<PAGE> 1
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 QUARTER ENDED NOVEMBER 30, 1995
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: 13,418,965 as of December
31, 1995.
The Index to Exhibits appears on Page 12.
1
<PAGE> 2
APPLIED POWER INC.
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Earnings -
Three Months Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets -
November 30, 1995 and August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended November 30,
-------------------------------
1995 1994
------------- --------------
<S> <C> <C>
Net Sales $ 139,270 $ 125,799
Cost of Products Sold 85,189 77,627
------------- --------------
Gross Profit 54,081 48,172
Engineering, Selling and Administrative Expenses 39,856 35,693
------------- --------------
Operating Earnings 14,225 12,479
Other Expense (Income):
Net interest expense 2,067 2,738
Amortization of intangible assets 720 1,161
Other - net 100 201
------------- --------------
Earnings Before Income Tax Expense 11,338 8,379
Income Tax Expense 3,628 2,938
------------- --------------
Net Earnings $ 7,710 $ 5,441
============= ==============
Earnings Per Share $ 0.55 $ 0.40
============= ==============
Weighted Average Shares Outstanding (In thousands) 13,993 13,622
============= ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
APPLIED POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 30, August 31,
1995 1995
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,953 $ 911
Net accounts receivable 65,502 71,000
Net inventories 107,317 103,358
Prepaid taxes and expenses 14,649 15,195
----------------- --------------
Total Current Assets 189,421 190,464
Other Assets 6,297 6,274
Goodwill 58,483 57,346
Other Intangibles 10,198 10,427
Net Property, Plant and Equipment 72,925 68,435
----------------- --------------
Total Assets $ 337,324 $ 332,946
================= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 5,572 $ 12,620
Trade accounts payable 38,182 37,530
Accrued compensation and benefits 14,734 19,707
Income taxes payable 9,973 7,575
Current maturities of long-term debt - 187
Other current liabilities 20,262 19,828
----------------- --------------
Total Current Liabilities 88,723 97,447
Long-Term Debt, less current maturities 80,803 74,156
Deferred Income Taxes 15,849 16,386
Other Deferred Liabilities 13,303 13,271
Shareholders' Equity
Common stock, $0.20 par value, authorized 40,000,000 shares, issued
and outstanding 13,417,015 and 13,406,590 shares, respectively 2,683 2,681
Additional paid-in capital 28,496 28,328
Retained earnings 101,592 94,285
Cumulative translation adjustments 5,875 6,392
----------------- --------------
Total Shareholders' Equity 138,646 131,686
----------------- --------------
Total Liabilities and Shareholders' Equity $ 337,324 $ 332,946
================= ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended November 30,
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 7,710 $ 5,441
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,067 4,651
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and disposals:
Accounts receivable 627 (4,767)
Inventories (2,641) 8
Prepaid expenses and other assets (754) 704
Trade accounts payable 251 (2,422)
Other liabilities (5,602) 1,738
Income taxes payable 2,396 (955)
----------------- -----------------
Net Cash Provided by Operating Activities 7,054 4,398
INVESTING ACTIVITIES
Proceeds on the sale of property, plant and equipment 98 29
Additions to property, plant and equipment (6,387) (2,637)
Cash used for business acquisitions (3,855) (699)
Other - 152
----------------- -----------------
Net Cash Used In Investing Activities (10,144) (3,155)
FINANCING ACTIVITIES
Net borrowings (repayments) under credit agreements 5,831 (644)
Net (repayments) borrowings on short-term credit facilities (7,003) 2,583
Net commercial paper repayments (308) (8,662)
Additional receivables financed 5,791 5,000
Dividends paid on common stock (403) (396)
Stock options exercised 170 1,160
Other (42) -
----------------- -----------------
Net Cash Provided By (Used In) Financing Activities 4,036 (959)
Effect of Exchange Rate Changes on Cash 96 10
----------------- -----------------
Net Increase in Cash and Cash Equivalents 1,042 294
Cash and Cash Equivalents - Beginning of Period 911 1,907
----------------- -----------------
Cash and Cash Equivalents - End of Period $ 1,953 $ 2,201
================= =================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
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 1995 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,
1995 are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 1996.
NOTE B - ACQUISITIONS
The Company's Enerpac division acquired the assets of Designed Fluid-Air
Systems, Inc. ("DFAS") on October 26, 1995, for $298 in cash, plus future
royalties over the next five years not to exceed $500 in the aggregate.
Approximately $100 of the purchase price was assigned to Goodwill. DFAS,
located in Oswego, Illinois, designs, fabricates and assembles customized quick
die change systems utilizing hydraulic, pneumatic and electrical components.
On September 29, 1995, the Company completed the acquisition of substantially
all of the assets and certain liabilities of Vision Plastics Manufacturing
Company ("Vision") for $3,557 in cash. Included in the liabilities assumed was
$1,357 of outstanding mortgage debt which was subsequently extinguished by the
Company during the first quarter. Certain proprietary technology rights and
patents related to the business are to be acquired in a separate transaction
that is expected to close in January, 1996. Total consideration for the two
transactions is approximately $21,500, and will be funded by proceeds from
borrowings under existing credit facilities. Vision, based in San Diego,
California, manufactures plastic cable ties which are sold through electrical
wholesale, retail and OEM channels.
The Company acquired all of the outstanding stock of New England Controls, Inc.
("NECON") on June 28, 1995 for approximately $2,059 in cash. Approximately
$1,536 of the purchase price was assigned to Goodwill. NECON, based in Milford,
Connecticut, manufactures electrical switches for the electrical wholesale,
retail and OEM markets.
All acquisitions were accounted for using the purchase method.
NOTE C - SUBSEQUENT EVENTS
On December 8, 1995, the Company acquired the remaining 10% minority interest
in Applied Power Korea. Cash of $388 was used in the acquisition which
generated goodwill of approximately $340.
The Company's GB Electrical subsidiary sold its HIT spring steel product line
in early December, 1995 for $2,500 in cash, which approximated its book value.
6
<PAGE> 7
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, 1995. Net earnings for the most recent quarter were $7,710, or $0.55 per
share, compared to $5,441, or $0.40 per share, recorded in the comparable prior
year period. Increased sales and greater leverage on fixed costs were the key
factors in the improved results. Foreign currency translation had a negligible
impact on results for the quarter ended November 30, 1995.
<TABLE>
<CAPTION>
Three Months Ended November 30,
----------------------------------------------
SALES BY SEGMENT 1995 1994 Change
------------- -------------- -------------
<S> <C> <C> <C>
Distributed Products $ 67,026 $ 62,740 7%
Engineered Solutions 47,924 45,707 5%
Wright Line 24,320 17,352 40%
------------- -------------- -------------
Total $ 139,270 $ 125,799 11%
============= ============== =============
</TABLE>
All of the Company's businesses reported sales increases over the prior year
for the three months ended November 30, 1995. Sales from Distributed Products,
which consists of Enerpac and GB Electrical, grew 7%, benefiting from further
expansion into developing markets and approximately $1,723 from businesses
acquired subsequent to the first quarter of fiscal 1995.
Engineered Solutions, consisting of Barry Controls, Power-Packer and APITECH,
reported a first quarter sales gain of 5% over the comparable prior year
period. The majority of the growth took place in Power-Packer which continued
to experience strong demand from European OEM truck and automobile
manufacturers.
Wright Line's 40% year-to-year sales growth reflects continued success with the
LMS product line as well as other new product introductions into the
engineering and laboratory markets. In addition, Wright Line continued to grow
through expansion of its direct sales force during the first quarter of fiscal
1995.
<TABLE>
<CAPTION>
Three Months Ended November 30,
----------------------------------------------
GROSS PROFIT BY SEGMENT 1995 1994 Change
------------- ------------- -----------
<S> <C> <C> <C>
Distributed Products $ 28,563 $ 26,439 8 %
Engineered Solutions 13,826 13,200 5 %
Wright Line 11,692 8,533 37 %
------------- ------------- -----------
Total $ 54,081 $ 48,172 12 %
============= ============= ===========
</TABLE>
Total gross profit increased 12% from the first quarter of fiscal 1995,
primarily due to increased sales volume and fixed manufacturing cost leverage.
Overall, the Company's gross profit percentage increased to 38.8% from 38.3%
for the three months ended November 30, 1995 and 1994, respectively. The
improvement is primarily due to favorable product mix and the impact of higher
production levels on fixed manufacturing costs.
<TABLE>
<CAPTION>
Three Months Ended November 30,
----------------------------------------------
OPERATING EXPENSES 1995 1994 Change
------------- ------------ -----------
<S> <C> <C> <C>
Engineering $ 4,462 $ 3,722 20 %
Selling 25,709 21,319 21 %
Administration 9,685 10,652 (9)%
------------- ------------ -----------
Total $ 39,856 $ 35,693 12 %
============= ============ ===========
</TABLE>
7
<PAGE> 8
First quarter operating expenses were 12% higher than that reported in the
first quarter of 1995, reflecting the impact of geographic expansion into
developing markets, acquisitions, increased product development programs, and
higher sales levels.
Engineering expenses increased 20%, reflecting higher new product development
expenditures at a number of locations. The Company believes that its investment
in technology in all businesses will continue to provide it with a competitive
advantage and growth opportunities.
The increase in selling and marketing expense was primarily sales volume
driven, consisting of higher commissions and advertising. Wright Line has a
direct sales force whose compensation is substantially commission-based. As a
result of its 40% sales growth over the comparable prior year period, its
selling and marketing expenses increased at a similar rate, from $5,164 to
$7,461. In addition, acquisitions generated approximately $80 in selling and
marketing expenses for the quarter ended November 30, 1995.
Administration expenses totaled $9,685 for the quarter ended November 30, 1995,
the lowest for any three month period in over a year, and included
approximately $121 of additional administrative expenditures related to the new
acquisitions. The reduction in expenses was primarily at the Barry Controls and
Corporate locations.
Interest expense for the three months ended November 30, 1995 declined
substantially from the comparable prior year period as a result of the
combination of lower borrowing rates and debt outstanding. During the first
quarter of fiscal 1995, the majority of debt outstanding represented Senior
Unsecured Notes bearing fixed 9.92% interest rates. The Company refinanced the
Senior Unsecured Notes in March, 1995 with lower variable rate debt.
Amortization expense for the quarter ended November 30, 1995 was lower than
that reported in the comparable prior year period due to certain GB Electrical
intangible assets becoming fully amortized during the second quarter of fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,953 at November 30, 1995 and $911 at
August 31, 1995. In order to minimize interest expense, the Company
intentionally maintains low cash balances by using available cash to reduce
short-term bank borrowings.
Cash generated from operations, after considering non-cash items and changes in
operating assets and liabilities, totaled $7,054 and $4,398 for the three month
periods ended November 30, 1995 and 1994, respectively. Increased sales volume
resulted in higher operating earnings and higher primary working capital levels.
Cash used in investing activities totaled $10,144 for the first quarter of
fiscal 1996, $6,387 of which was used for capital expenditures and $3,855 for
the acquisitions of DFAS and Vision. Higher capital expenditures relative to
the prior year reflect the paint line and building additions at Wright Line and
warehouse improvements at GB Electrical. Both of these projects are anticipated
to be completed during the second quarter of fiscal 1996.
<TABLE>
<CAPTION>
TOTAL CAPITALIZATION NOVEMBER 30, 1995 August 31, 1995
--------------------- -------------------
<S> <C> <C>
Shareholders' Equity $ 138,646 58% $ 131,686 56%
Total Debt 86,375 36% 86,963 37%
Deferred Taxes 15,849 6% 16,386 7%
--------------------- -------------------
Total $ 240,870 100% $ 235,035 100%
===================== ===================
</TABLE>
8
<PAGE> 9
Outstanding debt at November 30, 1995 totaled $86,375, a reduction of $588
since the beginning of the year. The continued decrease was possible due to the
strong operating cash inflows for the quarter and incremental accounts
receivable financed. Debt as a percentage of total capitalization declined to
36% at the end of the quarter, its lowest point since 1989, compared to 37% at
the beginning of the current fiscal year. Dividends of $403 were paid, while
the exercise of stock options generated an additional $170 of cash.
The Company entered into an interest rate swap agreement on a notional $15,000
in debt early in December, 1995. The swap converts the interest rate for a term
of seven years from a floating rate to a fixed rate of approximately 6.18%.
The Company expects to complete the acquisition of certain technology rights
related to the Vision business during the second quarter of fiscal 1996. The
remaining purchase price of approximately $18,000 will be generated from
additional borrowings. The Company anticipates that the funds generated from
operations and available under credit facilities will be adequate to meet
operating, debt service and capital expenditure requirements for the
foreseeable future.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits on page 12, which is incorporated herein by
reference.
(b) There were no reports on Form 8-K filed during the three months ended
November 30, 1995 or thereafter through the date of this report.
10
<PAGE> 11
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 9, 1996 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)
11
<PAGE> 12
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1996 FIRST QUARTER 10-Q
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- --------------------------------------- --------
<S> <C> <C>
11 Computation of Earnings Per Share 13
27 Financial Data Schedule 14
</TABLE>
12
<PAGE> 1
EXHIBIT 11
APPLIED POWER INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended November 30,
-----------------------------------
1995 1994
--------------- ----------------
<S> <C> <C>
PRIMARY:
Average shares outstanding 13,410 13,190
Net effect of dilutive options based
on the treasury stock method
using average market price 583 432
--------------- ----------------
Total 13,993 13,622
=============== ================
Net earnings $ 7,710 $ 5,441
=============== ================
Primary earnings per share $ 0.55 $ 0.40
=============== ================
FULLY DILUTED: (A)
Average shares outstanding 13,409 13,190
Net effect of dilutive options based
on the treasury stock method
using the greater of average
or period-end market price 599 432
--------------- ----------------
Total 14,008 13,622
=============== ================
Net earnings $ 7,710 $ 5,441
=============== ================
Fully diluted earnings per share $ 0.55 $ 0.40
=============== ================
</TABLE>
(A) Dilution of less than 3%; therefore not presented in Condensed
Consolidated Statement of Earnings.
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 1,953
<SECURITIES> 0
<RECEIVABLES> 69,521
<ALLOWANCES> 4,019
<INVENTORY> 107,317
<CURRENT-ASSETS> 189,421
<PP&E> 161,450
<DEPRECIATION> 88,525
<TOTAL-ASSETS> 337,324
<CURRENT-LIABILITIES> 88,723
<BONDS> 80,803
0
0
<COMMON> 2,683
<OTHER-SE> 135,963
<TOTAL-LIABILITY-AND-EQUITY> 337,324
<SALES> 139,270
<TOTAL-REVENUES> 139,270
<CGS> 85,189
<TOTAL-COSTS> 85,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,067
<INCOME-PRETAX> 11,338
<INCOME-TAX> 3,628
<INCOME-CONTINUING> 7,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,710
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
