<PAGE>
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 quarter ended May 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-15851
APW Ltd.
(Exact name of Registrant as specified in its charter)
Bermuda 04-2576375
------- ----------
(State or other jurisdiction of (I.R.S. Employer Id. No.)
incorporation or organization)
N22 W23685 Ridgeview Parkway West
Waukesha, Wisconsin 53188-1013
Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(262) 523-7600
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock (including
related Preferred Stock purchase rights) as of August 15, 2000 was 39,202,646.
1
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APW Ltd.
INDEX
<TABLE>
<CAPTION>
Page No.
---------
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
Item 1 - Unaudited Combined Financial Statements
Combined Statements of Earnings -
For the Three and Nine Months Ended
May 31, 2000 and May 31, 1999............................................................3
Combined Balance Sheets -
As of May 31, 2000 and August 31, 1999...................................................4
Combined Statements of Cash Flows -
For the Nine Months Ended May 31, 2000 and May 31, 1999..................................5
Notes to Combined Financial Statements......................................................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.......................................16
PART II - OTHER INFORMATION
---------------------------
Item 2 - Changes in Securities............................................................................17
Item 4 - Submission on Matters to a Vote of Security Holders..............................................17
Item 5 - Other Information................................................................................18
Item 6 - Exhibits and Reports on Form 8-K.................................................................24
SIGNATURE.................................................................................................24
---------
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
APW Ltd.
COMBINED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $319,798 $260,524 $886,014 $773,763
Cost of products sold 237,060 188,116 653,577 561,503
-------- -------- -------- --------
Gross profit 82,738 72,408 232,437 212,260
Engineering, selling and administrative expenses 50,933 46,639 142,792 138,054
Corporate reorganization expenses 641 - 2,803 -
Amortization of intangible assets 6,002 5,235 17,844 14,943
-------- -------- -------- --------
Operating earnings 25,162 20,534 68,998 59,263
Net financing costs 14,655 14,182 38,222 37,761
Other (income) expense, net (395) 95 958 (1,186)
-------- -------- -------- --------
Earnings before income tax expense 10,902 6,257 29,818 22,688
Income tax expense 4,576 2,703 12,548 8,116
-------- -------- -------- --------
Earnings before extraordinary item 6,326 3,554 17,270 14,572
Extraordinary loss on early retirement of debt, net of
income tax benefit of $1,250 - - (2,083) -
-------- -------- -------- --------
Net earnings $ 6,326 $ 3,554 $ 15,187 $ 14,572
======== ======== ======== ========
Basic and diluted earnings per share:
Earnings per share before extraordinary item $ 0.16 $ 0.09 $ 0.44 $ 0.38
Extraordinary loss on early retirement of debt,
net of income tax benefit - - (0.05) -
-------- -------- -------- --------
Earnings per share $ 0.16 $ 0.09 $ 0.39 $ 0.38
======== ======== ======== ========
Weighted average common shares outstanding 39,094 38,910 39,045 38,783
======== ======== ======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements
3
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APW Ltd.
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 15,002
Accounts receivable, net 103,100 101,765
Inventories, net 136,215 106,794
Prepaid expenses and deferred income taxes 18,023 14,206
---------- ----------
Total current assets 257,338 237,767
Property, plant and equipment, net 173,895 194,904
Goodwill and other intangible assets, net 689,816 698,887
Other assets 49,053 48,420
---------- ----------
Total assets $1,170,102 $1,179,978
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings $ 4,973 $ 3,207
Trade accounts payable 130,519 105,154
Accrued compensation and benefits 24,368 26,749
Income taxes payable 35,801 37,295
Other current liabilities 41,703 58,749
---------- ----------
Total current liabilities 237,364 231,154
Long-term debt 648,833 725,579
Deferred income taxes 7,885 8,149
Other liabilities 44,915 42,260
Equity:
Combined equity 248,409 183,328
Accumulated other comprehensive income (17,304) (10,492)
---------- ----------
Total equity 231,105 172,836
---------- ----------
Total liabilities and equity $1,170,102 $1,179,978
========== ==========
</TABLE>
See accompanying Notes to Combined Financial Statements
4
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APW Ltd.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
------------------------
2000 1999
-------- ---------
<S> <C> <C>
Operating activities
--------------------
Net earnings $ 15,187 $ 14,572
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 43,899 38,627
Gain on sale of assets (284) (717)
Extraordinary loss on early retirement of debt 3,333 -
Changes in operating assets and liabilities, excluding
the effects of business acquisitions:
Accounts receivable (10,238) 3,340
Inventories (27,469) (7,912)
Prepaid expenses and other assets (3,363) (6,807)
Trade accounts payable 25,441 (5,464)
Other liabilities (32,105) (5,090)
-------- ---------
Net cash provided by operating activities 14,401 30,549
Investing activities
--------------------
Proceeds on the sale of property, plant and equipment 2,579 5,823
Additions to property, plant and equipment (28,479) (27,834)
Business acquisitions, net of cash acquired (11,298) (387,067)
Other investing activities (4,508) -
-------- ---------
Net cash used in investing activities (41,706) (409,078)
Financing activities
--------------------
Investments by Applied Power Inc., net, including
debt allocations 24,032 357,135
Net principal payments on long-term debt (48,059) (12,845)
Proceeds from sale/leaseback financing 26,144 -
Additional receivables financed 9,656 32,763
-------- ---------
Net cash provided by financing activities 11,773 377,053
Effect of exchange rate changes on cash 530 196
-------- ---------
Net decrease in cash and cash equivalents (15,002) (1,280)
Cash and cash equivalents - beginning of period 15,002 1,280
-------- ---------
Cash and cash equivalents - end of period $ - $ -
======== =========
</TABLE>
See accompanying Notes to Combined Financial Statements
5
<PAGE>
APW Ltd.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Distribution Transaction and Description of Business
On January 26, 2000, Applied Power Inc's. ("Applied Power") board of directors
authorized various actions intended to put Applied Power in a position to
distribute its Electronics business segment ("APW Ltd." or the "Company") to its
shareholders in the form of a special dividend (the "Distribution"). On July 7,
2000, Applied Power's board of directors approved the Distribution. The
Distribution occurred on July 31, 2000, at which time shareholders of Applied
Power Inc. common stock, as of the July 21, 2000 record date, received one share
of APW Ltd. common stock for every Applied Power Inc. share owned. APW Ltd. now
trades separately on the New York Stock Exchange ("NYSE") as "APW". As part of
the Distribution, APW Ltd. has been incorporated as a Bermuda corporation.
APW Ltd. is a leading global provider of electronics manufacturing services
("EMS") focused on the rapidly growing integrated electronic enclosure systems
market. Operating in over 40 locations in North America, Europe and Asia, APW
Ltd. supplies electronic enclosures, power supplies, thermal management systems,
backplanes and cabling, either as individual products, or as an integrated
custom system, incorporating APW Ltd.'s product design, supply chain management,
manufacturing, assembly, testing and drop-ship capabilities primarily to
original equipment manufacturers ("OEM") in the communications, computing and
internet services markets.
Note 2 - Basis of Presentation
The accompanying unaudited Combined Financial Statements of APW Ltd. and its
subsidiaries 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 Combined Balance Sheet data as
of August 31, 1999 was derived from audited Combined Financial Statements, but
does not include all disclosures required by generally accepted accounting
principles. For additional information, refer to the Combined Financial
Statements and footnotes thereto in the Company's Form 10/A Amendment No. 2
Registration Statement filed with the SEC on July 7, 2000.
In the opinion of management, all adjustments considered necessary for a fair
presentation of financial results have been made. Operating results for the
three and nine months ended May 31, 2000 are not necessarily indicative of the
results that may be expected for the entire fiscal year ending August 31, 2000.
For all periods presented, the financial statement presentation assumes that the
Electronics businesses of Applied Power Inc. that were contributed to APW Ltd.
in connection with the Distribution were organized as a separate legal entity.
Assets and liabilities of Applied Power's Electronics business segment that
were transferred to APW Ltd. are included in the Unaudited Combined Balance
Sheets. The Combined Financial Statements of APW Ltd. also include allocations
of certain Applied Power Inc. corporate assets, liabilities and expenses as
discussed below.
The financial statements assume that Applied Power Inc. has provided certain
general and administrative services to APW Ltd. including administration,
finance, legal, tax, treasury, information systems, corporate communications and
human resources. The cost for these services has been allocated to APW Ltd. by
Applied Power Inc. based upon a formula that includes sales, operating profit,
assets and headcount. Management of APW Ltd. believes that the allocation of
cost for these services is reasonable. After the Distribution, APW Ltd. will be
required to perform these general and administrative services using its own
resources or purchased services and will be responsible for the costs and
expenses associated with the management of a public company. Certain assets and
liabilities related to the above general and administrative services have been
allocated by Applied Power Inc. to APW Ltd. on a basis consistent with the
expense allocation.
Applied Power Inc.'s historical practice had been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Accordingly, historical amounts include debt and
related interest expense allocated to APW Ltd. from Applied Power Inc. based on
the portion of Applied Power Inc.'s investment in APW Ltd. which is deemed to be
debt. This allocation is based upon a cash flow model which details the
historical uses of debt proceeds
6
<PAGE>
by APW Ltd. and the deemed debt repayments by APW Ltd. based on free cash flow.
Management believes that the allocation of corporate debt and related interest
expense for the historical periods is reasonable.
The allocation methodology followed in preparing the Combined Financial
Statements may not necessarily reflect the results of operations, cash flows, or
financial position of APW Ltd. in the future, or what the results would have
been had APW Ltd. been a separate, stand-alone public entity for all periods
presented. It also does not reflect the debt alignment that was instituted as
part of the Distribution which was effective July 31, 2000.
Note 3 - Earnings Per Share
Basic and diluted weighted average shares used to calculate earnings per share
for APW Ltd. are the same as the historical Applied Power Inc. basic weighted
average shares outstanding. We have used Applied Power Inc. basic shares
outstanding for periods presented prior to the July 31, 2000, Distribution date
for the following reasons: (i) upon the Distribution, each shareholder of
Applied Power Inc. common stock received an equivalent number of APW Ltd. shares
and (ii) there were no common stock equivalents of APW Ltd. prior to the
Distribution.
The following table sets forth the computation of basic and diluted earnings per
share for APW Ltd. Fiscal 2000 (unaudited) results include one-time items as
discussed in Note 9 "Extraordinary and Other Non-recurring Items") (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Earnings before extraordinary item $ 6,326 $ 3,554 $ 17,270 $ 14,572
Extraordinary loss, net of tax - - (2,083) -
------------ ------------- -------------- -------------
Net earnings for basic and diluted earnings per
share $ 6,326 $ 3,554 $ 15,187 $ 14,572
============ ============= ============= =============
Denominator:
Weighted average common shares outstanding for
basic and diluted earnings per share 39,094 38,910 39,045 38,783
============ ============= ============= =============
Basic and Diluted Earnings Per Share:
Earnings per share before extraordinary item $ 0.16 $ 0.09 $ 0.44 $ 0.38
Extraordinary loss, net of tax - - (0.05) -
------------ ------------- ------------- -------------
Earnings per share $ 0.16 $ 0.09 $ 0.39 $ 0.38
============ ============= ============= =============
</TABLE>
Note 4 - Comprehensive Income
The components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings $ 6,326 $ 3,554 $ 15,187 $ 14,572
Foreign currency translation adjustments (8,514) (5,422) (6,812) (4,255)
------------ ------------- ------------- --------------
Comprehensive (loss) income $ (2,188) $ (1,868) $ 8,375 $ 10,317
============ ============= ============= =============
</TABLE>
7
<PAGE>
Note 5 - Acquisitions
On April 1, 2000, the Company, through a wholly-owned subsidiary, acquired all
of the outstanding stock of Malcoe Enclosures Limited ("Malcoe"). Malcoe
specializes in the design and manufacture of shelters, large walk-in enclosures
generally used to house telecom equipment. The total purchase price totaled $1.6
million, including fees and expenses. The acquisition was funded by borrowings
under Applied Power credit facilities. The acquisition has been accounted for
using the purchase method and the results of operations of the acquired company
are included in the Combined Statements of Earnings from the acquisition date.
Preliminary allocations of the purchase price resulted in approximately $1.5
million in goodwill.
On January 28, 2000, the Company, through a wholly-owned subsidiary, acquired
all of the outstanding stock of Metalade of Pennsylvania Inc. ("Metalade").
Metalade specializes in metal fabrication relating to electronics enclosures.
The total purchase price totaled $8.7 million, including fees and expenses, with
future consideration not to exceed $5.0 million, based on the attainment of
targeted sales levels. The acquisition was funded by borrowings under Applied
Power credit facilities. The acquisition has been accounted for using the
purchase method and the results of operations of the acquired company are
included in the Combined Statements of Earnings from the acquisition date.
Preliminary allocations of the purchase price resulted in approximately $6.7
million in goodwill.
Note 6 - Net Inventories
The nature of APW Ltd.'s products is such that they have a very short production
cycle. Consequently, the amount of work-in-process at any point in time is
minimal. 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. At these locations, APW Ltd. has not
deemed it necessary or cost effective to categorize inventory by state of
completion, but rather between material, labor and overhead.
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 7 - Financing
On August 1, 2000 APW Ltd. entered into a 3-year, $600.0 million revolving
credit facility. The proceeds of the credit facility will be used to; (i)
refinance a portion of Applied Power Inc.'s existing indebtedness, (ii) finance
working capital, capital expenditures and general corporate requirements, and
(iii) finance potential future acquisitions. Under the revolving credit
facility, the Company can borrow at a floating rate of LIBOR plus 0.750% to
1.750% annually, depending on the Company's total debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA") ratio. Based on the
Company's current total debt to EBITDA ratio, the Company incurs interest at
1.125% above the 30-day LIBOR. A non-use fee, computed at a rate of 0.200% to
0.375% annually, depending on the Company's total debt to EBITDA ratio, is
payable quarterly on the average unused credit line.
On July 31, 2000, as a part of the Distribution, APW Ltd. assumed Applied Power
Inc.'s accounts receivable financing facility. On that date, the facility was
amended by decreasing the amount available under the facility from $150.0
million to $100.0 million. The facility was also amended to sell the receivables
without recourse. The assumed accounts receivable financing facility agreement
expires in November, 2000. All other substantive terms of the amended agreements
remained the same as they were under Applied Power Inc.
Under the terms of the assumed accounts receivable financing facility, APW Ltd.
and certain subsidiaries (collectively, "Originators") sell trade accounts
receivable to Applied Power Credit Corporation ("APCC"), a wholly-owned, limited
purpose subsidiary of the Company as of July 31, 2000. APCC is a separate
corporate entity that sells participating interests in its pool of accounts
receivable to financial institutions ("Purchasers"). The Purchasers, in turn,
receive an ownership and security interest in the pool of receivables.
Participation interests in new receivables generated by the Originators are
purchased by APCC and resold to the Purchasers as collections reduce previously
sold participation interests. The sold accounts receivable to Purchasers are
reflected as a reduction of receivables in the Combined Balance Sheet. APCC has
no risk of credit loss on such receivables as they are sold without recourse.
The Company retains collection and administrative responsibilities on the
participation interests sold as servicer for APCC and the Purchasers.
8
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On May 30, 2000, the Company received $26.1 million in net proceeds from a sale-
leaseback transaction related to five properties located in the United States.
The initial term of the lease is for 17 years with an effective lease rate of
9.35%. The gain resulting from the transaction has been deferred and will be
amortized into income in proportion to rental expense over the initial term of
the lease.
See additional discussion of the Company's debt realignment in Part II
Item 5 - Other Information.
Note 8 - Combined Equity
The "Combined equity" caption in the accompanying Combined Financial Statements
represents Applied Power's cumulative net investment in the combined businesses
of APW Ltd. Changes in the "Combined equity" caption represent the net income
(loss) of APW Ltd., net cash and noncash contributions from (distributions to)
Applied Power, changes in allocated corporate debt and allocated corporate
interest, net of tax.
Note 9 - Extraordinary and Other Non-recurring Items
In January 2000, a subsidiary of APW Ltd. retired $50.0 million of senior
promissory notes that were due March 8, 2011. The notes were retired in
anticipation of the planned spin-off of APW Ltd. In connection with this early
retirement of debt, APW Ltd. paid a $3.3 million make-whole premium, $2.1
million net of tax benefit. This premium payment has been recorded in APW Ltd.'s
Combined Statement of Earnings for the nine months ended May 31, 2000, as an
extraordinary loss, net of tax benefit.
During the first nine months of fiscal 2000, Applied Power allocated to APW Ltd.
a total of $2.8 million, $1.8 million net of taxes, for fees and expenses
associated with the Distribution transaction and incorporating APW Ltd. in
Bermuda. Those fees and expenses are classified under the caption "Corporate
reorganization expenses" in the Combined Statements of Earnings, and represent
APW Ltd.'s allocated portion of legal, accounting, tax and investment banking
fees incurred through May 31, 2000 (unaudited).
Note 10 -Subsequent Events
On July 19, 2000, APW Ltd. announced that its board of directors had approved
the APW Ltd. 2000 Stock Option Plan and under this plan, 106 employees had been
granted approximately 2.3 million options. The options were priced based on the
closing price of APW Ltd. common stock on the fourth "when-issued" trading day,
which was July 27, 2000. The options will vest if the common stock of APW Ltd.
reaches $80 per share within three years and the individual is still employed
with APW Ltd. Alternatively, the options vest in seven years following date of
grant if the individual is still employed with APW Ltd.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Risk Factors That May Affect Future Results
The following discussion of the financial condition and results of operations of
APW Ltd. and its subsidiaries should be read in conjunction with the
accompanying Combined Financial Statements of APW Ltd. and its subsidiaries, and
related notes thereto. The Combined Financial Statements of APW Ltd. and its
subsidiaries generally reflect the financial position, results of operations and
cash flows of the operations transferred to APW Ltd. from Applied Power Inc. in
connection with the Distribution (see Overview below). Accordingly, APW Ltd.'s
Combined Financial Statements have been carved out from the Consolidated
Financial Statements of Applied Power Inc. using the historical results of
operations and historical basis of the assets and liabilities of APW Ltd.'s
Electronics businesses and allocates certain Applied Power Inc. corporate
assets, liabilities and expenses as discussed below. Management believes the
assumptions underlying APW Ltd.'s financial statements are reasonable.
Overview
On January 26, 2000, Applied Power's board of directors authorized various
actions intended to put Applied Power in a position to distribute its
Electronics Business segment ("APW Ltd." or the "Company") to its shareholders,
in the form of a special dividend (the "Distribution").
On July 7, 2000, Applied Power's board of directors approved the Distribution of
its Electronics businesses. The Distribution occurred on July 31, 2000, with
shareholders of Applied Power Inc. common stock receiving one share of APW Ltd.
common stock for every Applied Power Inc. share owned as of the July 21, 2000,
the record date. APW Ltd. now trades separately on the New York Stock Exchange
("NYSE") as "APW" and Applied Power Inc. is continuing to trade on the NYSE, but
has changed its ticker symbol to "ATU" and will subsequently change its name to
Actuant Corporation. Prior to the Distribution, APW Ltd. was converted to a
Bermuda corporation. The Distribution is expected to be tax-free to Applied
Power shareholders.
The Company is organized as one reportable segment. APW Ltd. is a leading global
electronics manufacturing services ("EMS") provider focused on the rapidly
growing integrated electronic enclosure systems market. Operating in over 40
locations throughout North America, Europe and Asia, APW Ltd. supplies a broad
range of individual components and integrated manufacturing services to original
equipment manufacturers ("OEM") primarily in the communications, computing, and
internet markets. APW Ltd. also provides a comprehensive portfolio of electronic
products, including electronic enclosures, power supplies, thermal management
systems, backplanes and cabling, either as individual products, or as an
integrated custom system.
Applied Power Allocations
Applied Power has provided certain general and administrative services to APW
Ltd. including administration, finance, legal, tax, treasury, information
systems, corporate communications and human resources. The cost for these
services was allocated to APW Ltd. by Applied Power based upon a formula that
includes sales, operating profit, assets and headcount. Management believes that
the allocation of cost for these services is reasonable. After the Distribution,
APW Ltd. is now required to perform these general and administrative services
using its own resources or purchased services and will be responsible for the
costs and expenses associated with the management of a public company. See Part
II Item 5 - Other Information for further discussion of APW Ltd. general
corporate expenses after the Distribution.
Applied Power's historical practice has been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Accordingly, historical amounts for APW Ltd.
include debt and related interest expense allocated from Applied Power based on
the portion of Applied Power's investment in APW Ltd. which is deemed to be
debt. This allocation is based upon a cash flow model which details the
historical uses of debt proceeds by APW Ltd. and the deemed debt repayments by
APW Ltd. based on free cash flow. Management believes that the allocation of
corporate debt and related interest expense for the historical periods is
reasonable. This historical allocation, however, is not indicative of the total
amount of debt that APW Ltd. will have upon completion of Applied Power's
realignment of its consolidated debt after the Distribution. See the Company's
10
<PAGE>
debt realignment in Part II Item 5 - Other Information for further discussion of
APW Ltd. debt levels after the Distribution.
The above allocation methodologies followed in preparing the accompanying
Combined Financial Statements may not necessarily reflect the results of
operations, cash flows, or financial position of APW Ltd. in the future, or what
the results would have been had APW Ltd. been a separate stand-alone public
entity for all periods presented.
Results of Operations
Net Earnings. Net earnings for the third quarter of fiscal 2000 were $6.3
million, or $0.16 per share. Excluding one-time items during the third quarter,
net earnings were $6.7 million, or $0.17 per share, an increase of 86% over the
$3.6 million, or $0.09 per share, in the prior year third quarter.
The one-time item recorded during the current fiscal year third quarter related
to a $0.6 million charge, $0.4 million after-tax, allocated from Applied Power
Inc. for costs incurred associated with the Distribution and incorporation of
APW Ltd. in Bermuda.
For the nine months ended May 31, 2000, net earnings were $15.2 million, or
$0.39 per share. Excluding one-time items in the current year, net earnings were
$20.1 million or $0.51 per share, a 38% increase over the $14.6 million or $0.38
per share for the first nine months of last year. Sales for the first nine
months of fiscal 2000 were a record $886.0 million, an increase of 15% over the
same period last year, 18% excluding the negative effect of currency.
The one-time items in fiscal 2000 relate to (i) a $2.8 million allocated pre-tax
charge, $1.8 million after-tax, related to costs incurred associated with the
Distribution and costs to incorporate APW Ltd. in Bermuda; and (ii) a $2.1
million after-tax extraordinary charge related to a make-whole premium paid in
connection with the early retirement of $50.0 million of senior promissory notes
due March 8, 2011. The senior promissory notes were issued by a subsidiary of
APW Ltd., therefore, the entire extraordinary charge was allocated to APW Ltd.
Net Sales. Sales revenues grew 23% and 15% for the quarter and year-to-date
periods ended May 31, 2000, respectively, as compared to the prior year periods.
Foreign currency translation adjustments had a negative effect of $10.0 million,
or 3% and $28.6 million, or 3% for the quarter and year-to-date periods ended
May 31, 2000, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
NET SALES BY GEOGRAPHIC LOCATION
-----------------------------------------------------------------------------------------------------------------
(in thousands) Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------------------------------------------
May 31, May 31,
-----------------------------------------------------------------------------------------------------------------
2000 1999 Change 2000 1999 Change
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America $189,292 $145,308 30% $516,376 $411,554 25%
Europe and other 130,506 115,216 13% 369,638 362,209 2%
-----------------------------------------------------------------------------------------------------------------
Total $319,798 $260,524 23% $886,014 $773,763 15%
=================================================================================================================
</TABLE>
APW Ltd. does business in many different geographic regions and is subject to
various and diverse economic conditions. Fiscal 2000 North American sales grew
30% and 25% for the three and nine months ended May 31, 2000, respectively,
primarily due to internal growth and to a lesser extent, the inclusion of
acquisitions completed since the third quarter of fiscal 1999. European sales
grew 13% and 2% for the three and nine months ended May 31, 2000, respectively.
Gross Profit. Third quarter and year-to-date gross profit dollars increased by
14% and 10%, respectively, over the comparable prior year periods. As a
percentage of sales, gross profit decreased 2% during the current year third
quarter as compared to the prior year third quarter. Compared to the prior year
periods, the increase in gross profit dollars and decline in gross profit as a
percentage of sales were a result of lower margin integration business
accounting for a greater percentage of total revenues.
11
<PAGE>
Engineering, Selling and Administrative Expenses. Fiscal 2000 third quarter
engineering, selling and administrative ("ESA") expenses were 9% higher than
reported in the third quarter of fiscal 1999. The increase in ESA expense during
the quarter is a result of (i) additional costs incurred to expand the Company's
infrastructure in anticipation of the Distribution of APW Ltd., (ii) an increase
in allocation percentage for Applied Power general corporate expenses and (iii)
additional ESA expenses incurred by businesses acquired since or during the
third quarter of fiscal 1999. In total, ESA expenses were reduced to 16% of net
sales for the current year quarter compared to 18% for the prior year quarter.
The reduction was the result of continued efforts to manage spending levels
throughout the Company.
Amortization of Intangible Assets. Amortization expense of $6.0 million and
$17.8 million for the respective three and nine month periods ended May 31, 2000
was higher than in the comparable prior year periods due to the acquisitions
completed during and subsequent to the first three quarters of fiscal 1999.
Corporate Reorganization Expense. Through the first nine months of the current
fiscal year, APW Ltd. has recorded $2.8 million, $1.8 million after-tax, of fees
and expenses associated with the Distribution and incorporating APW Ltd. in
Bermuda. Those fees and expenses represent APW Ltd's allocated portion of legal,
accounting, tax and investment banking fees incurred through May 31, 2000 for
services related to the Distribution. Corporate reorganization expense of $0.6
million, $0.4 million net of tax, was recorded in the third quarter.
Operating Earnings. Excluding one time items in both periods, operating earnings
margins for the three and nine months ended May 31, 2000 were 7.9% and 7.8%,
respectively. Operating earnings margins, excluding one time items, for the
three and nine months ended May 31, 1999 was 7.9% and 7.7%, respectively. The
margin increase of 0.1% for the nine months ended May 31, 2000, versus the prior
year, is a result of leverage on internal sales growth, efficient integration of
acquired businesses, and continued efforts to manage spending levels throughout
the Company.
Net Financing Costs. Fiscal 2000 third quarter Net Financing Costs is net of a
$1.1 million pre-tax gain related to the unwinding of interest rate swap
agreements during the second quarter of fiscal 2000 in conjunction with
obtaining new credit agreements. Through nine months of fiscal 2000, Net
Financing Costs include $4.4 million of pre-tax, recognized interest rate swap
gains. The interest rate swap agreements were unwound by Applied Power in
anticipation of the Distribution of the Electronics business segment and a
portion of the associated gain was allocated to APW Ltd. Excluding the interest
rate swap gains, Net Financing Costs for the nine months ended May 31, 2000
increased over the prior year period primarily as a result of a general increase
in interest rates throughout fiscal 2000. Other factors attributing to the
increase in Net Financing Costs in the first nine months of fiscal 2000 versus
fiscal 1999 include additional borrowings incurred to finance acquisitions
completed during and subsequent to the first nine months of fiscal 1999, offset
by net repayments of debt. See "Applied Power Allocations" above for further
discussion of net financing costs allocated to APW Ltd. from Applied Power.
Income Tax Expense. APW Ltd.'s effective tax rate for the first nine months of
fiscal 2000 was 42.1%, compared to 35.8% in the same period of fiscal 1999. The
goodwill and subsequent amortization expense recorded as a result of most of APW
Ltd.'s acquisitions is non-deductible for tax purposes. The effective tax rate
increased between periods due to a change in the mix of domestic and foreign
income. The effective tax rate was higher than the statutory rate in both
periods primarily as a result of state income taxes and non-deductible
amortization of goodwill, offset by net effects of foreign tax rates and
credits.
Management believes that APW Ltd.'s effective tax rate should decrease
significantly in the future.
Extraordinary Loss. The results for the first nine months of fiscal 2000 include
a $2.1 million after-tax extraordinary loss related to a make-whole premium paid
in connection with the early retirement of $50.0 million of senior promissory
notes of a subsidiary unit of APW Ltd. due March 8, 2011.
12
<PAGE>
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $0.0 million and $15.0 million at May 31, 2000
and August 31, 1999, respectively. The Company intentionally maintains
relatively low cash balances by using available cash to reduce short-term and
long-term bank borrowings.
Net cash generated from operations, after considering non-cash items and changes
in operating assets and liabilities, totaled $14.4 million for the nine months
ended May 31, 2000 versus $30.5 million for the comparable nine months ended
May 31, 1999.
Net cash used in investing activities totaled $41.7 million for the first nine
months of fiscal 2000. Approximately $15.8 million was used for acquisitions and
investments, while $28.5 million was used for capital expenditures. Those uses
of cash were offset by $2.6 million in proceeds from the sale of equipment.
Financing activities in the first nine months of fiscal 2000 provided $11.8
million of net cash during the period. Cash investments by Applied Power Inc.,
net, including debt allocations to APW Ltd. for the nine months ended May 31,
2000 amounted to $24.0 million. APW Ltd.'s net repayments of debt principal
amounted to $48.1 million. APW Ltd. received $26.1 million in net proceeds from
a sale-leaseback transaction related to five properties located in the United
States and an additional $9.7 million from the financing of receivables.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION (in thousands) May 31, 2000 August 31, 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Debt $653,806 73% $728,786 80%
Total Equity 231,105 26% 172,836 19%
Deferred Income Taxes 7,885 1% 8,149 1%
----------------------------------------------------------------------------------------------
Total $892,796 100% $909,771 100%
==============================================================================================
</TABLE>
Total outstanding allocated debt at May 31, 2000 totaled $653.8 million, a
decrease of approximately $75.0 million since the beginning of the fiscal year.
On August 1, 2000 APW Ltd. entered into a 3-year, $600.0 million revolving
credit facility. The proceeds of the credit facility will be used to; (i)
refinance a portion of Applied Power Inc. existing indebtedness, (ii) finance
working capital, capital expenditures and general corporate requirements, and
(iii) finance potential future acquisitions. Under the revolving credit
facility, the Company can borrow at a floating rate of LIBOR plus 0.750% to
1.750% annually, depending on the Company's total debt to earnings before
interest taxes depreciation and amortization ("EBITDA") ratio. Based on the
Company's current total debt to EBITDA ratio, the Company incurs interest at
1.125% above the 30-day LIBOR. A non use fee, computed at a rate of 0.200% to
0.375% annually, depending on the Company's total debt to EBITDA ratio, is
payable quarterly on the average unused credit line.
On July 31, 2000, as a part of the Distribution, APW Ltd. assumed Applied Power
Inc.'s accounts receivable financing facility. On that date, the facility was
amended by decreasing the amount available under the facility from $150.0
million to $100.0 million. The facility was also amended to sell the receivables
without recourse. The assumed accounts receivable financing facility agreement
expires in November, 2000. All other substantive terms of the amended agreements
remained the same as they were under Applied Power Inc.
The Company believes that availability under its current credit facilities or
other borrowings, plus funds generated from operations, will be adequate to meet
operating, debt service and capital expenditure requirements for the foreseeable
future.
13
<PAGE>
Year 2000 Considerations
------------------------
In prior years, Applied Power had executed an action plan to ensure that its
computer systems were capable of processing the periods for the Year 2000 and
beyond. This action plan was completed in late calendar year 1999. As a result
of those planning and implementation efforts, Applied Power Inc. experienced no
significant disruptions in mission critical information technology and non-
information technology systems and believes those systems successfully responded
to the Year 2000 date change. While no disruption has developed as of the date
of this filing, Year 2000 problems may still surface throughout calendar year
2000. APW Ltd. will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout calendar year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
Accounting and Technical Pronouncements
---------------------------------------
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. The SEC staff expressed its view that revenue is realized or
realizable and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services have been
rendered; the seller's price to the buyer is fixed or determinable; and
collectability is reasonably assured. The Company expects that SAB 101 will have
not have a material effect on its financial statements.
Recent Developments
-------------------
On May 23, 2000, Applied Power Inc. announced its intention, on behalf of its
APW Ltd. subsidiary, to acquire shelter integration businesses for housing
telecom equipment from Ericsson. A shelter is a large walk-in enclosure
generally used for housing and protecting telecommunications equipment. APW Ltd.
believes the shelters will complement its existing enclosure offering by adding
another solution for the telecom market place and by expanding its breadth of
offerings. Because the proposed transaction is subject to ongoing due diligence,
and no definitive agreements have been executed, there can be no assurance that
the acquisition will be completed.
14
<PAGE>
Forward-looking Statements and Cautionary Factors
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, as well as statements in other
Company communications, which are not historical facts, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties. The terms "anticipate", "believe",
"estimate", "expect", "objective", "plan", "project" and similar expressions are
intended to identify forward-looking statements. Such forward-looking statements
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,
market conditions in the computer, semiconductor, telecommunication, and
electronic industries in North America, Europe and, to a lesser extent, Asia,
market acceptance of existing and new products, successful integration of
acquisitions, competitive product and pricing pressures, foreign currency risk,
interest rate risk, the Company's ability to access capital markets, and other
factors that may be referred to in APW Ltd.'s reports filed with the Securities
and Exchange Commission from time to time.
15
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
APW Ltd. is exposed to market risk from changes in foreign exchange and interest
rates and, to a lesser extent, commodities. To reduce such risks, APW Ltd.
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 APW Ltd.'s accounting policies for derivative financial
instruments is included in APW Ltd.'s Combined Financial Statements and
footnotes thereto in the Company's Form 10/A Amendment No. 2 Registration
statement filed with the SEC on July 7, 2000, within Note 2 - "Summary of
Significant Accounting Policies" in Notes to Combined Financial Statements, and
further disclosure relating to financial instruments is included in Note 9 -
"Debt."
Currency Risk - APW Ltd. has significant international operations. In most
instances, APW Ltd.'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, APW Ltd. denominates the transaction in the functional
currency of the producing operation.
APW Ltd. 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.
APW Ltd.'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. APW Ltd. periodically identifies naturally occurring
offsetting positions and then purchases hedging instruments to protect against
anticipated exposures. APW Ltd.'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 - APW Ltd. periodically enters into interest rate swaps to
stabilize financing costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, APW Ltd. contracts with a counter party to exchange the
difference between a fixed rate and a floating rate applied to the notional
amount of the swap. The differential to be paid or received on interest rate
swap agreements is accrued as interest rates change and is recognized in net
income as an adjustment to interest expense. Gains relating to terminations of
qualifying hedges are deferred and recognized in income at the same time as the
underlying hedged transactions.
Commodity Prices - APW Ltd. is exposed to fluctuation in market prices for
steel. Therefore, APW Ltd. has established a program for centralized
negotiation of steel prices. This program allows APW Ltd. to take advantage of
economies of scale as well as to cap pricing. All business units are able to
purchase steel under this arrangement. In general, the contracts lock steel
pricing for 18 months and enable APW Ltd. to pay less if market prices fall.
16
<PAGE>
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
APW Ltd. was formed as an indirect wholly-owned subsidiary of Applied Power
through a continuation of an existing corporation (previously named Wright
Line, Inc. and now named APW Ltd.) into Bermuda. As a result, APW Ltd. became a
Bermuda corporation and at such time issued 1.2 million shares owned indirectly
by Applied Power Inc. In connection with the Distribution, APW Ltd. issued
additional shares totaling 37,997,135 which were held indirectly by Applied
Power Inc. and on July 31, 2000, Applied Power Inc. distributed all 39,197,135
shares to the shareholders of Applied Power Inc.
Item 4 - Submission of Matters to a Vote of Security Holders
In connection with the Distribution, Applied Power Inc., which indirectly owned
APW Ltd., authorized certain organizational matters, including adopting a form
of bye-laws and amending the bye-laws with those described as in an annex to APW
Ltd.'s Form 10 and the Information Statement. The Company also adopted a
shareholder rights plan in the form summarized in the Information Statement sent
to all shareholders. On July 18, 2000, the sole shareholder of APW Ltd.
authorized the adoption of the shareholder rights plan as well as ratified the
approval of certain options granted to the Company's management at a July 17,
2000 board meeting.
17
<PAGE>
Item 5 - Other Information
Distribution
APW Ltd.'s securities were distributed to shareholders of Applied Power Inc. on
July 31, 2000 and APW Ltd. is filing this Form 10-Q as an update to the
information included in the Information Statement.
Unaudited Pro Forma Financial Information
The following unaudited pro forma combined statement of earnings and unaudited
pro forma combined balance sheet present the combined results of APW Ltd. and
its subsidiaries and its financial position, assuming that the transactions
contemplated by the Distribution had been completed as of September 1, 1999 for
statement of earnings purposes and as of May 31, 2000 for balance sheet
purposes.
The unaudited pro forma information has been prepared utilizing the historical
combined financial statements of APW Ltd. and its subsidiaries. This information
should be read in conjunction with the accompanying historical combined
financial statements. The unaudited pro forma financial data does not purport to
be indicative of the results of APW Ltd. and its subsidiaries in the future or
what the financial position and results of operations would have been had APW
Ltd. been a separate, stand-alone entity during the periods shown.
APW Ltd.
Unaudited Pro Forma Combined Statement of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended May 31, 2000
----------------------------------------------------
<S> <C> <C> <C>
Pro Forma Pro
Historical Adjustments Forma
------------- --------------- --------------
Net sales $ 886,014 $ - $ 886,014
Cost of products sold 653,577 - 653,577
------------- --------------- --------------
Gross profit 232,437 - 232,437
Engineering, selling and administrative expenses 142,792 3,216 (a) 146,008
Corporate reorganization expenses 2,803 (2,803) (b) -
Amortization of intangible assets 17,844 - 17,844
------------- --------------- --------------
Operating earnings 68,998 (413) 68,585
Net financing costs 38,222 (17,686) (c) 20,536
Other (income) expense, net 958 - 958
------------- --------------- --------------
Earnings before income tax expense 29,818 17,273 47,091
Income tax expense 12,548 1,579 (d) 14,127
------------- --------------- --------------
Earnings before extraordinary item 17,270 15,694 32,964
Extraordinary loss on early retirement of debt,
net of income tax benefit of $1,250 (2,083) 2,083 (e) -
------------- --------------- --------------
Net earnings $ 15,187 $ 17,777 $ 32,964
============= =============== ==============
Basic and diluted earnings per share:
Earnings per share before extraordinary item $ 0.44 $ 0.84
Extraordinary loss, net of tax (0.05) -
------------- --------------
Earnings per share $ 0.39 $ 0.84
============= ==============
Weighted average common shares
Outstanding (000's) 39,045 39,045
============= ==============
The accompanying notes are an integral part of these unaudited pro forma financial statements
</TABLE>
18
<PAGE>
APW Ltd.
Unaudited Pro Forma Combined Balance Sheet
(Dollars in Thousands)
<TABLE>
<CAPTION>
May 31, 2000
-------------------------------------------
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ - $ - $ -
Accounts receivable, net 103,100 - 103,100
Inventories, net 136,215 - 136,215
Prepaid expenses and deferred income taxes 18,023 - 18,023
---------- --------- ----------
Total current assets 257,338 - 257,338
Property, plant and equipment, net 173,895 - 173,895
Goodwill and other intangibles assets, net 689,816 - 689,816
Other assets 49,053 - 49,053
---------- --------- ----------
Total assets $1,170,102 $ - $1,170,102
========== ========= ==========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Short-term borrowings $ 4,973 $ - $ 4,973
Trade accounts payable 130,519 - 130,519
Accrued compensation and benefits 24,368 - 24,368
Income taxes payable 35,801 - 35,801
Other current liabilities 41,703 - 41,703
---------- --------- ----------
Total current liabilities 237,364 - 237,364
Long-term debt 648,833 (382,000) (f) 266,833
Deferred income taxes 7,885 - 7,885
Other liabilities 44,915 - 44,915
Equity:
Common stock - 391 (f) 391
Share premium - 630,018 (f) 630,018
Combined equity (g) 248,409 (248,409) (f) -
Accumulated other comprehensive income (17,304) - (17,304)
---------- --------- ----------
Total equity 231,105 382,000 613,105
--------- ----------
----------
Total liabilities and equity $1,170,102 $ - $1,170,102
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements
19
<PAGE>
APW Ltd.
Notes to the Unaudited Pro Forma Combined Financial Statements
(a) Pro forma adjustment to engineering, selling and administrative expenses of
$3.2 million for the nine months ended May 31, 2000 represents the
estimated incremental costs that would have been incurred by APW Ltd. for
general corporate expenses if the transaction discussed in the Distribution
would have occurred on September 1, 1999, the beginning of fiscal 2000. For
the nine months ended May 31, 2000, total pro forma general corporate
expenses are $9.0 million.
(b) Pro forma adjustment reflects the exclusion of APW Ltd.'s allocated portion
of the non-recurring charges incurred by Applied Power associated with the
Distribution. The pro forma Combined Statement of Earnings reflects the
Distribution as having taken place at September 1, 1999 and as such, the
one-time charge is excluded given that these corporate reorganization
expenses would have been incurred by APW Ltd. before the Distribution.
(c) Pro forma adjustment reflects an adjustment to net financing costs based on
the debt realignment anticipated with the Distribution. The debt
realignment contemplates allocating APW Ltd. the remaining Applied Power
debt balance outstanding after payment of costs associated with the
Distribution, including transaction costs, estimated federal taxes from the
reorganization and expenses in connection with redeeming the Applied Power
subordinated notes, the receipt of proceeds from the divestiture of the
Barry Wright Corporation (included in the Applied Power Industrial
Business), the completion of sale-leaseback transactions and the allocation
of $450.0 million of debt to Applied Power Inc. The pro forma adjustment is
a result of APW Ltd.'s lower anticipated indebtedness and subsequent lower
financing costs as a result of the debt realignment. The weighted average
interest rate used to calculate pro forma net financing costs for the nine
months ended May 31, 2000, was 7.75%, and is based on interest rates for
various types of interest bearing obligations that APW Ltd. will enter
into.
(d) Pro forma adjustment to income tax expense represents the anticipated lower
effective tax rate of 30% (versus the historical effective tax rate of
42.1% for the nine months ended May 31, 2000) on the higher pro forma pre-
tax earnings that APW Ltd. will be subject to after its incorporation in
Bermuda.
(e) The pro forma adjustment represents the exclusion of the extraordinary loss
on the early retirement of debt that was recorded during the nine months
ended May 31, 2000, which was incurred in anticipation of the Distribution.
The Pro Forma Combined Statement of Earnings presents the results of APW
Ltd. as if the transaction discussed in the Distribution had occurred on
September 1, 1999. Because the extraordinary loss was incurred by APW Ltd.
before the Distribution, the pro forma results exclude this loss.
(f) The pro forma adjustment to debt and equity reflects the change in
allocated debt from Applied Power to APW Ltd. that is a result of the debt
realignment discussed in Note (c) above. The pro forma adjustment reflects
the Distribution as the elimination of Applied Power's net investment in
APW Ltd. and the issuance of 39.2 million shares of APW Ltd. common stock.
(g) The "Combined equity" caption in the Pro Forma Combined Balance Sheet
represents Applied Power's cumulative net investment in the combined
business of APW Ltd. Changes in the "Combined equity" caption represent the
net income (loss) of APW Ltd., net cash and noncash contributions from
(distributions to) Applied Power, changes in allocated corporate debt and
allocated corporate interest, net of tax.
20
<PAGE>
The following table summarizes the pro forma results of operations for the most
recent seven quarters as if the Distribution had occurred on September 1, 1998,
the beginning of fiscal 1999. The unaudited pro forma information has been
prepared utilizing the historical Combined Financial Statements of APW Ltd. and
its subsidiaries. This information should be read in conjunction with the
accompanying historical Combined Financial Statements and related notes thereto.
The unaudited pro forma financial data does not purport to be indicative of the
results of APW Ltd. and its subsidiaries in the future or what the financial
position and results of operations would have been had APW Ltd. been a separate,
stand-alone entity during the periods shown.
APW Ltd.
Unaudited Pro Forma Combined Statement of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine
Three Months Ended Months Ended
-------------------------------------- -------------
November 30, February 29, May 31, May 31,
1999 2000 2000 2000
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Net sales $289,126 $277,090 $319,798 $886,014
Cost of products sold 211,714 204,803 237,060 653,577
-------- -------- -------- --------
Gross profit 77,412 72,287 82,738 232,437
Engineering, selling and
administrative expenses (a) 48,256 45,917 (b) 51,835 (b) 146,008
Amortization of intangible assets 5,816 6,026 6,002 17,844
-------- -------- -------- --------
Operating earnings 23,340 20,344 24,901 68,585
Net financing costs (c) 6,987 6,915 6,634 20,536
Other (income) expense, net 546 807 (395) 958
-------- -------- -------- --------
Earnings before income tax expense 15,807 12,622 18,662 47,091
Income tax expense (d) 4,742 3,787 5,598 14,127
-------- -------- -------- --------
Net earnings (e) $ 11,065 $ 8,835 $ 13,064 $ 32,964
======== ======== ======== ========
Basic and diluted earnings per share:
Earnings per share $ 0.28 $ 0.23 $ 0.33 $ 0.84
======== ======== ======== ========
Weighted average common shares
outstanding (000's) 38,992 39,052 39,094 39,045
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements
21
<PAGE>
APW Ltd.
Unaudited Pro Forma Combined Statement of Earnings
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
-------------------------------------------------- ----------
November 30, February 28, May 31, August 31, August 31,
1998 1999 1999 1999 1999
----------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $263,186 $250,054 $260,524 $281,574 $1,055,338
Cost of products sold 187,326 186,062 188,116 202,081 763,585
-------- -------- -------- -------- ----------
Gross profit 75,860 63,992 72,408 79,493 291,753
Engineering, selling and
administrative expenses (a) 48,726 44,942 47,763 51,183 192,614
Amortization of intangible assets 4,808 4,900 5,235 5,933 20,876
-------- -------- -------- -------- ----------
Operating earnings 22,326 14,150 19,410 22,377 78,263
Net financing costs (c) 6,987 6,939 6,829 6,833 27,588
Other (income) expense, net (104) (1,177) 95 (600) (1,786)
-------- -------- -------- -------- ----------
Earnings before income tax expense 15,443 8,388 12,486 16,144 52,461
Income tax expense (d) 4,631 2,516 3,748 4,843 15,738
-------- -------- -------- -------- ----------
Net earnings $ 10,812 $ 5,872 $ 8,738 $ 11,301 $ 36,723
======== ======== ======== ======== ==========
Basic and diluted earnings per share:
Earnings per share $ 0.28 $ 0.15 $ 0.23 $ 0.29 $ 0.95
======== ======== ======== ======== ==========
Weighted average common shares
outstanding (000's) 38,649 38,786 38,910 38,960 38,825
======== ======== ======== ======== ==========
</TABLE>
(a) Pro forma engineering, selling and administrative expenses include $3.0
million of general corporate expenses per quarter for all quarters
presented, versus the allocated portion of Applied Power Inc.'s allocated
general corporate expenses as shown in Part I Item 1 - Combined Statements
of Earnings.
(b) Includes pro forma adjustment that reflects the exclusion of APW Ltd.'s
allocated portion of corporate reorganization expenses incurred by Applied
Power associated with the Distribution. The pro forma Combined Statement of
Earnings reflects the Distribution as having taken place at September 1,
1998 and as such, the corporate reorganization expenses are excluded given
that expenses would have been incurred by APW Ltd. before the Distribution.
(c) Pro forma adjustment reflects an adjustment to net financing costs based on
the debt realignment anticipated with the Distribution. The debt
realignment contemplates allocating APW Ltd. the remaining Applied Power
debt balance outstanding after payment of costs associated with the
Distribution, including transaction costs, estimated federal taxes from the
reorganization and expenses in connection with redeeming the Applied Power
subordinated notes, the receipt of proceeds from the divestiture of the
Barry Wright Corporation (included in the Applied Power Industrial
Business), the completion of sale-leaseback transactions and the allocation
of $450.0 million of debt to Applied Power Inc. The pro forma adjustment is
a result of APW Ltd.'s lower anticipated indebtedness and subsequent lower
financing costs as a result of the debt realignment. The weighted average
interest rate used to calculate pro forma net financing costs for the nine
months ended May 31, 2000, was 7.75%, and is based on interest rates for
various types of interest bearing obligations that APW Ltd. will enter
into.
22
<PAGE>
(d) Includes pro forma adjustments to income tax expense for all quarters
presented that represents the anticipated lower effective tax rate of 30%
on the higher pro forma pre-tax earnings that APW Ltd. will be subject to
after its incorporation in Bermuda.
(e) The pro forma adjustment represents the exclusion of the extraordinary loss
on the early retirement of debt that was recorded during the nine months
ended May 31, 2000, which was incurred in anticipation of the Distribution.
The Pro Forma Combined Statement of Earnings presents the results of APW
Ltd. as if the transaction discussed in the Distribution had occurred on
September 1, 1999. The extraordinary loss was incurred by a subsidiary of
APW Ltd. before the Distribution, therefore the pro forma results exclude
this loss.
23
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) See Index to Exhibits on page 25, which is incorporated herein by reference.
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.
APW Ltd.
(Registrant)
Date: August 17, 2000 By: /s/Richard D. Carroll
----------------------
Richard D. Carroll
Vice President - Finance
(Acting Principal Financial
Officer and duly authorized to
sign on behalf of the registrant)
24
<PAGE>
APW Ltd.
(the "Registrant")
(Commission File No. 1-15851)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2000
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
------------ --------------------------------------------- ----------------------------------- --------------
<S> <C> <C> <C>
27.1 Financial Data Schedule X
10.1 Multicurrency Credit Agreement dated as of X
July 31, 2000 among APW Ltd., APW North
America Inc., APW Holdings Denmark APS,
various financial institutions, Bank One as
Syndication Agent, The Chase Manhattan Bank
as Documentation Agent and Bank of America,
National Association, as Administrative Agent,
arranged by Banc of America Securities LLC
10.2 Assumption and Assignment Agreement X
10.3 Amendment to Receivables Financing Agreement X
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