<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 5, 1998
APPLIED POWER INC.
-----------------
(Exact name of Registrant as specified in its charter)
WISCONSIN 1-11288 39-0168610
--------- ------- ----------
(State of incorporation) (Commission File No.) (I.R.S. Employer Id. No.)
13000 WEST SILVER SPRING DRIVE
BUTLER, WISCONSIN 53007
MAILING ADDRESS: P. O. BOX 325, MILWAUKEE, WISCONSIN 53201
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(414) 781-6600
--------------
(Registrant's telephone number, including area code)
1
<PAGE>
The undersigned registrant hereby amends Item 7 including the financial
statements, exhibits or other portions of financial information filed for VERO
Group plc ("VERO") on Form 8-K dated as of June 5, 1998 (the "VERO 8-K").
The financial statements and related footnotes as previously filed in the VERO
8-K have been amended to reflect that the financial data presented for VERO's
fiscal year ended December 31, 1996 is not covered by the audit opinion of Ernst
& Young for the year ended December 31, 1997 filed as part of the VERO 8-K. As
such, the 1996 financial data has been marked as "unaudited." Additionally,
footnote number 23 has been added to reconcile certain information presented
under generally accepted accounting principles in the United Kingdom to
generally accepted accounting principles in the United States. The related
updated accountants' consent as Exhibit 23 is also being filed.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLIED POWER INC.
June 30, 1998 By: /s/ Robert C. Arzbaecher
-------------------------------------
Robert C. Arzbaecher
Vice President and
Chief Financial Officer
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- - -------------------------------------------
(a) Financial Statements of Businesses Acquired:
The following financial statements of VERO prepared in accordance with
generally accepted accounting principles in the United Kingdom are included
herein from pages 17 through 35 of VERO's 1997 Annual Report which is filed
herewith as Exhibit 99.1. These financial statements are not the statutory
accounts of VERO. The statutory accounts for the years ended December 31,
1997 and 1996 have been delivered to the Registrar of Companies for England
and Wales and the auditors' reports thereon were unqualified:
Report of Independent Auditors
Consolidated Profit and Loss Account for the years ended December 31,
1997 and 1996
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Cash Flow Statement for the years ended December 31, 1997
and 1996
Consolidated Statement of Total Recognized Gains and Losses for the
years ended December 31, 1997 and 1996
Reconciliation of Movements in Consolidated Shareholders' Fund for the
years ended December 31, 1997 and 1996
Company Balance Sheet as of December 31, 1997 and 1996
Accounting Policies
Notes to the Accounts
(b) Pro Forma Financial Information:
The following unaudited pro forma condensed consolidated financial
statements of Applied Power Inc. and subsidiaries, reflecting the
acquisition of VERO, are filed herewith:
Introduction to Pro Forma Condensed Consolidated Financial Statements
of Applied Power Inc. and VERO Group plc
Applied Power Inc. and VERO Group plc Pro Forma Condensed Consolidated
Balance Sheet as of February 28, 1998 and the related Pro Forma
Condensed Consolidated Statement of Earnings for the six months then
ended (unaudited)
Pro Forma Condensed Consolidated Statement of Earnings for the year
ended August 31, 1997 (unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
(c) Exhibits:
See the Exhibit Index following the Signature page of this Report, which is
incorporated herein by reference.
5
<PAGE>
APPLIED POWER INC. AND VERO GROUP PLC
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------
Unaudited
As described under Item 2 of this report, Applied Power Inc. (the "Company" or
"API"), through Applied Power Limited, a wholly owned subsidiary, acquired by
means of a tender offer and market purchases of shares over 90% of the
outstanding shares of common stock of VERO Group plc ("VERO") at a price of 192
pence per share in cash.
The following unaudited pro forma condensed consolidated balance sheet and
statements of earnings (the "pro forma statements") give effect to the
acquisition of VERO using the purchase method of accounting and are based on the
estimates and assumptions set forth in the notes to such pro forma statements.
The pro forma statements have been prepared by the Company utilizing the
historical financial statements of the Company and notes thereto which were
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997 and the unaudited condensed consolidated interim financial
information contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1998 and the audited financial statements and notes
thereto of VERO for the year ended December 31, 1997, included as Item 7(a) of
this report, and VERO's unaudited interim results for the six months ended June
30, 1997. VERO's reporting currency is the United Kingdom pound sterling and its
financial information in the accompanying pro forma combined financial
statements has been translated to the U.S. dollar in accordance with Statement
of Financial Accounting Standards No. 52, "Foreign Currency Translation." VERO's
historic financial statements are prepared in accordance with generally accepted
accounting principles in the United Kingdom ("UK GAAP"), however, VERO's
financial information in the accompanying pro forma combined financial
statements has been adjusted to confirm with generally accepted accounting
principles in the United States ("US GAAP"). The only material adjustment
required to conform with US GAAP related to goodwill. Under UK GAAP purchased
goodwill may be written off on acquisition directly against reserves. Under US
GAAP goodwill is capitalized and amortized by charges against income over the
period during which it is estimated it will be of benefit subject to a maximum
of 40 years. Accordingly, goodwill, net of amortization, was recorded in the pro
forma combined balance sheet at February 28, 1998 and the related amortization
expense included in the pro forma combined statements of earnings for the six
months ended February 28, 1998 and the twelve months ended August 31, 1997.
These pro forma statements have been prepared and included herein as required by
the rules and regulations of the Securities and Exchange Commission and are
provided for comparative purposes only. The pro forma statements are not
necessarily indicative of the future consolidated financial position and results
of operation or those which would have occurred had the acquisition been
consummated as of the dates reflected in the pro forma statements. In reviewing
the pro forma statements, the reader should consider the following:
1. The historical amounts of VERO were compiled to conform, as closely as
possible, to the fiscal year of the Company. The historical income
statement for VERO covers the twelve month period beginning January 1
through December 31. For pro forma purposes, the VERO income statement has
been adjusted to cover the twelve month period beginning July 1, 1996
through June 30, 1997.
2. The following pro forma financial statements do not reflect any adjustments
for the various synergies or cost reductions the Company expects to achieve
as a result of the acquisition.
6
<PAGE>
APPLIED POWER INC. AND VERO GROUP PLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
API VERSA/TEK ZERO VERO
SIX MONTHS SEPTEMBER 1, SIX MONTHS SIX MONTHS
ENDED TO ENDED SUB-TOTAL ENDED TOTAL
FEBRUARY 28, OCTOBER 6, DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA
1998(1) 1997(1) 1997(1) ADJUSTMENTS COMBINED 1997(1) ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- --------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $425,834 $9,330 $131,375 $566,539 $83,927 $650,466
Cost of products sold.. 276,677 6,637 87,731 24 (4) 371 069 58,204 429,273
-------- ------ -------- ------ -------- ------- --------
Gross profit.......... 149,157 2,693 43,644 (24) 195,470 25,723 221,193
Engineering, selling
and administrative
expenses.............. 97,594 1,302 25,570 (706)(3) 123,760 17,987 141,747
Amortization of
intangible assets..... 5,201 -- -- 706 (3) 6,144 236 1,692 (5) 8,072
237 (4)
-------- ------ -------- ------ -------- ------- ------- --------
Operating earnings.... 46,362 1,391 18,074 (261) 65,566 7,500 (1,692) 71,374
Other Expenses
(Income):
Net financing costs... 9,470 (11) 1,964 763 (4) 12,186 201 6,493 (5) 18,880
Other--net............ (195) 100 (2,232)(10) (2,327) -- (2,327)
-------- ------ -------- ------ -------- ------- ------- --------
Net Earnings from
Continuing Operations
Before Income Tax
Expense............... 37,087 1,302 18,342 (1,024) 55,707 7,299 (8,185) 54,821
Income Tax Expense(11). 12,981 -- 6,636 (201)(4) 19,416 2,541 (2,155)(5) 19,802
-------- ------ -------- ------ -------- ------- ------- --------
Net Earnings from
Continuing Operations. $ 24,106 $1,302 $ 11,706 (10) $ (823) $ 36,291 $ 4,758 $(6,030) $ 35,019
======== ====== ======== ====== ======== ======= ======= ========
Net earnings from
continuing operations
per common and
equivalent share:
Basic................. $ 0.87 $ 0.95 (10) $ 0.95 $ 0.92
Diluted............... $ 0.82 $ 0.93 (10) $ 0.90 $ 0.87
Common and equivalent
shares used in
computing per share
amounts:
Basic................. 27,728 12,344 (1,852)(2) 38,220 38,220
Diluted............... 29,371 12,649 (1,897)(2) 40,123 40,123
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
7
<PAGE>
APPLIED POWER INC. AND VERO GROUP PLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
EVEREST VERSA/TEK ZERO VERO
API SEPTEMBER 1, YEAR YEAR YEAR
YEAR ENDED TO ENDED ENDED SUB-TOTAL ENDED TOTAL
AUGUST 31, SEPTEMBER 26, JUNE 30, JUNE 30, ADJUST- PRO FORMA JUNE 30, ADJUST- PRO FORMA
1997 (1) 1996 (1) 1997 (1) 1997 (1) MENTS COMBINED 1997 (1) MENTS COMBINED
---------- ------------- --------- -------- -------- ---------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales........... $672,316 $3,496 $95,288 $235,330 $ 5,701 (7) $1,012,131 $163,270 $1,175,401
Cost of products
sold............... 419,420 2,663 69,773 158,195 20 (6) 654,668 106,492 761,160
4,597 (7)
-------- ------ ------- -------- -------- ---------- -------- ----------
Gross profit....... 252,896 833 25,515 77,135 1,084 357,463 56,778 414,241
Engineering, selling
and administrative
expenses........... 173,200 304 14,552 46,377 (1,194)(3) 233,994 37,233 271,227
Amortization of 755 (7)
intangible assets.. 6,813 125 -- -- 1,194 (3) 11,289 473 3,384 (8) 15,146
145 (6)
3,012 (7)
-------- ------ ------- -------- -------- ---------- -------- -------- ----------
Operating earnings. 72,883 404 10,963 30,758 (2,828) 112,180 19,072 (3,384) 127,868
Other Expenses
(Income):
Net financing
costs............. 12,003 (23) (32) 4,095 282 (6) 25,832 653 12,986 (8) 39,471
9,507 (7)
Other--net......... (1,863) (47) 607 (1,393) (3)(7) (2,699) -- (2,699)
-------- ------ ------- -------- -------- ---------- -------- -------- ----------
Net Earnings from
Continuing
Operations Before
Income Tax Expense. 62,743 474 10,388 28,056 (12,614) 89,047 18,419 (16,370) 91,096
Income Tax
Expense (11)....... 20,705 -- 4,216 11,165 62 (6) 32,413 6,649 (4,464)(8) 34,598
(3,735)(7)
-------- ------ ------- -------- -------- ---------- -------- -------- ----------
Net Earnings from
Continuing
Operations......... $ 42,038 $ 474 $ 6,172 $ 16,891 $ (8,941) $ 56,634 $ 11,770 $(11,906) $ 56,498
======== ====== ======= ======== ======== ========== ======== ======== ==========
Net earnings from
continuing
operations per
common and
equivalent share:
Basic.............. $ 1.53 $ 1.38 $ 1.49 $ 1.49
Diluted............ $ 1.46 $ 1.36 $ 1.44 $ 1.44
Common and
equivalent shares
used in computing
per share amounts:
Basic.............. 27,530 12,213 (1,832)(2) 37,911 37,911
Diluted............ 28,754 12,450 (1,868)(2) 39,337 39,336
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
8
<PAGE>
APPLIED POWER INC. AND VERO GROUP PLC
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
API ZERO SUB-TOTAL VERO TOTAL
FEBRUARY 28, DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA
ASSETS 1998 (1) 1997 (1) ADJUSTMENTS COMBINED 1997 (1) ADJUSTMENTS COMBINED
------ ------------ ------------ ----------- --------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents........... $ 7,010 $ 22,051 $ 29,061 $ 6,756 $ 35,817
Short-term
investments........... -- 4,918 4,918 -- 4,918
Accounts receivable,
net................... 76,908 37,537 114,445 27,851 142,296
Inventories............ 130,190 34,137 164,327 22,765 187,092
Prepaid income tax..... 12,453 -- 12,453 -- 12,453
Prepaid expenses....... 11,116 3,736 14,852 2,020 16,872
--------- -------- --------- -------- ----------
Total Current Assets. 237,677 102,379 340,056 59,392 399,448
Investment in VERO
Group, PLV............. -- -- -- -- 192,384 (9a) --
(192,384)(9b)
Other Assets............ 10,397 17,259 (2,718)(3) 24,938 1,359 26,297
Goodwill................ 260,361 37,391 297,752 17,010 135,367 (9b) 450,129
Other Intangibles....... 46,688 -- 2,718 (3) 49,406 -- 49,406
Property, Plant and
Equipment.............. 257,259 106,776 364,035 37,154 401,189
Less: Accumulated
depreciation.......... (133,019) (57,444) (190,463) (8,892) (199,355)
--------- -------- --------- -------- ----------
Net Property, Plant and
Equipment.............. 124,240 49,332 173,572 28,262 201,834
--------- -------- ------- --------- -------- --------- ----------
Total Assets......... $ 679,363 $206,361 $ -- $ 885,724 $106,023 $ 135,367 $1,127,114
========= ======== ======= ========= ======== ========= ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Liabilities
Short-term borrowings.. $ 15,585 $ -- $ 15,585 $ 842 $ 16,427
Trade accounts
payable............... 62,335 7,827 70,162 14,993 85,155
Accrued compensation
and benefits.......... 28,207 7,246 35,453 -- 35,453
Income taxes payable... 4,118 573 4,691 4,757 9,448
Other current
liabilities........... 24,975 8,420 33,395 17,747 51,142
--------- -------- --------- -------- ----------
Total Current
Liabilities......... 135,220 24,066 159,286 38,339 197,625
Long-term Debt.......... 272,262 51,573 323,835 10,251 192,384 (9a) 526,470
Deferred Income Tax..... 16,913 -- 16,913 416 17,329
Other Deferred
Liabilities............ 27,241 13,084 40,325 -- 40,325
Shareholders' Equity
Common stock (API:
27,836,656 shares;
ZERO 12,391,197
shares; and
38,369,173 shares on
a pro forma combined
basis)................ 5,567 166 -- 5,733 4,964 (4,964) 5,733
Additional paid-in
capital............... 38,538 39,289 -- 77,827 30,094 (30,094) 77,827
Retained earnings...... 190,049 151,899 -- 341,948 23,578 (21,959) 343,567
Cumulative translation
adjustments........... (6,427) 100 (6,327) (1,619) (7,946)
Treasury stock......... -- (73,816) (73,816) -- (73,816)
--------- -------- --------- --------- -------- -------- ----------
Total Shareholders'
Equity.............. 227,727 117,638 345,365 57,017 (57,017)(9b) 345,365
--------- -------- --------- --------- -------- -------- ----------
Total Liabilities and
Shareholders'
Equity.............. $ 679,363 $206,361 $ -- $ 885,724 $106,023 $135,367 $1,127,114
========= ======== ========= ========= ======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
9
<PAGE>
APPLIED POWER INC. AND VERO GROUP PLC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1--PERIODS COMBINED
The Company's consolidated statements of earnings for the six months ended
February 28, 1998 (unaudited) and for the fiscal year ended August 31, 1997,
have been combined with the VERO consolidated statements of income for the six
months ended December 31, 1997 and for the twelve months ended June 30, 1997
(both unaudited) respectively. The Company's February 28, 1998 unaudited
consolidated balance sheet has been combined with VERO's December 31, 1997
audited consolidated balance sheet.
On April 6, 1998, the Company and ZERO Corporation ("ZERO") jointly announced
that they had entered a definitive strategic merger agreement in which a newly
created subsidiary of the Company will be merged into ZERO. Under the terms of
the merger, ZERO stockholders will receive .85 shares of the Company's common
stock for each share of ZERO common stock. Approved by the boards of directors
of both companies, consummation of the Merger is subject to approval by the
stockholders of both companies and satisfaction of certain other conditions. The
Merger would be accounted for as a pooling of interests and is expected to be
completed in July 1998. The unaudited pro forma combined financial data for the
six months ended February 28, 1998 includes the operating results of Versa
Technologies, Inc. ("Versa/Tek"), which was acquired by the Company on October
6, 1997, for the period from September 1 to October 6, 1997 and the operating
results of ZERO for the six months ended December 31, 1997. The unaudited pro
forma combined financial data for the year ended August 31, 1997 includes the
operating results of Everest Electronics Equipment, Inc. ("Everest"), which was
acquired by the Company on September 26, 1996, for the period from September 1
to September 26, 1996, and the operating results of Versa/Tek and ZERO for their
respective twelve months ended June 30, 1997. The operating results of Versa/Tek
and Everest subsequent to their acquisition dates, are included in the Company's
historic results (presented in the first column of the accompanying combined
financial statements) for the six months ended February 28, 1998 and the year
ended August 31, 1997.
VERO's reporting currency is the pound sterling and its financial information
in the accompanying pro forma combined financial statements has been translated
to the U.S. dollar in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." VERO's historic financial
statements are prepared in accordance with generally accepted accounting
principles in the United Kingdom ("UK GAAP"), however, VERO's financial
information in the accompanying pro forma combined financial statements has been
adjusted to conform with generally accepted accounting principles in the United
States ("US GAAP"). The only material adjustment required to conform with US
GAAP related to goodwill. Under UK GAAP purchased goodwill may be written off on
acquisition directly against reserves. Under US GAAP goodwill is capitalized and
amortized by charges against income over the period during which it is estimated
it will be of benefit subject to a maximum of 40 years. Accordingly, goodwill,
net of amortization, was recorded in the pro forma combined balance sheet at
February 28, 1998 and the related amortization expense included in the pro forma
combined statements of earnings for the six months ended February 28, 1998 and
the twelve months ended August 31, 1997.
10
<PAGE>
NOTE 2--PRO FORMA NET EARNINGS PER SHARE
The unaudited pro forma combined net earnings per common share and per
common and equivalent share is based upon the weighted average number of
common and equivalent shares of API and ZERO outstanding for each period at
the Exchange Ratio of 0.85 shares of API Common Stock for each share of ZERO
Common Stock.
NOTE 3--RECLASSIFICATIONS (ZERO)
Certain reclassifications, none of which affect income from continuing
operations, have been made to the ZERO statements of income in the pro forma
combined statements of earnings to conform classifications of "Amortization of
intangible assets" and to ZERO's balance sheet in the pro forma combined
balance sheet to conform classifications of "Other intangibles."
NOTE 4--PRO FORMA ADJUSTMENTS (VERSA/TEK)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the six months ended February
28, 1998 as a result of the Versa/Tek acquisition.
<TABLE>
<S> <C>
1. Incremental interest expense on acquisition debt at a rate
of 6.5%................................................... $ (763)
2. Increase in depreciation expense resulting from adjustment
to carrying amount of plant and equipment being
depreciated over a 7 year life............................ (24)
3. Reflect amortization of increase in goodwill and
intangible assets arising from this transaction, over
periods of 10 to 30 years................................. (237)
4. Decrease in income taxes (net benefit) applying a 39%
effective US and Wisconsin state income tax rate to the
earnings of Versa/Tek, less the effect of pro forma
adjustments in 1, 2 and 3 above (with the exception of non-
deductible amortization).................................. 201
--------
$ (823)
========
</TABLE>
NOTE 5--PRO FORMA ADJUSTMENTS (VERO)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the six months ended February
28, 1998 as a result of the VERO acquisition.
<TABLE>
<S> <C>
1. Incremental interest expense on acquisition debt at a rate of
6.75%........................................................ $(6,493)
2. Reflect amortization of goodwill arising from this
transaction, over a 40 year life............................. (1,692)
3. Decrease in income taxes (net benefit) applying a 37%
effective income tax rate to the earnings of VERO, less the
effect of pro forma adjustments in 1 and 2 above (with the
exception of non-deductible amortization).................... 2,155
-------
$(6,030)
=======
</TABLE>
NOTE 6--PRO FORMA ADJUSTMENTS (EVEREST)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 as a result of the Everest acquisition.
<TABLE>
<S> <C>
1. Incremental interest expense on acquisition debt at a rate of
6.5%......................................................... $ (282)
2. Increase in depreciation expense resulting from adjustment to
carrying amount of plant and equipment being depreciated over
a 7 year life................................................ (20)
3. Reflect amortization of goodwill arising from this
transaction, over a 25 year life............................. (145)
4. Increase in income taxes applying a 41% effective U.S. and
California state income tax rate to the earnings of Everest,
less the effect of pro forma adjustments in 1, 2 and 3 above. (62)
-------
$ (509)
=======
</TABLE>
11
<PAGE>
NOTE 7--PRO FORMA ADJUSTMENTS (VERSA/TEK)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 to reflect a full year of Eder Industries in Versa/Tek (Eder was acquired
by Versa/Tek on October 31, 1996).
<TABLE>
<S> <C>
1. Add historical operating results of Eder for the four-month
period July 1, 1996 to 10/31/96 (date of Versa/Tek's
acquisition)
Net Sales................................................. $ 6,338
Cost of Products Sold..................................... (4,924)
Engineering, Selling and Administrative Expenses.......... (755)
Financing Costs........................................... (19)
Other Income.............................................. 3
2. Eliminate intercompany sales and purchases between Eder and
Versa/Tek................................................... 637
(637)
3. Incremental interest expense/elimination of interest income
relating to the cash borrowed/used in the acquisition at a
rate of 6.5%................................................ (333)
4. Increase in depreciation expense resulting from adjustment
to carrying amount of plant and equipment being depreciated
over periods of 10 to 30 years.............................. (24)
5. Reflect additional amortization of goodwill and other
intangibles arising from the Eder transaction over periods
of 3 to 40 years............................................ (163)
--------
$ 123
========
</TABLE>
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 as a result of the Versa Tek acquisition.
<TABLE>
<S> <C>
6. Incremental interest expense on acquisition debt at a
rate of 6.5%............................................. $ (9,155)
7. Increase in depreciation expense resulting from
adjustment to carrying amount of plant and equipment
being depreciated over a 7 year life..................... (286)
8. Reflect amortization of increase in goodwill and
intangible assets arising from this transaction over
periods of 10 to 40 years................................ (2,849)
9. Decrease in income taxes (net benefit) applying a 39%
effective US and Wisconsin state income tax rate to the
earnings of Versa/Tek, less the effect of pro forma
adjustments in 1 through 8 above (with the exception of
non-deductible amortization)............................. 3,735
---------
$ (8,555)
=========
</TABLE>
NOTE 8--PRO FORMA ADJUSTMENTS (VERO)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for API's year ended August 31,
1997 as a result of the VERO acquisition.
<TABLE>
<S> <C>
1. Incremental interest expense on acquisition debt at a rate
of 6.75%.................................................. $(12,986)
2. Reflect amortization of goodwill arising from this
transaction, over a 40 year life.......................... (3,384)
3. Decrease in income taxes (net benefit) applying a 37%
effective income tax rate to the earnings of VERO, less
the effect of pro forma adjustments 1 and 2 above (with
the exception of non-deductible amortization)............. 4,464
---------
$(11,906)
=========
</TABLE>
12
<PAGE>
NOTE 9--PRO FORMA ADJUSTMENTS (VERO)
(a) The following pro forma adjustments are incorporated in the pro forma
combined balance sheet at February 28, 1998 as a result of the VERO acquisition.
<TABLE>
<S> <C>
Purchase price of outstanding shares.......................... $192,384
</TABLE>
(b) The following pro forma adjustments are made to reflect estimated fair
value adjustments and to eliminate the investment in VERO:
<TABLE>
<S> <C>
VERO net assets--as reported.................................. $ 57,017
Fair value adjustments:
Record goodwill acquired.................................... 135,367
---------
Investment in VERO........................................ $192,384
=========
</TABLE>
Because of the proximity of the transaction, API has not had adequate time to
complete its evaluation of the fair value of the net assets acquired in the VERO
transaction. As a result, no fair value adjustments have been reflected in these
pro forma statements.
NOTE 10--SPECIAL ITEM (ZERO)
Other Income--net for the six months ended December 31, 1997 includes life
insurance proceeds of $1,709 ($0.14 per share).
NOTE 11--INCOME TAX EXPENSE
Effective tax rates are higher than the statutory federal income tax rates
primarily due to state income taxes, net of federal benefit.
13
<PAGE>
APPLIED POWER INC.
EXHIBIT INDEX
TO
FORM 8-K CURRENT REPORT
Date of Report: June 5, 1998
<TABLE>
<CAPTION>
Exhibit Filed
Number Description Herewith
- - ------ ----------- --------
<S> <C> <C>
4.1 Multicurrency Credit Agreement X
dated as of June 18, 1998, among
Applied Power Inc. and Enerpac
B.V., as Borrowers, various financial
institutions from time to time party
thereto, as Lenders, The First National
Bank of Chicago, as Syndication
Agent, Societe Generale, as Documentation
Agent, and Bank of America National
Trust and Savings Association, as
Administrative Agent, arranged by
BancAmerica Robertson Stephens
23 Consent of Ernst & Young X
99.1 Consolidated balance sheet of VERO X
Group plc and subsidiaries as of
December 31, 1997 and 1996 and related
consolidated profit and loss account and
cash flow for each of the two years in the
period ended December 31, 1997, and the
notes thereto and auditors' report thereon,
included herein in Item 7(a) of this report
</TABLE>
15
<PAGE>
EXHIBIT 23
(6/30/98 8-K/A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-18140, 33-21250, 33-24197, 33-38719, 33-38720, 33-62658,
333-42353, and 333-46469 pertaining to the employee share plans named on the
facing sheets thereof and Form S-3 No. 333-47493) of Applied Power Inc. and
in the related prospectuses, of our report dated March 23, 1998, on the
consolidated financial statements of VERO Group plc as at December 31, 1997 and
for the year then ended included in the Amended Report (Form 8-K/A) of Applied
Power Inc. dated June 30, 1998, filed with the Securities and Exchange
Commission.
/s/Ernst & Young
----------------
ERNST & YOUNG
Chartered Accountants
Southampton, England
June 30, 1998
<PAGE>
EXHIBIT 99.1
VERO GROUP PLC
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
VERO Group plc
We have audited the consolidated balance sheet of VERO Group plc as at
December 31, 1997 and the related consolidated profit and loss accounts and
consolidated statements of total recognized gains and losses and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to form an independent opinion on
these financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VERO Group plc
at December 31, 1997 and the consolidated results of its operations and its
consolidated cash flows for the year then ended in conformity with accounting
principles generally accepted in the United Kingdom which differ in certain
respects from those generally accepted in the United States (see Note 23 of
Notes to the Accounts).
/s/Ernst & Young
----------------
ERNST & YOUNG
Chartered Accountants
Southampton, England
March 23, 1998
<PAGE>
VERO GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1997
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
--------------------------------------------------
<S> <C> <C> <C>
TURNOVER - CONTINUING OPERATIONS 1 101,219 106,062
Cost of sales (68,524) (68,280)
--------------------------------------
Gross profit 32,695 37,782
--------------------------------------
Distribution costs (13,749) (14,411)
Administration expenses (8,619) (9,257)
Income from interests in associated undertakings 7 39
--------------------------------------
OPERATING PROFIT - CONTINUING OPERATIONS 2 10,334 14,153
Net interest payable 5 (312) (562)
--------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 10,022 13,591
Taxation 6 (3,422) (4,926)
--------------------------------------
Profit on ordinary activities after taxation 6,600 8,665
Minority interest 5 -
--------------------------------------
PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY 6,605 8,665
--------------------------------------
Dividends 7 (3,454) (3,434)
--------------------------------------
Retained profit for the year 17 3,151 5,231
--------------------------------------
EARNINGS PER ORDINARY SHARE - BASIC 8 11.1P 14.7p
EARNINGS PER ORDINARY SHARE - FULLY DILUTED 8 10.9P 14.3p
--------------------------------------
</TABLE>
NOTE OF HISTORICAL COST PROFITS AND LOSSES. There is no difference between the
historical cost profit and the retained profit for the year ended 31 December
1997 or 31 December 1996.
2
<PAGE>
VERO GROUP PLC
CONSOLIDATED BALANCE SHEET
as at 31 December 1997
<TABLE>
<CAPTION>
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
----------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 17,121 15,467
Investments 10 823 543
---------------------------------------
17,944 16,010
CURRENT ASSETS
Stocks 11 13,791 12,735
Debtors 12 18,096 17,982
Cash at bank and in hand 4,093 6,619
---------------------------------------
35,980 37,336
CREDITORS: amounts falling due within one year
Bank and other borrowings 13 (510) (493)
Other creditors 13 (22,706) (24,254)
---------------------------------------
(23,216) (24,747)
---------------------------------------
NET CURRENT ASSETS 12,764 12,589
---------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 30,708 28,599
---------------------------------------
CREDITORS: amounts falling due after more than one year
Bank and other borrowings 14 (6,210) (6,221)
Provision for liabilities and charges 15 (252) (142)
---------------------------------------
24,246 22,236
MINORITY INTERESTS (10) -
---------------------------------------
24,236 22,236
---------------------------------------
CAPITAL AND RESERVES
Called up share capital 16 3,007 3,007
Share premium account 17 18,231 18,231
Capital redemption reserve 17 9 9
Goodwill reserve 17 (11,471) (11,301)
Profit and loss account 17 14,460 12,290
---------------------------------------
Shareholders' funds 24,236 22,236
---------------------------------------
</TABLE>
3
<PAGE>
VERO GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1997
<TABLE>
<CAPTION>
YEAR TO YEAR TO
31 DECEMBER 31 DECEMBER
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
-------------------------------------------------
<S> <C> <C> <C>
Net cash inflow from operating activities 18(a) 11,957 15,561
Returns on investments and servicing of finance 18(b) (310) (644)
Taxation (4,802) (2,498)
Capital expenditure 18(c) (5,054) (5,354)
Acquisitions and disposals 18(d) (1,057) (1,230)
Equity dividend paid (3,442) (1,179)
-----------------------------------
Cash (outflow)/inflow before use of liquid resources and financing (2,708) 4,656
Financing increase/(decrease) in debt 15 (2,009)
-----------------------------------
(Decrease)/increase in cash in the year (2,693) 2,647
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR TO YEAR TO
31 DECEMBER 31 DECEMBER
1997 1996
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Notes (Pounds)000 (Pounds)000
(unaudited)
--------------------------------------------------
<S> <C> <C> <C>
(Decrease)/increase in cash in the year (2,693) 2,647
Cash (inflow)/outflow from movements in debt (15) 2,009
------------------------------------
Change in net debt resulting from cash flows (2,708) 4,656
Exchange adjustment 176 (79)
------------------------------------
Movement in net debt in the year (2,532) 4,577
Net debt at 1 January (95) (4,672)
------------------------------------
Net debt at 31 December 18(e) (2,627) (95)
------------------------------------
</TABLE>
4
<PAGE>
VERO GROUP PLC
ADDITIONAL STATEMENTS
for the year ended 31 December 1997
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (Pounds)000 (Pounds)000
(unaudited)
---------------------------------------
<S> <C> <C>
Profit for the financial year 3,151 5,231
Exchange loss on retranslation of net assets of subsidiary (981) (1,872)
undertakings
---------------------------------------
Total recognized gains relating to the year 2,170 3,359
---------------------------------------
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUND (Pounds)000 (Pounds)000
(unaudited)
---------------------------------------
<S> <C> <C>
Total recognized gains and losses 2,170 3,359
Other movements:
Goodwill written off (432) (718)
Adjustment to goodwill (note 17) 262 -
---------------------------------------
Net addition to shareholders' funds 2,000 2,641
Opening shareholders' funds 22,236 19,595
---------------------------------------
Closing shareholders' funds 24,236 22,236
---------------------------------------
</TABLE>
5
<PAGE>
VERO GROUP PLC
COMPANY BALANCE SHEET
as at 31 December 1997
<TABLE>
<CAPTION>
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
----------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 72 101
Investments 10 22,008 22,008
------------------------------------------
22,080 22,109
CURRENT ASSETS
Debtors 12 14,368 14,000
Cash at bank and in hand 700 53
------------------------------------------
15,068 14,053
CREDITORS: amounts falling due within one year
Bank and other borrowings 13 (3,074) -
Other creditors 13 (8,381) (8,512)
------------------------------------------
(11,455) (8,512)
NET CURRENT ASSETS 3,613 5,541
TOTAL ASSETS LESS CURRENT LIABILITIES 25,693 27,650
------------------------------------------
CREDITORS: amounts falling due after more than one year
Bank and other borrowings 14 (1,500) (3,700)
------------------------------------------
24,193 23,950
------------------------------------------
CAPITAL AND RESERVES
Called up share capital 16 3,007 3,007
Share premium account 17 18,231 18,231
Capital redemption reserve 17 9 9
Profit and loss account 17 2,946 2,703
------------------------------------------
Shareholders' funds 24,193 23,950
------------------------------------------
</TABLE>
6
<PAGE>
VERO GROUP PLC
ACCOUNTING POLICIES
for the year ended 31 December 1997
A summary of the principal accounting policies, which have been consistently
applied throughout the year, is set out below:
a) BASIS OF PREPARATION The accounts are prepared under the historical cost
convention and in accordance with applicable United Kingdom accounting
standards.
b) BASIS OF CONSOLIDATION The Group accounts consolidate the accounts of VERO
Group plc and all its subsidiary undertakings drawn up to 31 December each
year. Undertakings, other than subsidiary undertakings, in which the Group
has an investment and over which it is in a position to exercise a
significant influence are treated as associated undertakings. The Group
accounts include the appropriate share of associated undertakings' results
and reserves.
No profit and loss account is presented for VERO Group plc as permitted by
section 230 of the Companies Act 1985.
c) GOODWILL Purchased goodwill is set off directly against reserves.
d) DEPRECIATION Depreciation is provided on all tangible fixed assets, other
than freehold land, at rates calculated to write off the cost, less
estimated residual value based on prices prevailing at the date of
acquisition, of each asset evenly over its expected useful life, as
follows:
<TABLE>
<S> <C>
Freehold buildings - over 25 years
Leasehold buildings: more than 40 years unexpired - over 40 years
Leasehold buildings: less than 40 years unexpired - equally over the life of the lease
Plant and machinery - over 3 years to 10 years
</TABLE>
Assets in the course of construction are stated at cost. No depreciation is
provided until the asset is brought into use.
e) STOCKS Stocks are stated at the lower of cost incurred in bringing each
product to its present location and condition and net realizable value, as
follows:
<TABLE>
<S> <C>
Raw materials, consumables and goods for resale - purchase cost on a first-in, first-out basis.
Work in progress and finished goods - cost of direct materials and labour plus
attributable overheads based on the normal
level of activity.
</TABLE>
Net realizable value is based on estimated selling price less any further
costs expected to be incurred to completion and disposal.
f) RESEARCH AND DEVELOPMENT Expenditure on research and development is
written off as incurred.
g) DEFERRED TAXATION Deferred taxation is provided using the liability method
on all timing differences which are expected to reverse in the future
without being replaced, calculated at the rate at which it is anticipated
the timing differences will reverse. Advance corporation tax which is
expected to be recoverable in the future is deducted from the deferred
taxation balance.
h) ADVANCE CORPORATION TAX Advance corporation tax is carried forward only to
the extent that it is recoverable in the foreseeable future.
7
<PAGE>
VERO GROUP PLC
ACCOUNTING POLICIES
for the year ended 31 December 1997
i) FOREIGN CURRENCIES Assets and liabilities in overseas currencies are
translated into sterling at the rates ruling at 31 December. Profit and
loss accounts in foreign currencies are translated into sterling at the
average rates applicable during the year. Exchange differences arising on
opening net assets, less any loans hedging those investments, are taken
directly to reserves, as are the differences arising between the
translation of revenue items at average and closing rates. Exchange
differences arising on trading transactions are taken to the profit and
loss account.
j) LEASING AND HIRE PURCHASE COMMITMENTS Assets held under finance leases and
hire purchase contracts, which are those where substantially all the risks
and rewards of ownership have passed to the Group, are capitalized in the
balance sheet and are depreciated over their useful lives. The interest
element of the rental obligations is charged to the profit and loss account
over the period of the lease and represents a constant proportion of the
balance of capital repayments outstanding.
Rentals paid under operating leases are charged to income on a straight
line basis over the lease term.
k) PENSIONS The Group operates defined benefit pension schemes in the UK
which require contributions to be made to separately administered funds.
Contributions to these funds are charged to the profit and loss account so
as to spread the cost of pensions over the employees' working lives within
the Group. The regular cost is attributed to individual years using the
projected unit credit method. Variations in pension cost, which are
identified as a result of actuarial valuations, are amortized over the
average expected remaining working lives of employees in proportion to
their expected payroll costs. Differences between the amounts funded and
the amounts charged to the profit and loss account are treated as either
provisions or prepayments in the balance sheet.
The Group also operates defined contribution pension schemes in some
overseas countries. Contributions are charged to the profit and loss
account as they become payable in accordance with the rules of the schemes.
8
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
1. TURNOVER AND SEGMENTAL ANALYSIS
- - --------------------------------------------------------------------------------
Turnover represents the amounts derived from the provision of goods and services
which fall within the Group's ordinary activities, stated net of value added tax
and similar taxes. Turnover and pre-tax profit are attributable to one
continuing activity: the manufacture and sale of mechanical and electronic
components for the electronics and telecommunications industries. Turnover,
profit before taxation and net assets are analyzed as follows:
<TABLE>
<CAPTION>
Year to Year to
31 December 31 December
1997 1996
(Pounds)000 (Pounds)000
(unaudited)
------------------------------------
<S> <C> <C>
TURNOVER BY GEOGRAPHICAL DESTINATION
Sales to third parties:
United Kingdom 36,280 33,876
Continental Europe 45,486 55,576
Rest of World 19,453 16,610
------------------------------------
101,219 106,062
------------------------------------
TURNOVER BY GEOGRAPHICAL ORIGIN
Total sales (including inter-Group):
United Kingdom 68,630 70,794
Continental Europe 44,356 50,964
Rest of World 14,310 12,849
------------------------------------
127,296 134,607
------------------------------------
Inter-Group sales:
United Kingdom 1,345 2,445
Continental Europe 18,949 21,180
Rest of World 5,783 4,920
------------------------------------
26,077 28,545
------------------------------------
Sales to third parties:
United Kingdom 67,285 68,349
Continental Europe 25,407 29,784
Rest of World 8,527 7,929
------------------------------------
101,219 106,062
------------------------------------
PROFIT BEFORE TAXATION
United Kingdom 10,507 11,944
Continental Europe 1,999 4,188
Rest of World 307 718
------------------------------------
12,813 16,850
------------------------------------
Common costs (2,479) (2,697)
Net interest payable (312) (562)
------------------------------------
Profit on ordinary activities before taxation 10,022 13,591
------------------------------------
</TABLE>
9
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
<TABLE>
<CAPTION> Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
1. TURNOVER AND SEGMENTAL INFORMATION continued (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS
United Kingdom 15,893 14,052
Continental Europe 11,606 11,187
Rest of World 4,552 3,671
Unallocated net liabilities (7,815) (6,674)
-----------------------------------------
24,236 22,236
-----------------------------------------
Unallocated net assets/(liabilities) comprise:
Cash at bank and in hand 4,093 6,619
Bank overdrafts (334) (231)
Loans (6,386) (6,483)
Net tax liabilities (2,659) (4,182)
Deferred taxation (252) (142)
Dividend payable (2,267) (2,255)
Minority interests (10) -
------------------------------------------
Unallocated net liabilities (7,815) (6,674)
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION> Year to
2. OPERATING PROFIT YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
Operating profit is stated after charging: (Pounds)000 (unaudited)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Auditors' remuneration - audit services - UK 50 38
- audit services - overseas 53 38
- non-audit services - UK 59 58
- non-audit services - overseas 43 58
Depreciation 3,290 2,956
Research and development expenditure 1,293 1,218
Operating lease rentals - land and buildings 2,189 1,959
- other 793 579
</TABLE>
<TABLE>
<CAPTION> Year to
3. EMPLOYEE INFORMATION YEAR TO 31 December
31 DECEMBER 1996
The average monthly number of persons (including executive directors) 1997 number
employed by the Group was: NUMBER (unaudited)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management and administration 147 133
Manufacturing, sales and distribution 1,520 1,431
------------------------------------
1,667 1,564
------------------------------------
Aggregate staff costs (for the above persons) (Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------
Wages and salaries 30,653 29,886
Social Security costs 4,107 4,177
Other pension costs 1,414 1,450
------------------------------------
36,174 35,513
------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION> Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
4. DIRECTORS' EMOLUMENTS (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fees - paid to directors 48 39
- paid to third parties 18 18
Executive directors' emoluments (excluding pension contributions) 227 245
----------------------------------
293 302
----------------------------------
</TABLE>
<TABLE>
<CAPTION> Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
5. NET INTEREST PAYABLE (Pounds)000 (unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest receivable
Bank interest receivable 233 194
Other interest receivable - 11
-----------------------------------
233 205
-----------------------------------
Interest payable
Bank loans and overdrafts (523) (767)
Other loans (22) -
-----------------------------------
(545) (767)
-----------------------------------
Net interest payable (312) (562)
-----------------------------------
</TABLE>
<TABLE>
<CAPTION> Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
6. TAXATION (Pounds)000 (unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom corporation tax 2,537 2,968
Deferred taxation (note 15) 340 603
Overseas taxation 562 1,291
Adjustments in respect of prior years - overseas taxation (6) 47
- current taxation - (149)
- deferred taxation (11) 166
-----------------------------------
3,422 4,926
-----------------------------------
</TABLE>
<TABLE>
<CAPTION> Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
7. DIVIDENDS (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity dividends on ordinary shares
Interim paid 2.0p (1996: 2.0p (unaudited)) 1,187 1,179
Final proposed 3.8p (1996: 3.8p (unaudited)) 2,267 2,255
---------------------------------
3,454 3,434
---------------------------------
</TABLE>
In accordance with the trust deed dated 31 October 1995 between the Company and
the trustee to the employee benefit trust, the trustee has elected to waive all
but 0.001p per share of dividend on the 454,324 shares held by the trust.
11
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
8. EARNINGS PER ORDINARY SHARE
- - --------------------------------------------------------------------------------
The calculation of the basic earnings per ordinary share is based on earnings
for the financial year of (Pounds)6,605,000 (1996: (Pounds)8,665,000
(unaudited)) and 59,340,410 shares (1996: 59,019,149 (unaudited)), being the
weighted average number of shares in issue and ranking for dividend during the
year after adjustment to exclude those shares held by the employee benefit
trust.
The fully diluted earnings per share is based on 60,980,561 (1996: 60,863,460
(unaudited)) ordinary shares, to show the effect on earnings per share of shares
held by the employee benefit trust, of options granted over shares under the
Company's savings related share option schemes and adjusted earnings of
(Pounds)6,645,000 (1996: (Pounds)8,705,000 (unaudited)). Earnings have been
adjusted, in connection with the share options (note 16), by adding interest
deemed to be earned from 2 1/2 % Consolidated Stock on the proceeds of such
share issue.
<TABLE>
<CAPTION>
Assets in Plant
Land and course of machinery &
9. TANGIBLE FIXED ASSETS buildings construction motor vehicles Total
GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST
At 1 January 1997 3,504 1,369 14,346 19,219
Additions 76 584 4,828 5,488
Disposals (87) - (628) (715)
Reclassifications 115 (1,022) 907 -
Exchange adjustment (458) (89) (937) (1,484)
--------------------------------------------------------------------------
At 31 December 1997 3,150 842 18,516 22,508
--------------------------------------------------------------------------
DEPRECIATION
At 1 January 1997 504 - 3,248 3,752
Charge for the year 127 - 3,163 3,290
Disposals (85) - (598) (683)
Reclassifications 1 - (1) -
Exchange adjustment (195) - (777) (972)
--------------------------------------------------------------------------
At 31 December 1997 352 - 5,035 5,387
--------------------------------------------------------------------------
NET BOOK VALUE
At 31 December 1997 2,798 842 13,481 17,121
--------------------------------------------------------------------------
At 31 December 1996 (unaudited) 3,000 1,369 11,098 15,467
--------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Assets in Plant
Land and course of machinery &
9. TANGIBLE FIXED ASSETS CONTINUED buildings construction motor vehicles Total
COMPANY (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST
At 1 January 1997 - - 158 158
Additions - - - -
Disposals - - - -
-------------------------------------------------------------------------
At 31 December 1997 - - 158 158
------------------------------------------------------------------------
DEPRECIATION
At 1 January 1997 - - 57 57
Charge for the year - - 29 29
Disposals - - - -
-------------------------------------------------------------------------
At 31 December 1997 - - 86 86
------------------------------------------------------------------------
NET BOOK VALUE
At 31 December 1997 - - 72 72
-------------------------------------------------------------------------
At 31 December 1996 (unaudited) - - 101 101
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROUP Group
1997 1996
The net book value of land and building comprises: (Pounds)000 (Pounds)000
(unaudited)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Freehold 2,109 2,487
Long leasehold - -
Short leasehold 689 513
--------------------------------------
2,798 3,000
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share of net
10. INVESTMENTS tangible assets
Group - associated undertakings (Pounds)000
- - ---------------------------------------------------------------------------------------------------------
<S> <C>
At 1 January 1997 543
Exchange adjustment (25)
Second call on shares in VERO President Systems Limited 262
Investment in VERO Austin Electronics (China) Limited 39
Share of profits retained by associated undertakings 4
--------------------
At 31 December 1997 823
-------------------
</TABLE>
Income of (Pounds)7,000 and tax of (Pounds)3,000 have been dealt with in the
profit and loss account for the year in respect of associated undertakings.
During the year a second call was made on the shares issued by VERO President
Systems Limited at the time of its flotation. The Group did not subscribe for
any such shares and therefore is not required to make a further payment. The
Group only recognizes its share of the increased net assets on a received basis.
During the year, the Group's share of net tangible assets increased by
(Pounds)262,000 with an appropriate adjustment to goodwill (note 17).
The shares of the associated undertaking, VERO President Systems Limited, are
listed on the Pune and Bangalore stock exchanges in India. As at 31 December
1997 the market value of those shares was (Pounds)1,300,000.
13
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
10. INVESTMENTS CONTINUED
- - ------------------------------------------------------------------------------
During the year the Group set up VERO Austin Electronics (China) Limited, a
company registered in Hong Kong. VERO Austin Electronics (China) Limited is a
distributor of networking products into the Hong Kong Chinese region. The
Group's interest in the company is 50%.
<TABLE>
<CAPTION>
Subsidiary Associated
undertaking undertaking Total
Company (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At 1 January and 31 December 1997 20,778 1,230 22,008
</TABLE>
Details of the principal investments in which the Group or the Company holds
more than 10% of the nominal value of any class of share capital are as follows:
<TABLE>
<CAPTION>
Country of
Registration
(or incorporation)
NAME OF SUBSIDIARY UNDERTAKINGS Holding and operation
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
VERO Electronics Limited 100% England
VERO Electronics Overseas Investments Limited 100% England
*VERO Electronics SA 100% France
*VERO Electronics GmbH 100% Germany
*VERO Electronics SrL 100% Italy
*VERO Electronics AB 100% Sweden
*VERO Electronics Inc. 100% USA
*VERO Electronics Pte Limited 60% Singapore
</TABLE>
During the year the Group set up VERO Electronics Pte Limited, a company
registered in Singapore. VERO Electronics Pte Limited is a distributor of
electronic components into the ASEAN region. The Group's interest in the
company is 60%.
<TABLE>
<CAPTION>
Country of
Registration
(or incorporation)
NAME OF ASSOCIATED UNDERTAKINGS Holding and operation
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
VERO President Systems Limited 35% India
*VERO Austin Electronics (China) Limited 50% Hong Kong
</TABLE>
VERO Electronics Overseas Investments Limited acts as the intermediate holding
company for overseas subsidiary undertakings. All other subsidiary and
associated undertakings are principally engaged in the manufacture and sale of
mechanical and electronic components for the electronics and telecommunications
industries (*denotes that shares are held through an intermediate holding
company).
The issued share capital of VERO President Systems Limited is 5,040,000 ordinary
shares of Rs 10 each.
The issued share capital of VERO Austin Electronics (China) Limited is 1,010,000
ordinary shares of HK$1 each.
14
<PAGE>
<TABLE>
<CAPTION>
GROUP Group
1997 1996
11. STOCKS (Pounds)000 (Pounds)000
(unaudited)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials 3,228 3,126
Work in progress 3,891 2,959
Finished goods and goods for resale 6,672 6,650
------------------------------------------
13,791 12,735
------------------------------------------
</TABLE>
The difference between purchase price or production cost of stock and their
replacement cost is not significant.
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1996 1997 1996
12. DEBTORS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trade debtors 16,126 16,569 - -
Amounts owed by subsidiary undertakings - - 11,603 11,234
Overseas tax 239 129 - -
Advance corporation tax 130 346 567 564
Deferred tax (note 15) - - 29 26
Other debtors 377 214 70 103
Prepayments and accrued income 1,224 724 22 14
Dividends receivable - - 2,077 2,059
--------------------------------------------------------------------
18,096 17,982 14,368 14,000
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
Amounts falling due after more than 1997 1996 1997 1996
one year included above are: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overseas tax 110 129 - -
Advance corporation tax 130 346 864 564
Deferred taxation - - 29 26
Other debtors 4 - - -
Prepayments and accrued income 62 - - -
--------------------------------------------------------------------
306 475 893 590
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
13. CREDITORS: AMOUNTS FALLING DUE 1997 1996 1997 1996
WITHIN ONE YEAR (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current installments due on loans (note 14) 176 262 - -
Bank overdraft (note 14) 334 231 3,074 -
Trade creditors 9,083 7,152 - -
Amounts owed to subsidiary undertakings - - 4,870 4,840
Current corporation tax 2,018 3,327 - 119
Overseas tax 146 471 - -
Advance corporation tax 864 859 864 859
Other taxes and social security costs 1,609 1,885 24 27
Other creditors 2,984 3,525 208 115
Accruals 3,735 4,780 148 297
Dividend payable 2,267 2,255 2,267 2,255
--------------------------------------------------------------------
23,216 24,747 11,455 8,512
--------------------------------------------------------------------
</TABLE>
Included in other creditors is an amount of (Pounds)525,000 (1996:
(Pounds)567,000 (unaudited)) in respect of the German pension scheme.
15
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1996 1997 1996
14. BANK AND OTHER BORROWINGS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Secured borrowings - - - -
Unsecured borrowings 6,386 6,483 1,500 3,700
--------------------------------------------------------------------
Total loans 6,386 6,483 1,500 3,700
Bank overdrafts 334 231 3,074 -
--------------------------------------------------------------------
6,720 6,714 4,574 3,700
--------------------------------------------------------------------
</TABLE>
Unsecured borrowings include certain borrowings on which rates of interest vary
in accordance with market rates. As at 31 December 1997, these borrowings bear
interest at rates of between 4.4375% and 8.5250%.
<TABLE>
<CAPTION>
CURRENCY ANALYSIS GROUP COMPANY
The outstanding loans are repayable in 1997 1996 1997 1996
the following currencies: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sterling 1,676 3,962 1,500 3,700
Deutsche Marks 1,689 889 - -
French Francs 1,263 - - -
US Dollars 1,758 1,632 - -
------------------------------------------------------------
6,386 6,483 1,500 3,700
------------------------------------------------------------
AMOUNTS FALLING DUE WITHIN ONE YEAR
Repayable other than by installments 176 262 - -
Repayable by installments - - - -
------------------------------------------------------------
176 262 - -
------------------------------------------------------------
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Repayable other than by installments
Between one and two years - - - -
Between two and five years 6,210 6,221 1,500 3,700
In five years or more - - - -
------------------------------------------------------------
6,210 6,221 1,500 3,700
------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
15. PROVISION FOR LIABILITIES AND CHARGES GROUP COMPANY
DEFERRED TAXATION (Pounds)000 (Pounds)000
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
At 1 January 1997 (142) 26
ACT movement 219 -
Arising during the year (340) 3
Prior year adjustment 11 -
---------------------------------------
At 31 December 1997 (252) 29
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
AMOUNT PROVIDED AMOUNT PROVIDED
1997 1996 1997 1996
DEFERRED TAX PROVIDED IN THE ACCOUNTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax effect of timing differences:
Excess of tax allowances over depreciation (684) (563) - -
Other short term timing differences (5) 203 29 26
------------------------------------------------------------------
(689) (360) 29 26
------------------------------------------------------------------
Less: advance corporation tax recoverable 437 218 - -
------------------------------------------------------------------
(252) (142) 29 26
------------------------------------------------------------------
</TABLE>
No provision has been made in respect of the tax which might become payable if
the retained profits of overseas subsidiary undertakings were fully distributed
to the United Kingdom because there is no current intention that such profits be
remitted. There is no unprovided deferred tax.
<TABLE>
<CAPTION>
16. SHARE CAPITAL 1997 1996 1997 1996
AUTHORIZED NO. No. (Pounds) (Pounds)
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary shares of 5p each 75,000,000 75,000,000 3,750,000 3,750,000
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1997 1996
ALLOTTED, CALLED UP AND FULLY PAID NO. No. (Pounds) (Pounds)
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary shares of 5p each 60,131,827 60,131,827 3,006,591 3,006,591
------------------------------------------------------------------
</TABLE>
The Company operates a savings related share option scheme under which options
to subscribe for the Company's shares have been granted to subscribing
employees. At 1 January 1997 options under this scheme were outstanding over
731,633 shares at (Pounds)2.22 each, exercisable between February 2001 and
August 2001. During the year options were granted over 558,116 shares at
(Pounds)1.525 each, exercisable between June 2000 and June 2002. As at 31
December 1997 the total number of shares over which options were outstanding was
901,962 shares.
17
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
<TABLE>
<CAPTION>
Share Capital
premium Goodwill redemption Profit and
17. RESERVES account reserve reserve loss account
GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At 1 January 1997 18,231 (11,301) 9 12,290
Retained profit for the year - - - 3,151
Exchange adjustment - - - (981)
Arising on acquisition - (432) - -
Adjustment to goodwill - 262 - -
---------------------------------------------------------------------
At 31 December 1997 18,231 (11,471) 9 14,460
---------------------------------------------------------------------
COMPANY
At 1 January 1997 18,321 - 9 2,703
Retained profit for the year - - - 243
---------------------------------------------------------------------
At 31 December 1997 18,321 - 9 2,946
---------------------------------------------------------------------
</TABLE>
The Company's profit for the financial year amounted to (Pounds)3,697,000 (1996:
(Pounds)3,589,000 (unaudited)).
On 10 January 1997 the Group acquired the assets and liabilities of a French
company, Societe de Realisations Metallurgiques SA ("SRM"). Net assets at the
date of acquisition were:
<TABLE>
<CAPTION>
Book Fair value to
value Group
(Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tangible fixed assets 557 557
Stock 29 29
------------------------------
Net assets 586 586
--------------
Goodwill arising on acquisition 432
-----------------
1,018
-----------------
Discharged in cash 1,018
-----------------
</TABLE>
The goodwill arising on acquisition of (Pounds)432,000 has been written off
against reserves.
The adjustment to goodwill in the year reflects the increase in the Group's
share of the net assets of VERO President Systems Limited following a second
call on the shares it issued at the time of its flotation (note 10).
As at 31 December 1997 accumulated goodwill on acquisitions written off to
reserves amounted to (Pounds)11,471,000 (1996: (Pounds)11,301,000 (unaudited)).
Shareholders' funds are attributable to equity interests only. As at 31
December 1997 and 31 December 1996 there were no non-equity interests.
18
<PAGE>
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
18. CASHFLOW 1997 1996
(A) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating profit 10,334 14,153
Depreciation charges 3,290 2,956
Profit on disposal of tangible fixed assets (50) (142)
Share of profits of associated undertakings (7) (39)
Increase in stock (1,456) (125)
Increase in debtors (921) (278)
Increase/(decrease) in creditors and provisions 767 (964)
-------------------------------------
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 11,957 15,561
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(B) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest received 230 200
Interest paid (540) (844)
-------------------------------------
(310) (644)
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(C) CAPITAL EXPENDITURE (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchase of tangible fixed assets (5,136) (6,065)
Proceeds from sale of tangible fixed assets 82 711
-------------------------------------
(5,054) (5,354)
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(D) ACQUISITIONS AND DISPOSALS (Pounds)000 (Pounds)000
(unaudited)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Payment to acquire trade business (note 17) 1,018 -
Investments in associated undertakings 39 1,230
------------------------------------
1,057 1,230
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1 January Exchange 31 DECEMBER
1997 Cash flow movement 1997
(E) ANALYSIS OF DEBT (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash in hand and at bank 6,619 (2,596) 70 4,093
Overdrafts (231) (97) (6) (334)
-------------------------------------------------------------------------------
6,388 (2,693) 64 3,759
Debt due after 1 year (6,221) (101) 112 (6,210)
Debt due within 1 year (262) 86 - (176)
-------------------------------------------------------------------------------
(95) (2,708) 176 (2,627)
-------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1996 1997 1996
19. FINANCIAL COMMITMENTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
CAPITAL COMMITMENTS (unaudited) (unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital expenditure that has been contracted
for but has not been provided for in the accounts 1,076 782 - -
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
(unaudited)
LEASING COMMITMENTS LAND AND Land and
At 31 December the Group had annual commitments BUILDINGS OTHER buildings Other
under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiring within one year 30 169 37 151
Expiring between two and five years 89 537 179 566
Expiring in over five years 2,073 - 1,947 -
------------------------------------------------------
2,192 706 2,163 717
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
(unaudited)
LAND AND Land and
At 31 December the Company had annual commitments BUILDINGS OTHER buildings Other
under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiring within one year - - - -
Expiring between two and five years - 14 - 11
Expiring in over five years - - - -
------------------------------------------------------
- 14 - 11
------------------------------------------------------
</TABLE>
20. PENSION COMMITMENTS
- - --------------------------------------------------------------------------------
The Group operates a number of pension schemes around the world.
The pension cost in respect of the UK pension schemes for the year ended 31
December 1997 amounted to (Pounds)1,196,000 (1996: (Pounds)1,178,000
(unaudited)). Contributions are charged to the profit and loss account so as to
spread the costs of pensions over employees' working lives within the Group.
The major scheme (which is operated in the UK) covers the majority of the
Group's UK employees and is a defined benefit scheme. The assets of the scheme
are held in a separately administered trust and managed by independent
professional investment managers. Contributions are determined by a
professionally qualified actuary on the basis of triennial actuarial valuations
using the projected unit credit funding method. The latest valuation was at 1
January 1995. The most significant actuarial assumptions made were that the rate
of return on investments would be 10% per annum and the rate of increase in
salaries would be 8% per annum. The actuarial valuation as at 1 January 1995
showed that the market value of the scheme's assets, ignoring any net current
assets which were assumed to be negligible, was (Pounds)12,154,773 and that the
actuarial value of those assets represented 102% of the benefits that had
accrued to members, after allowing for expected increases in salaries. In
accordance with the Actuary's recommendation the contributions of the Group are
currently 9.1% of pensionable salaries per annum. Employees' contributions at
the rate of 5% of pensionable salaries per annum are payable in addition.
A valuation as at 1 January 1998 is due to be undertaken by the Actuary, the
results of which will be available later this year, whereupon the Actuary's
recommendations regarding the funding rate will be reviewed.
The Group also operates a number of smaller pension schemes in the UK,
Continental Europe and the United States. These are set up in accordance with
local conditions and practices in the countries concerned.
20
<PAGE>
21. CONTINGENT LIABILITIES
- - --------------------------------------------------------------------------------
The Company has guaranteed bank loan facilities to certain Group undertakings.
As at 31 December 1997 the maximum potential liability under these guarantees
was (Pounds)4,710,000 (1996: (Pounds)2,521,000 (unaudited)).
As at 31 December 1997, the Company has given guarantees and indemnities in the
ordinary course of business in respect of certain Group undertakings.
22. RELATED PARTY TRANSACTIONS
- - --------------------------------------------------------------------------------
The Group recharges the VERO Group pension schemes with the costs of
administration and independent advisors borne by the Group. The total amount
recharged during the year to 31 December 1997 was (Pounds)210,000 (1996:
(Pounds)146,000 (unaudited)).
During the year VERO Group plc made sales of (Pounds)3,000 (1996: (Pounds)40,000
(unaudited)) to VERO President Systems Limited and sales of (Pounds)68,000 to
VERO Austin Electronics (China) Limited. The balances owing to the Group at 31
December 1997 were respectively (Pounds)13,000 (1996: (Pounds)40,000
(unaudited)) and (Pounds)68,000.
21
<PAGE>
23. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
- - --------------------------------------------------------------------------------
The Group's consolidated accounts are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP") which differ
from United States generally accepted accounting principles ("U.S. GAAP"). The
only significant difference applicable to the Group relates to the treatment of
goodwill.
In the consolidated accounts, goodwill arising on acquisition of subsidiaries is
written off to shareholders' funds. Under US GAAP, such goodwill would be
capitalised and amortised over its estimated useful life. For the purposes of
the reconciliation below, the useful life is taken as 40 years. Under US GAAP,
the recoverability of capitalised goodwill would be periodically evaluated based
on undiscounted cash flows and if any impairment is identified the amount of
such impairment would be calculated based on the estimated fair value of such
goodwill.
The following is a summary of the significant adjustment to profit for the year
and shareholders' funds which would be required if US GAAP were to be applied
instead of UK GAAP.
<TABLE>
<CAPTION>
Year to
31 December
1997
(Pounds) 000
- - --------------------------------------------------------------------------------
<S> <C>
Profit for the year as reported in the consolidated profit
and loss account 6,605
Adjustment
Goodwill amortisation (287)
-------
Net income as adjusted to accord with US GAAP 6,318
=======
Shareholders' funds as reported in the consolidated balance sheet 24,236
Adjustment
Goodwill at cost 11,471
Amortisation (1,148)
-------
Net book amount 10,323
-------
Shareholders' funds as adjusted to accord with US GAAP 34,559
=======
</TABLE>
22
<PAGE>
Consolidated statement of cash flows
The consolidated statement of cash flows prepared under UK GAAP presents
substantially the same information as that required under US GAAP but it
differs, however, with regard to classification of items within the statements
and as regards the definition of cash under UK GAAP and cash and cash
equivalents under US GAAP.
Under US GAAP, cash and cash equivalents include short-term highly liquid
investments but do not include bank overdrafts. Under UK GAAP, cash flows are
presented separately for operating activities, returns on investments and
servicing of finance, taxation, capital expenditure and financial investment,
acquisitions, equity dividends and management of liquid resources and financing.
US GAAP, however, requires only three categories of cash flow activity to be
reported; operating, investing and financing. Cash flows from taxation and
returns on investments and servicing of finance shown under UK GAAP would be
included as operating activities under US GAAP. The payment of dividends would
be included in financing under US GAAP. Capital expenditure and financial
investment and acquisitions would be reported under investing under US GAAP.
The categories of cash flow activity under US GAAP can be summarised as follows:
As at
31 December
1997
(Pounds)000
- - --------------------------------------------------------------------------------
Cash inflow from operating activities 6,845
Cash outflow on investing activities (6,111)
Cash outflow from financing activities (3,330)
------
Decrease in cash and cash equivalents (2,596)
Effect of foreign exchange rate changes 70
Cash and cash equivalents at 1 January 6,619
------
Cash and cash equivalents at 31 December 4,093
======
23
