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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[_] OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-11288
APPLIED POWER INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0168610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6100 NORTH BAKER ROAD
MILWAUKEE, WISCONSIN 53209
Mailing address: P.O. Box 325, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(414) 352-4160
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
(Name of each exchange
on
(Title of each class) which registered)
--------------------- -----------------------
<S> <C>
Class A Common Stock, New York Stock Exchange
$0.20 par value per share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of October 31, 2000, the aggregate market value of Common Stock held by
non-affiliates was approximately $135.7 million and there were 39,642,501
shares of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 9, 2001 are incorporated by reference into
Part III hereof.
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FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This document contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements
expressed or implied in such forward-looking statements. The words
"anticipate," "believe," "expect," "project," "objective" and similar
expressions are intended to identify forward-looking statements. In addition
to the assumptions and other factors referred to specifically in connection
with such statements, factors that could cause the Company's actual results to
differ materially from those contemplated in the forward-looking statements
include factors described under the caption "Risk Factors That May Affect
Future Results" on page 27 of Item 7 of this report and those listed in the
Form S-4 filed in connection with the exchange offer for our Senior
Subordinated Notes.
When used herein, the terms "Applied Power," "Actuant," "we," "us," "our,"
and the "Company" refer to Applied Power Inc. and its subsidiaries. Applied
Power intends to legally change its name to Actuant Corporation, subject to
shareholder approval, following its annual meeting of shareholders to be held
on January 9, 2000.
PART I
Item 1. Business
General
Headquartered in Milwaukee, Wisconsin, Applied Power Inc., d/b/a Actuant
Corporation (the "Company," "Applied Power" or "Actuant") is a Wisconsin
corporation incorporated in 1910. Actuant is a leading global manufacturer and
marketer of a broad range of industrial products and systems, organized into
two business segments, Tools & Supplies and Engineered Solutions. Tools &
Supplies sells branded, specialized electrical and industrial tools to
hydraulic and electrical wholesale distributors, to catalog houses and through
various retail distribution channels. Engineered Solutions' primary expertise
is in design, manufacturing and marketing of customized motion control systems
primarily for OEMs in diversified niche markets. We believe that our strength
in each product category is the result of a combination of our brand
recognition, proprietary engineering and design competencies, dedicated
service philosophy and global manufacturing and distribution capabilities.
Prior to July 31, 2000, Applied Power consisted of two segments,
Electronics and Industrial. The former Electronics segment (the "Electronics
Business") focused on electronic enclosures, while the former Industrial
segment (the "Industrial Business") concentrated on the current Tools &
Supplies, Engineered Solutions, and businesses since divested. During 1999,
Applied Power's management began to consider the separation of the Electronics
Business from the Industrial Business as, among other things, a way to more
effectively pursue strategic opportunities in the electronics market. Applied
Power reviewed strategic options to focus management, including the possible
sale of the Industrial Business. Ultimately, it determined that the separation
of the two businesses in the form of a spin-off was the preferred option. On
January 26, 2000, Applied Power's board of directors authorized various
actions intended to position Applied Power to distribute the Electronics
Business to its shareholders in the form of a special dividend (the "spin-off"
or "Distribution"). The Distribution took place on July 31, 2000. Applied
Power now trades separately on the New York Stock Exchange under the ticker
symbol "ATU" with APW Ltd. (the Electronics Business) trading on the NYSE
under the ticker symbol "APW."
During fiscal 2000, we divested the Barry Controls, Air Cargo and Samuel
Groves businesses that previously were included in our Engineered Solutions
segment. We also divested the Norelem and automotive product lines of Enerpac,
previously included in Tools & Supplies, during the year. These divestitures
impact the comparability of our operating results. We did not make any
business acquisitions or divestitures in fiscal 1999. For further information,
see Note D--"Merger, Acquisitions and Divestitures" in Notes to Consolidated
Financial Statements.
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Description of Business Segments
The Company operates two business segments, Tools & Supplies and Engineered
Solutions.
Tools & Supplies. The Tools & Supplies segment sells a wide array of
branded, specialized electrical and industrial tools and supplies to hydraulic
and electrical wholesale tool distributors, to catalog houses and through
various retail distribution channels. The segment's products include high-
force hydraulic tools, electrical tools and consumables, which are sold to
end-user markets including general industrial, construction, production
automation, retail do-it-yourself ("DIY"), retail marine and retail automotive
aftermarket. Tools & Supplies provides over 14,000 SKUs, most of which are
designed and manufactured by us in North America. In addition, the segment
manages a global sourcing operation which supplements its manufactured product
offerings. Major customers include Ace Hardware, The Home Depot, Lowe's, Snap-
on, TruServe and W.W. Grainger. This group also sells to over 10,000 small OEM
customers and over 4,200 wholesale electrical, marine and automotive
aftermarket distributors.
The Tools & Supplies segment includes our Enerpac and Gardner Bender
operations. These two businesses share core competencies in product branding,
distribution channel management, global sourcing, managing the logistics of
SKU-intensive product lines, and managing inventory. We believe Enerpac is a
leading global supplier of specialized high-force hydraulic systems and
components for general industrial, construction and production automation
markets.
The following is a summary of each of Enerpac's four major product lines:
Industrial Tools. We believe Enerpac is a leading global supplier of
high-force hydraulic industrial tools operating at very high pressures per
square inch (p.s.i.) of between 5,000 and 10,000. The industrial tool line
consists of over 2,000 products that are generally sold by industrial
distributors to customers in the construction, mining, steel mill, cement,
railway, oil and gas, and general maintenance industries. Enerpac's
products allow users to apply controlled force and motion to increase
productivity, reduce labor costs and make work safer and easier to perform.
Workholding. We also believe Enerpac is a leading supplier of hydraulic
workholding tools. Workholding products hold parts in position in metal
cutting machine tools during the machining process. The products are
marketed through distributors to the production automation market.
OEM. Enerpac's OEM product line consists of customized hydraulic
products that are sold directly to OEM customers including Caterpillar,
Hale Products (a subsidiary of IDEX), Parker-Hannifin and Snap-on.
Enerpac's product development staff works closely with OEM customers to
develop hydraulic solutions for specific applications, such as a highly
customized coaxial piston pump used in Hale Products' "Jaws of Life" rescue
product.
Toolholding. Enerpac manufactures a broad range of toolholding products
for the production automation market, including quick mold and die change
systems and mechanical and hydraulic quick clamping systems that are used
extensively in the plastic injection molding and metal forming industries.
The toolholding product portfolio includes mono- and multi-couplers,
mechanical and hydraulic quick clamping systems, ejector couplers, die-
lifters, die-rollers, hydraulic pump units and control packages, mold and
die change systems, inspection units and storage systems.
We believe Gardner Bender is a leading supplier of electrical tools and
consumables to the retail DIY, retail marine and retail automotive aftermarket
and wholesale electrical markets, supplying over 11,000 SKUs through a variety
of distribution channels. Gardner Bender maintains strong customer
relationships with such leading retailers as The Home Depot, Kmart, Lowe's,
Menards and Wal-Mart.
Gardner Bender's main product lines include the following:
. Cable Ties, Staples, Fasteners and Wire Management
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. Wire Connectors, Solderless Terminals and Lugs
. Conduit Bending and Conduit Fishing
. Handtools
. Electrical Testers and Meters
. Electric Wire and Cable
. Plugs, Sockets and Other Automotive Products
. Other
Engineered Solutions. We believe that the Engineered Solutions segment is a
leading global designer and manufacturer of customized motion control systems
for OEMs in a variety of niche industrial markets. The segment works with its
customers to provide customized solutions in the RV, truck, automotive,
medical, and other markets. Products include RV slide-out and leveling
systems, hydraulic cab-tilt systems for heavy-duty trucks, electro-hydraulic
automotive convertible top actuation systems and extruded and molded silicone
products for the medical market. As a result of the segment's design and
engineering quality, it has earned numerous customer awards within the past
five years, including the Circle of Excellence vendor award from Fleetwood. It
also received quality and performance certifications from such OEM customers
as Ford, Freightliner, Oshkosh Truck and Peterbilt. We believe that the
segment's principal brands, Power-Packer, Power Gear, Mox-Med, Milwaukee
Cylinder and Nielsen Sessions, are recognized for their engineering quality,
integrated custom design and geographic reach. Engineered Solutions' customers
include such leading multinational corporations such as DAF/Leyland, Fiat,
Fleetwood, Mercedes-Benz, Renault, Scania and Volvo. We believe that
Engineered Solutions' reputation for excellent engineering capabilities,
global capabilities and established customer relationships with leading OEMs
are the driving forces behind its leadership positions in several markets.
Engineered Solutions' main product lines are summarized below:
Power-Packer. Under this brand Engineered Solutions manufactures
hydraulic and electro-hydraulic motion control systems for OEM applications
in the truck, automotive, medical and off-highway markets. Products
manufactured under the Power-Packer brand include hydraulic cab-tilt
systems for heavy-duty cab-over-engine trucks, cab suspension systems,
electro-hydraulic automotive convertible top actuation systems and self-
contained hydraulic actuators for medical patient lifting and positioning
applications. The majority of sales of cab-tilt systems and convertible top
actuation systems are generated in the European market. These systems are
comprised of sensors, electronic controls, hydraulic cylinders, electronic
motors and a hydraulic pump. Engineered Solutions has recently developed
and started marketing a smaller, low-cost hydraulic cab-tilt system called
the "Hy-Cab" that replaces the torsion bars that have historically been
used for cab-tilt applications on medium sized trucks. The segment's
patient positioning systems are incorporated into hospital beds,
stretchers, examination chairs, surgery tables and transfer lifts.
Power Gear. Engineered Solutions designs, manufactures and markets
electric-powered slide-out systems, hydraulic leveling systems and landing
gears for the RV and truck markets under the Power Gear brand. Slide-out
systems allow RV manufacturers to increase a room's size by telescoping a
section of the room's wall outward. These slide-out systems are fully
integrated electrical systems that provide automatic slide-out capability
and are driven by a 12-volt DC electric motor with a patented rack and gear
design. Power Gear's leveling systems typically consist of four hydraulic
cylinders, a 12-volt DC hydraulic motor pump and an electronic control
system and are capable of leveling motor homes to within three degrees of
fully horizontal. The landing gear generally consists of two adjustable
legs used to support the front end of a semi-trailer in a level position
when disconnected from the towing vehicle.
Mox-Med. Engineered Solutions supplies a variety of molded and extruded
silicone products for the medical devices and industrial markets under the
Mox-Med brand. The silicone products are used in a wide range of medical
applications, including drug delivery systems, enteral feeding systems,
valves and
4
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diaphragms for diagnostic equipment, wound care, shunts and drains and
various ophthalmic applications. These products are produced in a clean
room environment using proprietary formulations and processes either
through extrusion, liquid injection molding or injection molding
technology. The products generally require FDA approval and, once selected,
tend to last for the life of the underlying product.
Other Products. Engineered Solutions also supplies other niche markets
with hydraulic positioning products and industrial case hardware. Under the
Milwaukee Cylinder brand, it produces a broad range of tie-rod hydraulic
and pneumatic cylinders for a wide variety of applications including
automated production lines, machine tools, machinery, boat drives and
material handling. The segment also designs and manufactures highly
specialized cylinders such as servo-actuators used in vibration and fatigue
testing. It offers a comprehensive line of case, container and industrial
hardware marketed under the Nielsen Sessions brand. Products include a
variety of hinges, latches, handles, caster plates and accessories.
International Business
Actuant is a global business. For fiscal 2000, we derived approximately 66%
of our net sales in the United States, 26% from Europe, 4% from Asia, 2% from
South and Latin America and 2% from Canada. Our international sales are
influenced by fluctuations in exchange rates of foreign currencies, foreign
economic conditions and other factors associated with foreign trade. We serve
a global customer base and have implemented a global infrastructure for the
manufacturing, sourcing, distribution and sales of our products. Our global
scale and infrastructure enable us to meet the needs of our customers with
global operations, which supports our strong relationships with many leading
global OEMs.
Distribution and Marketing
Enerpac sells its products through a combination of distributors, direct
sales personnel and manufacturers representatives. Enerpac's distributor
network is one of its key competitive strengths and accounted for
approximately 75% of its net sales. Enerpac employs approximately 110
territory managers that make joint sales calls to large end-users with
distributor sales personnel, train end-user and distributor personnel on
products and provide product application expertise.
Gardner Bender markets its electrical tools and supplies through an
extensive distribution network, and has established strong positions in each
of its major sales channels, including retail, distribution and direct sales.
Retail. Gardner Bender utilizes a combination of internal account
managers and independent manufacturers representatives to serve its retail
customers, including home centers, specialty marine and automotive
retailers, mass merchandisers and hardware cooperatives. Gardner Bender's
sales and marketing personnel provide significant marketing support,
including promotional planning, retail point-of-purchase materials and
displays, effective product packaging and strong merchandising.
Distribution. Gardner Bender also sells its products to over 2,500
distributors through internal sales managers dedicated to the distributor
channel and independent sales representatives. Due to the distributor
channel's high level of fragmentation, Gardner Bender relies on independent
manufacturers representatives to provide ongoing customer sales and service
support.
Direct. Gardner Bender currently focuses the majority of its direct
marketing efforts on small manufacturing companies. Sales to this channel
require no internal field sales personnel or independent sales
representatives, and are made through a combination of catalogs,
telemarketers and the Internet.
Engineered Solutions' products are marketed directly to OEMs through a
direct technical sales organization. Most product lines also have dedicated
market managers as well as a technical support organization. Engineered
Solutions has an experienced sales force, organized by end-market, that
typically resides in the manufacturing facilities and reports to market sales
leaders that are based in the primary engineering facilities for their
5
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respective market areas. Engineered Solutions sales personnel are highly
trained and coordinate closely with its design engineers in targeting OEM
customers. Due to the products' high degree of engineering content, sales
efforts focus more on product functionality than on price. Engineered
Solutions' engineering capabilities and established customer relationships are
key competitive advantages in winning new contracts.
Product Development and Engineering
We believe we have earned a reputation for design and engineering expertise
and for the creation of highly engineered innovative products. We maintain
engineering staffs at several locations that design new products and make
improvements to existing product lines. Research and development costs are
expensed as incurred. Expenditures for research and development were $6.6
million, $8.0 million, and $11.2 million in fiscal 2000, 1999, and 1998,
respectively. The decrease in fiscal 2000 is attributable to the cancellation
of a Engineered Solutions contract in fiscal 1999. We have developed several
proprietary technologies and hold over 500 patents across the world.
Competition
We have numerous competitors in each of our markets, but we believe that we
are well positioned to compete successfully in the separate niches.
Competition in each of our niches is primarily composed of small, regional
competitors who often lack the infrastructure and financial resources to
support global OEMs. In a few markets, we compete with divisions of larger
public companies. We believe that our global scale and infrastructure help to
build and maintain strong relationships with major OEMs.
Patents and Trademarks
We own numerous United States and foreign patents and trademarks. No
individual patent or trademark is believed to be of such sufficient importance
that its loss or termination would have a material adverse effect on our
businesses.
Manufacturing and Operations
We manufacture the majority of the products we sell, but strategically
outsource components and finished goods from an established global network of
qualified suppliers. Our manufacturing operations consist primarily of light
assembly operations. We also have silicone and plastic injection molding and
silicone extruding capabilities, and automated welding and painting lines. We
have implemented single piece flow methodology in our manufacturing plants,
which reduces inventory levels, lowers "re-work" costs and shortens lead time
to customers. Components are purchased from a variety of suppliers. We have
built strong relationships with our key suppliers over many years, and while
we single source many of our components, we believe that in most cases there
are several qualified alternative sources.
Order Backlogs and Seasonality
At August 31, 2000, we had an order backlog of approximately $82.9 million,
compared to approximately $115.1 million at August 31, 1999. The decrease is
due to business divestitures during the year, which reduced backlog by
approximately $52.1 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions and Divestitures."
Substantially all orders are expected to be completed prior to the end of
fiscal 2001. As illustrated in the following table, our sales are not subject
to significant seasonal fluctuations:
Sales Percentages By Fiscal Quarter(1)
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Quarter 1.................................................. 24.8% 24.6%
Quarter 2.................................................. 25.9% 24.7%
Quarter 3.................................................. 26.0% 26.1%
Quarter 4.................................................. 23.3% 24.6%
------ ------
100.0% 100.0%
</TABLE>
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(1) Continuing businesses as of fiscal 2000 only.
6
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Employees
As of August 31, 2000, we employed approximately 2,135 people. Our
employees are not subject to any collective bargaining agreements with the
exception of approximately 80 Milwaukee Cylinder production employees and
employees covered by government-mandated collective labor agreements in some
international locations. We believe we enjoy good working relationships with
our employees.
Environmental Matters
Our operations, like those of similar businesses, are subject to federal,
state, local and foreign laws and regulations relating to the protection of
the environment, including those regulating discharges of hazardous materials
into the air and water, the storage and disposal of such materials, and the
clean-up of soil and groundwater contamination. Pursuant to certain
environmental laws, a current or prior owner or operator of a site may be
liable for the cost of an investigation and any remediation of contamination,
and persons who arrange for disposal or treatment of hazardous materials may
be liable for such costs at a disposal or treatment site, whether or not the
person owned or operated it. These laws impose strict, and under certain
circumstances, joint and several liability.
We believe that we are in material compliance with applicable environmental
laws. Compliance with these laws has and will require expenditures on an
ongoing basis. We have been identified by regulators as potentially
responsible parties regarding remediation of several multi-party waste sites.
Based on our investigations, we believe that we are at most a de minimis
participant in those sites. In addition, soil and groundwater contamination
has been identified at a few facilities which we operate or formerly owned or
operated. We are also a party to several state and local environmental
matters, and we have provided environmental indemnities relating to divested
business units for which we retain responsibility for certain potential
environmental liabilities. Additionally, the Company will assume and indemnify
APW Ltd. with respect to those proceedings involving the Industrial
businesses, while APW Ltd. will indemnify Actuant with respect to the
Electronics businesses.
Environmental expenditures over the last three years have not been
material, and we believe that the costs for known environmental matters are
not likely to have a material adverse effect on our financial position,
results of operations or cash flows. Nevertheless, more stringent
environmental laws, unanticipated, burdensome remedy requirements, or
discovery of previously unknown conditions could have a material adverse
effect upon our financial condition and results of operations. Environmental
remediation accruals of $2.1 million and $1.3 million were included in the
Consolidated Balance Sheets at August 31, 2000 and 1999 respectively. For
further information, see Note O--"Contingencies and Litigation" in Notes to
Consolidated Financial Statements.
Other
For additional information regarding revenues, profits and losses, and
total assets of each business segment and information on customers, see Notes
to Consolidated Financial Statements.
For information on sources and availability of raw materials, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 2. Properties
We generally lease rather than own our operating facilities. The majority
of our leases are short-term, and are renewable at our option.
Tools & Supplies
Tools & Supplies maintains 11 manufacturing facilities throughout the
United States, Mexico, Europe and Asia-Pacific and 19 distribution facilities
and sales offices worldwide.
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<TABLE>
<CAPTION>
Square
Facility feet Status
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<S> <C> <C>
Manufacturing
<CAPTION>
Glendale, Wisconsin........................................ 313,000 Leased
<S> <C> <C>
Columbus, Wisconsin........................................ 130,000 Leased
Veenendaal, The Netherlands................................ 97,000 Leased
San Diego, California...................................... 69,000 Leased
Pachuca, Mexico(1)......................................... 61,000 Leased
Oklahoma City, Oklahoma.................................... 56,000 Leased
Tecate, Mexico............................................. 54,000 Leased
Alexandria, Minnesota...................................... 25,000 Owned
Cotati, California......................................... 20,000 Leased
Taipei, Taiwan............................................. 19,000 Leased
Shanghai Waigaogiao, China................................. 9,000 Leased
Distribution and Sales
Reno, Nevada............................................... 55,000 Owned
Tokyo, Japan(1)............................................ 39,000 Leased
Charlotte, North Carolina.................................. 36,000 Leased
Sydney, Australia.......................................... 23,000 Leased
Corsico (Milano), Italy.................................... 18,000 Owned
Seoul, South Korea(1)...................................... 18,000 Leased
Mississauga, Ontario, Canada............................... 18,000 Leased
Lancaster, Pennsylvania.................................... 16,000 Leased
Dusseldorf, Germany........................................ 15,000 Leased
Singapore.................................................. 15,000 Leased
Scranton, Pennsylvania..................................... 13,000 Leased
Atlanta, Georgia........................................... 13,000 Leased
Ontario, California........................................ 12,000 Leased
Massey (Paris), France(1).................................. 9,000 Leased
Redditch, Worcester, UK.................................... 6,000 Leased
Vashi, New Mumbai (Bombay), India.......................... 6,000 Owned
Kowloon, Hong Kong......................................... 1,000 Leased
Madrid, Spain.............................................. 1,000 Leased
</TABLE>
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(1) Shared by both Tools & Supplies and Engineered Solutions segments.
Tools & Supplies also leases a 37,000 square foot manufacturing facility in
Mobile, Alabama which is vacant and currently listed for sublease, and a 68,000
square foot office building in Butler, Wisconsin that is partially sublet.
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Engineered Solutions
Engineered Solutions maintains ten manufacturing facilities throughout
North America, Europe and Asia-Pacific and four distribution and sales
facilities.
<TABLE>
<CAPTION>
Square
Facility feet Status
-------- ------- ------
<S> <C> <C>
Manufacturing
Oldenzaal, The Netherlands................................. 130,000 Leased
Cudahy, Wisconsin.......................................... 73,000 Leased
Hartford, Connecticut...................................... 65,000 Owned
Pachuca, Mexico(1)......................................... 61,000 Owned
Portage, Wisconsin......................................... 51,000 Owned
Beaver Dam, Wisconsin...................................... 44,000 Owned
Westfield, Wisconsin....................................... 40,000 Owned
Akhisar, Turkey............................................ 29,000 Owned
Seoul, South Korea(1)...................................... 18,000 Leased
Salem, Oregon.............................................. 14,000 Leased
Distribution and Sales
Tokyo, Japan(1)............................................ 39,000 Leased
Massey (Paris), France(1).................................. 9,000 Leased
Chino, California.......................................... 7,000 Leased
Torrijos, Toledo, Spain.................................... 2,000 Leased
</TABLE>
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(1) Shared by both Tools & Supplies and Engineered Solutions segments.
Engineered Solutions also leases a 38,000 square foot building in Butler,
Wisconsin, which is currently sublet.
Item 3. Legal Proceedings
The Company is a party to various legal proceedings that have arisen in the
normal course of business. These legal proceedings typically include product
liability, environmental, labor and patent claims. APW Ltd. has assumed
liability with respect to, and will indemnify Actuant against, those
proceedings involving the Electronics Business, while Actuant retains
liability with respect to, and will indemnify APW Ltd. against, those
proceedings involving the Industrial Business, including past divestitures.
We self-insure a portion of our product liability by maintaining a
retention provision under our insurance program. We have recorded reserves for
estimated losses based on the specific circumstances of each case. Such
reserves are recorded when it is probable that a loss has been incurred as of
the balance sheet date and the amount of the loss can be reasonably estimated.
In our opinion, the resolution of these contingencies is not likely to have a
material adverse effect on our financial condition, results of operation or
cash flows. For further information refer to Note O--"Contingencies and
Litigation" in Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
The names, ages and positions of all of the executive officers of the
Company as of the record date of November 22, 2000 are listed below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert C. Arzbaecher 40 President and Chief Executive Officer; Director
Andrew G. Lampereur 37 Vice President and Chief Financial Officer
Terry M. Braatz 43 Treasurer
Dawn M. Doering 33 Corporate Controller
Todd Hicks 42 Vice President--Enerpac
Ralph Keller 53 Vice President--Operations
Arthur Kerk 51 Vice President--Engineered Solutions--Europe and Asia
Brian Kobylinski 34 Vice President--Distribution and OEM Business
Joe O'Connor, Jr. 54 Vice President--Human Resources
Jerry Peiffer 52 Vice President--Engineered Solutions--Americas
Anthony W. Asmuth III 58 Secretary
</TABLE>
Robert C. Arzbaecher, President and Chief Executive Officer. Mr. Arzbaecher
was named President and Chief Executive Officer of the Company on August 9,
2000. He served as Vice President and Chief Financial Officer of Applied Power
in 1994 and Senior Vice President in 1998. He served as Vice President,
Finance of Tools & Supplies from 1993 to 1994. He joined Applied Power Inc. in
1992 as Corporate Controller. From 1988 through 1991, Mr. Arzbaecher was
employed by Grabill Aerospace Industries LTD, where he last held the position
of Chief Financial Officer.
Andrew G. Lampereur, Vice President and Chief Financial Officer. Mr.
Lampereur joined Applied Power Inc. in 1993 as Corporate Controller, a
position he held until 1996 when he was appointed Vice President of Finance
for Gardner Bender. In 1998, Mr. Lampereur was appointed Vice President,
General Manager for Gardner Bender. In 1999, he served as the business
development and special projects leader for Applied Power. He was appointed to
his present position on August 9, 2000. Prior to joining Applied Power Inc.,
Mr. Lampereur was the Corporate Controller of Fruehauf Trailer Corporation and
held a number of financial management positions at Terex Corporation.
Terry M. Braatz, Treasurer. Mr. Braatz was appointed Treasurer on August 9,
2000, shortly after joining the Company. Prior thereto, he held various
financial management positions at Johnson Controls, Inc. from 1979 to 2000,
including Manager, Internal Treasury and Manager, Corporate Finance.
Dawn M. Doering, Corporate Controller. Ms. Doering joined Applied Power
Inc. as Manager of Corporate Accounting in 1995, a position she held until
1998. From 1998 until 2000, Ms. Doering held a number of financial leadership
positions in the Company's Industrial Business. Ms. Doering was appointed to
her present position on August 9, 2000. Prior to joining Applied Power Inc.,
she worked for the public accounting firm of Deloitte & Touche LLP.
Todd Hicks, Vice President, Enerpac. Mr. Hicks has held a variety of
marketing and sales positions with Enerpac and the former Wright Line business
unit of Applied Power prior to being promoted to his current position in 1999.
He previously worked for General Electric in a number of marketing positions
prior to joining Applied Power.
Ralph Keller, Vice President of Operations. Mr. Keller joined the Company
in 1999 in his present position. Prior to joining Applied Power Inc. he held
senior operating positions in multinational organizations, most recently with
Whitecap, Inc., a subsidiary of Schmalbach Lubeca AG.
Arthur Kerk, Vice President, Engineered Solutions--Europe and Asia. Mr.
Kerk joined Applied Power in 1995 as Commercial Director of Power-Packer
Europe. A resident of The Netherlands, he was promoted to
10
<PAGE>
Managing Director of Power-Packer Europe in 1996, and subsequently was
appointed as Leader of Engineered Solutions--Europe in 1997. Prior to joining
Applied Power, he worked in sales management at Conex Union and as Managing
Director of McKechnie in The Netherlands.
Brian Kobylinski, Vice President, Distribution and OEM Business. Mr.
Kobylinski was recently appointed leader of the distribution and OEM channels
of Gardner Bender. Prior thereto, he served as leader of Gardner Bender's Del
City operation, Gardner Bender's Vice President of Marketing and Director of
OEM sales. Prior to joining Applied Power Inc. in 1992, Mr. Kobylinski held
various sales positions in the insurance industry.
Joe O'Connor, Jr., Vice President of Human Resources. Mr. O'Connor joined
Applied Power Inc. in 1999 in his present position. Prior to joining Applied
Power Inc., he held human resource roles in a number of multinational
organizations, including subsidiaries of Pfizer and Monsanto.
Jerry Peiffer, Vice President, Engineered Solutions--Americas. Mr. Peiffer
joined the Company in 1997 when Applied Power acquired Versa Technologies. Mr.
Peiffer worked at Versa Technologies since 1994, serving as the leader of its
Power Gear business. He worked in a number of positions including sales,
engineering, operations and general management for three companies over a 23
year span prior to joining Versa Technologies, including Generac, McQuay-
Perfex, Inc. and Hein Werner Corporation.
Anthony W. Asmuth III, Secretary. Mr. Asmuth is a partner in the law firm
of Quarles & Brady LLP, Milwaukee, Wisconsin, having joined that firm in 1989.
Quarles & Brady performs legal services for Applied Power and certain of its
subsidiaries and affiliates, including APW Ltd. Mr. Asmuth had previously
served as Secretary of Applied Power from 1986 to 1993 and from 1994 to
present.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the New York Stock Exchange under
the symbol ATU. At October 31, 2000, the approximate number of record
shareholders of common stock was 5,428. The high and low sales prices of the
common stock by quarter for each of the past two years were as follows:
<TABLE>
<CAPTION>
Fiscal
Year Period High Low
------ ------ ---- ---
<S> <C> <C> <C>
2000 August 1 to August 31(1) $ 5 $ 3
June 1 to July 31 43 3/4 27 1/2
March 1 to May 31 30 9/16 22 3/16
December 1 to February 29 37 23 3/8
September 1 to November 30 34 7/16 27 1/8
1999 June 1 to August 31 $32 1/2 $23 13/16
March 1 to May 31 35 3/8 21 3/8
December 1 to February 28 38 7/8 23 3/8
September 1 to November 30 37 3/4 20 3/8
</TABLE>
--------
(1) On July 31, 2000, the Company spun off its Electronics Business as a
company named APW Ltd. and this resulted in the Company's stock price
decreasing from approximately $39.8125 (combined price as of spin-off) to
$3.062 for Applied Power Inc. after the spin-off.
Quarterly dividends of $0.015 per share were declared and paid for each of
the quarters above, with the exception of the fourth quarter of fiscal 2000 in
which no dividends were declared. The Company's current credit agreements
restrict its ability to pay dividends. We do not plan on declaring or paying
dividends in the foreseeable future, rather using cash flow for working
capital needs and to reduce outstanding debt.
11
<PAGE>
Item 6. Selected Financial Data
The following selected historical financial data have been derived from the
consolidated financial statements of Applied Power. The data should be read in
conjunction with these financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
During 1999, Applied Power's management began to consider the separation of
the Electronics Business from the Industrial Business. The Company reviewed
strategic options, including the possible sale of the Industrial Business.
Ultimately, it was determined that the separation of the two business segments
in the form of a spin-off of the Electronics Business to shareholders was the
preferred option. On January 26, 2000, Applied Power's board of directors
authorized various actions intended to position Applied Power to spin-off the
Electronics Business to its shareholders in the form of a special dividend. On
July 7, 2000, Applied Power's board of directors approved the Distribution.
The Distribution occurred on July 31, 2000 with shareholders of Applied Power
common stock as of the July 21, 2000 record date receiving one share of APW
Ltd. common stock for every Applied Power share owned. Applied Power now
trades separately on The New York Stock Exchange ("NYSE") under the ticker
symbol "ATU." APW Ltd. trades on the NYSE under the ticker symbol "APW."
The financial data presented in the following table reflect all business
units other than the Electronics Business. Included in the table are the
results of businesses divested, until their respective dates of sale. As a
result, the selected financial data in the following table are not fully
representative of the group of business units that comprise Actuant today. We
have included a separate adjusted financial data table in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
includes only those units that comprise Actuant today.
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------
2000 1999 1998(2) 1997(2) 1996
------ -------- ------- ------- ------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data(1):
Net sales......................... $671.6 $ 695.7 $637.5 $522.4 $514.5
Gross profit...................... 242.2 252.7 200.9 180.5 180.8
Operating expenses(3)(4)(5)....... 150.4 144.5 179.0 139.8 138.5
Operating earnings................ 84.3 99.4 9.3 35.8 38.2
Earnings from continuing
operations....................... 28.0 34.6 0.1 22.6 23.8
Diluted earnings per share from
continuing operations............ 0.70 0.86 0.00 0.57 0.57
Cash dividends per share(6)(7).... 0.045 0.060 0.060 0.060 0.060
Balance Sheet Data
(at end of period)(1):
Total assets(8)................... $417.0 $1,059.9 $711.5 $486.4 $448.4
Total debt(9)..................... 432.5 521.2 225.2 54.8 94.2
</TABLE>
--------
(1) The Company completed various acquisitions and divestitures that impact
the comparability of the selected financial data presented in the table.
For additional information, see Note D--"Merger, Acquisitions and
Divestitures" in Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Acquisitions and Divestitures."
(2) Operating results for fiscal 1998 and 1997 include merger, restructuring
and other non-recurring charges that were recognized in cost of sales and
operating expenses. Such expenses totaled $56.9 million and $6.2 million
on a pre-tax basis in fiscal 1998 and 1997, respectively. For additional
information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note H--"Merger, Restructuring
and Other Non-recurring Items" in Notes to Consolidated Financial
Statements.
(3) Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge
due to the cancellation of a contract. The Company recorded a $1.4 million
gain in fiscal 2000 when it recovered costs in excess of what was
12
<PAGE>
anticipated when the loss was initially recorded. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes
to Consolidated Financial Statements.
(4) Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution, and a $5.4 million pre-tax charge for
the loss on the sale of product lines. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Note D--
"Merger, Acquisitions and Divestitures" and Note H--"Merger, Restructuring
and Other Non-recurring Items" in Notes to Consolidated Financial
Statements.
(5) Operating expenses include engineering, selling and administrative
expenses, contract termination costs (recovery), corporate reorganization
charges, loss on product line dispositions, merger related expenses, and
all of Applied Power's general corporate expenses (which include
expenditures on resources and services that supported the Electronics
Business). Total general corporate expenses were as follows:
<TABLE>
<CAPTION>
Fiscal Period Amount
------------- -------------
(in millions)
<S> <C>
2000......................................................... $17.6
1999......................................................... 12.1
1998 (excluding expenses in (2), above)...................... 17.5
1997......................................................... 15.2
1996......................................................... 13.8
</TABLE>
Such amounts include the general corporate expenses for Zero Corporation
("ZERO") for periods both prior to and after its merger with Applied Power
in fiscal 1998. The merger was accounted for using the pooling of interests
method of accounting, with all of Applied Power's historical results
restated to include the historical results of ZERO. The majority of ZERO's
general corporate expenses was eliminated shortly after its acquisition, as
its corporate support functions were provided by existing Applied Power
corporate personnel. For further information, see Note A--"Summary of
Significant Accounting Policies" in Notes to Consolidated Financial
Statements. General corporate expenses are anticipated to decrease in the
periods after the Distribution due to the need for fewer employees
performing such functions and a reduction in the size of the organization
being supported by such corporate personnel.
(6) Applied Power split its stock two-for-one in fiscal 1998. All dividend and
per share data have been adjusted for this stock split.
(7) Quarterly dividends of $0.015 per share were declared and paid by the
Company for each of the quarters above, with the exception of the fourth
quarter of fiscal 2000 in which no dividends were declared due to the
spin-off of the Electronics segment. Actuant does not intend to pay
dividends in the immediate future.
(8) Includes net assets of discontinued operations (consisting of the
Electronics Business) as follows:
<TABLE>
<CAPTION>
Balance Sheet Date Balance
------------------ -------------
(in millions)
<S> <C>
August 31, 2000........................................... $ 0.0
August 31, 1999........................................... 598.5
August 31, 1998........................................... 249.7
August 31, 1997........................................... 86.2
August 31, 1996........................................... 49.0
</TABLE>
(9) Historically, Applied Power incurred indebtedness at the parent company
level and at a limited number of subsidiaries, rather than at the
operating unit or segment level. Debt in the table, with the exception of
the August 31, 2000 amount, reflects the debt balance after an allocation
was made to the Electronics Business, which is reported in discontinued
operations. The debt allocated to the Electronics Business was based on
the estimated debt expected to be assigned to APW Ltd. in the debt
realignment related to the Distribution which approximated actual results.
Historical net financing costs were allocated based on the debt allocation
using the historical weighted-average rate. For further information, see
Note I--"Debt" in Notes to Consolidated Financial Statements.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements. The discussion includes forward-looking statements that involve
certain risks and uncertainties. See "Forward-Looking Statements and
Cautionary Factors." Certain of the financial data included may appear to not
add or subtract properly due to rounding.
Results of Operations
The Distribution
During 1999, Applied Power's management began to consider the separation of
the Electronics Business from the Industrial Business. The Company reviewed
strategic options, including the possible sale of the Industrial Business.
Ultimately, it was determined that the separation of the two business segments
in the form of a spin-off of the Electronics Business to shareholders was the
preferred option. On January 26, 2000, Applied Power's board of directors
authorized various actions intended to position Applied Power to spin-off the
Electronics Business to its shareholders in the form of a special dividend. On
July 7, 2000, Applied Power's board of directors approved the Distribution.
The Distribution occurred on July 31, 2000 with shareholders of Applied Power
common stock as of the July 21, 2000 record date receiving one share of APW
Ltd. common stock for every Applied Power share owned. Applied Power now
trades separately on The New York Stock Exchange ("NYSE") under the ticker
symbol "ATU." APW Ltd. trades on the NYSE under the ticker symbol "APW."
Historical Financial Data
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was spun off to shareholders
in the Distribution. Financial data presented in the table include the Non-
continuing Businesses (as defined below). As a result, the selected financial
data in the following table are not fully representative of the group of
business units that comprise Actuant today. We have included a separate
financial data table in "Unaudited Adjusted Historical Financial Data" below
that includes only those units of Applied Power that comprise Actuant today.
<TABLE>
<CAPTION>
Year Ended August
31,
--------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
Statement of Earnings Data:
Net sales........................................... $671.6 $695.7 $637.5
Gross profit........................................ 242.2 252.7 200.9
Operating expenses excluding general corporate
expenses........................................... 132.8 132.4 161.5
General corporate expenses.......................... 17.6 12.1 17.5
Operating earnings.................................. 84.3 99.4 9.3
Other Financial Data:
Depreciation........................................ 15.1 17.4 12.0
Amortization of intangible assets................... 7.5 8.7 12.6
Capital expenditures................................ 11.4 22.9 25.2
</TABLE>
Unaudited Adjusted Historical Financial Data
The financial information included in "Selected Consolidated Financial
Data" and in "Historical Financial Data" above includes financial information
for the Non-continuing Businesses (as defined below), and as a result is not
fully representative of the group of business units that comprise Actuant
today. We have included in the following table certain adjusted financial
information for only those business units that comprise Actuant today.
Historical net financing costs and income taxes, as well as balance sheet
data, have not been adjusted and are therefore not presented in the following
table.
14
<PAGE>
<TABLE>
<CAPTION>
Year Ended August
31,
--------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
Statement of Earnings Data(1):
Adjusted net sales................................. $514.7 $508.7 $459.2
Adjusted gross profit(2)........................... 185.9 182.9 145.2
Adjusted operating expenses excluding general
corporate expense(2)(3)(4)........................ 97.4 95.2 118.7
General corporate expenses(5)...................... 17.6 12.1 17.5
Adjusted operating earnings(2)(3)(4)(5)............ 64.8 69.6 (1.9)
Other Financial Data(1):
Adjusted depreciation.............................. 10.8 10.2 10.6
Adjusted amortization of intangible assets......... 6.1 6.0 10.9
Adjusted capital expenditures...................... 8.6 13.7 15.4
</TABLE>
--------
(1) We have excluded the operating results of the Non-continuing Businesses
(as defined below) from the financial data presented in this table.
However, we completed various acquisitions that impact the comparability
of the adjusted financial data presented in the table. For additional
information, see Note D--"Merger, Acquisitions and Divestitures" in Notes
to Consolidated Financial Statements as well as "--Acquisitions and
Divestitures." The Non-continuing Businesses include Norelem, Enerpac's
automotive product line, Gardner Bender Everest, Barry Controls, Air
Cargo, Samuel Groves, Moxness and Magnets. The Norelem, Enerpac automotive
product line, Barry Controls, Air Cargo and Samuel Groves units were
divested in fiscal 2000. The Moxness product line was divested in fiscal
1999. The Gardner Bender Everest and Magnets units were transferred to the
Electronics business segment immediately prior to the Distribution and are
part of APW Ltd.
(2) Operating results for fiscal 1998 include merger, restructuring and other
non-recurring charges that were recognized in cost of products sold and
operating expenses. Such expenses totaled $56.9 million in fiscal 1998. Of
such charges, $17.7 million in fiscal 1998, were recorded in cost of
products sold, with the balance recorded in operating expenses. For
additional information, see "--Restructuring, Merger Costs and Debt
Realignment" and Note H--"Merger, Restructuring and Other Non-recurring
Items" in Notes to Consolidated Financial Statements.
(3) In fiscal 2000, we recorded a $1.4 million gain when we recovered costs in
excess of what was anticipated when the loss was initially recorded.
Fiscal 1999 includes a $7.8 million charge relating to the cancellation of
a contract. See Note H--"Merger, Restructuring and Other Non-recurring
Items" in Notes to Consolidated Financial Statements.
(4) Results for fiscal 2000 include a $12.4 million charge for investment
banking, legal, accounting and other fees and expenses associated with the
Distribution, and a $5.4 million provision for product line dispositions.
See Note D--"Merger, Acquisitions and Divestitures" and Note H--"Merger,
Restructuring and Other Non-recurring Items" in Notes to Consolidated
Financial Statements.
(5) General corporate expenses consist of all of Applied Power's general
corporate expenses, including expenditures on resources and services that
supported the Electronics business segment. Such amounts include the
general corporate expenses for ZERO for periods both prior to and after
its merger with Applied Power in fiscal 1998. The merger was accounted for
using the pooling of interests method of accounting, with all of Applied
Power's historical results restated to include the historical results of
ZERO. The majority of ZERO's general corporate expenses was eliminated
shortly after its acquisition, as its corporate support functions were
provided by existing Applied Power corporate personnel. For further
information, see Note A--"Summary of Significant Accounting Policies" in
Notes to Consolidated Financial Statements. General corporate expenses are
anticipated to decrease following the Distribution due to the need for
fewer employees and a reduction in the size of the organization being
supported.
15
<PAGE>
Acquisitions and Divestitures
We completed a number of acquisitions over the past five years that
expanded and diversified our product lines, capabilities and global reach.
During this time, we also divested several businesses and product lines that
were no longer considered integral to our business strategy. The following
table summarizes the significant acquisitions and divestitures that were
completed during the last five years:
<TABLE>
<CAPTION>
Approximate
Segment Date Annual Sales(1)
-------------------- ------------- ---------------
(in millions)
<S> <C> <C> <C>
Acquisitions:
Nielsen Sessions and Air
Cargo(2)................ Engineered Solutions July 1998 $ 29
Del City Wire............ Tools & Supplies February 1998 16
Ancor Products........... Tools & Supplies January 1998 7
Versa/Tek................ Engineered Solutions October 1997 75
Divestitures:
Norelem.................. Tools & Supplies August 2000 $ 8
Barry Controls........... Engineered Solutions June 2000 120
Air Cargo................ Engineered Solutions May 2000 22
Samuel Groves............ Engineered Solutions October 1999 9
Moxness.................. Engineered Solutions March 1998 6
</TABLE>
--------
(1) At time of transaction. Sales figures exclude sales from business units
acquired in these transactions that now operate in the Electronics
Business.
(2) Acquired as part of the ZERO Merger which was accounted for as a pooling-
of-interests. Results for these businesses are included in historical
amounts.
The comparability of operating results from period to period is impacted by
these acquisitions and divestitures. See Note D--"Merger, Acquisitions and
Divestitures" in Notes to Consolidated Financial Statements.
Restructuring and Merger Costs
Over the past five years, the Company has undergone restructuring and has
implemented a number of actions to improve business focus, reduce our cost
structure and leverage existing capabilities and infrastructure. These actions
included the consolidation of headquarter, manufacturing and warehouse
facilities, as well as personnel reductions, outsourcing of certain
operations, significant reductions in the number of SKUs and the sale or exit
of low-profit margin or unprofitable product lines.
Within the Tools & Supplies segment, the Enerpac business underwent
significant changes, including the centralization of engineering,
administration and distribution functions into regional hubs and a material
reduction in the number of SKUs. Concurrently, Gardner Bender rationalized a
number of acquired businesses by consolidating most sales and marketing
responsibilities into a central location. Over 5,000 duplicate and under-
performing SKUs within Gardner Bender were eliminated. Additionally, most of
the manufacturing and warehousing functions for certain acquired businesses
were consolidated into existing facilities. The North American Enerpac and
Gardner Bender organizations were also consolidated and support functions such
as finance, human resources and marketing were combined.
The Engineered Solutions segment also underwent restructuring actions aimed
at enhancing profitability. Certain unprofitable product lines were
discontinued, while others were shifted to lower cost plants within Applied
Power or outsourced completely. Certain support functions were consolidated
into regional centers, resulting in personnel reductions and severance.
A substantial portion of the restructuring during the periods presented
took place in fiscal 1999. We recorded a charge to the consolidated statement
of earnings in the fourth quarter of fiscal 1998 to accrue for the costs of
16
<PAGE>
the 1999 restructuring. In addition to a $54.9 million pre-tax charge for
merger, restructuring and other non-recurring charges recorded in the fourth
quarter of fiscal 1998, we incurred $2.0 million of restructuring charges in
Tools & Supplies earlier in the year for severance payments to terminated
employees and costs incurred to consolidate two operations. In fiscal 1998, we
also reduced goodwill by $5.1 million in accordance with SFAS No. 121,
"Accounting for Impairment of Long-lived Assets to be Disposed of."
In connection with the merger with ZERO in 1998 (see Note D--"Merger,
Acquisitions and Divestitures" in Notes to Consolidated Financial Statements),
we recorded transaction costs related to legal, accounting and financial
advisory services which were expensed as required under the pooling of
interests method of accounting. In addition, we incurred costs associated with
the organization realignment, closure of ZERO headquarters, a change in
estimate of a receivable valuation and the write-off of obsolete inventory due
to conforming product lines. Together, these items totaled approximately $20.1
million. While most of ZERO's business is reported in the Electronics Business
segment (which is included as a discontinued operation in the Consolidated
Financial Statements), this $20.1 million of expenses was recorded at the
corporate level and in accordance with generally accepted accounting
principles was not allocated to the Electronics Business.
We recorded the majority of the restructuring expenses in fiscal 1998,
along with all of the $20.1 million of ZERO merger and organization
realignment costs. The combined merger, restructuring and other non-recurring
items reported in the fiscal 1998 Consolidated Statements of Earnings totaled
$56.9 million on a pre-tax basis and were reported in the consolidated
statement of earnings as follows:
<TABLE>
<CAPTION>
Amount
Description (in millions)
----------- ------------
<S> <C>
Cost of products sold............................................. $15.7
Engineering, selling and administrative expenses.................. 9.0
Amortization of intangible assets................................. 5.1
Restructuring charges............................................. 11.4
Merger related expenses........................................... 9.3
Estimated loss on sale of subsidiary(1)........................... 4.5
-----
Merger, restructuring and non-recurring items recorded in the
fourth quarter of fiscal 1998.................................. 54.9
Other fiscal 1998 restructuring charges recorded in cost of
products sold.................................................... 2.0
-----
Total fiscal 1998 merger, restructuring and non-recurring
items........................................................ $56.9
=====
</TABLE>
--------
(1) Asset impairment charge recorded to reduce the carrying value of an
Industrial Business unit to estimated realizable value. The subsidiary was
subsequently divested in November 1999.
Of the total fiscal 1998 charges, approximately $13.6 million was recorded
for severance payments to approximately 400 employees, the majority of which
was paid in fiscal 1999. We completed the planned restructuring programs that
were accrued in fiscal 1998 during fiscal 1999.
The comparability of our operating results in fiscal 1998 and 1999 is
impacted by these merger, restructuring and other non-recurring charges. As a
direct result of these restructuring initiatives, including some of the early
programs started in fiscal 1996, our financial results improved significantly
from fiscal 1998 to fiscal 2000.
17
<PAGE>
Net Sales
The following table summarizes our net sales for the past three fiscal
years:
<TABLE>
<CAPTION>
Year Ended August
31,
----------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
Net Sales by Segment:
Tools & Supplies.................................. $303.6 $309.3 $305.7
Less: Non-continuing T&S Businesses(1)............ 13.9 18.7 26.0
------ ------ ------
Adjusted Tools & Supplies....................... $289.7 $290.6 $279.7
====== ====== ======
Engineered Solutions.............................. $368.1 $386.4 $331.8
Less: Non-continuing ES Businesses(2)............. 143.1 168.2 152.3
------ ------ ------
Adjusted Engineered Solutions................... $225.0 $218.2 $179.5
====== ====== ======
Total net sales................................... $671.6 $695.7 $637.5
Less: Non-continuing Businesses................... 156.9 186.9 178.3
------ ------ ------
Total adjusted net sales...................... $514.7 $508.8 $459.2
====== ====== ======
Net Sales Growth by Segment:
Tools & Supplies.................................. -1.8% 1.2%
Adjusted Tools & Supplies......................... -0.3 3.9
Engineered Solutions.............................. -4.7 16.5
Adjusted Engineered Solutions..................... 3.2 21.6
Total net sales growth............................ -3.5 9.1
Total adjusted net sales growth................... 1.2 10.8
</TABLE>
--------
(1) The "Non-continuing T&S Businesses" are Norelem, Enerpac's automotive line
of business and Gardner Bender Everest.
(2) The "Non-continuing ES Businesses" are Barry Controls, Air Cargo, Samuel
Groves, Moxness and Magnets.
Fiscal 2000 Compared to Fiscal 1999
Total net sales decreased by $24.1 million, or 3.5%, from $695.7 million in
fiscal 1999 to $671.6 million in fiscal 2000. This reduction results from the
divestiture or removal of the Non-continuing Businesses during fiscal 2000,
and the negative impact of foreign currency rate changes on translated
results. Partially offsetting these factors were increased shipments by the
Company in a number of markets, most notably into the recreational vehicle,
automotive convertible top and truck cab-tilt markets. Fiscal 1999 sales from
Non-continuing Businesses were $30.1 million higher than in fiscal 2000 due to
the timing of the divestitures of such businesses during fiscal 2000.
Excluding the Non-continuing Businesses, adjusted net sales increased by 1.2%.
Excluding currency translation adjusted net sales increased by approximately
4.0%.
Tools & Supplies segment sales decreased by 1.8% from $309.3 million to
$303.6 million as a result of the foreign currency rate changes and the
divestiture of the Non-continuing T&S Businesses. Excluding the impact of the
Non-continuing T&S Businesses, Tools & Supplies sales were essentially
unchanged year over year. Excluding both currency rate changes and the Non-
continuing T&S Businesses, sales from this segment grew $4.4 million, or 1.5%.
This organic growth resulted from improved sales of industrial high force
hydraulic tools, most notably in North America and Asia.
Sales in the Engineered Solutions segment declined 4.7% from $386.4 million
to $368.1 million due to the Non-continuing ES Businesses and foreign currency
translation. Sales in this segment grew 3.2% if the impact of the Non-
continuing ES Businesses is factored out, reflecting solid growth in sales to
the recreational vehicle,
18
<PAGE>
truck cab-tilt and automotive convertible top markets. Foreign currency
translation had the impact of reducing the "constant dollar" sales growth in
the Engineered Solutions segment by approximately $8.8 million, due to the
softness of the Euro against the U.S. Dollar. Excluding both foreign currency
translation and the Non-continuing ES Businesses, Engineered Solutions segment
sales grew 6.9%.
Fiscal 1999 Compared to Fiscal 1998
Total net sales increased by $58.2 million, or 9.1%, from $637.5 million in
fiscal 1998 to $695.7 million in fiscal 1999, due to a combination of organic
growth and acquisitions. Excluding the Non-continuing Businesses, total
adjusted net sales increased by $49.5 million, or 10.8%, from $459.2 million
to $508.7 million, also attributable to organic growth and acquisitions.
Net sales for Tools & Supplies increased by $3.6 million, or 1.2%, from
$305.7 million in fiscal 1998 to $309.3 million in fiscal 1999. This increase
was the result of both organic growth and acquisitions and was net of a $3.1
million sales decline following the transfer in fiscal 1998 of a small product
line to the Electronics Business. The full year impact of the 1998
acquisitions of Del City, Ancor and Nylo-Flex added approximately $9.0 million
of net sales in fiscal 1999. Net sales growth was partially offset by Asia-
related weakness at Enerpac, which we believe adversely impacted Enerpac sales
by $4.3 million; the elimination of over 2,500 SKUs in late fiscal 1998, which
also reduced net sales; and the cancellation of a pneumatic tool distribution
agreement, which resulted in a $2.0 million decrease in net sales. Excluding
the Non-continuing T&S Businesses, and adjusting for the items described
above, adjusted Tools & Supplies net sales increased by approximately $8.2
million, or 2.9%.
Net sales for Engineered Solutions increased by $54.6 million, or 16.5%,
from $331.8 million in fiscal 1998 to $386.4 million in fiscal 1999, as a
result of acquisitions and organic growth. Excluding net sales from the Non-
continuing ES Businesses, adjusted Engineered Solutions net sales increased by
$38.7 million, or 21.6%, from $179.5 million to $218.2 million. Approximately
$7.0 million of this increase was due to the inclusion of a full year of
results for Versa/Tek, which was acquired in the first quarter of fiscal 1998.
The balance of the increase resulted from additional product shipments to RV,
convertible top and medical markets. Excluding the impact of the Versa/Tek
acquisition, and excluding the Non-continuing ES Businesses, adjusted
Engineered Solutions net sales increased by $31.7 million, or 17.7%.
Gross Profit
The Company's adjusted gross profit increased during the periods presented
as a result of additional sales volume and the benefits of restructuring.
Adjusted gross profit margin also improved as a result of favorable product
sales mix and leveraging increased sales (and the corresponding production
volumes) over fixed manufacturing and warehousing costs. The favorable product
sales mix resulted from (i) the elimination of numerous low-profit margin and
unprofitable SKUs in the Tools & Supplies segment as well as low-profit margin
product lines from both segments and (ii) the greater mix of sales from higher
margin businesses.
The comparability of gross profit and gross profit margins during fiscal
2000, 1999, and 1998 was impacted by restructuring costs and the benefits
derived from such actions. For further information, see "--Debt Realignment."
In addition to such restructuring actions, we improved our cost structure and
gross profit margins by expanding our World Class Performance program ("WCP
program") to substantially all manufacturing and distribution locations. The
WCP program was introduced in fiscal 1996 at selected sites, and is focused on
achieving operational improvements through a variety of methods. Through this
program, we strive to continuously improve our cost structure by reducing
production cycle times, scrap and waste, inventory levels, defects, production
floor space and product cost. The WCP program also focuses on improving asset
utilization, productivity, quality and employee safety. As part of this
program, we make use of Kaizen events, lean manufacturing and Kanban
methodologies. We believe that the operational improvements attained as a
result of the WCP program have been a key factor in our improved gross profit
margins since the program was launched.
19
<PAGE>
The following table sets forth gross profit and gross profit margins for
the past three fiscal years:
<TABLE>
<CAPTION>
Year Ended August
31,
----------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
Gross Profit by Segment:
Tools & Supplies(1)............................... $122.9 $124.6 $ 98.9
Less: Non-continuing T&S Businesses............... 5.6 6.1 6.8
------ ------ ------
Adjusted Tools & Supplies(1).................... $117.3 $118.5 $ 92.1
====== ====== ======
Engineered Solutions(1)........................... $119.3 $128.1 $102.0
Less: Non-continuing ES Businesses................ 50.6 63.2 48.9
------ ------ ------
Adjusted Engineered Solutions(1)................ $ 68.7 $ 64.9 $ 53.1
====== ====== ======
Total gross profit(1)............................. $242.2 $252.7 $200.9
Less: Non-continuing Businesses................... 56.3 69.3 55.7
------ ------ ------
Total adjusted gross profit(1)................ $185.9 $183.4 $145.2
====== ====== ======
Gross Profit Margins by Segment:
Tools & Supplies(1)............................... 40.5% 40.3% 32.3%
Adjusted Tools & Supplies(1)...................... 40.5 40.8 32.9
Engineered Solutions(1)........................... 32.4 33.2 30.7
Adjusted Engineered Solutions(1).................. 30.5 29.7 29.6
Total gross profit margin(1)...................... 36.1 36.3 31.5
Total adjusted gross profit margin(1)............. 36.1 36.0 31.6
</TABLE>
--------
(1) Fiscal 1998 reflects $17.7 million of restructuring costs related to
consolidating facilities, personnel reductions, eliminating SKUs and the
corresponding write-off of excess or obsolete inventory. All but $2.3
million of this amount was recorded in the Tools & Supplies segment. For
further information, see Note H--"Merger, Restructuring and Other Non-
recurring Items" in Notes to Consolidated Financial Statements, Note 2 to
"Selected Consolidated Financial Data" and "--Restructuring and Merger
Costs" and "--Debt Realignment."
Fiscal 2000 Compared to Fiscal 1999
Total gross profit decreased by $10.5 million, or 4.2%, from $252.7 million
in fiscal 1999 to $242.2 million in fiscal 2000. This decrease results from a
corresponding reduction in sales volume. Total gross profit margin declined
slightly from 36.3% to 36.1% primarily as a result of sales mix associated
with the Non-continuing Businesses. Excluding the Non-continuing Businesses,
gross profit (adjusted gross profit) increased by $3.0 million from $182.9
million in fiscal 1999 to $185.9 million in fiscal 2000. Total adjusted gross
profit margin increased from 36.0% to 36.1%.
Gross profit for Tools & Supplies decreased by $1.7 million from $124.6
million in fiscal 1999 to $122.9 million in fiscal 2000. This decline results
the corresponding sales reduction in the segment, caused by foreign currency
and the Non-continuing T&S Businesses, and a slight deterioration of the gross
profit margin. Excluding the Non-continuing T&S Businesses, gross profit
margins decreased from 40.8% to 40.5% as a result of the modest decline in the
Gardner Bender business.
Engineered Solutions Gross Profit decreased by $8.8 million, or 6.9%, from
$128.1 million in fiscal 1999 to $119.3 million in fiscal 2000 as a result of
a corresponding decline in sales. The respective gross profit margin decreased
from 33.2% to 32.4%. Excluding the Non-continuing ES Businesses, adjusted
Engineered Solutions gross profit increased by $3.8 million from $64.9 million
in fiscal 1999 to $68.7 million in fiscal 2000, and gross profit margin
increased from 29.7% to 30.5%. These improvements reflect additional sales
volume and the benefits of restructuring actions, including the full year
impact of closing our former Pewaukee, Wisconsin plant and outsourcing certain
machining and other manufacturing from our plant in Mexico to third party
providers.
20
<PAGE>
Fiscal 1999 Compared to Fiscal 1998
Total gross profit increased by $51.8 million from $200.9 million in fiscal
1998 to $252.7 million in fiscal 1999. Total gross profit margin increased
from 31.5% to 36.3%. Fiscal 1998 total gross profit included $17.7 million of
restructuring costs. In addition to the restructuring in fiscal 1998, gross
profit increased in fiscal 1999 as a result of substantial cost savings from
the restructuring actions and the gross profit dollars generated on the net
sales growth in fiscal 1999. Excluding the Non-continuing Businesses and the
1998 restructuring charge, total adjusted gross profit margin increased from
35.5% to 36.0%, due primarily to cost savings resulting from restructuring
initiatives.
Gross profit for Tools & Supplies increased by $25.7 million from $98.9
million in fiscal 1998 to $124.6 million in fiscal 1999. Tools & Supplies
gross profit margin increased from 32.3% to 40.3%. These increases resulted
from $15.4 million of restructuring charges attributable to Tools & Supplies
recorded in fiscal 1998. Excluding the restructuring charges, Tools & Supplies
gross profit margin increased from 37.4% to 40.3%. This improvement was due to
emphasis on more profitable product lines through the reduction of certain
SKUs as well as significant savings from restructuring initiatives. Within the
Gardner Bender business, profitability improved as a result of the savings
associated with (a) the closure of five small Del City warehouses early in the
first half of fiscal 1998, (b) the closure of the Jetline plant in North
Carolina in mid-1998, (c) the benefit of eliminating low-profit margin and
unprofitable SKUs from the product line, (d) the introduction of new, higher
profit margin products in the GB Instruments product line, (e) improvements in
packaging operations and (f) product cost savings resulting from new supply
sources and contracts. Enerpac profitability improved as a result of (a) the
elimination of the approximately $1.0 million of gross profit loss incurred in
the prior year from an unprofitable distribution contract, (b) the closure of
the Designed Fluid Air Systems operation, (c) the elimination of low-profit
margin and unprofitable products through the SKU reduction program and (d)
improved manufacturing efficiencies resulting from its WCP Program.
Gross profit for Engineered Solutions increased by $26.1 million from
$102.0 million in fiscal 1998 to $128.1 million in fiscal 1999. Engineered
Solutions gross profit margin increased from 30.7% to 33.2%. Excluding $2.3
million of restructuring charges attributable to Engineered Solutions recorded
in fiscal 1998, Engineered Solutions gross profit margin increased from 31.4%
to 33.2% as a result of restructuring benefits and the impact of leveraging
incremental sales over fixed manufacturing infrastructure costs. Excluding the
Non-continuing ES Businesses, adjusted Engineered Solutions gross profit
increased by $11.7 million due primarily to net sales growth in fiscal 1999
and the restructuring charge in the prior year. Excluding this restructuring
charge, adjusted Engineered Solutions gross profit margin decreased from 30.9%
to 29.7%, reflecting an unfavorable shift in product mix.
Operating Expenses
The following table sets forth operating expenses for the past three fiscal
years:
<TABLE>
<CAPTION>
Year Ended August
31,
---------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
Operating Expenses:
Engineering, selling and administrative expenses... $134.0 $136.7 $153.9
Contract termination costs (recovery)(1)........... (1.4) 7.8 --
Corporate reorganization expenses(2)............... 12.4 -- --
Restructuring charges(3)........................... -- -- 11.4
Merger related expenses(3)......................... -- -- 9.3
Provision for loss on sale of subsidiary and
disposition of product lines(3)................... 5.4 -- 4.5
------ ------ ------
Total operating expenses....................... $150.4 $144.5 $179.0
====== ====== ======
</TABLE>
21
<PAGE>
--------
(1) Operating expenses in fiscal 1999 include a $7.8 million charge relating
to the cancellation of a contract. In fiscal 2000, we recorded a $1.4
million gain when we recovered costs in excess of what we anticipated when
the loss was initially recorded. See Note H--"Merger, Restructuring and
Other Non-recurring Items" in Notes to Consolidated Financial Statements.
(2) Operating expense for fiscal 2000 include $12.4 million of expenses for
investment banking, legal, accounting and other fees associated with the
Distribution. See Note H--"Merger, Restructuring and Other Non-recurring
Items" in Notes to Consolidated Financial Statements.
(3) Operating results for fiscal 1998 include merger related expenses,
restructuring charges and a provision for the loss on the sale of a
subsidiary. Results for fiscal 2000 also include a $5.4 million provision
for losses on disposition of product lines. For further information, see
Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes to
Consolidated Financial Statements.
Operating expenses for items other than engineering, selling and
administrative expenses ("SAE expenses"), including certain of the
restructuring and non-recurring costs, have been recorded at the corporate
level and are not allocated to the business segments. The following table
summarizes our SAE expenses for the past three fiscal years:
SAE Expenses
Our strategy is to continuously improve operating profitability through
employment of our WCP Program and cost reduction programs. Since fiscal 1998,
we have consistently improved operating margins. Combined segment SAE
expenses, as a percent of net sales, have decreased from 21.4% in fiscal 1998
to 17.3% in fiscal 2000. For our continuing businesses, our SAE expenses, as a
percent of net sales, have shown a similar reduction.
<TABLE>
<CAPTION>
Year Ended August
31,
--------------------
2000 1999 1998
------ ------ ------
(in millions)
<S> <C> <C> <C>
SAE Expenses by Segment:
Tools & Supplies.................................... $ 66.4 $ 69.1 $ 79.6
Less: Non-continuing T&S Businesses................. 3.8 4.5 7.7
------ ------ ------
Adjusted Tools & Supplies......................... $ 62.6 $ 64.6 $ 71.9
====== ====== ======
Engineered Solutions................................ $ 50.0 $ 55.5 $ 56.8
Less: Non-continuing ES Businesses.................. 31.7 32.7 35.2
------ ------ ------
Adjusted Engineered Solutions..................... $ 18.3 $ 22.8 $ 21.6
====== ====== ======
Combined segment SAE expenses....................... $116.4 $124.6 $136.4
General corporate expenses.......................... 17.6 12.1 17.5
------ ------ ------
Total SAE expenses.................................. 134.0 136.7 153.9
Less: Non-continuing Businesses..................... 35.4 37.2 42.9
------ ------ ------
Total adjusted SAE expenses..................... $ 98.6 $ 99.5 $111.0
====== ====== ======
</TABLE>
General Corporate Expenses
All of the general corporate expenses incurred by Applied Power Inc.
(including the historical general corporate expenses of ZERO prior to its
merger into Applied Power in fiscal 1998) are included in SAE Expenses. No
portion of such expenses has been allocated to the Electronics Business
financial results, which are included in discontinued operations in the
Consolidated Financial Statements. Management does not believe this level of
expenses is reflective of those required to support Actuant had it been
operating independently for the fiscal periods presented. The Company
anticipates that its general corporate expenses in fiscal 2001 will be
approximately $5.0 million.
22
<PAGE>
Fiscal 2000 Compared to Fiscal 1999
Total SAE expenses decreased by $2.7 million, from $136.7 million in fiscal
1999 to $134.0 million in fiscal 2000. Excluding the Non-continuing
Businesses, adjusted SAE expenses decreased by $0.9 million, or 0.9% from
$99.5 million in fiscal 1999 to $98.6 million in fiscal 2000. The reported SAE
expenses for both 1999 and 2000 include general corporate expenses well in
excess of the approximate $5.0 million the Company anticipates spending in
fiscal 2001.
SAE expenses for Tools & Supplies decreased by $2.7 million, from $69.1
million in fiscal 1999 to $66.4 million in fiscal 2000. This improvement
reflects the continuing benefits of earlier restructuring initiatives,
including the combination of Enerpac's and Gardner Bender's Wisconsin-based
and Canadian-based sales and administrative offices. Excluding the Non-
continuing T&S Businesses, Tools & Supplies adjusted SAE expenses decreased by
$2.0 million from $64.6 million in fiscal 1999 to $62.6 million in fiscal
2000. Tools & Supplies adjusted SAE expenses as a percentage of sales,
declined from 22.2% in fiscal 1999 to 21.6%.in fiscal 2000.
SAE expenses for Engineered Solutions decreased by $5.5 million, from $55.5
million in fiscal 1999 to $50.0 million in fiscal 2000. Excluding the Non-
continuing ES Businesses, adjusted SAE expenses for Engineered Solutions
decreased by $4.5 million, from $22.8 million in fiscal 1999 to $18.3 million
in fiscal 2000. This was due primarily to the benefits obtained from cost
reduction initiatives, including significant headcount reductions at our
domestic automotive unit. Engineered Solutions adjusted SAE expenses as a
percentage of sales, declined from 10.5% in fiscal 1999 to 8.1% in fiscal
2000.
Fiscal 1999 Compared to Fiscal 1998
Total SAE expenses in fiscal 1999 decreased by $17.2 million, or 11.2%,
from $153.9 million in fiscal 1998 to $136.7 million in fiscal 1999. This
reduction was due to the inclusion of $18.2 million of restructuring charges
in fiscal 1998, as well as cost savings realized as a result of such
restructuring. Incremental SAE expenses resulting from the full-year impact of
1998 acquisitions totaled $3.1 million. Excluding the Non-continuing
Businesses, adjusted total SAE expenses declined by $11.5 million, or 10.4%,
from $111.0 million to $99.5 million.
SAE expenses for Tools & Supplies declined by $10.5 million, or 13.2%, from
$79.6 million in fiscal 1998 to $69.1 million in fiscal 1999. This reduction
reflects $9.6 million of restructuring and other non-recurring costs reported
in fiscal 1998. Further, SAE expenses declined due to the success of the
restructuring initiatives undertaken in fiscal 1998, including the
consolidation of (a) European sales office support functions, (b) CalTerm and
Vision sales functions, and (c) the San Diego administration functions into
Tools & Supplies' headquarters in Milwaukee. In addition, we realized cost
savings from combining Enerpac and Gardner Bender support functions into a
single location in early fiscal 1999. Partially offsetting these savings were
incremental SAE expenses of $1.0 million reflecting full-year impact of
acquisitions completed in the prior year.
SAE expenses for Engineered Solutions decreased by $1.3 million, or 2.3%,
from $56.8 million in fiscal 1998 to $55.5 million in fiscal 1999. This
reduction primarily resulted from the inclusion of restructuring costs of $4.3
million in fiscal 1998 SAE expenses. Partially offsetting this was an
incremental $2.1 million of SAE expenses resulting from the full-year impact
of the Versa/Tek acquisition.
23
<PAGE>
Amortization of Intangible Assets
The following table sets forth amortization of intangible assets
("amortization expense") for the past three fiscal years:
<TABLE>
<CAPTION>
Year Ended
August 31,
---------------
2000 1999 1998
---- ---- -----
(in millions)
<S> <C> <C> <C>
Amortization Expense by Segment:
Tools & Supplies......................................... $3.6 $3.9 $ 5.5
Less: Non-continuing T&S Businesses...................... 0.1 0.2 0.2
---- ---- -----
Adjusted Tools & Supplies.............................. $3.5 $3.7 $ 5.3
==== ==== =====
Engineered Solutions..................................... $3.9 $4.8 $ 7.1
Less: Non-continuing ES Businesses....................... 1.3 2.5 1.5
---- ---- -----
Adjusted Engineered Solutions.......................... $2.6 $2.3 $ 5.6
==== ==== =====
Total combined segment amortization expense.............. $7.5 $8.7 $12.6
Less: Non-continuing Businesses.......................... 1.4 2.7 1.7
---- ---- -----
Total adjusted amortization expense.................. $6.1 $6.0 $10.9
==== ==== =====
</TABLE>
Total amortization expense of $7.5 million for fiscal 2000 was lower than
the $8.7 million recorded in the prior year, reflecting the divestiture of the
Barry Controls and Air Cargo Equipment business units in fiscal 2000.
Excluding the Non-continuing Businesses, amortization expense in fiscal years
1999 and 2000 were similar. Fiscal 1999 amortization expense was lower than
fiscal 1998 because the fiscal 1998 amount includes a non-recurring $5.1
million write-off of goodwill. For further information, see Note H--"Merger,
Restructuring and Non-recurring Items" in Notes to Consolidated Financial
Statements.
Net Financing Costs
Excluding the $6.6 million interest rate swap gain recorded in fiscal 2000,
net financing costs increased over all periods presented. This increase
primarily is due to our increasing levels of indebtedness. The increase in
indebtedness results primarily from the acquisitions of business units for the
Electronics Business during the last three years with some small Industrial
Business acquisitions. See Note D--"Merger, Acquisitions and Divestitures" in
Notes to Consolidated Financial Statements for a description of acquisition
activity.
Our capitalization has changed as a result of the Distribution, and our
historical financing costs are not representative of what should be expected
in the future. We expect our financing costs to be higher than what has
historically been incurred as a result of higher interest rates on our debt
and higher levels of indebtedness. See "--Debt Realignment" and Consolidated
Financial Statements. Pro Forma net financing costs for fiscal 2000, assuming
the Distribution had taken place on the first day of the fiscal year, were
approximately $54.5 million. The Company expects to reduce its net financing
costs in fiscal 2001 and subsequent years as it reduces its outstanding debt.
See "--Debt Realignment" and Note I--"Debt" in Notes to Consolidated Financial
Statements for more information about the Company's debt structure.
Income Tax Expense
Our income tax expense is impacted by a number of factors, including the
amount of taxable earnings derived in foreign jurisdictions with tax rates
that are higher or lower than the federal statutory rate, our ability to
utilize various tax credits, the amount of non-deductible expenses and other
items. For example, our effective tax rate in fiscal 1998 was higher than 1999
as a result of a high level of non-deductible expenses and goodwill
amortization and a relatively low level of pre-tax earnings. The Company
expects its effective tax rate in fiscal 2001 to be approximately 41.0%,
similar to that recorded in fiscal 2000. For more information regarding the
variations in our effective tax rates for the periods presented, see the
effective tax rate reconciliation table in Note M--"Income Taxes" in Notes to
Consolidated Financial Statements.
24
<PAGE>
Liquidity and Capital Resources
The Company generated cash from operating activities of continuing
operations in fiscal 2000, 1999 and 1998 of $71.4 million, $30.9 million, and
$61.3 million, respectively, through a combination of earnings and changes in
operating assets and liabilities. Cash from operating activities in fiscal
1999 was lower than the prior year as a result of an increase in inventory and
cash used in restructuring activities. Cash from operating activities includes
the net operating cash flow of the Non-continuing Businesses. See the
Consolidated Statements of Cash Flows in the Consolidated Financial Statements
for additional information regarding our operating cash flow.
During each of the last three fiscal years, we used the majority of our net
cash generated from both continuing and discontinued operations, along with
proceeds from borrowings, to acquire businesses. The majority of the
acquisitions were for businesses included in the Electronics Business. The
investing and financing activities of Applied Power for the last three fiscal
years were primarily driven by the Electronics Business' expansion strategy.
We do not intend to use a significant amount of cash for acquisitions in the
near term. Because of our leverage following the Distribution, we anticipate
initially using a large portion of our cash flow from operations to reduce
indebtedness.
Following the Distribution, in the one month of operations, we reduced
indebtedness by approximately $18.0 million through the combination of working
capital management, earnings, and the proceeds from the divestiture of our
Norelem business.
As of August 31, 2000, we had no borrowings under our $100.0 million
revolving credit line (the "Revolver") of our Senior Credit Agreement (as
defined below), and had availability under this line of approximately $69.7
million. We believe that based on current financial performance and forecasted
results, cash flow from operations, together with the credit availability
under the Revolver, will be adequate for the foreseeable future to make
required principal and interest payments on the Company's indebtedness, and to
fund anticipated capital expenditures and working capital requirements.
Debt Realignment
We realigned our debt concurrent with the Distribution. We retired our
existing credit facilities and lines, accounts receivable financing facility
and all of the then outstanding Senior Subordinated Notes as part of this debt
realignment with proceeds from new borrowings, proceeds from the sale of both
Barry Controls and Air Cargo Equipment Corporation prior to the Distribution,
and payments from APW Ltd. in connection with the Distribution. New borrowings
consist of those under a senior secured credit agreement (the "Senior Credit
Agreement") and new Senior Subordinated Notes ("the 13% Notes"). Concurrent
with the Distribution, we borrowed approximately $252.6 million under the
Senior Credit Agreement and $197.4 million from the issuance of the 13% Notes.
For further information about the Senior Credit Agreement and the 13%
Notes, see Note I--"Debt" in Notes to Consolidated Financial Statements.
Seasonality and Working Capital
The Company has historically met its working capital needs and capital
expenditure requirements through a combination of operating cash flow and
availability under revolving credit facilities. Although there are modest
seasonal factors within certain of our businesses, on a consolidated basis, we
do not experience material changes in seasonal working capital or capital
resource requirements.
Our receivables are derived from a diverse customer base that operates in a
number of industries. The largest single customer generated approximately 4.7%
of fiscal 2000 net sales. As described in Note E--"Accounts Receivable
Financing" in Notes to Consolidated Financial Statements, we have historically
sold trade accounts receivables to a subsidiary that sold participation
interests in such receivables to financial institutions. Such
25
<PAGE>
"sold" receivables were excluded from the consolidated balance sheets. We did
not enter into a similar accounts receivable financing arrangement after the
Distribution. As a result, our trade accounts receivable balance has increased
at August 31, 2000 relative to what has historically been reported.
Capital Expenditures
The majority of our manufacturing operations consist of the assembly of
components that are sourced from a variety of vendors. We believe that our
capital expenditure requirements are not as extensive as many other industrial
companies given the assembly nature of our operations. Historical capital
expenditures were as follows:
<TABLE>
<CAPTION>
Year Ended August
31,
-----------------
2000 1999 1998
----- ----- -----
(in millions)
<S> <C> <C> <C>
Total capital expenditures............................. $11.4 $22.9 $25.2
Less: Non-continuing Businesses........................ 2.8 9.2 9.8
----- ----- -----
Adjusted capital expenditures.......................... $ 8.6 $13.7 $15.4
===== ===== =====
</TABLE>
Capital expenditures have historically been funded by operating cash flows,
and are anticipated to continue to be so in the future. For each of the past
three fiscal years, capital expenditures were invested primarily in machinery
and equipment, replacements, upgrades and computer systems. There are no
significant capital programs planned in the near future that would require
expenditures in excess of the recent historical capital expenditure levels.
Dividends
The Senior Credit Agreement contains restrictions as to the payment of
dividends. Accordingly, we do not plan to pay a dividend in the near future;
instead we plan to use cash flow from operations to reduce debt.
Raw Material Costs and Inflation
No meaningful measures of inflation are available because we have
significant operations in countries with diverse rates of inflation and
currency rate movements. However, we believe that the rate of inflation in
recent years has been relatively low and has not had a significant effect on
our results of operations. We source a wide variety of materials and
components from a network of global suppliers. While such materials are
typically available from numerous suppliers, commodity raw materials are
subject to price fluctuations.
New Accounting Pronouncements
In October 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of SFAS No. 125." The statement replaces SFAS No. 125 and rescinds
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS
No. 125." The statement also revises the standards for accounting for
securitizations and other transfers of financial assets and collateral, and
requires certain disclosures. Nevertheless, it continues most of SFAS No.
125's provisions without reconsideration. The statement will be effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of SFAS No. 140 is not expected
to have a significant effect on Actuant.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." This bulletin summarizes certain views of the SEC staff
on applying generally accepted accounting principles to revenue recognition in
financial statements. The SEC staff expressed its view that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or
services have
26
<PAGE>
been rendered; the seller's price to the buyer is fixed or determinable; and
collectability is reasonably assured. The Company expects that SAB 101 will
not have a material effect on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." It requires all derivative instruments to
be recorded in the balance sheet at fair value. The change in fair value of a
derivative is required to be recorded each period in net earnings and other
comprehensive income, depending on whether the derivative is designated as
part of a hedge transaction and if so, the type of hedge transaction. The
statement, as amended by SFAS No. 137 and No. 138, will be effective for the
Company's fiscal 2001 first quarter financial statements and restatement of
prior years will not be permitted. Given its current derivative and hedging
activities, the pronouncement is not expected to have a material effect on the
Company's financial position or results of operations.
European Economic Monetary Union
On January 1, 1999, eleven European Union countries (including a number of
the countries where Actuant locations operate) adopted the Euro as their
common currency, resulting in fixed conversion rates between their existing
currencies ("legacy currencies") and the Euro. The Euro presently trades on
currency exchanges and is available for non-cash transactions. Following the
introduction of the Euro, the legacy currencies remain legal tender in the
participating countries during the transition through January 1, 2002.
Beginning on January 1, 2002, the European Central Bank will issue euro-
denominated bills and coins for use in cash transactions. On or before July 1,
2002, the participating countries will withdraw all legacy bills and
currencies and use the Euro as their legal currency.
Some of our operating units located in Europe, which are affected by the
Euro conversion, intend to maintain their books in their respective legacy
currency through a portion of the three-year introductory period. At this
time, we do not expect the consequences of the ongoing Euro conversion to have
any material adverse effects on its operations, business or financial
condition.
Risk Factors That May Affect Future Results
Certain statements in this Form 10-K, as well as statements in other
Company communications, which are not historical facts, are forward-looking
statements that involve risks and uncertainties. The terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "project" and similar
expressions are intended to identify forward-looking statements. Such forward-
looking statements are subject to inherent risks and uncertainties that may
cause actual results or events to differ materially from those contemplated by
such forward-looking statements. In addition to the assumptions and other
factors referred to specifically in connection with such statements, factors
that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements include, without limitation,
general economic conditions and market conditions in the recreational vehicle,
trucking, automotive, industrial production, and construction industries in
North America, Europe and, to a lesser extent, Asia, market acceptance of
existing and new products, successful integration of acquisitions, competitive
pricing, foreign currency risk, interest rate risk, the Company's ability to
access capital markets, the high debt leverage of the Company which results in
less financial flexibility in terms of debt covenants and debt availability,
and other factors that may be referred to in the Company's reports filed with
the Securities and Exchange Commission from time to time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, we
selectively use financial instruments. All hedging transactions are authorized
and executed pursuant to clearly defined policies and procedures established
by our board of directors, which strictly prohibit the use of financial
instruments for trading purposes.
27
<PAGE>
A discussion of our accounting policies for derivative financial
instruments is included in Note A--"Summary of Significant Accounting
Policies" in Notes to Consolidated Financial Statements, and further
disclosure relating to financial instruments is included in Note I--"Debt."
Currency Risk: We have significant international operations. In most
instances, our products are produced at manufacturing facilities located near
the customer. As a result, significant volumes of finished goods are
manufactured in countries for sale into those markets. For goods purchased
from our other affiliates, we denominate the transaction in the functional
currency of the producing operation.
We have adopted the following guidelines to manage our foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through the use of naturally
offsetting positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
Our identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers
along with the repayment of intercompany loans with foreign subsidiaries
denominated in foreign currencies. We identify naturally occurring offsetting
positions and then purchases hedging instruments to protect anticipated
exposures. Our net financial position is not materially sensitive to
fluctuations in exchange rates as any gains or losses on foreign currency
exposures are generally offset by gains and losses on underlying payables,
receivables and net investments in foreign subsidiaries.
Interest Rate Risk: Given our leverage, we are exposed to interest rate
risk from changes in interest rates. We have periodically utilized interest
rate swap agreements historically to manage overall financing costs and
interest rate risk. We had no such agreements in place either at August 31,
2000 or through the date of this filing. Our Senior Credit Agreement
stipulates that the lower of 50% of our total debt or $200.0 million be fixed
interest rate obligations. We are in compliance with this requirement.
28
<PAGE>
Item 8. Financial Statements and Supplementary Data
Quarterly financial data for fiscal 2000 and fiscal 1999 is as follows:
<TABLE>
<CAPTION>
Year Ended August 31, 2000
------------------------------------
First(1) Second(2) Third(3) Fourth(4)
-------- -------- ------- --------
(In millions, except per share
amounts)
<S> <C> <C> <C> <C>
Net sales............................... $173.0 $184.1 $178.5 $136.0
Gross profit............................ 62.1 65.7 66.0 48.4
Earnings from continuing operations..... 11.0 11.9 12.0 (6.9)
Earnings (Loss) from discontinued
operations............................. 12.7 8.6 12.9 (33.6)
Extraordinary loss on early
extinguishment of debt, net of tax..... -- -- -- (14.7)
Extraordinary gain (loss) on sale of
subsidiaries, net of tax............... -- -- (12.2) 65.4
------ ------ ------ ------
Net earnings............................ $ 23.7 $ 20.5 $ 12.8 $ 10.1
====== ====== ====== ======
Earnings from continuing operations per
share(5):
Basic................................. $ 0.28 $ 0.30 $ 0.31 $(0.18)
Diluted............................... $ 0.27 $ 0.29 $ 0.30 $(0.17)
Earnings from discontinued operations
per share(5):
Basic................................. $ 0.33 $ 0.22 $ 0.33 $(0.86)
Diluted............................... $ 0.32 $ 0.21 $ 0.32 $(0.82)
Extraordinary loss on early
extinguishment of debt per share(5):
Basic................................. $ -- $ -- $ -- $(0.37)
Diluted............................... $ -- $ -- $ -- $(0.36)
Extraordinary gain (loss) on sale of
subsidiaries per share(5):
Basic................................. $ -- $ -- $(0.31) $ 1.67
Diluted............................... $ -- $ -- $(0.30) $ 1.60
Net earnings per share(5):
Basic................................. $ 0.61 $ 0.52 $ 0.33 $ 0.26
Diluted............................... $ 0.59 $ 0.51 $ 0.32 $ 0.25
<CAPTION>
Year Ended August 31, 1999
------------------------------------
First(6) Second Third Fourth
-------- -------- ------- --------
(In millions, except per share
amounts)
<S> <C> <C> <C> <C>
Net sales............................... $172.5 $171.9 $180.0 $171.3
Gross profit............................ 61.6 62.5 66.2 62.4
Earnings from continuing operations..... 3.4 11.0 10.1 10.1
Earnings from discontinued operations... 13.0 8.3 10.4 13.1
------ ------ ------ ------
Net earnings............................ $ 16.4 $ 19.3 $ 20.5 $ 23.2
====== ====== ====== ======
Earnings from continuing operations per
share(5):
Basic................................. $ 0.09 $ 0.28 $ 0.26 $ 0.26
Diluted............................... $ 0.08 $ 0.27 $ 0.25 $ 0.26
Earnings from discontinued operations
per share(5):
Basic................................. $ 0.33 $ 0.22 $ 0.27 $ 0.33
Diluted............................... $ 0.33 $ 0.21 $ 0.26 $ 0.32
Net earnings per share(5):
Basic................................. $ 0.42 $ 0.50 $ 0.53 $ 0.59
Diluted............................... $ 0.41 $ 0.48 $ 0.51 $ 0.58
</TABLE>
29
<PAGE>
--------
(1) Includes a $1.4 million ($0.9 million, net of tax) recovery of costs
related to the contract recorded in the first quarter of fiscal 1999, or
$0.02 per diluted share.
(2) Includes a charge of $3.5 million ($2.2 million, net of tax benefit) for
fees and expenses associated with the Distribution, or $0.05 per diluted
share.
(3) Includes a charge of $1.0 million ($0.6 million, net of tax benefit) for
fees and expenses associated with the Distribution, or $0.01 per diluted
share.
(4) Includes a charge of $7.9 million (or $4.7 million, net of tax benefit)
for fees and expenses associated with the Distribution, or $0.11 per
diluted share. Additionally, includes a $5.4 million provision (or $3.2
million, after tax) for the loss on disposition of product lines, or $0.08
per diluted share.
(5) Quarterly per share amounts may not add to total year due to the use of
weighted-average quarterly shares outstanding in calculations above.
(6) Includes a $7.8 million loss ($4.7 million, net of tax benefit) as a
result of a contract termination, or $0.12 per diluted share.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
"Election of Directors" and "Other Information -- Section 16(a) Beneficial
Ownership Reporting Compliance" sections of the Company's Proxy Statement for
its Annual Meeting of Shareholders to be held on January 9, 2001 (the "2001
Annual Meeting Proxy Statement"). See also "Executive Officers of the
Registrant" in Part I hereof.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
"Election of Directors," "Board Meetings, Committees and Director
Compensation" and the "Executive Compensation" sections (other than the
subsections thereof entitled "Report of the Compensation Committee of the
board of directors on Executive Compensation" and "Performance Graph") of the
2001 Annual Meeting Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
"Certain Beneficial Owners" and "Election of Directors" sections of the 2001
Annual Meeting Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
"Executive Compensation" and "Certain Relationships and Related Transactions"
sections of the 2001 Annual Meeting Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated Financial Statements
See "Index to Consolidated Financial Statements and Financial
Statement Schedule" on page 32, the Report of Independent Accountants
on page 33 and the Consolidated Financial Statements on pages 34 to 68,
all of which are incorporated herein by reference.
30
<PAGE>
2. Financial Statement Schedules
See "Index to Consolidated Financial Statements and Financial
Statement Schedule" on page 32, the Report of Independent Accountants
on Financial Statement Schedule on page 69 and the Financial Statement
Schedule on page 70, all of which are incorporated herein by reference.
3. Exhibits
See "Index to Exhibits" on pages 72 to 75, which is incorporated
herein by reference.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of
fiscal 2000:
On June 8, 2000, the Company filed a Current Report on Form 8-K
under Item 5. This filing reported sales results for its fiscal third
quarter and other financial information in preparation of a research
analyst meeting hosted by the Company.
On July 5, 2000, the Company filed a Current Report on Form 8-K
under Items 5 and 7. This filing reported the pro forma financial
statements relating to the divestiture of Barry Wright Corporation.
On July 7, 2000, the Company filed a Current Report on Form 8-K
under Items 5 and 7. This filing reported pro forma financial
statements disclosing the pro forma effect of the Distribution and the
proposed Actuant $200.0 million Senior Subordinated Notes offering on
the results of operations and financial position of the Company.
On July 21, 2000, the Company filed a Current Report on Form 8-K
under Items 5 and 7 for APW Ltd's Adoption of the Shareholder Rights
Plan.
On July 28, 2000, the Company filed a Current Report on Form 8-K
under Item 5. This filing reported pro forma data disclosing the pro
forma effects of (1) the spin-off of the Electronics Business (2) the
completed divestitures of Air Cargo Equipment Corporation and Barry
Wright Corporation and (3) the internal restructuring necessary to
accomplish the spin-off.
On August 14, 2000, the Company filed a Current Report on Form 8-K
reporting under Items 2 and 7. This filing reported pro forma
information and financial statements relating to (1) the distribution
of all issued and outstanding shares of APW Ltd to its shareholders of
record, (2) the completion of Applied Power Inc's tender offer and
repurchase of its subordinated notes outstanding pursuant to the tender
offer and (3) the new credit facility entered into by the Company in
connection with its spin-off and the resignation of officers.
31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ 33
Consolidated Statements of Earnings For the years ended August 31, 2000,
1999 and 1998........................................................... 34
Consolidated Balance Sheets As of August 31, 2000 and 1999............... 35
Consolidated Statements of Shareholders' Equity and Comprehensive Income
For the years ended August 31, 2000, 1999 and 1998...................... 36
Consolidated Statements of Cash Flows For the years ended August 31,
2000, 1999 and 1998..................................................... 37
Notes to Consolidated Financial Statements............................... 38-68
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule........ 69
Schedule II--Valuation and Qualifying Accounts........................... 70
</TABLE>
All other schedules are omitted because they are not applicable, not required
or because the required information is included in the consolidated financial
statements or notes thereto.
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Applied Power Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, shareholders' equity and
comprehensive income, and cash flows present fairly, in all material respects,
the financial position of Applied Power Inc. and its subsidiaries at August
31, 2000 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended August 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 27, 2000
33
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales......................................... $671,642 $695,704 $637,479
Cost of products sold............................. 429,476 443,020 436,594
-------- -------- --------
Gross profit.................................... 242,166 252,684 200,885
Engineering, selling and administrative expenses.. 134,037 136,671 153,892
Amortization of intangible assets................. 7,530 8,748 12,582
Contract termination costs (recovery)............. (1,446) 7,824 --
Corporate reorganization expenses................. 12,388 -- --
Restructuring charges and merger related expenses. -- -- 20,643
Provision for loss on sale of subsidiary and
product lines.................................... 5,391 -- 4,500
-------- -------- --------
Operating earnings.............................. 84,266 99,441 9,268
Other expense (income):
Net financing costs............................. 37,670 41,181 12,535
Gain on life insurance policy................... -- -- (1,709)
Gain on sale of building........................ -- -- (9,815)
Other (income) expense--net..................... (937) 850 (872)
-------- -------- --------
Earnings from continuing operations before income
tax expense...................................... 47,533 57,410 9,129
Income tax expense................................ 19,488 22,830 9,076
-------- -------- --------
Earnings from continuing operations............... 28,045 34,580 53
Discontinued operations, net of income taxes (Note
B)............................................... 585 44,817 26,634
-------- -------- --------
Earnings before extraordinary items............... 28,630 79,397 26,687
Extraordinary gain (loss), net of income taxes
(Note C):
Early extinguishment of debt.................... (14,708) -- --
Sale of subsidiaries............................ 53,167 -- --
-------- -------- --------
Net earnings...................................... $ 67,089 $ 79,397 $ 26,687
======== ======== ========
Basic earnings per share:
Continuing operations........................... $ 0.72 $ 0.89 $ 0.00
Discontinued operations......................... 0.01 1.15 0.70
Extraordinary loss--early extinguishment of
debt........................................... (0.38) -- --
Extraordinary gain--sale of subsidiaries........ 1.36 -- --
-------- -------- --------
Total......................................... $ 1.72 $ 2.04 $ 0.70
======== ======== ========
Diluted earnings per share:
Continuing operations........................... $ 0.70 $ 0.86 $ 0.00
Discontinued operations......................... 0.01 1.12 0.66
Extraordinary loss--early extinguishment of
debt........................................... (0.36) -- --
Extraordinary gain--sale of subsidiaries........ 1.32 -- --
-------- -------- --------
Total......................................... $ 1.66 $ 1.98 $ 0.66
======== ======== ========
Weighted average common shares outstanding:
Basic........................................... 39,109 38,825 38,380
======== ======== ========
Diluted......................................... 40,311 40,200 40,174
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
August 31,
---------------------
2000 1999
--------- ----------
ASSETS
------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................. $ 9,896 $ 7,256
Accounts receivable, net of allowances of $3,809 and
$4,070, respectively................................. 83,553 63,502
Net inventories....................................... 67,599 100,724
Deferred income taxes................................. 4,542 7,564
Receivable from APW Ltd............................... 32,894 --
Prepaid expenses...................................... 5,230 8,769
--------- ----------
Total Current Assets................................ 203,714 187,815
Property, Plant and Equipment
Property.............................................. 1,563 1,826
Plant................................................. 19,304 48,916
Machinery and equipment............................... 108,872 140,977
--------- ----------
Gross property, plant and equipment................... 129,739 191,719
Less: Accumulated depreciation........................ (80,571) (112,721)
--------- ----------
Net Property, Plant and Equipment....................... 49,168 78,998
Net assets of discontinued business segment............. -- 598,458
Goodwill, net of accumulated amortization of $18,705 and
$32,392, respectively.................................. 116,348 158,448
Other intangibles, net of accumulated amortization of
$17,843 and $18,049, respectively...................... 21,040 30,987
Other long-term assets.................................. 26,711 5,166
--------- ----------
Total Assets........................................ $ 416,981 $1,059,872
========= ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities
Short-term borrowings................................. $ 1,259 $ 230
Trade accounts payable................................ 43,455 52,361
Accrued compensation and benefits..................... 16,365 20,340
Income taxes payable.................................. 39,852 --
Other current liabilities............................. 25,312 23,591
--------- ----------
Total Current Liabilities........................... 126,243 96,522
Long-term Debt.......................................... 431,215 521,016
Deferred Income Taxes................................... 4,486 7,720
Other Deferred Liabilities.............................. 17,992 16,785
Shareholders' Equity
Class A common stock, $0.20 par value per share,
authorized 80,000,000 shares, issued and outstanding
39,614,551 and 38,978,340 shares, respectively....... 7,923 7,796
Additional paid-in capital............................ (632,050) 12,388
Retained earnings..................................... 478,163 412,863
Accumulated other comprehensive income (loss)......... (16,991) (15,218)
--------- ----------
Total Shareholders' Equity.......................... (162,955) 417,829
--------- ----------
Total Liabilities and Shareholders' Equity.......... $ 416,981 $1,059,872
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Class Accumulated
A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Equity
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1997................... $2,927 $ 1,595 $304,526 $ (3,687) $ 305,361
Net earnings.......... -- -- 26,687 -- 26,687
Currency translation
adjustments.......... -- -- -- (3,744) (3,744)
---------
Total comprehensive
income............. 22,943
---------
Cash dividends........ -- -- (2,564) -- (2,564)
Stock option
exercises............ 72 7,686 -- -- 7,758
Tax benefit of stock
option exercises..... -- 929 -- -- 929
2-for-1 common stock
split................ 2,778 (2,778) -- -- --
Effect of ZERO
excluded period (Note
A)................... 1,948 (1,615) 7,156 (34) 7,455
------ --------- -------- -------- ---------
Balance at August 31,
1998................... 7,725 5,817 335,805 (7,465) 341,882
Net earnings.......... -- -- 79,397 -- 79,397
Currency translation
adjustments.......... -- -- -- (7,753) (7,753)
---------
Total comprehensive
income............. 71,644
---------
Cash dividends........ -- -- (2,339) -- (2,339)
Stock option
exercises............ 71 4,641 -- -- 4,712
Tax benefit of stock
option exercises..... -- 1,930 -- -- 1,930
------ --------- -------- -------- ---------
Balance at August 31,
1999................... 7,796 12,388 412,863 (15,218) 417,829
Net earnings.......... -- -- 67,089 -- 67,089
Currency translation
adjustments, net of
amounts transferred
to APW Ltd........... -- -- -- (1,773) (1,773)
---------
Total comprehensive
income............. 65,316
---------
Distribution of APW
Ltd.................. -- (650,493) -- -- (650,493)
Cash dividends........ -- -- (1,789) -- (1,789)
Stock option
exercises............ 127 3,711 -- -- 3,838
Tax benefit of stock
option exercises..... -- 2,344 -- -- 2,344
------ --------- -------- -------- ---------
Balance at August 31,
2000................... $7,923 $(632,050) $478,163 $(16,991) $(162,955)
====== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------
2000 1999 1998
-------- --------- ---------
<S> <C> <C> <C>
Operating activities
Earnings from continuing operations.......... $ 66,504 $ 34,580 $ 53
Adjustments to reconcile earnings from
continuing operations to cash provided by
operating activities of continuing
operations:
Depreciation and amortization.............. 22,550 26,056 24,563
Gain from sale of assets................... -- (323) (9,899)
Net extraordinary gain on sales of
subsidiaries.............................. (51,467) -- --
Provision for deferred income taxes........ 324 1,804 (4,508)
Non-cash losses on product line
dispositions.............................. 1,923 -- --
Loss on sale of business................... 3,457 -- --
Extraordinary loss on early extinguishment
of debt................................... 24,569 -- --
Restructuring and other non-recurring
items, net of income tax benefit.......... -- 4,694 41,741
Changes in operating assets and liabilities,
excluding the effects of business
acquisitions and disposals:
Accounts receivable........................ (4,541) 3,371 (1,834)
Inventories................................ (8,515) (17,664) 13,318
Prepaid expenses and other assets.......... 1,323 (5,207) 6,478
Trade accounts payable..................... 7,338 (2,236) 7,564
Other liabilities.......................... 7,908 (14,169) (16,160)
-------- --------- ---------
Cash provided by operating activities of
continuing operations......................... 71,373 30,906 61,316
Cash provided by operating activities of
discontinued operations....................... 43,360 119,483 68,351
-------- --------- ---------
Total cash provided by operating activities.... 114,733 150,389 129,667
Investing activities
Proceeds on sale of property, plant and
equipment................................... 835 4,884 16,908
Additions to property, plant and equipment... (11,441) (22,885) (25,214)
Proceeds on sales of subsidiaries, net of
cash sold................................... 169,733 -- --
Business acquisitions, net of cash acquired.. -- (7,320) (135,727)
Product line dispositions and other.......... -- -- 6,061
Net investing activities of discontinued
operations.................................. (52,510) (435,337) (313,999)
-------- --------- ---------
Cash provided by (used in) investing
activities.................................... 106,617 (460,658) (451,971)
Financing activities
Net principal (payments) borrowings on debt.. (82,240) 403,349 102,591
Debt financing costs and early extinguishment
fees........................................ (33,899) -- --
(Decreases in) additions to receivables
financing facility.......................... (53,458) 1,634 25,399
Proceeds from sale/leaseback transactions.... -- 6,293 --
Dividends paid on common stock............... (1,789) (2,339) (2,564)
Stock option exercises and other............. 3,838 4,552 6,855
Net financing activities of discontinued
operations.................................. (66,175) (86,790) 165,348
-------- --------- ---------
Cash (used in) provided by financing
activities.................................... (236,723) 326,699 297,629
Effect of exchange rate changes on cash........ (272) (521) (882)
-------- --------- ---------
Net (decrease) increase in cash and cash
equivalents................................... (15,645) 15,909 (25,557)
Effect of change in cash of discontinued
operations.................................... 18,285 (13,722) 7,769
Cash and cash equivalents--beginning of year... 7,256 5,069 12,998
Effect of ZERO excluded period (Note A)........ -- -- 9,859
-------- --------- ---------
Cash and cash equivalents--end of year......... $ 9,896 $ 7,256 $ 5,069
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note A--Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Applied Power Inc. and its subsidiaries, doing business as
Actuant Corporation ("Applied Power," "Actuant," or the "Company"). Applied
Power consolidates companies in which it owns or controls more than fifty
percent of the voting shares. The results of companies acquired or disposed of
during the fiscal year are included in the consolidated financial statements
from the effective date of acquisition or until the date of disposal except in
the case of pooling of interests (see "Basis of Presentation" below). All
significant intercompany balances, transactions and profits have been
eliminated in consolidation.
Basis of Presentation: The consolidated financial statements have been
prepared in United States Dollars in accordance with generally accepted
accounting principles in the United States. As described more fully in Note
D--"Merger, Acquisitions and Divestitures," on July 31, 1998, ZERO
Corporation, a Delaware corporation ("ZERO"), became a wholly-owned subsidiary
of Applied Power through a merger (the "Merger") among Applied Power, ZERO and
STB Acquisition Corporation, a wholly-owned subsidiary of Applied Power. The
consolidated financial statements have been prepared following the pooling of
interests method of accounting for the Merger and therefore reflect the
combined financial position, operating results and cash flows of ZERO as if
they had been combined for all periods presented. Prior to the Merger, ZERO
had a March 31 fiscal year end. The Consolidated Statements of Earnings,
Shareholders' Equity and Comprehensive Income, and Cash Flows for the year
ended August 31, 1998 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, which have been excluded from these consolidated financial
statements, are reflected as a fiscal 1998 adjustment to the Consolidated
Statements of Shareholders' Equity and Comprehensive Income and Cash Flows.
Net sales and net income for ZERO for the excluded period from April 1, 1997
to August 31, 1997 were $107.2 million and $7.9 million, respectively. The
majority of the ZERO businesses are part of the Electronics segment which is
reported in discontinued operations as described more fully in Note B--
"Discontinued Operations."
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.
Inventory cost is determined using the last-in, first-out ("LIFO") method for
a portion of U.S. owned inventory (approximately 70% and 62% of total
inventories in 2000 and 1999, respectively). The first-in, first-out or
average cost methods are used for all other inventories. If the LIFO method
was not used, inventory balances would be higher than the amounts in the
Consolidated Balance Sheets by approximately $7.4 million and $8.4 million at
August 31, 2000 and 1999, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated over the estimated useful lives of
the assets, ranging from two to thirty years, under the straight-line method
for financial reporting purposes and either the straight-line or regulatory
methods for income tax purposes. Capital leases and leasehold improvements are
amortized over the life of the related asset or the life of the lease,
whichever is shorter. Expenditures for maintenance and repairs not expected to
extend the useful life of an asset beyond its normal useful life are expensed
as incurred.
Goodwill and Other Intangible Assets: Goodwill is amortized on a straight-
line basis over periods of fifteen to forty years. Other intangible assets,
consisting primarily of purchased patents, trademarks and noncompete
agreements, are amortized over periods from two to forty years. The Company
periodically evaluates the carrying value of goodwill and other intangible
assets. Impairment of goodwill, if any, is measured on the basis of whether
anticipated undiscounted operating cash flows generated by the underlying
assets exceeds the recorded goodwill. For the year ended August 31, 1998, the
Company recorded an impairment of goodwill
38
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of $5.6 million. For further information, see Note H--"Merger, Restructuring
and Other Non-recurring Items." Based on the Company's evaluation, no
impairment of goodwill was realized for any other periods presented.
Revenue Recognition: Revenues and costs of products sold are recognized as
the related products are shipped and title has transferred to the customer.
Research and Development Costs: Research and development costs are expensed
as incurred. Such costs incurred in the development of new products or
significant improvements to existing products totaled approximately $6.6
million, $8.0 million and $11.2 million in fiscal 2000, 1999 and 1998,
respectively.
Financing Costs: Net financing costs represent interest expense, financing
fees, amortization of debt financing costs and accounts receivable financing
costs, net of interest and investment income earned (which were insignificant
for all periods presented) and the effects of interest rate swaps.
Income Taxes: The Company uses the liability method to record deferred
income tax assets and liabilities relating to the expected future income tax
consequences of transactions that have been recognized in the consolidated
financial statements. Under this method, deferred tax assets and liabilities
are determined based on the temporary differences between financial statement
carrying amounts and income tax bases of assets and liabilities using tax
rates in effect in the years in which temporary differences are expected to
reverse. For further information, see Note M--"Income Taxes."
Earnings Per Share: The following table sets forth the computation of basic
and diluted earnings per share (results include restructuring charges and
other one-time items--see Note H--"Merger, Restructuring and Other Non-
recurring Items"):
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Numerator:
Earnings from continuing operations.......... $28,045 $34,580 $ 53
Earnings from discontinued operations........ 585 44,817 26,634
Extraordinary loss on early extinguishment of
debt........................................ (14,708) -- --
Extraordinary gain on sale of subsidiaries... 53,167 -- --
------- ------- -------
Net earnings............................... $67,089 $79,397 $26,687
======= ======= =======
Denominator (in thousands):
Weighted average common shares outstanding
for basic earnings per share................ 39,109 38,825 38,380
Net effect of dilutive stock options based on
the treasury stock method using average
market price................................ 1,202 1,375 1,794
------- ------- -------
Weighted average common and potentially
issuable shares outstanding for diluted
earnings per share........................ 40,311 40,200 40,174
======= ======= =======
Basic Earnings Per Share:
Earnings from continuing operations per
share....................................... $ 0.72 $ 0.89 $ 0.00
Earnings from discontinued operations per
share....................................... 0.01 1.15 0.70
Extraordinary loss per share................. (0.38) -- --
Extraordinary gain per share................. 1.36 -- --
------- ------- -------
Net earnings per share..................... $ 1.72 $ 2.04 $ 0.70
======= ======= =======
Diluted Earnings Per Share:
Earnings from continuing operations per
share....................................... $ 0.70 $ 0.86 $ 0.00
Earnings from discontinued operations per
share....................................... 0.01 1.12 0.66
Extraordinary loss per share................. (0.36) -- --
Extraordinary gain per share................. 1.32 -- --
------- ------- -------
Net earnings per share..................... $ 1.66 $ 1.98 $ 0.66
======= ======= =======
</TABLE>
39
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock options to purchase approximately 0.3 million and 0.4 million shares
of common stock were outstanding during fiscal 2000 and 1999, respectively,
but were not included in the above computation of diluted earnings per share
because the exercise price was greater than the average market price of the
common shares. Less than 0.1 million stock options were anti-dilutive for
fiscal year 1998.
Foreign Currency Translation: A significant portion of the Company's sales,
income and cash flow is derived from its international operations. The
financial position and the results of operations of foreign operations are
measured using the local or regional currency of the countries in which they
operate and are translated into U.S. Dollars. Revenues and expenses of foreign
subsidiaries are translated into U.S. Dollars at the average exchange rate
effective during the period. Although the effects of foreign currency
fluctuations are mitigated by the fact that expenses of foreign subsidiaries
are generally incurred in the same currencies in which the sales are
generated, the reported results of operations of the Company's foreign
subsidiaries are affected by changes in foreign currency exchange rates and,
as compared to prior periods, will be higher or lower depending on the
weakening or strengthening of the U.S. Dollar. In addition, a portion of the
Company's net assets is based in its foreign subsidiaries and translated into
U.S. Dollars at the foreign currency rate in effect at the end of each period.
Accordingly, consolidated shareholder's equity will fluctuate depending upon
the strengthening or weakening of the U.S. Dollar versus other currencies.
Such currency translation amounts constitute the balance of accumulated other
comprehensive income in the accompanying Consolidated Balance Sheets. Net
losses resulting from foreign currency transactions, included in "Other
(income) expense-net" in the Consolidated Statements of Earnings, amounted to
$0.7 million, $0.7 million, and $0.1 million for the years ended August 2000,
1999 and 1998, respectively.
Derivative Financial Instruments: Derivative financial instruments are
periodically utilized by the Company to manage risks associated with interest
rate market volatility and foreign exchange exposures. The Company does not
hold or issue derivative financial instruments for trading purposes. For
interest rate swap agreements, the differential to be paid or received is
accrued monthly as an adjustment to interest expense. Borrowings under long-
term foreign currency denominated loans are used to partially hedge against
declines in the value of net investments in certain foreign subsidiaries. The
Company also utilizes foreign currency forward contracts to hedge existing
foreign exchange exposures. Gains and losses resulting from these instruments
are recognized in the same period as the underlying transaction. Gains and
losses relating to terminations of qualifying hedges are deferred and
recognized in income at the same time as the underlying hedged transactions.
The Company had no derivative instruments in place at August 31, 2000.
Fair Value of Financial Instruments: The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, short-term
borrowings and most of its long-term debt approximated book value as of August
31, 2000 and 1999 due to their short-term nature and the fact that the
interest rates approximated year-end market rates of interest. The fair value
of the Company's 13% Notes (as defined in Note I--"Debt") at August 31, 2000
was estimated to be $203.0 million based on quoted market prices.
Use of Estimates: The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses for the periods presented. They
also affect the disclosure of contingencies. Actual results could differ from
those estimates and assumptions.
New Accounting Pronouncements: In October 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of SFAS No. 125." The statement
replaces
40
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 125 and rescinds SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125." The statement also revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral, and requires certain disclosures. Nevertheless, it continues most
of SFAS No. 125's provisions without reconsideration. The statement will be
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. The Company expects that SFAS
No. 140 will not have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." This bulletin summarizes certain views of the SEC staff
on applying generally accepted accounting principles to revenue recognition in
financial statements. The SEC staff expressed its view that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the seller's price to the buyer is fixed or
determinable; and collectability is reasonably assured. The Company expects
that SAB 101 will not have a material effect on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." It requires all derivative instruments to
be recorded in the balance sheet at fair value. The change in fair value of a
derivative is required to be recorded each period in net earnings and other
comprehensive income, depending on whether the derivative is designated as
part of a hedge transaction and if so, the type of hedge transaction. The
statement, as amended by SFAS No. 137 and No. 138 will be effective for the
Company's fiscal 2001 first quarter financial statements and restatement of
prior years will not be permitted. Given its current derivative and hedging
activities, the pronouncement is not expected to have a material effect on the
Company's financial position or results of operations.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the fiscal 2000 presentation.
Note B--Distribution and Discontinued Operations
On January 27, 2000, Applied Power's board of directors authorized various
actions intended to enable Applied Power to distribute its Electronics segment
("APW Ltd.") to its shareholders (the "Distribution"). In the Distribution,
Applied Power shareholders received, in the form of a special dividend, one
share of APW Ltd. common stock for each Applied Power common share. As a
result, APW Ltd. became a separately traded, publicly held company. The
Distribution was approved by the board of directors on July 7, 2000 and shares
of APW Ltd. were distributed to Applied Power shareholders of record at July
21, 2000, effective July 31, 2000.
Accordingly, the consolidated financial statements and related notes have
been reclassified to reflect the Company's Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, assets and
liabilities, and cash flows of the Electronics segment have been excluded from
the respective captions in the accompanying consolidated financial statements.
The net operating results of the Electronics segment have been reported, net
of applicable taxes, as "Discontinued operations, net of income taxes." The
net operating results of the discontinued operations include financing costs
related to the debt allocated to the Electronics segment. The net assets of
the Electronics segment as of August 31, 1999 have been reported in the
Consolidated Balance Sheets as "Net Assets of Discontinued Business Segment."
For purposes of this presentation, the amount of debt allocated to
continuing and discontinued operations was determined based on preliminary
estimates of the amount of debt expected to be retained by Actuant and
allocated to APW Ltd. in the Distribution. The allocation of interest expense
to continuing and discontinued
41
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations for periods prior to the Distribution was based on relative debt
levels assigned. In conjunction with the Distribution, the majority of the
Company's then existing credit facilities and notes were replaced with new
facilities and notes. There were no general corporate expenses allocated to
discontinued operations during the periods presented.
The following selected financial data for the Electronics business segment
is presented for informational purposes only and does not necessarily reflect
what the results of operations and financial position would have been had the
segment operated as a stand-alone entity.
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------------
2000 1999 1998
---------- ---------- --------
<S> <C> <C> <C>
Net sales................................ $1,113,178 $1,055,338 $593,210
========== ========== ========
Earnings before income tax expense....... 70,867 69,341 48,256
Income tax expense....................... 68,199 24,524 21,622
Extraordinary loss, net of taxes......... (2,083) -- --
---------- ---------- --------
Earnings from operations of discontinued
Electronics segment, net of taxes...... $ 585 $ 44,817 $ 26,634
========== ========== ========
Current assets........................... $ 222,025 $188,935
========== ========
Total assets............................. $1,164,236 $715,769
========== ========
Current liabilities...................... $ 231,154 $182,392
========== ========
Total liabilities........................ $ 565,778 $466,073
========== ========
Net assets of discontinued operations.... $ 598,458 $249,696
========== ========
</TABLE>
In order to effect the Distribution, Applied Power and APW Ltd. entered
into a variety of agreements intended to define the ongoing relationship
between the parties after the Distribution. Applied Power and APW Ltd. have
established pricing terms for services believed to be comparable to what could
be achieved through arm's-length negotiations. Following the Distribution,
additional or modified agreements, arrangements and transactions may be
entered into and such agreements and transactions will be negotiated on an
arm's-length basis.
Note C--Extraordinary Items
In August 2000, the Company recorded a pre-tax extraordinary loss of $24.6
million ($14.7 million, net of tax) in connection with the early
extinguishment and refinancing of the Company's debt in the Distribution.
In May 2000, the Company recorded a pre-tax extraordinary loss of $13.9
million ($12.2 million, net of tax) related to the sale of Air Cargo
Corporation and other assets. The loss is reported as an extraordinary item
due to meeting the following criteria; (i) the divestiture occurred within two
years of the pooling of interest, (ii) the divestiture was not planned at the
time the pooling of interest and (iii) operations divested are material based
on the relative criteria. See Note D--"Merger, Acquisitions and Divestitures"
for additional information.
In June 2000, the Company recorded a pre-tax extraordinary gain of $65.4
million on the divestiture of Barry Wright Corporation, a wholly-owned
subsidiary of the Company. No tax liability was provided on this gain due to
the proceeds from the sale not exceeding the tax basis of Barry Wright
Corporation. The gain is presented as an extraordinary item due to meeting the
following criteria; (i) the divestiture occurred within two years of the
pooling of interest, (ii) the divestiture was not planned at the time the
pooling of interest and (iii) operations divested are material based on the
relative criteria. See Note D--"Merger, Acquisitions and Divestitures" for
additional information.
42
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note D--Merger, Acquisitions and Divestitures
Fiscal 2000
Acquisition
On January 28, 2000, Applied Power, through a wholly owned subsidiary,
acquired all of the outstanding stock of Metalade of Pennsylvania, Inc.
("Metalade"). Metalade specializes in metal fabrication relating to electronic
enclosures. The purchase price of this acquisition totaled $8.7 million,
including fees and expenses, plus future consideration not to exceed $5.0
million based on future achieved sales levels. The acquisition was funded by
borrowings under Applied Power credit facilities. The acquisition has been
accounted for using the purchase method. Metalade is included in discontinued
operations in the Consolidated Statements of Earnings from the acquisition
date. Allocations of the purchase price resulted in approximately $6.7 million
of goodwill.
Divestitures
In May 2000, the Company completed the sale of Air Cargo Corporation, a
business unit in the Engineered Solutions segment and other assets, to
Teleflex Incorporated. Air Cargo had annual sales of approximately $22.0
million. The total proceeds from the transaction, which was structured as both
a sale of stock of the Air Cargo Corporation and the sale of other assets, was
$12.0 million and resulted in an extraordinary loss of $12.2 million, net of
tax.
In June 2000, the Company completed the sale of all outstanding capital
stock of Barry Wright Corporation, a wholly-owned subsidiary of Applied Power
Inc. Barry Wright Corporation, comprised of the Barry Controls Aerospace and
Barry Controls Defense/Industrial divisions, and its UK subsidiary Barry
Controls Ltd., were sold to Hutchinson S.A., a subsidiary of the TotalFinaElf
Group, a French based multi-national corporation. Barry Wright Corporation had
annual sales of approximately $122.0 million. The cash proceeds were
approximately $157.5 million and resulted in an extraordinary gain of $65.4
million, net of tax.
In August 2000, the Company completed the sale of Norelem, S.A., a product
line in the Enerpac business which makes and distributes mechanical
workholding products, to a private German Company. Norelem, S.A. had annual
sales of approximately $8.0 million. The cash proceeds were approximately $4.2
million and resulted in a pre-tax loss of approximately $3.5 million. This
loss is included in the Consolidated Statement of Earnings as "Provision for
loss on sale of subsidiary and product lines." This loss is not shown as an
extraordinary item as it occurred more than two years after the pooling of
interests transaction.
In November 1999, a wholly-owned subsidiary of the Company completed the
sale of the assets of Samuel Groves & Co. Ltd. Samuel Groves & Co. Ltd. had
annual sales of approximately $9.0 million. The cash proceeds were
approximately $3.0 million, which approximated the book value of such assets.
Fiscal 1999
Acquisitions
In September 1998, Applied Power, 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% of the outstanding common shares on October 8, 1998, and APW
Enclosure Systems Limited invoked Section 429
43
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Rubicon is a leading provider of
electronic manufacturing services and engineered magnetic solutions to major
OEMs in the information technology and telecommunication industries. Cash paid
for Rubicon totaled $371.5 million, with the purchase price allocation
resulting in $340.6 million of goodwill. Funds for the acquisition were
provided through Applied Power's credit facilities. The acquisition was
accounted for using the purchase method of accounting. The operating results
of Rubicon subsequent to September 1998 are included in discontinued
operations in the Consolidated Statements of Earnings.
In June 1999, Applied Power, through a wholly owned subsidiary, acquired
all of the outstanding stock of Innovative Metal Fabrication, Inc.
("Innovative"). Innovative designs and manufactures technical environments
used in electronic assembly operations, as well as electronic gaming
enclosures, in Grass Valley, CA and Austin, TX. In May 1999, Applied Power
also acquired certain assets of Connector Technology, Inc. ("CTI") of Anaheim,
CA. CTI manufactures custom backplanes and was integrated with Applied Power's
Electronic Solutions business unit. Also, in the fourth quarter of fiscal
1999, a wholly-owned subsidiary of the Company purchased shares of Ergun Kriko
San Ticaret ("Ergun"), an Akhisar, Turkey based company specializing in the
manufacture of hydraulic cab-tilting systems and hydraulic bottle jacks for
the Turkish truck market. The aggregate purchase price paid for the
Innovative, CTI and Ergun acquisitions totaled approximately $17.0 million,
including fees and expenses, and was funded by borrowings under then existing
credit facilities. Allocations of the purchase price resulted in approximately
$10.9 million of goodwill. All three acquisitions were accounted for using the
purchase method. The results of operations of Ergun are included in earnings
from continuing operations in the Consolidated Statements of Earnings from its
acquisition date, while the results of operations of Innovative and CTI are
included in discontinued operations.
Fiscal 1998
Merger
On July 31, 1998, shareholders of Applied Power voted to approve the merger
of a newly created subsidiary of Applied Power into ZERO Corporation. The
Merger was completed after the approval of the shareholders of Applied Power
and ZERO at their respective special shareholder meetings. Under the terms of
the Merger Agreement, ZERO stockholders received 0.85 of a share of Applied
Power's Common Stock for each share of ZERO Common Stock. Applied Power issued
approximately 10.6 million shares of its common stock in exchange for all
outstanding common stock of ZERO Corporation and assumed outstanding stock
options to purchase ZERO common stock that were converted into stock options
to purchase approximately 0.6 million shares of Applied Power's common stock
pursuant to the terms of the Merger. This resulted in a purchase price of
approximately $386.0 million based on the July 30, 1998 closing stock price of
Applied Power. The Merger was accounted for using the pooling of interests
method of accounting, and therefore, the consolidated financial statements
reflect the consolidated financial position, operating results and cash flows
of Applied Power and ZERO as if they had been consolidated for all periods
presented. The majority of the ZERO businesses are included in discontinued
operations in the Consolidated Statements of Earnings.
All fees and expenses related to the ZERO merger and to the integration of
the combined companies were expensed as required under the pooling of
interests method of accounting. Such fees and expenses amounted to $20.1
million in 1998. This total includes transaction costs of approximately $9.3
million related to legal, accounting and financial advisory services. The
remaining $10.8 million reflects costs associated with organizational
realignment, closure of ZERO headquarters, facility consolidation and the
conforming of accounting policies. Substantially all of such amounts were
considered general corporate expense and therefore, included in continuing
operations.
44
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Acquisitions
In June 1998, Applied Power Limited, a United Kingdom subsidiary of Applied
Power, 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
and 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. After the
required procedures were completed, Applied Power Limited owned all of the
issued share capital of VERO. The total purchase price for the transaction
approximated $191.7 million. Allocations of the purchase price resulted in
approximately $183.8 million of goodwill. The acquisition has been accounted
for using the purchase method of accounting. VERO's operating results
subsequent to June 5, 1998 are included in discontinued operations in the
Consolidated Statements of Earnings.
In October 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 in the transaction approximated
$141.0 million. Allocations of the purchase price resulted in approximately
$104.5 million of goodwill. Funds for the acquisition were primarily provided
through Applied Power's credit facilities. Versa/Tek, operating out of several
locations in Wisconsin, is a value-added manufacturer of custom-engineered
components and systems for diverse industrial markets. The acquisition was
accounted for using the purchase method of accounting. The operating results
of Versa/Tek subsequent to October 6, 1997, with the exception of one
Electronics-related business, are included in earnings from continuing
operations in the Consolidated Statement of Earnings.
In addition to the VERO and Versa/Tek acquisitions discussed above, the
Company acquired nine other companies in fiscal 1998, primarily in its
discontinued Electronics business segment, for an aggregate purchase price of
approximately $134.4 million, including $127.7 million in cash and the
assumption of approximately $6.7 million in debt. The cash portion of the
acquisitions was funded by borrowings under Applied Power credit facilities.
Each of these acquisitions was accounted for using the purchase method of
accounting and the results of operations of the acquired companies are
included in the Consolidated Statements of Earnings from their respective
acquisition dates, with the Electronics segment acquisitions reported in
discontinued operations. As a result of the acquisitions, the Company recorded
approximately $105.4 million of goodwill.
Divestiture
In March 1998, the Company completed the sale of the assets of Moxness
Industrial Products, a division of Versa/Tek. Moxness Industrial Products had
annual sales of approximately $6.0 million. The cash proceeds were
approximately $6.0 million, which approximated the book value of such assets.
Note E--Accounts Receivable Financing
Prior to the Distribution, Applied Power and certain subsidiaries
(collectively, "Originators") sold trade accounts receivable to Applied Power
Credit Corporation ("APCC"), a wholly-owned limited purpose subsidiary of the
Company. APCC was a separate corporate entity that sold participating
interests in its pool of accounts receivable to financial institutions
("Purchasers"). The Purchasers, in turn, received an ownership and security
interest in the pool of receivables. Participation interests in new
receivables generated by the Originators were
45
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purchased by APCC and resold to the Purchasers as collections reduced
previously sold participation interests. APCC had the risk of credit loss on
such receivables up to a maximum recourse amount of 16% of sold receivables.
The Company had retained collection and administrative responsibilities on the
participation interests sold as servicer for APCC and the Purchasers. This
agreement was dissolved with respect to Actuant's businesses shortly before
the Distribution, thus no accounts receivable financing program was in place
as of August 31, 2000.
At August 31, 2000 and 1999, accounts receivable were reduced by $0 and
$52.9 million, respectively, representing receivable interests sold under this
program. Sales of trade receivables are reflected as a reduction of accounts
receivable in the accompanying Consolidated Balance Sheets and the proceeds
received, which are used to reduce debt, are included in cash flows from
financing activities in the accompanying Consolidated Statements of Cash
Flows.
Accounts receivable financing costs totaling $3.5 million, $3.2 million,
and $2.6 million for the years ended August 31, 2000, 1999, and 1998,
respectively, are included in net financing costs in the accompanying
Consolidated Statements of Earnings.
Note F--Net Inventories
The nature of the Company's products is such that they generally have a
very short production cycle. Consequently, the amount of work-in-process at
any point in time is minimal. In addition, many parts or components are
ultimately either sold individually or assembled with other parts making a
distinction between raw materials and finished goods impractical to determine.
Several other locations maintain and manage their inventories using a job cost
system where the distinction of categories of inventory by state of completion
is also not available.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only
be possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
Note G--Shareholders' Equity
The authorized capital stock of the Company as of August 31, 2000 consisted
of 80,000,000 shares of Class A Common Stock, $0.20 par value, of which
39,614,551 shares were issued and outstanding; 7,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued and outstanding; and
800,000 shares of Cumulative Preferred Stock, $1.00 par value ("Preferred
Stock"), none of which have been issued. Holders of both classes of the
Company's Common Stock are entitled to such dividends as the Company's board
of directors may declare out of funds legally available, subject to any
contractual restrictions on the payment of dividends or other distributions on
the Common Stock. If the Company were to issue any of its Preferred Stock, no
dividends could be paid or set apart for payment on shares of Common Stock,
unless paid in Common Stock, until dividends on all of the issued and
outstanding shares of Preferred Stock had been paid or set apart for payment
and provision had been made for any mandatory sinking fund payments. In the
event of dissolution or liquidation of the Company, the holders of both
classes of Common Stock are entitled to share ratably all assets of the
Company remaining after payment of the Company's liabilities and satisfaction
of the rights of any series of Preferred Stock which may be outstanding. There
are no redemption or sinking fund provisions with respect to the Common Stock.
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 Class A Common Stock was issued on February 3, 1998.
All references in
46
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the consolidated 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.
At the Annual Meeting of Shareholders to be held on January 9, 2001,
shareholders will be voting on a proposal for a reverse stock split. For
further information, see Note P--"Subsequent Events."
Note H--Merger, Restructuring and Other Non-recurring Items
Fiscal 2000
In fiscal 2000, Applied Power recorded $12.4 million of fees and expenses
associated with the Distribution. Such legal, accounting, tax and investment
banking fees and expenses are reported under the caption "Corporate
reorganization expenses" in the Consolidated Statements of Earnings.
In fiscal 2000, the Company recorded a $6.6 million gain related to the
unwinding of interest rate swap agreements. The interest rate swap agreements
were unwound due to the anticipated spin-off of the Electronics Business.
Gains relating to terminations of qualifying hedges were deferred and
recognized in income at the same time as the underlying hedged transactions.
As of August 31, 2000, no deferred gain remained. These gains are included in
the Consolidated Statements of Earnings as a reduction to "Net financing
costs."
In the first quarter of fiscal 2000, Applied Power recovered certain costs
associated with the cancellation of a contract within its Engineered Solutions
segment for which a loss was recorded in a prior period. See fiscal 1999
below. The gain of $1.4 million represents a reduction in the estimated loss
originally recorded in fiscal 1999.
In the fourth quarter of fiscal 2000, the Company approved a plan to sell
product lines within its Tools & Supplies segment. The Company recorded a
total charge of approximately $1.9 million to reduce the carrying amounts of
these assets to estimated net realizable value. This charge is included in the
Consolidated Statements of Earnings as "Provision for loss on sale of
subsidiary and product lines."
Fiscal 1999
In the first quarter of fiscal 1999, the Company incurred a $7.8 million
non-recurring charge due to the cancellation of a contract within the
Engineered Solutions segment. The majority of these costs were incurred prior
to fiscal 1999.
Fiscal 1998
In the fourth quarter of fiscal 1998, the Company recorded merger,
restructuring and other one-time charges of $50.4 million, $37.2 million net
of tax, or $0.93 per diluted share. The charge included $30.3 million relating
to action programs to eliminate less productive products and product lines,
consolidate Gardner Bender and Enerpac headquarters and combine certain
facilities. Also included were costs relating primarily to the write-off of
obsolete inventory to net realizable value, employee severance, facility
closures, operating lease obligations, and, in two cases, the write-down of
goodwill. The Company completed its planned restructuring programs during
fiscal year 1999.
In connection with the Merger with ZERO consummated in fiscal 1998 (Note
D--"Merger, Acquisitions and Divestitures"), the Company recorded transaction
costs related to legal, accounting and financial advisory services which were
expensed as required under the pooling of interests method of accounting. In
addition, the
47
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company incurred costs associated with organizational realignment, closure of
ZERO headquarters, a change in estimate of a receivable valuation and the
write-off of obsolete inventory due to conforming of product lines. Together
these totaled approximately $20.1 million and were part of the $50.4 million
charge discussed above.
The following table summarizes the manner in which merger, restructuring
and other non-recurring items were recorded in the 1998 Consolidated Statement
of Earnings:
<TABLE>
<S> <C>
Cost of products sold............................................ $15,660
Engineering, selling and administrative expenses................. 9,019
Amortization of intangible assets................................ 5,062
Restructuring charges and merger related expenses................ 20,643
-------
Subtotal....................................................... 50,384
Less: Income tax benefit......................................... 13,143
-------
Total........................................................ $37,241
=======
</TABLE>
Additionally, fiscal year 1998 results included a pretax $4.5 million asset
impairment charge ($0.5 million of goodwill) recorded to reduce the carrying
amount of a European subsidiary to estimated realizable value. This charge is
reported in the "Provision for loss on sale of subsidiary and product lines"
caption in the Consolidated Statements of Earnings. The assets of this
European subsidiary were sold in the first quarter of fiscal 2000. See Note
D--"Mergers, Acquisitions and Divestitures" for further discussion regarding
the sale.
Note I--Debt
The Company's capitalization underwent significant changes as a result of
the Distribution. The majority of the borrowings existing prior to the
Distribution were refinanced with new facilities and notes on July 31, 2000.
The Company's indebtedness at the end of its two most recently completed
fiscal years was as follows:
<TABLE>
<CAPTION>
August 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Senior secured credit agreement:
Revolving credit borrowings......................... $ -- $ --
Tranche A term loans................................ 109,447 --
Tranche B term loans................................ 123,853 --
-------- --------
Sub-total--senior secured credit agreement........ 233,300 --
Senior subordinated notes, due 2009 ("13% Notes")..... 200,000 --
Less: Non-amortized discount.......................... (2,625) --
-------- --------
Senior subordinated notes, net of discount.......... 197,375 --
Multi-currency revolving credit agreement............. -- 407,287
Senior subordinated notes, due 2009 ("8.75% Notes")... -- 200,000
Commercial paper...................................... -- 108,691
Senior promissory notes, due March 8, 2011............ -- 50,000
Floating rate unsecured loan notes, due 2003.......... -- 30,681
Pound Sterling multi-currency revolving credit
agreement............................................ -- 5,623
Other................................................. 540 6,156
-------- --------
Total long-term debt.............................. 431,215 808,438
Less: Amounts attributable to discontinued operations. -- 287,422
-------- --------
Long-term debt.................................... $431,215 $521,016
======== ========
</TABLE>
48
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 2000, the Company retired the $50.0 million senior promissory
notes due March 8, 2011 in anticipation of the Distribution. The Company paid
a $3.3 million make-whole premium ($2.1 million net of the income tax
benefits), in connection with this early retirement of debt. This premium and
related costs are included in discontinued operations in the Consolidated
Statement of Earnings.
Immediately prior to the Distribution, all borrowings outstanding under the
multi-currency revolving credit agreement, 8.75% Notes, and commercial paper
were repaid with proceeds from a new APW Ltd. credit facility, Actuant's 13%
Notes and Actuant's new senior secured credit agreement (the "Senior Credit
Agreement"). The Floating rate unsecured loan notes due 2003, pound sterling
multi-currency revolving credit agreement and the majority of the "Other" debt
were retained by APW Ltd. in the Distribution. In conjunction with the
refinancing, the Company recorded a $14.7 million extraordinary loss ($24.6
million, net of $9.9 million of related tax benefit) for the make-whole
payment required to tender the 8.75% Notes, tender costs and the write-off of
non-amortized capitalized debt issuance costs attributable to the retired
debt.
Following the Distribution, Actuant's only long-term debt consisted of
borrowings under 1) the Senior Credit Agreement, 2) the 13% Notes and 3) $0.5
million of other notes.
The Company initially borrowed $252.6 million under the Senior Credit
Agreement, consisting of $115.0 million of Tranche A Term loans ("Term Loan
A"), $125.0 million of Tranche B Term loans ("Term Loan B") and $12.6 million
of a $100.0 million revolving credit line (the "Revolver"). The equivalent of
$30.0 million of Term Loan A was initially borrowed in Euro, with the
remainder of Senior Credit Agreement borrowings being U.S. Dollar denominated
obligations. Both the Revolver and Term Loan A have a term of six years, and
can be prepaid at any time without premium or penalty. Principal installments
are payable quarterly on Term Loan A. Interest accrues on the Revolver and
Term Loan A at floating rates ranging from LIBOR (or EURIBOR in the case of
Euro denominated borrowings) plus 1.50-3.00%, depending on the Company's
leverage ratio. At August 31, 2000, such borrowings were at LIBOR plus 2.75%.
Term Loan B has a term of 8 years, and can also be prepaid at any time without
premium or penalty. Modest principal installments are payable quarterly on
Term Loan B for the first six years, followed by larger installment
requirements in the final two years. Interest accrues on Term Loan B at
floating rates ranging from LIBOR plus 3.50-4.00%, depending on the Company's
leverage ratio. At August 31, 2000, Term Loan B borrowings were at LIBOR plus
3.75%.
A non-use fee, currently computed at a rate of 0.50% annually, is payable
quarterly on the average unused Revolver credit line. The unused Revolver
credit line at August 31, 2000 was $100.0 million. The Senior Credit Agreement
limits the Company's total borrowings to 4.50 times earnings before interest,
income taxes, depreciation and amortization ("EBITDA") for the preceding four
quarters. Based on the Company's EBITDA and total debt as of August 31, 2000,
borrowings of approximately $69.7 million could have been made on the
Revolver.
The Senior Credit Agreement contains customary limits and restrictions
concerning investments, sales of assets, liens on assets, interest and fixed
cost coverage ratios, maximum leverage, capital expenditures, acquisitions,
excess cash flow, dividends and other restricted payments. The Senior Credit
Agreement is collateralized by substantially all assets of the Company and its
domestic subsidiaries and a pledge of 66% of the stock of certain foreign
subsidiaries. As of August 31, 2000, the Company was in compliance with all
debt covenants.
Actuant's 13% Notes were issued at a price of 98.675% on July 31, 2000. The
discount is being amortized over the term of the notes, which mature in May
2009. The 13% Notes carry a fixed 13.0% rate of interest, which is paid on
November 1, and May 1 annually, and are U.S. Dollar denominated. There are no
required principal payments on the 13% Notes. The Company has the right to
redeem at 113% up to 35% of the 13%
49
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes prior to May 1, 2003 with the proceeds from a public equity offering.
Further, the Company has the right to redeem all or a portion of the 13% Notes
at certain specified redemption prices on or after May 1, 2007. The 13% Notes
are unsecured obligations of the Company, and are subordinate in right of
payment to the prior payment in full of all senior debt as defined in the
indenture. In conjunction with the issuance of the 13% Notes, a number of the
Company's domestic subsidiaries have provided unconditional guarantees for
their payment.
Debt allocated to discontinued operations at August 31, 1999 was determined
based on the amount of debt expected to be assumed by APW Ltd. in the
Distribution. Prior to the Distribution, most debt instruments were held
centrally, and as such, debt from these specific instruments was not
historically allocated. The allocation of interest expense to continuing and
discontinued operations was based on the Company's average interest rate costs
and relative debt levels assigned.
Short-term Debt: Short-term debt outstanding at August 31, 2000 consisted
of foreign subsidiary overdraft borrowings. Certain of the Company's foreign
subsidiaries are a party to unsecured non-committed lines of credit with
banks. Interest rates vary depending on the currency being borrowed.
Aggregate Maturities: Long-term debt outstanding at August 31, 2000 is
payable as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------
<S> <C>
2001............................. $ 8.4 million
2002............................. $ 16.2 million
2003............................. $ 21.2 million
2004............................. $ 21.2 million
2005............................. $ 26.2 million
Thereafter....................... $338.0 million
</TABLE>
The $8.4 million identified as payable in fiscal 2001 is not classified as
current in the Consolidated Balance Sheets due to the intent and ability of
the Company to refinance this amount on a long-term basis under the Revolver.
The Company paid $67.2 million, $61.5 million, and $24.8 million for
financing costs in fiscal 2000, 1999 and 1998, respectively, which included
both continuing and discontinued operations.
Note J--Leases
The Company leases certain facilities, computers, equipment and vehicles
under various lease agreements generally over periods of one to twenty years.
Under most arrangements, the Company pays the property taxes, insurance,
maintenance and expenses related to the leased property. Many of the leases
include provisions that enable the Company to renew the lease based upon fair
value rental rates on the date of expiration of the initial lease.
Future obligations under non-cancelable operating leases in effect at
August 31, 2000 are: $7.3 million in fiscal 2001; $5.7 million in fiscal 2002;
$4.5 million in fiscal 2003; $4.1 million in fiscal 2004; $2.7 million in
fiscal 2005; and $10.2 million thereafter.
Total rental expense under operating leases related to the continuing
businesses was $9.1 million, $11.5 million, and $11.0 million in fiscal 2000,
1999 and 1998, respectively.
The Company has no significant capital leases as of August 31, 2000. It is
the Company's policy not to enter into capital leases.
50
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note K--Stock Option Plans
In conjunction with the Distribution, APW Ltd. adopted its own stock option
plan and the existing outstanding stock options under the Applied Power stock
option plans related to APW Ltd. employees were converted into options to
purchase an equivalent value of APW Ltd. common shares based on the fair
market value of APW Ltd. common shares at the time of the Distribution.
Therefore, there were no Applied Power options outstanding for APW Ltd.
employees at August 31, 2000. Options totaling 1,966,394 and 1,657,673 shares
were held by Electronics segment employees as of August 31, 1999 and 1998,
respectively, and assumed by APW Ltd. Additionally, options held by board of
directors who resigned from the Company's board and became directors of APW
Ltd. were assumed by a new plan adopted by APW Ltd. The remaining options
outstanding under the employee and board plans were retained by the Company,
with the number of options held by each individual adjusted by a factor of
13:1 in order to retain the holder's inherent value of the options prior to
the Distribution.
Employee Plans: On January 8, 1997, shareholders of the Company approved
the adoption of the Applied Power Inc. 1996 Stock Plan (the "1996 Plan").
Previously, the Company had three nonqualified stock option plans for
employees--the 1985, 1987 and 1990 plans. No further options may be granted
under the 1985, 1987 or 1990 plans, although options previously issued and
outstanding under these plans remain exercisable pursuant to the provisions of
the plans. Under the terms of the 1996 Plan, stock options may be granted to
officers and key employees. At August 31, 2000, a total of 3,000,000 shares of
Class A common stock were authorized for issuance under the 1996 Plan, of
which a total of 106,900 have been issued through exercises of option grants.
At August 31, 2000, 2,893,100 shares were reserved for issuance under the 1996
Plan, consisting of 2,764,774 shares subject to outstanding options and
128,326 shares available for further grants. The Company intends to replace
the 1996 Plan with a new stock option plan authorizing 2,000,000 shares for
future stock option grants (the "2001 Plan"). In order to make option grants
to executive officers in fiscal 2000, the Company's board of directors
approved a grant of 295,000 shares under the 2001 Plan, subject to shareholder
approval of the plan. Options generally have a maximum term of ten years and
an exercise price equal to 100% of the fair market value of a share of the
Company's common stock at the date of grant. Options generally vest 50% after
two years and 100% after five years.
In connection with the Merger (see Note D--"Merger, Acquisitions and
Divestitures"), all of the options outstanding under the former ZERO stock
option plans were assumed by the Company and converted into options to
purchase shares of the Company's Class A Common Stock on terms adjusted to
reflect the merger exchange ratio. Options to acquire a total of 735,767 ZERO
shares were converted into options to acquire a total of 625,402 Company
shares. These options, as so adjusted, retained all of the rights, terms and
conditions of the respective plans under which they were originally granted.
ZERO's plans provided for the granting of options to purchase shares of
ZERO common stock to directors, officers and other key employees at a price
not less than the fair market value on the date of grant. Options were granted
for terms of five to eight years and become exercisable in annual installments
(generally one-third of the total grant) commencing one year from the date of
grant, on a cumulative basis.
51
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity under the employee plans is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1997................ 3,251,610 $12.91
Effect of ZERO excluded period (Note A)....... (84,797) --
Granted..................................... 467,644 32.27
Exercised................................... (721,160) 13.01
Cancelled................................... (133,591) 18.85
---------
Outstanding at August 31, 1998................ 2,779,706 15.72
Granted..................................... 646,230 27.45
Exercised................................... (539,138) 14.82
Cancelled................................... (401,508) 26.57
---------
Outstanding at August 31, 1999................ 2,485,290 17.27
Granted..................................... 1,703,133 13.66
Exercised................................... (647,588) 6.30
Cancelled................................... (168,311) 25.08
Net adjustment due to Distribution.......... 1,267,816
---------
Outstanding at August 31, 2000................ 4,640,340 2.25
Exercisable at August 31, 2000................ 2,093,651 1.71
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted
Range of August 31, Weighted Average Average August 31, Average
Exercise 2000 Number Remaining Exercise 2000 Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
---------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.60-1.13 985,400 4.06 $0.96 985,400 $0.96
$1.40-2.13 1,454,700 7.30 1.82 254,800 1.39
$2.26-2.73 542,906 6.98 2.40 229,450 2.44
$2.76 624,001 7.45 2.76 624,001 2.76
$3.72 1,033,333 9.94 3.72 --
--------- ---------
$0.60-3.72 4,640,340 7.18 2.25 2,093,651 1.71
========= =========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. If the Company had
accounted for these stock options issued to employees in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's earnings
from continuing operations and related earnings per share would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
As Reported Pro Forma
Year ended August 31, Year ended August 31,
--------------------- -----------------------
2000 1999 1998 2000 1999 1998
------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations..................... $28,045 $34,580 $ 53 $28,000 $33,164 $(1,042)
Basic earnings (loss) from
continuing operations per
share.......................... $ 0.72 $ 0.89 $0.00 $ 0.72 $ 0.85 $ (0.03)
Diluted earnings (loss) from
continuing operations per
share.......................... $ 0.70 $ 0.86 $0.00 $ 0.69 $ 0.82 $ (0.03)
</TABLE>
52
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma effects of applying SFAS No. 123 have not been allocated to
discontinued operations and may not be representative of the effects on
reported net income and earnings per share for future years since options vest
over several years and additional awards are made each year.
The fair value of Applied Power stock options used to calculate the
preceeding pro forma net earnings and pro forma earnings per share amounts is
the estimated present value at grant date using the Black-Scholes option-
pricing model. The weighted-average fair values per share of options granted
in fiscal 2000, 1999 and 1998 are $1.07, $10.37, and $11.54 respectively. The
significant decrease in the fiscal 2000 weighted-average fair value per share
of options is due to the stock price adjustment as a result of the
Distribution. The following weighted-average assumptions were used in
completing the model:
<TABLE>
<CAPTION>
Year ended August 31,
-----------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.............................. 0.00% 0.20% 0.24%
Expected volatility......................... 40.30% 31.90% 23.50%
Risk-free rate of return.................... 5.60% 6.40% 5.50%
Expected life............................... 5.3 years 4.7 years 5.6 years
</TABLE>
Outside Director Plan: Annually, each outside director is granted stock
options to purchase common stock at a price equal to the market price of the
underlying stock on the date of grant. The number of shares granted was
increased in 1997, from 2,000 shares to 3,000 shares, by an amendment to the
plan adopted on October 31, 1996. At August 31, 2000, a total of 1,560,000
shares of Class A Common Stock, as adjusted by the conversion factor in the
spin-off in accordance with the plan document, were authorized for issuance
under the director's stock option plan. Through August 31, 2000, 40,000 shares
had been issued through exercises and an additional 416,000 shares are subject
to outstanding options. The Company plans to replace its current director's
stock option plan with a new plan upon shareholder approval at the next annual
meeting. No further grants would be made under the current plan, although
options previously issued and outstanding under this plan remain exercisable
pursuant to the provisions of the plan. Director stock options vest eleven
months after date of grant. A summary of option activity under the Outside
Director's Stock Option Plan is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1997................. 61,000 $13.03
Granted...................................... 15,000 34.50
Cancelled.................................... (14,000) 10.09
-------
Outstanding at August 31, 1998................. 62,000 18.88
Granted...................................... 15,000 37.06
Exercised.................................... (14,000) 10.09
-------
Outstanding at August 31, 1999................. 63,000 25.17
Granted...................................... 15,000 33.84
Net adjustment due to Distribution............. 338,000
-------
Outstanding at August 31, 2000................. 416,000 2.04
Exercisable at August 31, 2000................. 338,000 1.90
</TABLE>
53
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note L--Employee Benefit Plans
Defined Benefit Pension and Other Postretirement Benefit Plans: The Company
provides defined benefit pension and other postretirement benefits to certain
employees of businesses it acquired who were entitled to those benefits prior
to acquisition. The following tables provide a reconciliation of benefit
obligations, plan assets, funded status and net periodic benefit cost for
those plans:
<TABLE>
<CAPTION>
Defined Benefit Other Postretirement
Pension Plan Benefits
---------------------- ----------------------
Year ended August 31, Year ended August 31,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reconciliation of Benefit
Obligations:
Benefit obligation at beginning
of year....................... $ 11,097 $ 11,416 $ 5,872 $ 5,224
Service cost................... 52 81 15 19
Interest cost.................. 844 787 436 354
Actuarial (gain)/loss.......... (323) (213) 659 639
Benefits paid.................. (559) (974) (514) (364)
---------- ---------- ---------- ----------
Benefit obligation at end of
year........................ $ 11,111 $ 11,097 $ 6,468 $ 5,872
========== ========== ========== ==========
Reconciliation of Plan Assets:
Fair value of plan assets at
beginning of year............. $ 12,324 $ 12,086 $ -- $ --
Actual return on plan assets... 1,813 1,006 -- --
Company contributions.......... -- 129 -- --
Benefits paid from plan assets. (482) (897) -- --
---------- ---------- ---------- ----------
Fair value of plan assets at
end of year................. $ 13,655 $ 12,324 $ -- $ --
========== ========== ========== ==========
Overfunded (Unfunded) status of
the plans..................... $ 2,544 $ 1,227 $ (6,468) $ (5,872)
Unrecognized net loss/(gain)... (664) 411 (1,952) (2,828)
---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost. $ 1,880 $ 1,638 $ (8,420) $ (8,700)
========== ========== ========== ==========
Weighted-Average Assumptions as
of August 31:
Discount rate.................. 7.75% 7.75% 7.75% 7.75%
Expected return on plan assets. 8.50% 8.50%
Rate of compensation increase.. Frozen Frozen
</TABLE>
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
-------------------- ----------------------
Year ended August
31, Year endedAugust 31,
-------------------- ----------------------
2000 1999 1998 2000 1999 1998
------ ------ ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic
Benefit Cost (Credit):
Service cost.................... $ 52 $ 81 $409 $ 15 $ 19 $ 18
Interest cost................... 844 787 786 436 354 363
Expected return on assets....... (1,060) (1,064) (972) -- -- --
Amortization of actuarial
(gain)/loss.................... -- 1 -- (218) (294) (331)
------ ------ ---- ------ ------ ------
Benefit cost (credit)......... $ (164) $ (195) $223 $ 233 $ 79 $ 50
====== ====== ==== ====== ====== ======
</TABLE>
At August 31, 2000, the defined benefit pension plans consisted of three
plans covering certain legacy Versa/Tek employees and executives. On March 31,
1999, the Versa/Tek Hourly Plan was merged into the Versa/Tek Salaried Plan,
resulting in no change to the aggregate funding status of the two plans. In
fiscal 1998,
54
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company amended the plans to freeze the accumulation of benefits. This
change resulted in a decrease of approximately $1.9 million in the projected
benefit obligation of Versa/Tek. Trust assets consist primarily of
participating units in common stock and bond funds.
Certain former employees of acquired businesses who retired before February
1, 1994 (and their dependents) have the option of being covered by one of
several postretirement medical plans. Deferred vested employees who terminated
employment before February 1, 1994 are also eligible for this postretirement
benefit. In addition, retiree life insurance is available to all employees
hired before 1988. The postretirement benefit liability related to these plans
is unfunded. Most individuals receiving postretirement health care and life
insurance benefits under the above programs are required to make monthly
contributions to defray a portion of the cost. Retiree contributions are
adjusted annually. Retirees currently do not contribute toward the cost of
life insurance. The accounting for retiree health care benefits assumes
retirees will continue to contribute toward the cost of such benefits.
The health care cost trend rate used in the actuarial calculations was
9.0%, trending downward to 6.5% by the year 2009, and remaining level
thereafter. A one percentage-point increase or decrease in the assumed health
care cost trend rate would increase or decrease the postretirement benefit
obligation by approximately $0.2 million and would not have a material effect
on aggregate service and interest cost components.
Defined Contribution Benefit Plans: Effective January 1, 1998, the Company
merged its former Employee Savings Plan with the Applied Power Inc. Employee
Stock Ownership Plan to create a single retirement program for eligible U.S.
employees (the "401(k) Plan"). Substantially all of the Company's full-time
U.S. employees are eligible to participate in the 401(k) Plan. Under the
provisions of the 401(k) Plan, the plan administrator acquires shares of Class
A Common Stock on the open market and allocates such shares to accounts set
aside for Company employees' retirements. Company core contributions generally
equal 3% of each employee's annual cash compensation, subject to IRS
limitations. Additionally, employees generally may contribute up to 15% of
their base compensation. The Company also matches approximately 25% of each
employee's contribution up to the employee's first 6% of earnings.
In conjunction with the Distribution, the 401(k) Plan was split into two
plans. Effective July 31, 2000, balances of APW Ltd. employee accounts were
transferred into a new plan which provisions mirrored the 401(k) Plan in all
material respects. Provisions under the 401(k) Plan remained unchanged after
the Distribution.
During the years ended August 31, 2000, 1999 and 1998, Company
contributions to defined contribution benefit plans relating to continuing
operations were approximately $2.4 million, $3.3 million and $2.6 million,
respectively.
Non-U.S. Benefit Plans: The Company contributes to a number of retirement
programs, primarily government mandated, for employees outside the United
States. Benefit expense under these programs amounted to approximately $0.8
million, $1.1 million, and $1.4 million in fiscal 2000, 1999 and 1998,
respectively. As these plans are not significant, Applied Power does not
determine the actuarial value of accumulated plan benefits or net assets
available for benefits.
55
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note M--Income Taxes
Income tax expense for continuing operations before extraordinary items is
summarized below:
<TABLE>
<CAPTION>
Year ended August 31,
-----------------------
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Currently Payable:
Federal........................................ $11,848 $12,096 $3,347
Foreign........................................ 5,468 6,348 8,436
State.......................................... 1,848 2,583 1,801
------- ------- ------
Subtotals........................................ 19,164 21,027 13,584
------- ------- ------
Deferred:
Federal........................................ 273 607 (3,672)
Foreign........................................ 8 1,823 (951)
State.......................................... 43 (627) 115
------- ------- ------
Subtotals........................................ 324 1,803 (4,508)
------- ------- ------
Income tax expense............................... $19,488 $22,830 $9,076
======= ======= ======
</TABLE>
Income tax expense differs from the amounts computed by applying the
Federal income tax rate to earnings before income tax expense. A
reconciliation of income taxes at the Federal statutory rate to the effective
tax rate for continuing operations follows:
<TABLE>
<CAPTION>
Year ended August 31,
-----------------------
% of Pre-tax Earnings 2000 1999 1998
--------------------- ------- ------- -------
<S> <C> <C> <C>
Federal statutory rate........................... 35.0% 35.0% 35.0%
State income taxes, net of Federal effect........ 2.6 2.2 13.6
Non-deductible amortization and other expenses... 6.6 2.9 33.0
Net effects of foreign tax rates and credits..... (2.8) (1.5) 29.7
Other items...................................... (0.4) 1.2 (11.9)
------ ------ -------
Effective tax rate............................... 41.0% 39.8% 99.4%
====== ====== =======
</TABLE>
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities for continuing operations included the following items:
<TABLE>
<CAPTION>
Year ended August 31,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Operating loss and state tax credit carry
forwards..................................... $ 6,091 $ 5,674
Compensation and other employee benefits...... 5,506 5,436
Inventory items............................... 2,015 4,889
Restructuring expenses........................ 1,367 4,528
Deferred income............................... 1,783 --
Book reserves and other items................. 4,860 2,627
---------- ----------
Total deferred income tax assets............ 21,622 23,154
Valuation allowance........................... (6,091) (5,674)
---------- ----------
Net deferred income tax assets.............. 15,531 17,480
Deferred income tax liabilities:
Depreciation and amortization................. 11,695 11,526
Inventory items............................... -- 2,678
Other items................................... 3,780 3,432
---------- ----------
Deferred income tax liabilities............. 15,475 17,636
---------- ----------
Net deferred income tax..................... $ 56 $ (156)
========== ==========
</TABLE>
56
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The valuation allowance represents a reserve for foreign and domestic
operating loss and state tax credit carryforwards for which utilization is
uncertain. The increase in the valuation allowance represents the current year
increase in such loss carryforwards. The majority of the foreign losses may be
carried forward indefinitely. The state loss carryforwards expire in various
years through 2015.
Income taxes paid for both continuing and discontinued operations during
fiscal 2000, 1999 and 1998 were $25.9 million, $37.2 million, and $49.7
million, respectively.
The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the United
States. Accordingly, the Company does not currently provide for the additional
United States and foreign income taxes which would become payable upon
remission of undistributed earnings of foreign subsidiaries. Undistributed
earnings from continuing operations on which additional income taxes have not
been provided amounted to approximately $24.6 million at August 31, 2000. If
all such undistributed earnings were remitted, an additional provision for
income taxes of approximately $1.8 million would have been necessary as of
August 31, 2000.
APW Ltd. has agreed to indemnify Actuant against certain tax liabilities
arising from the reorganization leading up to the Distribution. APW Ltd.
recorded a $40.0 million tax provision as a result of their reorganization.
Under a tax sharing agreement entered into with Actuant, APW Ltd. will be
responsible for federal and state income taxes resulting from the
reorganization transactions. Accordingly, the Company has recorded the tax
liability owed and a related receivable due from APW Ltd. on its August 31,
2000 consolidated balance sheet. APW Ltd. bears the risk of any audit
adjustments by the IRS or other taxing authorities challenging the reporting
of the reorganization transactions. For tax periods ending on or before the
Distribution, the tax sharing agreement also provides that APW Ltd. will be
responsible for income taxes in excess of $1.0 million that arise from audit
adjustments by the IRS or other taxing authorities to the separate taxable
income of any APW Ltd. entity.
Note N--Business Segment, Geographic and Customer Information
Prior to the Distribution, the Company had been reporting its financial
results on the basis of two business segments, Industrial and Electronics. The
Electronics segment is now included, in its entirety, in discontinued
operations. Subsequent to the Distribution, the Company split the former
Industrial segment into two distinct reportable segments, Tools & Supplies and
Engineered Solutions, with separate and distinct operating management and
strategies. The Tools & Supplies segment is primarily involved in the design,
manufacture and distribution of tools and supplies to the construction,
electrical wholesale, retail do-it-yourself, industrial and production
automation markets. The Engineered Solutions segment focuses on developing and
marketing value-added, customized systems for original equipment manufacturers
in the recreational vehicle, automotive, truck, medical and industrial
markets. Historical Industrial segment information has been restated to
reflect the present two-segment reporting.
The following tables summarize financial information from continuing
operations by reportable segment. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
merger, restructuring and other non-recurring items discussed in Note H--
"Merger, Restructuring and Other Non-recurring Items." Fiscal 2000 results
include $12.4 million in fees and expenses associated with the Distribution,
with the entire amount being allocated to general corporate and other. Tools &
Supplies results in fiscal 2000 include a $5.4 million loss for the
disposition of certain product lines. Engineered Solutions results in fiscal
1999 include a $7.8 million pre-tax charge related to a contract termination,
with a related recovery of
57
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$1.4 million recorded on this contract termination during fiscal 2000. The
$50.4 million restructuring and merger charge from fiscal 1998 was allocated
by segment as follows: $24.6 million to Tools & Supplies, $10.0 million in
Engineered Solutions and $15.8 million in general corporate and other. The
$4.5 million asset impairment charge from fiscal 1998 was reported in the
Engineered Solutions segment. Earnings (Loss) from Continuing Operations
before Income Tax Expense for each reportable segment and geographic region
does not include general corporate expenses, interest expense or currency
exchange adjustments.
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------
2000 1999 1998
-------- ---------- --------
<S> <C> <C> <C>
Net Sales:
Tools & Supplies...................... $303,568 $ 309,276 $305,706
Engineered Solutions.................. 368,073 386,428 331,773
-------- ---------- --------
Totals.............................. $671,642 $ 695,704 $637,479
======== ========== ========
Earnings (Loss) from Continuing
Operations before Income Tax Expense:
Tools & Supplies...................... $ 36,150 $ 31,210 $ (377)
Engineered Solutions.................. 53,529 35,547 28,282
General corporate and other........... (42,146) (9,347) (18,776)
-------- ---------- --------
Totals.............................. $ 47,533 $ 57,410 $ 9,129
======== ========== ========
Depreciation and Amortization:
Tools & Supplies...................... $ 9,733 $ 9,718 $ 11,590
Engineered Solutions.................. 12,043 15,954 12,773
General corporate and other........... 774 384 200
-------- ---------- --------
Totals.............................. $ 22,550 $ 26,056 $ 24,563
======== ========== ========
Capital Expenditures:
Tools & Supplies...................... $ 6,103 $ 9,127 $ 6,992
Engineered Solutions.................. 4,787 9,890 11,976
General corporate and other........... 524 3,868 6,246
-------- ---------- --------
Totals.............................. $ 11,414 $ 22,885 $ 25,214
======== ========== ========
<CAPTION>
August 31,
--------------------
2000 1999
-------- ----------
<S> <C> <C> <C>
Assets:
Tools & Supplies...................... $209,000 $ 194,236
Engineered Solutions.................. 130,893 247,414
Net assets of discontinued operations. -- 598,458
General corporate and other........... 77,088 19,764
-------- ----------
Totals.............................. $416,981 $1,059,872
======== ==========
</TABLE>
The following tables summarize financial information from continuing
operations by geographic region. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
merger, restructuring and other non-recurring items discussed in Note H--
"Merger, Restructuring and Other Non-recurring Items." Fiscal 2000 results
include $12.4 million in fees and expenses associated with the Distribution,
with the entire amount being allocated to general corporate and other. North
America results in fiscal 2000 include a $1.9 million loss for the disposition
of two product lines. A $3.5 million loss on the sale of
58
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Norelem, S.A. is reflected in Europe's results for fiscal 2000. North America
results in fiscal 1999 include a $7.8 million pre-tax charge related to a
contract termination, with a related recovery of $1.4 million recorded on this
contract termination during fiscal 2000. Fiscal 1998 results include a $50.4
million restructuring and merger charge that was allocated by geographic
region as follows: $21.6 million in North America, $6.9 million in Europe,
$4.3 million in Japan and Asia Pacific, $1.8 million in Latin America and
$15.8 million in general corporate and other. The $4.5 million asset
impairment charge from fiscal 1998 was reported in the Europe region.
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------
2000 1999 1998
-------- ---------- --------
<S> <C> <C> <C>
Net sales:
North America......................... $454,789 $ 468,023 $434,357
Europe................................ 176,525 190,473 159,534
Japan and Asia Pacific................ 29,906 27,003 31,331
Latin America......................... 10,422 10,205 12,257
-------- ---------- --------
Totals.............................. $671,642 $ 695,704 $637,479
======== ========== ========
Earnings (Loss) from Continuing
Operations Before Income Tax Expense:
North America......................... $ 66,743 $ 41,029 $ 20,397
Europe................................ 19,145 24,053 11,132
Japan and Asia Pacific................ 2,580 (203) (1,941)
Latin America......................... 1,211 1,878 (1,683)
General corporate and other........... (42,146) (9,347) (18,776)
-------- ---------- --------
Totals.............................. $ 47,533 $ 57,410 $ 9,129
======== ========== ========
<CAPTION>
August 31,
--------------------
2000 1999
-------- ----------
<S> <C> <C> <C>
Assets:
North America......................... $268,020 $ 321,461
Europe................................ 46,574 95,019
Japan and Asia Pacific................ 19,676 18,404
Latin America......................... 5,623 6,766
Net assets of discontinued operations. -- 598,458
General corporate and other........... 77,088 19,764
-------- ----------
Totals.............................. $416,981 $1,059,872
======== ==========
</TABLE>
Corporate assets, which are not allocated, represent principally cash,
capitalized debt financing costs, and deferred income taxes, and at August 31,
2000, a $40.9 million receivable due from APW Ltd.
The Company's largest customer accounted for 4.7% of its sales in fiscal
2000 and fiscal 1999, and 4.0% of its sales in fiscal 1998. Export sales from
domestic operations were less than 10% of total net sales in each of the
periods presented.
Note O--Contingencies and Litigation
The Company had outstanding letters of credit totaling $9.3 million and
$1.9 million at August 31, 2000 and 1999, respectively. The letters of credit
generally serve as collateral for liabilities included in the Consolidated
Balance Sheets and indemnification obligations relating to divested
businesses.
59
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is a party to various legal proceedings that have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor, patent claims and commission
disputes. The Company has recorded reserves for loss contingencies based on
the specific circumstances of each case. Such reserves are recorded when it is
probable that a loss has been incurred as of the balance sheet date and such
loss can be reasonably estimated. In the opinion of management, the resolution
of these contingencies will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The
Company will assume and indemnify APW Ltd. With respect to those proceedings
involving the Industrial businesses, while APW Ltd. will indemnify Actuant
with respect to the Electronics businesses.
The Company has facilities in numerous geographic locations that are
subject to a range of environmental laws and regulations. Environmental costs
are expensed or capitalized depending on their future economic benefits.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental remediation is probable and the costs can be
reasonably estimated. Environmental expenditures over the last three years
have not been material. Although the level of future expenditures for
environmental remediation is impossible to determine with any degree of
certainty, it is management's opinion that such costs will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. Environmental remediation accruals of $2.1 million and $1.3
million were included in the Consolidated Balance Sheets at August 31, 2000
and 1999, respectively.
On August 9, 2000, Applied Power Inc.'s board of directors approved an
executive stock purchase plan (the "Executive Stock Purchase Plan") to assist
the Company's executive officers in meeting their Actuant stock ownership
requirements. Under terms of the Executive Stock Purchase Plan, eligible
officers may borrow funds of up to four times their respective base salaries
under a company-arranged loan program for the sole purpose of acquiring
Actuant common stock on the open market. Full recourse loans under the program
are made between a domestic financial institution and the executive officer.
The Company has provided a guarantee to the financial institution in the
amount of the aggregate outstanding loan balance. It also reimburses
participants for cash interest paid on such loans in excess of 4.0%. At August
31, 2000, the aggregate amount of officer loans under the program that were
guaranteed by the Company was $2.5 million, at an average cost of 9.37%.
Expense recognized by the Company as of August 31, 2000 related to its share
of the interest was not significant. Generally, the executive retains the risk
of any market gain or loss on the shares purchased. If the purchased shares
are sold four years or longer after their purchase, the Company has agreed to
reimburse 50% of any realized loss on the sale. At August 31, 2000, no
purchased shares were below acquired value.
Note P--Subsequent Events
On October 25, 2000 the board of directors authorized a one-for-five
reverse stock split. The reverse stock split requires shareholder approval and
will be voted on by the shareholders at the January 9, 2001 Annual Meeting of
Shareholders. If approved, the effective date of the reverse stock split will
be twelve business days after the annual meeting.
Note Q--Guarantor Condensed Financial Statements
In connection with the Distribution, Actuant issued the 13% Notes (see Note
I--"Debt"). Certain of the Company's U.S. subsidiaries (the "Guarantors") are
guarantors of the 13% Notes. The following tables present the results of
operations, financial position and cash flows of Applied Power Inc. and its
subsidiaries, the Guarantors and non-guarantor entities, and the eliminations
necessary to arrive at the information for the Company on a condensed
consolidated basis.
General corporate expenses have not been allocated to subsidiaries, and are
all included under the Applied Power Inc. heading. As a matter of course, the
Company retains certain assets and liabilities at the corporate
60
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
level (Applied Power Inc. column in the following tables) which are not
allocated to subsidiaries including, but not limited to, certain employee
benefit, insurance, financing, and tax liabilities. Income tax provisions for
domestic Applied Power Inc. subsidiaries are typically recorded using an
estimate and finalized in total with an adjustment recorded at the corporate
level. Additionally, substantially all of the indebtedness of the Company has
historically been, and continues to be, carried at the corporate level and is
therefore included in the Applied Power Inc. column in the following tables.
However, the Company and certain of its subsidiaries were party to the
accounts receivable financing facility (see Note E--"Accounts Receivable
Financing"). To the extent a given subsidiary had receivables sold under the
facility at the balance sheet date, its respective receivable balance has been
adjusted to reflect such sales. Intercompany balances include
receivables/payables incurred in the normal course of business in addition to
investments and loans transacted between subsidiaries of the Company or with
Applied Power Inc.
APPLIED POWER INC (d/b/a ACTUANT CORPORATION)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended August 31, 2000
-----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 84,682 $260,395 $326,565 $ -- $671,642
Cost of products sold... 49,408 169,655 210,413 -- 429,476
--------- -------- -------- -------- --------
Gross profit.......... 35,274 90,740 116,152 -- 242,166
Operating expenses...... 41,495 38,068 70,807 150,370
Amortization of
intangible assets...... 9 5,851 1,670 -- 7,530
--------- -------- -------- -------- --------
Operating (loss)
earnings............. (6,230) 46,821 43,675 -- 84,266
Other expense (income):
Intercompany activity,
net.................. 45,540 (29,333) 4,433 (20,640) --
Net financing costs... 106,520 (70,091) 1,241 -- 37,670
Other (income)
expense--net......... (2,110) 1,743 (570) -- (937)
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (156,180) 144,502 38,571 20,640 47,533
Income tax (benefit)
expense................ (14,656) 29,791 4,391 (38) 19,488
--------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (141,524) 114,711 34,180 20,678 28,045
Earnings from
discontinued
operations............. -- -- 585 -- 585
Extraordinary gain
(loss), net of taxes:
Early extinguishment
of debt.............. (14,708) (14,708)
Sale of subsidiaries.. 65,353 -- (12,186) -- 53,167
--------- -------- -------- -------- --------
Net (loss) earnings..... $ (90,879) $114,711 $ 22,579 $ 20,678 $ 67,089
========= ======== ======== ======== ========
</TABLE>
61
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended August 31, 1999
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 86,671 $253,799 $355,234 $ -- $695,704
Cost of products sold... 52,088 164,463 226,469 -- 443,020
-------- -------- -------- -------- --------
Gross profit.......... 34,583 89,336 128,765 -- 252,684
Operating expenses...... 39,709 39,504 65,282 144,495
Amortization of
intangible assets...... 9 7,028 1,711 -- 8,748
-------- -------- -------- -------- --------
Operating (loss)
earnings............. (5,135) 42,804 61,772 -- 99,441
Other expense (income):
Intercompany activity,
net.................. 415 (36,168) 4,256 31,497 --
Net financing costs... 35,441 4,185 1,555 -- 41,181
Other (income)
expense--net......... (61) (51) 962 -- 850
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (40,930) 74,838 54,999 (31,497) 57,410
Income tax (benefit)
expense................ (14,106) 29,459 16,267 (8,790) 22,830
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (26,824) 45,379 38,732 (22,707) 34,580
Earnings from
discontinued
operations............. -- -- 44,817 -- 44,817
-------- -------- -------- -------- --------
Net (loss) earnings..... $(26,824) $ 45,379 $ 83,549 $(22,707) $ 79,397
======== ======== ======== ======== ========
<CAPTION>
Year Ended August 31, 1998
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 90,447 $213,958 $333,074 $ -- $637,479
Cost of products sold... 61,200 139,017 236,377 -- 436,594
-------- -------- -------- -------- --------
Gross profit.......... 29,247 74,941 96,697 -- 200,885
Operating expenses...... 60,306 36,859 81,870 179,035
Amortization of
intangible assets...... 53 9,127 3,402 -- 12,582
-------- -------- -------- -------- --------
Operating (loss)
earnings............. (31,112) 28,955 11,425 -- 9,268
Other (income) expense:
Intercompany activity,
net.................. (509) (4,241) 3,798 952 --
Net financing costs... 7,073 2,904 2,558 -- 12,535
Gain on life insurance
policy............... (1,709) -- -- -- (1,709)
Gain on sale of
building............. (9,815) -- -- -- (9,815)
Other (income)
expense--net......... (2,107) 76 1,159 -- (872)
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (24,045) 30,216 3,910 (952) 9,129
Income tax (benefit)
expense................ (7,536) 13,741 14,579 11,708 9,076
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (16,509) 16,475 (10,669) 10,756 53
Earnings from
discontinued
operations............. -- -- 26,634 -- 26,634
-------- -------- -------- -------- --------
Net (loss) earnings..... $(16,509) $ 16,475 $ 15,965 $ 10,756 $ 26,687
======== ======== ======== ======== ========
</TABLE>
62
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
August 31, 2000
-------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ 5,076 $ 721 $ 4,099 $-- $ 9,896
Accounts receivable,
net.................. 13,837 36,870 32,846 -- 83,553
Inventories, net...... 10,528 45,317 11,755 -- 67,599
Receivable from APW
Ltd.................. 32,894 -- -- -- 32,894
Prepaid expenses...... 699 567 3,964 -- 5,230
Deferred income taxes. 3,965 6 571 -- 4,542
----------- -------- --------- ---- ---------
Total current
assets............. 66,999 83,481 53,234 -- 203,714
Net property, plant and
equipment.............. 5,010 35,473 8,685 -- 49,168
Goodwill, net........... -- 111,246 5,102 -- 116,348
Other intangibles, net.. 19 20,911 110 -- 21,040
Other assets............ 26,098 133 479 -- 26,711
----------- -------- --------- ---- ---------
Total assets............ $ 98,126 $251,245 $ 67,610 $-- $ 416,981
=========== ======== ========= ==== =========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings. $ -- $ -- $ 1,259 $-- $ 1,259
Trade accounts
payable.............. 6,602 25,210 11,644 -- 43,455
Accrued compensation
and benefits......... 7,405 4,164 4,796 -- 16,365
Income taxes payable.. (23,518) 30,660 32,710 -- 39,852
Other current
liabilities.......... 7,671 8,534 9,106 -- 25,312
----------- -------- --------- ---- ---------
Total current
liabilities........ (1,840) 68,568 59,515 -- 126,243
Long-term debt.......... 430,675 540 -- -- 431,215
Deferred income taxes... 5,769 (741) (542) -- 4,486
Other deferred
liabilities............ 17,818 (462) 636 -- 17,992
Intercompany balances,
net.................... 687,060 (51,240) (635,819) --
Total shareholders'
(deficit) equity....... (1,041,356) 234,581 643,821 -- (162,955)
----------- -------- --------- ---- ---------
Total liabilities and
shareholders' equity... $ 98,126 $251,246 $ 67,611 $-- $ 416,981
=========== ======== ========= ==== =========
</TABLE>
63
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
August 31, 1999
------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
(Overdrafts) cash and
cash equivalents..... $ (734) $ (591) $ 8,581 $ -- $ 7,256
Accounts receivable,
net.................. 6,310 6,268 50,924 -- 63,502
Inventories, net...... 13,802 42,474 44,448 -- 100,724
Prepaid expenses...... 26,910 (11,923) (6,218) -- 8,769
Deferred income taxes. 4,228 7 3,329 -- 7,564
--------- --------- -------- --------- ----------
Total current
assets............. 50,516 36,235 101,064 -- 187,815
Net property, plant and
equipment.............. 6,135 36,987 35,876 -- 78,998
Goodwill, net........... -- 114,698 43,750 -- 158,448
Other intangibles, net.. 253 25,524 5,210 -- 30,987
Net assets of
discontinued
operations............. -- -- 598,458 -- 598,458
Other assets............ 2,902 1,038 1,226 -- 5,166
--------- --------- -------- --------- ----------
Total assets............ $ 59,806 $ 214,482 $785,584 $ -- $1,059,872
========= ========= ======== ========= ==========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings
(investments)........ $ 2,715 $ 350 $ (2,835) $ -- $ 230
Trade accounts
payable.............. 7,268 19,429 25,664 -- 52,361
Accrued compensation
and benefits......... 7,769 4,765 7,806 -- 20,340
Other current
liabilities.......... 6,709 9,418 7,464 -- 23,591
--------- --------- -------- --------- ----------
Total current
liabilities........ 24,461 33,962 38,099 -- 96,522
Long-term debt.......... 519,810 650 556 -- 521,016
Deferred income taxes... (1,353) (741) 9,814 -- 7,720
Other deferred
liabilities............ 12,425 2,098 2,262 -- 16,785
Intercompany balances,
net.................... (12,040) (620,716) (65,543) 698,299 --
Total shareholders'
(deficit) equity....... (483,497) 799,229 800,396 (698,299) 417,829
--------- --------- -------- --------- ----------
Total liabilities and
shareholders' equity... $ 59,806 $ 214,482 $785,584 $ -- $1,059,872
========= ========= ======== ========= ==========
</TABLE>
64
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31, 2000
---------------------------------------------------------
Applied
Power Non
Inc. Guarantors Guarantors Eliminations Consolidated
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations........... $(90,879) $114,711 $ 21,994 $ 20,678 $ 66,504
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization....... 1,969 12,024 8,557 -- 22,550
Net extraordinary
gain on sale of
subsidiaries....... (65,353) -- 13,886 -- (51,467)
Provision for
deferred income
taxes.............. 7,385 1 (7,062) -- 324
Non-cash losses on
product line
dispositions....... -- 596 1,327 -- 1,923
Loss on sale of
business........... -- -- 3,457 -- 3,457
Extraordinary loss
on early
extinguishment
of debt............ 24,569 -- -- -- 24,569
Changes in operating
assets and
liabilities, net... (19,432) (12,634) 56,257 (20,678) 3,513
-------- -------- -------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (141,741) 114,698 98,416 -- 71,373
Discontinued operations. -- -- 43,360 -- 43,360
-------- -------- -------- -------- ---------
Total cash (used in)
provided by operating
Activities............. (141,741) 114,698 141,776 -- 114,733
Investing activities
Proceeds from sale of
property, plant and
Equipment............ -- -- 835 -- 835
Additions to property,
plant and equipment.. (729) (5,612) (5,100) -- (11,441)
Proceeds on sales of
subsidiaries, net of
cash sold............ 150,759 -- 18,974 -- 169,733
Discontinued
operations........... -- -- (52,510) -- (52,510)
-------- -------- -------- -------- ---------
Cash provided by (used
in) investing
activities............. 150,030 (5,612) (37,801) 106,617
Financing activities
Net principal
borrowings on long-
term debt............ (85,240) -- -- -- (85,240)
Debt financing cost
and early
extinguishment fees.. (33,899) -- -- -- (33,899)
(Decreases in)
additions to
receivables financing
facility............. (7,671) (32,100) (13,687) -- (53,458)
Dividends paid on
common stock......... (1,789) -- -- -- (1,789)
Stock option exercises
and other............ 3,838 -- -- -- 3,838
Intercompany
(receivables)
payables............. 122,282 (75,674) (46,608) -- --
Discontinued
operations........... -- -- (66,175) -- (66,175)
-------- -------- -------- -------- ---------
Cash (used in) provided
by financing
activities............. (2,479) (107,774) (126,470) -- (236,723)
Effect of exchange rate
changes on cash........ -- -- (272) -- (272)
-------- -------- -------- -------- ---------
Net (decrease) increase
in cash and cash
Equivalents............ 5,810 1,312 (22,767) -- (15,645)
Effect of change in cash
of discontinued
Operations............. -- -- 18,285 -- 18,285
Cash and cash
equivalents--beginning
of year................ (734) (591) 8,581 -- 7,256
-------- -------- -------- -------- ---------
Cash and cash
equivalents--end of
year................... $ 5,076 $ 721 $ 4,099 $ -- $ 9,896
======== ======== ======== ======== =========
</TABLE>
65
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31, 1999
------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations........... $ (26,824) $ 45,379 $ 38,732 $(22,707) $ 34,580
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization....... 2,133 12,431 11,492 -- 26,056
Gain on sale of
assets............. -- -- (323) -- (323)
Provision for
deferred income
taxes.............. 1,629 (101) 276 1,804
Restructuring and
other one-time
charges, net of
income tax benefit. 4,694 -- -- -- 4,694
Changes in operating
assets and
liabilities, net... (14,403) 2,878 (47,087) (22,707) (35,905)
Cash (used in) provided
by operating activities
of continuing
operations ............ (32,771) 60,587 3,090 -- 30,906
Discontinued operations. -- -- 119,483 -- 119,483
--------- -------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (32,771) 60,587 122,573 -- 150,389
Investing activities
Proceeds from sale of
property, plant and
equipment............ 3 -- 4,881 -- 4,884
Additions to property,
plant and equipment.. (2,682) (6,528) (13,675) -- (22,885)
Business acquisitions,
net of cash acquired. (7,320) -- -- -- (7,320)
Discontinued
operations........... -- -- (435,337) -- (435,337)
--------- -------- --------- -------- ---------
Cash used in investing
activities............. (9,999) (6,528) (444,131) -- (460,658)
Financing activities
Net principal
borrowings on long-
term debt............ 403,349 -- -- -- 403,349
(Decreases in)
additions to
receivables financing
facility............. (835) 2,469 -- -- 1,634
Proceeds from
sale/leaseback
transactions......... 6,293 -- -- -- 6,293
Dividends paid on
common stock......... (2,339) -- -- -- (2,339)
Stock option exercises
and other............ 4,552 -- -- -- 4,552
Intercompany
(receivables)
payables............. (372,397) (57,194) 429,591 -- --
Discontinued
operations........... -- -- (86,790) -- (86,790)
--------- -------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 38,623 (54,725) 342,801 -- 326,699
Effect of exchange rate
changes on cash........ -- -- (521) -- (521)
--------- -------- --------- -------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (4,147) (666) 20,722 -- 15,909
Effect of change in cash
of discontinued
operations............. -- -- (13,722) -- (13,722)
Cash and cash
equivalents--beginning
of year................ 3,413 75 1,581 -- 5,069
--------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ (734) $ (591) $ 8,581 $ -- $ 7,256
--------- -------- --------- -------- ---------
========= ======== ========= ======== =========
</TABLE>
66
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31, 1998
------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations........... $ (16,509) $ 16,475 $ (10,669) $ 10,756 $ 53
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization....... 2,565 14,055 7,943 -- 24,563
Gain from sale of
assets............. -- -- (9,899) -- (9,899)
Provision for
deferred income
taxes.............. (120) (478) (3,910) -- (4,508)
Restructuring and other
one-time charges, net
of income tax benefit.. 4,311 6,573 30,857 -- 41,741
Changes in operating
assets and liabilities,
net.................... (6,043) 14,883 11,282 (10,756) 9,366
--------- -------- --------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (15,796) 51,508 25,604 -- 61,316
Discontinued operations. -- -- 68,351 -- 68,351
--------- -------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (15,796) 51,508 93,955 129,667
Investing activities
Proceeds from sale of
property, plant and
equipment............ -- 37 16,871 -- 16,908
Additions to property,
plant and equipment.. (2,588) (8,764) (13,862) -- (25,214)
Business acquisitions,
net of cash acquired. (135,727) -- -- -- (135,727)
Product line
dispositions and
other................ -- -- 6,061 -- 6,061
Discontinued
operations........... -- -- (313,999) -- (313,999)
--------- -------- --------- -------- ---------
Cash used in investing
activities............. (138,315) (8,727) (304,929) -- (451,971)
Financing activities
Net principal
borrowings on long-
term debt............ 102,591 -- -- -- 102,591
Additions to
receivables financing
facility............. 3,917 21,482 -- -- 25,399
Dividends paid on
common stock......... (2,564) -- -- -- (2,564)
Stock option exercises
and other............ 6,855 -- -- -- 6,855
Intercompany payables
(receivables)........ 40,322 (64,064) 23,722 -- --
Discontinued
operations........... -- -- 165,348 -- 165,348
--------- -------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 151,121 (42,582) 189,090 -- 297,629
Effect of exchange rate
changes on cash........ -- -- (882) -- (882)
--------- -------- --------- -------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (2,990) 199 (22,766) -- (25,557)
Effect of change in cash
of discontinued
operations............. -- -- 7,769 -- 7,769
Cash and cash
equivalents--beginning
of year................ 6,403 (124) 6,719 -- 12,998
Effect of ZERO excluded
period................. -- -- 9,859 -- 9,859
--------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ 3,413 $ 75 $ 1,581 $ -- $ 5,069
========= ======== ========= ======== =========
</TABLE>
67
<PAGE>
SUPPLEMENTARY DATA
Unaudited quarterly financial data for the Company for 2000 and 1999 is
included in Item 8--"Financial Statements and Supplementary Data."
68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Directors of Applied Power Inc.:
Our audits on the consolidated financial statements referred to in our
report dated September 27, 2000 on page 33 of this Form 10-K also included an
audit of the information set forth in the Financial Statement Schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 27, 2000
69
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Accounts Deductions
------------------- --------------------
Effect Accounts
Balance at of Charged to Written Off Balance
Beginning Excluded Costs and Net Less Net at End
Description of Period Activity Expenses Acquired Recoveries Disposed Other(1) of Period
----------- ---------- -------- ---------- -------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deducted from assets to
Which they apply:
Allowance for losses--
Trade accounts
receivable:
August 31, 2000......... $ 4,070 $-- $ 977 $-- $ 202 $ 846 $(190) $ 3,809
======= ==== ======= ==== ======= ====== ===== =======
August 31, 1999......... $ 4,259 $-- $ 1,155 $-- $ 1,407 $ -- $ 63 $ 4,070
======= ==== ======= ==== ======= ====== ===== =======
August 31, 1998......... $ 4,039 $ 15 $ 1,723 $213 $ 1,252 $ -- $(479) $ 4,259
======= ==== ======= ==== ======= ====== ===== =======
Allowance for losses--
Inventory:
August 31, 2000......... $ 9,306 $-- $ 537 $-- $ 760 $3,404 $(330) $ 5,349
======= ==== ======= ==== ======= ====== ===== =======
August 31, 1999......... $28,081 $-- $ 2,237 $250 $21,357 $ -- $ 95 $ 9,306
======= ==== ======= ==== ======= ====== ===== =======
August 31, 1998......... $11,928 $253 $23,514 $985 $ 8,177 $ -- $(422) $28,081
======= ==== ======= ==== ======= ====== ===== =======
</TABLE>
--------
(1) Primarily includes foreign currency fluctuations.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Andrew G. Lampereur
By: _________________________________
Andrew G. Lampereur
Chief Financial Officer
Dated: November 27, 2000
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard G. Sim and Robert C. Arzbaecher, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
report, and to file the same, with all and any other regulatory authority,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard G. Sim Chairman of the Board, Director
___________________________________________
Richard G. Sim
/s/ Robert C. Arzbaecher President and Chief Executive Officer,
___________________________________________ Director
Robert C. Arzbaecher
/s/ H. Richard Crowther Director
___________________________________________
H. Richard Crowther
/s/ Richard A. Kashnow Director
___________________________________________
Richard A. Kashnow
/s/ Bruce S. Chelberg Director
___________________________________________
Bruce S. Chelberg
Director
___________________________________________
William P. Sovey
/s/ Gustav H.P. Boel Director
___________________________________________
Gustav H.P. Boel
</TABLE>
--------
* Each of the above signatures is affixed as of November 27, 2000
71
<PAGE>
APPLIED POWER INC. (d/b/a ACTUANT CORPORATION)
(the "Registrant")
(Commission File No. 1-11288)
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2000
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Filed
xhibitE Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
<S> <C> <C> <C>
2.1 Agreement and Plan of Merger, dated Exhibit (c)(1) to the Registrant's
as of September 2, 1997, among Tender Offer Statement on Schedule
Applied Power Inc., TVPA Corp. and 14D-1 filed on September 5, 1997
Versa Technologies, Inc. (File No. 5-13342)
2.2 (a) Agreement and Plan of Merger, Appendix A to the Joint Proxy
dated as of April 6, 1998, by and Statement/Prospectus contained in
among Applied Power Inc., ZERO the Registrant's Registration
Corporation and STB Acquisition Statement on Form S-4 (File No. 333-
Corporation 58267)
(b) Certified copy of Certificate of Exhibit 2.2 to the Registrant's Form
Merger of STB Acquisition 8-K dated July 31, 1998
Corporation with and into ZERO
Corporation, dated July 31, 1998
3.1 Restated Articles of Incorporation Exhibit 4.1 to the Registrant's
of the Registrant (dated as of Registration Statement on Form S-8
February 13, 1998) (File No. 333-46469)
3.2 Amended and Restated Bylaws of the Exhibit 3.2 to the Registrant's Form
Registrant (effective as of January 10-K for the fiscal year ended
8, 1997) August 31, 1997 ("1997 10-K")
3.3 Amendment to Bylaws X
4+
4.4 Articles III, IV and V the Restated See Exhibit 3.1 above
Articles of Incorporation
4.2 Agreement for Purchase and Sale, Exhibit 19.2(a)-(g) to the
Dated August 29, 1990, between Registrant's Form 10-Q for quarter
Minnesota Mining and Manufacturing ended May 31, 1991
Company and Applied Power Inc., and
seven related Leases, each dated
April 29, 1991, Between Bernard
Garland and Sheldon Garland, d/b/a
Garland Enterprises, as Landlord,
and Applied Power Inc., as Tenant
4.3 Credit Agreement dated as of July Exhibit 10.8 to the Registrant's
31, 2000 among Applied Power Inc. Form 8-K dated as of August 14, 2000
(doing business as Actuant ("2000 8-K")
Corporation), The Lenders Named
Herein and Credit Suisse First
Boston, as Lead Arranger, Collateral
Agent and Administrative Agent,
First Union National Bank
Syndication Agent and ING (U.S.)
Capital LLC Documentation Agent
</TABLE>
--------
+Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish to the Securities and Exchange Commission upon request a copy of
any unfiled instruments, or any unfiled exhibits or schedules to filed
instruments, defining the rights of security holders.
72
<PAGE>
<TABLE>
<CAPTION>
Filed
xhibitE Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
<S> <C> <C> <C>
4.4 Registration Rights Agreement dated Exhibit 10.11 to the 2000 Form 8-K
August 1, 2000, relating to
$200,000,000 Applied Power Inc. 13%
Senior Subordinated Notes Due 2009
4.5 Indenture, dated as of August 1, Exhibit 10.12 to the 2000 Form 8-K
2000, among Applied Power Inc. as
issuer and the Subsidiary Guarantors
and Bank One Trust Company, N.A.
4.6 Purchase Agreement dated July 21, Exhibit 10.13 to the 2000 Form 8-K
2000, between Applied Power Inc. and
the Initial Purchasers named therein
10.1* Employment Agreement dated May 9, Exhibit 10.1 to the Registrant's
1994 between Applied Power Inc. and Form 10-K for fiscal year ended
Richard G. Sim (superseding August 31, 1994
Employment Agreement Dated July 5,
1985, as amended)
10.2* (a) Applied Power Inc. 1985 Stock Exhibit 10.2(a) to the Registrant's
Option Plan adopted by Board of Form 10-K for fiscal year ended
Directors on August 1, 1985 and August 31, 1989 ("1989 10-K")
Approved by shareholders on January
6, 1986, as amended ("1985 Plan")
(b) Amendment to 1985 Plan adopted Exhibit 10.2(b) to 1989 10-K
by board of directors on November 8,
1989 and approved by shareholders on
January 13, 1990
(c) Amendment to 1985 Plan adopted Exhibit 10.2(c) to the Registrant's
by board of directors on August 9, Form 10-K for fiscal year ended
1990 August 31, 1990 ("1990 10-K")
(d) Amendment to 1985 Plan adopted Exhibit 10.2(d) to 1997 10-K
by board of directors on May 8, 1997
10.3* (a) Applied Power Inc. 1987 Exhibit 10.8 to the Registrant's
Nonqualified Stock Option Plan Form 10-K for fiscal year ended
Adopted by board of directors on August 31, 1987
November 3, 1987 and approved by
Shareholders on January 7, 1988
("1987 Plan")
(b) Amendment to 1987 Plan adopted See Exhibit 10.2(b)
by board of directors on November 8,
1989 and approved by shareholders on
January 13, 1990
(c) Amendment to 1987 Plan adopted Exhibit 10.3(c) to 1997 10-K
by board of directors on May 8, 1997
10.4* (a) Applied Power Inc. 1990 Stock Exhibit A to the Registrant's Proxy
Option Plan adopted by Board of Statement dated December 5, 1990 For
Directors on August 9, 1990 and 1991 Annual Meeting of Shareholders
Approved by shareholders on January
7, 1991 ("1990 Plan")
</TABLE>
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
73
<PAGE>
<TABLE>
<CAPTION>
Filed
xhibitE Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
<S> <C> <C> <C>
(b) Amendment to 1990 Plan adopted Exhibit 10.5(b) to the Registrant's
by board of directors on August 10, Form 10-K for fiscal year ended
1992 and approved by shareholders on August 31, 1992
January 7, 1993
(c) Amendment to 1990 Plan adopted Exhibit 10.4(c) to 1997 10-K
by board of directors on May 8, 1997
10.5* Description of Fiscal 2001 X
Management Bonus Arrangements
10.7* (a) Applied Power Inc. 1989 Outside Exhibit 10.7 to 1989 10-K
Directors' Stock Option Plan adopted
by board of directors on November 8,
1989 and approved by shareholders on
January 13, 1990 ("1989 Plan")
(b) Amendment to 1989 Plan adopted Exhibit 10.7(b) to 1990 10-K
by board of directors on November 9,
1990 and approved by shareholders on
January 7, 1991
(c) Amendment to 1989 Plan adopted Exhibit 10.7(c) to the Registrant's
by board of directors on October 31, Form 10-K for fiscal year ended
1996 August 31, 1996
10.8* Outside Directors' Deferred Exhibit 10.8 to the Registrant's
Compensation Plan adopted by Board Form 10-K for fiscal year ended
of Directors on May 4, 1995 August 31, 1995
10.9* (a) 1996 Stock Plan adopted by board Annex A to the Registrant's Proxy
of directors on August 8, 1996 and Statement dated November 19, 1996
proposed for shareholder approval on for 1997 Annual Meeting of
January 8, 1997 Shareholders
(b) Amendment to 1996 Stock Plan Exhibit 10.10(b) to 1997 10-K
adopted by board of directors on May
8, 1997
10.11 Form of Contribution Agreement, Plan Exhibit 10.11 to the Form 10
and Agreement Regarding Litigation, Registration Statement dated May 1,
Claims and Other Liabilities between 2000 as amended filed by APW Ltd.
API and APW, dated as of July 21, (Commission File No. 1-15851) ("Form
2000 10")
10.12 Form of General Assignment, Exhibit 10.12 to the Form 10
Assumption and Agreement Regarding
Litigation, Claims and Other
Liabilities between API and APW,
dated as of July 21, 2000
10.13 Form of Transitional Trademark Use Exhibit 10.13 to the Form 10
and License Agreement between API
and APW, dated as of July 21, 2000
10.14 Form of Insurance Matters Agreement Exhibit 10.14 to the Form 10
between API and APW, dated as of
July 21, 2000
</TABLE>
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
74
<PAGE>
<TABLE>
<CAPTION>
Filed
xhibitE Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------ --------
<S> <C> <C> <C>
10.15 Form of Bill of Sale and Assumption Exhibit 10.15 to the Form 10
of Liabilities between API and APW,
dated as of July 21, 2000
10.16 Form of Employee Benefits and Exhibit 10.16 to the Form 10
Compensation Agreement between API
and APW, dated as of July 21, 2000
10.17 Form of Tax Sharing and Exhibit 10.17 to the Form 10
Indemnification Agreement between
API and APW, dated as of July 21,
2000
10.18 Form of Interim Administrative Exhibit 10.18 to the Form 10
Services Agreement between API and
APW, dated as of July 21, 2000
10.19 Form of Confidentiality and Exhibit 10.19 to the Form 10
Nondisclosure Agreement between API
and APW, dated as of July 21, 2000
10.20 Form of Patent Assignment between Exhibit 10.20 to the Form 10
API and Wright Line Inc. (n/k/a APW
Ltd.), dated as of July 21, 2000
10.21* Form of Change in Control Agreement X
for certain named executives
(Messrs. Brian Kobylinski, Joseph
Kampschroer, Todd Hicks, Ralph
Keller, Jerry Peiffer, Joe O'Connor,
and Arthur Kerk)
10.22* Actuant Corporation Executive Stock X
Purchase Plan
21 Subsidiaries of the Registrant X
23 Consent of PricewaterhouseCoopers X
LLP
24 Power of Attorney See Signature Page of this report
27.1 Financial Data Schedule X
</TABLE>
--------
*Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
75
