UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2002
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
March 31, 2002 was 11,586,550.
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................................... 18
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....... 25
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings................................................ *
Item 2 - Changes in Securities and Use of Proceeds........................ 26
Item 3 - Defaults Upon Senior Securities.................................. *
Item 4 - Submission of Matters to a Vote of Security Holders.............. *
Item 5 - Other Information................................................ *
Item 6 - Exhibits and Reports on Form 8-K................................. 26
________________
*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 that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The terms
"may," "should," "could," "anticipate," "believe," "estimate," "expect,"
"objective," "plan," "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,
operating margin risk due to competitive pricing and operating efficiencies,
supply chain risk, material or labor cost increases, foreign currency risk,
interest rate risk, the economy's reaction to the September 11, 2001 and any
other terrorist actions, uncollected tax or other indemnification claims from
other parties, 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 Six Months Ended
February 28, February 28,
------------------------------ ----------------------------
2002 2001 2002 2001
-------------- ------------ ------------- -----------
Net Sales ................................................... $ 108,434 $ 115,521 $ 221,574 $ 235,317
Cost of Products Sold ....................................... 71,744 74,545 146,851 152,511
---------- ---------- ---------- ----------
Gross Profit ..................................... 36,690 40,976 74,723 82,806
Engineering, Selling and Administrative Expenses ............ 21,059 21,698 40,986 43,268
Amortization of Intangible Assets ........................... 620 1,369 1,232 2,868
---------- ---------- ---------- ----------
Operating Earnings ............................... 15,011 17,909 32,505 36,670
Net Financing Costs ......................................... 9,808 12,529 19,697 25,500
Other Expense (Income) ...................................... (1,101) 165 (741) (1,297)
---------- ---------- ---------- ----------
Earnings Before Income Tax Expense .......................... 6,304 5,215 13,549 12,467
Income Tax Expense .......................................... 2,270 2,116 4,950 5,084
---------- ---------- ---------- ----------
Net Earnings Before Cumulative Effect of Change in
Accounting Principle ...................................... 4,034 3,099 8,599 7,383
Cumulative Effect of Change in Accounting Principle ......... -- -- (7,200) --
---------- ---------- ---------- ----------
Net Earnings ................................................ $ 4,034 $ 3,099 $ 1,399 $ 7,383
========== ========== ========== ==========
Basic Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in
Accounting Principle ................................... $ 0.46 $ 0.39 $ 1.03 $ 0.93
Cumulative Effect of Change in Accounting Principle -- -- (0.86) --
---------- ---------- ---------- ----------
Total ..................................................... $ 0.46 $ 0.39 $ 0.17 $ 0.93
========== ========== ========== ==========
Diluted Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in
Accounting Principle ................................... $ 0.44 $ 0.37 $ 0.97 $ 0.89
Cumulative Effect of Change in Accounting Principle ....... -- -- (0.81) --
---------- ---------- ---------- ----------
Total ..................................................... $ 0.44 $ 0.37 $ 0.16 $ 0.89
========== ========== ========== ==========
Weighted Average Common Shares Outstanding:
Basic ..................................................... 8,723 7,934 8,370 7,931
Diluted. .................................................. 9,268 8,289 8,857 8,322
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
February 28, August 31,
2002 2001
------------ ---------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents ............................................ $ 50,385 $ 26,554
Accounts receivable, net ............................................. 55,209 54,971
Inventories, net ..................................................... 54,791 56,738
Deferred income taxes ................................................ 9,432 5,833
Other current assets ................................................. 4,928 5,074
--------- ---------
Total Current Assets ......................................... 174,745 149,170
Property, Plant and Equipment, net ............................................ 37,911 39,482
Goodwill, net ................................................................. 101,280 108,124
Other Intangible Assets, net .................................................. 19,699 20,916
Other Long-term Assets ........................................................ 23,640 25,024
--------- ---------
Total Assets .................................................................. $ 357,275 $ 342,716
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings ................................................ $ 44 $ 1,568
Trade accounts payable ............................................... 39,397 39,798
Accrued compensation and benefits .................................... 10,940 10,655
Income taxes payable ................................................. 47,566 50,034
Other current liabilities ............................................ 26,022 32,134
--------- ---------
Total Current Liabilities .................................... 123,969 134,189
Long-term Debt ................................................................ 251,106 325,752
Deferred Income Taxes ......................................................... 4,083 3,907
Other Long-term Liabilities ................................................... 18,584 18,622
Shareholders' Equity:
Class A common stock, $0.20 par value, authorized 16,000,000 shares,
Issued and outstanding 11,583,765 and 8,013,306 shares, respectively 2,317 1,603
Additional paid-in capital ........................................... (524,474) (623,867)
Accumulated other comprehensive loss ................................. (21,446) (19,227)
Retained earnings .................................................... 503,136 501,737
--------- ---------
Total Shareholders' Deficit ................................. (40,467) (139,754)
--------- ---------
Total Liabilities and Shareholders' Equity .................................... $ 357,275 $ 342,716
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended February 28,
-----------------------------
2002 2001
------------ ------------
Operating Activities
- --------------------
Net earnings ........................................................... $ 1,399 $ 7,383
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ............................... 6,087 8,050
Amortization of debt discount and debt issuance costs ....... 1,379 1,094
Cumulative effect of change in accounting principle ......... 7,200 --
Benefit for deferred income taxes ........................... (171) (50)
Other non-cash items ........................................ 154 (937)
Changes in operating assets and liabilities:
Accounts receivable ................................ (1,808) (3,458)
Inventories ........................................ 1,347 5,129
Other assets ....................................... (543) (1,501)
Trade accounts payable ............................. 223 (4,232)
Income taxes payable. .............................. (5,349) (24,676)
Other accrued liabilities .......................... (7,599) (3,241)
Receivable from APW Ltd. ........................... -- 30,894
------------ ------------
Net cash provided by operating activities .......................... 2,319 14,455
Investing Activities
- --------------------
Proceeds from sale of property, plant and equipment .................... 1,659 --
Additions to property, plant and equipment ............................. (5,229) (3,578)
Product line dispositions and other .................................... -- 238
------------ ------------
Net cash used in investing activities .............................. (3,570) (3,340)
Financing Activities
- --------------------
Net principal (payments) borrowings on debt ............................ (75,710) (20,895)
Net proceeds from issuance of common stock ............................. 99,705 --
Proceeds from stock option exercises ................................... 1,149 340
------------ ------------
Net cash provided by (used in) financing activities ................ 25,144 (20,555)
Effect of exchange rate changes on cash ................................ (62) (202)
------------ ------------
Net increase (decrease) in cash and cash equivalents ................... 23,831 (9,642)
Cash and cash equivalents - beginning of period ........................ 26,554 9,896
------------ ------------
Cash and cash equivalents - end of period .............................. $ 50,385 $ 254
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares and 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. The Company's
significant accounting policies are disclosed in its fiscal 2001 Annual Report
on Form 10-K. 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 six months ended February 28, 2002 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 14 - 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 approximated $8.8 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
in the Tools & Supplies segment to the QMC business management team for
approximately $1.0 million. QMC had annual sales of approximately $6.0 million.
The sale resulted in a loss of approximately $0.7 million, $0.4 million
after-tax, or $0.05 per diluted share.
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 Mox-Med, Inc. sale.
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 the
participating interests in the 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 $27.5 million and $25.3
million at February 28, 2002 and August 31, 2001, respectively.
Accounts receivable financing costs of $0.3 million and $0.6 million for the
three months and six months ended February 28, 2002, respectively, 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 $34.9 million and $64.3 million for the three months and six months
ended February 28, 2002, respectively. There were no receivables sold during the
first and second quarters of fiscal 2001, and as such there were no accounts
receivable financing costs for those quarters.
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
The Company adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 142, "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 recorded an impairment loss
associated with its Milwaukee Cylinder reporting unit of $7.2 million in the
first quarter. The impairment loss has been recorded as a cumulative effect of
change in accounting principle on the accompanying Condensed Consolidated
Statements of Earnings for the six months ended February 28, 2002.
The following sets forth a reconciliation of net income and earnings per share
information for the three months and six months ended February 28, 2002 and 2001
adjusted for the non-amortization provisions of SFAS No. 142.
For the Three Months For the Six Months
Ended February 28, Ended February 28,
-------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- --------
Reported net earnings before cumulative effect of
change in accounting principle ................ $ 4,034 $ 3,099 $ 8,599 $ 7,383
Reported net (loss) earnings ...................... 4,034 3,099 1,399 7,383
Add: Goodwill amortization, net of tax effect ..... -- 741 -- 1,531
Adjusted net earnings before cumulative effect
of change in accounting principle ............. 4,034 3,840 8,599 8,914
Adjusted net (loss) earnings ...................... $ 4,034 $ 3,840 $ 1,399 $ 8,914
Basic earnings per share:
Adjusted net earnings before cumulative
effect of change in accounting principle .. $ 0.46 $ 0.48 $ 1.03 $ 1.12
Adjusted net (loss) earnings ................ $ 0.46 $ 0.48 $ 0.17 $ 1.12
Diluted earnings per share:
Adjusted net earnings before cumulative
effect of change in accounting principle .. $ 0.44 $ 0.46 $ 0.97 $ 1.07
Adjusted net (loss) earnings ................ $ 0.44 $ 0.46 $ 0.16 $ 1.07
7
The changes in the carrying amount of goodwill for the year ended August 31,
2001 and for the six months ended February 28, 2002 are as follows:
Tools & Engineered
Supplies Solutions
Segment Segment Total
-------------- -------------- ------------
Balance as of August 31, 2000 ..................... $ 44,451 $ 71,897 $ 116,348
Goodwill of acquired businesses ................... -- 8,291 8,291
Amortization ...................................... (1,569) (2,404) (3,973)
Goodwill written off related to sale of
business unit .................................. -- (12,613) (12,613)
Currency impact ................................... -- 71 71
-------------- -------------- ------------
Balance as of August 31, 2001 ..................... 42,882 65,242 108,124
Transitional impairment charge .................... -- (7,200) (7,200)
Purchase price allocation adjustment .............. -- 491 491
Currency impact ................................... -- (135) (135)
-------------- -------------- ------------
Balance as of February 28, 2002 ................... $ 42,882 $ 58,398 $ 101,280
============== ============== ============
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of February 28, 2002 and August 31,
2001 are as follows:
February 28, 2002 August 31, 2001
--------------------------------------------- -----------------------------------------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
---------- -------------- ------------ ---------- --------------- -----------
Patents .......... $ 21,703 $ 7,375 $ 14,328 $ 22,652 $ 7,653 $ 14,999
Trademarks ....... 4,516 978 3,538 4,496 842 3,654
Non-compete
agreements .... 3,292 2,201 1,091 10,509 9,038 1,471
Other ............ 1,324 582 742 2,086 1,294 792
---------- -------------- ------------ ---------- ------------- -----------
Total ............ $ 30,835 $ 11,136 $ 19,699 $ 39,743 $ 18,827 $ 20,916
========== ============== ============ ========== ============= ===========
Amortization expense recorded on the intangible assets for the three months and
six months ended February 28, 2002 was $0.6 million and $1.2 million,
respectively, and for the three months and six months ended February 28, 2001
was $0.6 million and $1.3 million, respectively. The reduction in gross carrying
amount and accumulated amortization for non-compete agreements and other
intangible assets in the table above reflect the removal of fully amortized
intangible assets in fiscal 2002. The estimated amortization expense for each of
the 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 will have a material impact on the consolidated financial
statements.
Note 7. Common Stock
On February 13, 2002, the Company sold, pursuant to an underwritten public
offering, 3,450,000 shares of its Class A common stock at a price of $30.50 per
share. Cash proceeds from the offering, net of underwriting discounts, were
approximately $99.7 million. Excluding underwriting discounts, the Company
incurred approximately $0.8 million of additional accounting, legal and other
expenses related to the offering that were subsequently charged to additional
paid-
8
in capital. The proceeds will be used to redeem a portion of the Company's 13%
senior subordinated notes and retire portions of the Company's term debt under
its senior secured credit facility.
A summary of the equity accounts affected by the common stock offering is as
follows:
Class A Additional
Common Stock Paid-in Capital
------------------ ----------------
Balance at August 31, 2001 ...... $ 1,603 $ (623,867)
Common stock offering ........... 690 98,265
Stock option exercises .......... 24 1,125
Restricted stock awards ......... -- 3
------------------ ----------------
Balance at February 28, 2002 .... $ 2,317 $ (524,474)
================== ================
Note 8. 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 $23.9 million
at February 28, 2002. 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 material adverse impact to
the Company's financial position and results of operations.
Note 9. 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, or $1.0 million
after-tax. Of the pre-tax charge, $0.3 million related to the consolidation of
RV slide-out 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 of fiscal 2001. As
a result of these plans, the Company eliminated approximately 36 positions.
In the second quarter of fiscal 2002 the Company received net cash proceeds of
approximately $0.5 million from the sale of a former RV slide-out manufacturing
facility. The Company is currently executing the downsizing plan for its cable
tie production facility. The remainder of the costs accrued primarily represent
future minimum lease payments on the idled cable tie production facility.
A rollforward of the restructuring reserve recorded is shown in the following
table:
August 31, 2001 February 28, 2002
Restructuring Cash Restructuring
Reserve Payments Reserve
------------------- -------------- ----------------------
Severance ................ $ 182 $ 182 $ --
Exit Costs ............... 820 330 490
------------------- -------------- ----------------------
$ 1,002 $ 512 $ 490
=================== ============== ======================
Note 10. Gain on Insurance Settlement
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 was housed in the damaged facility. The Company
was party to an insurance contract that covered the damaged inventory
9
and equipment as well as the business interruption resulting from the fire. In
the third quarter of fiscal 2001, the Company recorded a pre-tax gain of $1.0
million to reflect the difference between the book value of the assets destroyed
and the minimum reimbursement received for such assets during the quarter from
the insurance carrier. During the second quarter of fiscal 2002, the Company
settled its claim with the insurance company, and as a result recorded an
additional gain of $0.6 million. The new facility is expected to be fully
operational by June 2002, at which time the Company will vacate certain
temporary production facilities.
Note 11. Derivatives
All derivatives are recognized on the balance sheet at their estimated fair
value. At August 31, 2001 the Company was party to one interest rate swap
contract to convert $25 million 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 $25 million of its variable rate debt to a fixed rate.
Unrealized gains (losses) of $0.4 million and $(0.3) million were recorded in
other comprehensive income for the three and six months ended February 28, 2002,
respectively. During the second quarter of fiscal 2002, the Company recorded
interest expense of $0.2 million to recognize the portion of a swap contract
that became ineffective due to the pay down of term debt as a result of the
common stock offering. The remaining effective notional amount of contracts is
approximately $40 million at February 28, 2002. There were no such swap
contracts in place at February 28, 2001.
Note 12. Earnings Per Share
The reconciliations between basic and diluted earnings per share are as follows:
Three Months Ended Six Months Ended
February 28, February 28,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
Numerator:
Net earnings before cumulative effect of change in
accounting principle ...................................... $ 4,034 $ 3,099 $ 8,599 $ 7,383
Cumulative effect of change in accounting principle .......... -- -- (7,200) --
----------- ----------- ----------- ----------
Net (loss) earnings .......................................... $ 4,034 $ 3,099 $ 1,399 $ 7,383
=========== =========== =========== ==========
Denominator:
Weighted average common shares outstanding for
basic earnings per share .................................. 8,723 7,934 8,370 7,931
Net effect of stock options based on the treasury
stock method using average market price ................... 545 355 487 391
----------- ----------- ----------- ----------
Weighted average common and equivalent shares
outstanding for diluted earnings per share ................ 9,268 8,289 8,857 8,322
=========== =========== =========== ==========
Basic Earnings Per Share:
Net earnings before cumulative effect of change in
accounting principle ...................................... $ 0.46 $ 0.39 $ 1.03 $ 0.93
Cumulative effect of change in accounting principle .......... -- -- (0.86) --
----------- ----------- ----------- ----------
Basic earnings per share ..................................... $ 0.46 $ 0.39 $ 0.17 $ 0.93
=========== =========== =========== ==========
Diluted Earnings per Share:
Net earnings before cumulative effect of change in
accounting principle ...................................... $ 0.44 $ 0.37 $ 0.97 $ 0.89
Cumulative effect of change in accounting principle .......... -- -- (0.81) --
----------- ----------- ----------- ----------
Diluted earnings per share ................................... $ 0.44 $ 0.37 $ 0.16 $ 0.89
=========== =========== =========== ==========
10
Note 13. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended Six Months Ended
February 28, February 28,
------------------------ --------------------------
2002 2001 2002 2001
--------- ----------- ----------- ----------
Net (loss) earnings .................................... $ 4,034 $ 3,099 $ 1,399 $ 7,383
Foreign currency adjustments ........................... (1,504) (370) (2,023) (1,886)
Unrealized gain (loss) interest rate swap, net of
taxes ................................................ 367 -- (301) --
--------- ----------- ----------- ----------
Comprehensive income (loss) ........................... $ 2,897 $ 2,729 $ (925) $ 5,497
========= =========== =========== ==========
Note 14. Segment Information
The Company is organized and managed as 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.
The following table summarizes financial information by reportable segment:
Three Months Ended Six Months Ended
February 28, February 28,
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ----------- ------------ -------------
Net Sales:
Tools & Supplies ......................... $ 62,338 $ 70,873 $ 126,405 $ 142,712
Engineered Solutions ..................... 46,096 44,648 95,169 92,605
------------ ----------- ------------ -------------
Total .................................... $ 108,434 $ 115,521 $ 221,574 $ 235,317
============ =========== ============ =============
Earnings Before Income Tax Expense:
Tools & Supplies ......................... $ 10,260 $ 10,294 $ 20,570 $ 20,324
Engineered Solutions ..................... 3,044 4,171 6,972 9,574
General Corporate and Other .............. (7,000) (9,250) (13,993) (17,431)
------------ ----------- ------------ -------------
Total .................................... $ 6,304 $ 5,215 $ 13,549 $ 12,467
============ =========== ============ =============
Note 15. 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 February 28, 2002
------------------------------------------------------------------------
Actuant Non
Corporation Guarantors -Guarantors Eliminations Consolidated
------------ ----------- ------------ ------------ ------------
Net sales................................ $ 19,208 $ 54,991 $ 34,235 $ -- $ 108,434
Cost of products sold.................... 10,180 39,520 22,044 -- 71,744
----------- ----------- ----------- ----------- ----------
Gross profit........................ 9,028 15,471 12,191 -- 36,690
Engineering, selling, and administrative 5,858 8,392 6,809 -- 21,059
expenses.................................
Amortization of intangible assets........ 1 605 14 -- 620
----------- ----------- ----------- ----------- ----------
Operating earnings.................. 3,169 6,474 5,368 -- 15,011
Other expense (income):
Intercompany activity, net.......... (715) 363 352 -- --
Net financing costs................. 9,404 250 154 -- 9,808
Other expense (income).............. (206) 45 (940) -- (1,101)
----------- ----------- ----------- ----------- ----------
Earnings (loss) before income tax expense
(benefit).............................. (5,314) 5,816 5,802 -- 6,304
Income tax expense (benefit)............. (1,442) 2,171 1,541 -- 2,270
----------- ----------- ----------- ----------- ----------
Net earnings (loss)...................... $ (3,872) $ 3,645 $ 4,261 $ -- $ 4,034
=========== =========== =========== =========== ==========
Three Months Ended February 28, 2001
------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------ ----------- ------------ ------------- -------------
Net sales................................. $ 19,496 $ 56,293 $ 39,732 $ -- $ 115,521
Cost of products sold..................... 11,883 36,770 25,892 -- 74,545
----------- ----------- ------------ ------------ ------------
Gross profit......................... 7,613 19,523 13,840 -- 40,976
Engineering, selling, and administrative
expenses.................................. 6,025 9,633 6,040 -- 21,698
Amortization of intangible assets......... 2 1,299 68 -- 1,369
----------- ----------- ------------ ------------ ------------
Operating earnings................... 1,586 8,591 7,732 -- 17,909
Other expense (income):
Intercompany activity, net........... (763) 399 364 -- --
Net financing costs.................. 12,180 2 347 -- 12,529
Other expense (income)............... 112 11 42 -- 165
----------- ----------- ------------ ------------ ------------
Earnings (loss) before income tax expense 6,979 5,215
(benefit)............................ (9,943) 8,179 --
Income tax expense (benefit).............. (3,333) 3,320 2,129 -- 2,116
----------- ----------- ------------ ------------ ------------
Net earnings (loss)....................... $ (6,610) $ 4,859 $ 4,850 $ -- $ 3,099
=========== =========== ============ ============ ============
12
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Six Months Ended February 28, 2002
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales ..................................... $ 36,789 $ 110,987 $ 73,798 $ -- $ 221,574
Cost of products sold ......................... 19,733 79,911 47,207 -- 146,851
----------- ------------- ------------- ------------- --------------
Gross profit ............................. 17,056 31,076 26,591 -- 74,723
Engineering, selling, and administrative
expenses .................................. 12,025 16,401 12,560 -- 40,986
Amortization of intangible assets ............. 5 1,208 19 -- 1,232
----------- ------------- ------------- ------------- --------------
Operating earnings ....................... 5,026 13,467 14,012 -- 32,505
Other expense (income):
Intercompany activity, net ............... (1,065) 2,461 (1,396) -- --
Net financing costs ...................... 18,752 646 299 -- 19,697
Other expense (income) ................... 42 (2) (781) -- (741)
----------- ------------- ------------- ------------- --------------
Earnings (loss) before income tax expense
(benefit) .................................. (12,703) 10,362 15,890 -- 13,549
Income tax expense (benefit) .................. (2,722) 4,416 3,256 -- 4,950
----------- ------------- ------------- ------------- --------------
Earnings (loss) before cumulative effect
of change in accounting principle .......... (9,981) 5,946 12,634 -- 8,599
Cumulative effect of change in accounting
principle .................................. -- 7,200 -- -- 7,200
----------- ------------- ------------- ------------- --------------
Net earnings (loss) ........................... $ (9,981) $ (1,254) $ 12,634 $ -- $ 1,399
=========== ============= ============= ============= ==============
Six Months Ended February 28, 2001
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales ..................................... $ 39,305 $ 116,197 $ 79,815 $ -- $ 235,317
Cost of products sold ......................... 24,097 76,712 51,702 -- 152,511
------------- ------------ ------------ ------------ --------------
Gross profit ............................. 15,208 39,485 28,113 -- 82,806
Engineering, selling, and administrative
expenses .............................. 11,224 19,199 12,845 -- 43,268
Amortization of intangible assets ............. 5 2,731 132 -- 2,868
------------- ------------ ------------ ------------ --------------
Operating earnings ....................... 3,979 17,555 15,136 -- 36,670
Other (income) expense:
Intercompany activity, net ............... (2,288) 1,216 1,072 -- --
Net financing costs ...................... 25,031 2 467 -- 25,500
Other expense (income) ................... (2,111) 14 800 -- (1,297)
------------- ------------ ------------ ------------ --------------
(Loss) earnings before income tax
(benefit) expense .......................... (16,653) 16,323 12,797 -- 12,797
Income tax (benefit) expense .................. (5,428) 6,249 4,263 -- 5,084
------------- ------------ ------------ ------------ --------------
Net (loss) earnings ........................... $ (11,225) $ 10,074 $ 8,534 $ -- $ 7,383
============= ============ ============ ============ ==============
13
CONDENSED CONSOLIDATING BALANCE SHEETS
February 28, 2002
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
ASSETS
Current assets
Cash and cash equivalents ............... $ 46,794 $ 555 $ 3,036 $ -- $ 50,385
Accounts receivable, net ................ 2,078 3,137 49,994 -- 55,209
Inventories, net ........................ 13,514 31,410 9,867 -- 54,791
Deferred income taxes ................... 8,583 16 833 -- 9,432
Other current assets .................... 2,512 492 1,924 -- 4,928
--------- --------- --------- --------- ---------
Total current assets ................ 73,481 35,610 65,654 -- 174,745
Property, plant and equipment, net ............ 5,364 22,169 10,378 -- 37,911
Goodwill, net ................................. -- 96,510 4,770 -- 101,280
Other intangible assets, net .................. 5 19,638 56 -- 19,699
Other long-term assets ........................ 23,066 16 558 -- 23,640
--------- --------- --------- --------- ---------
Total assets .................................. $ 101,916 $ 173,943 $ 81,416 $ -- $ 357,275
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings ................... $ -- $ -- $ 44 $ -- $ 44
Trade accounts payable .................. 7,557 18,463 13,377 -- 39,397
Accrued compensation and benefits ....... 3,975 2,384 4,581 -- 10,940
Income taxes payable .................... 40,444 4,500 2,622 -- 47,566
Other current liabilities ............... 15,158 8,019 2,845 -- 26,022
--------- --------- --------- --------- ---------
Total current liabilities ........... 67,134 33,366 23,469 -- 123,969
Long-term debt ................................ 237,651 420 13,035 -- 251,106
Deferred income taxes ......................... 5,060 (1,017) 40 -- 4,083
Other long-term liabilities ................... 18,372 -- 212 -- 18,584
Intercompany balances, net .................... (506,760) (53,666) (173,311) 733,737 --
Total shareholders' equity (deficit) .......... 280,459 194,840 217,971 (733,737) (40,467)
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity .... $ 101,916 $ 173,943 $ 81,416 $ -- $ 357,275
========= ========= ========= ========= =========
14
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' equity (deficit) ............ 167,323 207,329 230,874 (745,280) (139,754)
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders' equity ...... $ 78,520 $ 188,832 $ 75,364 $ -- $ 342,716
============== ============== ============== ============== ==============
15
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended February 28, 2002
---------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
--------------- ------------- -------------- -------------- ---------------
Operating activities
Net (loss) earnings ............................... $ (9,981) $ (1,254) $ 12,634 $ -- $ 1,399
Adjustments to reconcile net (loss) earnings
to cash provided by (used in) operating
activities:
Depreciation and amortization ................. 763 3,949 1,375 -- 6,087
Amortization of debt discount and debt
isssuance costs ............................... 1,379 -- -- -- 1,379
Cumulative effect of change in accounting
principle ..................................... -- 7,200 -- -- 7,200
Other non-cash items .......................... 189 (12) (194) -- (17)
Changes in operating assets and
liabilities, net .............................. 18,667 (12,526) (31,413) 11,543 (13,729)
--------------- ------------- -------------- -------------- ---------------
Net cash provided by (used in) operating
activities .......................................... 11,017 (2,643) (17,598) 11,543 2,319
Investing activities
Proceeds from sale of property, plant and
equipment ......................................... -- 1,659 -- -- 1,659
Additions to property, plant and equipment ........ (1,070) (1,324) (2,835) -- (5,229)
--------------- ------------ -------------- ------------- ---------------
Net cash (used in) provided by investing (1,070) 335 (2,835) -- (3,570)
activities
Financing activities
Net principal payments on debt .................... (74,194) -- (1,516) -- (75,710)
Net proceeds from issuance of common stock ........ 99,705 -- -- -- 99,705
Proceeds from stock option exercises .............. 1,149 -- -- -- 1,149
Intercompany payables (receivables) ............... (15,598) 2,242 24,899 (11,543) --
--------------- ------------- -------------- -------------- ---------------
Net cash provided by (used in) financing activities.. 11,062 2,242 23,383 (11,543) 25,144
Effect of exchange rate changes on cash ............. -- -- (62) -- (62)
--------------- ------------- -------------- -------------- ---------------
Net increase (decrease) in cash and cash
equivalents ......................................... 21,009 (66) 2,888 -- 23,831
Cash and cash equivalents--beginning of period ...... 25,785 621 148 -- 26,554
--------------- ------------- -------------- -------------- ---------------
Cash and cash equivalents--end of period ............ $ 46,794 $ 555 $ 3,036 $ -- $ 50,385
=============== ============= ============== ============== ===============
16
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended February 28, 2001
-----------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ------------ ------------ -------------- --------------
Operating activities
Net (loss) earnings ................................ $ (11,225) $ 10,074 $ 8,534 $ -- $ 7,383
Adjustments to reconcile net (loss) earnings to
cash provided by (used in) operating activities:
Depreciation and amortization ................... 1,000 5,689 1,361 -- 8,050
Amortization of debt discount and debt
isssuance costs ................................. 1,094 -- -- -- 1,094
Other non-cash items ............................ (987) -- -- -- (987)
Changes in operating assets and liabilities,
net ............................................. 26,755 (39,759) 68,213 (56,294) (1,085)
---------- ---------- ---------- ---------- -----------
Net cash provided by (used in) operating activities... 16,637 (23,996) 78,108 (56,294) 14,455
Investing activities
Additions to property, plant and equipment ........ (538) (1,380) (1,660) -- (3,578)
Product line dispositions and other ............... -- 238 -- -- 238
---------- ---------- ---------- ---------- -----------
Net cash used in investing activities ................ (538) (1,142) (1,660) -- (3,340)
Financing activities
Net principal (payments) borrowings on debt ....... (31,729) -- 10,834 -- (20,895)
Proceeds from stock option exercises .............. 340 -- -- -- 340
Intercompany payables (receivables) ............... 11,067 24,267 (91,628) 56,294 --
---------- ---------- ---------- ---------- -----------
Net cash (used in) provided by financing activities... (20,322) 24,267 (80,794) 56,294 (20,555)
Effect of exchange rate changes on cash .............. -- -- (202) -- (202)
---------- ---------- ---------- ---------- -----------
Net decrease in cash and cash equivalents ............ (4,223) (871) (4,548) -- (9,642)
Cash and cash equivalents--beginning of period ....... 5,076 721 4,099 -- 9,896
---------- ---------- ---------- ---------- -----------
Cash and cash equivalents--end of period ............. $ 853 $ (150) $ (449) $ -- $ 254
========== ========== ========== ========== ===========
17
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. The Company's significant accounting
policies are disclosed in the Notes to Consolidated Financial Statements in the
fiscal 2001 Annual Report on Form 10-K. The more critical of these policies
include revenue recognition, inventory valuation, goodwill and other intangible
asset accounting, and the use of estimates.
Revenue Recognition: Revenue is recognized when title to the products being sold
- -------------------
transfers to the customer, which is generally upon shipment. The Company's
revenue recognition policies are in accordance with Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements."
Inventories: Inventories are comprised of material, direct labor and
- -----------
manufacturing overhead, and are stated at the lower of cost or market. Inventory
cost is determined using the last-in, first-out ("LIFO") method for a portion of
U.S. owned inventory (approximately 62% of total inventories at August 31,
2001). The first-in, first-out or average cost method is used for all other
inventories. If the LIFO method were not used, the inventory balance would be
higher than the amount in the Condensed Consolidated Balance Sheet by
approximately $7.1 million at August 31, 2001.
Goodwill and Other Intangible Assets: Other intangible assets, consisting
- ------------------------------------
primarily of purchased patents, trademarks and noncompete agreements, are
amortized over periods from three to twenty-five years. Goodwill is not
amortized, but is subjected to annual impairment testing in accordance with the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets."
Use of Estimates: As required under generally accepted accounting principles,
- ----------------
the condensed consolidated financial statements include estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses for the periods presented. They also affect the disclosure of
contingencies. Actual results could differ from those estimates and assumptions.
Results of Operations for the Three and Six Months Ended February 28, 2002 and
- ------------------------------------------------------------------------------
2001
- ----
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 Manufacturing, Inc. in March 2001, which impacts the
comparability of the operating results.
Net earnings before cumulative effect of change in accounting principle for the
three and six months ended February 28, 2002 were $4.0 million, or $0.44 per
diluted share, and $8.6 million, or $0.97 per diluted share, respectively.
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 earnings for the six months ended February 28,
2002 were $1.4 million, or $0.16 per diluted share, compared with $7.4 million,
or $0.89 per diluted share, for the six months ended February 28, 2001.
Following are detailed discussions of the components of our operating results
for the periods ended February 28, 2002 and 2001.
18
Net Sales by Segment
-------------------------------------- --------------------------------------
(in thousands) Three Months Ended Six Months Ended
February 28, February 28,
-------------------------------------- --------------------------------------
2002 2001 Change 2002 2001 Change
---------- ---------- ---------- ---------- ---------- ----------
Tools & Supplies ........................... $ 62,338 $ 70,873 (12.0)% $ 126,405 $ 142,712 (11.4)%
Less: Non-continuing /(1)/ ................. -- 1,308 -- -- 2,217 --
---------- ---------- ---------- -----------
Adjusted Tools & Supplies ............... 62,338 69,565 (10.4)% 126,405 140,495 (10.0)%
Engineered Solutions ....................... 46,096 44,648 3.2 % 95,169 92,605 2.8%
Less: Non-continuing /(2)/ ................. -- 4,326 -- -- 8,673 --
---------- ---------- ---------- ----------
Adjusted Engineered Solutions ........... 46,096 40,322 14.3 % 95,169 83,932 13.4 %
Total net sales ............................ 108,434 115,521 (6.1)% 221,574 235,317 (5.8)%
Less: Non-continuing Businesses ............ -- 5,634 -- -- 10,890 --
---------- ---------- ---------- ----------
Total adjusted net sales ................ $ 108,434 $ 109,887 (1.3)% $ 221,574 $ 224,427 (1.3)%
========== ========== ========== ==========
- ----------
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the Engineered
Solutions segment.
Total net sales decreased by $7.1 million, or 6.1%, from $115.5 million for the
three months ended February 28, 2001 to $108.4 million for the three months
ended February 28, 2002. Currency translation rates negatively impacted the
quarter resulting in $2.2 million of the reported sales decline. Total net sales
decreased by $13.7 million, or 5.8% from $235.3 million for the six months ended
February 28, 2001 to $221.6 million for the six months ended February 28, 2002.
Currency translation rates also negatively impacted the six-month results
causing $1.5 million of the reported sales decline. Excluding the non-continuing
businesses, adjusted net sales declined 1.3% for both the three and six-month
periods ended February 28, 2002. Net sales in the three and six-month periods
ending February 28, 2002 include the results of Dewald Manufacturing, Inc. which
was acquired in March 2001. Assuming Dewald had been acquired on September 1,
2000, and its sales therefore included in our operating results in the fiscal
2001 periods presented, net sales would have decreased 4.7% and 6.6% for the
three and six months ended February 28, 2002, respectively, primarily as a
result of weak economic conditions in the Company's served markets.
Tools & Supplies
Net sales for Tools & Supplies decreased by $8.5 million or 12.0%, from $70.9
million for the three months ended February 28, 2001 to $62.3 million for the
three months ended February 28, 2002. The QMC business, which was sold in fiscal
2001 and the negative impact of the change in currency exchange rates comprised
$1.3 and $1.0 million of the decline, respectively. The remaining $6.2 million
decrease was driven primarily by the weak economic conditions in North America,
which caused decreases in sales by the Company to all of the markets served by
the Tools & Supplies segment. Our sales to European and Asian customers
decreased by approximately $0.6 million.
Tools & Supplies net sales for the six months ended February 28, 2002 declined
$16.3 million, or 11.4%, from $142.7 million for the six months ended February
28, 2001 to $126.4 million. This decrease is comprised of the elimination of QMC
sales of $2.2 million, the negative impact of currency translation rates of $1.0
million, the negative impact of the September 11, 2001 terrorist actions and the
impact of the poor economic conditions in North America as described above.
Engineered Solutions
Engineered Solutions net sales increased $1.5 million, or 3.2%, from $44.6
million for the three months ended February 28, 2001 to $46.1 million for the
three months ended February 28, 2002. Excluding the results of Mox-Med, which we
divested in August 2001, Engineered Solutions net sales increased 14.3%. This
increase is attributable to improved demand in the RV market including the
benefit of sales from Dewald, which was acquired in March 2001. Assuming the
Company owned Dewald during the second quarter of fiscal 2001, our sales to the
RV market increased 35% in the second quarter of fiscal 2002 due to a sharp
increase in demand from RV original equipment manufacturers. Aside from the RV
market, we experienced sales declines in all of our other Engineered Solutions
markets, including the truck and convertible top markets.
Engineered Solutions net sales for the six months ended February 28, 2002
increased $2.6 million, or 2.8%, from $92.6 million for the six months ended
February 28, 2001 to $95.2 million. Excluding the impact of Mox Med, which was
19
sold in 2001, Engineered Solutions net sales for the six-month period increased
$11.2 million, or 13.4%. This increase in adjusted net sales is comprised of the
improvement in RV market sales including the impact of Dewald sales, offset by
decreases in sales to the automotive and truck markets.
Gross Profit
The following table summarizes gross profit and gross profit margins for the
three months and six months ended February 28, 2002 and 2001:
Gross Profit by Segment
-------------------------------------- --------------------------------------
(in thousands) Three Months Ended Six Months Ended
February 28, February 28,
-------------------------------------- --------------------------------------
2002 2001 Change 2002 2001 Change
---------- ---------- ---------- ---------- ---------- ----------
Tools & Supplies ........................... $ 26,148 $ 28,653 (8.7)% $ 52,601 $ 56,818 (7.4)%
Less: Non-continuing/(1)/ .................. -- 561 -- -- 832 --
---------- ---------- ---------- ----------
Adjusted Tools & Supplies ............... $ 26,148 $ 28,092 (6.9)% $ 52,601 $ 55,986 (6.0)%
========== ========== ========== ==========
Engineered Solutions ....................... $ 10,542 $ 12,323 (14.5)% $ 22,122 $ 25,988 (14.9)%
Less: Non-continuing/(2)/ .................. -- 2,165 -- -- 4,032 --
---------- ---------- ---------- ----------
Adjusted Engineered Solutions ........... $ 10,542 $ 10,158 3.8 % $ 22,122 $ 21,956 0.8 %
========== ========== ========== ==========
Total gross profit ......................... $ 36,690 $ 40,976 (10.5)% $ 74,723 $ 82,806 (9.8)%
Less: Non-continuing ....................... -- 2,726 -- -- 4,864 --
---------- ---------- ---------- ----------
Total adjusted gross profit ................ $ 36,690 $ 38,250 ( 4.1)% $ 74,723 $ 77,942 (4.1)%
========== ========== ========== ==========
Gross Profit Margins by Segment
Tools & Supplies ........................... 41.9% 40.4% 41.6% 39.8%
Adjusted Tools & Supplies .................. 41.9% 40.4% 41.6% 39.8%
Engineered Solutions ....................... 22.9% 27.6% 23.2% 28.1%
Adjusted Engineered Solutions .............. 22.9% 25.2% 23.2% 26.2%
Total gross profit margin .................. 33.8% 35.5% 33.7% 35.2%
Total adjusted gross profit margin ......... 33.8% 34.8% 33.7% 34.7%
- ----------
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the Engineered
Solutions segment.
Total gross profit for the second quarter of fiscal 2002 was $36.7 million, a
$4.3 million decline from the $41.0 million reported in the second quarter of
fiscal year 2001. Gross profit decreased $8.1 million, or 9.8%, from $82.8
million to $74.7 million for the six months ended February 28, 2001 and 2002,
respectively. Approximately $2.7 and $4.9 million of the reductions, for the
three and six months ended February 28, 2002, respectively, were due to the
non-continuing businesses. The majority of the remaining reduction in gross
profit was the result of lower sales volume, as explained above. Total gross
profit margin declined from 35.5% to 33.8% for the three months ended February
28, 2002 and from 35.2% to 33.7% for the six months ended February 28, 2002 due
to margin declines in the Engineered Solutions segment, partially offset by
margin increases in the Tools & Supplies segment.
Tools & Supplies
Tools & Supplies gross profit decreased $2.6 million, or 8.7%, from $28.7
million to $26.1 million for the three months ended February 28, 2001 and 2002,
respectively. For the six months ended February 28, 2002 gross profit decreased
$4.2 million, or 7.4%, to $52.6 million from the $56.8 million of gross profit
recognized for the six months ended February 28, 2001. These decreases resulted
from the lower sales levels in fiscal 2002 as compared to fiscal 2001 and
20
the impact of the non-continuing Tools & Supplies business. Although gross
profit decreased, Tools & Supplies gross profit margins increased for the three
and six month periods due to the realization of the benefits of cost reduction
and restructuring activities in both the hydraulic and electrical tool
businesses, including material cost reductions, personnel reductions and
facility downsizing.
Engineered Solutions
Engineered Solutions gross profit decreased $1.8 million, or 14.5%, from $12.3
million to $10.5 million for the three months ended February 28, 2001 and 2002,
respectively. For the six months ended February 28, 2002 gross profit decreased
$3.9 million, or 14.9%, to $22.1 million from the $26.0 million of gross profit
recognized for the six months ended February 28, 2001. These decreases are due
to the divestiture of Mox-Med in August 2001, as well as lower gross profit
margins on higher net sales. Excluding the impact of the divestiture of Mox-Med,
adjusted gross profit margin declined from 25.2% to 22.9% for the three months
ended February 28, 2002 and from 26.2% to 23.2% for the six months ended
February 28, 2002. This margin decline was caused by lower fixed cost absorption
at our more vertically integrated Milwaukee Cylinder and Nielsen Sessions
operations due to lower sales and production levels, higher inefficiencies at
our RV slide-out production facility due to an increase in demand at the end of
the quarter as we were completing the consolidation of the slide-out production
facilities, a shift in demand for the quarter to lower margin product, and lower
absorption for the Engineered Solutions businesses in general due to end of year
RV, automotive, and truck customer shut downs. During the second quarter of
fiscal 2002 we also experienced higher pre-production costs associated with new
convertible actuation business and $0.3 million of lower customer billings for
prototype and development costs due to the contracted timing of billings.
Engineering, Selling, and Administrative ("SAE")
Expense by Segment
-------------------------------------- --------------------------------------
(in thousands) Three Months Ended Six Months Ended
February 28, February 28,
-------------------------------------- --------------------------------------
2002 2001 Change 2002 2001 Change
---------- ---------- ---------- ---------- ---------- ----------
Tools & Supplies ........................... $ 14,706 $ 15,915 (7.6)% $ 29,181 $ 31,720 (8.0)%
Less: Non-continuing /(1)/ ................. -- 521 -- -- 1,097 --
---------- ---------- ---------- ----------
Adjusted Tools & Supplies ............... 14,706 15,394 (4.5)% 29,181 30,623 (4.7)%
Engineered Solutions ....................... 5,350 4,441 20.5 % 9,694 9,058 7.0 %
Less: Non-continuing /(2)/ ................. -- 528 -- -- 1,090 --
---------- ---------- ---------- ----------
Adjusted Engineered Solutions ........... 5,350 3,913 36.7 % 9,694 7,968 21.7 %
General Corporate .......................... 1,003 1,342 (25.3)% 2,111 2,490 (15.2)%
Total SAE expense .......................... 21,059 21,698 (2.9)% 40,986 43,268 (5.3)%
Less: Non-continuing Businesses ............ -- 1,049 -- -- 2,187 --
---------- ---------- ---------- ----------
Total adjusted ESA expense ................. $ 21,059 $ 20,649 2.0 % $ 40,986 $ 41,081 (0.2)%
========== ========== ========== ==========
- ----------
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the Engineered
Solutions segment.
Total SAE expenses decreased $0.6 million, or 2.9%, from $21.7 million for the
three months ended February 28, 2001 to $21.1 million for the three months ended
February 28, 2002. SAE decreased $2.3 million, or 5.3%, from $43.3 million to
$41.0 million for the six months ended February 28, 2001 and 2002, respectively.
Approximately $1.0 and $2.2 million of the reductions, for the three and six
months ended February 28, 2002, respectively, were due to the non-continuing
businesses.
Tools & Supplies
Tools & Supplies SAE expenses decreased $1.2 million, or 7.6%, from $15.9
million for the three months ended February 28, 2001 to $14.7 million for the
three months ended February 28, 2002. For the six-month periods ended February
28, 2001 and 2002, SAE expenses decreased $2.5 million from $31.7 million to
$29.2 million, or 8.0%. The non-continuing Tools & Supplies business comprised
$0.5 million and $1.1 million of the decrease for the three and six months ended
February 28, 2002, respectively. The remaining decrease was driven largely by
cost reduction efforts initiated in fiscal 2001, and lower sales levels.
21
Engineered Solutions
Engineered Solutions SAE expenses increased $1.0 million, or 20.5%, from $4.4
million for the three months ended February 28, 2001 to $5.4 million for the
three months ended February 28, 2002. For the six-month periods ended February
28, 2001 and 2002, SAE expenses increased $0.6 million from $9.1 million to $9.7
million, or 7.0%. Excluding the non-continuing business, Engineered Solutions
adjusted SAE expenses increased 36.7% and 21.7% for the three and six months
ended February 28, 2002, respectively. These increases in SAE were a result of
the inclusion of SAE costs for Dewald, which was acquired March 1, 2001,
non-accruable costs associated with the consolidation of RV production
facilities, and a high level of prototype and engineering development costs
related to convertible top actuation for new automotive models.
Amortization Expense
Amortization expense for the three months and six months ended February 28, 2002
was $0.6 million and $1.2 million, respectively, compared with $1.4 million and
$2.9 million for the comparable prior year periods. These decreases were
primarily due to ceasing goodwill amortization in accordance with SFAS No. 142.
See Note 5 to the Condensed Consolidated Financial Statements, "Goodwill and
Other Intangible Assets," for more information on this change in accounting
principle.
Net Financing Costs
Net financing costs for the three months and six months ended February 28, 2002
decreased $2.7 million and $5.8 million, respectively, compared to the
respective prior year periods. These reductions were due to the combined effect
of lower market interest rates and reduced debt levels in fiscal 2002. In
February 2002 the Company recorded interest expense of $0.2 million to recognize
the portion of a variable to fixed interest rate swap contract that became
ineffective due to the pay down of term debt as a result of the common stock
offering. See "Liquidity and Capital Resources" below for further information
regarding the composition of our debt and the impact of our fiscal 2002 second
quarter offering of 3,450,000 shares of Class A Common Stock.
Other Expense (Income)
Other expense (income) for the three and six months ended February 28, 2002 is
comprised of the following (in thousands):
Three Months Ended Six Months Ended
February 28, 2002 February 28, 2002
----------------------- ----------------------
Gain on insurance recovery $ (623) $ (623)
Net foreign currency transaction gain (561) (58)
Other, net 83 (60)
----------------------- ----------------------
Other expense (income) $ (1,101) $ (741)
======================= ======================
During the second quarter of fiscal 2002 we recognized a gain upon the final
insurance settlement related to fire damage incurred in February 2001 at our
manufacturing facility in Oldenzaal, The Netherlands. See Note 10 to the
Condensed Consolidated Financial Statements, "Gain on Insurance Settlement," for
further information. Other expense (income) for the three and six months ended
February 28, 2001 is comprised primarily of foreign currency transaction 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 to the Condensed Consolidated
Financial Statements, "Goodwill and Other Intangible Assets," for further
discussion.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $2.3 million for the six months
ended February 28, 2002, compared to $14.5 million for the six months ended
February 28, 2001. 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.
22
Net cash used in investing activities totaled $3.6 million and $3.3 million for
the six months ended February 28, 2002 and 2001, respectively. This cash was
used to fund capital expenditures in both periods, although for the six months
ended February 28, 2002, the capital expenditures were partially offset by cash
proceeds of $1.7 million on the sale of two unneeded facilities.
Cash provided by financing activities was $25.1 million for the six months ended
February 28, 2002, as compared to cash used in financing activities of $20.6
million for the six months ended February 28, 2001. Cash provided from financing
activities for the six months ended February 28, 2002 primarily reflects the
proceeds of the equity offering offset by debt repayments as described below.
Cash used in financing activities for the six months ended February 28, 2001
primarily reflects net debt repayments.
The Company issued 3,450,000 shares of previously unissued shares of Class A
Common Stock in February 2002 for $30.50 per share (the "Equity Offering"). Cash
proceeds from the Equity Offering, net of underwriting discounts, were
approximately $99.7 million. The primary objectives of the Equity Offering were
to 1) redeem $70 million of the 13% senior subordinated notes prior to the April
2003 expiration of our equity "clawback" feature, 2) reduce overall debt to
improve financial stability and flexibility, 3) increase the "float" of the
Company's common stock in the capital markets, and 4) increase the awareness of
Actuant Corporation among United States investors.
Proceeds from the Equity Offering were utilized as follows (in thousands):
Net cash proceeds ........................................ $ 99,705
Debt retirement .......................................... (86,468)
Redemption premium on 13% notes .......................... (9,100)
Accrued interest on 13% notes ............................ (3,387)
Transaction expenses ..................................... (750)
----------
$ --
==========
Due to the need to provide 30 days notice of the 13% note redemption to 13% note
holders, and the Company's desire to first provide notice of such after the
completion of the Equity Offering, the redemption of $70 million of the 13%
notes occurred on March 15, 2002, after the end of the fiscal second quarter. As
a result, all of the approximate $86 million of debt reduction was not reflected
in the February 28, 2002 balance sheet or statement of cash flows. Approximately
$23.5 million of the funds to redeem the debt were included in the $50.4 million
cash balance at February 28, 2002.
Total debt was comprised of the following at February 28, 2002, assuming the
redemption of the 13% bonds occurred in the second quarter, and at August 31,
2001:
Pro-Forma
February 28, February 28, August 31,
Total Debt 2002 2002 /(1)/ 2001
---------------- ---------------- ----------------
(in thousands)
Senior secured credit agreement
Revolving credit borrowings ..................................... $ -- $ 58,782 $ 13,250
Tranche A term loans ............................................ -- -- 10,376
Tranche B term loans ............................................ 39,953 39,953 90,487
---------------- ---------------- ----------------
Senior secured credit agreement ............................. 39,953 98,735 114,113
13% Senior subordinated notes due 2009, net of discount ............ 197,830 128,590 197,678
European term loan ................................................. 13,036 13,036 13,675
Other .............................................................. 451 451 1,992
---------------- ---------------- ----------------
Total debt ......................................................... $ 251,270 $ 240,812 $ 327,458
================ ================ ================
/(1)/ Assuming entire $86.5 million debt pay down occurred by February 28, 2002
The borrowings under the senior secured credit facility bear interest rates
based on a variable pricing grid tied to the Company's total leverage, as
measured by debt to trailing twelve-month EBITDA (earnings before interest,
taxes, depreciation, and amortization). As a result of the debt retirement
resulting from the Equity Offering, the borrowing "spread" above LIBOR will
decline starting in the fiscal third quarter. The spread on revolver borrowings
will be
23
reduced from LIBOR plus 2.75% to LIBOR plus 2.50%. Similarly, the spread on the
Tranche B term loans will be reduced from LIBOR plus 3.75% to LIBOR plus 3.50%.
Despite the significant deleveraging that has taken place during the last seven
quarters, the Company 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 second
quarter of fiscal 2002 the Company did not incur any debt to fund acquisitions.
We continue to review alternatives and options to further reduce the Company's
financing costs, including refinancing all or portions of existing debt or
renegotiating the terms of agreements underlying such debt obligations.
Long term debt outstanding at February 28, 2002 is payable as follows:
Years ended August 31,
----------------------
2002 .......................... $ --
2003 .......................... $ 2,737
2004 .......................... $ 5,736
2005 .......................... $ 5,746
2006 .......................... $ 382
Thereafter .................... $ 236,505
The Company leases certain facilities, computers, equipment, and vehicles under
various operating lease agreements, generally over periods from one to twenty
years. Under most arrangements, the Company pays the property taxes, insurance,
maintenance and expenses related to the leased property. Many of the leases
include provisions that enable the Company to renew the lease based upon fair
value rental rates on the date of expiration of the initial lease. For a
schedule of future minimum lease payments see Note 8, "Leases," in the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended August 31, 2001.
As more fully discussed in Note 3 to the Condensed Consolidated Financial
Statements, "Accounts Receivable Financing", the Company is party to an accounts
receivable securitization arrangement. Trade receivables sold and being serviced
by the Company were $27.5 million and $25.3 million at February 28, 2002 and
August 31, 2001, respectively. If the Company were to discontinue this
securitization program, at February 28, 2002 it would have been required to
borrow approximately $27.5 million to finance the working capital increase.
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 the
capital stock of APW Ltd. to our shareholders. Based on APW Ltd.'s annual report
on Form 10-K for its fiscal year ended August 31, 2001, and more recent public
filings, 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 material adverse impact to the
Company's financial position and result of operations. See Note 8 to the
Condensed Consolidated Financial Statements, "Distribution of Electronics
Segment," for further discussion.
No dividend payments were declared or made during the first two quarters of
fiscal 2002, nor does the Company expect to pay dividends in the foreseeable
future. Cash flow will instead be retained for working capital needs,
acquisitions, and to reduce outstanding debt. At February 28, 2002, the Company
had $100.0 million of availability under its credit facilities. However, the
availability following the 13% senior subordinated bond redemption on March 15,
2002 was reduced to approximately $41.2 million following the Company's $58.8
million revolver draw down. The Company's senior credit agreement contains
customary limits and restrictions concerning investments, sales of assets, liens
on assets, interest and fixed cost coverage ratios, maximum leverage, capital
expenditures, acquisitions, excess cash flow, dividends, and other restricted
payments. At February 28, 2002 the Company was in compliance with all debt
covenants. 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.
24
Outlook
- -------
The Company has revised its estimates of its projected operating results for
fiscal 2002 as a result of the Equity Offering 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.
Extraordinary Charge on Early Extinguishment of Debt
- ----------------------------------------------------
As a result of the redemption of a portion of the 13% senior subordinated notes,
the Company will be recording in its fiscal third quarter a pre-tax
extraordinary charge of approximately $11.9 million, $7.8 million after-tax or
$0.65 per diluted share, for the payment of the make-whole premium associated
with the 13% senior subordinated notes and the write-off of the associated debt
discount and issuance costs.
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 February 28, 2002 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 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. In the second quarter of fiscal 2002,
approximately $10 million of this swap agreement became ineffective due to the
pay down of Senior debt as a result of the common stock offering. The Company
recorded interest expense of $0.2 million related to the ineffective portion.
The remaining effective swap agreements total approximately $40 million at
February 28, 2002. The Company has no other such agreements in place at February
28, 2002 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.
25
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
- --------------------------------------------------
On February 13, 2002, the Company completed an offering of 3,450,000 shares of
its Class A common stock. The managing underwriters in the offering were
Wachovia Securities, ABN AMRO Rothschild LLC, Robert W. Baird & Co. and Bear,
Stearns & Co., Inc.
The Class A common stock in the offering was registered under the Securities Act
of 1933, as amended, on the Company's shelf registration statement filed on Form
S-3 No. 333-47493 that was declared effective by the SEC on January 27, 1999.
The offering price of the shares was $30.50 per share, resulting in gross
proceeds of approximately $105.2 million and net proceeds (excluding the
underwriters' discount) of approximately $99.7 million. The aggregate amount of
expenses incurred by the Company in connection with the issuance and
distribution of the shares of Class A common stock offered and sold in the
offering were approximately $6.3 million, including $5.5 million in underwriting
discounts and commissions and $0.8 million in other offering expenses. After
giving effect to the offering, approximately $295 million remains available
under the existing shelf registration statement for the issuance of securities.
None of the net proceeds of the offering were paid directly or indirectly to any
director, officer, general partner of the Company or the Company's associates,
persons owning 10% or more of any class of equity securities of the Company, or
any affiliate of the Company; however, payments were made to Quarles & Brady
LLP, legal counsel to the Company, in connection with the offering and in which
Anthony W. Asmuth III, the Company's secretary, is a partner.
On March 15, 2002, the Company used $82.5 million of the net proceeds from this
offering to redeem $70 million of aggregate principal balance of its 13% senior
subordinated notes due 2009 and to pay a related redemption premium of
approximately $9.1 million, plus approximately $3.4 million of accrued interest
on the notes redeemed. Under the terms of the indenture, the Notes are not
redeemable until 30 days after notice is given to the Note holders. The Notes
were redeemed on March 15, 2002. The remaining $16.4 million of the net proceeds
were used to reduce debt under the Company's senior secured credit facility.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
See "Index to Exhibits" on page 28, which is incorporated herein by
reference.
(b) Reports on Form 8-K
See "Index to Exhibits" on page 28, which is incorporated herein by
reference.
26
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTUANT CORPORATION
-------------------
(Registrant)
Date: April 12, 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)
27
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 2002
INDEX TO EXHIBITS
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- ------------ ---------------------------------------- ------------------------------------- --------------
10.32 Underwriting Agreement, dated February Exhibit 1.1 to the Registrant's
7, 2002 among Actuant Corporation and Form 8-K dated February 7, 2002
First Union Securities, Inc.; ABN AMRO
Rothschild LLC; Robert W. Baird & Co.
Incorporated and Bear, Stearns & Co.
Inc.
10.33 Notice of Partial Redemption to the X
Holders of Applied Power Inc. (N/K/A
Actuant Corporation) 13% Series A
Senior Subordinated Notes
due 2009 (CUSIP No. 00508WAB2)
28