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 -------------- (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
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