<PAGE>
As filed with the Securities and Exchange Commission on September 20, 2000
Registration No. 333-44498
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
APPLIED POWER INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Wisconsin 3444 39-0168610
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
AND ITS GUARANTOR SUBSIDIARIES:
<TABLE>
<S> <C> <C>
Nevada APW Investments, Inc. 39-1941968
Wisconsin APW Tools and Supplies, Inc. 39-0964876
California Ancor Products, Inc. 95-3334841
Nevada Applied Power Investments II, Inc. 36-3673537
Nevada Calterm Taiwan, Inc. 88-0367929
Wisconsin Columbus Manufacturing, LLC 39-1836092
Oklahoma DCW Holding, Inc. 73-1531 939
Oklahoma Del City Wire Co., Inc. 73-0666761
Wisconsin Mox-Med, Inc. 39-0883029
Connecticut New England Controls, Inc. 06-0924417
Connecticut Nielsen Hardware Corporation 06-1281549
Delaware Versa Technologies, Inc. 39-1143618
(State or other jurisdiction (Exact name of Guarantor (I.R.S. Employer
of incorporation or
organization) as specified in its Charter) Identification Number)
</TABLE>
----------------
<TABLE>
<S> <C>
6100 North Baker Road ANDREW LAMPEREUR
Milwaukee, Wisconsin 53209 Applied Power Inc.
(414) 352-4160 6100 North Baker Road
(Address, including zip code, and telephone Milwaukee, Wisconsin 53209
number, including area code, of registrant's (414) 247-5307
principal executive offices) (Name, address, including zip code,
and telephone number including area
code, of agent for service)
</TABLE>
Copies of all communications, including all communications sent to the agent
should be sent to:
JOSEPH D. MASTERSON, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
----------------
Approximate date of commencement of proposed to the public: As soon as
practicable after this Registration Staement becomes effective.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
Offer to Exchange up to $200 Million in Principal Amount of its Series B 13%
Senior Subordinated Notes due 2009 for any and all of its Outstanding $200
Million in Principal Amount of 13% Senior Subordinated Notes Due 2009
The Exchange Offer will Expire at 5:00 P.M. New York City Time on October 25,
2000, Unless Extended
Applied Power Inc. (which intends to change its name to Actuant Corporation)
("Actuant" or the "Company") is offering the Series B 13% Senior Subordinated
Notes due 2009 (the "Exchange Notes"). We are offering to exchange (the
"Exchange Offer") up to $200 million in aggregate principal amount of Exchange
Notes for $200 million aggregate principal amount of our outstanding 13% Senior
Subordinated Notes due 2009 (the "Original Notes"). We sometimes refer to the
Original Notes and the Exchange Notes collectively as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes will be freely transferable to holders thereof
(other than as described herein), are issued free of any covenant restricting
transfer absent registration and will not have the right to earn additional
interest in the event of a failure to register the Exchange Notes. The Exchange
Notes will evidence the same debt as the Original Notes and contain terms that
are substantially identical as the terms of the Original Notes. For a
description of the terms of the Notes, see "Description of the Notes." There
will be no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes will bear interest from the most recent date to which
interest has been paid on the Original Notes, or if no interest has been paid
on the Original Notes, from August 1, 2000. Holders whose Original Notes are
accepted for exchange will not receive any payment in respect of interest on
the Original Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer. See "The
Exchange Offer--Terms of the Exchange Offer."
The Notes mature on May 1, 2009, unless previously redeemed. We will pay
interest on the Notes each May 1 and November 1. The first interest payment
will be made on November 1, 2000. We may redeem the Notes on and after May 1,
2007. There is no sinking fund on the Notes. Certain of the Company's current
and future subsidiaries unconditionally guarantee the Notes.
The Original Notes were sold on August 1, 2000, in a transaction not
registered under the Securities Act. Accordingly, the Original Notes may not be
offered or sold within the United States or to U.S. persons, except to
qualified institutional buyers in reliance on the exemption from registration
provided by Rule 144A and to certain persons in offshore transactions in
reliance on Regulation S. We are offering the Exchange Notes to satisfy our
obligations under a Registration Rights Agreement relating to the Original
Notes. See "The Exchange Offer--Purposes and Effects of the Exchange Offer."
Investing in the Notes involves risks. See "Risk Factors" on page 19.
The Notes have not been recommended by the SEC or any state or foreign
securities commission or any regulatory authority. The foregoing authorities
have not confirmed the accuracy or determined the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is September 20, 2000.
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements.......... iii
Where You Can Find More
Information........................ iii
Prospectus Summary.................. 1
Risk Factors........................ 19
The Exchange Offer.................. 25
Use of Proceeds..................... 33
Capitalization...................... 34
Unaudited Pro Forma Consolidated
Financial Statements............... 35
Selected Consolidated Financial
Data............................... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 46
The Transactions.................... 65
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 69
Management and Principal
Shareholders...................... 80
Description of the Actuant Credit
Facility.......................... 89
Description of the Notes........... 91
Certain U.S. Federal Income Tax
Considerations.................... 130
Plan of Distribution............... 133
Legal Matters...................... 134
Experts............................ 134
Index to Consolidated Financial
Statements and Financial Statement
Schedule.......................... F-1
</TABLE>
i
<PAGE>
The Notes will be available in book-entry form only. We expect that the
Exchange Notes issued pursuant to this prospectus will be issued in the form of
one or more global securities, which will be deposited with, or on behalf of,
The Depository Trust Company (the "Depository" or "DTC") and registered in its
name or in the name of Cede & Co., its nominee. Beneficial interests in the
global securities will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository and its participants. After the
initial issuance of the global securities, the Notes in certificated form will
be issued in exchange for the global securities only as set forth in the
indenture governing the Notes. For more details, see "Description of the
Notes--Book-Entry, Delivery and Form."
This prospectus contains summaries, believed to be accurate in all material
respects, of certain terms of certain agreements, but reference is made to the
actual agreements, copies of which will be made available to you upon request
as indicated under "Where You Can Find More Information," for complete
information with respect to this offering, and all such summaries are qualified
in their entirety by this reference.
In making an investment decision, you must rely on your own review of our
business and related matters and the terms of this offering, including the
merits and risks involved. You should not construe the contents of this
prospectus as legal, business or tax advice. You should consult your attorney,
business advisor or tax advisor as to legal, business or tax advice.
The information in this prospectus concerning market positions of certain of
our products is based on management's estimates for fiscal 1999 dollar volumes
for the markets and geographic region or regions to which we refer. These
estimates are prepared in accordance with what we believe to be standard
industry practice and are based on internal records, our knowledge of our
relative position in each market and, in some cases, industry sources. Other
market data included in this prospectus is based on independent industry
publications or other publicly available information. Although we believe that
these independent sources are generally reliable, the accuracy and completeness
of this information is not guaranteed and has not been independently verified.
ii
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" included or incorporated by reference in
this prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve
known and unknown risks, uncertainties and other factors which may cause
Actuant or its industry's actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that may cause actual results or events to differ
materially from those contemplated by such forward-looking statements include,
without limitation, general economic conditions and market conditions in the
industrial production, trucking, construction, automotive, and RV industries in
North America and, to a lesser extent, Europe and Asia, market acceptance of
existing and new products, successful integration of acquisitions, competitive
pricing, foreign currency risk, interest rate risk, environmental matters,
unforeseen costs and other factors that may be referred to in our filings with
the Securities and Exchange Commission from time to time.
WHERE YOU CAN FIND MORE INFORMATION
The following documents filed by us with the SEC (File No. 1-11288) are
"incorporated by reference" in this prospectus, which means we can disclose
important information to you by referring you to these documents and they are
considered to be a part of this prospectus:
. Our Annual Report on Form 10-K for the fiscal year ended August 31, 1999
and our Amendment to Annual Report on Form 10-K/A filed on December 8,
1999.
. Our Quarterly Reports on Form 10-Q for the quarters ended November 30,
1999, February 29, 2000 and May 31, 2000 (as amended).
. Our Current Reports on Form 8-K filed on October 1, 1999, February 9,
2000, May 11, 2000, June 8, 2000, July 5, 2000, July 7, 2000, July 21,
2000 and August 14, 2000.
. Our proxy statement filed on December 6, 1999.
All documents filed by us with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act after the date of this prospectus and
prior to the termination of the Exchange Offer made by this prospectus are
deemed to be incorporated by reference in, and to be a part of, this prospectus
from the date of filing of those documents. Any statement contained in a
document incorporated by reference in this prospectus is modified or superseded
to the extent a statement in this prospectus or any subsequently filed document
which is also incorporated by reference in this prospectus modifies or
supersedes such statement. Any statement so modified or superseded is not
deemed to constitute a part of this prospectus except as so modified or
superseded.
Applied Power is subject to the information requirements of the Securities
Exchange Act and therefore files reports, proxy statements and other
information with the SEC. These reports, proxy statements and other information
can be inspected and copied at the SEC's public reference facilities maintained
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., or at
its regional offices. Copies can be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C.20549 at prescribed
rates. The SEC maintains an Internet "website" that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC at http://www.sec.gov. These reports and other
materials should be used with care, however, because the Distribution and
related transactions have just recently been completed and may not be reflected
in the earlier filings.
iii
<PAGE>
PROSPECTUS SUMMARY
This summary contains basic information about Actuant, Applied Power and
this Exchange Offer and likely does not contain all of the information that is
important to you. To understand all of the terms of this Exchange Offer and for
a more complete understanding of the business of Actuant, you should read this
entire prospectus and the documents incorporated by reference in this
prospectus.
In this prospectus, (1) "Actuant," "we," "us" and "our" refer to Actuant
Corporation (Applied Power Inc.'s name after approval of the name change by its
shareholders) and its subsidiaries, which since the Distribution (as defined
below) owns and conducts the Industrial Business (as defined below); (2) "APW"
refers to APW Ltd. and its subsidiaries, which since the Distribution has owned
and conducted the Electronics Business (as defined below); (3) "Applied Power"
refers to Applied Power Inc. and its subsidiaries before the Distribution; (4)
"Industrial Business" refers to Applied Power's branded electrical and
industrial tools and supplies businesses and motion control systems businesses;
(5) "Electronics Business" refers to the integrated electronics enclosures
business that is now owned and operated by APW; (6) "Distribution" refers to
the spin-off by Applied Power of the Electronics Business and the related debt
realignment, which occurred as of July 31, 2000; (7) "Divestitures" refers to
the recently completed sales by Applied Power of its vibration isolation
business, known as Barry Controls, and its aerospace cargo products business,
known as Air Cargo; (8) "Non-continuing Businesses" refers to units that have
been sold or are not a part of Actuant after the Distribution, consisting of
Barry Controls, Air Cargo, Samuel Groves, Moxness, GB Everest and Magnets; (9)
"Transactions" refers to the Distribution, the related corporate restructuring
transactions and the Divestitures; and (10) "pro forma" means after giving
effect to the Transactions as if they had occurred on the day immediately prior
to the first day of the financial period being referenced, in the case of the
statement of earnings data, or as of the referenced date, in the case of
balance sheet data (except for Transactions occurring prior to that date).
Applied Power's financial statements presented in this prospectus reflect
the Electronics Business as discontinued operations. The continuing operations
consist of the Industrial Business and, for purposes of historical financial
data only, the Non-continuing Businesses. See Note B--"Discontinued Operations"
in Notes to Consolidated Financial Statements contained in this prospectus.
Actuant Corporation
We are a leading global manufacturer and marketer of a broad range of
industrial products and systems, organized into two business segments, Tools &
Supplies and Engineered Solutions. Tools & Supplies sells branded, specialized
electrical and industrial tools to hydraulic and electrical wholesale
distributors, to catalog houses and through various retail distribution
channels. Engineered Solutions designs and markets customized motion control
systems for original equipment manufacturers ("OEMs") in diversified niche
markets. Based on internal estimates, we believe that approximately 65% of our
pro forma net sales for fiscal 1999 were derived from products holding number
one market positions. We believe that our strength in each product category is
the result of a combination of our brand recognition, proprietary engineering
and design competencies, dedicated service philosophy and global manufacturing
and distribution capabilities. For the twelve months ended May 31, 2000, we
generated pro forma net sales and pro forma EBITDA (as defined below) of $538.2
million and $112.4 million, respectively. Our pro forma EBITDA margin for this
period was 20.9%.
Tools & Supplies. Tools & Supplies generated 57% of our pro forma net sales
and 54% of our pro forma EBITDA (before corporate and group expenses) for the
twelve months ended May 31, 2000. Our products include high-force hydraulic
tools, electrical tools and consumables, which are sold to end-user markets
including general industrial, construction, production automation, retail do-
it-yourself ("DIY"), retail marine
1
<PAGE>
and retail automotive aftermarket. Tools & Supplies provides over 14,000 stock
keeping units ("SKUs"), most of which are designed and manufactured by us in
North America. In addition, we manage a global sourcing operation which
supplements our manufactured product offerings. For the twelve months ended May
31, 2000, Tools & Supplies generated pro forma net sales and pro forma EBITDA
of $304.9 million and $64.3 million, respectively.
We believe we hold leading positions in the global high-force hydraulic
industrial tools market and the North American retail DIY electrical channel.
These market positions have been achieved through a combination of logistics
expertise, global capabilities, commitment to service and the ability to
consistently deliver high quality, low-cost products. For example, GB, a
supplier of electrical tools and supplies, was named the electrical vendor of
the year for both the Ace Hardware and TruServe hardware cooperatives within
the past three years. The following table illustrates our brands, products and
key end customers in our Tools & Supplies segment:
<TABLE>
<CAPTION>
Operations Brands Products Key End Customers
---------- ------ -------- -----------------
<C> <C> <S> <C>
Enerpac Enerpac High-force Snap-on, W.W. Grainger and approximately 1,200
hydraulic distributors
tools
GB Gardner Bender Electrical Ace Hardware, The Home Depot, Kmart, Lowe's,
tools and Menards, Sears, TruServe, Wal-Mart and over
supplies to 2,500 distributors
the retail
DIY channel
and
wholesale
electrical
distributors
GB Ancor Electrical American Marine, Boat USA, West Marine
tools and
supplies for
the marine
industry
GB CalTerm Electrical CSK Automotive, Discount Auto Parts, Kmart and
tools and over 500 distributors
supplies for
the
automotive
aftermarket
GB Del City Electrical Over 10,000 small OEM customers
tools and
supplies
sold through
catalogs and
the Internet
</TABLE>
Engineered Solutions. Engineered Solutions generated 43% of our pro forma
net sales and 46% of our pro forma EBITDA (before corporate and group expenses)
for the twelve months ended May 31, 2000. We work with our customers to provide
customized solutions in the recreational vehicle ("RV"), truck, automotive,
medical, housewares and other markets. Products include RV slide-out and
leveling systems, hydraulic cab-tilt systems for heavy-duty trucks primarily
sold in Europe and Asia, electro-hydraulic automotive convertible top actuation
systems and extruded and molded silicone products for the medical and
housewares markets. We believe that our principal brands in the Engineered
Solutions segment are recognized for their engineering quality, integrated
custom design and geographic reach. As a result of our design and engineering
quality, we have earned numerous customer awards within the past five years,
including the Circle of Excellence vendor award from Fleetwood. We have also
received quality and performance certifications from such OEM customers as
Ford, Freightliner, Oshkosh Truck and Peterbilt. For the twelve months ended
May 31, 2000, Engineered Solutions generated pro forma net sales and pro forma
EBITDA of $233.4 million and $54.2 million, respectively.
We believe we hold leading global positions for several of our Engineered
Solutions products, including hydraulic cab-tilt systems for heavy-duty trucks
and electro-hydraulic automotive convertible top actuation systems. We also
believe we hold a leading position in North America for RV slide-out and
leveling systems. We believe we have achieved these leading positions by
developing highly engineered products and systems, by establishing long-
standing relationships with key OEM customers and by supporting our customers
on a global basis. The following table illustrates our brands, products and
systems and key end customers in our Engineered Solutions segment:
2
<PAGE>
<TABLE>
<CAPTION>
Brands Products and Systems Key End Customers
------ -------------------- -----------------
<S> <C> <C>
Power Gear RV slide-out and leveling systems Fleetwood, Holiday Rambler, Jayco
Power-Packer Hydraulic cab-tilt systems for heavy-duty DAF/Leyland, Ford, Freightliner,
cab-over-engine trucks Iveco, Oshkosh Truck, Peterbilt,
Renault, Scania, Volvo
Power-Packer Electro-hydraulic automotive convertible Audi, Jaguar, Mercedes-Benz, Renault,
top actuation systems Saab, Volkswagen
Mox-Med Molded and extruded silicone products for Bausch & Lomb, Baxter Healthcare,
the medical and housewares markets Williams Sonoma
Milwaukee Cylinder Hydraulic and pneumatic tie-rod cylinders Tower Automotive
Nielsen Sessions Hardware for metal cases and containers OEM manufacturers of metal cases
and containers
</TABLE>
Actuant is a global business. For fiscal 1999, we derived approximately 62%
of our pro forma net sales from the United States, 29% from Europe, 5% from
Asia, 2% from South and Latin America and 2% from Canada. As our customers
increasingly demand suppliers with global capabilities in manufacturing and
distribution, we intend to continue our global expansion in order to support
them. For example, our Power-Packer business is establishing an assembly
operation in Brazil to supply Mercedes' local truck plants with hydraulic cab-
tilt systems, and our Power Gear business recently established regional
production capabilities in Salem, Oregon to better support expansion by
domestic RV manufacturers. Through a series of strategic acquisitions over the
last five years, we have expanded and diversified our product lines,
distribution capabilities and global reach. We believe that we have achieved a
degree of product breadth and end-market and geographic diversity that
differentiates us from our competitors, as illustrated by the following charts:
Pro Forma Fiscal 1999
Since 1996, we have undertaken a series of efforts to streamline costs and
have rationalized unprofitable and low-margin SKUs, product lines and
customers. These initiatives have resulted in substantial cost reductions,
improvements in asset utilization and EBITDA margins, greater manufacturing
efficiencies and improved quality. This is illustrated by our reduction in
primary working capital (defined as accounts receivable plus inventory less
accounts payable) as a percentage of net sales, as adjusted to exclude the Non-
continuing Businesses, from 41.9% for fiscal 1997 to 26.2% for fiscal 1999.
3
<PAGE>
Our Competitive Strengths
. Market Leadership. We believe that the strength of our established
brands and our leading market positions provide us with a significant
competitive advantage. Based on internal estimates, we believe that
approximately 65% of our pro forma net sales are from products holding
number one market positions. The following table sets forth our major
product categories that we believe hold leading market positions:
<TABLE>
<CAPTION>
Product Category Region Market Position
---------------- ------ ---------------
<S> <C> <C>
High-force hydraulic industrial tools........ Global #1
Electrical tools and supplies to the retail
DIY channel................................. North America #1
Hydraulic cab-tilt systems for heavy-duty
trucks...................................... Global #1
RV slide-out and leveling systems............ North America #1
Electro-hydraulic convertible top actuation
systems..................................... Global #1
</TABLE>
. Leading Design and Engineering Capabilities. We design innovative,
highly-engineered products that reinforce and strengthen our product
leadership positions, and have earned a reputation for design and
engineering leadership in key technologies such as hydraulic and
mechanical positioning and electronic closed-loop systems. Through our
proprietary processes and over 500 patents, we leverage these
competencies to provide innovative solutions to satisfy specific
customer needs and strive to create products that make jobs easier for
our customers. Recent examples include GB's patented Stud SeekerTM for
construction remodeling and Enerpac's new line of hydraulic torque
wrenches for various maintenance and repair applications.
. Diverse and Stable Customer Base. We have more than 20,000 customers in
a wide array of industries, including many with whom we have developed
long-standing and close relationships. We have sales relationships with
leading distributors, home centers and mass merchandisers, including Ace
Hardware, The Home Depot, Lowe's, Snap-on, TruServe and W.W. Grainger.
We also have long-standing relationships with leading OEMs in our key
Engineered Solutions markets, many of which we have served for over 20
years. These close customer relationships help us to provide innovative
and customized solutions, which we believe differentiate us from our
competitors. Our largest customer accounted for approximately 6.1% of
our pro forma net sales for fiscal 1999. We believe our customer and
end-market diversity help mitigate the effect of regional or industry
downturns.
. Strong Established Global Infrastructure. We have operated on a global
basis for over 30 years. We have developed an internationally-focused
operating culture with the people and logistical capabilities to do
business around the world and have established a powerful network to
source and distribute products and components effectively on a global
basis. We have major distribution warehouses located in North America,
Europe and Asia, serving over 5,000 industrial and electrical
distributor locations. We believe that our global infrastructure
provides us with a competitive advantage and serves as a foundation to
facilitate further global expansion initiatives.
. Demonstrated Operational Improvements. We have dramatically improved our
cost structure, operating performance and EBITDA margins over recent
years. Over the past few years we have eliminated over 5,000 SKUs, and
have also improved our inventory turns, as adjusted to exclude the Non-
continuing Businesses, from 2.8x in fiscal 1997 to 5.2x in fiscal 1999.
These achievements are the direct result of our cumulative manufacturing
experience and our World Class Performance program ("WCP Program"). This
program focuses on return on assets and operational improvement
initiatives, including the implementation of Kanban, lean manufacturing
and Kaizen philosophies. Our continuous improvement culture provides a
framework for additional cost improvements.
4
<PAGE>
Our Business Strategy
. Pursue Internal Growth Opportunities. We plan to leverage the strength
of our brands and our long-standing relationships with key customers to
build upon our leading market positions. We believe that the Enerpac,
Gardner Bender, CalTerm and Ancor brands in our Tools & Supplies segment
are widely recognized in their respective market niches and present
opportunities for new product introductions, line extensions and cross-
selling. In addition, our long-standing relationships with key DIY
customers provide us with opportunities to grow with them both
domestically and internationally. In our Engineered Solutions segment,
we have cultivated long-standing relationships with leading global OEMs
who have selected us as a vendor based on our proprietary designs,
engineering expertise and ability to support them in multiple locations
around the world. We believe that these strong relationships provide us
with opportunities to increase our component and system content on OEM
platforms.
. Capitalize on Design and Engineering Expertise. We design highly-
engineered products, and we believe we have earned a reputation for
engineering excellence in key technologies such as hydraulic and
mechanical positioning and electronic closed-loop systems. We update our
product portfolios, which are designed in close coordination with our
customers, with high value-added products. We also seek patent and other
protections to reinforce and strengthen our product leadership positions
and strive to leverage our existing competencies in new areas. For
example, we successfully applied our hydraulic cab-tilt system
technology in our electro-hydraulic convertible top actuation systems.
We are now applying the same technology in the marine market.
. Leverage Global Scale. We have operated on a global basis for over 30
years and have the infrastructure in place to market additional products
through our global physical distribution and sales network. For example,
while substantially all sales within the GB and Power Gear businesses
currently are generated in North America, we intend to use our existing
global infrastructure to expand those businesses internationally. Our
long-standing relationships with OEMs and our ability to support them in
multiple locations around the world have positioned us to grow with them
as they expand into new geographic markets. In addition, we intend to
expand our global sourcing operations to broaden our product portfolio
and seek to further reduce costs.
. Continuously Improve our Operations. Through our WCP Program, we target
operational excellence through continuous cost reduction and asset
efficiency initiatives. Broad initiatives to adopt Kanban, lean
manufacturing and Kaizen philosophies have generated significant cost
reductions and asset efficiency improvements. Kanban is a visual system
for inventory replenishment based on actual demand for an item. A Kaizen
event is one of the key tools employed to assist team members to
identify and effect improvements in the way they work. These events
generally result in reductions in waste and working capital and improve
floor-space utilization. With numerous successful Kaizen events
completed to date and over 100 scheduled for the next 12 months, we have
firmly embedded the philosophy of continuous improvement into our
operating practices and believe that opportunities exist to further
improve operations. All of our manufacturing and distribution locations
execute these continuous improvement programs.
. Grow through Selected Acquisitions. Part of our growth strategy has
been, and will continue to be, to make small, "bolt-on" acquisitions
that complement our existing businesses. Our strategy is to acquire new
product lines that can be sold through existing distribution channels
and to acquire companies with leading market positions in niche market
channels that we do not serve. For example, our acquisition of Ancor in
1998 provided GB with a leading share in the marine electrical market
serving OEMs, marine distributors and retail marine specialty stores. We
successfully introduced Gardner Bender electrical test instruments to
the marine electrical market and Ancor electrical products for harsh
environments to GB customers in the retail DIY and automotive
aftermarket channels.
5
<PAGE>
. Cultivate Performance-Based Culture. Our culture is based on the belief
that people are the key ingredients in the successful execution of
business strategies and the drivers of financial performance. Our
decentralized and entrepreneurial approach to management is based on
high quality, team-oriented people who share a strong sense of
responsibility and accountability. This foundation enables us to remain
flexible and effective in the integration of acquisitions and enhances
our ability to respond to rapidly changing industry dynamics.
To align our employees' interests with those of our shareholders, we use
stock based incentives. Substantially all U.S. based employees
participate in a structured incentive compensation system based on
achievement of both definitive business unit performance targets and
overall company results. Executive compensation is heavily weighted
toward stock ownership, thereby aligning management's interests with
investors' interests in achieving our strategic goals. Management,
director and employee stock ownership (including outstanding stock
options) represents more than 10% of diluted common shares outstanding
immediately after the Transactions.
The Transactions
Effective July 31, 2000, Applied Power spun off the Electronics Business as
a separate, publicly-traded company in the Distribution. We continue to operate
the Industrial Business following the Distribution. The Electronics Business
and the Industrial Business are distinct operations with different
opportunities, challenges, strategies and means of doing business. The
Distribution will permit the management of each company to focus on the
opportunities specific to the business of that particular enterprise.
The following describes the principal transactions that Actuant and APW
undertook in conjunction with the Distribution:
. Corporate Restructuring Transactions. Applied Power restructured the
ownership of its existing businesses in connection with the Distribution
so that the assets, liabilities and operations of (1) the Electronics
Business are owned and operated by APW and (2) the Industrial Business
are owned and operated by Actuant.
. Debt Realignment. In connection with the Distribution, Applied Power
retired substantially all of its existing debt. This included a tender
offer pursuant to which it purchased all of its 8.75% Senior
Subordinated Notes due 2009 (the "1999 Notes") for cash (the "Tender
Offer"). Applied Power also repaid its other non-public debt including
its existing credit facility and an accounts receivable financing
facility.
. Financing. To finance the Tender Offer and other cash payments, we
issued $200.0 million aggregate principal amount of Original Notes and
we entered into a new senior secured credit facility (the "Actuant
Credit Facility"). In addition, APW entered into a separate credit
facility, a portion of which was used to fund the debt realignment.
. Distribution. Applied Power effected the Distribution by distributing
all APW Ltd. common shares to Applied Power Inc.'s shareholders. In
connection with the Distribution, Applied Power Inc. intends to change
its name to Actuant Corporation upon approval by its shareholders.
Applied Power Inc. has changed its NYSE ticker symbol to ATU.
Additionally, Applied Power recently sold its vibration isolation business,
known as Barry Controls, and its aerospace cargo products business, known as
Air Cargo, in the Divestitures. The Air Cargo transaction closed on May 26,
2000, and the Barry Controls transaction closed on June 30, 2000. Proceeds from
the sales of Air Cargo and Barry Controls were used to repay existing debt.
6
<PAGE>
The following table illustrates the estimated sources and uses of funds in
the Transactions, other than the sales of Air Cargo and Barry Controls (in
millions):
<TABLE>
<CAPTION>
Sources
-------
<S> <C>
Initial borrowings under the
Actuant Credit Facility(1).... $252.6
The Notes (net of offering
discount)..................... 197.4
APW new credit facility(2)..... 257.1
------
Total sources.............. $707.1
======
</TABLE>
<TABLE>
<CAPTION>
Uses
----
<S> <C>
Repayment of existing debt(3).. $659.1
Payment of estimated fees and
expenses(4)................... 48.0
------
Total uses................. $707.1
======
</TABLE>
--------
(1) The Actuant Credit Facility consists of $240.0 million in term loans that
were borrowed upon the consummation of the Distribution and a $100.0
million revolving credit facility, approximately $12.6 million of which was
drawn upon consummation of the Distribution. See "Description of the
Actuant Credit Facility."
(2) This credit facility is not an obligation of Actuant.
(3) Includes $209.1 million of debt allocated to the Electronics Business and
$450.0 million of debt allocated to the Industrial Business, of which
$200.0 million is comprised of the 1999 Notes that were purchased in the
Tender Offer. Actuant does not currently have an accounts receivable
financing program.
(4) Consists of estimated investment banking, legal, accounting and other fees
and expenses incurred by Actuant and APW, and includes the premium paid on
the 1999 Notes in the Tender Offer.
7
<PAGE>
The Exchange Offer
Purpose of Exchange...... We sold the Original Notes in a private offering
to certain accredited institutions through
Credit Suisse First Boston and Goldman Sachs &
Co. (the "Initial Purchasers"). In connection
with that offering, we executed and delivered
for the benefit of holders of the Original Notes
a Registration Rights Agreement, which is an
exhibit to the registration statement of which
this prospectus is a part, providing for, among
other things, the Exchange Offer so that the
Exchange Notes will be freely transferable by
the holders thereof without registration or any
prospectus delivery requirements under the
Securities Act, except that a "dealer" or any
"affiliate" of a "dealer" (as those terms are
defined under the Securities Act) who exchanges
Original Notes held for its own account (a
"Restricted Holder") will be required to deliver
copies of this prospectus in connection with any
resale of the Exchange Notes issued in exchange
for those Original Notes. See "Risk Factors--
Consequences of Failure to Exchange," "The
Exchange Offer--Purposes and Effects of the
Exchange Offer" and "Plan of Distribution."
The Exchange Offer....... We are offering to exchange pursuant to the
Exchange Offer up to $200 million aggregate
principal amount of our new Series B 13%
Senior Subordinated Notes Due 2009 (the
"Exchange Notes") for $200 million aggregate
principal amount of our outstanding 13% Senior
Subordinated Notes Due 2009 (the "Original
Notes"). We sometimes refer to the Original
Notes and the Exchange Notes collectively as the
"Notes." The terms of the Exchange Notes are
substantially identical in all respects
(including principal amount, interest rate and
maturity) to the terms of the Original Notes for
which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes
are freely transferable by the holders thereof
(other than as provided herein), and are not
subject to any covenant regarding registration
under the Securities Act. See "The Exchange
Offer--Terms of the Exchange Offer" and "The
Exchange Offer--Procedures for Tendering." The
Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
Expiration Date..........
The Exchange Offer will expire at 5:00 p.m., New
York City time on October 25, 2000, unless
extended to a date not later than 60 days from
the effective date of the registration statement
of which this prospectus is a part (the
"Expiration Date").
Conditions of the Our obligation to consummate the Exchange Offer
Exchange Offer.......... will be subject to certain conditions. We will
not be required to accept for exchange any
Original Notes tendered and may terminate the
Exchange Offer before acceptance of any Original
Notes if, among other things, legal actions or
proceedings are instituted that challenge or
seek to prohibit the exchange or there shall
have been proposed, adopted or enacted any law,
statute or regulation materially affecting the
benefits of the Exchange Offer. See "The
Exchange Offer--Conditions of the
8
<PAGE>
Exchange Offer." We reserve the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any of the conditions.
Procedures for Tendering
Original Notes .........
Each holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile of it,
in accordance with the instructions herein and
therein, and mail or otherwise deliver the
Letter of Transmittal or facsimile, together
with the Original Notes and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. Physical delivery of Original Notes is
not required if a confirmation of a book-entry
transfer of the Original Notes to the Exchange
Agent's account at The Depository Trust Company
("DTC" or the "Depository") is delivered timely.
By executing the Letter of Transmittal, each
holder will represent to us (1) that the
Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving them,
whether or not that person is the holder, (2)
that neither the holder nor the person receiving
the Exchange Notes is engaged in, or intends to
engage in, or has an arrangement or
understanding with any person to participate in,
the distribution of the Exchange Notes, and (3)
that neither the holder nor the person receiving
the Exchange Notes is an "affiliate" of Applied
Power Inc. as defined under the Securities Act,
or if it is an affiliate, that it will comply
with the registration and prospectus delivery
requirements of the Securities Act, to the
extent applicable. Each broker or dealer that
receives Exchange Notes for its own account in
exchange for Original Notes that were acquired
by the broker or dealer as a result of market-
making activities or other trading activities
must acknowledge that it will deliver a
prospectus in connection with any resale of the
Exchange Notes. See "The Exchange Offer--
Procedures for Tendering" and "Plan of
Distribution."
Special Procedures for
Beneficial Owners ......
Any beneficial owner whose Original Notes are
registered in the name of a nominee and who
wishes to tender should contact the registered
holder promptly and instruct the registered
holder to tender on the beneficial owner's
behalf. If the Original Notes are in
certificated form and the beneficial owner
wishes to tender on the owner's own behalf, the
owner must, prior to completing and executing
the Letter of Transmittal and delivering the
Original Notes, either make appropriate
arrangements to register ownership of the
Original Notes in the beneficial owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery If the Original Notes are in certificated form,
Procedures.............. holders who wish to tender their Original Notes
and whose Original Notes are not entirely
9
<PAGE>
available or who cannot deliver their Original
Notes must complete, sign and deliver the Letter
of Transmittal and any other documents required
by the Letter of Transmittal to the Exchange
agent prior to the Expiration Date and must
tender their Original Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........ Tenders may be withdrawn at any time prior to
5:00 p.m. New York City time on the Expiration
Date. See "The Exchange Offer--Withdrawal of
Tenders."
Acceptance of Original
Notes and Delivery of
Exchange Notes..........
We will accept for exchange any and all Original
Notes that are properly tendered to the Exchange
Agent prior to 5:00 p.m. New York City time on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Exchange Agent .......... Bank One Trust Company, N.A., Chicago, Illinois,
is serving as Exchange Agent in connection with
the Exchange Offer. See "The Exchange Offer--
Exchange Agent."
Effect on Holders of the
Original Notes .........
As a result of making this Exchange Offer, and
upon acceptance for exchange of all validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, we will have fulfilled one
of our obligations contained in the Registration
Rights Agreement and, accordingly, there will be
no increase in the interest rate on the Original
Notes pursuant to the Registration Rights
Agreement. Holders of Original Notes who do not
tender their Original Notes will continue to be
entitled to all the rights and limitations
applicable thereto under the Indenture dated as
of August 1, 2000, among Applied Power, Inc.,
the Guarantors, and Bank One Trust Company,
N.A., as trustee (the "Trustee") relating to the
Original Notes and the Exchange Notes (the
"Indenture"), except for any rights under the
Indenture or the Registration Rights Agreement
which by their terms terminate or cease to have
further effectiveness as a result of the making
of, and the acceptance for exchange of all
validly tendered Original Notes pursuant to, the
Exchange Offer. All Original Notes that remain
outstanding will continue to be subject to the
restrictions on transfer provided for in the
Original Notes and the Indenture. To the extent
that Original Notes are tendered and accepted in
the Exchange Offer, the trading market for
Original Notes could be adversely affected.
Use of Proceeds ......... There will be no cash proceeds to Applied Power
Inc. from the exchange pursuant to the Exchange
Offer.
10
<PAGE>
Terms of the Notes
The Exchange Offer applies to the entire outstanding $200 million principal
amount of Original Notes. The terms of the Exchange Notes are identical in all
material respects to the Original Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Original Notes for Exchange Notes. The Exchange Notes will evidence the same
debt as the Original Notes and will be entitled to the benefits of the
Indenture under which both the Original Notes were, and the Exchange Notes will
be, issued. See "Description of the Notes."
Securities Offered....... $200.0 million aggregate principal amount of 13%
Senior Subordinated Notes Due 2009.
Maturity................. May 1, 2009.
Interest Rate............ 13% per year.
Interest Payment Dates... On May 1 and November 1 of each year, commencing
November 1, 2000.
Ranking.................. The Notes are senior subordinated obligations
and rank junior to our existing and future
Senior Indebtedness. The Notes rank equally with
our existing and future Senior Subordinated
Indebtedness and rank senior to any future
subordinated indebtedness. The Notes are
effectively subordinated to all our existing and
future secured indebtedness to the extent of the
assets securing that indebtedness. The terms
"Senior Indebtedness" and "Senior Subordinated
Indebtedness" are defined under the heading
"Description of the Notes--Certain Definitions"
in this prospectus. As of August 1, 2000, after
giving effect to the Transactions, including the
initial funding under the Actuant Credit
Facility, we had outstanding approximately
$252.6 million of Senior Indebtedness and
approximately $87.4 million of availability
under the revolving credit portion of the
Actuant Credit Facility, subject to compliance
with covenants.
Guarantees............... All of our existing and future subsidiaries who
are guarantors under the Actuant Credit Facility
have or will unconditionally guarantee the Notes
on an unsecured senior subordinated basis. The
guarantees rank junior to existing and future
Senior Indebtedness of the guarantors, are
effectively subordinated to all of the
guarantors' existing and future secured
indebtedness to the extent of the assets
securing that indebtedness and will be released
if the subsidiary should cease to be a guarantor
under the Actuant Credit Facility.
Optional Redemption...... We cannot redeem the Notes until May 1, 2007,
except as described below. Thereafter, we can
redeem some or all of the Notes at the
redemption prices listed under the heading
"Description of the Notes--Optional Redemption"
in this prospectus, plus accrued interest.
Optional Redemption
After Public Equity
Offerings...............
At any time (which may be more than once) before
May 1, 2003, we can choose to redeem up to 35%
of the original principal amount of the
11
<PAGE>
Notes with money that we raise in certain equity
offerings, as long as:
. we pay to holders of the Notes a redemption price
of 113% of the face amount of the Notes we
redeem, plus accrued interest;
. we redeem the Notes within 75 days of completing
such equity offering; and
. at least 65% of the original principal amount of
Notes issued remains outstanding afterward.
Excess Cash Flow
Repurchase Offer........
If we have Excess Cash Flow for any fiscal year
commencing with fiscal 2001, we will be
required, subject to certain exceptions and
limitations, to make an offer to purchase Notes
with 50% of such Excess Cash Flow (reduced by
the amount of any similar payments to our senior
lenders) at a price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The
term "Excess Cash Flow" is defined under the
heading "Description of the Notes--Certain
Definitions" in this prospectus.
Change of Control If we go through a Change of Control, we must
Offer................... give holders of the Notes the opportunity to
sell to us their Notes at a purchase price of
101% of their face amount, plus accrued
interest. The term "Change of Control" is
defined under the heading "Description of the
Notes--Change of Control" in this prospectus.
Certain Covenants........ The indenture governing the Notes contains
covenants that limit our ability and that of our
subsidiaries to:
. incur additional indebtedness;
. pay dividends and make distributions;
. make investments and other restricted payments;
. issue or sell capital stock of subsidiaries;
. engage in transactions with affiliates;
. create liens;
. transfer or sell assets;
. guarantee indebtedness;
. restrict dividend or other payments; and
. consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of the
Notes--Certain Covenants."
Exchange Offer;
Registration Rights.....
Under the Registration Rights Agreement executed
as part of the offering of the Original Notes,
we have agreed to:
. file a registration statement within 90 days
after the issue date of
12
<PAGE>
the Original Notes enabling the holders to
exchange the Original Notes for publicly
registered Exchange Notes with identical terms;
. use our best efforts to cause the registration
statement to become effective within 180 days
after the issue date of the Original Notes;
. consummate the exchange offer within 40 days
after the effective date of our registration
statement; and
. file a shelf registration statement for the
resale of the Original Notes if we cannot effect
an exchange offer within the time periods listed
above and in certain other circumstances.
We will pay additional interest on the Original
Notes if we do not comply with our obligations
under the Registration Rights Agreement, but
this provision does not apply to the Exchange
Notes. The registration statement of which this
prospectus is a part has been filed to satisfy
the requirements of the Registration Rights
Agreement. See "Description of the Notes--
Registered Exchange Offer; Registration Rights."
Risk Factors
Investing in the Notes involves substantial risks. See the "Risk Factors"
section of this prospectus for a description of certain of the risks you should
carefully consider before investing in the Notes.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data have been derived from the
consolidated financial statements of Applied Power. The data should be read in
conjunction with these financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
earnings data for each of the three fiscal years ended August 31, 1999 and the
balance sheet data as of August 31, 1998 and 1999 have been derived from the
audited Consolidated Financial Statements included elsewhere in this
prospectus. The balance sheet data as of August 31, 1997 has been derived from
unaudited consolidated financial statements of Applied Power not included in
this prospectus. The statement of earnings data for the nine months ended May
31, 1999 and May 31, 2000 and the balance sheet data as of those dates have
been derived from unaudited consolidated financial statements of Applied Power
included elsewhere in this prospectus. Operating results for the 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. Certain of the
financial data included in this prospectus may appear to not add or subtract
properly due to rounding.
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was spun off to shareholders
in the Distribution. Financial data presented in the table include the Non-
continuing Businesses. As a result, the selected financial data in the
following table are not fully representative of the group of business units
that comprise Actuant after the Distribution. We have included a separate
financial data table in footnote 9 below and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that includes only
those units of Applied Power that comprise Actuant after the Distribution.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31, May 31,
------------------------ -----------------
1997(2) 1998(2) 1999 1999 2000
------- ------- -------- -------- --------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data(1):
Net sales.......................... $522.4 $637.5 $ 695.7 $ 524.4 $ 535.7
Gross profit....................... 180.5 200.9 252.7 190.3 193.8
Operating expenses(3)(4)(5)........ 139.8 179.0 144.5 113.4 106.3
Operating earnings................. 35.8 9.3 99.4 70.2 81.6
Earnings from continuing
operations........................ 22.6 0.1 34.6 24.7 35.0
Diluted earnings per share from
continuing operations............. 0.57 0.00 0.86 0.62 0.87
Cash dividends per share(6)........ 0.06 0.06 0.06 0.03 0.03
Balance Sheet Data (at end of
period)(1):
Total assets(7).................... $486.4 $711.5 $1,059.9 $1,074.0 $1,035.5
Total debt(8)...................... 54.8 225.2 521.2 558.9 456.9
</TABLE>
--------
(1) We completed various acquisitions and divestitures that impact the
comparability of the selected financial data presented in the table. For
additional information, see Note D--"Merger, Acquisitions and Divestitures"
in Notes to Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Acquisitions
and Divestitures."
(2) Operating results for fiscal 1997 and 1998 include merger, restructuring
and other non-recurring charges that were recognized in cost of sales and
operating expenses. Such expenses totaled $6.2 million and $56.9 million on
a pre-tax basis in fiscal 1997 and 1998, respectively. For additional
information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note H--"Merger, Restructuring and
Other Non-recurring Items" in Notes to Consolidated Financial Statements.
Footnotes continued on next page.
14
<PAGE>
Footnotes continued from previous page.
(3) Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge due
to the cancellation of a contract. For the nine months ended May 31, 2000,
we recorded a $1.4 million pre-tax gain when we recovered costs in excess
of what we anticipated when the loss was initially recorded. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note H--"Merger, Restructuring and Other Non-recurring
Items" in Notes to Consolidated Financial Statements.
(4) Operating expenses for the nine months ended May 31, 2000 include a $4.4
million pre-tax charge for investment banking, legal, accounting and other
fees and expenses associated with the Distribution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes
to Consolidated Financial Statements.
(5) Operating expenses include engineering, selling and administrative
expenses, contract termination costs (recovery), corporate reorganization
charges, merger related expenses, and all of Applied Power's general
corporate expenses (which include expenditures on resources and services
that supported the Electronics Business). Total general corporate expenses
were as follows:
<TABLE>
<CAPTION>
Fiscal Period Amount
------------- -------------
(in millions)
<S> <C>
1997...................................................... $15.2
1998 (excluding expenses in Note 2 above)................. 17.5
1999...................................................... 12.1
Nine months ended May 31, 1999............................ 9.1
Nine months ended May 31, 2000 (excluding expenses in Note
4 above)................................................. 9.2
</TABLE>
Such amounts include the general corporate expenses for Zero Corporation
("ZERO") for periods both prior to and after its merger with Applied Power
in fiscal 1998. The merger was accounted for using the pooling of interests
method of accounting, with all of Applied Power's historical results
restated to include the historical results of ZERO. The majority of ZERO's
general corporate expenses was eliminated shortly after its acquisition, as
its corporate support functions were provided by existing Applied Power
corporate personnel. We expect general corporate expenses to decrease
following the Distribution due to the need for fewer employees performing
such functions and a reduction in the size of the organization being
supported by such corporate personnel. We believe that the expenses
required to support such general corporate functions in fiscal 1999 and the
nine months ended May 31, 2000, had the Distribution been completed prior
to the beginning of the period, would have been approximately $4.7 million
and $3.9 million, respectively. For further information, see "Unaudited Pro
Forma Consolidated Financial Statements" and Note A--"Summary of
Significant Accounting Policies" in Notes to Consolidated Financial
Statements.
(6) Applied Power split its stock two-for-one in fiscal 1998. All dividend and
per share data have been adjusted for this stock split. Actuant does not
intend to pay dividends following the Distribution.
(7) Includes net assets of discontinued operations as follows:
<TABLE>
<CAPTION>
Balance Sheet Date Balance
------------------ -------------
(in millions)
<S> <C>
August 31, 1997............................................. $86.2
August 31, 1998............................................. 249.7
August 31, 1999............................................. 598.5
May 31, 1999................................................ 604.1
May 31, 2000................................................ 597.5
</TABLE>
(8) Historically, Applied Power incurred indebtedness at the parent company
level or at a limited number of subsidiaries, rather than at the operating
unit or segment level. Debt in the table reflects our debt balance after an
allocation was made to the Electronics Business, which is reported in
discontinued operations. The
Footnotes continued on next page.
15
<PAGE>
Footnotes continued from previous page.
debt allocated to the Electronics Business was based on the estimated debt
assigned to APW in the debt realignment related to the Distribution.
Historical net financing costs were allocated based on the debt allocation
using the historical weighted-average rate. Our debt and capitalization will
change as a result of the Distribution. See "Unaudited Pro Forma
Consolidated Financial Statements" and Note I--"Debt" in Notes to
Consolidated Financial Statements.
(9) The following summary consolidated financial data are derived from the
audited consolidated financial statements of Applied Power for each of the
three years ended August 31, 1999 and the unaudited consolidated financial
statements of Applied Power for the nine months ended May 31, 1999 and May
31, 2000. The adjusted historical financial data in the following table
differs from the consolidated financial information in the Consolidated
Financial Statements because we excluded the financial data of the Non-
continuing Businesses. The unaudited pro forma consolidated statement of
earnings data give effect to the Transactions as if they had occurred on
August 31, 1999 and the unaudited pro forma consolidated balance sheet data
give effect to the Transactions as if they had occurred on May 31, 2000
except for the sale of Air Cargo, which occurred on May 26, 2000.
In the opinion of management, the following data include all necessary
adjustments for the fair presentation of the information set forth. Results for
interim periods are not necessarily indicative of the results for the full
year. The information in the table should be read together with the other
information contained in this prospectus under the captions "Capitalization,"
"Selected Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the related Notes thereto.
<TABLE>
<CAPTION>
Pro
Twelve Forma
Months Twelve
Year Ended August Nine Months Ended Months
31, Ended May 31, May Ended
--------------------- ------------- 31, May 31,
1997 1998 1999 1999 2000 2000 2000(b)
------ ------ ------ ------ ------ ------ --------
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings
Data(a):
Net sales................. $538.2(c)
Adjusted net sales........ $381.8 $482.1 $527.5 $398.3 $406.1 $535.2
Adjusted gross profit(d).. 132.3 151.0 189.5 143.9 147.7 193.3
Adjusted operating
expenses excluding
general corporate
expenses(e).............. 93.3 126.0 99.7 79.7 69.1 89.1
General corporate
expenses(f).............. 15.2 17.5 12.1 9.1 9.2 12.2 5.0
Adjusted operating
earnings(e).............. 20.3 (3.5) 71.5 50.4 64.7 85.8
Cash interest expense..... 52.5
Other Financial Data(a):
Adjusted depreciation..... $ 8.9 $ 10.8 $ 10.4 $ 8.4 $ 8.3 $ 10.3
Adjusted amortization of
intangible assets........ 3.4 11.1 6.2 4.7 4.7 6.1
Adjusted capital
expenditures............. 10.2 15.4 13.7 12.4 6.0 7.3
Total debt................ $ 450.0
</TABLE>
--------
(a) Adjusted items exclude results of the Non-continuing Businesses.
(b) Includes the reported operating results, until the date of its disposition,
of Samuel Groves, a business unit sold by Applied Power on November 23,
1999. For the twelve months ended May 31, 2000, Samuel Groves had net sales
of $3.0 million and EBITDA of $0.1 million. All adjusted operating data
exclude the results of Samuel Groves.
16
<PAGE>
(c) Pro forma net sales of $538.2 million differs from the $535.2 million of
adjusted net sales for the twelve months ended May 31, 2000 by $3.0 million
of net sales attributable to the divested Samuel Groves business unit.
(d) Includes $3.3 million and $17.7 million in fiscal 1997 and 1998,
respectively, for non-recurring restructuring charges.
(e) Includes $2.9 million and $34.2 million of restructuring charges in fiscal
1997 and 1998, respectively; $7.8 million of contract termination costs in
fiscal 1999 and the nine months ended May 31, 1999; $1.4 million of
contract termination recovery in the nine months ended May 31, 2000; and
$4.4 million of corporate reorganization expenses in the nine months ended
May 31, 2000. For further information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(f) General corporate expenses include all general corporate expenses related
to Applied Power, including costs incurred to support both the Industrial
Business and the Electronics Business. In accordance with generally
accepted accounting principles, none of these expenses has been allocated
to discontinued operations. We expect general corporate expenses to
decrease following the Distribution due to the need for fewer corporate
employees and a reduction in the size of the organization being supported.
We believe that the expenses required to support general corporate
functions in the nine months ended May 31, 2000, fiscal 1999 and the twelve
months ended May 31, 2000, had the Distribution been completed prior to the
beginning of the periods, would have been approximately $3.9 million, $4.7
million and $5.0 million, respectively.
(g) "EBITDA" is defined as operating earnings before depreciation, amortization
and certain restructuring and other non-recurring items. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and our calculation thereof may not be comparable to that
reported by other companies. We believe that EBITDA provides useful
information regarding our ability to service and/or incur indebtedness.
EBITDA does not take into account our working capital requirements, debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
use. Pro forma twelve months ended May 31, 2000 EBITDA was $112.4 million.
"Adjusted
17
<PAGE>
EBITDA" is defined as EBITDA excluding results of the Non-continuing
Businesses. Pro forma adjusted EBITDA of $112.4 million differs from the
$105.2 million of adjusted EBITDA for the twelve months ended May 31, 2000
by $7.2 million of excess historical general corporate expenses over $5.0
million, the amount management believes would have been incurred by Actuant
had the Distribution occurred on the day immediately prior to the first day
of such period. Adjusted EBITDA includes all general corporate expenses of
Applied Power, including costs incurred to support both the Industrial
Business and the Electronics Business. Accordingly, we believe that, had we
been a stand-alone entity during the periods presented, our EBITDA would
have been higher than the EBITDA presented in the table below. The
following is a reconciliation of operating earnings as reported in the
Consolidated Financial Statements to the adjusted EBITDA as displayed in
the table below:
<TABLE>
<CAPTION>
Nine Months Pro Forma
Year Ended Ended Twelve Months Twelve Months
August 31, May 31, Ended May 31, Ended May 31,
------------------ ------------ ------------- -------------
1997 1998 1999 1999 2000 2000 2000
----- ----- ------ ----- ------ ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating earnings...... $35.8 $ 9.3 $ 99.4 $70.2 $ 81.6 $110.8 $ 97.7
Depreciation............ 14.8 17.0 17.3 13.8 12.3 15.8 10.1
Amortization of
intangible assets...... 5.0 12.6 8.7 6.7 5.9 7.9 6.1
Contract termination
costs (recovery)....... -- -- 7.8 7.8 (1.4) (1.4) (1.4)
Corporate reorganization
expenses............... -- -- -- -- 4.4 4.4 --
Restructuring charges... 6.2 38.0 -- -- -- -- --
Merger related
expenses............... -- 9.3 -- -- -- -- --
Provision for loss on
sale of subsidiary..... -- 4.5 -- -- -- -- --
----- ----- ------ ----- ------ ------ ------
EBITDA.................. $61.8 $90.7 $133.2 $98.5 $102.8 $137.5 $112.4
Less: operating earnings
from Non-continuing
Businesses............. 15.4 12.7 27.9 19.8 16.9 25.0
Less: depreciation and
amortization of
intangible assets of
Non-continuing
Businesses............. 7.4 7.7 9.5 7.4 5.3 7.3
----- ----- ------ ----- ------ ------
Adjusted EBITDA......... $38.9 $70.3 $ 95.8 $71.3 $ 80.7 $105.2
===== ===== ====== ===== ====== ======
</TABLE>
18
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the other
information in this prospectus before investing in the Notes.
Risk Factors Related to the Exchange Offer
You must carefully follow the required procedures in order to exchange your
Original Notes.
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of a duly executed Letter of Transmittal
and all other required documents. Therefore, if you wish to tender your
Original Notes, you must allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor we have any duty to notify you of defects or
irregularities with respect to tenders of Original Notes for exchange. Any
holder of Original Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker or dealer
that receives Exchange Notes for its own account in exchange for Original Notes
that were acquired in market-making or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
the Exchange Notes. See "Plan of Distribution."
If you do not exchange Original Notes for Exchange Notes, transfer
restrictions will continue and trading of the Original Notes may be adversely
affected.
The Original Notes have not been registered under the Securities Act and are
subject to substantial restrictions on transfer. Original Notes that are not
tendered for exchange for Exchange Notes or are tendered but are not accepted
will, following completion of the Exchange Offer, continue to be subject to
existing restrictions upon transfers. We do not currently expect to register
the Original Notes under the Securities Act. To the extent that Original Notes
are tendered and accepted in the Exchange Offer, the trading market for
Original Notes could be adversely affected. See "The Exchange Offer--
Consequences of Failure to Exchange."
Risk Factors Related to Investment in the Notes
We have substantial other debt that could prevent us from fulfilling our
obligations under the Notes. This debt could adversely affect our operating
flexibility and put us at a competitive disadvantage.
We have a significant amount of debt which will require significant interest
payments. As of August 1, 2000 after the Distribution we had total consolidated
debt of approximately $450.0 million We and our subsidiaries may incur
additional indebtedness in the future.
In connection with the Distribution, we entered into the Actuant Credit
Facility. The Actuant Credit Facility provides us up to $340.0 million in
senior secured loans consisting of a $115.0 million six-year term loan, a
$125.0 million eight-year term loan and a $100.0 million six-year revolving
credit facility, approximately $12.6 million of which was drawn immediately
after the Distribution.
Our level of debt and the limitations imposed on us by our debt agreements
could have other important consequences to you, including the following:
. we will have to use a substantial portion of our cash flow from
operations for debt service rather than for our operations;
. we may not be able to obtain additional debt financing for future
working capital, capital expenditures or other corporate purposes or may
have to pay more for such financing;
19
<PAGE>
. some or all of the debt under the Actuant Credit Facility may be at a
variable interest rate, making us vulnerable to increases in interest
rates;
. we could be less able to take advantage of significant business
opportunities, such as acquisition opportunities, and react to changes
in market or industry conditions;
. we will be more vulnerable to general adverse economic and industry
conditions; and
. we may be disadvantaged compared to competitors with less leverage.
For more details, see the sections "Description of the Actuant Credit Facility"
and "Description of the Notes."
Following the Distribution, we are substantially restricted by the terms of
our debt, which could adversely affect us and increase your credit risk.
The indenture relating to the Notes and the Actuant Credit Facility include
a number of significant financial and other restrictive covenants. These
covenants could adversely affect us, and adversely affect investors, by
limiting our ability to plan for or react to market conditions or to meet our
capital needs. These covenants will include, among other things, restrictions
on our ability to:
. dispose of assets;
. make investments or acquisitions;
. engage in mergers or consolidations;
. incur liens, guarantees or additional debt;
. engage in sale-leaseback transactions;
. repurchase or redeem capital stock;
. engage in transactions with affiliates; and
. pay dividends or make distributions.
Restrictive covenants under the Actuant Credit Facility and the indenture
may trigger prepayment obligations.
The Actuant Credit Facility and the indenture contain a number of
restrictive covenants. Our failure to comply with these covenants could result
in an event of default, which, if not cured or waived, could result in us being
required to repay these borrowings before their due date. If we are unable to
make this repayment or otherwise refinance these borrowings, the lenders under
the Actuant Credit Facility could foreclose on our assets. If we are able to
refinance these borrowings on less favorable terms, our results of operations
and financial condition could be adversely harmed by increased costs and rates.
We have substantial debt following the Distribution, but we may still be
able to incur significantly more debt.
We may be able to incur substantial additional debt in the future. The terms
of the indenture do not fully prohibit us from doing so, and the Actuant Credit
Facility permits additional borrowings, subject to certain conditions. In
particular, as of August 1, 2000, we had approximately $87.4 million of
available capacity under our revolving credit facility, subject to compliance
with covenants. If new debt is added to our current debt levels, the related
risks we now face could intensify.
The Notes are subordinated to Actuant's senior debt and secured debt, and
the guarantees of the Notes are subordinated to the senior debt and secured
debt of the guarantors.
The Notes are subordinated to Actuant's current and future senior debt
including debt under the Actuant Credit Facility. The guarantees of the Notes
are subordinated to the senior debt and secured debt of the
20
<PAGE>
guarantor subsidiaries. Upon any distribution to creditors of Actuant or a
guarantor subsidiary in a liquidation, dissolution, bankruptcy or similar
proceeding, the holders of senior debt will be entitled to be paid in full
before any payment may be made to the holders of the Notes. In addition, all
payments on the Notes will be blocked if a payment default on senior debt
occurs and may be blocked for up to 179 days if certain non-payment defaults on
senior debt occur. In any of these events, Actuant cannot guarantee that it
will have sufficient assets to pay the amounts due on the Notes. As a result,
holders of the Notes may receive less, proportionately, than the holders of
senior debt.
In addition to the subordination provisions described above, the Notes and
the guarantees are not be secured by any assets of Actuant or its subsidiaries.
As a result, the Notes and guarantees are effectively subordinated to the
secured debt of Actuant and its subsidiaries to the extent of the value of the
assets securing such debt. Substantially all of the assets of Actuant and its
domestic subsidiaries, together with the stock of the domestic subsidiaries and
most of the stock of the foreign subsidiaries, are pledged to secure borrowings
under the Actuant Credit Facility. In any liquidation, dissolution, bankruptcy
or other similar proceeding, the holders of secured debt of Actuant or its
subsidiaries may assert rights against the secured assets in order to receive
full payment of their debt before the assets may be used to pay the holders of
the Notes.
As of August 1, 2000, we had approximately $252.6 million of consolidated
senior debt outstanding and approximately $87.4 million of available capacity
under our new revolving credit facility, subject to compliance with covenants.
In addition, subject to the terms of the indenture, we are permitted to borrow
substantial additional indebtedness, including senior debt, in the future.
We rely in part on our non-guarantor subsidiaries to fund our business, so
we may have difficulty paying our parent level debt.
Although Actuant Corporation has substantial operations and certain of our
subsidiaries have guaranteed the Notes, our non-guarantor subsidiaries,
including foreign subsidiaries, own a significant portion of our consolidated
assets and are a significant part of our operations. Approximately 36.6% of our
pro forma net sales and approximately 34.7% of our pro forma EBITDA for fiscal
1999 were from non-guarantor subsidiaries. Consequently, our operating cash
flow and ability to service indebtedness, including the Notes, depend in part
upon the operating cash flow of our non-guarantor subsidiaries and the payment
of funds by them to Actuant in the form of loans, dividends or otherwise. These
subsidiaries are separate legal entities that have no obligations to pay any
amounts due pursuant to the Notes or to make any funds available for that
purpose, whether by dividends, interest, loans, advances and other payments. In
addition, their ability to pay dividends and make loans, advances and other
payments to Actuant Corporation depends on any statutory or other contractual
restrictions, which may include requirements to maintain minimum levels of
working capital and other assets.
The Notes are effectively junior or subordinate to all liabilities of our
non-guarantor subsidiaries. No payments are required to be made from assets of
subsidiaries that do not guarantee the Notes unless those assets are
transferred, by dividend or otherwise, to Actuant Corporation or a subsidiary
guarantor. In the event of a bankruptcy, liquidation or dissolution of such a
subsidiary and following payment of these liabilities, the subsidiary may not
have sufficient assets remaining to make payments to us as a shareholder or
otherwise. The indenture governing the Notes permits both Actuant Corporation
and its subsidiaries to incur additional indebtedness, including secured
indebtedness.
The subsidiary guarantees raise fraudulent transfer issues, which could
impair the enforceability of the subsidiary guarantees.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a court could subordinate or void any guarantee if it found that
the guarantee was incurred with actual intent to hinder, delay
21
<PAGE>
or defraud creditors or the guarantor did not receive fair consideration or
reasonably equivalent value for the guarantee and the guarantor was any of the
following:
. insolvent or was rendered insolvent because of the guarantee;
. engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
If a court voided a guarantee as a result of fraudulent conveyance, or held
it unenforceable for any other reason, noteholders would cease to have a claim
against the guarantor and would be solely creditors of Actuant Corporation and
any other guarantors.
We may not have sufficient funds or be permitted by our senior debt to
purchase Notes upon a change of control.
If there is a change of control under the terms of the indenture governing
the Notes, each holder of Notes may require us to purchase all or a portion of
its Notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest. Our ability to purchase the Notes upon a change of
control event will be limited to the terms of our other debt agreements. Upon a
change of control, we may be required to repay immediately the outstanding
principal, any accrued interest on and any other amounts owed by us under the
Actuant Credit Facility. We cannot assure you that we would be able to repay
amounts outstanding under Actuant Credit Facility or obtain necessary consents
under such facility to purchase the Notes. In order to purchase any outstanding
Notes, we may have to refinance our outstanding indebtedness, which we may not
be able to do. In addition, even if we were able to refinance such
indebtedness, such financing may be on terms unfavorable to us. The term
"change of control" is defined in the "Description of the Notes--Certain
Definitions" section of this prospectus.
Investors may find it difficult to trade the Notes.
There is currently no public market for the Original Notes and we do not
intend to apply for listing of the Original Notes or the Exchange Notes on any
securities exchange. Although the initial purchasers have informed us that they
intend to make a market in the Notes, they are under no obligation to do so and
may discontinue any market-making activities at any time without notice. Any
such market-making will be subject to the limitations imposed by the Securities
Act and the Securities Exchange Act and may be limited during the Exchange
Offer for the Original Notes. We expect that the Original Notes will be
eligible for trading in The PortalSM Market, a subsidiary of The Nasdaq Stock
Market, Inc. The Original Notes have not been registered under the Securities
Act or any state securities laws and, unless registered, may not be sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The exchange of the Exchange Notes for Original Notes has been registered
under the Securities Act.
Risks Relating to Our Business
Our international operations pose currency and other risks.
We have significant international operations. We derived 29% of our pro
forma net sales for fiscal 1999 from Europe, 5% from Asia, 2% from South and
Latin America and 2% from Canada. Our international operations present special
risks, primarily from currency exchange rate fluctuations, exposure to local
economic
22
<PAGE>
conditions, export and import restrictions, controls on repatriation of cash
and exposure to local political conditions. As we expand our international
presence in response to customer requirements, these risks may increase.
Future acquisitions may not be available or may create transitional
challenges.
Our business strategy includes growth through small strategic acquisitions,
which depends upon the availability of suitable acquisition candidates at
reasonable prices and our ability to quickly resolve transitional challenges.
These challenges include integration of product lines, sales forces and
manufacturing facilities and decisions regarding divestitures, inventory write-
offs and other charges, as well as risks of employee turnover, disruption in
product cycles and the loss of sales momentum. We have experience in making
acquisitions, but we cannot be certain that we will find suitable acquisition
candidates or that we will consistently meet these transitional challenges.
Market demand for our products may suffer cyclical declines.
The level of market demand for our products depends upon the general
economic conditions of the markets in which we compete. Portions of our
revenues are derived from industries or geographic areas where downward
economic cycles could result in lower demand for the products of the affected
business segment, which could reduce our ability to make payments on the Notes.
For example, we derive significant revenues from sales to OEMs in the heavy-
duty truck, automotive and RV industries and from sales to the construction
industry. Our business could also be adversely affected by any of the risks to
which our customers' businesses are subject.
Our businesses are in highly competitive industries, so we may be forced to
cut prices or incur additional costs.
We compete on the basis of product design, quality, availability,
performance, customer service and price. Our businesses face competition to
varying degrees in each of their markets. In general, each product line
competes with a small group of different competitors. No one company competes
directly with us across all of our businesses, but present or future
competitors may have greater financial or technical resources which could put
us at a competitive disadvantage in the affected business or businesses.
Environmental laws and regulations may result in additional costs.
We and our subsidiaries have been identified by environmental regulators as
potentially responsible parties regarding remediation of several multi-party
waste sites and are subject to other environmental requirements. We also
provided environmental indemnities in connection with the Divestitures, so we
retain responsibility for certain of their actual or potential environmental
liabilities. Liability as a responsible party is strict and under certain
circumstances the party could be held liable for all clean-up costs at a
contaminated site. We believe that we are at most a de minimis (very minor)
participant in multi-party sites, and that any environmental liability which we
may incur for known matters and environmental compliance will not have a
material effect on our financial position. Nevertheless, we cannot guarantee
that our costs relating to such matters will not be greater than we currently
expect or that additional remediation and compliance obligations will not arise
which require us to make material expenditures.
Risk Factors Relating to the Distribution
We may not successfully transition to an independent company, and our past
results as a portion of the combined company may not be indicative of our
future performance.
Following the Distribution, Actuant is smaller and less diversified than
Applied Power had been. Our ability to satisfy our obligations and maintain
profitability will be solely dependent upon our own future
23
<PAGE>
performance; we will not be able to rely upon the capital resources or cash
flows of APW. The separation of the Electronics Business and the Industrial
Business may result in some temporary dislocation and inefficiencies to the
business operations, as well as the organization and personnel structure, of
Actuant and will also result in duplication of certain personnel,
administrative and other expenses required for operation as an independent
company. Accordingly, the pro forma consolidated financial statements of
Actuant included in this prospectus may not necessarily reflect the results of
operations and financial condition that would have been achieved if the
Industrial Business had operated independently during the periods presented.
We might not be able to collect on indemnification rights from APW. We also
have significant indemnification obligations, including those in connection
with the Divestitures.
Under the terms of the Distribution agreements and as is customary in
transactions of this kind, Actuant and APW have each agreed to indemnify the
other (and its related parties) with respect to past and future liabilities and
obligations of the businesses it now operates. In addition, APW has indemnified
Actuant from tax liabilities associated with the pre-Distribution corporate
restructuring transactions, the transactions that made APW Ltd. a Bermuda
corporation and the Distribution. These indemnification obligations could be
significant. The availability of these indemnities will depend upon the future
financial strength of each of the companies. We cannot be certain that APW will
have the financial strength to satisfy its obligations.
In addition to our indemnities to APW, we have also made and expect to make
representations and warranties and have given and expect to give indemnities
and lease guaranties in connection with business transactions such as sales of
businesses by us from time to time, including the Divestitures. The
representations, warranties and indemnities that we have made to date are
generally of the type typical in business sale transactions and have included
environmental and employee benefit matters, among others.
We could be adversely affected if the Distribution, the corporate
restructuring transactions or the debt realignment are not valid under
fraudulent transfer or legal dividend statutes.
In connection with the Distribution, Applied Power has undertaken numerous
corporate restructuring transactions and realignment of its debt. These
transactions, along with the Distribution, are subject to federal and state
fraudulent conveyance laws. Under these laws, if a court determines that one of
the parties to these transactions did not receive fair consideration and, at
the time, was insolvent, had unreasonably small capital or was unable to pay
its debts as they come due, the court could reverse the transactions or the
Distribution or impose liability on the parties. The resulting complications
and costs could have a material adverse effect on us and our business.
In addition, the Distribution, including the related debt realignment and
the related corporate restructuring transactions are subject to state corporate
distribution statutes. If these statutes were violated, a court could reverse
the transactions. The resulting complications and costs could have a material
adverse effect on us and our business.
24
<PAGE>
THE EXCHANGE OFFER
Purposes and Effects of the Exchange Offer
We sold the Original Notes on August 1, 2000 to the initial purchasers, who
resold the Original Notes to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) and other institutional "accredited
investors" (as defined in Rule 501(a) under the Securities Act) in a private
offering. In connection with the sale of the Original Notes, we and the initial
purchasers entered into a Registration Rights Agreement dated as of August 1,
2000 (the "Registration Rights Agreement") pursuant to which we agreed to file
with the SEC a registration statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange the Original Notes for
Exchange Notes within 90 days following the issuance of the Original Notes (the
"Issue Date"). In addition, we agreed to use our best efforts to cause the
Exchange Offer Registration Statement to become effective under the Securities
Act within 180 days after the Issue Date and to offer the Exchange Notes
pursuant to the Exchange Offer. A copy of the Registration Rights Agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
This prospectus is a part of the Exchange Offer Registration Statement that
we have filed with the SEC as provided above. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy our obligations
thereunder. The term "holder," with respect to the Exchange Offer, means any
person in whose name Original Notes are registered on Actuant's books or any
other person who has obtained a properly completed bond power from the
registered holder, or any person whose Original Notes are held of record by the
Depository. Upon completion of the Exchange Offer we generally will not be
required to file any registration statement to register any outstanding
Original Notes. Holders of Original Notes who do not tender their Original
Notes or whose Original Notes are tendered but not accepted generally will have
to rely on exemptions to registration requirements under the securities laws,
including the Securities Act, if they wish to sell their Original Notes.
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties unrelated to Actuant, we believe that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold and otherwise transferred by any holder
of Exchange Notes (other than a person that is an "affiliate" of Actuant within
the meaning of Rule 405 under the Securities Act and except as set forth in the
next paragraph) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the Exchange Notes are
acquired in the ordinary course of the holder's business and the holder is not
engaged, does not intend to engage, and has no arrangement or understanding
with any person to engage, in the distribution of the Exchange Notes.
If any person were to be participating in the Exchange Offer for the purpose
of distributing securities in a manner not permitted by the SEC's
interpretation (a) the position of the staff of the SEC enunciated in the
interpretive letters would be inapplicable to that person and (b) that person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes, where the Original Notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of Original Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities laws of that jurisdiction. Prior to the Exchange Offer, however, we
will use our best efforts to register or qualify the Exchange Notes for offer
and sale under the securities or laws of any jurisdictions necessary to permit
completion of the Exchange Offer and do any and all other acts or things
necessary or advisable to enable the offer and sale of the Exchange Notes in
those jurisdictions.
25
<PAGE>
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal, we will accept any and all
Original Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined). We will issue up to $200 million aggregate
principal amount of Exchange Notes in exchange for a like principal amount of
outstanding Original Notes that are validly tendered and accepted in the
Exchange Offer. Subject to the conditions of the Exchange Offer described
below, we will accept any and all Original Notes that are so tendered. Holders
may tender some or all of their Original Notes pursuant to the Exchange Offer.
The Exchange Offer is not conditioned upon any number of Original Notes
being tendered.
The form and terms of the Exchange Notes will be the same in all material
respects as the form and terms of Original Notes, except that the Exchange
Notes will be registered under the Securities Act and hence will not bear
legends restricting their transfer. The Exchange Notes will not represent
additional indebtedness of Actuant and will be entitled to the benefits of the
Indenture, which is the same Indenture as the one under which the Original
Notes were issued.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid on the Original Notes or, if no interest has been
paid, from August 1, 2000. Accordingly, registered holders of Exchange Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 1, 2000. Original Notes accepted for exchange will cease to accrue
interest from and after the date the Exchange Offer closes. Holders whose
Original Notes are accepted for exchange will not receive any payment in
respect of interest on the Original Notes otherwise payable on any interest
payment date the record date for which occurs on or after completion of the
Exchange Offer.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. We intend to conduct
the Exchange Offer in accordance with the provisions of the Registration Rights
Agreement. Original Notes which are not tendered for exchange or are tendered
but not accepted in the Exchange Offer will remain outstanding and be entitled
to the benefits of the Indenture, but generally will not be entitled to any
registration rights under the Registration Rights Agreement.
We will be deemed to have accepted validly tendered Original Notes when, as
and if we have given oral or written notice of acceptance to the Exchange Agent
for the Exchange Offer. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from Actuant.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates (if any) for the unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letters of Transmittal, transfer taxes with respect to the exchange of Original
Notes pursuant to the Exchange Offer. Actuant will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
Conditions of the Exchange Offer
Notwithstanding any other term of the Exchange Offer, Actuant will not be
required to accept for exchange any Original Notes for any Exchange Notes
tendered and may terminate or amend the Exchange
26
<PAGE>
Offer as provided herein before the acceptance of such Original Notes, if any
of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority with respect
to the Exchange Offer which, in Actuant's judgment, could reasonably be
expected to materially impair our ability to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer; or
(b) there shall have been proposed, adopted or enacted any law, statute,
rule, regulation or order which, in Actuant's judgment, could reasonably be
expected to materially impair our ability to proceed with the Exchange
Offer or have a materially adverse effect on the contemplated benefits of
the Exchange Offer.
The foregoing conditions are for Actuant's sole benefit and may be asserted
regardless of the circumstances giving rise to the conditions or may be waived
by us in whole or in part at any time and from time to time in our sole
discretion. If we waive or amend the foregoing conditions, we will, if required
by applicable law, extend the Exchange Offer for a minimum of five business
days from the date that we first give notice, by public announcement or
otherwise, of such waiver of amendment, if the Exchange Offer would otherwise
expire within that five business-day period. Any determination by Actuant
concerning the events described above will be final and binding upon all
parties.
Expiration Date; Extension; Termination; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on October
25, 2000, subject to extension by Actuant by notice to the Exchange Agent (the
"Expiration Date"). We reserve the right to extend the Exchange Offer at our
discretion, in which event the term "Expiration Date" shall mean the time and
date on which the Exchange Offer as so extended shall expire. We will notify
the Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
We reserve the right (a) to delay accepting for exchange any Original Notes
for any Exchange Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Original Notes for any Exchange Notes if any of the
events set forth under the caption "Conditions of the Exchange Offer" shall
have occurred and shall not have been waived by giving oral or written notice
of the delay or termination to the Exchange Agent, or (b) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance for exchange,
extension or amendment will be followed as promptly as practicable by a public
announcement thereof. If we amend the Exchange Offer in a manner we determine
constitutes a material change, we will promptly disclose the amendment in a
manner reasonably calculated to inform the holders of Exchange Notes of the
amendment and we will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the manner
of disclosure to the holders of the Exchange Notes, if the Exchange Offer would
otherwise expire during that five to ten business-day period. The rights we
have reserved in this paragraph are in addition to our rights set forth under
the caption "Conditions of the Exchange Offer."
Procedures For Tendering
Only a holder of Original Notes may tender them in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile of it, must have the signatures thereon
guaranteed if required by the Letter of Transmittal, and must mail or otherwise
deliver the Letter of Transmittal or the facsimile, together with the Original
Notes (unless such tender is being effected pursuant to the procedure for book-
entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in the Book-Entry Transfer
Facility system established by The Depositary Trust Company ("DTC") may make
book-entry delivery of the Original Notes by causing DTC to transfer the
Original Notes into the Exchange Agent's account in accordance with DTC's
procedure for transfer.
27
<PAGE>
Although delivery of Original Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received or
confirmed by the Exchange Agent at its address set forth in "Exchange Agent"
below prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery
of documents to DTC in accordance with its procedures does not constitute
delivery to the Exchange Agent.
The tender by a holder of Original Notes will constitute an agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Original Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Original Note should be sent to Actuant; they should
be sent to the Exchange Agent instead. Holders may request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect the
tenders for them.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Original Notes are being tendered (a) by a registered holder who has not
completed the box entitled "Special Issuance/Delivery Instructions" in the
Letter of Transmittal, or (b) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, the guarantee must be by a
member of a signature guarantee program within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
those persons should so indicate when signing, and unless waived by Actuant,
evidence satisfactory to Actuant of their authority to act must be submitted
with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Original Notes will be
determined by Actuant in its sole discretion. Actuant's determination will be
final and binding. We reserve the absolute right to reject any and all Original
Notes not properly tendered or any Original Notes our acceptance of which
would, in the opinion of our counsel, be unlawful. We also reserve the right to
waive any defects, irregularities or conditions of tender as to particular
Original Notes. Actuant's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes must be cured
within such times as Actuant determines. Although we intend to request the
Exchange Agent to notify holders of defects or irregularities with respect to
tenders of Original Notes, neither Actuant, the Exchange Agent nor any other
person will incur any liability for failure to give any notification. Tenders
of Original Notes will not be deemed to have been made until any defects or
irregularities have been cured or waived. Any Original Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, we reserve the right in our sole discretion (subject to the
limitations contained in the Indenture) (a) to purchase or make offers for any
Original Notes that remain outstanding subsequent to the Expiration Date and
(b) to the extent permitted by applicable law, to purchase Original Notes in
the open market, in privately negotiated transactions or otherwise. The terms
of any purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to Actuant, among other things, (1)
that the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person
28
<PAGE>
receiving the Exchange Notes, whether or not that person is the holder, (2)
that neither the holder nor the other person has an arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and (3) that neither the holder nor the other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of Actuant or, if
the person is an affiliate of Actuant, that the person will comply with the
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as
a result of market-making activities or other trading activities, the holder by
tendering will acknowledge that it will deliver a prospectus in connection with
any resale of the Exchange Notes.
Guaranteed Delivery Procedures
Holders who wish to tender their Original Notes and (1) whose Original Notes
are not immediately available, or (2) who cannot deliver their Original Notes
and other required documents to the Exchange Agent, or cannot complete the
procedure for book-entry transfer prior to the Expiration Date, may effect a
tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from the
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of the Original Notes (if available) and the principal amount of Original
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date,
the certificate(s) representing the Original Notes to be tendered in proper
form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of Original Notes delivered electronically)
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) The certificate(s) representing all tendered Original Notes in
proper form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of Original Notes delivered electronically)
and all other documents required by the Letter of Transmittal are received
by the Exchange Agent within three business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date, and prior to acceptance for exchange thereof by
Actuant. Any notice of withdrawal must (1) specify the name of the person
having deposited the Original Notes to be withdrawn (the "Depositor"), (2)
identify the Original Notes to be withdrawn (including the certificate number
or numbers, if applicable, and principal amount of the Original Notes), (3) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which the Original Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Original Notes register the
transfer of the Original Notes into the name of the person withdrawing the
tender, and (4) specify the name in which any Original Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of withdrawal
notices will be determined by Actuant, whose determination shall be final and
binding on all parties. Any Original Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect to them unless the Original Notes so
29
<PAGE>
withdrawn are validly re-tendered. Any Original Notes which have been tendered
but which are not accepted for exchange or which are withdrawn will be returned
to the holder thereof without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Original Notes may be re-tendered by following one of the procedures
described above under "Procedures for Tender" at any time prior to the
Expiration Date.
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Actuant. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telegraph, telephone or in person by officers and regular employees of
Actuant and its affiliates.
Actuant has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. However, Actuant will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. Actuant may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Original Notes and in handling or forwarding tenders for
exchange. Actuant will pay the other expenses to be incurred in connection with
the Exchange Offer, including fees and expenses of the Trustee, accounting and
legal fees and printing costs.
Actuant will pay all transfer taxes, if any, applicable to the exchange of
Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Original Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Original
Notes pursuant to the Exchange Offer, then the amount of any transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of any taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of any transfer taxes will be billed directly to the tendering holder.
Resale of Exchange Notes
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that the Exchange Notes issued
pursuant to the Exchange Offer in exchange Original Notes may be offered for
resale, resold and otherwise transferred by any holder of Exchange Notes (other
than broker-dealers, as set forth below, and other than any holder which is an
"affiliate" of Actuant within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that the Exchange Notes are acquired in the
ordinary course of the holder's business and the holder does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes. Any holder who tenders
in the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co., Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Original Notes, where the Original Notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the Exchange Notes. See "Plan of Distribution."
30
<PAGE>
By tendering in the Exchange Offer, each holder will represent to Actuant
that, among other things, (1) the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving the Exchange Notes, whether or not the person is a holder, (2)
neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and (3) the holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes, (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with those
requirements could result in the holder incurring liability under the
Securities Act for which the holder is not indemnified by Actuant. Further, by
tendering in the Exchange Offer, each holder that may be deemed an "affiliate"
(as defined under Rule 405 of the Securities Act) of Actuant will represent to
Actuant that the holder understands and acknowledges that the Exchange Notes
may not be offered for resale, resold or otherwise transferred by that holder
without registration under the Securities Act or an exemption therefrom.
As set forth above, affiliates of Actuant are not entitled to rely on the
foregoing interpretations of the staff of the SEC with respect to resales of
the Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act.
Consequences of Failure to Exchange
As a result of making this Exchange Offer, Actuant will have fulfilled one
of its obligations under the Registration Rights Agreement and holders of
Original Notes who do not tender their Original Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Original Notes that does not exchange
that holder's Original Notes for Exchange Notes will continue to hold the
untendered Original Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture, except to the extent of
those rights or limitations that, by their terms, terminate or cease to have
further effectiveness as a result of the Exchange Offer (including the right to
receive additional interest, under certain circumstances, as Liquidated
Damages).
The Original Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, the Original
Notes may be resold only (a) to Actuant (upon redemption thereof or otherwise),
(b) pursuant to an effective registration statement under the Securities Act,
(c) so long as the Original Notes are eligible for resale pursuant to Rule
144A, to a qualified institutional buyer within the meaning of Rule 144A under
the Securities Act in a transaction meeting the requirements of 144A, (d)
outside the United States to a foreign person pursuant to the exemption from
the registration requirements of the Securities Act provided by Regulation S
thereunder, (e) to an institutional accredited investor that, prior to such
transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Original Notes evidenced thereby (the form of which letter can be obtained from
the Trustee) or (f) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States.
Accordingly, if any Original Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Original Notes could be adversely
affected. See "Risk Factors--You must carefully follow the required procedures
in order to exchange your Original Notes" and "Risk Factors--If you do not
exchange Original Notes for Exchange Notes, transfer restrictions will continue
and trading of the Original Notes may be adversely affected." Also see "--
Termination of Certain Rights."
Termination of Certain Rights
Holders of the Notes will not be entitled to certain rights under the
Registration Rights Agreement following the completion of the Exchange Offer.
The rights that generally will terminate are the rights (a) to
31
<PAGE>
have Actuant file with the SEC and use its best efforts to have declared
effective a shelf registration statement to cover resales of the Original Notes
by the holders thereof and (b) to receive additional interest as Liquidated
Damages if the registration statement of which this prospectus is a part or the
shelf registration statement are not filed with, or declared effective by, the
SEC with certain specified time periods or the Exchange Offer is not
consummated within a specified time period.
Other
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged
to consult their financial and tax advisors in making their own decision on
what action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this prospectus. If given or made, that information or those
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made hereunder will,
under any circumstances, create any implication that there has been no change
in the affairs of Actuant or its subsidiaries since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tender be accepted from or on behalf of) holders of Original Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. However,
Actuant intends to take any action it deems necessary to make the Exchange
Offer in any jurisdiction and to extend the Exchange Offer to holders of
Original Notes in that jurisdiction.
Actuant may in the future seek to acquire Original Notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any Original Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any Original Notes except to the extent that we may be required to
do so under the Registration Rights Agreement.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, as reflected in our accounting records on the date of the
exchange. Accordingly, Actuant will recognize no gain or loss for accounting
purposes upon the completion of the Exchange Offer. The expenses of the
Exchange Offer will be amortized over the term of the Exchange Notes under
generally accepted accounting principles.
Exchange Agent
Bank One Trust Company, National Association, Columbus, Ohio has been
appointed as Exchange Agent for the Exchange Offer. All correspondence in
connection with the Exchange Offer and the Letter of Transmittal should be
addressed to the Exchange Agent, as follows:
By Hand or Overnight Courier/Mail: Facsimile Transmission:
Bank One Trust Company, N.A. (312) 407-8853
Attn: Exchanges (For Eligible Institutions Only)
One North State Street, 9th Floor
Chicago, IL 60602 Confirm by Telephone:
(800) 524-9472
Requests for additional copies of this prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
32
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of our obligations under
the Purchase Agreement and the Registration Rights Agreement. We will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes contemplated by this
prospectus, we will receive the Original Notes in like principal amount, the
form and terms of which are the same as the form and terms of the Exchange
Notes (which replace the Original Notes, except as otherwise described herein,
and which represent the same indebtedness). The Original Notes surrendered in
exchange for the Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, the issuance of the Exchange Notes will not result in
any increase or decrease in our indebtedness.
We received approximately $190.4 million of net proceeds from the offering
of the Original Notes (after deducting the offering discount, the initial
purchasers' discount and the estimated offering expenses). We used the net
proceeds from the offering, together with a portion of the initial borrowings
under the Actuant Credit Facility, borrowings under the new credit facility
entered into by APW and proceeds from the sale of Barry Controls, to fund the
purchase of the 1999 Notes, which bore interest at the rate of 8.75% per annum
and matured in 2009, and for repayment of other debt in connection with the
Distribution. For the terms of our other debt, see Note I--"Debt" in Notes to
Consolidated Financial Statements included herein.
For further discussion of the sources and uses of funds related to the
Distribution, see "The Transactions."
33
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
Applied Power as of May 31, 2000, and the unaudited pro forma capitalization of
Actuant as of May 31, 2000 after giving effect to the Transactions including
the issuance of debt under the Actuant Credit Facility, the issuance of the
Notes and the estimated fees and expenses related thereto, each as if they had
occurred on that date. The table should be read in conjunction with the
"Unaudited Pro Forma Consolidated Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
May 31, 2000
-----------------------
Historical Pro Forma(1)
---------- ------------
(in millions)
<S> <C> <C>
Cash and cash equivalents............................... $ 6.8 $ 6.8
====== =======
Existing long-term debt(2).............................. $456.9 $ --
The Actuant Credit Facility(3).......................... -- 252.6
The Notes, net of discount.............................. -- 197.4
------ -------
Total debt(4)....................................... 456.9 450.0
------ -------
Shareholders' equity(5)................................. 462.8 (146.8)
------ -------
Total capitalization................................ $919.7 $ 303.2
====== =======
</TABLE>
--------
(1) Gives effect to the Transactions, including the issuance of debt under the
Actuant Credit Facility, the issuance of the Notes and the estimated fees
and expenses related thereto. See "The Transactions."
(2) Historical long-term debt excludes $43.8 million of an off-balance sheet
accounts receivable financing facility that was retired upon the
consummation of the Distribution. Immediately following the Distribution,
Actuant does not have an accounts receivable financing program. The
existing long-term debt balance excludes $287.4 million of debt allocated
to the Electronics Business, which is included in net assets of
discontinued operations on the consolidated balance sheet.
(3) The Actuant Credit Facility consists of $240.0 million in term loans which
were borrowed upon the consummation of the Distribution and a $100.0
million revolving credit facility, approximately $12.6 million of which
were drawn upon consummation of the Distribution. See "Description of the
Actuant Credit Facility."
(4) Prior to the Distribution, most of Applied Power's debt instruments were
held at the corporate level. Applied Power's historical debt has been
allocated in the historical financial statements between the Industrial
Business and the Electronics Business based on the amount of debt then
anticipated to be assumed by the Electronics Business in the Distribution.
The amount of debt allocated to the Industrial Business approximated four
times EBITDA of Actuant pro forma for the Transactions for the four fiscal
quarters preceding the date of the Distribution and is reflected in an
agreement between APW and Actuant. See Note I--"Debt" in Notes to
Consolidated Financial Statements.
(5) The reduction in shareholders' equity reflects the following items, net of
tax effect:
<TABLE>
<CAPTION>
May 31, 2000
------------
(in
millions)
<S> <C>
The Distribution............................................... $(597.5)
Estimated final allocation of debt to APW...................... (85.9)
Write-off of unamortized historical debt issuance costs........ (0.4)
Estimated transaction costs, including Tender Offer premium.... (16.7)
Estimated gain on the Divestitures............................. 90.9
-------
$(609.6)
=======
</TABLE>
In accordance with generally accepted accounting principles, the
Distribution results in a net reduction in Applied Power's historical
shareholders' equity as the total assets being distributed to APW in the
Distribution exceed the total liabilities being distributed. The excess of
total assets over total liabilities requires a corresponding reduction in
shareholders' equity. See "Unaudited Pro Forma Consolidated Financial
Statements."
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of earnings and
unaudited pro forma consolidated balance sheet present the consolidated results
of Applied Power and its financial position, adjusted to give effect to the
Transactions, including the issuance of the Notes, the issuance of debt under
the Actuant Credit Facility and the estimated fees and expenses related
thereto. The unaudited pro forma consolidated statements of earnings for the
nine and twelve months ended May 31, 2000 and the fiscal year ended August 31,
1999 give effect to the Transactions as if they had occurred on the day prior
to the beginning of the period being referenced. The unaudited pro forma
consolidated balance sheet data give effect to the Transactions as if they had
occurred on May 31, 2000 except for the sale of Air Cargo, which occurred on
May 26, 2000.
The unaudited pro forma consolidated financial statements have been derived
from the historical consolidated financial statements of Applied Power. The pro
forma adjustments, as described in the notes that follow, are based upon
available information and upon certain assumptions that management believes are
reasonable. You should read this information in conjunction with the
Consolidated Financial Statements included elsewhere in this prospectus. The
unaudited pro forma consolidated financial statements are included for
comparative purposes only and do not purport to be indicative of the results of
Actuant in the future or what the financial position and results of operations
would have been had Actuant been a separate, stand-alone entity during the
periods shown.
35
<PAGE>
Unaudited Pro Forma Consolidated Statement of Earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended May 31, 2000
------------------------------------------------
Excluded Other Pro
Historical Businesses(1) Adjustments Forma(2)
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales................... $535,655 $(128,261) $ -- $407,394
Cost of products sold....... 341,816 (82,447) -- 259,369
-------- --------- -------- --------
Gross profit................ 193,839 (45,814) -- 148,025
Engineering, selling and
administrative expenses.... 103,329 (27,625) (5,281)(3) 70,423
Amortization of intangible
assets..................... 5,902 (1,208) -- 4,694
Contract termination
recovery................... (1,446) -- -- (1,446)
Corporate reorganization
expenses................... 4,449 -- (4,449)(4) --
-------- --------- -------- --------
Operating earnings.......... 81,605 (16,981) 9,730 74,354
Other expense (income):
Net financing costs......... 27,892 -- 13,008 (5) 40,900
Other income--net........... (823) 146 -- (677)
-------- --------- -------- --------
Earnings from continuing
operations before income
tax expense................ 54,536 (17,127) (3,278) 34,131
Income tax expense.......... 19,584 -- (5,590)(6) 13,994
-------- --------- -------- --------
Net earnings from continuing
operations................. 34,952 (17,127) 2,312 20,137
Earnings from discontinued
operations................. 34,232 -- (34,232)(7) --
-------- --------- -------- --------
Earnings before
extraordinary item......... 69,184 (17,127) (31,920) 20,137
Extraordinary loss.......... (12,186) -- -- (12,186)
-------- --------- -------- --------
Net earnings................ $ 56,998 $ (17,127) $(31,920) $ 7,951
======== ========= ======== ========
Basic earnings per share:
Earnings from continuing
operations per share....... $ 0.89 $ 0.51
Discontinued operations per
share...................... 0.88 --
Extraordinary loss per
share...................... (0.31) (0.31)
-------- --------
Net earnings per share...... $ 1.46 $ 0.20
======== ========
Weighted average common
shares outstanding......... 39,045 39,045
======== ========
Diluted earnings per share:
Earnings from continuing
operations per share....... $ 0.87 $ 0.50
Discontinued operations per
share...................... 0.85 --
Extraordinary loss per
share...................... (0.30) (0.30)
-------- --------
Net earnings per share...... $ 1.42 $ 0.20
======== ========
Weighted average common and
equivalent shares
outstanding 40,302 40,302
======== ========
Other Data:
Depreciation and
amortization............... $ 18,224 $ (5,204) $ -- $ 13,020
Capital expenditures........ 9,170 (3,223) -- 5,947
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
36
<PAGE>
Unaudited Pro Forma Consolidated Statement of Earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31, 1999
------------------------------------------------
Excluded Other Pro
Historical Businesses(1) Adjustments Forma(2)
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.................... $695,704 $(158,867) $ -- $536,837
Cost of products sold........ 443,020 (98,092) -- 344,928
-------- --------- -------- --------
Gross profit................. 252,684 (60,775) -- 191,909
Engineering, selling and
administrative expenses..... 136,671 (30,530) (7,399)(3) 98,742
Amortization of intangible
assets...................... 8,748 (2,589) -- 6,159
Contract termination costs... 7,824 -- -- 7,824
Corporate reorganization
expenses.................... -- -- -- --
-------- --------- -------- --------
Operating earnings........... 99,441 (27,656) 7,399 79,184
Other expense (income):
Net financing costs.......... 41,181 -- 13,353(5) 54,534
Other expense (income)--net.. 850 (143) -- 707
-------- --------- -------- --------
Earnings from continuing
operations before income tax
expense..................... 57,410 (27,513) (5,954) 23,943
Income tax expense........... 22,830 -- (13,013)(6) 9,817
-------- --------- -------- --------
Net earnings from continuing
operations.................. 34,580 (27,513) 7,059 14,126
Earnings from discontinued
operations.................. 44,817 -- (44,817)(7) --
-------- --------- -------- --------
Net earnings................. $ 79,397 $ (27,513) $(37,758) $ 14,126
======== ========= ======== ========
Basic earnings per share:
Earnings from continuing
operations per share........ $ 0.89 $ 0.36
Discontinued operations per
share....................... 1.15 --
-------- --------
Net earnings per share....... $ 2.04 $ 0.36
======== ========
Weighted average common
shares outstanding.......... 38,825 38,825
======== ========
Diluted earnings per share:
Earnings from continuing
operations per share........ $ 0.86 $ 0.35
Discontinued operations per
share....................... 1.12 --
-------- --------
Net earnings per share....... $ 1.98 $ 0.35
======== ========
Weighted average common and
equivalent shares
outstanding................. 40,200 40,200
======== ========
Other Data:
Depreciation and
amortization................ $ 26,056 $ (9,197) $ -- $ 16,859
Capital expenditures......... 22,885 (9,062) -- 13,823
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
37
<PAGE>
Unaudited Pro Forma Consolidated Statement of Earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Twelve Months Ended May 31, 2000
------------------------------------------------
Excluded Other Pro
Historical Businesses(1) Adjustments Forma(2)
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales................... $707,003 $(168,796) $ -- $538,207
Cost of products sold....... 450,732 (106,479) -- 344,253
-------- --------- -------- --------
Gross profit................ 256,271 (62,317) -- 193,954
Engineering, selling and
administrative expenses.... 134,442 (35,314) (7,204)(3) 91,924
Amortization of intangible
assets..................... 7,994 (1,879) -- 6,115
Contract termination
recovery................... (1,446) -- -- (1,446)
Corporate reorganization
expenses................... 4,449 -- (4,449)(4) --
-------- --------- -------- --------
Operating earnings.......... 110,832 (25,124) 11,653 97,361
Other expense (income):
Net financing costs......... 38,435 -- 16,099 (5) 54,534
Other income--net........... (152) (352) -- (504)
-------- --------- -------- --------
Earnings from continuing
operations before income
tax expense................ 72,549 (24,772) (4,446) 43,331
Income tax expense.......... 27,751 -- (9,985)(6) 17,766
-------- --------- -------- --------
Net earnings from continuing
operations................. 44,798 (24,772) 5,539 25,565
Earnings from discontinued
operations................. 47,568 -- (47,568)(7) --
-------- --------- -------- --------
Earnings before
extraordinary item......... 92,366 (24,772) (42,029) 25,565
Extraordinary loss.......... (12,186) -- -- (12,186)
-------- --------- -------- --------
Net earnings................ $ 80,180 $ (24,772) $(42,029) $ 13,379
======== ========= ======== ========
Basic earnings per share:
Earnings from continuing
operations per share....... $ 1.14 $ 0.65
Discontinued operations per
share...................... 1.22 --
Extraordinary loss per
share...................... (0.31) (0.31)
-------- --------
Net earnings per share...... $ 2.05 $ 0.34
======== ========
Weighted average common
shares outstanding......... 39,024 39,024
======== ========
Diluted earnings per share:
Earnings from continuing
operations per share....... $ 1.11 $ 0.63
Discontinued operations per
share...................... 1.18 --
Extraordinary loss per
share...................... (0.30) (0.30)
-------- --------
Net earnings per share...... $ 1.99 $ 0.33
======== ========
Weighted average common and
equivalent shares
outstanding 40,275 40,275
======== ========
Other Data:
Depreciation and
amortization............... $ 23,823 $ (7,309) $ -- $ 16,514
Capital expenditures........ 10,793 (3,490) -- 7,303
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
38
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Earnings
(1) Reflects the elimination of historical operating results for the Air Cargo
and Barry Controls businesses, which were sold in May 2000 and June 2000,
respectively, and the Magnets business, which became part of APW in
connection with the Distribution.
(2) Includes the operating results, until the date of its disposition, of
Samuel Groves, a business unit sold by Applied Power on November 23, 1999.
Operating results of this divested business for the pro forma periods
presented were as follows:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Twelve
May 31, August 31, Months Ended
2000 1999 May 31, 2000
----------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Net sales................................ $1,340 $9,385 $3,032
Gross profit............................. 348 2,466 723
Operating earnings....................... (58) 290 (101)
EBITDA................................... 4 631 52
Capital expenditures..................... -- 75 17
</TABLE>
(3) Engineering, selling and administrative expenses include all general
corporate expenses related to Applied Power, including costs incurred to
support both the Industrial Business and the Electronics Business. In
accordance with generally accepted accounting principles, none of these
expenses has been allocated to discontinued operations. The adjustment
reflects the elimination of the excess of historical general corporate
expenses over the amounts management believes would have been incurred by
Actuant had the Distribution taken place at the beginning of such periods.
The remainder represents salaries and benefits for positions in corporate
finance, treasury, tax, human resource and general management as well as
certain outside service fees expected to continue, including audit,
insurance and legal costs. For the nine and twelve month periods ended May
31, 2000 and fiscal 1999, pro forma general corporate expenses were $3.9
million, $5.0 million and $4.7 million, respectively.
(4) Reflects the adjustment to exclude investment banking, legal, accounting
and other fees and expenses associated with the Distribution.
(5) Reflects the elimination of historical net financing costs and the
inclusion of estimated pro forma net financing costs based on the debt
realignment related to the Distribution as follows:
<TABLE>
<CAPTION>
Nine Months Twelve
Ended Year Ended Months Ended
May 31, August 31, May 31,
2000 1999 2000
----------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
The Actuant Credit Facility--Revolver
and Tranche A term
Loan at 9.47%......................... $ 9,063 $12,084 $12,084
The Actuant Credit Facility--Tranche B
Term Loan at 10.47%................... 9,816 13,088 13,088
The Notes at 13.0%..................... 19,500 26,000 26,000
Non-cash amortization of the discount
on Notes.............................. 227 303 303
Non-cash amortization of debt issuance
costs................................. 1,314 1,752 1,752
Other financing costs.................. 980 1,307 1,307
------- ------- -------
Estimated pro forma net financing
costs................................. 40,900 54,534 54,534
Less: historical net financing costs... 27,892 41,181 38,435
------- ------- -------
Pro forma adjustment................... $13,008 $13,353 $16,099
======= ======= =======
</TABLE>
39
<PAGE>
LIBOR assumed in the above calculations is 6.72%. A 0.25% change in LIBOR
for the Actuant Credit Facility would result in an approximate $0.6 million
change in annual pro forma net financing costs.
(6) Represents the adjustment required to arrive at an estimated income tax
expense after the Distribution. The increase in the effective pro forma tax
rate results from lower utilization of foreign tax credits.
(7) Reflects elimination of the net operating results of the Electronics
Business.
(8) "EBITDA" is defined as operating earnings before depreciation, amortization
and certain restructuring and other non-recurring items. Restructuring and
other non-recurring items included in the pro forma consolidated statement
of earnings are contract termination costs, contract termination recovery
and corporate reorganization expenses. EBITDA does not represent and should
not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
our calculation thereof may not be comparable to that reported by other
companies. We believe that EBITDA provides useful information regarding our
ability to service and/or incur indebtedness. EBITDA does not take into
account our working capital requirements, debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary use.
<TABLE>
<CAPTION>
Excluded Other
Historical Businesses(1) Adjustments Pro Forma(2)
EBITDA: ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Nine Months Ended May 31,
2000.................... $102,832 $(22,185) $5,281 $ 85,928
======== ======== ====== ========
Year Ended August 31,
1999.................... $133,321 $(36,853) $7,399 $103,867
======== ======== ====== ========
Twelve Months Ended May
31, 2000................ $137,658 $(32,433) $7,204 $112,429
======== ======== ====== ========
</TABLE>
40
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
May 31, 2000
---------------------------------------------------
Excluded Other
Historical Businesses(1) Adjustments Pro Forma
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 6,808 $ -- $ -- $ 6,808
Accounts receivable,
net..................... 79,732 (25,975) 43,803 (2) 97,560
Inventories, net......... 93,276 (24,280) -- 68,996
Prepaid expenses......... 7,122 (1,167) 40,000 (3) 45,955
Deferred income taxes.... 8,599 (2,705) -- 5,894
---------- --------- --------- ---------
Total current assets..... 195,537 (54,127) 83,803 225,213
Property, plant and
equipment............... 176,862 (44,592) -- 132,270
Less: accumulated
depreciation............ (106,183) 24,167 -- (82,016)
---------- --------- --------- ---------
Net property, plant and
equipment............... 70,679 (20,425) -- 50,254
Goodwill, net of
accumulated
amortization............ 140,696 (27,678) -- 113,018
Other intangibles, net of
accumulated
amortization............ 28,750 (4,812) -- 23,938
Net assets of
discontinued
operations.............. 597,489 -- (597,489)(4) --
Other assets............. 2,385 -- 14,320 (5) 16,705
---------- --------- --------- ---------
Total assets............. $1,035,536 $(107,042) $(499,366) $ 429,128
========== ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings.... $ -- $ -- $ -- $ --
Trade accounts payable... 55,730 (11,224) -- 44,506
Accrued compensation and
benefits................ 16,448 (2,494) -- 13,954
Income taxes payable..... 1,118 (6,744) 28,448 (6) 22,822
Other current
liabilities............. 18,464 2,049 10,000 (7) 30,513
---------- --------- --------- ---------
Total current
liabilities............. 91,760 (18,413) 38,448 111,795
Long-term debt........... 456,907 (157,500) 150,593 (8) 450,000
Deferred income taxes.... 8,485 (9,163) -- (678)
Other deferred
liabilities............. 15,620 (862) -- 14,758
Shareholders' equity
Common stock............. 7,822 -- -- 7,822
Additional paid-in
capital................. 14,255 -- (648,583)(9) (634,328)
Retained earnings........ 468,104 78,896 (57,128)(10) 489,872
Accumulated other
comprehensive income.... (27,417) -- 17,304 (11) (10,113)
---------- --------- --------- ---------
Total shareholders'
equity.................. 462,764 78,896 (688,407) (146,747)
---------- --------- --------- ---------
Total liabilities and
shareholders' equity.... $1,035,536 $(107,042) $(499,366) $ 429,128
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
41
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(1) Reflects the historical financial position as of May 31, 2000 of the Barry
Controls business, which was sold in June 2000, and the Magnets business,
which became part of APW in connection with the Distribution.
(2) Historically, Applied Power, through a wholly-owned limited purpose
subsidiary, sold participating interests in a pool of its trade accounts
receivable to financial institutions. Immediately following the
Distribution, we do not have an accounts receivable financing program. The
adjustment represents the amount of accounts receivable relating to the
Industrial Business sold as of May 31, 2000.
(3) Reflects APW's agreement to reimburse Applied Power for the estimated tax
liability created by the corporate restructuring transactions related to
the Distribution, including the transactions that made APW Ltd. a Bermuda
corporation. A corresponding liability is reflected in income taxes
payable.
(4) Reflects the transfer of the net assets of the Electronics Business in the
Distribution.
(5) Reflects estimated new debt issuance costs of approximately $15.0 million
that were incurred as a result of the debt realignment related to the
Distribution, net of a write-off of $0.7 million of unamortized costs
related to former debt agreements.
(6) Represents the estimated tax liability increase (decrease) due to certain
other pro forma adjustments as follows:
<TABLE>
<CAPTION>
May 31, 2000
--------------
(in thousands)
<S> <C>
Estimated taxes on corporate restructuring transactions
(see Note 3 above)........................................ $ 40,000
Write-off of unamortized historical debt issuance costs
(see Note 5 above)........................................ (272)
Estimated costs associated with effecting the Transactions
including Tender Offer premium (see Notes 7 and 8 below)
.......................................................... (11,280)
--------
Pro forma adjustment....................................... $ 28,448
========
</TABLE>
(7) Represents the accrual of the estimated investment banking, legal,
accounting and other fees and expenses associated with the Transactions.
(8) A reconciliation of the pro forma adjustments to long-term debt is as
follows:
<TABLE>
<CAPTION>
May 31, 2000
--------------
(in thousands)
<S> <C>
Accounts receivable
financing facility (see
Note 2 above).......... $ 43,803
Estimated debt issuance
costs (see Note 5
above)................. 15,000
Final allocation per
debt realignment and
other.................. 91,790
--------
Pro forma adjustment.... $150,593
========
</TABLE>
(9) Reflects changes to additional paid-in capital account impacted by pro
forma adjustments as follows:
<TABLE>
<CAPTION>
May 31, 2000
--------------
(in thousands)
<S> <C>
The Distribution (see Note 4 above)........................ $(597,489)
Estimated taxes on corporate restructuring transactions
(see Note 3 above)........................................ 40,000
Estimated final allocation of debt......................... (73,790)
Cumulative translation adjustment (see Note 11 below)...... (17,304)
---------
Pro forma adjustment....................................... $(648,583)
=========
</TABLE>
42
<PAGE>
(10)Reflects changes to retained earnings generated by pro forma adjustments,
net of tax effect, as follows:
<TABLE>
<CAPTION>
May 31, 2000
--------------
(in thousands)
<S> <C>
Estimated taxes on corporate restructuring transactions
(see Note 3 above)....................................... $(40,000)
Write-off of unamortized historical debt issuance costs
(see Note 5 above)....................................... (408)
Estimated transaction costs and other..................... (16,720)
--------
Pro forma adjustment...................................... $(57,128)
========
</TABLE>
(11) Reflects elimination of the portion of the cumulative translation account
attributable to the Electronics Business.
43
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data have been derived from the
consolidated financial statements of Applied Power. The data should be read in
conjunction with these financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
earnings data for each of the three fiscal years ended August 31, 1999 and the
balance sheet data as of August 31, 1998 and 1999 have been derived from the
audited Consolidated Financial Statements included elsewhere in this
prospectus. The statement of earnings data for each of the fiscal years ended
August 31, 1995 and 1996 and the balance sheet data as of August 31, 1995, 1996
and 1997 have been derived from unaudited consolidated financial statements of
Applied Power not included in this prospectus. The statement of earnings data
for the nine months ended May 31, 1999 and May 31, 2000 and the balance sheet
data as of those dates have been derived from unaudited consolidated financial
statements of Applied Power included elsewhere in this prospectus. Operating
results for the 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. Certain of the financial data included in this prospectus may appear
to not add or subtract properly due to rounding.
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was spun off to shareholders
in the Distribution. Financial data presented in the table include the Non-
continuing Businesses. As a result, the selected financial data in the
following table are not fully representative of the group of business units
that comprise Actuant after the Distribution. We have included a separate
financial data table in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that includes only those units of Applied
Power that comprise Actuant after the Distribution.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31, May 31,
---------------------------------------- -----------------
1995 1996 1997(2) 1998(2) 1999 1999 2000
------ ------ ------ ------ -------- -------- --------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data(1):
Net sales................................ $493.9 $514.5 $522.4 $637.5 $ 695.7 $ 524.4 $ 535.7
Gross profit............................. 175.9 180.8 180.5 200.9 252.7 190.3 193.8
Operating expenses(3)(4)(5).............. 136.8 138.5 139.8 179.0 144.5 113.4 106.3
Operating earnings....................... 36.0 38.2 35.8 9.3 99.4 70.2 81.6
Earnings from continuing operations...... 16.9 23.8 22.6 0.1 34.6 24.7 35.0
Diluted earnings per share from
continuing operations................... 0.41 0.57 0.57 0.00 0.86 0.62 0.87
Cash dividends per share(6).............. 0.06 0.06 0.06 0.06 0.06 0.03 0.03
Balance Sheet Data (at end of period)(1):
Total assets(7).......................... $466.5 $448.4 $486.4 $711.5 $1,059.9 $1,074.0 $1,035.5
Total debt(8)............................ 87.0 94.2 54.8 225.2 521.2 558.9 456.9
</TABLE>
--------
(1) We completed various acquisitions and divestitures that impact the
comparability of the selected financial data presented in the table. For
additional information, see Note D--"Merger, Acquisitions and Divestitures"
in Notes to Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Acquisitions
and Divestitures."
(2) Operating results for fiscal 1997 and 1998 include merger, restructuring
and other non-recurring charges that were recognized in cost of sales and
operating expenses. Such expenses totaled $6.2 million and $56.9 million on
a pre-tax basis in fiscal 1997 and 1998, respectively. For additional
information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note H--"Merger, Restructuring and
Other Non-recurring Items" in Notes to Consolidated Financial Statements.
(3) Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge due
to the cancellation of a contract. For the nine months ended May 31, 2000,
we recorded a $1.4 million pre-tax gain when we recovered costs in excess
of what we anticipated when the loss was initially recorded. See
"Management's
Footnotes continued on next page.
44
<PAGE>
Footnotes continued from previous page.
Discussion and Analysis of Financial Condition and Results of Operations"
and Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes
to Consolidated Financial Statements.
(4) Operating expenses for the nine months ended May 31, 2000 include a $4.4
million pre-tax charge for investment banking, legal, accounting and other
fees and expenses associated with the Distribution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes
to Consolidated Financial Statements.
(5) Operating expenses include engineering, selling and administrative
expenses, contract termination costs (recovery), corporate reorganization
charges, merger related expenses, and all of Applied Power's general
corporate expenses (which include expenditures on resources and services
that supported the Electronics Business). Total general corporate expenses
were as follows:
<TABLE>
<CAPTION>
Fiscal Period Amount
------------- -------------
(in millions)
<S> <C>
1995...................................................... $17.2
1996...................................................... 13.8
1997...................................................... 15.2
1998 (excluding expenses in Note 2 above)................. 17.5
1999...................................................... 12.1
Nine months ended May 31, 1999............................ 9.1
Nine months ended May 31, 2000 (excluding expenses in Note
4 above)................................................. 9.2
</TABLE>
Such amounts include the general corporate expenses for Zero Corporation
("ZERO") for periods both prior to and after its merger with Applied Power
in fiscal 1998. The merger was accounted for using the pooling of interests
method of accounting, with all of Applied Power's historical results
restated to include the historical results of ZERO. The majority of ZERO's
general corporate expenses was eliminated shortly after its acquisition, as
its corporate support functions were provided by existing Applied Power
corporate personnel. We expect general corporate expenses to decrease
following the Distribution due to the need for fewer employees performing
such functions and a reduction in the size of the organization being
supported by such corporate personnel. We believe that the expenses
required to support such general corporate functions in fiscal 1999 and the
nine months ended May 31, 2000, had the Distribution been completed prior
to the beginning of the period, would have been approximately $4.7 million
and $3.9 million, respectively. For further information, see "Unaudited Pro
Forma Consolidated Financial Statements" and Note A--"Summary of
Significant Accounting Policies" in Notes to Consolidated Financial
Statements.
(6) Applied Power split its stock two-for-one in fiscal 1998. All dividend and
per share data have been adjusted for this stock split. Actuant does not
intend to pay dividends following the Distribution.
(7) Includes net assets of discontinued operations as follows:
<TABLE>
<CAPTION>
Balance Sheet Date Balance
------------------ -------------
(in millions)
<S> <C>
August 31, 1995............................................. $ 83.9
August 31, 1996............................................. 49.0
August 31, 1997............................................. 86.2
August 31, 1998............................................. 249.7
August 31, 1999............................................. 598.5
May 31, 1999................................................ 604.1
May 31, 2000................................................ 597.5
</TABLE>
(8) Historically, Applied Power incurred indebtedness at the parent company
level or at a limited number of subsidiaries, rather than at the operating
unit or segment level. Debt in the table reflects our debt balance after an
allocation was made to the Electronics Business, which is reported in
discontinued operations. The debt allocated to the Electronics Business was
based on the estimated debt expected to be assigned to APW in the debt
realignment related to the Distribution. Historical net financing costs
were allocated based on the debt allocation using the historical weighted-
average rate. Our debt and capitalization will change as a result of the
Distribution. See "Unaudited Pro Forma Consolidated Financial Statements"
and Note I--"Debt" in Notes to Consolidated Financial Statements.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and financial information appearing elsewhere in this prospectus.
The following discussion includes forward-looking statements that involve
certain risks and uncertainties. See "Risk Factors" and "Forward-Looking
Statements."
Historical Financial Data
The financial data presented in the following table reflect all business
units other than the Electronics Business, which was spun off to shareholders
in the Distribution. Financial data presented in the table include the Non-
continuing Businesses. As a result, the selected financial data in the
following table are not fully representative of the group of business units
that comprise Actuant after the Distribution. We have included a separate
financial data table in "Unaudited Adjusted Historical Financial Data" below
that includes only those units of Applied Power that comprise Actuant after the
Distribution.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31, May 31,
---------------------- -----------------
1997 1998 1999 1999 2000
------ ------ -------- -------- --------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales............................. $522.4 $637.5 $ 695.7 $ 524.4 $ 535.7
Gross profit.......................... 180.5 200.9 252.7 190.3 193.8
Operating expenses.................... 139.8 179.0 144.5 113.4 106.3
Operating earnings.................... 35.8 9.3 99.4 70.2 81.6
Earnings from continuing operations... 22.6 0.1 34.6 24.7 35.0
Diluted earnings per share from
continuing operations................ 0.57 0.00 0.86 0.62 0.87
Cash dividends per share.............. 0.06 0.06 0.06 0.03 0.03
Balance Sheet Data (at end of period):
Total assets.......................... $486.4 $711.5 $1,059.9 $1,074.0 $1,035.5
Total debt............................ 54.8 225.2 521.2 558.9 456.9
</TABLE>
Unaudited Adjusted Historical Financial Data
The financial information included in "Selected Consolidated Financial Data"
and in "Historical Financial Data" above includes financial information for the
Non-continuing Businesses and as a result is not fully representative of the
group of business units that will comprise Actuant after the Distribution. We
have included in the following table certain adjusted financial information for
only those business units that will be included in Actuant following the
Distribution. Historical net financing costs and income taxes, as well as
balance sheet data, have not been adjusted and are therefore not presented in
the following table.
<TABLE>
<CAPTION>
Year Ended August Nine Months
31, Ended May 31,
--------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data(1):
Adjusted net sales........................ $381.8 $482.1 $527.5 $398.3 $406.1
Adjusted gross profit(2).................. 132.3 151.0 189.5 143.9 147.7
Adjusted operating expenses excluding
general corporate expense(2)(3)(4)....... 93.3 126.0 99.7 79.7 69.1
General corporate expenses(5)............. 15.2 17.5 12.1 9.1 9.2
Adjusted operating earnings(2)(3)(4)(5)... 20.3 (3.5) 71.5 50.4 64.7
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended August Ended May
31, 31,
----------------- -----------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Other Financial Data(1):
Adjusted EBITDA(6)............................... $38.9 $70.3 $95.8 $71.3 $80.7
Adjusted depreciation............................ 8.9 10.8 10.4 8.4 8.3
Adjusted amortization of intangible assets....... 3.4 11.1 6.2 4.7 4.7
Adjusted capital expenditures.................... 10.2 15.4 13.7 12.4 6.0
</TABLE>
--------
(1) We have excluded the operating results of the Non-continuing Businesses
from the financial data presented in this table. However, we completed
various acquisitions that impact the comparability of the adjusted
financial data presented in the table above. For additional information,
see Note D--"Merger, Acquisitions and Divestitures" in Notes to
Consolidated Financial Statements as well as "--Acquisitions and
Divestitures."
(2) Operating results for fiscal 1997 and 1998 include merger, restructuring
and other non-recurring charges that were recognized in cost of products
sold and operating expenses. Such expenses totaled $6.2 million and $56.9
million in fiscal 1997 and 1998, respectively. Of such charges, $3.3
million and $17.7 million in fiscal 1997 and 1998, respectively, were
recorded in cost of products sold, with the balance recorded in operating
expenses. For additional information, see "--Restructuring, Merger Costs
and Debt Realignment" and Note H--"Merger, Restructuring and Other Non-
recurring Items" in Notes to Consolidated Financial Statements.
(3) Fiscal 1999 and the nine months ended May 31, 1999 include a $7.8 million
charge relating to the cancellation of a contract. For the nine months
ended May 31, 2000, we recorded a $1.4 million gain when we recovered costs
in excess of what we anticipated when the loss was initially recorded. See
Note H--"Merger, Restructuring and Other Non-recurring Items" in Notes to
Consolidated Financial Statements.
(4) The nine months ended May 31, 2000 include a $4.4 million charge for
investment banking, legal, accounting and other fees and expenses
associated with the Distribution. See Note H--"Merger, Restructuring and
Other Non-recurring Items" in Notes to Consolidated Financial Statements.
(5) General corporate expenses consist of all of Applied Power's general
corporate expenses, including expenditures on resources and services that
support the Electronics Business. Such amounts include the general
corporate expenses for ZERO for periods both prior to and after its merger
with Applied Power in fiscal 1998. The merger was accounted for using the
pooling of interests method of accounting, with all of Applied Power's
historical results restated to include the historical results of ZERO. The
majority of ZERO's general corporate expenses was eliminated shortly after
its acquisition, as its corporate support functions were provided by
existing Applied Power corporate personnel. We expect general corporate
expenses to decrease following the Distribution due to the need for fewer
employees and a reduction in the size of the organization being supported.
We believe that the expenses required to support such general corporate
functions in fiscal 1999 and the nine months ended May 31, 2000, had the
Distribution been completed prior to the beginning of such periods, would
have been approximately $4.7 million and $3.9 million, respectively. For
further information, see "Unaudited Pro Forma Consolidated Financial
Statements" and Note A--"Summary of Significant Accounting Policies" in
Notes to Consolidated Financial Statements.
(6) Adjusted EBITDA excludes certain restructuring and other non-recurring
items (described in Notes 2, 3, and 4 above). Adjusted EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and our calculation thereof may not be comparable to that
reported by other companies. We believe that adjusted EBITDA provides
useful information regarding our ability to service and/or incur
indebtedness. Adjusted EBITDA does not take into account our working
capital requirements, debt service requirements and other
47
<PAGE>
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use. We calculated adjusted EBITDA as
follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended August Ended May
31, 31,
------------------ -----------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Adjusted operating earnings................ $20.3 $(3.5) $71.5 $50.4 $64.7
Adjusted depreciation...................... 8.9 10.8 10.4 8.4 8.3
Adjusted amortization of intangible
assets(a)................................. 3.4 6.0 6.2 4.7 4.7
Contract termination costs (recovery)...... -- -- 7.8 7.8 (1.4)
Merger, restructuring and other non-
recurring charges......................... 6.2 56.9 -- -- --
Corporate reorganization expenses.......... -- -- -- -- 4.4
----- ----- ----- ----- -----
Adjusted EBITDA............................ $38.9 $70.3 $95.8 $71.3 $80.7
===== ===== ===== ===== =====
</TABLE>
--------
(a) Fiscal 1998 adjusted amortization of intangible assets excludes $5.1
million, which was recorded in conjunction with certain restructuring
actions and is therefore included with restructuring charges in this table.
Acquisitions and Divestitures
We completed a number of acquisitions over the past five years that have
expanded and diversified our product lines, capabilities and global reach.
During this time, we also divested several businesses and product lines that we
no longer considered integral to our business strategy. The following table
summarizes the significant acquisitions and divestitures that were completed
during the last five years:
<TABLE>
<CAPTION>
Approximate
Segment Date Annual Sales(1)
------- ---- ---------------
(in millions)
<S> <C> <C> <C>
Acquisitions:
Nielsen Sessions and Air
Cargo..................... Engineered Solutions July 1998 $ 29
Del City Wire.............. Tools & Supplies February 1998 16
Ancor Products............. Tools & Supplies January 1998 7
Versa/Tek.................. Engineered Solutions October 1997 75
CalTerm.................... Tools & Supplies May 1996 17
Divestitures:
Barry Controls............. Engineered Solutions June 2000 $120
Air Cargo.................. Engineered Solutions May 2000 22
Moxness.................... Engineered Solutions March 1998 6
APITECH Mobile Equipment... Engineered Solutions January 1996 10
</TABLE>
--------
(1) At time of transaction. Sales figures exclude sales from business units
acquired in these transactions that now operate in the Electronics
Business.
The comparability of our operating results from period to period is impacted
by these acquisitions and divestitures. See Note D--"Merger, Acquisitions and
Divestitures" in Notes to Consolidated Financial Statements.
48
<PAGE>
Restructuring, Merger Costs and Debt Realignment
Over the past five years, we have undergone restructuring and have
implemented a number of actions to improve business focus, reduce our cost
structure and leverage existing capabilities and infrastructure. These actions
included the consolidation of headquarter, manufacturing and warehouse
facilities, as well as personnel reductions, outsourcing of certain operations,
significant reductions in the number of SKUs and the sale or exit of low-profit
margin or unprofitable product lines.
Within the Tools & Supplies segment, the Enerpac business underwent
significant changes, including the centralization of engineering,
administration and distribution functions into regional hubs and a material
reduction in the number of SKUs. Concurrently, GB rationalized a number of
acquired businesses by consolidating most sales and marketing responsibilities
into a central location. Over 5,000 duplicate and under-performing SKUs within
GB were eliminated. Additionally, most of the manufacturing and warehousing
functions for certain acquired businesses were consolidated into existing
facilities. The North American Enerpac and GB organizations were also
consolidated and support functions such as finance, human resources and
marketing were combined.
The Engineered Solutions segment also underwent restructuring actions aimed
at enhancing profitability. Certain unprofitable product lines were
discontinued, while others were shifted to lower cost plants within Applied
Power or outsourced completely. Certain support functions were consolidated
into regional centers, resulting in personnel reductions and severance.
We initiated certain restructuring actions starting in fiscal 1996 and
continued them in fiscal 1997 and 1998, with the elimination of SKUs in the
Tools & Supplies segment and the downsizing of our business infrastructure
(personnel and facilities) in Europe. We incurred approximately $6.2 million of
restructuring costs in fiscal 1997 in the Tools & Supplies segment in
connection with severance paid to terminated employees, as well as the write-
off of excess and obsolete inventory resulting from our SKU reduction program.
Our fiscal 1997 restructuring costs were recorded in the consolidated statement
of earnings as $3.3 million in cost of products sold and $2.9 million in
engineering, selling and administration expenses.
A substantial portion of the restructuring during the periods presented took
place in fiscal 1999. We recorded a charge to the consolidated statement of
earnings in the fourth quarter of fiscal 1998 to accrue for the costs of the
1999 restructuring. In addition to a $54.9 million pre-tax charge for merger,
restructuring and other non-recurring charges recorded in the fourth quarter of
fiscal 1998, we incurred $2.0 million of restructuring charges in Tools &
Supplies earlier in the year for severance payments to terminated employees and
costs incurred to consolidate two operations. In fiscal 1998, we also wrote-
down goodwill by $5.1 million in accordance with SFAS No. 121, "Accounting for
Impairment of Long-lived Assets to be Disposed of."
In connection with the merger with ZERO in 1998 (see Note D--"Merger,
Acquisitions and Divestitures" in Notes to Consolidated Financial Statements),
we recorded transaction costs related to legal, accounting and financial
advisory services which were expensed as required under the pooling of
interests method of accounting. In addition, we incurred costs associated with
the organization realignment, closure of ZERO headquarters, a change in
estimate of a receivable valuation and the write-off of obsolete inventory due
to conforming product lines. Together, these items totaled approximately $20.1
million. While most of ZERO's business is reported in the Electronics Business
segment (which is included as a discontinued operation in the Consolidated
Financial Statements), this $20.1 million of expenses was recorded at the
corporate level and in accordance with generally accepted accounting principles
was not allocated to the Electronics Business.
We recorded the majority of the restructuring expenses in fiscal 1998, along
with all of the $20.1 million of ZERO merger and organization realignment
costs. The combined merger, restructuring and other non-
49
<PAGE>
recurring items reported in our fiscal 1998 consolidated statement of earnings
totaled $56.9 on a pre-tax basis and were reported in the consolidated
statement of earnings as follows:
<TABLE>
<CAPTION>
Description Amount
----------- -------------
(in millions)
<S> <C>
Cost of products sold............................................ $15.7
Engineering, selling and administrative expenses................. 9.0
Amortization of intangible assets................................ 5.1
Restructuring charges............................................ 11.4
Merger related expenses.......................................... 9.3
Estimated loss on sale of subsidiary(1).......................... 4.5
-----
Merger, restructuring and non-recurring items recorded in the
fourth quarter of fiscal 1998................................. 54.9
Other fiscal 1998 restructuring charges recorded in cost of
products sold................................................... 2.0
-----
Total fiscal 1998 merger, restructuring and non-recurring
items......................................................... $56.9
=====
</TABLE>
--------
(1) Asset impairment charge recorded to reduce the carrying value of an
Industrial Business unit to estimated realizable value. The subsidiary was
subsequently divested in November 1999.
Of the total fiscal 1998 charges, approximately $13.6 million was recorded
for severance payments to approximately 400 employees, the majority of which
was paid in fiscal 1999. We completed the planned restructuring programs that
were accrued in fiscal 1998 during fiscal 1999.
The comparability of our operating results in fiscal 1998 and 1999 is
impacted by these merger, restructuring and other non-recurring charges. As a
direct result of these restructuring initiatives, including some of the early
programs started in fiscal 1996, our financial results improved significantly
from fiscal 1997 to 1999 and through the comparative interim periods.
Net Sales
The following table summarizes our net sales for the past three fiscal years
and comparative nine-month interim periods:
<TABLE>
<CAPTION>
Year Ended August Nine Months Ended
31, May 31,
--------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Net Sales by Segment:
Tools & Supplies................... $292.5 $305.7 $309.3 $ 234.6 $ 230.2
Less: Non-continuing T&S
Business(1)....................... 4.2 3.1 -- -- --
------ ------ ------ -------- --------
Adjusted Tools & Supplies........ $288.3 $302.6 $309.3 $ 234.6 $ 230.2
====== ====== ====== ======== ========
Engineered Solutions............... $229.9 $331.8 $386.4 $ 289.8 $ 305.5
Less: Non-continuing ES
Businesses(2)..................... 136.4 152.3 168.2 126.0 129.6
------ ------ ------ -------- --------
Adjusted Engineered Solutions.... $ 93.5 $179.5 $218.2 $ 163.7 $ 175.9
====== ====== ====== ======== ========
Total net sales.................... $522.4 $637.5 $695.7 $ 524.4 $ 535.7
Less: Non-continuing
Businesses(3)..................... 140.6 155.4 168.2 126.0 129.6
------ ------ ------ -------- --------
Total adjusted net sales......... $381.8 $482.1 $527.5 $ 398.3 $ 406.1
====== ====== ====== ======== ========
Net Sales Growth by Segment:
Tools & Supplies................... 4.5% 1.2% (1.9)%
Adjusted Tools & Supplies.......... 5.0 2.2 (1.9)
Engineered Solutions............... 44.3 16.5 5.4
Adjusted Engineered Solutions...... 92.0 21.6 7.4
Total net sales growth............. 22.0 9.1 2.2
Total adjusted net sales growth.... 26.3 9.4 1.9
</TABLE>
50
<PAGE>
--------
(1) The "Non-continuing T&S Business" is GB Everest, a product line that was
subsequently transferred to the Electronics Business.
(2) The "Non-continuing ES Businesses" are Barry Controls, Air Cargo, Samuel
Groves, Moxness and Magnets.
(3) The "Non-continuing Businesses" are the combination of the Non-continuing
T&S Business and the Non-continuing ES Businesses.
Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999
Total net sales increased by $11.3 million, or 2.2%, from $524.4 million for
the nine months ended May 31, 1999 to $535.7 million for the nine months ended
May 31, 2000. Excluding the negative translation effect of the stronger U.S.
dollar, total net sales increased by 4.8%. Excluding the Non-continuing
Businesses, adjusted net sales increased by 1.9%, due to continued growth in
RV, convertible top and truck product sales. Excluding currency translation,
adjusted net sales increased by 5.0%.
Net sales for Tools & Supplies declined by $4.4 million, or 1.9% from $234.6
million for the nine months ended May 31, 1999 to $230.2 million for the nine
months ended May 31, 2000. Excluding currency translation, Tools & Supplies net
sales declined 0.3% year-to-date. The modest reduction resulted primarily from
the elimination of certain low profit margin or unprofitable product lines and
SKUs.
Net sales for Engineered Solutions increased by $15.7 million, or 5.4%, from
$289.8 million for the nine months ended May 31, 1999 to $305.5 million for the
nine months ended May 31, 2000. Excluding the Non-continuing Businesses,
adjusted Engineered Solutions net sales increased by $12.1 million, or 7.4%,
from $163.7 million for the nine months ended May 31, 1999 to $175.9 million
for the nine months ended May 31, 2000. Excluding currency translation,
adjusted Engineered Solutions net sales increased by $20.9 million, or 12.7%,
for the nine-month period. Increased year-to-date sales are primarily
attributable to continued growth in the RV, convertible top and truck product
sales.
Fiscal 1999 Compared to Fiscal 1998
Total net sales increased by $58.2 million, or 9.1%, from $637.5 million in
fiscal 1998 to $695.7 million in fiscal 1999, due to a combination of organic
growth and acquisitions. Excluding the Non-continuing Businesses, total
adjusted net sales increased by $45.4 million, or 9.4%, from $482.1 million to
$527.5 million, also attributable to organic growth and acquisitions.
Net sales for Tools & Supplies increased by $3.6 million, or 1.2%, from
$305.7 million in fiscal 1998 to $309.3 million in fiscal 1999. This increase
was the result of both organic growth and acquisitions and was net of a $3.1
million sales decline following the transfer in fiscal 1998 of a small product
line to the Electronics Business. The full year impact of the 1998 acquisitions
of Del City, Ancor and Nylo-Flex added approximately $9.0 million of net sales
in fiscal 1999. Net sales growth was partially offset by Asia-related weakness
at Enerpac, which we estimate adversely impacted Enerpac sales by $4.3 million;
the elimination of over 2,500 SKUs in late fiscal 1998, which also reduced net
sales; and the cancellation of a pneumatic tool distribution agreement, which
resulted in a $2.0 million decrease in net sales. Excluding the Non-continuing
T&S Business, and adjusting for the items described above, adjusted Tools &
Supplies net sales increased by approximately $4.0 million, or 1.3%.
Net sales for Engineered Solutions increased by $54.6 million, or 16.5%,
from $331.8 million in fiscal 1998 to $386.4 million in fiscal 1999, as a
result of acquisitions and organic growth. Excluding net sales from the Non-
continuing ES Businesses, adjusted Engineered Solutions net sales increased by
$38.7 million, or 21.6%, from $179.5 million to $218.2 million. Approximately
$7.0 million of this increase was due to the
51
<PAGE>
inclusion of a full year of results for Versa/Tek, which was acquired in the
first quarter of fiscal 1998. The balance of the increase resulted from
additional product shipments to RV, convertible top and medical markets.
Excluding the impact of the Versa/Tek acquisition, and excluding the Non-
continuing ES Businesses, adjusted Engineered Solutions net sales increased by
$31.7 million, or 17.7%.
Fiscal 1998 Compared to Fiscal 1997
Total net sales increased by $115.1 million, or 22.0%, from $522.4 million
in fiscal 1997 to $637.5 million in fiscal 1998. The majority of this increase
resulted from acquisitions in both segments in fiscal 1998 coupled with organic
growth in both segments. Excluding net sales from the Non-continuing
Businesses, total adjusted net sales increased by $100.3 million, or 26.3%,
from $381.8 million to $482.1 million, also primarily the result of
acquisitions and organic growth.
Net sales for Tools & Supplies increased by $13.2 million, or 4.5%, from
$292.5 million in fiscal 1997 to $305.7 million in fiscal 1998. This increase
was due to organic growth and the acquisitions of Del City, Ancor and Nylo-
Flex, which contributed $17.7 million of net sales in fiscal 1998. Net sales
declined $7.7 million due to the currency translation effect of a stronger U.S.
dollar and $14.0 million due to the economic downturn in Asia. Excluding the
impact of these items and the Non-continuing T&S Business, adjusted Tools &
Supplies net sales increased by $18.3 million, or 6.3%.
Net sales for Engineered Solutions increased by $101.9 million, or 44.3%,
from $229.9 million in fiscal 1997 to $331.8 million in fiscal 1998. Excluding
the Non-continuing ES Businesses, adjusted Engineered Solutions net sales
increased $86.0 million, or 92.0%, from $93.5 million to $179.5 million. The
majority of the increase in both cases was due to the acquisition of Versa/Tek
in the first quarter of fiscal 1998, which added $79.5 million of net sales in
fiscal 1998. In addition, Power-Packer's cab-tilt and convertible top net sales
increased in fiscal 1998. Currency translation reduced net sales by $7.7
million in fiscal 1998. Excluding currency translation, the Versa/Tek
acquisition and the Non-continuing ES Businesses, adjusted Engineered Solutions
net sales increased by $14.2 million, or 15.2%.
Gross Profit
Our gross profit increased during the periods presented as a result of
additional sales volume and the benefits of restructuring. Gross profit margin
also improved as a result of favorable product sales mix and leveraging
increased sales (and the corresponding production volumes) over fixed
manufacturing and warehousing costs. The favorable product sales mix resulted
from (i) the elimination of numerous low-profit margin and unprofitable SKUs in
the Tools & Supplies segment as well as low-profit margin product lines from
both segments and (ii) the mix of sales from lower margin businesses with those
of higher margin businesses.
The comparability of gross profit and gross profit margins during fiscal
1997, 1998 and 1999 was impacted by restructuring costs and the benefits
derived from such actions. For further information, see "--Restructuring,
Merger Costs and Debt Realignment." In addition to such restructuring actions,
we improved our cost structure and gross profit margins by expanding our World
Class Performance (WCP) Program to substantially all manufacturing and
distribution locations. The WCP Program was introduced in fiscal 1996 at
selected sites, and is focused on achieving operational improvements through a
variety of methods. Through this program, we strive to continuously improve our
cost structure by reducing production cycle times, scrap and waste, inventory
levels, defects, production floor space and product cost. The WCP Program also
focuses on improving asset utilization, productivity, quality and employee
safety. As part of this program, we make use of Kaizen events, lean
manufacturing and Kanban methodologies. We believe that the operational
improvements attained as a result of the WCP Program have been a key factor in
our improved gross profit margins since the program was launched. See
"Business--Manufacturing and Operations" for more information about the
methodologies we use in our WCP Program.
52
<PAGE>
The following table sets forth gross profit and gross profit margins for the
past three fiscal years and comparative nine-month interim periods:
<TABLE>
<CAPTION>
Year Ended August Nine Months Ended
31, May 31,
---------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------ -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Gross Profit by Segment:
Tools & Supplies(1)(2)............ $109.8 $ 98.9 $124.6 $ 95.1 $ 94.2
Less: Non-continuing T&S
Business......................... 1.4 1.0 -- -- --
------ ------ ------ -------- --------
Adjusted Tools &
Supplies(1)(2)................. $108.4 $ 97.9 $124.6 $ 95.1 $ 94.2
====== ====== ====== ======== ========
Engineered Solutions(2)........... $ 70.7 $102.0 $128.1 $ 95.2 $ 99.6
Less: Non-continuing ES
Businesses....................... 46.8 48.9 63.2 46.4 46.2
------ ------ ------ -------- --------
Adjusted Engineered
Solutions(2)................... $ 23.9 $ 53.1 $ 64.9 $ 48.8 $ 53.4
====== ====== ====== ======== ========
Total gross profit(1)(2).......... $180.5 $200.9 $252.7 $ 190.3 $ 193.8
Less: Non-continuing Businesses... 48.2 49.9 63.2 46.4 46.2
------ ------ ------ -------- --------
Total adjusted gross
profit(1)(2)................... $132.3 $151.0 $189.5 $ 143.9 $ 147.7
====== ====== ====== ======== ========
Gross Profit Margins by Segment:
Tools & Supplies(1)(2)............ 37.5% 32.4% 40.3% 40.5% 40.9%
Adjusted Tools & Supplies(1)(2)... 37.6 32.4 40.3 40.5 40.9
Engineered Solutions(2)........... 30.8 30.7 33.2 32.8 32.6
Adjusted Engineered Solutions(2).. 25.5 29.6 29.7 29.8 30.4
Total gross profit margin(1)(2)... 34.6 31.5 36.3 36.3 36.2
Total adjusted gross profit
margin(1)(2)..................... 34.6 31.3 35.9 36.1 36.4
</TABLE>
--------
(1) Fiscal 1997 reflects $3.3 million of restructuring costs related to the
consolidation of facilities, the elimination of SKUs and the corresponding
write-off of excess or obsolete inventory. For further information, see
Note 2 to "Selected Consolidated Financial Data" and "--Restructuring,
Merger Costs and Debt Realignment."
(2) Fiscal 1998 reflects $17.7 million of restructuring costs related to
consolidating facilities, personnel reductions, eliminating SKUs and the
corresponding write-off of excess or obsolete inventory. All but $2.3
million of this amount was recorded in the Tools & Supplies segment. For
further information, see Note H--"Merger, Restructuring and Other Non-
recurring Items" in Notes to Consolidated Financial Statements, Note 2 to
"Selected Consolidated Financial Data" and "--Restructuring, Merger Costs
and Debt Realignment."
Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999
Total gross profit increased by $3.6 million, or 1.9%, from $190.3 million
for the nine months ended May 31, 1999 to $193.8 million for the nine months
ended May 31, 2000. This increase was due to the incremental net sales realized
over the same period. Total gross profit margin declined slightly from 36.3% to
36.2% primarily as a result of sales mix changes in the Non-continuing
Businesses. Excluding the Non-continuing Businesses, adjusted gross profit
increased by $3.8 million from $143.9 million to $147.7 million. Total adjusted
gross profit margin increased from 36.1% to 36.4% primarily as a result of
modest cost reductions in the nine months ended May 31, 2000.
Gross profit for Tools & Supplies decreased by $0.8 million from $95.1
million for the nine months ended May 31, 1999 to $94.2 million for the nine
months ended May 31, 2000, reflecting lower sales over the corresponding
period. Gross profit margins for Tools & Supplies increased from 40.5% to 40.9%
for the nine-
53
<PAGE>
month periods ended May 31, 1999 and 2000, respectively. This increase was
primarily attributable to the elimination of low-profit margin and unprofitable
SKUs and savings from closing one manufacturing operation and two small
warehouses.
Gross profit for Engineered Solutions increased by $4.4 million from $95.2
million for the nine months ended May 31, 1999 to $99.6 million for the nine
months ended May 31, 2000. The increase was due to net sales growth over the
corresponding period. Excluding the Non-continuing Businesses, adjusted
Engineered Solutions gross profit increased by $4.6 million from $48.8 million
to $53.4 million. Adjusted Engineered Solutions gross profit margin increased
from 29.8% to 30.4%, reflecting leveraging of fixed manufacturing costs and
favorable product mix.
Fiscal 1999 Compared to Fiscal 1998
Total gross profit increased by $51.8 million from $200.9 million in fiscal
1998 to $252.7 million in fiscal 1999. Total gross profit margin increased from
31.5% to 36.3%. Fiscal 1998 total gross profit included $17.7 million of
restructuring costs. In addition to the restructuring in fiscal 1998, gross
profit increased in fiscal 1999 as a result of substantial cost savings from
the restructuring actions and the gross profit dollars generated on the net
sales growth in fiscal 1999. Excluding the Non-continuing Businesses and the
1998 restructuring charge, total adjusted gross profit margin increased from
35.0% to 35.9%, due primarily to cost savings resulting from restructuring
initiatives.
Gross profit for Tools & Supplies increased by $25.7 million from $98.9
million in fiscal 1998 to $124.6 million in fiscal 1999. Tools & Supplies gross
profit margin increased from 32.4% to 40.3%. These increases resulted from
$15.4 million of restructuring charges attributable to Tools & Supplies
recorded in fiscal 1998. Excluding the restructuring charges, Tools & Supplies
gross profit margin increased from 37.4% to 40.3%. This improvement was due to
emphasis on more profitable product lines through the reduction of certain SKUs
as well as significant savings from restructuring initiatives. Within the GB
business, profitability improved as a result of the savings associated with (a)
the closure of five small Del City warehouses early in the first half of fiscal
1998, (b) the closure of the Jetline plant in mid-1998, (c) the benefit of
eliminating low-profit margin and unprofitable SKUs from the product line, (d)
the introduction of new, higher profit margin products in the GB Instruments
product line, (e) improvements in packaging operations and (f) product cost
savings resulting from new supply sources and contracts. Enerpac profitability
improved as a result of (a) the elimination of the approximately $1.0 million
of gross profit loss incurred in the prior year from an unprofitable
distribution contract, (b) the closure of the Designed Fluid Air Systems
operation, (c) the elimination of low-profit margin and unprofitable products
through the SKU reduction program and (d) improved manufacturing efficiencies
resulting from our WCP Program.
Gross profit for Engineered Solutions increased by $26.1 million from $102.0
million in fiscal 1998 to $128.1 million in fiscal 1999. Engineered Solutions
gross profit margin increased from 30.7% to 33.2%. Excluding $2.3 million of
restructuring charges attributable to Engineered Solutions recorded in fiscal
1998, Engineered Solutions gross profit margin increased from 31.4% to 33.2% as
a result of restructuring benefits and the impact of leveraging incremental
sales over fixed manufacturing infrastructure costs. Excluding the Non-
continuing ES Businesses, adjusted Engineered Solutions gross profit increased
by $11.8 million due primarily to net sales growth in fiscal 1999 and the
restructuring charge in the prior year. Excluding this restructuring charge,
adjusted Engineered Solutions gross profit margin decreased from 30.9% to
29.7%, reflecting an unfavorable shift in product mix.
Fiscal 1998 Compared to Fiscal 1997
Total gross profit increased by $20.4 million from $180.5 million in fiscal
1997 to $200.9 million in fiscal 1998, primarily due to the Versa/Tek
acquisition, partially offset by restructuring charges. Total gross profit
54
<PAGE>
margin decreased from 34.6% to 31.5% due to $17.7 million of restructuring
charges in fiscal 1998. Excluding restructuring charges, total gross profit
margin decreased slightly from 35.2% to 34.3%. The decline in total gross
profit margin was due to a higher proportion of sales being generated by the
Engineered Solutions segment, which earns lower gross profit margins than Tools
& Supplies.
Gross profit for Tools & Supplies decreased by $10.9 million from $109.8
million in fiscal 1997 to $98.9 million in fiscal 1998 due to $15.4 million of
restructuring charges attributable to Tools & Supplies in 1998. Tools &
Supplies gross profit margin, excluding restructuring, decreased slightly from
37.5% to 37.4%.
Gross profit for Engineered Solutions increased by $31.3 million from $70.7
million in fiscal 1997 to $102.0 million in fiscal 1998, due primarily to the
Versa/Tek acquisition. Excluding $2.3 million of restructuring charges
attributable to Engineered Solutions in fiscal 1998, gross profit margin for
Engineered Solutions increased from 30.8% to 31.4%. The improvement in gross
profit margin reflects higher average gross profit margins in the Versa/Tek
businesses. Excluding the Non-continuing ES Businesses, adjusted Engineered
Solutions gross profit increased $29.2 million from $23.9 million to $53.1
million. Approximately $26.2 million of this increase came from the Versa/Tek
acquisition. Excluding the Non-continuing ES Businesses and the restructuring
charge in fiscal 1998, adjusted Engineered Solutions gross profit margin
increased from 25.5% to 30.9%, reflecting higher average gross profit margins
in the Versa/Tek businesses than in the remainder of Engineered Solutions.
Excluding the Non-continuing ES Businesses, the restructuring charge recorded
in fiscal 1998 and the acquisition of the Versa/Tek business, adjusted
Engineered Solutions gross profit margin increased from 25.5% to 29.2% due to
gross profit margin expansion at Power-Packer.
Operating Expenses
The following table sets forth operating expenses for the past three fiscal
years and comparative nine-month interim periods:
<TABLE>
<CAPTION>
Year Ended August Nine Months Ended
31, May 31,
-------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Engineering, selling and
administrative expenses.............. $139.8 $153.9 $136.7 $ 105.6 $ 103.3
Contract termination costs
(recovery)(1)........................ -- -- 7.8 7.8 (1.4)
Corporate reorganization expenses(2).. -- -- -- -- 4.4
Restructuring charges(3).............. -- 11.4 -- -- --
Merger related expenses(3)............ -- 9.3 -- -- --
Provision for loss on sale of
subsidiary(3)........................ -- 4.5 -- -- --
------ ------ ------ -------- --------
Total operating expenses.......... $139.8 $179.1 $144.5 $ 113.4 $ 106.3
====== ====== ====== ======== ========
</TABLE>
--------
(1) Operating expenses in fiscal 1999 and the nine months ended May 31, 1999
include a $7.8 million charge relating to the cancellation of a contract.
For the nine months ended May 31, 2000, we recorded a $1.4 million gain
when we recovered costs in excess of what we anticipated when the loss was
initially recorded. See Note H--"Merger, Restructuring and Other Non-
recurring Items" in Notes to Consolidated Financial Statements.
(2) Operating expenses for the nine months ended May 31, 2000 include a $4.4
million pre-tax charge for investment banking, legal, accounting and other
fees associated with the Distribution. See Note H--"Merger, Restructuring
and Other Non-recurring Items" in Notes to Consolidated Financial
Statements.
(3) Operating results for fiscal 1998 include merger related expenses,
restructuring charges and a provision for the loss on the sale of a
subsidiary. For additional information, see Note H--"Merger, Restructuring
and Other Non-recurring Items" in Notes to Consolidated Financial
Statements.
55
<PAGE>
Operating expenses for items other than engineering, selling and
administrative expenses ("SAE expenses"), including certain of the
restructuring and non-recurring costs, have been recorded at the corporate
level and are not allocated to the business segments. The following table
summarizes our SAE expenses for the past three fiscal years and comparative
nine-month interim periods:
<TABLE>
<CAPTION>
Nine Months
Year Ended August Ended
31, May 31,
-------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
SAE Expenses by Segment:
Tools & Supplies......................... $ 77.6 $ 79.6 $ 69.1 $ 53.9 $ 50.2
Less: Non-continuing T&S Business........ 0.4 0.5 -- -- --
------ ------ ------ ------ ------
Adjusted Tools & Supplies.............. $ 77.2 $ 79.1 $ 69.1 $ 53.9 $ 50.2
====== ====== ====== ====== ======
Engineered Solutions..................... $ 47.0 $ 56.8 $ 55.5 $ 42.6 $ 42.5
Less: Non-continuing ES Businesses....... 30.9 35.1 32.7 24.6 28.0
------ ------ ------ ------ ------
Adjusted Engineered Solutions.......... $ 16.1 $ 21.6 $ 22.8 $ 18.0 $ 14.5
====== ====== ====== ====== ======
Combined segment SAE expenses............ $124.6 $136.4 $124.6 $ 96.5 $ 92.7
General corporate expenses(1)............ 15.2 17.5 12.1 9.1 9.2
Group expenses(2)........................ -- -- -- -- 1.4
------ ------ ------ ------ ------
Total SAE expenses....................... 139.8 153.9 136.7 105.6 103.3
Less: Non-continuing Businesses.......... 31.3 35.6 32.7 24.6 28.0
------ ------ ------ ------ ------
Total adjusted SAE expenses............ $108.5 $118.3 $104.0 $ 81.0 $ 75.3
====== ====== ====== ====== ======
</TABLE>
--------
(1) General corporate expenses include all of Applied Power's general corporate
expenses, including expenditures on resources and services that also
supported the Electronics Business.
(2) Group expenses include general Industrial Business management expenses
which were not allocated to either the Tools & Supplies or Engineered
Solutions segments in fiscal 2000. In prior periods, such expenses were
either allocated into or directly recorded in one of the two reported
segments.
General Corporate Expenses
All of the general corporate expenses incurred by Applied Power Inc.
(including the historical general corporate expenses of ZERO prior to its
merger into Applied Power in fiscal 1998) are included in our SAE expenses. No
portion of such expenses has been allocated to the Electronics Business's
financial results, which are included in discontinued operations in the
Consolidated Financial Statements. Management does not believe this level of
expenses is reflective of those required to support Actuant had it been
operating independently for the fiscal periods presented. We estimate that
Actuant would have incurred approximately $4.7 million of general corporate
expenses in fiscal 1999 had the Distribution taken place on August 31, 1998.
SAE Expenses
Our strategy is to continuously improve operating profitability through
employment of our WCP Program and cost reduction programs. Since fiscal 1997,
we have consistently improved operating margins. Our combined segment SAE
expenses, as a percent of net sales, have decreased from 23.9% in fiscal 1997
to 17.9% in fiscal 1999. For our continuing businesses, our SAE expenses, as a
percent of net sales, have decreased from 28.4% in fiscal 1997 to 19.7% in
fiscal 1999.
Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999
Total SAE expenses decreased by $2.2 million, or 2.2%, from $105.6 million
for the nine months ended May 31, 1999 to $103.3 million for the nine months
ended May 31, 2000. Total SAE expenses were negatively
56
<PAGE>
impacted by increases recorded in the Non-continuing Businesses due to the
acquisition of the Magnets business with Rubicon in October 1999. Excluding the
Non-continuing Businesses, adjusted SAE expenses decreased by $5.6 million, or
7.0% from $81.0 million to $75.3 million. As a percent of sales, adjusted SAE
expenses decreased from 20.3% for the nine months ended May 31, 1999 to 18.5%
for the nine months ended May 31, 2000, reflecting the cost reduction
initiatives discussed below.
SAE expenses for Tools & Supplies decreased by $3.6 million, or 6.8%, from
$53.9 million for the nine months ended May 31, 1999 to $50.2 million for the
nine months ended May 31, 2000. As a percentage of net sales, Tools & Supplies
SAE expenses decreased from 23.0% to 21.8%. This improvement reflects the
continuing benefits of earlier restructuring initiatives, including the
combination of Enerpac's and GB's Wisconsin-based sales and administrative
offices, and approximately $0.9 million due to currency translation effect.
SAE expenses for Engineered Solutions decreased by $0.1 million, or 0.3%,
from $42.6 million for the nine months ended May 31, 1999 to $42.5 million for
the nine months ended May 31, 2000. Excluding the Non-continuing Businesses,
adjusted SAE expenses for Engineered Solutions decreased by $3.5 million, or
19.6%, from $18.0 million for the nine months ended May 31, 1999 to $14.5
million for the nine months ended May 31, 2000. As a percentage of net sales,
adjusted SAE expenses for Engineered Solutions decreased from 11.0% to 8.2% due
primarily to the benefits obtained from cost reduction initiatives, including
significant headcount reductions at our domestic automotive unit, and
approximately $0.7 million due to currency translation effect.
Fiscal 1999 Compared to Fiscal 1998
Total SAE expenses in fiscal 1999 decreased by $17.2 million, or 11.2%, from
$153.9 million in fiscal 1998 to $136.7 million in fiscal 1999. This reduction
was due to the inclusion of $18.2 million of restructuring charges in fiscal
1998, as well as cost savings realized as a result of such restructuring.
Incremental SAE expenses resulting from the full-year impact of 1998
acquisitions totaled $3.1 million. Excluding the Non-continuing Businesses,
adjusted total SAE expenses declined by $14.3 million, or 12.1%, from $118.3
million to $104.0 million.
SAE expenses for Tools & Supplies declined by $10.5 million, or 13.2%, from
$79.6 million in fiscal 1998 to $69.1 million in fiscal 1999. This reduction
reflects $9.6 million of restructuring and other non-recurring costs reported
in fiscal 1998. Further, SAE expenses declined due to the success of the
restructuring initiatives undertaken in fiscal 1998, including the
consolidation of (a) European sales office support functions, (b) CalTerm and
Vision sales functions, and (c) the San Diego administration functions into
Tools & Supplies' headquarters in Milwaukee. In addition, we realized cost
savings from combining Enerpac and Gardner Bender support functions into a
single location in early fiscal 1999. Partially offsetting these savings were
incremental SAE expenses of $1.0 million reflecting full-year impact of
acquisitions completed in the prior year.
SAE expenses for Engineered Solutions decreased by $1.3 million, or 2.3%,
from $56.8 million in fiscal 1998 to $55.5 million in fiscal 1999. This
reduction primarily resulted from the inclusion of restructuring costs of $4.3
million in fiscal 1998 SAE expenses. Partially offsetting this was an
incremental $2.1 million of SAE expenses resulting from the full-year impact of
the Versa/Tek acquisition.
Fiscal 1998 Compared to Fiscal 1997
Total SAE expenses increased by $14.1 million, or 10.1%, from $139.8 million
in fiscal 1997 to $153.9 million in fiscal 1998, primarily due to $15.3 million
of incremental restructuring costs in fiscal 1998 SAE expenses. The acquisition
of Versa/Tek, Ancor and Del City in fiscal 1998, added approximately $9.5
million to SAE expenses. Personnel reductions and other restructuring savings
at Enerpac and general corporate expense
57
<PAGE>
reductions were realized. Excluding the Non-continuing Businesses, total
adjusted SAE expenses increased by $9.8 million, or 9.0%, from $108.5 million
to $118.3 million, also due to the Versa/Tek acquisition restructuring charges.
SAE expenses for Tools & Supplies increased by $2.0 million, or 2.6%, from
$77.6 million in fiscal 1997 to $79.6 million in fiscal 1998 due to
restructuring costs.
SAE expenses for Engineered Solutions increased by $9.8 million, or 20.9%,
from $47.0 million in fiscal 1997 to $56.8 million in fiscal 1998. Excluding
the Non-continuing ES Businesses, adjusted Engineered Solutions SAE expenses
increased $5.5 million, or 34.2%, from $16.1 million to $21.6 million. The
majority of these increases were the result of $7.6 million of incremental SAE
expenses from the newly acquired Versa/Tek business.
Amortization of Intangible Assets
The following table sets forth amortization of intangible assets
("amortization expense") for the past three fiscal years and comparative nine-
month interim periods:
<TABLE>
<CAPTION>
Nine
Months
Year Ended Ended
August 31, May 31,
--------------- ---------
1997 1998 1999 1999 2000
---- ----- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Amortization Expense by Segment:
Tools & Supplies..................................... $3.3 $ 5.5 $3.9 $2.9 $2.8
Less: Non-continuing T&S Business.................... -- -- -- -- --
---- ----- ---- ---- ----
Adjusted Tools & Supplies.......................... $3.3 $ 5.5 $3.9 $2.9 $2.8
==== ===== ==== ==== ====
Engineered Solutions................................. $1.7 $ 7.1 $4.8 $3.7 $3.1
Less: Non-continuing ES Businesses................... 1.6 1.5 2.5 1.9 1.2
---- ----- ---- ---- ----
Adjusted Engineered Solutions...................... $0.1 $ 5.6 $2.3 $1.8 $1.9
==== ===== ==== ==== ====
Total combined segment amortization expense.......... $5.0 $12.6 $8.7 $6.7 $5.9
Less: Non-continuing Businesses...................... 1.6 1.5 2.5 1.9 1.2
---- ----- ---- ---- ----
Total adjusted amortization expense................ $3.4 $11.1 $6.2 $4.7 $4.7
==== ===== ==== ==== ====
</TABLE>
Total amortization expense for the nine months ended May 31, 2000 was lower
than that recorded in the comparable prior year period as a result of lower
amortization expense recorded for certain non-compete agreements which became
fully amortized in fiscal 1999. Fiscal 1999 amortization expense was lower than
fiscal 1998 because the fiscal 1998 amount includes a non-recurring $5.1
million write-off of goodwill. For further information, see Note H--"Merger,
Restructuring and Non-recurring Items" in Notes to Consolidated Financial
Statements. Amortization increased from fiscal 1997 to 1998 as a result of the
amortization expense recognized on the intangible assets arising from the
acquisition of Versa/Tek.
58
<PAGE>
Operating Earnings
The following table sets forth our operating earnings for the past three
fiscal years and comparative nine-month interim periods:
<TABLE>
<CAPTION>
Nine Months
Year Ended August Ended May
31, 31,
---------------------- ------------
1997 1998 1999 1999 2000
------ ------ ------ ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Operating Earnings:
Tools & Supplies..................... $ 28.9 $ 13.7 $ 51.7 $38.3 $41.2
Less: Non-continuing T&S Business.... 1.0 0.5 -- -- --
------ ------ ------ ----- -----
Adjusted Tools & Supplies.......... $ 27.9 $ 13.2 $ 51.7 $38.3 $41.2
====== ====== ====== ===== =====
Engineered Solutions................. $ 22.0 $ 38.2 $ 59.8 $41.0 $55.4
Less: Non-continuing ES Businesses... 14.3 12.2 27.9 19.8 16.9
------ ------ ------ ----- -----
Adjusted Engineered Solutions...... $ 7.7 $ 26.0 $ 31.9 $21.2 $38.5
====== ====== ====== ===== =====
Combined segment operating earnings.. $ 50.9 $ 52.0 $111.6 $79.3 $96.6
Corporate expense.................... (15.2) (17.5) (12.1) (9.1) (9.2)
Group expense(1)..................... -- -- -- -- (1.4)
Restructuring charges................ -- (11.4) -- -- --
Merger related expenses.............. -- (9.3) -- -- --
Provision for loss on sale of
subsidiary.......................... -- (4.5) -- -- --
Corporate reorganization costs....... -- -- -- -- (4.4)
------ ------ ------ ----- -----
Total operating earnings............. 35.8 9.3 99.4 70.2 81.6
Less: Non-continuing Businesses...... 15.4 12.7 27.9 19.8 16.9
------ ------ ------ ----- -----
Total adjusted operating earnings.. $ 20.3 $ (3.5) $ 71.5 $50.4 $64.7
====== ====== ====== ===== =====
</TABLE>
Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999
Total operating earnings increased by $11.4 million from $70.2 million for
the nine months ended May 31, 1999 to $81.6 million for the nine months ended
May 31, 2000. Excluding the Non-continuing Businesses, adjusted operating
earnings improved from $50.4 million for the nine months ended May 31, 1999 to
$64.7 million for the nine months ended May 31, 2000. This 28.4% improvement
results from the combination of a 1.9% increase in adjusted net sales, a 7.0%
decrease in adjusted SAE expenses and modest adjusted gross profit margin
improvement.
Fiscal 1999 Compared to Fiscal 1998
Total operating earnings increased by $90.1 million from $9.3 million in
fiscal 1998 to $99.4 million in fiscal 1999. The improvement reflects the
inclusion of $56.9 million of restructuring, merger and non-recurring items in
fiscal 1998, benefits derived from such restructuring actions and incremental
sales volume. Excluding the Non-continuing Businesses, adjusted operating
earnings improved from a loss of $3.5 million in fiscal 1998 to earnings of
$71.5 million in fiscal 1999, due to the same factors.
Fiscal 1998 Compared to Fiscal 1997
Total operating earnings declined by $26.5 million from $35.8 million in
fiscal 1997 to $9.3 million in fiscal 1998. Excluding the Non-continuing
Businesses, adjusted operating earnings declined by $23.8 million from $20.3
million to a loss of $3.5 million. The decline in operating earnings, in both
cases, is attributable to restructuring and other non-recurring costs in fiscal
1998, partially offset by earnings from the Versa/Tek businesses which we
acquired in the first quarter of fiscal 1998.
59
<PAGE>
Net Financing Costs
The increase in our net financing costs over the periods presented is due
primarily to our increasing levels of indebtedness. The increase in
indebtedness results from the acquisitions of business units for the
Electronics Business during the last three years. See Note D--"Merger,
Acquisitions and Divestitures" in Notes to Consolidated Financial Statements
for a description of acquisition activity.
Our capitalization will change as a result of the Distribution, and our
historical financing costs are not representative of what should be expected
following the Distribution. We expect our financing costs after the
Distribution to be higher than what we have historically incurred as a result
of higher interest rates on our debt. See "--Debt Realignment" and "Unaudited
Pro Forma Consolidated Financial Statements."
Income Tax Expense
Our income tax expense is impacted by a number of factors, including the
amount of taxable earnings derived in foreign jurisdictions with tax rates that
are higher or lower than the federal statutory rate, our ability to utilize
various tax credits, the amount of non-deductible expenses and other items. For
example, our effective tax rate in fiscal 1998 was higher than in prior periods
presented as a result of a high level of non-deductible expenses and goodwill
amortization and a relatively low level of pre-tax earnings. For more
information regarding the variations in our effective tax rates for the periods
presented, see the effective tax rate reconciliation table in Note M--"Income
Taxes" in Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
We generated cash from operating activities of continuing operations in
fiscal 1997, 1998 and 1999 of $52.2 million, $61.3 million and $30.9 million,
respectively, through a combination of earnings and changes in operating assets
and liabilities. Cash from operating activities in fiscal 1999 was lower than
prior years as a result of an increase in inventory and cash used in
restructuring activities. Our cash from operating activities includes the net
operating cash flow of the Non-continuing Businesses. See the consolidated
statements of cash flows in the Consolidated Financial Statements for
additional information regarding our operating cash flow.
During each of the last three fiscal years, we used the majority of our net
cash generated from both continuing and discontinued operations, along with
proceeds from borrowings, to acquire businesses. The majority of the
acquisitions were for businesses included in the Electronics Business. The
investing and financing activities of Applied Power for the last three fiscal
years were primarily driven by the Electronics Business' expansion strategy.
This strategy, as it relates to Actuant, is expected to change after the
Distribution. We do not intend to use a significant amount of cash for
acquisitions in the first few fiscal years after the Distribution. Because of
our leverage following the Distribution, we anticipate initially using a large
portion of our cash flow from operations to reduce indebtedness.
Debt Realignment
We realigned our debt concurrent with the Distribution. We retired our
existing credit facilities and lines, our accounts receivable financing
facility and all of the 1999 Notes as part of this debt realignment with
proceeds from new borrowings, proceeds from the sale of Barry Controls and
funding from APW. Our new borrowings consist of the Actuant Credit Facility,
the Notes as described in this prospectus and international working capital
facilities. We borrowed approximately $252.6 million under the Actuant Credit
Facility concurrent with the Distribution. As of August 1, 2000, we had
approximately $87.4 million of availability under this facility, subject to
covenant compliance, and $450.0 million of total indebtedness outstanding. As
part of the debt realignment, APW made borrowings under its new credit facility
it arranged in connection with the Distribution, and transferred approximately
$257.1 million of proceeds to Applied Power to fund the debt realignment. Such
borrowings under APW credit facilities remain the obligation of APW following
the Distribution. See "Use of Proceeds" and "Capitalization" in this prospectus
for more information regarding the debt realignment.
60
<PAGE>
The Actuant Credit Facility consists of a $100.0 million revolving credit
facility (the "Revolver") with a six-year maturity, a $115.0 million term loan
with a six-year maturity (the "Tranche A Term Loan") and a $125.0 million term
loan with an eight-year maturity (the "Tranche B Term Loan"). The Actuant
Credit Facility is secured by substantially all of the assets of Actuant
Corporation and its domestic subsidiaries and 65% of the capital stock of its
foreign subsidiaries. Obligations under the Actuant Credit Facility have been
guaranteed by certain of Actuant Corporation's domestic subsidiaries who also
guaranteed the Notes. Interest on borrowings under the Revolver and the Tranche
A Term Loan will be initially incurred at floating rates of LIBOR plus 2.75%
annually, with adjustments based on our debt-to-EBITDA ratio. Interest on the
Tranche B Term Loan will initially be incurred at a floating rate of LIBOR plus
3.75%, with adjustments based on our debt-to-EBITDA ratio. Interest payments
are due quarterly. Borrowings under the Revolver will be available on a
revolving basis through the sixth anniversary of the Distribution, with limits
based on our debt-to-EBITDA ratio.
As of August 1, 2000, we had approximately $87.4 million of availability
under the Revolver, subject to compliance with covenants. The Actuant Credit
Facility contains customary restrictions concerning investments, capital
expenditures, liens on assets, sales of assets, maximum levels of debt and
minimum levels of both interest and fixed charge coverages. The Actuant Credit
Facility is subject to annual principal maturities (payable quarterly) as
follows: 2001--$11.2 million; 2002--$16.2 million; 2003--$21.2 million; 2004--
$21.2 million; 2005--$26.2 million, with the balance due in years beyond 2005.
For further information about the Actuant Credit Facility, see "Description of
the Actuant Credit Facility."
The Notes mature on May 1, 2009 and bear interest payable semi-annually.
There are no scheduled principal payments on the Notes prior to their maturity.
Redemption of the Notes is subject to certain restrictions and premiums. For a
detailed description of the Notes, see "Description of the Notes."
Seasonality, Working Capital and Cyclicality
We have historically met our working capital needs and capital expenditure
requirements through a combination of operating cash flow and availability
under revolving credit facilities. Although there are modest seasonal factors
within certain of our businesses, on a consolidated basis, we do not experience
material changes in seasonal working capital or capital resource requirements.
We believe that based on current financial performance and forecasted
results, cash flow from operations, together with the availability under the
Revolver, will be adequate to make required principal and interest payments on
our indebtedness, and to fund anticipated capital expenditures and working
capital requirements.
Our receivables are derived from a diverse customer base that operates in a
number of industries. Our largest single customer generated approximately 6.1%
of pro forma fiscal 1999 net sales. As described in Note E--"Accounts
Receivable Financing" in Notes to Consolidated Financial Statements, we have
historically sold trade accounts receivables to a subsidiary that sold
participation interests in such receivables to financial institutions. Such
"sold" receivables were excluded from the consolidated balance sheets. We did
not enter into a similar accounts receivable financing arrangement immediately
after the Distribution and we terminated the existing facility concurrent with
the Distribution. As a result, our trade accounts receivable balance will
increase relative to what has historically been reported. See "Unaudited Pro
Forma Consolidated Financial Statements."
61
<PAGE>
Capital Expenditures
The majority of our manufacturing operations consist of the assembly of
components that we source from a variety of vendors. We believe our capital
expenditure requirements are not as extensive as many other industrial
companies given the assembly nature of our operations. Historical capital
expenditures were as follows:
<TABLE>
<CAPTION>
Nine
Months
Year Ended August Ended
31, May 31,
----------------- ----------
1997 1998 1999 1999 2000
----- ----- ----- ----- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Total capital expenditures........................ $15.7 $25.2 $22.9 $21.3 $9.2
Less: Non-continuing Businesses................... 5.5 9.8 9.2 8.9 3.2
----- ----- ----- ----- ----
Adjusted capital expenditures..................... $10.2 $15.4 $13.7 $12.4 $6.0
===== ===== ===== ===== ====
</TABLE>
Capital expenditures have historically been funded by operating cash flows,
and are anticipated to continue to be so in the future. For each of the past
three fiscal years, capital expenditures were invested primarily in machinery
and equipment, replacements, upgrades and computer systems. There are no
significant capital programs planned in the near future that would require
expenditures in excess of the recent historical capital expenditure levels.
Dividends
Our dividend policy will be established by the board of directors from time
to time based on the results of operations, financial condition and other
business considerations that the board of directors deems relevant. The Actuant
Credit Facility contains restrictions as to the payment of dividends.
Accordingly, we do not plan to pay a dividend in the near future; instead we
plan to use cash flow from operations to reduce debt.
Raw Material Costs and Inflation
No meaningful measures of inflation are available because we have
significant operations in countries with diverse rates of inflation and
currency rate movements. However, we believe that the rate of inflation in
recent years has been relatively low and has not had a significant effect on
our results of operations. We source a wide variety of materials and components
from a network of global suppliers. While such materials are typically
available from numerous suppliers, commodity raw materials are subject to price
fluctuations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires that we
recognize derivative instruments, including certain derivative instruments
embedded in other contracts, as either assets or liabilities and measure those
instruments at fair value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In July 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133," which delays the
effective date of SFAS No. 133 by one year. As a result, SFAS No. 133 will be
effective for Actuant's 2001 fiscal year. Adoption of SFAS No. 133 is not
expected to have a material effect on Actuant based on Applied Power's current
derivative and hedging activities.
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
62
<PAGE>
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 not
have a material effect on its financial statements.
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 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 through calendar
year 2000. We will continue to monitor mission critical computer applications
and those of our suppliers and vendors throughout calendar year 2000 to ensure
that any latent Year 2000 matters that arise are addressed promptly.
European Economic Monetary Union
On January 1, 1999, eleven European Union countries (including a number of
the countries where Actuant locations operate) adopted the euro as their common
currency, resulting in fixed conversion rates between their existing currencies
("legacy currencies") and the euro. The euro presently trades on currency
exchanges and is available for non-cash transactions. Following the
introduction of the euro, the legacy currencies remain legal tender in the
participating countries during the transition through January 1, 2002.
Beginning on January 1, 2002, the European Central Bank will issue euro-
denominated bills and coins for use in cash transactions. On or before July 1,
2002, the participating countries will withdraw all legacy bills and currencies
and use the euro as their legal currency.
Some of our operating units located in Europe, which are affected by the
euro conversion, intend to maintain their books in their respective legacy
currency through a portion of the three-year introductory period. At this time,
we do not expect the consequences of the ongoing euro conversion to have
material adverse effects on our operations, business or financial condition.
Environmental Compliance
Our operations, like those of similar businesses, are subject to federal,
state, local and foreign laws and regulations relating to protection of the
environment, including those regulating discharges of hazardous materials into
the air and water, the storage and disposal of such materials, and clean-up of
soil and groundwater contamination. Pursuant to certain environmental laws, a
current or prior owner or operator of a site may be liable for the cost of
investigation and remediation of contamination, and persons who arrange for
disposal or treatment of hazardous materials may be liable for such costs at a
disposal or treatment site, whether or not the person owned or operated it.
These laws impose strict, and under certain circumstances joint and several,
liability.
We have facilities in a number of geographic locations that are subject to a
range of environmental laws and regulations. Compliance with these laws has and
will require expenditures on an ongoing basis. We and our subsidiaries have
been identified by regulators as potentially responsible parties regarding
remediation of several multi-party waste sites. Based on our investigations, we
believe we are at most a de minimis participant. We are also a party to several
state and local environmental matters, including a consent order requiring
installation of air pollution control equipment at a facility in Massachusetts,
and we provided environmental indemnities in connection with the Divestitures,
so we retain responsibility for certain of their actual or potential
environmental liabilities.
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Environmental expenditures over the last three years have not been material.
Although the level of future expenditures for environmental remediation is
impossible to determine with any degree of certainty, in our opinion these
costs are not likely to have a material adverse effect on our financial
position, results of operations, or cash flows. Environmental accruals of $1.9
million and $1.3 million were included in our August 31, 1998 and 1999 balance
sheet, respectively.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in foreign exchange and interest
rates and, to a lesser extent, commodities. To reduce such risks, we
selectively use 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 Applied Power's accounting policies for derivative financial
instruments is included in Note A--"Summary of Significant Accounting Policies"
in Notes to Consolidated Financial Statements. In addition, quantitative
disclosure relating to financial instruments is included in Note I--"Debt" in
Notes to Consolidated Financial Statements.
We have significant international operations. In certain instances, our
products are produced at manufacturing facilities located near the customer. As
a result, significant volumes of products are manufactured in countries for
sale into those markets. For goods purchased from affiliates, we denominate the
transaction in the functional currency of the producing operation.
We have adopted the following guidelines to manage 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 if available), netting,
pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
Our identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of inter-company loans with foreign subsidiaries denominated
in foreign currencies. We periodically identify naturally occurring offsetting
positions and then purchase hedging instruments to protect against anticipated
exposures. Our 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.
We expect that from time to time, we may enter 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 environment. Under these
agreements, we will contract with a counter-party to exchange the difference
between a fixed rate and a floating rate applied to notional amount of the
swap. The difference 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 termination of qualifying
hedges are deferred and recognized in net income at the same time as the
underlying hedged transactions.
Recent Developments
We recently completed the sale of Norelem, S.A., a non-hydraulic product
line in the Enerpac business which makes and distributes mechanical workholding
products. Norelem, S.A. had sales of less than $10.0 million in fiscal 1999.
The proceeds from this sale will be used to reduce outstanding debt.
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THE TRANSACTIONS
Before the Distribution, Applied Power and APW entered into a series of
related agreements to establish the terms of the Distribution, to facilitate
the separation of the Industrial Business from the Electronics Business and to
govern various aspects of the post-Distribution relationship between Actuant
and APW. Because these agreements were negotiated while APW Ltd. was a wholly-
owned subsidiary of Applied Power Inc., they are not the result of negotiations
between independent parties, although Actuant and APW have set pricing terms
for interim services at rates they believed to be comparable to what could have
been achieved through arm's-length negotiations. Additional or modified
agreements, arrangements and transactions may be entered into in the future,
and such agreements and transactions will be determined through arm's-length
negotiations.
Manner of Distribution
On July 7, 2000, the Board of Directors of Applied Power Inc. formally
declared the dividend necessary to effect the Distribution, set the record date
for determination of those shareholders of Applied Power Inc. entitled to
participate in the Distribution (July 21, 2000) and established the date on
which the Distribution would occur (July 31, 2000). An information statement
regarding the Distribution was mailed to shareholders on or about July 11,
2000. On the Distribution date, those same shareholders of Applied Power Inc.
each received one common share of APW Ltd. for each share of Applied Power Inc.
common stock they owned as of the record date.
Corporate Restructuring Transactions
In connection with the Distribution, Applied Power effected various
corporate restructuring transactions designed to restructure its existing
businesses so that, in general, (1) the assets, liabilities and operations of
the Electronics Business are now owned and operated by APW, and (2) the assets,
liabilities and operations of the Industrial Business are now owned and
operated by Actuant.
Since completion of these corporate restructuring transactions and the
Distribution, Actuant's assets generally consist of the Industrial Business,
which is more fully described under "Business" below, and all other assets of
Applied Power not expressly transferred to APW. Actuant's liabilities include:
. the obligations associated with past and future operation of those
assets;
. any liabilities associated with businesses that have been sold
(including Barry Controls and Air Cargo); and
. pursuant to the debt realignment described below, an amount of debt
equal to approximately four times EBITDA of Actuant pro forma for the
Transactions for the four fiscal quarters preceding the date of the
Distribution and reflected in an agreement between APW Ltd. and Actuant
Corporation (approximately $450.0 million as of August 1, 2000).
APW's assets since completion of these corporate restructuring transactions
generally consist of the Electronics Business. Its liabilities include:
. the obligations associated with past and future operation of the
Electronics Business;
. any tax liabilities associated with the Distribution and the related
corporate restructuring transactions; and
. debt equal to the amount by which Applied Power's total debt at the time
of the Distribution exceeded the amount to be retained by Actuant.
Debt Realignment
In connection with the Distribution, Applied Power repaid substantially all
of its existing debt. Applied Power consummated the Tender Offer, consisting of
an offer to purchase all of its then outstanding 1999 Notes
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for cash and a concurrent consent solicitation designed to remove the
restrictions on Applied Power's operations currently included in the related
indenture. The Tender Offer was commenced on June 30, 2000, and was completed
the same date as the consummation of the Distribution. In the Tender Offer,
Applied Power purchased 100% of the 1999 Notes at a premium over their face
amount plus accrued and unpaid interest to the date of payment.
To finance the Tender Offer and other cash payments, we issued $200.0
million aggregate principal amount of Original Notes pursuant to a private
offering and we entered into the Actuant Credit Facility. In addition, APW
entered into a separate $550.0 million unsecured multicurrency revolving credit
facility, a portion of which was used to fund the debt realignment. Actuant
does not have any accounts receivable financing program immediately following
the consummation of the Distribution. The following table illustrates the
estimated sources and uses of funds in the Transactions, other than the sale of
Air Cargo and Barry Controls (in millions):
<TABLE>
<CAPTION>
Sources
-------
<S> <C>
Initial borrowings under the
Actuant Credit
Facility(1).................. $252.6
The Notes (net of offering
discount).................... 197.4
APW new credit facility(2).... 257.1
------
Total sources............. $707.1
======
</TABLE>
<TABLE>
<CAPTION>
Uses
----
<S> <C>
Repayment of existing debt(3)... $659.1
Payment of estimated fees and
expenses(4) 48.0
------
Total uses.................. $707.1
======
</TABLE>
--------
(1) The Actuant Credit Facility consists of $240.0 million in term loans which
were borrowed upon the consummation of the Distribution and a $100.0
million revolving credit facility, approximately $12.6 million of which
will be drawn upon consummation of the Distribution. See "Description of
the Actuant Credit Facility."
(2) This credit facility is not be an obligation of Actuant.
(3) Includes $209.1 million of debt allocated to the Electronics Business and
$450.0 million of debt allocated to the Industrial Business, of which
$200.0 million is comprised of the 1999 Notes that were purchased in the
Tender Offer. Actuant does not currently have an accounts receivable
financing program.
(4) Consists of estimated investment banking, legal, accounting and other fees
and expenses to be incurred by Actuant and APW, and includes the premium
paid on the 1999 Notes in the Tender Offer.
Transactions and Agreements between Applied Power and APW
In order to effect the Distribution, Applied Power and APW entered into the
following principal agreements:
Contribution Agreement
Pursuant to the Contribution Agreement, Plan and Agreement of Reorganization
and Distribution, immediately prior to the Distribution, substantially all of
the assets and liabilities of the Electronics Business were transferred by
Applied Power to APW in the corporate restructuring transactions described
above. Under this agreement, Actuant and APW realigned their debt as described
above.
Assignment and Assumption Agreement
Pursuant to the General Assignment and Assumption Agreement regarding
Litigation, Claims and Other Liabilities, APW assumed, and agreed to indemnify
Actuant against, substantially all liabilities, litigation and claims arising
out of the Electronics Business, including all environmental liabilities.
Actuant retained, and will indemnify APW against, substantially all
liabilities, litigation and claims arising out of its Industrial Business and
other items not transferred to APW. The indemnification obligations will not
entitle the indemnified party
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to recover to the extent that such liabilities are covered by proceeds received
from a third party insurer. In circumstances in which the potential liability
of Actuant and APW is joint, the parties will share responsibility for such
liability on a mutually agreed basis consistent with the allocation of the
businesses.
Transitional Trademark Use and License Agreement
Pursuant to the Transitional Trademark Use and License Agreement, Actuant
granted to APW certain rights to continue to use, for a limited period of time
and under certain defined circumstances, certain Actuant trademarks and trade
dress already inscribed upon APW's existing inventory of labels, promotional
materials, product materials and other materials relating to APW's existing
inventory of products. Also, each party granted to the other party a royalty-
free, nontransferable, nonexclusive license to use certain Actuant and APW
trademarks and certain products for nine months after the Distribution.
Patent Assignment
In connection with the Distribution, Actuant assigned to APW all rights and
title to numerous patents related to the Electronics Business.
Insurance Matters
An Insurance Matters Agreement governs the rights and obligations of Actuant
and APW with respect to various pre-existing contracts insuring Applied Power
and covering risks associated with, or arising out of, the Electronics
Business. The types of policies covered by the Insurance Matters Agreement
include, without limitation, automobile liability, comprehensive and general
liability. This agreement also establishes certain procedures for dealing with
pending litigation, new litigation and the resolution of disputes between the
parties concerning this agreement.
Employee Benefits and Compensation Matters
An Employee Benefits and Compensation Agreement governs the rights and
obligations of Actuant and APW with respect to various matters and obligations
concerning employee benefits of the former Applied Power employees who became
employees of APW as of the date of the Distribution. The Benefits Agreement
covers APW's assumption of certain compensation and benefit obligations
relative to APW's employees. The Benefits Agreement also transfers assets and
liabilities under Applied Power's 401(k) plan for certain employees to APW's
401(k) plan. Pursuant to the Benefits Agreement, APW has assumed responsibility
for certain benefits previously offered by Applied Power to its employees prior
to the Distribution who became employed by APW and received funds from Applied
Power for disbursement to such employees for compensation and certain employee
benefits earned prior to the Distribution.
Tax Indemnification Agreement
The Tax Sharing and Indemnification Agreement governs the allocation of
certain tax responsibilities between Actuant and APW. Except as otherwise
provided below, Actuant assumes and will pay, and will indemnify and hold
harmless APW from and against, all income taxes based upon income required to
be shown in Actuant consolidated income tax returns for the taxable year in
which the Distribution occurred and all prior taxable years. However, in the
event of an audit of Actuant's consolidated income tax returns for the taxable
year in which the Distribution occurred or any prior taxable year, APW assumes
and will indemnify and hold Actuant harmless from all income taxes in excess of
$1.0 million resulting from a final determination of tax liability based upon
adjustments to the separate taxable income of APW. APW also assumes and will
pay, and will indemnify and hold harmless Actuant from and against, all
corporate taxes in connection with (a) the corporate restructuring
transactions, (b) the transactions that made APW Ltd. a Bermuda corporation and
(c) the Distribution.
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Confidentiality Agreement
As of the Distribution Date, APW and Actuant entered into a Confidentiality
and Nondisclosure Agreement whereby, subject to certain exceptions, each party
agrees to treat as confidential and not disclose certain proprietary and other
confidential information belonging to the other party.
Interim Administrative Services Agreement
As of the Distribution Date, Actuant and APW (through a U.S. subsidiary of
APW Ltd.) entered into an Interim Administrative Services Agreement. This
agreement governs the administrative and financial services that Actuant will
continue to provide to APW on an interim basis and those that APW will provide
to Actuant. In general, APW will provide certain tax preparation and compliance
and certain insurance and risk management services to Actuant for a period of
six months to one year. Actuant will provide certain financial support,
technical support, and staff support services and certain information system
services to APW for a period of six months to one year. Each party will
compensate the other party at negotiated amounts that, we believe, will be
comparable to rates each could have achieved through arm's-length negotiations.
Relationship between Actuant and APW after the Distribution
As a result of the Distribution, Actuant and APW are now independent public
companies with no direct relationships between them other than (i) pursuant to
the agreements described above, (ii) during a transition period, that is not
expected to exceed two years, Mr. Richard G. Sim, the President and Chief
Executive Officer of APW Ltd., will be chairman of the board of both companies,
(iii) Mr. Gustav H.P. Boel, an officer of APW Ltd., will be a director of
Actuant Corporation and (iv) Anthony W. Asmuth III, Esq. will be Secretary of
Actuant Corporation and APW Ltd.
The Divestitures
Applied Power recently completed the divestitures of its Air Cargo business
on May 26, 2000, and its Barry Controls business on June 30, 2000. Air Cargo is
a manufacturer and marketer of air cargo containers, in-plane loading systems,
barrier nets, panels and hardware. Barry Controls specializes in vibration
isolation products serving aerospace, industrial and defense markets. Aggregate
cash proceeds from these divestitures were $169.5 million.
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BUSINESS
Overview
We are a leading global manufacturer and marketer of a broad range of
industrial products and systems, organized into two business segments, Tools &
Supplies and Engineered Solutions. Tools & Supplies sells branded, specialized
electrical and industrial tools to hydraulic and electrical wholesale
distributors, to catalog houses and through various retail distribution
channels. Engineered Solutions designs and markets customized motion control
systems for OEMs in diversified niche markets. Based on internal estimates, we
believe that approximately 65% of our pro forma net sales for fiscal 1999 were
derived from products holding number one market positions. We believe that our
strength in each product category is the result of a combination of our brand
recognition, proprietary engineering and design competencies, dedicated service
philosophy and global manufacturing and distribution capabilities. For the
twelve months ended May 31, 2000, we generated pro forma net sales and pro
forma EBITDA of $538.2 million and $112.4 million, respectively. Our pro forma
EBITDA margin for this period was 20.9%.
Our Competitive Strengths
. Market Leadership. We believe that the strength of our established
brands and our leading market positions provide us with a significant
competitive advantage. Based on internal estimates, we believe that
approximately 65% of our pro forma net sales are from products holding
number one market positions. The following table sets forth our major
product categories that we believe hold leading market positions:
<TABLE>
<CAPTION>
Product Category Region Market Position
---------------- ------ ---------------
<S> <C> <C>
High-force hydraulic industrial tools...... Global #1
Electrical tools and supplies to the retail
DIY channel............................... North America #1
Hydraulic cab-tilt systems for heavy-duty
trucks.................................... Global #1
RV slide-out and leveling systems.......... North America #1
Electro-hydraulic convertible top actuation
systems................................... Global #1
</TABLE>
. Leading Design and Engineering Capabilities. We design innovative,
highly-engineered products that reinforce and strengthen our product
leadership positions, and have earned a reputation for design and
engineering leadership in key technologies such as hydraulic and
mechanical positioning and electronic closed-loop systems. Through our
proprietary processes and over 500 patents, we leverage these
competencies to provide innovative solutions to satisfy specific
customer needs and strive to create products that make jobs easier for
our customers. Recent examples include GB's patented Stud Seeker(TM) for
construction remodeling and Enerpac's new line of hydraulic torque
wrenches for various maintenance and repair applications.
. Diverse and Stable Customer Base. We have more than 20,000 customers in
a wide array of industries, including many with whom we have developed
long-standing and close relationships. We have sales relationships with
leading distributors, home centers and mass merchandisers, including Ace
Hardware, The Home Depot, Lowe's, Snap-on, TruServe and W.W. Grainger.
We also have long-standing relationships with leading OEMs in our key
Engineered Solutions markets, many of which we have served for over 20
years. These close customer relationships help us to provide innovative
and customized solutions, which we believe differentiate us from our
competitors. Our largest customer accounted for approximately 6.1% of
our pro forma net sales for fiscal 1999. We believe our customer and
end-market diversity help mitigate the effect of regional or industry
downturns.
. Strong Established Global Infrastructure. We have operated on a global
basis for over 30 years. We have developed an internationally-focused
operating culture with the people and logistical capabilities to do
business around the world and have established a powerful network to
source and distribute products and components effectively on a global
basis. We have major distribution warehouses located in North America,
Europe and Asia, serving over 5,000 industrial and electrical
distributor
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locations. We believe that our global infrastructure provides us with a
competitive advantage and serves as a foundation to facilitate further
global expansion initiatives.
. Demonstrated Operational Improvements. We have dramatically improved our
cost structure, operating performance and EBITDA margins over recent
years. Over the past few years we have eliminated over 5,000 SKUs, and
have also improved our inventory turns, as adjusted to exclude the Non-
continuing Businesses, from 2.8x in fiscal 1997 to 5.2x in fiscal 1999.
These achievements are the direct result of our cumulative manufacturing
experience and our WCP Program. This program focuses on return on assets
and operational improvement initiatives, including the implementation of
Kanban, lean manufacturing and Kaizen philosophies. Our continuous
improvement culture provides a framework for additional cost
improvements.
Our Business Strategy
. Pursue Internal Growth Opportunities. We plan to leverage the strength
of our brands and our long-standing relationships with key customers to
build upon our leading market positions. We believe that the Enerpac,
Gardner Bender, CalTerm and Ancor brands in our Tools & Supplies segment
are widely recognized in their respective market niches and present
opportunities for new product introductions, line extensions and cross-
selling. In addition, our long-standing relationships with key DIY
customers provide us with opportunities to grow with them both
domestically and internationally. In our Engineered Solutions segment,
we have cultivated long-standing relationships with leading global OEMs
who have selected us as a vendor based on our proprietary designs,
engineering expertise and ability to support them in multiple locations
around the world. We believe that these strong relationships provide us
with opportunities to increase our component and system content on OEM
platforms.
. Capitalize on Design and Engineering Expertise. We design highly-
engineered products, and we believe we have earned a reputation for
engineering excellence in key technologies such as hydraulic and
mechanical positioning and electronic closed-loop systems. We update our
product portfolios, which are designed in close coordination with our
customers, with high value-added products. We also seek patent and other
protections to reinforce and strengthen our product leadership positions
and strive to leverage our existing competencies in new areas. For
example, we successfully applied our hydraulic cab-tilt system
technology in our electro-hydraulic convertible top actuation systems.
We are now applying the same technology in the marine market.
. Leverage Global Scale. We have operated on a global basis for over 30
years and we have the infrastructure in place to market additional
products through our global physical distribution and sales network. For
example, while substantially all sales within the GB and Power Gear
businesses currently are generated in North America, we intend to use
our existing global infrastructure to expand those businesses
internationally. Our long-standing relationships with OEMs and our
ability to support them in multiple locations around the world have
positioned us to grow with them as they expand into new geographic
markets. In addition, we intend to expand our global sourcing operations
to broaden our product portfolio and seek to further reduce costs.
. Continuously Improve our Operations. Through our WCP Program, we target
operational excellence through continuous cost reduction and asset
efficiency initiatives. Broad initiatives to adopt Kanban, lean
manufacturing and Kaizen philosophies have generated significant cost
reductions and asset efficiency improvements. Kanban is a visual system
for inventory replenishment based on actual demand for an item. A Kaizen
event is one of the key tools employed to assist team members to
identify and effect improvements in the way they work. These events
generally result in reductions in waste and working capital and improve
floor-space utilization. With numerous successful Kaizen events
completed to date and over 100 scheduled for the next 12 months, we have
firmly embedded the philosophy of continuous improvement into our
operating practices and believe that opportunities exist to further
improve operations. All of our manufacturing and distribution locations
execute these continuous improvement programs.
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. Grow through Selected Acquisitions. Part of our growth strategy has
been, and will continue to be, to make small, "bolt-on" acquisitions
that complement our existing businesses. Our strategy is to acquire new
product lines that can be sold through existing distribution channels
and to acquire companies with leading market positions in niche market
channels that we do not serve. For example, our acquisition of Ancor in
1998 provided GB with a leading share in the marine electrical market
serving OEMs, marine distributors and retail marine specialty stores. We
successfully introduced Gardner Bender electrical test instruments to
the marine electrical market and Ancor electrical products for harsh
environments to GB customers in the retail DIY and automotive
aftermarket channels.
. Cultivate Performance-Based Culture. Our culture is based on the belief
that people are the key ingredients in the successful execution of
business strategies and the drivers of financial performance. Our
decentralized and entrepreneurial approach to management is based on
high quality, team-oriented people who share a strong sense of
responsibility and accountability. This foundation enables us to remain
flexible and effective in the integration of acquisitions and enhances
our ability to respond to rapidly changing industry dynamics.
To align our employees' interests with those of our shareholders, we
use stock based incentives. Substantially all U.S. based employees
participate in a structured incentive compensation system based on
achievement of both definitive business unit performance targets and
overall company results. Executive compensation is heavily weighted
toward stock ownership, thereby aligning management's interests with
investors' interests in achieving our strategic goals. Management,
director and employee stock ownership (including outstanding stock
options) represents more than 10% of diluted common shares outstanding
immediately after the Transactions.
Principal Products
We operate in two business segments, Tools & Supplies and Engineered
Solutions. The following pie charts show the pro forma net sales and pro forma
EBITDA contribution by our business segments:
Pro Forma Twelve Months
Ended May 31, 2000
[NET SALES PIE CHART]
[EBITDA PIE CHART]
--------
(1) EBITDA of $112 million includes estimated stand-alone corporate and group
expenses of approximately $6.1 million, which are not allocated to
individual segments.
Tools & Supplies. Through our Tools & Supplies segment, we sell a wide array
of branded, specialized electrical and industrial tools and supplies to
hydraulic and electrical wholesale tool distributors, to catalog houses and
through various retail distribution channels. Our products include high-force
hydraulic tools, electrical tools and consumables, which are sold to end-user
markets including general industrial, construction, production automation,
retail DIY, retail marine and retail automotive aftermarket. Tools & Supplies
provides
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over 14,000 SKUs, most of which are designed and manufactured by us in North
America. In addition, we manage a global sourcing operation which supplements
our manufactured product offerings. Major customers include Ace Hardware, The
Home Depot, Lowe's, Snap-on, TruServe and W.W. Grainger, and we also sell to
over 10,000 small OEM customers and over 4,200 wholesale electrical, marine and
automotive aftermarket distributors. For the twelve months ended May 31, 2000,
Tools & Supplies generated pro forma net sales and pro forma EBITDA of $304.9
million and $64.3 million, respectively.
Tools & Supplies includes our Enerpac and GB operations. These two
businesses share core competencies in global sourcing, managing the logistics
of SKU-intensive product lines, and managing investment in inventory. Enerpac
is a leading global supplier of specialized high-force hydraulic systems and
components for the general industrial, construction and production automation
markets. For fiscal 1999, Enerpac generated approximately half of Tools &
Supplies' pro forma net sales.
The following is a summary of each of Enerpac's four major product lines:
Industrial Tools. We believe Enerpac is the leading global supplier of
high-force hydraulic industrial tools. Our industrial tool line consists of
over 2,000 products that are generally sold by industrial distributors to
customers in the construction, mining, steel mill, cement, railway and
general maintenance industries. Enerpac's products allow users to apply
controlled force and motion to increase productivity, reduce labor costs
and make work safer and easier to perform. Prices in the industrial tool
product line range from a $140 hand pump to a $40,000 synchronous lift
system. Enerpac-branded products in this segment include hydraulic
cylinders, hydraulic pumps, hydraulic presses, torque wrenches, synchronous
lift systems, strand lift systems, hydraulic and mechanical pullers and
system components.
Workholding. We believe Enerpac is one of the leading global suppliers
of workholding tools. Our products are marketed through distributors to the
production automation market. Workholding products hold parts in position
in metal cutting machine tools during the machining process. Our hydraulic
workholding products provide superior accuracy and cycle times compared to
traditional clamping methods. Enerpac's clamping devices are the main
component of our workholding systems, and are combined with power sources,
valves and control systems to provide integrated workholding solutions.
Prices range from $100 to $13,000. Growth drivers in this market include
productivity and quality improvements, increased production flexibility and
operator safety.
OEM. Enerpac's OEM product line consists of customized hydraulic
products that are sold directly to OEM customers including Caterpillar,
Hale Products (a subsidiary of IDEX), Lincoln Automotive (a subsidiary of
Pentair), Parker-Hannifin and Snap-on. Enerpac's product development staff
works closely with our OEM customers to develop hydraulic solutions for
specific applications, such as a highly customized coaxial piston pump used
in Hale Products' "Jaws of Life" rescue product.
Toolholding. We believe Enerpac is a leading global supplier of
toolholding equipment. We manufacture a broad range of toolholding products
for the production automation market, including quick mold and die change
systems and mechanical and hydraulic quick clamping systems that are used
extensively in the plastic injection molding and metal forming industries.
We believe Enerpac is recognized as having the broadest product line in the
toolholding industry and can design, deliver and install a total system for
the largest range of press sizes. Growth in this market is driven by
increased automation in most industrialized markets due to high labor
costs, higher safety regulations and demand for increased flexibility to
produce smaller lots. Our toolholding product portfolio includes mono- and
multi-couplers, mechanical and hydraulic quick clamping systems, ejector
couplers, die-lifters, die-rollers, hydraulic pump units and control
packages, mold and die change systems, inspection units and storage
systems.
We believe GB is a leading supplier of electrical tools and consumables to
the retail DIY, retail marine and retail automotive aftermarket and wholesale
electrical markets, supplying over 11,000 SKUs through a variety of
distribution channels. We believe we are a leading supplier of electrical tools
and consumables to the high growth North American retail DIY channel and
maintain excellent relationships with such leading retailers as
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<PAGE>
The Home Depot, Kmart, Lowe's, Menards and Wal-Mart. For fiscal 1999, GB
accounted for approximately half of Tools & Supplies' pro forma net sales.
GB's main product lines are summarized below:
Cable Ties, Staples, Fasteners and Wire Management. GB markets a wide
range of wire management products, including what we believe are the
strongest cable ties in the industry. We also offer a large array of other
versatile fasteners, such as staples, flexible tubing, tape, knockout
seals, reducing washers, straps and other solutions for electrical and non-
electrical markets to protect and manage wire products.
Wire Connectors, Solderless Terminals and Lugs. GB markets a broad range
of twist-on wire connectors, solderless terminals and lugs. We manufacture
approximately 700 million wire connectors each year and source solderless
terminals and lugs from a variety of domestic and Asian suppliers.
Conduit Bending and Conduit Fishing. GB's conduit bending line is a
leader in breadth and innovation, and includes manual, electric and
hydraulic benders. We also manufacture a comprehensive portfolio of wire
fishing products, including manual fish tapes, electric blowers, vacuums
and CO\\2\\ guns that are used to push and pull wire through conduit.
Handtools. GB's line of handtools includes wire strippers, pliers,
screwdrivers, cable cutters, punches, insulated tools and tool kits.
Electrical Testers and Meters. GB designs and distributes a complete
line of Underwriters' Laboratories (UL), Canadian Underwriters'
Laboratories (CUL) and Canadian Standards Association (CSA) approved test
instruments, including non-contact voltage testers, branch circuit
analyzers, and analog and digital multimeters.
Electric Wire and Cable. GB offers a broad array of wire and cable,
including general purpose primary, duplex, triplex, welding, battery,
speaker, trailer, computer, marine and telephone cables and wire in
spooled-to-order quantities.
Plugs, Sockets and Other Automotive Products. GB provides a wide variety
of plugs, sockets, trailer wiring harnesses, battery cables and booster
cables to the automotive industry under the CalTerm brand.
Other. GB offers a broad range of specialty toggle, rocker and push and
pull switches to customers through all of its distribution channels. In
addition, we offer a wide array of other products including fuses, circuit
breakers and terminal blocks.
Engineered Solutions. We believe that our Engineered Solutions segment is a
leading global designer and manufacturer of customized motion control systems
for OEMs in a variety of niche industrial markets. We work with our customers
to provide customized solutions in the RV, truck, automotive, medical,
housewares and other markets. Products include RV slide-out and leveling
systems, hydraulic cab-tilt systems for heavy-duty trucks primarily sold in
Europe and Asia, electro-hydraulic automotive convertible top actuation systems
and extruded and molded silicone products for the medical and housewares
markets. As a result of our design and engineering quality, we have earned
numerous customer awards within the past five years, including the Circle of
Excellence vendor award from Fleetwood. We have also received quality and
performance certifications from such OEM customers as Ford, Freightliner,
Oshkosh Truck and Peterbilt. We believe that the segment's principal brands,
Power-Packer, Power Gear, Mox-Med, Milwaukee Cylinder and Nielsen Sessions, are
recognized for their engineering quality, integrated custom design and
geographic reach. Engineered Solutions' customers include leading multinational
corporations such as DAF/Leyland, Fiat, Fleetwood, Mercedes-Benz, Renault,
Scania and Volvo. We believe that Engineered Solutions' reputation for
excellent engineering capabilities, global capabilities and established
customer relationships with leading OEMs are the driving forces behind our
leadership positions in several markets. For the twelve months ended May 31,
2000, Engineered Solutions generated pro forma net sales and pro forma EBITDA
of $233.4 million and $54.2 million, respectively.
Engineered Solutions main product lines are summarized below:
Power-Packer. Under this brand we manufacture hydraulic and electro-
hydraulic motion control systems for OEM applications in the truck,
automotive, medical and off-highway markets. Products
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manufactured under the Power-Packer brand include hydraulic cab-tilt
systems for heavy-duty cab-over-engine trucks, cab suspension systems,
electro-hydraulic automotive convertible top actuation systems and self-
contained hydraulic actuators for medical patient lifting and positioning
applications. Our cab-tilt systems and convertible top actuation systems
are marketed primarily to the European market. These systems are comprised
of sensors, electronic controls, hydraulic cylinders, electronic motors and
a hydraulic pump. We have recently developed and started marketing a
smaller, low-cost hydraulic cab-tilt system called the "Hy-Cab" that
replaces the torsion bars that have historically been used for cab-tilt
applications on medium sized trucks. Our patient positioning systems are
incorporated into hospital beds, stretchers, examination chairs, surgery
tables and transfer lifts.
Power Gear. Under this brand we design, manufacture and market electric-
powered slide-out systems, hydraulic leveling systems and landing gears for
the North American RV and truck markets. Slide-out systems allow RV
manufacturers to increase a room's size by telescoping a section of the
room's wall outward. These slide-out systems are fully integrated
electrical systems that provide automatic slide-out capability and are
driven by a 12-volt DC electric motor with a patented rack and gear design.
Our leveling systems typically consist of four hydraulic cylinders, a 12-
volt DC hydraulic motor pump and an electronic control system and are
capable of leveling motor homes to within three degrees of fully
horizontal. Our landing gear generally consists of two adjustable legs used
to support the front end of a semi-trailer in a level position when
disconnected from the towing vehicle.
Mox-Med. Under this brand we supply a variety of molded and extruded
silicone products for the medical devices and housewares markets. Our
silicone products are used in a wide range of applications, including drug
delivery systems, enteral feeding systems, valves and diaphragms for
diagnostic equipment, wound care, shunts and drains and various ophthalmic
applications. Our products are produced in a clean room environment using
proprietary formulations and processes either through extrusion, liquid
injection molding or injection molding technology. Our products generally
require FDA approval and, once selected, tend to last for the life of the
application.
Other Products. We also supply other niche markets with hydraulic
positioning products and industrial case hardware. Under the Milwaukee
Cylinder brand, we produce a broad range of tie-rod construction cylinders
for a wide variety of applications including automated production lines,
machine tools, machinery, boat drives and material handling. We also design
and manufacture highly specialized cylinders such as servo-actuators used
in vibration and fatigue testing. We offer a comprehensive line of case,
container and industrial hardware marketed under the Nielsen Sessions
brand. Products include a variety of hinges, latches, handles, caster
plates and accessories.
International Business
Actuant is a global business. For fiscal 1999, we derived approximately 62%
of our pro forma net sales from the United States, 29% from Europe, 5% from
Asia, 2% from South and Latin America and 2% from Canada. Our international
sales are influenced by fluctuations in exchange rates of foreign currencies,
foreign economic conditions and other factors associated with foreign trade. We
serve a global customer base and have implemented a global infrastructure for
the manufacturing, sourcing, distribution and sales of our products. Our global
scale and infrastructure enable us to meet the needs of customers with global
operations, which supports our strong relationships with many leading global
OEMs and other global customers.
Distribution and Marketing
Tools & Supplies. Tools & Supplies' products are distributed and marketed
differently within the Enerpac and GB businesses.
Enerpac sells its products through a combination of distributors, direct
sales personnel and manufacturers representatives. Enerpac's distributor
network is one of its key competitive strengths and accounted for approximately
75% of its pro forma net sales for fiscal 1999. Enerpac employs approximately
110 territory
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managers that make joint sales calls to large end-users with distributor sales
personnel, train end-user and distributor personnel on products and provide
product application expertise. Stocking distributors provide customers with
local product availability by maintaining their own inventories of Enerpac
products. An additional 20% of Enerpac's pro forma net sales for fiscal 1999
were generated through direct sales personnel who sell primarily to the OEM
markets. Enerpac's distributors, direct sales personnel and manufacturer sales
representatives use Enerpac's industrial products catalog, which is available
in more than 13 languages and enables them to reach our global customer base.
GB markets its electrical tools and supplies through an extensive
distribution network, and has established strong positions in each of its major
sales channels, including retail, distribution and direct sales.
Retail. GB utilizes a combination of internal account managers and
independent manufacturers representatives to serve its retail customers,
including home centers, specialty marine and automotive retailers, mass
merchandisers and hardware cooperatives. We believe we have developed
strong relationships with personnel in buying offices of our major retail
customers. GB's sales and marketing personnel provide significant marketing
support, including promotional planning, retail point-of-purchase materials
and displays, effective product packaging and strong merchandising.
Distribution. GB also sells its products to over 2,500 distributors
through internal sales managers dedicated to the distributor channel and
independent sales representatives. Due to the distributor channel's high
level of fragmentation, GB relies on independent manufacturers
representatives to provide ongoing customer sales and service support.
Direct. GB currently focuses the majority of its direct marketing
efforts on small manufacturing companies. Sales to this channel require no
internal field sales personnel or independent sales representatives, and
are made through a combination of catalogs, telemarketers and the Internet.
Engineered Solutions. Engineered Solutions' products are marketed
directly to OEMs through a direct technical sales organization. Most
product lines also have dedicated market managers as well as a technical
support organization. Engineered Solutions has an experienced sales force,
organized by end-market, that typically resides in the manufacturing
facilities and report to market sales leaders that are based in the primary
engineering facilities for their respective market areas. Engineered
Solutions sales personnel are highly trained and coordinate closely with
our design engineers in targeting OEM customers. Due to the products' high
degree of engineering content, sales efforts focus more on product
functionality than on price. Engineered Solutions' proven engineering
capabilities and established customer relationships are key competitive
advantages in winning new contracts.
Product Development and Engineering
We have earned a reputation for design and engineering expertise and for the
creation of highly engineered innovative products. We maintain engineering
staffs at several locations that design new products and make improvements to
existing product lines. Expenditures for research and development at our
continuing businesses were $4.2 million, $6.8 million and $3.8 million in
fiscal 1999, 1998 and 1997, respectively. We have developed several proprietary
technologies and hold over 500 patents.
Competition
We have numerous competitors in each of our markets, but we believe that we
are well positioned to compete successfully. Competition in each of our niches
is primarily composed of small, regional competitors who often lack the
infrastructure and financial resources to support global OEMs. We believe that
our global scale and infrastructure help us to build and maintain strong
relationships with major OEMs and provide a significant competitive advantage.
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Manufacturing and Operations
We manufacture the majority of our products but strategically outsource
components and finished goods from an established global network of qualified
suppliers as an important component of our strategy. Our manufacturing
operations consist primarily of light assembly operations. We also have
silicone and plastic injection molding and silicone extruding capabilities, and
automated welding and painting lines. We have implemented the single piece flow
methodology in our manufacturing plants, which reduces inventory levels, lowers
"re-work" costs and shortens lead time to customers. Components are purchased
from a variety of suppliers. We have built strong relationships with our key
suppliers over many years, and while we single source many of our components,
we believe that in most cases we have several qualified alternative sources.
Our commitment to high quality standards and sound management practices and
policies is demonstrated by our successful participation in the International
Standards Organization/Quality Standards certification process. Enerpac
locations in Columbus, Wisconsin, Glendale, Wisconsin and Veenendaal, The
Netherlands are each ISO 9000 certified. GB Canada is ISO 9002 certified.
Power-Packer's Westfield, Wisconsin plant is certified by many large suppliers
such as Ford, Oshkosh Truck, Freightliner and Peterbilt and also is ISO 9001
certified. Power-Packer's Oldenzaal, The Netherlands plant is ISO and QS 9000
certified.
In 1996 we implemented the WCP Program based on the continuous improvement
principles of the Toyota Production System at some of our locations, and
introduced this program to all remaining locations during fiscal 1998 and 1999.
This program utilizes many different methods to improve operations, including
the adoption of one piece flow manufacturing methodologies, Kanban material
replenishment systems, standardizing operating procedures and rationalizing
both product lines and suppliers. We have adopted Kanban methodology because we
believe it is a more efficient way to manage inventory that results in improved
visibility of on-hand quantities as well as lower overall inventory levels.
One of the methods we use most frequently to make improvements is a "Kaizen
event." Kaizen is a Japanese term for continuous improvement. Cross-functional
teams are assembled to participate in a Kaizen event, usually for a few days to
a week, to focus on a particular process. The Kaizen team will typically focus
on specific measurement standards, such as quality, cycle time, staffing,
floor-space and inventory quantities, with the goal of improving on the
standards. We have employees at each major location dedicated to leading Kaizen
events. In fiscal 1999 we conducted over 100 Kaizen events throughout our
locations, realizing significant improvements in fill rates, just-in-time
deliveries, total preventive maintenance, machine set-up time and inventory
replenishment cycles for the participating teams. Typical results from the
Kaizen events have included labor savings, inventory reduction, and floor space
reductions of at least 10%, with improvements after some individual events of
50% or more. We have nearly 150 Kaizen events scheduled in fiscal 2000, and our
future plans include the performance of at least one Kaizen event per month at
most manufacturing and distribution locations.
These initiatives, in conjunction with our other efforts to streamline
costs, including rationalizing low profit margin and unprofitable SKUs, product
lines and customers, have resulted in substantial cost reductions, improvements
in asset utilization and EBITDA margins, greater manufacturing efficiencies and
improved quality. This is illustrated by our reduction in primary working
capital as a percentage of net sales, as adjusted to exclude the Non-continuing
Businesses, from 41.9% for fiscal 1997 to 26.2% for fiscal 1999.
Employees
As of May 31, 2000, we employed approximately 2,440 people, as adjusted to
exclude the Non-continuing Businesses. Our employees are not subject to
collective bargaining agreements with the exception of approximately 80
Milwaukee Cylinder production employees and employees covered by government-
mandated
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collective labor agreements in some international locations. We believe that we
enjoy good working relationships with our employees.
<TABLE>
<CAPTION>
Region Employees
------ ---------
<S> <C>
United States and Canada.... 1,392
Europe...................... 673
Latin and South America..... 229
Asia-Pacific................ 146
-----
Total................... 2,440
=====
</TABLE>
<TABLE>
<CAPTION>
Function Employees
-------- ---------
<S> <C>
Manufacturing................ 1,756
Sales and Marketing.......... 380
Corporate/Administrative..... 179
Engineering and Development.. 125
-----
Total.................... 2,440
=====
</TABLE>
Facilities
We generally lease rather than own facilities. The majority of our leases
are short-term, and are renewable at our option.
Tools & Supplies
Tools & Supplies maintains 12 manufacturing facilities throughout the United
States, Mexico, Europe and Asia-Pacific and 19 distribution facilities and
sales offices worldwide.
<TABLE>
<CAPTION>
Square Approximate
Facility feet Status Employees
-------- ------- ------ -----------
<S> <C> <C> <C>
Manufacturing
Glendale, Wisconsin.................................. 313,000 Leased 405
Columbus, Wisconsin.................................. 130,000 Leased 180
Veenendaal, The Netherlands.......................... 97,000 Leased 55
Pachuca, Mexico(1)................................... 73,000 Leased 5
San Diego, California................................ 69,000 Leased 70
Oklahoma City, Oklahoma.............................. 56,000 Leased 50
Tecate, Mexico....................................... 54,000 Leased 125
Troyes, France....................................... 42,000 Leased 50
Alexandria, Minnesota................................ 25,000 Owned 60
Cotati, California................................... 20,000 Leased 35
Taipei, Taiwan....................................... 19,000 Leased 60
Shanghai Waigaogiao, China........................... 9,000 Leased 20
Distribution and Sales
Reno, Nevada......................................... 55,000 Owned 20
Tokyo, Japan(1)...................................... 39,000 Leased 25
Charlotte, North Carolina............................ 36,000 Leased 25
Sydney, Australia.................................... 23,000 Leased 20
Corsico (Milano), Italy.............................. 18,000 Owned 20
Seoul, South Korea(1)................................ 18,000 Leased 10
Mississauga, Ontario, Canada......................... 18,000 Leased 15
Lancaster, Pennsylvania.............................. 16,000 Leased 15
Dusseldorf, Germany.................................. 15,000 Leased 20
Singapore............................................ 15,000 Leased 25
Scranton, Pennsylvania............................... 13,000 Leased 5
Atlanta, Georgia..................................... 13,000 Leased 5
Ontario, California.................................. 12,000 Leased 5
Massey (Paris), France(1)............................ 9,000 Leased 20
Redditch, Worcester, UK.............................. 6,000 Leased 15
Vashi, New Mumbai (Bombay), India.................... 6,000 Owned 8
Shanghai, China...................................... 3,000 Leased 15
Hong Kong............................................ 1,000 Leased 2
Madrid, Spain........................................ 1,000 Leased 5
</TABLE>
--------
(1) Shared between Tools & Supplies and Engineered Solutions.
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<PAGE>
Tools & Supplies also leases a 37,000 square foot manufacturing facility in
Mobile, Alabama and a 68,000 square foot office building in Butler, Wisconsin
that are vacant and currently listed for sublease.
Engineered Solutions
Engineered Solutions maintains ten manufacturing facilities throughout North
America, Europe and Asia-Pacific and four distribution and sales facilities.
<TABLE>
<CAPTION>
Square Approximate
Facility feet Status Employees
-------- ------- ------ -----------
<S> <C> <C> <C>
Manufacturing
Oldenzaal, The Netherlands........................... 126,000 Leased 400
Pachuca, Mexico(1)................................... 73,000 Leased 30
Cudahy, Wisconsin.................................... 73,000 Owned 115
Hartford, Connecticut................................ 65,000 Owned 115
Portage, Wisconsin................................... 56,000 Owned 150
Westfield, Wisconsin................................. 40,000 Owned 50
Beaver Dam, Wisconsin................................ 38,000 Owned 60
Akishar, Turkey...................................... 25,000 Owned 40
Seoul, South Korea(1)................................ 18,000 Leased 13
Salem, Oregon........................................ 16,000 Leased 12
Distribution and Sales
Tokyo, Japan(1)...................................... 39,000 Leased 40
Massey (Paris), France(1)............................ 9,000 Leased 5
Chino, California.................................... 7,000 Leased 1
Torrijos, Toledo, Spain.............................. 1,000 Leased 2
</TABLE>
--------
(1) Shared between Tools & Supplies and Engineered Solutions.
Engineered Solutions also leases a 38,000 square foot building in Butler,
Wisconsin, which is currently sublet.
Legal Proceedings
Applied Power is party to various legal proceedings that have arisen in the
normal course of business. These legal proceedings typically include product
liability, environmental, labor and patent claims. APW has assumed liability
with respect to, and will indemnify Actuant against, those proceedings
involving the Electronics Business, while Actuant retains liability with
respect to, and will indemnify APW against, those proceedings involving the
Industrial Business.
We self-insure a portion of our product liability by maintaining a retention
provision under our insurance program. We have recorded reserves for estimated
losses based on the specific circumstances of each case. Such reserves are
recorded when it is probable that a loss has been incurred as of the balance
sheet date and the amount of the loss can be reasonably estimated. In our
opinion, the resolution of these contingencies is not likely to have a material
adverse effect on our financial condition, results of operation or cash flows.
Environmental Matters
Our operations, like those of similar businesses, are subject to federal,
state, local and foreign laws and regulations relating to protection of the
environment, including those regulating discharges of hazardous materials into
the air and water, the storage and disposal of such materials, and clean-up of
soil and groundwater contamination. Pursuant to certain environmental laws, a
current or prior owner or operator of a site may be liable for the cost of
investigation and remediation of contamination, and persons who arrange for
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disposal or treatment of hazardous materials may be liable for such costs at a
disposal or treatment site, whether or not the person owned or operated it.
These laws impose strict, and under certain circumstances, joint and several
liability.
We believe we are in compliance with applicable environmental laws.
Compliance with these laws has and will require expenditures on an ongoing
basis. We and our subsidiaries have been identified by regulators as
potentially responsible parties regarding remediation of several multi-party
waste sites. Based on our investigations, we believe that we are at most a de
minimis participant in those sites. In addition, soil and groundwater
contamination has been identified at a few facilities which we operate or
formerly owned or operated. We are also a party to several state and local
environmental matters, including a consent order requiring installation of air
pollution control equipment at a facility in Massachusetts, and we provided
environmental indemnities in connection with the Divestitures, so we retain
responsibility for certain of their actual or potential environmental
liabilities.
Environmental expenditures over the last three years have not been material,
and we believe that the costs for known environmental matters are not likely to
have a material adverse effect on our financial position, results of operations
or cash flows. Nevertheless, more stringent environmental laws, unanticipated,
burdensome remedy requirements as more vigorous enforcement policies, or
discovery of previously unknown conditions, could have a material adverse
effect upon our financial condition and results of operations.
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MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Directors
Richard G. Sim, Chairman. Mr. Sim was elected President and Chief Operating
Officer of Applied Power Inc. in 1985, Chief Executive Officer in 1986 and
Chairman of the Board in 1988. He served in those positions until the
Distribution occurred and still serves as Chairman of the Board. From 1982
through 1985, Mr. Sim was a General Manager in the General Electric Medical
Systems Business Group. He is also a director of IPSCO Inc. and Oshkosh Truck
Corporation. Mr. Sim was employed by Applied Power from 1985 through the date
of the Distribution, which was July 31, 2000.
Robert C. Arzbaecher, Director. Following the Distribution, Mr. Arzbaecher
became President and Chief Executive Officer of Actuant. Prior to the
Distribution Mr. Arzbaecher was Senior Vice President of Applied Power Inc.
Previously Mr. Arzbaecher was Vice President and Chief Financial Officer of
Applied Power Inc. from 1997 to 1998.
Gustav H.P. Boel, Director. Mr. Boel served as Senior Vice President of
Applied Power Inc., acting as leader of APW's Asian and European Electronics
Business, until the Distribution occurred. Prior to this role, he held the
position of Leader of the Industrial Business since May 1999. Prior thereto, he
held a number of leadership positions with Applied Power covering a span of 25
years. Mr. Boel became a director of Actuant as of the date of the
Distribution.
Bruce Chelberg, Director. Mr. Chelberg has been Chairman and Chief Executive
Officer of Whitman Corporation since 1992 and became a director of Actuant as
of the date of the Distribution.
Richard Crowther, Director. Mr. Crowther is the retired Vice Chairman of
Illinois Tool Works Inc., a manufacturer of engineered components and systems.
He has been a director of Applied Power Inc. since 1995.
Richard Kashnow, Director. Mr. Kashnow is an Executive Vice President of
Tyco International Ltd., a diversified industrial company. Previously, he
served as Chief Executive Officer of Raychem Corporation. He has been a
director of Applied Power Inc. since 1993.
Bill Sovey, Director. Mr. Sovey is Chairman of Newell Rubbermaid Inc., a
multinational manufacturer and marketer of branded consumer products and became
a director of Actuant as of the date of the Distribution.
Executive Officers
The following individuals became executive officers of Actuant as of the
date of the Distribution:
Robert C. Arzbaecher, Chief Executive Officer. Mr. Arzbaecher was named Vice
President and Chief Financial Officer of Applied Power in 1994 and Senior Vice
President in 1998. He served as Vice President, Finance of Tools and Supplies
from 1993 to 1994. He joined Applied Power Inc. in 1992 as Corporate
Controller. From 1988 through 1991, Mr. Arzbaecher was employed by Grabill
Aerospace Industries LTD, where he last held the position of Chief Financial
Officer.
Andrew G. Lampereur, Chief Financial Officer. Mr. Lampereur joined Applied
Power Inc. in 1993 as Corporate Controller, a position he held until 1996 when
he was appointed Vice President of Finance for GB. In 1998, Mr. Lampereur was
appointed Vice President, General Manager for GB. In 1999, he served as the
business development and special projects leader for Applied Power. Prior to
joining Applied Power Inc., Mr. Lampereur was the Corporate Controller of
Fruehauf Trailer Corporation and held a number of financial management
positions at Terex Corporation.
Terry M. Braatz, Treasurer. Mr. Braatz joined Applied Power Inc. in this
position in 2000. Prior to joining Applied Power Inc., he held various
financial management positions at Johnson Controls, Inc. from 1979 to 2000,
including Manager, Internal Treasury and Manager, Corporate Finance.
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Dawn M. Doering, Corporate Controller. Ms. Doering joined Applied Power Inc.
as Manager of Corporate Accounting in 1995, a position she held until 1998.
From 1998 until 1999, Ms. Doering held the position of Financial Controller for
the Tools and Supplies--Americas division. Recently, Ms. Doering has held the
position of Financial Planning and Analysis for the Industrial Business. Prior
to joining Applied Power Inc., she worked for the public accounting firm of
Deloitte & Touche LLP.
Todd Hicks, Leader of Enerpac. Mr. Hicks has held a variety of marketing and
sales positions with Enerpac prior to being promoted to his current position in
1999. He previously worked for General Electric in a number of marketing
positions prior to joining Applied Power.
Joe Kampschroer, Leader of GB. Mr. Kampschroer joined GB in 1982 prior to
its acquisition by Applied Power, and has been involved in the development and
growth of its retail channel. Prior to being appointed to his current position
in 1999, he served as Vice President of Sales and Marketing--GB.
Ralph Keller, Global Operations Leader. Mr. Keller joined our Industrial
Business in 1999 in his present position. Prior to joining Applied Power Inc.
he held senior operating positions in multinational organizations with
international operations, most recently with Whitecap, Inc., a subsidiary of
Schmalbach Lubeca AG.
Arthur Kerk, Leader of Engineered Solutions--Europe and Asia. Mr. Kerk
joined our Industrial Business in 1995 as Commercial Director of Power-Packer
Europe. A resident of The Netherlands, he was promoted to Managing Director of
Power-Packer Europe in 1996, and subsequently was appointed as Leader of
Engineered Solutions--Europe in 1997. Prior to joining our Industrial Business
he worked in sales management at Conex Union and as Managing Director of
McKechnie in The Netherlands.
Brian Kobylinski, Distribution and OEM Business Leader. Mr. Kobylinski was
recently appointed leader of the distribution and OEM channels of GB. Prior
thereto, he served as leader of GB's Del City operation, GB's Vice President of
Marketing and Director of OEM sales. Prior to joining Applied Power Inc. in
1992, Mr. Kobylinski held various sales positions in the insurance industry.
Joe O'Connor, Jr., Global Human Resources Leader. Mr. O'Connor joined
Applied Power Inc. in 1999 in his present position. Prior to joining Applied
Power Inc., he held similar human resource roles in a number of multinational
organizations, including subsidiaries of Pfizer and Monsanto.
Jerry Peiffer, Leader of Engineered Solutions--Americas. Mr. Peiffer joined
our Industrial Business in 1997 when Applied Power acquired Versa Technologies.
Mr. Peiffer worked at Versa Technologies since 1994, serving as the leader of
its Power Gear business. He worked in a number of positions including sales
engineering, operations and general management for three companies over a 23
year span prior to joining Versa Technologies, including Generac, McQuay-
Perfex, Inc. and Hein Werner Corporation.
Anthony W. Asmuth III, Secretary. Mr. Asmuth is a partner in the law firm of
Quarles & Brady LLP, Milwaukee, Wisconsin, having joined that firm in 1989.
Quarles & Brady performs legal services for Applied Power and certain of its
subsidiaries, including APW Ltd. Mr. Asmuth had previously served as Secretary
of Applied Power from 1986 to 1993 and from 1994 to present.
Stock Ownership
The following table sets forth, as of August 10, 2000 unless otherwise
indicated, certain information with respect to the beneficial ownership of
Actuant common stock by each director, by each executive officer of Actuant
after the Distribution named in the Summary Compensation Table below and by
Actuant's executive officers and directors as a group. To our knowledge, there
are no beneficial owners of more than 5% of our common stock. The following
table includes all options held by such persons currently exercisable within 60
days. In connection with the Distribution, the options held by Mr. Sim and Mr.
Boel were converted into APW Ltd. options. The Distribution also gave rise to
an adjustment for the Applied Power Inc. options retained by its
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continuing employees and directors to prevent dilution or enlargement of rights
as a result of the Distribution by both increasing the number of options and
decreasing the exercise price per share. The following table gives effect to
those adjustments for the Distribution.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class
---------------- ----------------------- --------
<S> <C> <C>
Richard G. Sim.......................... 614,157(2) 1.6%
Robert C. Arzbaecher.................... 1,112,704(3) 2.8
Gustav H.P. Boel........................ 10,597(4) *
Bruce Chelberg.......................... 10,000 --
Richard Crowther........................ 107,000(5) *
Richard Kashnow......................... 159,000(6) *
Bill Sovey.............................. 0 --
Andrew G. Lampereur..................... 299,551(7) *
Joseph Kampschroer...................... 223,546(8) *
Arthur Kerk............................. 110,163(9) *
Jerry Peiffer........................... 63,473(10) *
All executive officers and directors as
a group
(18 persons)........................... 3,343,814(11) 8.3%
</TABLE>
--------
* Less than 1%.
(1) Unless otherwise noted, the specified persons have sole voting power
and/or dispositive power over the shares shown as beneficially owned.
(2) Includes 5,030 shares allocated to Mr. Sim's Applied Power 401(k) Savings
Plan ("Savings Plan") account and 18,710 shares held by a custodian for
Mr. Sim's children (with respect to which Mr. Sim disclaims beneficial
ownership). Excludes deferred shares received upon exercise of options in
1998, 1999 and 2000 pursuant to Applied Power Inc.'s option deferral
program which represent the right to receive an equivalent number of
shares of our common stock at the end of the deferral period which APW
Ltd. assumed.
(3) Includes options to purchase 757,000 shares exercisable currently or
within 60 days, 4,080 shares allocated to Mr. Arzbaecher's Savings Plan
account, 3,000 shares owned by Mr. Arzbaecher's spouse and 2,750 shares
held by a custodian for Mr. Arzbaecher's minor children (with respect to
which Mr. Arzbaecher disclaims beneficial ownership).
(4) Includes 2,317 shares allocated to Mr. Boel's Savings Plan account.
(5) Includes options to purchase 104,000 shares exercisable currently or
within 60 days.
(6) Includes options to purchase 156,000 shares exercisable currently or
within 60 days.
(7) Includes options to purchase 194,350 shares exercisable currently or
within 60 days and 4,294 shares allocated to Mr. Lampereur's Savings Plan
account.
(8) Includes options to purchase 169,650 shares exercisable currently or
within 60 days and 2,989 shares allocated to Mr. Kampschroer's Savings
Plan account.
(9) Includes options to purchase 58,500 shares exercisable currently or within
60 days.
(10) Includes options to purchase 13,000 shares exercisable currently or within
60 days and 211 shares allocated to Mr. Peiffer's Savings Plan account.
(11) Includes options to purchase 1,483,050 shares exercisable currently or
within 60 days, 23,358 shares allocated to executive officers' Savings
Plan accounts, 239,452 shares held by certain trusts with respect to which
certain officers have voting and dispositive power and 18,710 shares owned
by family members of the directors and executive officers (beneficial
ownership of which is, in certain instances, disclaimed).
The beneficial ownership information set forth above is based on information
furnished by the specified persons or known to us and is determined in
accordance with Rule 13d-3 under the Securities Exchange Act. It is not
necessarily to be construed as an admission of beneficial ownership for other
purposes.
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Summary Compensation Table
The following table sets forth compensation awarded to, earned by or paid to
Applied Power Inc.'s current and former Chief Executive Officer and each of
Applied Power Inc.'s other four most highly compensated executive officers or
former officers for services rendered to Applied Power ("named executive
officers"). Also included in the table is comparable compensation information
for those individuals for fiscal 1998 and 1997.
Management Prior to Distribution
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------------- -------------------------
Securities
Underlying All Other
Name and Principal Other Annual Options/SARs Compensation
Position Year Salary Bonus Compensation(1) (#)(2) ($)(3)
------------------ ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Sim
Chairman, President and
Chief Executive
Officer................ 1999 $662,977 $120,000 -0- 100,000 $18,640
Chairman, President and
Chief Executive
Officer................ 1998 491,724 611,250 -0- 50,000 17,840
Chairman, President and
Chief Executive
Officer................ 1997 433,000 372,000 -0- 72,000 18,190
William J. Albrecht
Senior Vice President--
Electronics(4)......... 1999 $290,964 $ 75,600 $ 5,796 90,000 $17,720
Senior Vice President
of Engineered
Solutions.............. 1998 227,692 229,200(5) -0- 14,800 16,920
Senior Vice President
of Engineered
Solutions.............. 1997 218,330 219,120 -0- 25,600 17,271
Robert C. Arzbaecher
Senior Vice President
and Chief Financial
Officer(6)............. 1999 $263,073(7) $ 30,000(7) $ 7,498 30,000 $11,761
Vice President and
Chief Financial
Officer................ 1998 189,231(7) 163,000(7) 3,787 13,200 10,961
Vice President and
Chief Financial
Officer................ 1997 175,834(7) 120,000(7) 389 18,200 11,311
Gustav H.P. Boel
Senior Vice President--
Industrial(8).......... 1999 $243,078 $155,000 -0- 64,000 $20,581
Vice President;
President of Enerpac... 1998 191,442 180,000 -0- 13,200 19,781
Vice President;
President of Enerpac... 1997 193,334 24,000 -0- 20,000 14,275
Philip T. Burkart(9)
Senior Vice President;
Co-President of
Enclosure Products and
Systems................ 1999 $252,305(10) $144,073(10) $12,737 26,000 $27,700
Senior Vice President;
President of Technical
Environments and
Enclosures............. 1998 228,462(10) 39,120(10) 8,095 24,800 13,224
Vice President;
President of Wright
Line Inc............... 1997 173,000(10) 122,275(10) 814 20,000 13,574
</TABLE>
83
<PAGE>
--------
(1) Consists entirely of interest paid on the Applied Power Inc. Deferred
Compensation Plan (the "Deferred Plan").
(2) Consists entirely of stock options.
(3) The 1999 amounts represent: (a) Applied Power Inc.'s Savings Plan matching
contributions as follows: Mr. Sim--$2,625, Mr. Albrecht--$2,625, Mr.
Arzbaecher--$2,625, Mr. Boel--$2,625 and Mr. Burkart--$0; (b) Applied
Power Inc. allocations under the Savings Plan as follows: Mr. Sim--$4,800,
Mr. Albrecht--$4,800, Mr. Arzbaecher--$4,800, Mr. Boel--$4,800 and Mr.
Burkart--$0; and (c) premiums paid by Applied Power Inc. for split-dollar
life insurance as follows: Mr. Sim--$11,215, Mr. Albrecht--$10,295, Mr.
Arzbaecher--$4,336, Mr. Boel--$13,156 and Mr. Burkart--$6,599. In
addition, Mr. Burkart's 1999 amount includes $10,769 of severance payments
related to his resignation in August 1999, and $10,332 of moving expenses
paid for by Applied Power Inc.
(4) Effective November 3, 1998, Mr. Albrecht's title was changed to Senior
Vice President and in May 1999, Mr. Albrecht became Senior Vice
President--Electronics.
(5) 1998 includes $114,708 of bonus, payment of which has been deferred
pursuant to the Deferred Plan.
(6) Effective November 3, 1998, Mr. Arzbaecher was promoted to the office of
Senior Vice President and Chief Financial Officer.
(7) 1999 includes $26,307 of salary and $7,500 of bonus, payment of which has
been deferred pursuant to the Deferred Plan.
1998 includes $18,923 of salary and $40,750 of bonus, payment of which has
been deferred pursuant to the Deferred Plan.
1997 includes $15,600 of salary and $30,000 of bonus, payment of which has
been deferred pursuant to the Deferred Plan.
(8) Effective November 3, 1998, Mr. Boel's title was changed to Vice President
and in May 1999, Mr. Boel became Senior Vice President--Industrial.
(9) Mr. Burkart resigned in August 1999.
(10) 1999 includes $54,461 of salary, payment of which has been deferred
pursuant to the Deferred Plan.
1998 includes $45,692 of salary and $19,580 of bonus, payment of which has
been deferred pursuant to the Deferred Plan.
1997 includes $32,954 of salary and $61,137 of bonus, payment of which has
been deferred pursuant to the Deferred Plan.
84
<PAGE>
The following table sets forth compensation awarded to, earned by or paid to
Applied Power Inc.'s anticipated Chief Executive Officer and each of Applied
Power Inc.'s other four most highly compensated executive officers for services
rendered to Applied Power ("named executive officers") assuming the
Distribution. Also included in the table is comparable compensation information
for those individuals for fiscal 1998 and 1997.
Management After Distribution
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------------------------- -------------------------
Securities
Underlying All Other
Name and Principal Other Annual Options/SARs Compensation
Position Year Salary Bonus Compensation(1) (#)(2) ($)(3)
------------------ ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Arzbaecher.... 1999 $263,073(5) $ 30,000(5) $7,498 30,000 $11,761
Senior Vice President 1998 189,231(5) 163,000(5) 3,787 13,200 10,961
and
Chief Financial Officer 1997 175,834(5) 120,000(5) 389 18,200 11,311
(President andChief
Executive Officer
effective on the
Distribution Date)(4)
Andrew G. Lampereur..... 1999 $146,346 $ 55,031(6) $2,912 4,000 $13,711
Chief Financial Officer 1998 122,692(6) 50,148 443 2,500 10,085
1997 112,715 10,000 -0- 4,600 6,000
Joseph Kampschroer...... 1999 $125,923 $ 45,056 -0- 3,000 $12,062
Leader of Gardner
Bender 1998 122,615 27,573 -0- 2,000 10,157
1997 118,000 -0- -0- 3,700 5,026
Arthur Kerk............. 1999 $120,300 $ 42,100 -0- 6,000 $20,740
Leader of Engineered 1998 114,000 34,200 -0- 3,000 16,055
Solutions--Europe and 1997 107,900 16,180 -0- 4,600 17,470
Asia
Jerry Peiffer........... 1999 $130,000 $ 69,387 -0- 5,000 $17,773
Leader of Engineered 1998 100,650 43,576 -0- 2,000 9,150
Solutions--Americas(7)
</TABLE>
--------
(1) Consists entirely of interest paid on the Deferred Plan.
(2) Consists entirely of stock options.
(3) The 1999 amounts represent: (a) Applied Power Inc.'s Savings Plan matching
contributions as follows: Mr. Arzbaecher--$2,625; Mr. Lampereur--$2,625;
Mr. Kampschroer--$2,463; and Mr. Peiffer--$2,625; (b) Applied Power Inc.
allocations under the Savings Plan as follows: Mr. Arzbaecher--$4,800;
Mr. Lampereur--$4,800; Mr. Kampschroer--$4,604; and Mr. Peiffer--$4,800;
(c) premiums paid by Applied Power Inc. for split-dollar life insurance for
Mr. Arzbaecher--$4,336; (d) auto allowance Mr. Lampereur--$6,286;
Mr. Kampschroer--$4,995; Mr. Kerk--$2,700; and Mr. Peiffer--$10,348 and (e)
pension and disability plan Mr. Kerk--$18,040.
(4) Effective November 3, 1998, Mr. Arzbaecher was promoted to the office of
Senior Vice President and Chief Financial Officer and effective on the
Distribution Date he will become President and Chief Executive Officer.
(5) Amounts for 1999 include $26,307 of salary and $7,500 of bonus, payment of
which has been deferred pursuant to the Deferred Plan.
Amounts for 1998 include $18,923 of salary and $40,750 of bonus, payment of
which has been deferred pursuant to the Deferred Plan.
Amounts for 1997 include $15,600 of salary and $30,000 of bonus, payment of
which has been deferred pursuant to the Deferred Plan.
(6) Amounts for 1999 include $55,031 of bonus, payment of which has been
deferred pursuant to the Deferred Plan. Amounts for 1998 include $45,000 of
salary, payment of which has been deferred pursuant to the Deferred Plan.
(7) In conjunction with the acquisition of Versa/Tek, began employment in 1998.
85
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth information concerning stock option grants
during the last fiscal year to the named executive officers. No stock
appreciation rights ("SAR") were granted in fiscal 1999.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(3)
------------------------------------- -------------------------------------
Percent of
Total
Number of Options/SARs
Securities Granted to
Underlying Employees in Exercise
Options/SARs Fiscal or Base Expiration
Name Granted(#) Year(1) Price($/Sh) Date(2) 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Sim.......... 100,000 15.5% $27.719 11/03/08 $1,743,200 $4,417,600
William J. Albrecht..... 30,000 4.6% 27.719 11/03/08 522,960 1,325,280
60,000 9.3% 24.6875 06/01/09 931,550 2,360,731
Robert C. Arzbaecher.... 30,000 4.6% 27.719 11/03/08 522,960 1,325,280
Gustav H.P. Boel........ 24,000 3.7% 27.719 11/03/08 418,376 1,060,247
40,000 6.2% 24.6875 06/01/09 621,033 1,573,821
Philip T. Burkart(4).... 26,000 4.0% 27.719 -- (4) -- (4) -- (4)
</TABLE>
Management Prior to Distribution
--------
(1) Based on stock option grants for an aggregate of 646,230 shares made to all
employees of Applied Power during fiscal 1999.
(2) Unless earlier terminated, options expire ten years from the date of grant
and generally become exercisable as to half of the shares granted two years
after the date of grant and fully exercisable five years after the date of
grant. In the event of a change-in-control of Applied Power Inc., the
Compensation Committee may either provide for equivalent substitute options
to be granted to the optionees or a cash-out of the options based on the
highest fair market value per share of Applied Power Inc. common stock
during the 60-day period immediately preceding the change-in-control.
Optionees who earn more than $100,000 per year may elect to defer receipt
of option shares upon exercise of an option. Throughout the deferral
period, the deferred shares are credited with "deemed dividends" at the
same rate as dividends paid on Applied Power Inc. common stock. At the end
of the deferral period, such accumulated cash dividend equivalent amounts
are converted into shares of common stock and distributed with the shares
of common stock issued to settle the optionee's deferred share account.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the SEC and are not intended to
forecast possible future appreciation, if any, of the common stock price.
(4) Mr. Burkart resigned in August 1999, and as a result, this unvested stock
option grant was canceled.
The following table sets forth information concerning stock option grants
during the last fiscal year to the named executive officers. The footnotes
include data adjusted for the Distribution. No stock appreciation rights
("SARs") were granted in fiscal 1999.
Management After Distribution
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------
Value at Assumed
Percent of Total Annual Rates of
Number of Options/SARs Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term(5)
Options/SARs in Fiscal Price Expiration -------------------
Name Granted(1) Year(2) ($/Sh)(3) Date(4) 5%($) 10%($)
---- ------------ ---------------- --------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Arzbaecher.... 30,000 4.6% $27.719 11/03/08 $522,960 $1,325,280
Andrew G. Lampereur..... 4,000 .6% 27.719 11/03/08 69,729 176,708
Joseph Kampschroer...... 3,000 .5% 27.719 11/03/08 52,297 132,531
Arthur Kerk............. 6,000 .9% 27.719 11/03/08 104,594 265,062
Jerry Peiffer........... 5,000 .8% 27.719 11/03/08 87,162 220,885
</TABLE>
Footnotes on next page.
86
<PAGE>
Footnotes from previous page.
--------
(1) The option terms provide for adjustments under various circumstances, and
adjustments were required in connection with the Distribution to decrease
the option exercise price and to increase the number of shares underlying
the options. For employees of Actuant, the relative share prices of APW and
Actuant as of the date of the Distribution resulted in an adjustment to
permit the purchase of 13 shares of Actuant common stock for each share of
Applied Power Inc. stock covered by an outstanding option on the date of
the Distribution. Accordingly, after the adjustment resulting from the
Distribution, the numbers of securities underlying the option grants to
Messrs. Arzbaecher, Lanpereur, Kampschroer, Kerk and Peiffer were 390,000
shares, 52,000 shares, 39,000 shares, 78,000 shares and 65,000 shares,
respectively.
(2) Based on stock option grants for an aggregate of 646,230 shares of Applied
Power Inc. stock (prior to adjustments in the Distribution) made to all
employees of Applied Power during fiscal 1999.
(3) After the adjustment resulting from the Distribution, the exercise price
per share of Actuant common stock is $2.1322 for all of the options listed.
(4) Unless earlier terminated, options expire ten years from the date of grant
and generally become exercisable as to half of the shares granted two years
after the date of grant and fully exercisable five years after the date of
grant. In the event of a change in control of Applied Power Inc., the
Compensation Committee of the board of directors may either provide for
equivalent substitute options to be granted to the optionees or a cash-out
of the options based on the highest fair market value per share of our
common stock during the 60-day period immediately preceding the change in
control. Optionees who earn more than $100,000 per year may elect to defer
receipt of option shares upon exercise of an option. Throughout the
deferral period, the deferred shares are credited with "deemed dividends"
at the same rate as dividends paid on our common stock. At the end of the
deferral period, such accumulated cash dividend equivalent amounts are
converted into shares of common stock and distributed with the shares of
common stock issued to settle the optionee's deferred share account.
(5) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the SEC and are not intended to
forecast possible future appreciation, if any, of the common stock price.
These assumed values are not affected by the adjustments resulting from the
Distribution.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth information for each of the named executive
officers concerning options exercised during fiscal 1999 and the number and
value of stock options outstanding at the end of the fiscal year. No SARs are
outstanding.
Management Prior to Distribution
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Fiscal Year-End(#) Fiscal Year-End($)(2)
on Value ---------------------------- ----------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable(1) Exercisable Unexercisable(1)
---- ----------- ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Sim.......... 68,000(3) $1,498,122 875,342 239,100 $18,426,193 $1,603,700
William J. Albrecht..... 12,000(4) 256,124 166,750 132,400 3,433,166 845,030
Robert C. Arzbaecher.... 10,000(5) 188,427 49,400 71,600 913,025 538,768
Gustav H.P. Boel........ -- -- 34,500 97,700 595,906 593,213
Philip T. Burkart....... -- -- 28,150 -- (6) 462,111 -- (6)
</TABLE>
--------
(1) Represents unvested options at the end of fiscal 1999.
(2) Based on the August 31, 1999, $30.625 closing price of the common stock on
the NYSE at the end of the fiscal year.
(3) Options exercised for 68,000 shares under Applied Power Inc.'s option
deferral program. In connection therewith, Mr. Sim attested to the
ownership of 20,755 shares of common stock in lieu of delivering such
shares in payment of the option exercise price and has been allocated
47,245 deferred shares of common stock.
Footnotes continued on next page.
87
<PAGE>
Footnotes continued from previous page.
(4) Options exercised for 12,000 shares under Applied Power Inc.'s option
deferral program. In connection therewith, Mr. Albrecht attested to the
ownership of 3,964 shares of common stock in lieu of delivering such shares
in payment of the option exercise price and has been allocated 8,036
deferred shares of common stock.
(5) In connection with the exercise of 10,000 option shares, Mr. Arzbaecher
attested to the ownership of 2,956 shares of Applied Power Inc. common
stock in lieu of delivering such shares in payment of the option exercise
price and received 7,044 shares of Applied Power Inc. common stock.
(6) Mr. Burkart resigned in August 1999 and 75,800 unvested options were
canceled.
The following table sets forth information for each of the named executive
officers, assuming the Distribution, concerning options exercised during fiscal
1999 and the number and value of stock options outstanding at the end of the
fiscal year. No SARs are outstanding.
Management After Distribution
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Fiscal Year-End(#) Fiscal Year-End($)(2)
Acquired on Value ---------------------------- ----------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable(1) Exercisable Unexercisable(1)
---- ----------- ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Arzbaecher.... 10,000(3) $188,427 49,400 71,600 $913,025 $538,768
Andrew G. Lampereur..... -- -- 10,500 12,000 180,500 92,437
Joseph Kampschroer...... -- -- 13,050 8,850 248,119 64,537
Arthur Kerk............. -- -- 2,300 12,000 29,613 58,249
Jerry Peiffer........... -- -- -- 7,000 -- 14,530
</TABLE>
--------
(1) The number of unexercisable options represents unvested options at the end
of fiscal 1999. After the adjustment resulting from the Distribution, the
numbers of shares of Actuant common stock underlying the exercisable
options held by Messrs. Arzbaecher, Lanpereur, Kampschroer, Kerk and
Peiffer were 642,200 shares, 136,500 shares, 169,650 shares, 29,900 shares
and 0 shares, respectively. After the same adjustment the numbers of shares
of Actuant common stock underlying the unexercisable options were 930,800
shares, 156,000 shares, 115,050 shares, 156,000 shares and 91,000 shares,
respectively.
(2) Based on the August 31, 1999, $30.625 closing price of the common stock on
the NYSE at the end of the fiscal year.
(3) In connection with the exercise of 10,000 option shares, Mr. Arzbaecher
attested to the ownership of 2,956 shares of common stock in lieu of
delivering such shares in payment of the option exercise price and received
7,044 shares of common stock.
88
<PAGE>
DESCRIPTION OF THE ACTUANT CREDIT FACILITY
General
In connection with the Distribution, we entered into the $340.0 million
Actuant Credit Facility with a group of lenders, including Credit Suisse First
Boston, New York branch, an affiliate of Credit Suisse First Boston
Corporation, as lead arranger, administrative agent and collateral agent. The
following is a summary of the principal terms of the Actuant Credit Facility.
The Actuant Credit Facility consists of:
. the $115.0 million Tranche A Term Loan, which will mature six years
after the Distribution,
. the $125.0 million Tranche B Term Loan, which will mature eight years
after the Distribution, and
. a revolving credit facility of up to $100.0 million (previously defined
as the Revolver), which will mature six years after the Distribution,
$12.6 million of which was drawn at the Distribution.
We requested that the dollar equivalent of $30.0 million of the Tranche A
Term Loan be made in euros, so a portion of our repayment obligation (as
described below) is also denominated in euros. In addition, we may request an
additional term loan of up to $50.0 million, but only if pro forma for such
issuance our senior leverage ratio (which is described below under "Mandatory
Prepayments and Amortization") is less than 2.5:1.0 and then only if a lender
or lenders have committed to make such a loan. Any such additional loan would
have conditions no more favorable to the lender or lenders thereof than those
applicable to the Tranche B Term Loans.
Availability under the Revolver will be reduced by the aggregate amount of
all obligations of Actuant for the reimbursement of any obligor on any letter
of credit, whether drawn or undrawn, and all amounts outstanding under
Actuant's international working capital facilities. Up to $17.0 million of the
Revolver will be available for letters of credit.
We made initial borrowings under the Actuant Credit Facility substantially
contemporaneously with the Distribution. The proceeds of the loans were used to
fund a portion of the debt realignment and to pay fees and expenses relating to
the Distribution. Following the Distribution, the Revolver is available to fund
general corporate purposes and permitted acquisitions.
Mandatory Prepayments and Amortization
The Actuant Credit Facility requires us to prepay the term loans with:
. 100% of the proceeds of debt issuances (other than the additional term
loan and amounts outstanding under international working capital
facilities) if our senior leverage ratio is greater than or equal to
2.0:1.0; 50% of the proceeds of any permitted senior subordinated
securities issued after the Distribution if our senior leverage ratio is
less than 2.0:1.0; and in any event 100% of the proceeds of any accounts
receivable financing facility;
. 100% of the net proceeds of asset sales excluding an aggregate of $10.0
million in proceeds of asset sales and if, pro forma for any scheduled
asset sale, our senior leverage ratio is less than 2.0:1.0, an
additional $20.0 million in proceeds of such scheduled asset sales;
. 50% of our excess cash flow (as defined in the Actuant Credit Facility)
if our debt-to-EBITDA ratio is greater than 3.0:1.0; and
. 100% of insurance proceeds, less specified exceptions.
We must repay the Tranche A Term Loan in 24 consecutive quarterly
installments, beginning September 30, 2000. The aggregate amounts of these
installments will increase from approximately $2.5 million to approximately
$6.25 million.
89
<PAGE>
We must repay the Tranche B term loan in 32 consecutive quarterly
installments, beginning September 30, 2000. The aggregate amounts of these
installments will increase from $0.3 million to $18.7 million.
Our "senior leverage ratio" is the ratio of our consolidated indebtedness
that is not contractually subordinated to any other indebtedness to our
Consolidated EBITDA (as defined in the Actuant Credit Facility).
Security and Guarantees
All of our obligations under the Actuant Credit Facility have been or will
be unconditionally guaranteed by certain of our existing and subsequently
acquired or organized domestic subsidiaries to the full extent permitted by
law. The Actuant Credit Facility is secured to the full extent permitted by law
by a perfected first priority security interest in substantially all of our
tangible and intangible assets and each of our existing and future domestic
subsidiaries having revenues or assets equal to or greater than $5.0 million,
including all of the capital stock of each of our existing and future domestic
subsidiaries and 65% of the capital stock of each of our existing and future
foreign subsidiaries.
Covenants
Financial Covenants. The Actuant Credit Facility contains covenants
requiring us not to exceed a maximum leverage ratio, to maintain a minimum
ratio of our EBITDA to interest expense and to maintain a minimum ratio of our
EBITDA to our fixed charges (as defined in the Actuant Credit Facility), and
our capital expenditures will be limited to specified amounts for each fiscal
year.
Negative Covenants. The Actuant Credit Facility contains limitations on
dividends on, and redemptions and repurchases of, capital stock; limitations on
prepayments, redemptions or repurchases of debt; limitations on liens and sale-
leaseback transactions; limitations on loans and investments; limitations on
debt issuances (including convertible indebtedness and preferred stock of
subsidiaries); limitations on mergers, acquisitions and asset sales;
limitations on transactions with affiliates; limitations on dividend and other
restrictions affecting subsidiaries; limitations on issuance of subsidiary
capital stock; limitations on changes in business; and limitations on amendment
of debt and other material agreements. However, these limitations are subject
to a number of significant exceptions, including for permitted debt and
acquisitions.
Interest
The borrowings under the Actuant Credit Facility bear interest at a floating
rate and may be maintained as alternate base rate loans or as eurocurrency rate
loans. Alternate base rate loans will bear interest at the alternate base rate,
which is the greater of (1) the applicable prime lending rate of the
administrative agent or (2) the Federal Funds Effective Rate plus one-half of
1%, plus, in each case, the applicable margin as described below. Eurocurrency
rate loans will bear interest at the eurocurrency rate, which will be, for all
loans denominated in dollars, a rate determined by the administrative agent
based on interest on dollar deposits offered by major banks in the London
interbank (LIBOR) market and, for any of the Tranche A term loan denominated in
euros, a rate determined by the administrative agent based on published
quotations for deposits in euros, plus, in each case, the applicable margin as
described below.
The applicable margin will vary from time to time in accordance with a
pricing grid based on our debt-to-EBITDA ratio. The applicable margin with
respect to the Tranche A Term Loan and the Revolver will range from 3.0% to
1.5% for eurocurrency rate loans and 2.0% to 0.5% for alternate base rate
loans, and the applicable margin with respect to Tranche B Term Loans will
range from 4.0% to 3.5% for eurocurrency rate loans and 3.0% to 2.5% for
alternate base rate loans.
90
<PAGE>
DESCRIPTION OF THE NOTES
General
Applied Power Inc. issued the Original Notes and will issue the Exchange
Notes under an Indenture, dated as of August 1, 2000 (the "Indenture"), between
itself and Bank One Trust Company, N.A., as Trustee (the "Trustee"). The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act").
You can find definitions of certain capitalized terms used in this
description under "--Certain Definitions." For purposes of this section, the
"Company" or "we" means only Applied Power Inc. (to be renamed Actuant
Corporation) and not any of its Subsidiaries.
The following description is only a summary of certain provisions of the
Indenture and the Notes, a copy of which Indenture and the form of Notes is
available upon request to the Company at the address set forth under "Where You
Can Find More Information."
Brief Description of the Notes and the Subsidiary Guarantees
The Notes
. are unsecured senior subordinated obligations of the Company;
. are unconditionally guaranteed on a senior subordinated basis by each of
the Subsidiary Guarantors;
. are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
. are senior in right of payment to all existing and future Subordinated
Obligations of the Company; and
. in the case of the Original Notes, entitle you to the benefits of the
Registration Rights Agreement.
Subsidiary Guarantees
. are general unsecured senior subordinated obligations of each Subsidiary
Guarantor;
. are subordinated in right of payment to all existing and future Senior
Indebtedness of each Subsidiary Guarantor; and
. are senior in right of payment to all existing and future Subordinated
Obligations of each Subsidiary Guarantor.
Principal, Maturity and Interest
The Original Notes were and the Exchange Notes will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
The Notes are unsecured senior subordinated obligations of the Company,
initially issued in the aggregate principal amount of $200.0 million, and will
mature on May 1, 2009. The Notes will bear interest at the rate per annum shown
on the cover page hereof from August 1, 2000 or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders
of record at the close of business on the April 15 or October 15 immediately
preceding the interest payment date on May 1 and November 1 of each year,
commencing November 1, 2000. The Company will pay interest on overdue principal
at 1% per annum in excess of such rate, and it will pay interest on overdue
installments of interest at such higher rate to the extent lawful. Interest on
the Notes will be paid on the basis of a 360-day year comprised of twelve 30-
day months.
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The interest rate on the Original Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating
to the Registered Exchange Offer or if the registration statement is not
declared effective on a timely basis or if certain other conditions are not
satisfied, all as further described under "--Registered Exchange Offer;
Registration Rights." The Exchange Offer is intended to satisfy those
obligations, which means that the Original Notes will no longer be entitled to
increased interest.
Optional Redemption
Except as set forth below, the Notes will not be redeemable at the option
of the Company prior to May 1, 2007. Thereafter, the Notes will be redeemable,
at the Company's option, in whole or in part, at any time or from time to
time, upon not less than 30 nor more than 60 days' prior notice, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
May 1 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
2007........................................................... 102.170%
2008 and thereafter............................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 1, 2003, the
Company may redeem in the aggregate up to $70 million of Notes (35% of the
aggregate principal amount of the Original Notes issued in the private
offering of those Notes) with the proceeds of one or more Public Equity
Offerings, at a redemption price (expressed as a percentage of principal
amount) of 113%, plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided that
(1) at least $130 million of Notes (65% of the aggregate principal
amount of Notes originally issued) remains outstanding immediately after
the occurrence of each such redemption; and
(2) each such redemption occurs within 75 days after the date of the
related Public Equity Offering.
Selection and Notice of Redemption
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof
to be redeemed. We will issue a new Note in principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Subsidiary Guarantees
The obligations of the Company pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, are unconditionally
guaranteed, on an unsecured senior subordinated basis, by the Subsidiary
Guarantors.
The Subsidiary Guarantors have agreed to pay, in addition to the amount
stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee and the Holders in enforcing any rights
under the Subsidiary Guarantees with respect to the Subsidiary Guarantors.
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Each Subsidiary Guarantee will be limited to an amount not to exceed the
maximum amount that can be guaranteed by the applicable Subsidiary Guarantor,
after giving effect to all of its other contingent and fixed liabilities
(including, without limitation, any guarantees under the Credit Facility)
without rendering the Subsidiary Guarantee, as it relates to such Subsidiary
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors
generally. If any Subsidiary Guarantee were to be rendered voidable, it could
be subordinated by a court to all other indebtedness (including guarantees and
other contingent liabilities) of the relevant Subsidiary Guarantor, and,
depending on the amount of such indebtedness, the Subsidiary Guarantor's
liability on its Subsidiary Guarantee could be reduced to zero.
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any
other Person to the extent described below under "--Certain Covenants-- Merger
and Consolidation"; provided, however, that if such other Person is not the
Company or another Subsidiary Guarantor, the Subsidiary Guarantor's obligations
under its Subsidiary Guarantee must be expressly assumed by such other Person.
However, upon (a) the designation of a Subsidiary Guarantor as an Unrestricted
Subsidiary in accordance with the Indenture or (b) the sale or other
disposition (including by way of consolidation or merger) of the Capital Stock
of a Subsidiary Guarantor so that it no longer constitutes a Subsidiary, or the
sale or disposition of all or substantially all the assets, of a Subsidiary
Guarantor (in each case other than to the Company or an Affiliate of the
Company) in accordance with the Indenture, any such Subsidiary Guarantor will
be released and relieved from all its obligations under the Indenture and such
Subsidiary Guarantee shall terminate; provided, however, that if the lenders
under the Credit Facility release the guarantee of any guarantor under the
Credit Facility that is also a Subsidiary Guarantor, such Subsidiary Guarantor
will be automatically released and relieved of all of its obligations under the
Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee will
terminate; provided, further, however, if at any time after such release such
Subsidiary Guarantor again becomes a guarantor under the Credit Facility, the
Company shall cause such Subsidiary Guarantor to unconditionally guarantee on a
senior subordinated basis all of the Company's obligations under the Notes and
the Indenture to the same extent as it guarantees the Company's obligations
under the Credit Facility.
Ranking
The Indebtedness evidenced by the Notes and the Subsidiary Guarantees
constitutes senior subordinated obligations of the Company and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium, if
any, and interest on the Notes will be subordinate in right of payment to the
prior payment in full in cash of all Senior Indebtedness of the Company and the
Subsidiary Guarantors, including Applied Power's obligations under the Credit
Facility.
As of August 1, 2000, after giving effect to the Transactions, including
initial funding under the Credit Facility, the Company's consolidated Senior
Indebtedness was approximately $252.6 million and it had approximately $87.4
million of available revolving credit loans under the Credit Facility, subject
to compliance with covenants. Although the Indenture contains limitations on
the amount of additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--
Limitation on Indebtedness."
The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee
will be subordinate in right of payment to the prior payment in full in cash of
all Senior Indebtedness of such Subsidiary Guarantor, including its guaranty of
obligations under the Credit Facility. The terms of the subordination
provisions described herein with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee. Notwithstanding anything
contained herein to the contrary, neither the Trustee nor the holders of Notes
may receive or accept payments under a Subsidiary Guarantee at a time when they
are not entitled to receive payment under the Notes.
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Only Indebtedness of the Company or the Subsidiary Guarantors that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary
Guarantee in accordance with the provisions of the Indenture. The Notes and the
Subsidiary Guarantees will in all respects have the same rank as all other
Senior Subordinated Indebtedness of the Company and the Subsidiary Guarantors,
respectively, and will rank senior to all other Subordinated Obligations of the
Company and the Subsidiary Guarantors, respectively.
We have agreed in the Indenture that we will not Incur, directly or
indirectly, any Indebtedness that is contractually subordinate or junior in
right of payment to our Senior Indebtedness, unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. The Indenture does not treat unsecured
Indebtedness as subordinated or junior to Senior Indebtedness merely because it
is unsecured.
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if:
(1) any Designated Senior Indebtedness is not paid in cash when due; or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms;
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in cash. Regardless of the foregoing, we are permitted to pay the
Notes if we and the Trustee receive written notice approving such payment from
Representatives of the respective Designated Senior Indebtedness with respect
to which either of the events set forth in clause (1) or (2) above has occurred
and is continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) above) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or after the expiration of any applicable grace periods, we are
not permitted to make a payment on the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to us) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter. The Payment
Blockage Period will end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and to us from the Person or
Persons who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured,
waived or no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
paid in full in cash.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, we are
permitted to resume paying the Notes after the end of such Payment Blockage
Period. The Notes shall not be subject to more than one Payment Blockage Period
in any consecutive 360-day period irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period and no known
default (other than a payment default) that existed upon the commencement of a
Payment Blockage Period (whether or not such event of default is on the same
issue of Designated Senior Indebtedness) shall be made the basis for the
commencement of any other Payment Blockage Period, unless such default has been
cured or waived for a period of not less than 90 consecutive days subsequent to
the commencement of such initial Payment Blockage Period.
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Upon any payment or distribution of the assets of either the Company or any
Subsidiary Guarantor or its property upon a total or partial liquidation or
dissolution or reorganization of or similar proceeding relating to either the
Company or any Subsidiary Guarantor or its property:
(1) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash of such Senior Indebtedness before the holders of
the Notes are entitled to receive any payment;
(2) until the Senior Indebtedness is paid in full in cash, any payment
or distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of such
Senior Indebtedness as their interests may appear; and
(3) if a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment or distribution of the Notes is accelerated because of an Event
of Default, we or the Trustee shall promptly notify the holders of Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
If any Designated Senior Indebtedness is outstanding at the time of such
acceleration, neither the Company nor any Subsidiary Guarantor may pay the
Notes until five Business Days after the Representatives of all the issues of
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the Indenture otherwise permits payment
at that time.
No provision contained in the Indenture or the Notes will affect our
obligation, which is absolute and unconditional, to pay the Notes when due. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any holder to pursue any other rights or remedies with
respect to the Notes.
By reason of the subordination provisions contained in the Indenture, in the
event of a liquidation or insolvency proceeding, creditors of the Company or a
Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a
Subsidiary Guarantor may recover more, ratably, than the holders of the Notes,
and creditors of the Company or a Subsidiary Guarantor who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
Book-Entry, Delivery and Form
We initially issued the Original Notes, and we will initially issue the
Exchange Notes, in the form of one or more global notes (the "Global Note").
The Global Note will be deposited with or on behalf of, the Trustee as
custodian for DTC and registered in the name of a nominee of DTC. The Global
Note with respect to the Original Notes (and any Original Notes issued in
exchange therefor) will be subject to certain restrictions on transfer set
forth therein and will bear the legend regarding such restrictions set forth
under "Transfer Restrictions." Except as set forth below, the Global Note may
be transferred, in whole and not in part, only to DTC or another nominee of
DTC. You may hold your beneficial interests in the Global Note directly through
DTC if you have an account with DTC or indirectly through organizations which
have accounts with DTC.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and "a clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby
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eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (which may include the
initial purchasers), banks, trust companies, clearing corporations and certain
other organizations. Access to DTC's book-entry system is also available to
others such as banks, brokers, dealers and trust companies (collectively, the
"indirect participants") that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
We expect that pursuant to procedures established by DTC, upon the deposit
of the Global Note with DTC, DTC will credit, on its book-entry registration
and transfer system, the principal amount of Notes represented by such Global
Note to the accounts of participants. The accounts to be credited shall be
designated by the initial purchaser. Ownership of beneficial interests in the
Global Note will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in the Global Note will
be shown on, and the transfer of those ownership interests will be effected
only through, records maintained by DTC (with respect to participants'
interests), the participants and the indirect participants (with respect to the
owners of beneficial interests in the Global Note other than participants). The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial interests in the
Global Note.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole legal owner and holder of any related Notes represented by such Global
Note for all purposes under the Indenture and the Notes. In addition, as a
beneficial owner of an interest in a Global Note, you will not be able to
transfer that interest except in accordance with the applicable procedures of
DTC and, if applicable, Morgan Guaranty Trust Company of New York, as operator
of the Euroclear system ("Euroclear") (in addition to those under the Indenture
referred to herein, see "Transfer Restrictions"). Except as set forth below, as
an owner of a beneficial interest in the Global Note, you will not be entitled
to have the Notes represented by the Global Note registered in your name, will
not receive or be entitled to receive physical delivery of certificated Notes
and will not be considered to be the owner or holder of any Notes under the
Global Note. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the Global Note desires to take any action
that DTC, as the holder of the Global Note, is entitled to take, DTC would
authorize the participants to take such action, and the participants would
authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them.
We will make payments of principal of, premium, if any, and interest on the
Notes represented by the Global Note registered in the name of and held by DTC
or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the Global Note. Neither we, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note as shown on the records of
DTC or its nominee. We also expect that payments by participants or indirect
participants to owners of beneficial interests in the Global Note held through
such participants or indirect participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants or indirect participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the Global Note for any Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or indirect participants or the relationship
between such participants or indirect participants and the owners of beneficial
interests in the Global Note owning through such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear will be effected in the ordinary way in
accordance with its rules and operating procedures.
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DTC has advised us that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Note is credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such participant
or participants has or have given such direction. However, if there is an Event
of Default under the Notes, DTC will exchange the Global Note for Certificated
Notes which it will distribute to its participants and which will be legended
as set forth under the heading "Transfer Restrictions."
Although DTC and Euroclear have agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Note among participants of
DTC and Euroclear, they are under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither we nor the Trustee will have any responsibility or liability for the
performance by DTC, Euroclear or the participants or indirect participants of
their respective obligations under the rules and procedures governing their
respective operations.
Certificated Notes
Subject to certain conditions, the Notes represented by the Global Note are
exchangeable for certificated Notes of the same series in definitive form of
like tenor in denominations of $1,000 and integral multiples thereof if:
(1) DTC notifies us that it is unwilling or unable to continue as
depository for the Global Note or DTC ceases to be a clearing agency
registered under the Exchange Act and, in either case, we are unable to
locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the Notes
of a series represented by a Global Note; or
(3) a default entitling the holders of the Notes of that series to
accelerate that maturity thereof has occurred and is continuing.
Any Note that is exchangeable as above is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as DTC
shall direct. Subject to the foregoing, the Global Note is not exchangeable,
except for Global Notes of the same aggregate denomination to be registered in
the name of DTC or its nominee. In addition, such certificates will bear the
legend referred to under "Transfer Restrictions" (unless we determine otherwise
in accordance with applicable law), subject, with respect to such certificated
Notes, to provisions of such legend.
Same-Day Payment
The Indenture requires us to make payments in respect of the Notes
(including principal, premium and interest) by wire transfer of immediately
available funds to the U.S. dollar accounts with banks in the U.S. specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address.
Registered Exchange Offer; Registration Rights
We and the Subsidiary Guarantors agreed pursuant to the Registration Rights
Agreement that we and the Subsidiary Guarantors would, at our cost:
(1) within 90 days after the Issue Date, file a registration statement
(the "Exchange Offer Registration Statement") with the SEC with respect to
a registered offer (the "Registered Exchange Offer") to exchange the
Original Notes for new notes (the "Exchange Notes") having terms
substantially identical in all material respects to the Original Notes and
guaranteed by each of the Subsidiary Guarantors except that the Exchange
Notes will not contain terms with respect to transfer restrictions;
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(2) use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 180 days after Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Registration Effectiveness Date"), offer the
Exchange Notes in exchange for surrender of the Original Notes; and
(4) keep the Registered Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the Original Notes.
The registration statement of which this prospectus forms a part is the
Exchange Offer Registration Statement. For each Original Note surrendered to us
pursuant to the Registered Exchange Offer, we will issue to the holder of such
Original Note an Exchange Note having a principal amount equal to that of the
surrendered Original Note. Interest on each Exchange Note will accrue from the
last interest payment date on which interest was paid on the Original Note
surrendered in exchange thereof or, if no interest has been paid on such
Original Note, from the date interest begins to accrue on such Original Note.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of
the Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of ours, as
such terms are interpreted by the SEC; provided, however, that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Registered
Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement.
Under the Registration Rights Agreement, we are required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes.
A holder of Original Notes (other than specified holders) that wishes to
exchange such Original Notes for Exchange Notes in the Registered Exchange
Offer will be required to represent that any Exchange Notes to be received by
it will be acquired in the ordinary course of business and that at the time of
the commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
and delivery requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect the Registered Exchange Offer, or if for any other reason
we do not consummate the Registered Exchange Offer within 210 days of the date
of the Registration Rights Agreement, or if an initial purchaser shall notify
us following consummation of the Registered Exchange Offer that Original Notes
held by it are not eligible to be exchanged for Exchange Notes in the
Registered Exchange Offer, or if any Holder of Original Notes shall notify us
that:
(1) such Holder is prohibited by law or SEC policy from participating in
the Registered Exchange Offer;
(2) such Holder may not resell the Exchange Notes acquired by it in the
Registered Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales by such holder; or
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(3) such Holder is a broker-dealer and holds Original Notes that are
part of an unsold allotment from the original sale of the Original Notes,
then, we and the Subsidiary Guarantors will, at our cost,
(1) as promptly as practicable, file a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering resales of the Notes
or the Exchange Notes, as the case may be;
(2) cause the Shelf Registration Statement to be declared effective
under the Securities Act; and
(3) keep the Shelf Registration Statement effective until the earliest
of (a) the time when the Notes covered by the Shelf Registration Statement
can be sold pursuant to Rule 144 without any limitations under clauses (c),
(e), (f) and (h) of Rule 144, (b) two years from the Issue Date and (c) the
date on which all Notes registered thereunder are disposed of in accordance
therewith.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each Holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Original Notes or the Exchange Notes, as the case
may be. A Holder selling such Original Notes or Exchange Notes pursuant to the
Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
Under the Registration Rights Agreement, we are required to pay additional
cash interest on the applicable Original Notes and Exchange Notes, subject to
certain exceptions,
(1) if the Company fails to file an Exchange Offer Registration
Statement with the SEC on or prior to the 90th day after the Issue Date,
(2) if the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 180th day after the Issue Date,
(3) if the Exchange Offer is not consummated on or before the 40th day
after the Exchange Offer Registration Statement is declared effective,
(4) if obligated to file the Shelf Registration Statement, the Company
fails to file the Shelf Registration Statement with the SEC on or prior to
the 30th day after such filing obligation arises,
(5) if obligated to file the Shelf Registration Statement, the Shelf
Registration Statement is not declared effective on or prior to the 180th
day after the obligation to file the Shelf Registration Statement arises,
or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject
to certain exceptions);
(each such event referred to in clauses (1) through (6) above, a "Registration
Default") from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured. The conditions referred to in clause (1) has now been satisfied.
The rate of additional interest will be at the rate of 0.50% per annum for
the first 90-day period immediately following the occurrence of such
Registration Default regardless of the number of such Registration Defaults
(and such rate will increase by an additional 0.50% per annum with respect to
each subsequent 90-day period), until all Registration Defaults have been
cured, up to a maximum additional interest rate of 2.00% per annum. We will pay
such additional interest on regular interest payment dates. Such additional
interest will be in addition to any other interest payable from time to time
with respect to the Original Notes and the Exchange Notes.
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All references in the Indenture, in any context, to any payment of
principal, purchase prices in connection with a purchase of Notes, and interest
or any other amount payable on or with respect to any of the Notes shall be
deemed to include payment of any additional cash interest pursuant to the
Registration Rights Agreement.
The Registration Rights Agreement provides that if we effect the Registered
Exchange Offer, we will be entitled to close the Registered Exchange Offer 30
days after the commencement thereof provided that we have accepted all Original
Notes theretofore validly tendered in accordance with the terms of the
Registered Exchange Offer.
Excess Cash Flow Repurchase Offer
(a) If the Company has Excess Cash Flow for any fiscal year (commencing with
fiscal 2001), the Company shall apply an amount equal to 50% of the Excess Cash
Flow in such fiscal year:
(1) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase (and permanently
reduce the commitments thereunder) Senior Indebtedness with such percentage
of Excess Cash Flow;
(2) second, to the extent of the balance of such percentage of Excess
Cash Flow after application in accordance with clause (1), to make an offer
to the holders of the Notes (and to holders of other Senior Subordinated
Indebtedness designated by the Company) to purchase Notes (and such other
Senior Subordinated Indebtedness) pursuant to and subject to the conditions
contained in the Indenture (an "Excess Cash Flow Offer"); and
(3) third, to the extent of the balance of such percentage of Excess
Cash Flow after application in accordance with clause (1) or (2) above, to
any other application or use not prohibited by the Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (1) above, the Company shall
permanently retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased; and provided, further, that
no Excess Cash Flow Offer shall be required to be made if the Leverage Ratio is
less than 3.0 to 1.0 on the last day of such fiscal year.
Notwithstanding the foregoing, the amount of Excess Cash Flow included in
any Excess Cash Flow Offer shall be reduced by the aggregate amount of any
optional prepayments of Senior Indebtedness during such fiscal year, but only
to the extent that such prepayments by their terms cannot be reborrowed or
redrawn and do not occur in connection with a refinancing of all or any portion
of such Senior Indebtedness.
(b) In the event of an Excess Cash Flow Offer, the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the Notes
(and other Senior Subordinated Indebtedness) at a purchase price of 100% of
their principal amount (without premium) plus accrued but unpaid interest (or,
in respect of such other Senior Subordinated Indebtedness, such lesser price,
if any, as may be provided for by the terms of such Senior Subordinated
Indebtedness) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes (and any other Senior Subordinated Indebtedness)
tendered pursuant to such offer is less than the Excess Cash Flow allotted to
the purchase thereof, the Company will be required to apply the remaining
Excess Cash Flow in accordance with clause (a)(3) above. The Company shall not
be required to make an Excess Cash Flow Offer to purchase Notes (and other
Senior Subordinated Indebtedness) pursuant to this covenant if the Excess Cash
Flow available therefor is less than $1.0 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Excess Cash Flow in any subsequent fiscal year).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
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Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that for purposes of this
clause (1) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Company (for the purpose of this clause (1) a Person
shall be deemed to beneficially own the Voting Stock of a corporation that
is beneficially owned (as defined above) by another corporation (a "parent
corporation") if such Person beneficially owns (as defined above) at least
50% of the aggregate voting power of all classes of Voting Stock of such
parent corporation);
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person, and, in the case of any such merger or consolidation, the
securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase (subject to the right
of holders of record on the relevant record date to receive interest on the
relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of
Control);
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with the
covenant described hereunder, that a Holder must follow in order to have
its Notes purchased.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
we shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the initial purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings. Restrictions on the ability of the Company to incur additional
Indebtedness are contained in the covenant described under "--Certain
Covenants--Limitation on Indebtedness." Such restrictions can only be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders of the Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relating to the Company's obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company and the Subsidiary Guarantors may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto
on a pro forma basis no Default or Event of Default has occurred and is
continuing and the Consolidated Coverage Ratio exceeds 2.25 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), so long as no Default or
Event of Default has occurred and is continuing, the Company and the Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company and any borrower under the Credit
Facility incurred pursuant to the Credit Facility; provided, however, that,
after giving effect to any such Incurrence, the aggregate principal amount
of such Indebtedness then outstanding does not exceed (a) in the case of
the term loan facilities, $240.0 million at any one time outstanding, less
the sum of all permanent repayments or reductions in commitments (so long
as and to the extent that any required payments in connection therewith are
actually made) theretofore made with respect to such Indebtedness, and (b)
in the case of the revolving loan facility, the greater of (i) $100.0
million at any one time outstanding and (ii) the sum of (a) 50% of the book
value of the inventory of the Company and its Restricted Subsidiaries and
(b) 85% of the book value of the accounts receivable of the Company and its
Restricted Subsidiaries;
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(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that: (A) any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the obligor thereon, and (B) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all obligations with respect to the
Notes;
(3) the Notes and the Exchange Notes and the Subsidiary Guarantees;
(4) Indebtedness of the Company of any of its Restricted Subsidiaries
outstanding on the Issue Date (other than Indebtedness described in clause
(1), (2) or (3) of this covenant) other than Indebtedness to be repaid from
the proceeds of the sale of the Notes and the Credit Facility as described
in this prospectus;
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Restricted Subsidiary was acquired by
the Company or another Restricted Subsidiary (other than Indebtedness
Incurred in connection with, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company or other Restricted
Subsidiary); provided, however, that on the date of such acquisition, and
after giving effect thereto, the Company would have been able to Incur at
least $1.00 of additional Indebtedness pursuant to clause (a);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or this
clause (6); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (5), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(7) Indebtedness consisting of Permitted Interest Rate or Currency Price
Agreements;
(8) Indebtedness consisting of guarantees provided by the Company of
Indebtedness of current employees incurred to purchase Capital Stock of the
Company pursuant to the Company's employee stock purchase plan in an amount
not to exceed $6.0 million at any one time outstanding;
(9) Indebtedness of Foreign Restricted Subsidiaries in an aggregate
principal amount which, together with all other Indebtedness of such
Foreign Restricted Subsidiaries outstanding on the date of such Incurrence
does not exceed $15.0 million; provided, that the Indebtedness outstanding
under this clause (9) when added to any Indebtedness outstanding pursuant
to clause (10) below does not exceed $20.0 million; and
(10) Indebtedness of the Company in an aggregate principal amount which,
together with all other Indebtedness of the Company outstanding on the date
of such Incurrence (other than Indebtedness permitted by clauses (1)
through (9) above or paragraph (a)) does not exceed $15.0 million;
provided, that the Indebtedness outstanding under this clause (10) when
added to any Indebtedness outstanding pursuant to clause (9) above does not
exceed $20.0 million.
(c) Notwithstanding the foregoing, none of the Company or any Subsidiary
Guarantor shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any Guarantor unless such
Indebtedness shall be subordinated to the Notes or the applicable Guarantee to
at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (2) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
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(e) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred
is denominated in a different currency, the amount of such Indebtedness will be
the U.S. Dollar Equivalent determined on the date of the Incurrence of such
Indebtedness, provided, however, that if any such Indebtedness denominated in a
different currency is subject to a Permitted Interest Rate or Currency
Agreement with respect to U.S. dollar covering all principal, premium, if any,
and interest payable on such Indebtedness, the amount of such Indebtedness
expressed in U.S. dollar will be as provided in such Permitted Interest Rate or
Currency Agreement. The principal amount of any Refinancing Indebtedness
Incurred in the same currency as the Indebtedness being Refinanced will be the
U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent
that (i) such U.S. Dollar Equivalent was determined based on a Permitted
Interest Rate or Currency Agreement, in which case the Refinancing Indebtedness
will be determined in accordance with the preceding sentence, and (ii) the
principal amount of the Refinancing Indebtedness exceeds the principal amount
of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent
of such excess will be determined on the date such Refinancing Indebtedness is
Incurred.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Issue
Date occurs to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment for which
the financial statements have either been included in a report filed
with the SEC or filed with the Trustee (or, in case such Consolidated
Net Income shall be a deficit, minus 100% of such deficit);
(B) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
(C) 100% of the aggregate Net Cash Proceeds received by the Company
from the issue, sale or exercise of its Capital Stock (other than
Disqualified Stock) to or by an employee stock ownership plan
subsequent to the Issue Date; provided, however, that if such employee
stock ownership plan Incurs any Indebtedness to finance the purchase or
exercise of such Capital Stock, such Net Cash Proceeds shall be
included only to the extent that any such proceeds are equal to any
increase in the Consolidated Net Worth resulting from principal
repayments made by such employee stock ownership plan with respect to
Indebtedness Incurred by it to finance the purchase or exercise of such
Capital Stock;
(D) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries (other than Indebtedness owed to the Company or
a Restricted Subsidiary) is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company or its
Restricted Subsidiary convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); and
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(E) an amount equal to the sum of (1) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (2) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however,
that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any acquisition of any Capital Stock or Subordinated Obligation of
the Company made out of the proceeds of the substantially concurrent sale
of, or made by exchange for, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such acquisition of Capital
Stock shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded
from the calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to the covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the calculation of
the amount of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant, provided, however, that at the time of payment of such dividend,
no other Default shall have occurred and be continuing (or result
therefrom); provided, further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(4) the acquisition by the Company of shares of common stock of the
Company to be contributed by the Company on behalf of its employees to
employee benefit programs; provided that in each such case the amount to be
purchased shall not exceed 5% of the compensation of such employee in any
fiscal year; provided, further, however, that such acquisitions shall be
excluded in the calculation of the amount of Restricted Payments; or
(5) the Company or any Restricted Subsidiary of the Company from making
Restricted Payments, in addition to Restricted Payments permitted by clause
(1) through (4) above, not in excess of $5.0 million in the aggregate after
the date of the Indenture.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (b) make any loans or advances to the
Company or (c) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date, including the Credit Facility;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
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(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(4) any such encumbrance or restriction consisting of customary non-
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
hereunder;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; and
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Disposition at least equal to the fair market value
(including the value of all non-cash consideration), as determined in good
faith by the Board of Directors, of the shares and assets subject to such
Asset Disposition and at least 85% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or cash
equivalents and
(2) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be):
(A) first, to either (x) the extent the Company elects (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase (and permanently reduce the commitments thereunder) Senior
Indebtedness within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash or (y) to the
extent the Company elects, to acquire Additional Assets within one year
from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; provided that, with respect to any Net
Available Cash from an Asset Disposition of accounts receivable in
conjunction with an Accounts Receivable Facility, the Company shall be
required to apply such Net Available Cash first to prepay, repay,
redeem or repurchase (and permanently reduce the commitments
thereunder) Senior Indebtedness consisting of term loans under the
Credit Facility and then otherwise as provided elsewhere herein
(including clause (y) of this paragraph (A));
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to make an offer to
the holders of the Notes (and to holders of other Senior Subordinated
Indebtedness designated by the Company) to purchase Notes (and such
other Senior Subordinated Indebtedness) pursuant to and subject to the
conditions contained in the Indenture; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A) or (B) above, to any
other application or use not prohibited by the Indenture.
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
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Notwithstanding the foregoing provisions of this paragraph, the Company and
the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this section except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which are not applied in
accordance with this section exceeds $10.0 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition, and
(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(2)(B)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required
to apply the remaining Net Available Cash in accordance with clause (a)(2)(C)
above. The Company shall not be required to make such an offer to purchase
Notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if
the Net Available Cash available therefor is less than $10.0 million (which
lesser amount shall be carried forward for purposes of determining whether such
an offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in arm's-
length dealings with a Person who is not such an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $2.0
million (x) are set forth in writing and (y) have been approved by a
majority of the members of the Board of Directors having no personal stake
in such Affiliate Transaction; and
(3) if such Affiliate Transaction involves an amount in excess of $10.0
million have been determined by a nationally recognized investment banking
firm to be fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments";
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(2) any employment agreement or employee benefit arrangement with any
officer or director entered into in the ordinary course of business and
consistent with past practice;
(3) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries;
(4) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries;
(5) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(6) reasonable and customary indemnification of officers and directors
of the Company or any Restricted Subsidiary pursuant to bylaws, statutory
provisions or indemnification agreements;
(7) purchases and sales of goods and services in the ordinary course of
business on terms customary in the industry;
(8) any transaction pursuant to agreements in effect on the Issue Date;
and
(9) written agreements entered into or assumed in connection with
acquisitions of other businesses with persons who were not Affiliates prior
to such transactions.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any of its Capital Stock except:
(1) to the Company or a Wholly Owned Subsidiary;
(2) directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(4) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any investment in such Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made on
the date of such issuance sale or other disposition.
Merger and Consolidation. The Company will not, in a single transaction or a
series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, another Person or Persons, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to paragraph (a) of the covenant described under "--Limitation on
Indebtedness";
(4) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of the Company immediately prior to such
transaction;
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(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture; and
(6) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
transaction had not occurred.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
Notwithstanding the foregoing, any Restricted Subsidiary may merge into or
transfer all or part of its properties and assets to the Company.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer, lease, in one transaction or a series
of transactions, all or substantially all of its assets to, any Person (other
than to the Company or another Subsidiary Guarantor) unless:
(1) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which the Subsidiary Guarantor was organized or under
the laws of the United States of America, any State thereof or the District
of Columbia, and such Person (if not the Subsidiary Guarantor) shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in a form satisfactory to the Trustee, all the obligations of
the Subsidiary Guarantor, if any, under its Subsidiary Guarantee;
(2) immediately after giving effect to such transaction or transactions
on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The provisions of clauses (1) and (2) shall not apply to any transactions
that constitute an Asset Disposition if the Company complied with the
applicable provisions of the covenant described under "--Limitation on Sales of
Assets and Subsidiary Stock" above.
Future Guarantors. If the Company or any of its Restricted Subsidiaries
transfers or causes to be transferred, in one transaction or a series of
related transactions, any property to any Restricted Subsidiary that provides a
guarantee under the Credit Facility and that is not a Subsidiary Guarantor, or
if the Company or any of its Restricted Subsidiaries shall organize, acquire or
otherwise invest in another Restricted Subsidiary that provides a guarantee
under the Credit Facility, then such transferee or acquired or other Restricted
Subsidiary will (1) by a supplemental indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, unconditionally guarantee on a
senior basis all of the Company's obligations under the Notes and the
Indenture; and (2) deliver to the Trustee an officer's certificate and an
opinion of counsel each stating that such supplemental indenture complies with
the Indenture. Thereafter, such Restricted Subsidiary shall be a Guarantor for
all purposes of the Indenture.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of their respective property or
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assets, or any proceeds, income or profit therefrom which secure Senior
Subordinated Indebtedness or Subordinated Obligations, unless:
(1) in the case of Liens securing Subordinated Obligations, the Notes
are secured by a Lien on such property, assets, proceeds, income or profit
that is senior in priority to such Liens at least to the same extent that
the Notes are subordinated to Senior Indebtedness; and
(2) in the case of Liens securing Senior Subordinated Indebtedness, the
Notes are equally and ratably secured by a Lien on such property, assets,
proceeds, income or profit.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the Company
nor any Subsidiary Guarantor will incur or suffer to exist Indebtedness that is
senior in right of payment to the Notes or such Subsidiary Guarantor's
Subsidiary Guarantee and subordinate in right of payment to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any of its Restricted Subsidiaries, to enter into any Sale/Leaseback
Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to (A)
Incur Indebtedness in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction pursuant to the covenant described under
"--Limitation on Indebtedness" and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Notes pursuant to the covenant under "--Limitation on Liens";
(2) the net proceeds received by the Company or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least
equal to the fair value (as determined by the Board of Directors) of such
property; and
(3) the Company, applies the proceeds of such transaction in compliance
with the covenant described under "--Limitation on Sale of Assets and
Subsidiary Stock."
Limitation of Guarantees by Restricted Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of
the pledge of any intercompany note or otherwise, to assume, guarantee or in
any other manner become liable with respect to any Indebtedness of the Company
(other than Indebtedness under Permitted Interest Rate or Currency Agreements)
unless, in any such case:
(1) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a guarantee of payment of the Notes
by such Restricted Subsidiary, and
(2) (a) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Senior Indebtedness, the
guarantee or other instrument provided by such Restricted Subsidiary in
respect of such Senior Indebtedness may be superior to such guarantee of
the Notes pursuant to subordination provisions no less favorable to the
Holders of the Notes than those contained in the Indenture and (b) if such
assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the
Notes, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be
subordinated to such guarantee at least to the same extent that the Notes
are subordinated to Senior Indebtedness.
Notwithstanding the foregoing, any such Subsidiary Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon:
(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Subsidiary Guarantee was executed and delivered pursuant to the preceding
paragraph;
(2) any sale or other disposition (by merger or otherwise) to any Person
which is not a Restricted Subsidiary of the Company of all of the Company's
Capital Stock in, or all or substantially all of the assets of, such
Restricted Subsidiary; provided that (a) such sale or disposition of such
Capital Stock or
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assets is otherwise in compliance with the terms of the Indenture and (b)
such assumption, guarantee or other liability of such Restricted Subsidiary
has been released by the holders of the other Indebtedness of the Company
so guaranteed;
(3) the legal defeasance of the Notes as described under "Defeasance";
and
(4) such Restricted Subsidiary being designated as an Unrestricted
Subsidiary as described under the definition of "Unrestricted Subsidiary."
Payments for Consent. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid and is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
SEC Reports. Whether or not subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company shall file with the SEC (unless
such filing is not permitted under the Exchange Act) within the time periods
specified in the SEC's rules and regulations and provide the Trustee and the
holders of the Notes, within 15 days thereafter, with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections.
In addition, for so long as any Notes remain outstanding, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act, and, to any beneficial owner of Notes, if
not obtainable from the SEC, information of the type that would be filed with
the SEC pursuant to the foregoing provisions, upon the request of any such
holder.
Defaults
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due,
continued for 30 days,
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
acceleration or otherwise,
(3) the failure by the Company or any Subsidiary Guarantor to comply
with its obligations under "--Certain Covenants--Merger and Consolidation"
above,
(4) the failure by the Company to comply for 30 days after written
notice with any of its obligations in the covenants described above under
"Change of Control" (other than a failure to purchase Notes) or under "--
Certain Covenants" under "--Limitation on Indebtedness," "--Limitation on
Restricted Payments," "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "--Limitation on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase the Notes), "--Limitation on
Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries" or "--SEC Reports,"
(5) the failure by the Company to comply for 60 days after written
notice with its other agreements contained in the Indenture,
(6) Indebtedness of the Company, any Subsidiary Guarantor or any
Significant Subsidiary (other than Indebtedness owed to the Company or its
Restricted Subsidiaries) is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated
exceeds $7.5 million (the "cross-acceleration provision"),
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(7) certain events of bankruptcy, insolvency or reorganization of the
Company, any Subsidiary Guarantor or any Significant Subsidiary (the
"bankruptcy provisions"),
(8) any judgment or decree for the payment of money in excess of $7.5
million (excluding judgments to the extent covered by insurance by one or
more reputable insurers and as to which such insurers have acknowledged
coverage for) is entered against the Company, any Subsidiary Guarantor or
any Significant Subsidiary, remains outstanding for a period of 60 days
following entry of such judgment and is not discharged, bonded, waived or
stayed within 30 days after written notice (the "judgment default
provision"), or
(9) a Subsidiary Guarantee of a Significant Subsidiary ceases to be in
full force and effect (other than in accordance with the terms of such
Subsidiary Guarantee) or is declared to be null and void and unenforceable
or the Subsidiary Guarantee of a Significant Subsidiary is found to be
invalid or a Subsidiary Guarantor that is a Significant Subsidiary denies
its liability under its Subsidiary Guarantee (other than by reason of
release of the Subsidiary Guarantor in accordance with the terms of the
Indenture, provided, however, that an Event of Default will also be deemed
to occur with respect to Subsidiaries that are not Significant Subsidiaries
("Insignificant Subsidiaries") if the Subsidiary Guarantees of such
Insignificant Subsidiaries cease to be in full force and effect or are
declared null and void and unenforceable or such Insignificant Subsidiaries
deny their liability under their Subsidiary Guarantees, if when aggregated
and taken as a whole the Insignificant Subsidiaries subject to this clause
(9) would meet the definition of a Significant Subsidiary.
However, a default under clause (4), (5) or (8) will not constitute an Event
of Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company in writing of the default and the Company
does not cure such default within the time specified after receipt of such
notice.
If an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization with respect to the
Company) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the outstanding Notes may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately
provided, however, that if upon such declaration there are any amounts
outstanding under the Credit Facility and the amounts thereunder have not been
accelerated, such principal and interest shall be due and payable upon the
earlier of the time such amounts are accelerated or five (5) Business Days
after receipt by the Company and the Representative under the Credit Facility
of such declaration. If an Event of Default resulting from certain events of
bankruptcy, insolvency or organization occurs and is continuing with respect to
the Company, the principal of and interest on all the Notes will by such event
itself become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and their
consequences. In the event of any Event of Default specified in clause (6)
above, such Event of Default and all consequences thereof (including, without
limitation, any acceleration or resulting payment default) shall be annulled,
waived or rescinded, automatically and without any action by the Trustee or the
Holders of the Notes, if within 20 days after such Event of Default arose (x)
the Indebtedness or guarantee that is the basis for such Event of Default has
been discharged in a manner that does not violate the terms of the Indenture or
(y) the holders thereof have rescinded or waived the acceleration, notice or
action (as the case may be) giving rise to such Event of Default.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may
pursue any remedy with respect to the Indenture or the Notes unless
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
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(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders. In addition,
the Company is required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may, among other things,
(1) reduce the amount of Notes whose Holders must consent to an
amendment,
(2) reduce the rate of or change the time for payment of interest on any
Note,
(3) reduce the principal of or change the Stated Maturity of any Note,
(4) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption,"
(5) make any Note payable in money other than that stated in the Note,
(6) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Notes on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with respect to
such Holder's Notes,
(7) affect the ranking of the Notes in any material respect,
(8) release any Subsidiary Guarantor that is a Significant Subsidiary
from any of its obligations under its Subsidiary Guarantee or the Indenture
other than in accordance with the terms of the Indenture, or
(9) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions.
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Without the consent of any Holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a Successor Company of the obligations of the Company
and/or the Subsidiary Guarantors under the Indenture in accordance with "--
Certain Covenants--Merger and Consolidation," to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to secure the Notes, to release a Subsidiary Guaranty when
permitted by the Indenture, to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
Holder or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act. However, no
amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or their
Representative) consent to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
Transfer
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clauses (3) and (4) under "--
Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Subsidiary Guarantors or Significant Subsidiaries) or (8) under "--Defaults"
above or because of the failure of the Company to comply with clause (3) or (4)
under "--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that holders of the Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit and
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defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
Concerning the Trustee
Bank One Trust Company, N.A. is to be the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
Certain Definitions
"Accounts Receivable Facility" means any credit facility or conditional sale
contract or similar arrangement providing financing secured directly or
indirectly only by the accounts receivable of the Company or its Subsidiaries.
"Acquired Indebtedness" of any particular Person means Indebtedness of any
other Person existing at the time such other Person merged with or into or
became a Restricted Subsidiary of such particular Person or assumed by such
particular Person in connection with the acquisition of assets from any other
person, and not incurred by such other person in connection with, or in
contemplation of, such other Person merging with or into such particular Person
or becoming a Restricted Subsidiary of such particular Person or such
acquisition.
"Additional Assets" means
(1) any property or assets (other than Indebtedness and Capital Stock)
in a Related Business,
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or a
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clause (2) or (3) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
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Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
Purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary),
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary
(other than, in the case of (1), (2) and (3) above, (x) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (y) for purposes of the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" and (z) disposition of assets with a fair market value of
less than $1.0 million).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (x) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (y) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted
Subsidiary has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale),
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
any disposition or acquisition of assets, the pro forma calculations of any
expense or cost reductions or other operating improvements shall be determined
in accordance with Regulation S-X promulgated under the Securities Act. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be
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calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication,
(1) interest expense attributable to capital leases,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) non-cash interest expenses,
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing,
(6) net costs associated with Hedging Obligations (including
amortization of fees),
(7) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary,
(8) interest incurred in connection with Investments in discontinued
operations,
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
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(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) extraordinary gains or losses;
(6) the cumulative effect of a change in accounting principles; and
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued).
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants --Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of
any action for the purpose of which the determination is being made, as:
(1) the par or stated value of all outstanding Capital Stock of the
Company plus;
(2) paid-in capital or capital surplus relating to such Capital Stock
plus;
(3) any retained earnings or earned surplus less (x) any accumulated
deficit and (y) any amounts attributable to Disqualified Stock.
"Credit Facility" means the Credit Agreement (including all documents
entered into by the Company and any subsidiary of the Company in connection
therewith), to be dated on or about the Effective Date among the Company,
Credit Suisse First Boston and the other agents and lenders named therein, and
any other bank credit agreement or similar facility entered into in the future
by the Company or any Restricted Subsidiary, as any of the same, in whole or in
part, may be amended, renewed, extended, increased (but only so long as such
increase is permitted under the terms of the Indenture), substituted,
refinanced, restructured or replaced (including, without limitation, any
successive renewals, extensions, increases, substitutions, refinancings,
restructurings, replacements, supplements or other modifications of the
foregoing).
"Currency Agreement" means in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means
(1) the Indebtedness under the Credit Facility; and
(2) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $25 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified
Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain
events or otherwise, by such Person at the option of the holder thereof, in
whole or in part,
in each case on or prior to the first anniversary of the Stated Maturity of
the Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock, upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the Notes and described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--
Certain Covenants--Change of Control"; and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"Distribution" means the spin-off of Applied Power Inc.'s integrated
electronics enclosures business as a separate publicly traded company.
"DTC" means The Depository Trust Company, its nominees and their respective
successors.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries,
(2) depreciation expense of the Company and its consolidated Restricted
Subsidiaries,
(3) amortization expense of the Company and its consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period),
(4) non-recurring financing, legal and accounting charges of not more
than $30.0 million relating to the Transactions,
(5) contract termination recoveries of $1.4 million received prior to
the Issue Date,
(6) in the case of any determination that includes one or more fiscal
quarters ending prior to the Issue Date, an amount equal to the excess of
actual general corporate expenses for such fiscal quarters over the product
of $1.25 million times the number of such fiscal quarters included in such
determination, and
(7) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
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"Effective Date" means the effective date of the Distribution.
"Excess Cash Flow" means, for any fiscal year of the Company, the excess of
(a) EBITDA for such fiscal year over (b) the sum, without duplication, of (i)
the amount of any cash income taxes payable by the Company and its
consolidated Restricted Subsidiaries with respect to such fiscal year, (ii)
scheduled cash interest paid (net of cash interest received) by the Company
and its consolidated Restricted Subsidiaries during such fiscal year, (iii)
capital expenditures (as determined in accordance with GAAP) made in cash by
the Company and its consolidated Restricted Subsidiaries during such fiscal
year, except to the extent financed with the proceeds of Indebtedness, net
insurance proceeds or net condemnation awards, (iv) scheduled permanent
repayments of Indebtedness made by the Company and its consolidated Restricted
Subsidiaries during such fiscal year, and (v) mandatory prepayments of the
principal of revolving loans under the Credit Facility during such fiscal
year, but only to the extent that such prepayments by their terms cannot be
reborrowed or redrawn and do not occur in connection with a refinancing of all
or any portion of such revolving loans; provided that, to the extent otherwise
included therein, the Net Available Cash from Asset Dispositions and
dispositions resulting in net insurance proceeds or net condemnation awards
shall be excluded from the calculation of Excess Cash Flow.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any state thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise), or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"guarantee" used as a verb has a corresponding meaning. The term "guarantor"
shall mean any Person guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
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"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of
(A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible
or liable, including, in each case, any premium on such indebtedness to
the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" by any Person in any other Person means, with respect to any
Person, any direct or indirect advance, loan (other than advances to customers
in the ordinary course of business that are recorded as accounts receivable on
the balance sheet of the lender) or other extensions of credit (including by
way of guarantee or similar arrangement) or capital contribution to (by means
of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
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acquisition of Capital Stock, Indebtedness or other similar instruments issued
by such other Person. For purposes of the definition of "Unrestricted
Subsidiary", the definition of "Restricted Payment" and the covenant described
under "--Certain Covenants--Limitation on Restricted Payments",
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (x)
the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Leverage Ratio" means, at any date of determination, the ratio of
consolidated Indebtedness of the Company and its consolidated Restricted
Subsidiaries on such date to EBITDA for the period of four consecutive fiscal
quarters of the Company most recently ended as of such date; provided, however,
that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Leverage Ratio
is an Incurrence of Indebtedness, or both, EBITDA and Indebtedness for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of
such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Leverage Ratio, EBITDA
and Indebtedness for such period shall be calculated on a pro forma basis
as if such discharge had occurred on the first day of such period and as if
the Company or such Restricted Subsidiary had not earned the interest
income actually earned during such period in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period, and
Indebtedness for such period shall be reduced by an amount equal to the
Indebtedness directly attributable to any Indebtedness of the Company or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or,
if the Capital Stock of any Restricted Subsidiary is sold, the Indebtedness
for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale),
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or
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substantially all of an operating unit of a business, EBITDA and
Indebtedness for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and
(5) if since the beginning of such period any Person that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Indebtedness for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day such period.
For purposes of this definition, whenever pro forma effect is to be given to
any disposition or acquisition of assets, the pro forma calculations of any
expense or cost reductions or other operating improvements shall be determined
in accordance with Regulation S-X promulgated under the Securities Act. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash," from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law, be repaid out of the proceeds
from such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition, and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
The amounts in clauses (1) through (4) above, to the extent estimates are
necessary, shall be estimated reasonably and in good faith by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters', or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale net of taxes paid or payable as a result
thereof.
"Permitted Interest Rate or Currency Agreement" of any Person means any
Interest Rate or Currency Agreement entered into with one or more financial
institutions in the ordinary course of business that is designed to protect
such Person against fluctuations in interest rates or currency exchange rates
with respect to
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Indebtedness Incurred and which shall have a notional amount no greater than
the payments due with respect to the Indebtedness being hedged thereby, or in
the case of currency protection agreements, against currency exchange rate
fluctuations in the ordinary course of business relating to then existing
financial obligations or then existing or sold production and not for purposes
of speculation.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
(1) the Company, a Subsidiary Guarantor, a Wholly Owned Subsidiary or a
Person that will, upon the making of such Investment, become a Wholly Owned
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company, a Subsidiary Guarantor or a
Wholly Owned Subsidiary; provided, however, that such Person's primary
business is a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(7) any consolidation or merger of a Wholly Owned Subsidiary of the
Company to the extent otherwise permitted under the Indenture;
(8) any investment made as a result of the receipt of non-cash
consideration from an Asset Disposition that was made pursuant to and in
compliance with the covenant described under "Limitation on Sales of Assets
and Subsidiary Stock";
(9) Investments in Permitted Interest Rate or Currency Agreements;
(10) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (10) since the date of the
Indenture, not to exceed $5.0 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
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"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided however, that
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, and
(3) such Refinancing Indebtedness has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced;
provided, further, however, that Refinancing Indebtedness shall not include
(x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or
(y) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is not
a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation)),
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock),
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition), or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
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"Senior Indebtedness" of a Person means
(1) indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred, and
(2) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
such Person to the extent post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable unless, in the case of (1) and (2), in the instrument
creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right
of payment to the Notes;
provided, however, that Senior Indebtedness shall not include
(1) any obligation of such Person to any Subsidiary,
(2) any liability for Federal, state, local or other taxes owed or owing
by such Person,
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities),
(4) any Indebtedness of such Person (and any accrued and unpaid interest
in respect thereof) which is subordinate or junior in any respect to any
other Indebtedness or other obligation of such Person, or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means (i) with respect to the Company,
the Notes and any other Indebtedness of the Company that specifically provides
that such Indebtedness is to have the same rank as the Notes in right of
payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness and (ii) with respect to any Subsidiary Guarantor, the Subsidiary
Guarantees and any other Indebtedness of such Subsidiary Guarantor that
specifically provides that such Indebtedness is to have the same rank as the
Subsidiary Guarantees in right of payment and is not subordinated by its term
in right or payment to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person, or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantee" means a guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
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"Subsidiary Guarantors" means (1) each of the Company's Restricted
Subsidiaries providing guarantees under the Credit Facility on the Issue Date
and (2) any Person that becomes a Restricted Subsidiary of the Company and
provides a guarantee under the Credit Facility that pursuant to the covenant
described under "Future Guarantors" or otherwise in the future executes a
supplemental indenture in which such Restricted Subsidiary unconditionally
guarantees on a senior subordinated basis the Company's obligations under the
Notes and the Indenture; provided that any Person constituting a Subsidiary
Guarantor as described above shall cease to constitute a Subsidiary Guarantor
when its respective Subsidiary Guarantee is released in accordance with the
terms of the Indenture.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below, and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Certain
Covenants--
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Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the resolution of
the Board of Directors giving effect to such designation and an Officers
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "Certain Covenants--Limitations on Indebtedness,"
whenever it is necessary to determine whether the Company has complied with any
covenant in the Indenture or a Default has occurred and an amount is expressed
in a currency other than U.S. dollars, such amount will be treated as the U.S.
Dollar Equivalent determined as of the date such amount is initially determined
in such currency.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company or one or more Wholly Owned Subsidiaries.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain material federal income tax
consequences of the ownership and disposition of the Notes. This summary
applies only to a beneficial owner of a Note who acquires a Note at the initial
offering and for the original offering price thereof. This discussion is based
upon laws, regulations, rulings and decisions currently in effect, all of which
are subject to change, retroactively or prospectively.
This discussion is for general information only and may not apply to certain
categories of investors subject to special treatment under the Internal Revenue
Code of 1986, as amended (the "Code"), such as certain financial institutions,
insurance companies, dealers in securities, persons that are passthrough
entities or investors in passthrough entities and persons who have acquired
Notes as part of a straddle, hedge, conversion transaction or other integrated
investment. Moreover, this discussion summarizes only federal income tax
consequences and does not address any other federal tax consequences or any
state, local or other tax consequences. ACCORDINGLY, PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES TO THEM, INCLUDING
ANY FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES (INCLUDING ANY TAX RETURN
FILING OR OTHER TAX REPORTING REQUIREMENTS) OF THE OWNERSHIP AND DISPOSITION OF
THE NOTES.
As used herein the term "United States Holder" means a beneficial owner of a
Note that is, for United States federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
and (iii) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source. The term "Non-U.S. Holder"
means a beneficial owner of a Note that is not a United States Holder.
United States Taxation of United States Holders
Payments of Interest
Stated interest payable on the Notes generally will be included in the gross
income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
We are obligated to pay additional cash interest on the Notes under certain
circumstances described under "Description of the Notes--Registered Exchange
Offer; Registration Rights." If additional interest is paid, although not free
from doubt, such payment should be taxable as ordinary income at the time it
accrues or is received in accordance with the United States Holder's regular
method of tax accounting. It is possible, however, that the IRS may take a
different position, in which case the timing and amount of income inclusion may
be different. Holders should consult their own tax advisors about additional
interest.
Disposition of the Notes
Upon the sale, exchange or other disposition of a Note, a United States
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized by the holder (except to the extent such amount is
attributable to accrued but unpaid interest, which will be treated as ordinary
interest income to the extent not previously included in income) and the
holder's adjusted tax basis in the Note. United States Holders are advised to
consult their tax advisors regarding the taxation of capital gains and losses.
The exchange of an Original Note for an Exchange Note pursuant to the
exchange offer described in "Description of the Notes--Registered Exchange
Offer; Registration Rights" should not constitute a "significant modification"
of the Note for United States federal income tax purposes and, accordingly, the
Exchange Note received should be treated as a continuation of the Original Note
in the hands of such holder. As a result, there will be no United States
federal income tax consequences to a United States Holder who exchanges an
Original Note for an Exchange Note pursuant to the exchange offer.
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United States Taxation of Non-U.S. Holders
Payments of Interest
Interest paid to a Non-U.S. Holder will not be subject to United States
federal withholding tax, provided that such interest is not effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder and (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of our stock entitled to vote, (ii) the Non-U.S. Holder is not a
controlled foreign corporation that is related to us actually or constructively
though stock ownership, and (iii) the beneficial owner of the Note, under
penalties of perjury, either directly or through a financial institution which
holds the Note on behalf of the Non-U.S. Holder and holds customers' securities
in the ordinary course of its trade or business, provides us or our agent with
the beneficial owner's name and address and certifies, under penalties of
perjury, that it is not a United States Holder. Payments of interest not exempt
from United States federal withholding tax as described above may be subject to
withholding tax at the rate of 30% (or any lower applicable treaty rate). To
assure that we or our agents will not withhold tax on a payment, the Non-U.S.
Holder should provide the appropriate statement prior to the payment.
Disposition of the Notes
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gains realized on the disposition of a Note, unless
(i) the gain is effectively connected with a United States trade or business
conducted by the Non-U.S. Holder or (ii) the Non-U.S. Holder is an individual
who is present in the United States for 183 or more days during the taxable
year of the disposition and certain other requirements are satisfied. In
addition, an exchange of a Note for an Exchange Note pursuant to the exchange
offer described in "Description of the Notes--Exchange Offer; Registration
Rights" should not constitute a taxable exchange of the Note for Non-U.S.
Holders. See "United States Taxation of United States Holders--Disposition of
the Notes."
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect to
the Notes (including proceeds from the disposition of the Notes) are
effectively connected with a conduct by the Non-U.S. Holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to United States federal income taxation on a net basis with respect to such
holder's ownership of the Notes), such Non-U.S. Holder will generally be
subject to the rules described above under "United States Taxation of United
States Holders" (subject to any modification provided under an applicable
income tax treaty). Such Non-U.S. Holder may also be subject to the "branch
profits tax" if such holder is a corporation.
Backup Withholding and Information Reporting
We will, where required, report to the holders of Notes and the Internal
Revenue Service the amount of any interest payments on, and the proceeds of the
disposition of, the Notes and the amounts of tax withheld, if any, with respect
to such payments.
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of, the Notes unless the United States
Holder complies with certain identification requirements.
In the case of payments of interest to Non-U.S. Holders, the 31% backup
withholding tax and certain information reporting will not apply to such
payments with respect to which the certification described under "United States
Taxation of Non-U.S. Holders--Payments of Interest" has been received or an
exemption has otherwise been established. These information reporting and
backup withholding requirements will apply, however, to the proceeds paid to a
Non-U.S. Holder on a disposition of the Notes by or through a United States
office of a broker unless the Non-U.S. Holder certifies it is a Non-U.S. Holder
under penalties of perjury or
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otherwise establishes an exemption. Information reporting requirements, but not
backup withholding, will also apply to a payment of the proceeds of a
disposition of the Notes by or through a foreign office of a United States
broker or a foreign broker with any of certain types of relationships to the
United States unless such broker has documentary evidence in its files that the
holder of the Notes is not a U.S. Person, and the broker has no actual
knowledge to the contrary, or the holder otherwise establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
The amount of any backup withholding imposed on a payment to a holder of a
Note will be allowed as a credit against such holder's United States federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Based on interpretations by SEC staff set forth in no-action letters issued
to third parties, including the Exxon Capital and Morgan Stanley letters and
similar letters, Actuant believes that the Exchange Notes to be issued pursuant
to the Exchange Offer in exchange for Original Notes may be offered for resale,
resold, and otherwise transferred by any holder thereof (other than any holder
which is an "affiliate" of Actuant within the meaning of Rule 405 under
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the Exchange Notes are
acquired in the ordinary course of the holder's business and the holder has no
arrangement with any person to participate in the distribution of the Exchange
Notes . Accordingly, any holder using the Exchange Offer to participate in a
distribution of the Exchange Notes will not be able to rely on these no-action
letters. Notwithstanding the foregoing, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
those Exchange Notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Original Notes where those Original
Notes were acquired as a result of market-making activities or other trading
activities. Actuant has agreed that, for a period of up to 180 days after the
Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with resales.
Actuant will not receive any proceeds from any sales of the Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in
negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to prevailing market prices or at negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of any Exchange Notes.
Any broker-dealer that resells the Exchange Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of the Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of up to 180 days after the Expiration Date, Actuant will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents in the Letter of Transmittal. Actuant has agreed to pay certain
expenses incident to the Exchange Offer, other than commissions or concession
of any brokers or dealers, and will indemnify the holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from Actuant of the happening of any event which makes
any statement in this prospectus untrue in any material respect or which
requires the making of any changes in this prospectus in order to make the
statements herein not misleading (which notice Actuant agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of this
prospectus until Actuant has amended or supplemented this prospectus to correct
such misstatement or omissions and has furnished copies of the amended or
supplemented prospectus to such broker-dealer. If Actuant gives any notice to
suspend the use of the prospectus, it will extend the period referred to above
by the number of days during the period from and including the date of the
giving of the notice to and including the date when broker-dealers shall have
received copies of the supplemented or amended prospectus necessary to permit
resales of the Exchange Notes.
133
<PAGE>
This prospectus has been prepared to permit its use by the initial
purchasers in connection with offers and sales of the Notes, in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. The initial purchasers may act as principal or agent in such
transactions. The initial purchasers have advised Actuant that they currently
intend to make a market in the Notes, but they are not obligated to do so and
may discontinue any such market-making at any time without notice. Accordingly,
no assurance can be given that an active trading market will develop for, or as
to the liquidity of, the Notes.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for Actuant by
Quarles & Brady LLP, Milwaukee, Wisconsin, counsel to Actuant. Anthony W.
Asmuth III, the Corporate Secretary of Actuant, is a partner in Quarles & Brady
LLP. As of July 31, 2000, Mr. Asmuth owned 38,680 shares of common stock and
served as trustee or co-trustee with sole or shared voting and dispositive
powers over trusts that held an aggregate of 218,752 shares of common stock.
EXPERTS
The consolidated financial statements of Applied Power Inc. as of August 31,
1998 and 1999 and for each of the two years in the period ended August 31,
1999, included in this prospectus, have been included herein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements and the related consolidated financial
statement schedule of Applied Power Inc. for the year ended August 31, 1997,
included and incorporated by reference in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are included and incorporated by reference herein, and have been so included
and incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
134
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS Page
--------------------- ----
<S> <C>
Report of Independent
Accountants............. F-2
Report of Independent
Auditors................ F-3
Consolidated Statements
of Earnings
For the years ended
August 31, 1997, 1998
and 1999; and the nine
months
ended May 31, 1999
(unaudited) and May
31, 2000 (unaudited).. F-4
Consolidated Balance
Sheets
As of August 31, 1998
and 1999; and May 31,
2000 (unaudited)...... F-5
Consolidated Statements
of Shareholders' Equity
and Comprehensive Income
For the years ended
August 31, 1997, 1998
and 1999; and the nine
months
ended May 31, 1999
(unaudited) and May
31, 2000 (unaudited).. F-6
Consolidated Statements
of Cash Flows
For the years ended
August 31, 1997, 1998
and 1999; and the nine
months
ended May 31, 1999
(unaudited) and May
31, 2000 (unaudited).. F-8
Notes to Consolidated
Financial Statements.... F-9
<CAPTION>
INDEX TO FINANCIAL
STATEMENT SCHEDULE
------------------
<S> <C>
Report of Independent
Accountants on Financial
Statement Schedule...... F-49
Schedule II--Valuation
and Qualifying
Accounts................ F-50
</TABLE>
All other schedules are omitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Applied Power Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, shareholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Applied Power Inc. (the Company) at August 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the two years
in the period ended August 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
September 29, 1999, except for information
in Note B, for which the date is July 7, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Applied Power Inc.:
We have audited the accompanying consolidated statements of earnings,
shareholders' equity and comprehensive income, and cash flows of Applied Power
Inc. and subsidiaries for the year ended August 31, 1997. Our audit also
included the consolidated financial statement schedule for the year ended
August 31, 1997 listed in the Index. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements of Applied Power Inc.
and subsidiaries present fairly, in all material respects, the results of their
operations and their cash flows for the year ended August 31, 1997 in
conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 25, 1997
(November 24, 1999 as to the
restatement for the 1998 pooling
of interests described in Notes
A and B)
(July 7, 2000 as to the
reclassification for the
discontinued operations as
described in Note B)
F-3
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended August 31, May 31,
---------------------------- ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales................ $522,440 $637,479 $695,704 $524,356 $535,655
Cost of products sold.... 341,906 436,594 443,020 334,104 341,816
-------- -------- -------- -------- --------
Gross profit............ 180,534 200,885 252,684 190,252 193,839
Engineering, selling and
administrative
expenses................ 139,782 153,892 136,671 105,558 103,329
Amortization of
intangible assets....... 4,971 12,582 8,748 6,656 5,902
Contract termination
costs (recovery)........ -- -- 7,824 7,824 (1,446)
Corporate reorganization
expenses................ -- -- -- -- 4,449
Restructuring charges.... -- 11,367 -- -- --
Merger related expenses.. -- 9,276 -- -- --
Provision for loss on
sale of subsidiary...... -- 4,500 -- -- --
-------- -------- -------- -------- --------
Operating earnings...... 35,781 9,268 99,441 70,214 81,605
Other expense (income):
Net financing costs..... 5,067 12,535 41,181 30,638 27,892
Gain on life insurance
policy................. -- (1,709) -- -- --
Gain on sale of
building............... -- (9,815) -- -- --
Other (income) expense-
net.................... (2,381) (872) 850 179 (823)
-------- -------- -------- -------- --------
Earnings from continuing
operations before income
tax expense............. 33,095 9,129 57,410 39,397 54,536
Income tax expense....... 10,463 9,076 22,830 14,663 19,584
-------- -------- -------- -------- --------
Earnings from continuing
operations.............. 22,632 53 34,580 24,734 34,952
Discontinued operations
(Note B):
Earnings from operations
of discontinued
Electronics segment
(less applicable income
taxes of $20,836,
$21,622, $24,524,
$11,604 and $14,691,
respectively).......... 35,293 26,634 44,817 31,481 34,232
-------- -------- -------- -------- --------
Earnings before
extraordinary item...... 57,925 26,687 79,397 56,215 69,184
Extraordinary loss on
sale of subsidiary, net
of income tax benefit
of $1,700.............. -- -- -- -- (12,186)
-------- -------- -------- -------- --------
Net earnings............. $ 57,925 $ 26,687 $ 79,397 $ 56,215 $ 56,998
======== ======== ======== ======== ========
Basic Earnings Per Share:
Earnings from continuing
operations per share... $ 0.60 $ 0.00 $ 0.89 $ 0.64 $ 0.89
Earnings from
discontinued operations
per share.............. 0.93 0.70 1.15 0.81 0.88
-------- -------- -------- -------- --------
Earnings per share
before extraordinary
item................... 1.53 0.70 2.04 1.45 1.77
Extraordinary loss per
share.................. -- -- -- -- (0.31)
-------- -------- -------- -------- --------
Net earnings per share.. $ 1.53 $ 0.70 $ 2.04 $ 1.45 $ 1.46
======== ======== ======== ======== ========
Weighted average common
shares outstanding..... 37,880 38,380 38,825 38,783 39,045
======== ======== ======== ======== ========
Diluted Earnings Per
Share:
Earnings from continuing
operations per share... $ 0.57 $ 0.00 $ 0.86 $ 0.62 $ 0.87
Earnings from
discontinued operations
per share.............. 0.90 0.66 1.12 0.78 0.85
-------- -------- -------- -------- --------
Earnings per share
before extraordinary
item................... 1.47 0.66 1.98 1.40 1.72
Extraordinary loss per
share.................. -- -- -- -- (0.30)
-------- -------- -------- -------- --------
Net earnings per share.. $ 1.47 $ 0.66 $ 1.98 $ 1.40 $ 1.42
======== ======== ======== ======== ========
Weighted average common
and equivalent shares
outstanding............ 39,307 40,174 40,200 40,204 40,302
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
APPLIED POWER INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
August 31,
-------------------- May 31,
1998 1999 2000
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................. $ 5,069 $ 7,256 $ 6,808
Accounts receivable, net................... 57,796 63,502 79,732
Inventories, net........................... 85,797 100,724 93,276
Prepaid expenses........................... 12,286 8,769 7,122
Deferred income taxes...................... 17,558 7,564 8,599
-------- ---------- ----------
Total current assets..................... 178,506 187,815 195,537
Net property, plant and equipment............ 77,281 78,998 70,679
Goodwill, net................................ 163,448 158,448 140,696
Other intangibles, net....................... 30,544 30,987 28,750
Net assets of discontinued operations........ 249,696 598,458 597,489
Other assets................................. 12,051 5,166 2,385
-------- ---------- ----------
Total assets............................. $711,526 $1,059,872 $1,035,536
======== ========== ==========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings...................... $ 91 $ 230 $ --
Trade accounts payable..................... 49,573 52,361 55,730
Accrued compensation and benefits.......... 25,609 20,340 16,448
Other current liabilities.................. 36,724 23,591 19,582
-------- ---------- ----------
Total current liabilities................ 111,997 96,522 91,760
Long-term debt............................... 225,135 521,016 456,907
Deferred income taxes........................ 16,049 7,720 8,485
Other deferred liabilities................... 16,463 16,785 15,620
Shareholders' equity
Class A common stock, $0.20 par value per
share, authorized 80,000,000 shares,
issued and outstanding 38,626,068,
38,978,340 and 39,084,661 shares,
respectively.............................. 7,725 7,796 7,822
Additional paid-in capital................. 5,817 12,388 14,255
Retained earnings.......................... 335,805 412,863 468,104
Accumulated other comprehensive income..... (7,465) (15,218) (27,417)
-------- ---------- ----------
Total shareholders' equity............... 341,882 417,829 462,764
-------- ---------- ----------
Total liabilities and shareholders'
equity.................................. $711,526 $1,059,872 $1,035,536
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Years Ended August 31, 1997, 1998 and 1999
-------------------------------------------------------
Class Accumulated
A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1996................... $2,893 $(4,890) $250,576 $ 4,707 $253,286
Net earnings for the
year................. -- -- 57,925 -- 57,925
Currency translation
adjustments.......... -- -- -- (8,394) (8,394)
--------
Total comprehensive
income............. 49,531
Cash dividends
declared............. -- -- (3,114) -- (3,114)
Exercise of stock
options and issuance
of treasury stock.... 34 5,656 (861) -- 4,829
Tax benefit of stock
option exercises..... -- 1,052 -- -- 1,052
Stock repurchase and
other................ -- (223) -- -- (223)
------ ------- -------- -------- --------
Balance at August 31,
1997................... 2,927 1,595 304,526 (3,687) 305,361
Net earnings for the
year................. -- -- 26,687 -- 26,687
Currency translation
adjustments.......... -- -- -- (3,744) (3,744)
--------
Total comprehensive
income............. 22,943
Cash dividends
declared............. -- -- (2,564) -- (2,564)
Exercise of stock
options.............. 72 7,686 -- -- 7,758
Tax benefit of stock
option exercises..... -- 929 -- -- 929
Issuance of common
stock in 2-for-1
stock split.......... 2,778 (2,778) -- -- --
Effect of ZERO
excluded period (Note
A)................... 1,948 (1,615) 7,156 (34) 7,455
------ ------- -------- -------- --------
Balance at August 31,
1998................... 7,725 5,817 335,805 (7,465) 341,882
Net earnings for the
year................. -- -- 79,397 -- 79,397
Currency translation
adjustments.......... -- -- -- (7,753) (7,753)
--------
Total comprehensive
income............. 71,644
Cash dividends
declared............. -- -- (2,339) -- (2,339)
Exercise of stock
options.............. 71 4,641 -- -- 4,712
Tax benefit of stock
option exercises..... -- 1,930 -- -- 1,930
------ ------- -------- -------- --------
Balance at August 31,
1999................... $7,796 $12,388 $412,863 $(15,218) $417,829
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended May 31, 1999 (unaudited)
-------------------------------------------------------
Class Accumulated
A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1998................... $7,725 $ 5,817 $335,805 $ (7,465) $341,882
Net earnings for the
nine month period.... -- -- 56,215 -- 56,215
Currency translation
adjustments.......... -- -- -- (5,712) (5,712)
--------
Total comprehensive
income............. 50,503
Cash dividends
declared............. -- -- (1,755) -- (1,755)
Exercise of stock
options.............. 63 3,308 -- -- 3,371
------ ------- -------- -------- --------
Balance at May 31,
1999................... $7,788 $ 9,125 $390,265 $(13,177) $394,001
====== ======= ======== ======== ========
<CAPTION>
Nine Months Ended May 31, 2000 (unaudited)
-------------------------------------------------------
Class Accumulated
A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1999................... $7,796 $12,388 $412,863 $(15,218) $417,829
Net earnings for the
nine month period.... -- -- 56,998 -- 56,998
Currency translation
adjustments.......... -- -- -- (12,199) (12,199)
--------
Total comprehensive
income............. 44,799
Cash dividends
declared............. -- -- (1,757) -- (1,757)
Exercise of stock
options.............. 26 1,867 -- -- 1,893
------ ------- -------- -------- --------
Balance at May 31,
2000................... $7,822 $14,255 $468,104 $(27,417) $462,764
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Years Ended August 31, Ended May 31,
------------------------------- -----------------------
1997 1998 1999 1999 2000
--------- --------- --------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Earnings from
continuing
operations........... $ 22,632 $ 53 $ 34,580 $ 24,734 $22,766
Adjustments to
reconcile earnings
from continuing
operations to cash
provided by operating
activities of
continuing
operations:
Depreciation and
amortization........ 19,790 24,563 26,056 20,457 18,224
Gain from sale of
assets.............. -- (9,899) (323) (124) --
Extraordinary loss on
sale of subsidiary.. -- -- -- -- 13,886
Provision for
deferred income
taxes............... (1,716) (4,508) 1,804 -- --
Restructuring and
other non-recurring
items, net of income
tax benefit......... -- 41,741 4,694 -- --
Changes in operating
assets and
liabilities,
excluding the effects
of business
acquisitions and
disposals:
Accounts receivable.. 27 (1,834) 3,371 3,926 (14,849)
Inventories.......... 13,520 13,318 (17,664) (7,740) (4,971)
Prepaid expenses and
other assets........ (5,890) 6,478 (5,207) 2,338 2,402
Trade accounts
payable............. 3,356 7,564 (2,236) (4,627) 7,268
Other liabilities.... 436 (16,160) (14,169) (2,280) (7,890)
--------- --------- --------- --------- -------
Cash provided by (used
in) operating
activities of
continuing operations.. 52,155 61,316 30,906 36,684 36,836
Cash provided by
operating activities of
discontinued
operations............. 31,879 68,351 119,483 47,458 17,704
--------- --------- --------- --------- -------
Total cash provided by
operating activities... 84,034 129,667 150,389 84,142 54,540
Investing activities
Proceeds on sale of
property, plant and
equipment............ 3,591 16,908 4,884 4,760 703
Additions to property,
plant and equipment.. (15,734) (25,214) (22,885) (21,262) (9,170)
Business acquisitions,
net of cash
acquired............. -- (135,727) (7,320) (3,500) --
Product line
dispositions and
other................ 902 6,061 -- -- 15,233
Net investing
activities of
discontinued
operations........... (93,103) (313,999) (435,337) (409,078) (42,206)
--------- --------- --------- --------- -------
Cash used in investing
activities............. (104,344) (451,971) (460,658) (429,080) (35,440)
Financing activities
Net principal
borrowings (payments)
on long-term debt.... (30,565) 102,591 403,349 (27,130) (36,514)
(Decreases in)
additions to
receivables financing
facility............. (7,191) 25,399 1,634 1,950 (9,656)
Proceeds from
sale/leaseback
transactions......... -- -- 6,293 -- --
Dividends paid on
common stock......... (3,114) (2,564) (2,339) (1,171) (1,757)
Stock option exercises
and other............ 4,863 6,855 4,552 3,332 1,893
Net financing
activities of
discontinued
operations........... 71,767 165,348 (86,790) 377,053 11,657
--------- --------- --------- --------- -------
Cash provided by (used
in) financing
activities............. 35,760 297,629 326,699 354,034 (34,377)
Effect of exchange rate
changes on cash........ (1,422) (882) (521) 47 (173)
--------- --------- --------- --------- -------
Net increase (decrease)
in cash and cash
equivalents............ 14,028 (25,557) 15,909 9,143 (15,450)
Effect of change in cash
of discontinued
operations............. (7,190) 7,769 (13,722) 1,280 15,002
Cash and cash
equivalents--beginning
of year................ 6,160 12,998 5,069 5,069 7,256
Effect of ZERO excluded
period (Note A)........ -- 9,859 -- -- --
--------- --------- --------- --------- -------
Cash and cash
equivalents--end of
year................... $ 12,998 $ 5,069 $ 7,256 $ 15,492 $ 6,808
========= ========= ========= ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Statements: The accompanying Consolidated
Statements of Earnings and Cash Flows for the nine months ended May 31, 1999
and May 31, 2000, the Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the nine months ended May 31, 2000, the Consolidated
Balance Sheet as of May 31, 2000 and the related notes, have not been audited.
Note A--Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Applied Power Inc. and its subsidiaries, doing business as
Actuant Corporation ("Applied Power," "Actuant," or the "Company"). Applied
Power consolidates companies in which it owns or controls more than fifty
percent of the voting shares. The results of companies acquired or disposed of
during the fiscal year are included in the consolidated financial statements
from the effective date of acquisition or until the date of disposal except in
the case of pooling of interests (see "Basis of Presentation" below). All
significant intercompany balances, transactions and profits have been
eliminated in consolidation.
Basis of Presentation: The consolidated financial statements have been
prepared in United States Dollars in accordance with generally accepted
accounting principles in the United States. As described more fully in Note D--
"Merger, Acquisitions and Divestitures," on July 31, 1998, ZERO Corporation, a
Delaware corporation ("ZERO"), became a wholly-owned subsidiary of Applied
Power through the merger of STB Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Applied Power ("STB"), with and into ZERO (the
"Merger") pursuant to an Agreement and Plan of Merger by and among Applied
Power, ZERO and STB dated as of April 6, 1998 (the "Merger Agreement"). The
consolidated financial statements have been prepared following the pooling of
interests method of accounting for the Merger and therefore reflect the
combined financial position, operating results and cash flows of ZERO as if
they had been combined for all periods presented. Prior to the Merger, ZERO had
a March 31 fiscal year end. The Consolidated Balance Sheet and Statements of
Earnings, Shareholders' Equity and Comprehensive Income, and Cash Flows as of
and for the year ended August 31, 1998 reflect the combination of an August 31
year end consolidated financial position, results of operations and cash flows
for ZERO. The Consolidated Statements of Earnings, Shareholders' Equity and
Comprehensive Income, and Cash Flows for the year ended August 31, 1997 reflect
the combination of the results of operations and cash flows of ZERO for the
year ended March 31, 1997 and the results of operations and cash flows of
Applied Power Inc. for the fiscal year ended August 31, 1997. The results of
operations and cash flows for ZERO from April 1, 1997 to August 31, 1997, which
have been excluded from these consolidated financial statements, are reflected
as a fiscal 1998 adjustment to the Consolidated Statements of Shareholders'
Equity and Comprehensive Income and Cash Flows. Net sales and net income for
ZERO for the excluded period from April 1, 1997 to August 31, 1997 were $107.2
million and $7.9 million, respectively. The majority of the ZERO businesses are
part of the Electronics segment and are part of discontinued operations as
described more fully in Note B--"Discontinued Operations."
Unaudited Interim Financial Statements: The accompanying Consolidated
Statements of Earnings and Cash Flows for the nine months ended May 31, 1999
and May 31, 2000, the Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the nine months ended May 31, 2000, the Consolidated
Balance Sheet as of May 31, 2000 and the related notes, have not been audited.
However, they have been prepared in conformity with the accounting principles
stated in the audited consolidated financial statements for the years ended
August 31, 1997, 1998, and 1999. In the opinion of management, all adjustments
have been made, including normal recurring adjustments, that are necessary to
present fairly the unaudited interim consolidated financial statements. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
F-9
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.
Inventory cost is determined using the last-in, first-out ("LIFO") method for a
portion of U.S. owned inventory (approximately 63% and 62% of total inventories
in 1998 and 1999, respectively). The first-in, first-out or average cost
methods are used for all other inventories. If the LIFO method was not used,
inventory balances would be higher than the amounts in the Consolidated Balance
Sheets by approximately $8.6 million and $8.4 million at August 31, 1998 and
1999, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated over the estimated useful lives of
the assets, ranging from two to thirty years, under the straight-line method
for financial reporting purposes and either the straight-line or regulatory
methods for income tax purposes. Capital leases and leasehold improvements are
amortized over the life of the related asset or the life of the lease,
whichever is shorter. Expenditures for maintenance and repairs not expected to
extend the useful life of an asset beyond its normal useful life are expensed
as incurred.
Goodwill and Other Intangible Assets: Goodwill is amortized on a straight-
line basis over periods of fifteen to forty years. Other intangible assets,
consisting primarily of purchased patents, trademarks and noncompete
agreements, are amortized over periods from two to forty years. The Company
periodically evaluates the carrying value of goodwill and other intangible
assets. Impairment of goodwill, if any, is measured on the basis of whether
anticipated undiscounted operating cash flows generated by the underlying
assets exceeds the recorded goodwill. For the year ended August 31, 1998, the
Company recorded an impairment of goodwill of $5.6 million. For further
information, see Note H--"Merger, Restructuring and Other Non-recurring Items."
Based on the Company's evaluation, no impairment of goodwill was realized for
any other periods presented.
Revenue Recognition: Revenues and costs of products sold are recognized as
the related products are shipped.
Research and Development Costs: Research and development costs are expensed
as incurred. Such costs incurred in the development of new products or
significant improvements to existing products totaled approximately $9.5
million, $11.2 million and $7.6 million in fiscal 1997, 1998 and 1999,
respectively.
Financing Costs: Net financing costs represent interest expense, financing
fees, amortization of debt financing costs and accounts receivable financing
costs, net of interest and investment income earned, which were insignificant
for all periods presented.
Income Taxes: The Company uses the liability method to record deferred
income tax assets and liabilities relating to the expected future income tax
consequences of transactions that have been recognized in the consolidated
financial statements. Under this method, deferred tax assets and liabilities
are determined based on the temporary differences between financial statement
carrying amounts and income tax bases of assets and liabilities using tax rates
in effect in the years in which temporary differences are expected to reverse.
For further information, see Note M--"Income Taxes."
F-10
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Earnings Per Share: The following table sets forth the computation of basic
and diluted earnings per share (fiscal 1998 and 1999 results include
restructuring charges and other one-time items--see Note H--"Merger,
Restructuring and Other Non-recurring Items"):
<TABLE>
<CAPTION>
Nine Months
Years Ended August 31, Ended May 31,
----------------------- -----------------------
1997 1998 1999 1999 2000
------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Numerator (in thousands):
Earnings from continuing
operations.................. $22,632 $ 53 $34,580 $24,734 $34,952
Earnings from discontinued
operations.................. 35,293 26,634 44,817 31,481 34,232
Extraordinary loss on sale of
subsidiary.................. -- -- -- -- (12,186)
------- ------- ------- ------- -------
Net earnings............... $57,925 $26,687 $79,397 $56,215 $56,998
======= ======= ======= ======= =======
Denominator (in thousands):
Weighted average common
shares outstanding for basic
earnings per share.......... 37,880 38,380 38,825 38,783 39,045
Net effect of dilutive stock
options based on the
treasury stock method using
average market price........ 1,427 1,794 1,375 1,421 1,257
------- ------- ------- ------- -------
Weighted average common and
potentially issuable
shares outstanding for
diluted earnings per
share..................... 39,307 40,174 40,200 40,204 40,302
======= ======= ======= ======= =======
Basic Earnings Per Share:
Earnings from continuing
operations per share........ $ 0.60 $ 0.00 $ 0.89 $ 0.64 $ 0.89
Earnings from discontinued
operations per share........ 0.93 0.70 1.15 0.81 0.88
Extraordinary loss per
share....................... -- -- -- -- (0.31)
------- ------- ------- ------- -------
Net earnings per share..... $ 1.53 $ 0.70 $ 2.04 $ 1.45 $ 1.46
======= ======= ======= ======= =======
Diluted Earnings Per Share:
Earnings from continuing
operations per share........ $ 0.57 $ 0.00 $ 0.86 $ 0.62 $ 0.87
Earnings from discontinued
operations per share........ 0.90 0.66 1.12 0.78 0.85
Extraordinary loss per
share....................... -- -- -- -- (0.30)
------- ------- ------- ------- -------
Net earnings per share..... $ 1.47 $ 0.66 $ 1.98 $ 1.40 $ 1.42
======= ======= ======= ======= =======
</TABLE>
Stock options to purchase approximately 0.4 million shares of common stock
were outstanding during 1999 but were not included in the above computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares. Less than 0.1 million stock options
were anti-dilutive for fiscal years 1997 and 1998.
Foreign Currency Translation: A significant portion of the Company's sales,
income and cash flow is derived from its international operations. The
financial position and the results of operations of Actuant's foreign
operations are measured using the local or regional currency of the countries
in which they operate and are translated into U.S. Dollars. Revenues and
expenses of foreign subsidiaries are translated into U.S. Dollars at the
average exchange rate effective during the period. Although the effects of
foreign currency fluctuations are mitigated by the fact that expenses of
foreign subsidiaries are generally incurred in the same currencies in which the
sales are generated, the reported results of operations of Actuant's foreign
subsidiaries are affected
F-11
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
by changes in foreign currency exchange rates and, as compared to prior
periods, will be higher or lower depending on the weakening or strengthening of
the U.S. Dollar. In addition, a portion of Actuant's net assets is based in its
foreign subsidiaries and translated into U.S. Dollars at the foreign currency
rate in effect at the end of each period. Accordingly, Actuant's consolidated
shareholders' equity will fluctuate depending upon the strengthening or
weakening of the U.S. Dollar versus other currencies. Such currency translation
amounts constitute the balance of accumulated other comprehensive income in the
accompanying Consolidated Balance Sheets. Net gains (losses) resulting from
foreign currency transactions, included in "Other (income) expense--net" in the
Consolidated Statements of Earnings, amounted to $1.0 million, $(0.1) million
and $(0.7) million for the years ended August 31, 1997, 1998 and 1999,
respectively.
Foreign Currency Hedging and Derivative Financial Instruments: Borrowings
under long-term foreign currency loans are used to partially hedge against
declines in the value of net investments in certain foreign subsidiaries. The
Company also periodically enters into foreign currency contracts to hedge
certain exposures related to selected transactions. Applied Power had no
foreign currency contracts in place at August 31, 1999.
Derivative financial instruments are primarily utilized by the Company to
manage risks associated with interest rate market volatility and foreign
exchange exposures. The Company does not hold or issue derivative financial
instruments for trading purposes. For interest rate swap agreements, the
differential to be paid or received is accrued monthly as an adjustment to
interest expense. The Company also utilizes foreign currency forward contracts
to hedge existing foreign exchange exposures. Gains and losses resulting from
these instruments are recognized in the same period as the underlying
transaction. Gains relating to terminations of qualifying hedges are deferred
and recognized in income at the same time as the underlying hedged
transactions.
Fair Value of Financial Instruments: The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, short-term
borrowings and long-term debt approximated book value as of August 31, 1998 and
1999 due to their short-term nature and the fact that the interest rates
approximated year-end market rates of interest. The fair value of debt
instruments is calculated by discounting the cash flow of such obligations
using the market interest rates for similar instruments.
Use of Estimates: The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses for the periods presented. They
also affect the disclosure of contingencies. Actual results could differ from
those estimates and assumptions.
New Accounting Pronouncements: In June 1998, Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued and was effective for all fiscal years
beginning after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of SFAS No. 133," and will now be effective for
fiscal years beginning after June 15, 2000, with early adoption permitted. SFAS
No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. Upon
adoption, the Company will be required to report derivative and hedging
instruments at fair value in the balance sheet and recognize changes in the
fair value of derivatives in net earnings or other comprehensive income, as
appropriate. SFAS No. 133, as amended, will be effective for the Company's
fiscal year 2001 first quarter financial statements and restatement of prior
years will not be permitted. Given Applied Power's current derivative and
hedging activities, the pronouncement is not expected to have a material effect
on the Company's financial position or results of operations.
F-12
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
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 not
have a material effect on its financial statements.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the fiscal 1999 presentation.
Note B--Discontinued Operations
On January 27, 2000, Applied Power's board of directors authorized various
actions intended to enable Applied Power to distribute its Electronics segment
("APW Ltd.") to its shareholders (the "Distribution"). In the Distribution,
Applied Power shareholders will receive, in the form of a special dividend, one
share of APW Ltd. common stock for each Applied Power common share. As a
result, APW Ltd. will become a separately traded, publicly held company. The
Distribution was approved by the board of directors on July 7, 2000 and shares
of APW Ltd. will be distributed to Applied Power shareholders effective July
31, 2000 to shareholders of record at July 21, 2000.
Accordingly, the consolidated financial statements and related notes have
been reclassified to reflect the Company's Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, assets and
liabilities, and cash flows of the Electronics segment have been excluded from
the respective captions in the accompanying consolidated financial statements.
The net operating results of the Electronics segment have been reported, net of
applicable taxes, as "Earnings from operations of discontinued Electronics
segment." The net operating results of the discontinued operations include
financing costs related to the debt of the Electronics segment. The net assets
of the Electronics segment have been reported in the Consolidated Balance
Sheets as "Net assets of discontinued operations."
For purposes of this presentation, the amount of debt allocated to
continuing and discontinued operations was determined based on preliminary
estimates of the amount of debt expected to be retained by Actuant and
allocated to APW Ltd. in the Distribution. The allocation of interest to
continuing and discontinued operations was based on relative debt levels
assigned. In conjunction with the Distribution, the majority of the Company's
existing credit facilities and Notes are anticipated to be replaced with new
facilities and notes. There were no general corporate expenses allocated to
discontinued operations during the periods presented.
F-13
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
The following selected financial data for the Electronics business segment
is presented for informational purposes only and does not necessarily reflect
what the results of operations and financial position would have been had the
segment operated as a stand-alone entity (in thousands).
<TABLE>
<CAPTION>
Nine months
Fiscal year ended August 31, ended May 31,
---------------------------- ----------------------
1997 1998 1999 1999 2000
-------- -------- ---------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales................ $375,318 $593,210 $1,055,338 $773,763 $ 886,014
======== ======== ========== ======== ==========
Earnings before income
tax expense............. $ 56,129 $ 48,256 $ 69,341 $ 50,317 $ 59,105
Income tax expense....... 20,836 21,622 24,524 18,836 22,790
Extraordinary loss, net
of taxes -- -- -- -- (2,083)
-------- -------- ---------- -------- ----------
Earnings from operations
of discontinued
Electronics segment,
net of taxes.......... $ 35,293 $ 26,634 $ 44,817 $ 31,481 $ 34,232
======== ======== ========== ======== ==========
Current assets........... $188,935 $ 222,025 $ 257,338
======== ========== ==========
Total assets............. $715,769 $1,164,236 $1,170,102
======== ========== ==========
Current liabilities...... $182,392 $ 231,154 $ 237,364
======== ========== ==========
Total liabilities........ $466,073 $ 565,778 $ 572,613
======== ========== ==========
Net assets of
discontinued
operations.............. $249,696 $ 598,458 $ 597,489
======== ========== ==========
</TABLE>
In order to effect the Distribution, Applied Power and the Electronics
business segment will enter into the following agreements:
. Contribution Agreement, Plan and Agreement of Reorganization and
Distribution
. General Assignment, Assumption and Agreement regarding Litigation,
Claims, and other Liabilities
. Transitional Trademark Use and License Agreement
. Insurance Matters Agreement
. Bill of Sale and Assumption of Liabilities
. Employee Benefits and Compensation Agreement
. Tax Sharing and Indemnification Agreement
. Interim Administrative Services Agreement
. Confidentiality and Non Disclosure Agreement
. Assumption of Applied Power Inc. Debt Obligation
These Agreements define the ongoing relationship between the parties after
the Distribution. Applied Power and the Electronics business segment have
established pricing terms for services to be effective after the Distribution
believed to be comparable to what could be achieved through arm's-length
negotiations. Following the Distribution, additional or modified agreements,
arrangements and transactions may be entered into and such agreements and
transactions will be negotiated on an arm's-length basis.
F-14
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Note C--Extraordinary Item
In May 2000, the Company recorded an extraordinary $13.9 million charge
($12.2 million net of $1.7 million tax benefit) related to the loss on the sale
of Air Cargo Corporation and related other assets. Applied Power Inc had
acquired Air Cargo Equipment Corporation as part of the ZERO pooling of
interests on July 1, 1998. It is presented as an extraordinary item due to
meeting the following criteria; (i) the divestiture occurred within two years
of the pooling of interest, (ii) the divestiture was not planned at that time
of the pooling of interest and (iii) operations divested are material based on
the relative criteria. See note D--"Merger, Acquisitions and Divestitures" for
additional information.
Note D--Merger, Acquisitions and Divestitures
Nine Months Ended May 31, 2000 (unaudited)--
Acquisition--
On January 28, 2000, Applied Power, through a wholly owned subsidiary,
acquired all of the outstanding stock of Metalade of Pennsylvania, Inc.
("Metalade"). Metalade specializes in metal fabrication relating to electronic
enclosures. The purchase price of this acquisition totaled $8.7 million,
including fees and expenses, plus future consideration not to exceed $5.0
million based on future achieved sales levels. The acquisition was funded by
borrowings under Applied Power credit facilities. The acquisition has been
accounted for using the purchase method. Metalade is included in discontinued
operations in the Consolidated Statements of Earnings from the acquisition
date. Preliminary allocations of the purchase price resulted in approximately
$6.7 million of goodwill.
Divestiture--
The company completed the sale of Air Cargo Corporation, a business unit in
the Engineered Solutions segment, to Teleflex Incorporated on May 26, 2000. The
total consideration from the transaction, which was structured as both a sale
of stock of the Air Cargo Equipment Corporation and the sale of other assets,
was $12.0 million, resulting in an extraordinary loss of $13.9 million, $12.2
million after-tax.
On November 23, 1999, a wholly-owned subsidiary of the Company completed the
sale of the assets of Samuel Groves & Co. Ltd., a business unit in the
Engineered Solutions segment. Total consideration from the transaction was
approximately $3.0 million, which approximated the book value of such assets.
Fiscal 1999--
Acquisitions
On September 29, 1998, Applied Power, through its wholly-owned subsidiary,
APW Enclosure Systems Limited, accepted for payment all shares of Rubicon Group
plc ("Rubicon") common stock which had been tendered pursuant to the APW
Enclosure Systems Limited tender offer (with a guaranteed loan note
alternative) for all outstanding shares of common stock at 2.35 pounds sterling
per share and all outstanding cumulative preference shares at 0.50 pounds
sterling per share. The tendered common shares accepted for payment exceeded
90% of the outstanding common shares on October 8, 1998, and APW Enclosure
Systems Limited invoked Section 429 of the UK Companies Act of 1985, as
amended, to acquire the remaining outstanding common shares of Rubicon. APW
Enclosure Systems Limited now owns all of the common shares of Rubicon. Rubicon
is a leading provider of electronic manufacturing services and engineered
magnetic solutions to major OEMs in the information technology and
telecommunication industries. Cash paid for Rubicon totaled $371.5
F-15
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
million, with the purchase price allocation resulting in $340.6 million of
goodwill. Funds for the acquisition were provided through Applied Power's
credit facilities. The acquisition was accounted for using the purchase method
of accounting. The operating results of Rubicon subsequent to September 29,
1998 are included in discontinued operations in the Consolidated Statements of
Earnings.
In June 1999, Applied Power, through a wholly owned subsidiary, acquired all
of the outstanding stock of Innovative Metal Fabrication, Inc. ("Innovative").
Innovative designs and manufactures technical environments used in electronic
assembly operations, as well as electronic gaming enclosures, in Grass Valley,
CA and Austin, TX. In May 1999, Applied Power also acquired certain assets of
Connector Technology, Inc. ("CTI") of Anaheim, CA. CTI manufactures custom
backplanes and was integrated with Applied Power's Electronic Solutions
business unit. Also, in the fourth quarter of fiscal 1999, a wholly-owned
subsidiary of the Company purchased shares of Ergun Kriko San Ticaret
("Ergun"), an Akhisar, Turkey based company specializing in the manufacture of
hydraulic cab-tilting systems and hydraulic bottle jacks for the Turkish truck
market. The total purchase price of the combined Innovative, CTI and Ergun
acquisitions totaled approximately $17.0 million, including fees and expenses,
and was funded by borrowings under Applied Power credit facilities. Allocations
of the purchase price resulted in approximately $10.9 million of goodwill. All
three acquisitions have been accounted for using the purchase method. The
results of operations of Ergun are included in earnings from continuing
operations in the Consolidated Statements of Earnings from its acquisition
date, while the results of operations of Innovative and CTI are included in
discontinued operations.
Fiscal 1998--
Merger
On July 31, 1998, shareholders of Applied Power voted to approve the merger
of a newly created subsidiary of Applied Power into ZERO Corporation ("ZERO").
The Merger was completed after the approval of the shareholders of Applied
Power and ZERO at their respective special shareholder meetings. Under the
terms of the Merger Agreement, ZERO stockholders received 0.85 of a share of
Applied Power's Common Stock for each share of ZERO Common Stock. Applied Power
issued approximately 10.6 million shares of its common stock in exchange for
all outstanding common stock of ZERO Corporation and assumed outstanding stock
options to purchase ZERO common stock that were converted into stock options to
purchase approximately 0.6 million shares of Applied Power's common stock
pursuant to the terms of the Merger. This equates to a purchase price of
approximately $386 million based on the July 30, 1998 closing stock price of
Applied Power. ZERO's primary business is protecting electronics. ZERO's system
packaging, thermal management and engineered cases serve the telecommunication,
instrumentation and data-processing markets. ZERO also produces the ZERO
Halliburton(R) line of cases for consumers worldwide and cargo containers and
proprietary loading systems to the airline industry. The Merger has been
accounted for using the pooling of interests method of accounting, and
therefore, the consolidated financial statements reflect the consolidated
financial position, operating results and cash flows of Applied Power and ZERO
as if they had been consolidated for all periods presented. The majority of the
ZERO businesses are included in discontinued operations in the Consolidated
Statements of Earnings as described more fully in Note B--"Discontinued
Operations."
All fees and expenses related to the ZERO merger and to the integration of
the combined companies have been expensed as required under the pooling of
interests method of accounting. Such fees and expenses amounted to $20.1
million in 1998. This total includes transaction costs of approximately $9.3
million related to legal, accounting and financial advisory services. The
remaining $10.8 million reflects costs associated with organizational
realignment, closure of ZERO headquarters, facility consolidation and the
conforming of
F-16
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
accounting policies. Substantially all of such amounts were considered general
corporate expense and therefore, included in continuing operations.
Acquisitions
On June 5, 1998, Applied Power Limited, a United Kingdom subsidiary of
Applied Power, accepted for payment all of the VERO Group plc ("VERO") stock
tendered, which totaled over 72% of the outstanding VERO shares, pursuant to
Applied Power Limited's tender offer to acquire the entire issued share capital
of VERO at a price of 192 pence per VERO share (the "Offer"). Applied Power
Limited had previously acquired approximately 10% of VERO's shares, so that
after accepting the shares tendered, Applied Power Limited owned or had
accepted over 82% of VERO's shares. On June 19, 1998, Applied Power Limited
announced that additional shares tendered brought the total of the shares it
owned or had accepted for payment to over 90% of VERO's issued share capital
and that it would invoke Section 429 of the U.K. Companies Act of 1985, as
amended, to acquire the remaining outstanding shares of VERO stock. After the
required procedures were completed, Applied Power Limited owned all of the
issued share capital of VERO. Total purchase price for the transaction amounted
to approximately $191.7 million. Allocations of the purchase price resulted in
approximately $183.8 million of goodwill. VERO is a United Kingdom based
company that manufactures electronic enclosures, racks, backplanes and power
supplies. The acquisition has been accounted for using the purchase method of
accounting. The operating results of VERO subsequent to June 5, 1998 are
included in discontinued operations in the Consolidated Statements of Earnings.
On October 6, 1997, the Company, through a wholly-owned subsidiary, accepted
for payment all shares of Versa Technologies, Inc. ("Versa/Tek") common stock
which were tendered pursuant to the Company's tender offer to purchase all
outstanding shares at a cash price of $24.625 net per share. The balance of the
outstanding shares was acquired for the same per share cash price in a follow-
up merger on October 9, 1997. Cash paid for the transaction totaled
approximately $141.0 million. Allocations of the purchase price resulted in
approximately $104.5 million of goodwill. Funds for the acquisition were
primarily provided through Applied Power's credit facilities. Versa/Tek,
operating out of several locations in Wisconsin, is a value-added manufacturer
of custom-engineered components and systems for diverse industrial markets. The
acquisition has been accounted for using the purchase method of accounting. The
operating results of Versa/Tek subsequent to October 6, 1997 are included in
earnings from continuing operations in the Consolidated Statement of Earnings.
In addition to the VERO and Versa/Tek acquisitions discussed above, in
fiscal 1998 the Company acquired nine other companies, primarily in its
discontinued Electronics business segment, for an aggregate purchase price of
approximately $134.4 million, including $127.7 million in cash and the
assumption of approximately $6.7 million in debt. The cash portion of the
acquisitions was funded by borrowings under Applied Power credit facilities.
Each of these acquisitions was accounted for using the purchase method of
accounting and the results of operations of the acquired companies are included
in earnings from continuing operations in the Consolidated Statements of
Earnings from their respective acquisition dates, with the Electronics segment
acquisitions reported in discontinued operations. As a result of the
acquisitions, the Company recorded approximately $105.4 million of goodwill.
The following unaudited pro forma data summarize the results of operations
for the periods presented as if the acquisition of Versa/Tek had been completed
on September 1, 1996, the beginning of the Company's 1997 fiscal year. The pro
forma data give effect to actual operating results prior to the respective
acquisitions and adjustments to interest expense, goodwill amortization and
income tax expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained if the acquisition had
occurred
F-17
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
on September 1, 1996 or that may be obtained in the future. The pro forma
effects of all other fiscal 1997, 1998, 1999 and nine months ended May 31, 2000
acquisitions are not included in the below data as they are included in
discontinued operations in the Consolidated Statements of Earnings from the
acquisition date or are not significant to the net sales, net earnings and
earnings per share amounts reported in the accompanying financial statements.
<TABLE>
<CAPTION>
Fiscal Year Ended August 31,
-----------------------------
1997 1998
-------------- --------------
(in thousands, except
per share amounts)
<S> <C> <C>
Net Sales................................. $ 624,299 $ 646,809
Earnings from continuing operations....... $ 20,629 $ 130
Basic Earnings Per Share from continuing
operations............................... $ 0.55 $ 0.00
Shares Used in Computation................ 37,880 38,380
Diluted Earnings Per Share from continuing
operations............................... $ 0.53 $ 0.00
Shares Used in Computation................ 39,307 40,174
</TABLE>
Divestiture
On March 31, 1998, the Company completed the sale of the assets of Moxness
Industrial Products, a division of Versa/Tek. Total consideration from the
transaction was $6.0 million, which approximated book value of the assets.
Fiscal 1997--
Acquisitions
On September 26, 1996, the Company acquired the net assets of Everest
Electronic Equipment, Inc. ("Everest") for cash consideration of $52.0 million,
which was funded through borrowings under then existing Applied Power credit
facilities. Approximately $43.0 million of the purchase price was assigned to
goodwill. Everest is a manufacturer of custom and standard electronic
enclosures used by the computer, telecommunication, datacom and other
industries and is headquartered in Anaheim, California. The acquisition has
been accounted for using the purchase method of accounting. The results of
Everest subsequent to the acquisition date are included in the Electronics
segment and are therefore included in discontinued operations in the
Consolidated Statements of Earnings.
In addition to the acquisition of Everest discussed above, in fiscal 1997
the Company acquired three other companies for an aggregate of approximately
$22.8 million in cash plus $5.8 million in subsequent earn-out payments. The
cash portion of the purchase price was funded by borrowings under then existing
Applied Power credit facilities. Each of these acquisitions was accounted for
as a purchase and the results of operations of the acquired companies, all in
the Electronics segment, are included in discontinued operations in the
Consolidated Statements of Earnings from their respective acquisition dates. As
a result of the acquisitions, the Company recorded approximately $17.0 million
in goodwill.
Note E--Accounts Receivable Financing
On November 20, 1997, the Company replaced its former $50.0 million accounts
receivable financing facility with a new facility that provided up to $80.0
million of multi-currency accounts receivable financing. This new agreement
expires in November 2000. On August 28, 1998, the Company amended the facility
by
F-18
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
increasing the amount of multi-currency accounts receivable financing to $90.0
million. On December 18, 1998, the facility was increased to $150.0 million of
multi-currency accounts receivable financing. All other substantive terms of
the amended agreements remained the same.
Applied Power and certain subsidiaries (collectively, "Originators") sell
trade accounts receivable to Applied Power Credit Corporation ("APCC"), a
wholly owned limited purpose subsidiary of Applied Power. 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. APCC has the risk of credit loss on such
receivables up to a maximum recourse amount of 16% of sold receivables. Applied
Power retains collection and administrative responsibilities on the
participation interests sold as servicer for APCC and the Purchasers.
At August 31, 1998, August 31, 1999 and May 31, 2000, accounts receivable
were reduced by $51.3 million, $52.9 million and $43.8 million, respectively,
representing receivable interests sold under this program. Sales of trade
receivables are reflected as a reduction of accounts receivable in the
accompanying Consolidated Balance Sheets and the proceeds received, which are
used to reduce debt, are included in cash flows from financing activities in
the accompanying Consolidated Statements of Cash Flows.
Accounts receivable financing costs totaling $1.8 million, $2.6 million and
$3.2 million for the years ended August 31, 1997, 1998 and 1999, respectively,
are included in net financing costs in the accompanying Consolidated Statements
of Earnings.
Immediately after the Distribution, the Company does not anticipate
continuing the accounts receivable financing program.
Note F--Net Inventories
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any
point in time is minimal. In addition, many parts or components are ultimately
either sold individually or assembled with other parts making a distinction
between raw materials and finished goods impractical to determine. Several
other locations maintain and manage their inventories using a job cost system
where the distinction of categories of inventory by state of completion is also
not available.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only be
possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
Note G--Shareholders' Equity
The authorized capital stock of the Company as of August 31, 1999 consists
of 80,000,000 shares of Class A Common Stock, $0.20 par value, of which
38,978,340 shares were issued and outstanding; 7,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued and outstanding; and
800,000 shares of Cumulative Preferred Stock, $1.00 par value ("Preferred
Stock"), none of which have been issued. Holders of both classes of the
Company's Common Stock are entitled to such dividends as the Company's
F-19
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
board of directors may declare out of funds legally available, subject to any
contractual restrictions on the payment of dividends or other distributions on
the Common Stock. If the Company were to issue any of its Preferred Stock, no
dividends could be paid or set apart for payment on shares of Common Stock,
unless paid in Common Stock, until dividends on all of the issued and
outstanding shares of Preferred Stock had been paid or set apart for payment
and provision had been made for any mandatory sinking fund payments. In the
event of dissolution or liquidation of the Company, the holders of both classes
of Common Stock are entitled to share ratably all assets of the Company
remaining after payment of the Company's liabilities and satisfaction of the
rights of any series of Preferred Stock, which may be outstanding. There are no
redemption or sinking fund provisions with respect to the Common Stock.
On January 8, 1998, the board of directors authorized a two-for-one stock
split effected in the form of a 100 percent stock dividend to shareholders of
record on January 22, 1998. To effect the stock split, a total of 13,891,578
shares of the Company's Class A Common Stock was issued on February 3, 1998.
All references in the consolidated financial statements to the average number
of common shares and related per share amounts have been restated to reflect
the stock split.
At the Annual Meeting of Shareholders on January 9, 1998, the shareholders
voted to increase the number of authorized shares of Class A Common Stock from
40,000,000 to 80,000,000.
Note H--Merger, Restructuring and Other Non-recurring Items
Nine Months Ended May 31, 2000 (unaudited)--
In fiscal 2000, Applied Power recorded $4.4 million of fees and expenses
associated with the Distribution transaction and incorporating APW Ltd. Such
legal, accounting, tax and investment banking fees and expenses are reported
under the caption "Corporate Reorganization Expenses" in the Consolidated
Statement of Earnings for the nine months ended May 31, 2000.
In the first quarter of fiscal 2000, Applied Power recovered certain costs
associated with the cancellation of a contract within its Industrial business
segment for which a loss was recorded in a prior period. See fiscal 1999 below.
The gain of $1.4 million represents a reduction in the estimated loss
originally recorded in fiscal 1999.
Fiscal 1999--
In the first quarter of fiscal 1999, the Company incurred a $7.8 million
non-recurring charge due to the cancellation of a contract within the
Industrial business segment. The majority of these costs were incurred prior to
fiscal 1999.
Fiscal 1998--
In the fourth quarter of fiscal 1998, the Company recorded merger,
restructuring and other one-time charges of $50.4 million, $37.2 million net of
tax, or $0.93 per diluted share. The charge included $30.3 million relating to
action programs to eliminate less productive products and product lines,
consolidate Gardner Bender and Enerpac headquarters and combine certain
facilities. Also included were costs relating primarily to the write-off of
obsolete inventory to net realizable value, employee severance, facility
closures, operating lease obligations, and, in two cases, the write-down of
goodwill. The Company completed its planned restructuring programs during
fiscal 1999.
F-20
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
In connection with the Merger with ZERO consummated in fiscal 1998 (Note D--
"Merger, Acquisitions and Divestitures"), the Company recorded transaction
costs related to legal, accounting and financial advisory services which were
expensed as required under the pooling of interests method of accounting. In
addition, the Company incurred costs associated with organizational
realignment, closure of ZERO headquarters, a change in estimate of a receivable
valuation and the write-off of obsolete inventory due to conforming of product
lines. Together these totaled approximately $20.1 million and were part of the
$50.4 million charge discussed above.
The following table summarizes the manner in which merger, restructuring and
other non-recurring items were recorded in the 1998 Consolidated Statement of
Earnings (in thousands):
<TABLE>
<S> <C>
Cost of products sold.................................................. $15,660
Engineering, selling and administrative expenses....................... 9,019
Amortization of intangible assets...................................... 5,062
Restructuring charges.................................................. 11,367
Merger related expenses................................................ 9,276
-------
Subtotal............................................................. 50,384
Less: Income tax benefit............................................... 13,143
-------
Total................................................................ $37,241
=======
</TABLE>
Additionally, fiscal 1998 results included a pretax $4.5 million asset
impairment charge recorded to reduce the carrying amount of a European
subsidiary in the Industrial segment to estimated realizable value. This charge
is reported in the "Provision for loss on sale of subsidiary" caption in the
Consolidated Statement of Earnings. The assets of this European subsidiary were
sold in the first quarter of fiscal 2000. See Note D--"Mergers, Acquisitions
and Divestitures" for further discussion regarding the sale.
Note I--Debt
The Company's indebtedness was as follows (in thousands):
<TABLE>
<CAPTION>
August 31,
----------------- May 31,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Borrowings under:
Multi-currency revolving credit agreement...... $360,672 $407,287 $423,914
Senior subordinated notes, due 2009............ -- 200,000 200,000
Commercial paper............................... 42,930 108,691 78,862
Senior promissory notes, due March 8, 2011..... 50,000 50,000 --
Floating rate unsecured loan notes, due 2003... 27,386 30,681 25,927
Pound Sterling multi-currency revolving credit
agreement..................................... 26,218 5,623 5,592
Other.......................................... 5,351 6,156 10,034
-------- -------- --------
Total long-term debt............................. 512,557 808,438 744,329
Less: Amounts attributable to discontinued
operations.................................... 287,422 287,422 287,422
-------- -------- --------
Long-term debt attributable to continuing
operations...................................... $225,135 $521,016 $456,907
======== ======== ========
</TABLE>
On April 1, 1999, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2009 (the "1999 Notes"). Net proceeds from the 1999
Notes offering approximated $194.6 million after deducting underwriting
discounts and other offering expenses. Proceeds from the 1999 Notes were used
to repay a portion
F-21
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
of the borrowings outstanding under New Facility discussed below, thereby
restoring the Company's borrowing capacity under that agreement. Interest on
the 1999 Notes is payable semi-annually, and the Company has the option to
redeem all or a portion of the 1999 Notes at certain specified redemption
prices on or after April 1, 2004. The 1999 Notes are subordinate in right of
payment to the prior payment in full of all senior debt as defined in the
indenture.
To provide the necessary funds for the acquisition of Rubicon Group plc
("Rubicon") by the Company's Electronics segment, the Company and Enerpac B.V.,
a Netherlands subsidiary of the Company, as Borrowers, entered into a Multi-
currency Credit Agreement, dated as of October 14, 1998, providing for an
$850.0 million, five-year revolving credit facility (the "New Facility"). In
conjunction with the closing of the New Facility, the Company terminated its
prior $700.0 million, five-year revolving credit facility (the "Facility") and
used certain funds received under the New Facility to repay borrowings under
the Facility.
At August 31, 1999, direct outstanding borrowings under the New Facility
were $407.3 million and commercial paper borrowings and the floating rate
unsecured loan notes, considered a utilization of the New Facility, were $108.7
million and $30.7 million, respectively. At August 31, 1999, the Company had
borrowings under the New Facility of $235.0 million, $13.7 million and $158.6
million denominated in the U.S. Dollar, the Japanese Yen and the Euro,
respectively. Under the New Facility, the Company can borrow at a floating rate
of LIBOR plus 0.275% to 1.375% annually, depending on the Company's debt-to-
EBITDA ratio. Currently, the Company incurs interest at 1% above 30-day LIBOR,
determined by the underlying currency of the debt, which the Company is
borrowing. A non-use fee, currently computed at a rate of 0.275% annually, is
payable quarterly on the average unused credit line. The unused credit line of
the New Facility at August 31, 1999 was approximately $303.3 million.
The New Facility contains customary restrictions concerning investments,
liens on assets, sales of assets, maximum levels of debt and minimum levels of
shareholders' equity. In addition, the agreement requires the Company to
maintain certain financial ratios. As of August 31, 1999, the Company was in
compliance with all debt covenants.
Commercial paper outstanding at August 31, 1999 totaled $108.7 million, net
of discount, and carried an average interest rate of 5.4%. The Company has the
ability and intent to maintain these commercial paper obligations, classified
as long term, for more than one year. Amounts outstanding as commercial paper
reduce the amount available for borrowings under the New Facility.
The $50.0 million senior promissory notes due March 8, 2011 bear interest at
7.13%, and are payable in 11 annual installments of $4.5 million beginning
March 8, 2001. The proceeds from the notes were used solely for the repurchase
of ZERO's common stock in a Dutch Auction Tender Offer in fiscal 1996 and for
payment of related expenses. In January 2000, the Company paid off the $50.0
million senior promissory notes in anticipation of the Distribution. In
connection with this early retirement of debt, the Company paid a $3.3 million
make-whole premium, $2.1 million net of the tax benefits. This premium has been
included in discontinued operations in the Consolidated Statement of Earnings
for the nine-month period ended May 31, 2000.
The floating rate unsecured loan notes were entered into by the Company as a
result of its acquisitions of VERO and Rubicon. The notes were exchanged with
individual shareholders of VERO and Rubicon, at their option, in lieu of
receiving cash payment for their tendered shares. The notes carry an interest
rate of LIBOR minus 0.50% and can be redeemed at the option of the note holder
on various dates through 2003.
F-22
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
The Pound Sterling multi-currency revolving credit agreement was entered
into by the Company's VERO subsidiary in April 1998, prior to the acquisition
of VERO by the Company. The facility provides up to 27.5 million Pounds
Sterling of multi-currency borrowings and expires in 2003. Any borrowings under
this agreement carry an interest rate of LIBOR plus 0.65%, determined by the
underlying currency of the debt, which the Company is borrowing. At August 31,
1999, the facility had outstanding borrowings denominated in Pounds Sterling,
German Marks, French Francs, U.S. Dollars, Danish Krone and Italian Lira. The
agreement has certain covenants regarding tangible net worth and debt-to-net
worth, neither of which was deemed restrictive at August 31, 1999. The total
unused line of credit available under this agreement at August 31, 1999 was
approximately $38.4 million.
"Other" long-term debt primarily consists of various foreign lines-of-
credit.
Debt allocated to discontinued operations was determined based on the amount
of debt expected to be assumed by APW Ltd. in the Distribution. Prior to the
Distribution, most debt instruments were held centrally, and as such, debt from
these specific instruments was not historically allocated. The allocation of
interest to continuing and discontinued operations was based on the Company's
average interest rate costs and relative debt levels assigned. In conjunction
with the Distribution, the majority of the Company's existing credit facilities
and the 1999 Notes are anticipated to be replaced with new facilities and
notes.
Short-term Debt: Certain of the Company's foreign subsidiaries had other
short-term borrowings under unsecured non-committed lines of credit with banks
at August 31, 1998 and 1999. Interest rates vary depending on the currency
being borrowed. The weighted-average interest rates on the short-term
borrowings were 5.24% and 5.45% at August 31, 1998 and 1999, respectively.
Derivative Financial Instruments: As part of its interest rate management
program, the Company periodically enters into interest rate swap agreements
with respect to portions of its outstanding debt. The purpose of these swaps is
to protect the Company from the effect of an increase in interest rates. The
interest rate swap agreements in place at August 31, 1999 effectively converted
$436.8 million of the Company's variable rate debt to a weighted-average fixed
rate of 5.03%. The swap agreements expire on varying dates through 2006. During
the nine-month period ended May 31, 2000, the Company recorded a gain related
to the unwinding of interest rate swap agreements, which totaled $6.5 million,
in conjunction with final debt payments. The interest rate swap agreements were
unwound in anticipation of the spin-off of the Electronics segment and the
corresponding gain was included in discontinued operations in the Consolidated
Statement of Earnings for the nine-month period ended May 31, 2000.
The purpose of the Company's foreign currency hedging activities is to
protect the Company from the risk that the eventual U.S. Dollar cash flows
resulting from the sale and purchase of products in foreign currencies will be
adversely affected by changes in exchange rates. In addition, the Company seeks
to manage the impact of foreign currency fluctuations related to the repayment
of intercompany borrowings and, to a lessor degree, the impact of foreign
currency fluctuations on the net assets of foreign subsidiaries. Fluctuations
in the value of hedging instruments are offset by fluctuations in the value of
the underlying exposures being hedged. The Company uses from time to time
forward exchange contracts to hedge certain firm purchase and sales commitments
and the related receivables and payables including other third party or
intercompany foreign currency transactions. Cross-currency swaps are used to
hedge foreign currency denominated payments related to intercompany loan
agreements. Hedged transactions are denominated primarily in European
currencies. The net realized and unrealized gains or losses on forward
contracts deferred at August 31, 1999 were negligible. The Company also uses
borrowings under long-term foreign currency loans to partially hedge against
declines in the value of net investments in certain foreign subsidiaries.
F-23
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
The counterparties to these financial instruments consist of major financial
institutions with investment grade or better credit ratings. The Company does
not expect any losses from nonperformance by these counterparties.
Fair Values of Financial Instruments: The fair value of the Notes is
estimated based on quoted market prices. At August 31, 1999, the fair value of
the Notes was estimated to be approximately $189.0 million. At August 31, 1999,
the fair value of the Senior Promissory Notes was $50.7 million based on
current market interest rates of similar debt instruments.
The accompanying Consolidated Balance Sheets do not reflect a value for the
interest rate swap agreements. If the Company were to terminate its interest
rate swap agreements, the Company would have received $3.5 million at August
31, 1999, and would have had to pay $4.2 million at August 31, 1998. The
Company had no foreign currency contracts in place at August 31, 1999.
Adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," in fiscal 2001 will require the Company to record all derivative
instruments at their fair values. See Note A--"Summary of Significant
Accounting Policies--New Accounting Pronouncements."
Aggregate Maturities: Long-term debt outstanding at August 31, 1999 is
payable as follows: none in fiscal 2000; $11.8 million in fiscal 2001; none in
fiscal 2002; $24.3 million in fiscal 2003; $522.3 million in fiscal 2004 and
$250.0 million thereafter. These principal payments are expected to change
after the Distribution as the majority of the existing debt agreements and
facilities will be replaced concurrent with the Distribution.
The Company paid $15.5 million, $24.8 million and $61.5 million for
financing costs in fiscal 1997, 1998 and 1999, respectively, which included
both continuing and discontinued operations.
Note J--Leases
The Company leases certain facilities, computers, equipment and vehicles
under various lease agreements generally over periods of one to twenty years.
Under most arrangements, the Company pays the property taxes, insurance,
maintenance and expenses related to the leased property. Many of the leases
include provisions that enable the Company to renew the lease based upon fair
value rental rates on the date of expiration of the initial lease.
Future obligations under non-cancelable operating leases for both continuing
and discontinued business units in effect at August 31, 1999 are: $28.9 million
in fiscal 2000; $25.1 million in fiscal 2001; $29.9 million in fiscal 2002;
$20.2 million in fiscal 2003; $16.3 million in fiscal 2004 and $131.9 million
thereafter. It is expected that upon Distribution, the Electronics segment
leases will be assigned to APW Ltd. Future obligations related to the
continuing businesses in effect at August 31, 1999 are: $11.0 million in fiscal
2000; $9.5 million in fiscal 2001; $8.7 million in fiscal 2002; $7.6 million in
fiscal 2003; $6.7 million in fiscal 2004 and $17.5 million thereafter.
Total rental expense under operating leases related to the continuing
businesses was $11.1 million, $11.0 million and $11.5 million in fiscal 1997,
1998 and 1999, respectively.
Note K--Stock Option Plans
At August 31, 1999, a total of 8,715,638 shares of Class A Common Stock were
authorized for issuance under the Company's employee and director stock option
plans (including the assumed ZERO stock options described below), of which a
total of 3,633,879 have been issued through exercises of option grants. At
August 31, 1999, 5,081,759 shares were reserved for issuance under the plans,
consisting of 2,548,290 shares subject to outstanding options and 2,533,469
shares available for further grants.
F-24
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Employee Plans: On January 8, 1997, shareholders of the Company approved the
adoption of the Applied Power Inc. 1996 Stock Plan (the "1996 Plan").
Previously, the Company had three nonqualified stock option plans for
employees--the 1985, 1987 and 1990 plans. No further options may be granted
under the 1985, 1987 or 1990 plans, although options previously issued and
outstanding under these plans remain exercisable pursuant to the provisions of
the plans. Under the terms of the 1996 Plan, stock options may be granted to
officers and key employees. Options generally have a maximum term of ten years
and an exercise price equal to 100% of the fair market value of a share of the
Company's common stock at the date of grant. Options generally vest 50% after
two years and 100% after five years.
In connection with the Merger (see Note D--"Merger, Acquisitions and
Divestitures"), all of the options outstanding under the former ZERO stock
option plans were assumed by the Company and converted into options to purchase
shares of the Company's Class A Common Stock on terms adjusted to reflect the
merger exchange ratio. Options to acquire a total of 735,767 ZERO shares were
converted into options to acquire a total of 625,402 Company shares. These
options, as so adjusted, retain all of the rights, terms and conditions of the
respective plans under which they were originally granted.
ZERO's plans provided for the granting of options to purchase shares of ZERO
common stock to directors, officers and other key employees at a price not less
than the fair market value on the date of grant. Options were granted for terms
of five to eight years and become exercisable in annual installments (generally
one-third of the total grant) commencing one year from the date of grant, on a
cumulative basis.
A summary of stock option activity under the employee plans is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1996................... 3,198,520 $11.37
Granted........................................ 642,865 19.61
Exercised...................................... (502,379) 11.16
Cancelled...................................... (87,396) 14.51
---------
Outstanding at August 31, 1997................... 3,251,610 12.91
Effect of ZERO excluded period (Note A).......... (84,797) --
Granted........................................ 467,644 32.27
Exercised...................................... (721,160) 13.01
Cancelled...................................... (133,591) 18.85
---------
Outstanding at August 31, 1998................... 2,779,706 15.72
Granted........................................ 646,230 27.45
Exercised...................................... (539,138) 14.82
Cancelled...................................... (401,508) 26.57
---------
Outstanding at August 31,1999.................... 2,485,290 17.27
---------
Exercisable at August 31, 1999................... 1,499,045 11.74
=========
</TABLE>
F-25
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and
2000 has not been audited.
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of August 31, Remaining Average August 31, Average
Exercise 1999 Number Contractual Exercise 1999 Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 6.75-$ 8.38 550,288 2.5 $ 8.04 550,288 $ 8.04
$ 8.56-$10.69 534,932 2.5 9.75 534,932 9.75
$11.13-$17.75 529,309 6.1 15.93 283,659 15.85
$18.09-$27.72 569,215 8.1 26.31 90,211 23.29
$31.63-$37.66 301,546 7.9 32.78 39,955 34.27
--------- ---------
$ 6.75-$37.66 2,485,290 5.2 17.27 1,499,045 11.74
========= =========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for the outside
director plan discussed below. If the Company had accounted for these stock
options issued to employees in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's earnings from continuing operations
and related earnings per share would have been changed to the pro forma
amounts indicated below in thousands, except per share amounts:
<TABLE>
<CAPTION>
Fiscal year ended
August 31,
------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Earnings from continuing operations -- as
reported......................................... $22,632 $ 53 $34,580
Earnings (loss) from continuing operations -- pro
forma............................................ $21,653 $(1,042) $33,164
Basic Earnings from continuing operations per
share -- as reported............................. $ 0.60 $ 0.00 $ 0.89
Basic Earnings (loss) from continuing operations
per share -- pro forma........................... $ 0.57 $ (0.03) $ 0.85
Diluted Earnings from continuing operations per
share -- as reported............................. $ 0.57 $ 0.00 $ 0.86
Diluted Earnings (loss) from continuing operations
per share -- pro forma........................... $ 0.55 $ (0.03) $ 0.82
</TABLE>
The pro forma effects of applying SFAS No. 123 have not been allocated to
discontinued operations and may not be representative of the effects on
reported net income and earnings per share for future years since options vest
over several years and additional awards are made each year.
The fair value of Applied Power stock options used to compute pro forma net
earnings and pro forma earnings per share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model. The weighted
average fair values per share of options granted in fiscal 1997, 1998 and 1999
are $4.90, $11.54 and $10.37, respectively. The following weighted-average
assumptions were used in completing the model:
<TABLE>
<CAPTION>
Fiscal year ended August 31,
-----------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.................................... 0.33% 0.24% 0.20%
Expected volatility............................... 19.00% 23.50% 31.90%
Risk-free rate of return.......................... 6.30% 5.50% 6.40%
Expected life..................................... 5.0 years 5.6 years 4.7 years
</TABLE>
F-26
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
It is anticipated that APW Ltd. will adopt its own stock option plan and the
existing outstanding stock options under the Applied Power stock option plan
will be converted into options to purchase an equivalent value of APW Ltd.
common shares based on the fair market value of APW Ltd. common shares at the
time of the Distribution. Options totaling 1,704,350, 1,657,673 and 1,966,394
shares were held by Electronics segment employees as of August 31, 1997, 1998
and 1999, respectively. At August 31, 1999, 1,224,988 of these options were
exercisable.
Outside Director Plan: Annually, each outside director is granted stock
options to purchase 3,000 shares of common stock at a price equal to the market
price of the underlying stock on the date of grant. The number of shares
granted was increased in 1997, from 2,000 shares, by an amendment to the plan
adopted on October 31, 1996. As required by SFAS No. 123, these options
resulted in compensation expense in the accompanying Consolidated Statement of
Earnings. Total compensation expense related to Director stock options was not
material in each of the periods presented. Options for a maximum of 120,000
shares may be issued under this plan. Director stock options completely vest 11
months after date of grant.
A summary of option activity under the Director's stock option plan is as
follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1996.................... 50,000 $10.77
Granted......................................... 15,000 19.44
Cancelled....................................... (4,000) 8.42
-------
Outstanding at August 31, 1997.................... 61,000 13.03
Granted......................................... 15,000 34.50
Exercised....................................... (14,000) 10.09
-------
Outstanding at August 31, 1998.................... 62,000 18.88
Granted......................................... 15,000 37.06
Exercised....................................... (14,000) 10.09
-------
Outstanding at August 31, 1999.................... 63,000 25.17
-------
Exercisable at August 31, 1999.................... 48,000 21.45
=======
</TABLE>
F-27
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Note L -- Employee Benefit Plans
Defined Benefit Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement
benefits to certain employees of businesses acquired by Applied Power who were
entitled to those benefits prior to acquisition. The following tables provide a
reconciliation of benefit obligations, plan assets, funded status and net
periodic benefit cost for those plans (in thousands):
<TABLE>
<CAPTION>
Versa/Tek
Pension Plan
----------------
Fiscal year Other
ended August Postretirement
31, Benefits
---------------- ----------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligations
Benefit obligation at beginning of
year.................................. $ -- $11,416 $ 4,661 $ 5,224
Service cost........................... 409 81 18 19
Interest cost.......................... 786 787 363 354
Amendments............................. (1,890) -- -- --
Curtailment gain....................... (554) -- (34) --
Acquisition of business................ 11,605 -- 230 --
Actuarial (gain)/loss.................. 1,523 (213) 324 639
Benefits paid.......................... (463) (974) (338) (364)
------- ------- ------- -------
Benefit obligation at end of year...... $11,416 $11,097 $ 5,224 $ 5,872
======= ======= ======= =======
Reconciliation of plan assets
Fair value of plan assets at beginning
of year............................... $ -- $12,086 $ -- $ --
Actual return on plan assets........... 38 1,006 -- --
Acquisition of business................ 12,099 -- -- --
Company contributions.................. 342 129 -- --
Employee contributions................. -- -- -- --
Benefits paid from plan assets......... (393) (897) -- --
------- ------- ------- -------
Fair value of plan assets at end of
year.................................. $12,086 $12,324 $ -- $ --
======= ======= ======= =======
Funded (Unfunded) status of the plans.. $ 670 $ 1,227 $(5,224) $(5,872)
Unrecognized net loss/(gain)........... 567 411 (4,445) (2,828)
------- ------- ------- -------
Prepaid (accrued) benefit cost......... $ 1,237 $ 1,638 $(9,669) $(8,700)
======= ======= ======= =======
Weighted-average assumptions as of
August 31
Discount rate.......................... 7.00% 7.75% 7.00% 7.75%
Expected return on plan assets......... 8.50% 8.50%
Rate of compensation increase.......... 5.00% Frozen
</TABLE>
<TABLE>
<CAPTION>
Versa/Tek
Pension Benefits
------------------- Other
Fiscal year ended Postretirement
August 31, Benefits
------------------- -------------------
1997 1998 1999 1997 1998 1999
---- ----- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost.................... $ -- $ 409 $ 81 $ 5 $ 18 $ 19
Employee contributions.......... -- -- -- -- -- --
Interest cost................... -- 786 787 353 363 354
Expected return on assets....... -- (972) (1,064) -- -- --
Amortization of actuarial
(gain)/loss.................... -- -- 1 (305) (331) (294)
---- ----- ------- ----- ----- -----
Benefit cost (credit)........... $ -- $ 223 $ (195) $ 53 $ 50 $ 79
==== ===== ======= ===== ===== =====
</TABLE>
F-28
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
At August 31, 1999, the Versa/Tek pension benefits consisted of three plans
covering certain legacy Versa/Tek employees and executives. On March 31, 1999,
the Versa/Tek Hourly Plan was merged into the Versa/Tek Salaried Plan,
resulting in no change to the aggregate funding status of the two plans. In
fiscal 1998, the Company amended the plans to freeze the accumulation of
benefits. This change resulted in a decrease of approximately $1.9 million in
the projected benefit obligation of Versa/Tek. In March 1998, a $0.6 million
curtailment gain was realized associated with the sale of the Moxness
operation. The Company makes actuarially determined contributions to a trust
fund of the funded plans, which represents the maximum allowable for deduction
in determination of Federal taxable income. Trust assets consist primarily of
participating units in common stock and bond funds. The Company assumed the
prepaid benefit cost via acquisition of Versa/Tek in October 1997.
Certain former employees of acquired businesses who retired before February
1, 1994 (and their dependents) have the option of being covered by one of
several medical plans. Deferred vested employees who terminated employment
before February 1, 1994 are also eligible for this postretirement benefit. In
addition, retiree life insurance is available to all employees hired before
1988. The postretirement benefit liability related to these plans is unfunded.
Most individuals receiving postretirement health care and life insurance
benefits under the above programs are required to make monthly contributions to
defray a portion of the cost. Retiree contributions are adjusted annually.
Retirees currently do not contribute toward the cost of life insurance. The
accounting for retiree health care benefits assumes retirees will continue to
contribute toward the cost of such benefits.
The health care cost trend rate used in the actuarial calculations was 9.4%,
trending downward to 6.5% by the year 2009, and remaining level thereafter. A
one percentage-point increase or decrease in the assumed health care cost trend
rate would increase or decrease the postretirement benefit obligation by
approximately $0.4 million and would not have a material effect on aggregate
service and interest cost components.
Defined Contribution Benefit Plans
Effective January 1, 1998, the Company merged its former Employee Savings
Plan with the Applied Power Inc. Employee Stock Ownership Plan to create a
single retirement program for eligible U.S. employees -- the APW 401(k) Plan
(the "401(k) Plan"). Substantially all of the Company's full-time U.S.
employees are eligible to participate in the 401(k) Plan. Under the provisions
of the 401(k) Plan, the plan administrator acquires shares of Class A Common
Stock on the open market and allocates such shares to accounts set aside for
Company employees' retirements. Company core contributions generally equal 3%
of each employee's annual cash compensation, subject to IRS limitations.
Additionally, employees generally may contribute up to 15% of their base
compensation. The Company also matches approximately 25% of each employee's
contribution up to the participant's first 6% earnings.
In addition to the APW 401(k) Plan, the Company maintains the ZERO
Corporation Retirement Savings Plan which covers substantially all full-time
U.S. employees at former ZERO Corporation business units who have completed one
full year of service. Under the provisions of this plan, the Company makes core
contributions to employees' retirement accounts based upon percentages of
eligible employees' compensation, eligible employees may contribute a
percentage of their pre-tax compensation, subject to certain limitations, and
the Company matches a portion of the employee contributions up to 5% of the
participant's compensation for the period.
During the years ended August 31, 1997, 1998 and 1999, company contributions
to defined contribution benefit plans relating to continuing operations were
approximately $3.0 million, $2.6 million and $3.3 million, respectively.
F-29
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Non-U.S. Benefit Plans--The Company contributes to a number of retirement
programs for employees outside the U.S. Pension expense under these programs
amounted to approximately $1.3 million, $1.4 million and $1.1 million in fiscal
1997, 1998 and 1999, respectively. As these plans are not significant, Applied
Power does not determine the actuarial value of accumulated plan benefits or
net assets available for benefits.
Note M--Income Taxes
Income tax expense of continuing operations consists of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal year ended
August 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Currently payable:
Federal......................................... $ 6,446 $ 3,347 $12,096
Foreign......................................... 5,068 8,436 6,348
State........................................... 665 1,801 2,583
------- ------- -------
Subtotals......................................... 12,179 13,584 21,027
------- ------- -------
Deferred:
Federal......................................... (1,585) (3,672) 607
Foreign......................................... 87 (951) 1,823
State........................................... (218) 115 (627)
------- ------- -------
Subtotals......................................... (1,716) (4,508) 1,803
------- ------- -------
Totals:........................................... $10,463 $ 9,076 $22,830
======= ======= =======
</TABLE>
Income tax expense differs from the amounts computed by applying the Federal
income tax rate to earnings before income tax expense. A reconciliation of
income taxes at the U.S. statutory rate to the effective tax rate for
continuing operations follows:
<TABLE>
<CAPTION>
Fiscal year
ended
August 31,
-----------------
% of Pre-tax Earnings 1997 1998 1999
--------------------- ---- ----- ----
<S> <C> <C> <C>
Federal statutory rate.................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal effect................. 0.9 13.6 2.2
Non-deductible amortization and other expenses............ 2.1 33.0 2.9
Net effects of foreign tax rates and credits.............. (5.7) 29.7 (1.5)
Other items............................................... (0.7) (11.9) 1.2
---- ----- ----
Effective tax rate........................................ 31.6% 99.4% 39.8%
==== ===== ====
</TABLE>
F-30
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities for continuing operations included the following items
(in thousands):
<TABLE>
<CAPTION>
August 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred income tax assets:
Operating loss and state tax credit carry forwards...... $ 5,074 $ 5,674
Compensation and other employee benefits................ 5,092 5,436
Inventory items......................................... 13,341 4,889
Restructuring expenses.................................. 663 4,528
Deferred income......................................... 295 --
Book reserves and other items........................... 3,140 2,627
------- -------
Total deferred income tax assets...................... 27,605 23,154
Valuation allowance..................................... (5,074) (5,674)
------- -------
Net deferred income tax assets........................ 22,531 17,480
Deferred income tax liabilities:
Depreciation and amortization........................... 13,696 11,526
Inventory items......................................... 2,900 2,678
Other items............................................. 4,426 3,432
------- -------
Deferred income tax liabilities....................... 21,022 17,636
------- -------
Net deferred income tax................................... $ 1,509 $ (156)
======= =======
</TABLE>
The valuation allowance represents a reserve for foreign and domestic
operating loss and state tax credit carryforwards for which utilization is
uncertain. The increase in the valuation allowance represents the current year
increase in such loss carryforwards. The majority of the foreign losses may be
carried forward indefinitely. The state loss carryforwards expire in various
years through 2014.
Income taxes paid during fiscal 1997, 1998 and 1999 were $32.4 million,
$49.7 million and $37.2 million, respectively, which pertained to both
continuing and discontinued operations.
The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the U.S.
Accordingly, the Company does not currently provide for the additional U.S. and
foreign income taxes which would become payable upon remission of undistributed
earnings of foreign subsidiaries. Undistributed earnings from continuing
operations on which additional income taxes have not been provided amounted to
approximately $87.0 million at August 31, 1999. If all such undistributed
earnings were remitted, an additional provision for income taxes of
approximately $5.1 million would have been necessary as of August 31, 1999.
Earnings from continuing operations before income taxes from non-U.S.
operations were $8.6 million, $7.5 million and $24.1 million for 1997, 1998 and
1999, respectively.
F-31
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Note N--Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
August 31,
-----------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Accounts receivable
Accounts receivable..................................... $ 58,709 $ 67,572
Less allowances......................................... 4,259 4,070
-------- --------
Accounts receivable, net................................ $ 54,450 $ 63,502
======== ========
Property, plant and equipment
Property................................................ $ 3,184 $ 1,826
Plant................................................... 27,091 48,916
Machinery and equipment................................. 157,614 140,977
-------- --------
Total................................................. 187,889 191,719
Less accumulated depreciation........................... 110,608 112,721
-------- --------
Property, plant and equipment, net.................... $ 77,281 $ 78,998
======== ========
Goodwill
Goodwill................................................ $192,966 $190,840
Less accumulated amortization........................... 29,518 32,392
-------- --------
Goodwill, net........................................... $163,448 $158,448
======== ========
Other Intangibles
Other intangibles....................................... $ 44,342 $ 49,036
Less accumulated amortization........................... 13,798 18,049
-------- --------
Other intangibles, net.................................. $ 30,544 $ 30,987
======== ========
</TABLE>
Note O--Business Segment, Geographic and Customer Information
The Company had been reporting two business segments. The Electronics
segment is now included, in its entirety, in discontinued operations.
Subsequent to the Distribution, the Company will be split into two reportable
segments with separate and distinct operating management and strategies. Tools
& Supplies is primarily involved in the design, manufacture and distribution of
tools and supplies to the construction, electrical wholesale, retail do-it-
yourself, retail automotive, industrial and production automation markets.
Engineered Solutions focuses on developing and marketing value-added,
customized solutions for original equipment manufacturers in the recreational
vehicle, automotive, truck, medical, aerospace, defense and industrial markets.
The following table summarizes financial information by reportable segment.
The information for Earnings before Income Tax Expense includes the effects of
the merger, restructuring and other non-recurring items discussed in Note H--
"Merger, Restructuring and Other Non-recurring Items." Fiscal 2000 results
include $4.4 million in fees and expenses associated with the spin-off and
incorporating the Electronics business segment offshore with the entire amount
being allocated to general corporate and other. Engineered Solutions results in
fiscal 1999 include a $7.8 million pre-tax charge related to a contract
termination, with a related recovery of $1.4 million recorded on this contract
termination during the nine month period ended May 31, 2000. The $50.4 million
restructuring and merger charge from fiscal 1998 was allocated by segment as
follows: $24.6 million to Tools & Supplies, $10.0 million in Engineered
Solutions and $15.8 million in general corporate and other. The $4.5 million
asset impairment charge from fiscal 1998 was reported in the Engineered
Solutions
F-32
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
segment. Earnings before Income Tax Expense for each reportable segment and
geographic region does not include general corporate expenses, interest expense
or currency exchange adjustments.
<TABLE>
<CAPTION>
Nine Months
Ended May 31,
Years Ended August 31, -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(in thousands) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales:
Tools & Supplies...... $292,492 $305,706 $309,276 $234,587 $230,166
Engineered Solutions.. 229,948 331,773 386,428 289,769 305,489
-------- -------- -------- -------- --------
Totals............... $522,440 $637,479 $695,704 $524,356 $535,655
======== ======== ======== ======== ========
Earnings (Loss) from
Continuing Operations
before Income Tax
Expense:
Tools & Supplies...... $ 22,346 $ (377) $ 31,210 $ 38,274 $ 41,248
Engineered Solutions.. 18,236 28,282 35,547 41,009 55,412
General corporate and
other................ (7,487) (18,776) (9,347) (39,886) (42,124)
-------- -------- -------- -------- --------
Totals............... $ 33,095 $ 9,129 $ 57,410 $ 39,397 $ 54,536
======== ======== ======== ======== ========
Depreciation and
Amortization:
Tools & Supplies...... $ 9,473 $ 11,590 $ 9,718 $ 7,573 $ 7,511
Engineered Solutions.. 9,311 12,773 15,954 12,740 10,098
General corporate and
other................ 1,006 200 384 144 615
-------- -------- -------- -------- --------
Totals............... $ 19,790 $ 24,563 $ 26,056 $ 20,457 $ 18,224
======== ======== ======== ======== ========
Capital Expenditures:
Tools & Supplies...... $ 8,078 $ 6,992 $ 9,127 $ 6,355 $ 4,525
Engineered Solutions.. 6,133 11,976 9,890 7,921 4,078
General corporate and
other................ 1,523 6,246 3,868 6,986 567
-------- -------- -------- -------- --------
Totals............... $ 15,734 $ 25,214 $ 22,885 $ 21,262 $ 9,170
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
August 31,
------------------- May 31,
1998 1999 2000
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets:
Tools & Supplies.......................... $182,183 $ 194,236 $ 194,964
Engineered Solutions...................... 261,826 247,414 228,759
Net assets of discontinued operations..... 249,696 598,458 597,489
General corporate and other............... 17,821 19,764 14,324
-------- ---------- ----------
Totals................................... $711,526 $1,059,872 $1,035,536
======== ========== ==========
</TABLE>
The following table summarizes financial information by geographic region.
The information for Operating Earnings includes the effects of the merger,
restructuring and other non-recurring items discussed in Note H--"Merger,
Restructuring and Other Non-recurring Items." Fiscal 2000 results include $4.4
million in fees and expenses associated with the spin-off and incorporating the
Electronics business segment offshore with the entire amount being allocated to
General corporate and other. North America results in fiscal 1999 include a
$7.8 million pre-tax charge related to a contract termination, with a related
recovery of $1.4 million recorded on this contract termination during the nine-
month period ended May 31, 2000. Fiscal 1998 results include a $50.4 million
restructuring and merger charge that was allocated by geographic region as
follows: $21.6 million in North America, $6.9 million in Europe, $4.3 million
in Japan and Asia Pacific, $1.8 million in Latin America and $15.8 million in
General corporate and other. The $4.5 million asset impairment charge from
fiscal 1998 was reported in the Europe region.
F-33
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Nine Months
Years Ended August 31, Ended May 31,
------------------------------ -----------------------
(in thousands) 1997 1998 1999 1999 2000
-------- -------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales:
North America......... $318,943 $434,357 $ 468,023 $349,515 $ 364,265
Europe................ 146,123 159,534 190,473 146,992 141,164
Japan and Asia
Pacific.............. 46,795 31,331 27,003 20,133 22,524
Latin America......... 10,579 12,257 10,205 7,716 7,702
-------- -------- ---------- -------- ----------
Totals.............. $522,440 $637,479 $ 695,704 $524,356 $ 535,655
======== ======== ========== ======== ==========
Earnings (Loss) from
Continuing Operations
before Income Tax
Expense:
North America......... $ 35,244 $ 20,397 $ 41,029 $ 51,525 $ 70,608
Europe................ 11,269 11,132 24,053 24,028 22,636
Japan and Asia
Pacific.............. (4,017) (1,941) (203) 3,357 2,936
Latin America......... (1,914) (1,683) 1,878 373 480
General corporate and
other................ (7,487) (18,776) (9,347) (39,886) (42,124)
-------- -------- ---------- -------- ----------
Totals.............. $ 33,095 $ 9,129 $ 57,410 $ 39,397 $ 54,536
======== ======== ========== ======== ==========
<CAPTION>
August 31,
-------------------- May 31,
1998 1999 2000
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Assets:
North America......... $339,683 $ 321,461 $ 302,665
Europe................ 75,587 95,019 93,006
Japan and Asia
Pacific.............. 21,401 18,404 20,941
Latin America......... 7,338 6,766 7,111
Net assets of
discontinued
operations........... 249,696 598,458 597,489
General corporate and
other................ 17,821 19,764 14,324
-------- ---------- ----------
Totals.............. $711,526 $1,059,872 $1,035,536
======== ========== ==========
</TABLE>
Corporate assets, which are not allocated, represent principally cash and
deferred income taxes.
No single customer accounted for more than 10% of total net sales in 1997,
1998 or 1999. Export sales from domestic operations were less than 3% of total
net sales in each of the periods presented.
Note P--Contingencies and Litigation
The Company had outstanding letters of credit totaling $6.6 million and $1.9
million at August 31, 1998 and 1999, respectively. The letters of credit
generally serve as collateral for liabilities included in the Consolidated
Balance Sheet.
The Company is a party to various legal proceedings that have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor, patent claims and commission disputes.
The Company has recorded reserves for loss contingencies based on the specific
circumstances of each case. Such reserves are recorded when it is probable that
a loss has been incurred as of the balance sheet date and such loss can be
reasonably estimated. In the opinion of management, the resolution of these
contingencies will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
F-34
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
The Company has facilities in numerous geographic locations that are subject
to a range of environmental laws and regulations. Environmental costs are
expensed or capitalized depending on their future economic benefits.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental remediation is probable and the costs can be
reasonably estimated. Environmental expenditures over the last three years have
not been material. Although the level of future expenditures for environmental
remediation is impossible to determine with any degree of certainty, it is
management's opinion that such costs will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
Environmental remediation accruals related to the continuing businesses of $1.9
million and $1.3 million were included in the Consolidated Balance Sheets at
August 31, 1998 and 1999, respectively.
Note Q--Subsequent Events
On June 30, 2000, Applied Power Inc. completed the sale of all outstanding
capital stock of Barry Wright Corporation, a wholly owned subsidiary of Applied
Power Inc. Barry Wright Corporation, comprised of the Barry Controls Aerospace
and Barry Controls Defense and Industrial divisions, and its UK subsidiary
Barry Controls Ltd., were sold to Hutchinson S.A., a subsidiary of the
TotalFinaElf Group, a French based multi-national corporation. The net of tax
cash proceeds were approximately $157.5 million.
On July 7, 2000, Applied Power Inc.'s Board of Directors approved the
distribution of its Electronics business. On July 31, 2000, shareholders of
Applied Power Inc. common stock received one share of APW Ltd. common stock for
every Applied Power Inc. share owned on the July 21, 2000 record date. APW Ltd.
now trades separately on the New York Stock Exchange (NYSE) as "APW" and
Applied Power Inc. continues to trade on the NYSE, but has changed its ticker
symbol to "ATU" and will subsequently change its name to Actuant Corporation
during fiscal year 2001.
On August 9, 2000, Applied Power Inc.'s board of directors approved an
executive stock purchase plan pursuant to which the company contributes toward
the interest expense and guarantees repayment of bank loans made to executives
to purchase Applied Power Inc. stock. Although the executives are fully liable
for repayment of their individual loans (the guarantees apply only in the event
of a default), if the purchased shares are sold four years or longer after
their purchase, the company promises to reimburse 50% of any loss on the sale.
On August 9, 2000, Applied Power's board of directors also adopted a new
stock option plan, subject to shareholder approval at the next annual meeting.
Also on that date the Compensation Committee granted options to company
executives for an aggregate of 738,333 shares under the company's current stock
option plan and 295,000 shares under the new stock option plan. The grants
under the new stock option plan are conditioned upon shareholder approval of
the plan at the next annual meeting.
On August 11, 2000, Actuant announced that it had completed the sale of
Norelem, S.A., a non-hydraulic product line in the Enerpac business which makes
and distributes mechanical workholding products. Norelem, S.A. had sales of
less than $10.0 million in fiscal 1999. The proceeds from this sale will be
used to reduce outstanding debt.
F-35
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
Note R--Quarterly Financial Data (Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1998
----------------------------------
First(1) Second Third(2) Fourth(3)
-------- ------ -------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $150.8 $153.9 $164.7 $168.1
Gross profit............................ 51.0 52.0 58.1 39.8
Earnings from continuing operations..... 9.9 8.2 14.2 (32.3)
Earnings from discontinued operations... 9.1 8.3 8.2 1.0
------ ------ ------ ------
Net earnings............................ $ 19.1 $ 16.5 $ 22.4 $(31.3)
====== ====== ====== ======
Earnings from continuing operations per
share
Basic................................. $ 0.26 $ 0.21 $ 0.37 $(0.84)
Diluted............................... $ 0.25 $ 0.20 $ 0.35 $(0.80)
Earnings from discontinued operations
per share
Basic................................. $ 0.23 $ 0.22 $ 0.21 $ 0.04
Diluted............................... $ 0.23 $ 0.21 $ 0.20 $ 0.02
Net earnings per share
Basic................................. $ 0.49 $ 0.43 $ 0.58 $(0.80)
Diluted............................... $ 0.48 $ 0.41 $ 0.55 $(0.78)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1999
-----------------------------
First(4) Second Third Fourth
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales.................................... $172.5 $171.9 $180.0 $171.3
Gross profit................................. 61.6 62.5 66.2 62.4
Earnings from continuing operations.......... 3.4 11.0 10.1 10.1
Earnings from discontinued operations........ 13.0 8.3 10.4 13.1
------ ------ ------ ------
Net earnings................................. $ 16.4 $ 19.3 $ 20.5 $ 23.2
====== ====== ====== ======
Earnings from continuing operations per share
Basic...................................... $ 0.09 $ 0.28 $ 0.26 $ 0.26
Diluted.................................... $ 0.08 $ 0.27 $ 0.25 $ 0.26
Earnings from discontinued operations per
share
Basic...................................... $ 0.33 $ 0.22 $ 0.27 $ 0.33
Diluted.................................... $ 0.33 $ 0.21 $ 0.26 $ 0.32
Net earnings per share
Basic...................................... $ 0.42 $ 0.50 $ 0.53 $ 0.59
Diluted.................................... $ 0.41 $ 0.48 $ 0.51 $ 0.58
</TABLE>
F-36
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Fiscal 2000
---------------------------
First(5) Second(6) Third(7)
-------- --------- --------
<S> <C> <C> <C>
Net sales...................................... $173.0 $184.1 $178.5
Gross profit................................... 62.1 65.7 66.0
Earnings from continuing operations............ 12.4 8.3 11.6
Earnings from discontinued operations.......... 11.3 12.2 13.4
Extraordinary loss on sale of subsidiary, net
of tax........................................ -- -- (12.2)
------ ------ ------
Net earnings................................... $ 23.7 $ 20.5 $ 12.8
====== ====== ======
Earnings from continuing operations per share
Basic........................................ $ 0.32 $ 0.21 $ 0.30
Diluted...................................... $ 0.31 $ 0.21 $ 0.29
Earnings from discontinued operations per share
Basic........................................ $ 0.29 $ 0.31 $ 0.34
Diluted...................................... $ 0.28 $ 0.30 $ 0.33
Extraordinary loss per share
Basic........................................ $ -- $ -- $(0.31)
Diluted...................................... $ -- $ -- $(0.30)
Net earnings per share
Basic........................................ $ 0.61 $ 0.52 $ 0.33
Diluted...................................... $ 0.59 $ 0.51 $ 0.32
</TABLE>
--------
(1) Includes a $1.7 million gain, with no tax impact, on life insurance
proceeds, or $0.04 per diluted share.
(2) Includes a $2.9 million net gain, after tax on the sale of a facility and
the write-down of a European subsidiary to its estimated realizable value,
or a net impact of $0.08 per diluted share.
(3) Earnings from continuing operations includes restructuring and other one-
time charges of $50.4 million ($37.2 million, after tax), or $0.93 per
diluted share. An additional $19.1 million ($12.3 million after tax) was
included within discontinued operations related to similar restructuring
costs associated with the Electronics segment.
(4) Includes a $7.8 million ($4.7 million after tax) loss as a result of a
contract termination, or $0.12 per diluted share.
(5) Includes a $1.4 million ($0.9 million after tax) recovery of costs related
to the contract termination recorded in the first quarter of fiscal 1999.
(6) Includes a charge of $3.5 million ($2.2 million, net of tax benefit) for
fees and expenses associated with the Distribution and the incorporation of
APW Ltd.
(7) Includes a charge of $1.0 million ($0.6 million, net of tax benefit) for
fees and expenses associated with the Distribution and the incorporation of
APW Ltd.
Note S--Guarantor Condensed Financial Statements
In connection with the Distribution, Actuant intends to issue new senior
subordinated debt (the "New Notes") (see Note I--"Debt"). Certain of the
Company's U.S. subsidiaries (the "Guarantors") will become guarantors of the
New Notes. The following tables present the results of operations, financial
position and cash flows of Applied Power Inc. and its subsidiaries, the
Guarantors and non-guarantor entities, and the eliminations necessary to arrive
at the information for the Company on a condensed consolidated basis.
General corporate expenses have not been allocated to subsidiaries, and are
all included under the Applied Power Inc. heading. As a matter of course, the
Company retains certain assets and liabilities at the corporate level (Applied
Power Inc. column in the following tables) which are not allocated to
subsidiaries including, but not limited to, certain employee benefit, insurance
and tax liabilities. Income tax provisions for domestic
F-37
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
subsidiaries are typically recorded using an estimate and finalized in total
with an adjustment recorded at the corporate level. Additionally, substantially
all of the indebtedness of the Company has been historically incurred at the
corporate level and is therefore included in the Applied Power Inc. column in
the following tables. However, the Company and certain of its subsidiaries are
party to the accounts receivable financing facility (see Note E--"Accounts
Receivable Financing"). To the extent a given subsidiary had receivables sold
under the facility at the balance sheet date, its respective receivable balance
has been adjusted to reflect such sales. Intercompany balances include
receivables/payables incurred in the normal course of business in addition to
investments and loans transacted between subsidiaries of the Company or with
Applied Power Inc.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(in thousands)
<TABLE>
<CAPTION>
Year Ended August 31, 1997
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $83,394 $120,373 $318,673 $ -- $522,440
Cost of products sold... 55,654 76,761 209,491 -- 341,906
------- -------- -------- ------- --------
Gross profit.......... 27,740 43,612 109,182 -- 180,534
Engineering, selling and
administrative
expenses............... 36,678 24,660 78,444 -- 139,782
Amortization of
intangible assets...... 48 3,125 1,798 -- 4,971
------- -------- -------- ------- --------
Operating (loss)
earnings............. (8,986) 15,827 28,940 -- 35,781
Other expense (income):
Intercompany activity,
net.................. 128 (6,114) 3,104 2,882 --
Net financing costs... 1,553 1,272 2,242 -- 5,067
Other (income)
expense--net......... (2,323) 3 (61) -- (2,381)
------- -------- -------- ------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (8,344) 20,666 23,655 (2,882) 33,095
Income tax (benefit)
expense................ (2,149) 8,192 13,490 (9,070) 10,463
------- -------- -------- ------- --------
Earnings from
discontinued
operations............. -- -- 35,293 -- 35,293
------- -------- -------- ------- --------
(Loss) Earnings from
continuing operations.. (6,195) 12,474 10,165 6,188 22,632
Net (loss) earnings..... $(6,195) $ 12,474 $ 45,458 $ 6,188 $ 57,925
======= ======== ======== ======= ========
</TABLE>
F-38
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Year Ended August 31, 1998
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 90,447 $213,958 $333,074 $ -- $637,479
Cost of products sold... 61,200 139,017 236,377 -- 436,594
-------- -------- -------- ------- --------
Gross profit.......... 29,247 74,941 96,697 -- 200,885
Engineering, selling and
administrative
expenses............... 60,306 36,859 81,870 -- 179,035
Amortization of
intangible assets...... 53 9,127 3,402 -- 12,582
-------- -------- -------- ------- --------
Operating (loss)
earnings............. (31,112) 28,955 11,425 -- 9,268
Other (income) expense:
Intercompany activity,
net.................. (509) (4,241) 3,798 952 --
Net financing costs... 7,073 2,904 2,558 -- 12,535
Gain on life insurance
policy............... (1,709) -- -- -- (1,709)
Gain on sale of
building............. (9,815) -- -- -- (9,815)
Other (income)
expense--net......... (2,107) 76 1,159 -- (872)
-------- -------- -------- ------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (24,045) 30,216 3,910 (952) 9,129
Income tax (benefit)
expense................ (7,536) 13,741 14,579 11,708 9,076
-------- -------- -------- ------- --------
Earnings from
discontinued
operations............. -- -- 26,634 -- 26,634
-------- -------- -------- ------- --------
Net (loss) earnings..... $(16,509) $ 16,475 $ 15,965 $10,756 $ 26,687
======== ======== ======== ======= ========
(Loss) Earnings from
continuing operations.. (16,509) 16,475 (10,669) 10,756 53
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31, 1999
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 86,671 $253,799 $355,234 $ -- $695,704
Cost of products sold... 52,088 164,463 226,469 -- 443,020
-------- -------- -------- -------- --------
Gross profit.......... 34,583 89,336 128,765 -- 252,684
Engineering, selling and
administrative
expenses............... 39,709 39,504 65,282 -- 144,495
Amortization of
intangible assets...... 9 7,028 1,711 -- 8,748
-------- -------- -------- -------- --------
Operating (loss)
earnings............. (5,135) 42,804 61,772 -- 99,441
Other expense (income):
Intercompany activity,
net.................. 415 (36,168) 4,256 31,497 --
Net financing costs... 35,441 4,185 1,555 -- 41,181
Other (income)
expense--net......... (61) (51) 962 -- 850
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (40,930) 74,838 54,999 (31,497) 57,410
Income tax (benefit)
expense................ (14,106) 29,459 16,267 (8,790) 22,830
-------- -------- -------- -------- --------
Earnings from
discontinued
operations............. -- -- 44,817 -- 44,817
-------- -------- -------- -------- --------
Net (loss) earnings..... $(26,824) $ 45,379 $ 83,549 $(22,707) $ 79,397
======== ======== ======== ======== ========
(Loss) Earnings from
continuing operations.. (26,824) 45,379 38,732 (22,707) 34,580
</TABLE>
F-39
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Nine Months Ended May 31, 1999 (unaudited)
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 65,463 $187,670 $271,223 $ -- $524,356
Cost of products sold... 39,673 121,178 173,253 -- 334,104
-------- -------- -------- -------- --------
Gross profit.......... 25,790 66,492 97,970 -- 190,252
Engineering, selling and
administrative
expenses............... 32,350 29,911 51,121 -- 113,382
Amortization of
intangible assets...... 807 4,581 1,268 -- 6,656
-------- -------- -------- -------- --------
Operating (loss)
earnings............. (7,367) 32,000 45,581 -- 70,214
Other (income) expense:
Intercompany activity,
net.................. (864) (26,751) 4,875 22,740 --
Net financing costs... 26,511 2,912 1,215 -- 30,638
Other (income)
expense--net......... (756) (87) 1,022 -- 179
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (32,258) 55,926 38,469 (22,740) 39,397
Income tax (benefit)
expense................ (11,048) 21,445 12,996 (8,730) 14,663
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (21,210) 34,481 25,473 (14,010) 24,734
Earnings from
discontinued
operations............. -- -- 31,481 -- 31,481
-------- -------- -------- -------- --------
Net (loss) earnings..... $(21,210) $ 34,481 $ 56,954 $(14,010) $ 56,215
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended May 31, 2000 (unaudited)
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 63,449 $199,740 $272,466 $ -- $535,655
Cost of products sold... 37,423 129,191 175,202 -- 341,816
-------- -------- -------- -------- --------
Gross profit.......... 26,026 70,549 97,264 -- 193,839
Engineering, selling and
administrative
expenses............... 26,120 28,751 51,461 -- 106,332
Amortization of
intangible assets...... 7 4,409 1,486 -- 5,902
-------- -------- -------- -------- --------
Operating (loss)
earnings............. (101) 37,389 44,317 -- 81,605
Other (income) expense:
Intercompany activity,
net.................. 330 (26,979) 3,924 22,725 --
Net financing costs... 23,228 3,500 1,164 -- 27,892
Other (income)
expense--net......... (846) 170 (147) -- (823)
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations
before income tax
(benefit) expense...... (22,813) 60,698 39,376 (22,725) 54,536
Income tax (benefit)
expense................ (8,176) 25,015 12,436 (9,691) 19,584
-------- -------- -------- -------- --------
(Loss) Earnings from
continuing operations.. (14,637) 35,683 26,940 (13,034) 34,952
Earnings from
discontinued
operations............. -- -- 34,232 -- 34,232
-------- -------- -------- -------- --------
Earnings before
extraordinary item..... (14,637) 35,683 61,172 (13,034) 69,184
Extraordinary loss...... -- -- (12,186) -- (12,186)
-------- -------- -------- -------- --------
Net (loss) income....... $(14,637) $ 35,683 $ 48,986 $(13,034) $ 56,998
======== ======== ======== ======== ========
</TABLE>
F-40
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
August 31, 1998
-----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash
equivalents
(overdrafts)......... $ 3,413 $ 75 $ 1,581 $ -- $ 5,069
Accounts receivable,
net.................. 3,875 4,393 49,528 -- 57,796
Inventories, net...... 8,474 44,340 32,983 -- 85,797
Prepaid income taxes
(taxes payable)...... 26,617 (12,021) (11,719) -- 2,877
Prepaid expenses...... 3,019 971 5,419 -- 9,409
Deferred income
taxes................ 14,725 4 2,829 -- 17,558
--------- -------- -------- -------- --------
Total current
assets............. 60,123 37,762 80,621 178,506
Net property, plant and
equipment.............. 7,053 36,486 33,742 -- 77,281
Goodwill, net........... 122 120,220 43,106 -- 163,448
Other intangibles, net.. 14 25,880 4,650 -- 30,544
Net assets of
discontinued
operations............. -- -- 249,696 -- 249,696
Other assets............ 8,440 806 2,805 -- 12,051
--------- -------- -------- -------- --------
Total assets........ $ 75,752 $221,154 $414,620 $ -- $711,526
========= ======== ======== ======== ========
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings
(investments)........ $ 6,738 $ 259 $ (6,906) $ -- $ 91
Trade accounts
payable.............. 6,527 17,915 25,131 -- 49,573
Accrued compensation
and benefits......... 9,911 4,868 10,830 -- 25,609
Other current
liabilities.......... 16,000 7,864 12,860 -- 36,724
--------- -------- -------- -------- --------
Total current
liabilities........ 39,176 30,906 41,915 -- 111,997
Long-term debt.......... 224,464 -- 671 -- 225,135
Deferred income taxes... 7,515 (643) 9,177 -- 16,049
Other deferred
liabilities............ 11,943 2,817 1,703 -- 16,463
Total shareholders'
(deficit) equity....... (207,691) 584,200 394,816 (429,443) 341,882
--------- -------- -------- -------- --------
Total liabilities
and shareholders'
equity............. $ 75,752 $221,154 $414,620 $ -- $711,526
========= ======== ======== ======== ========
Intercompany balances,
net.................... 345 (396,126) (33,662) 429,443 --
</TABLE>
F-41
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
August 31, 1999
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
(Overdrafts) cash and
cash equivalents..... $ (734) $ (591) $ 8,581 $ -- $ 7,256
Accounts receivable,
net.................. 6,310 6,268 50,924 -- 63,502
Inventories, net...... 13,802 42,474 44,448 -- 100,724
Prepaid income taxes
(taxes payable)...... 25,861 (12,616) (12,441) -- 804
Prepaid expenses...... 1,049 693 6,223 -- 7,965
Deferred income
taxes................ 4,228 7 3,329 -- 7,564
-------- -------- -------- -------- ----------
Total current
assets............. 50,516 36,235 101,064 -- 187,815
Net property, plant and
equipment.............. 6,135 36,987 35,876 -- 78,998
Goodwill, net........... -- 114,698 43,750 -- 158,448
Other intangibles, net.. 253 25,524 5,210 -- 30,987
Net assets of
discontinued
operations............. -- -- 598,458 -- 598,458
Other assets............ 2,902 1,038 1,226 -- 5,166
-------- -------- -------- -------- ----------
Total assets........ $ 59,806 $214,482 $785,584 $ -- $1,059,872
======== ======== ======== ======== ==========
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities
Short-term borrowings
(investments)........ $ 2,715 $ 350 $ (2,835) $ -- $ 230
Trade accounts
payable.............. 7,268 19,429 25,664 -- 52,361
Accrued compensation
and benefits......... 7,769 4,765 7,806 -- 20,340
Other current
liabilities.......... 6,709 9,418 7,464 -- 23,591
-------- -------- -------- -------- ----------
Total current
liabilities........ 24,461 33,962 38,099 -- 96,522
Long-term debt.......... 519,810 650 556 -- 521,016
Deferred income taxes... (1,353) (741) 9,814 -- 7,720
Other deferred
liabilities............ 12,425 2,098 2,262 -- 16,785
Total shareholders'
(deficit) equity....... (483,497) 799,229 800,396 (698,299) 417,829
-------- -------- -------- -------- ----------
Total liabilities
and shareholders'
equity............. $ 59,806 $214,482 $785,584 $ -- $1,059,872
======== ======== ======== ======== ==========
Intercompany balances,
net.................... (12,040) (620,716) (65,543) 698,299 --
</TABLE>
F-42
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
May 31, 2000 (unaudited)
-----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
(Overdrafts) cash and
cash equivalents..... $ (2,456) $ (39) $ 9,303 $ -- $ 6,808
Accounts receivable,
net.................. 4,105 7,149 68,478 -- 79,732
Inventories, net...... 10,966 42,706 39,604 -- 93,276
Prepaid expenses...... 1,745 663 4,714 -- 7,122
Deferred income
taxes................ 5,704 5 2,890 -- 8,599
--------- -------- -------- -------- ----------
Total current
assets............. 20,064 50,484 124,989 -- 195,537
Net property, plant and
equipment.............. 4,792 35,858 30,029 -- 70,679
Goodwill, net........... -- 109,999 30,697 -- 140,696
Other intangibles, net.. 242 23,576 4,932 -- 28,750
Net assets of
discontinued
operations............. -- -- 597,489 -- 597,489
Other assets............ 1,787 108 490 -- 2,385
--------- -------- -------- -------- ----------
Total assets........ $ 26,885 $220,025 $788,626 $ -- $1,035,536
========= ======== ======== ======== ==========
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities
Short-term borrowings
(investments)........ $ 3,535 $ 360 $ (3,895) $ -- $ --
Trade accounts
payable.............. 5,034 24,768 25,928 -- 55,730
Accrued compensation
and benefits......... 5,868 2,945 7,635 -- 16,448
(Prepaid) income taxes
payable.............. (35,147) 23,970 12,295 -- 1,118
Other current
liabilities.......... 5,102 8,046 5,316 -- 18,464
--------- -------- -------- -------- ----------
Total current
liabilities........ (15,608) 60,089 47,279 -- 91,760
Long-term debt.......... 456,367 540 -- -- 456,907
Deferred income taxes... (200) (741) 9,426 -- 8,485
Other deferred
liabilities............ 14,158 (55) 1,517 -- 15,620
Total shareholders'
(deficit) equity....... (405,556) 765,934 795,618 (693,232) 462,764
--------- -------- -------- -------- ----------
Total liabilities
and shareholders'
equity............. $ 26,885 $220,025 $788,626 $ -- $1,035,536
========= ======== ======== ======== ==========
Intercompany balances,
net.................... (22,276) (605,742) (65,214) 693,232 --
</TABLE>
F-43
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Year Ended August 31, 1997
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations............ $ (6,195) $12,474 $ 10,165 $6,188 $ 22,632
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization......... 2,430 6,182 11,178 -- 19,790
Provision for deferred
income taxes......... (1,487) 16 (245) -- (1,716)
Changes in operating
assets and
liabilities, net..... 13,989 (12,772) 16,420 (6,188) 11,449
-------- ------- -------- ------ ---------
Cash provided by
operating activities of
continuing operations.. 8,737 5,900 37,518 -- 52,155
Cash provided by
operating activities of
discontinued
operations............. -- -- 31,879 -- 31,879
-------- ------- -------- ------ ---------
Total cash provided by
operating activities... 8,737 5,900 69,397 -- 84,034
Investing activities
Proceeds from sale of
property, plant and
equipment............. 111 3 3,477 -- 3,591
Additions to property,
plant and equipment... (2,241) (4,872) (8,621) -- (15,734)
Product line
dispositions and
other................. -- -- 902 -- 902
Net investing
activities of
discontinued
operations............ -- -- (93,103) -- (93,103)
-------- ------- -------- ------ ---------
Cash used in investing
activities............. (2,130) (4,869) (97,345) -- (104,344)
Financing activities
Net principal payments
on long-term debt..... (30,565) -- -- -- (30,565)
Decreases in
receivables financing
facility.............. (81) (7,110) -- -- (7,191)
Dividends paid on
common stock.......... (3,114) -- -- -- (3,114)
Stock option exercises
and other............. 4,863 -- -- -- 4,863
Intercompany payables
(receivables)......... 29,833 6,067 (35,900) -- --
Net financing
activities of
discontinued
operations............ -- -- 71,767 -- 71,767
-------- ------- -------- ------ ---------
Cash provided by
financing activities... 936 (1,043) 35,867 -- 35,760
Effect of exchange rate
changes on cash........ -- -- (1,422) -- (1,422)
-------- ------- -------- ------ ---------
Net increase (decrease)
in cash and cash
equivalents............ 7,543 (12) 6,497 -- 14,028
Effect of change in cash
of discontinued
operations............. -- -- (7,190) -- (7,190)
Cash and cash
equivalents--beginning
of year................ (1,140) (112) 7,412 -- 6,160
-------- ------- -------- ------ ---------
Cash and cash
equivalents--end of
year.................... $ 6,403 $ (124) $ 6,719 $ -- $ 12,998
======== ======= ======== ====== =========
</TABLE>
F-44
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Year Ended August 31, 1998
------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations............ $ (16,509) $ 16,475 $ (10,669) $ 10,756 $ 53
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization......... 2,565 14,055 7,943 -- 24,563
Gain from sale of
assets............... -- -- (9,899) -- (9,899)
Provision for deferred
income taxes......... (120) (478) (3,910) -- (4,508)
Restructuring and
other one-time
charges, net of
income tax benefit... 4,311 6,573 30,857 -- 41,741
Changes in operating
assets and liabilities,
net.................... (6,043) 14,883 11,282 (10,756) 9,366
--------- -------- --------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (15,796) 51,508 25,604 -- 61,316
Cash provided by
operating activities of
discontinued
operations............. -- -- 68,351 -- 68,351
--------- -------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (15,796) 51,508 93,955 -- 129,667
Investing activities
Proceeds from sale of
property, plant and
equipment............. -- 37 16,871 -- 16,908
Additions to property,
plant and equipment... (2,588) (8,764) (13,862) -- (25,214)
Business acquisitions,
net of cash acquired.. (135,727) -- -- -- (135,727)
Product line
dispositions and
other................. -- -- 6,061 -- 6,061
Net investing
activities of
discontinued
operations............ -- -- (313,999) -- (313,999)
--------- -------- --------- -------- ---------
Cash used in investing
activities............. (138,315) (8,727) (304,929) -- (451,971)
Financing activities
Net principal
borrowings on long-
term debt............. 102,591 -- -- -- 102,591
Additions to
receivables financing
facility.............. 3,917 21,482 -- -- 25,399
Dividends paid on
common stock.......... (2,564) -- -- -- (2,564)
Stock option exercises
and other............. 6,855 -- -- -- 6,855
Intercompany payables
(receivables)......... 40,322 (64,064) 23,722 -- --
Net financing
activities of
discontinued
operations............ -- -- 165,348 -- 165,348
--------- -------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 151,121 (42,582) 189,090 -- 297,629
Effect of exchange rate
changes on cash........ -- -- (882) -- (882)
--------- -------- --------- -------- ---------
Net decrease in cash and
cash equivalents....... (2,990) 199 (22,766) -- (25,557)
Effect of change in cash
of discontinued
operations............. -- -- 7,769 -- 7,769
Cash and cash
equivalents--beginning
of year................ 6,403 (124) 6,719 -- 12,998
Effect of ZERO excluded
period................. -- -- 9,859 -- 9,859
--------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ 3,413 $ 75 $ 1,581 $ -- $ 5,069
========= ======== ========= ======== =========
</TABLE>
F-45
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Year Ended August 31, 1999
------------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations............ $ (26,824) $ 45,379 $ 38,732 $(22,707) $ 34,580
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization......... 2,133 12,431 11,492 -- 26,056
Gain on sale of
assets............... -- -- (323) -- (323)
Provision for deferred
income taxes......... 1,629 (101) 276 1,804
Restructuring and
other one-time
charges, net of
income tax benefit... 4,694 -- -- -- 4,694
Changes in operating
assets and
liabilities, net..... (14,403) 2,878 (47,087) (22,707) (35,905)
--------- -------- --------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (32,771) 60,587 3,090 -- 30,906
Cash provided by
operating activities of
discontinued
operations............. -- -- 119,483 -- 119,483
--------- -------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (32,771) 60,587 122,573 -- 150,389
Investing activities
Proceeds from sale of
property, plant and
equipment............. 3 -- 4,881 -- 4,884
Additions to property,
plant and equipment... (2,682) (6,528) (13,675) -- (22,885)
Business acquisitions,
net of cash acquired.. (7,320) -- -- -- (7,320)
Net investing
activities of
discontinued
operations............ -- -- (435,337) -- (435,337)
--------- -------- --------- -------- ---------
Cash used in investing
activities............. (9,999) (6,528) (444,131) -- (460,658)
Financing activities
Net principal
borrowings on long-
term debt............. 403,349 -- -- -- 403,349
(Decreases in)
additions to
receivables financing
facility.............. (835) 2,469 -- -- 1,634
Proceeds from
sale/leaseback
transactions.......... 6,293 -- -- -- 6,293
Dividends paid on
common stock.......... (2,339) -- -- -- (2,339)
Stock option exercises
and other............. 4,552 -- -- -- 4,552
Intercompany
(receivables)
payables.............. (372,397) (57,194) 429,591 -- --
Net financing
activities of
discontinued
operations............ -- -- (86,790) -- (86,790)
--------- -------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 38,623 (54,725) 342,801 -- 326,699
Effect of exchange rate
changes on cash........ -- -- (521) -- (521)
--------- -------- --------- -------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (4,147) (666) 20,722 -- 15,909
Effect of change in cash
of discontinued
operations............. -- -- (13,722) -- (13,722)
Cash and cash
equivalents--beginning
of year................ 3,413 75 1,581 -- 5,069
--------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ (734) $ (591) $ 8,581 $ -- $ 7,256
========= ======== ========= ======== =========
</TABLE>
F-46
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Nine Months Ended May 31, 1999 (unaudited)
-----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations............ $(21,210) $ 34,481 $ 25,473 $(14,010) $ 24,734
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization......... 2,738 8,841 8,878 -- 20,457
Gain from sale of
assets............... -- -- (124) -- (124)
Changes in operating
assets and
liabilities, net..... (23,200) 5,418 (4,611) 14,010 (8,383)
-------- -------- --------- -------- ---------
Cash (used in) provided
by operating activities
of continuing
operations............. (41,672) 48,740 29,616 -- 36,684
Cash provided by
operating activities of
discontinued
operations............. -- -- 47,458 -- 47,458
-------- -------- --------- -------- ---------
Total cash (used in)
provided by operating
activities............. (41,672) 48,740 77,074 -- 84,142
Investing activities
Proceeds from sale of
property, plant and
equipment............. -- -- 4,760 -- 4,760
Additions to property,
plant and equipment... (2,432) (5,572) (13,258) -- (21,262)
Business acquisitions,
net of cash acquired.. (3,500) -- -- -- (3,500)
Net investing
activities of
discontinued
operations............ -- -- (409,078) -- (409,078)
-------- -------- --------- -------- ---------
Cash used in investing
activities............. (5,932) (5,572) (417,576) -- (429,080)
Financing activities
Net principal
repayments on long-
term debt............. (27,130) -- -- -- (27,130)
(Decreases) Increases
in receivables
financing facility.... (216) 2,166 -- -- 1,950
Dividends paid on
common stock.......... (1,171) -- -- -- (1,171)
Stock option exercises
and other............. 3,332 -- -- -- 3,332
Intercompany payables
(receivables)......... 70,820 (45,483) (25,337) -- --
Net financing
activities of
discontinued
operations............ -- -- 377,053 -- 377,053
-------- -------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 45,635 (43,317) 351,716 -- 354,034
Effect of exchange rate
changes on cash........ -- -- 47 -- 47
-------- -------- --------- -------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (1,969) (149) 11,261 -- 9,143
Effect of change in cash
of discontinued
operations............. -- -- 1,280 -- 1,280
Cash and cash
equivalents--beginning
of year................ 3,413 75 1,581 -- 5,069
-------- -------- --------- -------- ---------
Cash and cash
equivalents--end of
year................... $ 1,444 $ (74) $ 14,122 $ -- $ 15,492
======== ======== ========= ======== =========
</TABLE>
F-47
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Information presented as of and for the nine months ended May 31, 1999 and 2000
has not been audited.
<TABLE>
<CAPTION>
Nine Months Ended May 31, 2000 (unaudited)
----------------------------------------------------------
Applied Non
Power Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
(Loss) Earnings from
continuing
operations............ $(14,637) $ 35,683 $ 14,754 $(13,034) $ 22,766
Adjustments to
reconcile (loss)
earnings from
continuing operations
to cash provided by
operating activities
of continuing
operations:
Depreciation and
amortization......... 1,760 9,094 7,370 -- 18,224
Extraordinary loss or
sale of subsidiary... -- -- 13,886 -- 13,886
Changes in operating
assets and
liabilities, net..... (7,835) 11,195 (34,434) 13,034 (18,040)
-------- -------- -------- -------- --------
Cash (used in) provided
by operating activities
of continuing
operations............. (20,712) 55,972 1,576 -- 36,836
Cash provided by
operating activities of
discontinued
operations............. -- -- 17,704 -- 17,704
-------- -------- -------- -------- --------
Total cash (used in)
provided by operating
activities............. (20,712) 55,972 19,280 -- 54,540
Investing activities
Proceeds from sale of
property, plant and
equipment............. 14 123 566 -- 703
Additions to property,
plant and equipment... (610) (4,119) (4,441) -- (9,170)
Product line
dispositions and
other................. -- -- 15,233 -- 15,233
Net investing
activities of
discontinued
operations............ -- -- (42,206) -- (42,206)
-------- -------- -------- -------- --------
Cash used in investing
activities............. (596) (3,996) (30,848) -- (35,440)
Financing activities
Net principal payments
on long-term debt..... (36,514) -- -- -- (36,514)
Increases (Decreases)
in receivables
financing facility.... 610 (10,266) -- -- (9,656)
Dividends paid on
common stock.......... (1,757) -- -- -- (1,757)
Stock option exercises
and other............. 1,893 -- -- -- 1,893
Intercompany payables
(receivables)......... 55,354 (41,158) (14,196) -- --
Net financing
activities of
discontinued
operations............ -- -- 11,657 -- 11,657
-------- -------- -------- -------- --------
Cash provided by (used
in) financing
activities............. 19,586 (51,424) (2,539) -- (34,377)
Effect of exchange rate
changes on cash........ -- -- (173) -- (173)
-------- -------- -------- -------- --------
Net decrease in cash and
cash equivalents....... (1,722) 552 (14,280) -- (15,450)
Effect of change in cash
of discontinued
operations............. -- -- 15,002 -- 15,002
Cash and cash
equivalents--beginning
of year................ (734) (591) 8,581 -- 7,256
-------- -------- -------- -------- --------
Cash and cash
equivalents--end of
year.................... $ (2,456) $ (39) $ 9,303 $ -- $ 6,808
======== ======== ======== ======== ========
</TABLE>
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Directors of Applied Power Inc.:
Our audits of the consolidated financial statements referred to in our
report dated September 29, 1999, except for information in Note B, for which
the date is July 7, 2000 on page F-2 also included an audit of the information
as of and for the years ended August 31, 1998 and 1999, respectively, set forth
in the Financial Statement Schedule included herein. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein as of and for the years ended August 31, 1998 and
1999, when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 29, 1999, except for information
reclassified for the discontinued operations
as described in Note B, for which the date
is July 7, 2000
F-49
<PAGE>
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions Deductions
------------------- -----------
Accounts
Balance at Effect of Charged to Written Off Balance
Beginning Excluded Costs and Net Less At End
Description of Period Activity Expenses Acquired Recoveries Other (1) of Period
------------------------ ---------- --------- ---------- -------- ----------- --------- ---------
Deducted from assets
to which they apply:
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for losses--
trade accounts
receivable
August 31, 1997......... $ 4,178 $ -- $ 1,577 $ -- $ 1,407 $(309) $ 4,039
======= ==== ======= ==== ======= ===== =======
August 31, 1998......... $ 4,039 $ 15 $ 1,723 $213 $ 1,252 $(479) $ 4,259
======= ==== ======= ==== ======= ===== =======
August 31, 1999......... $ 4,259 $ -- $ 1,155 $ -- $ 1,407 $ 63 $ 4,070
======= ==== ======= ==== ======= ===== =======
Allowance for losses--
inventory
August 31, 1997......... $11,538 $ -- $ 6,628 $185 $ 5,979 $(444) $11,928
======= ==== ======= ==== ======= ===== =======
August 31, 1998......... $11,928 $253 $23,514 $985 $ 8,177 $(422) $28,081
======= ==== ======= ==== ======= ===== =======
August 31, 1999......... $28,081 $ -- $ 2,237 $250 $21,357 $ 95 $ 9,306
======= ==== ======= ==== ======= ===== =======
</TABLE>
--------
(1) Represents the effect of exchange rate changes on asset balances over
periods indicated.
F-50
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant is incorporated under the Wisconsin Business Corporation Law
("WBCL"). Under Section 180.0851(1) of the WBCL, the Registrant is required to
indemnify a director or officer, to the extent such person is successful on the
merits or otherwise in the defense of a proceeding, for all reasonable expenses
incurred in the proceeding if such person was a party because he or she was a
director or officer of the Registrant. In all other cases, the Registrant is
required by Section 180.0851(2) of the WBCL to indemnify a director or officer
against liability incurred in a proceeding to which such person was a party
because he or she was an officer or director of the Registrant, unless it is
determined that he or she breached or failed to perform a duty owed to the
Registrant and the breach or failure to perform constitutes: (i) a willful
failure to deal fairly with the Registrant or its shareholders in connection
with a matter in which the director or officer has a material conflict of
interest; (ii) a violation of criminal law, unless the director or officer had
reasonable cause to believe his or her conduct was lawful or no reasonable
cause to believe his or her conduct was unlawful; (iii) a transaction from
which the director or officer derived an improper personal profit; or (iv)
willful misconduct. Section 180.0858(1) of the WBCL provides that, subject to
certain limitations, the mandatory indemnification provisions do not preclude
any additional right to indemnification or allowance of expenses that a
director or officer may have under the Registrant's articles of incorporation,
bylaws, a written agreement or a resolution of the Board of Directors or
shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of expenses
and insurance to the extent required or permitted under Sections 180.0850 to
180.0858 of the WBCL for any liability incurred in connection with a proceeding
involving a federal or state statute, rule or regulation regulating the offer,
sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from
a breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to
mandatory indemnification under Section 180.0851(2) referred to above.
Under Section 180.0833 of the WBCL, directors of the Registrant against whom
claims are asserted with respect to the declaration of an improper dividend or
other distribution to shareholders to which they assented are entitled to
contribution from other directors who assented to such distribution and from
shareholders who knowingly accepted the improper distribution, as provided
therein.
Article VIII of the Registrant's Bylaws contains provisions that generally
parallel the indemnification provisions of the WBCL and cover certain
procedural matters not dealt with in the WBCL. Directors and officers of the
Registrant are also covered by directors' and officers' liability insurance
under which they are insured (subject to certain exceptions and limitations
specified in the policy) against expenses and liabilities arising out of
proceedings to which they are parties by reason of being or having been
directors or officers.
Item 21. Exhibits and Financial Statement Schedules.
See the Exhibit Index following the Signatures page in this Registration
Statement, which Exhibit Index is incorporated herein by reference.
II-1
<PAGE>
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE>
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions referred
to in Item 20 of this Registration Statement, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Butler, State of Wisconsin, on September 18, 2000.
Applied Power Inc.
(Registrant)
Robert C. Arzbaecher*
By:__________________________________
Robert C. Arzbaecher
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities as of September 18, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Richard G. Sim* Chairman of the Board; Director
_____________________________________________
Richard G. Sim
Robert C. Arzbaecher* President and Chief Executive Officer;
_____________________________________________ Director
/s/ Andrew G. Lampereur Chief Financial Officer (Principal Financial
_____________________________________________ Officer)
Andrew G. Lampereur
Dawn M. Doering* Controller
_____________________________________________
Dawn M. Doering
Gustav H.P Boel* Director
_____________________________________________
Gustav H. P. Boel
Bruce S. Chelberg* Director
_____________________________________________
Bruce S. Chelberg
H. Richard Crowther* Director
_____________________________________________
H. Richard Crowther
_____________________________________________ Director
Richard A. Kashnow
William P. Sovey* Director
_____________________________________________
William P. Sovey
</TABLE>
* * *
/s/ Andrew G. Lampereur
*By: ______________________________
Andrew G. Lampereur, by power of
attorney
S-1
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, each
of the following Guarantor Subsidiaries, as a Registrant, has duly caused this
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
Ancor Products, Inc.
DCW Holding, Inc.
DEL City Wire Co., Inc.
Gustav H.P Boel*
By:__________________________________
Gustav H. P. Boel,
President of each of the foregoing
Guarantor Subsidiaries
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Gustav H.P Boel* Director and President (chief executive
_____________________________________________ officer) of each of the foregoing Guarantor
Gustav H. P. Boel Subsidiaries
/s/ Andrew G. Lampereur Director and Treasurer (chief financial and
_____________________________________________ accounting officer) of each of the foregoing
Andrew G. Lampereur Guarantor
Subsidiaries
Anthony W. Asmuth III* Director of each of the foregoing Guarantor
_____________________________________________ Subsidiaries
Anthony W. Asmuth III
</TABLE>
/s/ Andrew G. Lampereur
*By: ______________________________
Andrew G. Lampereur,
by power of attorney
S-2
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, each
of the following Guarantor Subsidiaries, as a Registrant, has duly caused this
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
APW Tools and Supplies, Inc.
Calterm Taiwan, Inc.
Gustav H.P Boel*
By: _________________________________
Gustav H. P. Boel,
Chief Executive Officer of each of
the foregoing Guarantor
Subsidiaries
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Gustav H.P Boel* Director and Chief Executive Officer of each
_____________________________________________ of the foregoing Guarantor Subsidiaries
Gustav H. P. Boel
Richard G. Sim* Director of each of the foregoing Guarantor
_____________________________________________ Subsidiaries
Richard G. Sim
Anthony W. Asmuth III* Director of each of the foregoing Guarantor
_____________________________________________ Subsidiaries
Anthony W. Asmuth III
/s/ Andrew G. Lampereur Chief financial and accounting officer of
_____________________________________________ each of the foregoing Guarantor Subsidiaries
Andrew G. Lampereur
</TABLE>
/s/ Andrew G. Lampereur
*By: ______________________________
Andrew G. Lampereur,
by power of attorney
S-3
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, each
of the following Guarantor Subsidiaries, as a Registrant, has duly caused this
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
Mox-med, Inc.
Versa Technologies, Inc.
Richard G. Sim*
By: _________________________________
Richard G. Sim,
President of each of the foregoing
Guarantor Subsidiaries
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Director and President (chief executive
Richard G. Sim* officer)
_____________________________________________ of each of the foregoing Guarantor
Richard G. Sim Subsidiaries
Robert C. Arzbaecher* Director of each of the foregoing Guarantor
_____________________________________________ Subsidiaries
Robert C. Arzbaecher
Anthony W. Asmuth III* Director of each of the foregoing Guarantor
_____________________________________________ Subsidiaries
Anthony W. Asmuth III
Treasurer (chief financial and accounting
Richard D. Carroll* officer)
_____________________________________________ of each of the foregoing Guarantor
Richard D. Carroll Subsidiaries
</TABLE>
/s/ Andrew G. Lampereur
*By: ______________________________
Andrew G. Lampereur,
by power of attorney
S-4
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following Guarantor Subsidiary, as a Registrant, has duly caused this Amendment
No. 1 to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
New England Controls, Inc.
William J. Albrecht*
By: _________________________________
William J. Albrecht,
President
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
William J. Albrecht* President (chief executive officer)
_____________________________________________
William J. Albrecht
Terence Braatz* Director
_____________________________________________
Terence Braatz
/s/ Andrew G. Lampereur Director
_____________________________________________
Andrew G. Lampereur
Robert C. Arzbaecher* Director
_____________________________________________
Robert C. Arzbaecher
Anthony W. Asmuth III* Director
_____________________________________________
Anthony W. Asmuth III
Richard D. Carroll* Treasurer (chief financial and accounting
_____________________________________________ officer)
</TABLE> Richard D. Carroll
/s/ Andrew G. Lampereur
*By: ______________________________
Andrew G. Lampereur,
by power of attorney
S-5
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following Guarantor Subsidiary, as a Registrant, has duly caused this Amendment
No. 1 to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
Nielsen Hardware Corporation
Robert C. Arzbaecher*
By: _________________________________
Robert C. Arzbaecher,
President
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Robert C. Arzbaecher* Director and President (chief executive
_____________________________________________ officer)
Robert C. Arzbaecher
William J. Albrecht* Director
_____________________________________________
William J. Albrecht
Anthony W. Asmuth III* Director
_____________________________________________
Anthony W. Asmuth III
/s/ Andrew G. Lampereur Chief financial and accounting officer
_____________________________________________
Andrew G. Lampereur
</TABLE>
/s/ Andrew G. Lampereur
*By: _______________________________
Andrew G. Lampereur,
by power of attorney
S-6
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following Guarantor Subsidiary, as a Registrant, has duly caused this Amendment
No. 1 to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
APW Investments, Inc.
Robert C. Arzbaecher*
By: ________________________________
Robert C. Arzbaecher,
President
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Robert C. Arzbaecher* Director and President (chief executive
_____________________________________________ officer)
Robert C. Arzbaecher
/s/Andrew G. Lampereur Director and Treasurer (chief financial and
_____________________________________________ accounting
Andrew G. Lampereur officer)
Anthony W. Asmuth III* Director
_____________________________________________
Anthony W. Asmuth III
</TABLE>
/s/ Andrew G. Lampereur
*By: _______________________________
Andrew G. Lampereur,
by power of attorney
S-7
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following Guarantor Subsidiary, as a Registrant, has duly caused this Amendment
No. 1 to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Las Vegas, State of
Nevada on September 18, 2000.
Applied Power Investments II, Inc.
Patrick C. Dorn*
By: _________________________________
Patrick C. Dorn,
President
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Patrick C. Dorn* Director, President (chief executive officer)
_____________________________________________ and Treasurer (chief financial and
Patrick C. Dorn accounting officer)
Howard Lederman* Director
_____________________________________________
Howard Lederman
Anthony W. Asmuth III* Director
_____________________________________________
Anthony W. Asmuth III
</TABLE>
/s/ Andrew G. Lampereur
*By: _______________________________
Andrew G. Lampereur,
by power of attorney
S-8
<PAGE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following Guarantor Subsidiary, as a Registrant, has duly caused this Amendment
No. 1 to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin on September 18, 2000.
Columbus Manufacturing, LLC
Robert C. Arzbaecher*
By: _________________________________
Robert C. Arzbaecher,
President of Applied Power Inc.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Applied Power Inc., Manager
Robert C. Arzbaecher* President
_____________________________________________
Robert C. Arzbaecher
Robert C. Arzbaecher* President and Chief Executive Officer of
_____________________________________________ Applied
Robert C. Arzbaecher Power Inc.
/s/ Andrew G. Lampereur Chief Financial Officer of Applied Power Inc.
_____________________________________________
Andrew G. Lampereur
Dawn M. Doering* Controller of Applied Power Inc.
_____________________________________________
Dawn M. Doering
</TABLE>
/s/ Andrew G. Lampereur
*By: _______________________________
Andrew G. Lampereur,
by power of attorney
S-9
<PAGE>
APPLIED POWER INC
("API" or the "Registrant")
(Commission File No. 1-11288)
EXHIBIT INDEX
TO
FORM S-4 REGISTRATION STATEMENT
The following exhibits are filed with or incorporated by reference in this
Amendment No. 1 to this Registration Statement:
<TABLE>
<CAPTION>
Filed with
Incorporated Herein Registration Filed with
Exhibit Description By Reference To Statement Amendnent No. 1
------- ------------------------ ------------------------ --------------- ---------------
<C> <C> <S> <C> <C>
3.1 Restated Articles of Exhibit 4.1 to the
Incorporation of API Registrant's
Registration Statement
on Form S-8 (File No.
333-46469)
3.2 Amended and Restated Exhibit 3.2 to the
Bylaws of API (effective Registrant's Form 10-K
as of January 8, 1997) for fiscal year ended
August 31, 1997
4.1 Restated Articles of See Exhibits 3.1 and 3.2
Incorporation and above
Amended and Restated
Bylaws
4.2 Credit Agreement dated Exhibit 10.8 to the
as of July 31, 2000 Registrant's Form 8-K
among Applied Power Inc. dated as of July 31,
(doing business as 2000
Actuant Corporation),
The Lenders Named Herein
and Credit Suisse First
Boston, as Lead
Arranger, Collateral
Agent and Administrative
Agent, First Union
National Bank
Syndication Agent and
ING (U.S.) Capital LLC
Documentation Agent
4.3 Registration Rights Exhibit 10.11 to the
Agreement, dated August Registrant's Form 8-K
1, 2000, relating to dated as of July 31,
$200,000,000 Applied 2000
Power Inc. 13%
Senior Subordinated
Notes Due 2009
4.4 Indenture, dated as of Exhibit 10.12 to the
August 1, 2000, among Registrant's Form 8-K
Applied Power Inc. as dated as of July 31,
issuer and the 2000
Subsidiary Guarantors
and Bank One Trust
Company, N.A..
</TABLE>
EI-1
<PAGE>
<TABLE>
<CAPTION>
Filed with
Incorporated Herein Registration Filed with
Exhibit Description By Reference To Statement Amendment No. 1
------- ------------------------ --------------------- ---------------- ---------------
<C> <C> <S> <C> <C>
4.5 Purchase Agreement, Exhibit 10.13 to the
dated July 21, 2000, Registrant's Form 8-K
between Applied Power dated as of July 31,
Inc. and the Initial 2000
Purchasers named
therein.
5.1 Opinion of Quarles & X
Brady LLP as to the
legality of the
securities being
registered
12.1 Statements re X
computation of ratios.
21.1 Subsidiaries of the X
Registrant
23.1 Consent of Deloitte & X
Touche LLP
23.2 Consent of X
Pricewaterhouse Coopers
LLP
23.3 Consent of Quarles & Contained in
Brady LLP Exhibit 5.1
24.1 Powers of Attorney On Signatures
page
25.1 Statement of eligibility X
of Trustee, on Form T-1
99.1 Form of Letter of X
Transmittal
</TABLE>
EI-2
