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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[_] OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to to
Commission File No. 1-11288
ACTUANT CORPORATION
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0168610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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)
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
on
(Title of each class) which registered)
--------------------- -----------------------
Class A Common Stock, par value $0.20 per share New York Stock Exchange
Senior Subordinated Notes due 2009 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of October 31, 2001, the aggregate market value of Common Stock held by
non-affiliates was approximately $199.3 million and there were 8,020,656
shares of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 4, 2002 are incorporated by reference into
Part III hereof.
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TABLE OF CONTENTS
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 6
Item 3. Legal Proceedings............................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............. 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 10
Item 6. Selected Financial Data......................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 25
Item 8. Financial Statements and Supplementary Data..................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 63
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 63
Item 11. Executive Compensation.......................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 63
Item 13. Certain Relationships and Related Transactions.................. 63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K............................................................. 63
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This document contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements
expressed or implied in such forward-looking statements. The words
"anticipate," "believe," "estimate," "expect," "project," "plan," "objective"
and similar expressions are intended to identify 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 listed in
the Form S-4 filed in connection with our Senior Subordinated Notes.
When used herein, the terms "Actuant," "Applied Power," "we," "us," "our,"
and the "Company" refer to Actuant Corporation and its subsidiaries.
PART I
Item 1. Business
General
Headquartered in Milwaukee, Wisconsin, Actuant Corporation is a Wisconsin
corporation incorporated in 1910. Actuant is a leading global manufacturer and
marketer of a broad range of industrial products and systems, organized into
two business segments, Tools & Supplies and Engineered Solutions. Tools &
Supplies sells branded specialized electrical and industrial tools and
supplies to hydraulic and electrical wholesale distributors, to catalog houses
and through various retail distribution channels. Engineered Solutions'
primary expertise is in designing, manufacturing and marketing customized
motion control systems primarily for OEMs in diversified niche markets. We
believe that our strong market positions are the result of a combination of
our brand recognition, proprietary engineering and design competencies,
dedicated service philosophy and global manufacturing and distribution
capabilities.
Prior to July 31, 2000, Applied Power consisted of two segments,
Electronics and Industrial. The Electronics segment (the "Electronics
Business") focused on electronic enclosures, while the Industrial segment (the
"Industrial Business") concentrated on the current Tools & Supplies and
Engineered Solutions businesses, as well as other businesses that have been
divested. During 1999, Applied Power's management began to consider the
separation of the Electronics Business from the Industrial Business as, among
other things, a way to more effectively pursue strategic opportunities in the
electronics market. Applied Power reviewed strategic options to focus
management, including the possible sale of the Industrial Business.
Ultimately, it determined that the separation of the two businesses in the
form of a spin-off was the preferred option. On January 26, 2000, Applied
Power's board of directors authorized various actions intended to position
Applied Power to distribute the Electronics Business to its shareholders in
the form of a special dividend (the "spin-off" or "Distribution"). The
Distribution took place on July 31, 2000. Actuant now trades separately on the
New York Stock Exchange (the "NYSE") under the ticker symbol "ATU" and APW
Ltd. (the Electronics Business) separately trades on the NYSE under the ticker
symbol "APW."
1
During fiscal 2001, we acquired the assets of Dewald Manufacturing, Inc.
and divested our Mox-Med business, both of which are included in our
Engineered Solutions segment. We also divested the Quick Mold Change product
line in the Tools & Supplies business. During fiscal 2000, we divested the
Barry Controls, Air Cargo and Samuel Groves businesses that previously were
included in our Engineered Solutions segment and the Norelem and automotive
product lines of Enerpac, previously included in Tools & Supplies. These
actions impact the comparability of our operating results. We did not make any
significant business acquisitions or divestitures impacting either the Tools &
Supplies or Engineered Solutions businesses in fiscal 1999. For further
information, see Note 3, "Acquisitions and Divestitures" in Notes to
Consolidated Financial Statements.
Description of Business Segments
The Company operates two business segments, Tools & Supplies and Engineered
Solutions.
Tools & Supplies. The Tools & Supplies segment sells a wide array of
branded, specialized electrical and industrial tools and supplies to hydraulic
and electrical wholesale tool distributors, to catalog houses and through
various retail distribution channels. The segment's products include high-
force hydraulic tools, electrical tools and consumables, which are sold
directly to end-user markets including general industrial, residential,
construction, and production automation, or to end-user markets through retail
do-it-yourself ("DIY"), retail marine or retail automotive aftermarket
distribution channels. Tools & Supplies provides over 14,000 SKUs, most of
which are designed and manufactured by us in North America. In addition, the
segment manages a global sourcing operation that supplements its manufactured
product offerings. Major customers include Lowe's, Ace Hardware, The Home
Depot, Snap-on, TruServe and W.W. Grainger. This group also sells to over
10,000 small OEM customers and over 4,000 wholesale electrical, marine and
automotive aftermarket distributors.
The Tools & Supplies segment includes our Enerpac and Gardner Bender
businesses. These two businesses share core competencies in product branding,
distribution channel management, global sourcing, and managing the logistics
of SKU-intensive product lines. We believe Enerpac is a leading global
supplier of specialized high-force hydraulic systems and components for
general industrial, construction and production automation markets.
The following is a summary of each of Enerpac's three major product lines:
Industrial Tools. We believe Enerpac is a leading global supplier of
high-force hydraulic industrial tools operating at very high pressures per
square inch (p.s.i.) of between 5,000 and 10,000. The industrial tool line
consists of over 2,000 products that are generally sold by industrial
distributors to customers in the construction, mining, steel mill, cement,
railway, oil and gas, and general maintenance industries. Enerpac's
products allow users to apply controlled force and motion to increase
productivity, reduce labor costs and make work safer and easier to perform.
Workholding. We also believe Enerpac is a leading supplier of hydraulic
workholding tools. Workholding products hold parts in position in metal
cutting machine tools during the machining process. The products are
marketed through distributors to the production automation market.
OEM. Enerpac's OEM product line consists of customized hydraulic
products that are sold directly to OEM customers including Caterpillar,
Hale Products (a subsidiary of IDEX), Parker-Hannifin and Snap-on.
Enerpac's product development staff works closely with OEM customers to
develop hydraulic solutions for specific applications, such as a highly
customized coaxial piston pump used in Hale Products' "Jaws of Life" rescue
product.
We believe Gardner Bender is a leading supplier of electrical tools and
consumables to the North American retail DIY, retail marine and retail
automotive aftermarket and wholesale electrical markets, supplying over 11,000
SKUs through a variety of distribution channels. Gardner Bender maintains
strong customer relationships with such leading retailers as Lowe's, The Home
Depot, Menards, Kmart, Wal-Mart, Autozone and West Marine.
2
Gardner Bender's main product lines include the following:
. Cable Ties, Staples, Fasteners and Wire Management
. Wire Connectors, Solderless Terminals and Lugs
. Conduit Bending and Conduit Fishing
. Handtools
. Electrical Testers and Meters
. Electric Wire and Cable
. Plugs, Sockets and Other Automotive Products
Engineered Solutions. We believe that the Engineered Solutions segment is a
leading global designer and manufacturer of customized motion control systems
for OEMs in a variety of niche industrial markets. The segment works with its
customers to provide customized solutions in the RV, truck, automotive, and
other markets. Products include RV slide-out and leveling systems, hydraulic
cab-tilt systems for heavy-duty trucks, and electro-hydraulic automotive
convertible top actuation systems. As a result of the segment's design and
engineering quality, it has earned numerous customer awards within the past
five years, including the Circle of Excellence vendor award from Fleetwood and
the Paccar supplier award in Europe. It also received quality and performance
certifications from such OEM customers as Ford, Freightliner, Oshkosh Truck
and Peterbilt. We believe that the segment's principal brands, Power-Packer,
Power Gear, Milwaukee Cylinder and Nielsen Sessions, are recognized for their
engineering quality, integrated custom design and geographic reach. Engineered
Solutions' customers include such leading multinational corporations such as
DAF/Leyland (Paccar), Fiat, Fleetwood, Mercedes-Benz, Renault, Scania and
Volvo. We believe that Engineered Solutions' reputation for excellent
engineering capabilities, global capabilities, technical service and
established customer relationships with leading OEMs are the driving forces
behind its leadership positions in several markets.
Engineered Solutions' main brands or businesses are summarized below:
Power-Packer. Under this brand Engineered Solutions manufactures
hydraulic and electro-hydraulic motion control systems for OEM applications
in the truck, automotive, medical and off-highway markets. Products
manufactured include hydraulic cab-tilt systems for heavy-duty cab-over-
engine trucks, cab suspension systems, electro-hydraulic automotive
convertible top actuation systems and self-contained hydraulic actuators
for medical patient lifting and positioning applications. The majority of
sales of cab-tilt systems and convertible top actuation systems are
generated in the European market. These systems are comprised of sensors,
electronic controls, hydraulic cylinders, electronic motors and a hydraulic
pump. Our convertible top actuation systems are utilized on both
retractable soft and hard top vehicles. During fiscal 2001 Engineered
Solutions was awarded actuation on several new North American models
including the Cadillac Evoq, the Chevrolet SSR, and the Volkswagon Beetle.
Engineered Solutions has recently developed and started marketing a
smaller, low-cost hydraulic cab-tilt system called the "Hy-Cab" that
replaces the torsion bars that have historically been used for cab-tilt
applications on medium sized trucks. The segment's patient positioning
systems are incorporated into hospital beds, stretchers, examination
chairs, surgery tables and transfer lifts.
Power Gear. Engineered Solutions designs, manufactures and markets both
electric and hydraulic powered slide-out systems, hydraulic leveling
systems and landing gears for the RV and off-highway truck and trailer
markets under the Power Gear brand. Slide-out systems allow RV
manufacturers to increase a room's size by telescoping a section of the
room's wall outward. These slide-out systems are fully integrated
electrical systems that provide automatic slide-out capability and are
driven by a 12-volt DC electric motor with a patented rack and gear design.
Leveling systems typically consist of four hydraulic cylinders, a 12-volt
DC hydraulic motor pump and an electronic control system and are capable of
leveling motor homes to within three degrees of fully horizontal. Power
Gear augmented its slide-out and leveling system business
3
with the acquisition of Dewald in March 2001. The trailer landing gear
generally consists of two adjustable legs used to support the front end of
a semi-trailer in a level position when disconnected from the towing
vehicle. Hydraulic stabilizers quickly position and level off-highway
equipment at remote sites.
Other Products. Engineered Solutions also supplies other niche markets
with positioning products and industrial case hardware. Under the Milwaukee
Cylinder brand, it produces a broad range of tie-rod hydraulic and
pneumatic cylinders for a wide variety of applications including automated
production lines, machine tools, machinery, boat drives and material
handling. It also designs and manufactures highly specialized cylinders
such as servo-actuators used in vibration and fatigue testing. Engineered
Solutions offers a comprehensive line of case, container and industrial
hardware marketed under the Nielsen Sessions brand. Products include a
variety of hinges, latches, handles, caster plates and accessories.
International Business
Actuant is a global business. For fiscal 2001, we derived approximately 66%
of our net sales in the United States, 25% from Europe, 5% from Asia, 2% from
South and Latin America and 2% from Canada. Our international sales are
influenced by fluctuations in exchange rates of foreign currencies, foreign
economic conditions and other factors associated with foreign trade. We serve
a global customer base and have implemented a global infrastructure for the
manufacturing, sourcing, distribution and sales of our products. Our global
scale and infrastructure enable us to meet the needs of our customers with
global operations, which supports our strong relationships with many leading
global OEMs.
Distribution and Marketing
Enerpac sells its products through a combination of distributors, direct
sales personnel and manufacturers representatives. Enerpac's distributor
network is one of its key competitive strengths and accounted for
approximately 75% of its net sales. Enerpac employs approximately 110
territory managers that make joint sales calls to large end-users with
distributor sales personnel, train end-user and distributor personnel on
products and provide product application expertise.
Gardner Bender markets its electrical tools and supplies through an
extensive distribution network, and has established strong positions in each
of its major sales channels, including retail, distribution and direct sales.
Retail. Gardner Bender utilizes a combination of internal account
managers and independent manufacturers representatives to serve its retail
customers, including home centers, specialty marine and automotive
retailers, mass merchandisers and hardware cooperatives. Gardner Bender's
sales and marketing personnel provide significant marketing support,
including promotional planning, sales programs, retail point-of-purchase
materials and displays, effective product packaging, strong merchandising,
and advertising programs.
Distribution. Gardner Bender also sells its products to over 2,500
distributors through internal sales managers dedicated to the distributor
channel and independent sales representatives. Due to the distributor
channel's high level of fragmentation, Gardner Bender relies on independent
manufacturers representatives to provide ongoing customer sales and service
support.
Direct. Gardner Bender currently focuses the majority of its direct
marketing efforts on small manufacturing companies. Sales to this channel
require no internal field sales personnel or independent sales
representatives, and are made through a combination of catalogs,
telemarketers and the Internet.
Engineered Solutions' products are marketed directly to OEMs through a
direct technical sales organization. Most product lines also have dedicated
market managers as well as a technical support organization. Engineered
Solutions has an experienced sales force, organized by end-market, that
typically resides in the manufacturing facilities and reports to market sales
leaders that are based in the primary engineering facilities for their
respective market areas. Engineered Solutions sales personnel are highly
trained and coordinate closely with its
4
design engineers in targeting OEM customers. Engineered Solutions' engineering
capabilities, technical service and established customer relationships are key
competitive advantages in winning new contracts.
Product Development and Engineering
We have earned a reputation for design and engineering expertise and for
the creation of highly engineered innovative products. We maintain engineering
staffs at several locations that design new products and make improvements to
existing product lines. Research and development costs are expensed as
incurred. Expenditures for research and development were $2.2 million, $6.6
million, and $8.0 million in fiscal 2001, 2000, and 1999, respectively. Fiscal
2001 and 2000 research and development costs declined from prior year levels
as a result of the divestitures of Barry Controls and Air Cargo Equipment
Corporation during fiscal 2000. We have developed several proprietary
technologies and hold over 500 patents, including applications, across the
world.
Competition
We have numerous competitors in each of our markets, but we believe that we
are well positioned to compete successfully. Competition in each of our niches
is primarily composed of small, regional competitors who often lack the
infrastructure and financial resources to support global OEMs. We believe that
our global scale and infrastructure help to build and maintain strong
relationships with major OEMs.
Patents and Trademarks
We own numerous United States and foreign patents and trademarks. No
individual patent or trademark is believed to be of such sufficient importance
that its termination would have a material adverse effect on our businesses.
Manufacturing and Operations
We manufacture the majority of the products we sell, but strategically
outsource components and finished goods from an established global network of
qualified suppliers. Our manufacturing operations primarily consist of light
assembly operations. We also have plastic injection molding capabilities and
automated welding and painting lines. We have implemented single piece flow
methodology in our manufacturing plants, which reduces inventory levels,
lowers "re-work" costs and shortens lead time to customers. Components are
purchased from a variety of suppliers. We have built strong relationships with
our key suppliers over many years, and while we single source many of our
components, we believe that in most cases there are several qualified
alternative sources.
Order Backlogs and Seasonality
Excluding divested businesses, at August 31, 2001, we had an order backlog
of approximately $46.7 million, compared to approximately $47.3 million at
August 31, 2000. Substantially all orders are expected to be completed prior
to the end of fiscal 2002. As illustrated in the following table, our sales
are not subject to significant seasonal fluctuations:
Sales Percentages by Fiscal Quarter
2001 2000
------ ------
Quarter 1.................................................. 24.8% 25.7%
Quarter 2.................................................. 24.0% 27.4%
Quarter 3.................................................. 26.2% 26.6%
Quarter 4.................................................. 25.0% 20.3%
------ ------
100.0% 100.0%
5
Employees
As of August 31, 2001, we employed approximately 2,198 people. Our
employees are not subject to any collective bargaining agreements with the
exception of approximately 70 Milwaukee Cylinder production employees and
employees covered by government-mandated collective labor agreements in some
international locations. We believe we enjoy good working relationships with
our employees.
Environmental Matters
Our operations, like those of similar businesses, are subject to federal,
state, local and foreign laws and regulations relating to the protection of
the environment, including those regulating discharges of hazardous materials
into the air and water, the storage and disposal of such materials, and the
clean-up of soil and groundwater contamination. Pursuant to certain
environmental laws, a current or prior owner or operator of a site may be
liable for the cost of an investigation and any remediation of contamination,
and persons who arrange for disposal or treatment of hazardous materials may
be liable for such costs at a disposal or treatment site, whether or not the
person owned or operated it. These laws impose strict, and under certain
circumstances, joint and several liability.
We believe that we are in material compliance with applicable environmental
laws. Compliance with these laws has and will require expenditures on an
ongoing basis. We have been identified by regulators as a potentially
responsible party regarding remediation of several multi-party waste sites.
Based on our investigations, we believe that we are at most a de minimis
participant in those sites. In addition, soil and groundwater contamination
has been identified at a few facilities that we operate or formerly owned or
operated. We are also a party to several state and local environmental
matters, and we have provided environmental indemnifications for several
divested business units, and as such retain responsibility for certain
potential environmental liabilities.
Environmental expenditures over the last three years have not been
material, and we believe that the costs for known environmental matters are
not likely to have a material adverse effect on our financial position,
results of operations or cash flows. Nevertheless, more stringent
environmental laws, unanticipated, burdensome remedy requirements, or
discovery of previously unknown conditions could have a material adverse
effect upon our financial condition and results of operations. Environmental
remediation accruals of $2.1 million were included in the Consolidated Balance
Sheets at both August 31, 2001 and 2000. For further information, see Note 14,
"Contingencies and Litigation" in Notes to Consolidated Financial Statements.
Other
For additional information regarding revenues, profits and losses, and
total assets of each business segment, geographical financial information and
information on customers, see Notes to Consolidated Financial Statements.
Item 2. Properties
We generally lease rather than own our operating facilities. The majority
of our leases are short-term, and are renewable at our option.
6
Tools & Supplies
Tools & Supplies maintains 10 manufacturing facilities throughout the
United States, Mexico, Europe and Asia and 18 distribution facilities and
sales offices worldwide.
Square
Facility feet Status
-------- ------- ------
Manufacturing
Glendale, Wisconsin........................................ 313,000 Leased
Columbus, Wisconsin........................................ 130,000 Leased
Veenendaal, The Netherlands................................ 97,000 Leased
San Diego, California...................................... 70,000 Leased
Pachuca, Mexico(1)......................................... 61,000 Leased
Oklahoma City, Oklahoma.................................... 56,000 Leased
Tecate, Mexico............................................. 54,000 Leased
Alexandria, Minnesota...................................... 25,000 Owned
Shanghai Waigaogiao, China................................. 23,000 Leased
Cotati, California......................................... 19,000 Leased
Distribution and Sales
Reno, Nevada............................................... 55,000 Owned
Charlotte, North Carolina.................................. 36,000 Leased
Corsico (Milano), Italy.................................... 18,000 Owned
Mississauga, Ontario, Canada............................... 18,000 Leased
Lancaster, Pennsylvania.................................... 16,000 Leased
Toda-shi, Japan(1)......................................... 15,000 Leased
Dusseldorf, Germany........................................ 15,000 Leased
Sydney, Australia.......................................... 14,000 Leased
Scranton, Pennsylvania..................................... 13,000 Leased
Atlanta, Georgia........................................... 13,000 Leased
Seoul, South Korea(1)...................................... 12,000 Leased
Ontario, California........................................ 12,000 Leased
Taipei, Taiwan............................................. 10,000 Leased
Singapore.................................................. 7,000 Leased
Massey (Paris), France(1).................................. 3,000 Leased
Kowloon, Hong Kong......................................... 1,000 Leased
Madrid, Spain.............................................. 1,000 Leased
Osaka, Japan............................................... 1,000 Leased
--------
(1) Shared by both Tools & Supplies and Engineered Solutions segments.
7
Engineered Solutions
Engineered Solutions maintains 11 manufacturing facilities throughout North
America, Europe and Asia and three distribution and sales facilities.
Square
Facility feet Status
-------- ------- ------
Manufacturing
Oldenzaal, The Netherlands................................. 130,000 Leased
Akishar, Turkey............................................ 79,000 Owned
Cudahy, Wisconsin.......................................... 73,000 Owned
Mishawaka, Indiana......................................... 72,000 Leased
Hartford, Connecticut...................................... 65,000 Owned
Pachuca, Mexico(1)......................................... 61,000 Leased
Beaver Dam, Wisconsin...................................... 50,000 Owned
Westfield, Wisconsin....................................... 40,000 Owned
McMinnville, Oregon........................................ 23,000 Leased
Seoul, South Korea(1)...................................... 12,000 Leased
Sao Paulo, Brazil.......................................... 7,000 Leased
Distribution and Sales
Toda-shi, Japan(1)......................................... 15,000 Leased
Massey (Paris), France(1).................................. 3,000 Leased
Torrijos, Toledo, Spain.................................... 2,000 Leased
--------
(1) Shared by both Tools & Supplies and Engineered Solutions segments.
The Company also leases two buildings in Butler, Wisconsin comprising
approximately 100,000 square feet that are not actively used in operations and
are in the process of being sub-let to third parties.
Item 3. Legal Proceedings
The Company is a party to various legal proceedings that have arisen in the
normal course of business. These legal proceedings typically include product
liability, environmental, labor and patent claims.
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.
We self-insure a portion of our product liability by maintaining a
retention provision under our insurance program. We have recorded reserves for
estimated losses based on the specific circumstances of each case. Such
reserves are recorded when it is probable that a loss has been incurred as of
the balance sheet date and the amount of the loss can be reasonably estimated.
In our opinion, the resolution of these contingencies is not likely to have a
material adverse effect on our financial condition, results of operation or
cash flows. For further information refer to Note 14, "Contingencies and
Litigation" in Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
8
Executive Officers of the Registrant
The names, ages and positions of all of the executive officers of the
Company as of the record date of November 27, 2001 are listed below.
Name Age Position
---- --- --------
Robert Arzbaecher 41 President and Chief Executive Officer; Director
Andrew Lampereur 38 Vice President and Chief Financial Officer
Terry Braatz 44 Treasurer
Timothy Teske 34 Corporate Controller
Todd Hicks 43 Vice President--Enerpac
Ralph Keller 54 Vice President--Operations
Arthur Kerk 52 Vice President--Engineered Solutions--Europe and Asia
Mark Goldstein 45 Vice President--Gardner Bender
Brian Kobylinski 35 Vice President--Distribution and OEM Business
Joseph O'Connor, Jr. 55 Vice President--Human Resources
Jerry Peiffer 53 Vice President--Engineered Solutions--Americas
Anthony Asmuth III 59 Secretary
Robert Arzbaecher, President and Chief Executive Officer. Mr. Arzbaecher
was named President and Chief Executive Officer of the Company on August 9,
2000. He served as Vice President and Chief Financial Officer of Applied Power
starting in 1994 and Senior Vice President in 1998. He served as Vice
President, Finance of Tools & Supplies from 1993 to 1994. He joined Applied
Power Inc. in 1992 as Corporate Controller. From 1988 through 1991, Mr.
Arzbaecher was employed by Grabill Aerospace Industries LTD, where he last
held the position of Chief Financial Officer.
Andrew Lampereur, Vice President and Chief Financial Officer. Mr. Lampereur
joined Applied Power Inc. in 1993 as Corporate Controller, a position he held
until 1996 when he was appointed Vice President of Finance for Gardner Bender.
In 1998, Mr. Lampereur was appointed Vice President, General Manager for
Gardner Bender. In 1999, he served as the business development and special
projects leader for Applied Power. He was appointed to his present position on
August 9, 2000. Prior to joining Applied Power Inc., Mr. Lampereur was the
Corporate Controller of Fruehauf Trailer Corporation and held a number of
financial management positions at Terex Corporation.
Terry Braatz, Treasurer. Mr. Braatz was appointed Treasurer on August 9,
2000, shortly after joining the Company. Prior to joining Actuant, he held
various financial management positions at Johnson Controls, Inc. from 1979 to
2000, including Manager, Internal Treasury and Manager, Corporate Finance.
Timothy Teske, Corporate Controller. Mr. Teske was appointed Corporate
Controller on May 4, 2001, shortly after joining the Company. Prior to joining
Actuant, he held various financial management positions at Tenneco Automotive
Inc from 1997 to 2001 and spent eight years with the international public
accounting firm of Arthur Andersen LLP, last serving as audit and business
advisory manager.
Todd Hicks, Vice President--Enerpac. Mr. Hicks has held a variety of
marketing and sales positions with Enerpac and the former Wright Line business
unit of Applied Power prior to being promoted to his current position in 1999.
He previously worked for General Electric in a number of marketing positions
prior to joining Applied Power.
Ralph Keller, Vice President--Operations. Mr. Keller joined the Company in
1999 in his present position. Prior to joining Actuant, he held senior
operating positions in multinational organizations, most recently with
Whitecap, Inc., a subsidiary of Schmalbach Lubeca AG.
Arthur Kerk, Vice President--Engineered Solutions--Europe and Asia. Mr.
Kerk joined Applied Power in 1995 as Commercial Director of Power-Packer
Europe. A resident of The Netherlands, he was promoted to
9
Managing Director of Power-Packer Europe in 1996, and subsequently was
appointed as Leader of Engineered Solutions--Europe in 1997. Prior to joining
Applied Power, he worked in sales management at Conex Union and as Managing
Director of McKechnie in The Netherlands.
Mark Goldstein, Vice President--Gardner Bender. Mr. Goldstein was appointed
leader of the Gardner Bender business in fiscal year 2001. Prior to joining
Actuant he held senior sales, marketing and operations management positions at
The Stanley Works, most recently as President, Stanley Door Systems. Mr.
Goldstein was employed by The Stanley Works for 22 years.
Brian Kobylinski, Vice President--Distribution and OEM Business. Mr.
Kobylinski was appointed leader of the distribution and OEM channels of
Gardner Bender in fiscal year 2000. Prior thereto, he served as leader of
Gardner Bender's Del City operation, Gardner Bender's Vice President of
Marketing and Director of OEM sales. Prior to joining Applied Power Inc. in
1992, Mr. Kobylinski held various sales positions in the insurance industry.
Joseph O'Connor, Jr., Vice President--Human Resources. Mr. O'Connor joined
Applied Power Inc. in 1999 in his present position. Prior to joining Applied
Power Inc., he held human resource roles in a number of multinational
organizations, including subsidiaries of Pfizer and Monsanto.
Jerry Peiffer, Vice President--Engineered Solutions--Americas. Mr. Peiffer
joined the Company in 1997 when Applied Power acquired Versa Technologies. Mr.
Peiffer worked at Versa Technologies since 1994, serving as the leader of its
Power Gear business. He worked in a number of positions including sales,
engineering, operations and general management for three companies over a 23
year span prior to joining Versa Technologies, including Generac, McQuay-
Perfex, Inc. and Hein Werner Corporation.
Anthony Asmuth III, Secretary. Mr. Asmuth is a partner in the law firm of
Quarles & Brady LLP, Milwaukee, Wisconsin, having joined that firm in 1989.
Quarles & Brady performs legal services for Actuant and certain of its
subsidiaries and affiliates. Mr. Asmuth had previously served as Secretary of
Applied Power from 1986 to 1993 and from 1994 to 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the New York Stock Exchange under
the symbol ATU. At October 31, 2001, the approximate number of record
shareholders of common stock was 1,253.
On July 31, 2000, the Company completed the distribution of its Electronics
Business, which resulted in the Company's stock price decreasing from
approximately $39.81 (combined price prior to the distribution) to $3.06. In
addition, on January 25, 2001 we effected a one-for-five reverse stock split.
The high and low sales prices of the common stock, which reflect the impact of
these transactions, were as follows for the previous two years:
Fiscal
Year Period High Low
------ ------ ---- ---
2001 June 1 to August 31 $21.25 $14.70
March 1 to May 31 16.73 12.00
December 1 to February 28 20.65 10.95
September 1 to November 30 27.20 16.25
2000 August 1 to August 31 $25.00 $15.00
June 1 to July 31 43.75 27.50
March 1 to May 31 30.56 22.19
December 1 to February 29 37.00 23.38
September 1 to November 30 34.44 27.13
10
Quarterly dividends of $0.075 per share were declared and paid for the
first three fiscal quarters of 2000. No dividends have been declared since
that time. The Company's current credit agreements restrict its ability to pay
dividends. We do not plan on declaring or paying dividends in the foreseeable
future, but will instead retain cash flow for working capital needs and to
reduce outstanding debt.
Item 6. Selected Financial Data
The following selected historical financial data have been derived from the
consolidated financial statements of Actuant. The data should be read in
conjunction with these financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was distributed to
shareholders in a spin-off transaction as discussed in Item 1. "Business".
Included in the table are the results of divested businesses until their
respective dates of sale. As a result, the selected financial data in the
following table are not fully representative of the group of business units
that comprise Actuant today. We have included a separate adjusted financial
data table in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that includes only those units that comprise Actuant as
of August 31, 2001.
Year Ended August 31,
---------------------------------------
2001(2) 2000 1999 1998(2) 1997(2)
------- ------ -------- ------- -------
(in millions, except per share data)
Statement of Earnings Data(1):
Net sales(11).................... $481.9 $681.4 $ 705.2 $645.9 $529.0
Gross profit..................... 168.9 242.2 252.7 200.9 180.5
Operating expenses(3)(4)(5)...... 90.7 145.0 144.5 179.0 139.8
Operating earnings............... 71.9 89.7 99.4 9.3 35.8
Earnings from continuing
operations(6)................... 24.4 28.0 34.6 0.1 22.6
Diluted earnings per share from
continuing operations(7)........ 2.93 3.48 4.30 0.01 2.85
Cash dividends per share(7)(8)... -- 0.23 0.30 0.30 0.30
Balance Sheet Data
(at end of period)(1):
Total assets..................... $342.7 $417.0 $1,059.9 $711.5 $486.4
Net assets of discontinued
operations(9)................... -- -- 598.5 249.7 86.2
Total debt(10)................... 327.3 432.5 521.2 225.2 54.8
--------
(1) The Company completed various acquisitions and divestitures that impact
the comparability of the selected financial data presented in the table.
For additional information, see Note 3, "Acquisitions and Divestitures"
in Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions and Divestitures."
(2) Operating results for fiscal 2001, 1998 and 1997 include restructuring
and other non-recurring charges that were recognized in cost of sales and
operating expenses. Such expenses totaled $1.7 million, $56.9 million and
$6.2 million on a pre-tax basis in fiscal 2001, 1998 and 1997,
respectively.
(3) Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge
due to the cancellation of a customer contract. In fiscal 2000, the
Company recorded a $1.4 million gain when it recognized recoveries of
these contract costs in excess of what was anticipated when the loss was
initially recorded. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 6, "Restructuring
and Other Non-recurring Items" in Notes to Consolidated Financial
Statements.
11
(4) Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Note 6,
"Restructuring and Other Non-recurring Items" in Notes to Consolidated
Financial Statements.
(5) Operating expenses include engineering, selling and administrative
expenses, as well as the non-recurring credits and charges discussed
above. Actuant's general corporate expenses, which include expenditures
on resources and services that supported the Electronics Business in
fiscal 1997 through 2000 declined significantly after the Distribution
and were as follows:
Fiscal Period Amount
------------- -------------
(in millions)
2001........................................................ $ 6.2
2000........................................................ 17.6
1999........................................................ 12.1
1998 (excluding expenses in 2 above)........................ 17.5
1997........................................................ 15.2
(6) Earnings from continuing operations include a gain of $18.5 million on
the sale of Mox-Med, a gain on insurance recovery of $1.0 million, the
loss on the divestiture of QMC of $0.7 million, and a loss on the net
present value of an idled lease of $1.5 million in fiscal 2001. For
fiscal 2000, earnings from continuing operations include the loss on the
sale of Norelem of $3.5 million.
(7) All dividend and per share data have been adjusted for the reverse stock
split effected on January 25, 2001.
(8) Quarterly dividends of $0.075 per share were declared and paid by the
Company for each of the quarters in fiscal 1999, 1998, and 1997 and for
the first three quarters of fiscal 2000. Since that time no dividends
have been declared. Actuant does not intend to pay dividends in the
immediate future.
(9) Net assets of discontinued operations consist of the assets of the
Electronics Business, which was spun-off to shareholders in July 2000.
(10) Historically, Actuant incurred indebtedness at the parent company level
and at a limited number of subsidiaries, rather than at the operating
unit or segment level. Debt in the table, with the exception of the
August 31, 2001 and 2000 amounts, reflects the debt balance after an
allocation was made to the Electronics Business, which is reported in
discontinued operations.
(11) All sales figures have been restated to reflect the adoption of Emerging
Issues Task Force Abstract 00-10, "Accounting for Shipping and Handling
Fees and Costs."
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On July 31, 2000, Applied Power Inc. completed the spin-off of its
Electronics Business to shareholders, leaving the Industrial Business as the
sole remaining operating business. Subsequent to the spin-off, Applied Power
Inc. changed its name to Actuant Corporation. As you read the following review
of the Company's financial condition and results of operations, you should
also read our financial statements and related notes, which follow this
discussion. All sales figures and related percentages have been restated to
reflect the adoption of Emerging Issues Task Force Abstract 00-10, "Accounting
for Shipping and Handling Fees and Costs." See "New Accounting Pronouncements"
in this Management's Discussion and Analysis for further information.
Background of the Spin-off Transaction
During 1999, Applied Power's management began to consider the separation of
the Electronics Business from the Industrial Business as, among other things,
a way to more effectively pursue strategic opportunities in the electronics
market. Ultimately, it determined that the separation of the two businesses in
the form of a spin-off was the preferred option. On January 26, 2000, Applied
Power's board of directors authorized various actions intended to position
Applied Power to distribute the Electronics Business to its shareholders in
the form of a special dividend. The Distribution took place on July 31, 2000.
Actuant now trades separately on the NYSE under the ticker symbol "ATU" and
APW Ltd. (the Electronics Business) separately trades on the NYSE under the
ticker symbol "APW."
Results of Operations
Historical Financial Data
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was spun off to shareholders
in the Distribution. Financial data presented in the table include other
divested business units, which are referred to as the "non-continuing"
businesses. As a result, the selected financial data in the following table
are not fully representative of the group of business units that comprise
Actuant today. We have included a separate financial data table in "Unaudited
Adjusted Historical Financial Data" below that includes only those businesses
that comprise Actuant as of August 31, 2001.
Year Ended August
31,
--------------------
2001 2000 1999
------ ------ ------
(in millions)
Statement of Earnings Data:
Net sales........................................... $481.9 $681.4 $705.2
Gross profit........................................ 168.9 242.2 252.7
Operating expenses excluding general corporate
expenses........................................... 84.6 127.4 132.5
General corporate expenses.......................... 6.2 17.6 12.1
Amortization of intangible assets................... 6.2 7.5 8.7
Operating earnings.................................. 71.9 89.7 99.4
Other Financial Data:
Depreciation........................................ 10.3 15.1 17.4
Capital expenditures................................ 6.7 11.4 22.9
Acquisitions and Divestitures
We completed a number of acquisitions over the past five years that
expanded and diversified our product lines, capabilities and global reach.
During this time, we also divested several businesses and product lines that
were no longer considered integral to our business strategy. These divested
businesses are collectively referred
13
to as the "non-continuing businesses." The following table summarizes the
significant acquisitions and divestitures that were completed during the last
five years:
Approximate
Segment Date Annual Sales(1)
-------------------- ------------- ---------------
(in millions)
Acquisitions:
Dewald Manufacturing,
Inc..................... Engineered Solutions March 2001 $24
Nielsen Sessions and Air
Cargo(2)................ Engineered Solutions July 1998 29
Del City Wire............ Tools & Supplies February 1998 16
Ancor Products........... Tools & Supplies January 1998 7
Versa/Tek................ Engineered Solutions October 1997 75
Divestitures:
Mox-Med.................. Engineered Solutions August 2001 $18
Quick Mold Change
("QMC")................. Tools & Supplies May 2001 6
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
Moxness.................. Engineered Solutions March 1998 6
--------
(1) At the time of the transaction. Sales figures exclude sales from business
units acquired in these transactions that now operate in the Electronics
Business.
(2) Acquired as part of the Zero merger which was accounted for as a pooling-
of-interests. Results for these businesses are included in historical
amounts.
In addition to these divestitures, the Gardner Bender Everest product line
and the Magnets business were transferred to the Electronics business segment
immediately prior to the Distribution and are now part of APW Ltd. All of
these acquisitions and divestitures impact the comparability of operating
results from period to period. See Note 3, "Acquisitions and Divestitures" in
Notes to Consolidated Financial Statements.
Unaudited Adjusted Historical Financial Data
The financial information included in the following table excludes the
results of the non-continuing businesses and, as such, reflects only the
results of those business units that comprise Actuant at August 31, 2001.
Historical net financing costs and income taxes, as well as balance sheet
data, have not been adjusted and are therefore not presented in the following
table.
Year Ended August
31,
--------------------
2001 2000 1999
------ ------ ------
(in millions)
Statement of Earnings Data(1):
Adjusted net sales.................................. $461.0 $499.0 $491.2
Adjusted gross profit............................... 159.4 175.8 172.0
Adjusted operating expenses excluding general
corporate expenses(2).............................. 80.7 87.5 90.3
General corporate expenses.......................... 6.2 17.6 12.1
Adjusted amortization of intangible assets.......... 5.8 5.7 5.6
Adjusted operating earnings(2)...................... 66.7 63.1 64.0
Other Financial Data(1):
Adjusted depreciation............................... 9.5 9.9 9.3
Adjusted capital expenditures....................... 6.4 8.4 13.7
14
--------
(1) We have excluded the operating results of the non-continuing businesses
from the financial data presented in this table. However, we completed
various acquisitions that impact the comparability of the adjusted
financial data presented in the table. For additional information, see
Note 3, "Acquisitions and Divestitures" in Notes to Consolidated Financial
Statements. The non-continuing businesses include Mox-Med, QMC, Norelem,
Enerpac's automotive product line, Gardner Bender Everest, Barry Controls,
Air Cargo, Samuel Groves, Moxness and Magnets. The Mox-Med and QMC
businesses were divested in fiscal 2001. The Norelem, Enerpac automotive
product line, Barry Controls, Air Cargo and Samuel Groves units were
divested in fiscal 2000. The Moxness product line was divested in fiscal
1999. The Gardner Bender Everest and Magnets units were transferred to the
Electronics business segment immediately prior to the Distribution and are
now part of APW Ltd.
(2) For further information on unusual and non-recurring items included in
operating expenses, see the discussion of Operating Expenses below.
Net Sales
The following table summarizes our net sales for the past three fiscal
years:
Year Ended August
31,
------------------------
2001 2000 1999
------ ------ ------
(in millions)
Net Sales by Segment:
Tools & Supplies................................ $281.2 $312.3 $317.9
Less: Non-continuing T&S businesses(1).......... 3.3 20.7 27.3
------ ------ ------
Adjusted Tools & Supplies....................... $277.9 $291.6 $290.6
====== ====== ======
Engineered Solutions............................ $200.7 $369.1 $387.3
Less: Non-continuing ES businesses(2)........... 17.6 161.7 186.7
------ ------ ------
Adjusted Engineered Solutions................... $183.1 $207.4 $200.6
====== ====== ======
Total net sales................................. $481.9 $681.4 $705.2
Less: Non-continuing businesses................. 20.9 182.4 214.0
------ ------ ------
Total adjusted net sales........................ $461.0 $499.0 $491.2
====== ====== ======
Net Sales Change by Segment:
Tools & Supplies................................ (10.0)% (1.7)%
Adjusted Tools & Supplies....................... (4.7) 0.4
Engineered Solutions............................ (45.6) (4.7)
Adjusted Engineered Solutions................... (11.7) 3.4
Total net sales change.......................... (29.3) (3.4)
Total adjusted net sales change................. (7.6) 1.6
--------
(1) The "Non-continuing T&S Businesses" are Norelem, Enerpac's automotive line
of business, QMC and Gardner Bender Everest.
(2) The "Non-continuing ES Businesses" are Barry Controls, Air Cargo, Samuel
Groves, Moxness, Mox-Med and Magnets.
Fiscal 2001 compared to Fiscal 2000
Total net sales decreased $199.5 million, or 29.3%, from $681.4 million in
fiscal 2000 to $481.9 million in fiscal 2001. The majority of this decline is
due to the impact of businesses divested in fiscal 2000. After removing the
impact of the divestitures, net sales decreased $38.0 million, or 7.6%. This
decrease results from the negative impact of currency rate changes on
translated results of $14.1 million and slower economic conditions, which
15
impacted many of our businesses. Sales to recreational vehicle ("RV"),
automotive and truck OEMs, as well as the construction and DIY markets, were
all lower than in fiscal 2000 due to less favorable economic conditions.
Excluding the segment's non-continuing businesses, Tools & Supplies net
sales decreased from $291.6 million in fiscal 2000 to $277.9 million in fiscal
2001, a 4.7% decline. The negative impact of currency on translated results
accounted for $5.7 million of the $13.7 million reduction, with the remainder
being caused by generally weak economic conditions.
Engineered Solutions net sales, excluding the segment's non-continuing
businesses, declined $24.3 million, or 11.7%, from $207.4 million in fiscal
2000 to $183.1 million in fiscal 2001. Foreign currency rate changes caused
$8.4 million of the decrease. Sales to the RV industry decreased $4.3 million,
which is comprised of a decline of $20.5 million in Power Gear RV sales,
offset by $16.2 million of sales from Dewald, an RV business we acquired at
the beginning of the third quarter. RV industry demand was negatively impacted
by weak economic conditions, as well as a reduction in excess finished goods
inventory at OEMs. Sales to automotive and truck manufacturers declined $6.5
million due to automotive model changeovers and generally less favorable
economic conditions in fiscal 2001.
Fiscal 2000 compared to Fiscal 1999
Total net sales decreased by $23.8 million, or 3.4%, from $705.2 million in
fiscal 1999 to $681.4 million in fiscal 2000. This reduction results from the
divestiture or removal of the non-continuing businesses during fiscal 2000,
and the negative impact of foreign currency rate changes on translated
results. Partially offsetting these factors were increased shipments by the
Company in a number of markets, most notably into the recreational vehicle,
automotive convertible top and truck cab-tilt markets. Fiscal 1999 sales from
non-continuing businesses were $31.6 million higher than in fiscal 2000
primarily due to the timing of the divestitures of such businesses during
fiscal 2000. Excluding the non-continuing businesses, adjusted net sales
increased by 1.6% from $491.2 million in fiscal 1999 to $499.0 million in
fiscal 2000. Excluding currency translation adjusted net sales increased by
approximately 3.1%.
Tools & Supplies segment sales decreased by 1.7% from $317.9 million to
$312.3 million as a result of the foreign currency rate changes and the
divestiture of the segment's non-continuing businesses. Excluding the impact
of the non-continuing businesses, Tools & Supplies sales were essentially
unchanged year over year. Excluding both currency rate changes and the non-
continuing businesses, sales from this segment grew $4.4 million, or 2%. This
organic growth resulted from improved sales of industrial high force hydraulic
tools, most notably in North America and Asia.
Sales in the Engineered Solutions segment declined 4.7% from $387.3 million
to $369.1 million due to the segment's non-continuing businesses and foreign
currency translation. Sales in this segment grew 3.4% from $200.6 million in
fiscal 1999 to $207.4 million in fiscal 2000, excluding the non-continuing
businesses, reflecting solid growth in sales to the RV, truck cab-tilt and
automotive convertible top markets. Foreign currency translation had the
impact of reducing the "constant dollar" sales growth in the Engineered
Solutions segment by approximately $8.8 million, due to the softness of the
Euro against the U.S. Dollar. Excluding both foreign currency translation and
the non-continuing businesses, Engineered Solutions segment sales grew 7.2%.
16
Gross Profit
The following table summarizes gross profit and gross profit margins for
the past three fiscal years:
Year Ended August
31,
----------------------
2001 2000 1999
------ ------ ------
(in millions)
Gross Profit by Segment:
Tools & Supplies.................................. $112.7 $122.9 $124.6
Less: Non-continuing T&S Businesses............... 1.2 8.1 9.8
------ ------ ------
Adjusted Tools & Supplies......................... $111.5 $114.8 $114.8
====== ====== ======
Engineered Solutions.............................. $ 56.2 $119.3 $128.1
Less: Non-continuing ES Businesses................ 8.3 58.3 70.9
------ ------ ------
Adjusted Engineered Solutions..................... $ 47.9 $ 61.0 $ 57.2
====== ====== ======
Total gross profit................................ $168.9 $242.2 $252.7
Less: Non-continuing Businesses................... 9.5 66.4 80.7
------ ------ ------
Total adjusted gross profit....................... $159.4 $175.8 $172.0
====== ====== ======
Gross Profit Margins by Segment:
Tools & Supplies ................................. 40.1% 39.3% 39.2%
Adjusted Tools & Supplies......................... 40.1 39.4 39.5
Engineered Solutions.............................. 28.0 32.3 33.1
Adjusted Engineered Solutions..................... 26.2 29.4 28.5
Total gross profit margin......................... 35.0 35.5 35.8
Total adjusted gross profit margin................ 34.6 35.2 35.0
Fiscal 2001 Compared to Fiscal 2000
Total gross profit decreased $73.3 million, or 30.3%, from $242.2 in fiscal
2000 to $168.9 in fiscal 2001, primarily due to reduced sales volumes
resulting from divestitures and weaker economic conditions. Excluding non-
continuing businesses, gross profit declined to $159.4 million in fiscal 2001
from $175.8 million in fiscal 2000. Gross profit margins declined due to an
unfavorable change in sales mix to lower margin businesses such as Dewald and
the unfavorable currency impact of inventory produced in the United States and
sold in Europe. These declines were partially offset by improved margins in
the electrical tools and supplies business due to cost reductions.
Gross profit decreased $10.2 million, or 8.3%, in the Tools & Supplies
business, from $122.9 million in fiscal 2000 to $112.7 million in fiscal 2001.
Excluding the non-continuing Tools & Supplies business, gross profit decreased
from $114.8 million in fiscal 2000 to $111.5 million in fiscal 2001. Gross
profit margins improved to 40.1% in fiscal 2001. The gross profit decrease is
due to the corresponding decrease in net sales levels. The gross profit margin
increase is due to cost reduction efforts in fiscal 2001.
Engineered Solutions fiscal 2001 gross profit decreased from fiscal 2000 as
a result of divestitures, lower sales levels and sales mix. Excluding the non-
continuing businesses, gross profit decreased by $13.1 million, or 21.5%, from
$61.0 million in fiscal 2000 to $47.9 million in fiscal 2001. Adjusted gross
profit margins decreased from 29.4% in fiscal 2000 to 26.2% in fiscal 2001.
This decrease is largely due to increased sales from lower margin businesses,
such as Dewald. Margins at Dewald have improved in the months since the
acquisition, and should continue to improve through the realization of results
from our world class performance initiatives. As a result of reduced RV slide
out and leveling systems in fiscal 2001 due to lower demand, our absorption of
fixed manufacturing costs declined, adversely impacting gross profit margins
in Power Gear. In addition to reduced gross profit margins in Power Gear,
margins have declined in our more vertically integrated businesses, Nielson
Sessions and Milwaukee Cylinder, as sales have declined due to the economic
slowdown.
17
Fiscal 2000 Compared to Fiscal 1999
Total gross profit decreased by $10.5 million, or 4.2%, from $252.7 million
in fiscal 1999 to $242.2 million in fiscal 2000, due to a corresponding
reduction in sales volume resulting from divestitures. Excluding the non-
continuing businesses, gross profit increased by $3.8 million from $172.0
million in fiscal 1999 to $175.8 million in fiscal 2000. Total adjusted gross
profit margin increased from 35.0% to 35.2%.
Gross profit for Tools & Supplies decreased by $1.7 million from $124.6
million in fiscal 1999 to $122.9 million in fiscal 2000. This decline results
from the corresponding sales reduction in the segment, caused by foreign
currency and the segment's non-continuing businesses. Excluding the non-
continuing businesses, gross profit was essentially unchanged, while gross
profit margins decreased from 39.5% to 39.4%.
Engineered Solutions gross profit decreased by $8.8 million, or 6.9%, from
$128.1 million in fiscal 1999 to $119.3 million in fiscal 2000 as a result of
a corresponding decline in sales resulting from divestitures. Excluding the
segment's non-continuing businesses, adjusted Engineered Solutions gross
profit increased by $3.8 million from $57.2 million in fiscal 1999 to $61.0
million in fiscal 2000, and gross profit margin increased from 28.5% to 29.4%.
These improvements reflect additional sales volume and the benefits of
restructuring actions, including the full year impact of closing our former
Pewaukee, Wisconsin plant and outsourcing certain machining and other
manufacturing from our plant in Mexico to third party providers.
Operating Expenses
The following table summarizes operating expenses for the past three fiscal
years:
Year Ended August
31,
--------------------
2001 2000 1999
----- ------ ------
(in millions)
Operating Expenses:
Engineering, selling and administrative expenses..... $89.0 $134.0 $136.7
Amortization of intangible assets.................... 6.2 7.5 8.7
Contract termination costs (recovery)................ -- (1.4) 7.8
Corporate reorganization expense..................... -- 12.4 --
Restructuring charge................................. 1.7 -- --
----- ------ ------
Totaling operating expenses........................ $96.9 $152.5 $153.2
===== ====== ======
SAE Expenses
The following table summarizes our SAE expenses for the past three fiscal
years:
Year Ended August
31
-------------------
2001 2000 1999
----- ------ ------
(in millions)
SAE Expenses by Segment:
Tools & Supplies..................................... $63.0 $ 66.4 $ 69.1
Less: Non-continuing T&S Businesses.................. 1.5 6.1 6.7
----- ------ ------
Adjusted Tools & Supplies............................ $61.5 $ 60.3 $ 62.4
===== ====== ======
Engineered Solutions................................. $19.8 $ 50.0 $ 55.5
Less: Non-continuing ES Businesses................... 2.3 33.8 35.4
----- ------ ------
Adjusted Engineered Solutions........................ $17.5 $ 16.2 $ 20.1
===== ====== ======
Combined segment SAE expenses........................ $82.8 $116.4 $124.6
General corporate expenses........................... 6.2 17.6 12.1
----- ------ ------
Total SAE expenses................................... 89.0 134.0 136.7
Less: Non-continuing Businesses...................... 3.8 39.9 42.1
----- ------ ------
Total adjusted SAE expenses.......................... $85.2 $ 94.1 $ 94.6
===== ====== ======
18
All of the general corporate expenses incurred by Actuant Corporation are
included in SAE expense. No portion of such expense has been allocated to the
Electronics Business financial results, which are included in discontinued
operations in the Consolidated Financial Statements. As a result of lower
corporate expense required to support the business following the Distribution,
corporate expense decreased $11.4 million, from $17.6 million in fiscal 2000
to $6.2 million in fiscal 2001.
Fiscal 2001 Compared to Fiscal 2000
Total SAE expense decreased $45.0 million, or 33.6%, from $134.0 million in
fiscal 2000 to $89.0 million in fiscal 2001. This decrease was due to the
elimination of SAE costs incurred by businesses divested in fiscal 2000 and
the reduction in general corporate expenses discussed above, offset by slight
increases in SAE costs in both of our business segments.
SAE expense for the Tools & Supplies segment decreased $3.4 million, or
5.1%, from $66.4 million in fiscal 2000 to $63.0 million in fiscal 2001.
Excluding the segment's non-continuing businesses, SAE expense increased $1.2
million, or 2.0%, from $60.3 million in fiscal 2000 to $61.5 million in fiscal
2001. This increase is a result of higher levels of information technology
costs associated with a new business software system and increased marketing
spending for tradeshows and promotions.
Engineered Solutions SAE expense decreased $30.2 million, or 60.4%, from
$50.0 million in fiscal 2000 to $19.8 million in fiscal 2001. Excluding the
impact of the segment's non-continuing businesses, SAE expense increased $1.3
million, or 8.0%, from $16.2 million in fiscal 2000 to $17.5 million in fiscal
2001. This increase is due to higher spending on new platform development
costs associated with the convertible top product line and the inclusion of
SAE expense from Dewald, which was acquired on March 1, 2001.
Fiscal 2000 Compared to Fiscal 1999
Total SAE expenses decreased by $2.7 million, from $136.7 million in fiscal
1999 to $134.0 million in fiscal 2000. Excluding the non-continuing
businesses, adjusted SAE expenses decreased by $0.5 million, or 0.5% from
$94.6 million in fiscal 1999 to $94.1 million in fiscal 2000. The reported SAE
expense for both 1999 and 2000 include general corporate expenses in excess of
the amounts the Company spent subsequent to the Distribution.
SAE expenses for Tools & Supplies decreased by $2.7 million, from $69.1
million in fiscal 1999 to $66.4 million in fiscal 2000. Excluding the
segment's non-continuing businesses, Tools & Supplies adjusted SAE expenses
decreased by $2.1 million from $62.4 million in fiscal 1999 to $60.3 million
in fiscal 2000. Tools & Supplies adjusted SAE expenses as a percentage of
sales, declined from 21.5% in fiscal 1999 to 20.7% in fiscal 2000. This
improvement reflects the continuing benefits of earlier restructuring
initiatives, including the combination of Enerpac's and Gardner Bender's
Wisconsin-based and Canadian-based sales and administrative offices.
SAE expenses for Engineered Solutions decreased by $5.5 million, from $55.5
million in fiscal 1999 to $50.0 million in fiscal 2000. Excluding the
segment's non-continuing businesses, adjusted SAE expenses for Engineered
Solutions decreased by $3.9 million, from $20.1 million in fiscal 1999 to
$16.2 million in fiscal 2000. This was due primarily to the benefits obtained
from cost reduction initiatives, including significant headcount reductions at
our domestic automotive unit. Engineered Solutions adjusted SAE expenses as a
percentage of sales, declined from 10.0% in fiscal 1999 to 7.8% in fiscal
2000.
Amortization of Intangible Assets
The following table summarizes amortization of intangible assets for the
past three fiscal years:
Year Ended
August 31,
--------------
2001 2000 1999
---- ---- ----
(in millions)
Total amortization expense................................ $6.2 $7.5 $8.7
Less: Non-continuing businesses........................... 0.4 1.8 3.1
---- ---- ----
Total adjusted amortization expense....................... $5.8 $5.7 $5.6
==== ==== ====
19
The decreases in amortization expense for fiscal 2001 and 2000 primarily
resulted from the divestiture of the Barry Controls and Air Cargo Equipment
business units during fiscal 2000.
On September 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets." See "New Accounting
Pronouncements" in this section for further discussion.
Contract Termination Costs (Recovery)
Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge due
to the cancellation of a customer contract. In fiscal 2000, the Company
recorded a $1.4 million gain when it recognized recoveries of these contract
costs in excess of what was anticipated when the loss was initially recorded.
Corporate Reorganization Expense
Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution.
Restructuring Costs
The Company adopted plans to restructure portions of its operations during
2001. These plans are designed to reduce administrative and operational costs
and resulted in a charge of $1.7 million. Of the charge, $0.3 million related
to the consolidation of the RV slide production facilities, $0.6 related to
downsizing the cable tie production facility, and $0.8 million related to
other personnel reductions. The Company wrote down the fixed assets at the
locations to be closed or downsized to their fair value, less costs to sell,
in the third quarter. The Company expects net cash proceeds of approximately
$0.5 million from the ultimate disposal of these assets, which should be
completed by the end of fiscal 2002. As a result of these plans, the Company
either has or will soon be terminating approximately 36 people.
Other Expense (Income)
Net Financing Costs
Actuant reported net financing costs from continuing operations of $49.2
million for fiscal 2001, compared to $37.7 million for fiscal 2000. The
increase in the Company's financing costs is a result of higher interest rates
and debt levels as a result of the Distribution. For example, the Company's
senior subordinated notes carry a 13% interest rate compared to 8.75% under
the prior financing agreements. During fiscal 2001, these cost increases were
partially mitigated as the Company benefited, on its variable rate debt, from
interest rate reductions in the marketplace. The debt balances on the
Company's balance sheet primarily result from acquisitions of business units
for the Electronics Business during the three years prior to the Distribution,
with some small Industrial Business acquisitions. For further information on
our current debt structure see "Liquidity and Capital Resources" later in this
Management's Discussion and Analysis and Note 7, "Debt" in our financial
statements.
Loss (Gain) on Sale of Subsidiaries
During fiscal 2001 the Company sold its Mox-Med business. Cash proceeds
from the sale were approximately $40.5 million, which resulted in a net gain
of $18.5 million, $11.1 million after tax, or $1.34 per diluted share.
In August 2000, the Company completed the sale of Norelem, S.A., a product
line in the Enerpac business which makes and distributes mechanical
workholding products. Norelem, S.A. had annual sales of approximately $8.0
million. The cash proceeds were approximately $4.2 million and resulted in a
pre-tax loss of approximately $3.5 million.
20
Other, net
Other, net for the fiscal years ended August 31, 2001 and 2000 are
comprised of the following:
Year Ended
August 31,
---------------
2001 2000
------- ------
(in thousands)
Gain on insurance recovery................................ $ (983) $ --
Loss on QMC divestiture................................... 738 1,300
Net present value of idled lease.......................... 1,531 --
Net foreign currency transaction gain..................... (1,247) (665)
Other..................................................... 446 352
------- ------
Other, net................................................ $ 485 $ 987
======= ======
Other, net for the year ended August 31, 1999 is comprised primarily of
foreign currency gains and losses.
Income Tax Expense
Our effective income tax rate for fiscal 2001 is 40.3%, which is similar to
the prior two fiscal years. The Company's income tax expense is impacted by a
number of factors, including the amount of taxable earnings derived in foreign
jurisdictions with tax rates that are higher or lower than the federal
statutory rate, state tax rates in the jurisdictions where we do business, our
ability to utilize various tax credits, the amount of non-deductible expenses
and other items. For more information regarding the variations in our
effective tax rates for the periods presented, see Note 12, "Income Taxes" in
our financial statements.
Discontinued Operations
See Note 2, "Distribution and Discontinued Operations" in Notes to
Consolidated Financial Statements for information regarding the results of our
discontinued operations.
Extraordinary Items
In fiscal 2000, the Company recognized an extraordinary gain related to the
sale of some of its subsidiaries of $53.2 million. See Note 3 "Acquisitions
and Divestitures" in the Notes to Consolidated Financial Statements for
further information. The Company also recognized an extraordinary loss of
$14.7 million related to an early extinguishment of its debt in fiscal 2000.
See Note 7 "Debt" in the Notes to Consolidated Financial Statements for
further information.
Liquidity and Capital Resources
The Company generated cash from operating activities of continuing
operations of $95.1 million, $17.9 million, and $32.5 million in fiscal 2001,
2000 and 1999, respectively. Operating cash flows were impacted by the
discontinuance of the accounts receivable financing program in fiscal 2000 due
to the Distribution and the subsequent sale of receivables in fiscal 2001.
These changes in our accounts receivable program impacted operating cash flows
by $25.3 million, $(53.5) million, and $1.6 million in fiscal 2001, 2000, and
1999, respectively. Cash flows from operating activities of discontinued
operations were $43.4 million and $119.5 million in fiscal 2000 and 1999,
respectively.
Cash flows from investing activities of continuing operations were $28.1
million, $159.1 million, and $(25.3) million in fiscal 2001, 2000, and 1999,
respectively, which resulted from cash inflows from business unit
divestitures, asset sales, and an insurance settlement, offset by capital
expenditures and business acquisitions. During fiscal 2001, cash used for
financing activities primarily consisted of debt repayments.
21
Prior to the Distribution, we used the majority of our net cash generated
from both continuing and discontinued operations, along with proceeds from
borrowings, to acquire businesses. The majority of the acquisitions were
businesses included in the Electronics Business. Subsequent to the
Distribution we have used the majority of our net cash generated to pay down
debt.
Debt
The following table summarizes our debt balances at August 31, 2001 and
2000. Fiscal 1999 is not presented as the majority of the borrowings that
existed at August 31, 1999 have been refinanced as a result of the
Distribution.
August 31,
-----------------
2001 2000
-------- --------
(in thousands)
Senior secured debt..................................... $114,113 $233,300
Senior subordinated notes, net of discount.............. 197,678 197,375
European term loan...................................... 13,675 --
Other................................................... 1,992 1,909
-------- --------
Total debt............................................ $327,458 $432,584
======== ========
The Company is focused on debt reduction. In the thirteen months since the
Distribution, our total debt has been reduced by $123 million. During fiscal
2001 debt was reduced $105 million. The Company plans to use the majority of
cash provided from operations to fund capital expenditures and reduce debt. In
an effort to reduce financing costs and outstanding debt, in May 2001 the
Company sold certain domestic trade accounts receivable in a securitization
transaction. All proceeds from the sale, which totaled $30 million, were used
to reduce debt. In addition, two businesses were sold during the fiscal year,
which produced cash of $41.7 million, all of which was used to reduce debt.
Although focused on debt reduction, when strategic opportunities exist to grow
our core business through acquisitions, debt may be incurred. During the third
quarter of fiscal 2001, the Company borrowed $11.3 million to fund the Dewald
acquisition.
All of the reduction in the Company's debt has taken place in its senior
secured credit facility, which was reduced over 50% from $233.3 million on
August 31, 2000 to $114.1 million on August 31, 2001. Although the Company's
senior subordinated notes are more expensive from a borrowing cost
perspective, there are significant prepayment penalties. We are continually
reviewing alternatives and options to further reduce the Company's financing
costs, including redeeming, or refinancing all or portions of existing debt,
or renegotiating the terms of agreements underlying such debt obligations. We
believe such actions will lower financing costs and correspondingly increase
the Company's earnings and financial flexibility in the future.
Dividend payments have not been 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 August 31, 2001, approximately $51 million of the
$86.8 million of unused revolver capacity was available to the Company for
general business purposes, and the Company 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.
Seasonality and Working Capital
The Company has historically met its working capital needs and capital
expenditure requirements through a combination of operating cash flow and
availability under revolving credit facilities. Although there are modest
22
seasonal factors within certain of our businesses, on a consolidated basis, we
do not experience material changes in seasonal working capital or capital
resource requirements.
Our receivables are derived from a diverse customer base in a number of
industries. The largest single customer generated approximately 4.5% of fiscal
2001 net sales. As described in Note 4, "Accounts Receivable Financing" in
Notes to Consolidated Financial Statements, we have sold trade accounts
receivables to a special purpose entity that sold participation interests in
such receivables to a third party. When receivables are sold they are removed
from the balance sheet. Prior to the Distribution, the receivables financing
program was discontinued. As a result, our trade accounts receivable balance
increased at August 31, 2000 relative to what has historically been reported.
A new accounts receivable securitization facility was put in place and
utilized in May 2001.
Capital Expenditures
The majority of our manufacturing operations consist of the assembly of
components that are sourced from a variety of vendors. We believe that our
capital expenditure requirements are not as extensive as many other industrial
companies given the assembly nature of our operations. Historical capital
expenditures were as follows:
Year Ended
August 31,
----------------
2001 2000 1999
---- ----- -----
(in millions)
Total capital expenditures............................... $6.7 $11.4 $22.9
Less: Non-continuing businesses.......................... 0.3 3.0 9.2
---- ----- -----
Adjusted capital expenditures............................ $6.4 $ 8.4 $13.7
==== ===== =====
Capital expenditures have historically been funded by operating cash flows,
and are anticipated to continue to be so in the future. For each of the past
three fiscal years, capital expenditures were invested primarily in machinery
and equipment and computer systems. There are no significant capital programs
planned in the near future that would require expenditures in excess of the
average capital expenditure levels over the past three years.
Raw Material Costs and Inflation
No meaningful measures of inflation are available because we have
significant operations in countries with diverse rates of inflation and
currency rate movements. However, we believe that the rate of inflation in
recent years has been relatively low and has not had a significant effect on
our results of operations. We source a wide variety of materials and
components from a network of global suppliers. While such materials are
typically available from numerous suppliers, commodity raw materials are
subject to price fluctuations.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 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 collectibility is reasonably assured. The adoption of SAB
101 did not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS') No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard requires all
derivative instruments to be recorded in the balance sheet at fair value. The
change in fair value of a derivative is required to be recorded each period in
net earnings and other comprehensive income,
23
depending on whether the derivative is designated as part of a hedge
transaction and if so, the type of hedge transaction. The adoption of SFAS No.
133 did not have a material effect on the Company's financial position or
results of operations.
The Emerging Issues Task Force (EITF) issued EITF No. 00-10, "Accounting
for Shipping and Handling Fees and Costs", which was adopted during fiscal
2001. The impact of adopting EITF No. 00-10 was to increase revenues and cost
of sales by approximately $8.8 million, $9.8 million, and $9.5 million in
fiscal 2001, 2000 and 1999, respectively, with no impact on gross profit,
operating profit, or net earnings. We have reclassified all years presented in
the accompanying financial statements to reflect this change.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides
for the elimination of the pooling-of-interests method of accounting for
business combinations with an acquisition date of July 1, 2001 or later. SFAS
No. 142 prohibits the amortization of goodwill and other intangible assets
with indefinite lives and requires periodic reassessment of the underlying
value of such assets for impairment. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. An early adoption provision exists
for companies with fiscal years beginning after March 15, 2001. On September
1, 2001, the Company adopted SFAS No. 142. Application of the nonamortization
provision of SFAS No. 142 is expected to result in an increase in net income
of approximately $3.2 million, or $0.38 per diluted share, in fiscal 2002. The
Company is currently evaluating the impact of the transitional provisions of
the statement.
European Economic Monetary Union
On January 1, 1999, eleven European Union countries (including a number of
the countries where Actuant locations operate) adopted the Euro as their
common currency, resulting in fixed conversion rates between their existing
currencies ("legacy currencies") and the Euro. The Euro presently trades on
currency exchanges and is available for non-cash transactions. Following the
introduction of the Euro, the legacy currencies remain legal tender in the
participating countries during the transition through January 1, 2002.
Beginning on January 1, 2002, the European Central Bank will issue euro-
denominated bills and coins for use in cash transactions. On or before July 1,
2002, the participating countries will withdraw all legacy bills and
currencies and use the Euro as their legal currency.
Some of our operating units located in Europe, which are affected by the
Euro conversion, have maintained their books in their respective legacy
currency through August 31, 2001. At this time, we do not expect the
consequences of the ongoing Euro conversion to have any material adverse
effects on the Company's operations, business or financial condition.
Outlook
Excluding any future acquisitions or divestitures, we believe our revenues
for fiscal 2002 will range from $450 million to $480 million, earnings before
interest, income taxes, depreciation, and amortization ("EBITDA") will range
from $85 million to $93 million, and earnings per share will range from $2.50
to $3.00 per diluted share. This compares to fiscal 2001 revenues and EBITDA,
excluding non-continuing businesses and non-recurring items, of $461.0 million
and $85.7 million, respectively. The Company expects its effective tax rate in
fiscal 2002 to be approximately 37.0%, lower than that recorded in fiscal 2001
due to lower debt and interest costs which allow for higher utilization of
foreign tax credits and the impact of the non-amortization of goodwill in
accordance with statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" for book purposes. We anticipate debt reduction
during fiscal 2002 of $25-30 million, excluding the impact of any divestitures
or acquisitions, and subject to the achievement of our operating earnings
estimate. These estimates are dependent on, among other things, economic
conditions during 2002, foreign exchange and interest rates remaining at their
present levels, and the successful implementation of the restructuring program
initiated in May 2001. In addition, the full impact on our fiscal 2002 results
of the terrorist actions that took place on September 11, 2001 are not known
to us at this time. You should also refer to the risk factors listed in the
Form S-4 filed in connection with the exchange offer for our Senior
Subordinated Notes.
24
Item 7A. 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, we
selectively use financial instruments. All hedging transactions are authorized
and executed pursuant to clearly defined policies and procedures established
by our board of directors, which strictly prohibit the use of financial
instruments for trading purposes.
A discussion of our accounting policies for derivative financial
instruments is included in Note 1, "Summary of Significant Accounting
Policies" in Notes to Consolidated Financial Statements, and further
disclosure relating to financial instruments is included in Note 7, "Debt."
Currency Risk: We have significant international operations. In most
instances, our 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 our other affiliates, we denominate the transaction in the functional
currency of the producing operation.
We have adopted the following guidelines to manage our 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, and pooling;
and
(iii) where possible, sell product in the functional currency of the
producing operation.
Our 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. We identify naturally occurring offsetting
positions and then purchase hedging instruments to protect anticipated
exposures. Our 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 to manage overall financing costs and interest rate risk.
At August 31, 2001 we were a party to a variable to fixed interest rate swap,
and subsequent to our fiscal year end we entered into a second variable to
fixed interest rate swap. 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.
25
Item 8. Financial Statements and Supplementary Data
Page
----
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent accountants......................................... 27
Consolidated statements of earnings for the years ended August 31, 2001,
2000 and 1999............................................................ 28
Consolidated balance sheets as of August 31, 2001 and 2000................ 29
Consolidated statements of cash flows for the years ended August 31, 2001,
2000 and 1999............................................................ 30
Consolidated statements of shareholders' equity for the years ended August
31, 2001, 2000 and 1999.................................................. 31
Notes to consolidated financial statements................................ 32
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of independent accountants on financial statement schedule......... 61
Schedule II--Valuation and Qualifying Accounts............................ 62
All other schedules are omitted because they are not applicable, not required
or because the required information is included in the consolidated financial
statements or notes thereto.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Actuant Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Actuant Corporation and its subsidiaries at August 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended August 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 26, 2001
27
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net sales......................................... $481,939 $681,443 $705,201
Cost of products sold............................. 313,030 439,277 452,517
-------- -------- --------
Gross profit.................................... 168,909 242,166 252,684
Engineering, selling and administrative expenses.. 88,985 134,037 136,671
Amortization of intangible assets................. 6,236 7,530 8,748
Contract termination costs (recovery)............. -- (1,446) 7,824
Corporate reorganization expense.................. -- 12,388 --
Restructuring charge.............................. 1,740 -- --
-------- -------- --------
Operating earnings.............................. 71,948 89,657 99,441
Other expense (income):
Net financing costs............................. 49,199 37,670 41,181
Loss (gain) on sale of businesses............... (18,508) 3,467 --
Other (income) expense, net..................... 485 987 850
-------- -------- --------
Earnings from continuing operations before income
tax expense...................................... 40,772 47,533 57,410
Income tax expense................................ 16,417 19,488 22,830
-------- -------- --------
Earnings from continuing operations............... 24,355 28,045 34,580
Discontinued operations, net of income taxes...... (781) 585 44,817
-------- -------- --------
Earnings before extraordinary items............... 23,574 28,630 79,397
Extraordinary gain (loss), net of income taxes:
Early extinguishment of debt.................... -- (14,708) --
Sale of subsidiaries............................ -- 53,167 --
-------- -------- --------
Net extraordinary gain........................ -- 38,459 --
-------- -------- --------
Net earnings...................................... $ 23,574 $ 67,089 $ 79,397
======== ======== ========
Basic earnings per share:
Continuing operations........................... $ 3.06 $ 3.59 $ 4.45
Discontinued operations......................... (0.09) 0.07 5.77
Net extraordinary gain.......................... -- 4.92 --
-------- -------- --------
Total......................................... $ 2.97 $ 8.58 $ 10.22
======== ======== ========
Diluted earnings per share:
Continuing operations........................... $ 2.93 $ 3.48 $ 4.30
Discontinued operations......................... (0.09) 0.07 5.57
Net extraordinary gain.......................... -- 4.77 --
-------- -------- --------
Total......................................... $ 2.84 $ 8.32 $ 9.87
======== ======== ========
Weighted average common shares outstanding:
Basic........................................... 7,950 7,822 7,765
======== ======== ========
Diluted......................................... 8,305 8,062 8,040
======== ======== ========
The accompanying notes are an integral part of these financial statements.
28
ACTUANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
August 31,
--------------------
2001 2000
--------- ---------
ASSETS
------
Current Assets
Cash and cash equivalents.............................. $ 26,554 $ 9,896
Accounts receivable, net of allowances of $3,790 and
$3,809, respectively.................................. 54,971 83,553
Inventories, net....................................... 56,738 67,599
Deferred income taxes.................................. 5,833 4,542
Receivable from APW Ltd. .............................. -- 32,894
Prepaid expenses....................................... 5,074 5,230
--------- ---------
Total Current Assets................................. 149,170 203,714
Property, Plant and Equipment
Land, buildings, and improvements...................... 18,090 20,867
Machinery and equipment................................ 95,107 108,872
--------- ---------
Gross property, plant and equipment.................... 113,197 129,739
Less: Accumulated depreciation......................... (73,715) (80,571)
--------- ---------
Net Property, Plant and Equipment........................ 39,482 49,168
Goodwill, net of accumulated amortization of $21,826 and
$18,705, respectively................................... 108,124 116,348
Other intangibles, net of accumulated amortization of
$18,827 and $17,843, respectively....................... 20,916 21,040
Other long-term assets................................... 25,024 26,711
--------- ---------
Total Assets......................................... $ 342,716 $ 416,981
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Short-term borrowings.................................. $ 1,568 $ 1,259
Trade accounts payable................................. 39,798 43,455
Accrued compensation and benefits...................... 10,655 16,365
Income taxes payable................................... 50,034 39,852
Other current liabilities.............................. 32,134 25,312
--------- ---------
Total Current Liabilities............................ 134,189 126,243
Long-term Debt........................................... 325,752 431,215
Deferred Income Taxes.................................... 3,907 4,486
Other Deferred Liabilities............................... 18,622 17,992
Shareholders' Equity
Class A common stock, $0.20 par value per share,
authorized 16,000,000 and 80,000,000 shares, issued
and outstanding 8,013,306 and 39,614,551 shares,
respectively.......................................... 1,603 7,923
Additional paid-in capital............................. (623,867) (632,050)
Retained earnings...................................... 501,737 478,163
Accumulated other comprehensive income (loss).......... (19,227) (16,991)
--------- ---------
Total Shareholders' Equity........................... (139,754) (162,955)
--------- ---------
Total Liabilities and Shareholders' Equity........... $ 342,716 $ 416,981
========= =========
The accompanying notes are an integral part of these financial statements.
29
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended August 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Operating activities
Earnings from continuing operations......... $ 24,355 $ 66,504 $ 34,580
Adjustments to reconcile earnings from
continuing operations to cash provided by
operating activities of continuing
operations:
Depreciation and amortization............. 18,915 22,550 26,056
Gain on sale of assets.................... (267) -- (323)
Gain on sale of businesses, net........... (18,508) (48,010) --
Provision for deferred income taxes....... 1,107 324 1,803
Extraordinary loss on early extinguishment
of debt.................................. -- 24,568 --
Other non-recurring items................. -- 1,924 4,694
Changes in components of working capital:
Accounts receivable....................... 28,268 (57,999) 5,005
Inventories............................... 11,150 (8,515) (17,664)
Prepaid expenses and other assets......... 30,053 1,323 (5,207)
Trade accounts payable.................... (4,523) 7,338 (2,236)
Other liabilities......................... 4,593 7,908 (14,168)
--------- --------- ---------
Cash provided by continuing operations........ 95,143 17,915 32,540
Cash provided by discontinued operations...... -- 43,360 119,483
--------- --------- ---------
Total cash provided by operating activities... 95,143 61,275 152,023
Investing activities
Proceeds on sale of property, plant and
equipment.................................. 1,907 835 4,884
Additions to property, plant and equipment.. (6,709) (11,441) (22,885)
Business acquisitions....................... (11,250) -- (7,320)
Business and product line dispositions...... 41,692 169,733 --
Proceeds from insurance recovery............ 2,427 -- --
Net investing activities of discontinued
operations................................. -- (52,510) (435,337)
--------- --------- ---------
Cash provided by (used in) investing
activities................................. 28,067 106,617 (460,658)
Financing activities
Net principal (payments) borrowings on debt. (106,897) (85,240) 403,349
Debt financing costs and early
extinguishment fees........................ -- (33,899) --
Proceeds from sale/leaseback transactions... -- -- 6,293
Dividends paid on common stock.............. -- (1,789) (2,339)
Stock option exercises and other............ 579 3,838 4,552
Net financing activities of discontinued
operations................................. -- (66,175) (86,790)
--------- --------- ---------
Cash (used in) provided by financing
activities................................. (106,318) (183,265) 325,065
Effect of exchange rate changes on cash....... (234) (272) (521)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.................................. 16,658 (15,645) 15,909
Effect of change in cash of discontinued
operations................................... -- 18,285 (13,722)
Cash and cash equivalents--beginning of year.. 9,896 7,256 5,069
--------- --------- ---------
Cash and cash equivalents--end of year........ $ 26,554 $ 9,896 $ 7,256
========= ========= =========
The accompanying notes are an integral part of these financial statements.
30
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Class A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Equity
------- ---------- -------- ------------- -------------
Balance at September 1,
1998................... $ 7,725 $ 5,817 $335,805 $ (7,465) $ 341,882
Net earnings.......... -- -- 79,397 -- 79,397
Currency translation
adjustments.......... -- -- -- (7,753) (7,753)
---------
Total comprehensive
income............. 71,644
---------
Cash dividends........ -- -- (2,339) -- (2,339)
Stock option
exercises............ 71 4,641 -- -- 4,712
Tax benefit of stock
option exercises..... -- 1,930 -- -- 1,930
------- --------- -------- -------- ---------
Balance at August 31,
1999................... 7,796 12,388 412,863 (15,218) 417,829
Net earnings.......... -- -- 67,089 -- 67,089
Currency translation
adjustments, net of
amounts transferred
to APW Ltd. ......... -- -- -- (1,773) (1,773)
---------
Total comprehensive
income............. 65,316
---------
Distribution of APW
Ltd. ................ -- (650,493) -- -- (650,493)
Cash dividends........ -- -- (1,789) -- (1,789)
Stock option
exercises............ 127 3,711 -- -- 3,838
Tax benefit of stock
option exercises..... -- 2,344 -- -- 2,344
------- --------- -------- -------- ---------
Balance at August 31,
2000................... 7,923 (632,050) 478,163 (16,991) (162,955)
Net earnings.......... -- -- 23,574 -- 23,574
Currency translation
adjustments.......... -- -- -- (2,590) (2,590)
Hedges of net
investment in foreign
subsidiaries......... -- -- -- 828 828
Additional minimum
pension liability
adjustment, net of
taxes................ -- -- -- (296) (296)
Fair value of interest
rate swap, net of
taxes................ -- -- -- (178) (178)
---------
Total comprehensive
income............. 21,338
---------
Restricted stock
awards............... -- 24 -- -- 24
Stock option
exercises............ 30 549 -- -- 579
5-for-1 reverse stock
split................ (6,350) 6,350 -- -- --
Tax benefit of stock
option exercises..... -- 1,260 -- -- 1,260
------- --------- -------- -------- ---------
Balance at August 31,
2001................... $ 1,603 $(623,867) $501,737 $(19,227) $(139,754)
======= ========= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
31
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1. Summary of Significant Accounting Policies
Consolidation and Presentation: The consolidated financial statements
include the accounts of Actuant Corporation and its subsidiaries ("Applied
Power," "Actuant," or the "Company"). In these notes, Actuant refers to
Applied Power Inc. and its subsidiaries before the Distribution and Actuant
Corporation and its subsidiaries after the Distribution. On January 9, 2001,
Applied Power Inc. shareholders approved the change of the name of the Company
to Actuant Corporation. Actuant consolidates companies in which it owns or
controls more than fifty percent of the voting shares. The results of
companies acquired or disposed of during the fiscal year are included in the
consolidated financial statements from the effective date of acquisition or
until the date of disposal. All significant intercompany balances,
transactions and profits have been eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.
Inventory cost is determined using the last-in, first-out ("LIFO") method for
a portion of U.S. owned inventory (approximately 62% and 70% of total
inventories in 2001 and 2000, respectively). The first-in, first-out or
average cost methods are used for all other inventories. If the LIFO method
was not used, inventory balances would be higher than the amounts in the
Consolidated Balance Sheets by approximately $7.1 million and $7.4 million at
August 31, 2001 and 2000, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated on a straight-line method over the
estimated useful lives of the assets, ranging from two to thirty years.
Capital leases and leasehold improvements are amortized over the life of the
related asset or the life of the lease, whichever is shorter.
Goodwill and Other Intangible Assets: Goodwill is amortized on a straight-
line basis over periods of fifteen to forty years. Other intangible assets,
consisting primarily of purchased patents, trademarks and noncompete
agreements, are amortized over periods from three to twenty-five years. The
Company periodically evaluates the carrying value of goodwill and other
intangible assets. Impairment of goodwill, if any, is measured on the basis of
whether anticipated undiscounted operating cash flows generated by the
underlying assets exceeds the recorded goodwill. There were no impairment
charges recorded in fiscal 2001, 2000 or 1999.
Revenue Recognition: Revenue is recognized when title to the products being
sold transfers to the customer, which is generally upon shipment. The impact
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", did not have a material impact on the results of operations.
Research and Development Costs: Research and development costs are expensed
as incurred. Such costs incurred in the development of new products or
significant improvements to existing products totaled approximately $2.2
million, $6.6 million and $8.0 million in fiscal 2001, 2000 and 1999,
respectively.
Financing Costs: Net financing costs represent interest expense, financing
fees, amortization of debt issuance costs and accounts receivable financing
costs, net of interest and investment income earned.
Income Taxes: The Company uses the liability method to record deferred
income tax assets and liabilities relating to the expected future income tax
consequences of transactions that have been recognized in the consolidated
financial statements. Under this method, deferred tax assets and liabilities
are determined based on the temporary differences between financial statement
carrying amounts and income tax bases of assets and liabilities using tax
rates in effect in the years in which temporary differences are expected to
reverse.
32
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share: The following table sets forth the computation of basic
and diluted earnings per share. All share and related per share amounts have
been restated to reflect the reverse stock split.
Year Ended August 31,
------------------------
2001 2000 1999
------- ------- -------
Numerator:
Earnings from continuing operations............ $24,355 $28,045 $34,580
Earnings (loss) from discontinued operations... (781) 585 44,817
Net extraordinary gain......................... -- 38,459 --
------- ------- -------
Net earnings................................. $23,574 $67,089 $79,397
======= ======= =======
Denominator (in thousands):
Weighted average common shares outstanding for
basic earnings per share ..................... 7,950 7,822 7,765
Net effect of dilutive stock options based on
the treasury stock method using average market
price ........................................ 355 240 275
------- ------- -------
Weighted average common and potentially
issuable shares outstanding for diluted
earnings per share ........................... 8,305 8,062 8,040
======= ======= =======
Basic Earnings Per Share:
Earnings from continuing operations per share.. $ 3.06 $ 3.59 $ 4.45
Earnings (loss) from discontinued operations
per share..................................... (0.09) 0.07 5.77
Net extraordinary gain per share............... -- 4.92 --
------- ------- -------
Net earnings per share....................... $ 2.97 $ 8.58 $ 10.22
======= ======= =======
Diluted Earnings Per Share:
Earnings from continuing operations per share.. $ 2.93 $ 3.48 $ 4.30
Earnings (loss) from discontinued operations
per share..................................... (0.09) 0.07 5.57
Net extraordinary gain per share............... -- 4.77 --
------- ------- -------
Net earnings per share....................... $ 2.84 $ 8.32 $ 9.87
======= ======= =======
Foreign Currency Translation: The financial statements of the Company's
foreign operations are translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and the average exchange
rate for each applicable period for revenues, expenses, and gains and losses.
Translation adjustments are reflected in the balance sheet caption
"Accumulated other comprehensive income (loss)." Net (gains) losses resulting
from foreign currency transactions were $(1.2) million, $(0.7) million, and
$0.7 million in fiscal 2001, 2000 and 1999, respectively, and are recorded in
other (income) expense, net in the Consolidated Statements of Earnings.
Accounting for Derivatives and Hedging Activities: All derivatives are
recognized on the balance sheet at their fair value. On the date a derivative
contract is entered into, the Company designates the derivative as a hedge of
a recognized asset or liability ("fair value" hedge), a hedge of a forecasted
transaction or of the variability of cash flows to be received or paid related
to a recognized asset or liability ("cash flow" hedge), or a hedge of the net
investment in a foreign operations. The Company does not enter into
derivatives for speculative purposes. Changes in the fair value of a
derivative that qualify as a fair value hedge are recorded in earnings along
with the gain or loss on the hedged asset or liability. Changes in the fair
value of a derivative that qualify as a cash flow hedge are recorded in other
comprehensive income, until earnings are affected by the
33
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
variability of cash flows. Changes in the fair value of a derivative used to
hedge our net investment in a foreign operation are recorded in the cumulative
translation adjustment accounts within equity.
At August 31, 2001 the Company was party to one interest rate swap contract
to convert a portion of its variable rate debt to a fixed rate.
The Company has significant investments in foreign subsidiaries, and the
net assets of these subsidiaries are exposed to currency exchange rate
volatility. During fiscal 2001, the Company utilized Euro denominated debt
agreements, entered into by the parent, to hedge its net investment in
European subsidiaries. Gains and losses on the net investments in subsidiaries
are offset by losses and gains in the Euro debt obligation of the parent. For
the fiscal year ended August 31, 2001, $0.8 million of net gains related to
the Euro denominated debt agreement were included in the cumulative
translation adjustment.
Fair Value of Financial Instruments: The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, short-term
borrowings and most of its long-term debt approximated book value as of August
31, 2001 and 2000 due to their short-term nature and the fact that the
interest rates approximated year-end market rates of interest. The fair value
of the Company's 13% Subordinated Notes at August 31, 2001 was estimated to be
$207.5 million based on quoted market prices.
Use of Estimates: The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses for the periods presented. These
estimates and assumptions could also affect the disclosure of contingencies.
Actual results could differ from those estimates and assumptions.
New Accounting Pronouncements: In December 1999, the Securities and
Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB
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 collectibility is reasonably
assured. The adoption of SAB 101 in fiscal 2001 did not have a material effect
on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard requires all
derivative instruments to be recorded in the balance sheet at fair value. The
change in fair value of a derivative is required to be recorded each period in
net earnings and other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and if so, the type of
hedge transaction. The adoption of SFAS No. 133 in fiscal 2001 did not have a
material effect on the Company's financial position or results of operations.
The Emerging Issues Task Force ("EITF") issued EITF No. 00-10, "Accounting
for Shipping and Handling Fees and Costs", which was adopted during fiscal
2001. The impact of adopting EITF No. 00-10 was to increase revenues and cost
of sales by approximately $8.8 million, $9.8 million, and $9.5 million in
fiscal 2001, 2000 and 1999, respectively. All amounts in the accompanying
Consolidated Statements of Earnings have been reclassified to reflect this
adoption.
34
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides
for the elimination of the pooling-of-interests method of accounting for
business combinations with an acquisition date of July 1, 2001 or later. SFAS
No. 142 prohibits the amortization of goodwill and other intangible assets
with indefinite lives and requires periodic reassessment of the underlying
value of such assets for impairment. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. An early adoption provision exists
for companies with fiscal years beginning after March 15, 2001. On September
1, 2001, the Company adopted SFAS No. 142. Application of the nonamortization
provision of SFAS No. 142 is expected to result in an increase in net income
of approximately $3.2 million in fiscal 2002. The Company is currently
evaluating the impact of the transitional provisions of the statement.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the fiscal 2001 presentation.
Note 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 consolidated financial statements and related notes 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 Electronics segment have been excluded from the respective captions in
the accompanying consolidated financial statements. The net operating results
of the 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.
For purposes of this presentation, the amount of debt allocated to
continuing and discontinued operations was determined based on preliminary
estimates of the amount of debt expected to be retained by Actuant and
allocated to APW Ltd. in the Distribution. The allocation of interest expense
to continuing and discontinued operations for periods prior to the
Distribution was based on relative debt levels assigned. In conjunction with
the Distribution, the majority of the Company's then existing credit
facilities and notes were replaced with new facilities and notes. There were
no general corporate expenses allocated to discontinued operations during the
periods presented.
35
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following selected financial data for the Electronics business segment
is presented for informational purposes only and does not necessarily reflect
what the results of operations would have been had the segment operated as a
stand-alone entity.
11 months ended Year ended
July 31, August 31,
2000 1999
--------------- ----------
Net sales...................................... $1,113,178 $1,055,338
========== ==========
Earnings before income tax expense............. $ 70,867 $ 69,341
Income tax expense............................. 68,199 24,524
Extraordinary loss, net of taxes............... 2,083 --
---------- ----------
Earnings from operations of discontinued
Electronics segment, net of taxes............. $ 585 $ 44,817
========== ==========
In order to effect the Distribution, Applied Power and APW Ltd. entered
into a variety of agreements intended to define the ongoing relationship
between the parties after the Distribution. Applied Power and APW Ltd. have
established pricing terms for services believed to be comparable to what could
be achieved through arm's-length negotiations. In addition, APW Ltd. has
agreed through a tax sharing agreement to indemnify Actuant for various
matters including all federal and state income tax liabilities which may arise
related to the reorganization leading up to the Distribution. For tax periods
ending on or before the Distribution, the tax sharing agreement also provides
that APW Ltd. will be responsible for income taxes in excess of $1.0 million
that arise from audit adjustments by the IRS or other taxing authorities to
the separate taxable income of any APW Ltd. entity. In the event that APW Ltd.
is unable to fulfill its obligations under these indemnifications, there could
be a materially adverse impact to Actuant's financial position and results of
operations.
During fiscal year 2001, an $0.8 million loss was recorded in "Discontinued
operations, net of income taxes" to reflect a change in estimate for certain
Electronics segment liabilities assumed by the Company as part of the
Distribution.
Note 3. Acquisitions and Divestitures
Fiscal 2001
Acquisition
On March 1, 2001, the Company, through a wholly owned subsidiary, acquired
certain assets and assumed certain liabilities of Dewald Manufacturing, Inc.
("Dewald"). Dewald is engaged in the design and manufacture of recreational
vehicle ("RV") slide out and leveling systems for the North American RV
market. The results of operations of Dewald are included in the accompanying
financial statements since the date of acquisition. The acquisition was
accounted for as a purchase, and the purchase price of $13.0 million
(including deferred purchase price of $1.8 million) was allocated to the fair
value of the assets acquired and the liabilities assumed. The excess purchase
price over the fair value of assets acquired, which approximates $8.3 million,
was recorded as goodwill and is being amortized over 20 years. This
acquisition was funded by borrowings under Actuant's senior secured credit
facility.
Divestitures
In May 2001, the Company sold the Quick Mold Change ("QMC") product line in
the Enerpac business to the QMC business management team for approximately
$1.0 million. QMC had annual sales of approximately $6.0 million. The sale
resulted in a loss of approximately $0.7 million, $0.4 million after-tax, or
$0.05 per diluted share which is recorded in "Other (income) expense, net" in
the Consolidated Statement of Earnings.
36
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 27, 2001, the Company completed the sale of Mox-Med, Inc., a
business unit in the Engineered Solutions segment. Mox-Med had annual sales of
approximately $18.0 million. Cash proceeds from the sale were approximately
$40.5 million, which resulted in a net gain of $18.5 million, $11.1 after tax,
or $1.34 per diluted share. This gain is recorded in "Loss (gain) on sale of
businesses" in the Consolidated Statement of Earnings.
Fiscal 2000
Acquisition
On January 28, 2000, Applied Power, through a wholly owned subsidiary,
acquired all of the outstanding stock of Metalade of Pennsylvania, Inc.
("Metalade"). Metalade specializes in metal fabrication relating to electronic
enclosures and was included in the Electronics segment of Applied Power. The
purchase price of this acquisition totaled $8.7 million. The acquisition was
funded by borrowings under Applied Power's credit facilities. The acquisition
has been accounted for using the purchase method. Metalade is included in
discontinued operations in the Consolidated Statements of Earnings from the
acquisition date. Allocations of the purchase price resulted in approximately
$6.7 million of goodwill.
Divestitures
In May 2000, the Company completed the sale of certain assets including Air
Cargo Equipment Corporation ("ACE"), a business unit, to Teleflex
Incorporated. ACE had annual sales of approximately $22.0 million, and was
included in the Engineered Solutions segment prior to divestiture. The total
proceeds from the transaction, which was structured as both a sale of stock of
the Air Cargo Equipment Corporation and the sale of other assets, were $12.0
million. The ACE transaction resulted in a loss of $12.2 million, net of tax.
In June 2000, the Company completed the sale of all outstanding capital
stock of Barry Wright Corporation, a wholly-owned subsidiary of Applied Power
Inc. Barry Wright Corporation, comprised of the Barry Controls Aerospace and
Barry Controls Defense/Industrial divisions, and its UK subsidiary Barry
Controls Ltd., were sold to Hutchison S.A. a subsidiary of the TotalFinaElf
Group, a French based multi-national corporation. Barry Wright Corporation had
annual sales of approximately $122.0 million. The cash proceeds were
approximately $157.5 million. The sale of Barry Wright Corporation resulted in
a gain of $65.4 million, net of tax.
Both the loss on ACE and the gain on the sale of Barry Wright Corporation
were reported as extraordinary items in the Consolidated Statements of
Earnings due to meeting the following criteria; (i) the divestiture occurred
within two years of the pooling of interest, (ii) the divestiture was not
planned at the time of the pooling of interest and (iii) operations divested
are material based on the relative criteria.
In August 2000, the Company completed the sale of Norelem, S.A., a product
line in the Enerpac business which makes and distributes mechanical
workholding products. Norelem, S.A. had annual sales of approximately $8.0
million. The cash proceeds were approximately $4.2 million and resulted in a
pre-tax loss of approximately $3.5 million. This loss is recorded in "Loss
(gain) on sale of businesses" in the Consolidated Statement of Earnings.
In November 1999, a wholly-owned subsidiary of the Company completed the
sale of the assets of Samuel Groves & Co. Ltd. Samuel Groves & Co. Ltd. had
annual sales of approximately $9.0 million. The cash proceeds were
approximately $3.0 million, which approximated the book value of such assets.
37
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal 1999
Acquisitions
In fiscal 1999, the Electronics segment of Applied Power completed numerous
acquisitions. In September 1998, the outstanding common stock of Rubicon Group
plc ("Rubicon") was acquired for $371.5 million, with the purchase price
allocation resulting in $340.6 million of goodwill. In fiscal 1999, the
outstanding stock of Innovative Metal Fabrication, Inc. ("Innovative"),
certain assets of Connector Technology, Inc. ("CTI"), and the outstanding
shares of Ergun Kriko San Ticaret ("Ergun") were acquired. The aggregate
purchase price paid for the Innovative, CTI and Ergun acquisitions totaled
approximately $17.0 million, with the purchase price allocation resulting in
$10.9 million of goodwill. All of these acquisitions were accounted for using
the purchase method of accounting. Funds for the acquisitions were provided
through the existing credit facilities. The operating results of Rubicon,
Innovative, and CTI subsequent to the acquisition dates are included in
discontinued operations and the operating results of Ergun subsequent to the
acquisition date are included in earnings from continuing operations in the
Consolidated Statements of Earnings.
Note 4. Accounts Receivable Financing
During fiscal 2001, the Company established a new accounts receivable
securitization program whereby it sells certain of its trade accounts
receivable to a wholly owned special purpose subsidiary which, in turn, sells
participating interests in its pool of receivables to a financial institution
(the "Purchaser"). The Purchaser receives an ownership and security interest
in the pool of receivables. Participation interests in new receivables are
purchased by the special purpose subsidiary and resold to the Purchaser as
collections reduce previously sold participation interests. The Company has
retained collection and administrative responsibilities on the participation
interests sold. The Purchaser has no recourse against the Company for
uncollectible receivables; however, the Company's retained interest in the
receivable pool is subordinate to the Purchaser. The Company's retained
interest in the receivable pool is recorded at fair value.
Prior to the Distribution, the Company utilized a similar trade accounts
receivable financing program. This arrangement was dissolved prior to the
Distribution; therefore, no accounts receivable financing program was in place
as of August 31, 2000.
Sales of trade receivables are reflected as a reduction of accounts
receivable in the accompanying Consolidated Balance Sheets and the proceeds
received are included in cash flows from operating activities in the
accompanying Consolidated Statements of Cash Flows. Trade receivables sold and
being serviced by the Company were $25.3 million and $0 at August 31, 2001 and
2000, respectively.
Accounts receivable financing costs of $0.9 million, $3.5 million, and $3.2
million for the years ended August 31, 2001, 2000 and 1999, respectively, are
included in net financing costs in the accompanying Consolidated Statements of
Earnings. Total cash proceeds under the trade accounts receivable financing
program were $64.4 million for the year ended August 31, 2001.
Note 5. Net Inventories
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.
38
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Note 6. Restructuring and Other Non-recurring Items
Fiscal 2001
The Company adopted plans to restructure portions of its operations during
the fiscal third quarter of 2001. These plans are designed to reduce
administrative and operational costs and resulted in a charge of $1.7 million,
$1.0 million after-tax, or $0.13 per diluted share. Of the pre-tax charge,
$0.3 million related to the consolidation of the RV slide production
facilities, $0.6 million related to downsizing the cable tie production
facility, and $0.8 million related to other personnel reductions. The Company
wrote down the fixed assets at the locations to be closed or downsized to
their fair value, less costs to sell, in the third quarter. The Company
expects net cash proceeds of approximately $0.5 million from the ultimate
disposal of these assets, which should be completed by the third quarter of
fiscal 2002. As a result of these plans, the Company either has or will soon
be terminating approximately 36 people.
A rollforward of the restructuring reserve recorded is shown in the
following table:
Fiscal 2001 Charged to August 31, 2001
Restructuring Cash Asset Restructuring
Charge Payments Accounts Reserve
------------- -------- ---------- ---------------
Severance.................. $ 822 $ (640) $ -- $ 182
Exit Costs................. 820 -- -- 820
Asset Impairments.......... 98 -- (98) --
------ ------ ----- ------
$1,740 $(640) $ (98) $1,002
====== ====== ===== ======
In May 2001, the Company recorded a charge in "Other (income) expense, net"
of $1.5 million, $0.9 million after-tax, or $0.11 per diluted share, for the
net present value of future lease and holding costs on a building that had
been occupied by a former division. At the time the Company sold the divested
business in 1996, it received a five-year sub-lease with renewal options. Due
to a change in control at the parent company of the divested business, the
renewal option was not exercised. The Company was unsuccessful in subletting
the building during the third quarter.
In February 2001, one of the Company's leased facilities in Oldenzaal, The
Netherlands was damaged by fire. The fire damaged a portion of the building,
as well as certain inventory and property, plant and equipment contained
therein. Additionally, the fire temporarily 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 August 31, 2001 and the
net book value of lost assets total $2.1 million. The Company received advance
payments of $2.4 million from the insurance carrier during the year in partial
settlement of the insurance contract. Of the $2.4 million received, $1.1
million related to recovery on fixed assets destroyed and the remaining $1.3
million related to recovery of business interruption costs. A gain of
$1.0 million, $0.6 million after-tax, or $0.07 per diluted share, was recorded
in "Other (income) expense, net" to reflect the difference between the book
value of the assets destroyed and the minimum reimbursement received for such
assets from the insurance carrier. Approximately $0.7 million of costs
associated with the fire loss are recorded in other current assets at August
31, 2001 in the Condensed Consolidated Balance Sheet, which
39
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
represents amounts expected to be recovered from our insurance carrier. Future
insurance recoveries under our insurance contract are probable, and will be
recorded net of additional costs associated with the fire, when estimable.
Fiscal 2000
In fiscal 2000, the Company recorded $12.4 million of fees and expenses
associated with the Distribution. Such legal, accounting, tax and investment
banking fees and expenses are reported under the caption "Corporate
reorganization expense" in the Consolidated Statements of Earnings.
In fiscal 2000, the Company recorded a $6.6 million gain related to the
unwinding of interest rate swap agreements. The interest rate swap agreements
were unwound due to the anticipated spin-off of the Electronics business.
Gains relating to terminations of qualifying hedges were deferred and
recognized in income at the same time as the underlying hedged transactions.
As of August 31, 2000, no deferred gain remained. These gains are included in
the Consolidated Statements of Earnings as a reduction to "Net financing
costs" and as a component of "Discontinued operations, net of income taxes ."
In the fourth quarter of fiscal 2000, the Company approved a plan to sell
product lines within its Tools & Supplies segment. The Company recorded a
total charge of approximately $1.9 million to reduce the carrying amounts of
these assets to estimated net realizable value. This charge is included in the
Consolidated Statements of Earnings as a component of "Other (income) expense,
net."
Fiscal 1999
In the first quarter of fiscal 1999, the Company incurred a $7.8 million
non-recurring charge due to the cancellation of a contract within the
Engineered Solutions segment. The majority of these costs were incurred prior
to fiscal 1999. In the first quarter of fiscal 2000, the Company recovered
$1.4 million of the estimated loss.
Note 7. Debt
The Company's indebtedness at the end of its two most recently completed
fiscal years was as follows:
August 31,
------------------
2001 2000
-------- --------
Senior secured credit agreement
Revolving credit borrowings............................ $ 13,250 $ --
Tranche A term loans................................... 10,376 109,447
Tranche B term loans................................... 90,487 123,853
-------- --------
Sub-total--senior secured credit agreement........... 114,113 233,300
Senior subordinated notes, due 2009 ("13% Notes")........ 200,000 200,000
Less: discount........................................... (2,322) (2,625)
-------- --------
Senior subordinated notes, net of discount............. 197,678 197,375
Euro term loan........................................... 13,675 --
Other.................................................... 286 540
-------- --------
Total long-term debt................................. $325,752 $431,215
======== ========
In January 2000, the Company retired senior promissory notes due March 8,
2011 in anticipation of the Distribution. The Company paid a $3.3 million
make-whole premium ($2.1 million net of tax), in connection
40
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with this early retirement of debt. This premium and related costs are
included in discontinued operations in the Consolidated Statement of Earnings.
Immediately prior to the Distribution, all borrowings outstanding under a
multi-currency revolving credit agreement, senior subordinated notes due in
2009, and a commercial paper program were repaid with proceeds from a new APW
Ltd. credit facility, Actuant's 13% Notes and Actuant's new senior secured
credit agreement (the "Senior Credit Agreement"). APW Ltd. retained the
remainder of the outstanding debt in the Distribution. In conjunction with the
refinancing, the Company recorded a $14.7 million extraordinary loss ($24.6
million, net of $9.9 million of related tax benefits) for the make-whole
payment required to tender the senior subordinated notes due in 2009, tender
costs and the write-off of non-amortized capitalized debt issuance costs
attributable to the retired debt.
Following the Distribution, Actuant's only long-term debt consisted of
borrowings under 1) the Senior Credit Agreement, 2) the 13% Notes and 3) $540
of other notes.
The Company initially borrowed $252.6 million under the Senior Credit
Agreement, consisting of $115.0 million of Tranche A Term loans ("Term Loan
A"), $125.0 million of Tranche B Term loans ("Term Loan B") and $12.6 million
of a $100.0 million revolving credit line (the "Revolver"). The equivalent of
$30.0 million of Term Loan A was initially borrowed in Euro, with the
remainder of Senior Credit Agreement borrowings being U.S. Dollar denominated
obligations. Both the Revolver and Term Loan A have a term of six years, and
can be prepaid at any time without premium or penalty. Principal installments
are payable quarterly on Term Loan A. Interest accrues on the Revolver and
Term Loan A at floating rates ranging from LIBOR (or EURIBOR in the case of
Euro denominated borrowings) plus 1.50-3.00%, depending on the Company's
leverage ratio. At August 31, 2001, such borrowings were at interest rates
ranging from 6.33% to 7.70%, which represented LIBOR plus 2.75%. Term Loan B
has a term of 8 years, and can also be prepaid at any time without premium or
penalty. Modest principal installments are payable quarterly on Term Loan B
for the first six years, followed by larger installment requirements in the
final two years. Interest accrues on Term Loan B at floating rates ranging
from LIBOR plus 3.50-4.00%, depending on the Company's leverage ratio. At
August 31, 2001, Term Loan B borrowings were at interest rates ranging from
7.48% to 8.70%, which represented LIBOR plus 3.75%.
A non-use fee, currently computed at a rate of 0.50% annually, is payable
quarterly on the average unused Revolver credit line. The unused Revolver
credit line at August 31, 2001 was approximately $86.8 million. Of this
amount, approximately $51 million was available for borrowing based on the
Senior Credit Agreement limits of 4.5 times the Company's earnings before
interest, income taxes, depreciation and amortization for the preceding four
quarters. The Senior Credit Agreement contains customary limits and
restrictions concerning investments, sales of assets, liens on assets,
interest and fixed cost coverage ratios, maximum leverage, capital
expenditures, acquisitions, excess cash flow, dividends and other restricted
payments. The Senior Credit Agreement is secured by substantially all domestic
assets of the Company and its domestic subsidiaries and a pledge of 66% of the
stock of certain foreign subsidiaries. As of August 31, 2001, the Company was
in compliance with all debt covenants.
Effective November 2000, a wholly-owned subsidiary of the Company entered
into an unsecured financing arrangement which provides up to a maximum of Euro
20.0 million in borrowings. The facility includes a Euro 15.0 million term
loan and a Euro 5.0 million working capital facility. The term loan has a term
of 7 years, and is payable in ten semi-annual installments beginning January
2003. Proceeds from the Euro 15.0 million term loan were used to reduce
indebtedness under the Senior Credit Agreement. The term loan borrowing
accrues interest at EURIBOR plus 1.10%, or 5.56% at August 31, 2001. No
borrowings have been made under the working capital facility since its
inception.
41
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Actuant's 13% Notes were issued at a price of 98.675% on July 31, 2000. The
discount is being amortized over the term of the notes, which mature in May
2009. The 13% Notes carry a fixed 13.0% rate of interest, which is paid on
November 1 and May 1 annually, and are U.S. Dollar denominated. There are no
required principal payments on the 13% Notes. The Company has the right to
redeem at 113% up to 35% of the 13% Notes prior to May 1, 2003 with the
proceeds from a public equity offering. Further, the Company has the right to
redeem all or a portion of the 13% Notes at certain specified redemption
prices on or after May 1, 2007. The 13% Notes are unsecured obligations of the
Company, and are subordinate in right of payment to the prior payment in full
of all senior debt as defined in the indenture. In conjunction with the
issuance of the 13% Notes, a number of the Company's domestic subsidiaries
have provided unconditional guarantees for their payment.
Short-term Debt: Short-term debt outstanding at August 31, 2001 consisted
of foreign subsidiary overdraft borrowings. Certain of the Company's foreign
subsidiaries are a party to unsecured non-committed lines of credit with
various banks. Interest rates vary depending on the currency being borrowed.
Aggregate Maturities: Long-term debt outstanding at August 31, 2001 is
payable as follows:
Year Ended August 31,
---------------------
2002........................ $ -- million
2003........................ $ 5.2 million
2004........................ $ 8.8 million
2005........................ $ 9.4 million
2006........................ $ 3.9 million
Thereafter.................. $298.5 million
There are no mandatory payments due in fiscal 2002.
The Company paid $40.9 million, $67.2 million, and $61.5 million for
interest costs in fiscal 2001, 2000 and 1999, respectively, which included
both continuing and discontinued operations.
Note 8. Leases
The Company leases certain facilities, computers, equipment and vehicles
under various lease agreements generally over periods of one to twenty years.
Under most arrangements, the Company pays the property taxes, insurance,
maintenance and expenses related to the leased property. Many of the leases
include provisions that enable the Company to renew the lease based upon fair
value rental rates on the date of expiration of the initial lease.
Future obligations under non-cancelable operating leases in effect at
August 31, 2001 are as follows: $6.8 million in fiscal 2002; $5.8 million in
fiscal 2003; $4.8 million in fiscal 2004; $3.2 million in fiscal 2005; $2.5
million in fiscal 2006; and $8.4 million thereafter.
Total rental expense under operating leases related to the continuing
businesses was $7.3 million, $9.1 million, and $11.5 million in fiscal 2001,
2000 and 1999, respectively.
The Company's policy is to not enter into capital leases.
42
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Shareholders' Equity
The authorized capital stock of the Company as of August 31, 2001 consisted
of 16,000,000 shares of Class A Common Stock, $0.20 par value, of which
8,013,306 shares were issued and outstanding; 1,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued and outstanding; and
160,000 shares of Cumulative Preferred Stock, $1.00 par value ("Preferred
Stock"), none of which have been issued. Holders of both classes of the
Company's Common Stock are entitled to such dividends as the Company's board
of directors may declare out of funds legally available, subject to any
contractual restrictions on the payment of dividends or other distributions on
the Common Stock. If the Company were to issue any of its Preferred Stock, no
dividends could be paid or set apart for payment on shares of Common Stock,
unless paid in Common Stock, until dividends on all of the issued and
outstanding shares of Preferred Stock had been paid or set apart for payment
and provision had been made for any mandatory sinking fund payments.
On January 9, 2001, the Company's board of directors authorized and the
shareholders approved a reverse stock split effective January 25, 2001,
whereby every five shares of Common Stock were converted into one share of
Common Stock. In addition, the shareholders approved a reduction in the
authorized Class A common shares from 80 million to 16 million with a similar
reduction for other capital stock. Unless otherwise indicated, all references
in the consolidated financial statements to the average number of common
shares and related per share amounts have been restated to reflect the reverse
stock split.
Note 10. Stock Plans
At the date of the Distribution, all stock options outstanding were
adjusted such that employees and directors received options only in the
company for which they worked. The number of shares subject to these options,
as well as their exercise prices, were adjusted so that the options
outstanding immediately after the Distribution had equivalent economic terms
to the options immediately before the Distribution.
Employee Plans: On January 9, 2001, shareholders of the Company approved
the adoption of the Actuant Corporation 2001 Stock Plan (the "2001 Plan").
Previously, the Company had two nonqualified stock option plans for
employees--the 1990 and 1996 plans. No further options may be granted under
the 1990 or 1996 plans, although options previously issued and outstanding
under these plans remain exercisable pursuant to the provisions of the plans.
Under the terms of the 2001 Plan, stock options may be granted to officers and
key employees. At August 31, 2001, a total of 400,000 shares of Class A Common
Stock were authorized for issuance under the 2001 Plan, none of which have
been issued through exercises of option grants. At August 31, 2001, 400,000
shares were reserved for issuance under the 2001 Plan, consisting of 150,200
shares subject to outstanding options and 249,800 shares available for further
grants. Options generally have a maximum term of ten years and an exercise
price equal to 100% of the fair market value of a share of the Company's
common stock at the date of grant. Options generally vest 50% after two years
and 100% after five years.
The following table reflects the status and activity for the stock options
issued under the employee stock option plans. The number of shares and share
prices presented prior to the Distribution and reverse stock split have not
been adjusted to reflect the effect of the Distribution or the reverse stock
split.
43
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighted
Average
Number of Exercise
Shares Price
---------- --------
Outstanding at August 31, 1998....................... 2,779,706 $15.72
Granted............................................ 646,230 27.45
Exercised.......................................... (539,138) 14.82
Cancelled.......................................... (401,508) 26.57
----------
Outstanding at August 31, 1999....................... 2,485,290 17.27
Granted............................................ 1,703,133 13.66
Exercised.......................................... (647,588) 6.30
Cancelled.......................................... (168,311) 25.08
Adjustment due to Distribution..................... 1,267,816
----------
Outstanding at August 31, 2000....................... 4,640,340 2.25
Adjustment for reverse stock split................. (3,710,582) 11.25
Granted............................................ 96,800 17.81
Exercised.......................................... (67,743) 6.65
Cancelled.......................................... (55,960) 11.86
----------
Outstanding at August 31, 2001....................... 902,855 12.27
Exercisable at August 31, 2001....................... 420,140 9.35
The following table summarizes information concerning stock options
outstanding at August 31, 2001:
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted
Range of August 31, Weighted Average Average August 31, Average
Exercise 2001 Number Remaining Exercise 2001 Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------------ ----------- ---------------- -------- ----------- --------
$3.01-6.83 245,180 4.08 $ 5.68 184,860 $ 5.31
$10.66-11.31 180,900 7.29 $10.73 78,200 $10.66
$12.16-13.67 84,408 6.81 $12.44 32,280 $12.17
$13.80 124,800 6.45 $13.80 124,800 $13.80
$18.59 267,567 9.06 $18.59 0 0
------- -------
$3.01-18.59 902,855 6.78 $12.27 420,140 $ 9.35
======= =======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. If the Company had
accounted for these stock options issued to employees in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's earnings
from continuing operations and related earnings per share would have been
changed to the pro forma amounts indicated below:
As Reported Pro Forma
Year ended August 31, Year ended August 31,
----------------------- -----------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
Earnings from continuing
operations.................... $24,355 $28,045 $34,580 $23,903 $28,000 $33,164
Basic earnings from continuing
operations per share.......... $ 3.06 $ 3.59 $ 4.45 $ 3.01 $ 3.58 $ 4.27
Diluted earnings from
continuing operations per
share......................... $ 2.93 $ 3.48 $ 4.30 $ 2.88 $ 3.47 $ 4.12
44
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma effects of applying SFAS No. 123 have not been allocated to
discontinued operations and may not be representative of the effects on
reported net income and earnings per share for future years since options vest
over several years and additional awards are generally made each year.
The fair value of the Company's stock options used to calculate the
preceding pro forma earnings and pro forma earnings per share amounts is the
estimated present value at grant date using the Black-Scholes option-pricing
model. The weighted-average fair values per share of options granted in fiscal
2001, 2000 and 1999 are $8.58, $1.07, and $10.37 respectively. The increase in
the fiscal 2001 and decrease in the fiscal 2000 weighted-average fair value
per share of options are due to the adjustments resulting from the reverse
stock split and the Distribution, respectively. The following weighted-average
assumptions were used in completing the model:
Year ended August 31,
-----------------------------
2001 2000 1999
--------- --------- ---------
Dividend yield.............................. 0.00% 0.00% 0.20%
Expected volatility......................... 47.27% 40.30% 31.90%
Risk-free rate of return.................... 4.60% 5.60% 6.40%
Expected life............................... 5.3 years 5.3 years 4.7 years
Outside Director Plan: On January 9, 2001, shareholders of the Company
approved the Actuant Corporation 2001 Outside Directors' Stock Option Plan
(the "Director Plan") for the board of directors. Previously, the Company had
other nonqualified stock option plans for the board of directors. However, no
further options may be granted under these older plans, although options
previously issued and outstanding under these plans remain exercisable
pursuant to the provisions of the plans. At August 31, 2001, a total of 70,000
shares of Class A Common Stock were authorized for issuance under the Director
Plan, none of which have been issued through exercises of option grants. At
August 31, 2001, 70,000 shares were reserved for issuance under the Director
Plan, consisting of 15,000 shares subject to outstanding options and 55,000
shares available for further grants. Director stock options vest eleven months
after date of grant and expire ten years from the option grant date. The
options have an exercise price equal to 100% of the fair market value of a
share of the Company's common stock at the date of grant. The following table
reflects the status and activity for the stock options issued under the
Director Plan. The number of shares and share prices presented prior to the
Distribution and reverse stock split have not been adjusted to reflect the
effect of the Distribution and reverse stock split.
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding at August 31, 1998........................ 62,000 $18.88
Granted............................................. 15,000 37.06
Exercised........................................... (14,000) 10.09
--------
Outstanding at August 31, 1999........................ 63,000 25.17
Granted............................................. 15,000 33.84
Adjustment due to Distribution...................... 338,000
--------
Outstanding at August 31, 2000........................ 416,000 2.04
Adjustment for reverse stock split.................. (332,800) 10.20
Granted............................................. 18,000 18.59
Exercised........................................... (23,400) 5.48
Canceled............................................ (3,000) 18.59
--------
Outstanding at August 31, 2001........................ 74,800 13.34
Exercisable at August 31, 2001........................ 59,800 12.02
45
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. Employee Benefit Plans
Defined Benefit Pension and Other Postretirement Benefit Plans: The Company
provides defined benefit pension and other postretirement benefits to certain
employees of businesses it acquired who were entitled to those benefits prior
to acquisition. The following tables provide a reconciliation of benefit
obligations, plan assets, funded status and net periodic benefit cost for
those plans:
Other
Defined Benefit Postretirement
Pension Plan Benefits
---------------- ----------------
Year ended Year ended
August 31, August 31,
---------------- ----------------
2001 2000 2001 2000
------- ------- ------- -------
Reconciliation of benefit obligations:
Benefit obligation at beginning of year... $11,111 $11,097 $ 6,468 $ 5,872
Service cost.............................. -- 52 14 15
Interest cost............................. 837 844 481 436
Actuarial loss/(gain)..................... 720 (323) 623 659
Benefits paid............................. (641) (559) (506) (514)
------- ------- ------- -------
Benefit obligation at end of year....... $12,027 $11,111 $ 7,080 $ 6,468
======= ======= ======= =======
Reconciliation of plan assets:
Fair value of plan assets at beginning of
year..................................... $13,655 $12,324 $ -- $ --
Actual return on plan assets.............. (1,413) 1,813 -- --
Benefits paid from plan assets............ (564) (482) -- --
------- ------- ------- -------
Fair value of plan assets at end of
year................................... $11,678 $13,655 $ -- $ --
======= ======= ======= =======
Development of net amount recognized:
Overfunded (Unfunded) status of the plans. $ (349) $ 2,544 $(7,080) $(6,468)
Unrecognized net loss/(gain).............. 2,564 (664) (1,197) (1,952)
------- ------- ------- -------
Prepaid (accrued) benefit cost............ $ 2,215 $ 1,880 $(8,277) $(8,420)
======= ======= ======= =======
Amounts recognized in the Consolidated
Balance Sheets:
Prepaid benefit cost...................... $ 1,722 $ 1,880 $ -- $ --
Accrued benefit cost...................... -- -- (8,277) (8,420)
Accumulated other comprehensive income.... 296 -- -- --
Deferred income taxes..................... 197 -- -- --
------- ------- ------- -------
$ 2,215 $ 1,880 $(8,277) $(8,420)
======= ======= ======= =======
Weighted-average assumptions as of August
31:
Discount rate............................. 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets............ 8.50% 8.50%
Rate of compensation increase............. Frozen Frozen
46
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other
Postretirement
Pension Benefits Benefits
------------------------- -------------------
Year ended August
Year ended August 31, 31,
------------------------- -------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ----- ----- -----
Components of net periodic
benefit cost:
Service cost.................. $ -- $ 52 $ 81 $ 14 $ 15 $ 19
Interest cost................. 837 844 787 482 436 354
Expected return on assets..... (1,095) (1,060) (1,064) -- -- --
Amortization of actuarial
(gain)/loss.................. -- -- 1 (131) (218) (294)
------- ------- ------- ----- ----- -----
Benefit cost (credit)....... $ (258) $ (164) $ (195) $ 365 $ 233 $ 79
======= ======= ======= ===== ===== =====
At August 31, 2001, the defined benefit pension plans consisted of three
plans covering certain employees and executives of a business acquired in
1997. On March 31, 1999, the Hourly Plan was merged into the Salaried Plan,
resulting in no change to the aggregate funding status of the two plans. Trust
assets consist primarily of participating units in common stock and bond
funds.
Certain former employees of acquired businesses who retired before February
1, 1994 (and their dependents) have the option of being covered by one of
several postretirement medical plans. Deferred vested employees who terminated
employment before February 1, 1994 are also eligible for this postretirement
benefit. In addition, retiree life insurance is available to all employees
hired before 1988. The postretirement benefit liability related to these plans
is unfunded. Most individuals receiving postretirement health care and life
insurance benefits under the above programs are required to make monthly
contributions to defray a portion of the cost. Retiree contributions are
adjusted annually. The accounting for retiree health care benefits assumes
retirees will continue to contribute toward the cost of such benefits.
Retirees currently do not contribute toward the cost of life insurance.
The health care cost trend rate used in the actuarial calculations was
8.7%, trending downward to 6.5% by the year 2009, and remaining level
thereafter. A one percentage-point increase or decrease in the assumed health
care cost trend rate would increase or decrease the postretirement benefit
obligation by approximately $0.4 million and would not have a material effect
on aggregate service and interest cost components.
Defined Contribution Benefit Plans: The Company maintains an Employee Stock
Ownership Plan for eligible U.S. employees (the "401(k) Plan"). Substantially
all of the Company's full-time U.S. employees are eligible to participate in
the 401(k) Plan. Under the provisions of the 401(k) Plan, the plan
administrator acquires shares of Class A Common Stock on the open market for
company contributions and allocates such shares to accounts set aside for each
employees' retirement. Company core contributions generally equal 3% of each
employee's annual cash compensation, subject to IRS limitations. Additionally,
employees generally may contribute up to 15% of their base compensation. The
Company also matches approximately 25% of each employee's contribution up to
the employee's first 6% earnings.
In conjunction with the Distribution, the 401(k) Plan was split into two
plans. Effective July 31, 2000, balances of APW Ltd. employee accounts were
transferred into a new plan which provisions mirrored the 401(k) Plan in all
material respects. Provisions under the 401(k) Plan remained unchanged after
the Distribution.
During the years ended August 31, 2001, 2000 and 1999, Company
contributions to defined contribution benefit plans relating to continuing
operations were approximately $2.2 million, $2.4 million and $3.3 million,
respectively.
47
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-U.S. Benefit Plans: The Company contributes to a number of retirement
programs, primarily government mandated, for employees outside the United
States. Benefit expense under these programs amounted to approximately $0.6
million, $0.8 million and $1.1 million in fiscal 2001, 2000 and 1999,
respectively.
Note 12. Income Taxes
Income tax expense for continuing operations before extraordinary items is
summarized below:
Year ended August 31,
------------------------
2001 2000 1999
------- ------- -------
Currently payable:
Federal....................................... $ 7,434 $11,848 $12,096
Foreign....................................... 6,855 5,468 6,348
State......................................... 1,021 1,848 2,583
------- ------- -------
Subtotals....................................... 15,310 19,164 21,027
------- ------- -------
Deferred:
Federal....................................... 1,216 273 607
Foreign....................................... (48) 8 1,823
State......................................... (61) 43 (627)
------- ------- -------
Subtotals....................................... 1,107 324 1,803
------- ------- -------
Income tax expense.............................. $16,417 $19,488 $22,830
======= ======= =======
Income tax expense differs from the amounts computed by applying the
Federal income tax rate to earnings before income tax expense. A
reconciliation of income taxes at the Federal statutory rate to the effective
tax rate for continuing operations follows:
Year ended
August 31,
----------------
% of Pre-tax Earnings 2001 2000 1999
--------------------- ---- ---- ----
Federal statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal effect............... 1.6 2.6 2.2
Non-deductible amortization and other expenses.......... 2.7 6.6 2.9
Net effects of foreign tax rates and credits............ (0.8) (2.8) (1.5)
Other items............................................. 1.8 (0.4) 1.2
---- ---- ----
Effective tax rate...................................... 40.3% 41.0% 39.8%
==== ==== ====
48
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities for continuing operations included the following items:
Year ended August 31,
----------------------
2001 2000
---------- ----------
Deferred income tax assets:
Operating loss and state tax credit
carryforwards................................. $ 5,358 $ 6,091
Compensation and other employee benefits....... 5,216 5,506
Inventory items................................ 2,643 2,015
Restructuring expenses......................... 1,546 1,367
Deferred income................................ 1,439 1,783
Book reserves and other items.................. 5,728 4,860
---------- ----------
Total deferred income tax assets............. 21,930 21,622
Valuation allowance............................ (5,358) (6,091)
---------- ----------
Net deferred income tax assets............... 16,572 15,531
Deferred income tax liabilities:
Depreciation and amortization.................. 11,171 11,695
Other items.................................... 3,475 3,780
---------- ----------
Deferred income tax liabilities.............. 14,646 15,475
---------- ----------
Net deferred income tax...................... $ 1,926 $ 56
========== ==========
The valuation allowance primarily represents a reserve for foreign and
state operating loss carryforwards for which utilization is uncertain. The
majority of the foreign losses may be carried forward indefinitely. The state
loss carryforwards expire in various years through 2016.
Income taxes paid for both continuing and discontinued operations during
fiscal 2001, 2000 and 1999 were $3.9 million, $25.9 million, and $37.2
million, respectively.
The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the United
States. Accordingly, the Company does not currently provide for the additional
United States and foreign income taxes which would become payable upon
remission of undistributed earnings of foreign subsidiaries. Undistributed
earnings from continuing operations on which additional income taxes have not
been provided amounted to approximately $36.2 million at August 31, 2001. If
all such undistributed earnings were remitted, an additional provision for
income taxes of approximately $2.7 million would have been necessary as of
August 31, 2001.
Earnings from continuing operations before income taxes from non-United
States operations were $19.6 million, $17.0 million and $24.5 million for
fiscal 2001, 2000 and 1999, respectively.
Note 13. Business Segment, Geographic and Customer Information
The Company has two reportable segments: Tools & Supplies and Engineered
Solutions, with separate and distinct operating management and strategies. The
Tools & Supplies segment is primarily involved in the design, manufacture and
distribution of tools and supplies to the construction, electrical wholesale,
retail do-it-yourself, industrial and production automation markets. The
Engineered Solutions segment focuses on developing and marketing value-added,
customized motion control systems for original equipment manufacturers in the
recreational vehicle, automotive, truck, and industrial markets. We have not
aggregated individual operating
49
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
segments within these reportable segments. The accounting policies of the
segments are the same as described in Note 1, "Summary of Significant
Accounting Policies." We evaluate segment performance based primarily on
earnings before interest, taxes, depreciation, and amortization less a net
asset carrying charge.
The following tables summarize financial information from continuing
operations by reportable segment. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
merger, restructuring and other non-recurring items discussed in Note 6,
"Restructuring and Other Non-recurring Items." Earnings (Loss) from Continuing
Operations before Income Tax Expense for each reportable segment and
geographic region does not include general corporate expenses, interest
expense or currency exchange adjustments.
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net Sales:
Tools & Supplies......................... $281,223 $312,310 $317,942
Engineered Solutions..................... 200,716 369,133 387,259
-------- -------- --------
Totals................................. $481,939 $681,443 $705,201
======== ======== ========
Earnings (Loss) from Continuing Operations
before Income Tax Expense:
Tools & Supplies......................... $ 38,860 $ 36,150 $ 31,210
Engineered Solutions..................... 20,543 53,529 35,547
General corporate and other.............. (18,631) (42,146) (9,347)
-------- -------- --------
Totals................................. $ 40,772 $ 47,533 $ 57,410
======== ======== ========
Depreciation and Amortization:
Tools & Supplies......................... $ 9,210 $ 9,733 $ 9,718
Engineered Solutions..................... 6,696 12,043 15,954
General corporate and other.............. 3,009 774 384
-------- -------- --------
Totals................................. $ 18,915 $ 22,550 $ 26,056
======== ======== ========
Capital Expenditures:
Tools & Supplies......................... $ 3,169 $ 6,103 $ 9,127
Engineered Solutions..................... 3,345 4,787 9,890
General corporate and other.............. 195 551 3,868
-------- -------- --------
Totals................................. $ 6,709 $ 11,441 $ 22,885
======== ======== ========
August 31,
------------------
2001 2000
-------- --------
Assets:
Tools & Supplies......................... $162,682 $209,000
Engineered Solutions..................... 124,490 130,893
General corporate and other.............. 55,544 77,088
-------- --------
Totals................................. $342,716 $416,981
======== ========
50
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize financial information from continuing
operations by geographic region. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
restructuring and other non-recurring items discussed in Note 6,
"Restructuring and Other Non-recurring Items."
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net sales:
North America............................ $329,266 $463,837 $476,766
Europe................................... 118,830 177,165 191,113
Asia Pacific............................. 25,041 30,019 27,116
Latin America............................ 8,802 10,422 10,206
-------- -------- --------
Totals................................. $481,939 $681,443 $705,201
======== ======== ========
Earnings (Loss) from Continuing Operations
Before Income Tax Expense:
North America............................ $ 37,835 $ 66,743 $ 41,029
Europe................................... 17,852 19,145 24,053
Asia Pacific............................. 3,606 2,580 (203)
Latin America............................ 110 1,211 1,878
General corporate and other.............. (18,631) (42,146) (9,347)
-------- -------- --------
Totals................................. $ 40,772 $ 47,533 $ 57,410
======== ======== ========
August 31,
------------------
2001 2000
-------- --------
Assets:
North America............................ $221,123 $268,020
Europe................................... 47,044 46,574
Asia Pacific............................. 14,768 19,676
Latin America............................ 4,237 5,623
General corporate and other.............. 55,544 77,088
-------- --------
Totals................................. $342,716 $416,981
======== ========
Corporate assets, which are not allocated, represent principally cash,
capitalized debt issuance costs, and deferred income taxes, and at August 31,
2001 and 2000, a $10.0 million and $40.9 million receivable due from APW Ltd.,
respectively. See Note 14, "Contingencies and Litigation" for more
information.
The Company's largest customer accounted for 4.5%, 4.7%, and 4.7% of its
sales in fiscal 2001, 2000 and 1999, respectively. Export sales from domestic
operations were less than 10% of total net sales in each of the periods
presented.
Note 14. Contingencies and Litigation
The Company had outstanding letters of credit of $8.3 million and $9.3
million at August 31, 2001 and 2000, respectively. The letters of credit
generally serve as collateral for liabilities included in the
Consolidated Balance Sheets and indemnification obligations relating to
divested businesses.
51
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is a party to various legal proceedings that have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor, patent claims and commission
disputes. The Company has recorded reserves for loss contingencies based on
the specific circumstances of each case. Such reserves are recorded when it is
probable that a loss has been incurred as of the balance sheet date and such
loss can be reasonably estimated. In the opinion of management, the resolution
of these contingencies will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
The Company has facilities in numerous geographic locations that are
subject to a range of environmental laws and regulations. Environmental costs
that have no future economic value are expensed. Liabilities are recorded when
environmental remediation is probable and the costs are reasonably estimable.
Environmental expenditures over the last three years have not been material.
Management believes that such costs will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
Environmental remediation accruals of $2.1 million were included in the
Consolidated Balance Sheets at both August 31, 2001 and 2000.
On August 9, 2000, Actuant's board of directors approved an executive stock
purchase plan (the "Executive Stock Purchase Plan") to assist the Company's
executive officers in meeting their Actuant stock ownership requirements.
Under terms of the Executive Stock Purchase Plan, eligible officers may borrow
funds of up to four times their respective base salaries under a company-
arranged loan program for the sole purpose of acquiring Actuant common stock
on the open market. Full recourse loans under the program are made between a
domestic financial institution and the executive officer. The Company has
provided a guarantee to the financial institution in the amount of the
aggregate outstanding loan balance. It also reimburses participants for cash
interest paid on such loans in excess of 4.0%. At August 31, 2001, the
aggregate amount of officer loans under the program that were guaranteed by
the Company was $4.2 million, at an average cost of 8.1%. Expense recognized
by the Company during fiscal 2001 related to its share of the interest was
$0.2 million. Generally, the executive retains the risk of any market gain or
loss on the shares purchased. If the purchased shares are sold four years or
longer after their purchase, the Company has agreed to reimburse 50% of any
realized loss on the sale. At August 31, 2001 and 2000, no purchased shares
had a fair market value below their underlying cost basis.
As discussed in Note 2, "Distribution and Discontinued Operations," APW
Ltd. has agreed to indemnify the Company for certain contingencies related to
the reorganization and Distribution.
Note 15. Guarantor Condensed Financial Statements
In connection with the Distribution, Actuant issued senior subordinated
notes due 2009. All of our material domestic wholly-owned subsidiaries (the
"Guarantors") fully and unconditionally guarantee the 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 Guarantor and Non-Guarantor entities,
and the eliminations necessary to arrive at the information for the Company on
a consolidated basis.
General corporate expenses have not been allocated to subsidiaries, and are
all included under the Actuant Corporation heading. As a matter of course, the
Company retains certain assets and liabilities at the corporate level (Actuant
Corporation column in the following tables) which are not allocated to
subsidiaries including, but not limited to, certain employee benefit,
insurance, financing, and tax liabilities. Income tax provisions for domestic
Actuant Corporation subsidiaries are typically recorded using an estimate and
finalized in total with an adjustment recorded at the corporate level.
Additionally, substantially all of the indebtedness of the Company has
historically been, and continues to be, carried at the corporate level and is
therefore included in the Actuant Corporation column in the following tables.
Intercompany balances include receivables/payables incurred in the
52
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
normal course of business in addition to investments and loans transacted
between subsidiaries of the Company or with Actuant.
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Year Ended August 31, 2001
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales............... $ 77,869 $247,505 $156,565 $ -- $481,939
Cost of products sold... 42,055 168,396 102,579 -- 313,030
-------- -------- -------- -------- --------
Gross profit.......... 35,814 79,109 53,986 -- 168,909
Operating expenses...... 27,825 36,944 25,956 -- 90,725
Amortization of
intangible assets...... 9 5,944 283 -- 6,236
-------- -------- -------- -------- --------
Operating earnings.... 7,980 36,221 27,747 -- 71,948
Other expense (income):
Intercompany activity,
net.................. (7,346) 5,428 2,105 (187) --
Net financing costs... 47,741 244 1,214 -- 49,199
Loss (gain) on sale of
businesses........... -- -- (38,686) 20,178 (18,508)
Other (income)
expense, net......... (425) 22 888 -- 485
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (31,990) 30,527 62,226 (19,991) 40,772
Income tax (benefit)
expense................ (9,123) 10,870 14,670 -- 16,417
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (22,867) 19,657 47,556 (19,991) 24,355
Discontinued operations,
net of income taxes.... (781) -- -- -- (781)
-------- -------- -------- -------- --------
Net (loss) earnings..... $(23,648) $ 19,657 $ 47,556 $(19,991) $ 23,574
======== ======== ======== ======== ========
53
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Year Ended August 31, 2000
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales............... $ 86,076 $267,830 $327,537 $ -- $681,443
Cost of products sold... 50,802 177,090 211,385 -- 439,277
--------- -------- -------- -------- --------
Gross profit.......... 35,274 90,740 116,152 -- 242,166
Operating expenses...... 39,571 38,068 67,340 -- 144,979
Amortization of
intangible assets...... 9 5,851 1,670 -- 7,530
--------- -------- -------- -------- --------
Operating (loss)
earnings............. (4,306) 46,821 47,142 -- 89,657
Other expense (income):
Intercompany activity,
net.................. 45,540 (29,333) 4,433 (20,640) --
Net financing costs... 106,520 (70,091) 1,241 -- 37,670
Loss (gain) on sale of
businesses........... -- -- 3,467 -- 3,467
Other (income)
expense, net......... (186) 1,743 (570) -- 987
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (156,180) 144,502 38,571 20,640 47,533
Income tax (benefit)
expense................ (14,656) 29,791 4,391 (38) 19,488
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (141,524) 114,711 34,180 20,678 28,045
Discontinued operations,
net of taxes........... -- -- 585 -- 585
Extraordinary gain
(loss), net of income
taxes:
Early extinguishment
of debt.............. (14,708) -- -- -- (14,708)
Sale of subsidiaries.. 65,353 -- (12,186) -- 53,167
--------- -------- -------- -------- --------
Net extraordinary
gain............... 50,645 -- (12,186) -- 38,459
--------- -------- -------- -------- --------
Net (loss) earnings..... $ (90,879) $114,711 $ 22,579 $ 20,678 $ 67,089
========= ======== ======== ======== ========
Year Ended August 31, 1999
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales............... $ 88,095 $260,922 $356,184 $ -- $705,201
Cost of products sold... 53,512 171,586 227,419 -- 452,517
--------- -------- -------- -------- --------
Gross profit.......... 34,583 89,336 128,765 -- 252,684
Operating expenses...... 39,709 39,504 65,282 144,495
Amortization of
intangible assets...... 9 7,028 1,711 -- 8,748
--------- -------- -------- -------- --------
Operating (loss)
earnings............. (5,135) 42,804 61,772 -- 99,441
Other expense (income):
Intercompany activity,
net.................. 415 (36,168) 4,256 31,497 --
Net financing costs... 35,441 4,185 1,555 -- 41,181
Other (income)
expense, net......... (61) (51) 962 -- 850
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (40,930) 74,838 54,999 (31,497) 57,410
Income tax (benefit)
expense................ (14,106) 29,459 16,267 (8,790) 22,830
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (26,824) 45,379 38,732 (22,707) 34,580
Discontinued operations,
net of taxes........... -- -- 44,817 -- 44,817
--------- -------- -------- -------- --------
Net (loss) earnings..... $ (26,824) $ 45,379 $ 83,549 $(22,707) $ 79,397
========= ======== ======== ======== ========
54
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2001
------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
------
Current assets
Cash and cash
equivalents.......... $ 25,785 $ 621 $ 148 $ -- $ 26,554
Accounts receivable,
net.................. 3,233 5,625 46,113 -- 54,971
Inventories, net...... 14,606 31,920 10,212 -- 56,738
Deferred income taxes. 5,333 11 489 -- 5,833
Prepaid expenses...... 1,132 498 3,444 -- 5,074
--------- -------- --------- --------- ---------
Total current
assets............. 50,089 38,675 60,406 -- 149,170
Property, plant and
equipment, net......... 4,335 25,923 9,224 -- 39,482
Goodwill, net........... -- 103,219 4,905 -- 108,124
Other intangibles, net.. 9 20,847 60 -- 20,916
Other long-term assets.. 24,087 168 769 -- 25,024
--------- -------- --------- --------- ---------
Total assets............ $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings. $ -- $ -- $ 1,568 $ -- $ 1,568
Trade accounts
payable.............. 10,062 17,297 12,439 -- 39,798
Accrued compensation
and benefits......... 4,608 1,698 4,349 -- 10,655
Income taxes payable.. 32,416 9,785 7,833 -- 50,034
Other current
liabilities.......... 20,189 9,237 2,708 -- 32,134
--------- -------- --------- --------- ---------
Total current
liabilities........ 67,275 38,017 28,897 -- 134,189
Long-term debt.......... 311,656 420 13,676 -- 325,752
Deferred income taxes... 5,043 (1,027) (109) -- 3,907
Other deferred
liabilities............ 18,384 -- 238 -- 18,622
Intercompany balances,
net.................... (491,161) (55,907) (198,212) 745,280 --
Total shareholders'
equity (deficit)....... 167,323 207,329 230,874 (745,280) (139,754)
--------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity... $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
55
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
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...... 10,981 45,317 11,301 -- 67,599
Deferred income taxes. 3,965 6 571 -- 4,542
Receivable from APW
Ltd. ................ 32,894 -- -- -- 32,894
Prepaid expenses...... 1,876 567 2,787 -- 5,230
-------- -------- -------- --------- ---------
Total current
assets............. 68,629 83,481 51,604 -- 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.. 26,098 119 494 -- 26,711
-------- -------- -------- --------- ---------
Total assets............ $ 99,756 $251,230 $ 65,995 $ -- $ 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.. 433 33,951 5,468 -- 39,852
Other current
liabilities.......... 12,539 8,534 4,239 -- 25,312
-------- -------- -------- --------- ---------
Total current
liabilities........ 26,979 71,859 27,405 -- 126,243
Long-term debt.......... 430,675 540 -- -- 431,215
Deferred income taxes... 8,106 (741) (2,879) -- 4,486
Other deferred
liabilities............ 17,818 (462) 636 -- 17,992
Intercompany balances,
net.................... (588,073) (49,507) (86,297) 723,877 --
Total shareholders'
equity (deficit)....... 204,251 229,541 127,130 (723,877) (162,955)
-------- -------- -------- --------- ---------
Total liabilities and
shareholders' equity... $ 99,756 $251,230 $ 65,995 $ -- $ 416,981
======== ======== ======== ========= =========
56
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 2001
------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) Earnings from
continuing
operations........... $ (22,867) $ 19,657 $ 47,556 $(19,991) $ 24,355
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
(used in) operating
activities of
continuing
operations:
Depreciation and
amortization....... 4,248 11,956 2,711 -- 18,915
Gain on sale of
assets............. (267) -- -- -- (267)
Gain on sale of
businesses, net.... -- -- (18,508) -- (18,508)
Provision for
deferred income
taxes.............. 895 (291) 503 -- 1,107
Changes in operating
assets and
liabilities, net... 60,350 (22,657) 33,260 (1,412) 69,541
--------- -------- --------- -------- ---------
Cash provided by (used
in) operating
activities............. 42,359 8,665 65,522 (21,403) 95,143
Investing activities
Proceeds on sale of
property, plant and
equipment............ 1,907 -- -- -- 1,907
Additions to property,
plant and equipment.. (713) (2,365) (3,631) -- (6,709)
Business acquisitions. -- -- (11,250) -- (11,250)
Business and product
line dispositions.... 238 -- 41,454 -- 41,692
Proceeds from
insurance recovery... -- -- 2,427 -- 2,427
--------- -------- --------- -------- ---------
Cash provided by (used
in) investing
activities............. 1,432 (2,365) 29,000 -- 28,067
Financing activities
Net principal
(payments) borrowings
on debt.............. (120,573) -- 13,676 -- (106,897)
Stock option exercises
and other............ 579 -- -- -- 579
Intercompany
(receivables)
payables............. 96,912 (6,400) (111,915) 21,403 --
--------- -------- --------- -------- ---------
Cash (used in) provided
by financing
activities............. (23,082) (6,400) (98,239) 21,403 (106,318)
Effect of exchange rate
changes on cash........ -- -- (234) -- (234)
--------- -------- --------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 20,709 (100) (3,951) -- 16,658
Cash and cash
equivalents--beginning
of year................ 5,076 721 4,099 -- 9,896
--------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ 25,785 $ 621 $ 148 $ -- $ 26,554
========= ======== ========= ======== =========
57
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 2000
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) Earnings from
continuing
operations........... $ (90,879) $114,711 $ 21,994 $20,678 $ 66,504
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
(used in) operating
activities of
continuing
operations:
Depreciation and
amortization....... 1,969 12,024 8,557 -- 22,550
Gain on sale of
businesses, net.... (65,353) -- 17,343 -- (48,010)
Provision for
deferred income
taxes.............. 7,385 1 (7,062) -- 324
Other non-recurring
items.............. -- 596 1,328 -- 1,924
Extraordinary loss
on early
extinguishment of
debt............... 24,568 -- -- -- 24,568
Changes in operating
assets and
liabilities, net... (27,103) (44,734) 42,570 (20,678) (49,945)
--------- -------- -------- ------- --------
Cash (used in) provided
by operating activities
of continuing
operations............. (149,413) 82,598 84,730 -- 17,915
Cash provided by
discontinued
operations............. -- -- 43,360 -- 43,360
--------- -------- -------- ------- --------
Total cash (used in)
provided by operating
activities............. (149,413) 82,598 128,090 -- 61,275
Investing activities
Proceeds on sale of
property, plant and
equipment............ -- -- 835 -- 835
Additions to property,
plant and equipment.. (729) (5,612) (5,100) -- (11,441)
Business and product
line dispositions.... 150,759 -- 18,974 -- 169,733
Net investing
activities of
discontinued
operations........... -- -- (52,510) -- (52,510)
--------- -------- -------- ------- --------
Cash provided by (used
in) investing
activities............. 150,030 (5,612) (37,801) -- 106,617
Financing activities
Net principal
(payments) on long-
term debt............ (85,240) -- -- -- (85,240)
Debt financing cost
and early
extinguishment fees.. (33,899) -- -- -- (33,899)
Dividends paid on
common stock......... (1,789) -- -- -- (1,789)
Stock option exercises
and other............ 3,838 -- -- -- 3,838
Intercompany
(receivables)
payables............. 122,282 (75,674) (46,608) -- --
Net financing
activities of
discontinued
operations........... -- -- (66,175) -- (66,175)
--------- -------- -------- ------- --------
Cash provided by (used
in) financing
activities............. 5,192 (75,674) (112,783) -- (183,265)
Effect of exchange rate
changes on cash........ -- -- (272) -- (272)
--------- -------- -------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ 5,809 1,312 (22,766) -- (15,645)
Effect of change in cash
of discontinued
operations............. -- -- 18,285 -- 18,285
Cash and cash
equivalents--beginning
of year................ (734) (591) 8,581 -- 7,256
--------- -------- -------- ------- --------
Cash and cash
equivalents--end of
year................... $ 5,075 $ 721 $ 4,100 $ -- $ 9,896
========= ======== ======== ======= ========
58
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 1999
------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) Earnings from
continuing
operations........... $ (26,824) $45,379 $ 38,732 $(22,707) $ 34,580
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
(used in) operating
activities of
continuing
operations:
Depreciation and
amortization........ 2,133 12,431 11,492 -- 26,056
Gain on sale of
assets.............. -- -- (323) -- (323)
Provision for
deferred income
taxes............... 1,628 (101) 276 -- 1,803
Other non-recurring
items............... 4,694 -- -- -- 4,694
Changes in operating
assets and
liabilities, net.... (15,237) 5,347 (47,087) 22,707 (34,270)
--------- ------- --------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (33,606) 63,056 3,090 -- 32,540
Cash provided by
discontinued
operations............. -- -- 119,483 -- 119,483
--------- ------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (33,606) 63,056 122,573 -- 152,023
Investing activities
Proceeds on sale of
property, plant and
equipment............ 3 -- 4,881 -- 4,884
Additions to property,
plant and equipment.. (2,682) (6,528) (13,675) -- (22,885)
Business acquisitions. (7,320) -- -- -- (7,320)
Net investing
activities of
discontinued
operations........... -- -- (435,337) -- (435,337)
--------- ------- --------- -------- ---------
Cash used in investing
activities............. (9,999) (6,528) (444,131) -- (460,658)
Financing activities
Net principal
borrowings on long-
term debt............ 403,349 -- -- -- 403,349
Proceeds from
sale/leaseback
transactions......... 6,293 -- -- -- 6,293
Dividends paid on
common stock......... (2,339) -- -- -- (2,339)
Stock option exercises
and other............ 4,552 -- -- -- 4,552
Intercompany
(receivables)
payables............. (372,397) (57,194) 429,591 -- --
Net financing
activities of
discontinued
operations........... -- -- (86,790) -- (86,790)
--------- ------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 39,458 (57,194) 342,801 -- 325,065
Effect of exchange rate
changes on cash........ -- -- (521) -- (521)
--------- ------- --------- -------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (4,147) (666) 20,722 -- 15,909
Effect of change in cash
of discontinued
operations............. -- -- (13,722) -- (13,722)
Cash and cash
equivalents--beginning
of year................ 3,413 75 1,581 -- 5,069
--------- ------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ (734) $ (591) $ 8,581 $ -- $ 7,256
========= ======= ========= ======== =========
59
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16. Quarterly Financial Data (Unaudited)
Quarterly financial data for fiscal 2001 and fiscal 2000 is as follows:
Year Ended August 31, 2001
------------------------------------
First Second Third Fourth Total
------ ------ ------ ------ ------
(In millions, except per share
amounts)
Net sales............................... $119.8 $115.5 $126.1 $120.5 $481.9
Gross profit............................ 41.8 41.0 43.2 42.9 168.9
Earnings from continuing operations..... 4.3 3.1 1.5 15.5 24.4
Earnings from discontinued operations... -- -- (0.8) -- (0.8)
------ ------ ------ ------ ------
Net earnings............................ $ 4.3 $ 3.1 $ 0.7 $ 15.5 $ 23.6
====== ====== ====== ====== ======
Earnings from continuing operations per
share
Basic................................. $ 0.55 $ 0.39 $ 0.18 $ 1.94 $ 3.06
Diluted............................... $ 0.50 $ 0.37 $ 0.18 $ 1.86 $ 2.93
Earnings from discontinued operations
per share
Basic................................. $ -- $ -- $(0.10) $ -- $ (0.9)
Diluted............................... $ -- $ -- $(0.09) $ -- $ (0.9)
Net earnings per share
Basic................................. $ 0.55 $ 0.39 $ 0.09 $ 1.94 $ 2.97
Diluted............................... $ 0.50 $ 0.37 $ 0.08 $ 1.86 $ 2.84
Year Ended August 31, 2000
------------------------------------
First Second Third Fourth Total
------ ------ ------ ------ ------
(In millions, except per share
amounts)
Net sales............................... $175.5 $186.6 $181.0 $138.3 $681.4
Gross profit............................ 62.1 65.7 66.0 48.4 242.2
Earnings from continuing operations..... 11.0 11.9 12.0 (6.9) 28.0
Earnings from discontinued operations... 12.7 8.6 12.9 (33.6) 0.6
Net extraordinary gain, net of tax...... -- -- (12.2) 50.7 38.5
------ ------ ------ ------ ------
Net earnings............................ $ 23.7 $ 20.5 $ 12.7 $ 10.2 $ 67.1
====== ====== ====== ====== ======
Earnings from continuing operations per
share
Basic................................. $ 1.41 $ 1.52 $ 1.53 $(0.88) $ 3.59
Diluted............................... $ 1.36 $ 1.47 $ 1.49 $(0.84) $ 3.48
Earnings from discontinued operations
per share
Basic................................. $ 1.63 $ 1.10 $ 1.65 $(4.28) $ 0.07
Diluted............................... $ 1.58 $ 1.07 $ 1.60 $(4.11) $ 0.07
Net extraordinary gain
Basic................................. $ -- $ -- $(1.56) $ 6.46 $ 4.92
Diluted............................... $ -- $ -- $(1.51) $ 6.18 $ 4.77
Net earnings per share
Basic................................. $ 3.04 $ 2.62 $ 1.62 $ 1.30 $ 8.58
Diluted............................... $ 2.94 $ 2.54 $ 1.58 $ 1.23 $ 8.32
You should read Notes 1, 2, 3, 6 and 9 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for items affecting quarterly results. The sum of
the quarters may not equal the total of the respective year's earnings per
share on either a basic or diluted basis due to changes in the weighted
average shares outstanding during the year.
60
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Actuant Corporation:
Our audits of the consolidated financial statements referred to in our
report dated September 26, 2001 appearing on page 27 of this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 26, 2001
61
ACTUANT CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
( in thousands)
Additions Deductions
------------------- --------------------
Effect Accounts
Balance at of Charged to Written Off Balance
Beginning Excluded Costs and Net Less Net at End
Description of Period Activity Expenses Acquired Recoveries Disposed Other of Period
----------- ---------- -------- ---------- -------- ----------- -------- ----- ---------
Deducted from assets to
Which they apply:
Allowance for losses--
Trade accounts
receivable
August 31, 2001......... $ 3,809 $ -- $1,396 $ 125 $ 1,537 $ 114 $ 111 $3,790
======= ===== ====== ===== ======= ====== ===== ======
August 31, 2000......... $ 4,070 $ -- $ 977 $ -- $ 202 $ 846 $(190) $3,809
======= ===== ====== ===== ======= ====== ===== ======
August 31, 1999......... $ 4,259 $ -- $1,155 $ -- $ 1,407 $ -- $ 63 $4,070
======= ===== ====== ===== ======= ====== ===== ======
Allowance for losses--
Inventory
August 31, 2001......... $ 5,349 $ -- $1,913 $ 270 $ 1,370 $ 182 $(123) $5,857
======= ===== ====== ===== ======= ====== ===== ======
August 31, 2000......... $ 9,306 $ -- $ 537 $ -- $ 760 $3,404 $(330) $5,349
======= ===== ====== ===== ======= ====== ===== ======
August 31, 1999......... $28,081 $ -- $2,237 $ 250 $21,357 $ -- $ 95 $9,306
======= ===== ====== ===== ======= ====== ===== ======
62
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
"Election of Directors" and "Other Information--Section 16(a) Beneficial
Ownership Reporting Compliance" sections of the Company's Proxy Statement for
its Annual Meeting of Shareholders to be held on January 8, 2002 (the "2002
Annual Meeting Proxy Statement"). See also "Executive Officers of the
Registrant" in Part I hereof.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
"Election of Directors," "Board Meetings, Committees and Director
Compensation" and the "Executive Compensation" sections (other than the
subsections thereof entitled "Report of the Compensation Committee of the
board of directors on Executive Compensation" and "Performance Graph") of the
2002 Annual Meeting Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
"Certain Beneficial Owners" and "Election of Directors" sections of the 2002
Annual Meeting Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
"Executive Compensation" and "Certain Relationships and Related Transactions"
sections of the 2002 Annual Meeting Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated Financial Statements
See "Index to Consolidated Financial Statements" set forth in Item
8, "Financial Statements and Supplementary Data" for a list of
financial statements filed as part of this report.
2. Financial Statement Schedules
See "Index to Financial Statement Schedule" set forth in Item 8,
"Financial Statements and Supplementary Data".
3. Exhibits
See "Index to Exhibits" beginning on page 65, which is incorporated
herein by reference.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of
fiscal 2001:
None
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Andrew G. Lampereur
By: _________________________________
Andrew G. Lampereur
Vice President and Chief
Financial Officer (Principal
Financial Officer)
Dated: November 6, 2001
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert C. Arzbaecher and Andrew G. Lampereur,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
report, and to file the same, with all and any other regulatory authority,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
Signature Title
--------- -----
/s/ Richard G. Sim Chairman of the Board, Director
___________________________________________
Richard G. Sim
/s/ Robert C. Arzbaecher President and Chief Executive Officer,
___________________________________________ Director
Robert C. Arzbaecher
/s/ H. Richard Crowther Director
___________________________________________
H. Richard Crowther
/s/ Gustav H.P. Boel Director
___________________________________________
Gustav H.P. Boel
/s/ Bruce S. Chelberg Director
___________________________________________
Bruce S. Chelberg
/s/ William P. Sovey Director
___________________________________________
William P. Sovey
/s/ Kathleen J. Hempel Director
___________________________________________
Kathleen J. Hempel
/s/ Andrew G. Lampereur Vice President and Chief Financial Officer
___________________________________________ (Principal Financial Officer)
Andrew G. Lampereur
/s/ Timothy J. Teske Controller
___________________________________________ (Principal Accounting Officer)
Timothy J. Teske
--------
* Each of the above signatures is affixed as of November 6, 2001
--------
+Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
agrees to furnish to the Securities and Exchange Commission upon request a
copy of any unfiled instruments, or any unfiled exhibits or schedules to
filed instruments, defining the rights of security holders.
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2001
INDEX TO EXHIBITS
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
2.1 Agreement and Plan of Merger, dated Exhibit (c)(1) to the Registrant's
as of September 2, 1997, among Tender Offer Statement on Schedule
Applied Power Inc., TVPA Corp. and 14D-1 filed on September 5, 1997
Versa Technologies, Inc. (File No. 5-13342)
2.2 (a) Agreement and Plan of Merger, Appendix A to the Joint Proxy
dated as of April 6, 1998, by and Statement/Prospectus contained in
among Applied Power Inc., ZERO the Registrant's Registration
Corporation and STB Acquisition Statement on Form S-4 (File No. 333-
Corporation 58267)
(b) Certified copy of Certificate of Exhibit 2.2 to the Registrant's Form
Merger of STB Acquisition 8-K dated July 31, 1998
Corporation with and into ZERO
Corporation, dated July 31, 1998
3.1 Restated Articles of Incorporation Exhibit 4.1 to the Registrant's
of the Registrant (dated as of Registration Statement on Form S-8
February 13, 1998) (File No. 333-46469)
3.2 Amended and Restated Bylaws of the Exhibit 3.2 to the Registrant's Form
Registrant (effective as of January 10-K for the fiscal year ended
8, 1997) August 31, 1997 ("1997 10-K")
3.3 Amendment to Bylaws Exhibit 3.3 to the Registrant's Form
10-K for the fiscal year ended
August 31, 2000 ("2000 10-K")
3.4 Amended and Restated Bylaws of Exhibit 3.4 to the Registrant's Form
Actuant Corporation adopted November 10-Q for quarter ended May 31, 2001
7, 1991 and as last amended
effective May 4, 2001
4.1 Articles III, IV and V of the See Exhibit 3.1 above
Restated Articles of Incorporation
4.2 Agreement for Purchase and Sale, Exhibit 19.2(a)-(g) to the
Dated August 29, 1990, between Registrant's
Minnesota Mining and Manufacturing Form 10-Q for quarter ended May 31,
Company and Applied Power Inc., and 1991
seven related Leases, each dated
April 29, 1991, Between Bernard
Garland and Sheldon Garland, d/b/a
Garland Enterprises, as Landlord,
and Applied Power Inc., as Tenant
65
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
4.3 Credit Agreement dated as of July Exhibit 10.8 to the Registrant's
31, 2000 among Applied Power Inc. Form 8-K dated as of August 14, 2000
(doing business as Actuant
Corporation), The Lenders Named
Herein and Credit Suisse First
Boston, as Lead Arranger, Collateral
Agent and Administrative Agent,
First Union National Bank
Syndication Agent and ING (U.S.)
Capital LLC Documentation Agent
4.4 Registration Rights Agreement dated Exhibit 10.11 to the Registrant's
August 1, 2000, relating to Form 8-K dated as of August 14, 2000
$200,000,000 Applied Power Inc. 13%
Senior Subordinated Notes Due 2009
4.5 Indenture, dated as of August 1, Exhibit 10.12 to the Registrant's
2000, among Applied Power Inc. as Form 8-K dated as of August 14, 2000
issuer and the Subsidiary Guarantors
and Bank One Trust Company, N.A.
4.6 Purchase Agreement dated July 21, Exhibit 10.13 to the Registrant's
2000, between Applied Power Inc. and Form 8-K dated as of August 14, 2000
the Initial Purchasers named therein
4.7 Amendment to Articles of Exhibit 4.7 to the Registrant's Form
Incorporation effecting the name 10-Q for quarter ended February 28,
change 2001
4.8 Amendment to Articles of Exhibit 4.8 to the Registrant's Form
Incorporation effecting the reverse 10-Q for quarter ended February 28,
stock split 2001
4.9 Amended and restated Articles of Exhibit 4.9 to the Registrant's Form
Incorporation 10-Q for quarter ended February 28,
2001
4.10 Amendment No 1, dated as of April 9, Exhibit 4.10 to the Registrant's
2001, to the Credit Agreement dated Form 10-Q for quarter ended May 31,
as of July 31, 2000, among Actuant 2001
Corporation, Credit Suisse First
Boston as Lead Arranger, Collateral
Agent and Administrative Agent,
First Union National Bank, as
Syndication Agent, ING (U.S.)
Capital LLC, as Documentation Agent
and the Lenders party thereto.
10.4* (a) Applied Power Inc. 1990 Stock Exhibit A to the Registrant's Proxy
Option Plan adopted by Board of Statement dated December 5, 1990 For
Directors on August 9, 1990 and 1991 Annual Meeting of Shareholders
approved by shareholders on January
7, 1991 ("1990 Plan")
66
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
(b) Amendment to 1990 Plan adopted Exhibit 10.5(b) to the Registrant's
by board of directors on August 10, Form 10-K for fiscal year ended
1992 and approved by shareholders on August 31, 1992
January 7, 1993
(c) Amendment to 1990 Plan adopted Exhibit 10.4(c) to the 1997 10-K
by board of directors on May 8, 1997
10.5* Description of Fiscal 2001 Exhibit 10.5 to the 2000 10-K
Management Bonus Arrangements
10.7* (a) Applied Power Inc. 1989 Outside Exhibit 10.7 to the 1989 10-K
Directors' Stock Option Plan adopted
by board of directors on November 8,
1989 and approved by shareholders on
January 13, 1990 ("1989 Plan")
(b) Amendment to 1989 Plan Adopted Exhibit 10.7(b) to the 1990 10-K
by board of directors on November 9,
1990 and approved by shareholders on
January 7, 1991
(c) Amendment to 1989 Plan Adopted Exhibit 10.7(c) to the Registrant's
by board of directors on October 31, Form 10-K for fiscal year ended
1996 August 31, 1996 ("1996 10-K")
10.8* Outside Directors' Deferred Exhibit 10.8 to the Registrant's
Compensation Plan adopted by Board Form 10-K for fiscal year ended
of Directors on May 4, 1995 August 31, 1995
10.9* (a) 1996 Stock Plan adopted by board Annex A to the Registrant's Proxy
of directors on August 8, 1996 and Statement dated November 19, 1996
proposed for shareholder approval on for 1997 Annual Meeting of
January 8, 1997 Shareholders
(b) Amendment to 1996 Stock Plan Exhibit 10.10(b) to the 1997 10-K
adopted by board of directors on May
8, 1997
10.11 Form of Contribution Agreement, Plan Exhibit 10.11 to the Form 10
and Agreement Regarding Litigation, Registration Statement dated May 1,
Claims and Other Liabilities between 2000 as amended
API and APW, dated as of July 21,
2000
10.12 Form of General Assignment, Exhibit 10.12 to the Form 10
Assumption and Agreement Regarding Registration Statement dated May 1,
Litigation, Claims and Other 2000, as amended
Liabilities between API and APW,
dated as of July 21, 2000
10.13 Form of Transitional Trademark Use Exhibit 10.13 to the Form 10
and License Agreement between API Registration Statement dated May 1,
and APW, dated as of July 21, 2000 2000, as amended
67
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
10.14 Form of Insurance Matters Agreement Exhibit 10.14 to the Form 10
between API and APW, dated as of Registration Statement dated May 1,
July 21, 2000 2000, as amended
10.15 Form of Bill of Sale and Assumption Exhibit 10.15 to the Form 10
of Liabilities between API and APW, Registration Statement dated May 1,
dated as of July 21, 2000 2000, as amended
10.16 Form of Employee Benefits and Exhibit 10.16 to the Form 10
Compensation Agreement between API Registration Statement dated May 1,
and APW, dated as of July 21, 2000 2000, as amended
10.17 Form of Tax Sharing and Exhibit 10.17 to the Form 10
Indemnification Agreement between Registration Statement dated May 1,
API and APW, dated as of July 21, 2000, as amended
2000
10.18 Form of Interim Administrative Exhibit 10.18 to the Form 10
Services Agreement between API and Registration Statement dated May 1,
APW, dated as of July 21, 2000 2000, as amended
10.19 Form of Confidentiality and Exhibit 10.19 to the Form 10
Nondisclosure Agreement between API Registration Statement dated May 1,
and APW, dated as of July 21, 2000 2000, as amended
10.20 Form of Patent Assignment between Exhibit 10.20 to the Form 10
API and Wright Line Inc. (n/k/a APW Registration Statement dated May 1,
Ltd.), dated as of July 21, 2000 2000, as amended
10.21* Form of Change in Control Agreement Exhibit 10.21 to the 2000 10-K
for certain named executives
(Messrs. Brian Kobylinski, Todd
Hicks, Ralph Keller, Jerry Peiffer,
Joe O'Connor, and Arthur Kerk)
10.22* Actuant Corporation Executive Stock Exhibit 10.22 to the 2000 10-K
Purchase Plan
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
10.25 Receivables Sale Agreement dated as Exhibit 10.25 to the Registrant's
of May 30, 2001, among Actuant Form 10-Q for quarter ended May 31,
Corporation, Del City Wire Co., 2001
Inc., GB Tools and Supplies, Inc.,
Versa Technologies, Inc., and
Engineered Solutions, L.P., as
Originators, and Actuant Receivables
Corporation, as Buyer
68
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
10.26 Receivables Purchase Agreement dated Exhibit 10.26 to the Registrant's
as of May 30, 2001, among Actuant Form 10-Q for quarter ended May 31,
Receivables Corporation, as Seller, 2001
Actuant Corporation, as Initial
Servicer, Blue Ridge Asset Funding
Corporation and Wachovia Bank, N.A.,
as Agent
10.27* Description of Fiscal 2002 X
Management Bonus Arrangements
21 Subsidiaries of the Registrant X
23 Consent of PricewaterhouseCoopers X
LLP
24 Power of Attorney See Signature Page of this report
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
69