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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288
ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0168610
(State of incorporation) (I.R.S. Employer Id. No.)
6100 NORTH BAKER ROAD
MILWAUKEE, WISCONSIN 53209
Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(414) 352-4160
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
The number of shares outstanding of the registrant's Class A Common Stock as of
June 30, 2002 was 11,589,017.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Actuant Corporation-
Condensed Consolidated Statements of Earnings........................................... 3
Condensed Consolidated Balance Sheets................................................... 4
Condensed Consolidated Statements of Cash Flows......................................... 5
Notes to Condensed Consolidated Financial Statements.................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk..........................28
Part II - Other Information
Item 1 -Legal Proceedings.................................................................... *
Item 2 -Changes in Securities and Use of Proceeds............................................ *
Item 3 -Defaults Upon Senior Securities...................................................... *
Item 4 -Submission of Matters to a Vote of Security Holders.................................. *
Item 5 -Other Information.................................................................... *
Item 6 -Exhibits and Reports on Form 8-K.....................................................28
- ----------------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
Risk Factors That May Affect Future Results
This quarterly report on Form 10-Q contains certain statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The terms
"may," "should," "could," "anticipate," "believe," "estimate," "expect,"
"objective," "plan," "project" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements, including
statements under the caption Outlook, are subject to inherent risks and
uncertainties that may cause actual results or events to differ materially from
those contemplated by such forward-looking statements. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that may cause actual results or events to differ materially
from those contemplated by such forward-looking statements include, without
limitation, general economic conditions and market conditions in the
recreational vehicle, truck, automotive, industrial production, and construction
industries in North America, Europe and, to a lesser extent, Asia, market
acceptance of existing and new products, successful integration of acquisitions,
operating margin risk due to competitive pricing and operating efficiencies,
supply chain risk, material or labor cost increases, foreign currency risk,
interest rate risk, the economy's reaction to terrorist actions, the length of
economic downturns in the Company's markets, uncertainties resulting from APW
Ltd.'s bankruptcy proceedings, the Company's ability to access capital markets,
the Company's debt level, and other factors that may be referred to or noted in
the Company's reports filed with the Securities and Exchange Commission from
time to time.
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------------ -----------------------------
2002 2001 2002 2001
-------------- ------------ ------------- ------------
Net Sales ................................................ $ 120,009 $ 126,108 $ 341,583 $ 361,425
Cost of Products Sold .................................... 78,417 82,902 225,268 235,413
-------------- ------------ ------------- ------------
Gross Profit ..................................... 41,592 43,206 116,315 126,012
Selling, Administrative, and Engineering Expenses ........ 21,308 23,405 62,294 66,673
Amortization of Intangible Assets ........................ 616 1,725 1,848 4,593
Restructuring Charge ..................................... -- 1,740 -- 1,740
-------------- ------------ ------------- ------------
Operating Earnings ............................... 19,668 16,336 52,173 53,006
Net Financing Costs ...................................... 6,914 12,711 26,611 38,211
Other Expense (Income) ................................... (57) 1,177 (798) (120)
-------------- ------------ ------------- ------------
Earnings from Continuing Operations before
Income Tax Expense................................ 12,811 2,448 26,360 14,915
Income Tax Expense ....................................... 4,548 990 9,498 6,074
-------------- ------------ ------------- ------------
Earnings from Continuing Operations .............. 8,263 1,458 16,862 8,841
Discontinued Operations, net of Income Taxes ............. (10,000) (781) (10,000) (781)
Extraordinary Items, net of Income Taxes ................. (9,294) -- (9,294) --
Cumulative Effect of Change in Accounting Principle,
net of Income Taxes ...................................... -- -- (7,200) --
-------------- ------------ ------------- ------------
Net Earnings (Loss) .............................. $ (11,031) $ 677 $ (9,632) $ 8,060
============== ============ ============= ============
Basic Earnings (Loss) Per Share:
Earnings from Continuing Operations .................... $ 0.71 $ 0.18 $ 1.78 $ 1.11
Discontinued Operations, net of Income Taxes ........... (0.86) (0.10) (1.06) (0.10)
Extraordinary Items, net of Income Taxes ............... (0.80) -- (0.98) --
Cumulative Effect of Change in Accounting Principle,
net of Income Taxes .................................... -- -- (0.76) --
-------------- ------------ ------------- ------------
Total ............................................ $ (0.95) $ 0.09 $ (1.02) $ 1.02
============== ============ ============= ============
Diluted Earnings (Loss) Per Share:
Earnings from Continuing Operations .................... $ 0.68 $ 0.18 $ 1.69 $ 1.07
Discontinued Operations, net of Income Taxes ........... (0.82) (0.09) (1.00) (0.09)
Extraordinary Items, net of Income Taxes ............... (0.76) -- (0.93) --
Cumulative Effect of Change in Accounting Principle,
net of Income Taxes .................................... -- -- (0.72) --
-------------- ------------ ------------- ------------
Total ............................................ $ (0.90) $ 0.08 $ (0.96) $ 0.97
============== ============ ============= ============
Weighted Average Common Shares Outstanding:
Basic .................................................. 11,587 7,948 9,454 7,937
Diluted ................................................ 12,236 8,235 9,995 8,297
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
May 31, August 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents ................... $ 27,599 $ 26,554
Accounts receivable, net .................... 54,683 54,971
Inventories, net ............................ 55,928 56,738
Deferred income taxes ....................... 9,371 5,833
Other current assets ........................ 4,132 5,074
------------- -------------
Total Current Assets ........... 151,713 149,170
Property, Plant and Equipment, net .............. 38,043 39,482
Goodwill ........................................ 101,368 108,124
Other Intangible Assets, net .................... 19,090 20,916
Other Long-term Assets .......................... 10,097 25,024
------------- -------------
Total Assets .................................... $ 320,311 $ 342,716
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings........................ $ 1,178 $ 1,568
Current maturities of long-term debt......... 8,794 --
Trade accounts payable....................... 40,038 39,798
Accrued compensation and benefits............ 9,704 10,655
Income taxes payable......................... 43,361 50,034
Accrued interest............................. 1,917 10,602
Other current liabilities.................... 12,110 21,532
------------- -------------
Total Current Liabilities....... 117,102 134,189
Long-term Debt, less current maturities.......... 229,833 325,752
Deferred Income Taxes............................ 4,086 3,907
Other Long-term Liabilities...................... 18,649 18,622
Shareholders' Equity:
Class A common stock, $0.20 par value,
authorized 16,000,000 shares,
Issued and outstanding 11,589,017 and
8,013,306 shares, respectively .......... 2,318 1,603
Additional paid-in capital................... (524,429) (623,867)
Accumulated other comprehensive loss......... (19,353) (19,227)
Retained earnings............................ 492,105 501,737
------------- -------------
Total Shareholders' Deficit.... (49,359) (139,754)
------------- -------------
Total Liabilities and Shareholders' Equity....... $ 320,311 $ 342,716
============= =============
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended May 31,
-------------------------
2002 2001
--------- ----------
Operating Activities
Earnings from continuing operations ................................ $ 16,862 $ 8,841
Adjustments to reconcile net earnings to net cash
Provided by operating activities:
Depreciation ............................................ 7,243 7,776
Amortization of intangible assets ....................... 1,848 4,593
Amortization of debt discount and debt issuance costs ... 1,943 1,658
Cash payments on the Mox-Med divestiture ................ (6,961) --
Other non-cash items .................................... (104) (1,084)
Changes in operating assets and liabilities:
Accounts receivable ............................ 987 28,354
Inventories .................................... 974 8,814
Other assets ................................... (975) 28,139
Trade accounts payable ......................... (223) (9,287)
Income taxes payable ........................... 1,182 (25,520)
Accrued interest ............................... (8,687) 1,526
Other accrued liabilities ...................... (11,010) (7,540)
--------- ---------
Net cash provided by continuing operations ................... 3,079 46,270
Cash used in discontinued operations ......................... -- (1,311)
--------- ---------
Total cash provided by operating activities .................. 3,079 44,959
Investing Activities
Proceeds from sale of property, plant and equipment ................ 1,679 1,907
Proceeds from property insurance settlement ........................ 2,858 1,118
Additions to property, plant and equipment ......................... (7,500) (5,277)
Business acquisitions .............................................. (785) (11,250)
Business dispositions and other .................................... -- 1,192
--------- ---------
Net cash used in investing activities ........................ (3,748) (12,310)
Financing Activities
Partial redemption of 13% senior subordinated notes ................ (70,000) --
Cash payment for redemption premium included in extraordinary charge (9,100) --
Issuance of long-term debt ......................................... 85,000 12,652
Net principal payments on debt ..................................... (103,938) (54,909)
Net proceeds from issuance of common stock ......................... 99,705 --
Debt issuance costs ................................................ (1,206) (147)
Proceeds from stock option exercises ............................... 1,190 437
--------- ---------
Net cash provided by (used in) financing activities .......... 1,651 (41,967)
Effect of exchange rate changes on cash ............................ 63 54
--------- ---------
Net increase (decrease) in cash and cash equivalents ............... 1,045 (9,264)
Cash and cash equivalents - beginning of period .................... 26,554 9,896
--------- ---------
Cash and cash equivalents - end of period .......................... $ 27,599 $ 632
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
5
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Actuant Corporation ("Actuant" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and with the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated balance sheet data as of August 31, 2001
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The Company's
significant accounting policies are disclosed in its fiscal 2001 Annual Report
on Form 10-K. For additional information, refer to the consolidated financial
statements and related footnotes in the Company's fiscal 2001 Annual Report on
Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation of financial results have been made. Except as discussed otherwise,
such adjustments consist of only those of a normal recurring nature. Operating
results for the nine months ended May 31, 2002 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending August 31,
2002.
Prior year's financial statements have been reclassified where appropriate to
conform to current year presentations.
Note 2. Acquisitions and Divestitures
In March 2001, the Company, through a wholly owned subsidiary, acquired certain
assets and assumed certain liabilities of Dewald Manufacturing, Inc. ("Dewald").
Dewald is engaged in the design and manufacture of recreational vehicle ("RV")
slide out and leveling systems for the North American RV market. The results of
operations of Dewald are included in the accompanying financial statements since
the date of the acquisition and are included in the Engineered Solutions segment
in Note 16 - Segment Information. The acquisition was accounted for as a
purchase, and the purchase price of $12.0 million (including deferred purchase
price of $1.0 million) was allocated to the fair value of the assets acquired
and the liabilities assumed. The excess purchase price over the fair value of
the assets acquired, which approximated $8.8 million, was recorded as goodwill.
This acquisition was funded by borrowings under Actuant's Senior Secured Credit
Facility (the "Senior Secured Credit Facility"). In March 2002, the Company paid
the deferred purchase price to the former owners of Dewald.
In May 2001, the Company sold the Enerpac Quick Mold Change ("QMC") product line
in the Tools & Supplies segment to the QMC business management team for
approximately $1.0 million. QMC had annual sales of approximately $6.0 million.
The sale resulted in a loss of approximately $0.7 million, $0.4 million
after-tax, or $0.05 per diluted share.
In August 2001, the Company completed the sale of Mox-Med, Inc. ("Mox-Med"), a
business unit in the Engineered Solutions segment. Mox-Med had annual sales of
approximately $18.0 million at the time of the sale. Cash proceeds from the sale
were approximately $40.5 million, which resulted in a net gain of $18.5 million,
$11.1 million after-tax, or $1.34 per diluted share. The Company paid
approximately $7.0 million in income taxes and transaction fees related to the
sale of Mox-Med during the nine months ended May 31, 2002.
Note 3. Accounts Receivable Financing
During the quarter ended May 31, 2001, the Company established an accounts
receivable securitization program pursuant to which it sells certain of its
trade accounts receivable to a wholly owned special purpose subsidiary which, in
turn, sells participating interests in its pool of receivables to a financial
institution. Cash proceeds from the initial sale totaled $30.0 million and were
used to reduce indebtedness under the Company's Senior Secured Credit Facility.
Sales of the participating interests in the trade receivables are reflected as a
reduction of accounts receivable in the accompanying Condensed Consolidated
Balance Sheets and the proceeds received are included in cash flows from
operating activities in the accompanying Condensed Consolidated Statements of
Cash Flows. Trade receivables sold and being serviced by the Company were $25.8
million and $25.3 million at May 31, 2002 and August 31, 2001, respectively.
Accounts receivable financing costs of $0.2 million and $0.8 million for the
three and nine months ended May 31, 2002, respectively, are included in "Net
Financing Costs" in the accompanying Condensed Consolidated Statements of
Earnings. In connection with the initial sale of the receivables in May 2001,
the Company recorded financing costs of
6
$0.6 million, which are included in "Net Financing Costs" for the three and nine
months ended May 31, 2001. There were no receivables sold during the first and
second quarters of fiscal 2001, and as such there were no accounts receivable
financing costs for those quarters. Total cash proceeds under the trade accounts
receivable financing program were $37.9 million and $102.2 million for the three
months and nine months ended May 31, 2002, respectively.
Note 4. Inventories, Net
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any point
in time is minimal. In addition, many parts or components are ultimately either
sold individually or assembled with other parts making a distinction between raw
materials and finished goods impractical to determine. Other locations maintain
and manage their inventories using a job cost system where the distinction of
categories of inventory by state of completion is also not available.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only be
possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
Note 5. Goodwill and Other Intangible Assets
The Company adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," in the first quarter of fiscal 2002. Application of the
non-amortization provisions of SFAS No. 142 is expected to result in an increase
in net income of approximately $3.2 million in fiscal 2002. Under the
transitional provisions of SFAS No. 142, the Company recorded a goodwill
impairment loss associated with its Milwaukee Cylinder reporting unit of $7.2
million in the first quarter. The impairment loss has been recorded as a
cumulative effect of change in accounting principle on the accompanying
Condensed Consolidated Statements of Earnings for the nine months ended May 31,
2002.
The following sets forth a reconciliation of net income and earnings per share
information for the three months and nine months ended May 31, 2002 and 2001
adjusted for the non-amortization provisions of SFAS No. 142.
For the Three Months For the Nine Months
Ended May 31, Ended May 31,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- -----------
Net earnings (loss):
Reported net earnings from continuing operations ....... $ 8,263 $ 1,458 $ 16,862 $ 8,841
Reported net earnings (loss)............................ (11,031) 677 (9,632) 8,060
Add: Goodwill amortization, net of tax effect .......... -- 688 -- 1,593
Adjusted net earnings from continuing operations........ 8,263 2,146 16,862 10,434
Adjusted net earnings (loss) ........................... $ (11,031) $ 1,365 $ (9,632) $ 9,653
Basic earnings per share:
Adjusted net earnings from continuing operations........ $ 0.71 $ 0.27 $ 1.78 $ 1.31
Adjusted net earnings (loss) ........................... $ (0.95) $ 0.17 $ (1.02) $ 1.22
Diluted earnings per share:
Adjusted net earnings from continuing operations ....... $ 0.68 $ 0.26 $ 1.69 $ 1.26
Adjusted net earnings (loss) ........................... $ (0.90) $ 0.17 $ (0.96) $ 1.16
7
The changes in the carrying amount of goodwill for the year ended August 31,
2001 and for the nine months ended May 31, 2002 are as follows:
Tools & Engineered
Supplies Solutions
Segment Segment Total
-------------- ------------- -------------
Balance as of August 31, 2000....................... $ 44,451 $ 71,897 $ 116,348
Goodwill of acquired businesses..................... -- 8,291 8,291
Amortization........................................ (1,569) (2,404) (3,973)
Goodwill written off related to sale of business unit -- (12,613) (12,613)
Currency impact..................................... -- 71 71
----------- ----------- ------------
Balance as of August 31, 2001....................... 42,882 65,242 108,124
Transitional impairment charge...................... -- (7,200) (7,200)
Purchase price allocation adjustment................ -- 491 491
Currency impact..................................... -- (47) (47)
----------- ----------- ------------
Balance as of May 31, 2002.......................... $ 42,882 $ 58,486 $ 101,368
=========== =========== ============
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of May 31, 2002 and August 31, 2001 are
as follows:
May 31, 2002 August 31, 2001
--------------------------------------------- ---------------------------------------------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
----------- ---------------- ---------- ------------ --------------- ----------
Patents.......... $ 21,703 $ 7,713 $ 13,990 $ 22,652 $ 7,653 $ 14,999
Trademarks....... 4,516 1,036 3,480 4,496 842 3,654
Non-compete
agreements.... 3,286 2,386 900 10,509 9,038 1,471
Other............ 1,332 612 720 2,086 1,294 792
---------- ------------ --------- --------- ------------ ---------
Total............ $ 30,837 $ 11,747 $ 19,090 $ 39,743 $ 18,827 $ 20,916
========== ============ ========= ========= ============ =========
Amortization expense recorded on the intangible assets listed in the above table
for the three months and nine months ended May 31, 2002 was $0.6 million and
$1.8 million, respectively, and $0.6 million and $1.9 million for the three
months and nine months ended May 31, 2001, respectively. The reduction in gross
carrying amount and accumulated amortization for non-compete agreements and
other intangible assets in the table above reflect the removal of fully
amortized intangible assets in fiscal 2002. The estimated amortization expense
for each of the next five fiscal years is as follows:
2002............................. $2,450
2003............................. $2,195
2004............................. $1,783
2005............................. $1,600
2006............................. $1,579
Note 6. New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30 related to the disposal of a segment of a business. The
provisions of SFAS No. 144 are effective for fiscal years beginning after
December 15, 2001, however earlier adoption is permitted. The Company does not
expect the adoption of SFAS No. 144 will have a material impact on the
consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
related to accounting for debt extinguishments, leases, and intangible assets of
motor carriers. The provisions of SFAS No. 145 are effective for fiscal years
beginning after May 15, 2002 with earlier adoption encouraged. The Company is
currently reviewing the provisions of SFAS No. 145 to determine the impact on
its results of operations and financial condition.
8
Note 7. Debt
The Company's indebtedness, other than short-term borrowings, as of May 31, 2002
and August 31, 2001 was as follows:
May 31, August 31,
2002 2001
----------------- ---------------
Senior Secured Credit Facility
Revolving credit borrowings................................ $ 11,000 $ 13,250
Tranche A term loans....................................... -- 10,376
New tranche A term loans................................... 85,000 --
Tranche B term loans....................................... -- 90,487
-------------- -------------
Sub-total - Senior Secured Credit Facility............ 96,000 114,113
Senior subordinated notes, due 2009 ("13% Notes")............. 130,000 200,000
Less: initial issuance discount............................... (1,362) (2,322)
-------------- -------------
Senior subordinated notes, net of discount................. 128,638 197,678
Euro term loan................................................ 13,989 13,675
Other......................................................... -- 286
-------------- -------------
Total debt................................................. 238,627 325,752
Less: current maturities of long-term debt................. (8,794) --
-------------- -------------
Total long-term debt....................................... $ 229,833 $ 325,752
============== =============
In the third quarter of fiscal 2002, the Company refinanced a portion of the
Senior Secured Credit Facility. In conjunction with the refinancing, the
remaining balances outstanding under tranche B term loans were extinguished and
a new $85 million tranche A term loan (the "New Tranche A Term Loans") was
funded by existing bank lenders. The New Tranche A Term Loans have a final
maturity in June 2006, are currently priced at LIBOR plus 2.25%, and are subject
to a pricing grid, which allows for further reductions in the borrowing spread.
See Note 9, "Extraordinary Items" for further information.
Annual amortization on the New Tranche A Term Loan is as follows:
Years ended August 31,
2002............. $ 1,849
2003............. 8,309
2004............. 11,985
2005............. 14,790
2006............. 48,067
------
Total............ $ 85,000
In addition, during the third quarter of fiscal 2002, the Company used the
proceeds from a common stock offering completed in the second quarter of fiscal
2002 to redeem $70 million of the 13% Notes. See Note 8, "Common Stock" and Note
9, "Extraordinary Items" for further information.
Note 8. Common Stock
In February 2002, the Company sold, pursuant to an underwritten public offering,
3,450,000 shares of its Class A common stock at a price of $30.50 per share.
Cash proceeds from the offering, net of underwriting discounts, were
approximately $99.7 million. In addition to underwriting discounts, the Company
incurred approximately $0.8 million of additional accounting, legal and other
expenses related to the offering that were charged to additional paid-in
capital. The proceeds were used to redeem a portion of the 13% Notes and retire
portions of the Company's debt under the Senior Secured Credit Facility. See
Note 7, "Debt" and Note 9, "Extraordinary Items" for further information.
9
A reconciliation of the equity accounts affected by the common stock offering is
as follows:
Class A Additional
Common Stock Paid-in Capital
---------------- ----------------
Balance at August 31, 2001............. $ 1,603 $ (623,867)
Common stock offering.................. 690 98,265
Stock option exercises................. 25 1,165
Restricted stock awards................ -- 8
----------------- -----------------
Balance at May 31, 2002................ $ $ (524,429)
2,318
================= =================
Note 9. Extraordinary Items
In the third quarter of fiscal 2002, the Company recorded a pre-tax
extraordinary charge of $12.0 million, or $7.8 million after-tax, related to the
redemption of $70 million of the Company's 13% Notes. The pre-tax charge
consists of the $9.1 million bond redemption premium payment and a $2.9 million
non-cash write-off of debt discount and debt issuance costs. The redemption was
funded through proceeds from the common stock offering discussed in Note 8,
"Common Stock."
Also in the third quarter of fiscal 2002, the Company recorded a pre-tax
extraordinary charge of $2.3 million, or $1.5 million after-tax, related to the
refinancing of a portion of the Senior Secured Credit Facility. The non-cash,
pre-tax charge represents the write-off of a portion of the capitalized debt
issuance costs from the original financing.
Note 10. Discontinued Operations and Distribution of Electronics Segment
On January 27, 2000, Applied Power Inc.'s ("Applied Power") board of directors
authorized various actions to enable Applied Power to distribute its Electronics
segment ("APW") to its shareholders. On July 31, 2000 the Company distributed
the capital stock of APW to its shareholders (the "Distribution"). During the
third quarter of fiscal 2002, APW and one of APW's wholly owned indirect
subsidiaries, Vero Electronics, Inc. ("Vero"), commenced prepackaged bankruptcy
cases in the United States Bankruptcy Court for the Southern District of New
York. According to the disclosure statement of APW and Vero sent to creditors on
or about May 3, 2002, Vero's sole business is to lease and sublease a single
parcel of real estate. No other subsidiaries of APW have filed Chapter 11 cases.
APW subsequently filed Amendment No. 1 to its bankruptcy plan on June 19, 2002.
In its bankruptcy filing, APW disclosed that it was rejecting the majority of
the agreements entered into between APW and the Company at the time of the
Distribution that govern a variety of indemnification matters between the
parties. Those agreements include the Tax Sharing and Indemnification Agreement
("TSA") in which APW agreed to indemnify the Company for income tax liabilities
in excess of $1.0 million which could arise from any audit or other
administrative or judicial proceedings resulting in adjustments ("Audit
Adjustments") to the separate taxable income of APW or any of its subsidiaries
which are included in the APW Group (as defined in the TSA) for periods prior to
the Distribution, as well as all taxes related to the Distribution itself. If
any Audit Adjustments were to result in an increased tax liability, such amount,
to the extent not paid by APW (or such APW subsidiaries) could become payable by
the Company without the benefit of the right to seek indemnification from APW
under the TSA.
In the third quarter of fiscal 2002, the Company recorded a non-cash charge of
$10.0 million, or $0.82 per diluted share, in "Discontinued Operations, net of
Income Taxes" to reflect the preliminary rejection of indemnification agreements
by APW. This charge provides for a contingent amount that otherwise would have
been subject to indemnification by APW. The Company is presently holding
approximately $23 million of funds as to which the Company has asserted a right
of offset against APW related to the agreements rejected by APW and which it
intends to hold until the contingency is eliminated. In the event the Company is
required to make expenditures for this contingent liability, such amounts will
first be paid from these funds. In the event that the Company is required to
fund an amount in excess of these funds, such excess amount would come from
operating cash flows and could potentially result in a materially adverse impact
to the Company's financial position and results of operations. The Company and
its tax advisors continue to review the impact of APW's preliminary rejection of
the TSA including any contingent liabilities resulting therefrom. The Company
anticipates that such review will be completed during the fourth quarter of this
fiscal year. To the extent that additional information becomes available that
changes the Company's view on its exposure from the rejection of the TSA, the
Company will appropriately address such developments.
Prior to the Distribution, the Company, in the normal course of business,
entered into certain real estate and equipment leases or guaranteed such leases
on behalf of its subsidiaries, including those in its Electronics segment. In
conjunction with the Distribution, the Company assigned its rights in the leases
used in the Electronics segment to APW, but was not released as a responsible
party from all such leases by the lessors. As a result, the Company
10
remains contingently liable for such leases. The discounted present value of
future minimum lease payments for such leases totals approximately $23.3 million
at May 31, 2002. APW subsidiaries that are parties to these leases have not
filed Chapter 11 cases and, as such, none of those leases have been rejected in
the bankruptcies noted above. As such, the Company will not be responsible for
any current payments under such lease agreements as a result of the bankruptcy
cases commenced by APW and Vero. However, the Company remains contingently
liable for those leases if APW or its subsidiaries are unable to fulfill their
obligations thereunder. A future breach of these leases could, therefore,
potentially have a material adverse impact upon the Company's financial position
and results of operations.
In the third quarter of fiscal 2001, the Company recorded an $0.8 million loss,
or $0.09 per diluted share, in "Discontinued Operations, net of Income Taxes" to
reflect a change in estimate for Electronics segment liabilities assumed by the
Company as part of the Distribution.
Note 11. Restructuring and Other Non-recurring Items
The Company adopted plans to restructure portions of its operations in the
fiscal third quarter of 2001. These plans were designed to reduce administrative
and operational costs and resulted in a charge of $1.7 million, or $1.0 million
after-tax. Of the pre-tax charge, $0.3 million related to the consolidation of
RV slide-out production facilities, $0.6 related to downsizing the cable tie
production facility, and $0.8 million related to other personnel reductions. The
Company wrote down the fixed assets at the locations being closed or downsized
to their fair value, less costs to sell, in the third quarter of fiscal 2001. As
a result of these plans, the Company eliminated approximately 36 positions.
In the second quarter of fiscal 2002 the Company received net cash proceeds of
approximately $0.5 million from the sale of a former RV slide-out manufacturing
facility. All restructuring initiatives contemplated by this plan have been
completed.
A rollforward of the restructuring reserve is shown in the following table:
August 31, 2001 May 31, 2002
Restructuring Cash Restructuring
Reserve Payments Reserve
----------------- ------------- -----------------
Severance............. $ 182 $ 182 $ --
Exit Costs............ 820 498 322
----------------- ------------- -----------------
$ 1,002 $ 680 $ 322
================= ============= =================
The remaining restructuring reserve primarily relates to contractual lease
payments on a facility idled as part of the cable tie production facility
downsizing.
In May 2001, the Company recorded a charge in "Other Expense (Income)" of $1.5
million, $0.9 million after-tax, or $0.11 per diluted share, for the net present
value of future lease and holding costs on a building that had been occupied by
a former division. At the time the Company sold the divested business in 1996,
it received a five-year sub-lease with renewal options. Due to a change in
control at the parent company of the divested business, the renewal option was
not exercised.
Note 12. Gain on Insurance Settlement
In February 2001, one of the Company's facilities in Oldenzaal, The Netherlands
was damaged by fire. The fire damaged a portion of the leased building, as well
as certain inventory and property, plant and equipment contained therein.
Additionally, the fire impacted the shipment of product produced on the truck
cab-tilt production line that was housed in the damaged facility. The Company
was party to an insurance contract that covered the damaged inventory and
equipment as well as the business interruption resulting from the fire. In the
third quarter of fiscal 2001, the Company recorded a pre-tax gain of $1.0
million to reflect the difference between the book value of the assets destroyed
and the minimum reimbursement received for such assets during the quarter from
the insurance carrier. During the second quarter of fiscal 2002, the Company
settled its claim with the insurance company, and as a result recorded an
additional gain of $0.6 million. The new facility was operational as of May 31,
2002.
Note 13. Derivatives
All derivatives are recognized on the balance sheet at their estimated fair
value. In the third quarter of fiscal 2001 the Company entered into an interest
rate swap contract to convert $25 million of its variable rate term debt to a
fixed rate.
11
In the first quarter of fiscal 2002, the Company entered into a second contract
to convert a further $25 million of its variable rate term debt to a fixed rate.
Unrealized gains (losses) of $0.1 million and $(0.2) million were recorded in
other comprehensive income for the three and nine months ended May 31, 2002,
respectively and $(0.1) million for the three and nine months ended May 31,
2001. The Company recorded interest (expense) income of $(0.1) million and $0.1
million for the three and nine months ended May 31, 2002, respectively, to
recognize the portion of a swap contract that became ineffective due to the pay
down of term debt as a result of the common stock offering. In the third quarter
of fiscal 2002, the Company redesignated the swap contracts to hedge its
exposure to future interest payments on its variable rate senior credit facility
instead of just the variable rate term debt. Therefore, at May 31, 2002, the
remaining effective notional amount of contracts is approximately $50 million.
Note 14. Earnings Per Share
The reconciliations between basic and diluted earnings per share are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
-------------------------- ------------------------
2002 2001 2002 2001
----------- ----------- ----------- --------
Numerator:
Earnings from continuing operations.................... $8,263 $ 1,458 $ 16,862 $ 8,841
Discontinued operations, net of income taxes........... (10,000) (781) (10,000) (781)
Extraordinary items, net of income taxes............... (9,294) -- (9,294) --
Cumulative effect of change in accounting
principle, net of income taxes...................... -- (7,200) --
----------- ----------- ----------- ----------
Net earnings (loss).................................. $ (11,031) $ 677 $ (9,632) $ 8,060
=========== =========== =========== ==========
Denominator:
Weighted average common shares outstanding for
basic earnings per share............................ 11,587 7,948 9,454 7,937
Net effect of stock options based on the treasury
stock method using average market price............. 649 287 541 360
----------- ----------- ----------- ----------
Weighted average common and equivalent shares
outstanding for diluted earnings per share.......... 12,236 8,235 9,995 8,297
=========== =========== =========== ==========
Basic Earnings Per Share:
Earnings from continuing operations.................... $ 0.71 $ 0.18 $ 1.78 $ 1.11
Discontinued operations, net of income taxes........... (0.86) (0.10) (1.06) (0.10)
Extraordinary items, net of income taxes............... (0.80) -- (0.98) --
Cumulative effect of change in accounting
principle, net of income taxes...................... -- -- (0.76) --
----------- ----------- ----------- ----------
Basic earnings per share............................... $ (0.95) $ 0.09 $ (1.02) $ 1.02
=========== =========== =========== ==========
Diluted Earnings per Share:
Net earnings from continuing operations................ $ 0.68 $ 0.18 $ 1.69 $ 1.07
Discontinued operations, net of income taxes........... (0.82) (0.09) (1.00) (0.09)
Extraordinary items, net of income taxes............... (0.76) -- (0.93) --
Cumulative effect of change in accounting
principle, net of income taxes...................... -- -- (0.72) --
----------- ----------- ----------- ----------
Diluted earnings per share............................. $ (0.90) $ 0.08 $ (0.96) $ 0.97
=========== =========== =========== ==========
12
Note 15. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
Net (loss) earnings............................................ $ (11,031) $ 677 $ (9,632) $ 8,060
Foreign currency adjustments................................... 2,108 (379) 85 (2,265)
Unrealized gain (loss) on interest rate swap, net of taxes..... 63 (57) (238) (57)
----------- ----------- ----------- ----------
Comprehensive income (loss)................................... $ (8,860) $ 241 $ (9,785) $ 5,738
=========== =========== =========== ==========
Note 16. Segment Information
The Company is organized and managed as two business segments: Tools & Supplies
and Engineered Solutions, with separate and distinct operating management and
strategies. The Tools & Supplies segment is primarily involved in the design,
manufacture, and distribution of tools and supplies to the construction,
electrical wholesale, retail do-it-yourself, industrial and production
automation markets. The Engineered Solutions segment focuses on developing and
marketing value-added, customized motion control systems for original equipment
manufacturers in the recreational vehicle, automotive, truck, and industrial
markets. "General corporate and other" as indicated below primarily includes
general corporate expenses, financing costs on third party debt and foreign
currency exchange adjustments.
The following table summarizes financial information by reportable segment:
Three Months Ended Nine Months Ended
May 31, May 31,
--------------------------------- ----------------------------------
2002 2001 2002 2001
------------- -------------- --------------- ----------------
Net Sales:
Tools & Supplies............................. $ 65,746 $ 70,394 $ 192,151 $ 213,106
Engineered Solutions......................... 54,263 55,714 149,432 148,319
------------- -------------- --------------- ----------------
Total........................................ $ 120,009 $ 126,108 $ 341,583 $ 361,425
============= ============== =============== ================
Earnings Before Income Tax Expense:
Tools & Supplies............................. $ 10,655 $ 9,221 $ 31,225 $ 29,545
Engineered Solutions......................... 5,178 6,328 12,150 15,902
General Corporate and Other.................. (3,022) (13,101) (17,015) (30,532)
------------- -------------- --------------- ----------------
Total........................................ $ 12,811 $ 2,448 $ 26,360 $ 14,915
============= ============== =============== ================
Note 17. Guarantor Condensed Financial Statements
In July 2000, Actuant issued the 13% Notes. All of the Company's material
domestic wholly owned subsidiaries (the "Guarantors") fully and unconditionally
guarantee the 13% Notes on a joint and several basis. The Company believes
separate financial statements and other disclosures concerning each of the
Guarantors would not provide additional information that is material to
investors. Therefore, the Guarantors are combined in the presentation below.
There are no significant restrictions on the ability of the Guarantors to make
distributions to Actuant. The following tables present the results of
operations, financial position and cash flows of Actuant Corporation, the
Guarantors and non-guarantor entities, and the eliminations necessary to arrive
at the information for the Company and its subsidiaries on a condensed
consolidated basis.
13
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Three Months Ended May 31, 2002
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales......................................... $ 20,247 $ 60,224 $ 39,538 $ -- $ 120,009
Cost of products sold............................. 10,654 41,593 26,170 -- 78,417
------------ ----------- ------------ ------------ ------------
Gross profit................................. 9,593 18,631 13,368 -- 41,592
Selling, administrative, and engineering
expenses.......................................... 6,842 8,884 5,582 -- 21,308
Amortization of intangible assets................. 2 605 9 -- 616
------------ ----------- ------------ ------------ ------------
Operating earnings........................... 2,749 9,142 7,777 -- 19,668
Other expense (income):
Intercompany activity, net................... (946) 460 486 -- --
Net financing costs.......................... 6,556 240 118 -- 6,914
Other expense (income)....................... 140 59 (256) -- (57)
------------ ----------- ------------ ------------ ------------
(Loss) earnings from continuing operations
before income tax expense....................... (3,001) 8,383 7,429 -- 12,811
Income tax expense................................ 1,269 1,763 1,516 -- 4,548
------------ ----------- - ------------ ------------ ------------
(Loss) earnings from continuing operations........ (4,270) 6,620 5,913 -- 8,263
Discontinued operations, net of income taxes...... (10,000) -- -- -- (10,000)
Extraordinary items, net of income taxes.......... (9,294) -- -- -- (9,294)
------------ ----------- ------------ ------------ ------------
Net (loss) earnings............................... $ (23,564) $ 6,620 $ 5,913 $ -- $ (11,031)
============ =========== ============ ============ ============
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Three Months Ended May 31, 2001
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
-------------- ------------ ------------ -------------- --------------
Net sales......................................... $ 19,415 $ 66,053 $ 40,640 $ -- $ 126,108
Cost of products sold............................. 11,875 43,971 27,056 -- 82,902
------------ ----------- ----------- ------------ ------------
Gross profit................................. 7,540 22,082 13,584 -- 43,206
Selling, administrative, and engineering
expenses.......................................... 5,700 9,992 7,713 -- 23,405
Amortization of intangible assets................. 2 1,639 84 -- 1,725
Restructuring charge.............................. 1,740 -- -- -- 1,740
------------ ----------- ----------- ------------ ------------
Operating earnings........................... 98 10,451 5,787 -- 16,336
Other expense (income):
Intercompany activity, net................... (2,009) 1,431 578 -- --
Net financing costs.......................... 12,153 8 550 -- 12,711
Other expense (income)....................... 1,409 12 (244) -- 1,177
------------ ----------- ----------- ------------ ------------
(Loss) earnings from continuing operations
before income tax (benefit) expense............ (11,455) 9,000 4,903 -- 2,448
Income tax (benefit) expense...................... (4,010) 3,154 1,846 -- 990
------------ ----------- ----------- ------------ ------------
(Loss) earnings from continuing operations........ (7,445) 5,846 3,057 -- 1,458
Discontinued operations, net of income taxes..... -- -- (781) -- (781)
------------ ----------- ----------- ------------ ------------
Net (loss) earnings............................... $ (7,445) $ 5,846 $ 2,276 $ -- $ 677
============ =========== =========== ============ ============
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Nine Months Ended May 31, 2002
------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ------------- ------------- ------------ -----------
Net sales...................................... $ 57,036 $ 171,211 $ 113,336 $ -- $ 341,583
Cost of products sold.......................... 30,387 121,504 73,377 -- 225,268
------------- ------------ ------------- ------------ ------------
Gross profit.............................. 26,649 49,707 39,959 -- 116,315
Selling, administrative, and engineering
expenses....................................... 18,867 25,284 18,143 -- 62,294
Amortization of intangible assets.............. 7 1,814 27 -- 1,848
------------- ------------ ------------- ------------ ------------
Operating earnings........................ 7,775 22,609 21,789 -- 52,173
Other expense (income):
Intercompany activity, net................ (2,611) 2,921 (310) -- --
Net financing costs....................... 25,308 886 417 -- 26,611
Other expense (income).................... 182 57 (1,037) -- (798)
------------- ------------ ------------- ----------- ------------
(Loss) earnings from continuing operations 26,360
before income tax (benefit) expense......... (15,104) 18,745 22,719 --
Income tax (benefit) expense................... (1,452) 6,178 4,772 -- 9,498
------------- ------------ ------------- ----------- ------------
(Loss) earnings from continuing operations..... (13,652) 12,567 17,947 -- 16,862
Discontinued operations, net of income (10,000) -- -- -- (10,000)
taxes.......................................
Extraordinary items, net of income taxes...... (9,294) -- -- -- (9,294)
Cumulative effect of change in accounting
principle, net of income taxes.............. -- (7,200) -- -- (7,200)
------------- ------------ ------------- ------------ ------------
Net (loss) earnings............................ $ (32,946) $ 5,367 $ 17,947 $ -- $ (9,632)
============= ============ ============= ============ ============
Nine Months Ended May 31, 2002
------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------------------------------------------------------------------
Net sales...................................... $ 58,720 $ 182,249 $ 120,456 $ -- $ 361,425
Cost of products sold.......................... 35,972 120,682 78,759 -- 235,413
-------------- ------------- -------------- -------------- -------------
Gross profit.............................. 22,748 61,567 41,697 -- 126,012
Selling, administrative, and engineering
expenses....................................... 16,924 29,191 20,558 -- 66,673
Amortization of intangible assets.............. 7 4,370 216 -- 4,593
Restructuring charge........................... 1,740 -- -- -- 1,740
-------------- ------------- -------------- -------------- -------------
Operating earnings........................ 4,077 28,006 20,923 -- 53,006
Other (income) expense:
Intercompany activity, net................ (4,297) 2,649 1,648 -- --
Net financing costs....................... 37,197 8 1,006 -- 38,211
Other (income) expense.................... (693) 26 547 -- (120)
-------------- ------------- -------------- -------------- -------------
(Loss) earnings from continuing operations
before income tax (benefit) expense......... (28,130) 25,323 17,722 -- 14,915
Income tax (benefit) expense................... (9,437) 9,403 6,108 -- 6,074
-------------- ------------- -------------- -------------- -------------
(Loss) earnings from continuing operations. (18,693) 15,920 11,614 -- 8,841
Discontinued operations, net of income
taxes.......................................... -- -- (781) -- (781)
-------------- ------------- -------------- -------------- -------------
Net (loss) earnings............................ $ (18,693) $ 15,920 $ 10,833 $ -- $ 8,060
============== ============= ============== ============== =============
15
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2002
--------------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ------------ ------------ ------------- -------------
ASSETS
Current assets
Cash and cash equivalents ...................... $ 22,485 $ (449) $ 5,563 $ -- $ 27,599
Accounts receivable, net ....................... 1,989 -- 52,694 -- 54,683
Inventories, net ............................... 13,327 31,931 10,670 -- 55,928
Deferred income taxes .......................... 8,542 10 819 -- 9,371
Other current assets ........................... 1,767 610 1,755 -- 4,132
--------- --------- --------- -------- ---------
Total current assets ....................... 48,110 32,102 71,501 -- 151,713
Property, plant and equipment, net ................... 5,198 21,508 11,337 -- 38,043
Goodwill, net ........................................ -- 96,597 4,771 -- 101,368
Other intangible assets, net ......................... 2 19,033 55 -- 19,090
Other long-term assets ............................... 9,363 204 530 -- 10,097
--------- --------- --------- -------- ---------
Total assets ......................................... $ 62,673 $ 169,444 $ 88,194 $ $ 320,311
========= ========= ========= ======== =========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings .......................... $ -- $ -- $ 1,178 $ -- $ 1,178
Current maturities of long-term debt ........... 7,395 -- 1,399 -- 8,794
Trade accounts payable ......................... 8,424 17,550 14,064 -- 40,038
Accrued compensation and benefits .............. 3,087 2,024 4,593 -- 9,704
Income taxes payable ........................... 34,489 6,264 2,608 -- 43,361
Other current liabilities ...................... 5,407 6,795 1,825 -- 14,027
--------- --------- --------- -------- ---------
Total current liabilities .................. 58,802 32,633 25,667 -- 117,102
Long-term debt ....................................... 217,244 -- 12,589 -- 229,833
Deferred income taxes ................................ 5,063 (1,016) 39 -- 4,086
Other long-term liabilities .......................... 18,443 -- 206 -- 18,649
Intercompany balances, net ........................... (398,182) (96,579) (178,931) 673,692 --
Total shareholders' equity (deficit) ................. 161,303 234,406 228,624 (673,692) (49,359)
--------- --------- --------- -------- ---------
Total liabilities and shareholders' equity ........... $ 62,673 $ 169,444 $ 88,194 $ -- $ 320,311
========= ========= ========= ======== =========
16
CONDENSED CONSOLIDATING BALANCE SHEETS
August 31, 2001
-----------------------------------------------------------------
Actuant Non-
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ---------- ---------- ------------ ------------
ASSETS
Current assets
Cash and cash equivalents ........... $ 25,785 $ 621 $ 148 $ -- $ 26,554
Accounts receivable, net ............ 3,233 5,625 46,113 -- 54,971
Inventories, net .................... 14,606 31,920 10,212 -- 56,738
Deferred income taxes ............... 5,333 11 489 -- 5,833
Other current assets ................ 1,132 498 3,444 -- 5,074
--------- --------- --------- --------- ---------
Total current assets ........... 50,089 38,675 60,406 -- 149,170
Property, plant and equipment, net ........ 4,335 25,923 9,224 -- 39,482
Goodwill, net ............................. -- 103,219 4,905 -- 108,124
Other intangible assets, net .............. 9 20,847 60 -- 20,916
Other long-term assets .................... 24,087 168 769 -- 25,024
--------- --------- --------- --------- ---------
Total assets .............................. $ 78,520 $ 188,832 $ 75,364 $ -- $ 342,716
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings ............... $ -- $ -- $ 1,568 $ -- $ 1,568
Trade accounts payable .............. 10,062 17,297 12,439 -- 39,798
Accrued compensation and benefits ... 4,608 1,698 4,349 -- 10,655
Income taxes payable ................ 32,416 9,785 7,833 -- 50,034
Other current liabilities ........... 20,189 9,237 2,708 -- 32,134
--------- --------- --------- --------- ---------
Total current liabilities ...... 67,275 38,017 28,897 -- 134,189
Long-term debt ............................ 311,656 420 13,676 -- 325,752
Deferred income taxes ..................... 5,043 (1,027) (109) -- 3,907
Other long-term liabilities ............... 18,384 -- 238 -- 18,622
Intercompany balances, net ................ (491,161) (55,907) (198,212) 745,280 --
Total shareholders' equity (deficit) ...... 167,323 207,329 230,874 (745,280) (139,754)
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 78,520 $ 188,832 $ 75,364 $ -- $ 342,716
========= ========= ========= ========= =========
17
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended May 31, 2002
------------------------------------------------------------------------
Actuant Non-
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
Operating activities
Net (loss) earnings from continuing operations.. $ (13,652) $ 12,567 $ 17,947 $ -- $ 16,862
Adjustments to reconcile net (loss) earnings
to cash provided by (used in) operating
activities:
Depreciation and amortization .............. 1,240 5,704 2,147 -- 9,091
Amortization of debt discount and debt
isssuance costs ............................ 1,943 -- -- -- 1,943
Cash payments on the Mox-Med divestiture ... (6,961) -- -- -- (6,961)
Other non-cash items ....................... 120 (1) (223) -- (104)
Changes in operating assets and
liabilities, net ........................... (80,109) 22,247 (31,551) 71,661 (17,752)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating ......... (97,419) 40,517 (11,680) 71,661 3,079
activities
Investing activities
Proceeds from sale of property, plant and
equipment ..................................... 3 1,662 14 -- 1,679
Proceeds from insurance recovery .............. -- -- 2,858 -- 2,858
Additions to property, plant and equipment .... (1,306) (1,793) (4,401) -- (7,500)
Business acquisitions ......................... -- (785) -- -- (785)
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing ......... (1,303) (916) (1,529) -- (3,748)
activities
Financing activities
Payment on 13% Notes .......................... (70,000) -- -- -- (70,000)
Payment of 13% Notes redemption premium ....... (9,100) -- -- -- (9,100)
Issuance of long-term debt .................... 85,000 -- -- -- 85,000
Net principal payments on debt ................ (103,147) -- (791) -- (103,938)
Net proceeds from issuance of common stock .... 99,705 -- -- -- 99,705
Debt issuance costs ........................... (1,206) -- -- -- (1,206)
Proceeds from stock option exercises .......... 1,190 -- -- -- 1,190
Intercompany payables (receivables) ........... 92,980 (40,671) 19,352 (71,661) --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing ......... 95,422 (40,671) 18,561 (71,661) 1,651
activities
Effect of exchange rate changes on cash .......... -- -- 63 -- 63
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ...................................... (3,300) (1,070) 5,415 -- 1,045
Cash and cash equivalents--beginning of period ... 25,785 621 148 -- 26,554
--------- --------- --------- --------- ---------
Cash and cash equivalents--end of period......... $ 22,485 $ (449) $ 5,563 $ -- $ 27,599
========= ========= ========= ========= =========
18
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended May 31, 2001
--------------------------------------------------------------------
Actuant Non -
Corporation Guarantors Guarantors Eliminations Consolidated
------------- ------------ ------------ ------------- ------------
Operating activities
Net (loss) earnings from continuing operations ............. $(18,693) $ 15,920 $ 11,614 $ -- $ 8,841
Adjustments to reconcile net (loss) earnings to
cash provided by (used in) operating activities:
Depreciation and amortization .......................... 1,440 8,871 2,058 -- 12,369
Amortization of debt discount and debt isssuance
costs .................................................. 1,658 -- -- -- 1,658
Other non-cash items ................................... (1,084) -- -- -- (1,084)
Changes in operating assets and liabilities, net ....... 67,821 (36,972) 21,894 (28,257) 24,486
-------- -------- -------- -------- --------
Net cash provided by (used in) continuing operations ......... 51,142 (12,181) 35,566 (28,257) 46,270
Cash used in discontinued operations ......................... -- -- -- (1,311) (1,311)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities .......... 51,142 (12,181) 35,566 (29,568) 44,959
Investing activities
Proceeds from sale of property, plant and equipment ....... 1,907 -- -- -- 1,907
Proceeds from insurance recovery .......................... -- -- 1,118 -- 1,118
Additions to property, plant and equipment ................ (760) (1,921) (2,596) -- (5,277)
Business acquisitions ..................................... -- (11,250) -- -- (11,250)
Business dispositions and other ........................... -- 238 954 -- 1,192
-------- -------- -------- -------- --------
Net cash used in investing activities ........................ 1,147 (12,933) (524) -- (12,310)
Financing activities
Issuance of long-term debt ................................ -- -- 12,652 -- 12,652
Net principal payments on debt ............................ (54,643) (120) (146) -- (54,909)
Debt issuance costs ....................................... (147) -- -- -- (147)
Proceeds from stock option exercises ...................... 437 -- -- -- 437
Intercompany payables (receivables) ....................... (2,095) 24,414 (51,887) 29,568 --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities........... (56,448) 24,294 (39,381) 29,568 (41,967)
Effect of exchange rate changes on cash ...................... -- -- 54 -- 54
-------- -------- -------- -------- --------
Net decrease in cash and cash equivalents .................... (4,159) (820) (4,285) -- (9,264)
Cash and cash equivalents--beginning of period ............... 5,076 721 4,099 -- 9,896
-------- -------- -------- -------- --------
Cash and cash equivalents--end of period ..................... $ 917 $ (99) $ (186) $ -- $ 632
======== ======== ======== ======== ========
19
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Throughout this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" when we refer to "Actuant" or the "Company," we mean
Actuant Corporation and its subsidiaries. The Company's significant accounting
policies are disclosed in the Notes to Consolidated Financial Statements in the
fiscal 2001 Annual Report on Form 10-K. The more critical of these policies
include revenue recognition, inventory valuation, goodwill and other intangible
asset accounting, and the use of estimates, which are summarized below.
Revenue Recognition: Revenue is recognized when title to the products being sold
transfers to the customer, which is generally upon shipment. The Company's
revenue recognition policies are in accordance with Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements."
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market. Inventory
cost is determined using the last-in, first-out ("LIFO") method for a portion of
U.S. owned inventory (approximately 62% of total inventories at August 31,
2001). The first-in, first-out or average cost method is used for all other
inventories. If the LIFO method were not used, the inventory balance would be
higher than the amount in the Condensed Consolidated Balance Sheet by
approximately $7.1 million at August 31, 2001.
Goodwill and Other Intangible Assets: Other intangible assets, consisting
primarily of purchased patents, trademarks and noncompete agreements, are
amortized over periods from three to twenty-five years. Goodwill is not
amortized, but is subjected to annual impairment testing in accordance with the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets."
Use of Estimates: As required under generally accepted accounting principles,
the condensed consolidated financial statements include estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses for the periods presented. They also affect the disclosure of
contingencies. See Note 10, "Discontinued Operations and Distribution of
Electronics Segment" to the accompanying consolidated financial statements.
Actual results could differ from those estimates and assumptions.
Results of Operations for the Three and Nine Months Ended May 31, 2002 and 2001
During fiscal year 2001, the Company divested one business and one product line
that were not considered integral to the Company's business strategy,
collectively referred to as the "non-continuing businesses." The following table
summarizes the divestitures that were completed:
Approximate
Divestitures Segment Date Annual Sales /(1)/
- ------------ ------- ---- --------------------
(in millions)
Quick Mold Change ("QMC") Tools & Supplies May 2001 $ 6
Mox-Med Engineered Solutions August 2001 18
____________
/(1)/ At the time of the transactions.
The comparability of operating results from period to period is impacted by the
non-continuing businesses. The tables below show the effect, by segment, of the
non-continuing businesses on reported results. In addition, a subsidiary of the
Company acquired the operations of Dewald Manufacturing, Inc. in March 2001,
which impacts the comparability of the operating results for the nine months
ended May 31, 2002.
Earnings from continuing operations for the three and nine months ended May 31,
2002 were $8.3 million, or $0.68 per diluted share, and $16.9 million, or $1.69
per diluted share, respectively. During the third quarter of fiscal 2002, the
Company recorded a non-cash discontinued operations charge of $10.0 million, or
$0.82 per diluted share, for the preliminary rejection of indemnification
agreements between APW Ltd. and the Company by APW Ltd. in its bankruptcy
filing. This charge provides for a contingent amount that otherwise would have
been subject to indemnification by APW. The Company also recorded in the third
quarter of fiscal 2002 an extraordinary charge of $9.3 million, or $0.76 per
diluted share, for early extinguishment of debt. During the first quarter of
fiscal 2002, the Company recorded a charge of $7.2 million, or $0.72 per diluted
share, for the cumulative effect of a change in accounting principle related to
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets." Including these charges, the net
earnings (loss) for the nine months ended May 31, 2002 were $(9.6) million, or
$(0.96) per diluted share, compared with $8.1 million, or $0.97 per diluted
share, for the nine months ended May 31, 2001.
20
Following are detailed discussions of the components of our operating results
for the periods ended May 31, 2002 and 2001.
----------------------------------------- -----------------------------------------
Three Months Ended Nine Months Ended
Net Sales by Segment May 31, May 31,
------------------------------------------ -----------------------------------------
(in thousands) 2002 2001 Change 2002 2001 Change
----------- ----------- ----------- ----------- ----------- ----------
Tools & Supplies................... $ 65,746 $ 70,394 (6.6)% $ 192,151 $ 213,106 (9.8)%
Less: Non-continuing /(1)/......... -- 1,122 -- -- 3,339 --
----------- ----------- --------- ------------
Adjusted Tools & Supplies....... 65,746 69,272 (5.1)% 192,151 209,767 (8.4)%
Engineered Solutions............... 54,263 55,714 (2.6)% 149,432 148,319 0.8%
Less: Non-continuing /(2)/......... - 4,760 -- -- 13,433 --
----------- ----------- --------- ------------
Adjusted Engineered Solutions... 54,263 50,954 6.5% 149,432 134,886 10.8%
Total net sales.................... 120,009 126,108 (4.8)% 341,583 361,425 (5.5)%
Less: Non-continuing Businesses.... -- 5,882 -- -- 16,772 --
----------- -----------
--------- ------------
Total adjusted net sales........ $ 120,009 $ 120,226 (0.2)% $ 341,583 $ 344,653 (0.9)%
=========== =========== ========= ============
_________________
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the
Engineered Solutions segment.
Total net sales decreased by $6.1 million, or 4.8%, from $126.1 million for the
three months ended May 31, 2001 to $120.0 million for the three months ended May
31, 2002. Currency translation rate changes did not significantly impact the
quarterly results. Total net sales decreased by $19.8 million, or 5.5% from
$361.4 million for the nine months ended May 31, 2001 to $341.6 million for the
nine months ended May 31, 2002. Currency translation rate changes negatively
impacted the nine-month results causing $1.1 million of the reported sales
decline in 2002. Excluding the non-continuing businesses, adjusted net sales
declined 0.2% and 0.9% for the three and nine-month periods ended May 31, 2002.
Net sales in the three and nine-month periods ending May 31, 2002 include the
results of Dewald Manufacturing, Inc. which was acquired in March 2001. Assuming
Dewald had been acquired on September 1, 2000, and its sales therefore included
in our operating results in all of the fiscal 2001 periods presented, adjusted
net sales would have decreased 4.1% for the nine months ended May 31, 2002,
primarily as a result of weaker economic conditions in the Company's served
markets.
Tools & Supplies
Net sales for Tools & Supplies decreased by $4.6 million or 6.6%, from $70.4
million for the three months ended May 31, 2001 to $65.8 million for the three
months ended May 31, 2002. The QMC business, which was sold in fiscal 2001
comprised $1.1 million of the decline. The remaining $3.5 million decrease was
driven primarily by weaker economic conditions in North America, which caused
decreases in sales to most of the markets served by the Tools & Supplies
segment. Our sales to European and Asian customers decreased by approximately
$0.8 million.
Tools & Supplies net sales for the nine months ended May 31, 2002 declined $20.9
million, or 9.8%, from $213.1 million for the nine months ended May 31, 2001 to
$192.2 million. This decrease is comprised of the elimination of QMC sales of
$3.3 million, the negative impact of currency translation rates of $0.9 million,
the negative impact of the September 11, 2001 terrorist actions and the impact
of the poor economic conditions in North America as described above. Although
adjusted third quarter sales were 5.1% lower than the previous fiscal year third
quarter, this decrease is sequentially better than the 10% declines experienced
in the first and second quarters of fiscal 2002 as compared to fiscal 2001.
Engineered Solutions
Engineered Solutions net sales decreased $1.4 million, or 2.6%, from $55.7
million for the three months ended May 31, 2001 to $54.3 million for the three
months ended May 31, 2002. Excluding the results of Mox-Med, which we divested
in August 2001, Engineered Solutions net sales increased 6.5%. This increase is
attributable to higher recreational vehicle ("RV") OEM production levels, offset
by decreased sales to our global truck and off-highway customers.
Engineered Solutions net sales for the nine months ended May 31, 2002 increased
$1.1 million, or 0.8%, from $148.3 million for the nine months ended May 31,
2001 to $149.4 million. Excluding the impact of Mox Med, which was sold in 2001,
Engineered Solutions net sales for the nine-month period increased $14.5
million, or 10.8%. This increase in
21
adjusted net sales is comprised of the improvement in RV market demand, as well
as the incremental impact of Dewald sales, offset by decreases in demand from
our global truck and off-highway customers.
Gross Profit
The following table summarizes gross profit and gross profit margins for the
three and nine months ended May 31, 2002 and 2001:
------------------------------------ ---------------------------------------
Three Months Ended Nine Months Ended
Gross Profit by Segment May 31, May 31,
------------------------------------ ---------------------------------------
(in thousands) 2002 2001 Change 2002 2001 Change
--------- --------- --------- ----------- ---------- ---------
Tools & Supplies...................... $ 27,417 $ 27,910 (1.8)% $ 80,018 $ 84,728 (5.6)%
Less: Non-continuing/(1)/............. -- 434 -- -- 1,266 --
--------- --------- ----------- ----------
Adjusted Tools & Supplies.......... 27,417 27,476 (0.2)% 80,018 83,462 (4.1)%
Engineered Solutions.................. 14,175 15,296 (7.3)% 36,297 41,284 (12.1)%
Less: Non-continuing/(2)/............. -- 2,150 -- -- 6,182 --
--------- --------- ----------- ----------
Adjusted Engineered Solutions...... 14,175 13,146 7.8% 36,297 35,102 3.4%
Total gross profit.................... $ 41,592 $ 43,206 (3.7)% $ 116,315 $ 126,012 (7.7)%
Less: Non-continuing ................. -- 2,584 -- -- 7,448 --
--------- --------- ----------- ----------
Total adjusted gross profit........... $ 41,592 $ 40,622 2.4% $ 116,315 $ 118,564 (1.9)%
========= ========= =========== ==========
Gross Profit Margins by Segment
Tools & Supplies...................... 41.7% 39.6% 41.6% 39.8%
Adjusted Tools & Supplies............. 41.7% 39.7% 41.6% 39.8%
Engineered Solutions.................. 26.1% 27.5% 24.3% 27.8%
Adjusted Engineered Solutions......... 26.1% 25.8% 24.3% 26.0%
Total gross profit margin............. 34.7% 34.3% 34.1% 34.9%
Total adjusted gross profit
margin.............................. 34.7% 33.8% 34.1% 34.4%
__________
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the Engineered
Solutions segment.
Total gross profit for the third quarter of fiscal 2002 was $41.6 million, a
$1.6 million decline from the $43.2 million reported in the third quarter of
fiscal year 2001. Gross profit decreased $9.7 million, or 7.7%, from $126.0
million to $116.3 million for the nine months ended May 31, 2001 and 2002,
respectively. Excluding the gross profit generated by the non-continuing
businesses, gross profit increased by $1.0 million, or 2.4%, for the three
months ended May 31, 2002, and decreased by $2.2 million, or 1.9%, for the nine
months ended May 31, 2002. The majority of this reduction in gross profit for
the nine months ended May 31, 2002 is the result of lower sales volume, as
explained above. Total gross profit margin increased from 34.3% to 34.7% for the
three months ended May 31, 2002 and decreased from 34.9% to 34.1% for the nine
months ended May 31, 2002 due to margin declines in the Engineered Solutions
segment, offset by margin expansion in the Tools & Supplies segment.
Tools & Supplies
Tools & Supplies gross profit decreased $0.5 million, or 1.8%, from $27.9
million to $27.4 million for the three months ended May 31, 2001 and 2002,
respectively. For the nine months ended May 31, 2002 gross profit decreased $4.7
million, or 5.6%, to $80.0 million from the $84.7 million of gross profit
recognized for the nine months ended May 31, 2001. These decreases resulted from
the lower sales levels in fiscal 2002 as compared to fiscal 2001 and the impact
of the non-continuing Tools & Supplies business. Although gross profit
decreased, Tools & Supplies gross profit margins increased for the three and
nine month periods due to the realization of the benefits of cost reduction and
restructuring activities in both the hydraulic and electrical tool businesses,
including material cost reductions, personnel reductions and facility
downsizing.
22
Engineered Solutions
Engineered Solutions gross profit decreased $1.1 million, or 7.3%, from $15.3
million to $14.2 million for the three months ended May 31, 2001 and 2002,
respectively. Excluding the impact of the non-continuing business, gross profit
increased by $1.0 million, or 7.8%, due largely to the impact of higher sales
and slightly higher gross margins as compared to the prior year third quarter.
For the nine months ended May 31, 2002 gross profit decreased $5.0 million, or
12.1%, to $36.3 million from the $41.3 million of gross profit recognized for
the nine months ended May 31, 2001. Excluding the impact of the non-continuing
business, gross profit increased by $1.2 million, or 3.4%, due largely to the
impact of higher sales offset by lower gross margins. These lower margins result
from production inefficiencies associated with the consolidation of our RV
facilities, lower fixed cost absorption at our more vertically integrated
Milwaukee Cylinder and Nielsen Sessions operations due to lower sales and
production levels as compared to the prior year, and higher prototype costs in
the automotive operations to support new platform development. Adjusted gross
margins have increased from 23.6% and 22.9% in the first and second quarters,
respectively, to 26.1% in the third quarter primarily due to lower costs in the
third quarter associated with the RV manufacturing plant consolidation, which
occurred during the first half of fiscal 2002, and better fixed cost absorption
at our plants.
Selling, Administrative, and Engineering ("SAE")
Expense by Segment
(in thousands)
-------------------------------------- --------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
-------------------------------------- --------------------------------------
2002 2001 Change 2002 2001 Change
---------- --------- ---------- --------- ---------- ----------
Tools & Supplies...................... $ 14,200 $ 16,536 (14.1)% $ 43,381 $ 48,256 (10.1)%
Less: Non-continuing /(1)/............ -- 415 -- -- 1,512 --
--------- --------- -------- --------
Adjusted Tools & Supplies.......... 14,200 16,121 (11.9)% 43,381 46,744 (7.2)%
Engineered Solutions.................. 5,654 5,453 3.7% 15,349 14,511 5.8%
Less: Non-continuing /(2)/............ -- 638 -- -- 1,728 --
---------- --------- -------- --------
Adjusted Engineered Solutions...... 5,654 4,815 17.4% 15,349 12,783 20.1%
General Corporate..................... 1,454 1,416 2.7% 3,564 3,906 (8.8)%
Total SAE expense..................... 21,308 23,405 (9.0)% 62,294 66,673 (6.6)%
Less: Non-continuing Businesses....... -- 1,053 -- -- 3,240 --
---------- --------- -------- --------
Total adjusted SAE expense............ $ 21,308 $ 22,352 (4.7)% $ 62,294 $ 63,433 (1.8)%
========== ========= ======== ========
__________
(1) "Non-continuing" represents the divested QMC business of the Tools &
Supplies segment.
(2) "Non-continuing" represents the divested Mox-Med business of the Engineered
Solutions segment.
Total SAE expenses decreased $2.1 million, or 9.0%, from $23.4 million for the
three months ended May 31, 2001 to $21.3 million for the three months ended May
31, 2002. SAE decreased $4.4 million, or 6.6%, from $66.7 million to $62.3
million for the nine months ended May 31, 2001 and 2002, respectively.
Approximately $1.1 and $3.2 million of the reductions, for the three and nine
months ended May 31, 2002, respectively, were due to the non-continuing
businesses. The remainder of the declines were due to lower variable selling
expense and cost reductions.
Tools & Supplies
Tools & Supplies SAE expenses decreased $2.3 million, or 14.1%, from $16.5
million for the three months ended May 31, 2001 to $14.2 million for the three
months ended May 31, 2002. For the nine-month periods ended May 31, 2001 and
2002, SAE expenses decreased $4.9 million from $48.3 million to $43.4 million,
or 10.1%. The non-continuing Tools & Supplies business comprised $0.4 million
and $1.5 million of the decrease for the three and nine months ended May 31,
2002, respectively. The remaining decrease resulted from cost reduction efforts
initiated in fiscal 2001 and lower variable selling and marketing costs due to
lower sales levels.
Engineered Solutions
Engineered Solutions SAE expenses increased $0.2 million, or 3.7%, from $5.5
million for the three months ended May 31, 2001 to $5.7 million for the three
months ended May 31, 2002. For the nine-month periods ended May 31, 2001 and
2002, SAE expenses increased $0.8 million from $14.5 million to $15.3 million,
or 5.8%. Excluding the non-continuing business, Engineered Solutions adjusted
SAE expenses increased 17.4% and 20.1% for the three and nine months ended May
31, 2002, respectively. These increases in SAE were a result of the inclusion of
SAE costs for Dewald, which was acquired March 1, 2001, non-accruable costs
associated with the consolidation of RV production
23
facilities, and a high level of engineering development costs related to
convertible top actuation for new automotive models.
Amortization Expense
Amortization expense for the three months and nine months ended May 31, 2002 was
$0.6 million and $1.8 million, respectively, compared with $1.7 million and $4.6
million for the comparable prior year periods. These decreases were primarily
due to ceasing goodwill amortization in accordance with SFAS No. 142. See Note 5
to the Condensed Consolidated Financial Statements, "Goodwill and Other
Intangible Assets," for more information on this change in accounting principle.
Restructuring Charge
The Company adopted plans to restructure portions of its operations in the third
quarter of fiscal 2001. These plans were designed to reduce administrative and
operational costs and resulted in a charge of $1.7 million, $1.0 million
after-tax, or $0.13 per diluted share. Of the pre-tax charge, $0.3 million
related to the consolidation of the RV slide production facilities, $0.6 million
related to the downsizing of the cable tie production facility, and $0.8 million
related to a staff reduction plan. The Company wrote down the fixed assets at
the locations to be closed or downsized to their fair value, less costs to sell
in the third quarter of fiscal 2001.
Net Financing Costs
Net financing costs for the three months and nine months ended May 31, 2002
decreased $5.8 million and $11.6 million, respectively, compared to the
respective prior year periods. These reductions were primarily due to the
combined effect of lower market interest rates and reduced debt levels in fiscal
2002. See "Liquidity and Capital Resources" below for further information
regarding the composition of our debt and the impact of our fiscal 2002 second
quarter equity offering.
Other Expense (Income)
Other expense (income) for the three and nine months ended May 31, 2002 and 2001
is comprised of the following (in thousands):
------------------------------- -------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------------- -------------------------------
2002 2001 2002 2001
--------------- -------------- --------------- --------------
Gain on insurance recovery............... $ -- $ (983) $ (623) $ (983)
Loss on sale of QMC...................... -- 619 -- 619
Net present value of idled lease......... -- 1,531 -- 1,531
Net foreign currency transaction gain.... (12) (344) (70) (1,641)
Other, net............................... (45) 354 (105) 354
--------------- -------------- --------------- --------------
Other expense (income)................... $ (57) $ 1,177 $ (798) $ (120)
=============== ============== =============== ==============
Discontinued Operations
In the third quarter of fiscal 2002, the Company recorded a non-cash charge of
$10.0 million, or $0.82 per diluted share, in "Discontinued Operations, net of
Income Taxes" to reflect the preliminary rejection of indemnification agreements
by APW in their bankruptcy filing. See Note 10, "Discontinued Operations and
Distribution of Electronics Segment" to the accompanying consolidated financial
statements for further information.
In the third quarter of fiscal 2001, the Company recorded an $0.8 million loss,
or $0.09 per diluted share, in "Discontinued Operations, net of Income Taxes" to
reflect a change in estimate for Electronics segment liabilities assumed by the
Company as part of the Distribution.
Extraordinary Items
As a result of the redemption of a portion of the 13% Notes, in March 2002 the
Company recorded a pre-tax extraordinary charge of approximately $12.0 million,
$7.8 million after-tax or $0.64 per diluted share, for the $9.1 million payment
of the redemption premium associated with the 13% Notes and the $2.9 million
non-cash write-off of the associated debt discount and issuance costs. See Note
9, "Extraordinary Items" for further information.
Also in the fiscal third quarter, as a result of the refinancing of the
Company's Senior Secured Credit Facility, the Company recorded a non-cash,
pre-tax extraordinary charge of approximately $2.3 million, $1.5 million after
tax or $0.12 per diluted share, for the write-off of a portion of the
capitalized debt issuance costs. See Note 9, "Extraordinary Items" for further
information.
24
Cumulative Effect of Change in Accounting Principle
On September 1, 2001 the Company adopted SFAS No. 142. Under the transitional
provisions of SFAS No. 142, the Company identified its reporting units and
performed impairment tests on the net goodwill associated with each of the
reporting units. The Company recorded an impairment loss associated with its
Milwaukee Cylinder reporting unit of $7.2 million, or $0.85 per diluted share in
the first quarter of fiscal 2002. See Note 5 to the Condensed Consolidated
Financial Statements, "Goodwill and Other Intangible Assets," for further
discussion.
Liquidity and Capital Resources
Cash and cash equivalents totaled $27.6 million and $26.6 million at May 31,
2002 and August 31, 2001, respectively. The Company is presently holding
approximately $23 million of funds that relate to APW, which it intends to hold
until the expiration of the contingency discussed in Note 10, "Discontinued
Operations and Distribution of Electronics Segment" in the accompanying
condensed consolidated financial statements. In the event the Company is
required to make expenditures for this contingent liability, such amounts will
first be paid from these funds. In the event that the Company is required to
fund an amount in excess of these funds, such excess amount would come from
operating cash flows and could potentially result in a materially adverse impact
to the Company's financial position and results of operations.
Net cash provided by operating activities of continuing operations was $3.1
million for the nine months ended May 31, 2002, compared to $46.3 million for
the nine months ended May 31, 2001. Fiscal year to date 2002 operating cash
flows are lower than the prior year because the prior year operating cash flows
include the initial proceeds from the Company's accounts receivable
securitization program of $30.0 million. In addition, fiscal 2002 nine month
operating cash flows include cash payments made for the semi-annual interest on
our 13% Notes totaling $24.8 million, which is $5.3 million higher than the
interest payments for the nine months ended May 31, 2001. This resulted from the
fact that only nine months of interest was paid in fiscal 2001 compared to
twelve months in fiscal 2002, given the issuance date of the bonds. Also, in the
first quarter of fiscal 2002, income tax and transaction costs of approximately
$7.0 million were paid related to the August 2001 sale of Mox-Med. There were no
similar payments for Mox-Med in the prior year. The Company also paid $0.7
million related to restructuring activities in fiscal 2002 as compared to $0.2
million in fiscal 2001.
Net cash used in investing activities totaled $3.7 million and $12.3 million for
the nine months ended May 31, 2002 and 2001, respectively. In fiscal 2002, this
cash was used to fund capital expenditures of $7.5 million and pay the deferred
purchase price related to the Dewald acquisition, partially offset by cash
proceeds of $1.7 million on the sale of two facilities and $2.9 million of
recoveries under an insurance contract. In fiscal 2001, the net cash used in
investing activities primarily consisted of cash paid for acquisitions of $11.3
million and capital expenditures of $5.3 million, offset by insurance proceeds
of $1.1 million and proceeds from the sale of fixed assets of $1.9 million.
Cash provided by financing activities was $1.7 million for the nine months ended
May 31, 2002, as compared to cash used in financing activities of $42.0 million
for the nine months ended May 31, 2001. Cash provided from financing activities
for the nine months ended May 31, 2002 primarily reflects the proceeds of the
equity offering and Senior Secured Credit Facility refinancing, offset by debt
repayments of both the 13% Notes and the Senior Secured Credit Facility as
described below and the payment of the redemption premium on the 13% Notes. Cash
used in financing activities for the nine months ended May 31, 2001 primarily
reflects net debt repayments.
The Company issued 3,450,000 shares of previously unissued shares of Class A
Common Stock in February 2002 for $30.50 per share (the "Equity Offering"). Cash
proceeds from the Equity Offering, net of underwriting discounts, were
approximately $99.7 million. The primary objectives of the Equity Offering were
to 1) redeem $70 million of the 13% Notes prior to the April 2003 expiration of
our optional redemption feature, 2) reduce overall debt to improve financial
stability and flexibility, 3) increase the "float" of the Company's common stock
in the capital markets, and 4) increase the awareness of Actuant Corporation
among United States investors. See Note 8, "Common Stock" and Note 9,
"Extraordinary Items" for further information regarding the equity offering.
25
Proceeds from the Equity Offering were utilized as follows (in thousands):
Net cash proceeds..................................... $ 99,705
Debt retirement - 13% Notes........................... (70,000)
Debt retirement - Senior Secured Credit Facility...... (16,468)
Redemption premium on 13% Notes....................... (9,100)
Accrued interest on 13% Notes......................... (3,387)
Transaction expenses.................................. (750)
----------------
$ --
================
In March 2002 the Company used the proceeds from the common stock offering
completed in the second quarter of fiscal 2002 to redeem $70 million of the 13%
Notes and pay down $16.5 million of debt under the Senior Secured Credit
Facility. In the third quarter of fiscal 2002, the Company refinanced a portion
of the Senior Secured Credit Facility. In conjunction with the refinancing, all
outstanding tranche B institutional term loans were extinguished and the New
Tranche A Term Loans were funded by existing bank lenders. The New Tranche A
Term Loans, with a final maturity in June 2006, are currently priced at LIBOR
plus 2.25%, and are subject to a pricing grid, which allows for further
reductions in the borrowing spread.
The borrowings under the Senior Secured Credit Facility bear interest based on a
variable pricing grid tied to the Company's total leverage, as measured by debt
to trailing twelve-month EBITDA (earnings before interest, taxes, depreciation,
and amortization). As a result of the debt retirement resulting from the Equity
Offering, the borrowing "spread" above LIBOR declined in the fiscal third
quarter. The spread on revolver borrowings was reduced from LIBOR plus 2.75% to
LIBOR plus 2.50%.
For a summary of outstanding debt at May 31, 2002 and August 31, 2001, see Note
7, "Debt" in the accompanying financial statements.
Total debt outstanding at May 31, 2002 is payable as follows:
Years ended August 31,
2002.............. $ 3,027
2003.............. 11,106
2004.............. 17,581
2005.............. 20,386
2006.............. 59,067
Thereafter........ 128,638
--------------
Total............. $ 239,805
==============
The Company leases certain facilities, computers, equipment, and vehicles under
various operating lease agreements, generally over periods from one to twenty
years. Under most arrangements, the Company pays the property taxes, insurance,
maintenance and expenses related to the leased property. Many of the leases
include provisions that enable the Company to renew the lease based upon fair
value rental rates on the date of expiration of the initial lease. For a
schedule of future minimum lease payments see Note 8, "Leases," in the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended August 31, 2001.
As discussed in Note 10 to the accompanying consolidated financial statements,
"Discontinued Operations and Distribution of Electronics Segment," the Company
is contingently liable for certain lease agreements held by APW. If APW were
unable to fulfill its obligations under the leases, the Company could be liable
for such leases. A future breach of the lease agreements by APW could
potentially have a material adverse effect on the Company's results of
operations and financial position.
As more fully discussed in Note 3 to the Condensed Consolidated Financial
Statements, "Accounts Receivable Financing" the Company is party to an accounts
receivable securitization arrangement. Trade receivables sold and being serviced
by the Company were $25.8 million and $25.3 million at May 31, 2002 and August
31, 2001, respectively. If the Company were to discontinue this securitization
program, at May 31, 2002 it would have been required to borrow approximately
$25.8 million to finance the working capital increase.
No dividend payments were declared or made during the first three quarters of
fiscal 2002, nor does the Company expect to pay dividends in the foreseeable
future. Cash flow will instead be retained for working capital needs,
acquisitions, and to reduce outstanding debt. At May 31, 2002, the Company had
$84.5 million of availability under its
26
revolver. The Company's senior credit agreement contains customary limits and
restrictions concerning investments, sales of assets, liens on assets, interest
and fixed cost coverage ratios, maximum leverage, capital expenditures,
acquisitions, excess cash flow, dividends, and other restricted payments. At May
31, 2002 the Company was in compliance with all debt covenants.
Since the Distribution on July 31, 2000, the Company has reduced its
indebtedness from approximately $451.0 million to approximately $240.3 million
as of May 31, 2002. This approximate $211 million reduction was accomplished as
follows:
Business divestiture, net of taxes and expenses....... $ 33
Proceeds from A/R securitization...................... 25
Debt reduction from equity offering proceeds.......... 86
Business acquisition.................................. (13)
Free cash flow from operations and all other.......... 80
----------
$ 211
==========
The primary focus of the Company since the Distribution has been to reduce debt.
Given the rapid deleveraging and the Company's desire to grow both internally
and through acquisitions, the Company intends to continue to use available cash
flow to reduce debt, unless attractive acquisitions surface and are completed.
The Company believes that availability under its credit facilities, plus funds
generated from operations, will be adequate to meet operating, debt service and
capital expenditure requirements for at least the next twelve months.
Outlook
The Company has revised its estimates of its projected operating results for
fiscal 2002 and has made those revised estimates available to the public in a
press release. Accordingly, shareholders and others should no longer rely on the
Company's prior estimates of projected operating results, including the
estimates appearing in the Company's Annual Report on Form 10-K for its fiscal
year ended August 31, 2001, because those prior estimates have been revised and
superseded to reflect current operating and market conditions.
27
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for trading purposes.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2001 within Note 1 - "Summary of Significant
Accounting Policies" in Notes to Consolidated Financial Statements.
Currency Risk - The Company has significant international operations. In most
instances, the Company's products are produced at manufacturing facilities
located near the customer. As a result, significant volumes of finished goods
are manufactured in countries for sale into those markets. For goods purchased
from other Company affiliates, the Company denominates the transaction in the
functional currency of the producing operation.
The Company has adopted the following guidelines to manage its foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the
buyer;
(ii) minimize the cost of hedging through the use of naturally offsetting
positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
The Company's identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of intercompany loans with foreign subsidiaries denominated
in foreign currencies. The Company periodically identifies areas where it does
not have naturally occurring offsetting positions and then purchases hedging
instruments to protect against anticipated exposures. There are no such hedging
instruments in place at May 31, 2002 or through the date of this filing. The
Company's financial position is not materially sensitive to fluctuations in
exchange rates as any gains or losses on foreign currency exposures are
generally offset by gains and losses on underlying payables, receivables and net
investments in foreign subsidiaries.
Interest Rate Risk - Given the Company's leverage, it is exposed to interest
rate risk from changes in interest rates. The Company has periodically utilized
interest rate swap agreements historically to manage overall financing costs and
interest rate risk. During the quarter ended May 31, 2001, the Company entered
into a contract to swap variable interest rates on $25 million of the senior
credit facility for fixed interest rates. In the first quarter of fiscal 2002,
the Company entered into a second contract to swap variable interest rates on
$25 million of the senior credit facility for fixed interest rates. The Company
has no other such agreements in place at May 31, 2002 or through the date of
this filing. The Company's Senior Credit Agreement stipulates that the lower of
50% of total debt or $200.0 million be fixed interest rate obligations. The
Company is in compliance with this requirement.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See "Index to Exhibits" on page 30, which is incorporated herein by
reference.
(b) Reports on Form 8-K
See "Index to Exhibits" on page 30, which is incorporated herein by
reference.
28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTUANT CORPORATION
(Registrant)
Date: July 15, 2002 By: /s/ Andrew G. Lampereur
-------------------------
Andrew G. Lampereur
Vice President and Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of the registrant)
29
ACTUANT CORPORATION
(the "Registrant")
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2002
INDEX TO EXHIBITS
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- ------------ ------------------------------------------ ------------------------------------ --------------
4.12 Amended and Restated Credit Agreement X
dated as of May 22, 2002 among Actuant
Corporation, the Lenders Named Therein,
and Credit Suisse First Boston as Lead
Arranger, Collateral Agent and
Administrative Agent, Wachovia Bank,
N.A. as Syndication Agent, and ING
Capital LLC as Documentation Agent.
4.13 Amended and Restated Security Agreement X
by Actuant Corporation (formerly known
as Applied Power Inc.), as Borrower, and
the Subsidiary Guarantors Party hereto
and the Subsidiary Pledgors Party hereto
and Credit Suisse First Boston, as
Collateral Agent, dated as of July 31,
2000 and Amended and Restated as of May
22, 2002.
4.14 Amended and Restated Indemnity, X
Subrogation and Contribution Agreement
dated as of May 22, 2002, among Actuant
Corporation, a Wisconsin Corporation,
each Guarantor Subsidiary of the
Company, and Credit Suisse First Boston,
as Collateral Agent for the Secured
Parties.
4.15 Amended and Restated Subsidiary X
Guarantee Agreement dated as of May 22,
2002, among each of the Guarantor
Subsidiaries of Actuant Corporation and
Credit Suisse First Boston, as
Collateral Agent for the Secured Parties.
10.34 Actuant Corporation Outside Directors' Exhibit 99.1 to the Registrant's
Deferred Compensation Plan. Form S-8 dated May 24, 2002.
10.35 Form 8-K dated May 23, 2002 was filed Registrant's Form 8-K dated May
describing the impact of prepackaged 23, 2002.
bankruptcy cases filed by a former
subsidiary of the Registrant.
30