<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, 1996
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: 13,749,676 as of December
31, 1996.
The Index to Exhibits appears on Page 11.
1
<PAGE> 2
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, 1996 and 1995 ........... 3
Condensed Consolidated Balance Sheets -
November 30, 1996 and August 31, 1996 ................... 4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended November 30, 1996 and 1995 ........... 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
<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,
---------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net Sales $ 153,096 $ 139,270
Cost of Products Sold 92,458 85,189
------------- ------------
Gross Profit 60,638 54,081
Engineering, Selling and Administrative Expenses 42,235 39,856
------------- ------------
Operating Earnings 18,403 14,225
Other Expense(Income):
Net financing costs 2,625 2,067
Amortization of intangible assets 1,498 720
Other - net (66) 100
------------- ------------
Earnings Before Income Tax Expense 14,346 11,338
Income Tax Expense 4,806 3,628
------------- ------------
Net Earnings $ 9,540 $ 7,710
============= ============
Primary Earnings Per Share:
Earnings Per Share $ 0.67 $ 0.55
============= ============
Weighted Average Common and Equivalent Shares Outstanding (000's) 14,186 13,993
============= ============
Fully Diluted Earnings Per Share:
Earnings Per Share $ 0.67 $ 0.55
============= ============
Weighted Average Common and Equivalent Shares Outstanding (000's) 14,237 14,008
============= ============
</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,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,894 $ 1,001
Net accounts receivable 69,893 68,747
Net inventories 123,538 120,648
Prepaid income tax 10,734 10,734
Prepaid expenses 5,656 5,775
------------ ------------
Total Current Assets 211,715 206,905
------------ ------------
Other Assets 6,735 6,370
Goodwill 100,966 58,266
Other Intangibles 32,920 33,464
Net Property, Plant and Equipment 78,866 76,236
------------ ------------
Total Assets $431,202 $381,241
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 20,885 $ 16,068
Trade accounts payable 38,910 41,397
Accrued compensation and benefits 17,525 20,805
Income taxes payable 7,431 7,081
Other current liabilities 23,850 22,378
------------ ------------
Total Current Liabilities 108,601 107,729
Long-Term Debt, less current maturities 115,847 76,548
Deferred Income Taxes 13,930 15,395
Other Deferred Liabilities 14,682 13,114
Shareholders' Equity
Common stock, $0.20 par value, authorized 40,000,000 shares, issued
and outstanding 13,744,276 and 13,652,349 shares, respectively 2,749 2,730
Additional paid-in capital 35,912 34,383
Retained earnings 135,520 126,392
Cumulative translation adjustments 3,961 4,950
------------ ------------
Total Shareholders' Equity 178,142 168,455
------------ ------------
Total Liabilities and Shareholders' Equity $431,202 $381,241
============ ============
</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,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 9,540 $ 7,710
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,735 5,067
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and disposals:
Accounts receivable 2,297 627
Inventories (1,687) (2,641)
Prepaid expenses and other assets (1,766) (754)
Trade accounts payable (3,850) 251
Other liabilities (211) (5,602)
Income taxes payable (992) 2,396
------------ ------------
Net Cash Provided By Operating Activities 9,066 7,054
INVESTING ACTIVITIES
Proceeds on the sale of property, plant and equipment 2,695 98
Additions to property, plant and equipment (4,927) (6,387)
Cash used for business acquisitions (52,000) (3,855)
------------ ------------
Net Cash Used In Investing Activities (54,232) (10,144)
FINANCING ACTIVITIES
Net borrowings under credit agreements 40,000 5,831
Net borrowings(repayments) on short-term credit facilities 4,932 (7,003)
Net commercial paper repayments - (308)
Additional receivables financed 525 5,791
Dividends paid on common stock (412) (403)
Stock options exercised 1,548 170
Other - (42)
------------ ------------
Net Cash Provided By Financing Activities 46,593 4,036
Effect of Exchange Rate Changes on Cash (534) 96
------------ ------------
Net Increase in Cash and Cash Equivalents 893 1,042
Cash and Cash Equivalents - Beginning of Period 1,001 911
------------ ------------
Cash and Cash Equivalents - End of Period $ 1,894 $ 1,953
============ ============
</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 1996 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,
1996 are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 1997.
NOTE B - ACQUISITIONS
The Company, through its Wright Line subsidiary, purchased the net assets of
Everest Electronic Equipment, Inc. ("Everest") on September 26, 1996 for cash
consideration of $52,000, which was funded through borrowings under existing
credit facilities. Approximately $42,000 of the purchase price was assigned to
goodwill. Everest is a manufacturer of custom and standard electronic
enclosures used by the computer, telecom, datacom and other industries and is
headquartered in Anaheim, California. The results of Everest subsequent to
September 26, 1996 are included in the Condensed Consolidated Statement of
Earnings.
On May 15, 1996, CalTerm, Inc. ("CalTerm") was merged with a wholly-owned
subsidiary of the Company. Consideration included 122,810 shares of Applied
Power Inc. Class A common stock (valued at approximately $3,930) and
approximately $1,038 in cash. In addition, the Company assumed approximately
$6,000 of outstanding debt which was extinguished by the Company shortly after
the merger. In conjunction with the acquisition, a warehouse operated by
CalTerm in Reno, Nevada was purchased for approximately $2,300 and there were
payments of $1,000 for non-compete agreements. Three individuals received
employment agreements and related stock options. Cash payments required were
funded through borrowings under existing credit facilities. Goodwill of
approximately $2,000 was recorded as a result of this transaction.
Headquartered in San Diego, California, CalTerm is a supplier of electrical
consumables and tools primarily to the retail automotive aftermarket. The
results of operations of CalTerm subsequent to the acquisition date are
included in the Condensed Consolidated Statement of Earnings.
On February 23, 1996, the Company's Wright Line subsidiary acquired the
European distribution rights for its products for cash of $1,250 plus
forgiveness of accounts receivable outstanding of $723 from its European
distributor. Goodwill of approximately $1,900 was generated in conjunction with
the transaction.
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 results of operations of this
subsidiary have historically been included in the Condensed Consolidated
Statement of Earnings.
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. The royalties are to be paid over the next five years and are 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. The results of operations of DFAS after
October 26, 1995 are included in the Condensed Consolidated Statement of
Earnings.
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 of fiscal 1996.
6
<PAGE> 7
Certain proprietary technology rights and patents related to the business were
acquired in a separate transaction in January, 1996. Total consideration for
the two transactions was approximately $21,500, and was 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 results of operations for Vision
subsequent to the acquisition date are included in the Condensed Consolidated
Statement of Earnings.
All acquisitions were accounted for using the purchase method.
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, 1996. Net earnings for the most recent quarter were $9,540, or $0.67 per
share, compared to $7,710, or $0.55 per share, recorded in the comparable prior
year period. Increased sales, due in part to acquisitions, and greater leverage
on manufacturing and operating costs contributed to the improved results.
Operating margins improved to 12.0 percent, the highest operating margin since
August 1990. Foreign currency translation had the effect of reducing reported
sales by approximately 2%.
The Company renamed its Wright Line segment to Technical Environments and
Enclosures ("TEE"). This segment combines Wright Line with the recently
acquired Everest Electronic Enclosures business. Both businesses share some
common products and manufacturing. The Wright Line business is focused on
selling technical environments and standard electronic enclosures directly to
end users, while the Everest business sells custom enclosures primarily to
electronic equipment OEMs.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Three Months Ended November 30,
- ---------------------------------------------------------------------------------
SALES BY SEGMENT 1996 1995 Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributed Products $ 72,857 $ 67,026 9 %
Engineered Solutions 44,628 47,924 (7)%
Technical Environments and Enclosures 35,611 24,320 46 %
- ---------------------------------------------------------------------------------
Total $153,096 $139,270 10 %
=================================================================================
</TABLE>
Revenues from Distributed Products increased 9% from the first quarter of
fiscal 1996 despite the effect of the strengthening US Dollar, which negatively
impacted current period sales by approximately 2%. The segment benefited from
approximately $5,200 in sales of businesses acquired net of the HIT product
line disposition. The majority of the remaining increase is attributable to
growth in the retail electrical DIY market.
Engineered Solutions reported a first quarter sales decrease of 7% over the
comparable prior year period. The sale of its mobile equipment valve line in
January 1996 and the completion of a valve contract with Cadillac were the
primary reasons for the decline.
Technical Environments and Enclosures revenues grew by 46%, bolstered by the
strategic acquisition of the Everest Electronic Equipment business which added
approximately $6,300 in sales for the three months ended November 30, 1996. The
sustained success of the LAN Management System product line and the continued
expansion in both the size and geographic placement of its direct sales force
also contributed to the increased sales.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Three Months Ended November 30,
- ---------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT 1996 1995 Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributed Products $29,582 $28,563 4 %
Engineered Solutions 14,391 13,826 4 %
Technical Environments and Enclosures 16,665 11,692 43 %
- ---------------------------------------------------------------------------------
Total $60,638 $54,081 12 %
=================================================================================
</TABLE>
7
<PAGE> 8
Total gross profit increased 12% from the first quarter of fiscal 1996,
primarily due to increased sales volume and the resulting fixed manufacturing
cost leverage. Overall, the Company's gross profit percentage increased to
39.6% from 38.8% for the three months ended November 30, 1996 and 1995,
respectively. The improvement is primarily due to favorable product mix,
specifically the increase of Technical Environments and Enclosures as a larger
portion of the total Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended November 30,
- ---------------------------------------------------------------------------------
OPERATING EXPENSES 1996 1995 Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributed Products $19,898 $19,426 2 %
Engineered Solutions 10,316 10,491 (2)%
Technical Environments and Enclosures 10,802 8,387 29 %
General Corporate 1,219 1,552 (21)%
- ---------------------------------------------------------------------------------
Total $42,235 $39,856 6 %
=================================================================================
</TABLE>
First quarter operating expenses were 6% higher than reported in the first
quarter of 1996, reflecting the impact of acquisitions, which added
approximately $1,400 in operating expenses for the quarter, and the higher
sales levels. In total, operating expenses were reduced to 27.6% of net sales
compared to 28.6% for the first quarter ended November 30, 1995. This was the
result of continued efforts to aggressively manage spending levels throughout
the Company, which generated an improved operating profit margin of 12.0%, up
from 10.2% for the comparable prior year period.
Net financing costs for the three months ended November 30, 1996 increased as a
result of the additional $52,000 borrowed for the acquisition of the Everest
Electronics Equipment business early in the first quarter. While the debt
outstanding decreased steadily subsequent to the transaction, the average
outstanding for the quarter was higher than that for the comparable prior year
period.
Amortization expense for the quarter ended November 30, 1996 was higher than
that reported for the three months ended November 30, 1995 due to the
significant acquisitions made subsequent to the first quarter of fiscal 1996,
including the Vision Plastics technology rights and patents, the European
distribution rights for Technical Environments and Enclosures products, and
goodwill associated with the purchase of the CalTerm and Everest businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,894 at November 30, 1996 and $1,001 at
August 31, 1996. In order to minimize net financing costs, the Company
intentionally maintains low cash balances by using available cash to reduce
short-term bank borrowings.
Net cash generated from operations, after considering non-cash items and
changes in operating assets and liabilities, totaled $9,066 and $7,054 for the
three month periods ended November 30, 1996 and 1995, respectively. Increased
sales volume, which resulted in higher operating earnings, generated the
improvement.
Net cash used in investing activities totaled $54,232 for the first quarter of
fiscal 1997, $4,927 of which was used for capital expenditures and $52,000 for
the acquisition of Everest. Lower capital expenditures relative to the prior
year reflect the fiscal 1996 completion of the paint line and building
additions at Wright Line and warehouse improvements at GB Electrical. During
the quarter, the Company completed a sale and leaseback transaction related to
approximately $1,050 of machinery.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TOTAL CAPITALIZATION NOVEMBER 30, 1996 August 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholders' Equity $178,143 54% $168,455 61%
Total Debt 136,732 42% 92,616 33%
Deferred Taxes 13,930 4% 15,395 6%
- -------------------------------------------------------------------------------
Total $328,805 100% $276,466 100%
===============================================================================
</TABLE>
8
<PAGE> 9
Outstanding debt at November 30, 1996 totaled $136,732, an increase of
approximately $44,000 since the beginning of the year. Despite the acquisition
of Everest and the resulting $52,000 borrowing, the Company was able to pay
down approximately $8,000 in the two months subsequent to the acquisition
through strong operating cash inflows and tight cost control measures. Debt as
a percentage of total capitalization ended the quarter at 42%, up from 33% at
the beginning of the year. Dividends of $412 were paid, while the exercise of
stock options generated an additional $1,548 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 under Item 2 dated
September 26, 1996 announcing that the Company, with its Wright Line
subsidiary, acquired the net assets of Everest Electronic Equipment, Inc.
The required financial statements and related pro forma disclosures were
filed as an amendment to the Current Report on Form 8-K/A dated December
10, 1996.
9
<PAGE> 10
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, 1997 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
<PAGE> 11
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1997 FIRST QUARTER 10-Q
Exhibit
Number Description Page No.
------- --------------------------------- --------
11 Computation of Earnings Per Share 12
27 Financial Data Schedule 13
11
<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,
-------------------------------
1996 1995
------------ ------------
PRIMARY:
<S> <C> <C>
Average shares outstanding 13,698 13,410
Net effect of dilutive options based
on the treasury stock method
using average market price 488 583
------------ ------------
Total 14,186 13,993
============ ============
Net earnings $ 9,540 $ 7,710
============ ============
Primary earnings per share $ 0.67 $ 0.55
============ ============
FULLY DILUTED:
Average shares outstanding 13,698 13,409
Net effect of dilutive options based
on the treasury stock method
using the greater of average
or period-end market price 539 599
------------ ------------
Total 14,237 14,008
============ ============
Net earnings $ 9,540 $ 7,710
============ ============
Fully diluted earnings per share $ 0.67 $ 0.55
============ ============
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Applied Power Inc. for the three month period
ended November 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 1,894
<SECURITIES> 0
<RECEIVABLES> 74,104
<ALLOWANCES> 4,211
<INVENTORY> 123,538
<CURRENT-ASSETS> 211,715
<PP&E> 174,308
<DEPRECIATION> 95,442
<TOTAL-ASSETS> 431,202
<CURRENT-LIABILITIES> 108,601
<BONDS> 115,847
0
0
<COMMON> 2,749
<OTHER-SE> 175,393
<TOTAL-LIABILITY-AND-EQUITY> 431,202
<SALES> 153,096
<TOTAL-REVENUES> 153,096
<CGS> 92,458
<TOTAL-COSTS> 92,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,625
<INCOME-PRETAX> 14,346
<INCOME-TAX> 4,806
<INCOME-CONTINUING> 9,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,540
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
