ENERPAC TOOL GROUP CORP — Interim / Quarterly Report 1994

Jul 15, 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 MAY 31, 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: 13,121,591 as of June 30, 1994. The Exhibit Index appears on Page 12. INDEX APPLIED POWER INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Statement of Earnings - Three and Nine Months Ended May 31, 1994 and 1993 . . . . . . . . . 3 Condensed Consolidated Balance Sheet - May 31, 1994 and August 31, 1993 . . . . 4 Condensed Consolidated Statement of Cash Flows - Ninth Months Ended May 31, 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 6 - Exhibits and Reports on Form 8-K . . . . 10 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . 11 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS

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 nine months ended May 31, 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 nine months ended May 31, 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 (the "Worcester Real Estate") at Wright Line's headquarters and manufacturing operations in Worcester, Massachusetts. 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 contract to sell the Worcester Real Estate was terminated in the third quarter, as it was determined that the sale would not be in the best interest of the Company. The Company intends to retain the Worcester Real Estate, and accordingly, has reclassified it from Net assets held for sale to Net property, plant and equipment. The following represents the impact of the retained Wright Line operations on reported results:

NOTE C - ACQUISITIONS 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. On March 21, 1994, the Company increased its ownership interest in Applied Power Korea to 90%. Cash of $912 was used in the acquisition which generated goodwill of $572. The results of operations of this subsidiary have historically been included in the accompanying condensed consolidated financial statements. 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 before accounting change for the third quarter of 1994 were $5,343, or $.40 per share, compared to $3,853, or $.29 per share in the comparable prior year period. For the first nine months of 1994, net earnings from continuing operations before accounting change were $11,568, or $.87 per share, compared to $8,903, or $.68 per share, for the comparable period last year. The benefits of prior restructuring at Barry Controls, Wright Line and Power-Packer, coupled with significant sales gains at APITECH, Wright Line, Power-Packer and GB were primary reasons for the improved results. Third quarter sales of $111,328 were 8.7% higher than that recorded in the comparable prior year period. All units posted year-over-year third quarter sales gains. Sales for the first nine months of 1994 were $316,801, up 5.7% over last year. The Company's gross profit margins for the three and nine month periods ended May 31, 1994 were slightly lower than comparable prior year periods due to a shift in product mix. Consistent with its emphasis on technological advancement, the Company has increased engineering expenditures on development projects and prototypes. As a result, engineering expense has increased 22% from the first nine months of last year. The reduction in selling and administrative expenses resulted from cost containment programs and the benefits of restructuring initiatives. Interest expense for the nine months ended May 31, 1994 declined from the comparable prior year period due to reductions in outstanding indebtedness and lower market interest rates. Other - net operating expenses incurred during the first nine 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 return the non-divested portion of the Wright Line business to continuing operations. Included under the caption "Discontinued Operations, net of tax" in the Condensed Consolidated Statement of Earnings is (income)/loss generated by the retained Wright Line operations which had previously been charged against the discontinued operations reserve. Refer to Note B - Discontinued Operations in the Notes to Condensed Consolidated Financial Statements for further discussion. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totalled $2,865 at May 31, 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. Funds available under unused credit lines totalled $84,565 as of May 31, 1994. Cash generated from operations, after considering non-cash items and changes in operating assets and liabilities, totalled $14,525 for the nine month period ended May 31, 1994. Earnings from continuing operations of $11,568, coupled with non-cash charges of $14,733, generated $26,301 of cash during the first nine months of 1994. Increased sales volume and seasonal demands resulted in higher receivable and inventory levels which used $8,846 and $7,085 of cash, respectively. Cash used in investing activities totalled $10,968 for the first nine months of 1994, of which $9,068 was used for capital expenditures. Cash of $1,534 and $912 was used for the acquisitions of Palmer Industries and Applied Power Korea, respectively. The Company reduced debt from $117,931 at August 31, 1993 to $109,435 at May 31, 1994, its lowest level since 1989. Dividends of $1,174 were paid during the first nine months of 1994. The Company's two revolving credit agreements expire in the first quarter of fiscal 1995. 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 entering into a new facility prior to the expiration of the agreements. 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 operating cash flow and funds available under other credit facilities. 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 as well as idle facility costs at Barry Controls. Approximately $3,194 of such costs had been incurred as of May 31, 1994. The majority of the remaining $3,506 will be incurred during the next six months on severance and consolidation expenditures. The Company anticipates that funds generated from operations and available under 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. Management has determined that the adoption of this pronouncement will not have a material impact on the Company's financial position and results of operations. PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) See Index to Exhibits on page 12, which is incorporated herein by reference. (b) There were no reports on Form 8-K filed during the three months ended May 31, 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: July 15, 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