares of common stock .
FOR AGAINST ABSTAIN
34,691,648 521,433 273,912
(f) Proposal to approve a shareholder's proposal concerning shareholder rights
plan.
FOR AGAINST ABSTAIN
14,444,291 14,215,231 493,734
(g) The following verbal proposals presented at the annual meeting of
shareholders were voted 0 shares FOR each proposal and 35,486,993 shares
AGAINST each proposal:
1. That shareholders should have the opportunity to vote on auditors at
the 2001 and subsequent annual meetings.
2. That the Board be required to have at least 9 directors.
3. That the 2001 and subsequent proxy statements list all the outside
directorships, including non-profit organizations, held by each
director.
4. That confidential voting be allowed at the 2001 and subsequent annual
meetings.
5. That the annual meeting start between the hours of 10:00 a.m. and
3:00 p.m. and not at 8:00 a.m.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) See Index to Exhibits on page 24, which is incorporated herein by
reference.
22
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.
ACTUANT CORPORATION
(Registrant)
Date: April 13, 2001 By: /s/ Andrew G. Lampereur
------------------------
Andrew G. Lampereur
Chief Financial Officer
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf of
the registrant)
23
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 2001
INDEX TO EXHIBITS
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
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4.7 Amendment to Articles of Incorporation X
effecting the name change
4.8 Amendment to Articles of Incorporation X
effecting the reverse stock split
4.9 Amended and restated Articles of X
Incorporation
10.23 Actuant Corporation 2001 Stock Plan Exhibit B to the Registrant's Proxy
Statement, dated December 1, 2000 for
the 2001 Annual Meeting of Shareholders
10.24 Actuant Corporation 2001 Outside Exhibit C to the Registrant's Proxy
Directors' Stock Option Plan Statement, dated December 1, 2000 for
the 2001 Annual Meeting of Shareholders
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