The reduced demand by customers initially became visible in late January. The severity of this downturn increased through February and remains evident at this time. The 14.6% second quarter growth, adjusted for foreign exchange movements, was 18.2% and 23.2% when adjusted further to reflect the planned exit of the remaining PC chassis business.
Gross profit for the quarter totaled $63.4 million, representing 20% of sales. The decline in gross margin versus first quarter of 2001 was comprised of a combination of factors. Approximately one-third of the decline was due to under-absorption of costs resulting from the sharp fall-off of volume and start-up costs associated with new programs. An additional one-third was due to a change in mix with a sharp decline in higher margin programs and increased levels of lower-margin systems integration. The remaining deterioration was split between direct labor inefficiencies related to the sales decline and costs associated with severance. A complete review of the Company’s worldwide capabilities to more closely align the cost structure with current business conditions is currently underway and discussed later in this release.
Selling, Administrative and Engineering (SAE) expenses totaled $57.3 million or 18.0% of sales for the quarter. Compared to the first quarter, SAE was approximately flat, excluding SAE expenses associated with acquisitions completed during the second quarter. Net financing costs increased to $7.3 million based on higher debt levels to support the acquisitions completed during the quarter as well as ongoing capital expenditure programs and increased working capital.
APW recorded a net loss of $5.9 million for the quarter, which is equivalent to fully diluted earnings per share of ($0.15) and break-even cash earnings per share.
Our performance for the second quarter 2001 is unacceptable, stated Richard G. Sim, Chairman and Chief Executive Officer of APW. We have undertaken an aggressive review of our business structure, our facility utilization and our labor productivity. We are completing the review of our total cost structure to more effectively align our capabilities with today’s market realities. In light of the slowdown in growth, we reduced headcount by 4% during our fiscal second quarter ended February 28, 2001, excluding the acquisitions completed during the quarter. We reduced headcount an additional 4% in March for a total reduction of 8%. We recognize the impact that these actions have on our team members and their families, but they are unavoidable in the current economic environment. We have also implemented a strict limit on hiring, initiated a process requiring re-authorization of capital spending programs, and are implementing targeted reductions in SAE expenses. We are executing initiatives to improve levels of profitability while ensuring that we have the necessary capacity to meet our anticipated sales growth.
The combination of acquisitions completed during the second fiscal quarter, higher primary working capital and weak operating performance drove the debt level to $569.1 million compared to $290.7 million at November 30, 2000. As a result, the Company was not in compliance with the Debt to EBITDA covenant incorporated in their Multi-Currency Credit Agreement (including the Receivables Purchase Agreement). The Company is currently in discussions with its primary lenders to address this covenant breach, ongoing funding requirements and credit facility terms. The bank group has been and remains supportive through this current downturn. Total debt to capital was 46% on February 28, 2001, compared to 31% on November 30, 2000.
