<PAGE>
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 February 28, 1998
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
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(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
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(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: 27,936,356 as of March 31,
1998.
1
<PAGE>
<TABLE>
<CAPTION>
APPLIED POWER INC.
INDEX
Page No.
---------
PART I - FINANCIAL INFORMATION
- - ------------------------------
<S> <C>
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Earnings -
Three and Six Months Ended
February 28, 1998 and February 28, 1997............................. 3
Condensed Consolidated Balance Sheet -
February 28, 1998 and August 31, 1997................................ 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended February 28, 1998 and February 28, 1997............ 5
Notes to Condensed Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.............. 11
PART II - OTHER INFORMATION
- - ---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders..................... 11
Item 6 - Exhibits and Reports on Form 8-K........................................ 11
SIGNATURE........................................................................ 12
</TABLE>
2
<PAGE>
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 Six Months
Ended Ended
February 28, February 28,
---------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Net Sales $ $217,145 $ 157,170 $ 425,834 $ 310,266
Cost of Products Sold 140,979 96,737 276,677 189,195
-------------- -------------- -------------- ------------
Gross Profit 76,166 60,433 149,157 121,071
Engineering, Selling and Administrative Expenses 49,924 41,812 97,594 84,047
Amortization of Intangible Assets 2,889 1,799 5,201 3,297
-------------- -------------- -------------- ------------
Operating Earnings 23,353 16,822 46,362 33,727
Other Expense(Income):
Net financing costs 5,323 3,195 9,470 5,820
Other - net (309) (612) (195) (678)
-------------- -------------- -------------- ------------
Earnings Before Income Tax Expense 18,339 14,239 37,087 28,585
Income Tax Expense 6,419 4,770 12,981 9,576
-------------- -------------- -------------- ------------
Net Earnings $ 11,920 $ 9,469 $ 24,106 $ 19,009
============== ============== ============== ============
Basic Earnings Per Share:
Earnings Per Share $ 0.43 $ 0.34 0.87 0.69
============== ============== ============== ============
Weighted Average Common
Shares Outstanding (000's) $ 27,775 $ 27,535 27,728 27,462
============== ============== ============== ============
Diluted Earnings Per Share:
Earnings Per Share $ 0.40 $ 0.33 $ 0.82 $ 0.67
============== ============== ============== ============
Weighted Average Common and Equivalent
Shares Outstanding (000's) 29,439 28,691 29,371 28,525
============== ============== ============== ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
APPLIED POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
February 28, August 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,010 $ 5,846
Net accounts receivable 76,908 84,697
Net inventories 130,190 115,761
Prepaid expenses and deferred taxes 23,569 19,602
------------ ------------
Total Current Assets 237,677 225,906
Other Assets 10,397 7,305
Goodwill 260,361 109,078
Other Intangibles 46,688 30,723
Net Property, Plant and Equipment 124,240 90,580
------------ ------------
Total Assets $ 679,363 $ 463,592
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 15,585 $ 21,428
Trade accounts payable 62,335 54,555
Accrued compensation and benefits 28,207 24,736
Income taxes payable 4,118 7,093
Other current liabilities 24,975 20,462
------------ ------------
Total Current Liabilities 135,220 128,274
Long-Term Debt 272,262 101,663
Deferred Income Taxes 16,913 14,596
Other Liabilities 27,241 14,950
Shareholders' Equity:
Common Stock, issued and outstanding 27,836,656 and
13,816,678 shares, respectively 5,567 2,763
Additional paid-in capital 38,538 38,388
Retained earnings 190,049 166,776
Cumulative translation adjustments (6,427) (3,818)
------------ ------------
Total Shareholders' Equity 227,727 204,109
------------ ------------
Total Liabilities and Shareholders' Equity $ 679,363 $ 463,592
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
APPLIED POWER INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
February 28,
----------------------
1998 1997
--------- --------
<S> <C> <C>
Operating Activities
- - --------------------
Net Earnings $ 24,106 $ 19,009
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 16,325 11,989
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable (1,478) 276
Inventories 6,499 (4,999)
Prepaid expenses and other assets (2,216) (2,495)
Trade accounts payable (938) (3,182)
Other liabilities (12,179) (2,894)
Income taxes payable (2,679) (3,589)
--------- --------
Net Cash Provided By Operating Activities 27,440 14,115
Investing Activities
- - --------------------
Proceeds on the sale of property, plant and equipment 10,275 2,969
Purchases of property, plant and equipment (13,756) (10,862)
Cash used for business acquisitions (214,495) (63,312)
Other (14) (15)
--------- --------
Net Cash Used In Investing Activities (217,990) (71,220)
Financing Activities
- - --------------------
Proceeds from issuance of long-term debt 206,690 64,000
Principal payments on long-term debt (40,295) (18,649)
Net borrowings (repayments) on short-term credit facilities (4,083) 9,421
Debt financing costs (382) --
Additional receivables financed 27,933 525
Dividends paid on common stock (833) (826)
Stock options exercised 2,954 2,346
--------- --------
Net Cash Provided By Financing Activities 191,984 56,817
Effect of Exchange Rate Changes on Cash (270) (629)
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 1,164 (917)
Cash and Cash Equivalents - Beginning of Period 5,846 1,001
--------- --------
Cash and Cash Equivalents - End of Period $ 7,010 $ 84
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
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 and six months ended February
28, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ending August 31, 1998.
Note B - Earnings Per Share
- - ---------------------------
During the quarter, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which was
issued by the Financial Accounting Standards Board (FASB) in February 1997.
Under the new pronouncement, the dilutive effect of stock options is excluded
from the calculation of primary earnings per share, now called basic earnings
per share. Earnings per share information for all prior periods presented has
been restated to conform with the new calculation under SFAS No. 128.
The reconciliations between basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
----------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings for basic and diluted
earnings per share $ 11,920 $ 9,469 $ 24,106 $ 19,009
=============== =============== =============== ===============
Denominator:
Weighted average common shares for basic
earnings per share 27,775 27,535 27,728 27,462
Net effect of dilutive options based on
the treasury stock method using average
market price 1,664 1,156 1,643 1,063
--------------- --------------- --------------- ---------------
Weighted average common and equivalent
shares outstanding for diluted
earnings per share 29,439 28,691 29,371 28,525
=============== =============== =============== ===============
Basic Earnings Per Share $ 0.43 $ 0.34 $ 0.87 $ 0.69
=============== =============== =============== ===============
Diluted Earnings Per Share $ 0.40 $ 0.33 $ 0.82 $ 0.67
=============== =============== =============== ===============
</TABLE>
6
<PAGE>
Note C - Acquisitions
- - ---------------------
On February 12, 1998, the Company completed the acquisition of all of the
outstanding capital stock of Del City Wire Co., Inc. ("Del City") at a cash
price of approximately $22,400. Cash paid for the transaction was funded through
borrowings under existing credit facilities. Preliminary allocations of the
purchase price resulted in approximately $19,400 of the purchase price being
assigned to goodwill. Headquartered in Oklahoma City, Oklahoma, Del City 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. The operating results of Del City subsequent to February 12, 1998 are
included in the Condensed Consolidated Statement of Earnings.
The Company also purchased all of the outstanding shares of capital stock of AA
Manufacturing, Inc. ("AA") on February 12, 1998 for approximately $19,700 in
cash which was funded through borrowings under existing credit facilities.
Preliminary purchase price allocations show that the transaction generated
goodwill of approximately $16,100. AA, headquartered in Garland, Texas, with a
separate facility in Austin, Texas, is a manufacturer and integrator of custom
electronic enclosures. The operating results of AA subsequent to February 12,
1998 are included in the Condensed Consolidated Statement of Earnings.
On January 22, 1998, the Company completed the acquisition of substantially all
of the assets of Performance Manufactured Products Inc. and a related entity
("PMP") for approximately $23,700 in cash and approximately $5,000 of assumed
debt. The transaction was funded through borrowings under existing credit
facilities. Goodwill totaling approximately $17,100 was recorded in the
acquisition as a result of preliminary allocations of the purchase price. PMP,
headquartered in San Jose, California, is a manufacturer and integrator of
custom electronic enclosures. The operating results of PMP subsequent to January
22, 1998 are included in the Condensed Consolidated Statement of Earnings.
On January 13, 1998, the Company completed the acquisition of all of the
outstanding capital stock of Ancor Products, Inc. ("Ancor"). Cash paid for the
transaction totaled approximately $4,700 and the Company assumed $100 in debt of
Ancor. Preliminary allocations of the purchase price result in approximately
$2,900 of goodwill. The transaction was funded through borrowings under existing
credit facilities. Ancor, headquartered in Cotati, California, is a market
leader in electrical products to the marine industry. The operating results of
Ancor subsequent to the acquisition date are included in the Condensed
Consolidated Statement of Earnings.
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 $2,400 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. The balance of the outstanding
shares was acquired for the same per share cash price in a follow-up merger on
October 9, 1997. 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 summarize 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 other
acquisitions completed subsequent to August 31, 1997.
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended February 28,
- - ---------------------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $435,164 $359,068
Net Earnings 24,183 17,473
Basic Earnings Per Share $ 0.87 $ 0.64
Shares Used in Computation 27,728 27,462
Diluted Earnings Per Share $ 0.82 $ 0.61
Shares Used in Computation 29,371 28,525
- - ---------------------------------------------------------------------------------
</TABLE>
All acquisitions were accounted for using the purchase method.
Note D - 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.
Note E - 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 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 F - Shareholders' Equity
- - -----------------------------
On January 8, 1998, the Board of Directors authorized a two-for-one stock split
effected in the form of a 100 percent stock dividend to shareholders of record
on January 22, 1998. To effect the stock split, a total of 13,891,578 shares of
the Company's common stock were issued on February 3, 1998. All references in
the accompanying financial statements to the average number of common shares and
related per share amounts have been restated to reflect the stock split.
At the Annual Meeting of Shareholders on January 9, 1998, the shareholders voted
to increase the number of authorized shares of Class A Common Stock from
40,000,000 to 80,000,000.
Note G - Subsequent Events
- - --------------------------
In March 1998, the Company completed the sale of Moxness Industrial Products for
approximately book value. The sale did not include the Company's Mox-Med
division located in Portage, Wisconsin which will continue to be part of the
Engineered Solutions segment of the Company.
Note H - New Pronouncements
- - ---------------------------
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises disclosures
about pension and other postretirement benefits plans. This Statement is
effective for the Company's 1999 fiscal year financial statements and
restatement of disclosures for earlier years provided for comparative purposes
will be required unless the information is not readily available. The Company is
currently evaluating the extent to which its financial statements will be
affected by SFAS No. 132.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use," which specifies the accounting
treatment provided to computer software costs depending upon the type of costs
incurred. This Statement is effective for the Company's fiscal year 2000
financial statements and restatement of prior years will not be required. The
Company does not believe that the adoption of this Statement will have a
significant impact on its financial position or results of operations.
8
<PAGE>
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 second quarter ended
February 28, 1998. Net earnings for the quarter were $11,920, or $0.40 on a
diluted per share basis, compared to $9,469, or $0.33 per share, for the second
quarter of the prior year. For the first six months of fiscal 1998, earnings
were $24,106, or $0.82 on a diluted per share basis, a 22 percent improvement
over the earnings from the comparable period last year of $19,009, or $0.67 per
share. Increased sales resulted in greater leverage on operating costs and
generated the improved earnings. Foreign currency translation negatively
impacted sales by approximately 5 percent for the quarter and on a year-to-date
basis. Excluding the effect of currency and acquisitions, sales grew 14 percent
for the quarter and 15 percent on a year-to-date basis.
Certain prior year amounts previously reported in Tools & Supplies have been
reclassified into Engineered Solutions to conform with the fiscal 1998
presentation.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
SALES BY SEGMENT
- - --------------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- - --------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tool & Supplies $ 75,210 $ 70,074 7% $151,683 $142,209 7%
Engineered Solutions 75,918 46,122 65% 144,297 91,472 58%
Technical Environments
and Enclosures 66,017 40,974 61% 129,854 76,585 70%
- - --------------------------------------------------------------------------------------------------------------------------
Total $217,145 $157,170 38% $425,834 $310,266 37%
==========================================================================================================================
</TABLE>
Sales from Tools & Supplies grew by 7 percent for both the three and six month
periods ended February 28, 1998, respectively. Ignoring the impact of the
strengthening US Dollar, the segment's sales increased 12 percent and 11
percent, respectively. Approximately $9,200 of the sales growth was generated
through business acquisitions on a year-to-date basis.
Engineered Solutions reported increases in sales of 65 percent for the quarter
and 58 percent year-to-date. Foreign currency translation had the effect of
reducing reported sales 7 percent and 8 percent in the three and six month
periods ended February 28, 1998, respectively. Excluding the effect of
businesses acquired and the negative effect of foreign currency, sales in
Engineered Solutions grew 15 percent for the quarter and 17 percent year-to-
date. This growth is primarily attributable to the success of new products.
The continued increases in market share in the European truck market also
contributed to the sales increase.
Technical Environments and Enclosures continued its impressive growth in sales
with increases of 61 percent and 70 percent for the quarter and year-to-date
periods ended February 28, 1998, respectively. Approximately $14,500 and $34,000
of the sales growth for the quarter and year, respectively, has come from
acquisitions. The other significant factor driving the sales increase is the
continued expansion of the direct sales force, both in size and geographic
placement.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT
- - -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- - -----------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tools & Supplies $28,011 $27,542 2% $ 55,920 $ 56,927 (2)%
Engineered Solutions 23,986 15,441 55% 45,884 30,029 53 %
Technical Environments
and Enclosures 24,169 17,450 39% 47,353 34,115 39 %
- - -----------------------------------------------------------------------------------------------------------------------------
Total $76,166 $60,433 26% $149,157 $121,071 23 %
=============================================================================================================================
</TABLE>
9
<PAGE>
The Company's second quarter and year-to-date gross profit increased 26 percent
and 23 percent, respectively, over the comparable prior year periods. The
improvement is primarily volume driven. The Company's year-to-date gross profit
percentage held from the first quarter of fiscal 1998 at 35.0 percent. This
represents a decrease from the 39.0 percent gross profit percentage realized for
the six months ended February 28, 1997. The decrease is mainly attributable to
the acquisitions of lower gross profit margin enclosure businesses within
Technical Environments and Enclosures.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
ENGINEERING, SELLING AND ADMIN. EXPENSES BY SEGMENT
- - -------------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- - -------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tools & Supplies $19,411 $18,119 7% $37,920 $37,880 0%
Engineered Solutions 12,881 10,270 25% 25,553 20,724 23%
Technical Environments
and Enclosures 15,744 11,839 33% 30,087 22,640 33%
General Corporate 1,888 1,584 19% 4,034 2,803 44%
- - -------------------------------------------------------------------------------------------------------------------------
Total $49,924 $41,812 19% $97,594 $84,047 16%
=========================================================================================================================
</TABLE>
Engineering, selling and administrative ("operating") expenses increased 19
percent for the quarter and 16 percent on a year-to-date basis, reflecting the
impact of acquisitions, which contributed approximately $5,300 and $8,900,
respectively, and higher sales levels. The majority of the Company's growth and
current year acquisitions are within the Engineered Solutions and Technical
Environments and Enclosures segments, which explains the operating expense
increases noted within these segments. Overall, the Company continues to reduce
operating expenses as a percent of net sales by aggressively managing spending
levels and through the acquisition of enclosures businesses within Technical
Environments and Enclosures, which have a lower percentage of operating
expenses. On a year-to-date basis, operating expenses were 23 percent of sales,
down from 27 percent over the same period last year.
Amortization expense for the six months ended February 28, 1998 was higher than
that reported for the six months ended February 28, 1997 due to the acquisitions
made during and subsequent to the first six months of fiscal 1997, including
primarily Del City, AA, PMP, C Fab, Hormann, Versa/Tek, and Everest.
Net financing costs for the six months ended February 28, 1998 increased over
the prior year comparable period as a result of the additional borrowings for
the acquisitions during and subsequent to the first six months of fiscal 1997.
Liquidity and Capital Resources
- - -------------------------------
Cash and cash equivalents totaled $7,010 and $5,846 at February 28, 1998 and
August 31, 1997, respectively. 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 $27,440 for the six months ended
February 28, 1998, a 94 percent improvement compared to $14,115 for the
comparable prior year period. The improvement is the result of increased sales
volume, which resulted in higher operating earnings, coupled with the benefit of
working capital reduction programs.
Net cash used in investing activities totaled $217,990 for the first six months
of fiscal 1998, of which $214,495 was used for acquisitions. In addition,
$13,756 was used for capital expenditures, which was offset by approximately
$10,275 in proceeds generated primarily from a sale and leaseback transaction
completed on two of the Company's properties.
10
<PAGE>
<TABLE>
<CAPTION>
TOTAL CAPITALIZATION February 28, 1998 August 31, 1997
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholders' Equity $ 227,727 43% $ 204,109 60 %
Total Debt 287,847 54% 123,091 36 %
Deferred Taxes 16,913 3% 14,596 4 %
- - ------------------------------------------------------------------------------
Total $ 532,487 100% $ 341,796 100 %
==============================================================================
</TABLE>
Outstanding debt at February 28, 1998 totaled $287,847, an increase of
approximately $164,800 since the beginning of the year. The Company's debt to
total capitalization ratio was 54 percent at February 28, 1998, up from 36
percent at the beginning of the year. The increases reflect additional
borrowings for acquisitions. Dividends of $833 were paid, while the exercise of
stock options generated an additional $2,954 of cash in the six month period
ended February 28, 1998.
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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- - -------------------------------------------------------------------
Not applicable.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
The Annual Meeting of Shareholders was held on January 9, 1998. Two matters were
voted on by shareholders at the meeting. Each director nominee was elected. The
number of votes for each nominee is set forth below:
<TABLE>
<CAPTION>
Share Votes For Share Votes Withheld
----------------------- --------------------------
<S> <C> <C>
H. Richard Crowther 12,152,253 6,148
Jack L. Heckel 12,152,429 5,972
Richard A. Kashnow 12,059,147 99,254
L. Dennis Kozlowski 12,152,403 5,998
John J. McDonough 12,152,579 5,822
Richard G. Sim 12,152,249 6,152
</TABLE>
In addition, shareholders voted to amend the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of Class A
Common Stock from 40,000,000 to 80,000,000. Shares voted for approval of the
amendment totaled 11,241,609; the holders of 886,306 shares voted against such
approval, the holders of 30,486 shares abstained, and the broker non vote was 0.
Item 6 - Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) See Index to Exhibits on page 13, which is incorporated herein by
reference.
(b) A Form 8-K/A was filed on December 17, 1997 to provide, in Item 7 thereof,
the required pro forma disclosures related to the acquisition of Versa
Technologies, Inc.
11
<PAGE>
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: April 2, 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)
12
<PAGE>
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1998 SECOND QUARTER 10-Q
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description By Reference To Page No.
- - ------- ---------------------------------- ------------------- --------
<C> <S> <C> <C>
3.1 Restated Articles of Incorporation Exhibit 4.1 to the
Company's Registration
Statement on Form S-8
(File No. 333-46469)
27.1 Financial Data Schedule 14
27.2 Restated Financial Data Schedule 15
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the unaudited financial statements of Applied Power Inc. for the six month
period ended February 28, 1998 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-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 7,010
<SECURITIES> 0
<RECEIVABLES> 81,723
<ALLOWANCES> 4,815
<INVENTORY> 130,190
<CURRENT-ASSETS> 237,677
<PP&E> 257,260
<DEPRECIATION> 133,020
<TOTAL-ASSETS> 679,363
<CURRENT-LIABILITIES> 135,220
<BONDS> 272,262
0
0
<COMMON> 5,567
<OTHER-SE> 222,160
<TOTAL-LIABILITY-AND-EQUITY> 679,363
<SALES> 425,834
<TOTAL-REVENUES> 425,834
<CGS> 276,677
<TOTAL-COSTS> 276,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,470
<INCOME-PRETAX> 37,087
<INCOME-TAX> 12,981
<INCOME-CONTINUING> 24,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,106
<EPS-PRIMARY> 0.87<F1><F2>
<EPS-DILUTED> 0.82<F1><F2>
<FN>
<F1> On January 8, 1998, the Board of Directors authorized a two-for-one stock
split effected in the form of a 100 percent stock dividend paid on February
3, 1998 to shareholders of record on January 22, 1998.
<F2> Prior Financial Data Schedules, with the exception of Exhibit 27.2 included
herein, have not been restated for the recapitalization.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains restated summary financial information extracted
from the unaudited financial statements of Applied Power Inc. for the six month
period ended February 28, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 74,098
<ALLOWANCES> 3,770
<INVENTORY> 124,663
<CURRENT-ASSETS> 211,733
<PP&E> 180,888
<DEPRECIATION> 96,046
<TOTAL-ASSETS> 440,823
<CURRENT-LIABILITIES> 107,894
<BONDS> 120,349
0
0
<COMMON> 2,758
<OTHER-SE> 181,458
<TOTAL-LIABILITY-AND-EQUITY> 440,823
<SALES> 310,266
<TOTAL-REVENUES> 310,266
<CGS> 189,195
<TOTAL-COSTS> 189,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,820
<INCOME-PRETAX> 28,585
<INCOME-TAX> 9,576
<INCOME-CONTINUING> 19,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,009
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.67
</TABLE>
