ENERPAC TOOL GROUP CORP — Interim / Quarterly Report 1994

Apr 14, 1994

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Mark One [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED FEBRUARY 28, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-11288 APPLIED POWER INC. (Exact name of Registrant as specified in its charter) WISCONSIN 39-0168610 (State of incorporation) (I.R.S. Employer Id. No.) 13000 WEST SILVER SPRING DRIVE BUTLER, WISCONSIN 53007 MAILING ADDRESS: P. O. BOX 325, MILWAUKEE, WISCONSIN 53201 (Address of principal executive offices) (Zip Code) (414) 781-6600 (Registrant's telephone number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of outstanding shares of Class A Common Stock: 13,030,566 as of February 28, 1994. The Exhibit Index appears on Page 12. INDEX APPLIED POWER INC. AND SUBSIDIARIES Page No. PART I - FINANCIAL INFORMATION Item 1- Unaudited Consolidated Financial Statements Condensed Consolidated Statement of Earnings - Three and Six Months Ended February 28, 1994 and 1993. . . . . . . . . . . . . . . . . . .3 Condensed Consolidated Balance Sheet - February 28, 1994 and August 31, 1993 . . . . . . . . . . . . .4 Condensed Consolidated Statement of Cash Flows - Sixth Months Ended February 28, 1994 and 1993 . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements. . . . . . . 6 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . 8 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders . . .10 Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

APPLIED POWER INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Applied Power Inc. and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For additional information, refer to the consolidated financial statements and footnotes thereto in the Company's 1993 Annual Report. Operating results for the three and six months ended February 28, 1993 have been restated to reflect the adoption of Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", and SFAS No. 109, "Accounting for Income Taxes", both effective September 1, 1992. The condensed consolidated financial statements have also been adjusted to reflect the retention of certain Wright Line operations, as described in Note B - Discontinued Operations. In the opinion of management, all adjustments considered necessary for a fair presentation have been made. Such adjustments consist of only those of a recurring nature. Operating results for the three and six months ended February 28, 1994 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 1994. NOTE B - DISCONTINUED OPERATIONS During the third quarter of fiscal 1992, a formal plan was authorized to offer for sale the Company's Wright Line business ("Wright Line"). On October 8, 1993, the Company completed the sale of Wright Line's Datafile business for approximately $6,222 of cash, plus future compensation. Proceeds from this transaction were used to reduce debt. Also during the first quarter of fiscal 1994, an agreement was reached to sell the real estate at Wright Line's headquarters and manufacturing operations in Worcester, Massachusetts. Estimated gross proceeds are $7,500, and would be used to reduce debt. This transaction is expected to close in fiscal 1994. During the second quarter of fiscal 1994, the Company announced its decision to return the remainder of the Wright Line business to continuing operations. The retained business, whose sales are primarily in North America, has refocused its business strategy on technical furniture solutions for the information technology environment. The introduction of the new Local Area Network Management System in early 1993, and the benefits of restructuring in 1993 have contributed to Wright Line's improved operating performance. The retained Wright Line business' net assets and results of operations for all periods have been reclassified from discontinued operations to continuing operations in the accompanying financial statements. The following represents the impact of the retained Wright Line operations on reported results:

NOTE C - ACQUISITION Effective October 1, 1993, the Company completed the acquisition of certain assets of Palmer Industries, Inc. ("Palmer") for approximately $1,534 in cash and a $350 note. Approximately $490 of the purchase price was assigned to goodwill. Palmer, based in Alexandria, Minnesota, is a leading manufacturer of plastic and metal staples, fasteners and straps. The operating results of Palmer subsequent to October 1, 1993 are included in the Condensed Consolidated Statement of Earnings. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS Net earnings from continuing operations for the second quarter of 1994 were $3,297, or $.25 per share, compared to $1,763, or $.13 per share for the comparable prior year period. For the first six months of 1994, net earnings from continuing operations before cumulative effect of accounting change were $6,225, or $.47 per share, compared to $5,050, or $.39 per share for the comparable period last year. Improved current year results at Wright Line, Barry Controls and Power-Packer were key factors in increased current year earnings. Sales for the second quarter of 1994 were $101,869, up 7.4% from $94,873 in the prior year. Sales for the first six months of 1994 were $205,473, an increase of 4.2% over the comparable prior year period. Power-Packer, APITECH, Wright Line and GB Electrical all reported sales gains in the current year. Improvement in the industrial sector at Barry Controls was offset by a decline in the aerospace market. Enerpac sales in the second quarter and first half of fiscal 1994 were 2% and 5% lower, respectively, than the prior year due to poor economic conditions in Japan and Europe. The Company's gross profit percentage for the second quarter was unchanged from the prior year second quarter, at 37.0%. Year-to-date margins in fiscal 1994 are slightly lower than last year due to a shift in product mix. Operating expenses for the first six months of fiscal 1994 were approximately equal to those in the comparable prior year period. The Company has increased its investment in engineering projects and prototypes in the current year, which has resulted in an approximate 15% increase in engineering expense over the comparable period last year. However, selling and administrative expenses declined during the same period as a result of cost containment programs and the benefits of restructuring steps implemented in 1993 at Barry Controls, Enerpac and Power-Packer. Interest expense for the three and six months ended February 28, 1994, declined from comparable prior year periods due to reductions in outstanding indebtedness and lower market interest rates. Other-net operating expenses incurred during the first six months of fiscal 1993 included certain non-recurring gains. A $4,355 net charge was recorded in the quarter ended November 30, 1992 to reflect the Company's adoption of SFAS No.106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions". In the second quarter of fiscal 1994, the Company announced its decision to retain the non-divested portion of the Wright Line business. Included under the caption "Discontinued Operations, net of tax" is (income)/loss generated by the retained Wright Line operations which had previously been offset against the discontinued operations reserve. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totalled $680 at February 28, 1994 and $1,320 at August 31, 1993. In order to minimize interest expense, the Company intentionally maintains low cash balances and uses available cash to reduce short-term bank borrowings. Cash generated from (used in) operations, after considering non-cash items and changes in operating assets and liabilities, totalled $1,558 for the first six months of fiscal 1994, as opposed to $(4,099) for the comparable prior year period. Earnings from continuing operations of $6,225, coupled with non-cash items of $9,825, generated $16,050 of cash in the first half of the current fiscal year. Partially offsetting this were increases in inventory and receivables of $7,015 and $3,892, respectively, necessitated by higher sales volume and seasonal demands. Income tax payments in excess of income tax expense during the first six months also used cash during the current periods. Cash used in investing activities totalled $6,710 for the first half of fiscal 1994, the majority of which was used for capital expenditures and the acquisition of Palmer Industries. The Company reduced debt from $117,931 at August 31, 1993 to $115,829 at February 28, 1994. The Company's two revolving credit agreements expire within the next twelve months. Accordingly, all outstanding indebtedness under such agreements, totalling approximately $18,560, has been included in "Current maturities of long-term debt" in the Condensed Consolidated Balance Sheet. The Company anticipates either extending these agreements or entering into new facilities prior to their expiration. The Company's first installment payment on its Senior Unsecured Notes is due August 15, 1994. This $10,650 cash requirement will be funded by cash generated from operations and funds available under short-term borrowings. The Company generated $6,885 of cash from discontinued operations in the current year, of which $6,222 was received in conjunction with the sale of Datafile. In the fourth quarter of fiscal 1993, the Company recorded a $6,700 ($.33 per share) pre-tax charge primarily related to consolidating certain manufacturing, distribution and administrative functions at its European operations and idle facility costs at Barry Controls. Approximately $2,291 of such costs had been incurred as of February 28, 1994. The majority of the remainder, $4,409, will be incurred during the balance of fiscal 1994 on severance and consolidation expenditures. The Company anticipates that funds generated from operations and available under short and long-term credit facilities will be adequate to meet anticipated operating, restructuring, debt service and capital expenditure requirements for the foreseeable future. ACCOUNTING PRONOUNCEMENTS In December 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers' Accounting for Postemployment Benefits", which requires accrual of postemployment benefits during the years an employee provides services. Although management is in the process of evaluating this new pronouncement, the adoption of it is not expected to have significant impact on the Company's financial position or results of operations. The Company intends to adopt this new pronouncement on or prior to September 1, 1994. PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on January 10, 1994. The only matter voted on by shareholders at the meeting was the election of directors. Each director nominee was elected. The number of shares and votes for each nominee is set forth below: Votes For Votes Withheld H. Richard Crowther 10,793,952 shares 54,793 shares Jack L. Heckel 10,793,912 shares 54,833 shares Richard M. Jones 10,792,630 shares 56,115 shares Richard A. Kashnow 10,793,852 shares 54,893 shares Richard T. Savage 10,793,952 shares 54,793 shares Richard G. Sim 10,788,035 shares 60,710 shares Raymond S. Troubh 10,792,890 shares 55,855 shares ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) See Index to Exhibits on page 12. (b) There were no reports on Form 8-K filed during the three months ended February 28, 1994 or thereafter through the date of this report. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APPLIED POWER INC. (Registrant) Date: April 14, 1994 By: /s/David L. Harbert David L. Harbert Senior Vice President and Chief Financial Officer (Principal Financial Officer) INDEX TO EXHIBITS Exhibit Number Description Page No. 11 Computation of Earnings Per Share 13