UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 31, 1998
APPLIED POWER INC.
-----------------
(Exact name of Registrant as specified in its charter)
Wisconsin 1-11288 39-0168610
--------- ------- ----------
(State of incorporation) (Commission File No.) (I.R.S. Employer Id. No.)
13000 West Silver Spring Drive
Butler, Wisconsin 53007
Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(414) 781-6600
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(Registrant's telephone number, including area code)
1
Item 2. Acquisition or Disposition of Assets
Merger with ZERO Corporation
On July 31, 1998, ZERO Corporation, a Delaware corporation ("ZERO"), became
a wholly owned subsidiary of Applied Power Inc. ("API") through the merger of
STB Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of API ("Acquisition"), with and into ZERO (the "Merger") pursuant to
an Agreement and Plan of Merger by and among API, ZERO and Acquisition dated as
of April 6, 1998 (the "Merger Agreement"). Subject to the terms and conditions
of the Merger Agreement, each share of Common Stock, par value $.01 per share,
of ZERO ("ZERO Common Stock") outstanding immediately prior to the effective
time of the Merger was converted into 0.85 (the "Exchange Ratio") shares of API
Class A Common Stock, par value $.20 per share ("API Common Stock"), with
resulting fractional share interest to be paid in cash. Each outstanding option
to purchase shares of ZERO Common Stock (a "ZERO Option") under ZERO's 1994
Stock Option Plan and 1988 Stock Option Plan, each as amended (collectively, the
"Plans"), was assumed by API and converted into an option to purchase shares of
API Common Stock on the same terms and conditions as were applicable under such
ZERO Option, as adjusted to reflect the Exchange Ratio. Immediately prior to the
effective time of the Merger, there were 12,523,060 shares of ZERO Common Stock
outstanding and there were ZERO Options outstanding under the Plans to purchase
an aggregate of 623,337 shares of ZERO Common Stock. Accordingly, a total of
approximately 11,174,000 shares of API Common Stock were issued in the Merger or
are issuable upon the exercise of ZERO Options assumed pursuant to the Merger
Agreement (less fractional interests paid in cash). The Merger will be treated
as a tax-free reorganization for federal income tax purposes and will be
accounted for as a pooling of interests.
The shareholders of API approved the issuance of shares of API Common Stock
pursuant to the Merger Agreement to effect the transactions contemplated by the
Merger Agreement by the requisite vote at the special meeting of shareholders of
API held on July 31, 1998. The stockholders of ZERO approved and adopted the
Merger Agreement by the requisite vote at the special meeting of stockholders of
ZERO held on July 31, 1998.
The Exchange Ratio and the other terms of the Merger Agreement were
determined by arms-length negotiations between the parties.
ZERO Common Stock ceased to trade on the New York Stock Exchange and the
Pacific Exchange on July 31, 1998 and will be delisted and deregistered. API
Common Stock, including the additional shares issued pursuant to the Merger
Agreement or issuable upon the exercise of ZERO Options assumed pursuant to the
Merger Agreement, is listed on the New York Stock Exchange or authorized for
listing upon official notice of issuance.
As contemplated by the Merger Agreement, the officers of API who were the
directors and officers of Acquisition immediately prior to the Merger became the
directors and officers of ZERO, as the surviving corporation, at the effective
time of the Merger, replacing the persons who were the directors and officers of
ZERO immediately prior to the Merger.
ZERO's operations have two business segments: "Enclosures and Accessories"
for the electronics industry and "Other." ZERO's primary business is "Enclosures
and Accessories" for the system packaging, thermal management and engineered
case requirements of the telecommunications, instrumentation and data processing
markets of the electronics industry. ZERO's "Other" segment serves the air cargo
and consumer/other markets. Air Cargo Equipment Corporation, a subsidiary of
ZERO, designs, manufactures and markets a broad range of specialized and
general-purpose cargo containers as well as a patented telescoping baggage/cargo
system. In addition, ZERO produces and markets the well-known line of ZERO
Halliburton(R) luggage, carrying cases and attaches
2
for consumers worldwide, food service containers and other specialized
enclosures.
API is undertaking a thorough review of ZERO's operations and studying the
manner in which its operations can best be optimized within API, and intends to
take such actions as a result of this review as may be deemed appropriate under
the circumstances. API currently intends to continue the primary business
operations of ZERO, and to continue to use the physical assets of ZERO's primary
business operations for that purpose, while integrating such operations with its
own.
Further information concerning the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement is contained in API's
Registration Statement on Form S-4 (No. 333-58267), which was filed with the
Securities and Exchange Commission under the Securities Act of 1933 and became
effective on July 1, 1998, and the Joint Proxy Statement of API and ZERO, which
also constitutes the Prospectus of API, included therein.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired:
The following financial statements of ZERO (Commission File No. 1-5260) are
incorporated herein by reference to pages 21 through 37 of ZERO's Annual Report
on Form 10-K for the fiscal year ended March 31, 1998 and filed herewith as
Exhibit 99.1:
ZERO 10-K
Page No.
---------
Consolidated Financial Statements
---------------------------------
Independent Auditors' Report 21
Statements of Consolidated Income - Years Ended March 31,
1998, 1997 and 1996 22
Consolidated Balance Sheets - March 31, 1998 and 1997 23 - 24
Statements of Consolidated Stockholders' Equity - Years Ended
March 31, 1998, 1997 and 1996 25
Statements of Consolidated Cash Flows - Years Ended March 31,
1998, 1997 and 1996 26
Notes to Consolidated Financial Statements 27 - 36
Financial Statement Schedule
----------------------------
Schedule II - Valuation and Qualifying Accounts - Years Ended
March 31, 1998, 1997 and 1996 37
3
(b) Pro Forma Financial Information:
The following unaudited pro forma combined consolidated financial
statements of API and subsidiaries, reflecting the acquisition of ZERO, are
filed herewith:
Introduction to Unaudited Pro Forma Combined Financial Statements of
Applied Power Inc. and ZERO Corporation.
Unaudited Pro Forma Combined Statement of Earnings for
the nine months ended May 31, 1998 and 1997.
Unaudited Pro Forma Combined Statements of Earnings for the fiscal
years ended August 31, 1997, 1996 and 1995.
Unaudited Pro Forma Combined Balance Sheet as of May 31, 1998.
Notes to Unaudited Pro Forma Combined Financial Statements.
(c) Exhibits:
See the Exhibit Index following the Signature page of this Report, which is
incorporated herein by reference.
4
APPLIED POWER INC. AND ZERO CORPORATION
Introduction to Unaudited Pro Forma Combined Financial Statements
As described under Item 2 of this report, Applied Power Inc. (the "Company" or
"API") and ZERO Corporation ("ZERO") were combined through a merger of a newly
created, wholly owned subsidiary of API into ZERO. Under the Merger Agreement,
which was approved by the shareholders of both companies on July 31, 1998, each
share of ZERO Common Stock, par value $.01 per share ("ZERO Common Stock"),
issued and outstanding at July 31, 1998 was converted into 0.85 (the "Exchange
Ratio") shares of API Class A Common Stock, par value $.20 per share ("API
Common Stock").
The following Unaudited Pro Forma Combined Balance Sheet and Statements of
Earnings (the "pro forma statements") give effect to the Merger as a pooling of
interests and are based on the estimates and assumptions set forth in the notes
to such pro forma statements. The pro forma statements have been prepared by the
Company utilizing the historical consolidated financial statements of API and
ZERO. The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the
Merger occurred on May 31, 1998. The Unaudited Pro Forma Combined Statements of
Earnings have been prepared as if the Merger occurred on September 1, 1994.
These pro forma statements have been prepared and included herein as required by
the rules and regulations of the Securities and Exchange Commission and are
provided for comparative purposes only. The unaudited pro forma adjustments
described in the accompanying notes are based upon preliminary estimates and
certain assumptions that management believes are reasonable. The pro forma
statements are not necessarily indicative of the future consolidated financial
position and results of operations or those which would have occurred had the
Merger been consummated as of the dates reflected in the pro forma
statements. The following pro forma financial statements do not reflect any
adjustments for the various synergies or cost reductions the Company expects to
achieve as a result of the Merger, and should be read in conjunction with the
audited historical consolidated financial statements, including the notes
thereto, of API and ZERO.
5
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
API VERSA/TEK VERO ZERO
NINE MONTHS SEPTEMBER 1, NINE MONTHS NINE MONTHS
ENDED TO ENDED SUB-TOTAL ENDED TOTAL
MAY 31, OCTOBER 6, MARCH 31, PRO FORMA MARCH 31, PRO FORMA
1998(1) 1997(1) 1998(1) ADJUSTMENTS COMBINED 1998(1) ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- --------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Sales.............. $667,487 $9,330 $126,159 $802,976 $194,193 $997,169
Cost of products sold.. 433,764 6,637 80,142 24 (4) 520,567 128,412 648,979
-------- ------ -------- ------- -------- -------- --------
Gross profit...... 233,723 2,693 46,017 (24) 282,409 65,781 348,190
Engineering, selling
and administrative
expenses.............. 149,579 1,302 35,397 186,278 38,098 (1,108)(3) 223,268
Amortization of
intangible assets..... 8,746 -- 354 237 (4) 11,875 -- 1,108 (3) 12,983
2,538 (5)
-------- ------ ------- ------- -------- -------- ------- --------
Operating earnings 75,398 1,391 10,266 (2,799) 84,256 27,683 111,939
Other Expenses
(Income):
Net financing costs. 15,390 (11) 437 763 (4) 26,319 2,804 29,123
9,740 (5)
Other--net........ (346) 100 -- (246) (8,016)(10) (8,262)
-------- ------ ------- ------- -------- -------- ------- --------
Net Earnings from
Continuing Operations
Before Income Tax
Expense............... 60,354 1,302 9,829 (13,302) 58,183 32,895 91,078
Income Tax Expense(11). 21,299 -- 3,441 (201)(4) 21,261 13,318 34,579
(3,278)(5)
-------- ------ ------- ------- -------- -------- ------- --------
Net Earnings from
Continuing Operations. $ 39,055 $1,302 $ 6,388 $(9,823) $ 36,922 $ 19,577 (10) $ -- $ 56,499
======== ====== ======= ======= ======== ======== ======= ========
Net earnings from
continuing operations
per common and
equivalent share:
Basic............. $ 1.41 $ 1.33 $ 1.58 (10) $ 1.48
Diluted........... $ 1.33 $ 1.25 $ 1.55 (10) $ 1.41
Common and equivalent
shares used in
computing per share
amounts:
Basic............. 27,790 27,790 12,365 (1,855)(2) 38,300
Diluted........... 29,426 29,426 12,651 (1,898)(2) 40,179
See Notes to Unaudited Pro Forma Combined Financial Statements
6
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
API ZERO
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, MARCH 31, PRO FORMA
1997 (1) 1997 (1) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Sales................... $484,105 $170,778 $654,883
Cost of products sold....... 298,443 115,221 413,664
-------- -------- --------
Gross profit........... 185,662 55,557 241,219
Engineering, selling and
administrative expenses.... 127,525 33,550 (901)(3) 160,174
Amortization of intangible
assets..................... 5,046 -- 901 (3) 5,947
-------- -------- ------- --------
Operating earnings..... 53,091 22,007 75,098
Other Expenses (Income):
Net financing costs.... 8,963 3,105 12,068
Other--net............. (1,146) (1,149) (2,295)
-------- -------- ------- --------
Earnings from Continuing
Operations Before Income
Tax Expense................ 45,274 20,051 65,325
Income Tax Expense (11)..... 15,167 7,963 23,130
-------- -------- ------- --------
Earnings from Continuing
Operations................. $ 30,107 $ 12,088 $ -- $ 42,195
======== ======== ======= ========
Earnings from continuing
operations per common and
equivalent share:
Basic.................. $ 1.09 $ 0.99 $ 1.11
Diluted................ $ 1.05 $ 0.97 $ 1.08
Common and equivalent shares
used in computing per share
amounts:
Basic.................. 27,506 12,197 (1,830)(2) 37,873
Diluted................ 28,626 12,422 (1,863)(2) 39,185
See Notes to Unaudited Pro Forma Combined Financial Statements
7
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
EVEREST VERSA/TEK VERO ZERO
API SEPTEMBER 1, YEAR YEAR YEAR
YEAR ENDED TO ENDED ENDED SUB-TOTAL ENDED TOTAL
AUGUST 31, SEPTEMBER 26, JUNE 30, JUNE 30, ADJUST- PRO FORMA JUNE 30, ADJUST- PRO FORMA
1997 (1) 1996 (1) 1997 (1) 1997 (1) MENTS COMBINED 1997 (1) MENTS COMBINED
---------- ------------- --------- -------- -------- --------- -------- ------- ----------
(In Thousands, except per share amounts)
Net Sales............. $672,316 $3,496 $95,288 $163,270 $ 5,701 (7) $940,071 $235,330 $1,175,401
Cost of products sold. 419,420 2,663 69,773 106,492 4,597 (7) 602,965 158,195 761,160
20 (6)
-------- ------ ------- -------- -------- -------- -------- ----------
Gross profit......... 252,896 833 25,515 56,778 1,084 337,106 77,135 414,241
Engineering, selling
and administrative
expenses............. 173,200 304 14,552 37,233 755 (7) 226,044 46,377 (1,194)(3) 271,227
Amortization of
intangible assets.... 6,813 125 -- 473 145 (6) 13,952 -- 1,194 (3) 15,146
3,012 (7)
3,384 (8)
-------- ------ ------- -------- -------- -------- -------- ------- ----------
Operating earnings... 72,883 404 10,963 19,072 (6,212) 97,110 30,758 127,868
Other Expenses
(Income):
Net financing
costs............... 12,003 (23) (32) 653 282 (6) 35,376 4,095 39,471
9,507 (7)
12,986 (8)
Other--net........... (1,863) (47) 607 -- (3)(7) (1,306) (1,393) (2,699)
-------- ------ ------- -------- -------- -------- -------- ------- ----------
Net Earnings from
Continuing
Operations Before
Income Tax Expense... 62,743 474 10,388 18,419 (28,984) 63,040 28,056 91,096
Income Tax
Expense (11)......... 20,705 -- 4,216 6,649 62 (6) 23,433 11,165 34,598
(3,735)(7)
(4,464)(8)
-------- ------ ------- -------- -------- -------- -------- ------- ----------
Net Earnings from
Continuing
Operations........... $ 42,038 $ 474 $ 6,172 $ 11,770 $(20,847) $ 39,607 $ 16,891 $ -- $ 56,498
======== ====== ======= ======== ======== ======== ======== ======= ==========
Net earnings from
continuing
operations per
common and
equivalent share:
Basic................ $ 1.53 $ 1.44 $ 1.38 $ 1.49
Diluted.............. $ 1.46 $ 1.38 $ 1.36 $ 1.44
Common and
equivalent shares
used in computing
per share amounts:
Basic................ 27,530 27,530 12,213 (1,832)(2) 37,911
Diluted.............. 28,754 28,754 12,450 (1,868)(2) 39,336
See Notes to Unaudited Pro Forma Combined Financial Statements
8
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
API Year ZERO Year
ended Ended Pro
August 31, March 31, Forma
1996 (1) 1996 (1) Adjustments Combined
---------- --------- ----------- --------
(In Thousands, except per share amounts)
Net Sales....................... $571,215 $206,247 $777,462
Cost of products sold........... 351,283 135,708 486,991
-------- -------- --------
Gross profit.................. 219,932 70,539 290,471
Engineering, selling and
administrative expenses........ 158,485 43,933 (1,086)(3) 201,332
Amortization of intangible
assets......................... 4,054 -- 1,086 (3) 5,140
-------- -------- ------- --------
Operating earnings............ 57,393 26,606 83,999
Other Expenses (Income):
Net financing costs........... 8,456 (564) 7,892
Other--net.................... (230) (1,077) (1,307)
-------- -------- ------- --------
Net Earnings from Continuing
Operations Before Income Tax
Expense........................ 49,167 28,247 77,414
Income Tax Expense (11)......... 15,438 11,297 26,735
-------- -------- ------- --------
Net Earnings from Continuing
Operations..................... $ 33,729 $ 16,950 $ -- $ 50,679
======== ======== ======= ========
Net earnings from continuing
operations per common and
equivalent share:
Basic......................... $ 1.25 $ 1.08 $ 1.26
Diluted....................... $ 1.21 $ 1.07 $ 1.22
Common and equivalent shares
used in computing per share
amounts:
Basic......................... 26,957 15,719 (2,358)(2) 40,318
Diluted....................... 27,967 15,866 (2,380)(2) 41,453
See Notes to Unaudited Pro Forma Combined Financial Statements
9
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
API Year ZERO Year
ended Ended Pro
August 31, March 31, Forma
1995 (1) 1995 (1) Adjustments Combined
---------- --------- ----------- --------
(In Thousands, except per share amounts)
Net Sales........................ $527,058 $179,694 $706,752
Cost of products sold............ 325,621 118,084 443,705
-------- -------- --------
Gross profit................... 201,437 61,610 263,047
Engineering, selling and
administrative expenses......... 149,210 39,769 (1,025)(3) 187,954
Amortization of intangible
assets.......................... 3,369 -- 1,025 (3) 4,394
-------- -------- ------- --------
Operating earnings............. 48,858 21,841 70,699
Other Expenses (Income):
Net financing costs............ 10,291 (1,041) 9,250
Other--net..................... 1,694 (1,344) 350
-------- -------- ------- --------
Net Earnings from Continuing
Operations Before Income Tax
Expense......................... 36,873 24,226 61,099
Income Tax Expense (11).......... 11,868 9,401 21,269
-------- -------- ------- --------
Net Earnings from Continuing
Operations...................... $ 25,005 $ 14,825 $ -- $ 39,830
======== ======== ======= ========
Net earnings from continuing
operations per common and
equivalent share:
Basic.......................... $ 0.94 $ 0.93 $ 0.99
Diluted........................ $ 0.91 $ 0.93 $ 0.97
Common and equivalent shares used
in computing per share amounts:
Basic.......................... 26,559 15,936 (2,390)(2) 40,105
Diluted........................ 27,491 16,020 (2,403)(2) 41,108
See Notes to Unaudited Pro Forma Combined Financial Statements
10
APPLIED POWER INC. AND ZERO CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
API VERO Sub-Total ZERO Total
May 31, March 31, Pro Forma March 31, Pro Forma
ASSETS 1998 (1) 1998 (1) Adjustments Combined 1998 (1) Adjustments Combined
------ ------------ ------------ ----------- --------- ------------ ----------- ----------
(In Thousands, except share amounts)
Current Assets
Cash and cash
equivalents........... $ 4,262 $ 6,595 $ 10,857 $ 30,979 $ 41,836
Short-term
investments........... -- -- -- 9,990 9,990
Accounts receivable,
net................... 83,471 29,305 112,776 35,002 147,778
Inventories............ 129,950 24,295 154,245 31,409 185,654
Prepaid income tax..... 12,420 -- 12,420 2,608 15,028
Prepaid expenses....... 9,721 2,126 11,847 5,757 17,604
--------- -------- --------- -------- ----------
Total Current Assets. 239,824 62,321 302,145 115,745 417,890
Investment in VERO
Group, plc............. -- -- 192,384 (9a) -- -- --
(192,384)(9b)
Other Assets............ 30,423 1,401 31,824 15,743 (1,964)(3) 45,603
Goodwill................ 283,794 16,892 134,170 (9b) 434,856 36,505 471,361
Other Intangibles....... 47,704 -- 47,704 -- 1,964 (3) 49,668
Property, Plant and
Equipment.............. 258,453 40,712 299,165 99,892 399,057
Less: Accumulated
depreciation.......... (129,020) (10,498) (139,518) (50,887) (190,405)
--------- -------- --------- -------- ----------
Net Property, Plant and
Equipment.............. 129,433 30,214 159,647 49,005 208,652
--------- -------- --------- --------- -------- ------- ----------
Total Assets......... $ 731,178 $110,828 $ 134,170 $ 976,176 $216,998 $ -- $1,193,174
========= ======== ========= ========= ======== ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-term borrowings.. $ 37,475 $ 1,100 $ 38,575 $ 2 $ 38,577
Trade accounts
payable............... 66,501 14,387 80,888 8,174 89,062
Accrued compensation
and benefits.......... 29,326 -- 29,326 7,964 37,290
Income taxes payable... 3,521 5,235 8,756 4,371 13,127
Other current
liabilities........... 22,660 16,054 38,714 7,683 46,397
--------- -------- --------- -------- ----------
Total Current
Liabilities......... 159,483 36,776 196,259 28,194 224,453
Long-term Debt.......... 284,213 14,859 192,384 (9a) 491,456 50,555 542,011
Deferred Income Tax..... 17,030 979 18,009 -- 18,009
Other Deferred
Liabilities............ 25,786 -- 25,786 12,184 37,970
Shareholders' Equity
Common stock (API:
27,836,656 shares;
ZERO 12,391,197
shares; and
38,369,173 shares on
a pro forma combined
basis)................ 5,587 5,026 (5,026) 5,587 166 5,753
Additional paid-in
capital............... 40,030 30,471 (30,471) 40,030 40,236 80,266
Retained earnings...... 204,579 23,673 (22,717) 205,535 159,366 364,901
Cumulative translation
adjustments........... (5,530) (956) (6,486) 113 (6,373)
Treasury stock......... -- -- -- (73,816) (73,816)
--------- -------- --------- --------- -------- ----------
Total Shareholders'
Equity.............. 244,666 58,214 (58,214)(9b) 244,666 126,065 370,731
--------- -------- --------- --------- -------- ------- ----------
Total Liabilities and
Shareholders'
Equity.............. $ 731,178 $110,828 $ 134,170 $ 976,176 $216,998 $ -- $1,193,174
========= ======== ========= ========= ======== ======= ==========
See Notes to Unaudited Pro Forma Combined Financial Statements
11
APPLIED POWER INC. AND ZERO CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1--PERIODS COMBINED
The API consolidated statements of earnings for the nine months ended May
31, 1998 and 1997 (both unaudited) and for the fiscal years ended August 31,
1997, 1996 and 1995 have been combined with the ZERO consolidated statements of
income for the nine months ended March 31, 1998 and 1997, for the twelve months
ended June 30, 1997 (all unaudited) and for the fiscal years ended March 31,
1996 and 1995, respectively. This presentation has the effect of excluding
ZERO's results of operations for the three-month period ended June 30, 1996 in
the unaudited pro forma combined statements of operations. Unaudited net sales
and net income for ZERO were $54,664,000 and $3,800,000, respectively, for the
three-month period ended June 30, 1996. ZERO's results of operations for this
period are reflected in shareholders' equity in the pro forma combined balance
sheet at May 31, 1998. API's May 31, 1998 unaudited consolidated balance sheet
has been combined with ZERO's March 31, 1998 audited consolidated balance sheet
and VERO's March 31, 1998 unaudited consolidated balance sheet.
On April 23, 1998, API announced that it had reached an agreement with the
Board of Directors of VERO Group plc ("VERO") on the terms of a recommended cash
offer (with a guaranteed loan note alternative) to be made by Applied Power
Limited, a United Kingdom subsidiary of API, to acquire the entire issued share
capital of VERO at a price of 157 pence per VERO share. On May 5, 1998, Pentair,
Inc. announced the terms of a competing cash offer (with a guaranteed loan note
alternative), to be made through a wholly-owned subsidiary, to acquire the
entire issued share capital of VERO at a price of 170 pence per VERO share. On
May 12, 1998, in response to the offer by Pentair, Inc., API increased its cash
offer to 192 pence per VERO share. Pentair, Inc. subsequently withdrew its
offer. On May 15, 1998, the Applied Power Limited offering documents were sent
to the VERO shareholders. On June 5, 1998, the initial tender offer period
expired, and API announced that Applied Power Limited had accepted for payment
the VERO stock tendered, which totaled over 72% of the outstanding VERO shares.
Applied Power Limited had previously acquired approximately 10% of VERO's
shares, so that after accepting the shares tendered, Applied Power Limited owned
or had accepted over 82% of VERO's shares. The shares accepted were paid for on
June 19, 1998. The tender offer remained open. On June 19, 1998, Applied Power
Limited announced that the additional shares tendered brought the total of the
shares it owned or had accepted for payment to over 90% of all VERO's shares,
sufficient to invoke procedures under the U.K. Companies Act of 1985 which, when
completed, will result in Applied Power Limited owning all of the outstanding
shares of VERO. The unaudited pro forma combined financial data for the nine
months ended May 31, 1998 includes the operating results of Versa Technologies,
Inc. ("Versa/Tek"), which was acquired by API on October 6, 1997, for the period
from September 1 to October 6, 1997 and the operating results of VERO for the
nine months ended March 31, 1998. The unaudited pro forma combined financial
data for the year ended August 31, 1997 includes the operating results of
Everest Electronics Equipment, Inc. ("Everest"), which was acquired by API on
September 26, 1996, for the period from September 1 to September 26, 1996, and
the operating results of Versa/Tek and VERO for their respective twelve months
ended June 30, 1997. The operating results of Versa/Tek and Everest subsequent
to their acquisition dates, are included in API's historic results (presented in
the first column of the accompanying combined financial statements) for the nine
months ended May 31, 1998 and the year ended August 31, 1997.
VERO's reporting currency is the pound sterling and its financial
information in the accompanying pro forma combined financial statements has been
translated to the U.S. dollar in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." VERO's historic
financial statements are prepared in accordance with generally accepted
accounting principles in the United Kingdom ("UK GAAP"), however, VERO's
financial information in the accompanying pro forma combined financial
statements has been adjusted to conform with generally accepted accounting
principles in the United States ("US GAAP"). The only material adjustment
required to conform with US GAAP related to goodwill. Under UK GAAP purchased
goodwill may be written off on acquisition directly against reserves. Under US
GAAP goodwill is capitalized and amortized by charges against income over the
period during which it is estimated it will be of
12
benefit subject to a maximum of 40 years. Accordingly, goodwill, net of
amortization, was recorded in the pro forma combined balance sheet at May 31,
1998 and the related amortization expense included in the pro forma combined
statements of earnings for the nine months ended May 31, 1998 and the twelve
months ended August 31, 1997.
NOTE 2--PRO FORMA NET EARNINGS PER SHARE
The unaudited pro forma combined net earnings per common share and per
common and equivalent share is based upon the weighted average number of
common and equivalent shares of API and ZERO outstanding for each period at
the Exchange Ratio of 0.85 shares of API Common Stock for each share of ZERO
Common Stock.
NOTE 3--RECLASSIFICATIONS (ZERO)
Certain reclassifications, none of which affect income from continuing
operations, have been made to the ZERO statements of income in the pro forma
combined statements of earnings to conform classifications of "Amortization of
intangible assets" and to ZERO's balance sheet in the pro forma combined
balance sheet to conform classifications of "Other intangibles."
NOTE 4--PRO FORMA ADJUSTMENTS (VERSA/TEK)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the nine months ended May 31,
1998 as a result of the Versa/Tek acquisition.
1. Incremental interest expense on acquisition debt at a rate
of 6.5%...................................................... $(763)
2. Increase in depreciation expense resulting from adjustment
to carrying amount of plant and equipment being
depreciated over a 7 year life............................... (24)
3. Reflect amortization of increase in goodwill and
intangible assets arising from this transaction, over
periods of 10 to 40 years.................................... (237)
4. Decrease in income taxes (net benefit) applying a 39%
effective US and Wisconsin state income tax rate to the
earnings of Versa/Tek, less the effect of pro forma
adjustments in 1, 2 and 3 above (with the exception of non-
deductible amortization)..................................... 201
-----
$(823)
=====
NOTE 5--PRO FORMA ADJUSTMENTS (VERO)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the nine months ended May 31,
1998 as a result of the VERO acquisition.
1. Incremental interest expense on acquisition debt at a rate of
6.75%........................................................ $(9,740)
2. Reflect amortization of goodwill arising from this
transaction, over a 40 year life............................. (2,538)
3. Decrease in income taxes (net benefit) applying a 37%
effective income tax rate to the earnings of VERO, less the
effect of pro forma adjustments in 1 and 2 above (with the
exception of non-deductible amortization).................... 3,278
-------
$(9,000)
=======
NOTE 6--PRO FORMA ADJUSTMENTS (EVEREST)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 as a result of the Everest acquisition.
1. Incremental interest expense on acquisition debt at a rate of
6.5%......................................................... $(282)
2. Increase in depreciation expense resulting from adjustment to
carrying amount of plant and equipment being depreciated over
a 7 year life................................................ (20)
3. Reflect amortization of goodwill arising from this
transaction, over a 25 year life............................. (145)
4. Increase in income taxes applying a 41% effective U.S. and
California state income tax rate to the earnings of Everest,
less the effect of pro forma adjustments in 1, 2 and 3 above. (62)
-----
$(509)
=====
13
NOTE 7--PRO FORMA ADJUSTMENTS (VERSA/TEK)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 to reflect a full year of Eder Industries in Versa/Tek (Eder was acquired
by Versa/Tek on October 31, 1996).
1. Add historical operating results of Eder for the four-month
period July 1, 1996 to 10/31/96 (date of Versa/Tek's
acquisition)
Net Sales................................................... $ 6,338
Cost of Products Sold....................................... (4,924)
Engineering, Selling and Administrative Expenses............ (755)
Financing Costs............................................. (19)
Other Income................................................ 3
2. Eliminate intercompany sales and purchases between Eder and
Versa/Tek................................................... 637
(637)
3. Incremental interest expense/elimination of interest income
relating to the cash borrowed/used in the acquisition at a
rate of 6.5%................................................ (333)
4. Increase in depreciation expense resulting from adjustment
to carrying amount of plant and equipment being depreciated
over periods of 10 to 30 years.............................. (24)
5. Reflect additional amortization of goodwill and other
intangibles arising from the Eder transaction over periods
of 3 to 40 years............................................ (163)
-------
$ 123
=======
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for the year ended August 31,
1997 as a result of the Versa Tek acquisition.
6. Incremental interest expense on acquisition debt at a
rate of 6.5%................................................ $(9,155)
7. Increase in depreciation expense resulting from
adjustment to carrying amount of plant and equipment
being depreciated over a 7 year life........................ (286)
8. Reflect amortization of increase in goodwill and
intangible assets arising from this transaction over
periods of 10 to 40 years................................... (2,849)
9. Decrease in income taxes (net benefit) applying a 39%
effective US and Wisconsin state income tax rate to the
earnings of Versa/Tek, less the effect of pro forma
adjustments in 1 through 8 above (with the exception of
non-deductible amortization)................................ 3,735
-------
$(8,555)
=======
NOTE 8--PRO FORMA ADJUSTMENTS (VERO)
The following pro forma adjustments are incorporated in the pro forma
condensed consolidated statement of earnings for API's year ended August 31,
1997 as a result of the pending VERO acquisition.
1. Incremental interest expense on acquisition debt at a rate
of 6.75%.................................................... $(12,986)
2. Reflect amortization of goodwill arising from this
transaction, over a 40 year life............................ (3,384)
3. Decrease in income taxes (net benefit) applying a 37%
effective income tax rate to the earnings of VERO, less
the effect of pro forma adjustments 1 and 2 above (with
the exception of non-deductible amortization)............... 4,464
--------
$(11,906)
========
14
NOTE 9--PRO FORMA ADJUSTMENTS (VERO)
(a) The following pro forma adjustments are incorporated in the pro forma
combined balance sheet at May 31, 1998 as a result of the VERO acquisition.
Purchase price of outstanding shares.......................... $192,384
(b) The following pro forma adjustments are made to reflect estimated fair
value adjustments and to eliminate the investment in VERO:
VERO net assets--as reported.................................. $ 58,214
Fair value adjustments:
Record goodwill acquired.................................... 134,170
--------
Investment in VERO........................................ $192,384
========
Because of the proximity of the transaction, API has not had adequate time
to complete its evaluation of the fair value of the net assets acquired in the
VERO transaction. As a result, no fair value adjustments have been reflected
in these pro forma statements.
NOTE 10--SPECIAL ITEM (ZERO)
Other Income--net for the nine months ended March 31, 1998 includes
approximately $3,900,000 ($7,024,000 pre-tax) of special items (gain from life
insurance and sale of property net of provision for estimated loss on sale of
subsidiary) recognized by ZERO during 1998.
NOTE 11--INCOME TAX EXPENSE
Effective tax rates are higher than the statutory federal income tax rates
primarily due to state income taxes, net of federal benefit.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED POWER INC.
Date: August 12, 1998 By: /s/Robert C. Arzbaecher
-----------------------
Robert C. Arzbaecher,
Vice President and
Chief Financial Officer
16
APPLIED POWER INC.
EXHIBIT INDEX
to
FORM 8-K CURRENT REPORT
Date of Report: July 31, 1998
Exhibit Incorporated Herein Filed
Number Description by Reference to Herewith
- ------ ----------- ------------------- --------
2.1 Agreement and Plan of Merger, Appendix A to the Joint
dated as of April 6, 1998, by Proxy Statement/Prospectus
and among Applied Power Inc., contained in API's
ZERO Corporation and STB Registration Statement on
Acquisition Corporation Form S-4 (File No. 333-58267)
2.2 Certified copy of Certificate X
of Merger of STB Acquisition
Corporation with and into
ZERO Corporation, dated
July 31, 1998
23 Consent of Deloitte & Touche LLP, X
ZERO's independent accountants
99.1 Consolidated balance sheets of ZERO X
Corporation and subsidiaries as of
March 31, 1998 and 1997, and the
related statements of consolidated
income, stockholders' equity and
cash flows for each of the three
years in the period ended March 31,
1998, and the notes thereto and
independent auditors' report thereon
incorporated by reference in Item
7(a) of this Report.
99.2 Press Release dated July 31, 1998 X
17