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 quarter ended November 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288
APPLIED POWER INC.
-----------------
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0168610
--------- ----------
(State of incorporation) (I.R.S. Employer Id. No.)
13000 West Silver Spring Drive
Butler, Wisconsin 53007
Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(414) 781-6600
--------------
(Registrant's telephone number)
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 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
--- ---
Number of outstanding shares of Class A Common Stock: 13,873,203 as of
December 31, 1997.
The Index to Exhibits appears on Page 11.
APPLIED POWER INC.
INDEX
Page No.
---------
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Earnings -
Three Months Ended November 30, 1997 and 1996......... 3
Condensed Consolidated Balance Sheet -
November 30, 1997 and August 31, 1997................. 4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended November 30, 1997 and 1996......... 5
Notes to Condensed Consolidated Financial Statements.... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 7
PART II - OTHER INFORMATION
- - ---------------------------
Item 6 - Exhibits and Reports on Form 8-K............................. 9
SIGNATURE............................................................. 10
- - ---------
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- - -----------------------------
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended November 30,
-------------------------------
1997 1996
--------- ---------
Net Sales $ 208,689 $ 153,096
Cost of Products Sold 135,698 92,458
--------- ---------
Gross Profit 72,991 60,638
Engineering, Selling and Administrative Expenses 47,670 42,235
Amortization of Intangible Assets 2,312 1,498
--------- ---------
Operating Earnings 23,009 16,905
Other Expense(Income):
Net financing costs 4,147 2,625
Other - net 114 (66)
--------- ---------
Earnings Before Income Tax Expense 18,748 14,346
Income Tax Expense 6,562 4,806
--------- ---------
Net Earnings $ 12,186 $ 9,540
========= =========
Primary Earnings Per Share:
Earnings Per Share $ 0.83 $ 0.67
========= =========
Weighted Average Common and Equivalent Shares Outstanding (000's) 14,651 14,186
========= =========
Fully Diluted Earnings Per Share:
Earnings Per Share $ 0.83 $ 0.67
========= =========
Weighted Average Common and Equivalent Shares Outstanding (000's) 14,652 14,237
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
3
APPLIED POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
November 30, August 31,
1997 1997
------------ ----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,143 $ 5,846
Net accounts receivable 70,111 84,697
Net inventories 122,715 115,761
Prepaid expenses and deferred taxes 22,068 19,602
-------- --------
Total Current Assets 220,037 225,906
Other Assets 8,731 7,305
Goodwill 200,595 109,078
Other Intangibles 46,714 30,723
Net Property, Plant and Equipment 119,298 90,580
-------- --------
Total Assets $595,375 $463,592
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 26,689 $ 21,428
Trade accounts payable 54,448 54,555
Accrued compensation and benefits 23,202 24,736
Income taxes payable 6,676 7,093
Other current liabilities 24,185 20,462
-------- --------
Total Current Liabilities 135,200 128,274
Long-Term Debt 204,983 101,663
Deferred Income Taxes 15,494 14,596
Other Liabilities 22,380 14,950
Shareholders' Equity:
Common stock, $0.20 par value, authorized 40,000,000 shares, issued
and outstanding 13,867,028 and 13,816,678 shares, respectively 2,773 2,763
Additional paid-in capital 39,829 38,388
Retained earnings 178,546 166,776
Cumulative translation adjustments (3,830) (3,818)
-------- --------
Total Shareholders' Equity 217,318 204,109
-------- --------
Total Liabilities and Shareholders' Equity $595,375 $463,592
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
4
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended November 30,
-------------------------------
1997 1996
-------------- -------------
Operating Activities
- - --------------------
Net Earnings $ 12,186 $ 9,540
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 7,661 5,735
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable (731) 2,297
Inventories 5,201 (1,687)
Prepaid expenses and other assets (917) (1,766)
Trade accounts payable (6,688) (3,850)
Other liabilities (6,577) (211)
Income taxes payable (394) (992)
--------- --------
Net Cash Provided By Operating Activities 9,741 9,066
Investing Activities
- - --------------------
Proceeds on the sale of property, plant and equipment - 2,695
Purchases of property, plant and equipment (7,247) (4,927)
Cash used for business acquisitions (143,868) (52,000)
Other (30) -
--------- --------
Net Cash Used In Investing Activities (151,145) (54,232)
Financing Activities
- - --------------------
Proceeds from issuance of long-term debt 141.878 52,000
Principal payments on long-term debt (38,229) (12,000)
Net borrowings(repayments) on short-term credit facilities 6,076 4,932
Additional receivables financed 30,000 525
Dividends paid on common stock (416) (412)
Stock options exercised 1,451 1,548
Other (217) -
--------- --------
Net Cash Provided By Financing Activities 140,543 46,593
Effect of Exchange Rate Changes on Cash 158 (534)
--------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (703) 893
Cash and Cash Equivalents - Beginning of Period 5,846 1,001
--------- --------
Cash and Cash Equivalents - End of Period $ 5,143 $ 1,894
========= ========
See accompanying Notes to Condensed Consolidated Financial Statements
5
APPLIED POWER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note A - Basis of Presentation
- - ------------------------------
The accompanying unaudited condensed consolidated financial statements of
Applied Power Inc. (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.
For additional information, refer to the consolidated financial statements and
footnotes thereto in the Company's 1997 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist of only those of a
recurring nature. Operating results for the three months ended November 30, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 1998.
Note B - Acquisitions
- - ---------------------
On October 16, 1997, the Company's CalTerm subsidiary acquired substantially all
of the assets of Nylo-Flex Manufacturing Company, Inc. ("Nylo-Flex") for
approximately $3,000 in cash. The transaction was funded through borrowings
under then existing credit facilities. Goodwill totaling approximately $1,400
was recorded in the acquisition. Nylo-Flex, which does business under the TAM
name, is headquartered in Mobile, Alabama. Nylo-Flex is a manufacturer,
packager, and distributor of high quality battery terminals, battery cables, and
battery maintenance accessories to the automotive, marine, farm, fleet, and
industrial markets. The operating results of Nylo-Flex subsequent to October 16,
1997 are included in the Condensed Consolidated Statement of Earnings.
On October 6, 1997, the Company, through a wholly-owned subsidiary, accepted for
payment all shares of Versa Technologies, Inc. ("Versa/Tek") common stock which
were tendered pursuant to the Company's tender offer to purchase all outstanding
shares at a cash price of $24.625 net per share. Cash paid for the transaction
totaled approximately $141,000. Preliminary allocations of the purchase price
result in approximately $97,000 of goodwill. The transaction was primarily
funded with proceeds from a $140,000, 364-day revolving credit facility from the
Company's then existing lenders. Versa/Tek, based in Racine, Wisconsin, is a
value-added manufacturer of custom engineered components and systems for diverse
industrial markets. The operating results of Versa/Tek subsequent to the
acquisition date are included in the Condensed Consolidated Statement of
Earnings. The following unaudited pro forma data summarizes the results of
operations for the periods indicated as if the acquisition of Versa/Tek had been
completed on September 1, 1996, the beginning of the 1997 fiscal year. The pro
forma data give effect to actual operating results prior to the acquisition and
adjustments to interest expense, depreciation, goodwill amortization and income
taxes. These pro forma amounts do not purport to be indicative of the results
that would have actually been obtained if the acquisition had occurred on
September 1, 1996 or that may be obtained in the future. The pro forma data do
not give effect to the acquisitions completed subsequent to November 30, 1997.
See Note E - "Subsequent Events."
- - --------------------------------------------------------------------------------
Three Months Ended November 30,
- - --------------------------------------------------------------------------------
1997 1996
- - --------------------------------------------------------------------------------
Net Sales $218,019 $176,884
Net Earnings $ 12,263 $ 8,497
Net Earnings Per Share $ 0.84 $ 0.60
- - --------------------------------------------------------------------------------
All acquisitions were accounted for using the purchase method.
Note C - Accounts Receivable Financing
- - --------------------------------------
On November 20, 1997, the Company replaced its former $50,000 accounts
receivable financing facility with a new facility that provides up to $80,000 of
multi-currency accounts receivable financing. The new agreement expires in
November 2000. All other terms of the agreement remain the same.
6
Note D - Net Inventories
- - ------------------------
It is not practical to segregate the amounts of raw materials, work-in-process
or finished goods at the respective balance sheet dates, since the segregation
is possible only as the result of physical inventories which are taken at dates
different from the balance sheet dates. The systems at many of the Company's
operating units have not been designed to capture this segregation due to the
very short production cycle of their products and the minimal amount of work-in-
process.
Note E - Subsequent Events
- - --------------------------
In December 1997, the Company signed definitive agreements to purchase two
additional businesses. Total consideration for the two transactions is expected
to approximate $28,000 in cash, plus additional future consideration based on
financial performance. The transactions are subject to various approvals and are
expected to close in late January 1998. Consideration for the two transactions
will be funded through the Company's existing credit facilities. The first
transaction is the acquisition of substantially all of the assets of Performance
Manufactured Products Inc. ("PMP") and a related entity. PMP, located in San
Jose, California, is a manufacturer and integrator of custom electronic
enclosures, and will be included with the Company's Technical Environments and
Enclosures ("TEE") segment. The second transaction is the purchase of the stock
of Ancor Products, Inc. ("Ancor"). Ancor, headquartered in Cotati, California,
is a market leader in electrical products to the marine industry. Ancor will be
included in the Company's Tools & Supplies segment.
In January 1998, the Company signed a definitive agreement to acquire all of the
outstanding capital stock of Del City Wire Co., Inc. ("Del City") for
approximately $23,000 in cash. The transaction is subject to various approvals,
is expected to close in late January 1998, and will be funded through the
Company's existing credit facilities. Del City, headquartered in Oklahoma City,
OK, is a direct catalog supplier of electrical wire, consumables, and
accessories to wholesale and OEM customers in the heavy equipment, automotive,
trucking, marine, and industrial markets. Del City is also a domestic
manufacturer of solderless terminals, molded electrical plugs, battery cables,
and related products. Del City will be integrated into the Company's Tools &
Supplies segment.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- - --------------------------------------------------------------------------------
of Operations
- - -------------
(Dollars in thousands, except per share amounts)
Results of Operations
- - ---------------------
The Company reported record sales and earnings for the quarter ended November
30, 1997. Net earnings for the first quarter of fiscal 1998 were $12,186, or
$0.83 per share, compared to $9,540, or $0.67 per share, recorded in the first
quarter of fiscal 1997. Increased sales, due in part to acquisitions, and tight
controls over operating costs contributed to the improved results. Sales for the
three month period ended November 30, 1997 were $208,689, an increase of 36
percent over the $153,096 reported in the comparable prior year period. Foreign
currency translation had the effect of reducing reported fiscal 1998 first
quarter sales by approximately 4 percent. Excluding the effect of currency and
acquisitions, sales grew 17 percent for the quarter.
Certain prior year amounts previously reported in Tools & Supplies have been
reclassified into Engineered Solutions to conform to fiscal 1998 presentation.
- - ----------------------------------------------------------------------------------------------
Three Months Ended November 30,
- - ----------------------------------------------------------------------------------------------
SALES BY SEGMENT 1997 1996 Change
- - ----------------------------------------------------------------------------------------------
Tools & Supplies $ 76,473 $ 72,135 6 %
Engineered Solutions 68,379 45,350 51 %
Technical Environments and Enclosures 63,837 35,611 79 %
- - ----------------------------------------------------------------------------------------------
Total $208,689 $153,096 36 %
==============================================================================================
Revenues from Tools & Supplies increased 6 percent from the first quarter of
fiscal 1997 despite the effect of the strengthening US Dollar, which negatively
impacted its current period sales by approximately 4 percent. Acquisitions
accounted for approximately $2,669 of the sales increase. The majority of the
remaining increase was generated from the electrical wholesale and retail Do-It-
Yourself markets.
7
Engineered Solutions reported a first quarter sales increase of 51 percent over
the comparable prior year period. Certain businesses purchased in the Versa/Tek
acquisition combined to contribute approximately $16,894 in sales to this
segment in fiscal 1998. New products introduced in the aerospace market and an
improving truck market in Europe produced additional revenue growth.
Technical Environments and Enclosures revenues grew by 79 percent, bolstered by
the strategic acquisition of the Everest, C Fab, and Hormann businesses during
fiscal 1997, which added approximately $19,509 in sales for the three months
ended November 30, 1997. The continued expansion in both the size and geographic
placement of its direct sales force also contributed to the increased sales.
- - ------------------------------------------------------------------------------------------------------
Three Months Ended November 30,
- - ------------------------------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT 1997 1996 Change
- - ------------------------------------------------------------------------------------------------------
Tools & Supplies $27,909 $29,385 (5)%
Engineered Solutions 21,898 14,588 50 %
Technical Environments and Enclosures 23,184 16,665 39 %
- - ------------------------------------------------------------------------------------------------------
Total $72,991 $60,638 20 %
======================================================================================================
Total gross profit increased 20 percent from the first quarter of fiscal 1997,
primarily due to increased sales volume and the resulting fixed manufacturing
cost leverage. Overall, the Company's gross profit percentage decreased to 35.0
percent from 39.6 percent for the three months ended November 30, 1997 and 1996,
respectively. The decrease is mainly attributable to the acquisition of lower
gross profit margin enclosure businesses within TEE. Despite the increase in
sales, Tools & Supplies reported a decrease in gross profit. The effect of the
stronger dollar on foreign currency translation reduced this segment's reported
gross profit by approximately $1,500, or 5 percent.
Three Months Ended November 30,
- - ------------------------------------------------------------------------------------------------------
ENGINEERING, SELLING AND ADMIN. EXPENSES 1997 1996 Change
- - ------------------------------------------------------------------------------------------------------
Tools & Supplies $18,509 $19,761 (6)%
Engineered Solutions 12,672 10,453 21 %
Technical Environments and Enclosures 14,344 10,802 33 %
General Corporate 2,145 1,219 76 %
- - ------------------------------------------------------------------------------------------------------
Total $47,670 $42,235 13 %
======================================================================================================
First quarter engineering, selling and administrative ("operating") expenses
were 13 percent higher than reported in the first quarter of fiscal 1997,
reflecting the impact of acquisitions, which added approximately $4,100 in
operating expenses for the quarter, and the higher sales levels. In total,
operating expenses were reduced to 22.8 percent of net sales compared to 27.6
percent for the first quarter ended November 30, 1996. The reduction was the
result of continued efforts to aggressively manage spending levels throughout
the Company, along with the acquisition of enclosure businesses within TEE,
which have a lower percentage of operating expenses. The operating profit margin
remained constant at 11 percent.
Amortization expense for the quarter ended November 30, 1997 was higher than
that reported for the three months ended November 30, 1996 due to the
acquisitions made subsequent to the first quarter of fiscal 1997, including
primarily C Fab, Hormann, and Versa/Tek.
Net financing costs for the three months ended November 30, 1997 increased over
the prior year comparable period as a result of the additional borrowings for
the acquisitions subsequent to the first quarter of fiscal 1997.
Liquidity and Capital Resources
- - -------------------------------
Cash and cash equivalents totaled $5,143 at November 30, 1997 and $5,846 at
August 31, 1997. In order to minimize net financing costs, the Company
intentionally maintains low cash balances by using available cash to reduce
short-term bank borrowings.
8
Net cash generated from operations, after considering non-cash items and changes
in operating assets and liabilities, totaled $9,741 and $9,066 for the three
month periods ended November 30, 1997 and 1996, respectively. Increased sales
volume, which resulted in higher operating earnings, generated the improvement.
Net cash used in investing activities totaled $151,145 for the first quarter of
fiscal 1998, $7,247 of which was used for capital expenditures and $143,868 for
the acquisitions of Versa/Tek and Nylo-Flex. Higher capital expenditures
relative to the prior year are due to buildings and equipment additions
supporting the growth in the TEE segment, particularly the enclosure businesses.
TOTAL CAPITALIZATION November 30, 1997 August 31, 1997
- - --------------------------------------------------------------------------------
Shareholders' Equity $ 217,318 47% $ 204,109 60%
Total Debt 231,672 50% 123,091 36%
Deferred Taxes 15,494 3% 14,596 4%
- - --------------------------------------------------------------------------------
Total $ 464,484 100% $ 341,796 100%
================================================================================
On October 22, 1997, the Company replaced its $170,000 multi-currency credit
agreement and its 364-day, $140,000 credit agreement with a new multi-currency
credit agreement which provides up to $350,000 in borrowings and expires in
2002. Outstanding debt at November 30, 1997 totaled $231,672, an increase of
approximately $109,000 since the beginning of the fiscal year. Despite the
acquisition of Versa/Tek and the resulting $140,000 borrowing, the Company was
able to pay down approximately $34,000 in the two months subsequent to the
acquisition through strong operating cash flows and a $30,000 increase in the
amount of accounts receivable sold. On November 20, 1997, the Company replaced
its former $50,000 accounts receivable financing facility with a new facility
that provides up to $80,000 of multi-currency accounts receivable financing. The
new agreement expires in November 2000. All other terms of the agreement remain
the same. Debt as a percentage of total capitalization ended the quarter at 50
percent, up from 36 percent at the beginning of the year. Dividends of $416 were
paid, while the exercise of stock options generated an additional $1,451 of
cash.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) See Index to Exhibits on page 11, which is incorporated herein by
reference.
(b) The Company filed a Current Report on Form 8-K dated October 3, 1997
reporting under Item 2 that the Company had accepted for payment all shares of
Versa Technologies, Inc. common stock tendered pursuant the Company's tender
offer to acquire all outstanding shares at a cash price of $24.625 net per
share. The required Item 7 pro forma disclosures were filed as an amendment to
the Current Report on Form 8-K/A on December 17, 1997.
The Company filed a Current Report on Form 8-K dated November 4, 1997
reporting under Item 4 that the Company had replaced Deloitte & Touche LLP with
Coopers & Lybrand LLP as the Company's independent certified public accountants
for the fiscal year ended August 31, 1998.
9
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.
APPLIED POWER INC.
------------------
(Registrant)
Date: January 13, 1998 By: /s/ Robert C. Arzbaecher
------------------------
Robert C. Arzbaecher
Vice President and
Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of the registrant)
10
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1998 FIRST QUARTER 10-Q
Exhibit
Number Description Filed Herewith
- - ------- --------------------------------------- --------------
4.1 Receivables Purchase Agreement X
dated as of November 20, 1997
among Applied Power Credit Corporation
as Seller, Applied Power Inc. individually
and as Servicer and Barton Capital Corporation
as Purchaser and Societe Generale as Agent
11 Computation of Earnings Per Share X
27 Financial Data Schedule X
11