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 November 30, 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 3241, 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
December 31, 2001 was 8,106,046.
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 ............................................. 17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk ................. 21
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 ........................ 23
Item 5 - Other Information .......................................................... *
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, 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, competitive pricing, foreign currency
risk, interest rate risk, the economy's reaction to the September 11, 2001
terrorist actions, 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 borrowing 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
- -----------------------------
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended November 30,
---------------------------------------
2001 2000
---------------- -----------------
Net Sales .................................................................... $ 113,140 $ 119,796
Cost of Products Sold ........................................................ 75,107 77,966
---------------- -----------------
Gross Profit ...................................................... 38,033 41,830
Engineering, Selling and Administrative Expenses ............................. 19,927 21,570
Amortization of Intangible Assets ............................................ 612 1,499
---------------- -----------------
Operating Earnings ................................................ 17,494 18,761
Net Financing Costs .......................................................... 9,889 12,971
Other Expense (Income) ....................................................... 360 (1,462)
---------------- -----------------
Earnings Before Income Tax Expense ........................................... 7,245 7,252
Income Tax Expense ........................................................... 2,680 2,968
---------------- -----------------
Net Earnings Before Cumulative Effect of Change in Accounting Principle ...... 4,565 4,284
Cumulative Effect of Change in Accounting Principle .......................... (7,200) --
---------------- -----------------
Net (Loss) Earnings .......................................................... $ (2,635) $ 4,284
================ =================
Basic Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in Accounting Principle .... $ 0.57 $ 0.54
Cumulative Effect of Change in Accounting Principle ........................ (0.90) --
================ =================
Total ...................................................................... $ (0.33) $ 0.54
================ =================
Diluted Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in Accounting Principle .... $ 0.54 $ 0.51
Cumulative Effect of Change in Accounting Principle ........................ (0.85) --
================ =================
Total ...................................................................... $ (0.31) $ 0.51
================ =================
Weighted Average Common Shares Outstanding:
Basic ...................................................................... 8,023 7,927
Diluted. ................................................................... 8,455 8,362
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
November 30, August 31,
2001 2001
----------------- ----------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents .................................................. $ 24,487 $ 26,554
Accounts receivable, net ................................................... 50,491 54,971
Inventories, net ........................................................... 56,352 56,738
Deferred income taxes ...................................................... 9,157 5,833
Other current assets ....................................................... 5,052 5,074
----------------- ----------------
Total Current Assets ............................................... 145,539 149,170
Property, Plant and Equipment, net .................................................. 39,398 39,482
Goodwill, net ....................................................................... 101,037 108,124
Other Intangible Assets, net ........................................................ 20,310 20,916
Other Long-term Assets .............................................................. 24,439 25,024
----------------- ----------------
Total Assets ........................................................................ $ 330,723 $ 342,716
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings ...................................................... $ 1,092 $ 1,568
Trade accounts payable ..................................................... 40,242 39,798
Accrued compensation and benefits .......................................... 10,243 10,655
Income taxes payable ....................................................... 48,608 50,034
Other current liabilities .................................................. 20,680 32,134
----------------- ----------------
Total Current Liabilities .......................................... 120,865 134,189
Long-term Debt ...................................................................... 329,432 325,752
Deferred Income Taxes ............................................................... 4,085 3,907
Other Long-term Liabilities ......................................................... 19,559 18,622
Shareholders' Equity:
Class A common stock, $0.20 par value, authorized 16,000,000 shares,
issued and outstanding 8,049,326 and 8,013,306 shares, respectively .... 1,610 1,603
Additional paid-in capital ................................................. (623,516) (623,867)
Accumulated other comprehensive loss ....................................... (20,414) (19,227)
Retained earnings .......................................................... 499,102 501,737
----------------- ----------------
Total Shareholders' Deficit. ....................................... (143,218) (139,754)
----------------- ----------------
Total Liabilities and Shareholders' Equity .......................................... $ 330,723 $ 342,716
================= ================
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended November 30,
----------------------------------------
2001 2000
------------------ ----------------
Operating Activities
- --------------------
Net (loss) earnings ........................................................ $ (2,635) $ 4,284
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................... 3,008 4,193
Amortization of debt discount and debt issuance costs ........... 624 530
Cumulative effect of change in accounting principle ............. 7,200 --
(Benefit) / Provision for deferred income taxes ................. (140) 40
Gain on sale of assets .......................................... (53) --
Other non-cash items ............................................ -- (938)
Changes in operating assets and liabilities:
Accounts receivable .................................... 3,964 (1,017)
Inventories ............................................ 163 873
Other assets ........................................... (166) (218)
Trade accounts payable ................................. 656 (2,621)
Other accrued liabilities .............................. (11,597) (6,667)
Receivable from APW Ltd. ............................... -- 30,894
Income taxes payable. .................................. (4,374) (24,653)
------------------ ----------------
Net cash (used in) provided by operating activities .................. (3,350) 4,700
Investing Activities
- --------------------
Proceeds on sale of property, plant and equipment .......................... 57 --
Additions to property, plant and equipment ................................. (2,482) (1,761)
------------------ ----------------
Net cash used in investing activities ................................ (2,425) (1,761)
Financing Activities
- --------------------
Net principal payments on term loans ....................................... (19,944) (28,083)
Net principal borrowings on other debt ..................................... 23,299 18,183
Proceeds from stock option exercises ....................................... 362 251
------------------ ----------------
Net cash provided by (used in) financing activities .................. 3,717 (9,649)
Effect of exchange rate changes on cash .................................... (9) (34)
------------------ ----------------
Net decrease in cash and cash equivalents .................................. (2,067) (6,744)
Cash and cash equivalents - beginning of period ............................ 26,554 9,896
------------------ ----------------
Cash and cash equivalents - end of period .................................. $ 24,487 $ 3,152
================== ================
See accompanying Notes to Condensed Consolidated Financial Statements
5
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Actuant Corporation ("Actuant" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and with the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated balance sheet data as of August 31, 2001
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 2001 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. Except as discussed otherwise,
such adjustments consist of only those of a normal recurring nature. Operating
results for the three months ended November 30, 2001 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
August 31, 2002.
Prior year's financial statements have been reclassified where appropriate to
conform to current year presentations.
Note 2. Acquisitions and Divestitures
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 the acquisition and are included in the Engineered Solutions segment
in Note 12 - Segment Information. The acquisition was accounted for as a
purchase, and the purchase price of $13.0 million (including deferred purchase
price of $1.8 million) was allocated to the fair value of the assets acquired
and the liabilities assumed. The excess purchase price over the fair value of
the assets acquired, which approximates $8.5 million, was recorded as goodwill.
This acquisition was funded by borrowings under Actuant's senior secured credit
facility.
In May 2001, the Company sold the Enerpac Quick Mold Change ("QMC") product line
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.
In August 2001, the Company completed the sale of Mox-Med, Inc., a business unit
in the Engineered Solutions segment. Mox-Med had annual sales of approximately
$18.0 million 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. During the quarter ended
November 30, 2001, the Company paid approximately $7.0 million in income taxes
and fees related to the transaction.
Note 3. 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 participating
interests in its pool of receivables to a financial institution. Sales of trade
receivables are reflected as a reduction of accounts receivable in the
accompanying Condensed Consolidated Balance Sheets and the proceeds received are
included in cash flows from operating activities in the accompanying Condensed
Consolidated Statements of Cash Flows. Trade receivables sold and being serviced
by the Company were $27.2 million and $25.3 million at November 30, 2001 and
August 31, 2001, respectively.
Accounts receivable financing costs of $0.3 million for the three months ended
November 30, 2001 are included in net financing costs in the accompanying
Condensed Consolidated Statements of Earnings. Total cash proceeds under the
trade accounts receivable financing program were $29.4 million for the three
months ended November 30, 2001. There were no receivables sold during the first
quarter of fiscal 2001, and as such there were no accounts receivable financing
costs for the quarter.
6
Note 4. Inventories, Net
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any point
in time is minimal. In addition, many parts or components are ultimately either
sold individually or assembled with other parts making a distinction between raw
materials and finished goods impractical to determine. Several other locations
maintain and manage their inventories using a job cost system where the
distinction of categories of inventory by state of completion is also not
available.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only be
possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
Note 5. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets," having a required
effective date for fiscal years beginning after December 15, 2001. An early
adoption provision exists for companies with fiscal years beginning after March
15, 2001. Under the new rules, goodwill and other intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company adopted the new rules on accounting for goodwill and other
intangible assets in the first quarter of fiscal 2002. Application of the
non-amortization provisions of SFAS No. 142 is expected to result in an increase
in net income of approximately $3.2 million in fiscal 2002. Under the
transitional provisions of SFAS No. 142, the Company identified its reporting
units and performed impairment tests on the net goodwill associated with each of
the reporting units. The Company recorded an impairment loss associated with its
Milwaukee Cylinder reporting unit of $7.2 million, or $0.85 per diluted share.
The impairment loss has been recorded as a cumulative effect of change in
accounting principle on the accompanying Condensed Consolidated Statements of
Earnings.
The following sets forth a reconciliation of net income and earnings per share
information for the three months ended November 30, 2001 and 2000 adjusted for
the non-amortization provisions of SFAS No. 142.
For the Three For the Three
Months Ended Months Ended
November 30, November 30,
2001 2000
----------------- -----------------
Reported net earnings before cumulative effect of
change in accounting principle ......................... $ 4,565 $4,284
Reported net (loss) earnings ........................... (2,635) 4,284
Add: Goodwill amortization, net of tax effect .......... -- 798
Adjusted net earnings before cumulative effect
of change in accounting principle ...................... 4,565 5,082
Adjusted net (loss) earnings ........................... (2,635) 5,082
Basic earnings per share:
Adjusted net earnings before cumulative
effect of change in accounting principle ......... $ 0.57 $ 0.64
Adjusted net (loss) earnings ..................... $ (0.33) $ 0.64
Diluted earnings per share:
Adjusted net earnings before cumulative
effect of change in accounting principle ......... $ 0.54 $ 0.61
Adjusted net (loss) earnings ..................... $ (0.31) $ 0.61
7
The changes in the carrying amount of goodwill for the year ended August 31,
2001 and for the three months ended November 30, 2001 are as follows:
Tools & Engineered
Supplies Solutions
Segment Segment Total
--------- ---------- ---------
Balance as of August 31, 2000 ................. $ 44,451 $ 71,897 $ 116,348
Goodwill acquired ............................. -- 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 adjustment ..................... -- 161 161
Currency impact ............................... -- (48) (48)
--------- --------- ---------
Balance as of November 30, 2001 ............... $ 42,882 $ 58,155 $ 101,037
========= ========= =========
The Company's reporting units were tested for impairment in the first quarter of
fiscal 2002 upon the adoption of SFAS No. 142. As a result of the transitional
impairment testing, a goodwill impairment loss of $7.2 million was recognized
for the Milwaukee Cylinder reporting unit in the Engineered Solutions segment
due to declining near term results given current economic conditions. The fair
value of that reporting unit was estimated by a third party appraisal firm
considering both an income and market multiple approach.
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of November 30, 2001 and August 31,
2001 are as follows:
November 30, 2001 August 31, 2001
----------------------------------------- -----------------------------------------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
------- ------------ ------- ------- ------------ -------
Patents ........................... $21,703 $ 7,040 $14,663 $22,652 $ 7,653 $14,999
Trademarks ........................ 4,496 900 3,596 4,496 842 3,654
Non-compete agreements ............ 3,286 2,001 1,285 10,509 9,038 1,471
Other ............................. 1,314 548 766 2,086 1,294 792
------- ------- ------- ------- ------- -------
Total ............................. $30,799 $10,489 $20,310 $39,743 $18,827 $20,916
======= ======= ======= ======= ======= =======
Amortization expense recorded on the intangible assets for each of the
three-month periods ended November 30, 2001 and 2000 was $0.6 million. As a
result of adoption, there have been no changes to amortizable lives or methods.
The estimated amortization expense for each of the five succeeding fiscal years
is as follows:
For the year ended August 31,
- -----------------------------
2002............................ $2,450
2003 ........................... $2,195
2004 ........................... $1,783
2005 ........................... $1,600
2006 ........................... $1,579
Note 6. 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, however earlier adoption is permitted. The Company does not
expect SFAS No. 144 to have a material impact on the consolidated financial
statements.
8
Note 7. Distribution of Electronics Segment
On January 27, 2000, Applied Power Inc.'s ("Applied Power") board of directors
authorized various actions to enable Applied Power to distribute its Electronics
segment ("APW Ltd.") to its shareholders (the "Distribution"). Refer to Note 2
to the consolidated financial statements in the Company's fiscal 2001 Annual
Report on Form 10-K for a discussion of certain tax indemnification matters.
Prior to the Distribution, Applied Power, 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 the Electronics segment. In
conjunction with the Distribution, the Company assigned its rights in such
leases used in the Electronics segment to APW Ltd., 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 in the event APW Ltd. does not meet
its obligations under the lease agreements. The discounted present value of
future minimum lease payments for the leases totals approximately $24.4 million.
In the event APW Ltd. is unable to meet its obligations under such lease
agreements, the Company would seek to mitigate such exposure by subletting the
properties or negotiating out of the existing lease agreements. If APW Ltd. is
unable to fulfill its obligations under the indemnification arrangements and
lease commitments, there could be a materially adverse impact to the Company's
financial position and results of operations.
Note 8. Restructuring Costs
The Company adopted plans to restructure portions of its operations in 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. Of the pre-tax charge, $0.3 million related to the consolidation of
the RV slide production facilities, $0.6 related to downsizing the cable tie
production facility, and $0.8 million related to other personnel reductions. The
Company wrote down the fixed assets at the locations being closed or downsized
to their fair value, less costs to sell, in the third quarter. The Company
expects net cash proceeds of approximately $0.5 million from the ultimate
disposal of these assets, which is expected to be completed by the third quarter
of fiscal 2002. As a result of these plans, the Company eliminated approximately
36 positions.
A rollforward of the restructuring reserve recorded is shown in the following
table:
August 31, 2001 November 30, 2001
Restructuring Cash Restructuring
Reserve Payments Reserve
-------------- -------- ----------------
Severance .................... $ 182 $ (63) $ 119
Exit Costs ................... 820 -- 820
------- ------- -------
$ 1,002 $ (63) $ 939
======= ======= =======
Note 9. Derivatives
All derivatives are recognized on the balance sheet at their fair value. At
August 31, 2001 the Company was party to one interest rate swap contract to
convert a portion of its variable rate debt to a fixed rate. In the first
quarter of fiscal 2002, the Company entered into a second contract to convert a
further portion of its variable rate debt to a fixed rate. For the three months
ended November 30, 2001, $0.7 million of losses related to these contracts were
recorded in other comprehensive income. There were no such contracts in place at
November 30, 2000.
9
Note 10. Earnings Per Share
The reconciliations between basic and diluted earnings per share are as follows:
Three Months Ended November 30,
---------------------------------
2001 2000
--------- -------
Numerator:
Net earnings before cumulative effect of change in accounting principle ...... $ 4,565 $4,284
Cumulative effect of change in accounting principle .......................... (7,200) --
--------- ------
Net (loss) earnings .......................................................... $ (2,635) $4,284
========= ======
Denominator:
Weighted average common shares outstanding for
basic earnings per share .................................................. 8,023 7,927
Net effect of stock options based on the treasury stock
method using average market price ......................................... 432 435
--------- ------
Weighted average common and equivalent shares outstanding for
diluted earnings per share ................................................ 8,455 8,362
========= ======
Basic Earnings Per Share:
Net earnings before cumulative effect of change in accounting principle ...... $ 0.57 $ 0.54
Cumulative effect of change in accounting principle .......................... (0.90) --
--------- ------
Basic earnings per share ..................................................... $ (0.33) $ 0.54
========= ======
Diluted Earnings per Share:
Net earnings before cumulative effect of change in accounting change ......... $ 0.54 $ 0.51
Cumulative effect of change in accounting principle .......................... (0.85) --
--------- ------
Diluted earnings per share ................................................... $ (0.31) $ 0.51
========= ======
Note 11. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended November 30,
-------------------------------
2001 2000
-------- --------
Net (loss) earnings .............................................................. $(2,635) $ 4,284
Foreign currency adjustments ..................................................... (519) (1,516)
Fair value of interest rate swap, net of taxes ................................... (668) --
------- --------
Comprehensive income (loss) ..................................................... $(3,822) $ 2,768
======= ========
Note 12. Segment Information
The Company is organized and managed along the lines of its two business
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. "General corporate and other" as indicated below
primarily includes general corporate expenses, financing costs on third party
debt and foreign currency exchange adjustments.
10
The following table summarizes financial information by reportable segment:
Three Months Ended November 30,
----------------------------------------
2001 2000
------------------- -------------------
Net Sales:
Tools & Supplies ......................................... $ 64,067 $ 71,839
Engineered Solutions ..................................... 49,073 47,957
------------------- -------------------
Total .................................................... $ 113,140 $ 119,796
=================== ===================
Earnings Before Income Tax Expense:
Tools & Supplies ......................................... $ 10,310 $ 10,030
Engineered Solutions ..................................... 3,928 5,403
General Corporate and Other .............................. (6,993) (8,181)
------------------- -------------------
Total .................................................... $ 7,245 $ 7,252
=================== ===================
Note 13. Guarantor Condensed Financial Statements
In July 2000, Actuant issued 13% Senior Subordinated Notes due 2009 (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. The Company believes 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, the Guarantors and non-guarantor entities, and the eliminations
necessary to arrive at the information for the Company and its subsidiaries on a
condensed consolidated basis.
11
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Three Months Ended November 30, 2001
---------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- ---------------
Net sales ..................................... $ 17,581 $ 55,996 $ 39,563 $ -- $ 113,140
Cost of products sold ......................... 9,554 40,390 25,163 -- 75,107
-------------- -------------- -------------- -------------- ---------------
Gross profit ............................. 8,027 15,606 14,400 -- 38,033
Operating expenses ............................ 6,168 8,008 5,751 -- 19,927
Amortization of intangible assets ............. 2 605 5 -- 612
-------------- -------------- -------------- -------------- ---------------
Operating earnings ....................... 1,857 6,993 8,644 -- 17,494
Other expense (income):
Intercompany activity, net ............... (911) 2,680 (1,769) -- --
Net financing costs ...................... 9,911 (186) 164 -- 9,889
Other expense (income) ................... 246 (47) 161 -- 360
-------------- -------------- -------------- -------------- ---------------
(Loss) Earnings before income tax expense 7,245
(benefit) .................................. (7,389) 4,546 10,088 --
Income tax expense (benefit) .................. (1,279) 2,244 1,715 -- 2,680
-------------- -------------- -------------- -------------- ---------------
(Loss) Earnings before cumulative effect
of change in accounting principle .......... (6,110) 2,302 8,373 -- 4,565
Cumulative effect of change in accounting
principle .................................. -- (7,200) -- -- (7,200)
-------------- -------------- -------------- -------------- ---------------
Net (loss) earnings ........................... $ (6,110) $ (4,898) $ 8,373 $ -- $ (2,635)
============== ============== ============== ============== ===============
Three Months Ended November 30, 2000
---------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- ---------------
Net sales ..................................... $ 19,809 $ 59,903 $ 40,084 $ -- $ 119,796
Cost of products sold ......................... 12,213 39,942 25,811 -- 77,966
-------------- -------------- -------------- -------------- ---------------
Gross profit .................................. 7,596 19,961 14,273 -- 41,830
Operating expenses ............................ 5,198 9,566 6,806 -- 21,570
Amortization of intangible assets ............. 2 1,431 66 -- 1,499
-------------- -------------- -------------- -------------- ---------------
Operating earnings ............................ 2,396 8,964 7,401 -- 18,761
Other (income) expense:
Intercompany activity, net .................... (1,525) 817 708 -- --
Net financing costs ........................... 12,852 -- 119 -- 12,971
Other expense (income) ........................ (2,226) 4 760 -- (1,462)
-------------- -------------- -------------- -------------- ---------------
(Loss) earnings before income tax (benefit)
expense ..................................... (6,705) 8,143 5,814 -- 7,252
Income tax (benefit) expense .................. (2,094) 2,929 2,133 -- 2,968
-------------- -------------- -------------- -------------- ---------------
Net (loss) earnings ........................... $ (4,611) $ 5,214 $ 3,681 $ -- $ 4,284
============== ============== ============== ============== ===============
12
CONDENSED CONSOLIDATING BALANCE SHEETS
November 30, 2001
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
ASSETS
Current assets
Cash and cash equivalents ................. $ 21,466 $ (212) $ 3,233 $ -- $ 24,487
Accounts receivable, net .................. 2,389 3,194 44,908 -- 50,491
Inventories, net .......................... 14,047 31,896 10,409 -- 56,352
Deferred income taxes ..................... 8,333 11 813 -- 9,157
Other current assets ...................... 1,892 508 2,652 -- 5,052
-------------- -------------- -------------- -------------- --------------
Total current assets .................. 48,127 35,397 62,015 -- 145,539
Property, plant and equipment, net .............. 5,243 24,575 9,580 -- 39,398
Goodwill, net ................................... -- 96,179 4,858 -- 101,037
Other intangible assets, net .................... 7 20,243 60 -- 20,310
Other long-term assets .......................... 23,672 64 703 -- 24,439
-------------- -------------- -------------- -------------- --------------
Total assets .................................... $ 77,049 $ 176,458 $ 77,216 $ -- $ 330,723
============== ============== ============== ============== ==============
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings ..................... $ -- $ -- $ 1,092 $ -- $ 1,092
Trade accounts payable .................... 8,497 17,642 14,103 -- 40,242
Accrued compensation and benefits ......... 4,233 1,454 4,556 -- 10,243
Income taxes payable ...................... 25,691 11,899 11,018 -- 48,608
Other current liabilities ................. 9,472 9,232 1,976 -- 20,680
-------------- -------------- -------------- -------------- --------------
Total current liabilities ............. 47,893 40,227 32,745 -- 120,865
Long-term debt .................................. 315,564 420 13,448 -- 329,432
Deferred income taxes ........................... 5,056 (1,017) 46 -- 4,085
Other long-term liabilities ..................... 19,331 -- 228 -- 19,559
Intercompany balances, net ...................... (474,383) (59,475) (205,462) 739,320 --
Total shareholders' (deficit) equity ............ 163,588 196,303 236,211 (739,320) (143,218)
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders' equity ...... $ 77,049 $ 176,458 $ 77,216 $ -- $ 330,723
============== ============== ============== ============== ==============
13
CONDENSED CONSOLIDATING BALANCE SHEETS
August 31, 2001
----------------------------------------------------------------------
Actuant Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- ------------ ------------
ASSETS
Current assets
Cash and cash equivalents .................... $ 25,785 $ 621 $ 148 $ -- $ 26,554
Accounts receivable, net ..................... 3,233 5,625 46,113 -- 54,971
Inventories, net ............................. 14,606 31,920 10,212 -- 56,738
Deferred income taxes ........................ 5,333 11 489 -- 5,833
Other current assets ......................... 1,132 498 3,444 -- 5,074
-------------- -------------- -------------- ------------ ------------
Total current assets .................... 50,089 38,675 60,406 -- 149,170
Property, plant and equipment, net ................. 4,335 25,923 9,224 -- 39,482
Goodwill, net ...................................... -- 103,219 4,905 -- 108,124
Other intangible assets, net ....................... 9 20,847 60 -- 20,916
Other long-term assets ............................. 24,087 168 769 -- 25,024
-------------- -------------- -------------- ------------ ------------
Total assets ....................................... $ 78,520 $ 188,832 $ 75,364 $ -- $ 342,716
============== ============== ============== ============ ============
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings ........................ $ -- $ -- $ 1,568 $ -- $ 1,568
Trade accounts payable ....................... 10,062 17,297 12,439 -- 39,798
Accrued compensation and benefits ............ 4,608 1,698 4,349 -- 10,655
Income taxes payable ......................... 32,416 9,785 7,833 -- 50,034
Other current liabilities .................... 20,189 9,237 2,708 -- 32,134
-------------- -------------- -------------- ------------ ------------
Total current liabilities ............... 67,275 38,017 28,897 -- 134,189
Long-term debt ..................................... 311,656 420 13,676 -- 325,752
Deferred income taxes .............................. 5,043 (1,027) (109) -- 3,907
Other long-term liabilities ........................ 18,384 -- 238 -- 18,622
Intercompany balances, net ......................... (491,161) (55,907) (198,212) 745,280 --
Total shareholders' (deficit) equity ............... 167,323 207,329 230,874 (745,280) (139,754)
-------------- -------------- -------------- ------------ ------------
Total liabilities and shareholders' equity ......... $ 78,520 $ 188,832 $ 75,364 $ -- $ 342,716
============== ============== ============== ============ ============
14
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended November 30, 2001
-----------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- ------------- ----------- ------------- -------------
Operating activities
Net (loss) earnings ................................... $ (6,110) $ (4,898) $ 8,373 $ -- $ (2,635)
Adjustments to reconcile net (loss) earnings to
cash provided by (used in) operating activities:
Depreciation and amortization ..................... 373 1,970 665 -- 3,008
Amortization of debt discount and debt
issuance costs .................................... 624 -- -- -- 624
Cumulative effect of change in accounting
principle ............................................. -- 7,200 -- -- 7,200
Other non-cash items .................................. 14 (43) (164) -- (193)
Changes in operating assets and liabilities, net ...... (19,604) (718) 3,424 5,544 (11,354)
-------------- ------------- ----------- ------------- -------------
Cash (used in) provided by operating activities ......... (24,703) 3,511 12,298 5,544 (3,350)
Investing activities
Proceeds on sale of property, plant and
equipment ......................................... -- 57 -- -- 57
Additions to property, plant and equipment ........ (563) (834) (1,085) -- (2,482)
-------------- ------------- ----------- ------------- -------------
Cash used in investing activities ....................... (563) (777) (1,085) -- (2,425)
Financing activities
Net borrowings (repayments) on debt ............... 3,806 -- (451) -- 3,355
Stock option exercises ............................ 362 -- -- -- 362
Intercompany payables (receivables) ............... 16,779 (3,567) (7,668) (5,544) --
-------------- ------------- ----------- ------------- -------------
Cash provided by (used in) financing activities ......... 20,947 (3,567) (8,119) (5,544) 3,717
Effect of exchange rate changes on cash ................. -- -- (9) -- (9)
-------------- ------------- ----------- ------------- -------------
Net (decrease) increase in cash and cash ................ (4,319) (833) 3,085 -- (2,067)
equivalents
Cash and cash equivalents--beginning of period .......... 25,785 621 148 -- 26,554
-------------- ------------- ----------- ------------- -------------
Cash and cash equivalents--end of period ................ $ 21,466 $ (212) $ 3,233 $ -- $ 24,487
============== ============= ========================== =============
15
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended November 30, 2000
-------------------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ----------- ----------- -------------- --------------
Operating activities
Net earnings(loss) from continuing operations .......... $ (4,611) $ 5,214 $ 3,681 $ -- $ 4,284
Adjustments to reconcile net earnings (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization ....................... 516 3,026 651 -- 4,193
Amortization of debt discount and debt
issuance costs ...................................... 530 -- -- -- 530
Other non-cash items ................................ (898) -- -- -- (898)
Changes in operating assets and
liabilities, net .................................... 16,258 (43,656) 18,539 5,450 (3,409)
------------- ----------- ----------- -------------- -------------
Cash provided by (used in) operating activities........... 11,795 (35,416) 22,871 5,450 4,700
Investing activities
Additions to property, plant and equipment ............. (223) (919) (619) -- (1,761)
------------- ----------- ----------- -------------- -------------
Cash used in investing activities ......................... (223) (919) (619) -- (1,761)
Financing activities
Net (repayments) borrowings of debt .................... (9,900) -- -- -- (9,900)
Stock option exercises and other ....................... 251 -- -- -- 251
Intercompany (receivables) payables .................... (6,300) 35,705 (23,955) (5,450) --
------------- ----------- ----------- -------------- -------------
Cash (used in) provided by financing activities ........... (15,949) 35,705 (23,955) (5,450) (9,649)
Effect of exchange rate changes on cash ................... -- -- (34) -- (34)
------------- ----------- ----------- -------------- -------------
Net (decrease) increase in cash and cash .................. (4,377) (630) (1,737) -- (6,744)
equivalents
Cash and cash equivalents--beginning of period ............ 5,076 721 4,099 -- 9,896
------------- ----------- ----------- -------------- -------------
Cash and cash equivalents--end of period .................. $ 699 $ 91 $ 2,362 $ -- $ 3,152
============= =========== =========== ============== =============
16
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Throughout this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" when we refer to "Actuant" or the "Company," we mean
Actuant Corporation and its subsidiaries.
Results of Operations for the Three Months Ended November 30, 2001 and 2000
- ---------------------------------------------------------------------------
During fiscal year 2001, the Company divested one business and one product line
that were not considered integral to the Company's business strategy,
collectively referred to as the "non-continuing businesses. The following table
summarizes the divestitures that were completed:
Approximate
Divestitures Segment Date Annual Sales/(1)/
- ------------ ------- ---- ------------------
(in millions)
Quick Mold Change ("QMC") Tools & Supplies May 2001 6
Mox-Med Engineered Solutions August 2001 18
__________________
/(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 below show the effect, by segment, of the
non-continuing businesses on reported results. In addition, a subsidiary of the
Company acquired Dewald in March 2001 that impacts the comparability of the
operating results.
Net earnings before cumulative effect of change in accounting principle for the
three months ended November 30, 2001 were $4.6 million, or $0.54 per diluted
share. During the first quarter of fiscal 2002, the Company recorded a charge of
$7.2 million, or $0.85 per diluted share, for the cumulative effect of a change
in accounting principle related to the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Including this charge, the net loss for the three months ended November 30, 2001
was $2.6 million, or $0.31 per diluted share, compared with net earnings of $4.3
million, or $0.51 per diluted share, for the three months ended November 30,
2000.
Following are detailed discussions of the components of our net (loss) earnings
for the periods ending November 30, 2001 and 2000.
Net Sales by Segment Three Months Ended November 30,
-------------------------------
(in thousands) 2001 2000 Change
-------- -------- ---------
Tools & Supplies .................................... $ 64,067 $ 71,839 (10.8)%
Less: Non-continuing T&S Business/(1)/............... -- 909 --
-------- --------
Adjusted Tools & Supplies ........................ 64,067 70,930 (9.7)%
Engineered Solutions ................................ 49,073 47,957 2.3%
Less: Non-continuing ES Business/(2)/................ -- 4,347 --
-------- --------
Adjusted Engineered Solutions .................... 49,073 43,610 12.5%
Total net sales ..................................... 113,140 119,796 (5.6)%
Less: Non-continuing Businesses ..................... -- 5,256 --
-------- --------
Total adjusted net sales ......................... $113,140 $114,540 (1.2)%
======== ========
_______________
/(1)/ The "Non-continuing T&S Business" is QMC.
/(2)/ The "Non-continuing ES Business" is Mox-Med.
Total net sales decreased by $6.7 million, or 5.6%, from $119.8 million for the
three months ended November 30, 2000 to $113.1 million for the three months
ended November 30, 2001. Currency translation rates did not significantly impact
the quarterly results. Excluding the non-continuing businesses, adjusted net
sales declined 1.2%.
17
Tools & Supplies
Net sales for Tools & Supplies decreased by $7.7 million or 10.8%, from $71.8
million for the three months ended November 30, 2000 to $64.1 million for the
three months ended November 30, 2001. Excluding the QMC business, which was sold
in fiscal year 2001, adjusted net sales for this segment decreased $6.9 million,
or 9.7%, primarily due to a 7% decline in Enerpac product sales and a 13%
decline in Gardner Bender product line sales. Retail order patterns for our
electrical products were disrupted following the terrorist events on September
11, and didn't fully recover until the end of the quarter. The Tools & Supplies
adjusted net sales reduction was primarily driven by reductions in North
American sales due to weak economic conditions, with European sales remaining
relatively flat and Asian sales decreasing slightly.
Engineered Solutions
Engineered Solutions net sales increased $1.1 million, or 2.3%, from $48.0
million for the three months ended November 30, 2000 to $49.1 million for the
three months ended November 30, 2001. Excluding the non-continuing businesses,
Engineered Solutions net sales increased 12.5%. Substantially all of the
increase was attributable to the incremental sales from Dewald, which was
acquired in March 2001. Sales to the recreational vehicle ("RV") market for the
first quarter of fiscal 2002 improved 50% over the same period in fiscal 2001,
due in large part to the acquisition of Dewald. Excluding currency impact,
convertible top actuation sales improved 11% versus the first quarter of fiscal
2001, due primarily to increased work on new automotive platforms. These
increases were offset in part by the divestiture of Mox-Med in August 2001 and
slowing sales to truck manufacturers.
Gross Profit
The following table summarizes gross profit and gross profit margins for the
three months ended November 30, 2001 and 2000:
Gross Profit by Segment
(in thousands) Three Months Ended
November 30,
---------------------------
2001 2000 Change
------- ------- -------
Tools & Supplies ....................................... $26,453 $28,165 (6.1)%
Less: Non-continuing Tools & Supplies Businesses ....... -- 271 --
------- -------
Adjusted Tools & Supplies ........................... $26,453 $27,894 (5.2)%
======= =======
Engineered Solutions ................................... $11,580 $13,665 (15.3)%
Less: Non-continuing Engineered Solutions Businesses ... -- 1,867 --
------- -------
Adjusted Engineered Solutions ....................... $11,580 $11,798 (1.8)%
------- =======
Total gross profit ..................................... $38,033 $41,830 (9.1)%
Less: Non-continuing Businesses ........................ -- 2,138 --
------- -------
Total adjusted gross profit ......................... $38,033 $39,692 (4.2)%
======= =======
Gross Profit Margins by Segment
Tools & Supplies ....................................... 41.3% 39.2%
Adjusted Tools & Supplies/(1)/.......................... 41.3% 39.3%
Engineered Solutions ................................... 23.6% 28.5%
Adjusted Engineered Solutions/(1)/...................... 23.6% 27.1%
Total gross profit margin .............................. 33.6% 34.9%
Total adjusted gross profit margin/(1)/................. 33.6% 34.7%
_____________
/(1)/ Adjusted gross profit margins represent gross profit margins excluding
the non-continuing businesses.
Total gross profit for the first quarter of fiscal 2002 was $38.0 million, a
$3.8 million decline from the $41.8 million reported in the first quarter of the
prior fiscal year. Approximately $2.1 million of this decline was attributable
to the non-continuing businesses. Total adjusted gross profit decreased $1.7
million, or 4.2%, from $39.7 million to $38.0 million for the three months ended
November 30, 2000 and 2001, respectively. Total gross profit margin declined to
33.6% for the three months ended November 30, 2001 from 34.9% for the comparable
prior year period, due to margin declines in the Engineered Solutions business
offset in part by margin increases in the Tools & Supplies business.
18
Tools & Supplies
Tools & Supplies' gross profit decreased $1.7 million, or 6.1%, from $28.2
million to $26.5 million for the three months ended November 30, 2000 and 2001,
respectively. This resulted from the lower sales levels in the first quarter of
fiscal 2002 as compared to the first quarter of fiscal 2001 and the impact of
the non-continuing T&S business. Although gross profit decreased, Tools &
Supplies gross profit margins increased due to the realization of the benefits
of fiscal 2001 cost reduction initiatives in the electrical tools & supplies
business and an increase in the proportion of higher margin sales in the
hydraulic tools business.
Engineered Solutions
Engineered Solutions gross profit decreased $2.1 million, or 15.3%, from $13.7
million for the three months ended November 30, 2000 to $11.6 million for the
three months ended November 30, 2001 primarily due to the divestiture of Mox-Med
in August 2001. Removing the impact of the non-continuing Engineered Solutions
business, adjusted gross profit margin declined from 27.1% to 23.6% for the
three months ended November 30, 2000 and 2001, respectively. This margin decline
was caused by unfavorable product mix, incremental costs associated with the
consolidation of all RV slideout production into our Mishawaka, Indiana plant
from the Beaver Dam, Wisconsin plant, and margin erosion at our more vertically
integrated Milwaukee Cylinder and Nielson Sessions operations due to lower
absorption of costs resulting from lower sales and production levels.
Engineering, Selling, and Administrative Expense by Segment
(in thousands)
Three Months Ended November 30,
-----------------------------------
2001 2000 Change
------- ------- --------
Tools & Supplies ................................................ $14,475 $15,805 (8.4)%
Less: Non-continuing T&S Business ............................... -- 576 --
------- -------
Adjusted Tools & Supplies .................................... 14,475 15,229 (5.0)%
Engineered Solutions ............................................ 4,344 4,618 (5.9)%
Less: Non-continuing ES Business ................................ -- 562 --
------- -------
Adjusted Engineered Solutions ................................ 4,344 4,056 7.1%
General Corporate ............................................... 1,108 1,147 (3.4)%
Total selling, administrative and engineering expenses .......... 19,927 21,570 (7.6)%
Less:Non-continuing Businesses .................................. -- 1,138 --
------- -------
Total adjusted engineering, selling, and administrative
expense ...................................................... $19,927 $20,432 (2.5)%
======= =======
Total engineering, selling, and administrative ("SAE") expenses decreased $1.7
million, or 7.6%, from $21.6 million for the three months ended November 30,
2000 to $19.9 million for the three months ended November 30, 2001. The
non-continuing businesses accounted for $1.1 million of the decline. As a
percentage of total net sales, total SAE expenses declined slightly to 17.6% for
the three months ended November 30, 2001, compared to 18.0% in the prior year
first quarter.
Tools & Supplies
Tools & Supplies SAE expenses decreased $1.3 million, or 8.4%, from $15.8
million for the three months ended November 30, 2000 to $14.5 million for the
three months ended November 30, 2001. The non-continuing Tools & Supplies
business comprised $0.6 million of the decline. The remaining decrease was
driven largely by cost reduction efforts initiated in fiscal 2001, and lower
sales levels.
Engineered Solutions
Engineered Solutions SAE expenses decreased 5.9% from $4.6 million for the first
quarter of fiscal 2001 to $4.3 million for the first quarter of fiscal 2002. The
elimination of the non-continuing ES business resulted in an SAE decline of $0.6
million. Excluding this segment's non-continuing businesses, Engineered
Solutions adjusted SAE expenses increased 7.1% which was primarily attributable
to SAE costs at Dewald, which was acquired March 1, 2001, as well as costs
associated with the consolidation of RV production facilities.
19
Amortization Expense
Amortization expense for the first quarter of fiscal 2002 was $0.6 million
compared with $1.5 million for the comparable prior year period. This decrease
was primarily due to ceasing goodwill amortization in accordance with SFAS No.
142. See Note 5, "Goodwill and Other Intangible Assets," for more information on
this change in accounting principle.
Net Financing Costs
Net financing costs for the three months ended November 30, 2001 decreased $3.1
million, from $13.0 million for the three months ended November 30, 2000 to $9.9
million for the three months ended November 30, 2001. This reduction was due to
the combined effect of lower interest rates and reduced debt levels in the
fiscal 2002 first quarter as opposed to the comparable period in the prior year.
Other Expense (Income)
Other expense (income) for the three months ended November 30, 2001 and 2000 is
comprised primarily of foreign currency gains and losses.
Cumulative Effect of Change in Accounting Principle
On September 1, 2001 the Company adopted SFAS No. 142. Under the transitional
provisions of SFAS No. 142, the Company identified its reporting units and
performed impairment tests on the net goodwill associated with each of the
reporting units. The Company recorded an 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. See Note 5, "Goodwill and Other Intangible
Assets," for further discussion.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operating activities was $3.4 million for the three months
ended November 30, 2001, compared to net cash generated by operating activities
of $4.7 million for the three months ended November 30, 2000. During the first
quarter of fiscal 2002, cash payments were made for the semi-annual interest
payment on our 13% Senior Subordinated Notes due 2009 totaling $13.0 million and
income tax and transaction costs of approximately $7.0 million related to the
sale of Mox-Med. There were no similar payments for Mox-Med in the first quarter
of the prior year, and the interest payment on the bonds in the prior year was
approximately $6.5 million lower as the bonds had just recently been issued.
Net cash used in investing activities totaled $2.4 million and $1.8 million for
the three months ended November 30, 2001 and 2000, respectively, primarily
representing cash payments for capital expenditures. Cash provided from
financing activities was $3.7 million for the three months ended November 30,
2001, compared to cash used in financing activities of $9.6 million for the
three months ended November 30, 2000. These balances primarily relate to debt
borrowings and repayments, respectively.
Total debt was comprised of the following at November 30 and August 31, 2001:
Debt November 30, 2001 August 31, 2001
----------------------- -------------------
(in thousands)
Senior secured credit facility ...................... $ 117,953 $ 114,113
13% Senior subordinated notes due 2009, net of
discount .......................................... 197,754 197,678
European term loan .................................. 13,448 13,675
Other ............................................... 1,489 1,992
----------------------- -------------------
Total debt .......................................... $ 330,644 $ 327,458
======================= ===================
The Company is focused on debt reduction, and will seek to continue to reduce
debt. However, when strategic opportunities exist to grow the Company's core
business through acquisitions, debt may be incurred to finance acquisitions.
During the first quarter of fiscal 2002 the Company did not incur any debt to
fund acquisitions. In addition, during the same quarter the Company retired
$10.4 million aggregate principal amount of Tranche A term loans under its
senior secured credit facility with the proceeds from revolving credit
borrowings under that facility.
Reductions in the Company's debt have primarily taken place in its senior
secured credit facility. We continue to review alternatives and options to
further reduce the Company's financing costs, including redeeming, or
refinancing all or portions of existing debt. or renegotiating the terms of
agreements underlying such debt obligations.
On January 27, 2000, Applied Power Inc.'s ("Applied Power") board of directors
authorized various actions to enable Applied Power to distribute its Electronics
segment ("APW Ltd.") to its shareholders. On July 31, 2000 we distributed
20
the capital stock of APW Ltd. to our shareholders. Based on APW Ltd.'s annual
report of Form 10-K for its fiscal year ended August 31, 2001, APW Ltd. has
indicated that it has experienced financial difficulties. We are, or may be,
responsible for various APW Ltd. liabilities, including liabilities for taxes
and lease payments. In the event that APW Ltd. is unable to fulfill its
obligations, there could be a materially adverse impact to the Company's
financial position and result of operations. See Note 7, "Distribution of
Electronics Segment," for further discussion.
No dividend payments were declared or made during the first quarter of fiscal
2002, nor does the Company expect to pay dividends in the foreseeable future,
but will instead retain cash for working capital needs, acquisitions, and
to reduce outstanding debt. At November 30, 2001, the Company had approximately
$46 million of availability under its credit facilities. 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 at least the next twelve months.
Recent Events
- -------------
The Company's annual meeting of shareholders was held on Friday, January 4,
2002. At the meeting, shareholders voted on a proposal to elect a board of seven
directors. For further information regarding business conducted at the meeting,
see the Company's 2002 Proxy Statement.
Outlook
- -------
The Company has revised its estimates of its projected operating results for
fiscal 2002 and has made those revised estimates available to the public in a
press release. Accordingly, shareholders and others should no longer rely on the
Company's prior estimates of projected operating results, including the
estimates appearing in the Company's Annual Report on Form 10-K for its fiscal
year ended August 31, 2001, because those prior estimates have been revised and
superseded to reflect current operating and market conditions.
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, 2001 within Note 1 - "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 it does
not have naturally occurring offsetting positions and then purchases hedging
instruments to protect against anticipated exposures. There are no such hedging
instruments in place at November 30, 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 the Company's leverage, it is exposed to interest
- ------------------
rate risk from changes in interest rates. The Company has periodically utilized
interest rate swap agreements historically to manage overall financing costs and
interest rate risk. During the quarter ended May 31, 2001, the Company entered
into a contract to swap variable interest
21
rates on $25 million of the Senior debt for fixed interest rates. In the first
quarter of fiscal 2002, the Company entered into a second contract to swap
variable interest rates on $25 million of the Senior debt for fixed interest
rates. The Company has no other such agreements in place at November 30, 2001 or
through the date of this filing. The Company's Senior Credit Agreement
stipulates that the lower of 50% of total debt or $200.0 million be fixed
interest rate obligations. The Company is in compliance with this requirement.
22
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders was held on January 4, 2002 to elect a board
of seven directors. Each director nominee was elected. The number of votes for
each nominee is set forth below:
Share Votes For Share Votes Withheld
---------------------- ------------------------
Robert C. Arzbaecher 6,675,731 190,326
Gustav H.P. Boel 6,722,014 144,043
Bruce S. Chelberg 6,727,813 138,244
H. Richard Crowther 6,677,557 188,500
William K. Hall 6,726,349 139,698
Kathleen J. Hempel 6,727,914 138,143
William P. Sovey 6,726,306 139,751
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
See "Index to Exhibits" on page 25, which is incorporated herein by
reference.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended November
30, 2001.
23
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: January 14, 2002 By: /s/ Andrew G. Lampereur
-------------------------
Andrew G. Lampereur
Vice President and Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of the registrant)
24
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2001
INDEX TO EXHIBITS
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- ------------ --------------------------------------- --------------------------------- --------------
4.11 Amendment No. 2, dated as of November X
28, 2001, 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.
10.28 Amendment No. 1, dated as of November X
30, 2001, to the Receivables Sale
Agreement dated as of May 30, 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.
10.29 Amendment No. 1, dated as of November X
30, 2001, to the Receivables Purchase
Agreement dated as of 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.
10.30 Actuant Corporation Change in Control X
Agreement for Robert C. Arzbaecher
dated January 7, 2002.
10.31 Actuant Corporation Change in Control X
Agreement for Andrew G. Lampereur
dated January 7, 2002
25