<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 May 31, 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
--------- ----------
(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: 27,937,056 as of June 30,
1998.
1
<PAGE>
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 and Nine Months Ended
May 31, 1998 and May 31, 1997............................ 3
Condensed Consolidated Balance Sheet -
May 31, 1998 and August 31, 1997......................... 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended May 31, 1998 and May 31, 1997.......... 5
Notes to Condensed Consolidated Financial Statements....... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....... 12
PART II - OTHER INFORMATION
- - ---------------------------
Item 5 - Other Information................................................ 12
Item 6 - Exhibits and Reports on Form 8-K................................. 12
SIGNATURE................................................................. 13
- - ---------
</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 Ended Nine Months Ended
May 31, May 31,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $241,653 $173,839 $667,487 $484,105
Cost of Products Sold 157,087 109,248 433,764 298,443
-------- -------- -------- --------
Gross Profit 84,566 64,591 233,723 185,662
Engineering, Selling and Administrative Expenses 51,985 43,478 149,579 127,525
Amortization of Intangible Assets 3,545 1,750 8,746 5,046
-------- -------- -------- --------
Operating Earnings 29,036 19,363 75,398 53,091
Other Expense(Income):
Net financing costs 5,920 3,143 15,390 8,963
Other - net (151) (469) (346) (1,146)
-------- -------- -------- --------
Earnings Before Income Tax Expense 23,267 16,689 60,354 45,274
Income Tax Expense 8,318 5,591 21,299 15,167
-------- -------- -------- --------
Net Earnings $ 14,949 $ 11,098 $ 39,055 $ 30,107
======== ======== ======== ========
Basic Earnings Per Share:
Earnings Per Share $ 0.54 $ 0.40 $ 1.41 $ 1.09
======== ======== ======== ========
Weighted Average Common
Shares Outstanding (000's) 27,911 27,586 27,790 27,506
======== ======== ======== ========
Diluted Earnings Per Share:
Earnings Per Share $ 0.51 $ 0.39 $ 1.33 $ 1.05
======== ======== ======== ========
Weighted Average Common and Equivalent
Shares Outstanding (000's) 29,539 28,809 29,426 28,626
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
APPLIED POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
-------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,262 $ 5,846
Net accounts receivable 83,471 84,697
Net inventories 129,950 115,761
Prepaid expenses and deferred taxes 22,141 19,602
-------- --------
Total Current Assets 239,824 225,906
Other Assets 30,423 7,305
Goodwill 283,794 109,078
Other Intangibles 47,704 30,723
Net Property, Plant and Equipment 129,433 90,580
-------- --------
Total Assets $731,178 $463,592
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 37,475 $ 21,428
Trade accounts payable 66,501 54,555
Accrued compensation and benefits 29,326 24,736
Income taxes payable 3,521 7,093
Other current liabilities 22,660 20,462
-------- --------
Total Current Liabilities 159,483 128,274
Long-Term Debt 284,213 101,663
Deferred Income Taxes 17,030 14,596
Other Liabilities 25,786 14,950
Shareholders' Equity:
Common stock, issued and outstanding 27,936,556 and
13,816,678 shares, respectively 5,587 2,763
Additional paid-in capital 40,030 38,388
Retained earnings 204,579 166,776
Cumulative translation adjustment (5,530) (3,818)
-------- --------
Total Shareholders' Equity 244,666 204,109
-------- --------
Total Liabilities and Shareholders' Equity $731,178 $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>
Nine Months Ended
May 31,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Operating Activities
- - --------------------
Net Earnings $ 39,055 $ 30,107
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 25,746 18,172
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and dispositions:
Accounts receivable (7,363) (13,170)
Inventories 9,931 (449)
Prepaid expenses and other assets (1,358) (1,787)
Trade accounts payable (218) 3,436
Other liabilities (12,642) 1,098
Income taxes payable (3,406) (2,706)
--------- --------
Net Cash Provided By Operating Activities 49,745 34,701
Investing Activities
- - --------------------
Proceeds on the sale of property, plant and equipment 10,933 3,019
Purchases of property, plant and equipment (24,030) (18,208)
Cash used for business acquisitions (253,463) (64,831)
Proceeds from sale of product line 6,000 -
Investment in VERO Group plc (18,744) -
Other 61 (15)
--------- --------
Net Cash Used In Investing Activities (279,243) (80,035)
Financing Activities
- - --------------------
Proceeds from issuance of long-term debt 262,297 67,000
Principal payments on long-term debt (83,418) (19,899)
Net borrowings on short-term credit facilities 16,515 2,151
Debt financing costs (382) -
Additional receivables financed 30,000 525
Dividends paid on common stock (1,252) (1,240)
Stock options exercised 4,466 2,480
Other - (84)
--------- --------
Net Cash Provided By Financing Activities 228,226 50,933
Effect of Exchange Rate Changes on Cash (312) (978)
--------- --------
Net Increase(Decrease) in Cash and Cash Equivalents (1,584) 4,621
Cash and Cash Equivalents - Beginning of Period 5,846 1,001
--------- --------
Cash and Cash Equivalents - End of Period $ 4,262 $ 5,622
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
APPLIED POWER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts 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 nine months ended May 31,
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 second 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 Nine Months Ended
May 31, May 31,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net earnings for basic and diluted
earnings per share $14,949 $11,098 $39,055 $30,107
======= ======= ======= =======
Denominator:
Weighted average common shares outstanding for
basic earnings per share 27,911 27,586 27,790 27,506
Net effect of dilutive options based on the treasury
stock method using average market price 1,628 1,223 1,636 1,120
------- ------- ------- -------
Weighted average common and equivalent
shares outstanding for diluted
earnings per share 29,539 28,809 29,426 28,626
======= ======= ======= =======
Basic Earnings Per Share $ 0.54 $ 0.40 $ 1.41 $ 1.09
======= ======= ======= =======
Diluted Earnings Per Share $ 0.51 $ 0.39 $ 1.33 $ 1.05
======= ======= ======= =======
</TABLE>
6
<PAGE>
Note C - Acquisitions
- - ---------------------
On May 1, 1998, the Company completed the acquisition of all of the outstanding
capital stock of Premier Industries ("Premier") for approximately $20,000 in
cash and approximately $1,800 of assumed debt. Cash paid for the transaction
was funded through borrowings under existing credit facilities. Preliminary
allocations of the purchase price resulted in approximately $11,300 of the
purchase price being assigned to goodwill. Headquartered in Hudson, New
Hampshire, Premier manufacturers enclosures and provides integration services
for electronic equipment OEM's. The operating results of Premier subsequent to
May 1, 1998 are included in the Condensed Consolidated Statement of Earnings.
On May 1, 1998, the Company also completed the acquisition of substantially all
of the assets of Product Technology Inc. ("PTI") for approximately $17,000.
Cash paid for the transaction was funded through borrowings under existing
credit facilities. Preliminary allocations of the purchase price resulted in
approximately $15,200 of the purchase price being assigned to goodwill. PTI
provides electronic manufacturing and integration services for a diverse
customer base and is headquartered in Irvine, California. The operating results
of PTI subsequent to May 1, 1998 are included in the Condensed Consolidated
Statement of Earnings.
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 $17,500. 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 resulted in approximately
$2,500 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.
7
<PAGE>
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 resulted 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.
<TABLE>
<CAPTION>
Nine Months Ended May 31,
- - ---------------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------------
<S> <C> <C>
Net Sales $676,817 $560,126
Net Earnings $ 39,132 $ 28,508
Basic Earnings Per Share $ 1.41 $ 1.04
Shares Used in Computation 27,790 27,506
Diluted Earnings Per Share $ 1.33 $ 1.00
Shares Used in Computation 29,426 28,626
- - ---------------------------------------------------------------------------
</TABLE>
All acquisitions were accounted for using the purchase method.
Note D - Sale of Product Line
- - -----------------------------
On March 31, 1998, the Company completed the sale of assets of Moxness
Industrial Products, a division of Versa/Tek, 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 E - 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 F - 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 G - 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.
8
<PAGE>
Note H - Subsequent Events
- - --------------------------
On April 6, 1998, the Company entered into a definitive merger agreement with
ZERO Corporation ("ZERO") pursuant to which ZERO would become a wholly-owned
subsidiary of the Company (the "Merger"). Stockholders of ZERO would receive
0.85 of a share of the Company's Class A common stock for each share of ZERO
stock. It is anticipated that up to approximately 11,175 shares of common stock
will be issued in the Merger, representing approximately 29% of the shares of
common stock expected to be outstanding after the Merger based on the number of
shares outstanding at the date hereof. Approved by the boards of directors of
both companies, consummation of the Merger is subject to approval by the
stockholders of both companies. The Merger would be accounted for as a pooling
of interests and is expected to be completed July 31, 1998. ZERO's operations
have two business segments: "Enclosures and Accessories" for the electronics
industry and "Other." ZERO's primary business is "Enclosure and Accessories" for
the system packaging, thermal management and engineered case requirements of the
telecommunications, instrumentation and data processing markets of the
electronics industry. ZERO's "Other" segment serves the air cargo and
consumer/other markets. Air Cargo designs, manufactures and markets a broad
range of specialized and general-purpose cargo containers as well as a patented
telescoping baggage/cargo system. In addition, ZERO produces and markets the
well-known line of ZERO Halliburton(R) luggage, carrying cases and attaches for
consumers worldwide, food service containers and other specialized enclosures.
On June 5, 1998, the Company announced that Applied Power Limited, a United
Kingdom subsidiary of the Company, had accepted for payment all of the VERO
Group plc ("VERO") stock tendered, which totaled over 72% of the outstanding
VERO shares, pursuant to Applied Power Limited's tender offer to acquire the
entire issued share capital of VERO at a price of 192 pence per VERO share (the
"Offer"). Applied Power Limited had previously acquired approximately 10% of
VERO's shares, so that after accepting the shares tendered, Applied Power
Limited owned or had accepted over 82% of VERO's shares. On June 19, 1998,
Applied Power Limited announced that additional shares tendered brought the
total of the shares it owned or had accepted for payment to over 90% of VERO's
issued share capital. Applied Power Limited also announced that it would invoke
Section 429 of the U.K. Companies Act of 1985, as amended, to acquire the
remaining outstanding shares of VERO stock, so that after the required
procedures are completed, Applied Power Limited will own all of the issued share
capital of VERO. VERO is a United Kingdom company that manufactures electronic
enclosures, racks, backplanes and power supplies.
The total amount of funds required to acquire all of the VERO shares is
currently estimated to be approximately $195,000, including related fees and
expenses. Applied Power Limited obtained all of the funds it expended from the
Company. To provide the necessary funds, the Company and Enerpac B.V., a
Netherlands subsidiary of the Company, as Borrowers, entered into a
Multicurrency Credit Agreement, dated as of June 18, 1998 (the "Credit
Agreement"), providing for a $700,000, 5-year revolving credit facility (the
"Facility"). In conjunction with the closing of the Facility, the Company
terminated its prior $350,000, 5-year revolving credit facility (the "Prior
Facility"), and used certain funds received under the Facility to repay
borrowings under the Prior Facility. The Facility is to be used to finance the
remaining expenses of the Offer, provide for working capital, capital
expenditures, and for other general corporate purposes.
On June 24, 1998, the Company announced that it had purchased Brown
Manufacturing Company ("Brown"). Headquartered in Austin, Texas, Brown is a
manufacturer of custom electronic enclosures. Cash paid for the transaction
totaled approximately $9,000.
Note I - 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 American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("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.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. This Statement is effective for the Company's fiscal
year 2000 financial statements and initial application will be reported as a
cumulative effect of a change in accounting principle. The Company is currently
evaluating the extent to which its financial statements will be affected by SOP
98-5.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity recognize
derivative instruments, including certain derivative instruments embedded in
other contracts as either assets or liabilities and measure those instruments
at fair value. This Statement is effective for the Company's fiscal year 2000
first quarter financial statements and restatement of prior years will not be
required. The Company is currently evaluating the extent to which its financial
statements will be affected by SFAS No. 133.
9
<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 third quarter ended May
31, 1998. Net earnings for the quarter were $14,949, or $0.51 on a diluted per
share basis, compared to $11,098, or $0.39 per diluted share, for the third
quarter of the prior year. For the first nine months of fiscal 1998, earnings
were $39,055, or $1.33 on a diluted per share basis, a 27 percent improvement
over the earnings from the comparable period last year of $30,107, or $1.05 per
diluted share. Increased sales resulted in greater leverage on operating costs
and generated the improved earnings. Foreign currency translation negatively
impacted sales by approximately 2 percent for the quarter and 3 percent on a
year-to-date basis. Excluding the effect of currency and acquisitions, sales
grew 8 percent for the quarter and 11 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 May 31, Nine Months Ended May 31,
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tool & Supplies $ 80,307 $ 74,096 8 % $231,990 $216,305 7 %
Engineered Solutions 80,823 50,703 59 % 225,120 142,175 58 %
Technical Environments
and Enclosures 80,523 49,040 64 % 210,377 125,625 67 %
- - ---------------------------------------------------------------------------------------------------------------------------
Total $241,653 $173,839 39 % $667,487 $484,105 38 %
===========================================================================================================================
</TABLE>
Sales from Tools & Supplies grew by 8 percent and 7 percent for the three and
nine month periods ended May 31, 1998, respectively. Ignoring the impact of the
strengthening US Dollar, the segment's sales increased 11 percent for both the
quarter and year-to-date. Approximately $20,400 of the sales growth was
generated through business acquisitions on a year-to-date basis.
Engineered Solutions reported increases in sales of 59 percent for the quarter
and 58 percent year-to-date. Foreign currency translation had the effect of
reducing reported sales 2 percent and 3 percent in the three and nine month
periods ended May 31, 1998, respectively. Excluding the effect of businesses
acquired and the negative effect of foreign currency, sales in Engineered
Solutions grew 17 percent for the quarter and 16 percent year-to-date. This
growth is primarily attributable to the success of new products. The continued
increases in market share in the European automotive market also contributed to
the sales increase.
Technical Environments and Enclosures continued its impressive growth in sales
with increases of 64 percent and 67 percent for the quarter and year-to-date
periods ended May 31, 1998, respectively. Approximately $25,200 and $59,300 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 May 31, Nine Months Ended May 31,
- - -----------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tools & Supplies $31,091 $27,055 15 % $ 87,011 $ 83,982 4 %
Engineered Solutions 26,727 16,567 61 % 72,611 46,596 56 %
Technical Environments
and Enclosures 26,748 20,969 28 % 74,101 55,084 35 %
- - -----------------------------------------------------------------------------------------------------------------------------
Total $84,566 $64,591 31 % $233,723 $185,662 26 %
=============================================================================================================================
</TABLE>
10
<PAGE>
The Company's third quarter and year-to-date gross profit increased 31 percent
and 26 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 and second quarter of fiscal 1998 at 35 percent.
This represents a decrease from the 38 percent gross profit percentage realized
for the nine months ended May 31, 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 May 31, Nine Months Ended May 31,
- - --------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tools & Supplies $19,815 $19,365 2 % $ 57,735 $ 57,245 1 %
Engineered Solutions 13,257 10,341 28 % 38,810 31,065 25 %
Technical Environments
and Enclosures 17,247 12,218 41 % 47,334 34,858 36 %
General Corporate 1,666 1,554 7 % 5,700 4,357 31 %
- - --------------------------------------------------------------------------------------------------------------------------
Total $51,985 $43,478 20 % $149,579 $127,525 17 %
==========================================================================================================================
</TABLE>
Engineering, selling and administrative ("operating") expenses increased 20
percent for the quarter and 17 percent on a year-to-date basis, reflecting the
impact of acquisitions, which contributed approximately $6,600 and $16,000,
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 22 percent of sales,
down from 26 percent over the same period last year.
Amortization expense for the nine months ended May 31, 1998 was higher than that
reported for the nine months ended May 31, 1997 due to the acquisitions made
during and subsequent to the first nine months of fiscal 1997, including
primarily Premier, PTI, Del City, AA, PMP, C Fab, Hormann, Versa/Tek, and
Everest.
Net financing costs for the nine months ended May 31, 1998 increased over the
prior year comparable period as a result of the additional borrowings for the
acquisitions during and subsequent to the first nine months of fiscal 1997.
Liquidity and Capital Resources
- - -------------------------------
Cash and cash equivalents totaled $4,262 and $5,846 at May 31, 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 $49,745 for the nine months ended
May 31, 1998, a 43 percent improvement compared to $34,701 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 $279,243 for the first nine months
of fiscal 1998, of which $253,463 was used for acquisitions. In addition,
$24,030 was used for capital expenditures, which was offset by approximately
$10,933 in proceeds generated primarily from a sale and leaseback transaction
completed on two of the Company's properties.
11
<PAGE>
- - --------------------------------------------------------------------------
TOTAL CAPITALIZATION May 31, 1998 August 31, 1997
- - --------------------------------------------------------------------------
Shareholders' Equity $244,666 42 % $204,109 60 %
Total Debt 321,688 55 % 123,091 36 %
Deferred Taxes 17,030 3 % 14,596 4 %
- - --------------------------------------------------------------------------
Total $583,384 100 % $341,796 100 %
==========================================================================
Outstanding debt at May 31, 1998 totaled $321,688, an increase of approximately
$198,600 since the beginning of the year. The Company's debt to total
capitalization ratio was 55 percent at May 31, 1998, up from 36 percent at the
beginning of the year. The increases reflect additional borrowings for
acquisitions net of cash received on increased receivable financing. Dividends
of $1,252 were paid, while the exercise of stock options generated an additional
$4,466 of cash in the nine month period ended May 31, 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 5 - Other Information
Deadlines for Shareholder Proposals
Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as
amended effective June 29, 1998:
(1) The deadline for submitting shareholder proposals for inclusion in the
Company's proxy statement and form of proxy for the Company's 1999
annual meeting of shareholders pursuant to Rule 14a-8 is July 23,
1998.
(2) The date after which notice of a shareholder proposal submitted
outside the processes of Rule 14a-8 is considered untimely is October
6, 1998.
Item 6 - Exhibits and Reports on Form 8-K
(a) See Index to Exhibits on page 14, which is incorporated herein by
reference.
(b) The Company filed a Current Report on Form 8-K dated as of April 6, 1998
reporting under Item 5 that the Company and ZERO Corporation had executed
an Agreement and Plan of Merger, dated as of April 6, 1998 (the "Merger
Agreement").
The Company filed a Current Report on Form 8-K dated April 16, 1998 to
restate its earnings per share information in accordance with Statement of
Financial Accounting Standards No. 128.
Subsequent to May 31, 1998, the Company filed a Current Report on Form 8-K
dated as of June 5, 1998 reporting under Item 2 the acquisition of VERO
Group plc ("VERO") and filing the required historical and pro forma
financial information under Item 7. Amendment No. 1 thereto on Form 8-K/A
was filed on July 1, 1998 to amend the VERO historical financial statements
in certain respects.
12
<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: July 14, 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)
13
<PAGE>
APPLIED POWER INC.
INDEX TO EXHIBITS
FISCAL 1998 THIRD QUARTER 10-Q
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description By Reference To Page No.
- - ------- ---------------------------------- ------------------- --------
<S> <C> <C> <C>
2 Agreement and Plan of Merger, dated Appendix A to the Joint
as of April 6, 1998, by and among Proxy Statement/
Applied Power Inc., ZERO Prospectus contained in
Corporation and STB Acquisition the Company's Registration
Corporation Statement on Form S-4
(File No. 333-58267)
4 Multicurrency Credit Agreement Exhibit 4.1 to the
dated as of June 18, 1998, among Company's Current
Applied Power Inc. and Enerpac B.V., Report on Form 8-K
as Borrowers, various financial dated as of June 5, 1998
institutions from time to time party
thereto, as Lenders, The First National
Bank of Chicago, as Syndication Agent,
Societe Generale, as Documentation Agent,
and Bank of America National Trust and
Savings Association, as Administrative Agent,
arranged by BancAmerica Robertson Stephens
27 Financial Data Schedule 15
</TABLE>
14
<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 nine month period
ended May 31, 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> MAY-31-1998
<CASH> 4,262
<SECURITIES> 0
<RECEIVABLES> 88,244
<ALLOWANCES> 4,773
<INVENTORY> 129,950
<CURRENT-ASSETS> 239,824
<PP&E> 258,453
<DEPRECIATION> 129,020
<TOTAL-ASSETS> 731,178
<CURRENT-LIABILITIES> 159,483
<BONDS> 284,213
0
0
<COMMON> 5,587
<OTHER-SE> 239,079
<TOTAL-LIABILITY-AND-EQUITY> 731,178
<SALES> 667,487
<TOTAL-REVENUES> 667,487
<CGS> 433,764
<TOTAL-COSTS> 433,764
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,390
<INCOME-PRETAX> 60,354
<INCOME-TAX> 21,299
<INCOME-CONTINUING> 39,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,055
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.33
</TABLE>
