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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1994
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.)
13000 WEST SILVER SPRING DRIVE
BUTLER, WISCONSIN 53007
MAILING ADDRESS: P.O. BOX 325, MILWAUKEE, WISCONSIN 53201
(Address of principal executive offices)
(414) 781-6600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.20 PAR VALUE PER SHARE -----------------------
------------------------ (Name of each exchange on
(Title of each class) which registered)
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. [ ]
As of November 16, 1994, the aggregate market value of Common Stock held by
non-affiliates was $306.2 million, and there were 13,226,842 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, 1995 are incorporated by reference into
Part III hereof.
2
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE COMPANY
Applied Power Inc. (the "Company"), a Wisconsin corporation incorporated in
1910, is a diversified global company engaged in the business of providing
tools, equipment, systems and consumable items to a variety of end-users and
original equipment manufacturers in the manufacturing, construction,
transportation, natural resource, aerospace, defense and other industries.
The Company's operations are segmented into two business groups and one
company:
Distributed Products Group ("DPG") Products
- - ----------------------------------- --------
Enerpac Hydraulic high force tools, production
automation components and accessories.
GB Electrical Electrical contractor tools, consumable
products for electrical construction,
repair and remodeling
Engineered Solutions Group ("ESG")
- - -----------------------------------
Power-Packer Hydraulic actuation systems for the
transportation, medical equipment and
agricultural equipment markets.
APITECH Electro-hydraulic control valves and
systems for transportation and mobile
equipment manufacturers.
Barry Controls Standard and engineered shock,
vibration and noise reduction components
and systems
Wright Line Technical furniture solutions for
- - ----------- offices and laboratories
Financial information by segment and geographic area, as well as information
related to export sales, is included in Note O - "Segment Information" in Notes
to Consolidated Financial Statements, which is included as part of Item 8 of
Part II of this report and is incorporated herein by reference.
DESCRIPTION OF BUSINESS SEGMENTS
DISTRIBUTED PRODUCTS GROUP
The Distributed Products Group, which includes Enerpac and GB Electrical, is
engaged in the manufacture and distribution of tools and consumables to the
construction, retail and general industrial markets. Products are generally
distributed through wholesale and retail distributors. Both DPG businesses
supply in excess of 4,000 SKU's each to a broad customer base. Geographic
expansion offers a source of growth potential for the DPG businesses.
3
Enerpac
Enerpac is involved in the design, manufacture and sale, on a worldwide basis,
of labor and cost saving products and systems for industrial and construction
operations. The products can be grouped into three product lines: high force
tools, production automation, and specially engineered or complementary
systems.
Enerpac's high force tool line consists of over 4,000 products that are used
extensively in general industrial and construction applications. These
hydraulic products allow users to apply controlled force and motion that
increase productivity and make work safer and easier to perform. Hydraulic
pumps, valves, cylinders and presses, as well as more specialized tools such as
pipe benders, torque wrenches and electronically-controlled lifting systems
are examples of Enerpac's high force tools.
Enerpac's production automation products consist of workholding components and
systems which enable a quick change of dies, molds and other equipment used in
production and assembly operations. Hydraulic workholding components and
systems utilized in metal-cutting machine tools hold parts in position during
the machining process, and provide superior accuracy and flexibility to
traditional mechanical clamping methods. Enerpac also designs and manufactures
quick mold change systems that are used extensively in the injection molding
industry.
In addition to its line of high force tools and production automation products,
Enerpac custom engineers and assembles equipment and special modified products
that are sold directly to original equipment manufacturers ("OEM's").
Enerpac has major engineering, manufacturing and warehousing operations in the
United States, Netherlands, Mexico, France and Japan, with sales and service
operations in a number of other countries. The manufacturing operations in the
Netherlands are in the process of being consolidated into the United States,
and will be completed in 1995. Products are primarily distributed through a
worldwide network of over 2,500 independent distributors as well as directly to
certain OEM customers. Enerpac believes its strengths include the breadth of
its product line, large distribution network, long operating history,
reputation and technical expertise.
GB Electrical
As a result of niche acquisitions, new product introductions, strong customer
service and its expansion into new markets, GB Electrical has doubled its sales
since being acquired by the Company in 1988. GB Electrical's major product
groups include the following: tools and accessories used in industrial,
commercial and residential construction, remodeling and maintenance; wire
connectors and other wire termination devices; conduit fishing and pulling
systems; conduit benders; fastening devices (including cable ties and plastic
staples); digital and analog multitesters; and spring steel clips (under the
"HIT" trademark).
GB's products are sold through electrical wholesale distributors and mass
merchandisers. This network includes approximately 4,000 electrical wholesale
accounts as well as merchandisers including Sears, Ace Hardware, Builders
Square, Payless Cashways, WalMart, The Home Depot, Cotter & Co. and other major
chains, which in total represent over 20,000 consumer outlets.
GB operates manufacturing facilities in Wisconsin, Minnesota and North
Carolina. GB's products are distributed through its National Distribution
Center located in Milwaukee, Wisconsin as well as a number of independent
warehouses located throughout the United States. Although the majority of its
business is generated in the United States, GB is aggressively pursuing
opportunities in Canada, Mexico, Latin America and Hong Kong.
4
ENGINEERED SOLUTIONS GROUP
The Engineered Solutions Group, consisting of Power-Packer, APITECH and Barry
Controls, focuses on developing and marketing value-added solutions for
original equipment manufacturers in the transportation, construction,
aerospace, defense and industrial markets. Technical sales force members from
each of the ESG units often work together to develop and market ESG products in
one technology solution package. These value-added technology solutions offer
cost-effective systems to meet the needs of ESG s global customer base.
Power-Packer
Power-Packer custom designs hydraulic systems and components for OEM customers
in the transportation, medical equipment and agricultural equipment markets.
Although its principal engineering and assembly operations are based in the
United States and the Netherlands, Power-Packer also markets its products
throughout Europe, Japan, South Korea and North America. The majority of its
products are sold direct by its technically-trained sales force.
Power-Packer has three primary product applications in the transportation
industry: the cab-tilt system, the air suspension system and the convertible
top actuation system. The cab-tilt system is installed on heavy-duty,
cab-over-engine trucks and tilts and retracts the cab for engine inspection and
maintenance. The systems are customized to meet the needs of individual truck
manufacturers which include virtually all of the major manufacturers of
cab-over-engine trucks in the United States and Western Europe. Power-Packer
also markets its cab-tilt systems in Japan through a joint venture. Air
suspension systems improve the ride characteristics of trucks, enhance driver
comfort and reduce cab maintenance costs. Power-Packer has also developed a
leading position in supplying electrically-powered hydraulic actuator systems
for convertible automobile tops. These systems, which are shipped to
automotive OEMs fully assembled and tested, are presently used on many car
models in Europe and the United States.
Power-Packer supplies self-contained hydraulic actuators to medical equipment
manufacturers that provide portable patient lifting and positioning capability
for institutional or home use. Other manually-operated products are supplied
for hospital bed height adjustment. It also produces power-driven systems, in
some cases combined with fully-integrated microprocessor control, to expand the
multi-function capability of beds and examination tables.
APITECH
The Company formed APITECH to develop and market products that combine
electronic control with hydraulic technologies to increase the controllability,
safety and performance of end-user products. APITECH employs advanced
electronic and software technology in its modular line of products, including
electro-hydraulic control valves, microprocessor-based control circuitry,
sensors and software. These products can be adapted to customers' control
situations and span broad application areas without extensive redesign. The
Company has a patented digital electro-hydraulic valve, marketed under the
Pulsar Valve TM name, which can be directly controlled by a microprocessor to
deliver performance comparable to servo valve technology at a significantly
lower cost.
The Company markets APITECH products to a diversified mix of customers,
primarily OEMs. The highest demand for electro-hydraulic APITECH products
occurs in the off-highway mobile market, the on-highway transportation and
maintenance vehicle market and the automotive market. In the off-highway
market, APITECH's customers include John Deere, Hameck, F.W. McConnell, TRAK,
Snorkel and Altec. In the on-highway maintenance market, major state and
municipal road fleets in the United States and Canada use APITECH's salt and
sand spreader control products. In the automotive market, APITECH supplies
small fast valves to GM Delco that are part of the system that provides a
semi-active suspension capability in certain Cadillac models. Sales to GM
Delco are a significant portion of APITECH's business.
5
Products are sold as components or turn-key systems, depending on customer
specifications and design capability, typically with long-term supply
arrangements. The Company primarily sells its APITECH products through its own
sales engineering team as well as through a group of full service mobile
equipment distributors in North America and Europe. Sales to the road
maintenance equipment market take place through a national network of truck
equipment dealers in the United States and Canada. APITECH's operations are
based in Butler, Wisconsin.
Barry Controls
Barry Controls was acquired by Applied Power in 1989, along with Wright Line,
in conjunction with the acquisition of Barry Wright Corporation. Barry
Controls is engaged in the business of custom designing, manufacturing and
marketing engineered products and systems that reduce vibration, shock and
structure-borne noise. Products for the commercial aerospace and defense
markets include engine vibration isolators for aircraft and vibration and shock
isolators for defense and aerospace applications. Industrial products
represent an important part of Barry Controls' business, and include vibration
isolators and noise dampening components for a variety of applications
including computers, appliances, tools, industrial equipment, heavy trucks,
farm and construction equipment and many other diverse applications.
Principal markets and customers served include OEMs of many types of machinery
and equipment (including computers), aircraft manufacturers, commercial
airlines, defense and aerospace contractors, and users of equipment requiring
noise or vibration reduction. Products are distributed through its sales
engineers, independent sales engineering representatives and specialized
distributors. Barry Controls' products are manufactured in two locations in
the United States as well as in England.
WRIGHT LINE
In the second quarter of 1994, the Company announced its decision to retain the
remaining Wright Line business, which had been included in discontinued
operations since the third quarter of 1992. The Company had originally
intended to sell all of Wright Line in a single transaction in 1993. However,
management subsequently determined that proceeds could be maximized by selling
the assets in a series of separate transactions. The Company completed the
sale of certain assets of Wright Line s German operation in 1993, and the
Canadian, Australian, U.K. and U.S. portions of Wright Line s Datafile
operations in early 1994. For further information, refer to Note B -
"Discontinued Operations" in Notes to Consolidated Financial Statements.
During the past two years, Wright Line has shifted its strategy to respond to
the application and storage demands posed by new and fast changing markets,
including Local Area Networks (LAN s), multi-media and bio-engineering markets.
Its customers require efficient and flexible work centers and equipment for
professionals. In addition to these fast growing markets, Wright Line continues
to provide traditional filing systems, cabinets, workstations and work surfaces
used in the modern office.
Wright Line products are primarily sold through its direct sales force in the
United States, in addition to a network of independent distributors and
Value-Added Resellers. Its products are marketed in foreign markets through
sales representatives and dealers in other countries. Products are primarily
sold to commercial and governmental end users. Sales to the government, which
have averaged approximately 31% of total Wright Line net sales over the past
three years, are made pursuant to a contract between Wright Line and the U.S.
Government s General Services Administration.
Competition
The Company competes on the basis of product design and quality, availability,
performance and support and price. The Company believes that its technical
skills, global presence, shared technology base, close working relationships
with customers and patents bolster its competitive position.
6
Applied Power's businesses face competition to varying degrees in each of their
markets. In general, each product line competes with a small group of
different competitors. No one company competes directly with the Company
across all of its businesses. Some competitors of the Enerpac, GB Electrical,
APITECH, and Wright Line businesses are substantially larger than the Company
and have greater financial resources. The competitors of Power-Packer are
limited to a few specialized firms, which are generally privately held and
operate in specific geographic markets. Barry Controls and its principal
competitor, a segment of Lord Corporation, are the dominant suppliers in the
shock, vibration and noise isolation markets.
Research and Development
The Company maintains engineering staffs at several locations, which design new
products and make improvements to existing product lines. Expenditures for
research and development, which constitute a portion of the Company's
engineering expense, were $7.4 million, $5.9 million and $5.6 million in fiscal
years 1994, 1993 and 1992, respectively. Substantially all research,
development and product improvement expenditures are Company funded.
Patents and Trademarks
The Company has been issued a number of patents that provide protection of
valuable designs and processes in its APITECH, Power-Packer and Barry Controls
businesses. Numerous other United States and foreign patents and trademarks
are owned by the Company, although no such individual patent or trademark (or
group thereof) is believed to be of sufficient importance that its termination
would have a materially adverse effect on the Company's business.
Manufacturing, Materials and Suppliers
The majority of the Company's manufacturing operations include the assembly of
parts and components which have been purchased by the Company from a number of
suppliers. In the absence of unusual circumstances, substantially all such
products are normally available from a number of local and national suppliers.
Order Backlogs and Seasonality
At August 31, 1994, the Company had $93.3 million in backlog orders, compared
to approximately $79.7 million at August 31, 1993. Substantially all orders
are expected to be completed prior to August 31, 1995. The Company's sales are
subject to minor seasonal fluctuations, with second quarter sales traditionally
being the lowest of the year.
Employee Relations
As of August 31, 1994, Applied Power employed approximately 2,700 people, none
of which are subject to a collective bargaining agreement. In general, the
Company enjoys good relationships with its employees.
Environmental Compliance
The Company has facilities at numerous geographic locations, which are subject
to a range of environmental laws and regulations. Compliance with these laws
has, and will require expenditures on a continuing basis. Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. The Company has been identified by the United States Environmental
Protection Agency as a "Potentially Responsible Party" regarding six
multi-party Superfund sites. Based on its investigations, the Company believes
it is a de minimis participant in each case, and that any liability which may
be incurred as a result of its involvement with such Superfund sites, taken
together with its expenditures for environmental compliance, will not have a
material adverse effect on the Company s financial position. Liabilities are
recorded when environmental remediation is probable, and the costs can be
reasonable estimated. Environmental remediation accruals of $567,000 and
$661,000 were included in the Consolidated Balance Sheet at August 31, 1994 and
1993, respectively. For further information, refer to Note P - "Contingencies
and Litigation" in Notes to Consolidated Financial Statements.
7
ITEM 2. PROPERTIES
The following table summarizes the principal manufacturing, warehouse and
office facilities owned or leased by the Company:
Location and Business Size (sq. feet) Owned/Leased
- - ----------------------------------------------------------------
DISTRIBUTED PRODUCTS GROUP
- - --------------------------
Enerpac
Columbus, Wisconsin 130,000 Leased
Veenendaal, Netherlands 98,000 Owned
Troyes, France 42,000 Leased
Tokyo, Japan 33,000 Leased
Pachuca, Mexico 24,000 Leased
GB Electrical
Glendale, Wisconsin 165,000 Leased
Matthews, North Carolina 33,000 Owned
Alexandria, Minnesota 26,000 Owned
ENGINEERED SOLUTIONS GROUP
- - --------------------------
Power-Packer
Westfield, Wisconsin 49,000 Leased
Oldenzaal, Netherlands 65,000 Owned
APITECH
Butler, Wisconsin 45,000 Leased
Barry Controls
Brighton, Massachusetts 227,000 Leased
Burbank, California 307,000 Leased
Hersham, England 37,000 Leased
WRIGHT LINE
- - -----------
Worcester, Massachusetts 210,000 Owned
In addition to these properties, the Company utilizes a number of smaller
facilities in South Korea, Spain, Italy, Canada, France, Germany, Australia,
Russia, Switzerland, Singapore, India, the United Kingdom and the United
States. The Company's headquarters are based in a leased facility in Butler,
Wisconsin, which is also utilized by Enerpac and Power-Packer.
The Company's strategy is to lease properties when available and economically
advantageous. Leases for the majority of the Company's facilities include
renewal options. For additional information, see Note H - "Leases" in Notes to
Consolidated Financial Statements. The Company believes its current properties
are well maintained and in general, are adequately sized to house existing
operations. The Company intends to construct a manufacturing and warehousing
facility in South Korea within the next two years to support its expansion in
that emerging market. Further, a minor addition will be made to the Wright
Line facility in Worcester, Massachusetts to house a new paint line. Funding
for these projects is expected to come from operating cash flow.
8
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental and patent claims. (For further information
related to environmental claims, refer to "Environmental Compliance" on page
6). The Company has recorded reserves for loss contingencies based on the
specific circumstances of each case. Such reserves are recorded when the loss
is probable and can be reasonably estimated. In the opinion of management, the
resolution of these contingencies will not have a materially adverse effect on
the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all of the executive officers of the Company
as of November 16, 1994 are listed below.
Name Age Position
- - ---- --- --------
Richard G. Sim 50 Chairman, President and Chief Executive Officer; Director
William J. Albrecht 43 Senior Vice President, Engineered Solutions Group
Robert G. Deuster 44 Senior Vice President, Distributed Products Group
Alexander D. van Eyck 53 Senior Vice President, Asian Operations
Robert C. Arzbaecher 34 Vice President, Chief Financial Officer
Douglas R. Dorszynski 42 Vice President, Tax and Treasurer
Louis E. Font 41 Vice President, Human Resources
Robert T. Foote, Jr. 53 Vice President, Business Development
Dale A. Knutson 62 Vice President, Technology
Theodore M. Lecher 43 Vice President, President GB Electrical, Inc.
Andrew G. Lampereur 31 Controller
Anthony W. Asmuth III 52 Secretary
Richard G. Sim was elected President and Chief Operating Officer on August 1,
1985, Chief Executive Officer effective September 1, 1986, and Chairman of the
Board effective November 1, 1988. From January, 1982 through August 1, 1985,
Mr. Sim was a General Manager in the General Electric Medical Systems Business
Group. He is also a director of The Gehl Company and IPSCO Inc.
9
William J. Albrecht was named Senior Vice President of the Engineered Solutions
Group in May, 1994. Prior to that he served as Vice President and President of
Power-Packer and APITECH since January, 1991. He joined the Company in March,
1989 as General Manager of the APITECH Division in the United States. Prior to
joining the Company, Mr. Albrecht was Director of National Accounts and
Industrial Power Systems at Generac Corp. from 1987 to 1989 and Vice
President-Sales at NP Marketing from 1985 to 1987.
Robert G. Deuster was appointed Senior Vice President of the Distributed
Products Group in May, 1994. He had served as a Vice President since August,
1988, and was named President of Barry Controls in August, 1989. From March,
1987 to August, 1989, Mr. Deuster had responsibility for the APITECH business
worldwide. From November, 1985, to March, 1987, he was Vice President
Marketing and Sales for Enerpac in the United States. Prior to joining the
Company in 1985, Mr. Deuster spent 10 years at General Electric in engineering
and as Manager of Marketing in its Medical Systems Business Group.
Alexander D. van Eyck joined the Company as Senior Vice President, Asian
Operations in February, 1992. In this position he has oversight and business
development responsibilities for all of the Company's businesses in Japan and
Korea. From 1990 until joining the Company, Mr. van Eyck had served as
President and Chief Executive Officer of Concurrent Nippon Corp. in Japan.
Prior to that, he was Partner, Nakamura International from 1988 to 1990, and
President of Apple Computers Japan, Inc. from 1985 to 1988.
Robert C. Arzbaecher was named Vice President, Chief Financial Officer in
October, 1994. He had served as Vice President, Finance of the Distributed
Products Group from August, 1993 to October, 1994. He joined the Company in
January, 1992 as Controller. From May, 1988 to December, 1991, Mr. Arzbaecher
was employed by Grabill Aerospace Industries LTD, where he last held the
position of Chief Financial Officer. Prior to 1988, Mr. Arzbaecher held
various financial positions at Farley Industries Inc. and at Grant Thornton and
Company, a public accounting firm.
Douglas R. Dorszynski was appointed Vice President, Tax and Treasurer in July,
1994. Mr. Dorszynski joined the Company in 1983 as Corporate Tax Manager and
was subsequently appointed Director, Tax and Special Project Planning in 1985.
Prior to joining the Company, Mr. Dorszynski was employed by Arthur Young &
Co., a public accounting firm, from 1978 to 1983.
Louis E. Font was elected Vice President, Human Resources in October, 1994.
From March, 1994 to October, 1994 Mr. Font served as Vice President, Human
Resources for the Distributed Products Group. He served from May, 1992 to
March, 1994 as Vice President, Human Resources for Enerpac Americas. Prior to
joining the Company in 1992, Mr. Font was employed by General Electric for 12
years, holding various human resource positions.
Robert T. Foote, Jr. was appointed Vice President, Business Development on
September 1, 1992. Mr. Foote was Vice President and Chief Financial Officer
from August 1988 to August 1992. He was appointed a Vice President in July
1987 and has been a member of the corporate staff since 1984. Prior to that,
he held various divisional managerial positions. Mr. Foote has been employed
by the Company since 1971.
Dale A. Knutson has served as Vice President, Technology since May, 1987. From
1982 until May, 1987, he held the position of Vice President - Product
Engineering. Mr. Knutson has been associated with the Company since 1969.
Theodore M. Lecher has served as President of GB Electrical, Inc. (Gardner
Bender, Inc. prior to its acquisition by the Company in February, 1988) since
September, 1986, and as a Company Vice President since August, 1988. He was
Vice President-General Manager of Gardner Bender, Inc. from 1983 to 1986, and
prior to that Director of Sales and Marketing since 1980. Mr. Lecher has been
associated with GB Electrical, Inc. since 1977.
10
Andrew G. Lampereur was appointed Corporate Controller in May, 1994. He
joined the Company in May, 1993 as Assistant Corporate Controller. Mr.
Lampereur was employed by Terex Corporation from 1988 to May, 1993, where he
held a number of financial positions, most recently Corporate Controller of its
Fruehauf Trailer Corporation subsidiary. Prior to that, he was employed at
Price Waterhouse, a public accounting firm, from 1985 to 1988.
Anthony W. Asmuth III is a partner in the law firm of Quarles & Brady,
Milwaukee, Wisconsin, having joined that firm in 1989. Prior to joining
Quarles & Brady, he was a partner with the law firm of Whyte & Hirschboeck
Dudek S.C. Mr. Asmuth had previously served as Secretary of the Company from
January, 1986 to January, 1993. He was re-elected Secretary in July, 1994.
Each officer is appointed by the Board of Directors and holds office until he
or she resigns, dies, is removed or a different person is appointed to the
office. The Board of Directors generally appoints officers at its meeting
following the Annual Meeting of Shareholders.
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 APW. At October 31, 1994, the approximate number of record shareholders
of common stock was 517. The high and low sales prices of the common stock by
quarter for each of the past two years are as follows:
FISCAL YEAR PERIOD HIGH LOW
- - ----------- -------------------------- ----------- ----------
1994 June 1 to August 31 $22 1/2 $19
March 1 to May 31 22 5/8 16 3/8
December 1 to February 28 19 3/8 14 5/8
September 1 to November 30 18 1/4 14 1/2
1993 June 1 to August 31 17 1/8 15 3/8
March 1 to May 31 18 1/2 16 1/8
December 1 to February 28 18 1/2 15
September 1 to November 30 16 1/4 13 5/8
Quarterly dividends of $0.03 per share were declared and paid for each of the
quarters above.
11
ITEM 6. SELECTED FINANCIAL DATA
(In Millions, except per share amounts)
For the years ended August 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
Net Sales $433.6 $398.7 $404.3 $400.6 $406.9
Gross Profit 163.5 151.0 154.9 157.1 166.0
Earnings
Continuing Operations before
Cumulative Effect of Accounting
Change 16.9 7.1 (1) 8.5 (1) 10.8 (1) 18.7
Cumulative Effect of Accounting Change - (4.4) - - -
Discontinued Operations (0.4) (3.8) (32.9) (2.9) 0.8
------- ------- ------- ------- -------
Net Earnings 16.5 (1.1) (24.4) 7.8 19.5
Earnings per Share
Continuing Operations before
Cumulative Effect of Accounting
Change $ 1.27 $ 0.54 (1) $ 0.65 (1) $ 0.83 (1) $ 1.41
Cumulative Effect of Accounting Change - (0.33) - - -
Discontinued Operations (0.03) (0.29) (2.51) (0.23) .06
------- ------- ------- ------- -------
Net Earnings per Share $ 1.25 $ (0.08) $ (1.87) $ 0.60 $ 1.48
Dividends per Common Share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12
At August 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
Total Assets 317.4 306.3 301.5 326.2 393.6
Long-term Obligations 88.7 97.5 108.0 118.6 142.5
Shareholders' Equity 107.3 88.0 96.6 116.8 115.5
Actual Shares Outstanding 13.2 13.0 13.0 12.9 12.8
(1) Earnings from Continuing Operations before Cumulative Effect of Accounting
Change for 1993, 1992 and 1991 reflect after-tax restructuring charges of
$4,968 ($.38 per share), $3,114 ($.24 per share) and $3,034 ($.23 per share),
respectively. In addition, 1992 includes a liquidation of LIFO inventory which
had the effect of increasing earnings by $1,339 ($.10 per share).
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
APPLIED POWER INC. FINANCIAL REVIEW
(Dollars in millions, except per share amounts)
- - ------------------------------------------------------------------------------------------------------------
RESULTS OF CONTINUING OPERATIONS
- - ------------------------------------------------------------------------------------------------------------
Years Ended August 31, Percentage of Net Sales
- - ------------------------------------------------------------------------------------------------------------
1994 1993 1992 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
Net Sales $433.6 $398.7 $404.3 100.0% 100.0% 100.0%
Gross Profit 163.5 151.0 154.9 37.7 37.9 38.3
Operating Expenses 121.3 117.3 112.7 28.0 29.4 27.9
Restructuring Expenses - 7.7 4.7 - 1.9 1.2
Operating Earnings 42.2 26.0 37.5 9.7 6.5 9.3
Other Expenses 16.9 16.4 22.1 3.9 4.1 5.5
Earnings Before Income Taxes 25.3 9.6 15.4 5.8 2.4 3.8
Income Taxes 8.4 2.5 6.9 1.9 0.6 1.7
Earnings Before Accounting Change 16.9 7.1 8.5 3.9 1.8 2.1
Cumulative Effect of Accounting Change - 4.4 - - 1.1 -
Net Earnings $ 16.9 $ 2.7 $ 8.5 3.9% 0.7% 2.1%
- - ------------------------------------------------------------------------------------------------------------
The preceding table sets forth the results of continuing operations of the
Company for the years ended August 31, 1994, 1993 and 1992.
The Company recorded restructuring charges and adopted new accounting
pronouncements during the last three years which impact the comparability of
financial information. The following table reconciles reported net earnings
from continuing operations to net earnings from continuing operations excluding
restructuring costs and the cumulative effect of accounting changes:
- - ------------------------------------------------------------------------------------------------------------
EARNINGS COMPARISON 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
Earnings from Continuing Operations $16.9 $2.7 $8.5
Restructuring - after tax 5.0 3.1
Cumulative of effect of accounting change 4.4
- - ------------------------------------------------------------------------------------------------------------
TOTALS $16.9 $12.1 $11.6
- - ------------------------------------------------------------------------------------------------------------
[Graph A - see attached appendix to this report]
NET SALES
Net sales increased 9% in 1994 as all operating groups reported improvement
over the prior two years. Overall sales from the Distributed Products Group
(the "DPG"), which consists of Enerpac and GB Electrical, increased 4% from
1993, reflecting $1.8 million of sales from Palmer Industries (acquired in
1994), as well as growth in North America and the developing Asia Pacific and
Latin American markets. DPG sales in Europe and Japan were lower than the prior
year due to weak conditions in those economies in the first half of 1994.
The Engineered Solutions Group (the "ESG"), consisting of Barry Controls,
APITECH and Power-Packer, posted a 10% sales gain over 1993. The majority of
the improvement took place in the automotive and transportation markets in
North America and Europe. Improvement also resulted from the sale of products
introduced in recent years such as Power-Packer's multi-cylinder convertible
top actuation systems, Barry Control's DuoPlexx and industrial products and
APITECH's automotive suspension and motion control systems.
Sales of the LAN Management System ("LMS") product line, which was introduced
in the second half of 1993, increased significantly in 1994 and was the main
reason for Wright Line's 29% sales growth from 1993. Wright Line also
introduced in 1994 it's Addendum product line, consisting of reconfigurable
laboratory systems.
13
Total sales in 1993 were 1% lower than 1992 reflecting lower shipments from
Wright Line, as well as the impact of economic downturns in Europe and Japan.
European sales declined 14% from 1992 to 1993, partially offset by gains in
emerging markets and North America. ESG sales from new products were partially
offset by declines in cyclical markets that Barry Controls competes in,
including commercial aerospace and defense.
- - ------------------------------------------------------------------------------------------------------------
GEOGRAPHIC SALES 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
North America $279.6 $259.7 $250.7
Latin America 11.3 10.2 9.6
Europe 99.2 87.3 101.8
Japan and Asia Pacific 43.5 41.5 42.2
- - ------------------------------------------------------------------------------------------------------------
TOTALS $433.6 $398.7 $404.3
- - ------------------------------------------------------------------------------------------------------------
[Graph B - see attached appendix to this report]
Acquisitions, price changes and foreign exchange rate changes have not had a
significant impact on the comparability of net sales during the last three
years.
GROSS PROFIT
Gross profit increased to $163.5 million in 1994, compared to $151.0 million
and $154.9 million in 1993 and 1992, respectively. The improvement results from
the 9% increase in sales in 1994. Accounting under SFAS 109 (see "Adoption of
New Accounting Pronouncements" below) had the effect of reducing gross profit
approximately $2.2 million in both 1994 and 1993, relative to 1992. The
liquidation of LIFO inventories increased gross profit approximately $2.2
million in 1992. Comparative gross profit percentages, assuming the Company had
adopted SFAS 109 in 1992 and had not received benefit from the LIFO
liquidation, are as follows:
- - ------------------------------------------------------------------------------------------------------------
GROSS PROFIT BY SEGMENT 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
Distributed Products Group 43.4% 45.4% 45.0%
Engineered Solutions Group 28.2 27.4 24.6
Wright Line 43.0 36.4 41.2
- - ------------------------------------------------------------------------------------------------------------
TOTALS 37.7% 37.9% 37.2%
- - ------------------------------------------------------------------------------------------------------------
Items influencing overall gross profit percentages include relative sales mix
between the DPG, ESG and Wright Line and production levels. The DPG experienced
erosion in its gross profit percentage in 1994 at Enerpac due to inefficiencies
during the consolidation of manufacturing, higher discounts to distributors and
increased shipments to OEM customers (which generate lower margins than non-OEM
customers). Gross profit percentages from the ESG and Wright Line improved due
to benefits from prior year restructuring (see "Restructuring Expense" below),
as well as higher production levels. The ESG generates lower gross profit
percentages than either Wright Line or the DPG because a much higher proportion
of its sales are made to OEM customers.
- - ------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
Engineering $13.5 $12.3 $10.9
Selling and Marketing 72.0 68.1 67.2
Administration 35.8 36.9 34.6
- - ------------------------------------------------------------------------------------------------------------
TOTALS $121.3 $117.3 $112.7
- - ------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Engineering expense increased 24% over the last two years to $13.5 million due
to new product development programs. The Company believes that its investment
in technology in all businesses will continue to provide it with a competitive
advantage.
14
Selling and marketing expenses increased from $67.2 million in 1992 to $68.1
million in 1993 and $72.0 million in 1994. The majority of the increase since
1992 relates to variable selling expenses (primarily commissions and volume
rebates) as well as expenditures for geographic expansion into emerging
markets. During the last few years, the Company opened sales offices in Moscow
and India, and increased its presence in Mexico, Canada and Korea.
Administrative expenses totalled $35.8 million, $36.9 million and $34.6 million
in 1994, 1993 and 1992, respectively. The reduction during 1994 reflects the
benefits of restructuring certain European operations. Both 1994 and 1993
include incremental expense over 1992 attributable to SFAS 106 (see "Adoption
of New Accounting Pronouncements" below.)
RESTRUCTURING EXPENSE
The Company recorded $7.7 million of pre-tax restructuring charges ($.38 per
share) in 1993, primarily related to consolidating certain manufacturing,
distribution and administrative functions at Enerpac and Barry Controls
operations in Europe, downsizing field sales and headquarters administrative
staff at retained Wright Line operations, and idle facility costs at Barry
Controls. All but $1.6 million of the restructuring costs had been incurred as
of August 31, 1994, consisting of severance and consolidation expenditures. The
balance of such expenditures will be incurred in the first half of 1995 when
the restructuring is finalized.
During 1992, pre-tax restructuring expenses of $4.7 million ($.24 per share)
were incurred for the transfer and consolidation of selected Barry Controls and
European Power-Packer operations.
- - ------------------------------------------------------------------------------
OTHER EXPENSE (INCOME) 1994 1993 1992
- - ------------------------------------------------------------------------------
Interest expense $11.4 $12.5 $15.3
Amortization expense 5.1 4.9 4.6
Other - net 0.4 (1.0) 2.2
- - ------------------------------------------------------------------------------
OTHER EXPENSE(INCOME)
The reduction in interest expense during the last three years reflects lower
market interest rates and reduced debt levels. Amortization expense increased
due to incremental amortization of intangible assets added during the last
three years from acquisitions (see "Liquidity and Capital Resources") as well
as the adoption of SFAS 109 in 1993. "Other-net" includes foreign exchange
(gains)losses and miscellaneous other (income)expense. Net foreign exchange
gains were realized in 1993, accounting for the majority of the change in this
caption.
INCOME TAXES
The Company's effective income tax rate is largely impacted by the proportion
of earnings generated inside and outside the US, as well as the utilization of
foreign tax credits in the US. Tax expense in 1994 and 1993 was reduced by
approximately $2.4 million as a result of accounting for income taxes pursuant
to SFAS 109. The effective tax rate in 1992 was higher than the two subsequent
years since SFAS 109 had not been adopted prior to 1993. Higher US earnings,
the utilization of foreign tax credits, deferred tax adjustments and lower
pre-tax income also had a favorable impact on the effective tax rate in 1993.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS 112") as of
September 1, 1993. SFAS 112 requires the accrual of postemployment benefits
during the years an employee provides service. There was no cumulative effect
or current year impact of adopting this new pronouncement.
15
Two new accounting pronouncements were adopted as of September 1, 1992 which
impact the comparability of the financial statements. Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("SFAS 106"), requires the accrual of
postretirement benefits (such as health care and life insurance) during the
years an employee provides service. Previously, these costs were recognized as
they were paid. The cumulative effect of adopting SFAS 106 was $4.4 million
($.33 per share) in 1993.
Although it impacted gross profit, operating profit, amortization expense and
income tax expense, the adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), had no material impact on
net earnings or cash flows in 1993 or 1994. Certain assets and liabilities at
acquired companies that previously had been carried on a net-of-tax basis under
prior accounting rules, were adjusted to a gross basis. This increased
depreciation and amortization expense by approximately $2.4 million in both
1994 and 1993 (relative to 1992) while reducing income tax expense by an equal
amount. As a result, there was no effect on net income.
DISCONTINUED OPERATIONS
In the second quarter of 1994, the Company announced its decision to retain the
remaining Wright Line business, which had been reported as a discontinued
operation since 1992. The Company completed the sale of Wright Line's German
operation in 1993 and Wright Line's Datafile businesses in Canada, Australia,
the U.K. and the US in 1994. The net assets and results of operations for the
retained Wright Line business have been reclassified from discontinued to
continuing operations for all periods presented. However, the results of
operations from June, 1992 to November, 1993 have remained offset against the
reserve previously established for the estimated loss on disposition.
The Company had previously recorded write-downs of $31.3 million ($2.51 per
share) and $5.4 million ($.41 per share) in 1992 and 1993, respectively, to
reflect the estimated loss on disposition of all discontinued operations,
including operating results until the date of disposition. For further
information, see Note B -"Discontinued Operations" in Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Outstanding debt at August 31, 1994 totalled $103.5 million, a reduction of
$14.4 million since the beginning of the year. End-of-year debt to total
capital was approximately 45%, its lowest point since 1989. Approximately $22.5
million of cash was generated from operating activities in 1994, $12.7 million
of which was used to fund capital expenditures. Dividends of $1.6 million were
paid during the year. The Company utilized approximately $1.5 million of cash
during 1994 to acquire certain assets of Palmer Industries. It used an
additional $0.9 million to increase its ownership in Applied Power Korea from
approximately 50% to 90%. Total cash generated from discontinued operations was
$6.9 million, including $6.2 million from the sale of the Datafile operations.
The resulting cash flow, net of the increase in cash balances, was used to
reduce debt.
Primary working capital (net receivables plus net inventory less trade accounts
payable) increased approximately $15 million during 1994 as a result of higher
sales volume (receivables), geographic expansion (inventory) and safety stock
during manufacturing consolidation. The Company believes that primary working
capital will remain stable or decline in 1995 as a result of improved asset
management and physical distribution consolidation programs.
The Company replaced two expiring revolving credit facilities in the fourth
quarter of 1994 with a single $40 million multicurrency revolving credit
agreement that expires in August, 1999. The expiring $25 million Accounts
Receivable Financing Program was also replaced in the fourth quarter of 1994
with a similar new facility.
Outstanding indebtedness declined $6.9 million in 1993. The Company generated
$12.7 million of cash in operating activities during the year and used $12.2
million on capital expenditures. Dividends of $1.6 million were also paid.
16
Total borrowings decreased $10.6 million in 1992. Cash of $29.0 million was
generated from operations. Major expenditures included $9.7 million for fixed
asset additions and $8.9 million for the acquisition of the remaining interests
in Barry Controls' German business and Enerpac's Mexican operation. Dividends
totalling $1.6 million were also paid.
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 $45.8 million as of August
31, 1994. The Company believes that such availability, plus funds generated
from operations will be adequate to fund operating activities, including
modestly higher capital expenditures, for the foreseeable future. The Company
will be in a position to meet future scheduled debt maturities.
[Graph C - see attached appendix to this report]
INFLATION
No meaningful measures of inflation are available because the Company has a
significant number of small operations which operate in countries with diverse
rates of inflation and currency rate movements.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly financial data for 1994 and 1993 is as follows:
(In millions, except per share amounts)
1994
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
Continuing Operations
Net Sales $ 103.6 $ 101.9 $ 111.3 $ 116.8
Gross Profit 38.6 37.7 42.5 44.7
Earnings 2.9 3.3 5.4 5.3
Discontinued Operations (0.3) - - -
---------- ---------- ---------- ----------
Net Income 2.6 3.3 5.4 5.3
========== ========== ========== ==========
Earnings (Loss) per Share
Continuing Operations $ 0.22 $ 0.25 $ 0.40 $ 0.40
Discontinued Operations (0.03) - - -
---------- ---------- ---------- ----------
Total $ 0.20 $ 0.25 $ 0.40 $ 0.40
========== ========== ========== ==========
1993
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
Continuing Operations
Net Sales $ 102.3 $ 94.9 $ 102.4 $ 99.1
Gross Profit 39.0 35.1 39.5 37.4
Earnings (Loss) Before Cumulative
Effect of Accounting Change 3.3 1.8 3.8 (1.8)
Cumulative Effect of Accounting Change (4.4) - - -
Discontinued Operations - 0.8 - (4.6)
---------- ---------- ---------- ----------
Net Income (Loss) (1.1) 2.6 3.8 (6.4)
========== ========== ========== ==========
Earnings (Loss) per Share
Continuing Operations $ 0.25 $ 0.13 $ 0.30 $ (0.14)
Cumulative Effect of Accounting Change (0.33) - - -
Discontinued Operations - 0.06 - (0.35)
---------- ---------- ---------- ----------
Total $ (0.08) $ 0.19 $ 0.30 $ (0.49)
========== ========== ========== ==========
The Consolidated Financial Statements are included on pages 22 to 37 and are
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
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 -- Compliance with Section 16(a)
of the Exchange Act" sections of the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on January 9, 1995 (the "1995 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
"Board Meetings, Committees and Director Compensation" and "Executive
Compensation" sections of the 1995 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 1995
Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
See "Index to Financial Statements and Financial Statement
Schedules" on page 20 which is incorporated herein by
reference.
2. Financial Statement Schedules
See "Index to Financial Statements and Financial Statement
Schedules" on page 20 and the Financial Statement Schedules on
pages 38 to 42, all of which is incorporated herein by
reference.
3. Exhibits
See "Index to Exhibits" on page 45 which is incorporated herein
by reference.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter or through
the date of this report.
20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ----
Independent Auditors' Report 21
Consolidated Statement of Earnings
For the years ended August 31, 1994, 1993 and 1992 22
Consolidated Balance Sheet
As of August 31, 1994 and 1993 23
Consolidated Statement of Shareholders' Equity
For the years ended August 31, 1994, 1993 and 1992 24
Consolidated Statement of Cash Flows
For the years ended August 31, 1994, 1993 and 1992 25
Notes to Consolidated Financial Statements 26-37
INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report 21
Schedule II - Amounts Receivable from Related Parties 38
Schedule VII - Guarantees of Securities of Other Issuers 39
Schedule VIII - Valuation and Qualifying Accounts 40
Schedule IX - Short-term Borrowings 41
Schedule X - Supplementary Income Statement Data 42
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.
21
Independent Auditors' Report
To the Shareholders and Directors of Applied Power Inc.:
We have audited the accompanying consolidated balance sheets of Applied Power
Inc. and subsidiaries as of August 31, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended August 31, 1994. Our audits also
included the consolidated financial statement schedules listed in the Index at
Item 14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evalutaing the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Applied Power Inc. and
subsidiaries at August 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such consolidated financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note M to the consolidated financial statements, effective
September 1, 1992 the Company changed its method of accounting for
postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards No. 106.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 30, 1994
22
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years ended August 31,
---------------------------------------------------------
1994 1993 1992
------------- ------------- -------------
Net Sales $ 433,644 $ 398,727 $ 404,286
Cost of products sold 270,120 247,741 249,428
------------- ------------- -------------
Gross Profit 163,524 150,986 154,858
Engineering, selling and administrative expenses 121,315 117,295 112,681
Restructuring expenses 7,721 4,706
------------- ------------- -------------
Operating Earnings from Continuing Operations 42,209 25,970 37,471
Other Expense (Income)
Interest expense 11,362 12,469 15,332
Amortization of intangible assets 5,092 4,914 4,606
Other - net 457 (1,003) 2,144
------------- ------------- -------------
Earnings from Continuing Operations Before
Income Tax Expense 25,298 9,590 15,389
Income Tax Expense 8,402 2,504 6,936
------------- ------------- -------------
Earnings from Continuing Operations Before Cumulative
Effect of Accounting Change 16,896 7,086 8,453
Cumulative Effect of Accounting Change -
Postretirement Benefits
(4,335)
------------- ------------- -------------
Earnings from Continuing Operations 16,896 2,731 8,453
Discontinued Operations, net of income taxes
Loss (Income) from operations previously
offset against reserve for estimated
on disposition (348) 1,618 241
Loss from discontinued operations (1,792)
Provision for loss on disposition (5,400) (31,307)
------------- ------------- -------------
Loss from Discontinued Operations (348) (3,782) (32,858)
------------- ------------- -------------
Net Earnings (Loss) $ 16,548 $ (1,051) $ (24,405)
============= ============= =============
Earnings (Loss) Per Share
Continuing Operations $ 1.27 $ 0.54 $ 0.65
Cumulative Effect of Accounting Change (0.33)
Discontinued Operations (0.03) (0.29) (2.51)
------------- ------------- -------------
Net Earnings (Loss) Per Share $ 1.25 $ (0.08) $ (1.87)
============= ============= =============
Weighted Average Shares Outstanding (In Thousands) 13,289 13,099 13,081
The accompanying notes are an integral part of these financial statements
23
APPLIED POWER INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
August 31,
1994 1993
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,907 $ 1,320
Accounts receivable, less allowances of $3,131 and $3,053, respectively 64,259 49,463
Inventories 94,949 85,730
Prepaid expenses 13,694 15,143
Net assets held for sale 12,035
----------- -----------
Total Current Assets 174,809 163,691
Other Assets 6,390 8,181
Goodwill, net of accumulated amortization of $9,404 and $7,625, respectively 56,708 57,645
Other Intangibles, net of accumulated amortization of $17,141 and $13,828, respectively 11,750 14,812
Property, Plant and Equipment
Property 1,643 1,182
Plant 27,724 21,122
Machinery and equipment 109,425 100,732
----------- -----------
138,792 123,036
Less: Accumulated depreciation (71,047) (61,048)
----------- -----------
Net Property, Plant and Equipment 67,745 61,988
----------- -----------
Total Assets $ 317,402 $ 306,317
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 14,707 $ 20,401
Trade accounts payable 35,219 26,176
Accrued compensation and benefits 16,335 13,177
Income taxes payable 8,190 6,500
Current maturities of long-term debt 10,792 10,745
Other current liabilities 16,722 24,994
----------- -----------
Total Current Liabilities 101,965 101,993
Long-term Debt, less current portion 77,956 86,785
Deferred Income Tax 16,768 17,649
Other Deferred Liabilities 13,402 11,880
Shareholders' Equity
Class A Common stock, $.20 par value, authorized 40,000,000 shares, issued and
outstanding 13,152,454 and 13,005,116 shares, respectively 2,630 2,601
Additional paid-in capital 23,648 21,654
Retained earnings 75,802 60,823
Cumulative translation adjustments 5,231 2,932
----------- -----------
Total Shareholders' Equity 107,311 88,010
----------- -----------
Total Liabilities and Shareholders' Equity $ 317,402 $ 306,317
=========== ===========
The accompanying notes are an integral part of these financial statements
24
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended August 31, 1994, 1993 and 1992
---------------------------------------------------------------------------
Capital Stock
---------------------- Additional Cumulative
Class A Class B Paid-in Retained Translation
Common Common Capital Earnings Adjustments
---------- ---------- ---------- ---------- ----------
Balances at September 1, 1991 $ 2,115 $ 467 $ 20,766 $ 89,390 $ 4,457
Net loss for the year (24,405)
Cash dividends declared - $0.12 per share (1,553)
Class A common stock contributed to ESOP 4 295
Conversion of Class B to Class A stock 467 (467)
Exercise of stock options 6 113
Other 126
Remove cumulative translation adjustments
relating to discontinued operations (1,115)
Currency translation adjustments 6,312
-------- ------- --------- --------- ---------
Balances at August 31, 1992 2,592 0 21,300 63,432 9,654
Net loss for the year (1,051)
Cash dividends declared - $0.12 per share (1,558)
Exercise of stock options 9 354
Currency translation adjustments (6,722)
-------- ------- --------- --------- ---------
Balances at August 31, 1993 2,601 0 21,654 60,823 2,932
Net earnings for the year 16,548
Cash dividends declared - $0.12 per share (1,569)
Exercise of stock options 29 1,850
Other 144
Currency translation adjustments 2,299
-------- ------- --------- --------- ---------
Balances at August 31, 1994 $ 2,630 $ 0 $ 23,648 $ 75,802 $ 5,231
======== ======= ========= ========= =========
The accompanying notes are an integral part of these financial statements
25
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years ended August 31,
--------------------------------------------------
1994 1993 1992
----------- ----------- -----------
Earnings from Continuing Operations $ 16,896 $ 2,731 $ 8,453
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 19,406 19,767 17,755
Other non-cash charges, principally restructuring and
adoption of SFAS 106 8,710 4,730
Provision for deferred taxes (789) (6,425) 455
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and disposals:
Accounts receivable (12,855) (2,073) 1,231
Inventories (7,182) (9,515) 8,014
Prepaid expenses and other assets 3,156 2,167 (1,328)
Trade accounts payable 8,509 694 (3,144)
Other liabilities (6,125) (4,312) (3,538)
Income taxes payable 1,462 973 (3,652)
----------- ----------- -----------
Net Cash Provided by Operating Activities 22,478 12,717 28,976
Investing Activities
Proceeds on the sale of property, plant and equipment 1,342 2,073 920
Additions to property, plant and equipment (12,707) (12,217) (9,686)
Cash used to purchase subsidiaries (2,446) (8,922)
Other 142 627 1,008
----------- ----------- -----------
Net Cash Used in Investing Activities (13,669) (9,517) (16,680)
Financing Activities
Proceeds from issuance of long-term debt 13,959 3,484 27,463
Principal payments on long-term debt (33,755) (12,528) (12,517)
Net borrowings (repayments) on short-term credit facilities (5,700) 4,926 (879)
Net commercial paper borrowings (repayments) 9,947 (28,528)
Dividends paid on common stock (1,569) (1,558) (1,533)
Capital stock transactions and other 1,879 754 119
----------- ----------- -----------
Net Cash Used in Financing Activities (15,239) (4,922) (15,895)
Effect of Exchange Rate Changes on Cash 132 (436) 590
----------- ----------- -----------
Net Cash Used in Continuing Operations (6,298) (2,158) (3,009)
Discontinued Operations Activities
Proceeds from sale of Datafile 6,222
Other 663 31 2,852
----------- ----------- -----------
Net Cash Provided by Discontinued Operations 6,885 31 2,852
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 587 (2,127) (157)
Cash and Cash Equivalents - Beginning of Year 1,320 3,447 3,604
----------- ----------- -----------
Cash and Cash Equivalents - End of Year $ 1,907 $ 1,320 $ 3,447
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
26
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, except per share amounts)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Applied Power Inc. and its majority-owned subsidiaries ("Applied
Power" or the "Company"). All significant intercompany balances, transactions
and profits have been eliminated.
Cash and 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.
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 under the straight-line method for financial reporting purposes and
both straight-line and accelerated methods for tax purposes. Expenditures for
maintenance and repairs not expected to extend the useful life of an asset
beyond its normal useful life are expensed.
Intangible Assets: Goodwill is amortized on a straight-line basis over forty
years. The Company periodically evaluates the carrying value of goodwill by
calculating the present value of anticipated future cash flows. Other
intangible assets, consisting primarily of purchased patents, trademarks and
noncompete agreements, are amortized over periods from five to seventeen years.
Revenue Recognition: Revenues and costs of products sold are recognized as the
related products are shipped.
Research and Development Costs: Research and development costs are generally
expensed as incurred. Such costs incurred in the development of new products or
significant improvements to existing products totalled approximately $7,446,
$5,878 and $5,594 in 1994, 1993 and 1992, respectively.
Income Taxes: Prior to 1993, the Company accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11. Effective
September 1, 1992, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". For further
information, see Note N - "Income Taxes".
Earnings per Share: Earnings per share is based on the weighted average number
of common and common equivalent shares outstanding during the year. The
dilutive effect of common stock equivalents is calculated using the treasury
stock method.
Foreign Currency Translation: Foreign currency translation adjustments are
generally excluded from the Consolidated Statement of Earnings and are included
in Cumulative Translation Adjustments in the Consolidated Balance Sheet. Gains
and losses resulting from foreign currency transactions are included in Other
Expense (Income) in the Consolidated Statement of Earnings.
Financial Instruments: The Company utilizes interest rate swap agreements to
manage interest rate exposure. The differential to be paid or received is
recorded as interest rates change. For further information, see Note
G-"Long-term Debt". The Company also utilizes, in limited circumstances,
foreign currency forward contracts. Gains and losses resulting from these
instruments are recognized in the same period as the underlying transaction.
The Company was not a party to any foreign currency contracts at August 31,
1994. Other than foreign currency forward contracts and interest rate swap
agreements, the Company does not utilize or trade derivative financial
instruments.
27
Reclassifications: Certain amounts shown for 1993 and 1992 have been
reclassified to conform to the current year presentation.
Recent Accounting Pronouncement: The Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits", which requires the accrual of
postemployment benefits during the years an employee provides service. The
adoption of this pronouncement in 1994 did not have a material impact on the
Company's financial position and results of operations, because the Company has
historically accounted for postemployment benefits consistent with SFAS No. 112
guidelines.
NOTE B - DISCONTINUED OPERATIONS
In the second quarter of 1994, the Company announced its decision to retain the
remaining Wright Line business, which had been included in discontinued
operations since the third quarter of 1992. The retained business has
refocussed its business strategy on technical furniture solutions for offices
and laboratories.
The Company had originally intended to sell all of Wright Line in a single
transaction in 1993. However, management subsequently determined that proceeds
could be maximized by selling the assets in a series of separate transactions.
The Company completed the sale of certain assets of Wright Line's German
operation to an existing distributor in exchange for the assumption of certain
liabilities. In early 1994, Wright Line's Datafile businesses in Canada,
Australia, the UK and the US were sold, generating proceeds of $6.2 million. A
short time later, Wright Line sold its Tapeseal product line to a third party
for future compensation.
Wright Line's owned manufacturing and office facility in Worcester,
Massachusetts (the "Worcester Facility") was placed for sale in 1993. The
Company had intended to sell the Worcester Facility and relocate the downsized
US Wright Line business to a smaller leased facility, thereby making it more
attractive to potential buyers. An agreement was reached in the first quarter
of 1994 to sell the Worcester Facility for approximately $7.5 million. The
agreement was subsequently cancelled, and the Company decided to retain the
Worcester Facility due to Wright Line's improved performance and growth
prospects. As a result, the Worcester Facility was reclassified from Net Assets
Held for Sale to Property, Plant and Equipment in the Consolidated Balance
Sheet.
The operating results from the retained Wright Line operations have been
reclassified from discontinued operations to continuing operations for all
periods presented. However, the results of the retained operations for the
period June, 1992 through November, 1993 have remained offset against the
reserve previously established for operating losses until disposition. The
Company had previously recorded provisions of $31.3 million ($2.51 per share)
and $5.4 million ($.41 per share) in 1992 and 1993, respectively, to accrue for
the estimated loss on the sale of Wright Line and a small French subsidiary,
the sale of a previously vacated Wright Line building (completed in 1992),
estimated operating losses prior to disposition, and estimated disposition
costs. Substantially all of the provisions for loss on disposition of
discontinued operations recorded in 1992 and 1993 were utilized for the
operations, product lines and assets sold since 1992. The net assets of the
retained operations were returned to the appropriate balance sheet captions
based on their historical cost. After reviewing the value of such assets, the
Company determined that no impairment had taken place.
The following is a summary of selected financial data for the retained
operations during the periods they were included in discontinued operations:
- - ----------------------------------------------------------------------------
1993 1992
- - ----------------------------------------------------------------------------
Total Assets (at August 31) $23,314 $22,296
Total Liabilities (at August 31) 16,439 17,146
Net Sales 38,239 46,291
Operating Earnings(Loss) (2,372) 2,348
- - ----------------------------------------------------------------------------
28
NOTE C - ACQUISITIONS
The Company completed the acquisition of certain assets of Palmer Industries,
Inc. ("Palmer") on October 1, 1993 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 Consolidated Statement of
Earnings.
On March 21, 1994, the Company increased its ownership interest in Applied
Power Korea from approximately 50% to 90%. Cash of $912 was used in the
acquisition which resulted in Goodwill of $572. The operating results of this
subsidiary have historically been included in the Consolidated Statement of
Earnings.
During the second quarter of fiscal 1992, the Company completed the
acquisitions of the remaining interests of two jointly-owned companies. In
December, 1991, the remaining 51% interest in Barry Controls GmbH was acquired
for $4,247 in cash. Approximately $4,022 of the purchase price was assigned to
Goodwill. The operating results of this subsidiary, which historically had been
accounted for under the equity method, are included in the Consolidated
Statement of Earnings subsequent to December 1, 1991. The Company purchased the
remaining 49% interest in Applied Power Mexico S.A. for $4,675 in cash in
February, 1992. Approximately $3,140 of the purchase price was assigned to
Goodwill. The operating results of this subsidiary have historically been
included in the Consolidated Statement of Earnings.
All acquisitions were accounted for using the purchase method.
NOTE D - ACCOUNTS RECEIVABLE FINANCING
As a part of its overall financing strategy, the Company sells to a financial
institution undivided participation interests in designated pools of accounts
receivable, with limited recourse, in an amount not to exceed $30,000 at any
one time. Participation interests in new receivables may be sold as collections
reduce previously sold participation interests. The sold accounts receivable
are reflected as a reduction of receivables in the Consolidated Balance Sheet.
The Company retains collection and administrative responsibilities on the
participation interests sold as agent for the purchaser.
At both August 31, 1994 and 1993, accounts receivable were reduced by $25,000,
representing receivable interests sold under this program. The current accounts
receivable financing agreement expires in August, 1997.
NOTE E - NET INVENTORIES
Inventory cost is determined using the last-in, first-out ("LIFO") method for
substantially all inventory in the United States (approximately 59% and 62% of
total inventories in 1994 and 1993, 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 Sheet by approximately $9,748 and $10,458 at August 31,
1994 and 1993, respectively.
During the year ended August 31, 1992, certain LIFO inventory quantities were
reduced, which resulted in a liquidation of LIFO inventory carried at lower
costs prevailing in prior years as opposed to the cost of current year
purchases. The effect was to increase earnings from continuing operations by
$1,339 or $0.10 per share in 1992.
It is not practical to segregate the amounts of raw materials, work-in-process
or finished goods at the respective balance sheet dates, since the segregation
is possible only as the result of physical inventories which are taken at dates
different from the balance sheet dates. The accounting systems at many of the
Company's operating units have not been designed to capture this segregation
due to the very short production cycle of their products and the minimal amount
of work-in-process.
29
NOTE F - SHORT-TERM BORROWINGS
The Company had borrowings under unsecured lines of credit with banks
aggregating approximately $14,707 and $20,401 at August 31, 1994 and 1993,
respectively. Interest rates vary depending on the currency being borrowed. The
weighted average interest rate on the short-term borrowings was 7.79% at August
31, 1994. The amount of unused available borrowings under such lines of credit
was approximately $29,716 at August 31, 1994.
NOTE G - LONG-TERM DEBT
- - ----------------------------------------------------------------------------------------
August 31,
- - ----------------------------------------------------------------------------------------
1994 1993
- - ----------------------------------------------------------------------------------------
Borrowings under:
9.92% Senior Unsecured Notes due in installments to 2000 $64,492 $75,000
Multi-currency revolving credit agreement 13,959 22,435
Commercial paper 9,947
Other notes 350 95
- - ----------------------------------------------------------------------------------------
Total long-term debt 88,748 97,530
Less current maturities (10,792) (10,745)
- - ----------------------------------------------------------------------------------------
Long-term Debt, less current portion $77,956 $86,785
- - ----------------------------------------------------------------------------------------
Senior Unsecured Notes: The Senior Unsecured Notes bear interest at 9.92%
and are repayable in annual installments of $10,650 through August 15, 1999.
Amounts outstanding thereafter are due on August 15, 2000. Interest is payable
semi-annually. In the event the Company refinances the Senior Unsecured Notes
prior to their scheduled maturity, it would be obligated to pay a "make-whole"
amount in addition to the accrued interest and then-outstanding principal.
Assuming the Company retired the Senior Unsecured Notes as of August 31, 1994,
the make-whole amount would have been approximately $5,419.
As part of its interest rate management program, the Company periodically
enters into interest rate swaps with respect to portions of the Senior Unsecured
Notes. As of August 31, 1994, the Company was a participant in three swap
agreements on $50,000 of the Senior Unsecured Notes which convert the interest
from a fixed rate to a floating rate of LIBOR plus approximately 5.5%.
Short-term LIBOR was 5.25% at August 31, 1994. These agreements mature in
August, 1996. Counterparties to these swap agreements are major financial
institutions. The Company believes the risk of incurring losses related to
credit risk is remote.
Revolving Credit Agreements: The Company replaced two expiring revolving
credit agreements in the fourth quarter of 1994 with a $40,000 multi-currency
revolving credit facility (the "Multicurrency Agreement"), expiring August,
1999. Pursuant to the agreement, the loans may be denominated in various
currencies at the Company's option. Borrowings under this agreement bear
interest at a rate equal to IBOR plus .5%. A commitment fee, computed at a rate
of .25 of 1% annually, is payable quarterly on the average unused credit line.
The unused credit line at August 31, 1994 was $16,094. Commercial paper
outstanding at August 31, 1994 totalled $9,947 net of discount, and carried an
interest rate of 4.73%. The Company has the ability and intent to maintain these
obligations, classified as long term, for more than one year. Amounts
outstanding as commercial paper reduce the amount available for borrowing under
the Multicurrency Agreement.
Debt Covenants: The Company's debt agreements contain customary restrictions
concerning investments, liens on assets, sales of assets, dividend payments,
maximum levels of debt and minimum levels of shareholders' equity. In addition,
the agreements require the Company to maintain certain financial ratios. As of
August 31, 1994, the Company was in compliance with all debt covenants. Under
the most restrictive covenant, approximately $12,182 of retained earnings was
available for the payment of future dividends on common stock as of August 31,
1994.
30
Fair Values: With the exception of the Senior Unsecured Notes, the fair value
of the Company's short-term borrowings and long-term debt approximated book
value as of August 31, 1994. Due to the reduction in market interest rates since
the issuance of the Senior Unsecured Notes in 1990, the fair value of such notes
at August 31, 1994 was approximately $66,512. The fair value of debt instruments
is calculated by discounting the cash flow of such obligations using the market
interest rates for similar instruments at August 31, 1994. The fair value of the
Company's interest rate swap agreements at August 31, 1994 was $(1,780).
Aggregate Maturities: Aggregate maturities of long-term debt outstanding at
August 31, 1994, were as follows: $10,792 in 1995; $10,837 in 1996; $10,725 in
1997; $10,731 in 1998; $34,563 in 1999; and $11,100 thereafter.
The Company paid $10,695, $11,894 and $14,176 of interest in 1994, 1993 and
1992, respectively.
NOTE H - LEASES
The Company leases certain facilities, equipment and vehicles under various
lease agreements 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 which enable the
Company to renew leases based upon the fair values on the date of expiration of
the initial lease.
Future obligations on non-cancelable operating leases in effect at August 31,
1994 were: 1995 - $10,274; 1996 -$7,540; 1997 - $5,293; 1998 - $4,065; 1999
- - -$3,197; thereafter - $17,739.
Total rental expense under operating leases was $11,379, $12,250, and
$10,447 in 1994, 1993 and 1992, respectively.
NOTE I - SHAREHOLDERS' EQUITY
In May, 1988, the Board of Directors authorized the permanent right of
conversion of the Company's Class B common shares to the Company's Class A
common shares on a one-for-one basis. During 1992, all outstanding Class B
common shares were converted to Class A shares.
At August 31, 1994, 2,381,971 shares of Class A common stock were reserved
for issuance under the Company's stock option plans.
NOTE J - INCENTIVE STOCK OPTION PLANS
Employee Plans: The Company has three stock option plans for employees - the
1985, 1987 and 1990 Plans. No further options may be granted under the 1985 or
1987 Plans, although options previously issued and outstanding under these plans
remain exercisable pursuant to the provisions of the plans.
Options may be granted under the 1990 Plan to officers and key employees.
Options granted to date 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 vest 50% after 2 years and 100% after 5 years.
A total of 3,050,000 shares may be issued under all three stock option plans
(equal to 950,000 shares authorized under the 1985 Plan, 1,200,000 shares under
the 1987 Plan and 900,000 shares under the 1990 Plan). Any available unissued
shares under the 1985 and 1987 Plans at the date of adoption of the 1990 Plan
became available for issuance under the 1990 Plan.
31
A combined summary of changes in options under the three plans (all of which
are nonqualified stock options at August 31, 1994) is as follows:
- - ----------------------------------------------------------------------------------------
Number of Price
Shares Range
- - ----------------------------------------------------------------------------------------
Outstanding at September 1, 1991 1,250,307 $2.21 - $26.75
Granted 303,850 12.75 - 18.00
Granted under reload provision 13,001 12.75 - 18.00
Exercised (49,607) 2.21 - 14.38
Cancelled (43,650) 8.50 - 24.88
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1992 1,473,901 $2.21 - $26.75
Granted 314,125 15.13 - 16.88
Granted under reload provision 6,259 15.13
Exercised (48,645) 2.21 - 13.00
Cancelled (29,030) 15.63 - 26.75
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1993 1,716,610 $2.21 - $26.75
Granted 189,400 15.81 - 21.38
Exercised (146,288) 2.21 - 20.56
Cancelled (174,187) 12.75 - 26.75
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1994 1,585,535 $2.21 - $24.13
- - ----------------------------------------------------------------------------------------
Exercisable at August 31, 1994 904,662 $2.21 - $22.25
- - ----------------------------------------------------------------------------------------
Outside Director Plan: Annually each outside director is automatically
granted stock options to purchase 1,000 shares of common stock at a price equal
to the market price of the underlying stock on the date of grant. A maximum of
60,000 shares may be issued under this plan. Options vest 100% after 11 months.
A summary of options under this plan is as follows:
- - ----------------------------------------------------------------------------------------
Number of Price
Shares Range
- - ----------------------------------------------------------------------------------------
Outstanding at September 1, 1991 8,000 $12.75 - $24.13
Granted 4,000 17.38
Cancelled (2,000) 17.38 - 24.13
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1992 10,000 $12.75 - $24.13
Granted 5,000 17.00
Exercised (1,000) 12.75
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1993 14,000 $12.75 - $24.13
Granted 6,000 16.69
Cancelled (1,000) 16.69
- - ----------------------------------------------------------------------------------------
Outstanding at August 31, 1994 19,000 $12.75 - $24.13
- - ----------------------------------------------------------------------------------------
Exercisable at August 31, 1994 14,000 $12.75 - $24.13
- - ----------------------------------------------------------------------------------------
NOTE K - STOCK OWNERSHIP, SAVINGS AND PENSION PLANS
US Employees: All of the Company's full-time US employees are participants in
the Applied Power Inc. Employee Stock Ownership Plan (the "ESOP Plan"). Under
the provisions of the ESOP Plan, the Company acquires shares of its stock on the
open market and contributes such shares or cash to accounts set aside for its
employees' retirements. Contributions equal 3% of each employee's annual cash
compensation except "initial participants", who are to receive no allocation of
shares until 1995. During the years ended August 31, 1994, 1993 and 1992,
pre-tax expense related to the ESOP Plan was $534, $450 and $602, respectively.
Expense attributable to the ESOP Plan is expected to increase by approximately
$1,300 in 1995, when initial participants become eligible.
32
Full-time US employees are also eligible to participate in the Applied Power
Inc. Employee Savings Plan (the "Savings Plan"), pursuant to which they are
allowed to contribute up to 15% of their base compensation. The Company
contributes an amount equal to 100% of each employee's contribution, to a
maximum of $300 per employee. Expense attributable to the Savings Plan was $293,
$307 and $0 for 1994, 1993 and 1992, respectively. Expense for 1992 was offset
entirely by participant forfeitures.
Non-US Employees: For employees outside the US, the Company contributes to a
number of retirement programs. Pension expense amounted to $631, $1,213, and
$1,171 in 1994, 1993 and 1992, respectively. One defined benefit plan was
terminated in 1994 and replaced with a defined contribution plan, resulting in a
non-recurring reduction in pension expense of approximately $450 in 1994. These
plans are not required to report to US governmental agencies under ERISA and do
not otherwise determine the actuarial value of accumulated plan benefits or net
assets available for benefits.
NOTE L - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In addition to the discontinued operations charge in 1993, the Company
recorded, during the fourth quarters of 1993 and 1992, pre-tax restructuring
charges of $7,721 and $4,706, respectively. The 1993 restructuring charge
primarily related to the cost of consolidating certain manufacturing,
distribution and administrative functions at Enerpac and Barry Controls
operations in Europe, downsizing sales and administrative staffs at retained
Wright Line operations, and idle facility costs at Barry Controls. The majority
of costs incurred related to severance, facility consolidation and future lease
payments. All but $1.6 million of such costs had been incurred as of August 31,
1994, with the balance anticipated in the first half of 1995 when the
restructuring is finalized. The 1992 restructuring charge related to the
transfer and consolidation of selected Barry Controls and Power-Packer
operations. All expenditures related to such restructuring were incurred in
1993.
NOTE M - POSTRETIREMENT BENEFITS
The Company adopted SFAS No. 106 - "Employers' Accounting for Postretirement
Benefits Other Than Pensions" effective September 1, 1992. This new
pronouncement requires the accrual of postretirement benefits (such as health
care and life insurance) during the years an employee provides service. Prior to
adopting this new accounting method, the Company expensed the cost of such
benefits as they were incurred (paid).
In connection with the adoption of SFAS No. 106, the Company elected to
recognize as expense in 1993 the accumulated postretirement benefit obligation
rather than amortizing such amount to expense over a 20-year period. The Company
recorded a $4,355 charge (net of a $2,579 tax benefit) in 1993 for the
cumulative effect of this accounting change. Operating results of prior years
were not restated to reflect the change.
The Company's current policy is not to offer postretirement health care and
life insurance benefits to employees. However, certain employees of businesses
previously acquired by the Company were entitled to such benefits upon
retirement. The individuals receiving health care benefits under these 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.
Net periodic postretirement benefit expense for 1994 and 1993 included the
following components:
- - ----------------------------------------------------------------------------------------
1994 1993
- - ----------------------------------------------------------------------------------------
Service cost of benefits earned $ 9 $ 12
Interest cost on accumulated postretirement benefit obligation 553 694
Amortization of unrecognized gain (91)
- - ----------------------------------------------------------------------------------------
TOTALS $ 471 $ 706
- - ----------------------------------------------------------------------------------------
33
Benefits paid in 1994 and 1993 were $202 and $420 lower than that expensed
during those years, respectively. Expenses related to these benefits in 1992
totalled approximately $450.
The Company's accumulated postretirement benefit obligation for such benefits
is as follows:
- - ----------------------------------------------------------------------------------------
August 31,
- - ----------------------------------------------------------------------------------------
1994 1993
- - ----------------------------------------------------------------------------------------
Retirees $5,686 $6,192
Vested former employees 1,595 1,730
Active employees 229 1,432
- - ----------------------------------------------------------------------------------------
Subtotal 7,510 9,354
Unrecognized gain 1,966
- - ----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation $9,476 $9,354
- - ----------------------------------------------------------------------------------------
The Company's postretirement benefit obligations are not funded.
The health care cost trend rate used in the actuarial calculations was 11.0%,
trending downward to 6.5% by the year 2010, and remaining level thereafter. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% in 1994 and 8.0% in 1993. The effect of a one
percentage-point change in health care cost trend rates would change the
accumulated postretirement benefit obligation by approximately 10%.
NOTE N - INCOME TAXES
Income tax expense for continuing operations consists of the following:
- - ----------------------------------------------------------------------------------------
1994 1993 1992
- - ----------------------------------------------------------------------------------------
Currently Payable:
Federal $4,475 $5,926 $504
Foreign 3,621 2,590 5,743
State 1,095 413 234
- - ----------------------------------------------------------------------------------------
Subtotals 9,191 8,929 6,481
- - ----------------------------------------------------------------------------------------
Deferred (Credits):
Federal (2,166) (4,390) (3)
Foreign 1,672 (1,845) 459
State (295) (190) (1)
- - ----------------------------------------------------------------------------------------
Subtotals (789) (6,425) 455
- - ----------------------------------------------------------------------------------------
TOTALS $8,402 $2,504 $6,936
- - ----------------------------------------------------------------------------------------
Income tax expense differs from the amounts computed by applying the
Federal income tax rate to earnings before income taxes. A reconciliation of
income taxes at the US statutory rate to the effective tax rate follows:
- - ----------------------------------------------------------------------------------------
Percent of Pre-tax
- - ----------------------------------------------------------------------------------------
1994 1993 1992
- - ----------------------------------------------------------------------------------------
Computed "expected" tax expense 35.0% 34.0% 34.0%
State income taxes, net of Federal effect 2.1 1.8 1.0
Non-deductible depreciation and amortization 1.8 5.3 7.9
Adjustment of deferred tax balances (6.4)
Basis differences in acquired assets 2.4
Alternative minimum tax (credit) (3.0)
Net effects of foreign tax rates and credits (4.2) 8.0 4.6
Other items (1.5) (.6) (1.8)
- - ----------------------------------------------------------------------------------------
Effective Tax Rate 33.2% 26.1% 45.1%
- - ----------------------------------------------------------------------------------------
34
Major components of deferred income tax expense (benefit) are as follows:
- - -------------------------------------------------------------------------------------------
1994 1993 1992
- - -------------------------------------------------------------------------------------------
Compensation and other employee benefits $ (962) $ (149) $ 228
Inventory items (519) (201) 53
Depreciation and amortization (1,798) (3,366) (856)
Restructuring expenses 2,504 (2,366) 96
Unrealized exchange adjustments 290
Other items (14) (343) 644
- - -------------------------------------------------------------------------------------------
TOTALS $ (789) $ 6,425 $ 455
- - -------------------------------------------------------------------------------------------
The Company's policy is to remit earnings from foreign subsidiaries only to the
extent any resultant foreign income taxes are creditable in the US. Accordingly,
the Company does not currently provide for the additional US and foreign income
taxes which would become payable upon remission of undistributed earnings of
foreign subsidiaries. Undistributed earnings on which income taxes have not been
provided amounted to approximately $29,100 at August 31, 1994. If all such
undistributed earnings were remitted, an additional provision for income taxes
of approximately $2,000 would have been necessary as of August 31, 1994.
The Company has available tax credit carryforwards of approximately $4,200
expiring in various years through 1996.
Effective September 1, 1992, the Company adopted SFAS No. 109. This statement
requires that deferred income taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts. The adoption of this new rule had no material
impact on net earnings in 1993. Certain assets and liabilities that historically
had been carried on a net-of-tax basis under prior accounting rules, were
adjusted to a gross basis.
On August 31, 1994, the Company had deferred tax assets of $14,343 net of a
total valuation allowance of $5,551 relating to tax loss and credit
carryforwards, with the principal deductible temporary differences being
inventory items and reserves $4,563, postretirement benefits $3,632,
restructuring accruals $656, employee benefit accruals $1,623 and bad debt
accruals $472. Deferred tax liabilities were $16,768, with the principal taxable
temporary differences being accelerated depreciation and purchase accounting
basis differences of $14,714.
The Company paid taxes of $9,191, $5,080, and $10,580 in 1994, 1993 and 1992,
respectively.
Earnings from continuing operations before income taxes related to non-US
operations were $12,041 $2,293 and $17,226 for 1994, 1993 and 1992,
respectively.
NOTE O - SEGMENT INFORMATION
The Company's operations have been classified into three business
segments: The Distributed Products Group (the "DPG"), the Engineered Solutions
Group (the"ESG") and Wright Line. The DPG, consisting of Enerpac and GB
Electrical, is involved in the manufacture and distribution of tools and
consumables to the construction, retail and general industrial markets. The ESG,
which consists of Barry Controls, Power-Packer and APITECH, focuses on
high-volume technology products for OEM customers in the transportation,
industrial, defense and aerospace markets. Wright Line develops, manufactures
and sells technical furniture solutions for offices and laboratories.
35
Summarized financial information by business segment is as follows:
---------------------------------------------------------------------------------------------------------------
1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
NET SALES:
Distributed Products Group $222,076 $212,924 $211,921
Engineered Solutions Group 162,296 147,564 145,444
Wright Line 49,272 38,239 46,921
- - -----------------------------------------------------------------------------------------------------------------
Totals $433,644 $398,727 $404,286
- - -----------------------------------------------------------------------------------------------------------------
OPERATIONS BEFORE INCOME TAXES:
Distributed Products Group $32,023 $29,739 $38,733
Engineered Solutions Group 12,314 4,526 1,272
Wright Line 4,242 (2,372) 2,348
General corporate and other (23,281) (22,303) (26,964)
- - -----------------------------------------------------------------------------------------------------------------
Totals $25,298 $ 9,590 $15,389
- - -----------------------------------------------------------------------------------------------------------------
DEPRECIATION:
Distributed Products Group $ 4,165 $ 3,855 $ 3,733
Engineered Solutions Group 7,346 7,631 6,788
Wright Line 2,761 3,329 2,590
General corporate and other 42 38 38
- - -----------------------------------------------------------------------------------------------------------------
Totals $14,314 $14,853 $13,149
- - -----------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Distributed Products Group $ 5,917 $ 4,884 $ 4,632
Engineered Solutions Group 5,957 6,159 4,537
Wright Line 769 753 395
General corporate and other 64 421 122
- - -----------------------------------------------------------------------------------------------------------------
Totals $12,707 $12,217 $9,686
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
At August 31,
- - -----------------------------------------------------------------------------------------------------------------
1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
ASSETS:
Distributed Products Group $148,737 $131,868 $130,324
Engineered Solutions Group 128,190 127,481 124,786
Wright Line 23,838 18,618 17,146
Net assets held for sale 12,035 15,848
General corporate 16,637 16,315 13,386
- - -----------------------------------------------------------------------------------------------------------------
Totals $317,402 $306,317 $301,490
- - -----------------------------------------------------------------------------------------------------------------
36
Summarized financial information by geographic region is as follows:
- - -----------------------------------------------------------------------------------------------------------------
1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
NET SALES:
North America $279,613 $259,692 $250,703
Latin America 11,300 10,154 9,536
Europe 99,215 87,346 101,824
Japan and Asia Pacific 43,516 41,535 42,223
- - -----------------------------------------------------------------------------------------------------------------
Totals $433,644 $398,727 $404,286
- - -----------------------------------------------------------------------------------------------------------------
OPERATIONS BEFORE INCOME TAXES:
North America $32,672 $23,855 $24,001
Latin America 512 1,662 1,697
Europe 8,352 (820) 7,806
Japan and Asia Pacific 7,043 7,196 8,849
General corporate and other (23,281) (22,303) (26,964)
- - -----------------------------------------------------------------------------------------------------------------
Totals $25,298 $ 9,590 $15,389
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
At August 31,
- - -----------------------------------------------------------------------------------------------------------------
1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
ASSETS:
North America $192,103 $183,412 $175,099
Latin America 11,053 9,358 8,195
Europe 64,919 57,927 66,540
Japan and Asia Pacific 32,690 27,270 22,422
Net assets held for sale 12,035 15,848
General corporate 16,637 16,315 13,386
- - -----------------------------------------------------------------------------------------------------------------
Totals $317,402 $306,317 $301,490
- - -----------------------------------------------------------------------------------------------------------------
Operations before income taxes for each business and geopraphic segment do not
include general corporate expenses, amortization expense, interest expense or
exchange adjustments. Sales between business segments and geographical areas are
insignificant and are accounted for at prices intended to yield a reasonable
return to the selling affiliate. No single customer accounted for more than 10%
of total sales in 1994, 1993 or 1992. Export sales from domestic operations were
less than 10% in each of the periods presented.
Corporate assets, which are not allocated, represent principally cash, prepaid
taxes and investments.
NOTE P - CONTINGENCIES AND LITIGATION
The Company had outstanding letters of credit totalling $1,640 and $4,279 at
August 31, 1994 and 1993, respectively. The letters of credit generally serve
as collateral for liabilities included in the Consolidated Balance Sheet.
The Company is involved in various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include product
liability and patent claims. The Company has recorded reserves for loss
contingencies based on the specific circumstances of each case. Such reserves
are recorded when the occurrence of loss is probable and can be reasonably
estimated. In the opinion of management, the resolution of these contingencies
will not have a materially adverse effect on the Company's financial condition
or results of operations.
37
The Company has facilities at numerous geographic locations, which are
subject to a range of environmental laws and regulations. Environmental costs
are expensed or capitalized depending on their future economic benefit.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental remediation is probable, and the costs can be
reasonably estimated. 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
effect on the Company's financial position. Environmental remediation accruals
of $567, and $661 were included in the Consolidated Balance Sheet at August 31,
1994 and 1993, respectively.
38
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
Deductions Balance at
----------------------- End of Period
Balance at Amounts ------------------------
Beginning Amounts Written Non-
Name of Debtor of Period Additions Collected Off Current Current
- - ------------------ ---------- --------- --------- --------- -------- --------
(Dollars in Thousands)
August 31, 1993:
Richard G. Sim (1) $391 $391
---------- --------- --------- --------- -------- --------
$391 $391
========== ========= ========= ========= ======== ========
August 31, 1992:
Richard G. Sim (1) $391 $391
---------- --------- --------- --------- -------- --------
$391 $391
========== ========= ========= ========= ======== ========
(1) Pursuant to a provision of an employment agreement, the Company held an
interest-free note receivable from its Chief Executive Officer received in
connection with the purchase of 204,000 shares of common stock. The note was
repaid in full during 1993.
39
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS
Title of Total Amount
Issue of Guaranteed and Amount in Treasury Nature of Nature of
Name of Issuer Securities Outstanding Owned of Issuer Guarantee Default
- - ---------------- ----------- ----------------- -------- ----------- ------------ -------------
(Dollars in Thousands)
August 31, 1994:
DETEC (1) Bank Debt $ 316(2) - - Principal N/A
and Interest
August 31, 1993:
DETEC (1) Bank Debt $ 298(2) - - Principal N/A
and Interest
(1) Applied Power owns 50% of the outstanding stock of DETEC, a joint
venture in Germany engaged in the business of designing, manufacturing and
marketing advanced convertible top hydraulic actuation systems for custom and
specialty cars.
(2) Amount guaranteed of 500,000 Deutschmarks translates to $316 and $298 US
dollars at August 31, 1994 and 1993, respectively.
40
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Additions Deductions
---------------------------- --------------------------
Account
Balance at Charged to Written Off Balance
Beginning Costs and Net Less at End
Description of Period Expenses Acquired Recoveries Other of Period
- - ---------------- ----------- ---------- --------- ------------- -------- --------
(Dollars in Thousands)
Deducted from assets to
which they apply:
Allowance for losses -
trade accounts receivable
August 31, 1994 $3,053 $1,379 $1,301 $3,131
====== ====== ====== ====== ====== ======
August 31, 1993 $3,412 $739 $1,098 $3,053
====== ====== ====== ====== ====== ======
August 31, 1992 $3,101 $872 $19 $481 $99(1) $3,412
====== ====== ====== ====== ====== ======
(1) Amount attributable to discontinued operations.
41
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
Weighted
Year-End Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During the During the During the
Short-term Borrowings of Period Rate Period Period(D) Period (E)
- - ---------------------- ------------ ---------- ------------- ----------- -------------
(Dollars in Thousands)
August 31, 1994:
Payable to Banks (A) $14,707 7.79% $23,648 $18,894 8.41%
Payable to Holders of Commercial
Paper (B) $9,947 4.73% $11,554 $4,050 4.12%
Revolving Credit Agreement (C) $13,959 3.20% $22,747 $15,298 4.71%
August 31, 1993:
Payable to Banks (A) $20,401 6.66% $23,809 $18,953 9.88%
Non-U.S. Revolving Credit Agreements (C) $22,435 6.24% $29,702 $26,871 8.08%
August 31, 1992:
Payable to Banks (A) $16,809 10.29% $29,915 $16,362 16.22%
Payable to Holders of Commercial
Paper (B) $0 - $28,217 $21,042 5.24%
Non-U.S. Revolving Credit Agreements (C) $27,463 9.02% $27,463 $25,530 11.16%
(A) Short-term borrowings payable to banks consist primarily of notes payable to
banks by subsidiaries outside the United States. Substantially all of the
notes outside the United States are guaranteed by Applied Power Inc. and
are payable in currencies other than the US dollar.
(B) Commercial paper is payable to US holders. Based on the ability to
refinance commercial paper with borrowing capacity available under another
agreement, $9,947 was classified as long-term debt for balance sheet
purposes at August 31, 1994.
(C) The Company replaced two expiring revolving credit agreements in August,
1994 with a multi-currency credit facility which provides for borrowings of
up to $40,000.
(D) Average amount outstanding during the period is computed by dividing the
total of month-end outstanding principal balances by 12, or the number of
periods outstanding, if less.
(E) Average interest rate for the year is computed by dividing the actual
short-term interest expense by the average debt outstanding.
42
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT DATA
Years Ended August 31,
------------------------------------------------
Item (1) 1994 1993 1992
- - ------------------- ---- ---- ----
(Dollars in Thousands)
Maintenance and Repairs $4,329 $4,460 $4,103
====== ====== ======
Amortization ofIntangible Assets $5,092 $4,914 $4,606
====== ====== ======
Advertising Costs $7,783 $8,023 $7,464
====== ====== ======
(1) Amounts paid for taxes other than payroll and income taxes and royalties
are not, presented as such amounts are less than 1% of net sales.
43
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)
Dated: November 16, 1994 By:/s/ ROBERT C. ARZBAECHER
-------------------------
Robert C. Arzbaecher
Vice President,
Chief Financial Officer
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.*
SIGNATURE TITLE
--------- -----
/s/ Richard G. Sim Chairman of the Board, President and Chief Executive
- - ------------------ Officer; Director
Richard G. Sim
/s/ Robert C. Arzbaecher Vice President, Chief Financial Officer
- - ------------------------ (Principal Financial Officer)
Robert C. Arzbaecher
/s/ Andrew G. Lampereur Controller
- - ----------------------- (Principal Accounting Officer)
Andrew G. Lampereur
/s/ Jack L. Heckel Director
- - ------------------
Jack L. Heckel
/s/ Richard M. Jones Director
- - --------------------
Richard M. Jones
/s/ Richard A. Kashnow Director
- - ----------------------
Richard A. Kashnow
/s/ L. Dennis Kozlowski Director
- - -----------------------
L. Dennis Kozlowski
/s/ Richard T. Savage Director
- - ---------------------
Richard T. Savage
/s/ Raymond S. Troubh Director
- - ---------------------
Raymond S. Troubh
* Each of the above signatures is affixed as of November 16, 1994
44
APPENDIX TO 1994 10-K
DESCRIPTION OF GRAPHIC MATERIAL IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GRAPH A
Bar chart which shows a break out of 1994, 1993 and 1992 sales between the
Distributed Products Group, Engineered Solutions Group and Wright Line. Each
bar represents one year and is proportionally divided by the percentage of sales
for each of these segments. Data is as follows:
1994 1993 1992
---- ---- ----
Distributed Products Group 51% 53% 52%
Engineered Solutions Group 37% 37% 36%
Wright Line 12% 10% 12%
GRAPH B
Pie chart identifying the percentage breakout of 1994 sales by geographic
region. Regions depicted include North America, Europe, Japan and Asia Pacific,
and Latin America. Data is as follows:
North America - 64%
Europe - 23%
Japan and Asia Pacific - 10%
Latin America - 3%
GRAPH C
Pie chart which identifies the percentage breakout of total capitalization
as of August 31, 1994 between Debt, Shareholders' Equity and Deferred Taxes.
Data is as follows:
Debt - 45%
Shareholders Equity - 47%
Deferred Taxes - 8%
45
APPLIED POWER INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 1994
INDEX TO EXHIBITS
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
3.1 (a) Amended and Restated Exhibit 19.1(a) to Form 10-Q for
Articles ofIncorporation (as quarter ended February 28, 1990
adopted January 8, 1987) ("2/28/90 10-Q")
(b) Articles of Amendment to Exhibit 19.1(b) to 2/28/90 10-Q
Amended and Restated Articles
of Incorporation, amending
Sections 3.1 and 3.2 of Article
III and Article IV (adopted
January 13, 1990)
3.2 Amended and Restated By-Laws X
(as last amended by amendment to
Section 3.01 decreasing the
number of directors to six, adopted
October 24, 1994 by the Board
of Directors and to be effective
on January 9, 1995)
4+
4.1 (a) Secured Credit Agreement Exhibit 29 to Schedule 14D-1, as
dated as of June 27, 1989, among amended by Amendment No. 13
Applied Power Inc., API thereto
Acquisitions Inc. and Continental
Bank N.A. (and *Secured Credit
Agreement")
(b) Amendment and Waiver, dated Exhibit 4.1(b) to Form 10-K for
as of July 31, 1989, to the Secured fiscal year ended August 31, 1990
Credit Agreement ("1990 10-K")
+ 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.
46
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
4.1 (c) Amendment No. 2, dated as of Exhibit 4.1(C) to 1990 10-K
August 10, 1990, to the Secured
Credit Agreement
(d) Amendment No. 3, dated as of Exhibit 19 to Form 10-Q for
January 30, 1991, to the Secured quarter ended February 28, 1991
Credit Agreement
(e) Amendment No. 4, dated as of Exhibit 19.1 to Form 10-Q for
May 31, 1991, to the Secured quarter ended May 31, 1991
Credit Agreement ("5/31/91 10-Q")
(f) Amendment No. 5, dated as of Exhibit 19 to Form 10-Q for
January 17, 1992, to the Secured quarter ended February 29, 1992
Credit Agreement
(g) Amendment No. 6, dated as of Exhibit 4.1(g) to Form 10-K for
October 30, 1993, to the Secured fiscal year ended August 31, 1993
Credit Agreement ("1993 10-K")
4.2 (a) Loan Agreement, dated as of Exhibit 4.2 to 1990 10-K
August 1, 1990, relating to
$75,000,000 9.92% Senior Notes
due August 15, 2000
(b) Amendment to Loan Agreement, Exhibit 4.2(b) to 1993 10-K
made as of August 31, 1993
4.3 Articles III, IV, and V of Amended See Exhibit 3.1 above
and Restated Articles of
Incorporation
4.4 Amendment for Purchase and Sale, Exhibit 19.2 to 5/31/91/10-Q
dated August 29, 1990, between
Minnesota Mining and
Manufacturing 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,
designated as exhibits 19.2(a)
through 19.2(g)
47
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
4.5 Revolving Credit Agreement, X
dated as of August 22, 1994
between Applied Power Finance
S.A., as Borrower, Continental
Bank N.A., PNC Bank and ABN
Amro Bank, collectively as lenders,
and Applied Power Inc. as
Guarantor
4.6 Receivables Purchase Agreement, X
dated as of August 31, 1994
between Applied Power Inc.,
Barry Wright Corporation, Wright
Line Inc., and GB Electrical, Inc.,
collectively as sellers, and PNC
Bank, as lender
10.1* Employment Agreement dated X
May 9, 1994 between Applied
Power Inc. and Richard G. Sim
(superseding Employment Agreement
dated July 5, 1985, as amended)
10.2* (a) Applied Power Inc. 1985 Stock Exhibit 10.2(a) to Form 10-K for
Option Plan (approved by fiscal year ended August 31, 1989
shareholders on January 6, 1986), ("1989 10-K")
as amended
(b) Amendment adopted by Board Exhibit 10.2(b) to 1989 10-K
of Directors on November 8, 1989
and approved by shareholders on
January 13, 1990
(c) Amendment adopted by Board Exhibit 10.2(c) to 1990 10-K
of Directors on August 9, 1990
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
48
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
10.3* (a) Applied Power Inc. 1987 Exhibit 10-8 to Form 10-K for
Nonqualified Stock Option Plan fiscal year ended August 31, 1987
(approved by shareholders January
7, 1988)
(b) Amendment adopted by Board See Exhibit 10.2(b)
of Directors on November 8, 1989
and approved by shareholders on
January 13, 1990
10.4* (a) Applied Power Inc. 1990 Stock Exhibit A to Proxy Statement dated
Option Plan, adopted by Board of December 5, 1990 for 1991 Annual
Directors on August 9, 1990, and Meeting of Shareholders
approved by shareholders on
January 7, 1991.
(b) Amendment adopted by Board Exhibit 10.5(b) to Form 10-K for
of Directors on August 10, 1992, fiscal year ended August 31, 1992
and approved by shareholders on
January 7, 1991.
10.5* (a) Description of Fiscal 1994 Exhibit 10.6 to 1993 10-K
Management Bonus Arrangement
(b) Amendment to Fiscal 1994 X
Management Bonus Arrangement
10.6* Description of Fiscal 1995 X
Management Bonus Arrangement
10.7* (a) Applied Power Inc. 1989 Exhibit 10.7 to 1989 10-K
Outside Directors' Stock Option
Plan adopted by Board of Directors
on November 8, 1989 and
approved by shareholders on
January 13, 1990
(b) Amendment adopted by Board Exhibit 10.7(b) to 1990 10-K
of Directors on November 9, 1990,
and approved by shareholders on
January 7, 1991
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
49
INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
11 Statement re Computation of
Earnings per Share X
21 Subsidiaries of the Registrant X
23 Consent of Deloitte & Touche LLP X
24 Power of Attorney See Signature Page of this report
27 Financial Data Schedule X