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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2002
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 3241, 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)
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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. [X]
As of October 31, 2002, the aggregate market value of Common Stock held by
non-affiliates was approximately $450.2 million and there were 11,612,016
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 10, 2003 are incorporated by reference into
Part III hereof.
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TABLE OF CONTENTS
PART I
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 7
Item 3. Legal Proceedings.................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders.................................. 9
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 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 26
Item 8. Financial Statements and Supplementary Data.......................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 69
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 69
Item 11. Executive Compensation............................................................... 69
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 69
Item 13. Certain Relationships and Related Transactions....................................... 69
Item 14. Controls and Procedures.............................................................. 69
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 69
Actuant Corporation provides free-of-charge access to our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments thereto, through our website, www.actuant.com, as soon as reasonably
practicable after such reports are electronically filed with the Securities and
Exchange Commission.
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This document contains certain statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties. The terms "may," "should,"
"could," "anticipate," "believe," "estimate," "expect," "objective," "plan,"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements, including statements under the caption
Outlook, are subject to inherent risks and uncertainties that may cause actual
results or events to differ materially from those contemplated by such
forward-looking statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements, factors that may
cause actual results or events to differ materially from those contemplated by
such forward-looking statements include, without limitation, general economic
conditions and market conditions in the recreational vehicle, truck,
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, operating margin risk
due to competitive pricing and operating efficiencies, supply chain risk,
material or labor cost increases, foreign currency risk, interest rate risk,
the economy's reaction to terrorist actions or military actions, the length of
economic downturns in the Company's markets, the resolution of contingent
liabilities related to APW Ltd., the Company's ability to access capital
markets, the Company's debt level, and other factors that may be referred to or
noted in the Company's reports filed with the Securities and Exchange
Commission from time to time.
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, the Company was known as Applied Power and consisted
of two segments, Electronics and Industrial. The Electronics segment (the
"Electronics Business" or "APW") 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. On January 25, 2000, Applied Power's board
of directors authorized various actions to enable Applied Power to distribute
its 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.
During fiscal 2001, Actuant acquired the assets of Dewald Manufacturing,
Inc. and divested the Mox-Med business, both of which are included in the
Engineered Solutions segment. Actuant also divested the Quick Mold Change
product line in the Tools & Supplies segment. During fiscal 2000, Actuant
divested the Barry Controls, Air Cargo and Samuel Groves businesses that
previously were included in the Engineered Solutions segment and the Norelem
and automotive product lines of Enerpac, previously included in the Tools &
Supplies segment.
These actions impact the comparability of the operating results. For further
information, see Note 3, "Acquisitions and Divestitures" in the Notes to
Consolidated Financial Statements.
On September 3, 2002, subsequent to our fiscal year-end, the Company
acquired Heinrich Kopp AG ("Kopp"), headquartered in Kahl, Germany. Kopp is a
leading provider of electrical products to the German and Austrian Home Center
retail market. In the transaction, the Company acquired approximately 80% of
the outstanding equity of Kopp for approximately $17 million (including the
assumption of debt and acquired cash). The Company was also granted an option
to acquire, and the sellers were granted a put option to sell, the remaining
outstanding equity commencing in October 2003 for approximately $3 million. The
results of operations of Kopp are not included in the Company's historical
results contained herein.
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 home centers
("Home Centers"), 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, The Home Depot, Ace Hardware,
Snap-on, TruServ 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 business lines:
Industrial Tools. We believe Enerpac is a leading global supplier of
high-force hydraulic industrial tools operating at very high pressures of
between 5,000 psi and 10,000 psi. 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 components and systems. Workholding products hold parts in
position in metal cutting machine tools during the machining process. The
products are marketed through distributors to the automotive, machine tool
and fixture design markets.
Custom Products. Enerpac's custom products consist of customized
hydraulic products that are sold directly to OEM customers including
Caterpillar, Parker-Hannifin and Snap-on. Enerpac's product development
staff works closely with OEM customers to develop hydraulic solutions for
specific applications.
We believe Gardner Bender is a leading supplier of electrical tools and
components to the North American retail Home Center, retail marine and retail
automotive aftermarket and wholesale electrical markets, supplying over 10,000
SKUs through a variety of distribution channels. Gardner Bender maintains
strong customer relationships with such leading retailers as Lowe's, The Home
Depot, Menards, TruServ, Ace Hardware, Advance Auto Parts 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 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 reach, 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 hydraulic landing gears for the
off-highway truck and trailer 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 patient lifting and
positioning applications within the medical market. 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 2002 Engineered Solutions was awarded
actuation on the Renault Megane and the Chrysler PT Cruiser, building on
fiscal 2001 North American model wins including the Cadillac XLR, the
Chevrolet SSR, the Audi A-4, and the Volkswagen Beetle, among others.
Engineered Solutions also markets and produces a smaller, low-cost
hydraulic cab-tilt system for medium duty trucks called the "Hy-Cab." This
system replaces existing component supply or 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, which are typically comprised of
sensors, electronic controls, and either hydraulic pumps and cylinders or
electric motors, allow an RV owner to increase a room's size by telescoping
a section of the room's wall outward. Leveling systems typically
3
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 with the acquisition of the assets of Dewald
Manufacturing in March 2001.
Power Gear's 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 2002, we derived approximately 66%
of our net sales in the United States, 26% from Europe, 5% from Asia, 2% from
Canada and 1% from South and Latin America. Our European sales will increase in
fiscal 2003 with the acquisition of Kopp. 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 support 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
77% 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
aftermarket 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 OEM 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
4
respective market areas. Engineered Solutions sales personnel are highly
trained and coordinate closely with its 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 $3.1 million, $3.1
million, and $6.6 million in fiscal 2002, 2001 and 2000, respectively. Fiscal
2002 and 2001 research and development costs declined from fiscal 2000 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, we had an order backlog of approximately
$49.8 million and $46.7 million at August 31, 2002 and 2001, respectively.
Substantially all orders are expected to be completed prior to the end of
fiscal 2003. As illustrated in the following table, our sales are not subject
to significant seasonal fluctuations:
Sales Percentages by Fiscal Quarter
2002 2001
------ ------
Quarter 1 24.5% 24.8%
Quarter 2 23.4% 24.0%
Quarter 3 25.9% 26.2%
Quarter 4 26.2% 25.0%
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100.0% 100.0%
5
Employees
As of August 31, 2002, we employed approximately 2,120 people. The
acquisition of Kopp has added approximately 1,100 employees since our fiscal
year-end. Our employees are not subject to any collective bargaining agreements
with the exception of approximately 65 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 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 $1.1 million and $1.3
million were included in the Consolidated Balance Sheets at August 31, 2002 and
2001, respectively. For further information, see Note 16, "Contingencies and
Litigation" in the 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 Note 15, "Business Segment, Geographic and
Customer Information" in Notes to Consolidated Financial Statements.
6
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.
Tools & Supplies
As of August 31, 2002, Tools & Supplies maintained 11 manufacturing
facilities in the United States, Mexico, Europe and Asia and 17 distribution
facilities and sales offices worldwide.
Square
Facility feet Status
-------- ------- ------
Manufacturing and Administrative
Glendale, Wisconsin (2)......... 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
Wuxi, China..................... 32,000 Leased
Distribution and Sales
Reno, Nevada.................... 55,000 Leased
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
Sydney, Australia............... 14,000 Leased
Scranton, Pennsylvania.......... 13,000 Leased
Seoul, South Korea(1)........... 13,000 Leased
Singapore....................... 12,000 Leased
Ontario, California............. 12,000 Leased
Madrid, Spain................... 10,000 Leased
Taipei, Taiwan.................. 3,000 Leased
Dusseldorf, Germany............. 3,000 Leased
Massey (Paris), France(1)....... 3,000 Leased
Bejing, China................... 1,000 Leased
Osaka, Japan.................... 1,000 Leased
- --------
(1)Shared by both Tools & Supplies and Engineered Solutions segments.
(2)Shared by the Tools & Supplies segment, the Engineered Solutions segment and
Actuant Corporate.
7
Engineered Solutions
As of August 31, 2002, Engineered Solutions maintained nine manufacturing
facilities throughout North America, Europe and Asia and five distribution and
sales facilities.
Square
Facility feet Status
-------- ------- ------
Manufacturing and Administrative
Glendale, Wisconsin(2).......... 313,000 Leased
Oldenzaal, The Netherlands...... 124,000 Leased
Mishawaka, Indiana.............. 101,000 Leased
Akishar, Turkey................. 79,000 Owned
Cudahy, Wisconsin............... 73,000 Owned
Pachuca, Mexico(1).............. 61,000 Leased
Westfield, Wisconsin............ 40,000 Owned
Hartford, Connecticut........... 35,000 Owned
McMinnville, Oregon............. 23,000 Leased
Sao Paulo, Brazil............... 7,000 Leased
Distribution and Sales
Toda-shi, Japan(1).............. 15,000 Leased
Seoul, South Korea(1)........... 13,000 Leased
Beaver Dam, Wisconsin........... 8,000 Leased
Massy (Paris), France(1)........ 3,000 Leased
Torrijos, Toledo, Spain......... 2,000 Leased
- --------
(1)Shared by both Tools & Supplies and Engineered Solutions segments.
(2)Shared by the Tools & Supplies segment, the Engineered Solutions segment and
Actuant Corporate.
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 agreed to indemnify 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
buyer's compliance with the purchase agreement, but Actuant believes that it
has viable defenses to the claim. The Company intends to vigorously defend the
claim. The Company also has agreed to indemnify the buyers of other divested
businesses for other matters, and in a few cases, the Company is in dispute
over smaller amounts for claims relating to such divestitures. Based on the
information presently available, management believes that all such claims will
not have a material impact on the financial position or results of operations
of the Company.
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 16, "Contingencies and Litigation" in the
Notes to Consolidated Financial Statements.
8
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 18, 2002 are listed below.
Name Age Position
---- --- --------
Robert C. Arzbaecher 42 President and Chief Executive Officer; Director
William S. Blackmore 46 Vice President--Engineered Solutions--Americas
Terry M. Braatz 45 Treasurer
Mark E. Goldstein 46 Vice President--Gardner Bender
Todd B. Hicks 44 Vice President--Enerpac
Ralph L. Keller 55 Vice President--Operations
Arthur Kerk 53 Vice President--Engineered Solutions--Europe and Asia
Brian K. Kobylinski 36 Vice President--Business Development
Andrew G. Lampereur 39 Vice President and Chief Financial Officer
Timothy J. Teske 35 Corporate Controller
Ronald P. Wieczorek 45 Vice President--Human Resources
Robert C. 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.
William S. Blackmore, Vice President--Engineered Solutions-Americas. Mr.
Blackmore was appointed leader of the Engineered Solutions-Americas business in
fiscal year 2002. Prior to joining Actuant, he served as President of
Integrated Systems--Americas at APW Ltd. from 2000 to 2001 and as President,
Rexnord Gear and Coupling Products ("Rexnord") from 1997 to 2000. Prior to
1997, Mr. Blackmore held various senior management positions at Rexnord and
Pillar Industries.
Terry M. 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.
Mark E. Goldstein, Vice President--Gardner Bender. Mr. Goldstein was
appointed leader of the Gardner Bender business when he joined the Company 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.
Todd B. 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 in 1987.
Ralph L. 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.
Brian K. Kobylinski, Vice President--Business Development. Mr. Kobylinski
was appointed leader of business development for Actuant in fiscal year 2002.
Prior to being promoted, he served as leader of the distribution and OEM
channels of Gardner Bender, 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.
Andrew G. 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.
Timothy J. 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.
Ronald P. Wieczorek, Vice President--Human Resources. Mr. Wieczorek was
appointed leader of human resources in fiscal 2002. Prior to being promoted, he
served as human resources leader of Engineered Solutions--Americas. Prior to
joining Applied Power Inc. in 1998, Mr. Wieczorek held various senior human
resources positions, most recently with Watlow Gordon, Inc. where he served as
a member of the general management leadership team.
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, 2002, the approximate number of record
shareholders of common stock was 1,657.
On January 25, 2001 we effected a one-for-five reverse stock split.
Furthermore, in February 2002, the Company sold, pursuant to an underwritten
public offering, 3,450,000 shares of its Class A common stock. 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
------ ------ ------ ------
2002 June 1 to August 31 $42.45 $30.88
March 1 to May 31 46.15 36.00
December 1 to February 28 40.00 27.90
September 1 to November 30 31.25 17.40
2001 June 1 to August 31 $21.25 $14.70
March 1 to May 31 16.73 12.00
December 1 to February 28 20.62 10.94
September 1 to November 30 27.19 16.25
10
No dividends have been declared or paid during fiscal 2001 and 2002. 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, to fund acquisitions
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 the spin-off 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
as of August 31, 2002. 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, 2002.
Year Ended August 31,
--------------------------------------
2002 2001(2) 2000 1999 1998(2)
------ ------- ------ -------- -------
(in millions, except per share data)
Statement of Earnings Data(1):
Net sales................................. $463.0 $481.9 $681.4 $ 705.2 $645.9
Gross profit.............................. 159.0 168.9 242.2 252.7 200.9
Operating expenses(3)..................... 85.4 90.7 145.0 144.5 179.0
Operating earnings........................ 71.1 71.9 89.7 99.4 9.3
Net financing costs....................... 32.7 49.2 37.7 41.2 12.5
Earnings from continuing operations(4).... 25.3 24.4 28.0 34.6 0.1
Diluted earnings per share from continuing
operations(5)........................... 2.39 2.93 3.48 4.30 0.01
Cash dividends per share(5)............... -- -- 0.23 0.30 0.30
Balance Sheet Data (at end of period)(1):
Total assets.............................. $294.6 $342.7 $417.0 $1,059.9 $711.5
Net assets of discontinued operations(6).. -- -- -- 598.5 249.7
Total debt(7)............................. 192.6 327.3 432.5 521.2 225.2
- --------
(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 the
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 and 1998 include restructuring and other
non-recurring charges that were recognized in cost of sales and operating
expenses. Such expenses totaled $1.7 million and $56.9 million on a pre-tax
basis in fiscal 2001 and 1998, 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. 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. In addition, operating expenses include our
11
general corporate expenses. These expenses, which include expenditures on
resources and services that supported the Electronics Business in fiscal
1998 through 2000, were as follows:
Fiscal Period Amount
------------- -------------
(in millions)
2002..... $ 5.0
2001..... 6.2
2000..... 17.6
1999..... 12.1
1998..... 17.5
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Note 7, "Restructuring and Other Non-recurring Items" in
the Notes to Consolidated Financial Statements for further information.
(4)Earnings from continuing operations include a gain of $18.5 million on the
sale of Mox-Med, a $0.7 million loss on the divestiture of QMC, and a $1.5
million loss on the net present value of an idled lease in fiscal 2001. For
fiscal 2000, earnings from continuing operations include a $3.5 million loss
on the sale of Norelem.
(5)All dividend and per share data have been adjusted for the reverse stock
split effected on January 25, 2001. Quarterly dividends of $0.075 per share
were declared and paid by the Company for each of the quarters in fiscal
1999 and 1998, 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 foreseeable future.
(6)Net assets of discontinued operations consist of the assets of the
Electronics Business, which was spun-off to shareholders in July 2000.
(7)Debt in the table as of August 31, 1999 and 1998 reflects the debt balance
after a reduction for debt allocated to the Electronics Business, which is
reported in net assets of discontinued operations.
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 ("APW") 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.
Critical Accounting Policies
The Company's significant accounting policies are disclosed in the Notes to
Consolidated Financial Statements. The more critical of these policies include
revenue recognition, inventory valuation, goodwill and other intangible asset
accounting, and the use of estimates, which are summarized below.
Revenue Recognition: Revenue is recognized when title to the products being
sold transfers to the customer, which is generally upon shipment.
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 56% and 62% of total inventories
at August 31, 2002 and 2001, respectively). The first-in, first-out or average
cost method is used for all other inventories. If the LIFO method were not
used, the inventory balance would be higher than the amount in the Consolidated
Balance Sheet by approximately $6.7 million and $7.1 million at August 31, 2002
and 2001, respectively.
12
Goodwill and Other Intangible Assets: Other intangible assets, consisting
primarily of purchased patents, trademarks and noncompete agreements, are
amortized over periods from three to twenty-five years. Goodwill is not
amortized, but is subjected to annual impairment testing in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets."
Use of Estimates: As required under generally accepted accounting
principles, the consolidated financial statements include estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses for the periods presented. They also affect the disclosure of
contingencies. See Note 2, "Distribution and Discontinued Operations," Note 14,
"Income Taxes", and Note 16, "Contingencies and Litigation" in the Notes to
Consolidated Financial Statements for further information. Actual results could
differ from those estimates and assumptions.
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
on July 31, 2000 (the "Distribution"). Financial data presented in the table
include other divested business units, which are referred to as the
"non-continuing" businesses, until their respective dates of sale. As a result,
the historical financial data in the following table are not representative of
the group of business units that comprise Actuant as of August 31, 2002. We
have included a separate financial data table under "Unaudited Adjusted
Historical Financial Data" below that excludes the results of the
non-continuing businesses. The financial data presented in the following table
also include the results of Dewald Manufacturing, which we acquired during
fiscal 2001, from the date of acquisition. The acquisitions and divestitures
impact the comparability of operating results from period to period.
Year Ended August 31,
--------------------
2002 2001 2000
------ ------ ------
(in millions)
Statement of Earnings Data:
Net sales.............................................. $463.0 $481.9 $681.4
Gross profit........................................... 159.0 168.9 242.2
Operating expenses excluding general corporate expenses 80.4 84.6 127.4
General corporate expenses............................. 5.0 6.2 17.6
Amortization of intangible assets...................... 2.5 6.2 7.5
Operating earnings..................................... 71.1 71.9 89.7
Other Financial Data:
Depreciation........................................... 9.9 10.3 15.1
Capital expenditures................................... 10.0 6.7 11.4
13
Acquisitions and Divestitures
We have completed one acquisition since the spin-off. During this time, we
also divested several businesses and product lines that were no longer
considered integral to our business strategy. The following table summarizes
these acquisitions and significant divestitures, other than those impacting the
Electronics business, that were completed during the last five years:
Approximate
Segment Date Annual Sales(2)
-------------------- ------------- ---------------
(in millions)
Acquisitions(1):
Dewald Manufacturing, Inc..... Engineered Solutions March 2001 $ 24
Nielsen Sessions and Air Cargo Engineered Solutions July 1998 29
Del City Wire................. Tools & Supplies February 1998 16
Ancor Products................ Tools & Supplies January 1998 7
Divestitures(1):
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 Equipment........... Engineered Solutions May 2000 22
Samuel Groves................. Engineered Solutions October 1999 9
Moxness....................... Engineered Solutions March 1998 6
- --------
(1)This table excludes acquisitions and divestitures of businesses or business
units that were part of our former Electronics Business.
(2)At the time of the transaction. Sales figures exclude sales from acquired
business units that were part of the Electronics Business.
In addition to these divestitures, Gardner Bender's Everest product line and
the Magnets business were transferred to the Electronics Business segment
immediately prior to the Distribution. The acquisitions and divestitures impact
the comparability of operating results from period to period. See Note 3,
"Acquisitions and Divestitures" in the Notes to Consolidated Financial
Statements for further information.
Unaudited Adjusted Historical Financial Data
The financial information included in the following table, other than
information with respect to general corporate expenses, has been adjusted to
exclude the results of the non-continuing businesses. Historical net financing
costs, income taxes, and balance sheet data have not been adjusted and are not
presented in the following table.
Year Ended August 31,
--------------------
2002 2001 2000
------ ------ ------
(in millions)
Statement of Earnings Data(1):
Adjusted net sales..................................... $463.0 $461.0 $499.0
Adjusted gross profit.................................. 159.0 159.4 175.8
Adjusted operating expenses excluding general corporate
expenses(2).......................................... 80.4 80.7 87.5
General corporate expenses............................. 5.0 6.2 17.6
Adjusted amortization of intangible assets............. 2.5 5.8 5.7
Adjusted operating earnings(2)......................... 71.1 66.7 63.1
Other Financial Data(1):
Adjusted depreciation.................................. 9.9 9.5 9.9
Adjusted capital expenditures.......................... 10.0 6.4 8.4
14
- --------
(1)We have excluded the operating results of the non-continuing businesses from
the financial data presented in this table. However, we completed one
acquisition that is included in the data set forth in this table from its
date of acquisition. This impacts the comparability of the adjusted
financial data presented in the table. For additional information, see Note
3, "Acquisitions and Divestitures" in the Notes to Consolidated Financial
Statements. The non-continuing businesses include Mox-Med, QMC, the Norelem
and automotive product lines of Enerpac, Gardner Bender's Everest product
line, Barry Controls, Air Cargo, Samuel Groves and Magnets. The Mox-Med and
QMC businesses were divested in fiscal 2001. The Norelem and automotive
product lines of Enerpac, Barry Controls, Air Cargo and Samuel Groves units
were divested in fiscal 2000. Gardner Bender's Everest product line and the
Magnets business were transferred to the Electronics Business segment
immediately prior to the Distribution.
(2)For further information on non-recurring items included in operating
expenses and operating earnings, see "Selected Financial Data" above and the
discussion of operating expenses in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Net Sales
The following table summarizes our net sales for the past three fiscal years:
Year Ended August 31,
------------------------
2002 2001 2000
------ ------ ------
(in millions)
Net Sales by Segment:
Tools & Supplies........................ $259.5 $281.2 $312.3
Less: Non-continuing T&S businesses(1).. -- 3.3 20.7
------ ------ ------
Adjusted Tools & Supplies........... $259.5 $277.9 $291.6
====== ====== ======
Engineered Solutions.................... $203.5 $200.7 $369.1
Less: Non-continuing ES businesses(2)... -- 17.6 161.7
------ ------ ------
Adjusted Engineered Solutions....... $203.5 $183.1 $207.4
====== ====== ======
Total net sales......................... $463.0 $481.9 $681.4
Less: Non-continuing businesses......... -- 20.9 182.4
------ ------ ------
Total adjusted net sales............ $463.0 $461.0 $499.0
====== ====== ======
Net Sales Change by Segment:
Tools & Supplies........................ (7.7)% (10.0)%
Adjusted Tools & Supplies............... (6.6) (4.7)
Engineered Solutions.................... 1.4 (45.6)
Adjusted Engineered Solutions........... 11.1 (11.7)
Total net sales......................... (3.9) (29.3)
Total adjusted net sales................ 0.4 (7.6)
- --------
(1)The "Non-continuing T&S Businesses" are Norelem, Enerpac's automotive line
of business, QMC and Gardner Bender's Everest product line.
(2)The "Non-continuing ES Businesses" are Barry Controls, Air Cargo, Samuel
Groves, Mox-Med and Magnets.
Fiscal 2002 compared to Fiscal 2001
Total net sales decreased $18.9 million, or 3.9%, from $481.9 million in
fiscal 2001 to $463.0 million in fiscal 2002. This decline is due to the impact
of businesses divested in fiscal 2001 and reduced sales in most of
15
the Tools & Supplies distribution channels, offset by increased sales to the
recreational vehicle ("RV") market due to higher demand and the March 1, 2001
acquisition of Dewald. Excluding the results of divested businesses, total net
sales increased $2.0 million, or 0.4%, but decreased $0.7 million if the impact
of currency rate changes on translated results is excluded. Poor economic
conditions, which began in the summer of 2000 and continued into fiscal 2001
and 2002, were exacerbated by the terrorist actions in the United States on
September 11, 2001. Although the terrorist actions and poor economic conditions
adversely impacted sales to our Tools & Supplies customers, the terrorist
actions may have contributed to the increased Engineered Solutions sales,
especially RV sales, as consumers preferred to travel closer to home via land
transport instead of air transportation.
Excluding the segment's non-continuing businesses, Tools & Supplies net
sales decreased from $277.9 million in fiscal 2001 to $259.5 million in fiscal
2002, a 6.6% decline. This decline was driven by weaker economic conditions in
North America and the negative impact of the September 11, 2001 terrorist
actions. Sales in our more capital intensive distribution channels, sales to
the electrical distribution market and sales to OEMs declined more than other
markets in fiscal 2002. European and Asian revenues comprised the remainder of
the decrease, which was partially offset by $0.8 million of favorable currency
impact on translated results.
Engineered Solutions net sales, excluding the segment's non-continuing
businesses, increased $20.4 million, or 11.1%, from $183.1 million in fiscal
2001 to $203.5 million in fiscal 2002. This increase is attributable to a 40%
increase in sales to the RV market due to higher demand, the incremental impact
of a full year of Dewald sales and a $1.9 million favorable impact of foreign
currency rate changes on translated results. Partially offsetting this, were
decreases in demand from our medical, global truck and off-highway customers
due to poor economic conditions. Dewald's sales for the two fiscal quarters
prior to our mid-fiscal 2001 acquisition were approximately $11.6 million.
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
impacted many of our businesses. Sales to RV, automotive and truck OEMs, as
well as the construction and DIY markets, were all lower than in fiscal 2000
due to recessionary trends that began in the summer of fiscal 2000.
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 surplus 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.
16
Gross Profit
The following table summarizes gross profit and gross profit margins for the
past three fiscal years:
Year Ended August 31,
----------------------
2002 2001 2000
------ ------ ------
(in millions)
Gross Profit by Segment:
Tools & Supplies..................... $108.6 $112.7 $122.9
Less: Non-continuing T&S Businesses.. -- 1.2 8.1
------ ------ ------
Adjusted Tools & Supplies........ $108.6 $111.5 $114.8
====== ====== ======
Engineered Solutions................. $ 50.4 $ 56.2 $119.3
Less: Non-continuing ES Businesses... -- 8.3 58.3
------ ------ ------
Adjusted Engineered Solutions.... $ 50.4 $ 47.9 $ 61.0
====== ====== ======
Total gross profit................... $159.0 $168.9 $242.2
Less: Non-continuing Businesses...... -- 9.5 66.4
------ ------ ------
Total adjusted gross profit...... $159.0 $159.4 $175.8
====== ====== ======
Gross Profit Margins by Segment:
Tools & Supplies..................... 42.0% 40.1% 39.3%
Adjusted Tools & Supplies............ 42.0 40.1 39.4
Engineered Solutions................. 24.7 28.0 32.3
Adjusted Engineered Solutions........ 24.7 26.2 29.4
Total gross profit margin............ 34.3 35.0 35.5
Total adjusted gross profit margin... 34.3 34.6 35.2
Fiscal 2002 Compared to Fiscal 2001
Total gross profit decreased $9.9 million, or 5.9%, from $168.9 in fiscal
2001 to $159.0 in fiscal 2002, primarily due to reduced sales volumes resulting
from divestitures. Excluding non-continuing businesses, gross profit declined
from $159.4 million in fiscal 2001 to $159.0 million in fiscal 2002, with Tools
& Supplies gross profit declining and Engineered Solutions gross profit
increasing due to lower and higher sales volumes, respectively. Gross profit
margins declined slightly due to the unfavorable mix resulting from the growth
in our Engineered Solutions business and contraction in our Tools & Supplies
business. Engineered Solutions margins were reduced due to the inefficiencies
following RV plant consolidation activities, the impact of a full year of
Dewald's lower margins, and increased engineering development and prototype
costs for our new convertible top business. The gross margin increase in the
Tools & Supplies business was driven by a focused effort to reduce costs.
Gross profit decreased $4.1 million, or 3.6%, in the Tools & Supplies
business, from $112.7 million in fiscal 2001 to $108.6 million in fiscal 2002.
Excluding the non-continuing Tools & Supplies business, gross profit decreased
$2.9 million, or 2.6% from fiscal 2001 to fiscal 2002, due to the reduced Tools
& Supplies sales. Gross profit margins, however, improved to 42.0% in fiscal
2002, from 40.1% in fiscal 2001 and 39.3% in fiscal 2000. Significant cost
reduction efforts have been made in the hydraulic and electrical tools
businesses, resulting in material cost reductions, personnel reductions, and
facility downsizing. These cost reductions come in large part from a formal
cost reduction program implemented in the Tools & Supplies business in
mid-fiscal 2001 that is now being implemented across all Actuant businesses.
Engineered Solutions fiscal 2002 gross profit decreased $5.8 million, or
10.3% from fiscal 2001. Excluding the non-continuing businesses, however, gross
profit increased $2.5 million, or 5.2%, from fiscal 2001 to fiscal 2002 as a
result of the increased sales to the RV market. Adjusted gross profit margins
decreased from 26.2% in fiscal 2001 to 24.7% in fiscal 2002 due to
ineffeciencies related to the consolidation of our RV manufacturing
17
facilities, lower fixed cost absorption at our more vertically integrated
Milwaukee Cylinder and Nielsen Sessions operations due to lower sales and
production levels, and higher prototype costs in the automotive operations to
support new platform development. In addition, fiscal 2002 includes a full year
of sales from Dewald which historically had lower margins than our existing RV
business.
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 on products 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. As a result of reduced RV slide out and leveling
systems sales 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.
Operating Expenses
The following table summarizes operating expenses for the past three fiscal
years:
Year Ended August 31,
---------------------
2002 2001 2000
----- ----- ------
(in millions)
Operating Expenses:
Selling, administrative and engineering expenses $85.4 $89.0 $132.6
Amortization of intangible assets............... 2.5 6.2 7.5
Corporate reorganization expense................ -- -- 12.4
Restructuring charge............................ -- 1.7 --
----- ----- ------
Totaling operating expenses.................. $87.9 $96.9 $152.5
===== ===== ======
18
Selling, Administrative and Engineering ("SAE") Expenses
The following table summarizes our SAE expenses for the past three fiscal
years:
Year Ended August 31,
---------------------
2002 2001 2000
----- ----- ------
(in millions)
SAE Expenses by Segment:
Tools & Supplies..................... $59.6 $63.0 $ 66.4
Less: Non-continuing T&S businesses.. -- 1.5 6.1
----- ----- ------
Adjusted Tools & Supplies........ $59.6 $61.5 $ 60.3
===== ===== ======
Engineered Solutions................. $20.8 $19.8 $ 48.6
Less: Non-continuing ES businesses... -- 2.3 33.8
----- ----- ------
Adjusted Engineered Solutions.... $20.8 $17.5 $ 14.8
===== ===== ======
Combined segment SAE expenses........ $80.4 $82.8 $115.0
General corporate expenses........... 5.0 6.2 17.6
----- ----- ------
Total SAE expenses................... 85.4 89.0 132.6
Less: Non-continuing businesses...... -- 3.8 39.9
----- ----- ------
Total adjusted SAE expenses...... $85.4 $85.2 $ 92.7
===== ===== ======
All of the general corporate expenses incurred by Actuant Corporation are
included in SAE expenses. No portion of such expenses has been allocated to the
two business segments or to the Electronics Business financial results, which
are included in discontinued operations in the Consolidated Financial
Statements.
Fiscal 2002 Compared to Fiscal 2001
Total SAE expenses decreased $3.6 million, or 4.0%, from $89.0 million in
fiscal 2001 to $85.4 million in fiscal 2002. SAE expenses from the
non-continuing businesses and lower corporate expenses comprised $3.8 million
and $1.2 million of the decrease, respectively. Adjusted SAE in the Tools &
Supplies business decreased as a result of the cost reduction efforts while
Adjusted Engineered Solutions SAE increased due to the inclusion of a full
year's SAE costs for Dewald, non-accruable costs associated with the RV plant
consolidation activities, and higher automotive engineering development costs.
SAE expenses in the Tools & Supplies business decreased $3.4 million to
$59.6 million in fiscal 2002. The non-continuing Tools & Supplies business
comprised $1.5 million of the decline, with the remainder resulting from
reduced variable SAE due to the reduced sales levels and the cost reduction
efforts implemented during fiscal 2001 and 2002.
SAE expenses in the Engineered Solutions business increased $1.0 million to
$20.8 million in fiscal 2002. Excluding the impact of the non-continuing
businesses, SAE costs increased $3.3 million, or 18.9%, from $17.5 million in
fiscal 2001 to $20.8 million in fiscal 2002. SAE costs in the Engineered
Solutions business were significantly influenced by the inclusion of a full
year of SAE costs for Dewald which was acquired on March 1, 2001, non-accruable
costs associated with the consolidation of the RV production facilities, and a
high level of engineering development costs related to convertible top
actuation for new automotive program wins.
Fiscal 2001 Compared to Fiscal 2000
Total SAE expenses decreased $43.6 million, or 32.9%, from $132.6 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 increases in
SAE costs in both of our business segments.
19
SAE expenses 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 expenses 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 $28.8 million, or 59.3%, from
$48.6 million in fiscal 2000 to $19.8 million in fiscal 2001. Excluding the
impact of the segment's non-continuing businesses, SAE expenses increased $2.7
million, or 18.2%, from $14.8 million in fiscal 2000 to $17.5 million in fiscal
2001. This increase is due to a $1.4 million recovery recorded in fiscal 2000
on a customer contract termination for which $7.8 million was initially
expensed in fiscal 1999, higher spending on new platform development costs
associated with the convertible top product line and the inclusion of SAE
expenses from Dewald, which was acquired on March 1, 2001.
Amortization of Intangible Assets
The following table summarizes amortization of intangible assets for the
past three fiscal years:
Year Ended August 31,
---------------------
2002 2001 2000
---- ---- ----
(in millions)
Total amortization expense................. $2.5 $6.2 $7.5
Less: Non-continuing businesses............ -- 0.4 1.8
---- ---- ----
Total adjusted amortization expense.... $2.5 $5.8 $5.7
==== ==== ====
The decrease in amortization expense from fiscal 2001 to fiscal 2002 is
primarily due to ceasing goodwill amortization in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142. See Note 6, "Goodwill and
Other Intangible Assets," in the Notes to Consolidated Financial Statements for
more information regarding this change in accounting principle. The decrease in
amortization expense from fiscal 2000 to fiscal 2001 primarily resulted from
the divestiture of the Barry Controls and Air Cargo Equipment business units
during fiscal 2000.
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 Charges
The Company adopted plans to restructure portions of its operations during
the fiscal third quarter of 2001. These plans were designed to reduce
administrative and operational costs and resulted in a pre-tax charge of $1.7
million. Of the charge, $0.3 million related to the consolidation of the RV
slide-out 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 addition, the
Company eliminated approximately 36 positions. In fiscal 2002, the Company
received net cash proceeds of approximately $0.5 million from the sale of a
former RV slide-out manufacturing facility. As of August 31, 2002, all
restructuring initiatives contemplated by these plans have been completed.
Other Expense (Income)
Net Financing Costs
Net financing costs from continuing operations decreased to $32.7 million
for fiscal 2002 from $49.2 million for fiscal 2001, due to the combined result
of lower market interest rates and reduced debt levels. See "Liquidity and
Capital Resources" below for further information regarding the composition of
our debt and deleveraging.
20
Net financing costs from continuing operations increased to $49.2 million in
fiscal 2001 from $37.7 million for fiscal 2000. The increase in the Company's
financing costs was 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.
Loss (Gain) on Sale of Businesses
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.
Other (Income) Expense, net
Other (income) expense, net are comprised of the following:
Year Ended August 31,
----------------------
2002 2001 2000
----- ------- ------
(in thousands)
Gain on insurance recovery........... $(623) $ (983) $ --
(Gain) loss on QMC divestiture....... (124) 738 1,300
Net present value of idled lease..... -- 1,531 --
Net foreign currency transaction gain (311) (1,247) (665)
Other................................ 199 446 352
----- ------- ------
Other (income) expense, net.......... $(859) $ 485 $ 987
===== ======= ======
Income Tax Expense
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, and our ability to utilize
various tax credits. Our effective income tax rate on earnings from continuing
operations for fiscal 2002 was 35.7%, compared to 40.3% for fiscal 2001. The
decrease is primarily due to ceasing the amortization of goodwill in fiscal
2002, most of which was not deductible for income tax purposes, and lower
overall effective tax rates in foreign jurisdictions. Our effective income tax
rate on earnings from continuing operations for fiscal 2001 was consistent with
that in fiscal 2000. For more information regarding the variations in our
effective tax rates for the periods presented, see Note 14, "Income Taxes," in
the Notes to Consolidated Financial Statements.
Discontinued Operations
See Note 2, "Distribution and Discontinued Operations" and Note 16,
"Contingencies and Litigation" in the Notes to Consolidated Financial
Statements for information regarding the results of our discontinued operations.
On November 7, 2002, APW Ltd. filed an amended Form 10-K for its fiscal year
ended August 31, 2001, wherein it disclosed its restated consolidated financial
statements as of August 31, 2001 and 2000 and for the years ended August 31,
2001, 2000 and 1999. This restatement included periods prior to the
Distribution in which APW Ltd. was included in the Company's consolidated
financial statements as a discontinued operation. After discussions with APW
Ltd. and an analysis of the restated financial statements, the Company has
determined that the effect on the Company's consolidated financial statements
as of and for the years ended August 31, 2000 and 1999 was not material and,
therefore, does not require adjustment of the Company's consolidated financial
statements.
21
Extraordinary Items
In fiscal 2002 and 2000, the Company recognized extraordinary losses, net of
income taxes, of $10.6 million and $14.7 million, respectively, related to the
early extinguishment of debt. See Note 8, "Debt" in the Notes to Consolidated
Financial Statements for further information. In fiscal 2000, the Company also
recognized an extraordinary gain, net of income taxes, of $53.2 million related
to the sale of some of its subsidiaries. See Note 3, "Acquisitions and
Divestitures" in the Notes to Consolidated Financial Statements for further
information.
Cumulative Effect of Change in Accounting Principle
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on
September 1, 2001. Under the transitional provisions of SFAS No. 142, the
Company recorded a goodwill impairment loss associated with its Milwaukee
Cylinder reporting unit of $7.2 million in fiscal 2002. The impairment loss has
been recorded as a cumulative effect of change in accounting principle in the
accompanying Consolidated Statements of Earnings. See Note 6, "Goodwill and
Other Intangible Assets," in the Notes to Consolidated Financial Statements for
more information regarding this change in accounting principle.
Liquidity and Capital Resources
Cash and cash equivalents totaled $3.0 million and $26.6 million at August
31, 2002 and 2001, respectively. At August 31, 2001 the Company held
approximately $23.8 million of funds that relate to APW. See Note 2,
"Distribution and Discontinued Operations" in the Notes to Consolidated
Financial Statements for further information. During the fourth quarter of
fiscal 2002, a majority of these funds were used to reduce debt under the
Senior Secured Credit Facility. Our goal is to maintain low cash balances,
utilizing any excess cash to pay down debt in an effort to minimize financing
costs.
Since the Distribution on July 31, 2000, the Company has reduced its
indebtedness from approximately $451 million to approximately $192 million as
of August 31, 2002. This approximate $259 million reduction was accomplished as
follows:
Business divestitures, net of income taxes...... $ 33
Proceeds from accounts receivable securitization 25
Debt reduction from equity offering proceeds.... 86
Dewald acquisition.............................. (13)
Cash related to discontinued operations......... 21
Free cash flow from operations and other........ 107
----
Total debt reduction............................ $259
====
The Company generated cash from operating activities of continuing
operations of $29.7 million, $95.1 million, and $17.9 million in fiscal 2002,
2001 and 2000, respectively. Fiscal 2002 operating cash flows are less than
those in fiscal 2001 because (1) the prior year operating cash flows include
the proceeds from the accounts receivable securitization program of $25.3
million, (2) fiscal 2001 includes the receipt of $28.7 million of tax refunds,
(3) interest payments on the 13% Senior Subordinated Notes (the "13% Notes")
were $5.6 million higher than in fiscal 2001 since only nine months of interest
was paid in fiscal 2001 versus twelve months in fiscal 2002 and interest was
due on the 13% Notes that were repurchased in the fourth quarter, and (4)
income tax and transaction costs of approximately $7.0 million were paid in
fiscal 2002 related to the August 2001 sale of Mox-Med. Cash provided by
continuing operations increased in fiscal 2001 as compared to fiscal 2000
primarily as a result of the discontinuance of the previous accounts receivable
securitization program in fiscal 2000 prior to the Distribution, the subsequent
sale of receivables in fiscal 2001 pursuant to the new securitization program,
and the tax refunds received in fiscal 2001. Cash flows from operating
activities of discontinued operations were $43.4 million in fiscal 2000.
22
Since the Distribution, the Company has focused on improving working capital
management. Its metric to track such performance is primary working capital as
a percentage of trailing 90-day sales ("PWC as a Percentage of Sales"). Primary
working capital equals inventory plus accounts receivable before securitization
less trade accounts payable. At the time of the Distribution, the Company's PWC
as a Percentage of Sales was approximately 23%. At the end of fiscal 2002, the
percentage was reduced to approximately 19%. This reduction was accomplished
through a focus on negotiating cost reductions from vendors, extending payment
terms with vendors and better diligence in making collection calls on
outstanding receivables.
Cash provided by (used in) investing activities of continuing operations was
$(4.8) million, $28.1 million, and $106.6 million in fiscal 2002, 2001 and
2000, respectively. Fiscal 2002 cash flows consisted of $10.0 million of
capital expenditures and the payment of the deferred purchase price related to
the Dewald acquisition, partially offset by $3.2 million of proceeds on the
sale of fixed assets and $2.9 million of recoveries under an insurance
settlement. Fiscal 2001 cash flows consisted of $6.7 million of capital
expenditures and $11.3 million of cash paid for acquisitions, offset by $1.9
million of proceeds on the sale of fixed assets, $2.4 million of insurance
proceeds and $41.7 million of cash proceeds from business unit divestitures.
Fiscal 2000 cash flows consisted primarily of capital expenditures and cash
used by discontinued operations offset by cash proceeds of $169.7 from business
unit divestitures.
Cash used in financing activities was $48.5 million, $106.3 million and
$183.3 million in fiscal 2002, 2001 and 2000, respectively. As described below,
fiscal 2002 cash flows from financing activities primarily reflect the proceeds
of the equity offering and Senior Secured Credit Facility refinancing, offset
by debt repayments on both the 13% Notes and the Senior Secured Credit Facility
and the payment of the redemption premiums on the 13% Notes. Fiscal 2001 cash
flows primarily reflect net debt repayments. Fiscal 2000 cash flows primarily
reflect net debt repayments, debt financing costs, early extinguishment fees,
and cash used by discontinued operations.
The Company issued 3,450,000 shares of previously unissued shares of Class A
Common Stock in February 2002 for $30.50 per share (the "Equity Offering").
Cash proceeds from the Equity Offering, net of underwriting discounts, were
approximately $99.7 million. The primary objectives of the Equity Offering were
to (1) redeem $70 million of the 13% Notes prior to the April 2003 expiration
of the optional redemption provision, (2) reduce overall debt to improve
financial stability and flexibility, (3) increase the "float" of the Company's
common stock in the capital markets, and (4) increase the awareness of Actuant
Corporation among United States investors. See Note 8, "Debt" and Note 10,
"Capital Stock" in the Notes to Consolidated Financial Statements for further
information regarding the Equity Offering.
Proceeds from the Equity Offering were utilized as follows (in thousands):
Net cash proceeds.............................. $ 99,705
Debt retirement--13% Notes..................... (70,000)
Debt retirement--Senior Secured Credit Facility (16,468)
Redemption premium on 13% Notes................ (9,100)
Accrued interest on 13% Notes.................. (3,387)
Transaction expenses........................... (750)
--------
$ --
========
In March 2002, the Company used the proceeds from the Equity Offering to
redeem $70 million of the 13% Notes and pay down $16.5 million of debt under
the Senior Secured Credit Facility. In the third quarter of fiscal 2002, the
Company refinanced a portion of the Senior Secured Credit Facility to generate
$1.3 million in annual interest savings. In conjunction with the refinancing,
all outstanding Tranche B institutional term loans were extinguished and $85.0
million of New Tranche A term loans were funded by existing bank lenders. At
August 31, 2002, $66.2 million of New Tranche A term loans, with a final
maturity in June 2006, remained outstanding, bearing interest at LIBOR plus
2.25%. Such borrowing costs were reduced to LIBOR plus 2.00% in early October
2002 due to the improvement in our leverage ratio. The term loans are subject
to a pricing grid, which allows for further increases or decreases in the
spread depending on the Company's leverage ratio.
23
During the fourth quarter of fiscal 2002, the Company retired an additional
$10.4 million of its 13% Notes by acquiring them through open market purchases.
As a result, the Company recorded a pre-tax extraordinary charge of $2.1
million, or $1.3 million after-tax, for the $1.7 million bond redemption
premium payment and the $0.4 million write-off of the associated debt discount
and debt issuance costs. Subsequent to August 31, 2002 the Company retired an
additional $6.5 million of its 13% Notes in September 2002 by acquiring them
through open market purchases. In addition, borrowings of $10.6 million were
incurred and $5.4 million of debt was assumed related to the September 3, 2002
acquisition of Kopp AG. See Note 17, "Subsequent Event" in the Notes to
Consolidated Financial Statements for further information.
Long-term debt outstanding at August 31, 2002, including the current portion
of long-term debt payable on or before August 31, 2003, is payable as follows:
Year Ended August 31,
---------------------
2003.......... $ 6.8 million
2004.......... $ 11.9 million
2005.......... $ 12.3 million
2006.......... $ 40.0 million
2007.......... $ -- million
Thereafter...... $118.6 million
At August 31, 2002 the Company was a party to two interest rate swaps to
convert variable rate debt to a fixed rate with a total notional value of $50
million and one interest rate swap to convert fixed rate debt to a variable
rate with a notional amount of $25 million. See Note 1, "Summary of Significant
Accounting Policies," and Note 8, "Debt" in the Notes to Consolidated Financial
Statements for further information.
The Company leases certain facilities, computers, equipment and vehicles
under various operating lease agreements, generally over periods from 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, 2002
are as follows: $7.8 million in fiscal 2003; $6.6 million in fiscal 2004; $5.1
million in fiscal 2005; $3.1 million in fiscal 2006; $2.5 million in fiscal
2007; and $8.7 million thereafter. See Note 9, "Leases," in the Notes to
Consolidated Financial Statements for further information.
As discussed in Note 2, "Distribution and Discontinued Operations" in the
Notes to Consolidated Financial Statements, the Company is contingently liable
for certain lease agreements held by APW. If APW were unable to fulfill its
obligations under the leases, the Company could be liable for such leases. The
future breach of the lease agreements by APW could potentially have a material
adverse effect on the Company's results of operations and financial position.
As more fully discussed in Note 4, "Accounts Receivable Financing" in the
Notes to Consolidated Financial Statements, the Company is a party to an
accounts receivable securitization arrangement. Trade receivables sold and
being serviced by the Company were $24.9 million and $25.3 million at August
31, 2002 and August 31, 2001, respectively. If the Company were to discontinue
this securitization program, at August 31, 2002 it would have been required to
borrow approximately $24.9 million to finance the working capital increase.
No dividend payments were declared or made during fiscal 2002, nor does the
Company expect to pay dividends in the foreseeable future. Cash flow will
instead be retained for working capital needs, acquisitions, and to reduce
outstanding debt. At August 31, 2002, the Company had approximately $97 million
of availability under its Revolver. The Company's Senior Credit Agreement
contains customary limits and restrictions concerning investments, sales of
assets, liens on assets, interest and fixed cost coverage ratios, maximum
24
leverage, capital expenditures, acquisitions, excess cash flow, dividends, and
other restricted payments. At August 31, 2002 the Company was in compliance
with all debt covenants. For a summary of the Company's financing arrangements
and borrowings outstanding at August 31, 2002, see Note 8, "Debt" in the Notes
to Consolidated Financial Statements.
Pursuant to our agreement with APW regarding the $23.8 million of Offset
Funds, which is described in Note 2, "Distribution and Discontinued Operations"
in the Notes to Consolidated Financial Statements, the Company will be required
to pay an estimated $18 to $19 million to APW or other third parties as
Distribution related contingencies are resolved. We estimate that these
payments will be made sometime between fiscal 2004 and fiscal 2005, which
payment will be funded by availability under our credit facilities and funds
generated from operations. In addition, cash outflows will be required in
fiscal 2003 and beyond to fund the remaining Kopp AG purchase price and
restructuring cash flow requirements. See "Subsequent Event" below.
The primary focus of the Company since the Distribution has been to reduce
debt. While the Company intends to continue to use available cash flow to
reduce debt, cash may also be utilized to fund internal growth programs and
acquisitions. The Company believes that availability under its credit
facilities, plus funds generated from operations, will be adequate to meet its
operating, debt service and capital expenditure requirements.
Subsequent Event
On September 3, 2002, the Company acquired Heinrich Kopp AG ("Kopp"). Kopp,
headquartered in Kahl, Germany, is a leading provider of electrical products to
the German Home Center retail market. In the transaction, the Company acquired
approximately 80% of the outstanding equity of Kopp for approximately $17
million (including the assumption of debt and acquired cash). The Company was
also granted an option to acquire, and the Sellers were granted a put option to
sell, the remaining outstanding equity commencing in October 2003 for
approximately $3 million. The transaction was funded by borrowings under
existing credit agreements and will be accounted for using the purchase method
of accounting. Neither the results of operations or the balance sheet of Kopp
are included in the Company's historical results contained herein.
Seasonality and Working Capital
Since the Distribution, we have met our working capital needs and capital
expenditure requirements through a combination of operating cash flow and
availability under revolving credit facilities. Although there are modest
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 5.6%, 4.5% and
4.7% of fiscal 2002, 2001 and 2000 net sales, respectively.
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,
---------------------
2002 2001 2000
----- ---- -----
(in millions)
Total capital expenditures.............................. $10.0 $6.7 $11.4
Less: capital expenditures for non-continuing businesses -- 0.3 3.0
----- ---- -----
Adjusted capital expenditures........................... $10.0 $6.4 $ 8.4
===== ==== =====
25
Capital expenditures have historically been funded by operating cash flows
and borrowings under revolving credit facilities. For the past three fiscal
years, capital expenditures were invested primarily in machinery and equipment
and computer systems. Fiscal 2002 capital expenditures were higher than the
previous two fiscal years due to capital spending required as a result of the
February 2001 fire at our plant in Oldenzaal, The Netherlands and higher
spending relating to new automotive production lines to support our new
convertible top business. 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 August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30 related to the disposal of a segment of a
business. The provisions of SFAS No. 144 are effective for fiscal years
beginning after December 15, 2001 and will be adopted by the Company effective
September 1, 2002. The Company does not expect the adoption of SFAS No. 144
will have a material impact on the consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," related to accounting for debt extinguishments, leases, and
intangible assets of motor carriers. The provisions of SFAS No. 145 are
effective for fiscal years beginning after May 15, 2002 and will be adopted by
the Company effective September 1, 2002. The Company is currently reviewing the
provisions of SFAS No. 145 to determine the impact on its results of operations
and financial condition. However, the Company believes losses incurred in
connection with the early retirement of debt will no longer be classified as
extraordinary items. As required by SFAS No. 145, prior year financial
statements will require reclassification.
Outlook
Including the September 3, 2002 acquisition of Heinrich Kopp AG discussed in
Note 17, "Subsequent Event," to the Company's consolidated financial
statements, but excluding any future acquisitions or divestitures, we believe
our revenues for fiscal 2003 will range from $545 million to $575 million,
earnings before interest, income taxes, depreciation, and amortization
("EBITDA") will range from $90 million to $95 million, and diluted earnings per
share will range from $2.75 to $3.00. These estimates are dependent on, among
other things, general economic and market conditions during fiscal 2003,
foreign exchange and interest rates remaining at their present levels, and the
successful integration of the Kopp acquisition. In addition to the various risk
factors described in the document, you should also read the risk factors listed
in the Company's registration statements filed with the Securities and Exchange
Commission.
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,
26
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" of our
consolidated financial statements.
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 periodically identify areas where we do not have
naturally offsetting positions and then may purchase hedging instruments to
protect anticipated exposures. There are no such hedging instruments in place
at August 31, 2002 or through the date of this filing. 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: 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, 2002 we
were a party to three interest rate swap agreements. Together, two of these
swap contracts convert $50 million of the Company's floating rate debt, issued
pursuant to the Senior Credit Agreement, to fixed rate debt. A third swap
contract converts $25 million of fixed rate senior subordinated debt to a
variable rate. At August 31, 2002, the aggregate fair value of these contracts
was approximately $(0.8) million.
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.
27
Item 8. Financial Statements and Supplementary Data
Page
----
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent accountants................................................................. 29
Consolidated statements of earnings for the years ended August 31, 2002, 2001 and 2000............ 30
Consolidated balance sheets as of August 31, 2002 and 2001........................................ 31
Consolidated statements of cash flows for the years ended August 31, 2002, 2001 and 2000.......... 32
Consolidated statements of shareholders' equity for the years ended August 31, 2002, 2001 and 2000 33
Notes to consolidated financial statements........................................................ 34
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of independent accountants on financial statement schedule................................. 67
Schedule II--Valuation and Qualifying Accounts.................................................... 68
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.
28
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, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended August 31, 2002 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.
As discussed in Note 6 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," effective September 1, 2001.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
September 25, 2002
29
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Year Ended August 31,
----------------------------
2002 2001 2000
-------- -------- --------
Net sales............................................................... $462,950 $481,939 $681,443
Cost of products sold................................................... 303,919 313,030 439,277
-------- -------- --------
Gross profit......................................................... 159,031 168,909 242,166
Selling, administrative and engineering expenses........................ 85,446 88,985 132,591
Amortization of intangible assets....................................... 2,453 6,236 7,530
Corporate reorganization expense........................................ -- -- 12,388
Restructuring charge.................................................... -- 1,740 --
-------- -------- --------
Operating earnings................................................... 71,132 71,948 89,657
Other expense (income):
Net financing costs.................................................. 32,723 49,199 37,670
Loss (gain) on sale of businesses.................................... -- (18,508) 3,467
Other (income) expense, net.......................................... (859) 485 987
-------- -------- --------
Earnings from continuing operations before income tax expense........... 39,268 40,772 47,533
Income tax expense...................................................... 14,016 16,417 19,488
-------- -------- --------
Earnings from continuing operations..................................... 25,252 24,355 28,045
Discontinued operations, net of income taxes............................ (10,000) (781) 585
Extraordinary gain (loss), net of income taxes:
Early extinguishment of debt......................................... (10,633) -- (14,708)
Sale of subsidiaries................................................. -- -- 53,167
-------- -------- --------
Net extraordinary gain (loss).................................... (10,633) -- 38,459
Cumulative effect of change in accounting principle, net of income taxes (7,200) -- --
-------- -------- --------
Net earnings (loss)..................................................... $ (2,581) $ 23,574 $ 67,089
======== ======== ========
Basic earnings (loss) per share:
Earnings from continuing operations.................................. $ 2.53 $ 3.06 $ 3.59
Discontinued operations, net of income taxes......................... (1.00) (0.09) 0.07
Extraordinary items, net of income taxes............................. (1.07) -- 4.92
Cumulative effect of change in accounting principle, net of income
taxes.............................................................. (0.72) -- --
-------- -------- --------
Total............................................................ $ (0.26) $ 2.97 $ 8.58
======== ======== ========
Diluted earnings (loss) per share:
Earnings from continuing operations.................................. $ 2.39 $ 2.93 $ 3.48
Discontinued operations, net of income taxes......................... (0.95) (0.09) 0.07
Extraordinary items, net of income taxes............................. (1.00) -- 4.77
Cumulative effect of change in accounting principle, net of income
taxes.............................................................. (0.68) -- --
-------- -------- --------
Total............................................................ $ (0.24) $ 2.84 $ 8.32
======== ======== ========
Weighted average common shares outstanding:
Basic................................................................ 9,993 7,950 7,822
======== ======== ========
Diluted.............................................................. 10,583 8,305 8,062
======== ======== ========
The accompanying notes are an integral part of these financial statements.
30
ACTUANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
August 31,
--------------------
2002 2001
--------- ---------
ASSETS
------
Current Assets
Cash and cash equivalents...................................................... $ 3,043 $ 26,554
Accounts receivable, net of allowances of $3,174 and $3,790, respectively...... 58,304 54,971
Inventories, net............................................................... 54,898 56,738
Deferred income taxes.......................................................... 9,127 5,833
Prepaid expenses............................................................... 4,592 5,074
--------- ---------
Total Current Assets....................................................... 129,964 149,170
Property, Plant and Equipment
Land, buildings, and improvements.............................................. 14,940 18,090
Machinery and equipment........................................................ 100,870 95,107
--------- ---------
Gross property, plant and equipment............................................ 115,810 113,197
Less: Accumulated depreciation................................................. (78,982) (73,715)
--------- ---------
Property, Plant and Equipment, net................................................ 36,828 39,482
Goodwill.......................................................................... 101,361 108,124
Other Intangibles, net of accumulated amortization of $12,362 and $18,827,
respectively.................................................................... 18,466 20,916
Other Long-term Assets............................................................ 7,992 25,024
--------- ---------
Total Assets............................................................... $ 294,611 $ 342,716
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Short-term borrowings.......................................................... $ 2,993 $ 1,568
Current maturities of long-term debt........................................... 6,788 --
Trade accounts payable......................................................... 47,834 39,798
Accrued compensation and benefits.............................................. 12,362 10,655
Accrued interest............................................................... 5,953 10,602
Income taxes payable........................................................... 18,365 26,787
Other current liabilities...................................................... 17,971 21,532
--------- ---------
Total Current Liabilities.................................................. 112,266 110,942
Long-term Debt, less current maturities........................................... 182,783 325,752
Deferred Income Taxes............................................................. 4,409 3,907
Other Long-term Liabilities....................................................... 38,772 41,869
Shareholders' Equity
Class A common stock, $0.20 par value per share, authorized 16,000,000 shares,
issued and outstanding 11,595,417 and 8,013,306 shares, respectively......... 2,319 1,603
Additional paid-in capital..................................................... (523,419) (623,867)
Retained earnings.............................................................. 499,156 501,737
Stock held in trust............................................................ (511) --
Deferred compensation liability................................................ 511 --
Accumulated other comprehensive income (loss).................................. (21,675) (19,227)
--------- ---------
Total Shareholders' Equity................................................. (43,619) (139,754)
--------- ---------
Total Liabilities and Shareholders' Equity................................. $ 294,611 $ 342,716
========= =========
The accompanying notes are an integral part of these financial statements.
31
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended August 31,
------------------------------
2002 2001 2000
-------- --------- ---------
Operating activities
Earnings from continuing operations.................................. $ 25,252 $ 24,355 $ 28,045
Adjustments to reconcile earnings from continuing operations to cash
provided by operating activities of continuing operations:
Depreciation and amortization.................................... 12,361 16,563 22,550
Amortization of debt discount and debt issuance costs............ 2,337 2,352 1,103
Loss (gain) on sale of assets.................................... 169 (267) --
Loss (gain) on sale of businesses, net........................... -- (18,508) 3,457
Provision for deferred income taxes.............................. 1,371 1,107 324
Other............................................................ -- -- 1,924
Changes in components of working capital:............................
Accounts receivable.............................................. (984) 28,268 (57,999)
Inventories...................................................... 2,500 11,150 (8,515)
Prepaid expenses and other assets................................ (2,108) 30,053 220
Trade accounts payable........................................... 6,705 (4,523) 7,338
Other liabilities................................................ (17,862) 4,593 19,468
-------- --------- ---------
Cash provided by continuing operations.................................. 29,741 95,143 17,915
Cash provided by discontinued operations................................ -- -- 43,360
-------- --------- ---------
Total cash provided by operating activities............................. 29,741 95,143 61,275
Investing activities
Proceeds from sale of property, plant and equipment.................. 3,219 1,907 835
Capital expenditures................................................. (10,044) (6,709) (11,441)
Business acquisitions................................................ (785) (11,250) --
Proceeds from business and product line dispositions................. -- 41,692 169,733
Proceeds from insurance recovery..................................... 2,858 2,427 --
Net investing activities of discontinued operations.................. -- -- (52,510)
-------- --------- ---------
Cash provided by (used in) investing activities......................... (4,752) 28,067 106,617
Financing activities
Net proceeds from issuance of common stock........................... 99,705 -- --
Partial redemption of 13% senior subordinated notes.................. (80,442) -- --
Net principal payments on debt....................................... (56,888) (106,897) (85,240)
Debt financing costs and early extinguishment premiums............... (12,108) -- (33,899)
Stock option exercises............................................... 1,254 579 3,838
Dividends paid on common stock....................................... -- -- (1,789)
Net financing activities of discontinued operations.................. -- -- (66,175)
-------- --------- ---------
Cash used in financing activities....................................... (48,479) (106,318) (183,265)
Effect of exchange rate changes on cash................................. (21) (234) (272)
-------- --------- ---------
Net (decrease) increase in cash and cash equivalents.................... (23,511) 16,658 (15,645)
Effect of change in cash of discontinued operations..................... -- -- 18,285
Cash and cash equivalents--beginning of year............................ 26,554 9,896 7,256
-------- --------- ---------
Cash and cash equivalents--end of year.................................. $ 3,043 $ 26,554 $ 9,896
======== ========= =========
The accompanying notes are an integral part of these financial statements.
32
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Class A Additional Other Stock Deferred Total
Common Paid-in Retained Comprehensive Held in Compensation Shareholders'
Stock Capital Earnings Income (Loss) Trust Liability Equity
------- ---------- -------- ------------- ------- ------------ -------------
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 swaps, net
of taxes............................... -- -- -- (178) -- -- (178)
---------
Total comprehensive income........... 21,338
---------
1-for-5 reverse stock split............. (6,350) 6,350 -- -- -- -- --
Restricted stock awards................. -- 24 -- -- -- -- 24
Stock option exercises.................. 30 549 -- -- -- -- 579
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)
Net loss................................ -- -- (2,581) -- -- -- (2,581)
Currency translation adjustments........ -- -- -- 1,825 -- -- 1,825
Hedges of net investment in foreign
subsidiaries........................... -- -- -- (828) -- -- (828)
Additional minimum pension liability
adjustment, net of taxes............... -- -- -- (3,087) -- -- (3,087)
Fair value of interest rate swaps, net
of taxes............................... -- -- -- (358) -- -- (358)
---------
Total comprehensive loss............. (5,029)
---------
Common stock offering................... 690 98,265 -- -- -- -- 98,955
Restricted stock awards................. -- 14 -- -- -- -- 14
Stock option exercises.................. 26 1,228 -- -- -- -- 1,254
Tax benefit of stock option
exercises.............................. -- 941 -- -- -- -- 941
Stock acquired and placed in rabbi
trust for Director Deferred
Compensation Plan...................... -- -- -- -- (511) 511 --
------- --------- -------- -------- ----- ----- ---------
Balance at August 31, 2002................. $ 2,319 $(523,419) $499,156 $(21,675) $(511) $ 511 $ (43,619)
======= ========= ======== ======== ===== ===== =========
The accompanying notes are an integral part of these financial statements.
33
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 consolidated 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 56% and 62% of total inventories
in 2002 and 2001, 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 $6.7 million and $7.1 million at August 31, 2002 and
2001, 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 ten to thirty years for
buildings and improvements and two to seven years for machinery and equipment.
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: Other intangible assets, consisting
primarily of purchased patents, trademarks and noncompete agreements, are
amortized over periods from three to twenty-five years. Effective September 1,
2001, goodwill is no longer amortized, but is subjected to annual impairment
testing in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Revenue Recognition: Revenue is recognized when title to the products being
sold transfers to the customer, which is generally upon shipment.
Shipping and Handling Costs: The Company records costs associated with
shipping its products in cost of products sold.
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 $3.1
million, $3.4 million and $6.6 million in fiscal 2002, 2001 and 2000,
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
34
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 basis of assets and liabilities using
tax rates in effect in the years in which temporary differences are expected to
reverse.
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 resulting from foreign currency
transactions were $0.3 million, $1.2 million, and $0.7 million in fiscal 2002,
2001 and 2000, 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 operation. 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 variability of cash
flows. Changes in the fair value of a derivative used to hedge the net
investment in a foreign operation are recorded in the cumulative translation
adjustment accounts within equity.
At August 31, 2001 the Company was a party to one interest rate swap
contract to convert $25 million of its variable rate term debt to a fixed rate.
In fiscal 2002, the Company entered into a second contract to convert a further
$25 million of its variable rate term debt to a fixed rate. Unrealized losses,
net of income taxes, of $0.4 million and $0.2 million were recorded in other
comprehensive income to recognize the fair value of these contracts for the
years ended August 31, 2002 and 2001, respectively. Realized losses of $0.1
million were recorded in "Net Financing Costs" in fiscal 2002 to recognize the
portion of the contracts that became ineffective due to the pay down of term
debt as a result of the common stock offering. See Note 10, "Capital Stock,"
for further information on the common stock offering. No realized losses were
recorded in fiscal 2001 on these contracts. At August 31, 2002, the effective
notional amount of these contracts was $50 million. In fiscal 2002, the Company
also entered into an interest rate swap contract to convert $25 million of its
fixed rate senior subordinated debt to a variable rate. Since the contract is
considered to be "effective" as the terms of the contract exactly match the
terms of the underlying debt, no net gain or loss has been recorded in earnings
related to changes in the fair value of the contract. At August 31, 2002, the
effective notional amount of this contract was $25 million.
The Company has significant investments in foreign subsidiaries, and the net
assets of these subsidiaries are exposed to currency exchange rate volatility.
During fiscal 2002 and 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 denominated debt obligation of the
parent. For the fiscal years ended August 31, 2002 and 2001, $(0.8) million and
$0.8 million of net (losses) gains related to the Euro denominated debt
agreement were included in the cumulative translation adjustment, respectively.
The parent company had no euro denominated debt obligations outstanding at
August 31, 2002.
Fair Value of Financial Instruments: The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, short-term
borrowings and its variable rate long-term debt approximated book
35
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value as of August 31, 2002 and 2001 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 outstanding $119.6 million 13% Subordinated
Notes at August 31, 2002 was estimated to be $140.5 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 August 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30 related to the disposal of a segment of a business. The provisions of SFAS
No. 144 are effective for fiscal years beginning after December 15, 2001 and
will be adopted by the Company effective September 1, 2002. The Company does
not expect the adoption of SFAS No. 144 will have a material impact on the
consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," related to accounting for debt extinguishments, leases, and
intangible assets of motor carriers. The provisions of SFAS No. 145 are
effective for fiscal years beginning after May 15, 2002 and will be adopted by
the Company effective September 1, 2002. The Company is currently reviewing the
provisions of SFAS No. 145 to determine the impact on its results of operations
and financial condition. However, the Company believes losses incurred in
connection with the early retirement of debt will no longer be classified as
extraordinary items. As required by SFAS No. 145, prior year financial
statements will require reclassification.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the fiscal 2002 presentation.
Note 2. Distribution and Discontinued Operations
On January 25, 2000, Applied Power's board of directors authorized various
actions to enable Applied Power to distribute its Electronics segment ("APW" or
"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 common stock for each Applied Power common share. The board of
directors approved the Distribution on July 7, 2000 and shares of APW were
distributed to Applied Power shareholders of record at July 21, 2000, effective
July 31, 2000.
The consolidated financial statements and related notes for fiscal 2000 have
been reclassified to reflect the Company's former Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, and cash flows
of the Electronics segment have been excluded from the respective captions in
the accompanying consolidated financial statements. The net operating results
of the Electronics segment for the year ended August 31, 2000 have been
reported as "Discontinued operations, net of income taxes." 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 in the Distribution.
The allocation of interest expense to continuing and discontinued operations
for the period prior to
36
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Distribution was based on the relative debt levels assigned. There were no
general corporate expenses allocated to discontinued operations.
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.
Eleven Months
Ended
July 31, 2000
-------------
Net sales........................................................... $1,113,178
==========
Earnings before income tax expense.................................. $ 70,867
Income tax expense.................................................. 68,199
Extraordinary loss, net of taxes.................................... 2,083
----------
Earnings from operations of discontinued Electronics segment, net of
taxes............................................................. $ 585
==========
During the third quarter of fiscal 2002, APW and one of APW's wholly owned
indirect subsidiaries, Vero Electronics, Inc. ("Vero"), commenced prepackaged
bankruptcy cases in the United States Bankruptcy Court for the Southern
District of New York. According to the disclosure statement of APW and Vero
sent to creditors in May 2002, Vero's sole business is to lease and sublease a
single parcel of real estate. No other subsidiaries of APW filed Chapter 11
cases. On July 31, 2002, APW and Vero emerged from bankruptcy.
In its bankruptcy filing, APW disclosed that it was rejecting the majority
of the agreements entered into between APW and the Company at the time of the
Distribution that govern a variety of indemnification matters between the
parties. Those agreements include the Tax Sharing and Indemnification Agreement
("TSA") in which APW agreed to indemnify the Company for income tax liabilities
in excess of $1.0 million which could arise from any audit or other
administrative or judicial proceedings resulting in adjustments to the separate
taxable income of APW or any of its subsidiaries which are included in the APW
Group (as defined in the TSA) for periods prior to the Distribution, as well as
all taxes related to the Distribution itself. If any audit adjustments were to
result in an increased tax liability, such amounts, to the extent not paid by
APW (or such APW subsidiaries), are now payable by the Company without the
benefit of the right to seek indemnification from APW under the TSA.
In the third quarter of fiscal 2002, the Company recorded a non-cash charge
of $10.0 million, or $0.82 per diluted share, in "Discontinued Operations, net
of Income Taxes" as a result of the rejection of indemnification agreements by
APW. This charge provides for a contingent amount that otherwise would have
been subject to indemnification by APW.
On August 6, 2002, the Company and APW entered into an agreement which
provides, among other things, that the right of offset asserted by the Company
with respect to approximately $23.8 million of funds (the "Offset Funds") which
the Company held related to APW is an allowed secured claim which is unimpaired
in the APW bankruptcy proceeding; and, further, that the Company may retain
possession of the Offset Funds and may use such Offset Funds to, among other
things, reimburse itself for certain estimated legal, accounting and other
costs of approximately $4.9 million and adjustments arising from the Company's
spin-off of APW. In the event that such costs and adjustments exceed the Offset
Funds, the Company will be responsible for any shortfall, and such excess
amount could result in a materially adverse impact upon the Company's financial
position and results of operations. Pursuant to the agreement with APW, the
Company will be required to pay an estimated $18 to $19 million to APW or other
third parties as Distribution related contingencies are resolved. The Company
estimates
37
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that these payments will be made sometime between fiscal 2004 and fiscal 2005.
The Offset Funds of $18.9 million and $23.8 million have been recorded in
"Other Long-term Liabilities" as of August 31, 2002 and 2001, respectively.
Prior to the Distribution, the Company, in the normal course of business,
entered into certain real estate and equipment leases or guaranteed such leases
on behalf of its subsidiaries, including those in its Electronics segment. In
conjunction with the Distribution, the Company assigned its rights in the
leases used in the Electronics segment to APW, but was not released as a
responsible party from all such leases by the lessors. As a result, the Company
remains contingently liable for such leases. The discounted present value of
future minimum lease payments for such leases totals approximately $21.7
million at August 31, 2002. APW subsidiaries that are parties to these leases
have not filed Chapter 11 cases and, as such, none of those leases have been
rejected in the bankruptcies noted above. As such, the Company will not be
responsible for any current payments under such lease agreements as a result of
the bankruptcy cases commenced by APW and Vero. However, the Company remains
contingently liable for those leases if APW or its subsidiaries are unable to
fulfill their obligations thereunder. A future breach of these leases could,
therefore, potentially have a material adverse impact upon the Company's
financial position and results of operations.
In the third quarter of fiscal 2001, the Company recorded an $0.8 million
loss, or $0.09 per diluted share, in "Discontinued Operations, net of income
taxes" to reflect a change in estimate for Electronics segment liabilities
assumed by the Company as part of the Distribution.
Note 3. Acquisitions and Divestitures
Fiscal 2001
Acquisition
In March 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 and are included in the Engineered
Solutions segment in Note 15 "Business Segment, Geographic and Customer
Information." The acquisition was accounted for as a purchase, and the purchase
price of $12.0 million (including deferred purchase price of $1.0 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
approximated $8.8 million, was recorded as goodwill. This acquisition was
funded by borrowings under Actuant's senior secured credit facility. In March
2002, the Company paid the deferred purchase price to the former owners of
Dewald.
Divestitures
In May 2001, the Company sold the Quick Mold Change ("QMC") product line in
the Tools & Supplies segment 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.
In August 2001, the Company completed the sale of Mox-Med, Inc. ("Mox-Med"),
a business unit in the Engineered Solutions segment. Mox-Med had annual sales
of approximately $18.0 million at the time of the sale. 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. This gain is
recorded in "Loss (gain) on sale of businesses" in
38
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Consolidated Statement of Earnings. The Company paid approximately $7.0
million in income taxes and transaction fees related to the sale of Mox-Med
during fiscal 2002.
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 a pooling of interests, (ii) the divestiture was not planned at the
time of the pooling of interests 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.
Note 4. Accounts Receivable Financing
During fiscal 2001, the Company established an accounts receivable
securitization program whereby it sells certain of its trade accounts
receivable to a wholly owned special purpose subsidiary which, in turn, sells
39
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The securitization
program has a final maturity in May 2006, subject to the renewal of a 364 day
back-up liquidity commitment provided by the Purchaser. At August 31, 2002, the
total credit availability under the program was approximately $35.0 million.
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 $24.9 million and $25.3 million at August
31, 2002 and 2001, respectively.
Accounts receivable financing costs of $1.0 million, $0.9 million, and $3.5
million for the years ended August 31, 2002, 2001 and 2000, 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 $129.4 million and $64.4 million for the years ended August 31,
2002 and 2001, respectively.
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.
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. Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," in
fiscal 2002. Application of the non-amortization provisions of SFAS No. 142
resulted in an increase in net income of approximately $3.2 million, or $0.30
per diluted share, in fiscal 2002. Under the transitional provisions of SFAS
No. 142, the Company recorded a goodwill impairment loss associated with its
Milwaukee Cylinder reporting unit of $7.2 million, or $(0.85) per diluted
share, in the first quarter of fiscal 2002 due to its declining results given
general economic conditions at September 1, 2001. The fair value of the
reporting unit was estimated considering both an income and market multiple
approach. The impairment loss has been recorded as a cumulative effect of
change in accounting principle on the accompanying Consolidated Statements of
Earnings.
40
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following sets forth a reconciliation of net income and earnings per
share information for the years ended August 31, 2002, 2001 and 2000 adjusted
for the non-amortization provisions of SFAS No. 142.
For the Years Ended August 31,
------------------------------
2002 2001 2000
------- ------- -------
Net earnings (loss):
Reported net earnings from continuing operations................ $25,252 $24,355 $28,045
Reported net earnings (loss).................................... (2,581) 23,574 67,089
Add: Goodwill amortization of continuing operations, net of tax
effect........................................................ -- 2,372 2,593
Add: Goodwill amortization of discontinued operations, net of
tax effect.................................................... -- -- 11,715
Adjusted net earnings from continuing operations................ 25,252 26,727 30,638
Adjusted net earnings (loss).................................... $(2,581) $25,946 $81,397
Basic earnings per share:
Adjusted net earnings from continuing operations................ $ 2.53 $ 3.36 $ 3.92
Adjusted net earnings (loss).................................... $ (0.26) $ 3.26 $ 10.41
Diluted earnings per share:
Adjusted net earnings from continuing operations................ $ 2.39 $ 3.22 $ 3.80
Adjusted net earnings (loss).................................... $ (0.24) $ 3.12 $ 10.10
The changes in the carrying amount of goodwill for the years ended August
31, 2002 and 2001 are as follows:
Tools & Engineered
Supplies Solutions
Segment Segment Total
-------- ---------- --------
Balance as of August 31, 2000........................ $44,451 $ 71,897 $116,348
Goodwill of acquired businesses...................... -- 8,291 8,291
Amortization......................................... (1,569) (2,404) (3,973)
Goodwill written off related to sale of business unit -- (12,613) (12,613)
Currency impact...................................... -- 71 71
------- -------- --------
Balance as of August 31, 2001........................ 42,882 65,242 108,124
Transitional impairment charge....................... -- (7,200) (7,200)
Purchase price allocation adjustment................. -- 491 491
Currency impact...................................... -- (54) (54)
------- -------- --------
Balance as of August 31, 2002........................ $42,882 $ 58,479 $101,361
======= ======== ========
41
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of August 31, 2002 and 2001 are as
follows:
August 31, 2002 August 31, 2001
----------------------------- -----------------------------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Patents............... $21,703 $ 8,049 $13,654 $22,652 $ 7,653 $14,999
Trademarks............ 4,516 1,095 3,421 4,496 842 3,654
Non-compete agreements 3,268 2,562 706 10,509 9,038 1,471
Other................. 1,341 656 685 2,086 1,294 792
------- ------- ------- ------- ------- -------
Total................. $30,828 $12,362 $18,466 $39,743 $18,827 $20,916
======= ======= ======= ======= ======= =======
Amortization expense recorded on the intangible assets listed in the above
table for the years ended August 31, 2002, 2001 and 2000 was $2.5 million, $2.2
million and $3.1 million respectively. The reduction in gross carrying amount
and accumulated amortization for non-compete agreements and other intangible
assets in the table above reflect the removal of fully amortized intangible
assets in fiscal 2002. The estimated amortization expense for each of the next
five fiscal years, excluding intangible asset amortization for Kopp AG which
was acquired subsequent to the Company's fiscal 2002 year end, is as follows:
2003 $2,182
2004 $1,775
2005 $1,597
2006 $1,574
2007 $1,574
Note 7. 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 were 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-out 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. As a result of these plans, the Company
eliminated approximately 36 positions. In fiscal 2002, the Company received net
cash proceeds of approximately $0.5 million from the sale of a former RV
slide-out manufacturing facility. As of August 31, 2002, all restructuring
initiatives contemplated by these plans have been completed.
A rollforward of the restructuring reserve recorded is shown in the
following table:
August 31, 2001 August 31, 2002
Restructuring Cash Restructuring
Reserve Payments Reserve
--------------- -------- ---------------
Severance. $ 182 $ (182) $--
Exit Costs 820 (820) --
------ ------- ---
$1,002 $(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
42
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 was party to an insurance contract that covered the damaged inventory
and equipment as well as the business interruption resulting from the fire.
During the third quarter of fiscal 2001, 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. In fiscal 2002, the Company settled its claim with the insurance
company, and as a result received $2.9 million from the insurance company and
recorded an additional gain of $0.6 million, $0.4 million after-tax. The new
facility was operational as of May 31, 2002.
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 the sale of the
Norelem, S.A. product line within its Tools & Supplies segment. The Company
recorded a total charge of approximately $1.9 million to reduce the carrying
amounts of the assets to estimated net realizable value. This charge is
included in the Consolidated Statements of Earnings as a component of "Other
(income) expense, net."
43
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Debt
The Company's indebtedness at the end of its two most recently completed
fiscal years was as follows:
August 31,
------------------
2002 2001
-------- --------
Senior secured credit agreement
Revolving credit borrowings........................... $ -- $ 13,250
Tranche A term loans.................................. -- 10,376
New Tranche A term loans.............................. 66,151 --
Tranche B term loans.................................. -- 90,487
-------- --------
Sub-total--senior secured credit agreement........ 66,151 114,113
13% Senior subordinated notes, due 2009.................. 119,558 200,000
Less: initial issuance discount.......................... (1,206) (2,322)
-------- --------
Senior subordinated notes, net of discount............ 118,352 197,678
Euro denominated term loan............................... 4,914 13,675
Other.................................................... 154 286
-------- --------
Total debt........................................ 189,571 325,752
Less: current maturities of long-term debt............... (6,788) --
-------- --------
Total long-term debt, less current maturities..... $182,783 $325,752
======== ========
Immediately prior to the Distribution, all borrowings outstanding under a
multi-currency revolving credit agreement, 8.75% 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% Senior Subordinated Notes (the "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 long-term debt consisted of borrowings under 1) the
Senior Credit Agreement, 2) the 13% Notes and 3) $0.5 million of other debt.
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"). All loans under the
Senior Credit Agreement could be (and continue to be) prepaid at any time
without premium or penalty.
During the first quarter of fiscal 2002, the Company repaid all remaining
balances outstanding under the Tranche A term loans. In May 2002, the Company
completed an amendment to the Senior Credit Agreement, entering into an Amended
and Restated Credit Agreement. In conjunction with the Amended and Restated
Credit Agreement, a New Tranche A Term Loan in the amount of $85.0 million was
funded by existing bank lenders and all outstanding Tranche B institutional
term loans were extinguished. The Company recorded a pre-tax extraordinary
charge of $2.3 million, or $1.5 million after-tax, in connection with the
refinancing to write-off a portion of the capitalized debt issuance costs from
the original financing. The new Tranche A Term Loan, as well as the Revolver,
have a final maturity in June 2006 and can be prepaid at any time without
premium or penalty. At August 31, 2002, outstanding New Tranche A Term Loan and
Revolver borrowings were at interest rates of approximately 4.10%, which
represented LIBOR plus a 2.25% spread. Subsequent to year-end, the borrowing
spread was reduced to LIBOR plus 2.00% due to improvement in the Company's
leverage ratio. Borrowing
44
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
spreads under the Amended and Restated Credit Agreement are subject to a
pricing grid, which can result in further increases or decreases in the
borrowing spread depending on the Company's leverage ratio.
A non-use fee of 0.38% annually is payable quarterly on the average unused
Revolver credit line. The unused and available Revolver credit line at August
31, 2002 was approximately $97 million, which represents the $100 million
revolving credit line less approximately $3 million of outstanding letters of
credit issued under the Senior Credit Agreement. The Amended and Restated
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 Amended and Restated 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, 2002, 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. In August 2002, an optional prepayment in
the amount of Euro 10.0 million was made, reducing the outstanding term loan
balance to approximately $4.9 million. The term loan borrowing accrues interest
at EURIBOR plus 1.10%, or approximately 4.45% at August 31, 2002.
Actuant's 13% Notes were issued at a price of 98.675% on July 31, 2000. The
initial issuance discount is being amortized over the term of the notes, which
mature in May 2009. The 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 Notes. In fiscal 2002, the Company
exercised its right to redeem at 113% up to 35% of the 13% Notes prior to May
1, 2003 with the proceeds from a common stock offering. See Note 10, "Capital
Stock," for further information on the common stock 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.
In March 2002, the Company used the proceeds from the common stock offering
to redeem $70 million of the 13% Notes and optionally prepay $16.5 million of
debt under the Senior Credit Agreement. The Company recorded a pre-tax
extraordinary charge of $12.0 million, or $7.8 million after-tax, related to
the redemption of the 13% Notes. The pre-tax charge consisted of the $9.1
million bond redemption premium payment and a $2.9 million non-cash write-off
of the associated debt discount and debt issuance costs.
During the fourth quarter of fiscal 2002, the Company retired an additional
$10.4 million of its 13% Notes acquired through open market purchases. The
Company recorded a pre-tax extraordinary charge of $2.1 million, or $1.3
million after-tax, for the $1.7 million bond redemption premium payment and the
$0.4 million write-off of the associated debt discount and debt issuance costs.
Subsequent to year-end, the Company retired in September 2002 an additional
$6.5 million of its 13% Notes by acquiring them through open market purchases.
Short-term Debt: Short-term debt outstanding at August 31, 2002 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.
45
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Aggregate Maturities: Long-term debt outstanding at August 31, 2002,
including the current portion of long-term debt payable on or before August 31,
2003, is payable as follows:
Year Ended August 31,
---------------------
2003.......... $ 6.8 million
2004.......... $ 11.9 million
2005.......... $ 12.3 million
2006.......... $ 40.0 million
2007.......... $ -- million
Thereafter...... $118.6 million
The Company paid $35.0 million, $40.9 million, and $67.2 million of interest
in fiscal 2002, 2001 and 2000, respectively, which included both continuing and
discontinued operations.
Note 9. 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. The
Company's policy is to not enter into capital leases.
Future obligations under non-cancelable operating leases in effect at August
31, 2002 are as follows: $7.8 million in fiscal 2003; $6.6 million in fiscal
2004; $5.1 million in fiscal 2005; $3.1 million in fiscal 2006; $2.5 million in
fiscal 2007; and $8.7 million thereafter. Total rental expense under operating
leases related to the continuing businesses was $7.9 million, $7.3 million and
$9.1 million in fiscal 2002, 2001 and 2000, respectively.
The Company is also contingently liable for leases entered into prior to the
Distribution for the benefit of the Electronics segment. See Note 2,
"Distribution and Discontinued Operations," and Note 16, "Contingencies and
Litigation," for further information.
Note 10. Capital Stock
The authorized capital stock of the Company as of August 31, 2002 consisted
of 16,000,000 shares of Class A Common Stock, $0.20 par value, of which
11,595,417 shares were issued and outstanding and 1,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued; 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
46
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In February 2002, the Company sold, pursuant to an underwritten public
offering, 3,450,000 shares of its Class A Common Stock at a price of $30.50 per
share. Cash proceeds from the offering, net of underwriting discounts, were
approximately $99.7 million. In addition to underwriting discounts, the Company
incurred approximately $0.8 million of additional accounting, legal and other
expenses related to the offering that were charged to additional paid-in
capital. The proceeds were used to redeem $70 million of the 13% Notes and
retire $16.5 million of the Company's debt under the Senior Secured Credit
Facility. See Note 8, "Debt" for further information.
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,
--------------------------
2002 2001 2000
-------- ------- -------
Numerator:
Net earnings from continuing operations.......................... $ 25,252 $24,355 $28,045
Discontinued operations, net of income taxes..................... (10,000) (781) 585
Extraordinary items, net of income taxes......................... (10,633) -- 38,459
Cumulative effect of change in accounting principle, net of
income taxes................................................... (7,200) -- --
-------- ------- -------
Net earnings (loss).......................................... $ (2,581) $23,574 $67,089
======== ======= =======
Denominator (in thousands):
Weighted average common shares outstanding for basic earnings
(loss) per share............................................... 9,993 7,950 7,822
Net effect of dilutive stock options based on the treasury stock
method using average market price.............................. 590 355 240
-------- ------- -------
Weighted average common and equivalent shares outstanding for
diluted earnings (loss) per share.............................. 10,583 8,305 8,062
======== ======= =======
Basic Earnings (Loss) Per Share:
Net earnings from continuing operations.......................... $ 2.53 $ 3.06 $ 3.59
Discontinued operations, net of income taxes..................... (1.00) (0.09) 0.07
Extraordinary items, net of income taxes......................... (1.07) -- 4.92
Cumulative effect of change in accounting principle, net of
income taxes................................................... (0.72) -- --
-------- ------- -------
Net earnings (loss).......................................... $ (0.26) $ 2.97 $ 8.58
======== ======= =======
Diluted Earnings Per (Loss) Share:
Net earnings from continuing operations.......................... $ 2.39 $ 2.93 $ 3.48
Discontinued operations, net of income taxes..................... (0.95) (0.09) 0.07
Extraordinary items, net of income taxes......................... (1.00) -- 4.77
Cumulative effect of change in accounting principle, net of
income taxes................................................... (0.68) -- --
-------- ------- -------
Net earnings (loss).......................................... $ (0.24) $ 2.84 $ 8.32
======== ======= =======
47
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. Stock Option and Deferred Compensation 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.
The Company does not intend to issue any additional options 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, 2002, 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, 2002, 400,000 shares
were reserved for issuance under the 2001 Plan, consisting of 354,500 shares
subject to outstanding options and 39,100 shares available for further option
grants. Options generally have a maximum term of ten years and an exercise
price equal to 100% of the fair market value 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 options and
exercise 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.
Weighted
Average
Number of Exercise
Options Price
---------- --------
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
Granted............................ 228,700 27.05
Exercised.......................... (108,500) 8.69
Cancelled.......................... (47,580) 17.98
----------
Outstanding at August 31, 2002........ 975,475 15.87
Exercisable at August 31, 2002........ 470,114 11.01
48
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Outside Director Plans
On January 9, 2001, shareholders of the Company approved the Actuant
Corporation 2001 Outside Directors' Stock Option Plan (the "Director Plan") for
outside members of 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, 2002, 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, 2002,
70,000 shares were reserved for issuance under the Director Plan, consisting of
33,000 shares subject to outstanding options and 37,000 shares available for
further option 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 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 outside director plans. The number of options and exercise
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
Options Price
--------- --------
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
Cancelled.......................... (3,000) 18.59
--------
Outstanding at August 31, 2001........ 74,800 13.34
Granted............................ 18,000 31.10
Exercised.......................... (23,400) 13.52
Cancelled.......................... -- --
--------
Outstanding at August 31, 2002........ 69,400 17.89
Exercisable at August 31, 2002........ 51,400 13.26
The following table summarizes information concerning all stock options
outstanding under the Employee and Outside Directors' stock option plans at
August 31, 2002:
Options Outstanding Options Exercisable
--------------------------------- --------------------
Weighted
August 31, Average Weighted August 31, Weighted
Range of 2002 Remaining Average 2002 Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
$ 4.11 - $10.66 347,200 4.55 $ 8.00 269,200 $ 7.22
11.31 - 14.26 204,808 5.84 13.08 147,480 13.32
18.59 252,167 8.06 18.59 104,834 18.59
26.28 - 31.10 229,700 9.17 26.79 -- --
36.18 - 42.17 11,000 9.84 39.03 -- --
--------- -------
4.11 - 42.17 1,044,875 6.72 16.01 521,514 11.24
========= =======
49
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its 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 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 changed to the pro forma amounts
indicated below:
As Reported Pro Forma
Year Ended August 31, Year Ended August 31,
----------------------- -----------------------
2002 2001 2000 2002 2001 2000
------- ------- ------- ------- ------- -------
Earnings from continuing operations............ $25,252 $24,355 $28,045 $24,419 $23,903 $28,000
Basic earnings from continuing operations per
share........................................ $ 2.53 $ 3.06 $ 3.59 $ 2.44 $ 3.01 $ 3.58
Diluted earnings from continuing operations per
share........................................ $ 2.39 $ 2.93 $ 3.48 $ 2.31 $ 2.88 $ 3.47
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 earnings 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 fair value at grant date using the Black-Scholes option-pricing
model. The weighted-average fair values per share of options granted in fiscal
2002, 2001 and 2000 are $12.78, $8.58, and $1.07 respectively. The increase in
the fiscal 2001 weighted-average fair value per share of options is due to the
adjustment resulting from the reverse stock split and the Distribution. The
following weighted-average assumptions were used in determining fair value:
Year Ended August 31,
-----------------------------
2002 2001 2000
--------- --------- ---------
Dividend yield.......... 0.00% 0.00% 0.00%
Expected volatility..... 46.64% 47.27% 40.30%
Risk-free rate of return 3.18% 4.60% 5.60%
Expected life........... 5.5 years 5.3 years 5.3 years
Outside Director Deferred Compensation Plan
The Company has a deferred compensation plan that enables outside members of
the Company's board of directors to defer the fees earned for their services.
The amount deferred is used to purchase shares of Company stock on the open
market, which are placed in a rabbi trust. All distributions from the trust are
required to be made in Company stock. Company shares held by the rabbi trust
are accounted for in a manner similar to treasury stock and are recorded at
cost as "Stock held in trust" within shareholders' equity with the
corresponding deferred compensation liability also recorded within
shareholders' equity. Since no investment diversification is permitted within
the trust, changes in fair value are not recognized. The shares held in the
trust are included in both the basic and diluted earnings per share
calculations. The cost of the shares held in the trust at August 31, 2002 was
$0.5 million.
50
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) in the accompanying
Consolidated Balance Sheets consists of the following:
August 31,
------------------
2002 2001
-------- --------
Cumulative foreign currency translation adjustments $(17,756) $(19,581)
Minimum pension liability, net of tax.............. (3,383) (296)
Derivatives qualifying as hedges, net of tax....... (536) 650
-------- --------
Accumulated other comprehensive loss............... $(21,675) $(19,227)
======== ========
Note 13. 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 domestic businesses it acquired who were
entitled to those benefits prior to acquisition. In addition, the Company
maintains defined benefit pension plans for certain employees in various
foreign countries. During the year ended August 31, 2002, the Company merged
two of its three domestic pension plans. As a result, at August 31, 2002, the
defined benefit pension plans consisted of two domestic plans, which cover
certain employees and executives of a business acquired in 1997, and foreign
plans, which cover a limited number of employees. Trust assets consist
primarily of participating units in common stock and bond funds. The domestic
plans are frozen and as a result, future benefits are no longer earned by plan
participants. Future benefits are earned with respect to the foreign plans. At
August 31, 2002 and 2001, the accrued benefit cost recognized in the
Consolidated Balance Sheets with respect to the foreign defined benefit pension
plans is $422 and $323, respectively.
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.
51
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables provide a reconciliation of benefit obligations, plan
assets, funded status and net periodic benefit cost for those plans:
Other
Postretirement
Pension Benefits Benefits
---------------- ----------------
Year Ended Year Ended
August 31, August 31,
---------------- ----------------
2002 2001 2002 2001
------- ------- ------- -------
Reconciliation of benefit obligations:
Benefit obligation at beginning of year............... $13,110 $12,243 $ 7,080 $ 6,468
Service cost.......................................... 47 47 15 14
Interest cost......................................... 953 904 509 481
Actuarial loss (gain)................................. 615 569 (239) 623
Benefits paid......................................... (706) (653) (446) (506)
------- ------- ------- -------
Benefit obligation at end of year.................. $14,019 $13,110 $ 6,919 $ 7,080
======= ======= ======= =======
Reconciliation of plan assets:
Fair value of plan assets at beginning of year........ $12,463 $14,440 $ -- $ --
Actual return on plan assets.......................... (1,010) (1,412) -- --
Contributions......................................... 56 6 -- --
Benefits paid from plan assets........................ (624) (571) -- --
------- ------- ------- -------
Fair value of plan assets at end of year........... $10,885 $12,463 $ -- $ --
======= ======= ======= =======
Development of net amount recognized:
Overfunded (unfunded) status of the plans............. $(3,134) $ (647) $(6,919) $(7,080)
Unrecognized net loss (gain).......................... 5,195 2,564 (1,382) (1,197)
------- ------- ------- -------
Prepaid (accrued) benefit cost..................... $ 2,061 $ 1,917 $(8,301) $(8,277)
======= ======= ======= =======
Amounts recognized in the Consolidated Balance Sheets:
Prepaid benefit cost.................................. $ -- $ 2,294 $ -- $ --
Accrued benefit cost.................................. (3,143) (870) (8,301) (8,277)
Accumulated other comprehensive income................ 3,383 296 -- --
Deferred income taxes................................. 1,821 197 -- --
------- ------- ------- -------
$ 2,061 $ 1,917 $(8,301) $(8,277)
======= ======= ======= =======
Weighted-average assumptions as of August 31:
Discount rate......................................... 7.25% 7.50% 7.25% 7.50%
Expected return on plan assets........................ 8.50% 8.50%
Other Postretirement
Pension Benefits Benefits
------------------------- ------------------
Year Ended August 31, Year Ended August 31
------------------------- ------------------
2002 2001 2000 2002 2001 2000
------- ------- ------- ---- ----- -----
Components of net periodic benefit cost:
Service cost............................ $ 47 $ 47 $ 52 $ 15 $ 14 $ 15
Interest cost........................... 953 904 844 509 481 436
Expected return on assets............... (1,121) (1,129) (1,060) -- -- --
Amortization of actuarial (gain) loss... 12 2 -- (54) (131) (218)
------- ------- ------- ---- ----- -----
Benefit cost (income)................ $ (109) $ (176) $ (164) $470 $ 364 $ 233
======= ======= ======= ==== ===== =====
52
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The health care cost trend rate used in the actuarial calculations was
12.0%, trending downward to 5.0% by the year 2010, 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 $0.5 million and would not have a material effect
on aggregate service and interest cost components.
Defined Contribution Benefit Plans
The Company maintains a 401(k) 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 19% of
their base compensation. The Company also matches approximately 25% of each
employee's contribution up to the employee's first 6% of compensation.
During the years ended August 31, 2002, 2001 and 2000, Company contributions
to defined contribution benefit plans relating to continuing operations were
approximately $1.5 million, $2.2 million and $2.4 million, respectively.
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 $0.8 million, $0.6 million and
$0.8 million in fiscal 2002, 2001 and 2000, respectively.
Note 14. Income Taxes
Income tax expense for continuing operations before discontinued operations,
extraordinary items, and the change in accounting principle, is summarized
below:
Year Ended August 31,
------------------------
2002 2001 2000
------- ------- -------
Currently payable:
Federal........ $ 6,711 $ 7,434 $11,848
Foreign........ 5,332 6,855 5,468
State.......... 602 1,021 1,848
------- ------- -------
Subtotals......... 12,645 15,310 19,164
------- ------- -------
Deferred:
Federal........ 1,122 1,216 273
Foreign........ 72 (48) 8
State.......... 177 (61) 43
------- ------- -------
Subtotals......... 1,371 1,107 324
------- ------- -------
Income tax expense $14,016 $16,417 $19,488
======= ======= =======
53
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 2002 2001 2000
--------------------- ---- ---- ----
Federal statutory rate........................ 35.0% 35.0% 35.0%
State income taxes, net of Federal effect..... 1.5 1.6 2.6
Non-deductible amortization and other expenses -- 2.7 6.6
Net effects of foreign tax rates and credits.. (1.7) (0.8) (2.8)
Other items................................... 0.9 1.8 (0.4)
---- ---- ----
Effective tax rate............................ 35.7% 40.3% 41.0%
==== ==== ====
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,
---------------------
2002 2001
------- -------
Deferred income tax assets:
Operating loss and state tax credit carryforwards. $ 9,723 $ 5,358
Compensation related reserves..................... 832 1,404
Deferred income................................... 1,079 1,439
Inventory items................................... 2,721 2,643
Postretirement benefit accruals................... 4,654 3,811
Book reserves and other items..................... 6,503 7,275
------- -------
Total deferred income tax assets.............. 25,512 21,930
Valuation allowance............................... (9,723) (5,358)
------- -------
Net deferred income tax assets................ 15,789 16,572
Deferred income tax liabilities:
Depreciation and amortization..................... 9,963 11,171
Other items....................................... 1,108 3,475
------- -------
Deferred income tax liabilities............... 11,071 14,646
------- -------
Net deferred income tax asset................. $ 4,718 $ 1,926
======= =======
The valuation allowance primarily represents a reserve for foreign and state
operating loss carryforwards for which utilization is uncertain. The increase
in the valuation allowance represents the effect of current year increases in
such losses. The majority of the foreign losses may be carried forward
indefinitely. The state loss carryforwards expire in various years through 2017.
Cash paid for income taxes (net of refunds) was $9.0 million, $(4.3)
million, and $25.9 million during fiscal 2002, 2001 and 2000, 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 $40.3 million at August 31, 2002. If
all such undistributed earnings were remitted, an additional provision for
income taxes of approximately $1.9 million would have been necessary as of
August 31, 2002.
54
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings from continuing operations before income taxes from non-United
States operations were $17.3 million, $19.6 million and $17.0 million for
fiscal 2002, 2001 and 2000, respectively.
See Note 16, "Contingencies and Litigation," for discussion of the Internal
Revenue Service's audit of the Company's fiscal 2000 Federal income tax return.
Note 15. 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. The Company
has not aggregated individual operating segments within these reportable
segments. The accounting policies of the segments are the same as described in
Note 1, "Summary of Significant Accounting Policies." The Company evaluates
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 7,
"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,
----------------------------
2002 2001 2000
-------- -------- --------
Net Sales:
Tools & Supplies....................... $259,508 $281,223 $312,310
Engineered Solutions................... 203,442 200,716 369,133
-------- -------- --------
Totals............................. $462,950 $481,939 $681,443
======== ======== ========
Earnings (Loss) from Continuing Operations
before Income Tax Expense:
Tools & Supplies....................... $ 41,176 $ 38,860 $ 36,150
Engineered Solutions................... 17,429 20,543 53,529
General corporate and other............ (19,337) (18,631) (42,146)
-------- -------- --------
Totals............................. $ 39,268 $ 40,772 $ 47,533
======== ======== ========
Depreciation and Amortization:
Tools & Supplies....................... $ 7,981 $ 9,210 $ 9,733
Engineered Solutions................... 3,897 6,696 12,043
General corporate and other (1)........ 483 657 774
-------- -------- --------
Totals............................. $ 12,361 $ 16,563 $ 22,550
======== ======== ========
55
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended August 31,
----------------------------
2002 2001 2000
-------- -------- ----------
Capital Expenditures:
Tools & Supplies............ $ 3,441 $ 3,169 $ 6,103
Engineered Solutions........ 6,060 3,345 4,787
General corporate and other. 543 195 551
-------- -------- ----------
Totals.................. $ 10,044 $ 6,709 $ 11,441
======== ======== ==========
August 31,
-----------------
2002 2001
-------- --------
Assets:
Tools & Supplies............ $155,713 $162,682
Engineered Solutions........ 120,169 124,490
General corporate and other. 18,729 55,544
-------- --------
Totals.................. $294,611 $342,716
======== ========
- --------
(1)Excludes amortization of debt issuance costs and debt discount of $2,337,
$2,352, and $1,103 for the years ended August 31, 2002, 2001, and 2000
respectively.
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 7, "Restructuring
and Other Non-recurring Items."
Year Ended August 31,
----------------------------
2002 2001 2000
-------- -------- --------
Net sales:
North America.......................... $312,584 $329,266 $463,837
Europe................................. 119,014 118,830 177,165
Asia Pacific........................... 23,972 25,041 30,019
Latin America.......................... 7,380 8,802 10,422
-------- -------- --------
Totals............................. $462,950 $481,939 $681,443
======== ======== ========
Earnings (Loss) from Continuing Operations
Before Income Tax Expense:
North America.......................... $ 37,528 $ 37,835 $ 66,743
Europe................................. 16,037 17,852 19,145
Asia Pacific........................... 5,341 3,606 2,580
Latin America.......................... (301) 110 1,211
General corporate and other............ (19,337) (18,631) (42,146)
-------- -------- --------
Totals............................. $ 39,268 $ 40,772 $ 47,533
======== ======== ========
56
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
August 31,
-----------------
2002 2001
-------- --------
Assets:
North America............... $200,960 $221,123
Europe...................... 55,275 47,044
Asia Pacific................ 15,494 14,768
Latin America............... 4,153 4,237
General corporate and other. 18,729 55,544
-------- --------
Totals.................. $294,611 $342,716
======== ========
Corporate assets, which are not allocated, represent principally cash,
capitalized debt issuance costs, and deferred income taxes, and, at August 31,
2001, $10.0 million related to APW Ltd. See Note 2, "Distribution and
Discontinued Operations" for further information.
The Company's largest customer accounted for 5.6%, 4.5%, and 4.7% of its
sales in fiscal 2002, 2001 and 2000, respectively. Export sales from domestic
operations were less than 3% of total net sales in each of the periods
presented.
Note 16. Contingencies and Litigation
The Company had outstanding letters of credit of $7.6 million and $8.3
million at August 31, 2002 and 2001, respectively. The letters of credit
generally serve as collateral for liabilities included in the Consolidated
Balance Sheets and indemnification obligations relating to divested businesses.
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, commission and
divestiture 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 $1.1 million and $1.3 million were
included in the Consolidated Balance Sheets at August 31, 2002 and 2001,
respectively.
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, 2002 and 2001, the
aggregate amount of officer
57
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
loans under the program that were guaranteed by the Company was $5.1 million
and $4.2 million, respectively, at an average borrowing cost of 4.7% and 8.1%,
respectively. The fair value of the common stock purchased by the plan was $9.8
million and $4.6 million at August 31, 2002 and 2001, respectively. Expense
recognized by the Company during fiscal 2002 and 2001 related to its share of
the interest was $0.1 million and $0.2 million, respectively. 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. The
Company has recently suspended the practice of providing new guarantees for the
benefit of its executive officers under the Executive Stock Purchase Plan.
In September 2002, the Company was informed that its Federal income tax
return for fiscal year 2000 will be subject to audit by the Internal Revenue
Service ("IRS"). Company management believes that adequate reserves are
maintained as of August 31, 2002 to cover a reasonable estimate of its
potential exposure with respect to the income tax liabilities assumed in
connection with the APW bankruptcy and related rejection of the TSA.
Nonetheless, there can be no assurance that such reserves will be sufficient
upon completion of the IRS audit and if not, there could be a material adverse
impact on the Company's financial position and results of operations. See Note
2, "Distribution and Discontinued Operations," for a further discussion of
certain contingencies related to the Distribution.
Note 17. Subsequent Event
On September 3, 2002, the Company acquired Heinrich Kopp AG ("Kopp"). Kopp,
headquartered in Kahl, Germany, is a leading provider of electrical products to
the German Home Center retail market. In the transaction, the Company acquired
approximately 80% of the outstanding equity of Kopp for approximately $17
million (including the assumption of debt and acquired cash). The Company was
also granted an option to acquire, and the sellers were granted a put option to
sell, the remaining outstanding equity commencing in October 2003 for
approximately $3 million. The transaction was funded by $11 million of
borrowings under existing credit agreements plus "acquired cash" on Kopp's
balance sheet and will be accounted for using the purchase method of
accounting. Cash outflows will be required in fiscal 2003 and beyond to fund
the remaining outstanding equity purchase and restructuring cash flow
requirements.
Note 18. Guarantor Condensed Financial Statements
In connection with the Distribution, the Company issued the 13% Notes. All
of the Company's material domestic wholly-owned subsidiaries (the "Guarantors")
fully and unconditionally guarantee the 13% Notes on a joint and several basis.
We believe separate financial statements and other disclosures concerning each
of the Guarantors would not provide additional information that is material to
investors. Therefore, the Guarantors are combined in the presentation below.
There are no significant restrictions on the ability of the Guarantors to make
distributions to Actuant. The following tables present the results of
operations, financial position and cash flows of Actuant Corporation and its
subsidiaries, the 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 normal
course of business in addition to investments and loans transacted between
subsidiaries of the Company or with Actuant.
58
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Year Ended August 31, 2002
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales................................... $ 78,094 $230,839 $154,017 $ -- $462,950
Cost of products sold....................... 36,966 162,663 104,290 -- 303,919
-------- -------- -------- -------- --------
Gross profit............................. 41,128 68,176 49,727 -- 159,031
Operating expenses.......................... 26,395 33,589 25,462 -- 85,446
Amortization of intangible assets........... 9 2,419 25 -- 2,453
-------- -------- -------- -------- --------
Operating earnings....................... 14,724 32,168 24,240 -- 71,132
Other expense (income):
Intercompany activity, net............... (28,109) 2,637 (1,088) 26,560 --
Net financing costs...................... 31,090 1,123 510 -- 32,723
Other (income) expense, net.............. (472) 296 (683) -- (859)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income tax (benefit) expense....... 12,215 28,112 25,501 (26,560) 39,268
Income tax (benefit) expense................ (1,545) 10,243 5,318 -- 14,016
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations.. 13,760 17,869 20,183 (26,560) 25,252
Discontinued operations, net of income taxes (10,000) -- -- -- (10,000)
Extraordinary loss, net of income taxes..... (10,633) -- -- -- (10,633)
Cumulative effect of change in accounting
principle, net of income taxes............ -- (7,200) -- -- (7,200)
-------- -------- -------- -------- --------
Net (loss) earnings......................... $ (6,873) $ 10,669 $ 20,183 $(26,560) $ (2,581)
======== ======== ======== ======== ========
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............... (30,850) 5,428 (18,073) 43,495 --
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....... (8,486) 30,527 82,404 (63,673) 40,772
Income tax (benefit) expense................ (9,123) 10,870 14,670 -- 16,417
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations.. 637 19,657 67,734 (63,673) 24,355
Discontinued operations, net of income taxes (781) -- -- -- (781)
-------- -------- -------- -------- --------
Net (loss) earnings......................... $ (144) $ 19,657 $ 67,734 $(63,673) $ 23,574
======== ======== ======== ======== ========
59
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.................. (15,978) (29,333) 4,433 40,878 --
Net financing costs......................... 106,520 (70,091) 1,241 -- 37,670
Loss 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.......... (94,662) 144,502 38,571 (40,878) 47,533
Income tax (benefit) expense................... (14,656) 29,791 4,391 (38) 19,488
-------- -------- -------- -------- --------
(Loss) earnings from continuing operations..... (80,006) 114,711 34,180 (40,840) 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 (loss)........... 50,645 -- (12,186) -- 38,459
-------- -------- -------- -------- --------
Net (loss) earnings............................ $(29,361) $114,711 $ 22,579 $(40,840) $ 67,089
======== ======== ======== ======== ========
60
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2002
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 1,835 $ (228) $ 1,436 $ -- $ 3,043
Accounts receivable, net............... 2,534 2,730 53,040 -- 58,304
Inventories, net....................... 12,591 31,330 10,977 -- 54,898
Deferred income taxes.................. 8,313 9 805 -- 9,127
Prepaid expenses....................... 1,489 1,062 2,041 -- 4,592
--------- --------- --------- --------- --------
Total current assets............... 26,762 34,903 68,299 -- 129,964
Property, plant and equipment, net........ 5,489 18,713 12,626 -- 36,828
Goodwill.................................. -- 96,597 4,764 -- 101,361
Other intangibles, net.................... -- 18,428 38 -- 18,466
Other long-term assets.................... 6,667 835 490 -- 7,992
--------- --------- --------- --------- --------
Total assets.............................. $ 38,918 $ 169,476 $ 86,217 $ -- $294,611
========= ========= ========= ========= ========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings.................. $ 943 $ -- $ 2,050 $ -- $ 2,993
Current maturities of long-term debt... 3,839 -- 2,949 -- 6,788
Trade accounts payable................. 11,137 19,318 17,379 -- 47,834
Accrued compensation and benefits...... 4,923 2,462 4,977 -- 12,362
Accrued interest....................... 5,855 45 53 -- 5,953
Income taxes payable................... 7,166 10,115 1,084 -- 18,365
Other current liabilities.............. 6,941 8,468 2,562 -- 17,971
--------- --------- --------- --------- --------
Total current liabilities.......... 40,804 40,408 31,054 -- 112,266
Long-term debt, less current maturities... 180,818 -- 1,965 -- 182,783
Deferred income taxes..................... 5,377 (1,016) 48 -- 4,409
Other long-term liabilities............... 38,546 -- 226 -- 38,772
Intercompany balances, net................ 210,797 (157,796) (209,956) 156,955 --
Total shareholders' equity (deficit)...... (437,424) 287,880 262,880 (156,955) (43,619)
--------- --------- --------- --------- --------
Total liabilities and shareholders' equity $ 38,918 $ 169,476 $ 86,217 $ -- $294,611
========= ========= ========= ========= ========
61
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2001
----------------------------------------------------------
Actuant Non
ASSETS Corporation Guarantors Guarantors Eliminations Consolidated
------ ----------- ---------- ---------- ------------ ------------
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.................................. -- 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
Accrued interest....................... 10,407 45 150 -- 10,602
Income taxes payable................... 7,050 9,785 9,952 -- 26,787
Other current liabilities.............. 9,797 9,192 2,543 -- 21,532
--------- -------- --------- -------- ---------
Total current liabilities.......... 41,924 38,017 31,001 -- 110,942
Long-term debt, less current maturities... 311,656 420 13,676 -- 325,752
Deferred income taxes..................... 5,043 (1,027) (109) -- 3,907
Other long-term liabilities............... 41,631 -- 238 -- 41,869
Intercompany balances, net................ 178,956 (56,181) (168,515) 45,740 --
Total shareholders' equity (deficit)...... (500,690) 207,603 199,073 (45,740) (139,754)
--------- -------- --------- -------- ---------
Total liabilities and shareholders' equity $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ======== =========
62
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 2002
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) earnings from continuing
operations.............................. $ 13,760 $ 17,869 $ 20,183 $ (26,560) $ 25,252
Adjustments to reconcile (loss) earnings
from continuing operations to cash
provided by (used in) operating
activities of continuing operations:
Depreciation and amortization......... 1,719 7,669 2,973 -- 12,361
Amortization of debt discount and
debt issuance costs................. 2,337 -- -- -- 2,337
(Gain) loss on sale of assets......... (3) 181 (9) -- 169
Provision for deferred income
taxes............................... 1,575 13 (217) -- 1,371
Changes in operating assets and
liabilities, net.................... (33,532) 74,783 31,654 (84,654) (11,749)
-------- --------- -------- --------- --------
Cash provided by (used in) operating
activities................................. (14,144) 100,515 54,584 (111,214) 29,741
Investing activities
Proceeds from sale of property, plant and
equipment............................... 3 3,216 -- -- 3,219
Capital expenditures...................... (2,064) (2,182) (5,798) -- (10,044)
Business acquisitions..................... -- (785) -- -- (785)
Proceeds from insurance recovery.......... -- -- 2,858 -- 2,858
-------- --------- -------- --------- --------
Cash (used in) provided by investing
activities................................. (2,061) 249 (2,940) -- (4,752)
Financing activities
Net proceeds from issuance of common
stock................................... 99,705 -- -- -- 99,705
Partial redemption of 13% senior
subordinated notes...................... (80,442) -- -- -- (80,442)
Net principal payments on debt............ (47,996) -- (8,892) -- (56,888)
Debt financing costs and early
extinguishment premiums................. (12,108) -- -- -- (12,108)
Stock option exercises.................... 1,254 -- -- -- 1,254
Intercompany (receivables) payables....... 31,842 (101,613) (41,443) 111,214 --
-------- --------- -------- --------- --------
Cash (used in) provided by financing
activities................................. (7,745) (101,613) (50,335) 111,214 (48,479)
Effect of exchange rate changes on cash...... -- -- (21) -- (21)
-------- --------- -------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................ (23,950) (849) 1,288 -- (23,511)
Cash and cash equivalents--beginning of
year....................................... 25,785 621 148 -- 26,554
-------- --------- -------- --------- --------
Cash and cash equivalents--end of year....... $ 1,835 $ (228) $ 1,436 $ -- $ 3,043
======== ========= ======== ========= ========
63
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.............................. $ 637 $ 19,657 $ 67,734 $(63,673) $ 24,355
Adjustments to reconcile (loss) earnings
from continuing operations to cash
provided by (used in) operating
activities of continuing operations:
Depreciation and amortization......... 1,896 11,956 2,711 -- 16,563
Amortization of debt discount and
debt issuance costs................. 2,352 -- -- -- 2,352
Gain on sale of assets................ (267) -- -- -- (267)
Gain on sale of business, net......... -- -- (18,508) -- (18,508)
Provision for deferred income
taxes............................... 895 (291) 503 -- 1,107
Changes in operating assets and
liabilities, net.................... 22,574 (23,889) 31,017 39,839 69,541
--------- -------- --------- -------- ---------
Cash provided by (used in) operating
activities................................. 28,087 7,433 83,457 (23,834) 95,143
Investing activities
Proceeds from sale of property, plant and
equipment............................... 1,907 -- -- -- 1,907
Capital expenditures...................... (713) (2,365) (3,631) -- (6,709)
Business acquisitions..................... -- -- (11,250) -- (11,250)
Proceeds from 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.................... 579 -- -- -- 579
Intercompany (receivables) payables....... 111,184 (5,168) (129,850) 23,834 --
--------- -------- --------- -------- ---------
Cash (used in) provided by financing
activities................................. (8,810) (5,168) (116,174) 23,834 (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
========= ======== ========= ======== =========
64
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.............................. $ (80,006) $114,711 $ 34,180 $(40,840) $ 28,045
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
Amortization of debt discount and
debt issuance costs................. 1,103 -- -- -- 1,103
Loss on sale of business, net......... -- -- 3,457 -- 3,457
Provision for deferred income
taxes............................... 7,385 1 (7,062) -- 324
Other................................. -- 596 1,328 -- 1,924
Changes in operating assets and
liabilities, net.................... (79,864) (44,734) 44,270 40,840 (39,488)
--------- -------- --------- -------- ---------
Cash (used in) provided by 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 from sale of property, plant and
equipment............................... -- -- 835 -- 835
Capital expenditures...................... (729) (5,612) (5,100) -- (11,441)
Proceeds from 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 debt............ (85,240) -- -- -- (85,240)
Debt financing costs and early
extinguishment premiums................. (33,899) -- -- -- (33,899)
Stock option exercises.................... 3,838 -- -- -- 3,838
Dividends paid on common stock............ (1,789) -- -- -- (1,789)
Intercompany (receivables) payables....... 122,283 (75,674) (46,609) -- --
Net financing activities of discontinued
operations.............................. -- -- (66,175) -- (66,175)
--------- -------- --------- -------- ---------
Cash provided by (used in) financing
activities................................. 5,193 (75,674) (112,784) -- (183,265)
Effect of exchange rate changes on cash...... -- -- (272) -- (272)
--------- -------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 5,810 1,312 (22,767) -- (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....... $ 5,076 $ 721 $ 4,099 $ -- $ 9,896
========= ======== ========= ======== =========
65
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19. Quarterly Financial Data (Unaudited)
Quarterly financial data for fiscal 2002 and fiscal 2001 is as follows:
Year Ended August 31, 2002
-------------------------------------
First Second Third Fourth Total
------ ------ ------ ------ ------
(In millions, except per share amounts)
Net sales................................................. $113.2 $108.4 $120.0 $121.4 $463.0
Gross profit.............................................. 38.0 36.7 41.6 42.7 159.0
Earnings from continuing operations....................... 4.6 4.0 8.3 8.4 25.3
Loss from discontinued operations......................... -- -- (10.0) -- (10.0)
Extraordinary items....................................... -- -- (9.3) (1.3) (10.6)
Cumulative effect of accounting change.................... (7.2) -- -- -- (7.2)
------ ------ ------ ------ ------
Net earnings (loss)....................................... $ (2.6) $ 4.0 $(11.0) $ 7.1 $ (2.5)
====== ====== ====== ====== ======
Earnings from continuing operations per share
Basic.................................................. $ 0.57 $ 0.46 $ 0.71 $ 0.72 $ 2.53
Diluted................................................ $ 0.54 $ 0.44 $ 0.68 $ 0.69 $ 2.39
Loss from discontinued operations per share
Basic.................................................. $ -- $ -- $(0.86) $ -- $(1.00)
Diluted................................................ $ -- $ -- $(0.82) $ -- $(0.95)
Loss from extraordinary items per share
Basic.................................................. $ -- $ -- $(0.80) $(0.11) $(1.07)
Diluted................................................ $ -- $ -- $(0.76) $(0.11) $(1.00)
Loss from cumulative effect of accounting change per share
Basic.................................................. $(0.90) $ -- $ -- $ -- $(0.72)
Diluted................................................ $(0.85) $ -- $ -- $ -- $(0.68)
Net earnings (loss) per share
Basic.................................................. $(0.33) $ 0.46 $(0.95) $ 0.61 $(0.26)
Diluted................................................ $(0.31) $ 0.44 $(0.90) $ 0.58 $(0.24)
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
Loss 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
Loss from discontinued operations per share
Basic.................................................. $ -- $ -- $(0.10) $ -- $(0.09)
Diluted................................................ $ -- $ -- $(0.09) $ -- $(0.09)
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
The reader should read Notes 1, 2, 3, 6, 7, 9 and 10 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.
66
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 25, 2002 appearing on page 29 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 25, 2002
67
ACTUANT CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions Deductions
---------------------- ----------------------
Accounts
Written Off
Charged to Less
Costs and Recoveries or
Expenses or Reversal of
Balance at Effect of Allowance for Allowance for Balance
Beginning Excluded New Loss Net Use of Loss Net at End
Description of Period Activity Carryforwards Acquired Carryforwards Disposed Other of Period
----------- ---------- --------- ------------- -------- ------------- -------- ----- ---------
Deducted from assets to
Which they apply:
Allowance for losses--
Trade accounts
receivable
August 31, 2002.......... $3,790 $ -- $ 735 $ -- $1,226 $ -- $(125) $3,174
====== ==== ====== ===== ====== ====== ===== ======
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
====== ==== ====== ===== ====== ====== ===== ======
Allowance for losses--
Inventory
August 31, 2002.......... $5,857 $ -- $1,667 $ -- $2,750 $ -- $ 130 $4,904
====== ==== ====== ===== ====== ====== ===== ======
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
====== ==== ====== ===== ====== ====== ===== ======
Valuation allowance--
Income taxes
August 31, 2002.......... $5,358 $ -- $4,765 $ -- $ 357 $ -- $ (43) $9,723
====== ==== ====== ===== ====== ====== ===== ======
August 31, 2001.......... $6,091 $ -- $1,188 $ -- $ 785 $1,096 $ (40) $5,358
====== ==== ====== ===== ====== ====== ===== ======
August 31, 2000.......... $5,674 $ -- $ 790 $ -- $ 373 $ -- $ -- $6,091
====== ==== ====== ===== ====== ====== ===== ======
68
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 10, 2003 (the "2003
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 2003 Annual Meeting
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item is incorporated by reference from the
"Equity Compensation Plan Information," "Certain Beneficial Owners" and
"Election of Directors" sections of the 2003 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 2003 Annual Meeting Proxy Statement.
Item 14. Controls and Procedures
The Company's chief executive officer and chief financial officer have
concluded, based on their evaluation within 90 days of the filing date of this
report, that the Company's disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information required to be disclosed in
the reports filed under the Securities Exchange Act of 1934. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
previously mentioned evaluation.
PART IV
Item 15. 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 73, 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 2002:
Date of Report Description
- -------------- -----------
July 23, 2002 Announcement of the agreement to acquire 80% of the outstanding equity of
Heinrich Kopp AG
August 9, 2002 Announcement of the agreement with a former subsidiary of the Registrant
regarding a secured claim in the former subsidiary's bankruptcy case
69
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)
By: /S/ ANDREW G. LAMPEREUR
-----------------------------
Andrew G. Lampereur
Vice President and Chief
Financial Officer
(Principal Financial Officer)
Dated: November 18, 2002
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/ ROBERT C. ARZBAECHER Chairman of the Board,
- ----------------------------- President and
Robert C. Arzbaecher Chief Executive Officer,
Director
/S/ H. RICHARD CROWTHER Director
- -----------------------------
H. Richard Crowther
/S/ GUSTAV H.P. BOEL European Leader--Gardner
- ----------------------------- Bender, 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/ WILLIAM K. HALL Director
- -----------------------------
William K. Hall
/S/ ANDREW G. LAMPEREUR Vice President and Chief
- ----------------------------- Financial Officer
Andrew G. Lampereur (Principal Financial
Officer)
/S/ TIMOTHY J. TESKE Controller
- ----------------------------- (Principal Accounting
Timothy J. Teske Officer)
- --------
* Each of the above signatures is affixed as of November 18, 2002
70
CERTIFICATION
I, Robert C. Arzbaecher, certify that:
1. I have reviewed this annual report on Form 10-K of Actuant Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 18, 2002
/S/ ROBERT C. ARZBAECHER
--------------------------------------
Robert C. Arzbaecher
Chairman, Chief Executive Officer,
and President
71
CERTIFICATION
I, Andrew G. Lampereur, certify that:
1. I have reviewed this annual report on Form 10-K of Actuant Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 18, 2002
/S/ ANDREW G. LAMPEREUR
--------------------------------------
Andrew G. Lampereur
Vice President and Chief Financial
Officer
72
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2002
INDEX TO EXHIBITS
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- ---------------------------------------------- --------------------------------------------- --------
2.1 Agreement and Plan of Merger, dated as of Exhibit (c)(1) to the Registrant's Tender
September 2, 1997, among Applied Power Inc., Offer Statement on Schedule 14D-1 filed on
TVPA Corp. and Versa Technologies, Inc. September 5, 1997 (File No. 5-13342)
2.2 (a) Agreement and Plan of Merger, dated as Appendix A to the Joint Proxy Statement/
of April 6, 1998, by and among Applied Prospectus contained in the Registrant's
Power Inc., ZERO Corporation and STB Registration Statement on Form S-4
Acquisition Corporation (File No. 333-58267)
(b) Certified copy of Certificate of Merger of Exhibit 2.2 to the Registrant's Form 8-K
STB Acquisition Corporation with and into Dated July 31, 1998
ZERO Corporation, dated July 31, 1998
3.1 Amended and Restated Articles of Exhibit 4.9 to the Registrant's Form 10-Q for
Incorporation quarter ended February 28, 2001
3.2 Amended and Restated Bylaws of Actuant Exhibit 3.4 to the Registrant's Form 10-Q
Corporation adopted November 7, 1991 and For quarter ended May 31, 2001
as last amended effective May 4, 2001
3.3 Amendment No. 1 to Amended and Restated X
Bylaws effective November 7, 2002
4.1 Agreement for Purchase and Sale, Dated Exhibit 19.2(a)-(g) to the Registrant's
August 29, 1990, between Minnesota Form 10-Q for quarter ended May 31, 1991
Mining and Manufacturing Company and
Applied Power Inc., and 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
4.2 Credit Agreement dated as of July 31, 2000 Exhibit 10.8 to the Registrant's Form 8-K
among Applied Power Inc. (doing business Dated as of August 14, 2000
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
- --------
+ 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.
73
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- -------------------------------------------- ------------------------------------------ --------
4.3 Registration Rights Agreement dated Exhibit 10.11 to the Registrant's Form 8-K
August 1, 2000, relating to $200,000,000 Dated as of August 14, 2000
Applied Power Inc. 13% Senior
Subordinated Notes Due 2009
4.4 Indenture, dated as of August 1, 2000, Exhibit 10.12 to the Registrant's Form 8-K
among Applied Power Inc. as issuer and the Dated as of August 14, 2000
Subsidiary Guarantors and Bank One Trust
Company, N.A.
4.5 Purchase Agreement dated July 21, 2000, Exhibit 10.13 to the Registrant's Form 8-K
between Applied Power Inc. and the Initial Dated as of August 14, 2000
Purchasers named therein
4.6 Amendment No 1, dated as of April 9, 2001, Exhibit 4.10 to the Registrant's Form 10-Q
to the Credit Agreement dated as of July 31, For quarter ended May 31, 2001
2000, among Actuant 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.
4.7 Amendment No. 2, dated as of November 28, Exhibit 4.11 to the Registrant's Form 10-Q
2001, to the Credit Agreement dated as of for quarter ended November 30, 2001
July 31, 2000, among Actuant 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.
4.8 Amended and Restated Credit Agreement Exhibit 4.12 to the Registrant's Form 10-Q
dated as of May 22, 2002 among Actuant for quarter ended May 31, 2002
Corporation, the Lenders Named Therein,
and Credit Suisse First Boston as Lead
Arranger, Collateral Agent and
Administrative Agent, Wachovia Bank, N.A.
as Syndication Agent, and ING Capital LLC
as Documentation Agent.
4.9 Amended and Restated Security Agreement Exhibit 4.13 to the Registrant's Form 10-Q
by Actuant Corporation (formerly known as for quarter ended May 31, 2002
Applied Power, Inc.), as Borrower, and the
Subsidiary Guarantors Party hereto and the
Subsidiary Pledgors Party hereto and Credit
Suisse First Boston, as Collateral Agent,
dated as of July 31, 2000 and Amended and
Restated as of May 22, 2002.
74
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- --------------------------------------------- --------------------------------------------- --------
4.10 Amended and Restated Indemnity, Exhibit 4.14 to the Registrant's Form 10-Q
Subrogation and Contribution Agreement for quarter ended May 31, 2002
dated as of May 22, 2002, among Actuant
Corporation, a Wisconsin Corporation, each
Guarantor Subsidiary of the Company, and
Credit Suisse First Boston, as Collateral
Agent for the Secured Parties.
4.11 Amended and Restated Subsidiary Guarantee Exhibit 4.15 to the Registrant's Form 10-Q
Agreement dated as of May 22, 2002, among for quarter ended May 31, 2002
each of the Guarantor Subsidiaries of Actuant
Corporation and Credit Suisse First Boston,
as Collateral Agent for the Secured Parties.
10.1 (a) Applied Power Inc. 1990 Stock Option Exhibit A to the Registrant's Proxy
Plan adopted by Board of Directors on Statement dated December 5, 1990 For 1991
August 9, 1990 and approved by Annual Meeting of Shareholders
shareholders on January 7, 1991 ("1990
Plan")
(b) Amendment to 1990 Plan adopted by Exhibit 10.5(b) to the Registrant's
board of directors on August 10, 1992 and Form 10-K for fiscal year ended August 31,
approved by shareholders on January 7, 1992
1993
(c) Amendment to 1990 Plan adopted by Exhibit 10.4(c) to the Registrant's Form 10-K
board of directors on May 8, 1997 for the fiscal year ended August 31, 1997
10.2 Description of Fiscal 2001 Management Exhibit 10.5 to the Registrant's Form 10-K
Bonus Arrangements for the fiscal year ended August 31, 2000
10.3 (a) Applied Power Inc. 1989 Outside Exhibit 10.7 to the Registrant's Form 10-K
Directors' Stock Option Plan adopted by for the fiscal year ended August 31, 1989
board of directors on November 8, 1989 and
approved by shareholders on January 13,
1990 ("1989 Plan")
(b) Amendment to 1989 Plan Adopted by Exhibit 10.7(b) to the Registrant's Form
board of directors on November 9, 1990 and 10-K for the fiscal year ended August 31,
approved by shareholders on January 7, 1990
1991
(c) Amendment to 1989 Plan Adopted by Exhibit 10.7(c) to the Registrant's
board of directors on October 31, 1996 Form 10-K for fiscal year ended August 31,
1996 ("1996 10-K")
10.4.. Outside Directors' Deferred Compensation Exhibit 10.8 to the Registrant's Form 10-K
Plan adopted by Board of Directors on for fiscal year ended August 31, 1995
May 4, 1995
10.5.. (a) 1996 Stock Plan adopted by board of Annex A to the Registrant's Proxy
directors on August 8, 1996 and proposed Statement dated November 19, 1996 for
for shareholder approval on January 8, 1997 1997 Annual Meeting of Shareholders
(b) Amendment to 1996 Stock Plan adopted Exhibit 10.10(b) to the Registrant's Form
by board of directors on May 8, 1997 10-K for the fiscal year ended
August 31, 1997
75
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- ------------------------------------------ ------------------------------------------- --------
10.6. Form of Contribution Agreement, Plan and Exhibit 10.11 to the Form 10 Registration
Agreement Regarding Litigation, Claims and Statement dated May 1, 2000 as amended
Other Liabilities between API and APW,
dated as of July 21, 2000
10.7. Form of General Assignment, Assumption Exhibit 10.12 to the Form 10 Registration
and Agreement Regarding Litigation, Claims Statement dated May 1, 2000, as amended
and Other Liabilities between API and
APW, dated as of July 21, 2000
10.8. Form of Transitional Trademark Use and Exhibit 10.13 to the Form 10 Registration
License Agreement between API and APW, Statement dated May 1, 2000, as amended
dated as of July 21, 2000
10.9. Form of Insurance Matters Agreement Exhibit 10.14 to the Form 10 Registration
between API and APW, dated as of July 21, Statement dated May 1, 2000, as amended
2000
10.10. Form of Bill of Sale and Assumption of Exhibit 10.15 to the Form 10 Registration
Liabilities between API and APW, dated as Statement dated May 1, 2000, as amended
of July 21, 2000
10.11. Form of Employee Benefits and Exhibit 10.16 to the Form 10 Registration
Compensation Agreement between API and Statement dated May 1, 2000, as amended
APW, dated as of July 21, 2000
10.12 Form of Tax Sharing and Indemnification Exhibit 10.17 to the Form 10 Registration
Agreement between API and APW, dated as Statement dated May 1, 2000, as amended
of July 21, 2000
10.13. Form of Interim Administrative Services Exhibit 10.18 to the Form 10 Registration
Agreement between API and APW, dated as Statement dated May 1, 2000, as amended
of July 21, 2000
10.14. Form of Confidentiality and Nondisclosure Exhibit 10.19 to the Form 10 Registration
Agreement between API and APW, dated as Statement dated May 1, 2000, as amended
of July 21, 2000
10.15. Form of Patent Assignment between API Exhibit 10.20 to the Form 10 Registration
and Wright Line Inc. (n/k/a APW Ltd.), Statement dated May 1, 2000, as amended
dated as of July 21, 2000
10.16. Form of Change in Control Agreement for Exhibit 10.21 to Registrant's Form 10-K for
certain named executives the fiscal year ended August 31, 2000
(Messrs. Brian Kobylinski, Todd Hicks,
Ralph Keller, Jerry Peiffer, Joe O'Connor,
and Arthur Kerk)
10.17. Actuant Corporation Executive Stock Exhibit 10.22 to the Registrant's Form 10-K
Purchase Plan for the fiscal year ended August 31, 2000
10.18. Actuant Corporation 2001 Stock Plan Exhibit B to the Registrant's Proxy
Statement, dated December 1, 2000 for the
2001 Annual Meeting of Shareholders
76
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- --------------------------------------------- ------------------------------------------- --------
10.19. 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
10.20 Receivables Sale Agreement dated as of Exhibit 10.25 to the Registrant's Form 10-Q
May 30, 2001, among Actuant Corporation, For quarter ended May 31, 2001
Del City Wire Co., Inc., GB Tools and
Supplies, Inc., Versa Technologies, Inc., and
Engineered Solutions, L.P., as Originators,
and Actuant Receivables Corporation, as
Buyer
10.21. Receivables Purchase Agreement dated as of Exhibit 10.26 to the Registrant's Form 10-Q
May 30, 2001, among Actuant Receivables for quarter ended May 31, 2001
Corporation, as Seller, Actuant Corporation,
as Initial Servicer, Blue Ridge Asset
Funding Corporation and Wachovia Bank,
N.A., as Agent
10.22. Description of Fiscal 2002 Management Exhibit 10.27 to the Registrant's Form 10-K
Bonus Arrangements for the fiscal year ended August 31, 2001
10.23. Amendment No. 1, dated as of November 30, Exhibit 10.28 to the Registrant's Form 10-Q
2001, to the Receivables Sale Agreement for quarter ended November 30, 2001
dated as of May 31, 2001, among Actuant
Corporation, Del City Wire Co., Inc., GB
Tools and Supplies, Inc., Versa Technologies,
Inc., and Engineered Solutions, L.P., as
Existing Originators, Nielsen Hardware
Corp., Actuant Receivables Corporation, as
Buyer, and Wachovia Bank, N.A., as Agent
10.24. Amendment No. 1, dated as of November 30, Exhibit 10.29 to the Registrant's Form 10-Q
2001, to the Receivables Purchase Agreement for quarter ended November 30, 2001
dated as of May 31, 2001, among Actuant
Receivables Corporation, as Seller, Actuant
Corporation, as Initial Servicer, Blue Ridge
Asset Funding Corporation and Wachovia
Bank, N.A., as Agent.
10.25. Actuant Corporation Change in Control Exhibit 10.30 to the Registrant's Form 10-Q
Agreement for Robert C. Arzbaecher dated for quarter ended November 30, 2001
January 7, 2002.
10.26. Actuant Corporation Change in Control Exhibit 10.31 to the Registrant's Form 10-Q
Agreement for Andrew G. Lampereur dated for quarter ended November 30, 2001
January 7, 2002.
10.27 Underwriting Agreement, dated February 7, Exhibit 1.1 to the Registrant's Form 8-K
2002 among Actuant Corporation and First dated February 7, 2002
Union Securities, Inc. ; ABN AMRO
Rothschild LLC ; Robert W. Baird & Co.
Incorporated and Bear, Stearns & Co. Inc.
77
Filed
Description Incorporated Herein By Reference To Herewith
Exhibit ------------------------------------------- ------------------------------------------- --------
10.28 Notice of Partial Redemption to the Holders Exhibit 10.33 to the Registrant's Form 10-Q
of Applied Power, Inc. (N/K/A Actuant for quarter ended February 28, 2002
Corporation) 13% Series A Senior
Subordinated Notes due 2009 (CUSIP No.
00508WAB2)
10.29 Actuant Corporation Outside Directors' Exhibit 99.1 to the Registrant's Form S-8
Deferred Compensation Plan dated May 24, 2002
10.30 Actuant Corporation Change in Control X
Agreement for Mark E. Goldstein dated
September 30, 2002
10.31 Description of Fiscal 2003 Management X
Bonus Arrangements
10.32 Share Sale and Purchase and Option X
Agreement between Horst Michaels, Anni
Simoneit, Arno Michaels, Bianca Michaels,
Ute Michaels, and Applied Power Holding
GmbH and Actuant Corporation dated
July 22, 2002.
10.33. Actuant Corporation Change in Control
Agreement for William Blackmore dated
November 15, 2002 X
10.34. Actuant Corporation Change in Control
Agreement for Ronald Wieczorek dated
November 8, 2002 X
10.35 Form of Indemnification Agreement for
Directors and Officers X
21 Subsidiaries of the Registrant X
23 Consent of PricewaterhouseCoopers LLP X
24 Power of Attorney See Signature Page of this report
99.1 Written Statements of the Chief Executive X
Officer
99.2 Written Statements of the Chief Financial X
Officer
78