<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, 1999
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) 783-9279
--------------
(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: 38,895,653 as of March 19,
1999.
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 and Comprehensive Income -
Three and Six Months Ended
February 28, 1999 and February 28, 1998..................................................3
Condensed Consolidated Balance Sheet -
February 28, 1999 and August 31, 1998....................................................4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended February 28, 1999 and February 28, 1998.................................5
Notes to Condensed Consolidated Financial Statements........................................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................8
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................................................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 AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 421,955 $ 279,398 $ 857,615 $ 554,773
Cost of Products Sold 295,445 183,277 593,703 362,970
------------- ------------- -------------- -------------
Gross Profit 126,510 96,121 263,912 191,803
Engineering, Selling and Administrative Expenses 74,236 61,115 156,654 121,552
Amortization of Intangible Assets 7,088 3,291 14,153 5,971
Contract Termination Costs - - 7,824 -
------------- ------------- -------------- -------------
Operating Earnings 45,186 31,715 85,281 64,280
Other Expense(Income):
Net financing costs 15,489 6,146 29,388 11,363
Gain on life insurance - - - (1,709)
Other - net (965) (366) (972) (558)
------------- ------------- -------------- -------------
Earnings before Income Tax Expense 30,662 25,935 56,865 55,184
Income Tax Expense 11,376 9,398 21,178 19,532
------------- ------------- ------------- -------------
Net Earnings $ 19,286 $ 16,537 $ 35,687 $ 35,652
============= ============= ============== =============
Total Comprehensive Income $ 16,342 $ 13,938 $ 37,450 $ 33,010
============= ============= ============= =============
Basic Earnings Per Share:
Earnings Per Share $ 0.50 $ 0.43 $ 0.92 $ 0.93
============= ============= ============= =============
Weighted Average Common
Shares Outstanding (000's) 38,786 38,292 38,724 38,221
============= ============= ============= =============
Diluted Earnings Per Share:
Earnings Per Share $ 0.48 $ 0.41 $ 0.89 $ 0.89
============= ============= ============= =============
Weighted Average Common and Equivalent
Shares Outstanding (000's) 40,415 40,210 40,251 40,123
============= ============= ============= =============
</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,
1999 1998
---------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,097 $ 6,349
Net accounts receivable 160,716 147,380
Net inventories 198,737 164,786
Prepaid expenses and deferred taxes 45,641 46,049
---------------- ---------------
Total Current Assets 413,191 364,564
Net Property, Plant and Equipment 276,372 225,170
Goodwill and Other Intangibles 847,073 542,869
Other Assets 41,978 42,119
---------------- ---------------
Total Assets $ 1,578,614 $ 1,174,722
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 3,072 $ 91
Trade accounts payable 146,490 127,470
Accrued compensation and benefits 37,578 45,457
Income taxes payable 21,762 12,898
Other current liabilities 53,058 74,792
---------------- ---------------
Total Current Liabilities 261,960 260,708
Long-Term Debt 873,373 512,557
Deferred Income Taxes 22,991 23,065
Other Liabilities 39,562 36,510
Shareholders' Equity:
Class A common stock, $0.20 par value, authorized 80,000,000 shares,
issued and outstanding 38,876,316 and 38,626,068 shares, respectively 7,775 7,725
Additional paid-in capital 8,334 5,817
Accumulated other comprehensive income (5,702) (7,465)
Retained earnings 370,321 335,805
---------------- ---------------
Total Shareholders' Equity 380,728 341,882
---------------- ---------------
Total Liabilities and Shareholders' Equity $ 1,578,614 $ 1,174,722
================ ===============
</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,
--------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Operating Activities
- --------------------
Net Earnings $ 35,687 $ 35,652
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 39,625 20,617
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable 4,560 (570)
Inventories (17,734) 7,238
Prepaid expenses and other assets (1,567) 1,292
Trade accounts payable (17,637) (407)
Other liabilities (7,889) (9,045)
Income taxes payable 2,276 (2,679)
---------------- ----------------
Net Cash Provided by Operating Activities 37,321 52,098
Investing Activities
- --------------------
Proceeds on the sale of property, plant and equipment 6,743 10,218
Purchases of property, plant and equipment (37,006) (21,775)
Cash used for business acquisitions (377,589) (223,390)
Merger related fees (8,100) -
---------------- ----------------
Net Cash Used in Investing Activities (415,952) (234,947)
Financing Activities
- --------------------
Proceeds from issuance of long-term debt 278,762 206,690
Principal payments on long-term debt (34,174) (40,295)
Net borrowings(repayments) on short-term credit facilities 666 (4,051)
Net commercial paper borrowings 109,351 -
Debt financing costs (1,534) (382)
Receivables financed 25,713 27,933
Dividends paid on common stock (1,171) (1,573)
Proceeds from stock option exercises 2,568 3,894
---------------- ----------------
Net Cash Provided by Financing Activities 380,181 192,216
Effect of Exchange Rate Changes on Cash 198 (270)
---------------- ----------------
Net Increase in Cash and Cash Equivalents 1,748 9,097
Cash and Cash Equivalents - Beginning of Period 6,349 22,047
Cash effect of the ZERO Excluded Period (as described in Note A) - 9,859
---------------- ----------------
Cash and Cash Equivalents - End of Period $ 8,097 $ 41,003
================ ================
</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.
The condensed consolidated balance sheet data as of August 31, 1998 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. For additional information, refer
to the consolidated financial statements and footnotes thereto in the Company's
1998 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation of financial results have been made. Such adjustments consist of
only those of a recurring nature. Operating results for the three and six months
ended February 28, 1999 are not necessarily indicative of the results that may
be expected for the fiscal year ending August 31, 1999.
As described more fully in the Company's 1998 Annual Report on Form 10-K, in
July 1998 a subsidiary of the Company merged with ZERO Corporation ("ZERO") and
ZERO became a wholly-owned subsidiary of the Company. The merger with ZERO has
been accounted for as a pooling of interests. Prior to the merger, ZERO had a
March 31 fiscal year end. The consolidated financial statements as of and for
the year ended August 31, 1998 (including the Condensed Consolidated Balance
Sheet included herein) reflect the combination of an August 31 year end
consolidated financial position, results of operations and cash flows for ZERO.
The results of operations and cash flows for ZERO from April 1, 1997 to August
31, 1997 are reflected as an adjustment in the Condensed Consolidated Statement
of Cash Flows for the six months ended February 28, 1998 included herein.
NOTE B - EARNINGS PER SHARE
The reconciliations between basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
FEBRUARY 28, FEBRUARY 28,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net earnings for basic and diluted
earnings per share $ 19,286 $ 16,537 $ 35,687 $ 35,652
============ ============= ============= =============
DENOMINATOR:
Weighted average common shares outstanding for 38,786 38,292 38,724 38,221
basic earnings per share
Net effect of dilutive stock options based on the
treasury stock method using average market price 1,629 1,918 1,527 1,902
------------ ------------- ------------- -------------
Weighted average common and equivalent
shares outstanding for diluted
earnings per share 40,415 40,210 40,251 40,123
============ ============= ============= =============
BASIC EARNINGS PER SHARE $ 0.50 $ 0.43 $ 0.92 $ 0.93
============ ============= ============= =============
DILUTED EARNINGS PER SHARE $ 0.48 $ 0.41 $ 0.89 $ 0.89
============ ============= ============= =============
</TABLE>
6
<PAGE>
NOTE C - COMPREHENSIVE INCOME
Effective September 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of this
Statement had no impact on the Company's net earnings or shareholders' equity.
SFAS No. 130 requires the Company's foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform with the requirements of SFAS No. 130.
NOTE D - ACQUISITIONS
On September 29, 1998, the Company, through its wholly-owned subsidiary, APW
Enclosure Systems Limited, accepted for payment all shares of Rubicon Group plc
("Rubicon") common stock which had been tendered pursuant to the APW Enclosure
Systems Limited tender offer (with a guaranteed loan note alternative) for all
outstanding shares of common stock at 2.35 pounds sterling per share and all
outstanding cumulative preference shares at 0.50 pounds sterling per share. The
tendered common shares accepted for payment exceeded 90 percent of the
outstanding common shares on October 8, 1998, and APW Enclosure Systems Limited
invoked Section 429 of the UK Companies Act of 1985, as amended, to acquire the
remaining outstanding common shares of Rubicon. APW Enclosure Systems Limited
now owns all of the common shares of Rubicon. Pursuant to the tender offer, APW
Enclosure Systems Limited purchased 27.2% of the outstanding preference shares.
The tender offer for the preference shares has terminated, and 72,810 preference
shares, or 72.8% of the original outstanding preference shares, continue to be
owned by outside shareholders.
Cash paid for the transaction totaled approximately $371,000. Preliminary
allocations of the purchase price result in approximately $312,000 of goodwill.
To provide the necessary funds, the Company entered into a Multicurrency Credit
Agreement, dated as of October 14, 1998, providing for an $850,000, 5-year
revolving credit facility. The acquisition was accounted for using the purchase
method.
The following unaudited pro forma data summarize the results of operations for
the periods presented as if the acquisition of Rubicon had been completed on
September 1, 1997, the beginning of the Company's 1998 fiscal year. The pro
forma data give effect to actual operating results prior to the acquisition and
adjustments to interest expense, goodwill amortization and income tax expense.
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, 1997 or that may be obtained in the future.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Six Months Ended February 28,
- ---------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 882,255 $ 690,573
Net Earnings $ 34,830 $ 34,695
Basic Earnings Per Share $ 0.90 $ 0.91
Shares Used in Computation 38,724 38,221
Diluted Earnings Per Share $ 0.87 $ 0.87
Shares Used in Computation 40,251 40,123
- ---------------------------------------------------------------------------------------
</TABLE>
NOTE E - ACCOUNTS RECEIVABLE FINANCING
On December 18, 1998, the Company amended its $90,000 accounts receivable
financing facility by increasing the amount of multi-currency accounts
receivable financing from $90,000 to $150,000. All other substantive terms of
the agreement remain the same. Approximately $115,000 of accounts receivable was
financed as of February 28, 1999.
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 information systems of the Company's
operating units are not designed to capture this segregation due to the very
short production cycle of their products and the minimal amount of
work-in-process inventory at any point in time.
7
<PAGE>
NOTE G - MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 1998, the Company recorded restructuring and
other one-time charges of $52,637, net of income tax benefit of $16,803. The
pre-tax charges of $69,440 related to costs associated with the merger of ZERO
Corporation, various plant consolidations and other cost reductions as well as a
provision for the rationalization efforts of the Company's product lines.
Approximately $11,300 and $21,500 of accrued merger and restructuring costs were
included in other current liabilities as of February 28, 1999 and August 31,
1998, respectively.
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 its second quarter ended
February 28, 1998. Sales in the second quarter of fiscal 1999 increased 51% to
$421,955 as compared to the prior year second quarter. Net earnings for the
fiscal 1999 second quarter were $19,286, or $0.48 per diluted share, compared to
$16,537, or $0.41 per diluted share, in the same quarter last year. Sales for
the first half of fiscal 1999 increased 55% to $857,615 as compared to the first
half of fiscal 1998. Net earnings for the first six months of fiscal 1999 were
$35,687, or $0.89 per diluted share, versus $35,652, or $0.89 per diluted share
in the prior year first half. Excluding one-time items in the first half of
fiscal 1998 and 1999, net earnings were $40,381, or $1.01 per diluted share in
the 1999 period, an increase of 20% over the $33,943, or $0.84 per diluted
share, reported in the previous year period. The one-time items relate to a
non-taxable life insurance gain in ZERO of $1,709, or $0.05 per diluted share,
recorded in the first quarter of 1998, and an Engineered Solutions contract
termination of $7,824, or $0.12 per diluted share, recorded in the first quarter
of 1999. As compared to the prior year periods, foreign currency translation
reduced sales growth by approximately 1% in both the quarter and year-to-date
periods. Excluding the effect of currency translation and acquired businesses,
sales increased 6% and 5% in the three and six month periods ended February 28,
1999, respectively, compared with the same periods of the prior fiscal year.
Certain prior year amounts previously reported in Tools and Supplies have been
reclassified into Engineered Solutions to conform with the fiscal 1999
presentation.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SALES BY SEGMENT
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Enclosure Products
and Systems $ 227,361 $ 97,622 133% $ 463,687 $ 194,242 139%
Engineered Solutions 112,275 106,566 5% 231,684 208,848 11%
Tools and Supplies 82,319 75,210 9% 162,244 151,683 7%
=====================================================================================================================
Total $ 421,955 $ 279,398 51% $ 857,615 $ 554,773 55%
=====================================================================================================================
</TABLE>
Enclosure Products and Systems ("EPS") continued its impressive growth,
reporting sales increases of 133% and 139% for the quarter and year-to-date
periods ended February 28, 1999, respectively, as compared to the same periods
last year. In aggregate, acquired businesses, principally AA Manufacturing, PMP,
PTI, Premier, Brown, Vero and Rubicon, contributed approximately $125,600 and
$255,500 of the sales growth for the quarter and year-to-date periods,
respectively. Excluding the effect of foreign currency translations and
acquisitions made within the prior year, EPS revenue grew 11% and 10% in the
respective quarter and year-to-date periods. Fiscal 1999 EPS sales growth
resulted from the continued expansion of the size, territory and content of EPS'
enclosure product line.
8
<PAGE>
Engineered Solutions sales increased 5% for the quarter and 11% year-to-date.
The effect of foreign currency translation impacted reported sales by less than
1% in each of the quarter and year-to-date periods. Excluding the effect of
acquired businesses, Engineered Solutions' sales, as compared to the prior year
fiscal period, grew 3% in the year-to-date period and were unchanged in the
quarter. The success of new products and continued increases in European truck
market share contributed to the sales increase, but were largely offset by lower
thermal management product sales as these lines are refocused on the higher
growth telecommunications markets.
Tools and Supplies' sales increased 9% and 7% for the three and six month
periods ended February 28, 1999, respectively. Ignoring the financial statement
impact of foreign currency translation, recent acquisitions and weakness in Asia
(which accounts for approximately 7% of the group's sales), Tools and Supplies'
sales increased 6% in the second quarter and 3% year-to-date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Enclosure Products
and Systems $ 56,602 $ 34,638 63% $ 122,272 $ 69,469 76%
Engineered Solutions 37,423 33,472 12% 78,010 66,414 17%
Tools and Supplies 32,485 28,011 16% 63,630 55,920 14%
=====================================================================================================================
Total $ 126,510 $ 96,121 32% $ 263,912 $ 191,803 38%
=====================================================================================================================
</TABLE>
Second quarter and year-to-date gross profit dollars increased by 32% and 38%,
respectively, over the comparable prior year periods. As a percentage of sales,
gross profit declined from 34.4% in the prior year second quarter to 30.0% in
the current year quarter. As compared to the prior year periods, both the
increase in gross profit dollars and the decline in gross profit as a percent of
sales were driven by rapid expansion of relatively lower margin enclosure
businesses in the EPS group. As a result of cost control and manufacturing
productivity initiatives, both the Tool and Supplies and Engineered Solutions
groups achieved substantial increases in gross profit dollar contribution and
increased gross profit as a percentage of sales in the first half of fiscal
1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES BY SEGMENT
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended February 28, Six Months Ended February 28,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Enclosure Products
and Systems $ 37,725 $ 21,059 79% $ 78,255 $ 41,395 89%
Engineered Solutions 16,375 17,049 (4)% 36,012 34,426 5%
Tools and Supplies 17,185 19,411 (11)% 36,344 37,920 (4)%
General Corporate 2,951 3,596 (18)% 6,043 7,811 (23)%
=====================================================================================================================
Total $ 74,236 $ 61,115 21% $ 156,654 $ 121,552 29%
=====================================================================================================================
</TABLE>
Engineering, selling and administrative ("operating") expenses increased 21% for
the quarter and 29% on a year-to-date basis, primarily reflecting the impact of
acquisitions. As a percentage of sales, operating expenses decreased 4.2% to
17.6% of sales in the second quarter of fiscal 1999 and, for the fiscal 1999
first half, declined 3.6% to 18.3% of sales. 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 the
EPS group, which typically have a lower percentage of operating expenses to
sales.
Amortization expense of $7,088 and $14,153 for the respective three and six
month periods ended February 28, 1999 was higher than in the comparable prior
year periods due to acquisitions made during and subsequent to the first six
months of fiscal 1998, including primarily Vero and Rubicon.
Net financing costs for the six months ended February 28, 1999 increased over
the prior year first half primarily as a result of borrowings to finance the
acquisition of Vero and Rubicon.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $8,097 and $6,349 at February 28, 1999 and
August 31, 1998, respectively. In order to minimize net financing costs, the
Company intentionally maintains relatively 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 $37,321 for the six months ended
February 28, 1999.
Net cash used in investing activities totaled $415,952 for the first six months
of fiscal 1999, of which $377,589 was used for acquisitions. In addition,
approximately $37,000 was used for capital expenditures, which was offset by
approximately $6,700 in proceeds generated primarily from the sale of two of the
Company's properties.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION FEBRUARY 28, 1999 August 31, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholders' Equity $ 380,728 30% $ 341,882 39%
Total Debt 876,445 68% 512,648 58%
Deferred Taxes 22,991 2% 23,065 3%
- --------------------------------------------------------------------------------------------------------------------
Total $ 1,280,164 100% $ 877,595 100 %
====================================================================================================================
</TABLE>
Outstanding debt at February 28, 1999 totaled $876,445, an increase of
approximately $363,000 since the beginning of the year. The Company's debt to
total capitalization ratio was 68% at February 28, 1999, up from 58% at the
beginning of the year. The increases primarily reflect additional borrowings for
the Rubicon acquisition. Dividends of $1,171 were paid, while the exercise of
employee stock options generated $2,568 of cash in the six month period ended
February 28, 1999.
On March 12, 1999, the Company announced plans for a public offering of $175,000
of Senior Subordinated Notes maturing in 2009. The Company expects to consummate
the transaction by the end of March, 1999. Net proceeds from the offering will
be used to reduce indebtedness outstanding under the Company's Multicurrency
Credit Agreement. The Company may reborrow under the Multicurrency Credit
Agreement for general corporate purposes, including capital expenditures,
working capital and acquisitions.
The Company anticipates that the funds generated from operations and available
under credit facilities or other borrowings will be adequate to meet operating,
debt service, and capital expenditure requirements for the foreseeable future.
YEAR 2000 CONSIDERATIONS
As is the case for most companies, the Year 2000 computer issue creates a risk
for the Company. If systems do not correctly recognize date information when the
year changes to 2000, there could be a material adverse impact on the Company's
operations. However, the impact cannot be quantified at this time.
The Company is taking actions intended to ensure that its computer systems are
capable of processing periods for the Year 2000 and beyond. The Company has
developed and has clearly articulated a written policy that Year 2000 readiness
is an important responsibility for all its business leaders. In addition, the
Company is aggressively pursuing a comprehensive set of programs intended to
reduce the risk of disruptions due to the Year 2000 problem. Issues addressed in
the context of these efforts include, but are not limited to, creating
management awareness regarding the Year 2000 problem and the need to become Year
2000 ready, mitigating known Year 2000 readiness problems, communicating the
Company's Year 2000 readiness commitment to its customers, conducting a
company-wide Year 2000 readiness check, the official designation of Year 2000
readiness contacts within each business unit, comprehensive testing and
compliance certification for all of the Company's mission-critical business and
manufacturing control systems, proactive Year 2000 compliance certification of
key suppliers, and the development of contingency plans to deal with emergent
Year 2000 situations. The Company expects to complete the majority of its
efforts in this area by the end of fiscal 1999. This should leave adequate time
to perform additional testing and make any further modifications that are deemed
necessary.
10
<PAGE>
The Company is continuing an ongoing process of assessing potential Year 2000
risks and uncertainties. However, it is currently premature to define the most
reasonably likely worst case scenarios related to the Year 2000 problem. The
Company's Year 2000 readiness initiatives are intended to address its critical
business functions, and the Company currently expects to successfully mitigate
its controllable internal year 2000 issues. However, the Company also relies
upon third parties whose failure to identify and remediate their Year 2000
problems could have a material impact on the Company's operations and financial
condition. The Company's Year 2000 readiness efforts include attempting to
identify, assess and mitigate third party risks where possible. To date, no
third party has communicated to the Company Year 2000 problems that reasonably
could be expected to have a material impact on the Company's operations.
However, it is impossible for the Company to identify the potential impact and
all related costs and consequences of third parties, particularly those that
have not responded to inquiries by the Company as to Year 2000 readiness.
Based on the current status of the Company's compliance and readiness efforts,
the costs associated with identified Year 2000 issues are not expected to have a
material effect on the results of operations or financial condition of the
Company. Most of the Company's business units have installed or are in the
process of installing new business management systems which go beyond just Year
2000 compliance. The costs of purchased software are capitalized. Some
businesses have chosen to upgrade existing systems to be compliant. These costs
are being expensed as incurred. Additionally, the Company is developing a
contingency plan to deal with any issues that are not resolved on a timely
basis. The Company historically has not quantified the costs of Year 2000
compliance and remediation, but believes costs incurred to date were not
material to the Company's financial position. The Company estimates remaining
costs, including internal costs such as payroll expenses incurred for the Year
2000 project, to range between $3,000 and $5,000, which is expected to be funded
with cash flow from operations.
At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 problem to have material adverse effects on the
Company's business, operations or financial condition. However, the Company
cannot be certain that it will not suffer business interruptions, either due to
its own Year 2000 problems or those of its customers or suppliers whose Year
2000 problems may make it difficult or impossible to fulfill their commitments
to the Company. Furthermore, the Year 2000 problem has many elements and
potential consequences, some of which may not be reasonably foreseeable, and
there can be no assurances that every material Year 2000 problem will be
identified and addressed or that unforeseen consequences will not arise and
possibly have a material adverse effect on the Company. Unanticipated factors
while implementing the changes necessary to mitigate Year 2000 problems,
including, but not limited to, the ability to locate and correct all relevant
codes in computer and imbedded systems, or the failure of critical third parties
to communicate and mitigate their Year 2000 problems, could result in
unanticipated adverse impacts on the business activities or operations of the
Company.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
See Item 7A of the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1998.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Annual Meeting of Shareholders was held on January 8, 1999. One matter was
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 33,983,615 108,739
Jack L. Heckel 33,981,972 110,382
Richard A. Kashnow 33,986,046 106,308
L. Dennis Kozlowski 33,979,986 112,368
John J. McDonough 33,680,148 412,206
Richard G. Sim 33,968,654 123,700
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) See Index to Exhibits on page 14, which is incorporated herein by
reference.
(b) On December 11, 1998, the Company filed an amendment on Form 8-K/A to its
Current Report on Form 8-K dated September 29, 1998 to file the required
Item 7 historical and pro forma financial information related to the
acquisition of Rubicon Group plc.
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: March 24, 1999 By: /s/Robert C. Arzbaecher
------------------------------
Robert C. Arzbaecher
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of the registrant)
13
<PAGE>
APPLIED POWER INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
- ------------ ---------------------------------------- ------------------------------------- --------------
<S> <C> <C> <C>
4.1 (a) Multicurrency Credit Agreement, Exhibit 4.4 to the Registrant's
dated as of October 14, 1998, among Form 10-K for the fiscal year ended
Applied Power Inc. and Enerpac B.V., as August 31, 1998 ("1998 10-K")
Borrowers, various financial
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 NationsBanc Montgomery
Securities LLC
(b) Form of Consent to Multicurrency X
Credit Agreement, dated as of October 14,
1998, effective February 3, 1999
4.2 (a) Receivables Purchase Agreement, Exhibit 4.1 to the Registrant's
dated as of November 20, 1997, among Form 10-Q for quarter ended
Applied Power Credit Corporation as November 30, 1997
Seller, Applied Power Inc.
individually and as Servicer and
Barton Capital Corporation as
Purchaser and Societe Generale as Agent
(b) First Amendment to Receivables Exhibit 4.5(b) to 1998 10-K
Purchase Agreement dated as of August
28, 1998
(c) Second Amendment to Receivables Exhibit 4.2(c) to the Registrant's
Purchase Agreement dated as of Form 10-Q for quarter ended
December 18, 1998 November 30, 1998
27.1 Financial Data Schedule X
</TABLE>
14
<PAGE>
Exhibit 4.1(b)
[Letterhead of Mayer, Brown & Platt]
January 29, 1999
Applied Power, Inc.
13000 West Silver Springs Drive
Butler, WI 53007-1093
Re: Multicurrency Credit Agreement dated as
of October 14, 1998 among Applied Power, Inc.
Enerpac B.V., various financial institutions,
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.
Ladies and Gentlemen:
Reference is made to the above-captioned Credit Agreement ("Credit
Agreement"). All capitalized terms used in this letter which are defined in the
Credit Agreement shall have the meanings set forth in the Credit Agreement
unless otherwise defined herein or the context otherwise requires.
The Banks hereby consent to the issuance by the Company of up to
$200,000,000 of debt in a public offering on or before May 31, 1999 and agree
that notwithstanding the provisions of Section 2.8(c) of the Credit
Agreement, the Commitments do not need to be reduced by any portion of the net
proceeds of such debt.
This Consent shall be limited to its terms and shall not constitute a
waiver of any other rights that the Banks may have from time to time under the
Credit Agreement.
This Consent shall be effective when consented to by the Required Banks
and the Administrative Agent shall inform the Company of such consent.
<PAGE>
[Letterhead of Mayer, Brown & Platt]
Applied Power, Inc.
January 29, 1999
Page 2
We hereby request that each Bank acknowledge its consent by signing and
returning a copy of this letter.
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 8,097
<SECURITIES> 0
<RECEIVABLES> 167,683
<ALLOWANCES> 6,967
<INVENTORY> 198,737
<CURRENT-ASSETS> 413,191
<PP&E> 491,967
<DEPRECIATION> 215,595
<TOTAL-ASSETS> 1,578,614
<CURRENT-LIABILITIES> 261,960
<BONDS> 873,373
0
0
<COMMON> 7,775
<OTHER-SE> 372,953
<TOTAL-LIABILITY-AND-EQUITY> 1,578,614
<SALES> 857,615
<TOTAL-REVENUES> 857,615
<CGS> 593,703
<TOTAL-COSTS> 593,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,388
<INCOME-PRETAX> 56,865
<INCOME-TAX> 21,178
<INCOME-CONTINUING> 35,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,687
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.89
</TABLE>
