Filed Pursuant to Rule 424(b)(5)
Registration Number 333-47493
PROSPECTUS SUPPLEMENT
(To prospectus dated January 27, 1999)
3,000,000 Shares
[LOGO] ACTUANT
Class A Common Stock
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Actuant Corporation is offering 3,000,000 shares of its Class A common
stock. Our Class A common stock is listed on the New York Stock Exchange under
the symbol "ATU." On February 7, 2002, the last reported sale price of our
Class A common stock on the New York Stock Exchange was $32.40 per share.
One of the underwriters, First Union Securities, Inc., is acting under the
trade name Wachovia Securities.
We have granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of our Class A common stock to cover over-allotments
at the public offering price, less the underwriting discounts and commissions.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page S-15 of this prospectus supplement.
Per Share Total
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Public offering price............................ $30.50 $91,500,000
Underwriting discounts and commissions........... $ 1.60 $ 4,800,000
Proceeds, before expenses, to Actuant Corporation $28.90 $86,700,000
The shares will be ready for delivery on or about February 13, 2002.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
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Wachovia Securities
ABN AMRO Rothschild LLC
Robert W. Baird & Co.
Bear, Stearns & Co. Inc.
The date of this Prospectus Supplement is February 7, 2002.
[Actuant logo appears here]
THE DRIVE TO LEAD
[Photograph appears here]
Enerpac. High-force hydraulic industrial tools.
[Photograph appears here]
Gardner Bender. Electrical tools and supplies.
[Photograph appears here]
Power-Packer. Hydraulic cab-tilt systems.
[Photograph appears here]
Power-Packer. Electro-hydraulic convertible top actuation systems.
[Photograph appears here]
Generator Slide-out
RV Leveling System
Main Room Slide-out
Wardrobe or Bedroom Slide-out
[Photograph appears here]
Power Gear. RV slide-out and leveling systems.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Forward-Looking Statements................................................................................ S-4
Market Data............................................................................................... S-4
Prospectus Supplement Summary............................................................................. S-5
Risk Factors.............................................................................................. S-15
Use of Proceeds........................................................................................... S-21
Price Range of Common Stock............................................................................... S-22
Dividend Policy........................................................................................... S-22
Capitalization............................................................................................ S-23
Selected Consolidated Financial Data...................................................................... S-24
Management's Discussion and Analysis of Financial Condition and Results of Operations..................... S-26
Business.................................................................................................. S-44
Facilities................................................................................................ S-51
Management................................................................................................ S-53
Description of Capital Stock.............................................................................. S-55
Underwriting.............................................................................................. S-59
Legal Matters............................................................................................. S-61
Experts................................................................................................... S-61
Where You Can Find More Information....................................................................... S-61
Incorporation of Information by Reference................................................................. S-62
Index to Consolidated Financial Statements................................................................ F-1
Prospectus
Available Information..................................................................................... 3
Incorporation of Certain Documents by Reference........................................................... 4
Forward-Looking Statements and Cautionary Factors......................................................... 4
The Company............................................................................................... 5
Use of Proceeds........................................................................................... 6
Ratio of Earnings to Fixed Charges........................................................................ 6
The Applied Power Trusts.................................................................................. 7
Description of Debt Securities............................................................................ 8
Description of Warrants to Purchase Debt Securities....................................................... 16
Description of Preferred Stock and Common Stock........................................................... 17
Description of Depositary Shares.......................................................................... 20
Description of Warrants to Purchase Class A Common Stock or Preferred Stock............................... 23
Description of Preferred Securities....................................................................... 24
Description of Guarantees................................................................................. 34
Relationship Among the Preferred Securities, the Corresponding Junior Subordinated Debt Securities and the
Guarantees............................................................................................... 37
Description of Stock Purchase Contracts and Stock Purchase Units.......................................... 38
Book-Entry Issuance....................................................................................... 39
Plan of Distribution...................................................................................... 41
Certain Legal Matters..................................................................................... 42
Experts................................................................................................... 42
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You should rely only on the information contained or incorporated or deemed
to be incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. We have not authorized anyone to provide you with
different or varying information. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. When you make a decision about whether to invest in our common
stock, you should not rely on any information other than the information
contained or incorporated or deemed to be incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus. You should assume that
information appearing in this Prospectus Supplement, the accompanying
Prospectus and the documents incorporated and deemed to be incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus is
accurate only as of their respective dates. Our business, financial condition,
results of operations and prospects may have changed since those dates. In
particular, we completed a spin-off of our electronics business and disposed of
other businesses, changed our name to "Actuant Corporation," and conducted a
one-for-five reverse stock split after the date of the accompanying Prospectus.
S-3
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus, including the
documents incorporated and deemed to be incorporated by reference herein and in
the accompanying Prospectus, contain statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements
expressed or implied in the forward-looking statements. The words "may,"
"should," "could," "anticipate," "believe," "estimate," "expect," "project,"
"plan," "objective" and similar expressions are intended to identify
forward-looking statements. Additionally, any projections or estimates of
future revenues, EBITDA (as defined below), earnings per share, tax rates,
interest rates, debt reductions or similar matters are forward-looking
statements, and there can be no assurance that actual results of operations and
financial conditions will not differ, perhaps substantially, from those
expressed in those forward-looking statements. In addition to the assumptions
and other factors referred to specifically in connection with the
forward-looking statements included in this Prospectus Supplement, the
accompanying Prospectus and the documents incorporated or deemed to be
incorporated by reference herein and in the accompanying Prospectus and the
risk factors discussed in this Prospectus Supplement under the caption "Risk
Factors," 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, truck, construction, automotive, and recreational vehicle
industries in North America and Europe and, to a lesser extent, Asia, market
acceptance of existing and new products, successful integration of
acquisitions, competitive pricing, foreign currency risks, interest rate risks,
the economy's reaction to the September 11, 2001 and any other terrorist
actions, uncollected tax or other indemnification claims from other parties,
environmental matters, our ability to access capital markets, our high debt
level, unforeseen costs, the risk that we may become subject to substantial
liabilities if APW Ltd. were unable to meet its obligations as they come due,
and other factors that may be referred to in this Prospectus Supplement and the
accompanying Prospectus and the documents incorporated and deemed to be
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
MARKET DATA
The information in this Prospectus Supplement, the accompanying Prospectus
and the documents incorporated and deemed to be incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus concerning market
positions of certain of our products is based on our net sales for the fiscal
year ended August 31, 2001 and management's estimates of our competitors'
respective dollar volumes of net sales for the products, markets and geographic
region or regions to which we refer. These estimates were prepared in
accordance with what we believe to be industry practice and are based on our
internal estimates, our knowledge of our relative position and the relative
position of our competitors in each market and, in some limited cases, industry
sources. In that regard, when we state that our high-force hydraulic industrial
tools, hydraulic cab-tilt systems for heavy-duty cab-over-engine trucks and
electro-hydraulic convertible top actuation systems hold a leading position in
their respective markets, we are referring to the global markets for those
types of products; and when we say that our electrical tools and supplies sold
through the retail do-it yourself channel and our recreational vehicle
slide-out and leveling systems hold a leading position in their respective
markets, we are referring to the North American markets for those types of
products. Other market data included in this Prospectus Supplement, the
accompanying Prospectus and the documents incorporated or deemed to be
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus is estimated and is based on independent industry publications or
other publicly available information. Although we believe that the information
on which we have based these estimates of our market position and this market
data is generally reliable, the accuracy and completeness of this information
is not guaranteed and this information has not been independently verified.
This Prospectus Supplement and the documents incorporated or deemed to be
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus include sales data for businesses that we acquired prior to their
dates of acquisition. This sales data was provided to us by the sellers of
those businesses and has not been independently verified, and the accuracy and
completeness of that information is not guaranteed.
S-4
PROSPECTUS SUPPLEMENT SUMMARY
This summary is not complete and does not contain all of the information
that may be important to you. You should read this entire Prospectus
Supplement, the accompanying Prospectus and the documents incorporated and
deemed to be incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus carefully, including the section entitled "Risk
Factors" and the attached consolidated financial statements and related notes,
before making an investment decision.
When used in this Prospectus Supplement, the terms "Actuant Corporation,"
"Actuant," "we," "our," "us," and "the Company" refer to Actuant Corporation
and its subsidiaries, unless the context otherwise requires, and the term
"common stock" refers to our Class A common stock. This Prospectus Supplement
contains trademarks and trade names of other companies.
Unless this Prospectus Supplement indicates otherwise or the context
otherwise requires, all information in this Prospectus Supplement assumes that
the underwriters' over-allotment option is not exercised and gives effect to a
one-for-five reverse stock split that we effected on January 25, 2001. Our
fiscal year ends on August 31 of each year, and references in this Prospectus
Supplement to "fiscal 2002," "fiscal 2001," "fiscal 2000," "fiscal 1999," and
similar references mean the fiscal year ended on August 31 of the applicable
year. When used in this Prospectus Supplement, the term "EBITDA" means earnings
from continuing operations before net financing costs, income tax expense,
depreciation and amortization. Unless this Prospectus Supplement indicates
otherwise or the context otherwise requires, the word "adjusted," when used
with respect to our net sales, gross profit, EBITDA, operating earnings or
similar financial data, means that we have adjusted that financial data to
exclude the results of certain businesses and product lines that we have
divested as described below under "--Spin-off and Other Recent Transactions"
and that we refer to as the "Non-continuing Businesses."
Our Company
We are a leading diversified global manufacturer and marketer of a broad
range of niche and specialized industrial products and systems, organized into
two business segments, Tools & Supplies and Engineered Solutions. Tools &
Supplies sells branded, specialized electrical and industrial tools and
supplies to hydraulic and electrical wholesale distributors, to catalog houses
and through various retail distribution channels. Engineered Solutions designs
and markets customized motion control systems primarily for original equipment
manufacturers, or OEMs, in diversified niche markets. We believe that our
strength in these product categories results from brand recognition,
proprietary engineering and design competencies, a dedicated service
philosophy, global manufacturing and distribution capabilities, and continuous
cost reduction initiatives.
Approximately 75% of our net sales for our fiscal year ended August 31, 2001
were from products that we believe hold a leading position in their respective
markets, based on our internal estimates of our competitors' net sales of
similar products. The following table sets forth our major product categories
that we believe, based on these internal estimates, hold a leading position in
either the global or North American market, as indicated, for those products:
Segment Market
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Tools & Supplies Global high-force hydraulic industrial tools
Tools & Supplies North American electrical tools and supplies to the retail do-it-yourself channel
Engineered Solutions Global hydraulic cab-tilt systems for heavy-duty cab-over-engine trucks
Engineered Solutions North American recreational vehicle slide-out and leveling systems
Engineered Solutions Global electro-hydraulic automotive convertible top actuation systems
S-5
Tools & Supplies
The Tools & Supplies segment generated approximately 60% of our adjusted net
sales and approximately 63% of our adjusted EBITDA (before corporate expenses)
for the fiscal year ended August 31, 2001. Adjusted EBITDA and adjusted net
sales are calculated by excluding the results of the Non-continuing Businesses.
This segment's products include high-force hydraulic tools and electrical tools
and consumables, which are sold to end-user markets including general
industrial, construction, production automation, retail do-it-yourself, or DIY,
retail marine and retail automotive aftermarket customers. Gardner Bender, a
business in our Tools & Supplies segment, was named the electrical vendor of
the year for both the Ace Hardware and TruServe hardware cooperatives within
the past five years.
The following table illustrates our brands, products and key customers in
our Tools & Supplies segment:
Brands Products Key Customers
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Enerpac High-force hydraulic tools W.W. Grainger, Snap-on and approximately
1,200 distributors
Gardner Bender Electrical tools and supplies to the retail Lowe's, The Home Depot, Ace Hardware,
DIY channel and wholesale electrical Menards, TruServe, Sears, Wal-Mart and
distributors over 2,500 distributors
Ancor Electrical tools and supplies for the West Marine, Boat America, Boater's World
marine industry
CalTerm Electrical tools and supplies for the Advance Auto Parts, Autozone, O'Reilly
automotive aftermarket Automotive and over 500 distributors
Del City Electrical tools and supplies sold through Over 10,000 small OEM customers
catalogs and the Internet
Engineered Solutions
The Engineered Solutions segment generated approximately 40% of our adjusted
net sales and approximately 37% of our adjusted EBITDA (before corporate
expenses) for the fiscal year ended August 31, 2001. Through this segment, we
work with our customers to provide customized solutions in the recreational
vehicle, or RV, truck, automotive and other markets. Products include RV
slide-out and leveling systems, hydraulic cab-tilt systems for heavy-duty
cab-over-engine trucks sold primarily in Europe and electro-hydraulic
automotive convertible top actuation systems. We believe that our principal
brands in the Engineered Solutions segment are recognized for their engineering
quality, integrated custom design and ability to support global manufacturing
needs. 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.
S-6
The following table illustrates our brands, products and systems, and key
customers in our Engineered Solutions segment:
Brands Products and Systems Key Customers
- ------ -------------------- -------------
Power Gear RV slide-out and leveling systems Fleetwood, Monaco Coach, Keystone,
Forest River, National RV, Jayco
Power-Packer Hydraulic cab-tilt systems for heavy-duty DAF/Leyland, Ford, Freightliner, Iveco,
cab-over-engine trucks Oshkosh Truck, Peterbilt, Renault, Scania,
Volvo
Power-Packer Electro-hydraulic automotive convertible Karmann Rhein GmbH, Audi, Jaguar,
top actuation systems Mercedes-Benz, Fiat, Renault, Saab,
Volkswagen
Milwaukee Cylinder Hydraulic and pneumatic tie-rod Tower Automotive
cylinders
Nielsen Sessions Hardware for metal cases and containers OEM manufacturers of metal cases and
containers
Our Competitive Strengths
. Market Leadership. Approximately 75% of our net sales for our fiscal year
ended August 31, 2001 were from products that we believe hold a leading
position in their respective markets, based on our internal estimates of our
competitors' net sales of similar products. We believe that the strength of our
established products and brands and our market positions provide us with
significant competitive advantages, including preferred supplier status with
some of our customers and premium selling prices over some of our competitors
in some of the product lines in which we compete.
. Diversification and Stability. We believe that we have achieved a degree of
product breadth and end-market and geographic diversity that differentiates us
from many of our competitors. We have more than 20,000 customers in a wide
array of niche markets, including many customers with whom we have developed
long-standing and close relationships. Our largest customer accounted for
approximately 5% of our net sales in fiscal year 2001. We have served some of
our customers for over 20 years.
We manufacture a diverse group of products sold to a number of different
markets. As a percentage of our fiscal 2001 net sales, adjusted to exclude the
results of the Non-continuing Businesses, our net sales to the industrial
hydraulic tools market were 25%, to the retail DIY electrical market were 20%,
to the RV slide-out and leveling market were 13%, to the electrical wholesale
distribution market were 11%, to the hydraulic cab-tilt truck market were 10%,
and to the convertible top actuation market were 9%. The remaining 12% of our
fiscal 2001 adjusted net sales were to various other end markets.
We have developed an internationally focused operating culture with the
people and logistical capabilities to do business around the world. For fiscal
2001, we derived approximately 68% of our net sales from North America,
approximately 25% from Europe, approximately 5% from Asia, and approximately 2%
from South and Latin America, in each case adjusted to exclude the results of
the Non-continuing Businesses. Additionally, we have established a network to
source and distribute products and components effectively on a global basis. We
believe that the diversity of our customer base and products and our global
reach can help mitigate the effects of downturns in individual product markets.
S-7
. Attractive End Markets for Our Products. We believe that the markets for
some of our products will continue to provide growth opportunities over the
next few years. According to data from automobile industry sources, the number
of automobiles with convertible tops sold in the United States and Europe in
2000 was more than 45% greater than the number of convertible top automobiles
sold in the United States and Europe in 1995. We believe that the number of RV
owning households will continue to grow over the next several years with the
aging of the "baby-boom" generation. Recently, we have seen an increase in the
number of new RV models containing slide-out systems, which allow RV owners to
increase a room's size by telescoping a section of the room's wall outward, as
well as an increase in the number of RV models incorporating more than one
slide-out system. These trends are favorable for sales of our convertible top
actuation systems and RV slide-out and leveling systems, respectively.
. Brand Name Recognition. We sell our products under the brand names of
Enerpac, Gardner Bender, Ancor, CalTerm, Del City, Power-Packer, Power Gear,
Milwaukee Cylinder and Nielsen Sessions. We believe that our brands include
some of the most widely recognized and respected names in the markets we serve.
In the Tools & Supplies business, we believe that our brand names provide us
with the ability to market new product line extensions and promote cross
selling. Similarly, we believe that our Power-Packer and Power Gear brand names
in our Engineered Solutions segment are well respected by OEMs in the markets
where they compete. In certain markets that we serve, we believe that our brand
name products command premium prices compared to comparable products of our
competitors. Additionally, we believe that our brands help to promote end-user
demand in the markets that we serve.
. Design and Engineering Capabilities. We believe that we have earned a
reputation for design and engineering excellence in key technologies such as
hydraulic and mechanical positioning and electronic controls for hydraulic
systems. For example, our high pressure electro-hydraulic system is used in
sophisticated convertible top systems for automobiles such as the Mercedes-Benz
CLK, our PC Synchronous Hydraulic Lift system was used to temporarily lift the
Golden Gate Bridge as part of a repair project, and our RV slide-out and
leveling systems are used by a majority of the leading North American RV
manufacturers. Through our proprietary processes and over 500 patents and
trademarks (including pending applications), we create products intended to
satisfy specific customer needs and to make jobs easier and more efficient for
our customers.
. Global Distribution Management. We have established a network to source and
distribute products and components effectively on a global basis while
maintaining our inventory at low levels. We have major distribution warehouses
located in North America, Europe and Asia, which serve over 5,000 industrial
and electrical customer and distributor locations. We believe that our global
infrastructure allows us to better serve our customers and provides the
foundation to facilitate further global expansion initiatives.
. Continuous Operational Improvements. We have significantly improved our
cost structure, operating performance and asset utilization over recent years.
We outsource the fabrication of components of most of our products and assemble
the products either to actual orders or to lean stocking parameters. In other
cases, we design the products and have them manufactured in their entirety by
outside vendors. By focusing on design, product assembly, and outsourcing the
fabrication of many of our components, we seek to reduce our capital needs and
fixed costs, which we believe makes us less affected by market downturns than
would be the case for a more vertically integrated company. Over the past few
years we have eliminated over 5,000 SKUs, or stock keeping units, and have also
improved our inventory turns. These achievements are the direct result of our
manufacturing experience and our World Class Performance program, or 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 ongoing benefits.
S-8
Our Strategy
. Pursue Internal Growth Opportunities by Leveraging on Our Strengths. We
have operated on a global basis for over 30 years and have the infrastructure
in place to market additional products through our global distribution and
sales network. We plan to leverage the strength of our brands and our
long-standing relationships with key customers to build upon our current market
positions. We believe that our 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 our Engineered Solutions segment, we have cultivated long-standing
relationships with leading global OEMs who we believe have selected us as a
vendor based on factors such as our proprietary designs, engineering expertise
and ability to support our customers in multiple locations around the world. We
believe that these relationships provide us with opportunities for growth,
particularly as our OEM customers expand into new geographic markets.
. 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 controls for hydraulic systems. We are continuously
updating our product portfolios, many of which are designed in close
coordination with our customers. We also seek patent and other protections to
reinforce and strengthen our product positions and we strive to apply our
existing competencies in new areas. For example, we successfully migrated our
hydraulic cab-tilt system technology to our electro-hydraulic convertible top
actuation systems. We are now applying the same technology to marine steering
systems.
. Cultivate a Culture Based on Continuous Improvement and Performance. Our
culture is based on the belief that people are a key ingredient to successful
execution of business strategies and a driver of financial performance. Our
decentralized and entrepreneurial approach to management is based on
team-oriented managers who share a strong sense of responsibility and
accountability. Through our WCP Program, we target operational excellence,
continuous cost reduction and asset efficiency initiatives. To date, broad
initiatives to adopt Kanban, lean manufacturing and Kaizen philosophies have
generated significant cost reductions and asset efficiency improvements. We
believe that opportunities exist to further improve operations by further
reducing waste and working capital needs and improving upon floor-space
utilization.
We use stock-based incentives to align our employees' interests with those
of our shareholders. Substantially all of our 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, which is
intended to align management's interest with investors' interests in achieving
our strategic goals. Based upon the number of shares and options outstanding on
January 15, 2002, management, director, and employee stock ownership will
represent more than 14% of our diluted shares of common stock and approximately
6% of our shares of common stock outstanding immediately following this
offering. Diluted ownership includes all shares issuable upon the exercise of
stock options.
. Maintain the Business Model of an Assembly Company. We consider Actuant to
be an assembler of industrial products rather than a vertically integrated
manufacturer. We focus on adding value for our customers by designing a
superior product, selecting quality-oriented component suppliers, efficiently
assembling and distributing our products, and providing extensive customer
service. Outside vendors provide most of the manufactured components that go
into our products. Our non-vertical nature results in a more variable cost
structure and helps to reduce our capital requirements and fixed costs compared
to more vertically integrated businesses. We believe that the combination of
our non-vertical business model and our market leadership positions helps drive
our cash flow and overall product margins.
S-9
. Continue to Pursue "Bolt-on" Acquisitions. Part of our growth strategy has
been, and will continue to be, to make "bolt-on" acquisitions that complement
our existing businesses and whose products can be sold through our existing
distribution channels and brand names. We acquired a number of businesses prior
to the spin-off of our former electronics business on July 31, 2000, and we
have completed one acquisition subsequent to that date. We will continue to
pursue acquisition opportunities that complement our strategy of selling
branded tools and supplies and motion control systems.
Spin-off and Other Recent Transactions
Prior to July 31, 2000, we were known as Applied Power Inc. and our business
consisted of two segments, Electronics and Industrial. The Electronics segment,
which we refer to as the Electronics Business, focused on electronic
enclosures, while the Industrial segment, which we refer to as the Industrial
Business, concentrated on the current Tools & Supplies and Engineered Solutions
businesses, as well as other businesses that have been divested. During 1999,
our management began to consider the separation of the Electronics Business
from the Industrial Business. After evaluating a sale of the Industrial
Business, we determined that the separation of the two businesses in the form
of a spin-off was the preferred option. On January 26, 2000, our board of
directors authorized various actions intended to position us to distribute the
Electronics Business to our shareholders in the form of a special dividend,
which we refer to as the Spin-off or the Distribution. The Distribution took
place on July 31, 2000, and at that time we began doing business as Actuant
Corporation. The formal name change and a one-for-five reverse stock split
occurred in January 2001. Our common stock now trades on the New York Stock
Exchange under the ticker symbol "ATU." (APW Ltd., our former Electronics
Business, separately trades on the New York Stock Exchange under the ticker
symbol "APW.")
During fiscal 2001, we acquired the assets of Dewald Manufacturing, Inc.,
which is included in our Engineered Solutions segment. Also during fiscal 2001,
we divested our medical products business, Mox-Med, which was included in our
Engineered Solutions segment and the Quick Mold Change, or QMC, product line
which was included in the Tools & Supplies segment. During fiscal 2000, we
divested Samuel Groves and our aerospace business, consisting of Barry Controls
and Air Cargo, which were previously included in our Engineered Solutions
segment. Additionally, the Norelem and automotive product lines of Enerpac,
which were previously included in Tools & Supplies, were disposed of during
fiscal 2000. These divestitures, as well as other businesses and product lines
which we divested beginning in fiscal 1999, are collectively referred to as the
"Non-continuing Businesses." In the last two fiscal years, we divested
businesses that did not fit within our strategy of selling branded tools and
supplies and motion control systems. As you review our financial statements and
the other information in this Prospectus Supplement, please consider the
effects of the Spin-off of the Electronics Business and the divestitures of
these non-core businesses, as well as the acquisition of Dewald Manufacturing.
Our Address
Headquartered in Milwaukee, we are a Wisconsin corporation incorporated in
1910. Our principal executive offices are located at 6100 North Baker Road,
Milwaukee, Wisconsin 53209, and our telephone number at that location is (414)
352-4160. Until January of 2001, we were named Applied Power Inc.
S-10
Summary Consolidated Financial Data
The summary consolidated financial data set forth below should be read in
conjunction with the sections of this Prospectus Supplement entitled "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the consolidated financial
statements and related notes included herein. As a result of the Spin-off of
our former Electronics Business on July 31, 2000, the consolidated financial
statements and related notes from which the following summary financial data
was derived have been reclassified to reflect our former Electronics Business
as a discontinued operation. See Note 2, "Distribution and Discontinued
Operations" in the Notes to Fiscal Year 2001 Consolidated Financial Statements.
In addition, the financial data in this table includes the Non-continuing
Businesses until their respective dates of sale. As a result, the summary
consolidated financial data in the following table is not fully representative
of the group of businesses that comprise Actuant today. We have included a
separate summary adjusted consolidated financial data table on page S-13 that
excludes the results of the Non-continuing Businesses. The following summary
consolidated financial data also includes the results of Dewald Manufacturing,
which we acquired during fiscal 2001, from the date of the acquisition,which
also affects the comparability of the data in this table. See Note 3,
"Acquisitions and Divestitures" in the Notes to Fiscal Year 2001 Consolidated
Financial Statements.
Three Months
Ended
Fiscal Year Ended August 31, November 30,
--------------------------- ----------------
1999 2000 2001 2000 2001
-------- ------- ------- ------- -------
(in millions, except per share data)
Statement of Earnings Data:
Net sales(1).................................................................. $ 705.2 $ 681.4 $ 481.9 $ 119.8 $ 113.1
Gross profit.................................................................. 252.7 242.2 168.9 41.8 38.0
Operating expenses(2)......................................................... 144.5 145.0 90.7 21.5 19.9
Operating earnings............................................................ 99.4 89.7 71.9 18.8 17.5
Earnings from continuing operations before cumulative effect of change in
accounting principle (3)..................................................... 34.6 28.0 24.4 4.3 4.6
Diluted earnings per share from continuing operations before cumulative effect
of change in accounting principle (1)........................................ 4.30 3.48 2.93 0.51 0.54
Cash dividends per share(1)................................................... 0.30 0.23 -- -- --
Balance Sheet Data (at end of period):
Total assets.................................................................. $1,059.9 $ 417.0 $ 342.7 $ 375.7 $ 330.7
Net assets of discontinued operations......................................... 598.5 -- -- -- --
Total debt(4)................................................................. 521.2 432.5 327.5 421.8 330.6
Total shareholders' equity.................................................... 417.8 (163.0) (139.8) (159.9) (143.2)
Other Financial Data:
EBITDA(5)..................................................................... $ 124.6 $ 107.7 $ 106.5 $ 24.4 $ 20.1
Cash provided by (used in) operating activities of continuing operations...... 32.5 17.9 95.1 4.7 (3.4)
Depreciation and amortization................................................. 26.1 22.6 16.5 4.2 3.0
Capital expenditures.......................................................... 22.9 11.4 6.7 1.8 2.5
- --------
(1) All sales figures have been reclassified to reflect the adoption of
Emerging Issues Task Force Abstract 00-10, "Accounting for Shipping and
Handling Fees and Costs." All dividend and per share data have been
adjusted for the one-for-five reverse stock split effected on January 25,
2001. We declared and paid quarterly cash dividends of $0.075 per share for
each of the quarters in fiscal 1999 and for the first three quarters of
fiscal 2000, as adjusted for the one-for-five reverse stock split. Since
that time no cash dividends have been declared or paid.
(2) Operating expenses in fiscal 1999 included a $7.8 million pre-tax charge
due to the cancellation of a customer contract. In fiscal 2000, we recorded
a $1.4 million gain when we recognized recoveries of these contract costs
in excess of what was anticipated when the loss was initially recorded.
Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution. Operating expenses for fiscal 2001
include a restructuring charge, which totaled $1.7 million. See
"Management's Discussion and Analysis of Financial Condition and
S-11
Results of Operations" and Note 6, "Restructuring and Other Non-recurring
Items" in Notes to Fiscal Year 2001 Consolidated Financial Statements. In
addition, operating expenses include our general corporate expenses. These
expenses, which include resources and services that supported the
Electronics Business prior to the Spin-off, declined significantly after the
Spin-off. General corporate expenses were $12.1 million, $17.6 million, and
$6.2 million for fiscal 1999, 2000, and 2001, respectively, and $1.1 million
for both the three months ended November 30, 2000 and 2001.
(3) For fiscal 2001, earnings from continuing operations include a gain of
$18.5 million on the sale of Mox-Med, a gain of $1.0 million for an
insurance recovery, a loss on the divestiture of QMC of $0.7 million, and a
loss on the net present value of an idled lease of $1.5 million. For fiscal
2000, earnings from continuing operations include a loss of $3.5 million on
the sale of the Norelem product line of Enerpac.
(4) Debt in the table as of August 31, 1999 reflects the debt balance after a
reduction for debt allocated to the Electronics Business, which is reported
in net assets of discontinued operations.
(5) "EBITDA" is defined as earnings from continuing operations before net
financing costs, income tax expense, depreciation, and amortization. Items
excluded in arriving at EBITDA are significant components in understanding
and assessing financial performance. EBITDA is a measure commonly used by
financial analysts and investors to evaluate the financial results of
companies in our industry, and we believe it provides useful information to
investors. However, EBITDA should not be considered in isolation or as an
alternative to net income, cash flows generated or used by operations,
investing or financing activities, or other financial statement data
presented in the consolidated financial statements as indicators of our
financial performance or liquidity. Because EBITDA is not a measure of
financial performance determined in accordance with generally accepted
accounting principles and is susceptible to varying calculations, EBITDA as
presented may not be comparable to similarly titled measures of other
companies.
S-12
Summary Adjusted Consolidated Financial Data
The financial information included in the following table, other than
information with respect to general corporate expenses, has been adjusted to
exclude the results of the Non-continuing Businesses. Historical net financing
costs, income taxes, and balance sheet data have not been adjusted and are not
presented in the following table.
Three Months
Ended
Year Ended August 31, November 30,
--------------------- -------------
1999 2000 2001 2000 2001
------ ------ ------ ------ ------
(in millions)
Statement of Earnings Data(1):
Adjusted net sales..................................... $491.2 $499.0 $461.0 $114.5 $113.1
Adjusted gross profit.................................. 172.0 175.8 159.4 39.7 38.0
Adjusted operating expenses excluding general corporate
expenses(2).......................................... 90.3 87.5 80.7 19.3 18.8
General corporate expenses(3).......................... 12.1 17.6 6.2 1.1 1.1
Adjusted amortization of intangible assets............. 5.6 5.7 5.8 1.4 0.6
Adjusted operating earnings(2)......................... 64.0 65.0 66.7 17.9 17.5
Other Financial Data(1):
Adjusted depreciation.................................. 9.3 9.9 9.5 2.5 2.4
Adjusted capital expenditures.......................... 13.7 8.4 6.4 1.8 2.5
- --------
(1) We have excluded the operating results of the Non-continuing Businesses
from the financial data presented in this table. However, we completed one
acquisition that is included in the data set forth in this table from its
acquisition date. This impacts the comparability of the adjusted financial
data presented in the table. For additional information, see Note 3,
"Acquisitions and Divestitures" in Notes to Fiscal Year 2001 Consolidated
Financial Statements. The Non-continuing Businesses include Mox-Med, Quick
Mold Change, or QMC, the Norelem and automotive product lines of Enerpac,
Gardner Bender's Everest product line, Barry Controls, Air Cargo, Samuel
Groves and Magnets. The Mox-Med business and QMC businesses were divested
in fiscal 2001. The Norelem and automotive product lines of Enerpac, Barry
Controls, Air Cargo and Samuel Groves units were divested in fiscal 2000.
The Gardner Bender Everest product line and Magnets business were
transferred to the Electronics Business segment immediately prior to the
Spin-off.
(2) For further information on non-recurring items included in operating
expenses and operating earnings, see "Summary Consolidated Financial Data"
above and the discussion of operating expenses in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) General corporate expenses have not been adjusted to exclude the
Non-continuing Businesses.
S-13
The Offering
Common stock offered by Actuant.................. 3,000,000 shares, or 3,450,000 shares if
the underwriters' over-allotment option
is exercised in full.
Common stock to be outstanding after the offering 11,106,046 shares, or 11,556,046 shares
if the underwriters' over-allotment
option is exercised in full.
Use of proceeds.................................. We intend to use approximately $82.5
million of the net proceeds from this
offering to redeem $70 million
aggregate principal balance of our 13%
Senior Subordinated Notes due 2009 and
to pay the related redemption premium
of $9.1 million, plus approximately $3.4
million of accrued interest on the notes
being redeemed, as part of our plan to
de-leverage our business, and to use the
remaining net proceeds to reduce
borrowings under our senior secured
credit facility. See "Use of Proceeds."
New York Stock Exchange symbol................... ATU.
Risk factors..................................... See "Risk Factors" beginning on page
S-15 and the other information included
and incorporated or deemed to be
incorporated by reference in this
Prospectus Supplement and the
accompanying Prospectus for a
discussion of factors you should
carefully consider before deciding to
invest in our common stock.
The number of shares to be outstanding after this offering is based upon our
shares of common stock outstanding as of January 15, 2002. Options to purchase
1,098,615 shares of common stock at a weighted average exercise price of
approximately $15.71 per share were outstanding under our stock option plans as
of January 15, 2002 and are not included in our outstanding shares.
S-14
RISK FACTORS
You should carefully consider the risks described below, as well as other
information contained in this Prospectus Supplement and the accompanying
Prospectus and the documents incorporated or deemed to be incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus, before
buying our common stock in this offering. If any of the events described below
occurs, our business, financial condition or results of operations could be
materially harmed, the trading price of our common stock offered by this
Prospectus Supplement could decline and you may lose all or part of your
investment.
Risks Relating to Our Business
Market demand for our products may suffer cyclical declines.
The level of market demand for our products depends on the general economic
condition of the markets in which we compete. A substantial portion of our
revenues is derived from customers in cyclical industries that typically are
adversely affected by downward economic cycles, which may result in lower
demand for our products in the affected business segment. For example, some of
our largest customers include OEMs in the RV industry. Our net sales to the RV
market declined to $43.3 million in fiscal 2001 from $63.7 million in fiscal
2000, excluding $16.1 million in sales from a business acquired on March 1,
2001. Additionally, we derive significant revenues from sales to OEMs in the
heavy-truck and automotive industries and from the construction industry. Our
business would also be adversely affected by any of the risks to which our
customers' businesses or their industries are subject.
We may be subject to substantial liabilities if APW Ltd. is unable to meet
its obligations as they come due.
On July 31, 2000, we effected the Spin-off of APW Ltd., a Bermuda company
organized to own and operate our former Electronics Business. Based on APW
Ltd.'s public filings with the SEC, we believe that APW Ltd. is experiencing
significant financial difficulties. For instance, APW Ltd. has stated that, if
it does not complete the sale of one of its divisions by February 28, 2002 or
if the recent decline in its net sales continues, it may not be able to comply
with the amended covenants in its bank credit facilities that were agreed to
with its lenders as of December 12, 2001. APW Ltd. has also stated that, if a
covenant default were to occur and if it was unable to, among other things,
obtain a waiver or amendment under its credit facilities, obtain additional
debt or equity financing or restructure its obligations and/or its business,
such default would cause a material adverse effect on its ability to continue
in its present form and to achieve its intended business objectives.
In conjunction with the Spin-off and as is customary in these types of
transactions, APW Ltd. agreed to assume certain of our liabilities relating to
our former Electronics Business and to indemnify us for certain claims and
liabilities. Nonetheless, we are or may be subject to certain substantial
liabilities with respect to APW Ltd.'s business and operations. These
liabilities include actual or potential liabilities for taxes, environmental,
litigation and other matters that APW Ltd. agreed to assume, or for which APW
Ltd. agreed to indemnify us, in connection with the Spin-off but for which we
remain or may be liable. For example, we remain liable for tax obligations
associated with the Spin-off and related corporate restructuring transactions
as well as APW Ltd.'s potential tax obligations for periods prior to the
Spin-off. We also have guaranteed or are otherwise responsible for APW Ltd.'s
obligations under operating leases covering certain of APW Ltd.'s facilities
and equipment. As a result, any failure of APW Ltd. to pay its liabilities as
they come due or to indemnify us as required could result in substantial claims
against us and could require us to incur other expenses, including legal fees,
and to make substantial payments and incur special charges for financial
reporting purposes, which could have a material adverse effect on our financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," Note 2, "Distribution and Discontinued Operations" in Notes to
Fiscal Year 2001 Consolidated Financial Statements and Note 7, "Distribution of
Electronics Segment" in Notes to Unaudited Condensed Consolidated Financial
Statements.
S-15
We have substantial debt, which could adversely affect our operating
flexibility and put us at a competitive disadvantage.
Even after using the proceeds of this offering to repay debt, we will have a
substantial amount of debt which will continue to require significant interest
and principal payments. Our level of debt and the limitations imposed on us by
our debt agreements could adversely affect our operating flexibility and put us
at a competitive disadvantage. Our substantial level of debt may adversely
affect our future performance, because, among other things:
. we will have to use a substantial proportion of our cash flow for debt
service rather than for operations;
. we may not be able to obtain further debt financing and may have to pay
more for financing or sell equity securities which could dilute your
ownership interest;
. we may not be able to take advantage of business opportunities;
. some of our indebtedness bears interest at variable interest rates,
making us vulnerable to increases in interest rates;
. the terms of our 13% Senior Subordinated Notes due 2009 and our senior
secured credit facility require that we apply certain excess cash flow,
as defined, to repay specified indebtedness; and
. we will be more vulnerable to adverse economic conditions.
Although our debt agreements limit the amount of additional indebtedness
that we may incur, we nonetheless retain the ability to incur substantial
additional indebtedness in the future. At November 30, 2001, approximately $46
million of the $63 million of unused borrowing capacity under our senior
secured credit facility was available to us for general business purposes,
subject to compliance with covenants and borrowing conditions. After adjusting
for the completion of this offering and the application of the estimated net
proceeds as described herein, and based upon our actual indebtedness as of
November 30, 2001, we will have approximately $257.8 million of total debt and
$8.3 million of letters of credit outstanding, and all $63 million of unused
borrowing capacity under the senior secured credit facility will be available
to us, subject to compliance with covenants and borrowing conditions.
Our debt agreements also contain a number of significant financial and other
restrictive covenants. These covenants could adversely affect us by limiting
our financial and operating flexibility as well as our ability to plan for and
react to market conditions and to meet our capital needs. Our failure to comply
with these covenants could result in events of default which, if not cured or
waived, could result in our being required to repay that indebtedness before
its due date, and we cannot assure you that we would have the financial
resources or be able to arrange alternative financing to do so. Borrowings
under our senior secured credit facility are secured by substantially all of
the domestic assets of us and our domestic subsidiaries and by a pledge of
approximately 65% of the capital stock of some of our foreign subsidiaries; if
borrowings under that credit facility were accelerated and we were unable to
repay or refinance those borrowings, the lenders could foreclose on our assets.
In addition, in the event of specified changes in control or similar events
relating to us, the holders of our 13% Senior Subordinated Notes due 2009 have
the right to require us to repurchase those notes. Any of these events could
have a material adverse effect on us.
Our business operates in highly competitive markets, so we may be forced to
cut prices or to incur additional costs.
We compete on the basis of product design, quality, availability,
performance, customer service and price. Our businesses generally face
substantial competition in each of their markets. Competition may force us to
cut prices or to incur additional costs to remain competitive. Additionally,
present or future competitors may have greater financial, technical or other
resources which could put us at a disadvantage in the affected business or
businesses.
S-16
Our international operations pose currency and other risks.
We have significant international operations. We derived approximately 25%
of our adjusted net sales for fiscal 2001 from Europe, approximately 5% from
Asia, approximately 2% from Canada and approximately 2% from South and Latin
America, in each case adjusted to exclude the results of the Non-continuing
Businesses. Our international operations present special risks, primarily from
currency exchange rate fluctuations, exposure to local economic and political
conditions, export and import restrictions, controls on repatriation of cash
and exposure to local political conditions. In particular, our results of
operations have been significantly affected by adjustments relating to
fluctuations in foreign currency exchange rates. To the extent that we expand
our international presence these risks may increase.
Repercussions from the terrorist acts committed in the United States and any
future terrorist acts could harm our business and operations and adversely
impact our ability to meet our expectations.
The terrorist attacks of September 11, 2001 have caused instability in the
world's markets and economies. There can be no assurance that the current armed
hostilities will not escalate or that these terrorist attacks, or the
responses to them, will not lead to further acts of terrorism or civil
disturbances in the United States or elsewhere, which may further contribute to
the economic instability in the United States and other markets we serve.
Specifically, such continued instability could cause a reduction in, or could
impact the timing of, product sales to companies in certain industries from
which we derive substantial revenues. Armed conflict, civil unrest, additional
terrorist activities and the attendant political instability and societal
disruption may reduce demand for our products, which could harm our business.
Future acquisitions may create transitional challenges.
Our business strategy includes growth through small, strategic acquisitions.
That strategy depends on the availability of suitable acquisition candidates at
reasonable prices and our ability to quickly resolve challenges associated with
integrating these acquired businesses into our existing business. These
challenges include integration of product lines, sales force and manufacturing
facilities as well as decisions regarding divestitures, inventory write-offs
and other charges. These challenges also pose risks with respect to employee
turnover, disruption in product cycles and the loss of sales momentum. We
cannot be certain that we will find suitable acquisition candidates or that we
will consistently meet these challenges.
Environmental laws and regulations may result in additional costs.
We are subject to federal, state, local and foreign laws and regulations
governing public and worker health and safety and the indoor and outdoor
environment. Pursuant to such laws, governmental authorities have required us
to contribute to the cost of investigating or remediating, or to investigate or
remediate, third party as well as currently or previously owned and operated
sites. In addition, we provided environmental indemnities in connection with
the Spin-off of APW Ltd. and the sale of the Non-continuing Businesses.
Liability as an owner or operator, or as an arranger for the treatment or
disposal of hazardous substances, can be joint and several and can be imposed
without regard to fault. We cannot guarantee that our costs relating to these
matters will not be greater than we currently expect or exceed our insurance
coverage, nor can we guarantee that additional remediation and compliance
obligations will not arise which require us to make material expenditures. In
particular, more stringent environmental laws, unanticipated remediation
requirements or the discovery of previously unknown conditions could have a
material adverse effect upon our financial condition and results of operations.
We are also required to comply with various environmental laws and maintain
permits, some of which are subject to discretionary renewal from time to time,
for many of our businesses, and we could be materially adversely affected if we
are unable to renew existing permits or to obtain any additional permits that
we may require.
S-17
Any loss of key personnel and the inability to attract and retain qualified
employees could have a material adverse impact on our operations.
We are dependent on the continued services of our management team, including
our key executives. Any loss of such personnel without adequate replacement
could have a material adverse effect on us. Additionally, we need qualified
managers and skilled employees with technical and manufacturing industry
experience to operate our businesses successfully. From time to time there may
be shortages of skilled labor which may make it more difficult and expensive
for us to attract and retain qualified employees. If we are unable to attract
and retain qualified individuals or our costs to do so increase significantly,
our operations would be materially adversely affected.
We could be adversely affected if the Spin-off or the related corporate
restructuring transactions and debt realignment are not valid under fraudulent
transfer or legal dividend statutes.
In connection with the Spin-off, we undertook numerous corporate
restructuring transactions and realigned our debt. These transactions, along
with the Spin-off, may be challenged under 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, was rendered insolvent, had unreasonably small capital or
was unable to pay its debts as they come due, the court could, among other
things, reverse the Spin-off or impose liability, which could be substantial,
on the parties. In addition, the Spin-off, including the related debt
realignment and corporate restructuring transactions, was subject to state
corporate distribution statutes. If these statutes were violated, a court could
reverse the transactions. The resulting complications and costs of any of these
matters could have a material adverse effect on us, our financial condition and
results of operations.
Risks Relating to this Offering
The market price of our common stock has fluctuated substantially in the
past and is likely to fluctuate in the future as a result of a number of
factors.
The market price of our common stock and the number of shares traded each
day have varied greatly. Such fluctuations may continue because of numerous
factors, including:
. quarterly fluctuations in operating results of us and our competitors;
. announcements of new products by us or our competitors;
. gains or losses of significant customers;
. a continuation or worsening of APW Ltd.'s financial difficulties;
. changes in stock market analysts' estimates of our future performance
and the future performance of our competitors;
. the presence or absence of short-selling of our common stock;
. sales of a high volume of shares of our common stock by our large
shareholders;
. events affecting other companies that the market deems comparable to us;
. general conditions in the industries in which we operate; and
. general economic conditions in the United States and abroad.
In addition, in recent years the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies for reasons unrelated to
their operating performance. These broad market fluctuations may materially
adversely affect our stock price, regardless of our operating results.
S-18
Future sales of our common stock could depress the market price of our
common stock.
Immediately after completion of this offering and based on shares
outstanding as of January 15, 2002, we will have approximately 11.1 million
shares of common stock outstanding, or approximately 11.6 million shares if the
underwriters' over-allotment option is exercised in full. All of those shares,
other than shares held by persons deemed to be our "affiliates" under
applicable federal securities laws, will be freely tradable without restriction
or further registration under the Securities Act. Sales of new or outstanding
shares (or the availability of shares for sale) could adversely affect
prevailing market prices for our common stock and our ability to issue
additional equity securities.
Based on filings made with the Securities and Exchange Commission, or SEC,
we are aware of four institutions that each hold in excess of 5% of our
outstanding common stock, before giving effect to the issuance of shares in
this offering. We are not able to predict whether or when any of these
institutions will sell substantial amounts of our common stock. Sales of our
common stock by these institutions could adversely affect prevailing market
prices for our common stock.
Approximately 318,000 shares of our common stock are currently held in one
of our employee benefit plans which limits or restricts the ability to sell
those shares. We understand that in light of certain recent events, the
President of the United States and certain members of Congress have discussed
the possibility of enacting legislation that would give employees greater
flexibility to sell common stock of their employers that is held in employee
benefit plans and that these employees currently are restricted or prohibited
from selling under the terms of those plans. We cannot predict whether any such
legislation will be enacted or, if it were to be enacted, whether our employees
would sell substantial amounts of our stock held by them through our employee
benefit plans.
We do not intend to pay cash dividends in the foreseeable future.
Although we have paid cash dividends in the past, our current debt
agreements restrict our ability to pay cash dividends. We do not plan to
declare or pay cash dividends in the foreseeable future but instead intend to
retain cash for working capital needs, acquisitions, and to reduce outstanding
debt.
Some provisions of our charter and bylaws and of Wisconsin law may prevent a
change in control or adversely affect our shareholders.
Our articles of incorporation and bylaws may discourage, delay or prevent a
change of control that shareholders may consider favorable. Our articles of
incorporation and bylaws:
. do not provide for cumulative voting in the election of directors, which
would otherwise allow holders of less than a majority of our common
stock to elect some directors;
. while currently not implemented, permit us to classify the board of
directors into two or three classes serving staggered two or three-year
terms, respectively, which may lengthen the time required to gain
control of our board of directors;
. require super-majority voting to effect amendments to provisions of our
articles of incorporation and bylaws or to approve or adopt a merger or
consolidation of us, or approve or adopt a sale or exchange of all or
substantially all of our assets;
. establish advance notice requirements for nominating candidates for
election to the board of directors or for proposing matters that can be
acted upon by shareholders at a shareholder meeting; and
. allow the board to issue shares of Class B common stock (which would
then have the right to elect a majority of the directors) and to issue
and determine terms of preferred stock.
S-19
In addition, certain sections of the Wisconsin Business Corporation Law may
discourage, delay or prevent a change in control by:
. limiting the voting power of certain shareholders exercising 20% or more
of our voting power,
. prohibiting us from engaging in a business combination with an
interested stockholder, or
. requiring a super-majority vote for any business combination that does
not meet certain fair price standards.
See "Description of Capital Stock--General--Certain Statutory Provisions" in
this Prospectus Supplement.
These provisions of our articles of incorporation and bylaws and of the
Wisconsin Business Corporation Law may discourage transactions that otherwise
could provide for payment of a premium over the prevailing market price of our
common stock and also may limit the price that investors are willing to pay in
the future for shares of our common stock.
Any issuance of preferred stock or Class B common stock could adversely
affect the holders of our common stock.
Our board of directors is authorized to issue shares of preferred stock or
Class B common stock without any action on the part of our shareholders. Our
board of directors also has the power, without shareholder approval, to set
specified terms of any series of preferred stock, including dividend rates,
votes per share and amounts payable in the event of our dissolution,
liquidation or winding up. Any preferred stock that we issue will have a
preference over our common stock with respect to the payment of dividends and
upon our liquidation, dissolution or winding up and the holders of the
preferred stock would be entitled to vote as a single class with the holders of
our common stock in the election of directors. As a result, our board of
directors could issue preferred stock with dividend, liquidation and voting
rights and with other terms that could adversely affect the interests of the
holders of our common stock. If any shares of Class B common stock are issued,
the Class B common shareholders, voting as a separate class, would be entitled
to elect a majority of our board of directors, while the holders of our common
stock, voting as a single class with the holders of any outstanding preferred
stock, would be entitled to elect a minority of our board of directors. As a
result, the issuance of any Class B common stock would adversely affect the
voting rights of holders of our common stock. We do not currently intend to
issue any preferred stock or Class B common stock.
S-20
USE OF PROCEEDS
We expect to receive net proceeds of approximately $86.0 million from the
sale of the shares of common stock in this offering, or approximately $99.0
million if the underwriters' over-allotment option is exercised in full, in
each case after deducting underwriting discounts and commissions and estimated
offering expenses. We intend to use approximately $82.5 million of the net
proceeds to redeem $70 million aggregate principal amount of our 13% Senior
Subordinated Notes due 2009. The redemption price includes a premium of 13% of
the principal amount of each note redeemed, or an aggregate premium of $9.1
million, plus approximately $3.4 million of accrued interest on the notes to be
redeemed. We currently have $200 million aggregate principal amount of these
notes outstanding, which were issued on July 31, 2000 in connection with the
Spin-off. We intend to use the remaining net proceeds for the repayment of
borrowings outstanding under our senior secured credit facility. As of January
15, 2002, the weighted average interest rate of borrowings outstanding under
the senior secured credit facility was approximately 5.75% per annum. We have
used borrowings under the senior secured credit facility for general corporate
purposes, including working capital, capital expenditures and to finance
acquisitions. Borrowings under the senior secured credit facility mature in
2006 and 2008. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" for further
information concerning our 13% Senior Subordinated Notes due 2009 and our
senior secured credit facility. To the extent that we use the proceeds of this
offering to repay revolving credit borrowings under our senior secured credit
facility, we may re-borrow those amounts in the future, subject to compliance
with covenants and borrowing conditions. Pending application for these
purposes, we may temporarily invest the net proceeds in short-term marketable
securities.
The redemption of a portion of our 13% Senior Subordinated Notes due 2009
and application of the remaining net proceeds to repay borrowings under our
senior secured credit facility is expected to result in an extraordinary
expense, in accordance with generally accepted accounting principles, for the
early extinguishment of debt of approximately $12.1 million, or $7.2 million
net of tax, assuming there is no exercise of the underwriters' over-allotment
option. This charge is comprised of the 13% premium required to be paid to
noteholders upon redemption and deferred debt issuance costs and debt discount
associated with the notes and the senior secured credit facility.
The interest rate on borrowings under our senior secured credit facility is
equal to the sum of a floating LIBOR based interest rate plus a margin which
varies depending on our leverage ratio. Immediately after giving effect to the
redemption of the notes described above, under the terms of our senior secured
credit facility and assuming that our financial condition and results of
operations remain stable or improve, we expect that this margin will be reduced
by approximately 25 basis points based on our expected leverage ratio. However,
under the terms of our credit facility, this margin may increase or decrease if
our leverage ratio subsequently increases or decreases.
S-21
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange under the symbol
"ATU." On July 31, 2000, we completed the Spin-off of our Electronics Business,
which resulted in a substantial decrease of our stock price. As a result, we do
not believe that information as to our stock price for periods prior to the
Spin-off is meaningful to investors. The following table sets forth the high
and low sale prices of our common stock reported on the New York Stock Exchange
composite tape (as adjusted for the one-for-five reverse stock split we
effected on January 25, 2001) for the periods indicated subsequent to the date
of the Spin-off, rounded to the nearest penny.
Fiscal Year Period High Low
- ----------- ------ ---- ---
2000 August 1, 2000 to August 31, 2000 (period in fiscal $25.00 $15.00
quarter after Spin-off)
2001 September 1, 2000 to November 30, 2000 $27.19 $16.25
December 1, 2000 to February 28, 2001 20.62 10.94
March 1, 2001 to May 31, 2001 16.73 12.00
June 1, 2001 to August 31, 2001 21.25 14.70
2002 September 1, 2001 to November 30, 2001 $31.25 $17.40
December 1, 2001 to February 7, 2002 35.00 27.90
DIVIDEND POLICY
Quarterly cash dividends of $0.075 per share, as adjusted for the
one-for-five reverse stock split, were declared and paid for the first three
quarters of fiscal 2000 and for each of the quarters in fiscal 1999. No cash
dividends have been declared or paid since that time. Our current debt
agreements restrict our ability to pay cash dividends. We do not plan to
declare or pay cash dividends in the foreseeable future but intend to use
available cash for working capital needs, acquisitions, and to reduce
outstanding debt.
S-22
CAPITALIZATION
The following table sets forth our capitalization (including short-term
debt) as of November 30, 2001:
. on an actual basis; and
. on an as adjusted basis to reflect the sale of 3,000,000 shares of our
common stock in this offering, after deducting underwriting discounts
and commissions and estimated offering expenses that we will pay, and
the application of approximately $82.5 million of the estimated net
proceeds to redeem $70 million aggregate principal amount of our 13%
Senior Subordinated Notes due 2009 and to pay a $9.1 million redemption
premium and accrued interest of $3.4 million, and the application of the
remaining net proceeds to repay borrowings under our senior secured
credit facility, all as described in "Use of Proceeds."
November 30, 2001
----------------
As
Actual Adjusted
------- --------
(in millions)
(unaudited)
Senior secured credit facility............................................................ $ 118.0 $ 114.5
13% senior subordinated notes due 2009, net of discount................................... 197.8 128.5
European term loan........................................................................ 13.4 13.4
Other debt................................................................................ 1.4 1.4
------- -------
Total debt(1).......................................................................... 330.6 257.8
------- -------
Shareholders' equity:
Preferred stock, $1.00 par value per share; authorized, 160,000 shares; issued and
outstanding, none....................................................................... -- --
Class A common stock, $0.20 par value per share; authorized, 16,000,000 shares; issued and
outstanding, 8,049,326 shares actual, 11,049,326 shares as adjusted..................... 1.6 2.2
Class B common stock, $0.20 par value per share; authorized, 1,500,000 shares; issued and
outstanding, none....................................................................... -- --
Additional paid-in capital................................................................ (623.5) (538.2)
Accumulated other comprehensive loss...................................................... (20.4) (20.4)
Retained earnings(2)...................................................................... 499.1 491.9
------- -------
Total shareholders' equity............................................................. (143.2) (64.5)
------- -------
Total capitalization................................................................... $ 187.4 $ 193.3
======= =======
- --------
(1) Total debt includes $1.2 million of debt due within twelve months. As of
November 30, 2001, we also had $8.3 million of letters of credit
outstanding.
(2) The change in retained earnings reflects a charge for the anticipated
extraordinary expense for early extinguishment of debt of approximately
$12.1 million, or $7.2 million net of tax, assuming there is no exercise of
the underwriters' over-allotment option. This charge is comprised of the
redemption premium to be paid to noteholders of $9.1 million, or $5.5
million net of tax, and the write-off of debt discount and debt issuance
costs related to the debt retired of $3.0 million, or $1.7 million net of
tax.
S-23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
our consolidated financial statements. The data should be read in conjunction
with the consolidated financial statements as well as the section of this
Prospectus Supplement entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The statement of earnings and
other data for the fiscal years ended August 31, 2001, 2000 and 1999 and the
balance sheet data as of August 31, 2001 and 2000 have been derived from the
audited consolidated financial statements included elsewhere in this Prospectus
Supplement. The balance sheet data as of August 31, 1999 have been derived from
audited consolidated financial statements that are not included in this
Prospectus Supplement. The statement of earnings and other data for the three
months ended November 30, 2001 and November 30, 2000 and the balance sheet data
as of those dates have been derived from unaudited consolidated financial
statements included elsewhere in this Prospectus Supplement. Operating results
for the three months ended November 30, 2001 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending August 31,
2002. Certain financial data included in this Prospectus Supplement and the
accompanying Prospectus may appear to not add or subtract properly due to
rounding.
As a result of the Spin-off of our former Electronics Business on July 31,
2000, the consolidated financial statements and related notes from which the
following selected financial data was derived have been reclassified to reflect
our former Electronics Business as a discontinued operation. See Note 2,
"Distribution and Discontinued Operations" in Notes to Fiscal Year 2001
Consolidated Financial Statements. In addition, the financial data in this
table includes the Non-continuing Businesses until their respective dates of
sale. As a result, the selected consolidated financial data in the following
table is not fully representative of the group of businesses that comprise
Actuant today. We have included a separate unaudited adjusted historical
financial data table on pages S-27 and S-28 that excludes the results of the
Non-continuing Businesses. This selected consolidated financial data also
includes the results of Dewald Manufacturing, which we acquired during fiscal
2001, from the date of acquisition, which also affects the comparability of the
data in this table. See Note 3, "Acquisitions and Divestitures" in Notes to
Fiscal Year 2001 Consolidated Financial Statements.
Three Months
Ended
Fiscal Year Ended August 31, November 30,
--------------------------- ----------------
1999 2000 2001 2000 2001
-------- ------- ------- ------- -------
(in millions, except per share data)
Statement of Earnings Data:
Net sales(1).................................................................. $ 705.2 $ 681.4 $ 481.9 $ 119.8 $ 113.1
Gross profit.................................................................. 252.7 242.2 168.9 41.8 38.0
Operating expenses(2)......................................................... 144.5 145.0 90.7 21.5 19.9
Operating earnings............................................................ 99.4 89.7 71.9 18.8 17.5
Earnings from continuing operations before cumulative effect of change in
accounting principle(3)...................................................... 34.6 28.0 24.4 4.3 4.6
Diluted earnings per share from continuing operations before cumulative effect
of change in accounting principle(1)......................................... 4.30 3.48 2.93 0.51 0.54
Cash dividends per share(1)................................................... 0.30 0.23 -- -- --
Balance Sheet Data (at end of period):
Total assets.................................................................. $1,059.9 $ 417.0 $ 342.7 $ 375.7 $ 330.7
Net assets of discontinued operations......................................... 598.5 -- -- -- --
Total debt(4)................................................................. 521.2 432.5 327.5 421.8 330.6
Total shareholders' equity.................................................... 417.8 (163.0) (139.8) (159.9) (143.2)
Other Financial Data:
EBITDA(5)..................................................................... $ 124.6 $ 107.7 $ 106.5 $ 24.4 $ 20.1
Cash provided by (used in) operating activities of continuing operations...... 32.5 17.9 95.1 4.7 (3.4)
Depreciation and amortization................................................. 26.1 22.6 16.5 4.2 3.0
Capital expenditures.......................................................... 22.9 11.4 6.7 1.8 2.5
- --------
(1) All sales figures have been reclassified to reflect the adoption of
Emerging Issues Task Force Abstract 00-10, "Accounting for Shipping and
Handling Fees and Costs." All dividend and per share data have been
adjusted for the one-for-five reverse stock split effected on January 25,
2001. We declared and paid
S-24
quarterly cash dividends of $0.075 per share for each of the quarters in
fiscal 1999 and for the first three quarters of fiscal 2000, as adjusted for
the one-for-five reverse stock split. Since that time no cash dividends have
been declared or paid.
(2) Operating expenses in fiscal 1999 included a $7.8 million pre-tax charge
due to the cancellation of a customer contract. In fiscal 2000, we recorded
a $1.4 million gain when we recognized recoveries of these contract costs
in excess of what was anticipated when the loss was initially recorded.
Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution. Operating expenses for fiscal 2001
include a restructuring charge, which totaled $1.7 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 6, "Restructuring and Other Non-recurring Items" in
Notes to Fiscal Year 2001 Consolidated Financial Statements. In addition,
operating expenses include our general corporate expenses. These expenses,
which include resources and services that supported the Electronics
Business prior to the Spin-off, declined significantly after the Spin-off.
General corporate expenses were $12.1 million, $17.6 million, and $6.2
million for fiscal 1999, 2000, and 2001, respectively, and $1.1 million for
both the three months ended November 30, 2000 and 2001.
(3) For fiscal 2001 earnings from continuing operations include a gain of $18.5
million on the sale of Mox-Med, a gain of $1.0 million for an insurance
recovery, a loss on the divestiture of QMC of $0.7 million, and a loss on
the net present value of an idled lease of $1.5 million. For fiscal 2000,
earnings from continuing operations include a loss of $3.5 million on the
sale of the Norelem product line of Enerpac.
(4) Debt in the table as of August 31, 1999 reflects the debt balance after a
reduction for debt allocated to the Electronics Business, which is reported
in net assets of discontinued operations.
(5) "EBITDA" is defined as earnings from continuing operations before net
financing costs, income tax expense, depreciation, and amortization. Items
excluded in arriving at EBITDA are significant components in understanding
and assessing financial performance. EBITDA is a measure commonly used by
financial analysts and investors to evaluate the financial results of
companies in our industry, and we believe it provides useful information to
investors. However, EBITDA should not be considered in isolation or as an
alternative to net income, cash flows generated or used by operations,
investing or financing activities, or other financial statement data
presented in the consolidated financial statements as indicators of our
financial performance or liquidity. Because EBITDA is not a measure of
financial performance determined in accordance with generally accepted
accounting principles and is susceptible to varying calculations, EBITDA as
presented may not be comparable to similarly titled measures of other
companies.
S-25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On July 31, 2000, we completed the Spin-off of our Electronics Business to
our shareholders, leaving the Industrial Business as our sole remaining
operating business. Our former Electronics Business has been reclassified as a
discontinued operation in our financial statements. See Note 2, "Distribution
and Discontinued Operations" in Notes to Fiscal Year 2001 Consolidated
Financial Statements for information regarding our discontinued operations.
Subsequent to the Spin-off, we changed our name to Actuant Corporation. As you
read the following review of our financial condition and results of operations,
you should also read our financial statements and related notes included
elsewhere in this Prospectus Supplement. All sales figures and related
percentages have been reclassified to reflect the adoption of Emerging Issues
Task Force Abstract 00-10, "Accounting for Shipping and Handling Fees and
Costs." See "--New Accounting Pronouncements."
The redemption of a portion of our 13% Senior Subordinated Notes due 2009
and application of the remaining net proceeds to repay borrowings under our
senior secured credit facility is expected to result in an extraordinary
expense, in accordance with generally accepted accounting principles, for the
early extinguishment of debt of approximately $12.1 million, or $7.2 million
net of tax, assuming there is no exercise of the underwriters' over-allotment
option. This charge is comprised of the 13% premium required to be paid to
noteholders upon redemption and deferred debt issuance costs and debt discount
associated with the notes and the senior secured credit facility.
Background of the Spin-off Transaction
During 1999, our management began to consider the separation of the
Electronics Business from the Industrial Business. Ultimately, our management
determined that the separation of the two businesses in the form of a spin-off
was the preferred option. On January 26, 2000, our board of directors
authorized various actions intended to position us to distribute the
Electronics Business to our shareholders in the form of a special dividend. The
Distribution took place on July 31, 2000. Our common stock now trades on the
New York Stock Exchange under the ticker symbol "ATU," and the common stock of
APW Ltd., which is our former Electronics Business, separately trades on the
New York Stock Exchange under the ticker symbol "APW."
Results of Operations
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 until their respective dates of sale. As a result,
the historical financial data in the following table are not representative of
the group of business units that comprise Actuant today. We have included a
separate financial data table under "Unaudited Adjusted Historical Financial
Data" below that excludes the results of the Non-continuing Businesses. The
financial data presented in the following table also include the results of
Dewald Manufacturing, which we acquired during fiscal 2001, from the date of
acquisition. This acquisition and the divestitures impact the comparability of
operating results from period to period.
Three Months Ended
Fiscal Year Ended August 31, November 30,
---------------------------- ------------------
1999 2000 2001 2000 2001
---- ---- ---- ---- ----
(in millions)
Statement of Earnings Data:
Net sales.............................................. $705.2 $681.4 $481.9 $119.8 $113.1
Gross profit........................................... 252.7 242.2 168.9 41.8 38.0
Operating expenses excluding general corporate expenses 132.5 127.4 84.6 20.4 18.8
General corporate expenses............................. 12.1 17.6 6.2 1.1 1.1
Amortization of intangible assets...................... 8.7 7.5 6.2 1.5 0.6
Operating earnings..................................... 99.4 89.7 71.9 18.8 17.5
Other Financial Data:
Depreciation........................................... 17.4 15.1 10.3 2.7 2.4
Capital expenditures................................... 22.9 11.4 6.7 1.8 2.5
S-26
Acquisitions and Divestitures
We completed one acquisition since the beginning of fiscal 1999. During this
time, we also divested several businesses and product lines that were no longer
considered integral to our business strategy. The following table summarizes
this acquisition and the significant divestitures that were completed since the
beginning of fiscal year 1999:
Approximate
Annual
Date of Acquistion/ Sales(2)
Segment Divestiture (in millions)
-------------------- ------------------- -------------
Acquisitions(1):
Dewald Manufacturing(3)........... Engineered Solutions March 2001 $ 24
Divestitures(1):
Mox-Med........................... Engineered Solutions August 2001 $ 18
Quick Mold Change ("QMC")......... Tools & Supplies May 2001 6
Norelem........................... Tools & Supplies August 2000 8
Barry Controls.................... Engineered Solutions June 2000 120
Air Cargo......................... Engineered Solutions May 2000 22
Automotive product line of Enerpac Tools & Supplies May 2000 6
Samuel Groves..................... Engineered Solutions October 1999 9
- --------
(1) This table excludes acquisitions and divestures of businesses or business
units that were a part of our former Electronics Business.
(2) At the time of the transaction. Sales figures exclude sales from acquired
business units that were part of the Electronics Business.
(3) Approximate annual sales of Dewald Manufacturing represent sales before our
acquisition of that business and are therefore based upon data provided to
us by the seller. See "Market Data."
In addition to these divestitures, the Gardner Bender Everest product line
and the Magnets business were transferred to the Electronics Business segment
immediately prior to the Distribution. The acquisition and the divestitures
impact the comparability of operating results from period to period. See Note
3, "Acquisitions and Divestitures" in Notes to Fiscal Year 2001 Consolidated
Financial Statements.
Unaudited Adjusted Historical Financial Data
The financial information included in the following table, other than
information with respect to general corporate expenses, has been adjusted to
exclude the results of the Non-continuing Businesses. Historical net financing
costs, income taxes, and balance sheet data have not been adjusted and are not
presented in the following table.
S-27
Three Months
Ended
Fiscal Year Ended August 31, November 30,
---------------------------- ------------
1999 2000 2001 2000 2001
---- ---- ---- ---- ----
(in millions)
Statement of Earnings Data(1):
Adjusted net sales..................................... $491.2 $499.0 $461.0 $114.5 $113.1
Adjusted gross profit.................................. 172.0 175.8 159.4 39.7 38.0
Adjusted operating expenses excluding general corporate
expenses(2).......................................... 90.3 87.5 80.7 19.3 18.8
General corporate expenses(3).......................... 12.1 17.6 6.2 1.1 1.1
Adjusted amortization of intangible assets............. 5.6 5.7 5.8 1.4 0.6
Adjusted operating earnings(2)......................... 64.0 65.0 66.7 17.9 17.5
Other Financial Data(1):
Adjusted depreciation.................................. 9.3 9.9 9.5 2.5 2.4
Adjusted capital expenditures.......................... 13.7 8.4 6.4 1.8 2.5
- --------
(1) We have excluded the operating results of the Non-continuing Businesses
from the financial data presented in this table. However, we completed one
acquisition that is included in the data set forth in this table from its
acquisition date. This impacts the comparability of the adjusted financial
data presented in the table. For additional information, see Note 3,
"Acquisitions and Divestitures" in Notes to Fiscal Year 2001 Consolidated
Financial Statements. The Non-continuing Businesses include Mox-Med, Quick
Mold Change, or QMC, the Norelem and automotive product lines of Enerpac,
Gardner Bender's Everest product line, Barry Controls, Air Cargo, Samuel
Groves and Magnets. The Mox-Med and QMC businesses were divested in fiscal
2001. The Norelem and automotive product lines of Enerpac, Barry Controls,
Air Cargo and Samuel Groves units were divested in fiscal 2000. The Gardner
Bender Everest product line and Magnets business were transferred to the
Electronics Business segment immediately prior to the Distribution.
(2) For further information on non-recurring items included in operating
expenses and operating earnings, see "Selected Consolidated Financial Data"
above and the discussion of operating expenses in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) General corporate expenses have not been adjusted to exclude the
Non-continuing Businesses.
Quarter Ended November 30, 2001 Compared to the Quarter Ended November 30,
2000.
The following discussion relating to the quarter ended November 30, 2001
compared to the quarter ended November 30, 2000 should be read in conjunction
with the Condensed Consolidated Financial Statements for the three months ended
November 30, 2001 and the related notes which begin on page F-36.
Net earnings before cumulative effect of change in accounting principle for
the three months ended November 30, 2001 were $4.6 million, or $0.54 per
diluted share. During the first quarter of fiscal 2002, we recorded a charge of
$7.2 million, or $0.85 per diluted share, for the cumulative effect of a change
in accounting principle related to the adoption of Statement of Financial
Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets."
Including this charge, the net loss for the three months ended November 30,
2001 was $2.6 million, or $0.31 per diluted share, compared with net earnings
of $4.3 million, or $0.51 per diluted share, for the three months ended
November 30, 2000.
S-28
Net Sales
The following table summarizes our net sales for the three months ended
November 30, 2001 and 2000:
Three Months Ended
November 30,
------------------
2000 2001 Change
------ ------ ------
Net Sales by Segment: (in millions)
Tools & Supplies...................................... $ 71.8 $ 64.0 (10.8)%
Less: Non-continuing Tools & Supplies Business (1).... 0.9 -- --
------ ------
Adjusted Tools & Supplies.......................... $ 70.9 $ 64.0 (9.7)%
====== ======
Engineered Solutions.................................. $ 48.0 $ 49.1 2.3%
Less: Non-continuing Engineered Solutions Business (2) 4.4 -- --
------ ------
Adjusted Engineered Solutions...................... $ 43.6 $ 49.1 12.5%
====== ======
Total net sales....................................... $119.8 $113.1 (5.6)%
Less: Non-continuing Businesses....................... 5.3 -- --
------ ------
Total adjusted net sales........................... $114.5 $113.1 (1.2)%
====== ======
- --------
(1) The "Non-continuing Tools & Supplies Business" is QMC.
(2) The "Non-continuing Engineered Solutions Business" is Mox-Med.
Total net sales decreased by $6.7 million, or 5.6%, from $119.8 million for
the three months ended November 30, 2000 to $113.1 million for the three months
ended November 30, 2001. Currency translation rates did not significantly
impact the quarterly results for either period. Excluding the Non-continuing
Businesses, adjusted net sales declined 1.2%.
Net sales for Tools & Supplies decreased by $7.8 million, or 10.8%, from
$71.8 million for the three months ended November 30, 2000 to $64.0 million for
the three months ended November 30, 2001. Excluding the QMC business, which was
sold in fiscal year 2001, adjusted net sales for this segment decreased $6.9
million, or 9.7%, primarily due to a 7% decline in Enerpac product sales and a
13% decline in Gardner Bender product line sales. Retail order patterns for our
electrical products were disrupted following the terrorist events on September
11, 2001, and did not fully recover until the end of the quarter. The Tools &
Supplies adjusted net sales reduction was primarily driven by reductions in
North American sales due to weak economic conditions, with European sales
remaining relatively flat and Asian sales decreasing slightly.
Engineered Solutions net sales increased $1.1 million, or 2.3%, from $48.0
million for the three months ended November 30, 2000 to $49.1 million for the
three months ended November 30, 2001. Excluding the Non-continuing Business,
Engineered Solutions net sales increased 12.5%. Substantially all of the
increase was attributable to the incremental sales from Dewald Manufacturing,
which was acquired in March 2001. Sales to the RV market for the first quarter
of fiscal 2002 improved 50% over the same period in fiscal 2001, due in large
part to the acquisition of Dewald Manufacturing. Excluding currency impact,
convertible top actuation sales improved 11% versus the first quarter of fiscal
2001, due primarily to increased work on new automotive platforms. These
increases were offset in part by the divestiture of Mox-Med in August 2001 and
slowing sales to truck manufacturers.
S-29
Gross Profit
The following table summarizes gross profit and gross profit margins for the
three months ended November 30, 2001 and 2000:
Three Months Ended
November 30,
-----------------
2000 2001 Change
----- ----- ------
Gross Profit by Segment: (in millions)
Tools & Supplies.................................. $28.2 $26.4 (6.1)%
Less: Non-continuing Tools & Supplies Business.... 0.3 -- --
----- -----
Adjusted Tools & Supplies...................... $27.9 $26.4 (5.2)%
===== =====
Engineered Solutions.............................. $13.6 $11.6 (15.3)%
Less: Non-continuing Engineered Solutions Business 1.8 -- --
----- -----
Adjusted Engineered Solutions.................. $11.8 $11.6 (1.8)%
===== =====
Total gross profit................................ $41.8 $38.0 (9.1)%
Less: Non-continuing Businesses................... 2.1 -- --
----- -----
Total adjusted gross profit.................... $39.7 $38.0 (4.2)%
===== =====
Gross Profit Margins by Segment(1):
Tools & Supplies.................................. 39.2% 41.3%
Adjusted Tools & Supplies(2)...................... 39.3 41.3
Engineered Solutions.............................. 28.5 23.6
Adjusted Engineered Solutions(2).................. 27.1 23.6
Total gross profit margin......................... 34.9 33.6
Total adjusted gross profit margin(2)............. 34.7 33.6
- --------
(1) We define gross profit margin as gross profit as a percentage of sales.
(2) Adjusted gross profit margins represent gross profit margins excluding the
Non-continuing Businesses.
Total gross profit for the first quarter of fiscal 2002 was $38.0 million, a
$3.8 million decline from the $41.8 million reported in the first quarter of
the prior fiscal year. Approximately $2.1 million of this decline was
attributable to the Non-continuing Businesses. Total adjusted gross profit
decreased $1.7 million, or 4.2%, from $39.7 million to $38.0 million for the
three months ended November 30, 2000 and 2001, respectively. Total gross profit
margin declined to 33.6% for the three months ended November 30, 2001 from
34.9% for the comparable prior year period, due to margin declines in the
Engineered Solutions business offset in part by margin increases in the Tools &
Supplies business.
Tools & Supplies' gross profit decreased $1.8 million, or 6.1%, from $28.2
million to $26.4 million for the three months ended November 30, 2000 and 2001,
respectively. This resulted from the lower sales levels in the first quarter of
fiscal 2002 as compared to the first quarter of fiscal 2001 and the impact of
this segment's Non-continuing Business. Although gross profit decreased, Tools
& Supplies gross profit margins increased due to the realization of the
benefits of fiscal 2001 cost reduction initiatives in the electrical Tools &
Supplies business and an increase in the proportion of higher margin sales in
the hydraulic tools business.
Engineered Solutions gross profit decreased $2.0 million, or 15.3%, from
$13.6 million for the three months ended November 30, 2000 to $11.6 million for
the three months ended November 30, 2001, primarily due to the divestiture of
Mox-Med in August 2001. Removing the impact of this segment's Non-continuing
Business, adjusted gross profit margin declined from 27.1% to 23.6% for the
three months ended November 30, 2000 and 2001, respectively. This margin
decline was caused by unfavorable product mix, incremental costs associated
with the consolidation of all RV slideout production into our Mishawaka,
Indiana plant from the Beaver Dam, Wisconsin plant, and margin erosion at our
more vertically integrated Milwaukee Cylinder and Nielsen Sessions operations
due to lower absorption of costs resulting from lower sales and production
levels.
S-30
SAE Expenses
The following table summarizes our selling, administrative and engineering,
or SAE, expenses for the three months ended November 30, 2001 and 2000:
Three Months Ended
November 30,
------------------
2000 2001 Change
----- ----- ------
SAE Expenses by Segment: (in millions)
Tools & Supplies.................................. $15.8 $14.5 (8.4)%
Less: Non-continuing Tools & Supplies Business.... 0.6 -- --
----- -----
Adjusted Tools & Supplies...................... $15.2 $14.5 (5.0)%
===== =====
Engineered Solutions.............................. $ 4.6 $ 4.3 (5.9)%
Less: Non-continuing Engineered Solutions Business 0.5 -- --
----- -----
Adjusted Engineered Solutions.................. $ 4.1 $ 4.3 7.1%
===== =====
Combined segment SAE expenses..................... $20.4 $18.8 (7.9)%
General corporate expenses........................ 1.1 1.1 (3.4)%
----- -----
Total SAE expenses................................ 21.5 19.9 (7.6)%
Less: Non-continuing Businesses................... 1.1 -- --
----- -----
Total adjusted SAE expenses.................... $20.4 $19.9 (2.5)%
===== =====
Total SAE expenses decreased $1.6 million, or 7.6%, from $21.5 million for
the three months ended November 30, 2000 to $19.9 million for the three months
ended November 30, 2001. The Non-continuing Businesses accounted for $1.1
million of the decline. As a percentage of total net sales, total SAE expenses
declined slightly to 17.6% for the three months ended November 30, 2001,
compared to 18.0% in the prior year first quarter.
Tools & Supplies SAE expenses decreased $1.3 million, or 8.4%, from $15.8
million for the three months ended November 30, 2000 to $14.5 million for the
three months ended November 30, 2001. This segment's Non-continuing Business
comprised $0.6 million of the decline. The remaining decrease was driven
largely by cost reduction efforts initiated in fiscal 2001 and lower sales
levels.
Engineered Solutions SAE expenses decreased 5.9% from $4.6 million for the
first quarter of fiscal 2001 to $4.3 million for the first quarter of fiscal
2002. The elimination of this segment's Non-continuing Business resulted in an
SAE decline of $0.5 million. Excluding this segment's Non-continuing
Businesses, Engineered Solutions adjusted SAE expenses increased 7.1%, which
was primarily attributable to SAE costs at Dewald Manufacturing, which was
acquired March 1, 2001, as well as costs associated with the consolidation of
RV slide-out production facilities.
Amortization Expense
Amortization expense for the first quarter of fiscal 2002 was $0.6 million
compared with $1.5 million for the comparable prior year period. This decrease
was primarily due to ceasing goodwill amortization in accordance with SFAS No.
142. See Note 5, "Goodwill and Other Intangible Assets" in Notes to Unaudited
Condensed Consolidated Financial Statements included elsewhere in this
Prospectus Supplement for more information on this change in accounting
principle.
Net Financing Costs
Net financing costs decreased $3.1 million, from $13.0 million for the three
months ended November 30, 2000 to $9.9 million for the three months ended
November 30, 2001. This reduction was due to the combined effect of lower
interest rates and reduced debt levels in the fiscal 2002 first quarter as
compared to the comparable period in the prior year.
S-31
Other Expense (Income)
Other expense (income) for the three months ended November 30, 2001 and 2000
was comprised primarily of foreign currency gains and losses.
Cumulative Effect of Change in Accounting Principle
On September 1, 2001, we adopted SFAS No. 142. Under the transitional
provisions of SFAS No. 142, we identified our reporting units and performed
impairment tests on the net goodwill associated with each of the reporting
units. We recorded an impairment loss associated with our Milwaukee Cylinder
reporting unit of $7.2 million, or $0.85 per diluted share, in the first
quarter of fiscal 2002. See Note 5, "Goodwill and Other Intangible Assets" in
Notes to Unaudited Condensed Consolidated Financial Statements for further
discussion.
Fiscal years ended August 31, 2001, 2000, and 1999
The following discussion relating to the fiscal years ended August 31, 1999
through the fiscal year ended August 31, 2001 should be read in conjunction
with the Consolidated Financial Statements and related notes which begin on
page F-3.
Net Sales
The following table summarizes our net sales for the following periods:
Year Ended August 31,
----------------------
1999 2000 2001
------ ------ ------
(in millions)
Net Sales by Segment:
Tools & Supplies....................................... $317.9 $312.3 $281.2
Less: Non-continuing Tools & Supplies Businesses(1).... 27.3 20.7 3.3
------ ------ ------
Adjusted Tools & Supplies........................... $290.6 $291.6 $277.9
====== ====== ======
Engineered Solutions................................... $387.3 $369.1 $200.7
Less: Non-continuing Engineered Solutions Businesses(2) 186.7 161.7 17.6
------ ------ ------
Adjusted Engineered Solutions....................... $200.6 $207.4 $183.1
====== ====== ======
Total net sales........................................ $705.2 $681.4 $481.9
Less: Non-continuing Businesses........................ 214.0 182.4 20.9
------ ------ ------
Total adjusted net sales............................ $491.2 $499.0 $461.0
====== ====== ======
Net Sales Change by Segment:
Tools & Supplies....................................... (1.7)% (10.0)%
Adjusted Tools & Supplies.............................. 0.4 (4.7)
Engineered Solutions................................... (4.7) (45.6)
Adjusted Engineered Solutions.......................... 3.4 (11.7)
Total net sales change................................. (3.4) (29.3)
Total adjusted net sales change........................ 1.6 (7.6)
- --------
(1) The "Non-continuing Tools & Supplies Businesses" are the Norelem and
automotive product lines of Enerpac, QMC and Gardner Bender Everest.
(2) The "Non-continuing Engineered Solutions Businesses" are Barry Controls,
Air Cargo, Samuel Groves, Mox-Med and Magnets.
S-32
Fiscal 2001 Compared to Fiscal 2000
Total net sales decreased $199.5 million, or 29.3%, from $681.4 million in
fiscal 2000 to $481.9 million in fiscal 2001. The majority of this decline was
due to the impact of businesses divested in fiscal 2000. After adjusting for
the impact of divestitures in both fiscal years, net sales decreased $38.0
million, or 7.6%. This decrease resulted from the negative impact of currency
rate changes on translated results of $14.1 million and slower economic
conditions, which impacted many of our businesses. Sales to recreational
vehicle, or RV, automotive and truck OEMs, as well as to the construction and
do-it-yourself markets, were all lower than in fiscal 2000 due to less
favorable economic conditions.
Excluding the segment's Non-continuing Businesses, Tools & Supplies'
adjusted net sales decreased from $291.6 million in fiscal 2000 to $277.9
million in fiscal 2001, a 4.7% decline. The negative impact of currency rate
changes on translated results accounted for $5.7 million of the $13.7 million
reduction, with the remainder being caused by generally weak economic
conditions.
Excluding the segment's Non-continuing Businesses, Engineered Solutions'
adjusted net sales declined $24.3 million, or 11.7%, from $207.4 million in
fiscal 2000 to $183.1 million in fiscal 2001. Foreign currency rate changes
caused $8.4 million of the decrease in net sales. Adjusted net sales to the RV
industry decreased $4.3 million, caused primarily by a decline of $20.5 million
in Power Gear RV sales, offset in part by $16.2 million of sales from Dewald
Manufacturing, an RV business we acquired at the beginning of the third quarter
of fiscal 2001. RV industry demand was negatively impacted by weak economic
conditions, as well as a reduction in excess finished goods inventory at OEMs.
Adjusted net sales to automotive and truck manufacturers declined $6.5 million
due to automotive model changeovers and generally less favorable economic
conditions in fiscal 2001.
Fiscal 2000 Compared to Fiscal 1999
Total net sales decreased by $23.8 million, or 3.4%, from $705.2 million in
fiscal 1999 to $681.4 million in fiscal 2000. This reduction resulted from the
divestiture or removal of Non-continuing Businesses during fiscal 2000 and the
negative impact of foreign currency rate changes on translated results.
Partially offsetting these factors were increased shipments by us in a number
of markets, most notably into the RV, automotive convertible top and truck
cab-tilt markets. Fiscal 1999 sales from Non-continuing Businesses were $31.6
million higher than in fiscal 2000 primarily due to the timing of the
divestitures of such businesses during fiscal 2000. Excluding the
Non-continuing Businesses, adjusted net sales increased by 1.6% from $491.2
million in fiscal 1999 to $499.0 million in fiscal 2000. Excluding both the
Non-continuing Businesses and currency translation adjustments, adjusted net
sales increased by approximately 3.1%.
Tools & Supplies segment net sales decreased by 1.7% from $317.9 million to
$312.3 million as a result of the foreign currency rate changes and the
divestiture of Non-continuing Businesses. Excluding the impact of the
Non-continuing Businesses, Tools & Supplies' adjusted net sales were
essentially unchanged year over year. Excluding both currency rate changes and
the Non-continuing Businesses, sales from this segment grew $4.4 million, or
2%. This growth resulted from improved sales of industrial high-force hydraulic
tools, most notably in North America and Asia.
Engineered Solutions segment net sales declined 4.7% from $387.3 million to
$369.1 million due to dispositions of the Non-continuing Businesses and foreign
currency translation. Excluding the Non-continuing Businesses, adjusted net
sales in this segment grew 3.4% from $200.6 million in fiscal 1999 to $207.4
million in fiscal 2000, reflecting growth in sales to the RV, truck cab-tilt
and automotive convertible top markets. Foreign currency translation had the
impact of reducing the "constant dollar" sales growth in the Engineered
Solutions segment by approximately $8.8 million, due to the softness of the
Euro against the U.S. dollar. Excluding both foreign currency translation and
the Non-continuing Businesses, Engineered Solutions segment net sales grew 7.2%.
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Gross Profit
The following table summarizes gross profit and gross profit margins for the
following periods:
Year Ended August 31,
----------------------
1999 2000 2001
------ ------ ------
(in millions)
Gross Profit by Segment:
Tools & Supplies.................................... $124.6 $122.9 $112.7
Less: Non-continuing Tools & Supplies Businesses.... 9.8 8.1 1.2
------ ------ ------
Adjusted Tools & Supplies........................ $114.8 $114.8 $111.5
====== ====== ======
Engineered Solutions................................ $128.1 $119.3 $ 56.2
Less: Non-continuing Engineered Solutions Businesses 70.9 58.3 8.3
------ ------ ------
Adjusted Engineered Solutions.................... $ 57.2 $ 61.0 $ 47.9
====== ====== ======
Total gross profit.................................. $252.7 $242.2 $168.9
Less: Non-continuing Businesses..................... 80.7 66.4 9.5
------ ------ ------
Total adjusted gross profit...................... $172.0 $175.8 $159.4
====== ====== ======
Gross Profit Margins by Segment(1):
Tools & Supplies.................................... 39.2% 39.3% 40.1%
Adjusted Tools & Supplies(2)........................ 39.5 39.4 40.1
Engineered Solutions................................ 33.1 32.3 28.0
Adjusted Engineered Solutions(2).................... 28.5 29.4 26.2
Total gross profit margin........................... 35.8 35.5 35.0
Total adjusted gross profit margin(2)............... 35.0 35.2 34.6
- --------
(1) We define gross profit margin as gross profit as a percentage of net sales.
(2) Adjusted gross profit margins represent gross profit margins excluding the
Non-continuing Businesses.
Fiscal 2001 Compared to Fiscal 2000
Total gross profit decreased $73.3 million, or 30.3%, from $242.2 in fiscal
2000 to $168.9 in fiscal 2001, primarily due to reduced sales volumes resulting
from divestitures and weaker economic conditions. Excluding Non-continuing
Businesses, adjusted gross profit declined to $159.4 million in fiscal 2001
from $175.8 million in fiscal 2000. Total gross profit margins declined due to
an unfavorable change in sales mix to lower margin businesses such as Dewald
Manufacturing and the unfavorable currency impact of inventory produced in the
United States and sold in Europe. These declines were partially offset by
improved margins in the electrical Tools & Supplies business due to cost
reductions.
Gross profit decreased $10.2 million, or 8.3%, in the Tools & Supplies
business, from $122.9 million in fiscal 2000 to $112.7 million in fiscal 2001.
Excluding this segment's Non-continuing Businesses, adjusted gross profit
decreased from $114.8 million in fiscal 2000 to $111.5 million in fiscal 2001.
Gross profit margins improved to 40.1% in fiscal 2001. The gross profit
decrease was due to the decrease in net sales levels. The gross profit margin
increase was due to cost reduction efforts in fiscal 2001.
Engineered Solutions' fiscal 2001 gross profit decreased $63.1 million, or
52.9%, from $119.3 million in fiscal 2000 to $56.2 million in fiscal 2001 as a
result of divestitures, lower sales levels and sales mix. Excluding the
Non-continuing Businesses, adjusted gross profit decreased by $13.1 million, or
21.5%, from $61.0 million in fiscal 2000 to $47.9 million in fiscal 2001.
Excluding this segment's Non-continuing Businesses, adjusted gross profit
margins decreased from 29.4% in fiscal 2000 to 26.2% in fiscal 2001. This
decrease was largely due to increased sales from lower margin businesses, such
as Dewald Manufacturing. Margins at Dewald
S-34
Manufacturing have improved since we acquired that business in March of 2001
and should continue to improve through the realization of results from our
performance initiatives, although no assurance can be made in this regard. As a
result of reduced sales of RV slide-out and leveling systems in fiscal 2001 and
due to lower demand, our absorption of fixed manufacturing costs declined,
adversely impacting gross profit margins in Power Gear. In addition to reduced
gross profit margins in Power Gear, margins declined in our more vertically
integrated businesses, Nielsen Sessions and Milwaukee Cylinder, as sales
declined due to the economic slowdown.
Fiscal 2000 Compared to Fiscal 1999
Total gross profit decreased by $10.5 million, or 4.2%, from $252.7 million
in fiscal 1999 to $242.2 million in fiscal 2000, due to a reduction in sales
volume resulting from divestitures. Excluding the Non-continuing Businesses,
adjusted gross profit increased by $3.8 million from $172.0 million in fiscal
1999 to $175.8 million in fiscal 2000. Excluding the Non-continuing Businesses,
total adjusted gross profit margin increased from 35.0% to 35.2%.
Gross profit for Tools & Supplies decreased by $1.7 million from $124.6
million in fiscal 1999 to $122.9 million in fiscal 2000. This decline resulted
from the sales reductions in the segment, caused by foreign currency
translation and the divestiture of Non-continuing Businesses. Excluding this
segment's Non-continuing Businesses, adjusted gross profit for this segment was
essentially unchanged, while adjusted gross profit margins decreased from 39.5%
to 39.4%.
Engineered Solutions' gross profit decreased by $8.8 million, or 6.9%, from
$128.1 million in fiscal 1999 to $119.3 million in fiscal 2000 as a result of a
corresponding decline in sales resulting from divestitures. Excluding the
segment's Non-continuing Businesses, Engineered Solutions adjusted gross profit
increased by $3.8 million from $57.2 million in fiscal 1999 to $61.0 million in
fiscal 2000, and adjusted gross profit margin increased from 28.5% to 29.4%.
These improvements reflected additional sales volume and the benefits of
restructuring actions, including the full year impact of closing our former
Pewaukee, Wisconsin plant and outsourcing certain machining and other
manufacturing from our plant in Mexico to third-party providers.
Operating Expenses
The following table summarizes operating expenses for the following periods:
Year Ended August 31,
---------------------
1999 2000 2001
------ ------ -----
(in millions)
Operating Expenses:
Selling, engineering and administrative expenses $136.7 $134.0 $89.0
Amortization of intangible assets............... 8.7 7.5 6.2
Contract termination costs (recovery)........... 7.8 (1.4) --
Corporate reorganization expense................ -- 12.4 --
Restructuring charge............................ -- -- 1.7
------ ------ -----
Total operating expenses........................ $153.2 $152.5 $96.9
====== ====== =====
S-35
SAE Expenses
The following table summarizes our selling, administrative and engineering,
or SAE, expenses for the following periods:
Year Ended August 31,
---------------------
1999 2000 2001
------ ------ -----
(in millions)
SAE Expenses by Segment:
Tools & Supplies.................................... $ 69.1 $ 66.4 $63.0
Less: Non-continuing Tools & Supplies Businesses.... 6.7 6.1 1.5
------ ------ -----
Adjusted Tools & Supplies........................ $ 62.4 $ 60.3 $61.5
====== ====== =====
Engineered Solutions................................ $ 55.5 $ 50.0 $19.8
Less: Non-continuing Engineered Solutions Businesses 35.4 33.8 2.3
------ ------ -----
Adjusted Engineered Solutions.................... $ 20.1 $ 16.2 $17.5
====== ====== =====
Combined segment SAE expenses....................... $124.6 $116.4 $82.8
General corporate expenses.......................... 12.1 17.6 6.2
------ ------ -----
Total SAE expenses.................................. 136.7 134.0 89.0
Less: Non-continuing Businesses..................... 42.1 39.9 3.8
------ ------ -----
Total adjusted SAE expenses...................... $ 94.6 $ 94.1 $85.2
====== ====== =====
All of the general corporate expenses incurred by Actuant are included in
SAE expense. No portion of that expense was allocated to the Electronics
Business financial results, which were included in discontinued operations in
our consolidated financial statements. As a result of lower corporate expense
required to support our business following the Distribution, general corporate
expense decreased $11.4 million, from $17.6 million in fiscal 2000 to $6.2
million in fiscal 2001.
Fiscal 2001 Compared to Fiscal 2000
Total SAE expense decreased $45.0 million, or 33.6%, from $134.0 million in
fiscal 2000 to $89.0 million in fiscal 2001. This decrease was due to the
elimination of SAE expenses incurred by businesses divested in fiscal 2000 and
the reduction in general corporate expenses following the Spin-off, offset by
slight increases in SAE expenses in both of our business segments.
SAE expense for the Tools & Supplies segment decreased $3.4 million, or
5.1%, from $66.4 million in fiscal 2000 to $63.0 million in fiscal 2001.
Excluding the segment's Non-continuing Businesses, adjusted SAE expense
increased $1.2 million, or 2.0%, from $60.3 million in fiscal 2000 to $61.5
million in fiscal 2001. This increase was a result of higher levels of
information technology costs associated with a new business software system and
increased marketing spending for trade shows and promotions.
Engineered Solutions' SAE expense decreased $30.2 million, or 60.4%, from
$50.0 million in fiscal 2000 to $19.8 million in fiscal 2001. Excluding the
impact of the segment's Non-continuing Businesses, adjusted SAE expense
increased $1.3 million, or 8.0%, from $16.2 million in fiscal 2000 to $17.5
million in fiscal 2001. This increase was due to higher spending on new
platform development costs associated with the convertible top product line and
the inclusion of SAE expenses from Dewald Manufacturing, which was acquired on
March 1, 2001.
S-36
Fiscal 2000 Compared to Fiscal 1999
Total SAE expenses decreased by $2.7 million, from $136.7 million in fiscal
1999 to $134.0 million in fiscal 2000. Excluding the Non-continuing Businesses,
adjusted SAE expenses decreased by $0.5 million, or 0.5%, from $94.6 million in
fiscal 1999 to $94.1 million in fiscal 2000. The reported SAE expense for both
1999 and 2000 includes general corporate expenses in excess of the amount of
general corporate expense we recognized in the fiscal year subsequent to the
Distribution.
SAE expenses for Tools & Supplies decreased by $2.7 million, from $69.1
million in fiscal 1999 to $66.4 million in fiscal 2000. Excluding the segment's
Non-continuing Businesses, Tools & Supplies adjusted SAE expenses decreased by
$2.1 million from $62.4 million in fiscal 1999 to $60.3 million in fiscal 2000.
Tools & Supplies' adjusted SAE expenses as a percentage of sales declined from
21.5% in fiscal 1999 to 20.7% in fiscal 2000. This improvement reflected the
continuing benefits of earlier restructuring initiatives, including the
combination of Enerpac's and Gardner Bender's Wisconsin-based and
Canadian-based sales and administrative offices.
SAE expenses for Engineered Solutions decreased by $5.5 million, from $55.5
million in fiscal 1999 to $50.0 million in fiscal 2000. Excluding the segment's
Non-continuing Businesses, adjusted SAE expenses for Engineered Solutions
decreased by $3.9 million, from $20.1 million in fiscal 1999 to $16.2 million
in fiscal 2000. This was due primarily to the benefits obtained from cost
reduction initiatives, including significant headcount reductions at our
domestic automotive unit. Engineered Solutions adjusted SAE expenses as a
percentage of sales declined from 10.0% in fiscal 1999 to 7.8% in fiscal 2000.
Amortization of Intangible Assets
The following table summarizes amortization of intangible assets for the
following periods:
Year Ended August 31,
---------------------
1999 2000 2001
---- ---- ----
(in millions)
Total amortization expense............. $8.7 $7.5 $6.2
Less: Non-continuing Businesses........ 3.1 1.8 0.4
---- ---- ----
Total adjusted amortization expense. $5.6 $5.7 $5.8
==== ==== ====
The decreases in total amortization expense for fiscal 2001 and 2000
primarily resulted from the divestiture of the Barry Controls and Air Cargo
Equipment business units during fiscal 2000.
On September 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." See "--New Accounting Pronouncements" below for further
discussion.
Contract Termination Costs (Recovery)
Operating expenses in fiscal 1999 include a $7.8 million pre-tax charge due
to the cancellation of a customer contract. In fiscal 2000, we recorded a $1.4
million gain when we recognized recoveries of these contract costs in excess of
what was anticipated when the loss was initially recorded.
Corporate Reorganization Expense
Operating expenses for fiscal 2000 include a $12.4 million pre-tax charge
for investment banking, legal, accounting and other fees and expenses
associated with the Distribution.
S-37
Restructuring Costs
We adopted plans to restructure portions of our operations during fiscal
2001. These plans were designed to reduce administrative and operational costs
and resulted in a charge of $1.7 million in fiscal 2001. Of the charge, $0.3
million is related to the consolidation of the RV slide production facilities,
$0.6 million is related to downsizing the cable tie production facility, and
$0.8 million is related to other personnel reductions. We wrote down the fixed
assets at the locations to be closed or downsized to their fair value, less
costs to sell, in the third fiscal quarter of 2001. We expect net cash proceeds
of approximately $0.5 million from the ultimate disposal of these assets, which
is expected to be completed by the end of the third quarter of fiscal 2002. As
a result of these plans, we have terminated approximately 36 people.
Other Expense (Income)
Net Financing Costs
We reported net financing costs from continuing operations of $49.2 million
for fiscal 2001, compared to $37.7 million for fiscal 2000. The increase in our
financing costs was a result of higher interest rates and debt levels as a
result of the Distribution. For example, our Senior Subordinated Notes due 2009
carry a 13% interest rate compared to an interest rate of 8.75% under our
Senior Subordinated Notes due 2009 that were repaid in connection with the
Spin-off. During fiscal 2001, these cost increases were partially mitigated as
we benefited, on our variable rate debt, from interest rate reductions in the
marketplace. The debt balances on our balance sheet primarily result from
acquisitions of business units for the Electronics Business during the three
years prior to the Distribution, together with some small Industrial Business
acquisitions. For further information on our debt structure see
"Capitalization" above, "--Liquidity and Capital Resources" and Note 7, "Debt"
in Notes to Fiscal Year 2001 Consolidated Financial Statements.
Loss (Gain) on Sale of Subsidiaries
During fiscal 2001 we sold our Mox-Med business. Cash proceeds from the sale
were approximately $40.5 million, which resulted in a net gain of $18.5
million, $11.1 million after tax, or $1.34 per diluted share.
In August 2000, we completed the sale of Norelem, S.A., a product line in
the Enerpac business which makes and distributes mechanical workholding
products. Norelem, S.A. had annual sales of approximately $8.0 million at the
time of the sale. The cash proceeds were approximately $4.2 million and
resulted in a pre-tax loss of approximately $3.5 million.
Other, net
Other, net for the fiscal years ended August 31, 2001 and 2000 is comprised
of the following (gains) losses:
Year Ended August 31,
--------------------
2000 2001
------ -------
(in thousands)
Gain on insurance recovery...... $ -- $ (983)
Loss on QMC divestiture......... 1,300 738
Net present value of idled lease -- 1,531
Net foreign currency gain....... (665) (1,247)
Other........................... 352 446
------ -------
Other, net................... $ 987 $ 485
====== =======
Other, net for the year ended August 31, 1999 is comprised primarily of
foreign currency gains and losses.
S-38
Income Tax Expense
Our effective income tax rate for fiscal 2001 was 40.3%, which was similar
to the prior two fiscal years. Our income tax expense was 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, state tax rates in the jurisdictions where we do business, our
ability to utilize various tax credits, the amount of non-deductible expenses
and other items. For more information regarding the variations in our effective
tax rates for the fiscal years presented, see Note 12, "Income Taxes" in Notes
to Fiscal Year 2001 Consolidated Financial Statements.
Discontinued Operations
See Note 2, "Distribution and Discontinued Operations" in Notes to Fiscal
Year 2001 Consolidated Financial Statements for information regarding the
results of our discontinued operations.
Extraordinary Items
In fiscal 2000, we recognized an extraordinary gain of $53.2 million related
to the sale of certain subsidiaries. See Note 3, "Acquisitions and
Divestitures" in Notes to Fiscal Year 2001 Consolidated Financial Statements
for further information. We also recognized an extraordinary loss of $14.7
million related to an early extinguishment of debt in fiscal 2000. See Note 7,
"Debt" in Notes to Fiscal Year 2001 Consolidated Financial Statements for
further information.
Liquidity and Capital Resources
Net cash used in operating activities was $3.4 million for the three months
ended November 30, 2001, compared to net cash generated by operating activities
of $4.7 million for the three months ended November 30, 2000. During the first
quarter of fiscal 2002, cash payments were made for the semi-annual interest
payment on our 13% Senior Subordinated Notes due 2009 totaling $13.0 million
and income tax and transaction costs of approximately $7.0 million related to
the sale of Mox-Med. There were no similar payments for Mox-Med in the first
quarter of the prior year, and the interest payment on the notes in the prior
year was approximately $6.5 million lower as the notes had just recently been
issued.
We generated cash from operating activities of continuing operations of
$95.1 million, $17.9 million, and $32.5 million in fiscal 2001, 2000 and 1999,
respectively. Operating cash flows were impacted by the discontinuance of the
accounts receivable financing program in fiscal 2000 due to the Distribution
and the subsequent sale of receivables in fiscal 2001. These changes in our
accounts receivable program impacted operating cash flows by $25.3 million,
$(53.5) million, and $1.6 million in fiscal 2001, 2000, and 1999, respectively.
Cash flows from operating activities of discontinued operations were $43.4
million and $119.5 million in fiscal 2000 and 1999, respectively.
Net cash used in investing activities totaled $2.4 million and $1.8 million
for the three months ended November 30, 2001 and 2000, respectively, primarily
representing cash payments for capital expenditures. Cash provided from
financing activities was $3.7 million for the three months ended November 30,
2001, compared to cash used in financing activities of $9.6 million for the
three months ended November 30, 2000. These balances primarily relate to debt
borrowings and repayments, respectively. Cash flows provided by (used in)
investing activities of continuing operations were $28.1 million, $159.1
million, and $(25.3) million in fiscal 2001, 2000, and 1999, respectively,
which resulted from cash inflows from business unit divestitures, asset sales,
and an insurance settlement, offset by capital expenditures and business
acquisitions. During fiscal 2001, cash used for financing activities primarily
consisted of debt repayments.
Prior to the Distribution, 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
businesses included in the Electronics Business. Subsequent to the Distribution
we have used the majority of our net cash generated to pay down debt.
S-39
On July 31, 2000, we effected the Spin-off and distributed the capital stock
of APW Ltd., a Bermuda company, our former Electronics Business, to our
shareholders. Based on APW Ltd.'s annual report on Form 10-K for its fiscal
year ended August 31, 2001 and its quarterly report on Form 10-Q for its
quarter ended November 30, 2001, we believe that APW Ltd. has recently
experienced financial difficulties. As described in "Risk Factors--We may be
subject to substantial liabilities if APW Ltd. is unable to meet its
obligations as they become due," we are, or may be, responsible for various APW
Ltd. liabilities, including liabilities for taxes and lease payments, and we
may be subject to substantial additional liabilities if APW Ltd. is unable to
meet its obligations as they come due.
Debt
The following table summarizes our debt balances at November 30, 2001 and
August 31, 2001 and 2000. Fiscal 1999 is not presented as the majority of the
borrowings that existed at August 31, 1999 have been refinanced as a result of
the Distribution.
August 31, November 30,
------------- ------------
2000 2001 2001
------ ------ ------------
(in millions)
Senior secured credit facility:
Revolving credit borrowings......................... $ -- $ 13.3 $ 37.0
Tranche A term loans................................ 109.4 10.3 --
Tranche B term loans................................ 123.9 90.5 81.0
13% Senior Subordinated Notes due 2009, net of discount 197.4 197.7 197.8
European term loan..................................... -- 13.7 13.4
Other.................................................. 1.9 2.0 1.4
------ ------ ------
Total debt...................................... $432.6 $327.5 $330.6
====== ====== ======
We have a senior secured credit facility that consisted of the following at
November 30, 2001:
. a Tranche B term loan (the "Term Loan B") that matures in 2008, and
. a $100 million revolving credit facility (the "Revolver") that matures
in 2006.
The Term Loan B matures in 2008 and may be repaid at any time without
premium or penalty but, once repaid, may not be re-borrowed. Modest principal
installments are payable quarterly on the Term Loan B through fiscal 2006,
followed by larger installment requirements in the final two years.
Additionally, the terms of our senior secured credit facility require that we
retire term loans to the extent of 50% of our excess cash flow, which is
defined in the senior secured credit facility agreement, less certain
prepayments described in the credit agreement. Interest accrues on the Term
Loan B at floating rates ranging from LIBOR plus 3.50% to 4.00%, depending on
our leverage ratio. During the first quarter of fiscal 2002, all borrowings
under the former Tranche A term loan under the credit facility were repaid with
borrowings under the Revolver. We may not re-borrow under the Tranche A term
loan. Borrowings under the Revolver currently bear interest at floating rates
equal to LIBOR plus a margin of 1.50% to 3.00%, depending on our leverage
ratio. We have pledged substantially all of the domestic assets of Actuant
Corporation and its domestic subsidiaries, and approximately 65% of the capital
stock of some of our foreign subsidiaries, to secure borrowings and other
amounts payable under the credit facility. The senior secured credit facility
requires that we maintain certain financial ratios and comply with certain
financial and other restrictive covenants. The senior secured credit facility
is guaranteed by a number of our domestic subsidiaries. See Note 7, "Debt" in
Notes to Fiscal Year 2001 Consolidated Financial Statements.
We issued $200 million aggregate principal amount of our 13% Senior
Subordinated Notes due 2009, or the "Notes," on July 31, 2000. The Notes carry
a 13% rate of interest which is paid on November 1 and May 1 annually. There
are no required sinking fund payments on the Notes prior to maturity. Holders
of the Notes may
S-40
require us to repurchase all or a portion of their Notes at a price of 101% of
the principal amount, plus accrued interest, in the case of specified changes
of control or similar events relating to us. We have the right to redeem up to
$70 million aggregate principal amount of the Notes prior to May 1, 2003, at a
redemption price equal to 113% of the Notes' principal amount, plus accrued
interest, with the proceeds from public equity offerings. As described under
"Use of Proceeds," we intend to redeem $70 million aggregate principal amount
of Notes with the net proceeds from this offering. Further, we have the right
to redeem all or a portion of the Notes at certain specified redemption prices
on or after May 1, 2007. The indenture under which the Notes were issued
contains a number of financial and restrictive covenants, including a
requirement that we retire certain indebtedness or offer to redeem Notes to the
extent of 50% of our excess cash flow, which is defined in the indenture. The
principal of, premium, if any, and interest on the Notes are guaranteed, on a
senior subordinated basis, by the same significant subsidiaries that guarantee
the senior secured credit facility.
The European term loan matures in 2007 and is payable in ten semi-annual
installments beginning January 2003.
For additional information about our debt agreements and accounts receivable
financing program, see Note 4, "Accounts Receivable Financing" and Note 7,
"Debt" in Notes to Fiscal Year 2001 Consolidated Financial Statements and Note
3, "Accounts Receivable Financing" in Notes to Unaudited Condensed Consolidated
Financial Statements.
Since the Spin-off, we have been focused on debt reduction. From the
Spin-off to November 30, 2001, our total debt has been reduced by approximately
$120 million. During fiscal 2001 debt was reduced $105 million. During the
first quarter of fiscal 2002, we did not incur any debt to fund acquisitions
and retired $10.3 million aggregate principal amount of Tranche A term loans
under our senior secured credit facility with the proceeds from the Revolver.
In an effort to reduce financing costs and outstanding debt, in May 2001 we
sold certain domestic trade accounts receivable in a securitization
transaction. All proceeds from the sale, which totaled $30 million, were used
to reduce debt. In addition, two businesses were sold during fiscal 2001, which
produced cash of $41.7 million, all of which was used to reduce debt. Although
focused on debt reduction, when strategic opportunities exist to grow our core
business through acquisitions, debt may be incurred. During the third quarter
of fiscal 2001, we borrowed $11.3 million to fund the Dewald Manufacturing
acquisition.
Substantially all of the reduction in our debt since the Spin-off has taken
place in our senior secured credit facility. Borrowings under the credit
facility have been reduced almost 50% from $233.3 million on August 31, 2000 to
$118.0 million on November 30, 2001. We continue to review alternatives and
options to further reduce our financing costs.
We declared and paid quarterly dividends of $0.075 per share for each of the
quarters in fiscal 1999 and for the first three quarters of fiscal 2000,
adjusted for our one-for-five reverse stock split on January 25, 2000. Since
that time no dividends have been declared or paid. Our current debt agreements
restrict our ability to pay dividends. We do not plan to declare or pay
dividends in the foreseeable future but instead intend to use available cash
for working capital needs, acquisitions, and to reduce outstanding debt.
At November 30, 2001, approximately $46 million of the $63 million of unused
borrowing capacity under the Revolver was available to us for general business
purposes, subject to compliance with covenants and borrowing conditions, and we
were in compliance with all covenants under our debt agreements. We believe
that available borrowings under our credit facilities, plus funds generated
from operations, will be adequate to meet operating, debt service and capital
expenditure requirements for at least the next twelve months.
Seasonality and Working Capital
Since the Spin-off, we have 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
have not experienced material changes in seasonal working capital or capital
expenditure requirements.
S-41
Our receivables are derived from a diverse customer base in a number of
industries. The largest single customer generated approximately 5.0% of fiscal
2001 net sales. As described in Note 4, "Accounts Receivable Financing" in
Notes to Fiscal Year 2001 Consolidated Financial Statements, we have sold trade
accounts receivables to a special purpose entity that sold participation
interests in such receivables to a third party. When receivables are sold they
are removed from our balance sheet. Prior to the Distribution, the receivables
financing program was discontinued. As a result, our trade accounts receivable
balance increased at August 31, 2000 relative to what had historically been
reported. A new accounts receivable securitization facility was put in place
and utilized in May 2001.
Capital Expenditures
The majority of our manufacturing operations consist of the assembly of
components that are sourced from a variety of vendors. We believe that our
capital expenditure requirements are not as extensive as many other industrial
companies given the assembly nature of our operations. Historical capital
expenditures for the following periods were as follows:
Three Months
ended
Year Ended August 31, November 30,
--------------------- ------------
1999 2000 2001 2000 2001
----- ----- ---- ---- ----
(in millions)
Total capital expenditures.............................. $22.9 $11.4 $6.7 $1.8 $2.5
Less: Capital expenditures for Non-continuing Businesses 9.2 3.0 0.3 -- --
----- ----- ---- ---- ----
Adjusted capital expenditures........................ $13.7 $ 8.4 $6.4 $1.8 $2.5
===== ===== ==== ==== ====
Capital expenditures have historically been funded by operating cash flows
and borrowings under revolving credit facilities. For the past three fiscal
years, capital expenditures were invested primarily in machinery and equipment
and computer systems. There are no significant capital programs planned in the
near future that would require expenditures in excess of the average capital
expenditure levels over the past three years.
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, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard requires all
derivative instruments to be recorded in the balance sheet at fair value. The
change in fair value of a derivative is required to be recorded each period in
net earnings and other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and if so, the type of
hedge transaction. The adoption of SFAS No. 133 did not have a material effect
on our financial position or results of operations.
The Emerging Issues Task Force, or EITF, issued EITF No. 00-10, "Accounting
for Shipping and Handling Fees and Costs," which was adopted during fiscal
2001. The impact of adopting EITF No. 00-10 was to increase revenues and cost
of sales by approximately $8.8 million, $9.8 million, and $9.5 million in
fiscal 2001, 2000 and 1999, respectively, with no impact on gross profit,
operating profit, or net earnings. We have reclassified all years presented in
the accompanying financial statements to reflect this change.
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In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides for
the elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. An early adoption provision exists for
companies with fiscal years beginning after March 15, 2001. On September 1,
2001, we adopted SFAS No. 142. Application of the nonamortization provision of
SFAS No. 142 is expected to result in an increase in net income of
approximately $3.2 million, or $0.38 per diluted share, in fiscal 2002.
Foreign Currency
We have significant international operations. We derived approximately 25%
of our adjusted net sales for fiscal 2001 from Europe, approximately 5% from
Asia, approximately 2% from South and Latin America and approximately 2% from
Canada, in each case adjusted to exclude the results of the Non-continuing
Businesses. While we strive to enter into contracts paid in U.S. dollars, our
international operations present special risks, including risks due to
fluctuations in currency exchange rates. Our identifiable foreign exchange
exposures result primarily from the anticipated purchase of product from
affiliates and third-party suppliers along with the repayment of intercompany
loans with foreign subsidiaries denominated in foreign currencies. We
periodically identify areas where we do not have naturally occurring offsetting
positions and then purchase hedging instruments intended to protect against
anticipated exposures. There were no such hedging instruments in place as of
November 30, 2001. 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.
Interest Rate
Given our leverage, we are exposed to interest rate risk from changes in
interest rates. We have periodically utilized interest rate swap agreements
historically to manage overall financing costs and interest rate risk. During
the quarter ended May 31, 2001, we entered into a contract to swap variable
interest rates on $25 million of our senior debt for fixed interest rates. In
the first quarter of fiscal 2002, we entered into a second contract to swap
variable interest rates on $25 million of our senior debt for fixed interest
rates. We had no other such agreements in place at November 30, 2001. Our
senior secured credit agreement stipulates that the lower of 50% of our total
debt or $200.0 million be fixed interest rate obligations. We are in compliance
with this requirement.
S-43
BUSINESS
General
Headquartered in Milwaukee, Wisconsin, Actuant Corporation is a Wisconsin
corporation incorporated in 1910. We are a leading diversified global
manufacturer and marketer of a broad range of niche and specialized industrial
products and systems, organized into two business segments, Tools & Supplies
and Engineered Solutions. Tools & Supplies sells branded electrical and
specialized industrial tools and supplies to hydraulic and electrical wholesale
distributors, to catalog houses and through various retail distribution
channels. Engineered Solutions designs and markets customized motion control
systems primarily for OEMs in diversified niche markets. We believe that our
strength in our product categories results from our brand recognition,
proprietary engineering and design competencies, a dedicated service
philosophy, global manufacturing and distribution capabilities and continuous
cost reduction initiatives.
Description of Business Segments
We operate in two business segments, Tools & Supplies and Engineered
Solutions. The following charts show the percentage of net sales, adjusted to
exclude the results of the Non-continuing Businesses, by segment, geographic
region and market for the fiscal year ended August 31, 2001:
[GRAPHIC]
3 pie charts
Adjusted Net Sales by Segment
Adjusted Net Sales by Region
Adjusted Net Sales by Product Category
Tools & Supplies
The Tools & Supplies segment sells a wide array of branded electrical and
specialized industrial tools and supplies to hydraulic and electrical wholesale
tool distributors, to catalog houses and through various retail distribution
channels. The segment's products include high-force hydraulic tools and
electrical tools and consumables, which are sold to end-user markets including
general industrial, construction, production automation, retail do-it-yourself,
or "DIY," retail marine and retail automotive aftermarket customers. Tools &
Supplies provides over 14,000 SKUs, most of which we design and manufacture in
North America. In addition, this segment utilizes global sourcing to supplement
its manufactured product offerings. Major customers include Lowe's, Ace
Hardware, The Home Depot, Snap-on, TruServe and W.W. Grainger. This segment
also sells to over 10,000 small OEM customers and over 4,000 wholesale
electrical, marine and automotive aftermarket distributors.
Based on internal estimates of our competitors' net sales of similar
products, we believe that we hold a leading position in the global high-force
hydraulic industrial tools market and the North American market for electrical
tools and supplies sold to the retail do-it-yourself channel. We believe that
these market positions have been achieved through a combination of logistics
expertise, commitment to service and the ability to consistently deliver high
quality products.
S-44
The following table illustrates our brands, products and key customers in
our Tools & Supplies segment:
Brands Products Key Customers
- ------ -------- -------------
Enerpac High-force hydraulic tools W.W. Grainger, Snap-on and
approximately 1,200 distributors
Gardner Bender Electrical tools and supplies to the retail Lowe's, The Home Depot, Ace Hardware,
DIY channel and wholesale electrical Menards, TruServe, Sears, Wal-Mart and
distributors over 2,500 distributors
Ancor Electrical tools and supplies for the marine West Marine, Boat America, Boater's
industry World
CalTerm Electrical tools and supplies for the Advance Auto Parts, Autozone, O'Reilly
automotive aftermarket Automotive and over 500 distributors
Del City Electrical tools and supplies sold through
catalogs and the Internet Over 10,000 small OEM customers
The Tools & Supplies segment is comprised of our Enerpac and Gardner Bender
businesses. These two businesses share core competencies in product branding,
distribution channel management, global sourcing, and managing the logistics of
SKU-intensive product lines.
The following is a summary of each of Enerpac's three major product lines:
Industrial Tools. We believe Enerpac is a leading global supplier of
high-force hydraulic industrial tools operating at pressures between 5,000
and 10,000 pounds per square inch, based on our internal estimates of our
competitors' net sales of similar products. The 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, oil and gas, and general maintenance industries. We believe that
the end-users of the products in these markets generally focus on product
quality and prefer brand name tools.
Workholding. We also believe Enerpac is a leading global supplier of
hydraulic workholding tools. Workholding tools hold parts in position in
metal cutting machine tools during the machining process. The segment's
products are marketed through distributors to the production automation
market.
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), Parker-Hannifin and Snap-on. Enerpac's
product development staff works closely with 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.
Based on our internal estimates of our competitors' net sales of similar
products, we believe Gardner Bender is a leading supplier of electrical tools
and consumables to the North American retail DIY, retail marine and retail
automotive aftermarket and wholesale electrical distribution markets, supplying
over 11,000 SKUs through a variety of distribution channels. Gardner Bender
maintains strong customer relationships with such leading retailers as Lowe's,
The Home Depot, Menards, Wal-Mart, Autozone and West Marine.
Gardner Bender's main product lines include the following:
Cable Ties, Staples, Fasteners and Wire Management. Gardner Bender
markets a wide range of wire management products, including what we believe
is one of the strongest cable ties in the industry. Gardner Bender also
offers 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.
S-45
Wire Connectors, Solderless Terminals and Lugs. Gardner Bender markets a
broad range of twist-on wire connectors, solderless terminals and lugs.
Gardner Bender manufactures wire connectors and sources solderless terminals
and lugs from a variety of domestic and Asian suppliers.
Conduit Bending and Conduit Fishing. Gardner Bender's conduit bending
product line includes manual, electric and hydraulic benders. Gardner Bender
also manufactures 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. Gardner Bender's line of handtools includes wire strippers,
pliers, screwdrivers, cable cutters, punches, insulated tools and tool kits.
Electrical Testers and Meters. Gardner Bender 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. Gardner Bender 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. Gardner Bender provides a
wide variety of plugs, sockets, trailer wiring harnesses, battery cables and
booster cables to the automotive industry under the CalTerm brand.
Other. Gardner Bender offers a broad range of specialty toggle, rocker
and push and pull switches to customers through all of its distribution
channels. In addition, Gardner Bender offers a wide array of other products
including fuses, circuit breakers and terminal blocks.
Engineered Solutions
We believe that the Engineered Solutions segment is a leading global
designer and manufacturer of customized motion control systems for OEMs in a
variety of niche industrial markets. The segment works with its customers to
provide customized solutions in the RV, truck, automotive, and other markets.
Products include RV slide-out and leveling systems, hydraulic cab-tilt systems
for heavy-duty cab-over-engine trucks sold primarily in Europe, and
electro-hydraulic automotive convertible top actuation systems. As a result of
the segment's design and engineering quality, it has earned numerous customer
awards within the past five years, including the Circle of Excellence vendor
award from Fleetwood and the Paccar supplier award in Europe. It 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, Milwaukee Cylinder and Nielsen
Sessions, are recognized for their engineering quality, integrated custom
design and geographic reach. We believe that Engineered Solutions' reputation
for excellent engineering capabilities, global capabilities, technical service
and established customer relationships with leading OEMs are the driving forces
behind its leadership positions in several markets.
S-46
The following table illustrates our brands, products and systems, and key
customers in our Engineered Solutions segment:
Brands Products and Systems Key Customers
- ------ -------------------- -------------
Power Gear RV slide-out and leveling systems Fleetwood, Monaco Coach, Keystone,
Forest River, National RV, 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 Karmann Rhein GmbH, Audi, Jaguar,
top actuation systems Mercedes-Benz, Fiat, Renault, Saab,
Volkswagen
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
Engineered Solutions' main brands or businesses are summarized below:
Power-Packer. This brand includes hydraulic and electro-hydraulic motion
control systems for OEM applications in the truck, automotive, medical and
off-highway markets. Products manufactured 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. The majority of sales of cab-tilt systems and
convertible top actuation systems are generated in the European market, and
we believe there are growth opportunities for these systems in Asia. These
systems are typically comprised of sensors, electronic controls, and either
hydraulic pumps and cylinders or electric motors. Our convertible top
actuation systems are utilized on both retractable soft and hard top
vehicles. During fiscal 2001 Engineered Solutions was selected to supply
actuation systems on several new North American models including the
Cadillac Evoq, the Chevrolet SSR, and the Volkswagen Beetle. We believe that
there are growth opportunities for our convertible top actuation systems as
a number of automobile manufacturers are adding convertible top automobiles
to their product lines. Engineered Solutions has 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. The segment's patient
positioning systems are incorporated into hospital beds, stretchers,
examination chairs, surgery tables and transfer lifts.
Power Gear. Engineered Solutions designs, manufactures and markets both
electric and hydraulic powered slide-out systems, hydraulic leveling systems
and landing gears for the RV and off-highway truck and trailer markets under
the Power Gear brand. Slide-out systems, which are typically comprised of
sensors, electronic controls, and either hydraulic pumps and cylinders or
electric motors, allow an RV owner to increase a room's size by telescoping
a section of the room's wall outward. 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. We believe that these features are
becoming more common in RVs today and that substantially all domestic RV
manufacturers have incorporated multiple slide-out systems into their
product lines. Power Gear augmented its slide-out and leveling system
business with the acquisition of Dewald Manufacturing in March 2001. Power
Gear's trailer 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. Hydraulic stabilizers quickly position
and level off-highway equipment at remote sites.
S-47
Other Products. Engineered Solutions also supplies other niche markets
with positioning products and industrial case hardware. Under the Milwaukee
Cylinder brand, this segment produces a broad range of tie-rod hydraulic and
pneumatic cylinders for a wide variety of applications including automated
production lines, machine tools, machinery, boat drives and material
handling. It also designs and manufactures highly specialized cylinders such
as servo-actuators used in vibration and fatigue testing. Engineered
Solutions offers 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
We operate a global business. For fiscal 2001, we derived approximately 68%
of our adjusted net sales in North America, approximately 25% from Europe,
approximately 5% from Asia and approximately 2% from South and Latin America,
in each case adjusted to exclude the results of the Non-continuing Businesses.
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 help us to meet the needs
of our customers with global operations, which support our strong relationships
with many leading global OEMs.
Distribution and Marketing
Enerpac sells its products through a combination of distributors, direct
sales personnel and manufacturers representatives. We believe that Enerpac's
distributor network is one of its key competitive strengths and this channel
accounted for approximately 75% of Enerpac's fiscal year 2001 net sales.
Enerpac employs approximately 110 territory managers that make sales calls to
large end-users with distributor sales personnel, train end-users and
distributor personnel on products and provide product application expertise.
Gardner Bender 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. Gardner Bender 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. Gardner Bender's
sales and marketing personnel provide significant marketing support,
including promotional planning, sales programs, retail point-of-purchase
materials and displays, product packaging, merchandising, and advertising
programs.
Distribution. Gardner Bender 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, Gardner Bender relies on independent
manufacturers representatives to provide ongoing customer sales and service
support.
Direct. Gardner Bender's Del City unit 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' 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 reports to market sales
managers who are based in the primary engineering facilities for their
respective market areas. Engineered Solutions sales personnel are highly
trained and coordinate closely with its design engineers in targeting OEM
customers. We believe that Engineered Solutions' engineering capabilities,
technical service and established customer relationships are key competitive
advantages in winning new contracts.
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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
staff at several locations that design new products and make improvements to
existing product lines. Research and development costs are expensed as
incurred. Expenditures for research and development were $2.2 million, $6.6
million, and $8.0 million in fiscal 2001, 2000, and 1999, respectively. Fiscal
2001 and 2000 research and development costs declined from prior year levels as
a result of the divestitures of Barry Controls and Air Cargo Equipment
Corporation during fiscal 2000. We have developed several proprietary
technologies, have over 500 patents and trademarks (including applications) and
have filed numerous applications across the world to protect our intellectual
property.
Competition
We compete on the basis of product design, quality, availability,
performance, customer service and price. Our businesses generally face
substantial competition in each of their markets. In general, each product line
competes with a small group of different competitors. Competition may force us
to cut prices or to incur additional costs to remain competitive. Present or
future competitors may have greater financial, technical or other resources
which could put us at a disadvantage in the affected business or businesses.
Manufacturing and Operations
Our manufacturing operations primarily consist of light assembly operations.
We also have plastic injection molding capabilities and automated welding and
painting lines. We have implemented 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 many of our key suppliers
over many years, and while we single source many of our components, we believe
that in most cases there are several qualified alternative sources.
Order Backlog and Seasonality
Excluding Non-continuing Businesses, at August 31, 2001, we had an order
backlog of approximately $46.7 million, compared to approximately $47.3 million
at August 31, 2000. Substantially all of these orders are expected to be
completed prior to the end of fiscal 2002. As illustrated in the following
table, our net sales over the last two fiscal years, including the
Non-continuing Businesses, have not been subject to significant seasonal
fluctuations:
Sales Percentages by Fiscal Quarter
2000 2001
------ ------
Quarter 1 25.7% 24.8%
Quarter 2 27.4% 24.0%
Quarter 3 26.6% 26.2%
Quarter 4 20.3% 25.0%
----- -----
100.0% 100.0%
====== ======
Employees
As of November 30, 2001, we employed approximately 2,200 people. Our
employees are not subject to any collective bargaining agreements with the
exception of approximately 70 Milwaukee Cylinder production employees and
employees covered by government-mandated collective labor agreements in some
international locations. We believe we enjoy good working relationships with
our employees.
S-49
Environmental Matters
We are subject to federal, state, local and foreign laws and regulations
governing public and worker health and safety and the indoor and outdoor
environment. Pursuant to such laws, a current or former owner or operator of a
site may be held liable for, or be required to, investigate and remediate
contamination. Additionally, if we arranged for the disposal or treatment of
hazardous substances, we can be held liable for investigation and remediation
costs, even if we did not own or operate the treatment or disposal site.
Liability as an owner or operator, or as an arranger for the treatment or
disposal of hazardous substances, can be strict and joint and several and can
be imposed without regard to fault.
Environmental expenditures over the last three years have not been material.
Nevertheless, more stringent environmental laws, unanticipated burdensome
remediation requirements, or discovery of previously unknown conditions could
have a material adverse effect upon our financial condition and results of
operations. We might also become responsible for certain environmental
obligations affecting the business of APW Ltd. if it becomes unable to satisfy
those obligations. Environmental remediation accruals of $2.1 million were
included in our consolidated balance sheets at both August 31, 2001 and 2000.
For further information, see Note 14, "Contingencies and Litigation" in Notes
to Fiscal Year 2001 Consolidated Financial Statements.
Legal Proceedings
We are a party to various legal proceedings that have arisen in the normal
course of our business. These legal proceedings typically include product
liability, environmental, labor, patent claims and commission disputes.
In connection with the disposition of Barry Wright Corporation in June 2000,
we indemnified the buyer for certain matters. The buyer has made an
indemnification claim for damages of approximately $6 million involving a
specific contract. We are investigating the claim and investigating the
purchaser's compliance with the purchase agreement, but we believe that we have
viable defenses to the claim. We intend to vigorously defend the claim. Based
on the information presently available, we believe the claim will not have a
material adverse impact on our financial position or results of operations.
We self-insure a portion of our product liability risk 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 such loss can be reasonably estimated. In the
opinion of management, the resolution of these proceedings will not have a
material adverse effect on our financial condition, results of operations or
cash flows. For further information refer to Note 14, "Contingencies and
Litigation" in Notes to Fiscal Year 2001 Consolidated Financial Statements.
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FACILITIES
We generally lease rather than own our operating facilities. The majority of
our leases are short-term and are renewable at our option.
Tools & Supplies
Tools & Supplies maintains 11 manufacturing facilities in the United States,
Mexico, Europe and Asia and 18 distribution facilities and sales offices
worldwide.
Approximate
Square
Facility Feet Status
-------- ----------- ------
Manufacturing
Glendale, Wisconsin......... 313,000 Leased
Columbus, Wisconsin......... 130,000 Leased
Veenendaal, The Netherlands. 97,000 Leased
San Diego, California....... 70,000 Leased
Pachuca, Mexico(1).......... 61,000 Leased
Oklahoma City, Oklahoma..... 56,000 Leased
Tecate, Mexico.............. 54,000 Leased
Alexandria, Minnesota....... 25,000 Owned
Shanghai Waigaogiao, China.. 23,000 Leased
Cotati, California.......... 19,000 Leased
Seoul, South Korea(1)....... 12,000 Leased
Distribution and Sales
Reno, Nevada................ 55,000 Owned
Charlotte, North Carolina... 36,000 Leased
Corsico (Milano), Italy..... 18,000 Owned
Mississauga, Ontario, Canada 18,000 Leased
Lancaster, Pennsylvania..... 16,000 Leased
Toda-shi, Japan(1).......... 15,000 Leased
Dusseldorf, Germany......... 15,000 Leased
Sydney, Australia........... 14,000 Leased
Scranton, Pennsylvania...... 13,000 Leased
Atlanta, Georgia............ 13,000 Leased
Seoul, South Korea(1)....... 12,000 Leased
Ontario, California......... 12,000 Leased
Taipei, Taiwan.............. 10,000 Leased
Singapore................... 7,000 Leased
Massy (Paris), France(1).... 3,000 Leased
Kowloon, Hong Kong.......... 1,000 Leased
Madrid, Spain............... 1,000 Leased
Osaka, Japan................ 1,000 Leased
- --------
(1) Shared by both our Tools & Supplies and Engineered Solutions segments.
S-51
Engineered Solutions
Engineered Solutions maintains 11 manufacturing facilities in North and
South America, Europe and Asia and four distribution and sales facilities.
Approximate
Square
Facility Feet Status
-------- ----------- ------
Manufacturing
Oldenzaal, The Netherlands 130,000 Leased
Akishar, Turkey........... 79,000 Owned
Cudahy, Wisconsin......... 73,000 Owned
Mishawaka, Indiana........ 72,000 Leased
Hartford, Connecticut..... 65,000 Owned
Pachuca, Mexico(1)........ 61,000 Leased
Beaver Dam, Wisconsin..... 50,000 Owned
Westfield, Wisconsin...... 40,000 Owned
McMinnville, Oregon....... 23,000 Leased
Seoul, South Korea(1)..... 12,000 Leased
Sao Paulo, Brazil......... 7,000 Leased
Distribution and Sales
Toda-shi, Japan(1)........ 15,000 Leased
Seoul, South Korea(1)..... 12,000 Leased
Massy (Paris), France(1).. 3,000 Leased
Torrijos, Toledo, Spain... 2,000 Leased
- --------
(1) Shared by both our Tools & Supplies and Engineered Solutions segments.
We also lease two buildings in Butler, Wisconsin comprising approximately
100,000 square feet that are not actively used in operations and that we are
seeking to sub-lease to third parties.
S-52
MANAGEMENT
The following table sets forth our directors and executive officers, their
ages and positions:
Name Age Position
- ---- --- --------
Robert Arzbaecher 42 President, Chief Executive Officer and Chairman of the Board
Andrew Lampereur 38 Vice President and Chief Financial Officer
Terry Braatz 44 Treasurer
Timothy Teske 35 Corporate Controller
Todd Hicks 43 Vice President-Enerpac
Ralph Keller 54 Vice President-Operations
Arthur Kerk 52 Vice President-Engineered Solutions-Europe and Asia
Mark Goldstein 45 Vice President-Gardner Bender
Brian Kobylinski 35 Vice President-Distribution and OEM Business
Ron Wieczorek 44 Vice President-Human Resources
Gerald Peiffer 53 Vice President-Engineered Solutions-Americas
Anthony Asmuth III 60 Secretary
H. Richard Crowther 69 Director
William K. Hall 58 Director
Gustav H.P. Boel 56 Director
Bruce S. Chelberg 67 Director
William P. Sovey 68 Director
Kathleen J. Hempel 51 Director
Robert Arzbaecher, President, Chief Executive Officer and Chairman of the
Board. Mr. Arzbaecher was named President and Chief Executive Officer of the
Company on August 9, 2000 and Chairman of the Board on January 7, 2002. He
served as Vice President and Chief Financial Officer of Applied Power Inc.
starting in 1994 and Senior Vice President in 1998. He served as Vice
President, Finance of Tools & 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 Lampereur, Vice President and 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 Gardner Bender.
In 1998, Mr. Lampereur was appointed Vice President, General Manager for
Gardner Bender. In 1999, he served as the business development and special
projects leader for Applied Power Inc. He was appointed to his present position
on August 9, 2000. 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 Braatz, Treasurer. Mr. Braatz was appointed Treasurer on August 9,
2000, shortly after joining the Company. Prior to joining Actuant, he held
various financial management positions at Johnson Controls, Inc. from 1979 to
2000, including Manager, Internal Treasury and Manager, Corporate Finance.
Timothy Teske, Corporate Controller. Mr. Teske was appointed Corporate
Controller on May 4, 2001, shortly after joining the Company. Prior to joining
Actuant, he held various financial management positions at Tenneco Automotive
Inc from 1997 to 2001 and spent the previous eight years with the international
public accounting firm of Arthur Andersen LLP, last serving as audit and
business advisory manager.
Todd Hicks, Vice President--Enerpac. Mr. Hicks has held a variety of
marketing and sales positions with Enerpac and the former Wright Line business
unit of Applied Power Inc. 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 Inc. in 1987.
S-53
Ralph Keller, Vice President--Operations. Mr. Keller joined the Company in
1999 in his present position. Prior to joining Actuant, he held senior
operating positions in multinational organizations, most recently with
Whitecap, Inc., a subsidiary of Schmalbach Lubeca AG.
Arthur Kerk, Vice President--Engineered Solutions--Europe and Asia. Mr.
Kerk joined Applied Power Inc. 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 Applied Power Inc., he
worked in sales management at Conex Union and as Managing Director of McKechnie
in The Netherlands.
Mark Goldstein, Vice President--Gardner Bender. Mr. Goldstein was appointed
leader of the Gardner Bender business in fiscal year 2001. Prior to joining
Actuant in 2001 he held senior sales, marketing and operations management
positions at The Stanley Works, most recently as President, Stanley Door
Systems. Mr. Goldstein was employed by The Stanley Works for 22 years.
Brian Kobylinski, Vice President--Distribution and OEM Business. Mr.
Kobylinski was appointed leader of the distribution and OEM channels of Gardner
Bender in fiscal year 2000. Prior thereto, he served as leader of Gardner
Bender's Del City operation, Gardner Bender'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.
Ron Wieczorek, Vice President--Human Resources. Mr. Wieczorek joined
Applied Power Inc. in February of 1998 as Director of Human Resources for
Engineered Solutions Americas. He was promoted to Vice President--Human
Resources for Actuant in November 2001. Prior to joining Applied Power Inc., he
held senior human resources positions, most recently with Watlow Gordon, Inc.
where he served as a member of the general management leadership team.
Gerald Peiffer, Vice President--Engineered Solutions--Americas. Mr. Peiffer
joined Applied Power Inc. in 1997 when Applied Power Inc. 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 period 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 LLP performs legal services for Actuant and certain of its
subsidiaries and affiliates. Mr. Asmuth had previously served as Secretary of
Applied Power Inc. from 1986 to 1993 and from 1994 to 2000.
H. Richard Crowther, Director. Mr. Crowther, retired, was formerly a Vice
Chairman of Illinois Tool Works Inc., a manufacturer of engineered components
and systems.
William K. Hall, Director. Mr. Hall is Chairman and Chief Executive Officer
of Procyon Technologies, Inc., a holding company focused on the acquisition and
growth of suppliers to the global aerospace and defense industry.
Gustav H.P. Boel, Director. Mr. Boel, retired, was formerly Senior Vice
President of APW Ltd. and Senior Vice President of Applied Power Inc. until
July 31, 2000.
Bruce S. Chelberg, Director. Mr. Chelberg, retired, was formerly Chairman
and Chief Executive Officer of Whitman Corporation, a conglomerate whose
principal operating company is an independent Pepsi-Cola bottler.
William P. Sovey, Director. Mr. Sovey is Chairman and was formerly Chief
Executive Officer of Newell Rubbermaid, Inc., a multi-national manufacturer and
marketer of branded consumer products. Mr. Sovey was previously Chairman and
Chief Executive Officer of Falcon Building Products, Inc.
Kathleen J. Hempel, Director. Ms. Hempel, retired, was formerly Vice
Chairman and Chief Financial Officer of Fort Howard Corp.
S-54
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock as of January 15, 2002 consisted of 16,000,000
shares of Class A Common Stock, $.20 par value per share, or common stock, of
which 8,106,046 shares were issued and outstanding; 1,500,000 shares of Class B
Common Stock, $.20 par value per share, or Class B Common Stock, none of which
were issued and outstanding; and 160,000 shares of Cumulative Preferred Stock,
$1.00 par value per share, or Preferred Stock, none of which have been issued.
The following is a summary of selected provisions of our articles of
incorporation, our bylaws and of the Wisconsin Business Corporation Law, or
WBCL. This summary is not complete and is subject to, and qualified in its
entirety by reference to, our articles of incorporation and bylaws, copies of
which have been filed or incorporated by reference as exhibits to the
registration statement of which the accompanying Prospectus is a part, and to
the WBCL.
Preferred Stock
The Preferred Stock may be issued in one or more series providing for such
dividend rates, voting, liquidation, redemption, and conversion rights, and
such other terms and conditions as our Board of Directors may determine,
subject to the limitations described below, without further approval by holders
of our common stock. If any shares of Class B Common Stock are outstanding, any
voting rights conferred on holders of Preferred Stock would be limited, with
respect to the election of directors, to the power to vote together with
holders of common stock in electing a "maximum minority" of the Board of
Directors, as described under "--Common Stock" below.
If we issue any shares of Preferred Stock, we would be permitted to pay
dividends or make other distributions upon the common stock or Class B Common
Stock (except for distributions payable in shares of common stock or Class B
Common Stock) only after paying or setting apart funds for payment of accrued
but unpaid dividends upon the outstanding Preferred Stock, at the rate or rates
designated for each series of outstanding Preferred Stock. Dividends on the
Preferred Stock are cumulative, so that if at any time the full amount of all
dividends accrued on the Preferred Stock is not paid, the deficiency must be
paid before any dividends or other distributions are paid or set apart on the
common stock or the Class B Common Stock, other than dividends or distributions
paid in common stock or Class B Common Stock, respectively. Each series of
Preferred Stock will have such designation, preferences and relative rights as
shall be stated in the resolution or resolutions providing for the designation
and issue of such series adopted by our Board of Directors. In the event of
voluntary or involuntary liquidation, the holders of any outstanding Preferred
Stock would be entitled to receive all accrued dividends on the Preferred Stock
and the liquidation amount specified for each series of Preferred Stock before
any amount may be distributed to holders of the common stock or Class B Common
Stock.
Under the articles of incorporation, all shares of Preferred Stock shall be
identical except as to the following relative rights and preferences, as to
which the Board of Directors may establish variations between different series
not inconsistent with other provisions in the articles of incorporation: (a)
the dividend rate; (b) the price at and terms and conditions on which shares
may be redeemed; (c) the amount payable upon shares in the event of voluntary
or involuntary liquidation; (d) sinking fund provisions for the redemption or
purchase of shares; (e) the terms and conditions on which shares may be
converted into common stock or Class B Common Stock, if the shares of any
series are issued with the privilege of conversion; and (f) voting rights, if
any, subject to the provisions regarding voting rights summarized herein.
The holders of Preferred Stock will have no preemptive rights. Under the
articles of incorporation, each series of Preferred Stock will, with respect to
dividend rights and rights on liquidation, rank prior in right of payment to
the common stock and the Class B Common Stock and on a parity in right of
payment with each other series of Preferred Stock.
S-55
Common Stock
The rights and preferences of shares of common stock and Class B Common
Stock are identical, except as to voting power with respect to the election of
directors and except that the Class B Common Stock is entitled to conversion
rights as described below. No shares of Class B Common Stock are outstanding.
All previously outstanding shares of Class B Common Stock were converted into
shares of common stock over a decade ago.
On all matters other than the election of directors, the holders of common
stock and Class B Common Stock possess equal voting power of one vote per share
and vote together as a single class (unless otherwise required by the WBCL). In
the election of the Board of Directors, the holders of common stock, voting
together as a single class with the holders of any outstanding Preferred Stock
which has voting power, are entitled to elect a "maximum minority" of the
number of directors to be elected. As a result of this "maximum minority"
provision, the holders of the Class B Common Stock, voting as a separate class,
are entitled to elect the balance of the directors, constituting a "minimum
majority" of the number of directors to be elected. If an even number of
directors is to be elected, the holders of Class B Common Stock will be
entitled to elect two more directors than the holders of common stock and any
Preferred Stock having voting power; if the number of directors to be elected
is an odd number, the holders of Class B Common Stock will be entitled to elect
one more director than the holders of common stock and any Preferred Stock
having voting power. In the event there are no shares of Class B Common Stock
outstanding, holders of common stock, voting together as a single class with
holders of any outstanding Preferred Stock having voting power, shall elect all
of the directors to be elected. A director, once elected and duly qualified,
may be removed only by the requisite affirmative vote of the holders of that
class of stock by which such director was elected.
Holders of common stock and Class B Common Stock are ratably entitled to
such dividends as our Board of Directors may declare out of funds legally
available therefor, except as described below in the case of stock dividends.
If we were to issue any of our authorized Preferred Stock, no dividends could
be paid or set apart for payment on shares of common stock or Class B Common
Stock, unless paid in common stock or Class B Common Stock, respectively, until
full cumulative dividends accrued on all of the issued and outstanding shares
of Preferred Stock had been paid or set apart for payment. Certain covenants
contained in our debt agreements limit, and provisions of our articles of
incorporation for the benefit of any Preferred Stock that may be issued from
time to time could have the direct or indirect effect of limiting, the payment
of dividends or other distributions on (and purchases of) our common stock and
Class B Common Stock. Stock dividends on common stock may be paid only in
shares of common stock and stock dividends on Class B Common Stock may be paid
only in shares of Class B Common Stock.
In the event that we issue any shares of Class B Common Stock, any holder of
shares of Class B Common Stock may convert any or all of those shares into
common stock on a share-for-share basis. If we issue any Class B Common Stock
and the number of outstanding shares of Class B Common Stock is reduced to less
than 500,000, adjusted to reflect any stock splits, stock dividends or similar
transactions, all of the outstanding shares of Class B Common Stock will be
automatically converted into common stock on a share-for-share basis. Holders
of common stock do not have any conversion rights. In the event of our
dissolution or liquidation, the holders of both common stock and Class B Common
Stock are entitled to share ratably in all of our assets remaining after
payment of our 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 or the Class B Common Stock.
The common stock is listed on the New York Stock Exchange. U.S. Bank, N.A.,
Milwaukee, Wisconsin (formerly known as Firstar Bank, N.A.), serves as the
transfer agent for the common stock.
General
The articles of incorporation provide that the affirmative vote of
two-thirds of all shares entitled to vote thereon (and/or of each class which
shall be entitled to vote thereon as a class) is required in order to
constitute shareholder approval or adoption of a merger, consolidation, or
liquidation of us, sale, lease or exchange or other disposition of all or
substantially all of our assets, amendment of the articles of incorporation or
the bylaws, or removal of a director.
S-56
Our directors are currently elected to serve one-year terms. The articles of
incorporation provide that the bylaws (which may be amended by the Board of
Directors or by the shareholders) may provide for the division of the Board of
Directors into two or three classes of directors and for the terms and manner
of election not inconsistent with the applicable provisions of the WBCL. If
that occurs and any shares of Class B Common Stock are outstanding, each class
of directors will contain as nearly as possible an equal number of directors
elected by the holders of common stock and any outstanding Preferred Stock,
voting as a single class, and will also contain as nearly as possible an equal
number of directors elected by holders of Class B Common Stock, subject to the
right of the Class B Common Stock to elect the minimum majority of the
directors as described above.
Shareholders are subject to personal liability under Section 180.0622(2)(b)
of the WBCL, as judicially interpreted, for debts owing to our employees for
services performed for us, but not exceeding six months' service in any one
case. This means that, if we do not pay salaries or other amounts owed to our
employees, holders of our common stock, including shares sold in this offering,
may be personally liable for those amounts.
Holders of our capital stock do not have preemptive or other subscription
rights to purchase or subscribe for our unissued stock or other securities
issued by us.
Certain Statutory Provisions
Under Section 180.1150(2) of the WBCL, the voting power of shares of a
"resident domestic corporation," such as us (as long as we continue to meet the
statutory definition as set forth in Section 180.1130(10m) of the WBCL), which
are held by any person (including two or more persons acting in concert),
including shares issuable upon conversion of convertible securities or upon
exercise of options or warrants, in excess of 20% of the voting power in the
election of directors shall be limited (in voting on any matter) to 10% of the
full voting power of the shares in excess of 20%, unless full voting rights
have been restored at a special meeting of the shareholders called for that
purpose. Shares held or acquired under certain circumstances are excluded from
the application of Section 180.1150(2), including (among others) shares
acquired directly from us, shares acquired before April 22, 1986, and shares
acquired in a merger or share exchange to which we are a party.
Sections 180.1130 to 180.1134 of the WBCL provide generally that, in
addition to the vote otherwise required by law or the articles of incorporation
of a "resident domestic corporation," such as us (as long as we continue to
meet the statutory definition as set forth in Section 180.1130(10m) of the
WBCL), certain business combinations not meeting certain fair price standards
specified in the statute must be approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by the outstanding voting shares of
the corporation, voting together as a single voting group and (b) two-thirds of
the votes entitled to be cast by the holders of voting shares other than voting
shares beneficially owned by a "significant shareholder" or an affiliate or
associate thereof who is a party to the transaction, voting together as a
single voting group. The term "business combination" is defined to include,
subject to certain exceptions, a merger or share exchange of the resident
domestic corporation (or any subsidiary thereof) with, or the sale, lease or
exchange or other disposition of all or substantially all of the property and
assets of the resident domestic corporation to, any significant shareholder or
affiliate thereof. "Significant shareholder" is defined generally to mean a
person that is the beneficial owner, directly or indirectly, of 10% or more of
the voting power of the outstanding voting shares of the resident domestic
corporation. The statute also restricts the repurchase of shares and the sale
of corporate assets by a resident domestic corporation in response to a
take-over offer.
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as us (as long as
we continue to meet the statutory definition as set forth in Section
180.1140(9) of the WBCL), and a person beneficially owning 10% or more of the
voting power of the outstanding voting stock of such corporation (an
"interested stockholder") within three years after the date such
S-57
person became a 10% beneficial owner, unless the business combination or the
purchase of such stock has been approved before the stock acquisition date by
the corporation's board of directors. Business combinations after the
three-year period following the stock acquisition date are permitted only if:
. the board of directors approved the acquisition of the stock prior to
the acquisition date;
. the business combination is approved by a majority of the outstanding
voting stock not beneficially owned by the interested shareholder; or
. the consideration to be received by shareholders meets certain fair
price requirements of the statute with respect to form and amount.
Under Sections 180.1140(9) and 180.1143 of the WBCL, a "resident domestic
corporation" means a Wisconsin corporation that has a class of voting stock
that is registered or traded on a national securities exchange or that is
registered under Section 12(g) of the Securities Exchange Act and that, as of
the relevant date, satisfies any of the following:
. its principal offices are located in Wisconsin;
. it has significant business operations located in Wisconsin;
. more than 10% of the holders of record of its shares are residents of
Wisconsin; or
. more than 10% of its shares are held of record by residents of Wisconsin.
We are currently a "resident domestic corporation" for purposes of the above
described provisions. A Wisconsin corporation that is otherwise subject to
certain of such statutes may preclude their applicability by an election to
that effect in its articles of incorporation. Our articles of incorporation do
not contain any such election.
These provisions of the WBCL, the ability to issue additional shares of
common stock, Class B Common Stock and Preferred Stock without further
shareholder approval (except as required under New York Stock Exchange
corporate governance standards), and certain other provisions of our articles
of incorporation (discussed above) could have the effect, among others, of
discouraging take-over proposals for us, delaying or preventing a change in
control of us, or impeding a business combination between us and a major
shareholder.
S-58
UNDERWRITING
The underwriters named below have severally and not jointly agreed with us,
subject to the terms and conditions set forth in an underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
names below.
Number of
Underwriter Shares
----------- ---------
First Union Securities, Inc....... 1,650,000
ABN AMRO Rothschild LLC........... 450,000
Robert W. Baird & Co. Incorporated 450,000
Bear, Stearns & Co. Inc........... 450,000
---------
Total.......................... 3,000,000
=========
The underwriters have agreed to purchase all of the shares referred to above
if any of those shares are purchased. If an underwriter defaults, the
underwriting agreement provides that the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
The shares of common stock are offered by the underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by counsel for the underwriters and other conditions. The
underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part.
First Union Securities, Inc. (acting under the trade name Wachovia
Securities) is an indirect, wholly-owned subsidiary of Wachovia Corporation.
Wachovia Corporation conducts its investment banking, institutional, and
capital markets businesses through its various bank, broker-dealer and nonbank
subsidiaries (including First Union Securities, Inc.) under the trade name of
Wachovia Securities. Any references to Wachovia Securities in this Prospectus
Supplement, however, do not include Wachovia Securities, Inc., member NASD/SIPC
and a separate broker-dealer subsidiary of Wachovia Corporation and an
affiliate of First Union Securities, Inc., which may or may not be
participating as a selling dealer in the distribution of the securities offered
by this Prospectus Supplement.
Commissions and Discounts. The underwriters have advised us that they
propose to offer the shares of common stock to the public at the public
offering price set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession of not more than $0.96 per
share, of which $0.10 may be reallowed to other dealers. After the completion
of this offering, the public offering price, concession and reallowance to
dealers may be changed.
The following table shows the public offering price, underwriting discounts
and commissions and proceeds, before expenses, to us, both on a per share basis
and in total, assuming either no exercise or full exercise by the underwriters
of their over-allotment option.
Total
---------------------------
Per Share Without Option With Option
--------- -------------- ------------
Public offering price................. $30.50 $91,500,000 $105,225,000
Underwriting discounts and commissions $ 1.60 $ 4,800,000 $ 5,520,000
Proceeds, before expenses, to us...... $28.90 $86,700,000 $ 99,705,000
S-59
The expenses of this offering, not including the underwriting discounts and
commissions, are estimated at $750,000 and are payable by us.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to 450,000 additional shares of common stock at the
same price per share as we will receive for the 3,000,000 shares that the
underwriters have agreed to purchase, less the underwriting discounts and
commissions shown on the cover page of this Prospectus Supplement. To the
extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment, subject to conditions, to purchase approximately
the same percentage of the additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 3,000,000 shares offered by this Prospectus Supplement.
Indemnity. We have agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of those
liabilities.
Lock-up Agreements. Our directors and executive officers have agreed that,
for a period of 90 days after the date of this Prospectus Supplement, they will
not, without the prior written consent of First Union Securities, Inc., offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock or any securities convertible into, or
exercisable or exchangeable for, shares of our common stock, except for any
transfer of shares of common stock or other securities to us to pay the
exercise price of stock options under employee benefit plans, gifts of common
stock or other securities where the donee enters into a substantially similar
lock-up agreement and sales of up to 1,000 shares of common stock by each
director and executive officer.
In addition, we have agreed that, for a period of 90 days after the date of
this Prospectus Supplement, we will not, without the prior written consent of
First Union Securities, Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our capital stock
or any securities convertible into, or exercisable or exchangeable for, shares
of our capital stock, except for the shares being sold in the offering and
except that we may issue and sell shares of common stock and stock options
pursuant to our stock option plans as in effect on the date of this Prospectus
Supplement and shares of common stock upon the exercise of stock options that
we have issued or in the future may issue under our stock option plans, and we
may file a registration statement under the Securities Act with respect to any
of these shares.
First Union Securities, Inc., may, in its sole discretion and at any time or
from time to time, without notice, release all or any portion of the shares or
other securities subject to the lock-up agreements.
Trading Market For Our Common Stock. Our common stock is listed on the New
York Stock Exchange under the symbol "ATU."
Stabilization. The underwriters have advised us that, pursuant to
Regulation M under the Securities Exchange Act, certain persons participating
in this offering may engage in transactions, including stabilizing bids,
syndicate covering transactions or the imposition of penalty bids, which may
have the effect of stabilizing or maintaining the market price of our common
stock at a level above that which might otherwise prevail in the open market.
. A "stabilizing bid" is a bid for or the purchase of the common stock on
behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock.
. A "syndicate covering transaction" is a bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering.
. A "penalty bid" is an arrangement permitting the underwriters to reclaim
the selling concession otherwise accruing to an underwriter in
connection with this offering if the common stock originally sold by
that underwriter is purchased by the underwriters in a syndicate
covering transactions and has therefore not been effectively placed by
that underwriter.
S-60
The underwriters have advised us that these transactions may be effected on
the New York Stock Exchange or otherwise. Neither we nor any of the
underwriters makes any representation that the underwriters will engage in any
of the transactions described above and these transactions, if commenced, may
be discontinued without notice. Neither we nor any of the underwriters makes
any representation or prediction as to the direction or magnitude of the effect
that the transactions described above, if commenced, may have on the market
price of our common stock.
Other Relationships. Some of the underwriters and their affiliates have
provided financial advisory, commercial or investment banking or other
financial services to us from time to time for which they have received
customary fees and expenses. The underwriters and their affiliates may, from
time to time, engage in other transactions with us and perform other services
for us in the ordinary course of their business. In particular, an affiliate of
First Union Securities, Inc. is an agent and a lender under our senior secured
credit facility, the lead lender under our trade receivables securitization
facility and provides stock purchase loans to our executives under an Executive
Stock Purchase Plan. Additionally, an affiliate of ABN AMRO Rothchild LLC is a
lender under our senior secured credit facility.
LEGAL MATTERS
The validity of the shares of common stock to be sold pursuant to this
Prospectus Supplement will be passed upon by Quarles & Brady LLP, Milwaukee,
Wisconsin, counsel to the Company. Anthony W. Asmuth III, our Corporate
Secretary, is a partner in Quarles & Brady LLP. As of January 15, 2002, Mr.
Asmuth owned 7,736 shares of our common stock and served as a fiduciary with
sole or shared voting and dispositive powers over accounts that held an
aggregate of 67,334 shares of common stock. Sidley Austin Brown & Wood LLP, San
Francisco, California will act as counsel to the underwriters.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule of Actuant Corporation as of August 31, 2001 and 2000 and
for each of the three years in the period ended August 31, 2001 included and
incorporated by reference in this Prospectus Supplement have been so included
and incorporated by reference in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act, and accordingly we must file reports and other information with the SEC.
All reports and other information filed with the SEC are available to you over
the Internet at the SEC's web site at http://www.sec.gov. You may read and copy
any documents we file with the SEC at the SEC's Public Reference Room located
at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's regional
offices in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 or visit the SEC's website for more information about the SEC's
public reference facilities.
S-61
INCORPORATION OF INFORMATION BY REFERENCE
We have elected to "incorporate by reference" certain information into this
Prospectus Supplement and the accompanying Prospectus. By incorporating by
reference, we can disclose important information to you by referring you to
another document we have filed separately with the SEC. Our Annual Report on
Form 10-K for the fiscal year ended August 31, 2001, and our Quarterly Report
filed on Form 10-Q for the fiscal quarter ended November 30, 2001, which we
have previously filed with the SEC, are incorporated by reference into this
Prospectus Supplement and the accompanying Prospectus. All reports and other
documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act after the date of this Prospectus Supplement and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus and to
be a part hereof and thereof from the date of filing of such documents. Any
statement contained in this Prospectus Supplement, the accompanying Prospectus
or a document incorporated or deemed to be incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus Supplement and the
accompanying Prospectus to the extent that a statement contained in this
Prospectus Supplement or in any other subsequently filed document which also is
incorporated or is deemed to be incorporated by reference in this Prospectus
Supplement, modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
In that regard, as a result of the Spin-off of our former Electronics
Business on July 31, 2000, the subsequent change in the name of our company and
other changes in our business and capital structure since the time of the
Spin-off, some of the information appearing in the accompanying Prospectus has
been superseded. In particular, the information appearing in the accompanying
Prospectus under the captions "The Company" and "Description of Preferred Stock
and Common Stock" and the description of our common stock contained in our
Current Report on Form 8-K dated August 12, 1998 (and any other description of
our capital stock incorporated by reference in the accompanying Prospectus) has
been superseded and replaced in its entirety by the information appearing in
this Prospectus Supplement under the captions "The Company" and "Description of
Capital Stock."
We will provide, without charge, to each person, including any beneficial
owner, to whom this Prospectus Supplement is delivered, upon written or oral
request of such person, a copy of any document incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus (not including
exhibits to such documents unless such exhibits are specifically incorporated
by reference into the information incorporated into this Prospectus Supplement
and Prospectus). Requests for such information should be directed to Ann E.
Ertl, Investor Relations Specialist, Actuant Corporation, 6100 North Baker
Road, Milwaukee, WI 53209, telephone (414) 352-4160.
S-62
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ----
Report of independent accountants................................................................. F-2
Consolidated statements of earnings for the years ended August 31, 2001, 2000 and 1999............ F-3
Consolidated balance sheets as of August 31, 2001 and 2000........................................ F-4
Consolidated statements of cash flows for the years ended August 31, 2001, 2000 and 1999.......... F-5
Consolidated statements of shareholders' equity for the years ended August 31, 2001, 2000 and 1999 F-6
Notes to consolidated financial statements........................................................ F-7
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated statements of earnings for the three months ended
November 30, 2001 and 2000..................................................... F-36
Condensed consolidated balance sheets as of November 30, 2001 and August 31, 2001 F-37
Condensed consolidated statements of cash flows for the three months ended
November 30, 2001 and 2000..................................................... F-38
Notes to condensed consolidated financial statements............................. F-39
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Actuant Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Actuant
Corporation and its subsidiaries at August 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended August 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. 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 of America, 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 our
opinion.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
September 26, 2001
F-2
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net sales.................................................... $481,939 $681,443 $705,201
Cost of products sold........................................ 313,030 439,277 452,517
-------- -------- --------
Gross profit.............................................. 168,909 242,166 252,684
Engineering, selling and administrative expenses............. 88,985 134,037 136,671
Amortization of intangible assets............................ 6,236 7,530 8,748
Contract termination costs (recovery)........................ -- (1,446) 7,824
Corporate reorganization expense............................. -- 12,388 --
Restructuring charge......................................... 1,740 -- --
-------- -------- --------
Operating earnings........................................ 71,948 89,657 99,441
Other expense (income):
Net financing costs....................................... 49,199 37,670 41,181
Loss (gain) on sale of businesses......................... (18,508) 3,467 --
Other (income) expense, net............................... 485 987 850
-------- -------- --------
Earnings from continuing operations before income tax expense 40,772 47,533 57,410
Income tax expense........................................... 16,417 19,488 22,830
-------- -------- --------
Earnings from continuing operations.......................... 24,355 28,045 34,580
Discontinued operations, net of income taxes................. (781) 585 44,817
-------- -------- --------
Earnings before extraordinary items.......................... 23,574 28,630 79,397
Extraordinary gain (loss), net of income taxes:
Early extinguishment of debt.............................. -- (14,708) --
Sale of subsidiaries...................................... -- 53,167 --
-------- -------- --------
Net extraordinary gain................................ -- 38,459 --
-------- -------- --------
Net earnings................................................. $ 23,574 $ 67,089 $ 79,397
======== ======== ========
Basic earnings per share:
Continuing operations..................................... $ 3.06 $ 3.59 $ 4.45
Discontinued operations................................... (0.09) 0.07 5.77
Net extraordinary gain.................................... -- 4.92 --
-------- -------- --------
Total................................................. $ 2.97 $ 8.58 $ 10.22
======== ======== ========
Diluted earnings per share:
Continuing operations..................................... $ 2.93 $ 3.48 $ 4.30
Discontinued operations................................... (0.09) 0.07 5.57
Net extraordinary gain.................................... -- 4.77 --
-------- -------- --------
Total................................................. $ 2.84 $ 8.32 $ 9.87
======== ======== ========
Weighted average common shares outstanding:
Basic..................................................... 7,950 7,822 7,765
======== ======== ========
Diluted................................................... 8,305 8,062 8,040
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
ACTUANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
August 31,
--------------------
2001 2000
--------- ---------
ASSETS
------
Current Assets
Cash and cash equivalents.................................................... $ 26,554 $ 9,896
Accounts receivable, net of allowances of $3,790 and $3,809, respectively.... 54,971 83,553
Inventories, net............................................................. 56,738 67,599
Deferred income taxes........................................................ 5,833 4,542
Receivable from APW Ltd...................................................... -- 32,894
Prepaid expenses............................................................. 5,074 5,230
--------- ---------
Total Current Assets..................................................... 149,170 203,714
Property, Plant and Equipment
Land, buildings, and improvements............................................ 18,090 20,867
Machinery and equipment...................................................... 95,107 108,872
--------- ---------
Gross property, plant and equipment.......................................... 113,197 129,739
Less: Accumulated depreciation............................................... (73,715) (80,571)
--------- ---------
Net Property, Plant and Equipment........................................ 39,482 49,168
Goodwill, net of accumulated amortization of $21,826 and $18,705, respectively.. 108,124 116,348
Other intangibles, net of accumulated amortization of $18,827 and $17,843,
respectively.................................................................. 20,916 21,040
Other long-term assets.......................................................... 25,024 26,711
--------- ---------
Total Assets............................................................. $ 342,716 $ 416,981
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Short-term borrowings........................................................ $ 1,568 $ 1,259
Trade accounts payable....................................................... 39,798 43,455
Accrued compensation and benefits............................................ 10,655 16,365
Income taxes payable......................................................... 50,034 39,852
Other current liabilities.................................................... 32,134 25,312
--------- ---------
Total Current Liabilities................................................ 134,189 126,243
Long-term Debt.................................................................. 325,752 431,215
Deferred Income Taxes........................................................... 3,907 4,486
Other Deferred Liabilities...................................................... 18,622 17,992
Shareholders' Equity
Class A common stock, $0.20 par value per share, authorized 16,000,000 and
80,000,000 shares, issued and outstanding 8,013,306 and 39,614,551 shares,
respectively............................................................... 1,603 7,923
Additional paid-in capital................................................... (623,867) (632,050)
Retained earnings............................................................ 501,737 478,163
Accumulated other comprehensive income (loss)................................ (19,227) (16,991)
--------- ---------
Total Shareholders' Equity............................................... (139,754) (162,955)
--------- ---------
Total Liabilities and Shareholders' Equity............................... $ 342,716 $ 416,981
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended August 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Operating activities
Earnings from continuing operations................................. $ 24,355 $ 66,504 $ 34,580
Adjustments to reconcile earnings from continuing operations to cash
provided by operating activities of continuing operations:
Depreciation and amortization.................................... 18,915 22,550 26,056
Gain on sale of assets........................................... (267) -- (323)
Gain on sale of businesses, net.................................. (18,508) (48,010) --
Provision for deferred income taxes.............................. 1,107 324 1,803
Extraordinary loss on early extinguishment of debt............... -- 24,568 --
Other non-recurring items........................................ -- 1,924 4,694
Changes in components of working capital:
Accounts receivable.............................................. 28,268 (57,999) 5,005
Inventories...................................................... 11,150 (8,515) (17,664)
Prepaid expenses and other assets................................ 30,053 1,323 (5,207)
Trade accounts payable........................................... (4,523) 7,338 (2,236)
Other liabilities................................................ 4,593 7,908 (14,168)
--------- --------- ---------
Cash provided by continuing operations.............................. 95,143 17,915 32,540
Cash provided by discontinued operations............................ -- 43,360 119,483
--------- --------- ---------
Total cash provided by operating activities......................... 95,143 61,275 152,023
Investing activities
Proceeds on sale of property, plant and equipment................ 1,907 835 4,884
Additions to property, plant and equipment....................... (6,709) (11,441) (22,885)
Business acquisitions............................................ (11,250) -- (7,320)
Business and product line dispositions........................... 41,692 169,733 --
Proceeds from insurance recovery................................. 2,427 -- --
Net investing activities of discontinued operations.............. -- (52,510) (435,337)
--------- --------- ---------
Cash provided by (used in) investing activities.................. 28,067 106,617 (460,658)
Financing activities
Net principal (payments) borrowings on debt...................... (106,897) (85,240) 403,349
Debt financing costs and early extinguishment fees............... -- (33,899) --
Proceeds from sale/leaseback transactions........................ -- -- 6,293
Dividends paid on common stock................................... -- (1,789) (2,339)
Stock option exercises and other................................. 579 3,838 4,552
Net financing activities of discontinued operations.............. -- (66,175) (86,790)
--------- --------- ---------
Cash (used in) provided by financing activities.................. (106,318) (183,265) 325,065
Effect of exchange rate changes on cash............................. (234) (272) (521)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents................ 16,658 (15,645) 15,909
Effect of change in cash of discontinued operations................. -- 18,285 (13,722)
Cash and cash equivalents--beginning of year........................ 9,896 7,256 5,069
--------- --------- ---------
Cash and cash equivalents--end of year.............................. $ 26,554 $ 9,896 $ 7,256
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-5
ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Class A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Equity
------- ---------- -------- ------------- -------------
Balance at September 1, 1998................ $ 7,725 $ 5,817 $335,805 $ (7,465) $ 341,882
Net earnings............................. -- -- 79,397 -- 79,397
Currency translation adjustments......... -- -- -- (7,753) (7,753)
---------
Total comprehensive income........... 71,644
---------
Cash dividends........................... -- -- (2,339) -- (2,339)
Stock option exercises................... 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
Net earnings............................. -- -- 67,089 -- 67,089
Currency translation adjustments, net of
amounts transferred to APW Ltd......... -- -- -- (1,773) (1,773)
---------
Total comprehensive income........... 65,316
---------
Distribution of APW Ltd.................. -- (650,493) -- -- (650,493)
Cash dividends........................... -- -- (1,789) -- (1,789)
Stock option exercises................... 127 3,711 -- -- 3,838
Tax benefit of stock option exercises.... -- 2,344 -- -- 2,344
------- --------- -------- -------- ---------
Balance at August 31, 2000.................. 7,923 (632,050) 478,163 (16,991) (162,955)
Net earnings............................. -- -- 23,574 -- 23,574
Currency translation adjustments......... -- -- -- (2,590) (2,590)
Hedges of net investment in foreign
subsidiaries........................... -- -- -- 828 828
Additional minimum pension liability
adjustment, net of taxes............... -- -- -- (296) (296)
Fair value of interest rate swap, net of
taxes.................................. -- -- -- (178) (178)
---------
Total comprehensive income........... 21,338
---------
Restricted stock awards.................. -- 24 -- -- 24
Stock option exercises................... 30 549 -- -- 579
5-for-1 reverse stock split.............. (6,350) 6,350 -- -- --
Tax benefit of stock option exercises.... -- 1,260 -- -- 1,260
------- --------- -------- -------- ---------
Balance at August 31, 2001.................. $ 1,603 $(623,867) $501,737 $(19,227) $(139,754)
======= ========= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-6
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1. Summary of Significant Accounting Policies
Consolidation and Presentation: The consolidated financial statements
include the accounts of Actuant Corporation and its subsidiaries (''Applied
Power Inc.,'' ''Actuant,'' or the ''Company''). In these notes, Actuant refers
to Applied Power Inc. and its subsidiaries before the Distribution, as defined
in Note 2, "Distribution and Discontinued Operations," and Actuant Corporation
and its subsidiaries after the Distribution. On January 9, 2001, Applied Power
Inc. shareholders approved the change of the name of the Company to Actuant
Corporation. Actuant 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. All significant intercompany balances, transactions and profits have
been eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.
Inventory cost is determined using the last-in, first-out (''LIFO'') method for
a portion of U.S. owned inventory (approximately 62% and 70% of total
inventories in 2001 and 2000, 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 $7.1 million and $7.4 million at August 31,
2001 and 2000, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated on a straight-line method over the
estimated useful lives of the assets, ranging from two to thirty years. Capital
leases and leasehold improvements are amortized over the life of the related
asset or the life of the lease, whichever is shorter.
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 three to twenty-five 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. There were no impairment
charges recorded in fiscal 2001, 2000 or 1999.
Revenue Recognition: Revenue is recognized when title to the products being
sold transfers to the customer, which is generally upon shipment. The impact of
Staff Accounting Bulletin No. 101, ''Revenue Recognition in Financial
Statements'', did not have a material impact on the results of operations.
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 $2.2
million, $6.6 million and $8.0 million in fiscal 2001, 2000 and 1999,
respectively.
Financing Costs: Net financing costs represent interest expense, financing
fees, amortization of debt issuance costs and accounts receivable financing
costs, net of interest and investment income earned.
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.
F-7
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share: The following table sets forth the computation of basic
and diluted earnings per share. All share and related per share amounts have
been restated to reflect the reverse stock split.
Year Ended August 31,
------------------------
2001 2000 1999
------- ------- -------
Numerator:
Earnings from continuing operations........................................... $24,355 $28,045 $34,580
Earnings (loss) from discontinued operations.................................. (781) 585 44,817
Net extraordinary gain........................................................ -- 38,459 --
------- ------- -------
Net earnings.............................................................. $23,574 $67,089 $79,397
======= ======= =======
Denominator (in thousands):
Weighted average common shares outstanding for basic
earnings per share.......................................................... 7,950 7,822 7,765
Net effect of dilutive stock options based on the treasury stock method using
average market price........................................................ 355 240 275
------- ------- -------
Weighted average common and potentially issuable shares outstanding for
diluted earnings per share.................................................. 8,305 8,062 8,040
======= ======= =======
Basic Earnings Per Share:
Earnings from continuing operations per share................................. $ 3.06 $ 3.59 $ 4.45
Earnings (loss) from discontinued operations per share........................ (0.09) 0.07 5.77
Net extraordinary gain per share.............................................. -- 4.92 --
------- ------- -------
Net earnings per share.................................................... $ 2.97 $ 8.58 $ 10.22
======= ======= =======
Diluted Earnings Per Share:
Earnings from continuing operations per share................................. $ 2.93 $ 3.48 $ 4.30
Earnings (loss) from discontinued operations per share........................ (0.09) 0.07 5.57
Net extraordinary gain per share.............................................. -- 4.77 --
------- ------- -------
Net earnings per share.................................................... $ 2.84 $ 8.32 $ 9.87
======= ======= =======
Foreign Currency Translation: The financial statements of the Company's
foreign operations are translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and the average exchange
rate for each applicable period for revenues, expenses, and gains and losses.
Translation adjustments are reflected in the balance sheet caption
''Accumulated other comprehensive income (loss).'' Net (gains) losses resulting
from foreign currency transactions were $(1.2) million, $(0.7) million, and
$0.7 million in fiscal 2001, 2000 and 1999, respectively, and are recorded in
other (income) expense, net in the Consolidated Statements of Earnings.
Accounting for Derivatives and Hedging Activities: All derivatives are
recognized on the balance sheet at their fair value. On the date a derivative
contract is entered into, the Company designates the derivative as a hedge of a
recognized asset or liability (''fair value'' hedge), a hedge of a forecasted
transaction or of the variability of cash flows to be received or paid related
to a recognized asset or liability (''cash flow'' hedge), or a hedge of the net
investment in a foreign operations. The Company does not enter into derivatives
for speculative purposes. Changes in the fair value of a derivative that
qualify as a fair value hedge are recorded in earnings along with the gain or
loss on the hedged asset or liability. Changes in the fair value of a
derivative that qualify as a cash flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows. Changes in the fair value of a derivative used to hedge our net
investment in a foreign operation are recorded in the cumulative translation
adjustment accounts within equity.
At August 31, 2001 the Company was party to one interest rate swap contract
to convert a portion of its variable rate debt to a fixed rate.
F-8
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has significant investments in foreign subsidiaries, and the net
assets of these subsidiaries are exposed to currency exchange rate volatility.
During fiscal 2001, the Company utilized Euro denominated debt agreements,
entered into by the parent, to hedge its net investment in European
subsidiaries. Gains and losses on the net investments in subsidiaries are
offset by losses and gains in the Euro debt obligation of the parent. For the
fiscal year ended August 31, 2001, $0.8 million of net gains related to the
Euro denominated debt agreement were included in the cumulative translation
adjustment.
Fair Value of Financial Instruments: The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, short-term
borrowings and most of its long-term debt approximated book value as of August
31, 2001 and 2000 due to their short-term nature and the fact that the interest
rates approximated year-end market rates of interest. The fair value of the
Company's 13% Subordinated Notes at August 31, 2001 was estimated to be $207.5
million based on quoted market prices.
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. These
estimates and assumptions could also affect the disclosure of contingencies.
Actual results could differ from those estimates and assumptions.
New Accounting Pronouncements: In December 1999, the Securities and
Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." This bulletin summarizes
certain views of the SEC staff on applying generally accepted accounting
principles to revenue recognition in financial statements. The SEC staff
expressed its view that revenue is realized or realizable and earned when all
of the following criteria are met: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the seller's
price to the buyer is fixed or determinable; and collectibility is reasonably
assured. The adoption of SAB 101 in fiscal 2001 did not have a material effect
on the Company's financial statements.
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." This standard requires all
derivative instruments to be recorded in the balance sheet at fair value. The
change in fair value of a derivative is required to be recorded each period in
net earnings and other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and if so, the type of
hedge transaction. The adoption of SFAS No. 133 in fiscal 2001 did not have a
material effect on the Company's financial position or results of operations.
The Emerging Issues Task Force ("EITF") issued EITF No. 00-10, "Accounting
for Shipping and Handling Fees and Costs", which was adopted during fiscal
2001. The impact of adopting EITF No. 00-10 was to increase revenues and cost
of sales by approximately $8.8 million, $9.8 million, and $9.5 million in
fiscal 2001, 2000 and 1999, respectively. All amounts in the accompanying
Consolidated Statements of Earnings have been reclassified to reflect this
adoption.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interests method of
F-9
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting for business combinations with an acquisition date of July 1, 2001
or later. SFAS No. 142 prohibits the amortization of goodwill and other
intangible assets with indefinite lives and requires periodic reassessment of
the underlying value of such assets for impairment. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. An early adoption provision
exists for companies with fiscal years beginning after March 15, 2001. On
September 1, 2001, the Company adopted SFAS No. 142. Application of the
nonamortization provision of SFAS No. 142 is expected to result in an increase
in net income of approximately $3.2 million in fiscal 2002. The Company is
currently evaluating the impact of the transitional provisions of the statement.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the fiscal 2001 presentation.
Note 2. Distribution and Discontinued Operations
On January 27, 2000, Applied Power Inc.'s board of directors authorized
various actions to enable Applied Power Inc. to distribute its Electronics
segment ("APW Ltd.") to its shareholders (the "Distribution"). In the
Distribution, Applied Power Inc. shareholders received, in the form of a
special dividend, one share of APW Ltd. common stock for each Applied Power
Inc. common share. As a result, APW Ltd. became a separately traded, publicly
held company. The Distribution was approved by the board of directors on July
7, 2000 and shares of APW Ltd. were distributed to Applied Power Inc.
shareholders of record at July 21, 2000, effective July 31, 2000.
Accordingly, the consolidated financial statements and related notes have
been reclassified to reflect the Company's former Electronics segment as a
discontinued operation. Thus, the revenues, costs and expenses, 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
"Discontinued operations, net of income taxes." The net operating results of
the discontinued operations include financing costs related to the debt
allocated to the Electronics segment.
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 expense
to continuing and discontinued operations for periods prior to the Distribution
was based on relative debt levels assigned. In conjunction with the
Distribution, the majority of the Company's then existing credit facilities and
notes were replaced with new facilities and notes. There were no general
corporate expenses allocated to discontinued operations during the periods
presented.
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 would have been had the segment operated as a
stand-alone entity.
Eleven months Year ended
ended July 31, August 31,
2000 1999
-------------- ----------
Net sales........................................... $1,113,178 $1,055,338
========== ==========
Earnings before income tax expense.................. $ 70,867 $ 69,341
Income tax expense.................................. 68,199 24,524
Extraordinary loss, net of taxes.................... 2,083 --
---------- ----------
Earnings from operations of discontinued Electronics
segment, net of taxes............................. $ 585 $ 44,817
========== ==========
F-10
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In order to effect the Distribution, Applied Power Inc. and APW Ltd. entered
into a variety of agreements intended to define the ongoing relationship
between the parties after the Distribution. Applied Power Inc. and APW Ltd.
have established pricing terms for services believed to be comparable to what
could be achieved through arm's-length negotiations. In addition, APW Ltd. has
agreed through a tax sharing agreement to indemnify Actuant for various matters
including all federal and state income tax liabilities which may arise related
to the reorganization leading up to the Distribution. For tax periods ending on
or before the Distribution, the tax sharing agreement also provides that APW
Ltd. will be responsible for income taxes in excess of $1.0 million that arise
from audit adjustments by the IRS or other taxing authorities to the separate
taxable income of any APW Ltd. entity. In the event that APW Ltd. is unable to
fulfill its obligations under these indemnifications, there could be a
materially adverse impact to Actuant's financial position and results of
operations.
During fiscal year 2001, an $0.8 million loss was recorded in "Discontinued
operations, net of income taxes" to reflect a change in estimate for certain
Electronics segment liabilities assumed by the Company as part of the
Distribution.
Note 3. Acquisitions and Divestitures
Fiscal 2001
Acquisition
On March 1, 2001, the Company, through a wholly-owned subsidiary, acquired
certain assets and assumed certain liabilities of Dewald Manufacturing, Inc.
(''Dewald''). Dewald is engaged in the design and manufacture of recreational
vehicle (''RV'') slide out and leveling systems for the North American RV
market. The results of operations of Dewald are included in the accompanying
financial statements since the date of acquisition. The acquisition was
accounted for as a purchase, and the purchase price of $13.0 million (including
deferred purchase price of $1.8 million) was allocated to the fair value of the
assets acquired and the liabilities assumed. The excess purchase price over the
fair value of assets acquired, which approximates $8.3 million, was recorded as
goodwill and is being amortized over 20 years. This acquisition was funded by
borrowings under Actuant's senior secured credit facility.
Divestitures
In May 2001, the Company sold the Quick Mold Change (''QMC'') product line
in the Enerpac business to the QMC business management team for approximately
$1.0 million. QMC had annual sales of approximately $6.0 million. The sale
resulted in a loss of approximately $0.7 million, $0.4 million after-tax, or
$0.05 per diluted share which is recorded in ''Other (income) expense, net'' in
the Consolidated Statement of Earnings.
On August 27, 2001, the Company completed the sale of Mox-Med, Inc., a
business unit in the Engineered Solutions segment. Mox-Med had annual sales of
approximately $18.0 million. Cash proceeds from the sale were approximately
$40.5 million, which resulted in a net gain of $18.5 million, $11.1 after tax,
or $1.34 per diluted share. This gain is recorded in ''Loss (gain) on sale of
businesses'' in the Consolidated Statement of Earnings.
Fiscal 2000
Acquisition
On January 28, 2000, Applied Power Inc., 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 and was included in the Electronics segment of Applied
Power Inc. The purchase
F-11
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
price of this acquisition totaled $8.7 million. The acquisition was funded by
borrowings under Applied Power Inc.'s 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. Allocations of the purchase price resulted in approximately
$6.7 million of goodwill.
Divestitures
In May 2000, the Company completed the sale of certain assets including Air
Cargo Equipment Corporation (''ACE''), a business unit, to Teleflex
Incorporated. ACE had annual sales of approximately $22.0 million, and was
included in the Engineered Solutions segment prior to divestiture. The total
proceeds from the transaction, which was structured as both a sale of stock of
the Air Cargo Equipment Corporation and the sale of other assets, were $12.0
million. The ACE transaction resulted in a loss of $12.2 million, net of tax.
In June 2000, the Company 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/Industrial divisions, and its UK subsidiary Barry
Controls Ltd., were sold to Hutchison S.A. a subsidiary of the TotalFinaElf
Group, a French based multi-national corporation. Barry Wright Corporation had
annual sales of approximately $122.0 million. The cash proceeds were
approximately $157.5 million. The sale of Barry Wright Corporation resulted in
a gain of $65.4 million, net of tax.
Both the loss on ACE and the gain on the sale of Barry Wright Corporation
were reported as extraordinary items in the Consolidated Statements of Earnings
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 the
time of the pooling of interest and (iii) operations divested are material
based on the relative criteria.
In August 2000, the Company completed the sale of Norelem, S.A., a product
line in the Enerpac business which makes and distributes mechanical workholding
products. Norelem, S.A. had annual sales of approximately $8.0 million. The
cash proceeds were approximately $4.2 million and resulted in a pre-tax loss of
approximately $3.5 million. This loss is recorded in "Loss (gain) on sale of
businesses" in the Consolidated Statement of Earnings.
In November 1999, a wholly-owned subsidiary of the Company completed the
sale of the assets of Samuel Groves & Co. Ltd. Samuel Groves & Co. Ltd. had
annual sales of approximately $9.0 million. The cash proceeds were
approximately $3.0 million, which approximated the book value of such assets.
Fiscal 1999
Acquisitions
In fiscal 1999, the Electronics segment of Applied Power Inc. completed
numerous acquisitions. In September 1998, the outstanding common stock of
Rubicon Group plc ("Rubicon") was acquired for $371.5 million, with the
purchase price allocation resulting in $340.6 million of goodwill. In fiscal
1999, the outstanding stock of Innovative Metal Fabrication, Inc.
("Innovative"), certain assets of Connector Technology, Inc. ("CTI"), and the
outstanding shares of Ergun Kriko San Ticaret ("Ergun") were acquired. The
aggregate purchase price paid for the Innovative, CTI and Ergun acquisitions
totaled approximately $17.0 million, with the purchase price allocation
resulting in $10.9 million of goodwill. All of these acquisitions were
accounted for using the purchase method of accounting. Funds for the
acquisitions were provided through the existing credit facilities. The
operating results of Rubicon, Innovative, and CTI subsequent to the acquisition
dates are included in discontinued operations and the operating results of
Ergun subsequent to the acquisition date are included in earnings from
continuing operations in the Consolidated Statements of Earnings.
F-12
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Accounts Receivable Financing
During fiscal 2001, the Company established a new accounts receivable
securitization program whereby it sells certain of its trade accounts
receivable to a wholly-owned special purpose subsidiary which, in turn, sells
participating interests in its pool of receivables to a financial institution
(the "Purchaser"). The Purchaser receives an ownership and security interest in
the pool of receivables. Participation interests in new receivables are
purchased by the special purpose subsidiary and resold to the Purchaser as
collections reduce previously sold participation interests. The Company has
retained collection and administrative responsibilities on the participation
interests sold. The Purchaser has no recourse against the Company for
uncollectible receivables; however, the Company's retained interest in the
receivable pool is subordinate to the Purchaser. The Company's retained
interest in the receivable pool is recorded at fair value.
Prior to the Distribution, the Company utilized a similar trade accounts
receivable financing program. This arrangement was dissolved prior to the
Distribution; therefore, no accounts receivable financing program was in place
as of August 31, 2000.
Sales of trade receivables are reflected as a reduction of accounts
receivable in the accompanying Consolidated Balance Sheets and the proceeds
received are included in cash flows from operating activities in the
accompanying Consolidated Statements of Cash Flows. Trade receivables sold and
being serviced by the Company were $25.3 million and $0 at August 31, 2001 and
2000, respectively.
Accounts receivable financing costs of $0.9 million, $3.5 million, and $3.2
million for the years ended August 31, 2001, 2000 and 1999, respectively, are
included in net financing costs in the accompanying Consolidated Statements of
Earnings. Total cash proceeds under the trade accounts receivable financing
program were $64.4 million for the year ended August 31, 2001.
Note 5. 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 6. Restructuring and Other Non-recurring Items
Fiscal 2001
The Company adopted plans to restructure portions of its operations during
the fiscal third quarter of 2001. These plans are designed to reduce
administrative and operational costs and resulted in a charge of $1.7 million,
$1.0 million after-tax, or $0.13 per diluted share. Of the pre-tax charge, $0.3
million related to the consolidation of the RV slide production facilities,
$0.6 million related to downsizing the cable tie production facility, and $0.8
million related to other personnel reductions. The Company wrote down the fixed
assets at the locations to
F-13
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be closed or downsized to their fair value, less costs to sell, in the third
quarter. The Company expects net cash proceeds of approximately $0.5 million
from the ultimate disposal of these assets, which should be completed by the
third quarter of fiscal 2002. As a result of these plans, the Company either
has or will soon be terminating approximately 36 people.
A rollforward of the restructuring reserve recorded is shown in the
following table:
Fiscal 2001 Charged August 31, 2001
Restructuring Cash to Asset Restructuring
Charge Payments Accounts Reserve
------------- -------- -------- ---------------
Severance........ $ 822 $(640) $ -- $ 182
Exit Costs....... 820 -- -- 820
Asset Impairments 98 -- (98) --
------ ----- ---- ------
$1,740 $(640) $(98) $1,002
====== ===== ==== ======
In May 2001, the Company recorded a charge in "Other (income) expense, net"
of $1.5 million, $0.9 million after-tax, or $0.11 per diluted share, for the
net present value of future lease and holding costs on a building that had been
occupied by a former division. At the time the Company sold the divested
business in 1996, it received a five-year sub-lease with renewal options. Due
to a change in control at the parent company of the divested business, the
renewal option was not exercised. The Company was unsuccessful in subletting
the building during the third quarter.
In February 2001, one of the Company's leased facilities in Oldenzaal, The
Netherlands was damaged by fire. The fire damaged a portion of the building, as
well as certain inventory and property, plant and equipment contained therein.
Additionally, the fire temporarily impacted the shipment of product produced on
the truck cab-tilt production line that is housed in the damaged facility. The
Company is party to an insurance contract that is expected to cover the damaged
inventory and equipment as well as the business interruption resulting from the
fire. The costs incurred through August 31, 2001 and the net book value of lost
assets total $2.1 million. The Company received advance payments of $2.4
million from the insurance carrier during the year in partial settlement of the
insurance contract. Of the $2.4 million received, $1.1 million related to
recovery on fixed assets destroyed and the remaining $1.3 million related to
recovery of business interruption costs. A gain of $1.0 million, $0.6 million
after-tax, or $0.07 per diluted share, was recorded in "Other (income) expense,
net" to reflect the difference between the book value of the assets destroyed
and the minimum reimbursement received for such assets from the insurance
carrier. Approximately $0.7 million of costs associated with the fire loss are
recorded in other current assets at August 31, 2001 in the Condensed
Consolidated Balance Sheet, which represents amounts expected to be recovered
from our insurance carrier. Future insurance recoveries under our insurance
contract are probable, and will be recorded net of additional costs associated
with the fire, when estimable.
Fiscal 2000
In fiscal 2000, the Company recorded $12.4 million of fees and expenses
associated with the Distribution. Such legal, accounting, tax and investment
banking fees and expenses are reported under the caption ''Corporate
reorganization expense'' in the Consolidated Statements of Earnings.
In fiscal 2000, the Company recorded a $6.6 million gain related to the
unwinding of interest rate swap agreements. The interest rate swap agreements
were unwound due to the anticipated spin-off of the Electronics business. Gains
relating to terminations of qualifying hedges were deferred and recognized in
income at the same
F-14
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
time as the underlying hedged transactions. As of August 31, 2000, no deferred
gain remained. These gains are included in the Consolidated Statements of
Earnings as a reduction to "Net financing costs" and as a component of
"Discontinued operations, net of income taxes ."
In the fourth quarter of fiscal 2000, the Company approved a plan to sell
product lines within its Tools & Supplies segment. The Company recorded a total
charge of approximately $1.9 million to reduce the carrying amounts of these
assets to estimated net realizable value. This charge is included in the
Consolidated Statements of Earnings as a component of "Other (income) expense,
net."
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
Engineered Solutions segment. The majority of these costs were incurred prior
to fiscal 1999. In the first quarter of fiscal 2000, the Company recovered $1.4
million of the estimated loss.
Note 7. Debt
The Company's indebtedness at the end of its two most recently completed
fiscal years was as follows:
August 31,
------------------
2001 2000
-------- --------
Senior secured credit agreement
Revolving credit borrowings..................... $ 13,250 $ --
Tranche A term loans............................ 10,376 109,447
Tranche B term loans............................ 90,487 123,853
-------- --------
Sub-total--senior secured credit agreement.... 114,113 233,300
Senior subordinated notes, due 2009 ("13% Notes") 200,000 200,000
Less: discount................................... (2,322) (2,625)
-------- --------
Senior subordinated notes, net of discount...... 197,678 197,375
Euro term loan................................... 13,675 --
Other............................................ 286 540
-------- --------
Total long-term debt.......................... $325,752 $431,215
======== ========
In January 2000, the Company retired senior promissory notes due March 8,
2011 in anticipation of the Distribution. The Company paid a $3.3 million
make-whole premium ($2.1 million net of tax), in connection with this early
retirement of debt. This premium and related costs are included in discontinued
operations in the Consolidated Statement of Earnings.
Immediately prior to the Distribution, all borrowings outstanding under a
multi-currency revolving credit agreement, senior subordinated notes due in
2009, and a commercial paper program were repaid with proceeds from a new APW
Ltd. credit facility, Actuant's 13% Notes and Actuant's new senior secured
credit agreement (the "Senior Credit Agreement"). APW Ltd. retained the
remainder of the outstanding debt in the Distribution. In conjunction with the
refinancing, the Company recorded a $14.7 million extraordinary loss ($24.6
million, net of $9.9 million of related tax benefits) for the make-whole
payment required to tender the senior subordinated notes due in 2009, tender
costs and the write-off of non-amortized capitalized debt issuance costs
attributable to the retired debt.
F-15
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following the Distribution, Actuant's only long-term debt consisted of
borrowings under 1) the Senior Credit Agreement, 2) the 13% Notes and 3) $540
of other notes.
The Company initially borrowed $252.6 million under the Senior Credit
Agreement, consisting of $115.0 million of Tranche A Term loans ("Term Loan
A"), $125.0 million of Tranche B Term loans ("Term Loan B") and $12.6 million
of a $100.0 million revolving credit line (the "Revolver"). The equivalent of
$30.0 million of Term Loan A was initially borrowed in Euro, with the remainder
of Senior Credit Agreement borrowings being U.S. Dollar denominated
obligations. Both the Revolver and Term Loan A have a term of six years, and
can be prepaid at any time without premium or penalty. Principal installments
are payable quarterly on Term Loan A. Interest accrues on the Revolver and Term
Loan A at floating rates ranging from LIBOR (or EURIBOR in the case of Euro
denominated borrowings) plus 1.50-3.00%, depending on the Company's leverage
ratio. At August 31, 2001, such borrowings were at interest rates ranging from
6.33% to 7.70%, which represented LIBOR plus 2.75%. Term Loan B has a term of 8
years, and can also be prepaid at any time without premium or penalty. Modest
principal installments are payable quarterly on Term Loan B for the first six
years, followed by larger installment requirements in the final two years.
Interest accrues on Term Loan B at floating rates ranging from LIBOR plus
3.50-4.00%, depending on the Company's leverage ratio. At August 31, 2001, Term
Loan B borrowings were at interest rates ranging from 7.48% to 8.70%, which
represented LIBOR plus 3.75%.
A non-use fee, currently computed at a rate of 0.50% annually, is payable
quarterly on the average unused Revolver credit line. The unused Revolver
credit line at August 31, 2001 was approximately $86.8 million. Of this amount,
approximately $51 million was available for borrowing based on the Senior
Credit Agreement limits of 4.5 times the Company's earnings before interest,
income taxes, depreciation and amortization for the preceding four quarters.
The Senior Credit Agreement contains customary limits and restrictions
concerning investments, sales of assets, liens on assets, interest and fixed
cost coverage ratios, maximum leverage, capital expenditures, acquisitions,
excess cash flow, dividends and other restricted payments. The Senior Credit
Agreement is secured by substantially all domestic assets of the Company and
its domestic subsidiaries and a pledge of 66% of the stock of certain foreign
subsidiaries. As of August 31, 2001, the Company was in compliance with all
debt covenants.
Effective November 2000, a wholly-owned subsidiary of the Company entered
into an unsecured financing arrangement which provides up to a maximum of Euro
20.0 million in borrowings. The facility includes a Euro 15.0 million term loan
and a Euro 5.0 million working capital facility. The term loan has a term of 7
years, and is payable in ten semi-annual installments beginning January 2003.
Proceeds from the Euro 15.0 million term loan were used to reduce indebtedness
under the Senior Credit Agreement. The term loan borrowing accrues interest at
EURIBOR plus 1.10%, or 5.56% at August 31, 2001. No borrowings have been made
under the working capital facility since its inception.
Actuant's 13% Notes were issued at a price of 98.675% on July 31, 2000. The
discount is being amortized over the term of the notes, which mature in May
2009. The 13% Notes carry a fixed 13.0% rate of interest, which is paid on
November 1 and May 1 annually, and are U.S. Dollar denominated. There are no
required principal payments on the 13% Notes. The Company has the right to
redeem at 113% up to 35% of the 13% Notes prior to May 1, 2003 with the
proceeds from a public equity offering. Further, the Company has the right to
redeem all or a portion of the 13% Notes at certain specified redemption prices
on or after May 1, 2007. The 13% Notes are unsecured obligations of the
Company, and are subordinate in right of payment to the prior payment in full
of all senior debt as defined in the indenture. In conjunction with the
issuance of the 13% Notes, a number of the Company's domestic subsidiaries have
provided unconditional guarantees for their payment.
F-16
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-term Debt: Short-term debt outstanding at August 31, 2001 consisted
of foreign subsidiary overdraft borrowings. Certain of the Company's foreign
subsidiaries are a party to unsecured non-committed lines of credit with
various banks. Interest rates vary depending on the currency being borrowed.
Aggregate Maturities: Long-term debt outstanding at August 31, 2001 is
payable as follows:
Year Ended August 31,
---------------------
2002............ $ -- million
2003............ $ 5.2 million
2004............ $ 8.8 million
2005............ $ 9.4 million
2006............ $ 3.9 million
Thereafter...... $ 298.5 million
There are no mandatory payments due in fiscal 2002.
The Company paid $40.9 million, $67.2 million, and $61.5 million for
interest costs in fiscal 2001, 2000 and 1999, respectively, which included both
continuing and discontinued operations.
Note 8. 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 in effect at August
31, 2001 are as follows: $6.8 million in fiscal 2002; $5.8 million in fiscal
2003; $4.8 million in fiscal 2004; $3.2 million in fiscal 2005; $2.5 million in
fiscal 2006; and $8.4 million thereafter.
Total rental expense under operating leases related to the continuing
businesses was $7.3 million, $9.1 million, and $11.5 million in fiscal 2001,
2000 and 1999, respectively.
The Company's policy is to not enter into capital leases.
Note 9. Shareholders' Equity
The authorized capital stock of the Company as of August 31, 2001 consisted
of 16,000,000 shares of Class A Common Stock, $0.20 par value, of which
8,013,306 shares were issued and outstanding; 1,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued and outstanding; and
160,000 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 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.
F-17
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 9, 2001, the Company's board of directors authorized and the
shareholders approved a reverse stock split effective January 25, 2001, whereby
every five shares of Common Stock were converted into one share of Common
Stock. In addition, the shareholders approved a reduction in the authorized
Class A common shares from 80 million to 16 million with a similar reduction
for other capital stock. Unless otherwise indicated, 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 reverse stock split.
Note 10. Stock Plans
At the date of the Distribution, all stock options outstanding were adjusted
such that employees and directors received options only in the company for
which they worked. The number of shares subject to these options, as well as
their exercise prices, were adjusted so that the options outstanding
immediately after the Distribution had equivalent economic terms to the options
immediately before the Distribution.
Employee Plans: On January 9, 2001, shareholders of the Company approved
the adoption of the Actuant Corporation 2001 Stock Plan (the ''2001 Plan'').
Previously, the Company had two nonqualified stock option plans for
employees--the 1990 and 1996 plans. No further options may be granted under the
1990 or 1996 plans, although options previously issued and outstanding under
these plans remain exercisable pursuant to the provisions of the plans. Under
the terms of the 2001 Plan, stock options may be granted to officers and key
employees. At August 31, 2001, a total of 400,000 shares of Class A Common
Stock were authorized for issuance under the 2001 Plan, none of which have been
issued through exercises of option grants. At August 31, 2001, 400,000 shares
were reserved for issuance under the 2001 Plan, consisting of 150,200 shares
subject to outstanding options and 249,800 shares available for further grants.
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.
The following table reflects the status and activity for the stock options
issued under the employee stock option plans. The number of shares and share
prices presented prior to the Distribution and reverse stock split have not
been adjusted to reflect the effect of the Distribution or the reverse stock
split.
Number of Weighted Average
Shares Exercise Price
---------- ----------------
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
Granted............................ 1,703,133 13.66
Exercised.......................... (647,588) 6.30
Cancelled.......................... (168,311) 25.08
Adjustment due to Distribution..... 1,267,816
----------
Outstanding at August 31, 2000........ 4,640,340 2.25
Adjustment for reverse stock split. (3,710,582) 11.25
Granted............................ 96,800 17.81
Exercised.......................... (67,743) 6.65
Cancelled.......................... (55,960) 11.86
----------
Outstanding at August 31, 2001........ 902,855 12.27
Exercisable at August 31, 2001........ 420,140 9.35
F-18
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning stock options
outstanding at August 31, 2001:
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
August 31, Remaining Average August 31, Average
2001 Number Contractual Exercise 2001 Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ----------- -------- ----------- --------
$3.01-6.83 245,180 4.08 $ 5.68 184,860 $ 5.31
$10.66-11.31 180,900 7.29 $10.73 78,200 $10.66
$12.16-13.67 84,408 6.81 $12.44 32,280 $12.17
$13.80 124,800 6.45 $13.80 124,800 $13.80
$18.59 267,567 9.06 $18.59 0 0
------- -------
$3.01-18.59 902,855 6.78 $12.27 420,140 $ 9.35
======= =======
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. 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:
As Reported Pro Forma
Year ended August 31, Year ended August 31,
----------------------- -----------------------
2001 2000 1999 2001 2000 1999
- - ------- ------- ------- ------- ------- -------
Earnings from continuing operations............ $24,355 $28,045 $34,580 $23,903 $28,000 $33,164
Basic earnings from continuing operations per
share........................................ $ 3.06 $ 3.59 $ 4.45 $ 3.01 $ 3.58 $ 4.27
Diluted earnings from continuing operations per
share........................................ $ 2.93 $ 3.48 $ 4.30 $ 2.88 $ 3.47 $ 4.12
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 generally made each year.
The fair value of the Company's stock options used to calculate the
preceding pro forma earnings and pro forma earnings per share amounts 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
2001, 2000 and 1999 are $8.58, $1.07, and $10.37, respectively. The increase in
the fiscal 2001 and decrease in the fiscal 2000 weighted-average fair value per
share of options are due to the adjustments resulting from the reverse stock
split and the Distribution, respectively. The following weighted-average
assumptions were used in completing the model:
Year ended August 31,
-----------------------------
2001 2000 1999
- --------- --------- ---------
Dividend yield.......... 0.00% 0.00% 0.20%
Expected volatility..... 47.27% 40.30% 31.90%
Risk-free rate of return 4.60% 5.60% 6.40%
Expected life........... 5.3 years 5.3 years 4.7 years
F-19
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Outside Director Plan: On January 9, 2001, shareholders of the Company
approved the Actuant Corporation 2001 Outside Directors' Stock Option Plan (the
''Director Plan'') for the board of directors. Previously, the Company had
other nonqualified stock option plans for the board of directors. However, no
further options may be granted under these older plans, although options
previously issued and outstanding under these plans remain exercisable pursuant
to the provisions of the plans. At August 31, 2001, a total of 70,000 shares of
Class A Common Stock were authorized for issuance under the Director Plan, none
of which have been issued through exercises of option grants. At August 31,
2001, 70,000 shares were reserved for issuance under the Director Plan,
consisting of 15,000 shares subject to outstanding options and 55,000 shares
available for further grants. Director stock options vest eleven months after
date of grant and expire ten years from the option grant date. The options have
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. The following table reflects the
status and activity for the stock options issued under the Director Plan. The
number of shares and share prices presented prior to the Distribution and
reverse stock split have not been adjusted to reflect the effect of the
Distribution and reverse stock split.
Weighted
Average
Number of Exercise
Shares Price
- --------- --------
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
Granted............................ 15,000 33.84
Adjustment due to Distribution..... 338,000
--------
Outstanding at August 31, 2000........ 416,000 2.04
Adjustment for reverse stock split. (332,800) 10.20
Granted............................ 18,000 18.59
Exercised.......................... (23,400) 5.48
Canceled........................... (3,000) 18.59
--------
Outstanding at August 31, 2001........ 74,800 13.34
Exercisable at August 31, 2001........ 59,800 12.02
F-20
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. 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 it acquired 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:
Other
Defined Benefit Postretirement
Pension Plan Benefits
---------------- ----------------
Year ended Year ended
August 31, August 31,
---------------- ----------------
2001 2000 2001 2000
- - ------- ------- ------- -------
Reconciliation of benefit obligations:
Benefit obligation at beginning of year............... $11,111 $11,097 $ 6,468 $ 5,872
Service cost.......................................... -- 52 14 15
Interest cost......................................... 837 844 481 436
Actuarial loss/(gain)................................. 720 (323) 623 659
Benefits paid......................................... (641) (559) (506) (514)
------- ------- ------- -------
Benefit obligation at end of year.................. $12,027 $11,111 $ 7,080 $ 6,468
======= ======= ======= =======
Reconciliation of plan assets:
Fair value of plan assets at beginning of year........ $13,655 $12,324 $ -- $ --
Actual return on plan assets.......................... (1,413) 1,813 -- --
Benefits paid from plan assets........................ (564) (482) -- --
------- ------- ------- -------
Fair value of plan assets at end of year........... $11,678 $13,655 $ -- $ --
======= ======= ======= =======
Development of net amount recognized:
Overfunded (Unfunded) status of the plans............. $ (349) $ 2,544 $(7,080) $(6,468)
Unrecognized net loss/(gain).......................... 2,564 (664) (1,197) (1,952)
------- ------- ------- -------
Prepaid (accrued) benefit cost........................ $ 2,215 $ 1,880 $(8,277) $(8,420)
======= ======= ======= =======
Amounts recognized in the Consolidated Balance Sheets:
Prepaid benefit cost.................................. $ 1,722 $ 1,880 $ -- $ --
Accrued benefit cost.................................. -- -- (8,277) (8,420)
Accumulated other comprehensive income................ 296 -- -- --
Deferred income taxes................................. 197 -- -- --
------- ------- ------- -------
$ 2,215 $ 1,880 $(8,277) $(8,420)
======= ======= ======= =======
Weighted-average assumptions as of August 31:
Discount rate......................................... 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets........................ 8.50% 8.50%
Rate of compensation increase......................... Frozen Frozen
F-21
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Postretirement
Pension Benefits Benefits
------------------------- --------------------
Year ended August 31, Year ended August 31,
------------------------- --------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ----- ----- ------
Components of net periodic benefit cost:
Service cost............................ $ -- $ 52 $ 81 $ 14 $ 15 $ 19
Interest cost........................... 837 844 787 482 436 354
Expected return on assets............... (1,095) (1,060) (1,064) -- -- --
Amortization of actuarial (gain)/loss... -- -- 1 (131) (218) (294)
------- ------- ------- ----- ----- ------
Benefit cost (credit)................ $ (258) $ (164) $ (195) $ 365 $ 233 $ 79
======= ======= ======= ===== ===== ======
At August 31, 2001, the defined benefit pension plans consisted of three
plans covering certain employees and executives of a business acquired in 1997.
On March 31, 1999, the Hourly Plan was merged into the Salaried Plan, resulting
in no change to the aggregate funding status of the two plans. Trust assets
consist primarily of participating units in common stock and bond funds.
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 postretirement 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. The accounting for retiree health care benefits assumes
retirees will continue to contribute toward the cost of such benefits. Retirees
currently do not contribute toward the cost of life insurance.
The health care cost trend rate used in the actuarial calculations was 8.7%,
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: The Company maintains an Employee Stock
Ownership Plan for eligible U.S. employees (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 for
company contributions and allocates such shares to accounts set aside for each
employees' retirement. 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 employee's first 6% earnings.
In conjunction with the Distribution, the 401(k) Plan was split into two
plans. Effective July 31, 2000, balances of APW Ltd. employee accounts were
transferred into a new plan which provisions mirrored the 401(k) Plan in all
material respects. Provisions under the 401(k) Plan remained unchanged after
the Distribution.
During the years ended August 31, 2001, 2000 and 1999, Company contributions
to defined contribution benefit plans relating to continuing operations were
approximately $2.2 million, $2.4 million and $3.3 million, respectively.
Non-U.S. Benefit Plans: The Company contributes to a number of retirement
programs, primarily government mandated, for employees outside the United
States. Benefit expense under these programs amounted to approximately $0.6
million, $0.8 million and $1.1 million in fiscal 2001, 2000 and 1999,
respectively.
F-22
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Income Taxes
Income tax expense for continuing operations before extraordinary items is
summarized below:
Year ended August 31,
------------------------
2001 2000 1999
------- ------- -------
Currently payable:
Federal........ $ 7,434 $11,848 $12,096
Foreign........ 6,855 5,468 6,348
State.......... 1,021 1,848 2,583
------- ------- -------
Subtotals......... 15,310 19,164 21,027
------- ------- -------
Deferred:
Federal........ 1,216 273 607
Foreign........ (48) 8 1,823
State.......... (61) 43 (627)
------- ------- -------
Subtotals......... 1,107 324 1,803
------- ------- -------
Income tax expense $16,417 $19,488 $22,830
======= ======= =======
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 Federal statutory rate to the effective tax rate for
continuing operations follows:
Year ended August 31,
--------------------
% of Pre-tax Earnings 2001 2000 1999
--------------------- ---- ---- ----
Federal statutory rate........................ 35.0% 35.0% 35.0%
State income taxes, net of Federal effect..... 1.6 2.6 2.2
Non-deductible amortization and other expenses 2.7 6.6 2.9
Net effects of foreign tax rates and credits.. (0.8) (2.8) (1.5)
Other items................................... 1.8 (0.4) 1.2
---- ---- ----
Effective tax rate............................ 40.3% 41.0% 39.8%
==== ==== ====
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities for continuing operations included the following items:
Year ended August 31,
--------------------
2001 2000
- ------- -------
Deferred income tax assets:
Operating loss and state tax credit carryforwards. $ 5,358 $ 6,091
Compensation and other employee benefits.......... 5,216 5,506
Inventory items................................... 2,643 2,015
Restructuring expenses............................ 1,546 1,367
Deferred income................................... 1,439 1,783
Book reserves and other items..................... 5,728 4,860
------- -------
Total deferred income tax assets.............. 21,930 21,622
Valuation allowance............................... (5,358) (6,091)
------- -------
Net deferred income tax assets................ 16,572 15,531
------- -------
Deferred income tax liabilities:
Depreciation and amortization..................... 11,171 11,695
Other items....................................... 3,475 3,780
------- -------
Deferred income tax liabilities............... 14,646 15,475
------- -------
Net deferred income tax....................... $ 1,926 $ 56
======= =======
F-23
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The valuation allowance primarily represents a reserve for foreign and state
operating loss carryforwards for which utilization is uncertain. The majority
of the foreign losses may be carried forward indefinitely. The state loss
carryforwards expire in various years through 2016.
Income taxes paid for both continuing and discontinued operations during
fiscal 2001, 2000 and 1999 were $3.9 million, $25.9 million, and $37.2 million,
respectively.
The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the United
States. Accordingly, the Company does not currently provide for the additional
United States 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 $36.2 million at August 31, 2001. If
all such undistributed earnings were remitted, an additional provision for
income taxes of approximately $2.7 million would have been necessary as of
August 31, 2001.
Earnings from continuing operations before income taxes from non-United
States operations were $19.6 million, $17.0 million and $24.5 million for
fiscal 2001, 2000 and 1999, respectively.
Note 13. Business Segment, Geographic and Customer Information
The Company has two reportable segments: Tools & Supplies and Engineered
Solutions, with separate and distinct operating management and strategies. The
Tools & Supplies segment is primarily involved in the design, manufacture and
distribution of tools and supplies to the construction, electrical wholesale,
retail do-it-yourself, industrial and production automation markets. The
Engineered Solutions segment focuses on developing and marketing value-added,
customized motion control systems for original equipment manufacturers in the
recreational vehicle, automotive, truck, and industrial markets. We have not
aggregated individual operating segments within these reportable segments. The
accounting policies of the segments are the same as described in Note 1,
"Summary of Significant Accounting Policies." We evaluate segment performance
based primarily on earnings before interest, taxes, depreciation, and
amortization less a net asset carrying charge.
F-24
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize financial information from continuing
operations by reportable segment. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
merger, restructuring and other non-recurring items discussed in Note 6,
"Restructuring and Other Non-recurring Items." Earnings (Loss) from Continuing
Operations before Income Tax Expense for each reportable segment and geographic
region does not include general corporate expenses, interest expense or
currency exchange adjustments.
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net Sales:
Tools & Supplies.............................. $281,223 $312,310 $317,942
Engineered Solutions.......................... 200,716 369,133 387,259
-------- -------- --------
Totals.................................... $481,939 $681,443 $705,201
======== ======== ========
Earnings (Loss) from Continuing Operations before
Income Tax Expense:
Tools & Supplies.............................. $ 38,860 $ 36,150 $ 31,210
Engineered Solutions.......................... 20,543 53,529 35,547
General corporate and other................... (18,631) (42,146) (9,347)
-------- -------- --------
Totals.................................... $ 40,772 $ 47,533 $ 57,410
======== ======== ========
Depreciation and Amortization:
Tools & Supplies.............................. $ 9,210 $ 9,733 $ 9,718
Engineered Solutions.......................... 6,696 12,043 15,954
General corporate and other................... 3,009 774 384
-------- -------- --------
Totals.................................... $ 18,915 $ 22,550 $ 26,056
======== ======== ========
Capital Expenditures:
Tools & Supplies.............................. $ 3,169 $ 6,103 $ 9,127
Engineered Solutions.......................... 3,345 4,787 9,890
General corporate and other................... 195 551 3,868
-------- -------- --------
Totals.................................... $ 6,709 $ 11,441 $ 22,885
======== ======== ========
August 31,
-----------------
2001 2000
-------- --------
Assets:
Tools & Supplies............ $162,682 $209,000
Engineered Solutions........ 124,490 130,893
General corporate and other. 55,544 77,088
-------- --------
Totals.................. $342,716 $416,981
======== ========
F-25
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize financial information from continuing
operations by geographic region. The information for Earnings (Loss) from
Continuing Operations before Income Tax Expense includes the effects of the
restructuring and other non-recurring items discussed in Note 6, "Restructuring
and Other Non-recurring Items."
Year Ended August 31,
----------------------------
2001 2000 1999
-------- -------- --------
Net Sales:
North America..................................................... $329,266 $463,837 $476,766
Europe............................................................ 118,830 177,165 191,113
Asia Pacific...................................................... 25,041 30,019 27,116
Latin America..................................................... 8,802 10,422 10,206
-------- -------- --------
Totals......................................................... $481,939 $681,443 $705,201
======== ======== ========
Earnings (Loss) from Continuing Operations Before Income Tax Expense:
North America..................................................... $ 37,835 $ 66,743 $ 41,029
Europe............................................................ 17,852 19,145 24,053
Asia Pacific...................................................... 3,606 2,580 (203)
Latin America..................................................... 110 1,211 1,878
General corporate and other....................................... (18,631) (42,146) (9,347)
-------- -------- --------
Totals......................................................... $ 40,772 $ 47,533 $ 57,410
======== ======== ========
August 31,
-----------------
2001 2000
-------- --------
Assets:
North America............... $221,123 $268,020
Europe...................... 47,044 46,574
Asia Pacific................ 14,768 19,676
Latin America............... 4,237 5,623
General corporate and other. 55,544 77,088
-------- --------
Totals................... $342,716 $416,981
======== ========
Corporate assets, which are not allocated, represent principally cash,
capitalized debt issuance costs, and deferred income taxes, and at August 31,
2001 and 2000, a $10.0 million and $40.9 million receivable due from APW Ltd.,
respectively. See Note 14, "Contingencies and Litigation" for more information.
The Company's largest customer accounted for 4.5%, 4.7%, and 4.7% of its
sales in fiscal 2001, 2000 and 1999, respectively. Export sales from domestic
operations were less than 10% of total net sales in each of the periods
presented.
Note 14. Contingencies and Litigation
The Company had outstanding letters of credit of $8.3 million and $9.3
million at August 31, 2001 and 2000, respectively. The letters of credit
generally serve as collateral for liabilities included in the Consolidated
Balance Sheets and indemnification obligations relating to divested businesses.
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-26
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has facilities in numerous geographic locations that are subject
to a range of environmental laws and regulations. Environmental costs that have
no future economic value are expensed. Liabilities are recorded when
environmental remediation is probable and the costs are reasonably estimable.
Environmental expenditures over the last three years have not been material.
Management believes 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 of $2.1 million were included in the
Consolidated Balance Sheets at both August 31, 2001 and 2000.
On August 9, 2000, Actuant's board of directors approved an executive stock
purchase plan (the "Executive Stock Purchase Plan") to assist the Company's
executive officers in meeting their Actuant stock ownership requirements. Under
terms of the Executive Stock Purchase Plan, eligible officers may borrow funds
of up to four times their respective base salaries under a company-arranged
loan program for the sole purpose of acquiring Actuant common stock on the open
market. Full recourse loans under the program are made between a domestic
financial institution and the executive officer. The Company has provided a
guarantee to the financial institution in the amount of the aggregate
outstanding loan balance. It also reimburses participants for cash interest
paid on such loans in excess of 4.0%. At August 31, 2001, the aggregate amount
of officer loans under the program that were guaranteed by the Company was $4.2
million, at an average cost of 8.1%. Expense recognized by the Company during
fiscal 2001 related to its share of the interest was $0.2 million. Generally,
the executive retains the risk of any market gain or loss on the shares
purchased. If the purchased shares are sold four years or longer after their
purchase, the Company has agreed to reimburse 50% of any realized loss on the
sale. At August 31, 2001 and 2000, no purchased shares had a fair market value
below their underlying cost basis.
As discussed in Note 2, "Distribution and Discontinued Operations," APW Ltd.
has agreed to indemnify the Company for certain contingencies related to the
reorganization and Distribution.
Note 15. Guarantor Condensed Financial Statements
In connection with the Distribution, Actuant issued senior subordinated
notes due 2009. All of our material domestic wholly-owned subsidiaries (the
''Guarantors'') fully and unconditionally guarantee the notes on a joint and
several basis. We believe separate financial statements and other disclosures
concerning each of the Guarantors would not provide additional information that
is material to investors. Therefore, the Guarantors are combined in the
presentation below. There are no significant restrictions on the ability of the
Guarantors to make distributions to Actuant. The following tables present the
results of operations, financial position and cash flows of Actuant Corporation
and its subsidiaries, the Guarantor and Non-Guarantor entities, and the
eliminations necessary to arrive at the information for the Company on a
consolidated basis.
General corporate expenses have not been allocated to subsidiaries, and are
all included under the Actuant Corporation heading. As a matter of course, the
Company retains certain assets and liabilities at the corporate level (Actuant
Corporation column in the following tables) which are not allocated to
subsidiaries including, but not limited to, certain employee benefit,
insurance, financing, and tax liabilities. Income tax provisions for domestic
Actuant Corporation 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
historically been, and continues to be, carried at the corporate level and is
therefore included in the Actuant Corporation column in the following tables.
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 Actuant.
F-27
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Year Ended August 31, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales................................... $ 77,869 $247,505 $156,565 $ -- $481,939
Cost of products sold....................... 42,055 168,396 102,579 -- 313,030
-------- -------- -------- -------- --------
Gross profit............................. 35,814 79,109 53,986 -- 168,909
Operating expenses.......................... 27,825 36,944 25,956 -- 90,725
Amortization of intangible assets........... 9 5,944 283 -- 6,236
-------- -------- -------- -------- --------
Operating earnings....................... 7,980 36,221 27,747 -- 71,948
Other expense (income):
Intercompany activity, net............... (7,346) 5,428 2,105 (187) --
Net financing costs...................... 47,741 244 1,214 -- 49,199
Loss (gain) on sale of businesses........ -- -- (38,686) 20,178 (18,508)
Other (income) expense, net.............. (425) 22 888 -- 485
-------- -------- -------- -------- --------
(Loss) Earnings from continuing operations
before income tax (benefit) expense....... (31,990) 30,527 62,226 (19,991) 40,772
Income tax (benefit) expense................ (9,123) 10,870 14,670 -- 16,417
-------- -------- -------- -------- --------
(Loss) Earnings from continuing operations.. (22,867) 19,657 47,556 (19,991) 24,355
Discontinued operations, net of income taxes (781) -- -- -- (781)
-------- -------- -------- -------- --------
Net (loss) earnings......................... $(23,648) $ 19,657 $ 47,556 $(19,991) $ 23,574
======== ======== ======== ======== ========
F-28
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Year Ended August 31, 2000
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales...................................... $ 86,076 $267,830 $327,537 $ -- $681,443
Cost of products sold.......................... 50,802 177,090 211,385 -- 439,277
--------- -------- -------- -------- --------
Gross profit................................ 35,274 90,740 116,152 -- 242,166
Operating expenses............................. 39,571 38,068 67,340 -- 144,979
Amortization of intangible assets.............. 9 5,851 1,670 -- 7,530
--------- -------- -------- -------- --------
Operating (loss) earnings................... (4,306) 46,821 47,142 -- 89,657
Other expense (income):
Intercompany activity, net.................. 45,540 (29,333) 4,433 (20,640) --
Net financing costs......................... 106,520 (70,091) 1,241 -- 37,670
Loss (gain) on sale of businesses........... -- -- 3,467 -- 3,467
Other (income) expense, net................. (186) 1,743 (570) -- 987
--------- -------- -------- -------- --------
(Loss) Earnings from continuing operations
before income tax (benefit) expense.......... (156,180) 144,502 38,571 20,640 47,533
Income tax (benefit) expense................... (14,656) 29,791 4,391 (38) 19,488
--------- -------- -------- -------- --------
(Loss) Earnings from continuing operations..... (141,524) 114,711 34,180 20,678 28,045
Discontinued operations, net of taxes.......... -- -- 585 -- 585
Extraordinary gain (loss), net of income taxes:
Early extinguishment of debt................ (14,708) -- -- -- (14,708)
Sale of subsidiaries........................ 65,353 -- (12,186) -- 53,167
--------- -------- -------- -------- --------
Net extraordinary gain.................. 50,645 -- (12,186) -- 38,459
--------- -------- -------- -------- --------
Net (loss) earnings............................ $ (90,879) $114,711 $ 22,579 $ 20,678 $ 67,089
========= ======== ======== ======== ========
Year Ended August 31, 1999
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales................................. $ 88,095 $260,922 $356,184 $ -- $705,201
Cost of products sold..................... 53,512 171,586 227,419 -- 452,517
-------- -------- -------- -------- --------
Gross profit........................... 34,583 89,336 128,765 -- 252,684
Operating 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
-------- -------- -------- -------- --------
(Loss) Earnings from continuing operations (26,824) 45,379 38,732 (22,707) 34,580
Discontinued operations, net of taxes..... -- -- 44,817 -- 44,817
-------- -------- -------- -------- --------
Net (loss) earnings....................... $(26,824) $ 45,379 $ 83,549 $(22,707) $ 79,397
======== ======== ======== ======== ========
F-29
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 25,785 $ 621 $ 148 $ -- $ 26,554
Accounts receivable, net............... 3,233 5,625 46,113 -- 54,971
Inventories, net....................... 14,606 31,920 10,212 -- 56,738
Deferred income taxes.................. 5,333 11 489 -- 5,833
Prepaid expenses....................... 1,132 498 3,444 -- 5,074
--------- -------- --------- --------- ---------
Total current assets............... 50,089 38,675 60,406 -- 149,170
Property, plant and equipment, net........ 4,335 25,923 9,224 -- 39,482
Goodwill, net............................. -- 103,219 4,905 -- 108,124
Other intangibles, net.................... 9 20,847 60 -- 20,916
Other long-term assets.................... 24,087 168 769 -- 25,024
--------- -------- --------- --------- ---------
Total assets.............................. $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings.................. $ -- $ -- $ 1,568 $ -- $ 1,568
Trade accounts payable................. 10,062 17,297 12,439 -- 39,798
Accrued compensation and benefits...... 4,608 1,698 4,349 -- 10,655
Income taxes payable................... 32,416 9,785 7,833 -- 50,034
Other current liabilities.............. 20,189 9,237 2,708 -- 32,134
--------- -------- --------- --------- ---------
Total current liabilities.......... 67,275 38,017 28,897 -- 134,189
Long-term debt............................ 311,656 420 13,676 -- 325,752
Deferred income taxes..................... 5,043 (1,027) (109) -- 3,907
Other deferred liabilities................ 18,384 -- 238 -- 18,622
Intercompany balances, net................ (491,161) (55,907) (198,212) 745,280 --
Total shareholders' equity (deficit)...... 167,323 207,329 230,874 (745,280) (139,754)
--------- -------- --------- --------- ---------
Total liabilities and shareholders' equity $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
F-30
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2000
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 5,076 $ 721 $ 4,099 $ -- $ 9,896
Accounts receivable, net............... 13,837 36,870 32,846 -- 83,553
Inventories, net....................... 10,981 45,317 11,301 -- 67,599
Deferred income taxes.................. 3,965 6 571 -- 4,542
Receivable from APW Ltd................ 32,894 -- -- -- 32,894
Prepaid expenses....................... 1,876 567 2,787 -- 5,230
--------- -------- -------- --------- ---------
Total current assets............... 68,629 83,481 51,604 -- 203,714
Property, plant and equipment, net........ 5,010 35,473 8,685 -- 49,168
Goodwill, net............................. -- 111,246 5,102 -- 116,348
Other intangibles, net.................... 19 20,911 110 -- 21,040
Other long-term assets.................... 26,098 119 494 -- 26,711
--------- -------- -------- --------- ---------
Total assets.............................. $ 99,756 $251,230 $ 65,995 $ -- $ 416,981
========= ======== ======== ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings.................. $ -- $ -- $ 1,259 $ -- $ 1,259
Trade accounts payable................. 6,602 25,210 11,643 -- 43,455
Accrued compensation and benefits...... 7,405 4,164 4,796 -- 16,365
Income taxes payable................... 433 33,951 5,468 -- 39,852
Other current liabilities.............. 12,539 8,534 4,239 -- 25,312
--------- -------- -------- --------- ---------
Total current liabilities.......... 26,979 71,859 27,405 -- 126,243
Long-term debt............................ 430,675 540 -- -- 431,215
Deferred income taxes..................... 8,106 (741) (2,879) -- 4,486
Other deferred liabilities................ 17,818 (462) 636 -- 17,992
Intercompany balances, net................ (588,073) (49,507) (86,297) 723,877 --
Total shareholders' equity (deficit)...... 204,251 229,541 127,130 (723,877) (162,955)
--------- -------- -------- --------- ---------
Total liabilities and shareholders' equity $ 99,756 $251,230 $ 65,995 $ -- $ 416,981
========= ======== ======== ========= =========
F-31
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
- - ----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) Earnings from continuing
operations................................ $ (22,867) $ 19,657 $ 47,556 $(19,991) $ 24,355
Adjustments to reconcile (loss) earnings
from continuing operations to cash
provided by (used in) operating
activities of continuing operations:
Depreciation and amortization........... 4,248 11,956 2,711 -- 18,915
Gain on sale of assets.................. (267) -- -- -- (267)
Gain on sale of businesses, net......... -- -- (18,508) -- (18,508)
Provision for deferred income taxes..... 895 (291) 503 -- 1,107
Changes in operating assets and
liabilities, net...................... 60,350 (22,657) 33,260 (1,412) 69,541
--------- -------- --------- -------- ---------
Cash provided by (used in) operating activities 42,359 8,665 65,522 (21,403) 95,143
Investing activities
Proceeds on sale of property, plant and
equipment................................. 1,907 -- -- -- 1,907
Additions to property, plant and equipment.. (713) (2,365) (3,631) -- (6,709)
Business acquisitions....................... -- -- (11,250) -- (11,250)
Business and product line dispositions...... 238 -- 41,454 -- 41,692
Proceeds from insurance recovery............ -- -- 2,427 -- 2,427
--------- -------- --------- -------- ---------
Cash provided by (used in) investing activities 1,432 (2,365) 29,000 -- 28,067
Financing activities
Net principal (payments) borrowings on
debt...................................... (120,573) -- 13,676 -- (106,897)
Stock option exercises and other............ 579 -- -- -- 579
Intercompany (receivables) payables......... 96,912 (6,400) (111,915) 21,403 --
--------- -------- --------- -------- ---------
Cash (used in) provided by financing activities (23,082) (6,400) (98,239) 21,403 (106,318)
Effect of exchange rate changes on cash........ -- -- (234) -- (234)
--------- -------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 20,709 (100) (3,951) -- 16,658
Cash and cash equivalents--beginning of
year......................................... 5,076 721 4,099 -- 9,896
--------- -------- --------- -------- ---------
Cash and cash equivalents--end of year......... $ 25,785 $ 621 $ 148 $ -- $ 26,554
========= ======== ========= ======== =========
F-32
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 2000
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
- - ----------- ---------- ---------- ------------ ------------
Operating activities
(Loss) Earnings from continuing operations........... $ (90,879) $114,711 $ 21,994 $ 20,678 $ 66,504
Adjustments to reconcile (loss) earnings from
continuing operations to cash provided by
(used in) operating activities of continuing
operations:
Depreciation and amortization..................... 1,969 12,024 8,557 -- 22,550
Gain on sale of businesses, net................... (65,353) -- 17,343 -- (48,010)
Provision for deferred income taxes............... 7,385 1 (7,062) -- 324
Other non-recurring items......................... -- 596 1,328 -- 1,924
Extraordinary loss on early extinguishment
of debt.......................................... 24,568 -- -- -- 24,568
Changes in operating assets and liabilities,
net.............................................. (27,103) (44,734) 42,570 (20,678) (49,945)
--------- -------- --------- -------- ---------
Cash (used in) provided by operating activities of
continuing operations................................... (149,413) 82,598 84,730 -- 17,915
Cash provided by discontinued operations................. -- -- 43,360 -- 43,360
--------- -------- --------- -------- ---------
Total cash (used in) provided by operating activities.... (149,413) 82,598 128,090 -- 61,275
Investing activities
Proceeds on sale of property, plant and
equipment........................................... -- -- 835 -- 835
Additions to property, plant and equipment........... (729) (5,612) (5,100) -- (11,441)
Business and product line dispositions............... 150,759 -- 18,974 -- 169,733
Net investing activities of discontinued
operations.......................................... -- -- (52,510) -- (52,510)
--------- -------- --------- -------- ---------
Cash provided by (used in) investing activities.......... 150,030 (5,612) (37,801) -- 106,617
Financing activities
Net principal (payments) on long-term debt........... (85,240) -- -- -- (85,240)
Debt financing cost and early extinguishment
fees................................................ (33,899) -- -- -- (33,899)
Dividends paid on common stock....................... (1,789) -- -- -- (1,789)
Stock option exercises and other..................... 3,838 -- -- -- 3,838
Intercompany (receivables) payables.................. 122,282 (75,674) (46,608) -- --
Net financing activities of discontinued
operations.......................................... -- -- (66,175) -- (66,175)
--------- -------- --------- -------- ---------
Cash provided by (used in) financing activities.......... 5,192 (75,674) (112,783) -- (183,265)
Effect of exchange rate changes on cash.................. -- -- (272) -- (272)
--------- -------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents............................................. 5,809 1,312 (22,766) -- (15,645)
Effect of change in cash of discontinued
operations.............................................. -- -- 18,285 -- 18,285
Cash and cash equivalents--beginning of year............. (734) (591) 8,581 -- 7,256
--------- -------- --------- -------- ---------
Cash and cash equivalents--end of year................... $ 5,075 $ 721 $ 4,100 $ -- $ 9,896
========= ======== ========= ======== =========
F-33
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended August 31, 1999
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
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 (used in) 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..... 1,628 (101) 276 -- 1,803
Other non-recurring items............... 4,694 -- -- -- 4,694
Changes in operating assets and
liabilities, net...................... (15,237) 5,347 (47,087) 22,707 (34,270)
--------- -------- --------- -------- ---------
Cash (used in) provided by operating activities
of continuing operations..................... (33,606) 63,056 3,090 -- 32,540
Cash provided by discontinued operations....... -- -- 119,483 -- 119,483
--------- -------- --------- -------- ---------
Total cash (used in) provided by operating
activities................................... (33,606) 63,056 122,573 -- 152,023
Investing activities
Proceeds on 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....................... (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
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 39,458 (57,194) 342,801 -- 325,065
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
========= ======== ========= ======== =========
F-34
ACTUANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16. Quarterly Financial Data (Unaudited)
Quarterly financial data for fiscal 2001 and fiscal 2000 is as follows:
Year Ended August 31, 2001
--------------------------------------
First Second Third Fourth Total
- - ------ ------ ------ ------ ------
(in millions, except per share amounts)
Net sales...................................... $119.8 $115.5 $126.1 $120.5 $481.9
Gross profit................................... 41.8 41.0 43.2 42.9 168.9
Earnings from continuing operations............ 4.3 3.1 1.5 15.5 24.4
Earnings from discontinued operations.......... -- -- (0.8) -- (0.8)
------ ------ ------ ------ ------
Net earnings................................... $ 4.3 $ 3.1 $ 0.7 $ 15.5 $ 23.6
====== ====== ====== ====== ======
Earnings from continuing operations per share
Basic....................................... $ 0.54 $ 0.39 $ 0.18 $ 1.94 $ 3.06
Diluted..................................... $ 0.51 $ 0.37 $ 0.18 $ 1.86 $ 2.93
Earnings from discontinued operations per share
Basic....................................... $ -- $ -- $(0.10) $ -- $ (0.9)
Diluted..................................... $ -- $ -- $(0.09) $ -- $ (0.9)
Net earnings per share
Basic....................................... $ 0.54 $ 0.39 $ 0.09 $ 1.94 $ 2.97
Diluted..................................... $ 0.51 $ 0.37 $ 0.08 $ 1.86 $ 2.84
Year Ended August 31, 2000
---------------------------------------
First Second Third Fourth Total
------ ------ ------ ------ ------
(in millions, except per share amounts)
Net sales...................................... $175.5 $186.6 $181.0 $138.3 $681.4
Gross profit................................... 62.1 65.7 66.0 48.4 242.2
Earnings from continuing operations............ 11.0 11.9 12.0 (6.9) 28.0
Earnings from discontinued operations.......... 12.7 8.6 12.9 (33.6) 0.6
Net extraordinary gain, net of tax............. -- -- (12.2) 50.7 38.5
------ ------ ------ ------ ------
Net earnings................................... $ 23.7 $ 20.5 $ 12.7 $ 10.2 $ 67.1
====== ====== ====== ====== ======
Earnings from continuing operations per share
Basic....................................... $ 1.41 $ 1.52 $ 1.53 $(0.88) $ 3.59
Diluted..................................... $ 1.36 $ 1.47 $ 1.49 $(0.84) $ 3.48
Earnings from discontinued operations per share
Basic....................................... $ 1.63 $ 1.10 $ 1.65 $(4.28) $ 0.07
Diluted..................................... $ 1.58 $ 1.07 $ 1.60 $(4.11) $ 0.07
Net extraordinary gain
Basic....................................... $ -- $ -- $(1.56) $ 6.46 $ 4.92
Diluted..................................... $ -- $ -- $(1.51) $ 6.18 $ 4.77
Net earnings per share
Basic....................................... $ 3.04 $ 2.62 $ 1.62 $ 1.30 $ 8.58
Diluted..................................... $ 2.94 $ 2.54 $ 1.58 $ 1.23 $ 8.32
You should read Notes 1, 2, 3, 6 and 9 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for items affecting quarterly results. The sum of the
quarters may not equal the total of the respective year's earnings per share on
either a basic or diluted basis due to changes in the weighted average shares
outstanding during the year.
F-35
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(Unaudited)
Three Months
Ended November 30,
------------------
2001 2000
-------- --------
Net Sales............................................................... $113,140 $119,796
Cost of Products Sold................................................... 75,107 77,966
-------- --------
Gross Profit..................................................... 38,033 41,830
Engineering, Selling and Administrative Expenses........................ 19,927 21,570
Amortization of Intangible Assets....................................... 612 1,499
-------- --------
Operating Earnings............................................... 17,494 18,761
Net Financing Costs..................................................... 9,889 12,971
Other Expense (Income).................................................. 360 (1,462)
-------- --------
Earnings Before Income Tax Expense...................................... 7,245 7,252
Income Tax Expense...................................................... 2,680 2,968
-------- --------
Net Earnings Before Cumulative Effect of Change in Accounting Principle. 4,565 4,284
Cumulative Effect of Change in Accounting Principle..................... (7,200) --
-------- --------
Net (Loss) Earnings..................................................... $ (2,635) $ 4,284
======== ========
Basic Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in Accounting Principle $ 0.57 $ 0.54
Cumulative Effect of Change in Accounting Principle.................... (0.90) --
======== ========
Total.................................................................. $ (0.33) $ 0.54
======== ========
Diluted Earnings (Loss) Per Share:
Net Earnings Before Cumulative Effect of Change in Accounting Principle $ 0.54 $ 0.51
Cumulative Effect of Change in Accounting Principle.................... (0.85) --
======== ========
Total.................................................................. $ (0.31) $ 0.51
======== ========
Weighted Average Common Shares Outstanding:
Basic.................................................................. 8,023 7,927
Diluted................................................................ 8,455 8,362
See accompanying Notes to Condensed Consolidated Financial Statements.
F-36
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
November 30, August 31,
2001 2001
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 24,487 $ 26,554
Accounts receivable, net.............................................. 50,491 54,971
Inventories, net...................................................... 56,352 56,738
Deferred income taxes................................................. 9,157 5,833
Other current assets.................................................. 5,052 5,074
------------ ---------
Total Current Assets.............................................. 145,539 149,170
Property, Plant and Equipment, net....................................... 39,398 39,482
Goodwill, net............................................................ 101,037 108,124
Other Intangible Assets, net............................................. 20,310 20,916
Other Long-term Assets................................................... 24,439 25,024
------------ ---------
Total Assets............................................................. $ 330,723 $ 342,716
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings................................................. $ 1,092 $ 1,568
Trade accounts payable................................................ 40,242 39,798
Accrued compensation and benefits..................................... 10,243 10,655
Income taxes payable.................................................. 48,608 50,034
Other current liabilities............................................. 20,680 32,134
------------ ---------
Total Current Liabilities......................................... 120,865 134,189
Long-term Debt........................................................... 329,432 325,752
Deferred Income Taxes.................................................... 4,085 3,907
Other Long-term Liabilities.............................................. 19,559 18,622
Shareholders' Equity:
Class A common stock, $0.20 par value, authorized 16,000,000 shares,
issued and outstanding 8,049,326 and 8,013,306 shares, respectively. 1,610 1,603
Additional paid-in capital............................................ (623,516) (623,867)
Accumulated other comprehensive loss.................................. (20,414) (19,227)
Retained earnings..................................................... 499,102 501,737
------------ ---------
Total Shareholders' Equity........................................ (143,218) (139,754)
------------ ---------
Total Liabilities and Shareholders' Equity............................... $ 330,723 $ 342,716
============ =========
See accompanying Notes to Condensed Consolidated Financial Statements.
F-37
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
November 30,
------------------
2001 2000
-------- --------
Operating Activities
Net (loss) earnings...................................... $ (2,635) $ 4,284
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 3,008 4,193
Amortization of debt discount and debt issuance costs. 624 530
Cumulative effect of change in accounting principle... 7,200 --
(Benefit) / Provision for deferred income taxes....... (140) 40
Gain on sale of assets................................ (53) --
Other non-cash items.................................. -- (938)
Changes in operating assets and liabilities:..........
Accounts receivable............................... 3,964 (1,017)
Inventories....................................... 163 873
Other assets...................................... (166) (218)
Trade accounts payable............................ 656 (2,621)
Other accrued liabilities......................... (11,597) (6,667)
Receivable from APW Ltd........................... -- 30,894
Income taxes payable.............................. (4,374) (24,653)
-------- --------
Net cash (used in) provided by operating activities..... (3,350) 4,700
Investing Activities
Proceeds on sale of property, plant and equipment........ 57 --
Additions to property, plant and equipment............... (2,482) (1,761)
-------- --------
Net cash used in investing activities................... (2,425) (1,761)
Financing Activities
Net principal payments on term loans..................... (19,944) (28,083)
Net principal borrowings on other debt................... 23,299 18,183
Proceeds from stock option exercises..................... 362 251
-------- --------
Net cash provided by (used in) financing activities..... 3,717 (9,649)
Effect of exchange rate changes on cash.................. (9) (34)
-------- --------
Net decrease in cash and cash equivalents................ (2,067) (6,744)
Cash and cash equivalents--beginning of period........... 26,554 9,896
-------- --------
Cash and cash equivalents--end of period................. $ 24,487 $ 3,152
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
F-38
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Actuant Corporation ("Actuant" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and with the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated balance sheet data as of August 31, 2001
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. For
additional information, refer to the consolidated financial statements and
related footnotes in the Company's fiscal 2001 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a
fair presentation of financial results have been made. Except as discussed
otherwise, such adjustments consist of only those of a normal recurring nature.
Operating results for the three months ended November 30, 2001 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending August 31, 2002.
Prior year's financial statements have been reclassified where appropriate
to conform to current year presentations.
Note 2. Acquisitions and Divestitures
In March 2001, the Company, through a wholly-owned subsidiary, acquired
certain assets and assumed certain liabilities of Dewald Manufacturing, Inc.
("Dewald"). Dewald is engaged in the design and manufacture of recreational
vehicle ("RV") slide out and leveling systems for the North American RV market.
The results of operations of Dewald are included in the accompanying financial
statements since the date of the acquisition and are included in the Engineered
Solutions segment in Note 12--Segment Information. The acquisition was
accounted for as a purchase, and the purchase price of $13.0 million (including
deferred purchase price of $1.8 million) was allocated to the fair value of the
assets acquired and the liabilities assumed. The excess purchase price over the
fair value of the assets acquired, which approximates $8.5 million, was
recorded as goodwill. This acquisition was funded by borrowings under Actuant's
senior secured credit facility.
In May 2001, the Company sold the Enerpac Quick Mold Change ("QMC") product
line to the QMC business management team for approximately $1.0 million. QMC
had annual sales of approximately $6.0 million. The sale resulted in a loss of
approximately $0.7 million, $0.4 million after-tax, or $0.05 per diluted share.
In August 2001, the Company completed the sale of Mox-Med, Inc., a business
unit in the Engineered Solutions segment. Mox-Med had annual sales of
approximately $18.0 million at the time of the sale. Cash proceeds from the
sale were approximately $40.5 million, which resulted in a net gain of $18.5
million, $11.1 million after-tax, or $1.34 per diluted share. During the
quarter ended November 30, 2001, the Company paid approximately $7.0 million in
income taxes and fees related to the transaction.
Note 3. Accounts Receivable Financing
During fiscal 2001, the Company established an accounts receivable
securitization program whereby it sells certain of its trade accounts
receivable to a wholly-owned special purpose subsidiary which, in turn, sells
participating interests in its pool of receivables to a financial institution.
Sales of trade receivables are reflected as a reduction of accounts receivable
in the accompanying Condensed Consolidated Balance Sheets and the proceeds
received are included in cash flows from operating activities in the
accompanying Condensed Consolidated Statements of Cash Flows. Trade receivables
sold and being serviced by the Company were $27.2 million and $25.3 million at
November 30, 2001 and August 31, 2001, respectively.
F-39
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounts receivable financing costs of $0.3 million for the three months
ended November 30, 2001 are included in net financing costs in the accompanying
Condensed Consolidated Statements of Earnings. Total cash proceeds under the
trade accounts receivable financing program were $29.4 million for the three
months ended November 30, 2001. There were no receivables sold during the first
quarter of fiscal 2001, and as such there were no accounts receivable financing
costs for the quarter.
Note 4. Inventories, Net
The nature of the Company's products is such that they generally have a very
short production cycle. Consequently, the amount of work-in-process at any
point in time is minimal. In addition, many parts or components are ultimately
either sold individually or assembled with other parts making a distinction
between raw materials and finished goods impractical to determine. 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 5. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets," having
a required effective date for fiscal years beginning after December 15, 2001.
An early adoption provision exists for companies with fiscal years beginning
after March 15, 2001. Under the new rules, goodwill and other intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company adopted the new rules on accounting for goodwill and other
intangible assets in the first quarter of fiscal 2002. Application of the
non-amortization provisions of SFAS No. 142 is expected to result in an
increase in net income of approximately $3.2 million in fiscal 2002. Under the
transitional provisions of SFAS No. 142, the Company identified its reporting
units and performed impairment tests on the net goodwill associated with each
of the reporting units. The Company recorded an impairment loss associated with
its Milwaukee Cylinder reporting unit of $7.2 million, or $0.85 per diluted
share. The impairment loss has been recorded as a cumulative effect of change
in accounting principle on the accompanying Condensed Consolidated Statements
of Earnings.
The following sets forth a reconciliation of net income and earnings per
share information for the three months ended November 30, 2001 and 2000
adjusted for the non-amortization provisions of SFAS No. 142.
F-40
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Three For the Three
Months Ended Months Ended
November 30, 2001 November 30, 2000
----------------- -----------------
Reported net earnings before cumulative
effect of change in accounting principle............................ $ 4,565 $4,284
Reported net (loss) earnings.......................................... (2,635) 4,284
Add: Goodwill amortization, net of tax
effect.............................................................. -- 798
Adjusted net earnings before cumulative
effect of change in accounting principle............................ 4,565 5,082
Adjusted net (loss) earnings.......................................... (2,635) 5,082
Basic earnings per share:
Adjusted net earnings before cumulative effect of change in accounting
principle........................................................... $ 0.57 $ 0.64
Adjusted net (loss) earnings.......................................... $ (0.33) $ 0.64
Diluted earnings per share:
Adjusted net earnings before cumulative effect of change in accounting
principle........................................................... $ 0.54 $ 0.61
Adjusted net (loss) earnings.......................................... $ (0.31) $ 0.61
The changes in the carrying amount of goodwill for the year ended August 31,
2001 and for the three months ended November 30, 2001 are as follows:
Tools & Engineered
Supplies Solutions
Segment Segment Total
-------- ---------- --------
Balance as of August 31, 2000........................ $44,451 $ 71,897 $116,348
Goodwill acquired.................................... -- 8,291 8,291
Amortization......................................... (1,569) (2,404) (3,973)
Goodwill written off related to sale of business unit -- (12,613) (12,613)
Currency impact...................................... -- 71 71
------- -------- --------
Balance as of August 31, 2001........................ 42,882 65,242 108,124
Transitional impairment charge....................... -- (7,200) (7,200)
Purchase price adjustment............................ -- 161 161
Currency impact...................................... -- (48) (48)
------- -------- --------
Balance as of November 30, 2001...................... $42,882 $ 58,155 $101,037
======= ======== ========
F-41
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's reporting units were tested for impairment in the first
quarter of fiscal 2002 upon the adoption of SFAS No. 142. As a result of the
transitional impairment testing, a goodwill impairment loss of $7.2 million was
recognized for the Milwaukee Cylinder reporting unit in the Engineered
Solutions segment due to declining near term results given current economic
conditions. The fair value of that reporting unit was estimated by a third
party appraisal firm considering both an income and market multiple approach.
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of November 30, 2001 and August 31,
2001 are as follows:
November 30, 2001 August 31, 2001
----------------------------- -----------------------------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Patents............... $21,703 $ 7,040 $14,663 $22,652 $ 7,653 $14,999
Trademarks............ 4,496 900 3,596 4,496 842 3,654
Non-compete agreements 3,286 2,001 1,285 10,509 9,038 1,471
Other................. 1,314 548 766 2,086 1,294 792
------- ------- ------- ------- ------- -------
Total................. $30,799 $10,489 $20,310 $39,743 $18,827 $20,916
======= ======= ======= ======= ======= =======
Amortization expense recorded on the intangible assets for each of the
three-month periods ended November 30, 2001 and 2000 was $0.6 million. As a
result of adoption, there have been no changes to amortizable lives or methods.
The estimated amortization expense for each of the five succeeding fiscal years
is as follows:
For the year ended August 31,
-----------------------------
2002............. $2,450
2003............. $2,195
2004............. $1,783
2005............. $1,600
2006............. $1,579
F-42
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30 related to the disposal of a segment of a
business. The provisions of SFAS No. 144 are effective for fiscal years
beginning after December 15, 2001, however earlier adoption is permitted. The
Company does not expect SFAS No. 144 to have a material impact on the
consolidated financial statements.
Note 7. Distribution of Electronics Segment
On January 27, 2000, Applied Power Inc.'s ("Applied Power") board of
directors authorized various actions to enable Applied Power to distribute its
Electronics segment ("APW Ltd.") to its shareholders (the "Distribution").
Refer to Note 2 to the consolidated financial statements in the Company's
fiscal 2001 Annual Report on Form 10-K for a discussion of certain tax
indemnification matters. Prior to the Distribution, Applied Power, in the
normal course of business, entered into certain real estate and equipment
leases or guaranteed such leases on behalf of its subsidiaries, including those
in the Electronics segment. In conjunction with the Distribution, the Company
assigned its rights in such leases used in the Electronics segment to APW Ltd.,
but was not released as a responsible party from all such leases by the
lessors. As a result, the Company remains contingently liable for such leases
in the event APW Ltd. does not meet its obligations under the lease agreements.
The discounted present value of future minimum lease payments for the leases
totals approximately $24.4 million. In the event APW Ltd. is unable to meet its
obligations under such lease agreements, the Company would seek to mitigate
such exposure by subletting the properties or negotiating out of the existing
lease agreements. If APW Ltd. is unable to fulfill its obligations under the
indemnification arrangements and lease commitments, there could be a materially
adverse impact to the Company's financial position and results of operations.
Note 8. Restructuring Costs
The Company adopted plans to restructure portions of its operations in the
fiscal third quarter of 2001. These plans were designed to reduce
administrative and operational costs and resulted in a charge of $1.7 million,
$1.0 million after-tax. Of the pre-tax charge, $0.3 million related to the
consolidation of the RV slide production facilities, $0.6 related to downsizing
the cable tie production facility, and $0.8 million related to other personnel
reductions. The Company wrote down the fixed assets at the locations being
closed or downsized to their fair value, less costs to sell, in the third
quarter. The Company expects net cash proceeds of approximately $0.5 million
from the ultimate disposal of these assets, which is expected to be completed
by the third quarter of fiscal 2002. As a result of these plans, the Company
eliminated approximately 36 positions.
A rollforward of the restructuring reserve recorded is shown in the
following table:
August 31, 2001 November 30, 2001
Restructuring Cash Restructuring
Reserve Payments Reserve
--------------- -------- -----------------
Severance. $ 182 $(63) $119
Exit Costs 820 -- 820
------ ---- ----
$1,002 $(63) $939
====== ==== ====
F-43
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Derivatives
All derivatives are recognized on the balance sheet at their fair value. At
August 31, 2001 the Company was party to one interest rate swap contract to
convert a portion of its variable rate debt to a fixed rate. In the first
quarter of fiscal 2002, the Company entered into a second contract to convert a
further portion of its variable rate debt to a fixed rate. For the three months
ended November 30, 2001, $0.7 million of losses related to these contracts were
recorded in other comprehensive income. There were no such contracts in place
at November 30, 2000.
Note 10. Earnings Per Share
The reconciliations between basic and diluted earnings per share are as
follows:
Three Months Ended
November 30,
------------------
2001 2000
------- ------
Numerator:
Net earnings before cumulative effect of change in accounting principle....... $ 4,565 $4,284
Cumulative effect of change in accounting principle........................... (7,200) --
------- ------
Net (loss) earnings........................................................... $(2,635) $4,284
======= ======
Denominator:
Weighted average common shares outstanding for basic earnings per share....... 8,023 7,927
Net effect of stock options based on the treasury stock method using average
market price................................................................ 432 435
------- ------
Weighted average common and equivalent shares outstanding for diluted earnings
per share................................................................... 8,455 8,362
======= ======
Basic Earnings Per Share:
Net earnings before cumulative effect of change in accounting principle....... $ 0.57 $ 0.54
Cumulative effect of change in accounting principle........................... (0.90) --
------- ------
Basic earnings per share...................................................... $ (0.33) $ 0.54
======= ======
Diluted Earnings per Share:
Net earnings before cumulative effect of change in accounting principle....... $ 0.54 $ 0.51
Cumulative effect of change in accounting principle........................... (0.85) --
------- ------
Diluted earnings per share.................................................... $ (0.31) $ 0.51
======= ======
Note 11. Comprehensive Income
The components of comprehensive income (loss) are as follows:
Three Months Ended
November 30,
-----------------
2001 2000
------- -------
Net (loss) earnings........................... $(2,635) $ 4,284
Foreign currency adjustments.................. (519) (1,516)
Fair value of interest rate swap, net of taxes (668) --
------- -------
Comprehensive income (loss)................... $(3,822) $ 2,768
======= =======
F-44
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Segment Information
The Company is organized and managed along the lines of its two business
segments: Tools & Supplies and Engineered Solutions, with separate and distinct
operating management and strategies. The Tools & Supplies segment is primarily
involved in the design, manufacture, and distribution of tools and supplies to
the construction, electrical wholesale, retail do-it-yourself, industrial and
production automation markets. The Engineered Solutions segment focuses on
developing and marketing value-added, customized motion control systems for
original equipment manufacturers in the recreational vehicle, automotive,
truck, and industrial markets. "General corporate and other" as indicated below
primarily includes general corporate expenses, financing costs on third party
debt and foreign currency exchange adjustments.
The following table summarizes financial information by reportable segment:
Three Months Ended
November 30,
------------------
2001 2000
-------- --------
Net Sales:
Tools & Supplies................... $ 64,067 $ 71,839
Engineered Solutions............... 49,073 47,957
-------- --------
Total.............................. $113,140 $119,796
======== ========
Earnings Before Income Tax Expense:
Tools & Supplies................... $ 10,310 $ 10,030
Engineered Solutions............... 3,928 5,403
General Corporate and Other........ (6,993) (8,181)
-------- --------
Total.............................. $ 7,245 $ 7,252
======== ========
Note 13. Guarantor Condensed Financial Statements
In July 2000, Actuant issued 13% Senior Subordinated Notes due 2009 (the
"13% Notes"). All of the Company's material domestic wholly-owned subsidiaries
(the "Guarantors") fully and unconditionally guarantee the 13% Notes on a joint
and several basis. The Company believes separate financial statements and other
disclosures concerning each of the Guarantors would not provide additional
information that is material to investors. Therefore, the Guarantors are
combined in the presentation below. There are no significant restrictions on
the ability of the Guarantors to make distributions to Actuant. The following
tables present the results of operations, financial position and cash flows of
Actuant Corporation, the Guarantors and non-guarantor entities, and the
eliminations necessary to arrive at the information for the Company and its
subsidiaries on a condensed consolidated basis.
F-45
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Three Months Ended November 30, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales.................................. $17,581 $55,996 $39,563 $ -- $113,140
Cost of products sold...................... 9,554 40,390 25,163 -- 75,107
------- ------- ------- ----- --------
Gross profit............................ 8,027 15,606 14,400 -- 38,033
Operating expenses......................... 6,168 8,008 5,751 -- 19,927
Amortization of intangible assets.......... 2 605 5 -- 612
------- ------- ------- ----- --------
Operating earnings...................... 1,857 6,993 8,644 -- 17,494
Other expense (income):
Intercompany activity, net.............. (911) 2,680 (1,769) -- --
Net financing costs..................... 9,911 (186) 164 -- 9,889
Other expense (income).................. 246 (47) 161 -- 360
------- ------- ------- ----- --------
(Loss) Earnings before income tax expense
(benefit)................................ (7,389) 4,546 10,088 -- 7,245
Income tax expense (benefit)............... (1,279) 2,244 1,715 -- 2,680
------- ------- ------- ----- --------
(Loss) Earnings before cumulative effect of
change in accounting principle........... (6,110) 2,302 8,373 -- 4,565
Cumulative effect of change in accounting
principle................................ -- (7,200) -- -- (7,200)
------- ------- ------- ----- --------
Net (loss) earnings........................ $(6,110) $(4,898) $ 8,373 $ -- $ (2,635)
======= ======= ======= ===== ========
Three Months Ended November 30, 2000
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Net sales.................................. $19,809 $59,903 $40,084 $ -- $119,796
Cost of products sold...................... 12,213 39,942 25,811 -- 77,966
------- ------- ------- ----- --------
Gross profit............................ 7,596 19,961 14,273 -- 41,830
Operating expenses......................... 5,198 9,566 6,806 -- 21,570
Amortization of intangible assets.......... 2 1,431 66 -- 1,499
------- ------- ------- ----- --------
Operating earnings...................... 2,396 8,964 7,401 -- 18,761
Other (income) expense:
Intercompany activity, net.............. (1,525) 817 708 -- --
Net financing costs..................... 12,852 -- 119 -- 12,971
Other expense (income).................. (2,226) 4 760 -- (1,462)
------- ------- ------- ----- --------
(Loss) earnings before income tax (benefit)
expense.................................. (6,705) 8,143 5,814 -- 7,252
Income tax (benefit) expense............... (2,094) 2,929 2,133 -- 2,968
------- ------- ------- ----- --------
Net (loss) earnings........................ $(4,611) $ 5,214 $ 3,681 $ -- $ 4,284
======= ======= ======= ===== ========
F-46
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
November 30, 2001
-----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ----------- ------------ ------------
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 21,466 $ (212) $ 3,233 $ -- $ 24,487
Accounts receivable, net............... 2,389 3,194 44,908 -- 50,491
Inventories, net....................... 14,047 31,896 10,409 -- 56,352
Deferred income taxes.................. 8,333 11 813 -- 9,157
Other current assets................... 1,892 508 2,652 -- 5,052
--------- -------- --------- --------- ---------
Total current assets............... 48,127 35,397 62,015 -- 145,539
Property, plant and equipment, net........ 5,243 24,575 9,580 -- 39,398
Goodwill, net............................. -- 96,179 4,858 -- 101,037
Other intangible assets, net.............. 7 20,243 60 -- 20,310
Other long-term assets.................... 23,672 64 703 -- 24,439
--------- -------- --------- --------- ---------
Total assets.............................. $ 77,049 $176,458 $ 77,216 $ -- $ 330,723
========= ======== ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings.................. $ -- $ -- $ 1,092 $ -- $ 1,092
Trade accounts payable................. 8,497 17,642 14,103 -- 40,242
Accrued compensation and benefits...... 4,233 1,454 4,556 -- 10,243
Income taxes payable................... 25,691 11,899 11,018 -- 48,608
Other current liabilities.............. 9,472 9,232 1,976 -- 20,680
--------- -------- --------- --------- ---------
Total current liabilities.......... 47,893 40,227 32,745 -- 120,865
Long-term debt............................ 315,564 420 13,448 -- 329,432
Deferred income taxes..................... 5,056 (1,017) 46 -- 4,085
Other long-term liabilities............... 19,331 -- 228 -- 19,559
Intercompany balances, net................ (474,383) (59,475) (205,462) 739,320 --
Total shareholders' (deficit) equity...... 163,588 196,303 236,211 (739,320) (143,218)
--------- -------- --------- --------- ---------
Total liabilities and shareholders' equity $ 77,049 $176,458 $ 77,216 $ -- $ 330,723
========= ======== ========= ========= =========
F-47
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
August 31, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 25,785 $ 621 $ 148 $ -- $ 26,554
Accounts receivable, net............... 3,233 5,625 46,113 -- 54,971
Inventories, net....................... 14,606 31,920 10,212 -- 56,738
Deferred income taxes.................. 5,333 11 489 -- 5,833
Other current assets................... 1,132 498 3,444 -- 5,074
--------- -------- --------- --------- ---------
Total current assets............... 50,089 38,675 60,406 -- 149,170
Property, plant and equipment, net........ 4,335 25,923 9,224 -- 39,482
Goodwill, net............................. -- 103,219 4,905 -- 108,124
Other intangible assets, net.............. 9 20,847 60 -- 20,916
Other long-term assets.................... 24,087 168 769 -- 25,024
--------- -------- --------- --------- ---------
Total assets.............................. $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities
Short-term borrowings.................. $ -- $ -- $ 1,568 $ -- $ 1,568
Trade accounts payable................. 10,062 17,297 12,439 -- 39,798
Accrued compensation and benefits...... 4,608 1,698 4,349 -- 10,655
Income taxes payable................... 32,416 9,785 7,833 -- 50,034
Other current liabilities.............. 20,189 9,237 2,708 -- 32,134
--------- -------- --------- --------- ---------
Total current liabilities.......... 67,275 38,017 28,897 -- 134,189
Long-term debt............................ 311,656 420 13,676 -- 325,752
Deferred income taxes..................... 5,043 (1,027) (109) -- 3,907
Other long-term liabilities............... 18,384 -- 238 -- 18,622
Intercompany balances, net................ (491,161) (55,907) (198,212) 745,280 --
Total shareholders' (deficit) equity...... 167,323 207,329 230,874 (745,280) (139,754)
--------- -------- --------- --------- ---------
Total liabilities and shareholders' equity $ 78,520 $188,832 $ 75,364 $ -- $ 342,716
========= ======== ========= ========= =========
F-48
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended November 30, 2001
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
Net (loss) earnings............................. $ (6,110) $(4,898) $ 8,373 $ -- $ (2,635)
Adjustments to reconcile net (loss) earnings
to cash provided by (used in) operating
activities:
Depreciation and amortization................. 373 1,970 665 -- 3,008
Amortization of debt discount and debt
issuance costs.............................. 624 -- -- -- 624
Cumulative effect of change in accounting
principle...................................... -- 7,200 -- -- 7,200
Other non-cash items............................ 14 (43) (164) -- (193)
Changes in operating assets and liabilities, net (19,604) (718) 3,424 5,544 (11,354)
-------- ------- ------- ------- --------
Cash (used in) provided by operating activities.. (24,703) 3,511 12,298 5,544 (3,350)
Investing activities
Proceeds on sale of property, plant and
equipment................................... -- 57 -- -- 57
Additions to property, plant and equipment.... (563) (834) (1,085) -- (2,482)
-------- ------- ------- ------- --------
Cash used in investing activities................ (563) (777) (1,085) -- (2,425)
Financing activities
Net borrowings (repayments) on debt........... 3,806 -- (451) -- 3,355
Stock option exercises........................ 362 -- -- -- 362
Intercompany payables (receivables)........... 16,779 (3,567) (7,668) (5,544) --
-------- ------- ------- ------- --------
Cash provided by (used in) financing activities.. 20,947 (3,567) (8,119) (5,544) 3,717
Effect of exchange rate changes on cash.......... -- -- (9) -- (9)
-------- ------- ------- ------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (4,319) (833) 3,085 -- (2,067)
Cash and cash equivalents--beginning of
period......................................... 25,785 621 148 -- 26,554
-------- ------- ------- ------- --------
Cash and cash equivalents--end of period......... $ 21,466 $ (212) $ 3,233 $ -- $ 24,487
======== ======= ======= ======= ========
F-49
ACTUANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended November 30, 2000
----------------------------------------------------------
Actuant Non
Corporation Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
Operating activities
Net earnings(loss)............................. $ (4,611) $ 5,214 $ 3,681 $ -- $ 4,284
Adjustments to reconcile net earnings (loss)
to cash provided by (used in) operating
activities:
Depreciation and amortization................ 516 3,026 651 -- 4,193
Amortization of debt discount and debt
issuance costs............................. 530 -- -- -- 530
Other non-cash items......................... (898) -- -- -- (898)
Changes in operating assets and liabilities,
net........................................ 16,258 (43,656) 18,539 5,450 (3,409)
-------- -------- -------- ------- -------
Cash provided by (used in) operating activities. 11,795 (35,416) 22,871 5,450 4,700
Investing activities
Additions to property, plant and equipment..... (223) (919) (619) -- (1,761)
-------- -------- -------- ------- -------
Cash used in investing activities............... (223) (919) (619) -- (1,761)
Financing activities
Net (repayments) borrowings on debt............ (9,900) -- -- -- (9,900)
Stock option exercises and other............... 251 -- -- -- 251
Intercompany (receivables) payables............ (6,300) 35,705 (23,955) (5,450) --
-------- -------- -------- ------- -------
Cash (used in) provided by financing activities. (15,949) 35,705 (23,955) (5,450) (9,649)
Effect of exchange rate changes on cash......... -- -- (34) -- (34)
-------- -------- -------- ------- -------
Net (decrease) increase in cash and cash
equivalents................................... (4,377) (630) (1,737) -- (6,744)
Cash and cash equivalents--beginning of
period........................................ 5,076 721 4,099 -- 9,896
-------- -------- -------- ------- -------
Cash and cash equivalents--end of period........ $ 699 $ 91 $ 2,362 $ -- $ 3,152
======== ======== ======== ======= =======
F-50
PROSPECTUS
$600,000,000
APPLIED POWER INC.
DEBT SECURITIES, CUMULATIVE PREFERRED STOCK,
CLASS A COMMON STOCK, WARRANTS,
STOCK PURCHASE CONTRACTS AND
STOCK PURCHASE UNITS
-----------------
APPLIED POWER CAPITAL TRUST I
APPLIED POWER CAPITAL TRUST II
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY APPLIED POWER INC.
Applied Power Inc., a Wisconsin corporation (the "Company"), may offer and
sell from time to time, together or separately, (i) its unsecured debt
securities ("Debt Securities"), which may be senior (the "Senior Debt
Securities"), subordinated (the "Subordinated Debt Securities"), or junior
subordinated (the "Junior Subordinated Debt Securities") in priority of
payment, (ii) shares of its Cumulative Preferred Stock, par value $1.00 per
share, which may be represented by depositary shares as described herein (the
"Preferred Stock"), (iii) shares of its Class A Common Stock, par value $.20
per share (the "Class A Common Stock"), (iv) warrants (the "Warrants") to
purchase any of the foregoing Debt Securities, Preferred Stock or Class A
Common Stock, (v) stock purchase contracts ("Stock Purchase Contracts") to
purchase shares of Class A Common Stock or (vi) stock purchase units ("Stock
Purchase Units"), each representing ownership of a Stock Purchase Contract and
any of (x) Debt Securities, (y) debt obligations of third parties, including
U.S. Treasury Securities, or (z) Preferred Securities (as defined below) of an
Applied Power Trust (as defined below), securing the holder's obligation to
purchase Class A Common Stock under the Stock Purchase Contract. The Debt
Securities, the Preferred Stock, the Class A Common Stock, the Warrants, the
Stock Purchase Contracts and the Stock Purchase Units, together with the
Preferred Securities and the related Guarantees (as defined below), are
collectively referred to herein as the "Securities." The Securities may be
offered in one or more separate classes or series, in amounts, at prices and on
terms to be determined at the time of the offering thereof and to be set forth
in a supplement or supplements to this Prospectus (each, a "Prospectus
Supplement"). The Securities may be sold for U.S. dollars, foreign currencies
or foreign currency units, and the Securities may be payable in U.S. dollars,
foreign currencies or foreign currency units.
Applied Power Capital Trust I and Applied Power Capital Trust II, each a
statutory business trust created under the laws of the State of Delaware (each,
an "Applied Power Trust," and collectively, the "Applied Power Trusts"), may
severally offer preferred securities (the "Preferred Securities") representing
undivided beneficial ownership interests in the assets of such Applied Power
Trust. The Company will be the owner of the common securities (the "Common
Securities," and, together with the Preferred Securities, the "Trust
Securities") of each Applied Power Trust. The payment of periodic cash
distributions ("Distributions") with respect to Preferred Securities of each of
the Applied Power Trusts out of monies held by the Property Trustee (as defined
herein) of such Applied Power Trust, and payments on liquidation of such
Applied Power Trust and on redemption of Preferred Securities of such Applied
Power Trust, will be guaranteed by the Company as and to the extent described
herein (each, a "Guarantee"). See "Description of Guarantees." The Company's
obligation under each Guarantee is an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all senior indebtedness
and subordinated indebtedness of the Company. Except as otherwise provided in
the applicable Prospectus Supplement, (i) concurrently with the issuance by an
Applied Power Trust of its Preferred Securities, such Applied Power Trust will
invest the proceeds thereof and any contributions made in respect of the Common
Securities in a corresponding series of the Company's Junior Subordinated Debt
Securities (the "Corresponding Junior Subordinated Debt Securities") with terms
directly corresponding to the terms of that Applied Power Trust's Preferred
Securities, (ii) the Corresponding Junior Subordinated Debt Securities will be
the sole assets of that Applied Power Trust and (iii) payments under the
Corresponding Junior Subordinated Debt Securities will be the only revenue of
each Applied Power Trust. Unless otherwise specified in an applicable
Prospectus Supplement, the Company may redeem the Corresponding Junior
Subordinated Debt Securities (and cause the redemption of Trust Securities) or
may dissolve each Applied Power Trust and, after satisfaction of creditors of
such Applied Power Trusts as provided by applicable law, cause the
Corresponding Junior Subordinated Debt Securities to be distributed to the
holders of Preferred Securities in liquidation of their interests in the
applicable Applied Power Trust. See "Description of Preferred
Securities--Liquidation Distribution upon Dissolution."
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------
The date of this Prospectus is January 27, 1999.
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the accompanying Prospectus Supplement or
Supplements, together with the terms of the offering of any such Securities,
the initial price thereof, the net proceeds from the sale thereof and the
intended use or uses of such proceeds. The Prospectus Supplement will also set
forth with respect to the particular Securities offered, certain terms thereof,
including, where applicable, (i) in the case of Debt Securities, the
designation, aggregate principal amount, authorized denominations and priority
thereof, the currency, currencies or currency units for which the Debt
Securities may be purchased and the currency, currencies or currency units in
which the principal of and any interest on such Debt Securities may be payable,
the date on which such Debt Securities will mature, the rate per annum at which
such Debt Securities will bear interest, if any, or the method of determination
of such rate, the dates on which such interest, if any, will be payable, the
deferral of payment of any interest, any conversion or exchange provisions, any
redemption or sinking fund provisions and any additional or other rights,
preferences, privileges, limitations and restrictions relating to such Debt
Securities, (ii) in the case of Preferred Stock, the specific designation,
number of shares or fractional interests therein and any dividend, liquidation,
redemption, exchange, voting, conversion and other rights, preferences and
privileges, (iii) in the case of Class A Common Stock, the aggregate number of
shares offered and market price and dividend information, (iv) in the case of
the Warrants, the Debt Securities, the Preferred Stock or Class A Common Stock,
respectively, for which each such Warrant is exercisable and the exercise
price, duration, detachability and other terms of the Warrants, (v) in the case
of Stock Purchase Contracts, the designation and number of shares of Class A
Common Stock issuable thereunder, the purchase price of the Class A Common
Stock, the date or dates on which the Class A Common Stock is required to be
purchased by the holders of the Stock Purchase Contracts and any periodic
payments required to be made by the Company to the holders of the Stock
Purchase Contracts or vice versa, (vi) in the case of Stock Purchase Units, the
specific terms of the Stock Purchase Contracts and any Debt Securities or debt
obligations of third parties or Preferred Securities of an Applied Power Trust
securing the holders' obligation to purchase the Class A Common Stock under the
Stock Purchase Contracts, the ability of a holder of such Stock Purchase Units
to settle early the underlying Stock Purchase Contract by delivering cash in
exchange for the underlying collateral and, if applicable, whether the Company
will issue to such holder a Prepaid Security (as defined herein) as a result of
such early settlement and the specific terms of the Prepaid Security and (vii)
in the case of Preferred Securities of an Applied Power Trust, the specific
designation, number of securities, liquidation amount per security, any listing
on a securities exchange, distribution rate (or method of calculation thereof),
dates on which distributions shall be payable and dates from which
distributions shall accrue, voting rights, if any, terms for any conversion or
exchange into other securities, any redemption or sinking fund provisions, any
other rights, preferences, privileges, limitations or restrictions relating to
the Preferred Securities and the terms upon which the proceeds of the sale of
the Preferred Securities shall be used to purchase a specific series of
Corresponding Junior Subordinated Debt Securities of the Company. The
Prospectus Supplement will also contain information, where applicable, about
certain United States Federal income tax considerations relating to the
Securities described in the Prospectus Supplement. All or a portion of the
Securities may be issued in permanent or temporary global form (each a "Global
Security").
The aggregate initial offering price of all Securities shall not exceed
$600,000,000 (or, if any Securities are issued (i) with any initial offering
price denominated in a foreign currency or currency unit, such amount as shall
result in aggregate gross proceeds equivalent to $600,000,000 at the time of
initial offering or (ii) at an original issue discount, such greater amount as
shall result in aggregate gross proceeds of $600,000,000).
The Securities may be sold through underwriters or dealers or may be sold by
the Company and/or each Applied Power Trust directly or through agents
designated from time to time. The names of any underwriters or agents involved
in the sale of the Securities in respect to which this Prospectus is being
delivered and their compensation will be set forth in the Prospectus Supplement.
-----------------
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Prospectus or
the accompanying Prospectus Supplement and, if given or made, such information
or representation must not be relied upon as having been authorized by the
2
Company or any underwriter, dealer or agent. Neither the delivery of this
Prospectus or the accompanying Prospectus Supplement nor any sale made
hereunder or thereunder shall, under any circumstances, create an implication
that the information contained herein or in the accompanying Prospectus
Supplement is correct as of any date subsequent to the date hereof or thereof
or that there has been no change in the affairs of the Company since the date
hereof or thereof. Neither this Prospectus nor the accompanying Prospectus
Supplement constitutes an offer to sell or a solicitation of an offer to buy
Securities in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer
or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"), all of which
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Chicago Regional Office, Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661; and New York Regional Office,
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at the prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and accessed electronically at the web site maintained
by the Commission (http://www.sec.gov). Such material can also be inspected at
the offices of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New
York, New York 10005, where the Class A Common Stock is listed (symbol "APW").
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company and the Applied Power Trusts with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the Securities. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
where a copy of such document has been filed as an exhibit to the Registration
Statement or otherwise has been filed with the Commission, reference is made to
the copy of the applicable document so filed. Each such statement is qualified
in its entirety by such reference.
No separate financial statements of the Applied Power Trusts have been
included herein. The Company and the Applied Power Trusts do not consider that
such financial statements would be material to holders of the Preferred
Securities because (i) all of the voting securities of the Applied Power Trusts
will be owned, directly or indirectly, by the Company, a reporting company
under the Exchange Act, (ii) each Applied Power Trust is a newly formed special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding as
trust assets the Corresponding Junior Subordinated Debt Securities of the
Company and issuing the Trust Securities and (iii) the Company's obligations
described herein and in any accompanying Prospectus Supplement, through the
applicable Guarantee Agreement (as defined herein), the applicable Trust
Agreement (as defined herein), the Corresponding Junior Subordinated Debt
Securities and the applicable Securities Resolution under the Indenture (as
defined herein), taken together, constitute a full, irrevocable and
unconditional guarantee by the Company of payments due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Applied Power Trust's
obligations under the Preferred Securities. See "The Applied Power Trusts,"
"Description of Preferred Securities," "Description of Debt Securities--Certain
Provisions Relating to Corresponding Junior Subordinated Debt Securities" and
"Description of Guarantees."
3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (Commission File No.
1-11288) with the Commission pursuant to the Exchange Act are incorporated
herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1998;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1998;
(c) The Company's Current Report on Form 8-K dated September 29, 1998 and
Amendment No. 1 thereto on Form 8-K/A filed December 11, 1998; and
(d) The description of the Class A Common Stock contained in the
Company's Current Report on Form 8-K dated August 12, 1998 filed for the
purpose of updating and superseding the description of the Class A Common
Stock contained in the Company's Registration Statement on Form 8-A filed on
August 11, 1987, as previously updated by the Company's Current Report on
Form 8-K dated January 28, 1991.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Securities made hereby
shall be deemed to be incorporated by reference into this Prospectus from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner of Securities,
upon the written or oral request of any such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Such requests should be
directed to Investor Relations, Applied Power Inc., 13000 West Silver Spring
Drive, Butler, Wisconsin 53007 (telephone: (414) 783-9279).
-----------------
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$", "dollars" or
"U.S.$").
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
This Prospectus and any Prospectus Supplement (including the documents
incorporated herein or therein by reference) may contain statements that
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Prospective investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements
expressed or implied in such forward-looking statements. The words
"anticipate," "believe," "estimate," "expect," "project," "objective" and
similar expressions are intended to identify forward-looking statements. In
addition to the assumptions and other factors referred to specifically in
connection with such statements, factors that could cause the Company's actual
results to differ materially from those contemplated in the forward-looking
statements include factors described under the caption "Risk Factors That May
Affect Future Results" or similar cautionary captions in the documents
incorporated herein by reference.
4
THE COMPANY
The Company, a Wisconsin corporation incorporated in 1910, is a diversified
global company engaged in the business of providing tools, equipment, systems
and supply items to a variety of end-users and original equipment manufacturers
("OEMs") in the manufacturing, computer, semiconductor, telecommunication,
datacom, construction, electrical, transportation, recreational vehicle,
natural resources, aerospace, defense, and other industries.
The Company's operations are divided into three business segments:
. Enclosure Products and Systems
Electronic enclosure products, systems and technical environment solutions
sold into the telecommunications, computer networking, semiconductor
equipment, medical, electronic and manufacturing environments.
. Engineered Solutions
Motion, vibration control and magnetic applications and systems primarily
for OEM customers.
. Tools and Supplies
Industrial and electrical tools and supplies sold primarily through
distributors and mass merchandisers.
Enclosure Products and Systems
Enclosure Products and Systems ("EPS"), formerly known as Technical
Environments and Enclosures, provides users and manufacturers of electronic
equipment with technical furniture and electronic enclosure products and
systems. Technical furniture, sold primarily under the Wright Line brand name,
is used to configure the environment in which computers reside, including
computer room, manufacturing or technical office environments. Electronic
enclosure products are cabinets, racks and subracks that are sold under the
Stantron and VERO brand names. Other products include backplanes, power
supplies and cases sold under the VERO, Danica and ZERO Halliburton (R) brand
names, respectively. In addition to providing standard products, EPS sells
customized electronic enclosure systems allowing the Company to provide
completely integrated and tested products to a wide array of customers
including the telecommunication, computer networking, semiconductor
manufacturing equipment and automated teller machines markets. The systems
business is driven by the desire of many producers of electronic components to
outsource manufacturing and it relies heavily on EPS' skills in new product
development, supply chain management, assembly and testing. EPS also has a
global drop ship capability. EPS products are primarily sold direct, with
specific standard products going through distribution in selected markets. EPS
sales and manufacturing locations are mainly in Europe and North America.
Engineered Solutions
Engineered Solutions ("ES") is a technology based business providing
customized solutions to OEM customers in the truck, aerospace, automotive,
recreational vehicle, electrical/electronic enclosures and other general
industrial markets. ES possesses particular competence in hydraulic,
electromechanical, rubber/elastomer molding, magnetic, thermal systems and
electronic control techniques. Principal brand names that ES trades under
include McLean, Barry Controls, Power Gear, Power Packer, Vlier, Mox-Med and
Eder. The segment's sales, engineering and manufacturing activities are
primarily in Europe and North America. As an OEM supplier, ES operates as a
just-in-time supplier and maintains numerous quality certifications including
ISO 9001 and ISO 9000. Most ES sales are diversified by customer and end user
industry and are primarily sold through direct sales persons, with sales
representatives and distributors used in certain situations.
5
Tools and Supplies
Tools and Supplies ("TS") provides a wide array of electrical and industrial
tools and supplies to wholesale distributors, catalogs and various retail
channels of distribution. TS provides over 10,000 stock keeping units ("SKUs"),
most of which are designed and manufactured by the Company in North America. TS
has particular expertise in hydraulic design and plastic injection molding. The
Company maintains a sophisticated sourcing operation to supply additional
products to supplement its own products and meet its customers' needs.
Principal brand names used by the Company include Enerpac, GB Gardner Bender,
Ancor, Calterm and Del City. End user markets include general industrial,
construction, retail marine, retail automotive, do-it-yourself and production
automation. To provide its customers with the service levels required, TS
maintains a sophisticated warehouse and physical distribution capability in
North America, Europe and Asia. Certain products are sold on an OEM basis.
* * * * *
The Company has had an active acquisition program and regularly reviews
acquisition opportunities in the ordinary course of its business, some of which
may be material. Such opportunities may be under investigation, discussion, or
negotiation at any particular time or from time to time.
The Company's principal executive offices are located at 13000 West Silver
Spring Drive, Butler, Wisconsin 53007, and its telephone number is (414)
783-9279.
USE OF PROCEEDS
Except as otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities (other
than the Trust Securities) to refinance, in part, existing indebtedness and/or
for general corporate purposes. Funds not required immediately for such
purposes may be invested temporarily in short-term marketable securities. The
Company expects from time to time to continue to incur short-term and long-term
debt and to effect other financings, the amounts of which cannot now be
determined. Each Applied Power Trust will use all proceeds received from the
sale of its Trust Securities to purchase the applicable Corresponding Junior
Subordinated Debt Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the Company for the periods indicated.
Years Ended August 31,
Three Months Ended ---------------------------
November 30, 1998 (1)(2) 1998(3) 1997 1996 1995 1994
------------------------ ------- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges (4)(5) 2.6 2.6 5.3 7.4 5.5 4.0
- --------
(1) The Company's business has historically experienced the effects of
seasonality where the second half of the fiscal year generally produces
better results than the first half. The results for the first quarter ended
November 30, 1998, are not necessarily indicative of full year results.
(2) Net earnings for the three month period ended November 30, 1998, include a
one-time pre-tax contract termination charge of $7,824,000. Excluding this
charge and the related tax benefit, the ratio of earnings to fixed charges
would have been 3.1.
(3) 1998 net earnings include a non-recurring restructuring charge of
$52,637,000 which related to merger costs, various plant consolidations,
and other cost reductions and product rationalization efforts of the
Company. Excluding this charge and the related tax benefit, the ratio of
earnings to fixed charges would have been 4.6.
6
(4) The ratios reflect the combined results of operations and financial
position of the Company and ZERO Corporation, acquired by merger on July
31, 1998, restated for all periods presented pursuant to the
pooling-of-interests method of accounting, and reflect the results of other
acquired companies from their respective effective dates of acquisition in
accordance with the purchase method of accounting.
(5) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, cumulative effect of
change in accounting methods, discontinued operations, extraordinary items
and fixed charges. "Fixed charges" consist of interest on indebtedness,
amortization of debt expenses and one-third of rent expense which is deemed
representative of an interest factor.
THE APPLIED POWER TRUSTS
Each Applied Power Trust is a statutory business trust created under
Delaware law pursuant to (i) a trust agreement executed by the Company, as
depositor of such Applied Power Trust, and the Issuer Trustees (as defined
herein) of such Applied Power Trust and (ii) a certificate of trust filed with
the Delaware Secretary of State. Each trust agreement will be amended and
restated in its entirety (each as so amended and restated, a "Trust Agreement")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Each Trust Agreement will be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Each Applied Power Trust exists for the exclusive purposes of
(i) issuing and selling its Trust Securities, (ii) using the proceeds from the
sale of such Trust Securities to acquire a series of Corresponding Junior
Subordinated Debt Securities issued by the Company and (iii) engaging in only
those other activities necessary, convenient or incidental thereto. Each of the
Applied Power Trusts is a separate legal entity, and the assets of one will not
be available to satisfy the obligations of any other similar trust which may be
created.
All of the Common Securities of each Applied Power Trust will be owned by
the Company. The Common Securities of an Applied Power Trust will rank pari
passu, and payments will be made thereon pro rata, with the Preferred
Securities of such Applied Power Trust, except that upon the occurrence and
continuance of a Trust Event of Default (as defined herein) resulting from an
Event of Default with respect to Corresponding Junior Subordinated Debt
Securities, the rights of the Company as holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Preferred
Securities of such Applied Power Trust. See "Description of Preferred
Securities--Subordination of Common Securities." The Company will acquire
Common Securities in an aggregate liquidation amount equal to not less than 3%
of the total capital of each Applied Power Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Applied Power Trust has a term of approximately 50 years, but may dissolve
earlier as provided in the applicable Trust Agreement. Each Applied Power
Trust's business and affairs are conducted by its trustees, each appointed by
the Company as holder of the Common Securities. Unless otherwise specified in
the applicable Prospectus Supplement, the trustees for each Applied Power Trust
will be The First National Bank of Chicago, as the Property Trustee (the
"Property Trustee"), First Chicago Delaware Inc., as the Delaware Trustee (the
"Delaware Trustee"), and two individual trustees (the "Administrative
Trustees") who are employees or officers of or affiliated with the Company
(collectively, the "Issuer Trustees"). The First National Bank of Chicago, as
Property Trustee, will act as sole indenture trustee under each Trust Agreement
for purposes of compliance with the Trust Indenture Act. Unless otherwise
specified in the applicable Prospectus Supplement, The First National Bank of
Chicago will act as trustee under the Guarantee Agreement (as defined herein).
See "Description of Guarantees" and "Description of Debt Securities--Certain
Provisions Relating to Corresponding Junior Subordinated Debt Securities." The
holder of the Common Securities of an Applied Power Trust, or the holders of a
majority in liquidation amount of the outstanding related Preferred Securities
if a Trust Event of Default resulting from an Event of Default with respect to
Corresponding Junior Subordinated Debt Securities for such Applied Power Trust
has occurred and is continuing, will be entitled to appoint, remove or replace
the Property Trustee and/or the Delaware Trustee for such Applied Power Trust.
In no event will the holders of the Preferred Securities have the right to vote
to
7
appoint, remove or replace the Administrative Trustees; such voting rights are
vested exclusively in the holder of the Common Securities. The duties and
obligations of each Issuer Trustee are governed by the applicable Trust
Agreement. Pursuant to the Indenture, the Company, as borrower, will pay all
fees and expenses related to each Applied Power Trust and the offering of the
Preferred Securities and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of each Applied Power Trust.
The principal executive office of each Applied Power Trust is c/o Applied
Power Inc., 13000 West Silver Spring Drive, Butler, Wisconsin 53007, and its
telephone number is (414) 783-9279.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued in one or more series under an Indenture
(the "Indenture") between the Company and The First National Bank of Chicago,
as trustee (the "Trustee"), the form of which is filed as an exhibit to the
Registration Statement. The Indenture will be subject to, and governed by, the
Trust Indenture Act. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
express reference to the Indenture and the Securities Resolution (which may be
in the form of a resolution or a supplemental indenture) authorizing a series
(copies of which have been or will be filed with the Commission). All article
and section references herein are to the articles and sections of the
Indenture, and all capitalized terms used in this section without definition
have the meanings given such terms in the Indenture.
The Debt Securities will constitute senior, subordinated or junior
subordinated debt of the Company. The Debt Securities will be issued under one
or more separate Securities Resolutions for Senior Debt Securities,
Subordinated Debt Securities or Junior Subordinated Debt Securities. The
particular terms of the Debt Securities offered by a Prospectus Supplement will
be described in such Prospectus Supplement, along with any applicable
modifications of or additions to the general terms of the Debt Securities as
described herein and in the Indenture. Accordingly, for a description of the
terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
General
The Indenture does not limit the amount of Debt Securities that can be
issued thereunder and provides that the Debt Securities may be issued from time
to time in one or more series pursuant to the terms of one or more Securities
Resolutions creating such series. The Indenture does not restrict the amount of
debt that may be incurred by the Company or any subsidiary. The Indenture does
not contain any covenant or other provision that is specifically intended to
afford any Holder special protection in the event of highly leveraged
transactions or any other transactions resulting in a decline in the ratings or
credit quality of the Company. As of the date of this Prospectus, there were no
Debt Securities outstanding under the Indenture. The ranking of a series of
Debt Securities with respect to all indebtedness of the Company will be
established by the Securities Resolution creating such series. As of November
30, 1998, approximately $872 million of existing indebtedness of the Company
would have ranked pari passu with the Senior Debt Securities and senior to the
Subordinated Debt Securities and the Junior Subordinated Debt Securities and
there was no existing indebtedness of the Company that would have ranked pari
passu with the Subordinated Debt Securities and senior to the Junior
Subordinated Debt Securities. Although the Indenture provides for the possible
issuance of Debt Securities in other forms or currencies, the only Debt
Securities covered by this Prospectus will be Debt Securities denominated in
U.S. dollars in registered form without coupons unless otherwise indicated in
the applicable Prospectus Supplement.
Terms
Reference is made to the Prospectus Supplement for the following terms, if
applicable, of the Debt Securities offered thereby: (1) the designation,
aggregate principal amount, currency or composite currency and denominations;
(2) the price at which such Debt Securities will be issued and, if an index,
formula or other
8
method is used, the method for determining amounts of principal or interest;
(3) the maturity date and other dates, if any, on which principal will be
payable; (4) the interest rate or rates, if any, or method of calculating the
interest rate or rates; (5) the date or dates from which interest will accrue
and on which interest will be payable, and the record dates for the payment of
interest; (6) the manner of paying principal and interest; (7) the place or
places where principal and interest will be payable; (8) the terms of any
mandatory or optional redemption by the Company including any sinking fund; (9)
the terms of any conversion or exchange right; (10) the terms of any redemption
at the option of Holders; (11) any tax indemnity provisions; (12) if the Debt
Securities provide that payments of principal or interest may be made in a
currency other than that in which Debt Securities are denominated, the manner
for determining such payments; (13) the portion of principal payable upon
acceleration of a Discounted Debt Security (as defined below); (14) whether and
upon what terms Debt Securities may be defeased; (15) whether any events of
default or covenants in addition to or in lieu of those set forth in the
Indenture apply; (16) provisions for electronic issuance of Debt Securities or
for Debt Securities in uncertificated form; (17) the ranking of the Debt
Securities, including the relative degree, if any, to which the Debt Securities
of such series shall be subordinated to one or more other series of Debt
Securities in right of payment, whether outstanding or not; (18) any provisions
relating to extending or shortening the date on which the principal and
premium, if any, of the Debt Securities of such series is payable; (19) any
provisions relating to the deferral of payment of any interest; (20) if such
Debt Securities are to be issued to an Applied Power Trust, the forms of the
related trust agreement and guarantee agreement relating thereto; (21) the
additions or changes, if any, to the Indenture with respect to the Debt
Securities of such series as shall be necessary to permit or facilitate the
issuance of such Debt Securities to an Applied Power Trust; and (22) any other
terms not inconsistent with the provisions of the Indenture, including any
covenants or other terms that may be required or advisable under United States
or other applicable laws or regulations, or advisable in connection with the
marketing of the Debt Securities. (Section 2.01)
Debt Securities of any series may be issued as registered Debt Securities,
bearer Debt Securities or uncertificated Debt Securities, and in such
denominations as specified in the terms of the series. (Section 2.01)
In connection with its original issuance, no bearer Debt Security will be
offered, sold or delivered to any location in the United States, and a bearer
Debt Security in definitive form may be delivered in connection with its
original issuance only upon presentation of a certificate in a form prescribed
by the Company to comply with United States laws and regulations. (Section 2.04)
Registration of transfer of registered Debt Securities may be requested upon
surrender thereof at any agency of the Company maintained for that purpose and
upon fulfillment of all other requirements of the agent. (Sections 2.03 and
2.07)
Debt Securities may be issued under the Indenture as Discounted Debt
Securities to be offered and sold at a substantial discount from the principal
amount thereof. Special United States federal income tax and other
considerations applicable thereto will be described in the Prospectus
Supplement relating to such Discounted Debt Securities. "Discounted Debt
Security" means a Debt Security where the amount of principal due upon
acceleration is less than the stated principal amount. (Sections 1.01 and 2.10)
Conversion and Exchange
The terms, if any, on which Debt Securities of any series will be
convertible into or exchangeable for Class A Common Stock, Preferred Stock,
Preferred Securities or other securities, property, cash or obligations or a
combination of any of the foregoing, will be summarized in the Prospectus
Supplement relating to such series. Such terms may include provisions for
conversion or exchange, either on a mandatory basis, at the option of the
Holder or at the option of the Company.
Certain Covenants
Any restrictive covenants which may apply to a particular series of Debt
Securities will be described in the Prospectus Supplement relating thereto.
9
Ranking of Debt Securities
Unless stated otherwise in a Prospectus Supplement, the Debt Securities will
be unsecured and will rank equally and ratably with other unsecured and
unsubordinated debt of the Company. The Debt Securities will not be secured by
any properties or assets and will represent unsecured debt of the Company. The
Indenture does not limit the ability of any of the Company's subsidiaries to
issue debt, and the Debt Securities will be effectively subordinated to all
existing and future indebtedness and other liabilities and commitments of the
Company's subsidiaries.
Successor Obligor
The Indenture provides that, unless otherwise specified in the Securities
Resolution establishing a series of Debt Securities, the Company shall not
consolidate with or merge into, or transfer all or substantially all of its
assets to, any person in any transaction in which the Company is not the
survivor, unless: (1) the person is organized under the laws of the United
States or a State thereof or is organized under the laws of a foreign
jurisdiction and consents to the jurisdiction of the courts of the United
States or a State thereof; (2) the person assumes by supplemental indenture all
the obligations of the Company under the Indenture, the Debt Securities and any
coupons; (3) all required approvals of any regulatory body having jurisdiction
over the transaction shall have been obtained; and (4) immediately after the
transaction no Default (as defined below) exists. The successor shall be
substituted for the Company, and thereafter all obligations of the Company
under the Indenture, the Debt Securities and any coupons shall terminate.
(Section 5.01)
Exchange of Debt Securities
Registered Debt Securities may be exchanged for an equal aggregate principal
amount of registered Debt Securities of the same series and date of maturity in
such authorized denominations as may be requested upon surrender of the
registered Debt Securities at an agency of the Company maintained for such
purpose and upon fulfillment of all other requirements of such agent. (Section
2.07)
Defaults and Remedies
Unless the Securities Resolution establishing the series otherwise provides
(in which event the Prospectus Supplement will so state), an "Event of Default"
with respect to a series of Debt Securities will occur if:
(1) the Company defaults in any payment of interest on any Debt
Securities of such series when the same becomes due and payable and the
Default continues for a period of 30 days;
(2) the Company defaults in the payment of the principal and premium, if
any, of any Debt Securities of the series when the same becomes due and
payable at maturity or upon redemption, acceleration or otherwise;
(3) the Company defaults in the payment or satisfaction of any sinking
fund obligation with respect to any Debt Securities of the series as
required by the Securities Resolution establishing such series;
(4) the Company defaults in the performance of any of its other
agreements applicable to the series and the Default continues for 60 days
after the notice specified below;
(5) the Company pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian for it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
10
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case,
(B) appoints a Custodian for the Company or for all or substantially
all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 60 days; or
(7) there occurs any other Event of Default provided for in such series.
(Section 6.01)
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or a similar official under any
Bankruptcy Law. (Section 6.01)
"Default" means any event which is, or after notice or passage of time would
be, an Event of Default. A Default under subparagraph (4) above is not an Event
of Default until the Trustee or the Holders of at least 25% in principal amount
of the series notify the Company of the Default and the Company does not cure
the Default within the time specified after receipt of the notice. (Section
6.01) If an Event of Default occurs and is continuing on a series, the Trustee
by notice to the Company, or the Holders of at least 25% in principal amount of
the series (or, in the case of a series issued to an Applied Power Trust, so
long as any of the related Preferred Securities of such Applied Power Trust
remain outstanding, if, upon such Event of Default, the Trustee or the Holders
of not less than 25% in aggregate principal amount of such series fail to
declare the principal of all the Debt Securities of such series to be so
immediately due and payable, the holders of 25% in aggregate liquidation amount
of such Preferred Securities then outstanding shall have such right) by notice
to the Company and the Trustee, may declare the principal of and accrued
interest on all the Debt Securities of the series to be due and payable
immediately. Discounted Debt Securities may provide that the amount of
principal due upon acceleration is less than the stated principal amount. The
Holders of a majority in principal amount of the series, by notice to the
Trustee, may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default on the series have been cured or waived except nonpayment of principal
or interest that has become due solely because of the acceleration; provided,
that in the case of a series issued to an Applied Power Trust, so long as any
of the related Preferred Securities of such Applied Power Trust remain
outstanding, the holders of a majority in aggregate liquidation amount of such
Preferred Securities then outstanding shall also have such right to rescission
of acceleration and its consequences with respect to such series, subject to
the same conditions set forth above. (Section 6.02) If an Event of Default
occurs and is continuing on a series, the Trustee may pursue any available
remedy to collect principal or interest then due on the series, to enforce the
performance of any provision applicable to the series, or otherwise to protect
the rights of the Trustee and Holders of the series. (Section 6.03)
In the case of a series issued to an Applied Power Trust, any holder of the
related Preferred Securities of such Applied Power Trust shall have the right,
upon the occurrence and continuance of an Event of Default described in clauses
(1) and (2) of the first paragraph of this subsection with respect to such
series, to institute a suit directly against the Company to enforce payment to
such holder of the principal of, and premium, if any, and interest on, the Debt
Securities having a principal amount equal to the aggregate liquidation amount
of such Preferred Securities held by such holder. (Section 6.06)
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Debt Securities of the series. (Section 7.01) Subject to
certain limitations, Holders of a majority in principal amount of the Debt
Securities of the series may direct the Trustee in its exercise of any trust or
power with respect to such series. (Section 6.05) Except in the case of Default
in payment on a series, the Trustee may withhold from Holders of such series
notice of any continuing Default if it determines that withholding the notice
is in the interest of Holders of the series. (Section 7.04) The Company is
required to furnish the Trustee annually a brief certificate as to the
Company's compliance with all conditions and covenants under the Indenture.
(Section 4.04)
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The Indenture does not have a cross-default provision. Thus, a default by
the Company on any other debt, including any other series of Debt Securities,
would not constitute an Event of Default. A Securities Resolution may provide
for a cross-default provision, in which case the Prospectus Supplement will
describe the terms thereof.
Amendments and Waivers
The Indenture and the Debt Securities or any coupons of the series may be
amended, and any default may be waived as follows: Unless the Securities
Resolution otherwise provides (in which event the Prospectus Supplement will so
state), the Company and the Trustee may amend the Debt Securities, the
Indenture and any coupons with the written consent of the Holders of a majority
in principal amount of the Debt Securities of all series affected voting as one
class; provided that, in the case of a series issued to an Applied Power Trust,
so long as any of the related Preferred Securities of such Applied Power Trust
remain outstanding, no such amendment shall be made that adversely affects the
holders of such Preferred Securities in any material respect, and no
termination of the Indenture shall occur, without the prior consent of the
holders of not less than a majority in aggregate liquidation amount of such
Preferred Securities then outstanding unless and until the principal (and
premium, if any) of the Debt Securities of such series and all accrued and
unpaid interest thereon have been paid in full; and provided further that, in
the case of a series issued to an Applied Power Trust, so long as any of the
related Preferred Securities of such Applied Power Trust remain outstanding, no
amendment shall be made to the provisions of the Indenture described in the
fourth paragraph under "Defaults and Remedies" above without the prior consent
of the holders of each such Preferred Security then outstanding unless and
until the principal (and premium, if any) of the Debt Securities of such series
and all accrued and unpaid interest thereon have been paid in full. (Section
10.02) Unless the Securities Resolution otherwise provides (in which event the
Prospectus Supplement will so state), a Default on a particular series may be
waived with the consent of the Holders of a majority in principal amount of the
Debt Securities of the series (or, in the case of a series issued to an Applied
Power Trust, so long as any of the related Preferred Securities of such Applied
Power Trust remain outstanding, the holders of a majority in aggregate
liquidation amount of such Preferred Securities then outstanding). (Section
6.04) However, without the consent of each Debt Security holder affected, no
amendment or waiver may (1) reduce the amount of Debt Securities whose Holders
must consent to an amendment or waiver, (2) reduce the interest on or change
the time for payment of interest on any Debt Security, (3) change the fixed
maturity of any Debt Security, (4) reduce the principal of any non-Discounted
Debt Security or reduce the amount of the principal of any Discounted Debt
Security that would be due on acceleration thereof, (5) change the currency in
which the principal or interest on a Debt Security is payable, (6) make any
change that materially adversely affects the right to convert or exchange any
Debt Security, or (7) waive any Default in payment of interest on or principal
of a Debt Security. (Sections 6.04 and 10.02) Without the consent of any Debt
Security holder, the Company and the Trustee may amend the Indenture, the Debt
Securities or any coupons to cure any ambiguity, omission, defect, or
inconsistency; to provide for assumption of Company obligations to Debt
Securityholders in the event of a merger or consolidation requiring such
assumption; to provide that specific provisions of the Indenture shall not
apply to a series of Debt Securities not previously issued; to create a series
and establish its terms; to provide for a separate Trustee for one or more
series; or to make any change that does not materially adversely affect the
rights of any Debt Security holder. (Section 10.01)
Legal Defeasance and Covenant Defeasance
Debt Securities of a series may be defeased in accordance with their terms
and, unless the Securities Resolution establishing the terms of the series
otherwise provides, as set forth in the Indenture and described briefly below.
The Company at any time may terminate as to a series all of its obligations
(except for certain obligations, including obligations with respect to the
defeasance trust and obligations to register the transfer or exchange of a Debt
Security, to replace destroyed, lost or stolen Debt Securities and coupons, and
to maintain paying agencies in respect of the Debt Securities) with respect to
the Debt Securities of the series and any related coupons and the Indenture
("legal defeasance"). The Company at any time may terminate as to a series its
obligations, if any, with respect to the Debt Securities and coupons of the
series under any restrictive covenants which may be applicable to a particular
series ("covenant defeasance").
12
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, a series may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, a series may
not be accelerated by reference to any restrictive covenants which may be
applicable to a particular series. (Section 8.01)
To exercise either defeasance option as to a series, the Company must (i)
irrevocably deposit in trust (the "defeasance trust") with the Trustee or
another trustee money or U.S. Government Obligations, (ii) deliver a
certificate from a nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and interest when due
on the deposited U.S. Government Obligations, without reinvestment, plus any
deposited money without investment will provide cash at such times and in such
amounts as will be sufficient to pay the principal and interest when due on all
Debt Securities of such series to maturity or redemption, as the case may be,
and (iii) comply with certain other conditions. In particular, the Company must
obtain an opinion of tax counsel that the defeasance will not result in
recognition of any gain or loss to Holders for federal income tax purposes.
"U.S. Government Obligations" means direct obligations of the United States or
an agency or instrumentality of the United States, the payment of which is
unconditionally guaranteed by the United States, which, in either case, have
the full faith and credit of the United States of America pledged for payment
and which are not callable at the issuer's option, or certificates representing
an ownership interest in such obligations. (Section 8.02)
Certain Provisions Relating to Corresponding Junior Subordinated Debt Securities
General. The Corresponding Junior Subordinated Debt Securities may be issued
in one or more series of Junior Subordinated Debt Securities under the
Indenture with terms corresponding to the terms of a series of related
Preferred Securities. Concurrently with the issuance of each Applied Power
Trust's Preferred Securities, such Applied Power Trust will invest the proceeds
thereof and the consideration paid by the Company for the Common Securities in
a series of Corresponding Junior Subordinated Debt Securities issued by the
Company to such Applied Power Trust. Each series of Corresponding Junior
Subordinated Debt Securities will be in the principal amount equal to the
aggregate stated Liquidation Amount of the related Preferred Securities and the
Common Securities of such Applied Power Trust and will rank pari passu with all
other series of Junior Subordinated Debt Securities. Holders of the related
Preferred Securities for a series of Corresponding Junior Subordinated Debt
Securities will have the rights in connection with modifications to the
Indenture or upon occurrence of a Trust Event of Default (as defined under
"Description of Preferred Securities--Events of Default; Notice") relating to
Corresponding Junior Subordinated Debt Securities described under "--Amendments
and Waivers," "--Defaults and Remedies," and "--Enforcement of Certain Rights
by Holders of Preferred Securities," unless provided otherwise in the
Prospectus Supplement for such related Preferred Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company will covenant, as to each series of Corresponding Junior Subordinated
Debt Securities, (i) to maintain, directly or indirectly, 100% ownership of the
Common Securities of the Applied Power Trust to which Corresponding Junior
Subordinated Debt Securities have been issued, provided that certain successors
which are permitted pursuant to the Indenture may succeed to the Company's
ownership of the Common Securities, (ii) not to voluntarily dissolve, wind-up
or liquidate any Applied Power Trust, except (a) in connection with a
distribution of Corresponding Junior Subordinated Debt Securities to the
holders of the Preferred Securities in liquidation of such Applied Power Trust
or (b) in connection with certain mergers, consolidations or amalgamations
permitted by the related Trust Agreement and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the related Trust
Agreement, to cause such Applied Power Trust to remain classified as a grantor
trust and not as an association taxable as a corporation for United States
Federal income tax purposes. For additional covenants relating to payment of
certain expenses of the Applied Power Trusts, see "Description of Preferred
Securities--Payment of Expenses."
Option to Extend Interest Payment Date. If provided in the applicable
Prospectus Supplement, the Company shall have the right at any time and from
time to time during the term of any series of Corresponding
13
Junior Subordinated Debt Securities to defer payment of interest for such
number of consecutive interest payment periods as may be specified in the
applicable Prospectus Supplement (each, an "Extension Period"), subject to the
terms, conditions and covenants, if any, specified in such Prospectus
Supplement, provided that such Extension Period may not extend beyond the
maturity date of such series of Corresponding Junior Subordinated Debt
Securities. Certain United States Federal income tax consequences and special
considerations applicable to any such Corresponding Junior Subordinated Debt
Securities will be described in the applicable Prospectus Supplement.
Redemption. Unless otherwise indicated in the applicable Prospectus
Supplement, the Company may, at its option, redeem the Corresponding Junior
Subordinated Debt Securities of any series in whole at any time or in part from
time to time. Corresponding Junior Subordinated Debt Securities may be redeemed
in the denominations as set forth in the applicable Prospectus Supplement.
Except as otherwise specified in the applicable Prospectus Supplement, the
redemption price for any Corresponding Junior Subordinated Debt Security so
redeemed shall equal any accrued and unpaid interest thereon to the redemption
date, plus the principal amount thereof. Unless otherwise specified in the
applicable Prospectus Supplement, the Company may not redeem a series of
Corresponding Junior Subordinated Debt Securities in part unless all accrued
and unpaid interest has been paid in full on all outstanding Corresponding
Junior Subordinated Debt Securities of such series for all interest periods
terminating on or prior to the redemption date.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Junior Subordinated Debt Security Tax Event (as defined below) or an Investment
Company Event (as defined below) in respect of an Applied Power Trust shall
occur and be continuing, the Company may, at its option, redeem the
Corresponding Junior Subordinated Debt Securities held by such Applied Power
Trust at any time within 90 days of the occurrence of such Junior Subordinated
Debt Security Tax Event or Investment Company Event, in whole but not in part,
subject to the provisions of the applicable Securities Resolution. The
redemption price for any such Corresponding Junior Subordinated Debt Securities
shall be equal to 100% of the principal amount of such Corresponding Junior
Subordinated Debt Securities then outstanding plus accrued and unpaid interest
to the date fixed for redemption. For so long as the applicable Applied Power
Trust is the holder of all such outstanding Corresponding Junior Subordinated
Debt Securities, the proceeds of any such redemption will be used by the
Applied Power Trust to redeem the corresponding Trust Securities in accordance
with their terms.
"Junior Subordinated Debt Security Tax Event" means the receipt by the
applicable Applied Power Trust of an opinion of counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
written decision, pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which proposed change, pronouncement, action or decision is announced on or
after the date of issuance of the applicable series of Corresponding Junior
Subordinated Debt Securities pursuant to the applicable Securities Resolution,
there is more than an insubstantial risk that (i) the applicable Applied Power
Trust is, or will be within 90 days of the date of such opinion, subject to
United States Federal income tax with respect to income received or accrued on
the corresponding series of Corresponding Junior Subordinated Debt Securities,
(ii) interest payable by the Company on such series of Corresponding Junior
Subordinated Debt Securities is not, or within 90 days of the date of such
opinion, will not be, deductible by the Company, in whole or in part, for
United States Federal income tax purposes or (iii) the applicable Applied Power
Trust is, or will be within 90 days of the date of such opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
"Investment Company Event" means the receipt by the applicable Applied Power
Trust of an opinion of counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in the Investment
Company Act"), the applicable Applied Power Trust is or will be considered an
"investment company" that is required to be registered under the
14
Investment Company Act of 1940, as amended (the "Investment Company Act"),
which Change in the Investment Company Act becomes effective on or after the
date of original issuance of the series of Preferred Securities issued by the
Applied Power Trust.
Restrictions on Certain Payments. The Company will, unless otherwise
provided in the applicable Prospectus Supplement, covenant, as to each series
of Corresponding Junior Subordinated Debt Securities, that it will not, and
will not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other
Corresponding Junior Subordinated Debt Securities) that rank pari passu with or
junior in interest to the Corresponding Junior Subordinated Debt Securities or
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks pari
passu or junior in interest to the Corresponding Junior Subordinated Debt
Securities (other than (a) dividends or distributions in common stock of the
Company, (b) redemptions or purchases of any rights pursuant to the Company's
shareholder rights plan ("Rights Agreement"), if any, or any successor to such
Rights Agreement, and the declaration of a dividend of such rights or the
issuance of stock under a Rights Agreement in the future, (c) payments under
any Guarantee and (d) purchases of common stock related to the issuance of
common stock under any of the Company's benefit plans for its directors,
officers or employees) if at such time (A) there shall have occurred any event
of which the Company has actual knowledge (a) that with the giving of notice or
the lapse of time, or both, would constitute an Event of Default under the
Indenture with respect to the Corresponding Junior Subordinated Debt Securities
of such series and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (B) if such Corresponding Junior Subordinated Debt
Securities are held by an Applied Power Trust which is the issuer of a series
of related Preferred Securities, the Company shall be in default with respect
to its payment of any obligations under the Guarantee relating to such related
Preferred Securities or (C) the Company shall have given notice of its
selection of an Extension Period as provided pursuant to the Securities
Resolution with respect to the Corresponding Junior Subordinated Debt
Securities of such series and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
Enforcement of Certain Rights by Holders of Preferred Securities. If an
Event of Default with respect to a series of Corresponding Junior Subordinated
Debt Securities has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal of or premium, if any, or
interest, if any, on such series of Corresponding Junior Subordinated Debt
Securities on the date such interest, premium or principal is otherwise
payable, a holder of related Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or premium, if any, or interest, if any, on such
Corresponding Junior Subordinated Debt Securities having a principal amount
equal to the aggregate Liquidation Amount of the related Preferred Securities
of such holder (a "Direct Action"). The Company may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Preferred Securities. If the right to
bring a Direct Action is removed, the applicable Applied Power Trust may become
subject to the reporting obligations under the Exchange Act. The Company shall
have the right pursuant to the Indenture to set-off any payment made to such
holder of Preferred Securities by the Company in connection with a Direct
Action. Unless otherwise specified in the applicable Prospectus Supplement, the
holders of the related Preferred Securities will not be able to exercise
directly any remedies other than those set forth in this paragraph available to
the holders of the Corresponding Junior Subordinated Debt Securities.
Regarding the Trustee
The First National Bank of Chicago will act as Trustee and Registrar for
Debt Securities issued under the Indenture and, unless otherwise indicated in a
Prospectus Supplement, the Trustee will also act as Transfer Agent and Paying
Agent with respect to the Debt Securities. (Section 2.03) The Company may
remove the Trustee with or without cause if the Company so notifies the Trustee
three months in advance and if no Default occurs during
15
the three-month period. (Section 7.07) The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its affiliates, and may otherwise deal with the Company or
its affiliates, as if it were not Trustee.
DESCRIPTION OF WARRANTS TO PURCHASE DEBT SECURITIES
The following statements with respect to Warrants to purchase Debt
Securities (the "Debt Warrants") are summaries of, and subject to, the detailed
provisions of a Debt Warrant Agreement (the "Debt Warrant Agreement") to be
entered into by the Company and a warrant agent to be selected at the time of
issue (the "Debt Warrant Agent"), a form of which will be filed with the
Commission.
General
The Debt Warrants, evidenced by Debt Warrant certificates (the "Debt Warrant
Certificates"), may be issued under the Debt Warrant Agreement independently or
together with any Securities offered by any Prospectus Supplement and may be
attached to or separate from such Securities. If Debt Warrants are offered, the
Prospectus Supplement will describe the terms of the Debt Warrants, including
the following: (i) the offering price, if any; (ii) the designation, aggregate
principal amount, and terms of the Debt Securities purchasable upon exercise of
the Debt Warrants; (iii) if applicable, the designation and terms of the
Securities with which the Debt Warrants are issued and the number of Debt
Warrants issued with each such Security; (iv) if applicable, the date on and
after which the Debt Warrants and the related Securities will be separately
transferable; (v) the principal amount of Debt Securities purchasable upon
exercise of one Debt Warrant and the price at which such principal amount of
Debt Securities may be purchased upon such exercise; (vi) the date on which the
right to exercise the Debt Warrants shall commence and the date on which such
right shall expire; (vii) Federal income tax consequences; (viii) whether the
Debt Warrants represented by the Debt Warrant Certificates will be issued in
registered or bearer form; and (ix) any other terms of the Debt Warrants.
Debt Warrant Certificates may be exchanged for new Debt Warrant Certificates
of different denominations and may (if in registered form) be presented for
registration of transfer at the corporate trust office of the Debt Warrant
Agent or any Co-Debt Warrant Agent, which will be identified in the Prospectus
Supplement, or at such other office as may be set forth therein. Holders of
Debt Warrants do not have any of the rights of Holders of Debt Securities
(except to the extent that the consent of holders of Debt Warrants may be
required for certain modifications of the terms of the Indenture and the series
of Debt Securities issuable upon exercise of the Debt Warrants) and are not
entitled to payments of principal of and interest, if any, on such Debt
Securities.
Exercise of Warrants to Purchase Debt Securities
Debt Warrants may be exercised by surrendering the Debt Warrant Certificate
at the corporate trust office of the Debt Warrant Agent or at the corporate
trust office of the Co-Debt Warrant Agent, if any, with the form of election to
purchase on the reverse side of the Debt Warrant Certificate properly completed
and executed, and by payment in full of the exercise price, as set forth in the
Prospectus Supplement. Upon the exercise of Debt Warrants, the Debt Warrant
Agent or Co-Debt Warrant Agent, if any, will, as soon as practicable, deliver
the Debt Securities in authorized denominations in accordance with the
instructions of the holder exercising the Debt Warrant and at the sole cost and
risk of such holder. If less than all of the Debt Warrants evidenced by the
Debt Warrant Certificate are exercised, a new Debt Warrant Certificate will be
issued for the remaining amount of Debt Warrants.
16
DESCRIPTION OF PREFERRED STOCK AND COMMON STOCK
The following summary does not purport to be a complete description of the
applicable provisions of the Company's Restated Articles of Incorporation (the
"Articles") and Amended and Restated Bylaws (the "Bylaws"), as amended from
time to time, copies of which have been or will be filed with the Commission,
or of applicable statutory or other law, and is qualified in its entirety by
reference thereto.
The authorized capital stock of the Company as of November 30, 1998,
consisted of 80,000,000 shares of Class A Common Stock, $.20 par value ("Class
A Common Stock"), of which 38,674,551 shares were issued and outstanding;
7,500,000 shares of Class B Common Stock, $.20 par value ("Class B Common
Stock"), 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. Class A Common Stock and Class B Common Stock are
collectively referred to herein as "Common Stock."
Preferred Stock
The Preferred Stock may be issued in one or more series providing for such
dividend rates, voting, liquidation, redemption, and conversion rights, and
such other terms and conditions as the Board of Directors of the Company may
determine, without further approval by holders of Common Stock. If any shares
of Class B Common Stock were outstanding, any voting rights conferred on
holders of Preferred Stock would be limited, with respect to the election of
directors, to the power to vote together with holders of Class A Common Stock
in electing a "maximum minority" of the Board of Directors, as described under
"Common Stock" below.
If the Company issues any shares of Preferred Stock, the Company would be
permitted to pay dividends or make other distributions upon the Common Stock
(except for distributions payable in shares of Common Stock) only after paying
or setting apart funds for payment of current dividends and any accrued but
unpaid dividends upon the outstanding Preferred Stock, at the rate or rates
designated for each series of outstanding Preferred Stock, and making provision
for any mandatory sinking fund payments. In the event of voluntary or
involuntary liquidation of the Company, the holders of any outstanding
Preferred Stock would be entitled to receive all accrued dividends on the
Preferred Stock and the liquidation amount specified for each series of
Preferred Stock before any amount may be distributed to holders of the Common
Stock.
Each series of Preferred Stock will have such designation, preferences,
limitations and relative rights as shall be stated in the resolution or
resolutions providing for the designation and issue of such series adopted by
the Board of Directors (or any duly authorized committee thereof). The
amendment to the Articles setting forth the terms of each series will be filed
with the Commission in connection with the offering of such series of Preferred
Stock. The Prospectus Supplement relating to an offering of Preferred Stock (or
securities convertible into Preferred Stock) will describe terms relevant
thereto including the number of shares offered, the initial offering price and
the relative rights and preferences of the shares of such series.
Under the Articles, all shares of Preferred Stock shall be identical except
as to the following relative rights and preferences, as to which the Board of
Directors may establish variations between different series not inconsistent
with other provisions in the Articles: (a) the dividend rate; (b) the price at
and terms and conditions on which shares may be redeemed; (c) the amount
payable upon shares in the event of voluntary or involuntary liquidation; (d)
sinking fund provisions for the redemption or purchase of shares; (e) the terms
and conditions on which shares may be converted into Common Stock, if the
shares of any series are issued with the privilege of conversion; and (f)
voting rights, if any, subject to the provisions regarding voting rights
described herein.
As described under "Description of Depositary Shares," the Company may, at
its option, elect to offer depositary shares ("Depositary Shares") evidenced by
depositary receipts ("Depositary Receipts"), each representing an interest (to
be specified in the Prospectus Supplement relating to the particular series of
the Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Preferred Stock Depositary (as defined below).
17
The holders of Preferred Stock will have no preemptive rights. Under the
Articles, each series of Preferred Stock will, with respect to dividend rights
and rights on liquidation, dissolution and winding up of the Company, rank
prior to the Common Stock and on a parity with each other series of Preferred
Stock.
Common Stock
The rights and preferences of shares of Class A Common Stock and Class B
Common Stock are identical, except as to voting power with respect to the
election of directors and conversion rights.
On all matters other than the election of directors, the holders of Class A
Common Stock and Class B Common Stock possess equal voting power of one vote
per share, voting as a single class of stock (unless otherwise required by the
Wisconsin Business Corporation Law--the "WBCL"). In the election of the Board
of Directors, the holders of Class A Common Stock, voting together as a single
class with the holders of any Preferred Stock which has voting power, are
entitled to elect a "maximum minority" of the number of directors to be
elected. As a result of the "maximum minority" provision, the holders of the
Class B Common Stock, voting as a separate class, are entitled to elect the
balance of the directors, constituting a "minimum majority" of the number of
directors to be elected. If an even number of directors is to be elected, the
holders of Class B Common Stock will be entitled to elect two more directors
than the holders of Class A Common Stock and any Preferred Stock having voting
power; if the number of directors to be elected is an odd number, the holders
of Class B Common Stock will be entitled to elect one more director than the
holders of Class A Common Stock and any Preferred Stock having voting power. In
the event there are no shares of Class B Common Stock outstanding, holders of
Class A Common Stock, together with holders of any Preferred Stock having
voting power, shall elect all of the directors to be elected. A director, once
elected and duly qualified, may be removed only by the requisite affirmative
vote of the holders of that class of stock by which such director was elected.
Holders of both classes of Common Stock are equally entitled to such
dividends as the Company's Board of Directors may declare out of funds legally
available therefor. If the Company were to issue any of its authorized
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.
Certain covenants contained in the Company's debt agreements, or in the
provisions of the Articles for the benefit of any Preferred Stock that may be
issued, from time to time could have the direct or indirect effect of limiting
the payment of dividends or other distributions on (including redemptions and
purchases of) the Company's capital stock. Stock dividends on Class A Common
Stock may be paid only in shares of Class A Common Stock and stock dividends on
Class B Common Stock may be paid only in shares of Class B Common Stock.
The Articles contain provisions which provide for the conversion of Class B
Common Stock into shares of Class A Common Stock on a share-for-share basis at
the option of the holder, and for the automatic conversion of all outstanding
shares of Class B Common Stock to Class A Common Stock on a share-for-share
basis when the number of outstanding shares of Class B Common Stock was reduced
below a certain threshold. All of the shares of Class B Common Stock that had
been outstanding were converted into Class A Common Stock pursuant to these
conversion provisions. Holders of Class A Common Stock do not have any
conversion rights.
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.
The Class A Common Stock is listed on the NYSE. Firstar Bank Milwaukee,
N.A., Milwaukee, Wisconsin, serves as the transfer agent for the Class A Common
Stock.
18
General
The Articles provide that the affirmative vote of two-thirds of all shares
entitled to vote thereon is required in order to constitute shareholder
approval of a merger, consolidation, or liquidation of the Company, sale or
other disposition of all or substantially all of its assets, amendment of the
Articles or the Bylaws, or removal of a director.
Directors of the Company are currently elected to serve one-year terms. The
Articles provide that the Bylaws (which may be amended by the Board of
Directors or by the shareholders) may provide for the division of the Board of
Directors into two or three classes, serving staggered two or three-year terms.
When the Company has received the consideration for which the Board of
Directors authorized the issuance of shares, the shares issued for that
consideration are fully paid and nonassessable. Shareholders are subject to
personal liability under Section 180.0622(2)(b) of the WBCL, as judicially
interpreted, for debts owing to employees of the Company for services performed
for the Company, but not exceeding six months' service in any one case.
Holders of capital stock of the Company do not have preemptive or other
subscription rights to purchase or subscribe for unissued stock or other
securities of the Company.
Certain Statutory Provisions
Under Section 180.1150(2) of the WBCL, the voting power of shares of a
"resident domestic corporation," such as the Company (as long as it continues
to meet the statutory definition), which are held by any person (including two
or more persons acting in concert) in excess of 20% of the voting power in the
election of directors shall be limited (in voting on any matter) to 10% of the
full voting power of the shares in excess of 20%, unless full voting rights
have been restored at a special meeting of the shareholders called for that
purpose. Shares held or acquired under certain circumstances are excluded from
the application of Section 180.1150(2), including (among others) shares
acquired directly from the Company, shares acquired before April 22, 1986, and
shares acquired in a merger or share exchange to which the Company is a party.
Sections 180.1130 to 180.1134 of the WBCL provide generally that, in
addition to the vote otherwise required by law or the articles of incorporation
of a "resident domestic corporation," such as the Company (as long as it
continues to meet the statutory definition), certain business combinations not
meeting certain fair price standards specified in the statute must be approved
by the affirmative vote of at least (a) 80% of the votes entitled to be cast by
the outstanding voting shares of the corporation and (b) two-thirds of the
votes entitled to be cast by the holders of voting shares other than voting
shares beneficially owned by a "significant shareholder" or an affiliate or
associate thereof who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
share exchange of the resident domestic corporation (or any subsidiary thereof)
with, or the sale or other disposition of all or substantially all of the
property and assets of the resident domestic corporation to, any significant
shareholder or affiliate thereof. "Significant shareholder" is defined
generally to mean a person that is the beneficial owner of 10% or more of the
voting power of the outstanding voting shares of the resident domestic
corporation. The statute also restricts the repurchase of shares and the sale
of corporate assets by a resident domestic corporation in response to a
take-over offer.
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as the Company
(as long as it continues to meet the statutory definition), and a person
beneficially owning 10% or more of the voting power of the outstanding voting
stock of such corporation (an "interested stockholder") within three years
after the date such person became a 10% beneficial owner, unless the business
combination or the acquisition of such stock has been approved before the stock
acquisition date by the corporation's board of directors. Business combinations
after the three-year period following the stock acquisition date are permitted
only if (i) the board of directors approved the acquisition of the stock prior
to the
19
acquisition date, (ii) the business combination is approved by a majority of
the outstanding voting stock not beneficially owned by the interested
stockholder, or (iii) the consideration to be received by shareholders meets
certain fair price requirements of the statute with respect to form and amount.
Under the WBCL, as amended in 1997, a "resident domestic corporation" is
defined to mean a Wisconsin corporation that has a class of voting stock that
is registered or traded on a national securities exchange or that is registered
under Section 12(g) of the Exchange Act and that, as of the relevant date,
satisfies any of the following: (i) its principal offices are located in
Wisconsin; (ii) it has significant business operations located in Wisconsin;
(iii) more than 10% of the holders of record of its shares are residents of
Wisconsin; or (iv) more than 10% of its shares are held of record by residents
of Wisconsin. The Company is a "resident domestic corporation" for purposes of
the above described provisions. A Wisconsin corporation that is otherwise
subject to certain of such statutes may preclude their applicability by an
election to that effect in its articles of incorporation. The Company's
Articles do not contain any such election.
These provisions of the WBCL, the ability to issue additional shares of
Common Stock and Preferred Stock without further shareholder approval (except
as required under NYSE corporate governance standards), and certain other
provisions of the Company's Articles (discussed above) could have the effect,
among others, of discouraging take-over proposals for the Company, delaying or
preventing a change in control of the Company, or impeding a business
combination between the Company and a major shareholder of the Company.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts summarizes the material terms of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts, and is
qualified in its entirety by reference to the form of Deposit Agreement and
form of Depositary Receipts relating to each series of the Preferred Stock.
General
The Company may, at its option, elect to have shares of Preferred Stock
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") between the Company and a bank or
trust company selected by the Company (the "Preferred Stock Depositary"). The
Prospectus Supplement relating to a series of Depositary Shares will set forth
the name and address of the Preferred Stock Depositary. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled,
proportionately, to all the rights, preferences and privileges of the Preferred
Stock represented thereby (including dividend, voting, redemption, conversion,
exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
A holder of Depositary Shares will be entitled to receive the shares of
Preferred Stock (but only in whole shares of Preferred Stock) underlying such
Depositary Shares. If the Depositary Receipts delivered by the holder evidence
a number of Depositary Shares in excess of the whole number of shares of
Preferred Stock to be withdrawn, the Depositary will deliver to such holder at
the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
Dividends and Other Distributions
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect to the Preferred Stock to the record holders of
Depositary Receipts in proportion, insofar as possible, to the number of
Depositary Shares owned by such holders.
20
In the event of a distribution other than in cash in respect to the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines that it is not feasible to
make such distribution, in which case the Preferred Stock Depositary may, with
the approval of the Company, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including sale of
such property and distribution of the net proceeds from such sale to such
holders.
The amount so distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by the Company or the Preferred Stock
Depositary on account of taxes.
Conversion and Exchange
If any Preferred Stock underlying the Depositary Shares is subject to
provisions relating to its conversion or exchange as set forth in the
Prospectus Supplement relating thereto, each record holder of Depositary Shares
will have the right or obligation to convert or exchange such Depositary Shares
pursuant to the terms thereof.
Redemption of Depositary Shares
If Preferred Stock underlying the Depositary Shares is subject to
redemption, the Depositary Shares will be redeemed from the proceeds received
by the Preferred Stock Depositary resulting from the redemption, in whole or in
part, of the Preferred Stock held by the Preferred Stock Depositary. The
redemption price per Depositary Share will be equal to the aggregate redemption
price payable with respect to the number of shares of Preferred Stock
underlying the Depositary Shares. Whenever the Company redeems Preferred Stock
from the Preferred Stock Depositary, the Preferred Stock Depositary will redeem
as of the same redemption date a proportionate number of Depositary Shares
representing the shares of Preferred Stock that were redeemed. If less than all
the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected by lot or pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
Voting
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice
to the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
Record Date
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or
21
(ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of or
any election on the part of the Company to call for the redemption of any
Preferred Stock, the Preferred Stock Depositary shall in each such instance fix
a record date (which shall be the same as the record date for the Preferred
Stock) for the determination of the holders of Depositary Receipts (x) who
shall be entitled to receive such dividend, distribution, rights, preferences
or privileges or the net proceeds of the sale thereof or (y) who shall be
entitled to give instructions for the exercise of voting rights at any such
meeting or to receive notice of such meeting or of such redemption or
conversion, subject to the provisions of the Deposit Agreement.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt and any provision of the Deposit Agreement
may at any time be amended by agreement between the Company and the Preferred
Stock Depositary. However, any amendment which imposes or increases any fees,
taxes or other charges payable by the holders of Depositary Receipts (other
than taxes and other governmental charges, fees and other expenses payable by
such holders as stated under "Charges of Preferred Stock Depositary"), or which
otherwise prejudices any substantial existing right of holders of Depositary
Receipts, will not take effect as to outstanding Depositary Receipts until the
expiration of 90 days after notice of such amendment has been mailed to the
record holders of outstanding Depositary Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred
Stock Depositary may likewise terminate the Deposit Agreement if at any time 45
days shall have expired after the Preferred Stock Depositary shall have
delivered to the Company a written notice of its election to resign and a
successor depositary shall not have been appointed and accepted its
appointment. If any Depositary Receipts remain outstanding after the date of
termination, the Preferred Stock Depositary thereafter will discontinue the
transfer of Depositary Receipts, will suspend the distribution of dividends to
the holders thereof, and will not give any further notices (other than notice
of such termination) or perform any further acts under the Deposit Agreement
except as provided below and except that the Preferred Stock Depositary will
continue (i) to collect dividends on the Preferred Stock and any other
distributions with respect thereto and (ii) to deliver the Preferred Stock
together with such dividends and distributions and the net proceeds of any
sales of rights, preferences, privileges or other property, without liability
for interest thereon, in exchange for Depositary Receipts surrendered. At any
time after the expiration of two years from the date of termination, the
Preferred Stock Depositary may sell the Preferred Stock then held by it at
public or private sales, at such place or places and upon such terms as it
deems proper and may thereafter hold the net proceeds of any such sale,
together with any money and other property then held by it, without liability
for interest thereon, for the pro rata benefit of the holders of Depositary
Receipts which have not been surrendered.
Charges of Preferred Stock Depositary
The Company will pay all charges of the Preferred Stock Depositary including
charges in connection with the initial deposit of the Preferred Stock, the
initial issuance of the Depositary Receipts, the distribution of information to
the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
Miscellaneous
The Preferred Stock Depositary will make available for inspection by holders
of Depositary Receipts at its corporate office and its New York office, all
reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
22
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to
performing its duties thereunder without negligence or bad faith. The
obligations of the Company under the Deposit Agreement are limited to
performing its duties thereunder in good faith. Neither the Company nor the
Preferred Stock Depositary is obligated to prosecute or defend any legal
proceeding in respect of any Depositary Shares or Preferred Stock unless
satisfactory indemnity is furnished. The Company and the Preferred Stock
Depositary are entitled to rely upon advice of or information from counsel,
accountants or other persons believed to be competent and on documents believed
to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock
Depositary has delivered a notice of election to resign to the Company, the
Preferred Stock Depositary may terminate the Deposit Agreement. See
"--Amendment and Termination of the Deposit Agreement" above.
DESCRIPTION OF WARRANTS TO PURCHASE CLASS A
COMMON STOCK OR PREFERRED STOCK
The following statements with respect to the Warrants to purchase Class A
Common Stock or Preferred Stock (the "Stock Warrants") are summaries of, and
subject to, the detailed provisions of a Stock Warrant Agreement (the "Stock
Warrant Agreement") to be entered into by the Company and a warrant agent to be
selected at the time of issue (the "Stock Warrant Agent"), a form of which will
be filed with the Commission.
General
The Stock Warrants, evidenced by Stock Warrant certificates (the "Stock
Warrant Certificates"), may be issued under the Stock Warrant Agreement
independently or together with any Securities offered by any Prospectus
Supplement and may be attached to or separate from such Securities. If Stock
Warrants are offered, the Prospectus Supplement will describe the terms of the
Stock Warrants, including the following: (i) the offering price, if any; (ii)
the number of shares of Preferred Stock or Class A Common Stock purchasable
upon exercise of each Stock Warrant and the initial price at which such shares
may be purchased upon exercise; (iii) if applicable, the designation and terms
of the Securities with which the Stock Warrants are issued and the number of
Stock Warrants issued with each such Security; (iv) if applicable, the date on
and after which the Stock Warrants and the related Preferred Stock or Class A
Common Stock will be separately transferable; (v) the date on which the right
to exercise the Stock Warrants shall commence and the date on which such right
shall expire; (vi) federal income tax consequences;(vii) call provisions of
such Stock Warrants, if any; (viii) whether the Stock Warrants represented by
the Stock Warrant Certificates will be issued in registered or bearer form; and
(ix) any additional or other rights, preferences, privileges, limitations and
restrictions relating to the Stock Warrants. The shares of Preferred Stock or
Class A Common Stock issuable upon the exercise of the Stock Warrants will,
when issued in accordance with the Stock Warrant Agreement, be fully paid and
nonassessable.
Stock Warrant Certificates may be exchanged for new Stock Warrant
Certificates of different denominations and may (if in registered form) be
presented for registration of transfer at the corporate trust office of the
Stock Warrant Agent or any Co-Stock Warrant Agent, which will be identified in
the Prospectus Supplement, or at such other office as may be set forth therein.
Holders of Stock Warrants do not have any of the rights of holders of Class A
Common Stock or Preferred Stock (except to the extent that the consent of
holders of Stock Warrant may be required for certain modifications of the terms
of the Class A Common Stock or Preferred Stock issuable upon exercise of the
Stock Warrants) and are not entitled to dividend payments on the Class A Common
Stock or Preferred Stock purchasable upon such exercise.
23
Exercise of Stock Warrants
Stock Warrants may be exercised by surrendering the Stock Warrant
Certificate at the corporate trust office of the Stock Warrant Agent or at the
corporate trust office of the Co-Stock Warrant Agent, if any, with the form of
election to purchase on the reverse side of the Stock Warrant Certificate
properly completed and executed, and by payment in full of the exercise price,
as set forth in the Prospectus Supplement. Upon the exercise of Stock Warrants,
the Stock Warrant Agent or Co-Stock Warrant Agent, if any, will, as soon as
practicable, forward a certificate representing the number of shares of
Preferred Stock or Class A Common Stock purchasable upon such exercise in
accordance with the instructions of the holder exercising the Stock Warrant and
at the sole cost and risk of such holder. If less than all of the Stock
Warrants evidenced by the Stock Warrant Certificate are exercised, a new Stock
Warrant Certificate will be issued for the remaining amount of Stock Warrants.
Anti-dilution Provisions
Unless otherwise specified in the applicable Prospectus Supplement, the
exercise price payable and the number of shares purchasable upon the exercise
of each Stock Warrant will be subject to adjustment in certain events,
including (i) the issuance of a stock dividend to holders of Preferred Stock or
Class A Common Stock or a combination, subdivision or reclassification of the
Preferred Stock or Class A Common Stock; (ii) the issuance of rights, warrants
or options to all holders of Preferred Stock or Class A Common Stock entitling
the holders thereof to subscribe for or purchase Preferred Stock or Class A
Common Stock for an aggregate consideration per share less than the current
market price per share of the Preferred Stock or Class A Common Stock; or (iii)
any distribution by the Company to the holders of its Preferred Stock or Class
A Common Stock of evidences of indebtedness of the Company or of assets
(excluding cash dividends or distributions payable out of capital surplus and
dividends and distributions referred to in (i) above). No fractional shares
will be issued upon exercise of Stock Warrants, but the Company will pay the
cash value of any fractional shares otherwise issuable.
DESCRIPTION OF PREFERRED SECURITIES
The following description sets forth certain general terms and provisions of
the Preferred Securities to which any Prospectus Supplement may relate. The
particular terms of the Preferred Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may apply
to the Preferred Securities so offered will be described in the Prospectus
Supplement relating to such Preferred Securities.
Pursuant to the terms of the Trust Agreement for each Applied Power Trust,
the Administrative Trustees, on behalf of such Applied Power Trust, are
authorized to issue the Preferred Securities and the Common Securities. The
Preferred Securities of a particular issue will represent beneficial ownership
interests in the assets of such Applied Power Trust, and the holders thereof
will be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities of such Applied Power Trust, as well as other benefits as described
in the corresponding Trust Agreement. This summary of certain provisions of the
Preferred Securities and each Trust Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of each Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular defined terms
of a Trust Agreement (as amended or supplemented from time to time) are
referred to herein or in a Prospectus Supplement, such defined terms are
incorporated herein or therein by reference. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each of the Applied Power Trusts is a legally separate
entity, and the assets of one are not available to satisfy the obligations of
the other.
General
The Preferred Securities of an Applied Power Trust will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities of that
Applied Power Trust except as described under "--Subordination
24
of Common Securities." Legal title to the Corresponding Junior Subordinated
Debt Securities will be held by the Property Trustee in trust for the benefit
of the holders of the related Preferred Securities and Common Securities. Each
Guarantee Agreement executed by the Company for the benefit of the holders of
an Applied Power Trust's Preferred Securities (each, a "Guarantee Agreement")
will be a guarantee on a junior subordinated basis with respect to the related
Preferred Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of such Preferred Securities when the
related Applied Power Trust does not have funds on hand available to make such
payments. See "Description of Guarantees."
Distributions
Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable on such dates
as specified in the applicable Prospectus Supplement. Except as specified in
the applicable Prospectus Supplement, in the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day (as
defined below), payment of the Distribution payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect to any such delay), with the same force and effect as
if made on such date (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). Except as specified in
the applicable Prospectus Supplement, a "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in The City
of New York are authorized or required by law to remain closed or a day on
which the corporate trust office of the Property Trustee or the Trustee under
the Indenture is closed for business.
An Applied Power Trust's Preferred Securities represent beneficial ownership
interests in the assets of such Applied Power Trust, and the Distributions on
each Preferred Security will be payable at a rate specified in the Prospectus
Supplement for such Preferred Securities. The amount of Distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the applicable Prospectus Supplement.
Distributions to which holders of Preferred Securities are entitled will
accumulate additional Distributions at the rate per annum if and as specified
in the applicable Prospectus Supplement. The term "Distributions" as used
herein includes any such additional Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Company shall have
the right at any time and from time to time during the term of any series of
Corresponding Junior Subordinated Debt Securities to defer payment of interest
for such number of consecutive interest payment periods as may be specified in
the applicable Prospectus Supplement (each, an "Extension Period"), subject to
the terms, conditions and covenants, if any, specified in such Prospectus
Supplement, provided that such Extension Period may not extend beyond the
maturity date of such series of Corresponding Junior Subordinated Debt
Securities. Certain United States Federal income tax consequences and special
considerations applicable to any such Corresponding Junior Subordinated Debt
Securities will be described in the applicable Prospectus Supplement. As a
consequence of any such extension, Distributions on the related Preferred
Securities would be deferred (but would continue to accumulate additional
Distributions thereon at the rate per annum set forth in the Prospectus
Supplement for such Preferred Securities) by the Applied Power Trust which
issued such Preferred Securities during any such Extension Period.
If the Company shall have given notice of its selection of an Extension
Period as provided pursuant to the Indenture with respect to the Corresponding
Junior Subordinated Debt Securities of a series and shall not have rescinded
such notice, or such Extension Period, or any extension thereof, shall be
continuing, the Company may not, and may not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including other Corresponding Junior Subordinated Debt Securities)
that rank pari passu with or junior in interest to the Corresponding Junior
Subordinated Debt Securities of such series or make any guarantee payments with
respect to any guarantee by the Company of debt securities of any subsidiary of
the Company if such guarantee ranks pari passu or junior in interest to the
Corresponding Junior Subordinated Debt
25
Securities of such series (other than (a) dividends or distributions in common
stock of the Company, (b) redemptions or purchases of any rights pursuant to
the Company's Rights Agreement, if any, or any successor to such Rights
Agreement, and the declaration of a dividend of such rights or the issuance of
stock under such plans in the future, (c) payments under any Guarantee and (d)
purchases of common stock related to the issuance of common stock under any of
the Company's benefit plans for its directors, officers or employees). For
additional circumstances in which the Company is restricted in making such
payments, see "Description of Debt Securities--Certain Provisions Relating to
Corresponding Junior Subordinated Debt Securities--Restrictions on Certain
Payments."
The revenue of each Applied Power Trust available for distribution to
holders of its Preferred Securities will be limited to payments under the
Corresponding Junior Subordinated Debt Securities in which the Applied Power
Trust will invest the proceeds from the issuance and sale of its Trust
Securities. See "Description of Debt Securities--Certain Provisions Relating to
Corresponding Junior Subordinated Debt Securities." If the Company does not
make interest payments on such Corresponding Junior Subordinated Debt
Securities, the Property Trustee will not have funds available to pay
Distributions of the related Preferred Securities. The payment of Distributions
(if and to the extent the Applied Power Trust has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by the Company on a limited basis as set forth herein under
"Description of Guarantees."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of such Applied Power Trust on the
relevant record dates, which, as long as the Preferred Securities remain in
book-entry form, will be one Business Day prior to the relevant Distribution
Date. Subject to any applicable laws and regulations and the provisions of the
applicable Trust Agreement, each such payment will be made as described under
"Book Entry Issuance." In the event any Preferred Securities are not in
book-entry form, the relevant record date for such Preferred Securities shall
be the date at least 15 days prior to the relevant Distribution Date, as
specified in the applicable Prospectus Supplement.
Payment of Expenses
Pursuant to the Indenture, the Company, as borrower, has agreed to pay all
debts and obligations (other than with respect to the Trust Securities) and all
costs and expenses of the Applied Power Trusts (including, but not limited to,
all costs and expenses relating to the organization of the Applied Power
Trusts, the fees and expenses of the Property Trustee, the Delaware Trustee and
the Administrative Trustees and all costs and expenses relating to the
operation of the Applied Power Trusts (other than with respect to the Trust
Securities)) and to pay any and all taxes, duties, assessments or other
governmental charges of whatever nature (other than United States withholding
taxes) imposed by the United States or any other taxing authority, so that the
net amounts received and retained by the applicable Applied Power Trust after
paying such fees, expenses, debts and obligations will be equal to the amounts
the applicable Applied Power Trust would have received and retained had no such
fees, expenses, debts and obligations been incurred by or imposed on the
applicable Applied Power Trust. The foregoing obligations of the Company are
for the benefit of, and shall be enforceable by, any person to whom such fees,
expenses, debts and obligations are owed (each, a "Creditor"), whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Company directly against the Company, and the Company has
agreed to irrevocably waive any right or remedy to require that any such
Creditor take any action against the applicable Applied Power Trust or any
other person before proceeding against the Company. The Company shall execute
such additional agreements as may be necessary to give full effect to the
foregoing.
Redemption or Exchange
Upon the repayment or redemption, in whole or in part, of any Corresponding
Junior Subordinated Debt Securities, whether at maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount (as
defined below)
26
of the Trust Securities, upon not less than 30 nor more than 60 days notice, at
a redemption price (the "Redemption Price") equal to the aggregate Liquidation
Amount of such Trust Securities plus accumulated but unpaid Distributions
thereon to the date of redemption (the "Redemption Date") and the related
amount of the premium, if any, paid by the Company upon the concurrent
redemption of such Corresponding Junior Subordinated Debt Securities. See
"Description of Debt Securities--Certain Provisions Relating to Corresponding
Junior Subordinated Debt Securities--Redemption." If less than all of any
series of Corresponding Junior Subordinated Debt Securities are to be repaid or
redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the related Trust
Securities. The amount of premium, if any, paid by the Company upon the
redemption of all or any part of any series of any Corresponding Junior
Subordinated Debt Securities to be repaid or redeemed on a Redemption Date
shall be allocated to the redemption pro rata of the related Trust Securities.
The Company will have the right to redeem any series of Corresponding Junior
Subordinated Debt Securities (i) subject to the conditions described under
"Description of Debt Securities--Certain Provisions Relating to Corresponding
Junior Subordinated Debt Securities--Redemption" or (ii) as may be otherwise
specified in the applicable Prospectus Supplement.
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount (as
defined below) equal to that portion of the principal amount of Corresponding
Junior Subordinated Debt Securities to be contemporaneously redeemed in
accordance with the Indenture, allocated to the Common Securities and to the
Preferred Securities based upon the relative Liquidation Amounts of such
classes and the proceeds of which will be used to pay the Redemption Price of
such Trust Securities, and (ii) with respect to a distribution of Corresponding
Junior Subordinated Debt Securities to holders of any series of Trust
Securities in connection with a dissolution or liquidation of the related
Applied Power Trust, Corresponding Junior Subordinated Debt Securities having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Corresponding Junior Subordinated Debt Securities are
distributed. Unless otherwise specified in the applicable Prospectus
Supplement, "Liquidation Amount" means the stated amount per Trust Security
specified in the applicable Prospectus Supplement.
At any time, the Company has the right to dissolve an Applied Power Trust
and, after satisfaction of the liabilities of creditors of such Applied Power
Trust as provided by applicable law, cause the Corresponding Junior
Subordinated Debt Securities owned by such Applied Power Trust to be
distributed to the holders of the related Preferred Securities and Common
Securities in liquidation of the Applied Power Trust.
If provided in the applicable Prospectus Supplement, the Company shall have
the right to extend or shorten the maturity of any series of Corresponding
Junior Subordinated Debt Securities at the time that the Company exercises its
right to elect to dissolve the related Applied Power Trust and cause such
Corresponding Junior Subordinated Debt Securities to be distributed to the
holders of such related Preferred Securities and Common Securities in
liquidation of the Applied Power Trust, provided that it can extend the
maturity only if certain conditions specified in the applicable Prospectus
Supplement are met at the time such election is made and at the time of such
extension.
After the liquidation date fixed for any distribution of Corresponding
Junior Subordinated Debt Securities for any series of Preferred Securities (i)
such series of Preferred Securities will no longer be deemed to be outstanding,
(ii) The Depository Trust Company ("DTC") or its nominee, as the record holder
of such series of Preferred Securities, will receive a registered global
certificate or certificates representing the Corresponding Junior Subordinated
Debt Securities to be delivered upon such distribution and (iii) any
certificates representing such series of Preferred Securities not held by DTC
or its nominee will be deemed to represent the Corresponding Junior
Subordinated Debt Securities having a principal amount equal to the stated
Liquidation Amount of such series of Preferred Securities, and bearing accrued
and unpaid interest in an amount equal to the accrued and unpaid Distributions
on such series of Preferred Securities until such certificates are presented to
the Administrative Trustees or their agent for transfer or reissuance.
27
There can be no assurance as to the market prices for the Preferred
Securities or the Corresponding Junior Subordinated Debt Securities that may be
distributed in exchange for Preferred Securities if a dissolution and
liquidation of an Applied Power Trust were to occur. Accordingly, the Preferred
Securities that an investor may purchase, or the Corresponding Junior
Subordinated Debt Securities that an investor may receive on dissolution and
liquidation of an Applied Power Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities.
Redemption and Exchange Procedures
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Corresponding Junior Subordinated Debt Securities.
Redemptions of the Preferred Securities shall be made and the Redemption Price
shall be payable on each Redemption Date only to the extent that the related
Applied Power Trust has funds on hand available for the payment of such
Redemption Price. See "--Subordination of Common Securities."
If an Applied Power Trust gives a notice of redemption in respect of its
Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, to the extent funds are available, the Property Trustee will
deposit irrevocably with DTC funds sufficient to pay the applicable Redemption
Price and will give DTC irrevocable instructions and authority to pay the
Redemption Price to the holders of such Preferred Securities. See "Book-Entry
Issuance." If such Preferred Securities are no longer in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for such Preferred Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing such Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Preferred Securities called for redemption shall be
payable to the holders of such Preferred Securities on the relevant record
dates for the related Distribution Dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such deposit,
all rights of the holders of such Preferred Securities so called for redemption
will cease, except the right of the holders of such Preferred Securities to
receive the Redemption Price, but without interest on such Redemption Price,
and such Preferred Securities will cease to be outstanding. Except as specified
in the applicable Prospectus Supplement, in the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect
of any such delay). In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Applied Power Trust or by the Company
pursuant to the Guarantee as described under "Description of Guarantees,"
Distributions on such Preferred Securities will continue to accrue at the then
applicable rate, from the Redemption Date originally established by the Applied
Power Trust for such Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
Federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Corresponding Junior Subordinated Debt Securities to holders of
Preferred Securities shall be made to the applicable record holders thereof as
they appear on the register for such Preferred Securities on the relevant
record date, which shall be one Business Day prior to the relevant Redemption
Date or liquidation date, as applicable; provided, however, that in the event
that any Preferred Securities are not in book-entry form, the relevant record
date for such Preferred Securities shall be a date at least 15 days prior to
the Redemption Date or liquidation date, as applicable, as specified in the
applicable Prospectus Supplement.
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If less than all of the Preferred Securities and Common Securities issued by
an Applied Power Trust are to be redeemed on a Redemption Date, then the
aggregate Liquidation Amount of such Preferred Securities and Common Securities
to be redeemed shall be allocated pro rata to the Preferred Securities and the
Common Securities based upon the relative Liquidation Amounts of such classes.
The particular Preferred Securities to be redeemed shall be selected on a pro
rata basis not more than 60 days prior to the Redemption Date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption. The Property Trustee shall promptly notify the trust registrar in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation
Amount thereof to be redeemed. For all purposes of each Trust Agreement, unless
the context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Corresponding Junior Subordinated Debt Securities,
on and after the Redemption Date interest ceases to accrue on such Junior
Subordinated Debt Securities or portions thereof (and distributions cease to
accrue on the related Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, each Applied Power
Trust's Preferred Securities and Common Securities, as applicable, shall be
made pro rata based on the Liquidation Amount of such Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date an Event of Default with respect to any Junior Subordinated
Debt Security shall have occurred and be continuing, no payment of any
Distribution on, or Redemption Price of, any of the Applied Power Trust's
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all of the Applied Power Trust's outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price the full amount of such Redemption Price on all of the
Applied Power Trust's outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of, the Applied Power Trust's
Preferred Securities then due and payable.
In the case of any Event of Default with respect to any Junior Subordinated
Debt Security, the Company as holder of such Applied Power Trust's Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default under the applicable Trust Agreement until the effect of
all such Events of Default with respect to such Preferred Securities has been
cured, waived or otherwise eliminated. Until any such Events of Default under
the applicable Trust Agreement with respect to the Preferred Securities have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of such Preferred Securities and not on behalf
of the Company as holder of the Applied Power Trust's Common Securities, and
only the holders of such Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
Liquidation Distribution upon Dissolution
Pursuant to each Trust Agreement, each Applied Power Trust shall
automatically dissolve upon expiration of its term and shall dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or liquidation
of the Company; (ii) the written direction to the Property Trustee from the
Company, as Depositor, to dissolve such Applied Power Trust and distribute the
Corresponding Junior Subordinated Debt Securities to the holders of the
Preferred Securities in exchange for the Preferred Securities (which direction
is optional and wholly within the
29
discretion of the Company, as Depositor); (iii) the redemption of all of the
Applied Power Trust's Trust Securities; and (iv) the entry of an order for the
dissolution of such Applied Power Trust by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Applied Power Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of such Applied Power Trust as
provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Corresponding Junior Subordinated Debt Securities, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Applied Power Trust available for distribution to holders, after satisfaction
of liabilities to creditors of such Applied Power Trust as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because such Applied Power Trust has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by such Applied Power Trust on its Preferred Securities shall be paid
on a pro rata basis. The holder(s) of such Applied Power Trust's Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of its Preferred Securities, except that if a Junior
Subordinated Debt Security Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under each
Trust Agreement (a "Trust Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Trust Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of an Event of Default with respect to a Corresponding
Junior Subordinated Debt Security under the Indenture (see "Description of
Debt Securities--Defaults and Remedies"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate liquidation
preference of the outstanding Preferred Securities of the applicable Applied
Power Trust, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Trust Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Trust Event of Default to the holders of such Applied Power Trust's
Preferred Securities, the Administrative Trustees and the Company, as
Depositor, unless such Trust Event of Default shall have been cured or waived.
The Company, as Depositor, and the Administrative Trustees are required to file
annually with the Property Trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under
each Trust Agreement.
30
If an Event of Default with respect to a Corresponding Junior Subordinated
Debt Security has occurred and is continuing, the Preferred Securities shall
have a preference over the Common Securities upon termination of each Applied
Power Trust as described above. See "--Liquidation Distribution upon
Dissolution." The existence of a Trust Event of Default does not entitle the
holders of Preferred Securities to cause the redemption of the Preferred
Securities.
Removal of Issuer Trustees
Unless an Event of Default with respect to a Corresponding Junior
Subordinated Debt Security shall have occurred and be continuing, any Issuer
Trustee may be removed at any time by the holder of the Common Securities. If a
Trust Event of Default resulting from an Event of Default with respect to a
Corresponding Junior Subordinated Debt Security has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the applicable
Trust Agreement.
Co-trustees and Separate Property Trustee
Unless a Trust Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Company, as the holder of the Common
Securities, and the Administrative Trustees shall have power to appoint one or
more persons either to act as a co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the applicable Trust Agreement. In case an Event
of Default with respect to a Corresponding Junior Subordinated Debt Security
has occurred and is continuing, the Property Trustee alone shall have power to
make such appointment.
Merger or Consolidation of Issuer Trustees
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee under each
Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
Mergers, Consolidations, Conversions, Amalgamations or Replacements of the
Applied Power Trusts
An Applied Power Trust may not merge with or into, consolidate, convert
into, amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any corporation or other
Person, except as described below, as described in "--Liquidation Distribution
upon Dissolution" or as described in the Prospectus Supplement with respect to
the Preferred Securities. An Applied Power Trust may, at the request of the
Company, with the consent of the Administrative Trustees and without the
consent of the holders of the Preferred Securities, merge with or into,
consolidate, convert into, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of such
Applied Power Trust with respect to the Preferred Securities or (b) substitutes
for the Preferred Securities other securities having substantially the same
terms as the Preferred Securities (the "Successor Securities") so
31
long as the Successor Securities rank the same as the Preferred Securities rank
in priority with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) the Company expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the Corresponding Junior Subordinated Debt Securities, (iii)
the Successor Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, if any, (iv)
such merger, consolidation, conversion, amalgamation, replacement, conveyance,
transfer or lease does not cause the Preferred Securities (including any
Successor Securities) to be downgraded by any nationally recognized statistical
rating organization, (v) such merger, consolidation, conversion, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially similar to that of the Applied
Power Trust, (vii) prior to such merger, consolidation, conversion,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from independent counsel to the Applied Power Trust
experienced in such matters to the effect that (a) such merger, consolidation,
conversion, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, and (b) following such merger, consolidation, conversion,
amalgamation, replacement, conveyance, transfer or lease, neither the Applied
Power Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act and (viii) the Company or
any permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, an Applied Power Trust shall not, except with
the consent of holders of 100% in Liquidation Amount of the Preferred
Securities, merge with or into, consolidate, convert into, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such merger,
consolidation, conversion, amalgamation, replacement, conveyance, transfer or
lease would cause the Applied Power Trust or the successor entity to be
classified as other than a grantor trust for United States Federal income tax
purposes.
Voting Rights; Amendment of Each Trust Agreement
Except as provided below and under "Description of Guarantees--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under such Trust Agreement, which shall not be inconsistent
with the other provisions of such Trust Agreement or (ii) to modify, eliminate
or add to any provisions of such Trust Agreement to such extent as shall be
necessary to ensure that the Applied Power Trust will be classified for United
States Federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that the Applied Power Trust will
not be required to register as an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (i), such action
shall not adversely affect in any material respect the interests of any holder
of Trust Securities, and any such amendments of such Trust Agreement shall
become effective when notice thereof is given to the holders of Trust
Securities. Each Trust Agreement may be amended by the Issuer Trustees and the
Company with (i) the consent of holders representing not less than a majority
(based upon Liquidation Amounts) of the outstanding Trust Securities and (ii)
receipt by the Issuer Trustees of an opinion of counsel experienced in such
matters to the effect that such amendment or the exercise of any power granted
to the Issuer Trustees in accordance with such amendment will not affect the
Applied Power Trust's status as a grantor trust for United States Federal
income tax purposes or the Applied Power Trust's exemption from status as an
"investment company" under the Investment Company Act, provided that without
the consent of each holder of Trust
32
Securities, such Trust Agreement may not be amended to (i) change the amount or
timing of any Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment
on or after such date.
So long as any Corresponding Junior Subordinated Debt Securities are held by
the Property Trustee, the Issuer Trustees shall not (i) direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
under the Indenture, or executing any trust or power conferred on the Property
Trustee with respect to such Corresponding Junior Subordinated Debt Securities,
(ii) waive any past default that is waivable under Section 6.04 of the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Corresponding Junior Subordinated Debt Securities shall be
due and payable or (iv) consent to any amendment, modification or termination
of the Indenture, the applicable Securities Resolution or such Corresponding
Junior Subordinated Debt Securities, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Corresponding Junior Subordinated Debt
Securities affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the related Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Preferred Securities
except by subsequent vote of the holders of the Preferred Securities. The
Property Trustee shall notify each holder of Preferred Securities of any notice
of default with respect to the Corresponding Junior Subordinated Debt
Securities. In addition to obtaining the foregoing approvals of the holders of
the Preferred Securities, prior to taking any of the foregoing actions, the
Issuer Trustees shall obtain an opinion of counsel to the effect that the
Applied Power Trust will not be classified as a corporation for United States
Federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote to be
given to each holder of record of Preferred Securities in the manner set forth
in each Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for an Applied Power Trust to redeem and cancel its Preferred Securities in
accordance with the applicable Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
Payment and Paying Agency
Payments in respect of the Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Applied Power Trust's Preferred
Securities are not held by the Depositary, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Register. Unless otherwise specified in the applicable Prospectus
Supplement, the paying agent (the "Paying Agent") shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and the Company. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to
the Property Trustee and the Company. In the event that the Property Trustee
shall no longer be the Paying Agent, the Administrative Trustees shall appoint
a successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
Registrar and Transfer Agent
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Preferred
Securities.
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Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of each Applied Power Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Applied Power Trusts will not be required to register
or cause to be registered the transfer of their Preferred Securities after such
Preferred Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of a
Trust Event of Default, undertakes to perform only such duties as are
specifically set forth in each Trust Agreement and, after such Trust Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the applicable Trust Agreement at the request of any
holder of Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby. If
no Trust Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the applicable Trust Agreement or is unsure of the
application of any provision of the applicable Trust Agreement, and the matter
is not one on which holders of Preferred Securities are entitled under such
Trust Agreement to vote, then the Property Trustee shall take such action as is
directed by the Company and if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Applied Power Trusts in such a way that no
Applied Power Trust will be deemed to be an "investment company" required to be
registered under the Investment Company Act or classified as an association
taxable as a corporation for United States Federal income tax purposes and so
that the Corresponding Junior Subordinated Debt Securities will be treated as
indebtedness of the Company for United States Federal income tax purposes. In
this connection, the Company and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law, the certificate of trust
of each Applied Power Trust or each Trust Agreement, that the Company and the
Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the related Preferred
Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
No Applied Power Trust may borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF GUARANTEES
A Guarantee Agreement will be executed and delivered by the Company
concurrently with the issuance by each Applied Power Trust of its Preferred
Securities for the benefit of the holders from time to time of such Preferred
Securities. The First National Bank of Chicago will act as indenture trustee
("Guarantee Trustee") under each Guarantee for the purposes of compliance with
the Trust Indenture Act, and each Guarantee will be qualified as an indenture
under the Trust Indenture Act. This summary of certain provisions of the
Guarantees does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of each Guarantee
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act. The form of the Guarantee has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Reference in this
summary to Preferred Securities means that Applied Power Trust's Preferred
Securities to which a Guarantee relates. The Guarantee Trustee will hold each
Guarantee for the benefit of the holders of the related Applied Power Trust's
Preferred Securities.
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General
The Company will irrevocably agree to pay in full on a junior subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
below) to the holders of the Preferred Securities, as and when due, regardless
of any defense, right of set-off or counterclaim that such Applied Power Trust
may have or assert other than the defense of payment. The following payments
with respect to the Preferred Securities, to the extent not paid by or on
behalf of the related Applied Power Trust (the "Guarantee Payments"), will be
subject to the Guarantee: (i) any accumulated and unpaid Distributions required
to be paid on such Preferred Securities, to the extent that such Applied Power
Trust has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any Preferred Securities called for redemption to the
extent that such Applied Power Trust has funds on hand available therefor at
such time or (iii) upon a voluntary or involuntary dissolution, winding up or
liquidation of such Applied Power Trust (unless the Corresponding Junior
Subordinated Debt Securities are distributed to holders of such Preferred
Securities), the lesser of (a) the Liquidation Distribution and (b) the amount
of assets of such Applied Power Trust remaining available for distribution to
holders of Preferred Securities. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the applicable Preferred Securities or by causing the
Applied Power Trust to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a junior subordinated
basis of the related Applied Power Trust's obligations under the Preferred
Securities, but will apply only to the extent that such related Applied Power
Trust has funds sufficient to make such payments, and is not a guarantee of
collection.
If the Company does not make interest payments on the Corresponding Junior
Subordinated Debt Securities held by the Applied Power Trust, the Applied Power
Trust will not be able to pay Distributions on the Preferred Securities and
will not have funds legally available therefor. Each Guarantee will rank
subordinate and junior in right of payment to all senior indebtedness and
subordinated indebtedness of the Company. See "--Status of the Guarantees." The
majority of the operating assets of the Company and its consolidated
subsidiaries are owned by such subsidiaries. The Company relies primarily on
funds obtained from such subsidiaries to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. Accordingly, the Company's obligations under the Guarantees will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and claimants should look only to the assets of the
Company for payments thereunder. See "Description of Debt Securities--General"
and--"Ranking of Debt Securities." Except as otherwise provided in the
applicable Prospectus Supplement, the Guarantees do not limit the incurrence or
issuance of other secured or unsecured debt of the Company, whether under the
Indenture, any other indenture that the Company may enter into in the future or
otherwise. See the Prospectus Supplement relating to any offering of Preferred
Securities.
The Company has also agreed to irrevocably and unconditionally guarantee the
obligations of the Applied Power Trusts with respect to the Common Securities
to the same extent as the Preferred Securities Guarantee, except that upon an
Event of Default with respect to a Corresponding Junior Subordinated Debt
Security, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
The Company's obligations described herein and in any accompanying
Prospectus Supplement, through the applicable Guarantee Agreement, the
applicable Trust Agreement, the Corresponding Junior Subordinated Debt
Securities, and the applicable Securities Resolution under the Indenture, taken
together, constitute a full, irrevocable and unconditional guarantee by the
Company of payments due on the Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Applied Power Trust's obligations under the
Preferred Securities. See "The Applied Power Trusts," "Description of Preferred
Securities," and "Description of Debt Securities--Certain Provisions Relating
to Corresponding Junior Subordinated Debt Securities."
35
Status of the Guarantees
Each Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all senior indebtedness
and subordinated indebtedness.
Each Guarantee will rank pari passu with all other Guarantees issued by the
Company relating to Preferred Securities. Each Guarantee will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the Guarantor to enforce its
rights under the Guarantee without first instituting a legal proceeding against
any other person or entity). Each Guarantee will be held for the benefit of the
holders of the related Preferred Securities. Each Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent
not paid by the Applied Power Trust or upon distribution to the holders of the
Preferred Securities of the Corresponding Junior Subordinated Debt Securities.
None of the Guarantees places a limitation on the amount of additional senior
indebtedness or subordinated indebtedness that may be incurred by the Company.
The Company expects from time to time to incur additional indebtedness
constituting senior indebtedness or subordinated indebtedness.
Amendments and Assignment
Except with respect to any changes which do not adversely affect the rights
of holders of the related Preferred Securities in any material respect (in
which case no vote will be required), no Guarantee may be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of the related outstanding Preferred Securities. The manner
of obtaining any such approval will be as set forth under "Description of
Preferred Securities--Voting Rights; Amendment of Each Trust Agreement." All
guarantees and agreements contained in each Guarantee Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the related Preferred Securities
then outstanding.
Events of Default
An event of default under each Guarantee Agreement will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate Liquidation
Amount of the related Preferred Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of such Guarantee Agreement or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under such
Guarantee Agreement.
Any holder of the Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under such Guarantee
Agreement without first instituting a legal proceeding against the Applied
Power Trust, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee Agreement.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of any Guarantee, undertakes to perform
only such duties as are specifically set forth in each Guarantee Agreement and,
after default with respect to any Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by any Guarantee
Agreement at the request of any holder of any Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
36
Termination of the Guarantees
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the related Preferred Securities, upon
full payment of the amounts payable upon liquidation of the related Applied
Power Trust or upon distribution of Corresponding Junior Subordinated Debt
Securities to the holders of the related Preferred Securities. Each will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the related Preferred Securities must restore payment of any
sums paid under such Preferred Securities or such Guarantee.
Governing Law
Each Guarantee Agreement will be governed by and construed in accordance
with the laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE CORRESPONDING JUNIOR SUBORDINATED DEBT SECURITIES
AND THE GUARANTEES
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the applicable Applied Power Trust has funds available for the
payment of such Distributions) are irrevocably guaranteed by the Company as and
to the extent set forth under "Description of Guarantees." Taken together, the
Company's obligations under each series of Corresponding Junior Subordinated
Debt Securities, the related Securities Resolution, the Indenture, the related
Trust Agreement and the related Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of distributions and other
amounts due on the related series of Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Applied Power Trust's obligations under the
Preferred Securities. If and to the extent that the Company does not make
payments on any series of Corresponding Junior Subordinated Debt Securities,
such Applied Power Trust will not pay Distributions or other amounts due on its
Preferred Securities. The Guarantees do not cover payment of Distributions when
the related Applied Power Trust does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of a series of Preferred
Securities is to institute a legal proceeding directly against the Company for
enforcement of payment of such Distributions to such holder. The obligations of
the Company under each Guarantee are subordinate and junior in right of payment
to all senior indebtedness and subordinated indebtedness of the Company.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on each
series of Corresponding Junior Subordinated Debt Securities, such payments will
be sufficient to cover Distributions and other payments due on the related
Preferred Securities, primarily because (i) the aggregate principal amount of
each series of Corresponding Junior Subordinated Debt Securities will be equal
to the sum of the aggregate stated Liquidation Amount of the related Preferred
Securities and related Common Securities; (ii) the interest rate and interest
and other payment dates on each series of Corresponding Junior Subordinated
Debt Securities will match the Distribution rate and Distribution and other
payment dates for the related Preferred Securities; (iii) the Company, as
borrower, shall pay for all and any costs, expenses and liabilities of such
Applied Power Trust except the Applied Power Trust's obligations to holders of
its Preferred Securities under such Preferred Securities; and (iv) each Trust
Agreement further provides that the Applied Power Trust will not engage in any
activity that is not consistent with the limited purposes of such Applied Power
Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder if
and to the extent the Company has theretofore made, or is concurrently on the
date of such payment making, a payment under the related Guarantee Agreement.
37
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the related Guarantee Agreement
without first instituting a legal proceeding against the Guarantee Trustee, the
related Applied Power Trust or any other person or entity.
A default or event of default under any senior or subordinated indebtedness
of the Company would not necessarily constitute a Trust Event of Default.
However, in the event of payment defaults under, or acceleration of, senior or
subordinated indebtedness of the Company, the subordination provisions of the
applicable Securities Resolution will, unless the applicable Securities
Resolution states otherwise, provide that no payments may be made in respect of
the Corresponding Junior Subordinated Debt Securities until such senior or
subordinated indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on any
series of Corresponding Junior Subordinated Debt Securities would constitute a
Trust Event of Default.
Limited Purpose of Applied Power Trusts
Each Applied Power Trust's Preferred Securities evidence undivided
beneficial ownership interests in the assets of such Applied Power Trust, and
each Applied Power Trust exists for the sole purposes of issuing its Preferred
Securities and Common Securities, investing the proceeds thereof in
Corresponding Junior Subordinated Debt Securities and engaging in only those
other activities necessary, convenient or incidental thereto. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Corresponding Junior Subordinated Debt Security is that a holder of a
Corresponding Junior Subordinated Debt Security is entitled to receive from the
Company the principal amount of and interest accrued on Corresponding Junior
Subordinated Debt Securities held, while a holder of Preferred Securities is
entitled to receive Distributions from such Applied Power Trust (or from the
Company under the applicable Guarantee Agreement) if and to the extent such
Applied Power Trust has funds available for the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of any Applied Power Trust
involving the liquidation of the Corresponding Junior Subordinated Debt
Securities, the holders of the related Preferred Securities will be entitled to
receive, out of assets held by such Applied Power Trust and, after satisfaction
of creditors of such Applied Power Trust as provided by applicable law, the
Liquidation Distribution in cash. See "Description of Preferred
Securities--Liquidation Distribution upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Corresponding Junior Subordinated Debt Securities, would be a
junior subordinated creditor of the Company, subordinated in right of payment
to all senior indebtedness and subordinated indebtedness, but entitled to
receive payment in full of principal and interest, before any stockholders of
the Company receive payments or distributions. Since the Company is the
guarantor under each Guarantee Agreement and pursuant to the Indenture, as
borrower, has agreed to pay for all costs, expenses and liabilities of each
Applied Power Trust (other than the Applied Power Trust's obligations to the
holders of its Preferred Securities), the positions of a holder of such
Preferred Securities and a holder of such Corresponding Junior Subordinated
Debt Securities relative to other creditors and to stockholders of the Company
in the event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Class A Common Stock at a future date
or dates. The price per share of Class A Common Stock may be fixed at the time
the Stock Purchase Contracts are issued or may be determined by reference to a
specific formula set forth in the Stock Purchase Contracts. Stock Purchase
Contracts may be issued separately or as a part of units ("Stock Purchase
38
Units") consisting of a Stock Purchase Contract and either (x) Senior Debt
Securities, Subordinated Debt Securities or Junior Subordinated Debt
Securities, (y) debt obligations of third parties, including U.S. Treasury
securities, or (z) Preferred Securities of an Applied Power Trust, securing the
holder's obligations to purchase the Class A Common Stock under the Stock
Purchase Contracts. The Stock Purchase Contracts may require the Company to
make periodic payments to the holders of the Stock Purchase Units or vice
versa, and such payments may be unsecured or prefunded on some basis. The Stock
Purchase Contracts may require holders to secure their obligations thereunder
in a specified manner and in certain circumstances the Company may deliver
newly issued prepaid stock purchase contracts ("Prepaid Securities") upon
release to a holder of any collateral securing such holder's obligations under
the original Stock Purchase Contract.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units and, if applicable, Prepaid
Securities. The description in the Prospectus Supplement will not purport to be
complete and will be qualified in its entirety by reference to the Stock
Purchase Contracts, the collateral arrangements and depositary arrangements, if
applicable, relating to such Stock Purchase Contracts or Stock Purchase Units
and, if applicable, the Prepaid Securities and the document pursuant to which
such Prepaid Securities will be issued. Certain material United States Federal
income tax considerations applicable to the Stock Purchase Units and Stock
Purchase Contracts will be set forth in the Prospectus Supplement relating
thereto.
BOOK-ENTRY ISSUANCE
The Debt Securities, Preferred Securities and Corresponding Junior
Subordinated Debt Securities of a series may be issued in whole or in part in
the form of one or more Global Securities that will be deposited with, or on
behalf of, the Depositary identified in the Prospectus Supplement relating to
such series ("Book-Entry Securities"). Unless otherwise indicated in the
applicable Prospectus Supplement for such series, the Depositary will be DTC.
Book-Entry Securities may be issued only in fully registered form and in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual Book-Entry Securities represented thereby, a Book-Entry
Security may not be transferred except as a whole by the Depositary for such
Book-Entry Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, 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 holds securities that its Participants
deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain custodial relationships with
Direct Participants, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Commission.
Purchases of Book-Entry Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Book-Entry
Securities on DTC's records. The ownership interest of each actual purchaser of
each Book-Entry Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their
39
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the Beneficial
Owners purchased Book-Entry Securities. Transfers of ownership interests in the
Book-Entry Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Book-Entry
Securities, except in the event that use of the book-entry system is
discontinued. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
To facilitate subsequent transfers, all Book-Entry Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Book-Entry Securities with DTC and their registration
in the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Book-Entry Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Book-Entry Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
The Company and the Applied Power Trusts expect that conveyance of notices
and other communications by DTC to Direct Participants, by Direct Participants
to Indirect Participants, and by Direct Participants and Indirect Participants
to Beneficial Owners and the voting rights of Direct Participants, Indirect
Participants and Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Book-Entry Securities.
Although voting with respect to the Book-Entry Securities is limited to the
holders of record of the Book-Entry Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Book-Entry Securities. Under its usual procedures, DTC would mail an
omnibus proxy ("Omnibus Proxy") to the relevant Trustee as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts such Book-Entry
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
As long as the Book-Entry Securities are held by DTC or its nominee and DTC
continues to make its same-day funds settlement system available to the
Company, all payments on the Book-Entry Securities (other than Preferred
Securities or Corresponding Junior Subordinated Debt Securities) will be made
by the Company in immediately available funds to DTC. Distribution payments on
the Preferred Securities or the Junior Subordinated Debt Securities will be
made by the relevant Trustee to DTC. The Company and the Applied Power Trusts
have been advised that DTC's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of DTC,
the relevant Trustee, the Applied Power Trust (as applicable) or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment on Book-Entry Securities to DTC is the responsibility of
the Company or the relevant Trustee (as applicable), disbursement of such
payments to Direct Participants is the responsibility of DTC and disbursements
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Preferred Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is
not appointed by the Company within 90 days, the Company will issue individual
Preferred Securities of such series in exchange for the Global Security
representing such series of Preferred Securities. In addition, the Company may
at any time and in its sole discretion, subject to any limitations described in
the Prospectus Supplement
40
relating to such Preferred Securities, determine not to have any Preferred
Securities of such series represented by one or more Global Securities and, in
such event, will issue individual Preferred Securities of such series in
exchange for the Global Security or the Securities representing such series of
Preferred Securities. Further, if the Company so specifies with respect to
Preferred Securities of a series, an owner of a beneficial interest in a Global
Security representing Preferred Securities of such series may, on terms
acceptable to the Company, the Property Trustee and the Depositary for such
Global Security, receive individual Preferred Securities of such series in
exchange for such beneficial interests, subject to any limitations described in
the Prospectus Supplement relating to such Preferred Securities. In any such
instance, a Beneficial Owner in such Global Security will be entitled to
physical delivery of individual Preferred Securities of the series represented
by such Global Security equal in principal amount to such beneficial interest
and to have such Preferred Securities registered in its name. Individual
Preferred Securities of such series so issued will be issued in such
denominations as set forth in the accompanying Prospectus Supplement.
DTC may discontinue providing its services as securities depositary with
respect to Debt Securities at any time by giving reasonable notice to the
Company or the Indenture Trustee. Under such circumstances, if a successor
depositary is not appointed by the Company within 90 days, the Company will
issue individual definitive Debt Securities in exchange for all the Global
Securities representing such Debt Securities. In addition, the Company may at
any time and in its sole discretion determine not to have the Debt Securities
represented by Global Securities and, in such event, will issue individual
definitive Debt Securities in exchange for all the Global Securities
representing the Debt Securities. Individual definitive Debt Securities so
issued will be issued in denominations of $1,000 and any larger amount that is
an integral multiple of $1,000 and registered in such names as DTC shall direct.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Applied Power Trusts and the Company
believe to be accurate, but the Applied Power Trusts and the Company assume no
responsibility for the accuracy thereof. Neither the Applied Power Trusts nor
the Company has any responsibility for the performance by DTC or its
Participants of their respective obligations as described herein or under the
rules and procedures governing their respective operations.
PLAN OF DISTRIBUTION
The Company and/or any Applied Power Trust may sell the Securities in any
one or more of the following ways from time to time: (i) to or through
underwriters or dealers; (ii) directly to one or more purchasers; or
(iii) through agents. The applicable Prospectus Supplement with respect to the
Securities being offered thereby sets forth the terms of the offering of such
Securities, including the name or names of any underwriters, the purchase price
of such Securities and the proceeds to the Company and/or an Applied Power
Trust from such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers, and any securities
exchange on which such Securities may be listed. Only underwriters so named in
the Prospectus Supplement are deemed to be underwriters in connection with the
Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase such Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to
purchase all the Securities of the series offered by the Company's and/or the
applicable Applied Power Trust's Prospectus Supplement if any of such
Securities are purchased. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time
to time.
Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, by one or more firms
("remarketing firms") acting as principals for their own accounts or as agents
for the Company
41
and/or an applicable Applied Power Trust. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be deemed to be underwriters in connection with the Securities remarketed
thereby.
Securities may also be sold directly by the Company and/or an Applied Power
Trust or through agents designated by the Company from time to time. Any agent
involved in the offering and sale of the Securities in respect of which this
Prospectus is delivered is named, and any commissions payable by the Company
and/or an Applied Power Trust to such agent are set forth, in the Prospectus
Supplement. Unless otherwise indicated in the Prospectus Supplement, any such
agent is acting on a best efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company and/or an Applied
Power Trust will authorize agents, underwriters or dealers to solicit offers by
certain institutional investors to purchase Securities providing for payment
and delivery on a future date specified in the Prospectus Supplement. There may
be limitations on the minimum amount which may be purchased by any such
institutional investor or on the portion of the aggregate principal amount of
the particular Securities which may be sold pursuant to such arrangements.
Institutional investors to which such offers may be made, when authorized,
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and such other
institutions as may be approved by the Company and/or an Applied Power Trust.
The obligations of any such purchasers pursuant to such delayed delivery and
payment arrangements will not be subject to any conditions except (i) the
purchase by an institution of the particular Securities shall not at the time
of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject, and (ii) if the particular
Securities are being sold to underwriters, the Company and/or an Applied Power
Trust shall have sold to such underwriters all of such Securities other than
the Securities covered by such arrangements. Underwriters will not have any
responsibility in respect of the validity of such arrangements or the
performance of the Company or such institutional investors thereunder.
If any underwriter or any selling group member intends to engage in
stabilizing, syndicate short covering transactions, penalty bids or any other
transaction in connection with the offering of Securities that may stabilize,
maintain, or otherwise affect the price of such Securities, such intention and
a description of such transactions will be described in the Prospectus
Supplement.
Agents and underwriters may be entitled under agreements entered into with
the Company and/or the applicable Applied Power Trust to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribution with respect to payments which the
agents or underwriters may be required to make in respect thereof. Agents and
underwriters may engage in transactions with, or perform services for, the
Company and its subsidiaries in the ordinary course of business.
CERTAIN LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplements, certain
legal matters in connection with the Securities will be passed upon (i) for the
Company by Quarles & Brady LLP, Milwaukee, Wisconsin, counsel to the Company,
(ii) for the Applied Power Trusts (with respect to the validity of the
Preferred Securities under Delaware law) by Morris, Nichols, Arsht & Tunnell,
Wilmington, Delaware, special Delaware counsel to the Applied Power Trusts and
the Company, and (iii) for any underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York. Anthony
W. Asmuth III, the Corporate Secretary of the Company, is a partner in Quarles
& Brady LLP. As of December 31, 1998, Mr. Asmuth owned 38,420 shares of the
Company's Class A Common Stock and served as trustee or co-trustee with sole or
shared voting and dispositive powers over trusts that held an aggregate of
270,402 shares of Class A Common Stock.
EXPERTS
The consolidated financial statements of the Company as of and for the year
ended August 31, 1998, and the combination of the consolidated balance sheet as
of August 31, 1997, and the related consolidated statements of
42
earnings, shareholders' equity and cash flows for each of the two years in the
period then ended, after restatement for the 1998 pooling of interests,
incorporated by reference in this Prospectus, have been incorporated 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 of the Company for the years ended
August 31, 1997 and 1996, prior to restatement for pooling of interests, and
the separate financial statements of ZERO Corporation included in the 1997 and
1996 restated consolidated financial statements, for the years ended March 31,
1997 and 1996, incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended August 31, 1998, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Rubicon Group plc for the year ended May 31,
1998, incorporated by reference in this Prospectus, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers, chartered
accountants and registered auditors, given on the authority of that firm as
experts in accounting and auditing.
43
[Actuant logo appears here]
THE DRIVE TO LEAD
[The following logos appear here]
ENERPAC
GB Gardner Bender
POWER-PACKER
power gear
[LOGO] ACTUANT
3,000,000 Shares
Class A Common Stock
-------------------------
PROSPECTUS SUPPLEMENT
February 7, 2002
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Wachovia Securities
ABN AMRO Rothschild LLC
Robert W. Baird & Co.
Bear, Stearns & Co. Inc.