UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288
ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0168610
(State of incorporation) (I.R.S. Employer Id. No.)
6100 NORTH BAKER ROAD
MILWAUKEE, WISCONSIN 53209
Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(414) 352-4160
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
---
The number of shares outstanding of the registrant's Class A Common Stock as of
June 30, 2001 was 7,970,984.
1
TABLE OF CONTENTS
Page No.
--------
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (Unaudited)
Actuant Corporation-
Condensed Consolidated Statements of Earnings................................. 3
Condensed Consolidated Balance Sheets......................................... 4
Condensed Consolidated Statements of Cash Flows............................... 5
Notes to Condensed Consolidated Financial Statements.......................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk................ 22
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings......................................................... *
Item 2 - Changes in Securities and Use of Proceeds................................. *
Item 3 - Defaults Upon Senior Securities........................................... *
Item 4 - Submission of Matters to a Vote of Security Holders....................... *
Item 5 - Other Information......................................................... 23
Item 6 - Exhibits and Reports on Form 8-K.......................................... 23
- ----------------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
Risk Factors That May Affect Future Results
- -------------------------------------------
This quarterly report on Form 10-Q contains certain statements, which are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The terms
"anticipate," "believe," "estimate," "expect," "objective," "plan," "project"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements are subject to inherent risks and uncertainties
that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements. In addition to the assumptions
and other factors referred to specifically in connection with such statements,
factors that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements include, without limitation,
general economic conditions and market conditions in the recreational vehicle,
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, competitive pricing,
foreign currency risk, interest rate risk, the Company's ability to access
capital markets, the Company's high debt level which results in less financial
flexibility in terms of debt covenants and debt availability, and other factors
that may be referred to or noted in the Company's reports filed with the
Securities and Exchange Commission from time to time.
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
- -----------------------------------------
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Sales....................................................... $ 123,935 $ 178,527 $ 354,790 $ 535,655
Cost of Products Sold........................................... 80,729 112,497 228,778 341,816
------------ ------------ ------------ ------------
Gross Profit............................................... 43,206 66,030 126,012 193,839
Engineering, Selling and Administrative Expenses................ 23,405 34,761 66,673 103,329
Amortization of Intangible Assets............................... 1,725 1,946 4,593 5,902
Contract Termination Recovery................................... - - - (1,446)
Restructuring Charge............................................ 1,740 - 1,740 -
Corporate Reorganization Expenses............................... - 962 - 4,449
------------ ------------ ------------ ------------
Operating Earnings......................................... 16,336 28,361 53,006 81,605
Other Expense(Income):
Net Financing Costs....................................... 12,094 8,952 37,594 22,274
Accounts Receivable Securitization Costs.................. 617 798 617 5,618
Other, net................................................ 1,177 (172) (120) (824)
------------ ------------ ------------ ------------
Earnings from Continuing Operations before Income Tax Expense... 2,448 18,783 14,915 54,537
Income Tax Expense.............................................. 990 6,715 6,074 19,584
------------ ------------ ------------ ------------
Earnings from Continuing Operations............................. 1,458 12,068 8,841 34,953
Discontinued Operations, net of Income Taxes................... (781) 12,892 (781) 34,231
Extraordinary Item, net of Income Taxes
Loss on Sale of Subsidiary................................ - (12,186) - (12,186)
------------ ------------ ------------ ------------
Net Earnings.................................................... $ 677 $ 12,774 $ 8,060 $ 56,998
============ ============ ============ ============
Basic Earnings Per Share:
Continuing Operations......................................... $ 0.18 $ 1.54 $ 1.11 $ 4.48
Discontinued Operations....................................... (0.10) 1.65 (0.10) 4.38
Extraordinary Item............................................ -- (1.56) -- (1.56)
------------ ------------ ------------ ------------
Total......................................................... $ 0.09 $ 1.63 $ 1.02 7.30
============ ============ ============ ============
Diluted Earnings Per Share:
Continuing Operations......................................... $ 0.18 $ 1.50 $ 1.07 4.34
Discontinued Operations....................................... (0.09) 1.60 (0.09) 4.25
Extraordinary Item............................................ -- (1.51) -- (1.51)
------------ ------------ ------------ ------------
Total......................................................... $ 0.08 $ 1.59 $ 0.97 $ 7.07
============ ============ ============ ============
Weighted Average Common Shares Outstanding:
Basic......................................................... 7,948 7,819 7,937 7,809
Diluted....................................................... 8,235 8,047 8,297 8,060
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
May 31, August 31,
2001 2000
------------ -------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents............................................... $ 632 $ 9,896
Accounts receivable, net................................................ 54,772 83,553
Inventories, net........................................................ 59,041 67,599
Deferred income taxes................................................... 4,526 4,542
Other current assets.................................................... 7,891 38,124
------------ -------------
Total Current Assets............................................ 126,862 203,714
Property, Plant and Equipment, net............................................... 44,503 49,168
Goodwill, net.................................................................... 121,672 116,348
Other Intangible Assets, net..................................................... 22,255 21,040
Other Long-term Assets........................................................... 25,995 26,711
------------ -------------
Total Assets..................................................................... $ 341,287 $ 416,981
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings................................................... $ 364 $ 1,259
Trade accounts payable.................................................. 34,992 43,455
Accrued compensation and benefits....................................... 12,914 16,365
Income taxes payable.................................................... 13,761 39,852
Other current liabilities............................................... 25,180 25,312
------------ -------------
Total Current Liabilities....................................... 87,211 126,243
Long-term Debt................................................................... 388,855 431,215
Deferred Income Taxes............................................................ 4,176 4,486
Other Long-term Liabilities...................................................... 17,825 17,992
Shareholders' Equity:
Class A common stock, $0.20 and $1.00 par value, authorized 16,000,000
and 80,000,000 shares, issued and outstanding 7,960,664 and 7,922,910
shares, respectively................................................. 1,592 7,923
Additional paid-in capital.............................................. (625,282) (632,050)
Accumulated other comprehensive income.................................. (19,313) (16,991)
Retained earnings....................................................... 486,223 478,163
------------ -------------
Total Shareholders' Deficit...................................................... (156,780) (162,955)
------------ -------------
Total Liabilities and Shareholders' Equity....................................... $ 341,287 $ 416,981
============ =============
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Nine Months
Ended Ended
May 31, 2001 May 31, 2000
------------ -------------
Operating Activities
- --------------------
Net earnings from continuing operations........................................ $ 8,841 $ 22,766
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................................... 12,369 18,224
Extraordinary loss on sale of subsidiary............................ - 12,186
Other non-cash items................................................ (549) -
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable........................................ 28,354 (24,505)
Inventories................................................ 8,814 (4,971)
Other assets............................................... 29,570 2,402
Trade accounts payable..................................... (9,287) 7,268
Other accrued liabilities.................................. (7,472) (7,890)
Income taxes payable....................................... (25,828) 1,700
------------ -------------
Cash provided by continuing operations.................................... 44,812 27,180
Cash provided by discontinued operations.................................. - 17,704
------------ -------------
Net cash provided by operating activities................................. 44,812 44,884
Investing Activities
- --------------------
Proceeds from the sale of property, plant and equipment........................ 1,907 703
Proceeds from insurance recovery............................................... 1,118 -
Additions to property, plant and equipment..................................... (5,277) (9,170)
Business acquisitions.......................................................... (11,250) -
Business dispositions and other................................................ 1,192 15,233
Net investing activities of discontinued operations............................ - (42,206)
------------ -------------
Net cash used in investing activities..................................... (12,310) (35,440)
Financing Activities
- --------------------
Net (repayments) borrowings of debt............................................ (42,257) (36,514)
Dividends paid on common stock................................................. - (1,757)
Proceeds from stock option exercises........................................... 437 1,893
Net financing activities of discontinued operations............................ - 11,657
------------ -------------
Net cash used in financing activities..................................... (41,820) (24,721)
Effect of exchange rate changes on cash........................................ 54 (173)
------------ -------------
Net decrease in cash and cash equivalents...................................... (9,264) (15,450)
Effect of change in cash of discontinued operations............................ - 15,002
Cash and cash equivalents - beginning of period................................ 9,896 7,256
------------ -------------
Cash and cash equivalents - end of period...................................... $ 632 $ 6,808
============ =============
See accompanying Notes to Condensed Consolidated Financial Statements
5
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
- -------------------------
On January 9, 2001, Applied Power Inc. shareholders approved the change of the
name of the Company to Actuant Corporation. The accompanying unaudited condensed
consolidated financial statements of Actuant Corporation ("Applied Power,"
"Actuant," or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and the
instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The condensed
consolidated balance sheet data as of August 31, 2000 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For additional information, refer to the
consolidated financial statements and related footnotes in the Company's fiscal
2000 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation of financial results have been made. Such adjustments consist of
only those of a normal recurring nature. Operating results for the nine months
ended May 31, 2001 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending August 31, 2001.
On January 9, 2001, our shareholders approved a reverse stock split whereby
every five shares of common stock were converted into one share of common stock.
In addition, our shareholders approved a reduction in our authorized Class A
common shares from 80 million to 16 million with a similar reduction for other
capital stock. Where appropriate, these changes are reflected in these financial
statements for all periods presented.
Prior year's financial statements have been reclassified where appropriate to
conform to current year presentations.
(2) Distribution and Discontinued Operations
- --------------------------------------------
On January 27, 2000, Applied Power's board of directors authorized various
actions to enable Applied Power to distribute its Electronics segment ("APW
Ltd.") to its shareholders (the "Distribution"). In the Distribution, Applied
Power shareholders received, in the form of a special dividend, one share of APW
Ltd. common stock for each Applied Power common share. As a result, APW Ltd.
became a separately traded, publicly held company. The Distribution was approved
by the board of directors on July 7, 2000 and shares of APW Ltd. were
distributed to Applied Power shareholders of record at July 21, 2000, effective
July 31, 2000.
Accordingly, the Condensed Consolidated Statement of Earnings and the Condensed
Consolidated Statement of Cash Flows for the nine months ended May 31, 2000 have
been reclassified to reflect the Company's former Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, and cash flows
of the former Electronics segment have been excluded from the respective
captions in the accompanying condensed consolidated financial statements. The
net operating results of the former Electronics segment have been reported, net
of applicable taxes, as "Discontinued Operations, net of Income Taxes." The net
operating results of the discontinued operations include financing costs related
to the debt allocated to the Electronics segment.
An $0.8 million loss was recorded in "Discontinued Operations, net of Income
Taxes" for the three months ended May 31, 2001 to reflect a change in estimate
for Electronics segment liabilities assumed by the Company as part of the
Distribution.
(3) Acquisitions and Divestitures
- ---------------------------------
On March 1, 2001, the Company, through a wholly owned subsidiary, acquired
certain assets and assumed certain liabilities of Dewald Manufacturing, Inc.
("Dewald"). Dewald is engaged in the design and manufacture of recreational
vehicle ("RV") slide out and leveling systems for the North American RV market.
The results of operations of Dewald are included in the accompanying financial
statement since the date of acquisition. The acquisition was accounted for as a
purchase, and the purchase price of $13.4 million (including deferred purchase
price of $1.8 million and transaction costs) was allocated to the fair value of
the assets acquired and the liabilities assumed. The excess purchase price over
the fair value of assets acquired, which approximates $8.3 million, was recorded
as goodwill and is being amortized over 20 years. This acquisition was funded by
borrowings under Actuant credit facilities.
In May 2001, the Company sold its Tools and Supplies Quick Mold Change ("QMC")
business to the QMC
6
management team for approximately $1.0 million. The QMC business had revenue of
approximately $6.0 million and a net loss of approximately $0.3 million in the
last twelve months. The sale resulted in a loss of approximately $0.6 million,
$0.4 million after-tax, or $0.05 per diluted share which is recorded in "Other
Expense (Income), Other."
In May 2001, the Company recorded a charge in "Other Expense (Income), Other" of
$1.5 million, $0.9 million after-tax, or $0.11 per diluted share, for the net
present value of future lease and holding costs on a building that had been
occupied by a former subsidiary. At the time the Company sold the divested
business, 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. We were unsuccessful in subletting the building during
the quarter.
On May 26, 2000, the Company completed the sale of Air Cargo Equipment
Corporation, a business unit in the Engineered Solutions segment. The total
consideration from the transaction, which was structured as both a sale of stock
of the Air Cargo Equipment Corporation and a sale of other assets, was $12.0
million, resulting in an extraordinary loss of $13.9 million, $12.2 million
after tax, or $1.51 per diluted share.
During the fourth quarter of fiscal 2000, the Company divested other businesses
and discontinued certain product lines, which significantly impacts the
comparability of financial information presented. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion.
(4) Sale of Trade Accounts Receivable
- -------------------------------------
During the quarter ended May 31, 2001, the Company sold certain domestic trade
accounts receivable in a securitization transaction. In this transaction, the
Company retained servicing responsibilities and a subordinated interest in the
receivables sold. The investors have no recourse against the Company for failure
of debtors to pay when due, and the Company's retained interest in the
receivable pool is subordinate to the investor's interests. The Company's
retained interest in the receivable pool is recorded at fair value, which was
determined based on historical default rates for the trade receivables. The
Company recorded a discount on the receivables sold of $0.2 million and
transaction costs of $0.4 million, both of which are included in "Accounts
Receivable Securitization Costs." The Company received $30 million for sold
receivables, which was used to reduce indebtedness under its senior credit
agreement.
(5) Restructuring Charge
- ------------------------
The Company adopted plans to restructure portions of its operations in the
fiscal third quarter of 2001. These plans are designed to reduce administrative
and operational costs and resulted in a charge of $1.7 million, $1.0 million
after-tax, or $0.13 per diluted share. Of the pre-tax charge, $0.3 million
related to the consolidation of our RV slide production facilities, $0.6 related
to downsizing our 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. We expect net cash proceeds of approximately $0.5 million
from the ultimate disposal of these assets, which should be completed by the
third quarter of fiscal 2002. As a result of these plans, we have terminated
approximately 36 people.
A rollforward of the restructuring reserve recorded is shown in the following
table:
Fiscal 2001
Third Quarter May 31, 2001
Restructuring Cash Charged to Restructuring
in thousands Charge Payments Asset Accounts Reserve
----------------- -------------- ------------------ -----------------
Severance $ 822 $ (225) $ - $ 597
Exit Costs 820 - - 820
Asset Impairments 98 - (98) -
----------------- -------------- ------------------ -----------------
$ 1,740 $ (225) $ (98) $ 1,417
================= ============== ================== =================
(6) Inventories, Net
- --------------------
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any point
in time is minimal. In addition, many parts or components are ultimately either
sold individually or assembled with other parts making a distinction between raw
materials and finished goods impractical to determine. Several other locations
maintain and manage their inventories using a job cost system where the
distinction of categories of inventory by state of completion is also not
available. As a result of these
7
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.
(7) Earnings Per Share
- ----------------------
The reconciliations between basic and diluted earnings per share are as follows
(in thousands, except per share amounts):
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------------- ----------------------------
2001 2000 2001 2000
------------- ---------------- ------------ ------------
Numerator:
Earnings from continuing operations..................... $ 1,458 $ 12,068 $ 8,841 $ 34,953
Earnings (loss) from discontinued operations............ (781) 12,892 (781) 34,231
Extraordinary loss, net of tax.......................... - (12,186) - (12,186)
------------ --------------- ------------ ------------
Net earnings............................................ $ 677 $ 12,774 $ 8,060 $ 56,998
============ =============== ============ ============
Denominator:
Weighted average common shares outstanding for
basic earnings per share.............................. 7,948 7,819 7,937 7,809
Net effect of dilutive stock options based on the
treasury stock method using average market price...... 287 228 360 251
------------ --------------- ------------ ------------
Weighted average common and equivalent
shares outstanding for diluted earnings per share..... 8,235 8,047 8,297 8,060
============ =============== ============ ============
Basic Earnings Per Share:
Earnings from continuing operations..................... $ 0.18 $ 1.54 $ 1.11 $ 4.48
Earnings (loss) from discontinued operations............ (0.10) 1.65 (0.10) 4.38
Extraordinary loss, net of tax.......................... - (1.56) - (1.56)
------------ --------------- ------------ ------------
Basic earnings per share................................ $ 0.09 $ 1.63 $ 1.02 $ 7.30
============ =============== ============ ============
Diluted Earnings Per Share:
Earnings from continuing operations..................... $ 0.18 $ 1.50 $ 1.07 $ 4.34
Earnings (loss) from discontinued operations............ (0.09) 1.60 (0.09) 4.25
Extraordinary loss, net of tax.......................... - (1.51) - (1.51)
------------ --------------- ------------ ------------
Diluted earnings per share.............................. $ 0.08 $ 1.59 $ 0.97 $ 7.07
============ =============== ============ ============
Note: Earnings per share data may not total due to rounding.
(8) Comprehensive Income
- ------------------------
The components of comprehensive income are as follows (in thousands):
Three Months Ended Nine Months Ended
May 31, May 31,
--------------------------------- --------------------------------
2001 2000 2001 2000
---------------- --------------- --------------- ---------------
Net earnings...................................... $ 677 $ 12,774 $ 8,060 $ 56,998
Foreign currency translation adjustments........... (379) (9,604) (2,265) (12,199)
Unrealized loss on interest rate swap.............. (57) - (57) -
---------------- --------------- --------------- ---------------
Comprehensive income............................... $ 241 $ 3,170 $ 5,738 $ 44,799
================ =============== =============== ===============
8
(9) Plant Fire
- --------------
In February 2001, one of the Company's facilities in Oldenzaal, The Netherlands
was damaged by fire. The fire damaged a portion of the leased building, as well
as certain inventory and property, plant and equipment contained therein.
Additionally, the fire impacted the shipment of product produced on the truck
cab-tilt production line that is housed in the damaged facility. The Company is
party to an insurance contract that is expected to cover the damaged inventory
and equipment as well as the business interruption resulting from the fire. The
costs incurred through May 31, 2001 and the net book value of lost assets total
$1.5 million. The Company received advance payments of $1.5 million from the
insurance carrier during the third quarter in partial settlement of the
insurance contract. Of the $1.5 million received, $1.1 million related to
recovery on fixed assets destroyed and the remaining $0.4 million related to
recovery of business interruption costs. A gain of $1.0 million, $0.6 million
after-tax, or $0.07 per diluted share, was recorded in "Other Expense (Income),
Other" to reflect the difference between the book value of the assets destroyed
and the minimum reimbursement from the insurance carrier received in the
quarter. Approximately $1.0 million of costs associated with the fire loss are
recorded in other current assets at May 31, 2001 in the Condensed Consolidated
Balance Sheet, which represents amounts expected to be recovered from our
insurance carrier. Future insurance recoveries under our insurance policy are
probable, and will be recorded net of additional costs associated with the fire,
when estimable.
(10) Segment Information
- ------------------------
The Company is organized and managed along the lines of its two business
segments: Tools & Supplies and Engineered Solutions. Tools & Supplies products
include high-force hydraulic tools, electrical tools and consumables, which are
sold to a variety of distribution markets including general industrial,
construction, production automation, retail do-it-yourself ("DIY"), retail
marine and retail automotive aftermarket. Engineered Solutions works with
customers to provide customized solutions in the recreational vehicle ("RV"),
truck, automotive, medical, and other markets. Products include RV slide-out and
leveling systems, hydraulic cab-tilt systems for heavy-duty trucks,
electro-hydraulic automotive convertible top actuation systems and extruded and
molded silicone products for the medical market. "General corporate and other"
as indicated below primarily includes general corporate expenses, financing
costs on third party debt and foreign currency exchange adjustments.
The following table summarizes financial information by reportable segment (in
thousands):
Three Months Ended Nine Months Ended
May 31, May 31,
--------------------------------- --------------------------------------
2001 2000 2001 2000
---------------- --------------- ------------------ ------------------
Net Sales:
Tools & Supplies......................... $ 68,427 $ 79,590 $ 207,111 $ 230,165
Engineered Solutions..................... 55,508 98,937 147,679 305,490
---------------- --------------- ------------------ ------------------
Total.................................... $ 123,935 $ 178,527 $ 354,790 $ 535,655
================ =============== ================== ==================
Earnings Before Income Tax Expense:
Tools & Supplies......................... $ 10,493 $ 14,976 $ 33,928 $ 41,248
Engineered Solutions..................... 8,998 17,792 24,722 55,412
Corporate and other...................... (17,043) (13,985) (43,735) (42,123)
---------------- --------------- ------------------ ------------------
Total.................................... $ 2,448 $ 18,783 $ 14,915 $ 54,537
================ =============== ================== ==================
(11) Recent Events
- ------------------
On March 21, 2001, the Company announced that it is in preliminary discussion
with a number of parties regarding the possible sale of its Mox-Med business,
which is part of the Engineered Solutions segment. Mox-Med provides molded and
extruded silicone products for the medical and housewares industries, and has
annual net sales of approximately $20 million. In the event we complete a
divestiture of Mox-Med, the net proceeds would be used to reduce our outstanding
debt.
(12) Guarantor Condensed Financial Statements
- ---------------------------------------------
In connection with the Distribution, Actuant issued 13% Senior Subordinated
Notes due 2009. All of our material domestic wholly-owned subsidiaries (the
"Guarantors") fully and unconditionally guarantee the 13% notes on a joint and
several basis. We believe separate financial statements and other disclosures
concerning each of the Guarantors would not provide additional information that
is material to investors. Therefore, the Guarantors are combined in the
presentation below. There are no significant restrictions on the ability of the
Guarantors to make distributions to
9
Actuant. The following tables present the results of operations, financial
position and cash flows of Actuant Corporation and its subsidiaries, the
Guarantors and non-guarantor entities, and the eliminations necessary to arrive
at the information for the Company on a condensed consolidated basis.
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(Dollars in thousands)
Three Months Ended May 31, 2001
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales.................................. $ 19,100 $ 64,447 $ 40,388 -- $ 123,935
Cost of products sold...................... 11,560 42,365 26,804 -- 80,729
----------- ---------- --------- ----------- -----------
Gross profit.......................... 7,540 22,082 13,584 -- 43,206
Operating expenses......................... 7,440 9,992 7,713 25,145
Amortization of intangible assets.......... 2 1,639 84 -- 1,725
----------- ---------- --------- ----------- -----------
Operating earnings.................. 98 10,451 5,787 -- 16,336
Other expense(income):
Intercompany activity, net......... (2,009) 1,431 578 -- --
Net financing costs................ 12,166 8 537 -- 12,711
Other, net......................... (511) 12 1,676 -- 1,177
----------- ---------- --------- ----------- -----------
(Loss) Earnings from continuing
operations before income tax (benefit)
expense.................................... (9,548) 9,000 2,996 -- 2,448
Income tax (benefit) expense............... (2,082) 3,154 (82) -- 990
----------- ---------- --------- ----------- -----------
(Loss) Earnings from continuing operations (7,466) 5,846 3,078 1,458
Loss from discontinued operations -- -- (781) -- (781)
----------- ---------- --------- ----------- -----------
Net (loss) earnings........................ $ (7,466) $ 5,846 $ 2,297 -- $ 677
=========== ========== ========= =========== ===========
Three Months Ended May 31, 2000
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales.................................. $ 22,082 $ 51,642 $ 104,803 $ -- $ 178,527
Cost of products sold...................... 12,974 33,395 66,128 -- 112,497
----------- ---------- ---------- ------------ -----------
Gross profit.......................... 9,108 18,247 38,675 -- 66,030
Operating expenses......................... 8,847 7,475 19,401 -- 35,723
Amortization of intangible assets.......... 2 996 948 -- 1,946
----------- ---------- ---------- ------------ -----------
Operating earnings.................. 259 9,776 18,326 -- 28,361
Other expense(income):
Intercompany activity, net......... 485 3,350 2,243 (6,078) --
Net financing costs................ 9,257 148 345 -- 9,750
Other, net......................... (333) 2 159 -- (172)
----------- ---------- ---------- ------------ -----------
Earnings(Loss) from continuing operations 15,579 18,783
before income tax (benefit) expense........ (9,150) 6,276 6,078
Income tax (benefit) expense............... (2,253) 2,916 5,378 674 6,715
----------- ---------- ---------- ------------ -----------
Earnings(Loss) from continuing operations.. (6,897) 3,360 10,201 5,404 12,068
Earnings from discontinued operations...... -- -- 12,892 -- 12,892
----------- ---------- ---------- ------------ -----------
Earnings before extraordinary item......... (6,897) 3,360 23,093 5,404 24,960
Extraordinary loss......................... -- -- (12,186) -- (12,186)
----------- ---------- ---------- ------------ -----------
Net (loss) earnings........................ $ (6,897) $ 3,360 $ 10,907 $ 5,404 $ 12,774
=========== ========== ========== ============ ===========
10
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(Dollars in thousands)
Nine Months Ended May 31, 2001
--------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales.................................. $ 57,742 $ 177,349 $ 119,699 -- $ 354,790
Cost of products sold...................... 34,994 115,782 78,002 -- 228,778
---------- --------- --------- ----------- ---------
Gross profit.......................... 22,748 61,567 41,697 -- 126,012
Operating expenses......................... 18,664 29,191 20,558 68,413
Amortization of intangible assets.......... 7 4,370 216 -- 4,593
---------- --------- --------- ----------- ---------
Operating earnings.................... 4,077 28,006 20,923 -- 53,006
Other expense(income):
Intercompany activity, net............ (4,297) 2,649 1,648 -- --
Net financing costs................... 37,197 8 1,006 -- 38,211
Other, net............................ (329) 26 183 -- (120)
---------- --------- --------- ----------- ---------
(Loss) Earnings from continuing operations
before income tax (benefit)expense......... (28,494) 25,323 18,086 -- 14,915
Income tax (benefit) expense............... (9,068) 9,403 5,739 -- 6,074
---------- --------- --------- ----------- ---------
(Loss) Earnings from continuing operations. (19,426) 15,920 12,347 8,841
Loss from discontinued operations.......... -- -- (781) -- (781)
---------- --------- --------- ----------- ---------
Net (loss) earnings........................ $ (19,426) $ 15,920 $ 11,566 -- $ 8,060
========== ========= ========= =========== =========
Nine Months Ended May 31, 2000
---------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- ---------------
Net sales.................................. $ 63,449 $ 155,340 $ 316,866 $ -- $ 535,655
Cost of products sold...................... 37,423 101,638 202,755 -- 341,816
---------- ---------- --------- --------- ----------
Gross profit.......................... 26,026 53,702 114,111 -- 193,839
Operating expenses......................... 26,139 22,444 57,749 -- 106,332
Amortization of intangible assets.......... 7 3,041 2,854 -- 5,902
---------- ---------- --------- --------- ----------
Operating earnings.................... (120) 28,217 53,508 -- 81,605
Other expense(income):
Intercompany activity, net............ 330 9,527 5,857 (15,714) --
Net financing costs................... 23,219 3,509 1,164 -- 27,892
Other, net............................ (846) 141 (119) -- (824)
---------- ---------- --------- --------- ----------
Earnings(Loss) from continuing operations
before income tax (benefit) expense........ (22,823) 15,040 46,606 15,714 54,537
Income tax (benefit) expense............... (8,180) 8,875 15,124 3,765 19,584
---------- ---------- --------- --------- ----------
Earnings(Loss) from continuing operations.. (14,643) 6,165 31,482 11,949 34,953
Earnings from discontinued operations...... -- -- 34,231 -- 34,231
---------- ---------- --------- --------- ----------
Earnings before extraordinary item......... (14,643) 6,165 65,713 11,949 69,184
Extraordinary loss......................... -- -- (12,186) -- (12,186)
---------- ---------- --------- --------- ----------
Net (loss) earnings........................ $ (14,643) $ 6,165 $ 53,527 $ 11,949 $ 56,998
========== ========== ========= ========= ==========
11
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in thousands)
May 31, 2001
----------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
ASSETS
Current assets
Cash and cash equivalents............ $ 917 $ (99) $ (186) -- $ 632
Accounts receivable, net............. 2,838 9,260 42,674 -- 54,772
Inventories, net..................... 9,046 39,767 10,228 -- 59,041
Deferred income taxes................ 3,165 6 1,355 -- 4,526
Other current assets................. 3,434 774 3,683 -- 7,891
----------- --------- ---------- -------- ----------
Total current assets........... 19,400 49,708 57,754 -- 126,862
Property, plant and equipment, net......... 2,961 33,044 8,498 -- 44,503
Goodwill, net.............................. -- 116,916 4,756 -- 121,672
Other intangibles, net..................... 12 22,163 80 -- 22,255
Other long-term assets..................... 25,020 174 801 -- 25,995
----------- -------- --------- -------- ----------
Total assets............................... $ 47,393 $222,005 $ 71,889 -- $ 341,287
=========== ======== ========= ======== ==========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings................ $ -- $ -- $ 364 -- $ 364
Trade accounts payable............... 5,809 16,047 13,136 -- 34,992
Accrued compensation and benefits.... 5,186 3,282 4,446 -- 12,914
Income taxes payable................. 4,609 7,822 1,330 -- 13,761
Other current liabilities............ 9,196 9,106 6,878 -- 25,180
----------- -------- ----------- -------- ----------
Total current liabilities..... 24,800 36,257 26,154 -- 87,211
Long-term debt............................. 375,745 420 12,690 -- 388,855
Deferred income taxes...................... 2,969 (1,027) 2,234 -- 4,176
Other long-term liabilities................ 17,564 -- 261 -- 17,825
Intercompany balances, net................. 741,124 (58,868) (682,256) -- --
Total shareholders' (deficit) equity....... (1,114,809) 245,223 712,806 -- (156,780)
----------- -------- ----------- -------- ----------
Total liabilities and shareholders' equity. $ 47,393 $222,005 $ 71,889 -- $ 341,287
=========== ======== =========== ======== ==========
12
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in thousands)
August 31, 2000
------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
Current assets
Cash and cash equivalents....................... $ 5,076 $ 721 $ 4,099 -- $ 9,896
Accounts receivable, net........................ 13,837 36,870 32,846 -- 83,553
Inventories, net................................ 10,528 45,317 11,754 -- 67,599
Deferred income taxes........................... 3,965 6 571 -- 4,542
Other current assets............................ 33,593 567 3,964 -- 38,124
----------- ---------- ---------- ------------ ------------
Total current assets...................... 66,999 83,481 53,234 -- 203,714
Property, plant and equipment, net.................... 5,010 35,473 8,685 -- 49,168
Goodwill, net......................................... -- 111,246 5,102 -- 116,348
Other intangibles, net................................ 19 20,911 110 -- 21,040
Other long-term assets................................ 26,098 133 480 -- 26,711
----------- ---------- ---------- ------------ ------------
Total assets.......................................... $ 98,126 $ 251,244 $ 67,611 -- 416,981
=========== ========== ========== ============ ============
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings........................... $ -- $ -- $ 1,259 -- $ 1,259
Trade accounts payable.......................... 6,602 25,210 11,643 -- 43,455
Accrued compensation and benefits............... 7,405 4,164 4,796 -- 16,365
Income taxes payable............................ (23,518) 30,660 32,710 -- 39,852
Other current liabilities....................... 7,671 8,534 9,107 -- 25,312
----------- ---------- ---------- ------------ ------------
Total current liabilities................ (1,840) 68,568 59,515 -- 126,243
Long-term debt........................................ 430,675 540 -- -- 431,215
Deferred income taxes................................. 5,769 (741) (542) -- 4,486
Other long-term liabilities........................... 17,818 (462) 636 -- 17,992
Intercompany balances, net............................ 687,060 (51,241) (635,819) -- --
Total shareholders' (deficit) equity.................. (1,041,356) 234,580 643,821 -- (162,955)
----------- ---------- ---------- ------------ ------------
Total liabilities and shareholders' equity............ $ 98,126 $ 251,244 67,611 -- $ 416,981
=========== ========== ========== ============ ============
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended May 31, 2001
------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
Net earnings(loss) from continuing operations....... $ (19,426) $ 15,920 $ 12,347 -- $ 8,841
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities:
Depreciation and amortization.................... 1,440 8,871 2,058 -- 12,369
Other non-cash items............................. (549) -- -- -- (549)
Changes in operating assets and
liabilities, net.................................. 66,747 (262) (42,334) -- 24,151
----------- ---------- ---------- ------------ ------------
Cash provided by (used in) operations.................. 48,212 24,529 (27,929) -- 44,812
Investing activities
Proceeds from the sale of PP&E................... 1,907 -- -- -- 1,907
Proceeds from insurance settlement............... -- -- 1,118 -- 1,118
Additions to property, plant and equipment....... (760) (1,921) (2,596) -- (5,277)
Business acquisitions............................ -- (11,250) -- -- (11,250)
Business dispositions and other.................. -- 238 954 -- 1,192
----------- ---------- ---------- ------------ ------------
Cash used in investing activities...................... 1,147 (12,933) (524) (12,310)
Financing activities
Net (repayments)borrowings of debt............... (54,643) (120) 12,506 -- (42,257)
Stock option exercises and other................. 437 -- -- -- 437
Intercompany (receivables) payables.............. 688 (12,296) 11,608 -- --
----------- ---------- ---------- ------------ ------------
Cash (used in) provided by financing activities........ (53,518) (12,416) 24,114 -- (41,820)
Effect of exchange rate changes on cash................ -- -- 54 -- 54
----------- ---------- ---------- ------------ ------------
Net decrease in cash and cash equivalents.............. (4,159) (820) (4,285) -- (9,264)
Cash and cash equivalents--beginning of period......... 5,076 721 4,099 -- 9,896
----------- ---------- ---------- ------------ ------------
Cash and cash equivalents--end of period............... $ 917 $ (99) $ (186) -- $ 632
=========== ========== ========== ============ ============
14
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended May 31, 2000
------------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
Net earnings(loss) from continuing operations... $ (14,643) $ 6,165 $ 19,295 $ 11,949 $ 22,766
Adjustments to reconcile net earnings (loss)
from continuing operations to cash provided
by (used in) operating activities:
Depreciation and amortization.............. 1,760 6,162 10,302 -- 18,224
Extraordinary loss on sale of subsidiary... -- -- 12,186 -- 12,186
Changes in operating assets and
liabilities, net........................... 4,016 5,517 (23,580) (11,949) (25,996)
--------- --------- ---------- ---------- -----------
Cash provided by (used in) operating activities.. (8,867) 17,844 18,203 -- 27,180
Discontinued operations.......................... -- -- 17,704 -- 17,704
--------- --------- ---------- ---------- -----------
Total cash provided by (used in) operating
activities....................................... (8,867) 17,844 35,907 -- 44,884
Investing activities
Proceeds from the sale of property, plant
and equipment............................. 14 123 566 -- 703
Additions to property, plant and equipment. (610) (3,806) (4,754) -- (9,170)
Business dispositions and other............ -- -- 15,233 -- 15,233
Discontinued operations.................... -- -- (42,206) -- (42,206)
--------- --------- ---------- ---------- -----------
Cash used in investing activities................ (596) (3,683) (31,161) (35,440)
Financing activities
Net repayments of debt..................... (36,514) -- -- -- (36,514)
Dividends paid on common stock............. (1,757) -- -- -- (1,757)
Stock option exercises and other........... 1,893 -- -- -- 1,893
Intercompany (receivables) payables........ 44,159 (14,430) (29,729) -- --
Discontinued operations.................... -- -- 11,657 -- 11,657
--------- --------- ---------- ---------- -----------
Cash (used in) provided by financing activities.. 7,781 (14,430) (18,072) -- (24,721)
Effect of exchange rate changes on cash........... -- -- (173) -- (173)
--------- --------- ---------- ---------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (1,682) (269) (13,499) -- (15,450)
Effect of change in cash of discontinued
operations........................................ -- -- 15,002 -- 15,002
Cash and cash equivalents--beginning of period..... (721) (209) 8,186 7,256
--------- --------- ---------- ---------- -----------
Cash and cash equivalents--end of period........... $ (2,403) $ (478) $ 9,689 $ -- $ 6,808
========= ========= ========== ========== ===========
15
Item 2 - Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
On January 9, 2001 Applied Power Inc. changed its name to Actuant Corporation.
Throughout this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" when we refer to "Actuant," "Applied Power," or the
"Company," we mean Actuant Corporation and its subsidiaries. Also on January 9,
2001, our shareholders approved a reverse stock split whereby every five shares
of common stock were converted into one share of common stock. Where
appropriate, this change is reflected in this Form 10-Q for all periods
presented.
The Distribution
- ----------------
On January 27, 2000, Applied Power's board of directors authorized various
actions to enable Applied Power to distribute its Electronics segment ("APW
Ltd.") to its shareholders (the "Distribution"). In the Distribution, Applied
Power shareholders received, in the form of a special dividend, one share of APW
Ltd. common stock for each Applied Power common share. As a result, APW Ltd.
became a separately traded, publicly held company. The Distribution was approved
by the board of directors on July 7, 2000 and shares of APW Ltd. were
distributed to Applied Power shareholders of record at July 21, 2000, effective
July 31, 2000. Applied Power now trades separately on The New York Stock
Exchange ("NYSE") under the ticker symbol "ATU." APW Ltd. trades on the NYSE
under the ticker symbol "APW."
As a result of the Distribution, the Company's Electronics segment is presented
as "discontinued operations" in the accompanying financial statements.
Results of Operations
- ---------------------
During fiscal years 2001 and 2000, we divested several businesses and
discontinued certain product lines that were no longer considered integral to
our business strategy, collectively referred to as the "non-continuing
businesses." The following table summarizes the significant divestitures that
were completed:
Approximate
Divestitures Segment Date Annual Sales/(1)/
- ------------ ------- ---- ----------------
(in millions)
Quick Mold Change ("QMC") Tools & Supplies May 2001 6
Norelem Tools & Supplies August 2000 8
Barry Controls Engineered Solutions June 2000 120
Air Cargo Engineered Solutions May 2000 22
Samuel Groves Engineered Solutions October 1999 9
- --------
(1) At the time of the transactions.
The comparability of operating results from period to period is impacted by the
non-continuing businesses. The tables included in "Results of Continuing
Operations" below show the effect, by segment, of the non-continuing businesses
on reported results.
Results from Continuing Operations for the Three and Nine Months Ended May 31,
- ------------------------------------------------------------------------------
2001 and 2000
- -------------
Earnings from continuing operations were $1.5 million, or $0.18 per diluted
share, and $12.1 million, or $1.50 per diluted share, for the three months ended
May 31, 2001 and 2000, respectively. Earnings from continuing operations for the
nine months ended May 31, 2001 and 2000 were $8.8 million, or $1.07 per diluted
share, and $35.0 million, or $4.34 per diluted share, respectively. The
Company's operating results for the three and nine month periods ended May 31,
2001 and 2000 include earnings from the divested businesses listed above, which
were disposed of in the periods indicated. Furthermore, our current capital
structure is different than that which existed during the comparable periods in
the prior year since we entered into new credit agreements and issued new
subordinated debt in conjunction with the Distribution. Also included are
various one time credits or charges recognized during the periods. As a result,
certain adjustments must be made to make the results in the Condensed
Consolidated Statements of Earnings comparable.
Removing the impact of the divested businesses, the impact of our new capital
structure, non-recurring recoveries for contract terminations and insurance
settlements, and non-recurring costs associated with product line dispositions,
restructuring charges, and excess corporate expenses recognized prior to the
Distribution, earnings from continuing operations would have been $4.1 million,
or $0.50 per diluted share, and $7.4 million, or $0.92 per diluted share, for
the three months ended May 31, 2001 and 2000, respectively. For the nine months
ended May 31, 2001 and 2000,
16
earnings from continuing operations would have been $11.8 million, or $1.43 per
diluted share, compared to $19.3 million, or $2.39 per diluted share,
respectively. This reduction in earnings is due to the impact of currency rates
on translated results and slowing economic conditions, especially in the RV
market. Following is a discussion of the comparative operating results for the
three and nine-month periods ended May 31, 2001 and 2000.
Net Sales by Segment
(in thousands)
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------- -----------------------------
2001 2000 Change 2001 2000 Change
-------------- -------------- ----------- -------------- -------------- -----------
Tools & Supplies.................. $ 68,427 $ 79,590 (14.0)% $ 207,111 $ 230,165 (10.0)%
Less: non-continuing /(1)/........ 1,122 5,199 3,339 16,450
-------------- -------------- -------------- --------------
Adjusted Tools & Supplies...... $ 67,305 $ 74,391 (9.5)% $ 203,772 $ 213,715 (4.7)%
============== ============== ============== ==============
Engineered Solutions........... $ 55,508 $ 98,937 (43.9)% $ 147,679 $ 305,490 (51.7)%
Less: non-continuing /(2)/....... - 41,057 - 129,600
-------------- -------------- -------------- --------------
Adjusted Engineered Solutions.. $ 55,508 $ 57,880 (4.1)% $ 147,679 $ 175,890 (16.0)%
============== ============== ============== ==============
Total net sales................ $ 123,935 $ 178,527 (30.6)% $ 354,790 $ 535,655 (33.8)%
Less: Non-continuing/(1)(2)/..... 1,122 46,256 3,339 146,050
-------------- -------------- -------------- --------------
Adjusted net sales............. $ 122,813 $ 132,271 (7.2)% $ 351,451 $ 389,605 (9.8)%
============== ============== ============== ==============
- --------
(1) "Non-continuing" represents the divested Tools & Supplies businesses,
which include Norelem, the automotive line of business, the TAM product
line and QMC.
(2) "Non-continuing" represents the divested Engineered Solutions businesses,
which include Barry Controls, Air Cargo, Samuel Groves and Magnets.
Adjusted net sales declined $9.5 million, or 7.2%, and $38.2 million, or 9.8%,
for the three and nine months ended May 31, 2001, respectively, compared to the
prior year periods. The $38.2 million decline in revenue from fiscal 2000
resulted from a $10.8 million reduction in RV market sales, negative currency
impact of $11.3 million due to the impact of foreign currency rate changes on
translated results, and overall weaker economic conditions which adversely
impacted sales to most of our markets.
Tools & Supplies
Adjusted net sales for the Tools & Supplies segment declined from the comparable
prior year periods by $7.1 million and $9.9 million for the three and
nine-months ended May 31, 2001, respectively. Excluding the effect of foreign
currency rate changes, which caused $1.4 million of the third quarter decline
and $4.4 million of the nine month sales decline, Tools & Supplies sales
decreased 7.6% and 2.6% compared to the three and nine months ended May 31,
2000, respectively. This decline was driven primarily by the softening U.S.
economy. Hydraulic tool sales were down 5.2% and electrical tools and supply
sales were down 10.3% in the quarter, as compared to the prior fiscal year
period.
Engineered Solutions
Adjusted net sales for the Engineered Solutions segment decreased from the prior
year periods by $2.4 million and $28.2 million for the three and nine months
ended May 31, 2001, respectively. The impact of foreign exchange rates on
translated results caused sales declines of $1.5 million and $6.9 million for
the three and nine months ended May 31, 2001, respectively, as compared to the
prior year periods. Our sales to the North American RV market increased in the
quarter by $3.3 million due to $8.0 million of sales from Dewald, a business
acquired at the beginning of the quarter. The North American RV market started
slowing in the third quarter of fiscal 2000, with the slowing continuing into
the current quarter. Engineered Solutions sales to its largest RV customer were
40% lower in the third quarter of 2001 as compared to the third quarter of 2000
due to weak end user demand and the OEM market share changes. The majority of
the remainder of the sales decline for the quarter, after factoring out currency
impact and sales to the RV market, resulted from reduced sales to automotive and
truck manufacturers of approximately $3.4 million, reflecting the impact of
slower economic conditions.
The $28.2 million adjusted net sales decline experienced during the nine months
ended May 31, 2001 primarily resulted from a $10.8 million reduction in sales to
the RV market and $6.9 million from foreign currency rate changes. The majority
of
17
the remainder of the decline resulted from slower economic conditions that
lowered sales to truck and automobile manufacturers by $6.9 million.
Gross Profit Margins By Segment
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------------- ------------------------------------
2001 2000 2001 2000
--------------- ---------------- ----------------- ---------------
Tools & Supplies........................ 40.8% 42.5% 40.9% 40.9%
Adjusted Tools & Supplies............... 40.8% 41.0% 41.0% 40.6%
Engineered Solutions.................... 27.6% 32.6% 28.0% 32.6%
Adjusted Engineered Solutions........... 27.6% 31.8% 28.0% 30.4%
Total gross profit margin............... 34.9% 37.0% 35.5% 36.2%
Total adjusted gross profit margin...... 34.8% 37.0% 35.5% 36.0%
Tools & Supplies
Adjusted gross profit margins in our Tools & Supplies segment decreased in the
quarter, as compared to the prior fiscal quarter. Our production levels were
lower than normal, which reduced inventory in line with our goal of lowering
working capital employed in the business, but resulted in lower margins. In
addition, we experienced high opening order discounts and buybacks associated
with significant line fills at two large retail customers which negatively
impacted margins in the quarter. For the nine months ended May 31, 2001, these
third quarter reductions were offset by our efforts to eliminate low margin SKUs
and other costs reduction initiatives undertaken in the period, which resulted
in higher gross profit margins.
Engineered Solutions
Engineered Solutions' adjusted gross profit margins decreased in the quarter and
year-to-date as compared to the prior fiscal year periods. The quarter over
quarter decline is largely due to higher sales of lower margin business,
primarily attributable to Dewald. While Dewald sales were very strong in the
quarter, sales in our higher margin business units declined. As integration
activities continue with implementation of world class performance program
initiatives, Dewald margins should improve. We are reducing employment and fixed
costs at plants that supply our RV customers, through attrition and by closing
one plant.
18
Engineering, Selling, and Administrative Expense by Segment
(in thousands)
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------- -----------------------------
2001 2000 Change 2001 2000 Change
-------------- -------------- ----------- -------------- -------------- -----------
Tools & Supplies................ $ 16,536 $17,896 (7.6)% $48,256 $ 50,215 (3.9)%
Less: non-continuing/(1)/....... 415 1,616 1,512 4,785
-------------- -------------- -------------- --------------
Adjusted Tools & Supplies... $ 16,121 $16,280 (1.0)% $46,744 $ 45,430 2.9%
============== ============== ============== ==============
Engineered Solutions............ $ 5,453 $13,419 (59.4)% $14,511 $ 41,061 (64.7)%
Less: non-continuing/(2)/....... - 8,535 - 28,033
-------------- -------------- -------------- --------------
Adjusted Engineered Solutions $ 5,453 $ 4,884 11.7% $14,511 $ 13,028 11.4%
============== ============== ============== ==============
General Corporate............... $ 1,416 $ 3,446 (58.9)% $ 3,906 $ 12,053 (67.6)%
============== ============== ============== ==============
Total ESA....................... $ 23,405 $34,761 (32.7)% $66,673 $103,329 (35.5)%
Less: Non-continuing/(1)//(2)/.. 415 10,151 1,512 32,818
-------------- -------------- -------------- --------------
Adjusted ESA .................. $ 22,990 $24,610 (6.6)% $65,161 $ 70,511 (7.6)%
============== ============== ============== ==============
________________
(1) "Non-continuing" represents the divested Tools & Supplies businesses, which
include Norelem, the automotive line of business, the TAM product line, and
QMC.
(2) "Non-continuing" represents the divested Engineered Solutions businesses,
which include Barry Controls, Air Cargo, Samuel Groves and Magnets.
Adjusted engineering, selling and administrative ("ESA") expenses decreased $1.6
million and $5.4 million for the three and nine months ended May 31, 2001, as
compared to the prior year periods. The decrease is due largely to a reduction
in corporate expenses which, for fiscal 2000, included costs related to both the
former Industrial and Electronics business segments of Applied Power. None of
these expenses have been allocated to the discontinued operation's financial
results.
Tools & Supplies
Tools & Supplies adjusted ESA expenses for the fiscal third quarter were flat
year over year, but increased 2.9% for the nine months ended May 31, 2001, as
compared to the prior year period. This increase in adjusted Tools & Supplies
ESA expenses is primarily caused by higher levels of information technology
("IT") costs associated with a new computer system and increased marketing
spending associated with tradeshows and promotions.
Engineered Solutions
Engineered Solutions adjusted ESA expenses increased by 11.7% for the fiscal
2001 third quarter and 11.4% for the nine months ended May 31, 2001, as compared
to the prior year periods. These increases are a result of higher spending on
new platform development associated with our convertible top product line and
the inclusion of ESA expenses from Dewald, which was acquired on March 1, 2001.
Amortization Expense
Amortization expense was lower in the current year periods compared to the prior
year primarily due to the non-continuing businesses.
Contract Termination Recovery
During the first quarter of fiscal 2000, the Company recovered approximately
$1.4 million of a contract termination charge originally expensed in fiscal 1999
by the Engineered Solutions segment.
Restructuring Charge
The Company adopted plans to restructure portions of its operations in the third
quarter of fiscal 2001. These plans are designed to reduce administrative and
operational costs and resulted in a charge of $1.7 million, $1.0 million
after-tax,
19
or $0.13 per diluted share. Of the pre-tax charge, $0.3 million related to the
consolidation of our RV slide production facilities, $0.6 related to the
downsizing of our cable tie production facility, and $0.8 million related to a
staff reduction plan. 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. We expect net cash proceeds of approximately $0.5 million from the
ultimate disposal of these assets, which should be complete by the third quarter
of fiscal 2002. As a result of these plans, we have terminated approximately 36
people.
Other Expense (Income)
Net financing costs for the three and nine-month periods ended May 31, 2001
increased $3.1 million and $15.3 million, respectively, compared to the prior
fiscal year periods. The increased costs are the result of the realignment of
debt in the Distribution. The current credit facilities have higher interest
rates than that which had been previously incurred by the Company. Current
borrowings consist of those under a senior secured credit agreement (the "Senior
Credit Agreement") and the Senior Subordinated Notes, which carry a 13% interest
rate.
Accounts Receivable Securitization Costs for fiscal 2001 is comprised of a
discount of $0.2 million and transaction costs of $0.4 million related to the
May 2001 sale of receivables.
Other, net for the three months ended May 31, 2001 is comprised of the
following:
Three Months
Ended
May 31, 2001
-------------
Gain on Insurance recovery......................... $ (983)
Loss on sale of QMC................................ 619
Net present value of idled lease................... 1,531
Net foreign currency transaction gain.............. (344)
Other.............................................. 354
-------------
Other, net......................................... $ 1,177
=============
Other, net for the three months ended May 31, 2000 and for the nine months ended
May 31, 2001 and 2000 is comprised primarily of foreign currency gains and
losses.
Discontinued Operations and Extraordinary Items
As a result of the Distribution, the results of operations for the Company's
Electronics segment is presented as discontinued operations in the financial
statements. Earnings from discontinued operations were $12.9 million, or $1.60
per diluted share, and $34.2 million, or $4.25 per diluted share, for the three
and nine months ended May 31, 2000, respectively. An $0.8 million loss was
recorded in "Discontinued Operations, net of Income Taxes" for the three months
ended May 31, 2001 to reflect a change in estimate for Electronics segment
liabilities assumed by the Company as part of the Distribution.
On May 26, 2000, the Company completed the sale of Air Cargo Equipment
Corporation, a business unit in the Engineered Solutions segment. The total
consideration from the transaction, which was structured as both a sale of stock
of the Air Cargo Equipment Corporation and a sale of other assets, was $12.0
million, resulting in an extraordinary loss of $13.9 million, $12.2 million
after tax, or $1.51 per diluted share.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $0.6 million at May 31, 2001 and $9.9 million
at August 31, 2000. In order to minimize net financing costs, the Company
intentionally maintains low cash balances by using available cash to reduce
borrowings.
Net cash generated by operating activities of continuing operations totaled
$44.8 million and $27.2 million for the nine-month periods ended May 31, 2001
and May 31, 2000, respectively. Discontinued operations generated $17.7 million
of cash from operating activities in the nine months ended May 31, 2000. Net
cash used in investing and financing activities for the nine months ended May
31, 2001 totaled $12.3 million and $41.8 million, respectively. Net cash
20
used for investing activities primarily consisted of cash paid for acquisitions
and capital expenditures, offset by cash received from a partial insurance
settlement and proceeds from the sale of fixed assets. Cash used for financing
activities primarily consisted of debt repayments.
Debt May 31, 2001 August 31, 2000
--------------- -----------------
(in thousands)
Senior secured debt.............................. $ 178,308 $ 233,300
Senior subordinated notes, net of discount....... 197,602 197,375
European term loan............................... 12,689 -
Other............................................ 773 1,909
--------------- -----------------
Total Debt....................................... $ 389,372 $ 432,584
=============== =================
During the first quarter of fiscal 2001, a European subsidiary of the Company
completed a bank term loan financing of 15.0 million Euro. Amortization of the
loan begins on January 31, 2003 with semi-annual repayments thereafter and a
final maturity of July 31, 2007. The loan interest rate is based on three month
EURIBOR with a spread of 1.10%. Proceeds from the borrowing were used to prepay
15.0 million Euro of the Euro denominated term borrowings under the Company's
Senior Credit Agreement, which carried a higher rate of interest.
The Company is focused on debt reduction. In the ten months since the
Distribution, debt has been reduced by $61.2 million. During the first nine
months of fiscal 2001 debt was reduced $43.2 million. The Company plans to use
all cash provided from operations to fund capital expenditures and reduce debt.
In an effort to reduce financing costs and outstanding debt, in May 2001 the
Company sold certain domestic trade accounts receivable in a securitization
transaction. All proceeds from the sale, which totaled $30 million, were used to
reduce debt. Although focused on debt reduction, when strategic opportunities
exist to grow our core business through acquisitions, debt may be incurred.
During the third quarter of fiscal 2001 the Company borrowed $11.3 million to
fund the Dewald acquisition.
Dividend payments have not been made in fiscal 2001, nor do we expect to pay
dividends in the near future, so that cash flow from operations can be used to
reduce debt. At May 31, 2001, the Company had approximately $36.1 million of
availability under its credit facilities, and was in compliance with all
covenants under its debt agreements. The Company believes that availability
under its credit facilities, plus funds generated from operations, will be
adequate to meet operating, debt service and capital expenditure requirements
for the foreseeable future.
New Accounting Pronouncements
- -----------------------------
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. The SEC staff expressed its view that revenue is realized or
realizable and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services have been
rendered; the seller's price to the buyer is fixed or determinable; and
collectability is reasonably assured. The adoption of SAB 101 did not have a
material effect on the Company's earnings or financial position.
Effective September 1, 2000, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires all derivative instruments to be
recorded in the balance sheet at fair value. The initial adoption of this
statement did not have a material effect on the Company's earnings or financial
position.
Recent Events
- -------------
In February 2001, one of the Company's facilities in Oldenzaal, The Netherlands
was damaged by fire. The fire damaged a portion of the leased building, as well
as certain inventory and property, plant and equipment contained therein.
Additionally, the fire impacted the shipment of product produced on the truck
cab-tilt production line that is housed in the damaged facility. The Company is
party to an insurance contract that is expected to cover the damaged inventory
and equipment as well as the business interruption resulting from the fire. The
costs incurred through May 31, 2001 and the net book value of lost assets total
$1.5 million. The Company received advance payments of $1.5 million from the
insurance carrier during the third quarter in partial settlement of the
insurance contract. Of the $1.5 million received, $1.1 million related to
recovery on fixed assets destroyed and the remaining $0.4 million related to
recovery of business interruption costs. A gain of $1.0 million, $0.6 million
after-tax, or
21
$0.07 per diluted share, was recorded in "Other Expense (Income), Other" to
reflect the difference between the book value of the assets destroyed and the
minimum reimbursement from the insurance carrier received in the quarter.
Approximately $1.0 million of costs associated with the fire loss are recorded
in other current assets at May 31, 2001 in the Condensed Consolidated Balance
Sheet, which represents amounts expected to be recovered from our insurance
carrier. Future insurance recoveries under our insurance policy are probable,
and will be recorded net of additional costs associated with the fire, when
estimable.
On March 21, 2001, the Company announced that it is in preliminary discussion
with a number of parties regarding the possible sale of its Mox-Med business,
which is part of the Engineered Solutions segment. Mox-Med provides molded and
extruded silicone products for the medical and housewares industries, and has
annual net sales of approximately $20 million. In the event we complete a
divestiture of Mox-Med, the net proceeds would reduce our outstanding debt.
Outlook
- -------
Based on current expectations, we believe that revenues will be between $116
million and $121 million for the fourth quarter of 2001. At this sales level,
EBITDA is projected to be between $20 million and $23 million for the quarter,
before non-operational items. This estimate is dependant on, among other things,
no changes in foreign exchange and interest rates from their present levels,
steady economic conditions, and successful implementation of the restructuring
program initiated in the fiscal third quarter.
We believe that revenues for fiscal 2002 will range from $475 million to $500
million and that EBITDA will range from $94 million to $100 million. This
estimate is dependant on, among other things, steady economic conditions during
the first half of fiscal 2002 with slight improvement during the second half of
2002, foreign exchange and interest rates remaining at their present levels, the
successful implementation of the restructuring program initiated in May 2001,
and the successful achievement of our fiscal 2001 fourth quarter forecast. In
addition, the impact of any divestitures or acquisitions has not been
considered. We anticipate debt reduction during fiscal 2002 of $40 million,
excluding the impact of any divestitures or acquisitions, subject to the
achievement of our operating earnings estimate.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for trading purposes.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2000 within Note A - "Summary of Significant
Accounting Policies" in Notes to Consolidated Financial Statements.
Currency Risk - The Company has significant international operations. In most
- -------------
instances, the Company's products are produced at manufacturing facilities
located near the customer. As a result, significant volumes of finished goods
are manufactured in countries for sale into those markets. For goods purchased
from other Company affiliates, the Company denominates the transaction in the
functional currency of the producing operation.
The Company has adopted the following guidelines to manage its foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose purchase
price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through the use of naturally offsetting
positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the producing
operation.
The Company's identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of intercompany loans with foreign subsidiaries denominated
in foreign currencies. The Company periodically identifies areas where we do not
have naturally occurring offsetting positions and then purchases hedging
instruments to protect against anticipated exposures. There are no such
22
hedging instruments in place at May 31, 2001 or through the date of this filing.
The Company's financial position is not materially sensitive to fluctuations in
exchange rates as any gains or losses on foreign currency exposures are
generally offset by gains and losses on underlying payables, receivables and net
investments in foreign subsidiaries.
Interest Rate Risk - Given our leverage, we are exposed to interest rate risk
- ------------------
from changes in interest rates. We have periodically utilized interest rate swap
agreements historically to manage overall financing costs and interest rate
risk. During the quarter ended May 31, 2001, we entered into a contract to swap
variable interest rates on $25 million of our Senior debt for fixed interest
rates. We have no other such agreements in place at May 31, 2001, or through the
date of this filing. Our Senior Credit Agreement stipulates that the lower of
50% of our total debt or $200.0 million be fixed interest rate obligations. We
are in compliance with this requirement.
PART II - OTHER INFORMATION
Item 5 - Other Information
- --------------------------
Notice for Shareholder Proposals
Effective May 4, 2001, the Company amended Section 2.04 of its bylaws to include
an advance notice provision. Pursuant to Section 2.04, shareholders must timely
submit, to the Company and in writing, any nominations of persons for election
as a director or proposals to be considered at an annual meeting of the Company.
Generally, to be considered timely under the new provision, a nomination or
proposal must be received by the Secretary at the Company's principal office no
earlier than 150 days nor later than 120 days prior to the anniversary of the
prior year's annual meeting. Each such notice by a shareholder must set forth
certain information as specified in Section 2.04 of the Company's bylaws. The
date by which a director nomination or shareholder proposal must be received for
the 2002 annual meeting is September 11, 2001 and no earlier than August 11,
2001. Notice should be sent to the attention of the Secretary of the Company and
must contain specified information concerning the matters to be brought before
such meeting and concerning the shareholder proposing such matters. In order to
curtail any controversy as to the date on which we receive notice, it is
suggested that proponents submit their notice by Certified Mail, Return Receipt
Requested. The amended bylaws are being filed as an exhibit to this Report on
Form 10-Q and are incorporated by reference herein.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) See Index to Exhibits on page 24, which is incorporated herein by
reference.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTUANT CORPORATION
-------------------
(Registrant)
Date: July 12, 2001 By: /s/ Andrew G. Lampereur
-----------------------
Andrew G. Lampereur
Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign on behalf of
the registrant)
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2001
INDEX TO EXHIBITS
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- ------------ -------------------------------------------------- -------------------------- ------------
3.4 Amended and Restated Bylaws of Actuant X
Corporation adopted November 7, 1991 and
as last amended effective May 4, 2001.
4.10 Amendment No 1, dated as of April 9, 2001, X
to the Credit Agreement dated as of 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.
10.25 Receivables Sale Agreement dated as of May X
30, 2001, among Actuant Corporation, 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.
10.26 Receivables Purchase Agreement dated as of X
May 30, 2001, among Actuant Receivables
Corporation, as Seller, Actuant
Corporation, as Initial Servicer, Blue
Ridge Asset Funding Corporation and
Wachovia Bank, N.A., as Agent.