-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gzm1a00CSfVrIjxk9u0uHfw4QaEyQUR7SzJLwg1FLxUsmmMH769N6m+y485IonwO qyhsyZgfDSMVaY4waGpCWA== 0000950131-98-004129.txt : 19980723 0000950131-98-004129.hdr.sgml : 19980723 ACCESSION NUMBER: 0000950131-98-004129 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980605 ITEM INFORMATION: FILED AS OF DATE: 19980701 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED POWER INC CENTRAL INDEX KEY: 0000006955 STANDARD INDUSTRIAL CLASSIFICATION: 3590 IRS NUMBER: 390168610 STATE OF INCORPORATION: WI FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-11288 FILM NUMBER: 98658840 BUSINESS ADDRESS: STREET 1: P O BOX 325 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4147816600 MAIL ADDRESS: STREET 1: PO BOX 325 CITY: MILWAUKEE STATE: WI ZIP: 53201 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED POWER INDUSTRIES INC DATE OF NAME CHANGE: 19730123 8-K/A 1 FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 5, 1998 APPLIED POWER INC. ----------------- (Exact name of Registrant as specified in its charter) WISCONSIN 1-11288 39-0168610 --------- ------- ---------- (State of incorporation) (Commission File No.) (I.R.S. Employer Id. No.) 13000 WEST SILVER SPRING DRIVE BUTLER, WISCONSIN 53007 MAILING ADDRESS: P. O. BOX 325, MILWAUKEE, WISCONSIN 53201 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (414) 781-6600 -------------- (Registrant's telephone number, including area code) 1 The undersigned registrant hereby amends Item 7 including the financial statements, exhibits or other portions of financial information filed for VERO Group plc ("VERO") on Form 8-K dated as of June 5, 1998 (the "VERO 8-K"). The financial statements and related footnotes as previously filed in the VERO 8-K have been amended to reflect that the financial data presented for VERO's fiscal year ended December 31, 1996 is not covered by the audit opinion of Ernst & Young for the year ended December 31, 1997 filed as part of the VERO 8-K. As such, the 1996 financial data has been marked as "unaudited." Additionally, footnote number 23 has been added to reconcile certain information presented under generally accepted accounting principles in the United Kingdom to generally accepted accounting principles in the United States. The related updated accountants' consent as Exhibit 23 is also being filed. SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. APPLIED POWER INC. June 30, 1998 By: /s/ Robert C. Arzbaecher ------------------------------------- Robert C. Arzbaecher Vice President and Chief Financial Officer ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - - ------------------------------------------- (a) Financial Statements of Businesses Acquired: The following financial statements of VERO prepared in accordance with generally accepted accounting principles in the United Kingdom are included herein from pages 17 through 35 of VERO's 1997 Annual Report which is filed herewith as Exhibit 99.1. These financial statements are not the statutory accounts of VERO. The statutory accounts for the years ended December 31, 1997 and 1996 have been delivered to the Registrar of Companies for England and Wales and the auditors' reports thereon were unqualified: Report of Independent Auditors Consolidated Profit and Loss Account for the years ended December 31, 1997 and 1996 Consolidated Balance Sheet as of December 31, 1997 and 1996 Consolidated Cash Flow Statement for the years ended December 31, 1997 and 1996 Consolidated Statement of Total Recognized Gains and Losses for the years ended December 31, 1997 and 1996 Reconciliation of Movements in Consolidated Shareholders' Fund for the years ended December 31, 1997 and 1996 Company Balance Sheet as of December 31, 1997 and 1996 Accounting Policies Notes to the Accounts (b) Pro Forma Financial Information: The following unaudited pro forma condensed consolidated financial statements of Applied Power Inc. and subsidiaries, reflecting the acquisition of VERO, are filed herewith: Introduction to Pro Forma Condensed Consolidated Financial Statements of Applied Power Inc. and VERO Group plc Applied Power Inc. and VERO Group plc Pro Forma Condensed Consolidated Balance Sheet as of February 28, 1998 and the related Pro Forma Condensed Consolidated Statement of Earnings for the six months then ended (unaudited) Pro Forma Condensed Consolidated Statement of Earnings for the year ended August 31, 1997 (unaudited) Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited) (c) Exhibits: See the Exhibit Index following the Signature page of this Report, which is incorporated herein by reference. 5 APPLIED POWER INC. AND VERO GROUP PLC INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------------------------------------- Unaudited As described under Item 2 of this report, Applied Power Inc. (the "Company" or "API"), through Applied Power Limited, a wholly owned subsidiary, acquired by means of a tender offer and market purchases of shares over 90% of the outstanding shares of common stock of VERO Group plc ("VERO") at a price of 192 pence per share in cash. The following unaudited pro forma condensed consolidated balance sheet and statements of earnings (the "pro forma statements") give effect to the acquisition of VERO using the purchase method of accounting and are based on the estimates and assumptions set forth in the notes to such pro forma statements. The pro forma statements have been prepared by the Company utilizing the historical financial statements of the Company and notes thereto which were contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997 and the unaudited condensed consolidated interim financial information contained in the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998 and the audited financial statements and notes thereto of VERO for the year ended December 31, 1997, included as Item 7(a) of this report, and VERO's unaudited interim results for the six months ended June 30, 1997. VERO's reporting currency is the United Kingdom pound sterling and its financial information in the accompanying pro forma combined financial statements has been translated to the U.S. dollar in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." VERO's historic financial statements are prepared in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"), however, VERO's financial information in the accompanying pro forma combined financial statements has been adjusted to confirm with generally accepted accounting principles in the United States ("US GAAP"). The only material adjustment required to conform with US GAAP related to goodwill. Under UK GAAP purchased goodwill may be written off on acquisition directly against reserves. Under US GAAP goodwill is capitalized and amortized by charges against income over the period during which it is estimated it will be of benefit subject to a maximum of 40 years. Accordingly, goodwill, net of amortization, was recorded in the pro forma combined balance sheet at February 28, 1998 and the related amortization expense included in the pro forma combined statements of earnings for the six months ended February 28, 1998 and the twelve months ended August 31, 1997. These pro forma statements have been prepared and included herein as required by the rules and regulations of the Securities and Exchange Commission and are provided for comparative purposes only. The pro forma statements are not necessarily indicative of the future consolidated financial position and results of operation or those which would have occurred had the acquisition been consummated as of the dates reflected in the pro forma statements. In reviewing the pro forma statements, the reader should consider the following: 1. The historical amounts of VERO were compiled to conform, as closely as possible, to the fiscal year of the Company. The historical income statement for VERO covers the twelve month period beginning January 1 through December 31. For pro forma purposes, the VERO income statement has been adjusted to cover the twelve month period beginning July 1, 1996 through June 30, 1997. 2. The following pro forma financial statements do not reflect any adjustments for the various synergies or cost reductions the Company expects to achieve as a result of the acquisition. 6 APPLIED POWER INC. AND VERO GROUP PLC UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
API VERSA/TEK ZERO VERO SIX MONTHS SEPTEMBER 1, SIX MONTHS SIX MONTHS ENDED TO ENDED SUB-TOTAL ENDED TOTAL FEBRUARY 28, OCTOBER 6, DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA 1998(1) 1997(1) 1997(1) ADJUSTMENTS COMBINED 1997(1) ADJUSTMENTS COMBINED ------------ ------------ ------------ ----------- --------- ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Sales.............. $425,834 $9,330 $131,375 $566,539 $83,927 $650,466 Cost of products sold.. 276,677 6,637 87,731 24 (4) 371 069 58,204 429,273 -------- ------ -------- ------ -------- ------- -------- Gross profit.......... 149,157 2,693 43,644 (24) 195,470 25,723 221,193 Engineering, selling and administrative expenses.............. 97,594 1,302 25,570 (706)(3) 123,760 17,987 141,747 Amortization of intangible assets..... 5,201 -- -- 706 (3) 6,144 236 1,692 (5) 8,072 237 (4) -------- ------ -------- ------ -------- ------- ------- -------- Operating earnings.... 46,362 1,391 18,074 (261) 65,566 7,500 (1,692) 71,374 Other Expenses (Income): Net financing costs... 9,470 (11) 1,964 763 (4) 12,186 201 6,493 (5) 18,880 Other--net............ (195) 100 (2,232)(10) (2,327) -- (2,327) -------- ------ -------- ------ -------- ------- ------- -------- Net Earnings from Continuing Operations Before Income Tax Expense............... 37,087 1,302 18,342 (1,024) 55,707 7,299 (8,185) 54,821 Income Tax Expense(11). 12,981 -- 6,636 (201)(4) 19,416 2,541 (2,155)(5) 19,802 -------- ------ -------- ------ -------- ------- ------- -------- Net Earnings from Continuing Operations. $ 24,106 $1,302 $ 11,706 (10) $ (823) $ 36,291 $ 4,758 $(6,030) $ 35,019 ======== ====== ======== ====== ======== ======= ======= ======== Net earnings from continuing operations per common and equivalent share: Basic................. $ 0.87 $ 0.95 (10) $ 0.95 $ 0.92 Diluted............... $ 0.82 $ 0.93 (10) $ 0.90 $ 0.87 Common and equivalent shares used in computing per share amounts: Basic................. 27,728 12,344 (1,852)(2) 38,220 38,220 Diluted............... 29,371 12,649 (1,897)(2) 40,123 40,123
See Notes to Unaudited Pro Forma Combined Financial Statements 7 APPLIED POWER INC. AND VERO GROUP PLC UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
EVEREST VERSA/TEK ZERO VERO API SEPTEMBER 1, YEAR YEAR YEAR YEAR ENDED TO ENDED ENDED SUB-TOTAL ENDED TOTAL AUGUST 31, SEPTEMBER 26, JUNE 30, JUNE 30, ADJUST- PRO FORMA JUNE 30, ADJUST- PRO FORMA 1997 (1) 1996 (1) 1997 (1) 1997 (1) MENTS COMBINED 1997 (1) MENTS COMBINED ---------- ------------- --------- -------- -------- ---------- -------- -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Sales........... $672,316 $3,496 $95,288 $235,330 $ 5,701 (7) $1,012,131 $163,270 $1,175,401 Cost of products sold............... 419,420 2,663 69,773 158,195 20 (6) 654,668 106,492 761,160 4,597 (7) -------- ------ ------- -------- -------- ---------- -------- ---------- Gross profit....... 252,896 833 25,515 77,135 1,084 357,463 56,778 414,241 Engineering, selling and administrative expenses........... 173,200 304 14,552 46,377 (1,194)(3) 233,994 37,233 271,227 Amortization of 755 (7) intangible assets.. 6,813 125 -- -- 1,194 (3) 11,289 473 3,384 (8) 15,146 145 (6) 3,012 (7) -------- ------ ------- -------- -------- ---------- -------- -------- ---------- Operating earnings. 72,883 404 10,963 30,758 (2,828) 112,180 19,072 (3,384) 127,868 Other Expenses (Income): Net financing costs............. 12,003 (23) (32) 4,095 282 (6) 25,832 653 12,986 (8) 39,471 9,507 (7) Other--net......... (1,863) (47) 607 (1,393) (3)(7) (2,699) -- (2,699) -------- ------ ------- -------- -------- ---------- -------- -------- ---------- Net Earnings from Continuing Operations Before Income Tax Expense. 62,743 474 10,388 28,056 (12,614) 89,047 18,419 (16,370) 91,096 Income Tax Expense (11)....... 20,705 -- 4,216 11,165 62 (6) 32,413 6,649 (4,464)(8) 34,598 (3,735)(7) -------- ------ ------- -------- -------- ---------- -------- -------- ---------- Net Earnings from Continuing Operations......... $ 42,038 $ 474 $ 6,172 $ 16,891 $ (8,941) $ 56,634 $ 11,770 $(11,906) $ 56,498 ======== ====== ======= ======== ======== ========== ======== ======== ========== Net earnings from continuing operations per common and equivalent share: Basic.............. $ 1.53 $ 1.38 $ 1.49 $ 1.49 Diluted............ $ 1.46 $ 1.36 $ 1.44 $ 1.44 Common and equivalent shares used in computing per share amounts: Basic.............. 27,530 12,213 (1,832)(2) 37,911 37,911 Diluted............ 28,754 12,450 (1,868)(2) 39,337 39,336
See Notes to Unaudited Pro Forma Combined Financial Statements 8 APPLIED POWER INC. AND VERO GROUP PLC UNAUDITED PRO FORMA COMBINED BALANCE SHEET
API ZERO SUB-TOTAL VERO TOTAL FEBRUARY 28, DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA ASSETS 1998 (1) 1997 (1) ADJUSTMENTS COMBINED 1997 (1) ADJUSTMENTS COMBINED ------ ------------ ------------ ----------- --------- ------------ ----------- ---------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Current Assets Cash and cash equivalents........... $ 7,010 $ 22,051 $ 29,061 $ 6,756 $ 35,817 Short-term investments........... -- 4,918 4,918 -- 4,918 Accounts receivable, net................... 76,908 37,537 114,445 27,851 142,296 Inventories............ 130,190 34,137 164,327 22,765 187,092 Prepaid income tax..... 12,453 -- 12,453 -- 12,453 Prepaid expenses....... 11,116 3,736 14,852 2,020 16,872 --------- -------- --------- -------- ---------- Total Current Assets. 237,677 102,379 340,056 59,392 399,448 Investment in VERO Group, PLV............. -- -- -- -- 192,384 (9a) -- (192,384)(9b) Other Assets............ 10,397 17,259 (2,718)(3) 24,938 1,359 26,297 Goodwill................ 260,361 37,391 297,752 17,010 135,367 (9b) 450,129 Other Intangibles....... 46,688 -- 2,718 (3) 49,406 -- 49,406 Property, Plant and Equipment.............. 257,259 106,776 364,035 37,154 401,189 Less: Accumulated depreciation.......... (133,019) (57,444) (190,463) (8,892) (199,355) --------- -------- --------- -------- ---------- Net Property, Plant and Equipment.............. 124,240 49,332 173,572 28,262 201,834 --------- -------- ------- --------- -------- --------- ---------- Total Assets......... $ 679,363 $206,361 $ -- $ 885,724 $106,023 $ 135,367 $1,127,114 ========= ======== ======= ========= ======== ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY - - ------------------------------------ Current Liabilities Short-term borrowings.. $ 15,585 $ -- $ 15,585 $ 842 $ 16,427 Trade accounts payable............... 62,335 7,827 70,162 14,993 85,155 Accrued compensation and benefits.......... 28,207 7,246 35,453 -- 35,453 Income taxes payable... 4,118 573 4,691 4,757 9,448 Other current liabilities........... 24,975 8,420 33,395 17,747 51,142 --------- -------- --------- -------- ---------- Total Current Liabilities......... 135,220 24,066 159,286 38,339 197,625 Long-term Debt.......... 272,262 51,573 323,835 10,251 192,384 (9a) 526,470 Deferred Income Tax..... 16,913 -- 16,913 416 17,329 Other Deferred Liabilities............ 27,241 13,084 40,325 -- 40,325 Shareholders' Equity Common stock (API: 27,836,656 shares; ZERO 12,391,197 shares; and 38,369,173 shares on a pro forma combined basis)................ 5,567 166 -- 5,733 4,964 (4,964) 5,733 Additional paid-in capital............... 38,538 39,289 -- 77,827 30,094 (30,094) 77,827 Retained earnings...... 190,049 151,899 -- 341,948 23,578 (21,959) 343,567 Cumulative translation adjustments........... (6,427) 100 (6,327) (1,619) (7,946) Treasury stock......... -- (73,816) (73,816) -- (73,816) --------- -------- --------- --------- -------- -------- ---------- Total Shareholders' Equity.............. 227,727 117,638 345,365 57,017 (57,017)(9b) 345,365 --------- -------- --------- --------- -------- -------- ---------- Total Liabilities and Shareholders' Equity.............. $ 679,363 $206,361 $ -- $ 885,724 $106,023 $135,367 $1,127,114 ========= ======== ========= ========= ======== ======== ==========
See Notes to Unaudited Pro Forma Combined Financial Statements 9 APPLIED POWER INC. AND VERO GROUP PLC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE 1--PERIODS COMBINED The Company's consolidated statements of earnings for the six months ended February 28, 1998 (unaudited) and for the fiscal year ended August 31, 1997, have been combined with the VERO consolidated statements of income for the six months ended December 31, 1997 and for the twelve months ended June 30, 1997 (both unaudited) respectively. The Company's February 28, 1998 unaudited consolidated balance sheet has been combined with VERO's December 31, 1997 audited consolidated balance sheet. On April 6, 1998, the Company and ZERO Corporation ("ZERO") jointly announced that they had entered a definitive strategic merger agreement in which a newly created subsidiary of the Company will be merged into ZERO. Under the terms of the merger, ZERO stockholders will receive .85 shares of the Company's common stock for each share of ZERO common stock. Approved by the boards of directors of both companies, consummation of the Merger is subject to approval by the stockholders of both companies and satisfaction of certain other conditions. The Merger would be accounted for as a pooling of interests and is expected to be completed in July 1998. The unaudited pro forma combined financial data for the six months ended February 28, 1998 includes the operating results of Versa Technologies, Inc. ("Versa/Tek"), which was acquired by the Company on October 6, 1997, for the period from September 1 to October 6, 1997 and the operating results of ZERO for the six months ended December 31, 1997. The unaudited pro forma combined financial data for the year ended August 31, 1997 includes the operating results of Everest Electronics Equipment, Inc. ("Everest"), which was acquired by the Company on September 26, 1996, for the period from September 1 to September 26, 1996, and the operating results of Versa/Tek and ZERO for their respective twelve months ended June 30, 1997. The operating results of Versa/Tek and Everest subsequent to their acquisition dates, are included in the Company's historic results (presented in the first column of the accompanying combined financial statements) for the six months ended February 28, 1998 and the year ended August 31, 1997. VERO's reporting currency is the pound sterling and its financial information in the accompanying pro forma combined financial statements has been translated to the U.S. dollar in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." VERO's historic financial statements are prepared in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"), however, VERO's financial information in the accompanying pro forma combined financial statements has been adjusted to conform with generally accepted accounting principles in the United States ("US GAAP"). The only material adjustment required to conform with US GAAP related to goodwill. Under UK GAAP purchased goodwill may be written off on acquisition directly against reserves. Under US GAAP goodwill is capitalized and amortized by charges against income over the period during which it is estimated it will be of benefit subject to a maximum of 40 years. Accordingly, goodwill, net of amortization, was recorded in the pro forma combined balance sheet at February 28, 1998 and the related amortization expense included in the pro forma combined statements of earnings for the six months ended February 28, 1998 and the twelve months ended August 31, 1997. 10 NOTE 2--PRO FORMA NET EARNINGS PER SHARE The unaudited pro forma combined net earnings per common share and per common and equivalent share is based upon the weighted average number of common and equivalent shares of API and ZERO outstanding for each period at the Exchange Ratio of 0.85 shares of API Common Stock for each share of ZERO Common Stock. NOTE 3--RECLASSIFICATIONS (ZERO) Certain reclassifications, none of which affect income from continuing operations, have been made to the ZERO statements of income in the pro forma combined statements of earnings to conform classifications of "Amortization of intangible assets" and to ZERO's balance sheet in the pro forma combined balance sheet to conform classifications of "Other intangibles." NOTE 4--PRO FORMA ADJUSTMENTS (VERSA/TEK) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the six months ended February 28, 1998 as a result of the Versa/Tek acquisition. 1. Incremental interest expense on acquisition debt at a rate of 6.5%................................................... $ (763) 2. Increase in depreciation expense resulting from adjustment to carrying amount of plant and equipment being depreciated over a 7 year life............................ (24) 3. Reflect amortization of increase in goodwill and intangible assets arising from this transaction, over periods of 10 to 30 years................................. (237) 4. Decrease in income taxes (net benefit) applying a 39% effective US and Wisconsin state income tax rate to the earnings of Versa/Tek, less the effect of pro forma adjustments in 1, 2 and 3 above (with the exception of non- deductible amortization).................................. 201 -------- $ (823) ========
NOTE 5--PRO FORMA ADJUSTMENTS (VERO) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the six months ended February 28, 1998 as a result of the VERO acquisition. 1. Incremental interest expense on acquisition debt at a rate of 6.75%........................................................ $(6,493) 2. Reflect amortization of goodwill arising from this transaction, over a 40 year life............................. (1,692) 3. Decrease in income taxes (net benefit) applying a 37% effective income tax rate to the earnings of VERO, less the effect of pro forma adjustments in 1 and 2 above (with the exception of non-deductible amortization).................... 2,155 ------- $(6,030) =======
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) =======
11 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 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) =========
12 NOTE 9--PRO FORMA ADJUSTMENTS (VERO) (a) The following pro forma adjustments are incorporated in the pro forma combined balance sheet at February 28, 1998 as a result of the VERO acquisition. 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.................................. $ 57,017 Fair value adjustments: Record goodwill acquired.................................... 135,367 --------- 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 six months ended December 31, 1997 includes life insurance proceeds of $1,709 ($0.14 per share). NOTE 11--INCOME TAX EXPENSE Effective tax rates are higher than the statutory federal income tax rates primarily due to state income taxes, net of federal benefit. 13 APPLIED POWER INC. EXHIBIT INDEX TO FORM 8-K CURRENT REPORT Date of Report: June 5, 1998
Exhibit Filed Number Description Herewith - - ------ ----------- -------- 4.1 Multicurrency Credit Agreement X dated as of June 18, 1998, among Applied Power Inc. and Enerpac B.V., as Borrowers, various financial institutions from time to time party thereto, as Lenders, The First National Bank of Chicago, as Syndication Agent, Societe Generale, as Documentation Agent, and Bank of America National Trust and Savings Association, as Administrative Agent, arranged by BancAmerica Robertson Stephens 23 Consent of Ernst & Young X 99.1 Consolidated balance sheet of VERO X Group plc and subsidiaries as of December 31, 1997 and 1996 and related consolidated profit and loss account and cash flow for each of the two years in the period ended December 31, 1997, and the notes thereto and auditors' report thereon, included herein in Item 7(a) of this report
15 EX-23 2 CONSENT OF ERNST & YOUNG EXHIBIT 23 (6/30/98 8-K/A) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-18140, 33-21250, 33-24197, 33-38719, 33-38720, 33-62658, 333-42353, and 333-46469 pertaining to the employee share plans named on the facing sheets thereof and Form S-3 No. 333-47493) of Applied Power Inc. and in the related prospectuses, of our report dated March 23, 1998, on the consolidated financial statements of VERO Group plc as at December 31, 1997 and for the year then ended included in the Amended Report (Form 8-K/A) of Applied Power Inc. dated June 30, 1998, filed with the Securities and Exchange Commission. /s/Ernst & Young ---------------- ERNST & YOUNG Chartered Accountants Southampton, England June 30, 1998 EX-99.1 3 CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99.1 VERO GROUP PLC REPORT OF INDEPENDENT AUDITORS The Board of Directors VERO Group plc We have audited the consolidated balance sheet of VERO Group plc as at December 31, 1997 and the related consolidated profit and loss accounts and consolidated statements of total recognized gains and losses and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to form an independent opinion on these financial statements based on our audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VERO Group plc at December 31, 1997 and the consolidated results of its operations and its consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United Kingdom which differ in certain respects from those generally accepted in the United States (see Note 23 of Notes to the Accounts). /s/Ernst & Young ---------------- ERNST & YOUNG Chartered Accountants Southampton, England March 23, 1998 VERO GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 1997
YEAR TO Year to 31 DECEMBER 31 December 1997 1996 Notes (Pounds)000 (Pounds)000 (unaudited) -------------------------------------------------- TURNOVER - CONTINUING OPERATIONS 1 101,219 106,062 Cost of sales (68,524) (68,280) -------------------------------------- Gross profit 32,695 37,782 -------------------------------------- Distribution costs (13,749) (14,411) Administration expenses (8,619) (9,257) Income from interests in associated undertakings 7 39 -------------------------------------- OPERATING PROFIT - CONTINUING OPERATIONS 2 10,334 14,153 Net interest payable 5 (312) (562) -------------------------------------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 10,022 13,591 Taxation 6 (3,422) (4,926) -------------------------------------- Profit on ordinary activities after taxation 6,600 8,665 Minority interest 5 - -------------------------------------- PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY 6,605 8,665 -------------------------------------- Dividends 7 (3,454) (3,434) -------------------------------------- Retained profit for the year 17 3,151 5,231 -------------------------------------- EARNINGS PER ORDINARY SHARE - BASIC 8 11.1P 14.7p EARNINGS PER ORDINARY SHARE - FULLY DILUTED 8 10.9P 14.3p --------------------------------------
NOTE OF HISTORICAL COST PROFITS AND LOSSES. There is no difference between the historical cost profit and the retained profit for the year ended 31 December 1997 or 31 December 1996. 2 VERO GROUP PLC CONSOLIDATED BALANCE SHEET as at 31 December 1997
1997 1996 Notes (Pounds)000 (Pounds)000 (unaudited) ---------------------------------------------------- FIXED ASSETS Tangible assets 9 17,121 15,467 Investments 10 823 543 --------------------------------------- 17,944 16,010 CURRENT ASSETS Stocks 11 13,791 12,735 Debtors 12 18,096 17,982 Cash at bank and in hand 4,093 6,619 --------------------------------------- 35,980 37,336 CREDITORS: amounts falling due within one year Bank and other borrowings 13 (510) (493) Other creditors 13 (22,706) (24,254) --------------------------------------- (23,216) (24,747) --------------------------------------- NET CURRENT ASSETS 12,764 12,589 --------------------------------------- TOTAL ASSETS LESS CURRENT LIABILITIES 30,708 28,599 --------------------------------------- CREDITORS: amounts falling due after more than one year Bank and other borrowings 14 (6,210) (6,221) Provision for liabilities and charges 15 (252) (142) --------------------------------------- 24,246 22,236 MINORITY INTERESTS (10) - --------------------------------------- 24,236 22,236 --------------------------------------- CAPITAL AND RESERVES Called up share capital 16 3,007 3,007 Share premium account 17 18,231 18,231 Capital redemption reserve 17 9 9 Goodwill reserve 17 (11,471) (11,301) Profit and loss account 17 14,460 12,290 --------------------------------------- Shareholders' funds 24,236 22,236 ---------------------------------------
3 VERO GROUP PLC CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 1997
YEAR TO YEAR TO 31 DECEMBER 31 DECEMBER 1997 1996 Notes (Pounds)000 (Pounds)000 (unaudited) ------------------------------------------------- Net cash inflow from operating activities 18(a) 11,957 15,561 Returns on investments and servicing of finance 18(b) (310) (644) Taxation (4,802) (2,498) Capital expenditure 18(c) (5,054) (5,354) Acquisitions and disposals 18(d) (1,057) (1,230) Equity dividend paid (3,442) (1,179) ----------------------------------- Cash (outflow)/inflow before use of liquid resources and financing (2,708) 4,656 Financing increase/(decrease) in debt 15 (2,009) ----------------------------------- (Decrease)/increase in cash in the year (2,693) 2,647 -----------------------------------
YEAR TO YEAR TO 31 DECEMBER 31 DECEMBER 1997 1996 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Notes (Pounds)000 (Pounds)000 (unaudited) -------------------------------------------------- (Decrease)/increase in cash in the year (2,693) 2,647 Cash (inflow)/outflow from movements in debt (15) 2,009 ------------------------------------ Change in net debt resulting from cash flows (2,708) 4,656 Exchange adjustment 176 (79) ------------------------------------ Movement in net debt in the year (2,532) 4,577 Net debt at 1 January (95) (4,672) ------------------------------------ Net debt at 31 December 18(e) (2,627) (95) ------------------------------------
4 VERO GROUP PLC ADDITIONAL STATEMENTS for the year ended 31 December 1997
YEAR TO Year to 31 DECEMBER 31 December 1997 1996 CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (Pounds)000 (Pounds)000 (unaudited) --------------------------------------- Profit for the financial year 3,151 5,231 Exchange loss on retranslation of net assets of subsidiary (981) (1,872) undertakings --------------------------------------- Total recognized gains relating to the year 2,170 3,359 --------------------------------------- YEAR TO Year to 31 DECEMBER 31 December 1997 1996 RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUND (Pounds)000 (Pounds)000 (unaudited) --------------------------------------- Total recognized gains and losses 2,170 3,359 Other movements: Goodwill written off (432) (718) Adjustment to goodwill (note 17) 262 - --------------------------------------- Net addition to shareholders' funds 2,000 2,641 Opening shareholders' funds 22,236 19,595 --------------------------------------- Closing shareholders' funds 24,236 22,236 ---------------------------------------
5 VERO GROUP PLC COMPANY BALANCE SHEET as at 31 December 1997
1997 1996 Notes (Pounds)000 (Pounds)000 (unaudited) ---------------------------------------------------- FIXED ASSETS Tangible assets 9 72 101 Investments 10 22,008 22,008 ------------------------------------------ 22,080 22,109 CURRENT ASSETS Debtors 12 14,368 14,000 Cash at bank and in hand 700 53 ------------------------------------------ 15,068 14,053 CREDITORS: amounts falling due within one year Bank and other borrowings 13 (3,074) - Other creditors 13 (8,381) (8,512) ------------------------------------------ (11,455) (8,512) NET CURRENT ASSETS 3,613 5,541 TOTAL ASSETS LESS CURRENT LIABILITIES 25,693 27,650 ------------------------------------------ CREDITORS: amounts falling due after more than one year Bank and other borrowings 14 (1,500) (3,700) ------------------------------------------ 24,193 23,950 ------------------------------------------ CAPITAL AND RESERVES Called up share capital 16 3,007 3,007 Share premium account 17 18,231 18,231 Capital redemption reserve 17 9 9 Profit and loss account 17 2,946 2,703 ------------------------------------------ Shareholders' funds 24,193 23,950 ------------------------------------------
6 VERO GROUP PLC ACCOUNTING POLICIES for the year ended 31 December 1997 A summary of the principal accounting policies, which have been consistently applied throughout the year, is set out below: a) BASIS OF PREPARATION The accounts are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. b) BASIS OF CONSOLIDATION The Group accounts consolidate the accounts of VERO Group plc and all its subsidiary undertakings drawn up to 31 December each year. Undertakings, other than subsidiary undertakings, in which the Group has an investment and over which it is in a position to exercise a significant influence are treated as associated undertakings. The Group accounts include the appropriate share of associated undertakings' results and reserves. No profit and loss account is presented for VERO Group plc as permitted by section 230 of the Companies Act 1985. c) GOODWILL Purchased goodwill is set off directly against reserves. d) DEPRECIATION Depreciation is provided on all tangible fixed assets, other than freehold land, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful life, as follows: Freehold buildings - over 25 years Leasehold buildings: more than 40 years unexpired - over 40 years Leasehold buildings: less than 40 years unexpired - equally over the life of the lease Plant and machinery - over 3 years to 10 years
Assets in the course of construction are stated at cost. No depreciation is provided until the asset is brought into use. e) STOCKS Stocks are stated at the lower of cost incurred in bringing each product to its present location and condition and net realizable value, as follows: Raw materials, consumables and goods for resale - purchase cost on a first-in, first-out basis. Work in progress and finished goods - cost of direct materials and labour plus attributable overheads based on the normal level of activity.
Net realizable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal. f) RESEARCH AND DEVELOPMENT Expenditure on research and development is written off as incurred. g) DEFERRED TAXATION Deferred taxation is provided using the liability method on all timing differences which are expected to reverse in the future without being replaced, calculated at the rate at which it is anticipated the timing differences will reverse. Advance corporation tax which is expected to be recoverable in the future is deducted from the deferred taxation balance. h) ADVANCE CORPORATION TAX Advance corporation tax is carried forward only to the extent that it is recoverable in the foreseeable future. 7 VERO GROUP PLC ACCOUNTING POLICIES for the year ended 31 December 1997 i) FOREIGN CURRENCIES Assets and liabilities in overseas currencies are translated into sterling at the rates ruling at 31 December. Profit and loss accounts in foreign currencies are translated into sterling at the average rates applicable during the year. Exchange differences arising on opening net assets, less any loans hedging those investments, are taken directly to reserves, as are the differences arising between the translation of revenue items at average and closing rates. Exchange differences arising on trading transactions are taken to the profit and loss account. j) LEASING AND HIRE PURCHASE COMMITMENTS Assets held under finance leases and hire purchase contracts, which are those where substantially all the risks and rewards of ownership have passed to the Group, are capitalized in the balance sheet and are depreciated over their useful lives. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding. Rentals paid under operating leases are charged to income on a straight line basis over the lease term. k) PENSIONS The Group operates defined benefit pension schemes in the UK which require contributions to be made to separately administered funds. Contributions to these funds are charged to the profit and loss account so as to spread the cost of pensions over the employees' working lives within the Group. The regular cost is attributed to individual years using the projected unit credit method. Variations in pension cost, which are identified as a result of actuarial valuations, are amortized over the average expected remaining working lives of employees in proportion to their expected payroll costs. Differences between the amounts funded and the amounts charged to the profit and loss account are treated as either provisions or prepayments in the balance sheet. The Group also operates defined contribution pension schemes in some overseas countries. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the schemes. 8 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997 1. TURNOVER AND SEGMENTAL ANALYSIS - - -------------------------------------------------------------------------------- Turnover represents the amounts derived from the provision of goods and services which fall within the Group's ordinary activities, stated net of value added tax and similar taxes. Turnover and pre-tax profit are attributable to one continuing activity: the manufacture and sale of mechanical and electronic components for the electronics and telecommunications industries. Turnover, profit before taxation and net assets are analyzed as follows:
Year to Year to 31 December 31 December 1997 1996 (Pounds)000 (Pounds)000 (unaudited) ------------------------------------ TURNOVER BY GEOGRAPHICAL DESTINATION Sales to third parties: United Kingdom 36,280 33,876 Continental Europe 45,486 55,576 Rest of World 19,453 16,610 ------------------------------------ 101,219 106,062 ------------------------------------ TURNOVER BY GEOGRAPHICAL ORIGIN Total sales (including inter-Group): United Kingdom 68,630 70,794 Continental Europe 44,356 50,964 Rest of World 14,310 12,849 ------------------------------------ 127,296 134,607 ------------------------------------ Inter-Group sales: United Kingdom 1,345 2,445 Continental Europe 18,949 21,180 Rest of World 5,783 4,920 ------------------------------------ 26,077 28,545 ------------------------------------ Sales to third parties: United Kingdom 67,285 68,349 Continental Europe 25,407 29,784 Rest of World 8,527 7,929 ------------------------------------ 101,219 106,062 ------------------------------------ PROFIT BEFORE TAXATION United Kingdom 10,507 11,944 Continental Europe 1,999 4,188 Rest of World 307 718 ------------------------------------ 12,813 16,850 ------------------------------------ Common costs (2,479) (2,697) Net interest payable (312) (562) ------------------------------------ Profit on ordinary activities before taxation 10,022 13,591 ------------------------------------
9 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997
Year to YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 1. TURNOVER AND SEGMENTAL INFORMATION continued (Pounds)000 (unaudited) - - ----------------------------------------------------------------------------------------------------------- NET ASSETS United Kingdom 15,893 14,052 Continental Europe 11,606 11,187 Rest of World 4,552 3,671 Unallocated net liabilities (7,815) (6,674) ----------------------------------------- 24,236 22,236 ----------------------------------------- Unallocated net assets/(liabilities) comprise: Cash at bank and in hand 4,093 6,619 Bank overdrafts (334) (231) Loans (6,386) (6,483) Net tax liabilities (2,659) (4,182) Deferred taxation (252) (142) Dividend payable (2,267) (2,255) Minority interests (10) - ------------------------------------------ Unallocated net liabilities (7,815) (6,674) -----------------------------------------
Year to 2. OPERATING PROFIT YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 Operating profit is stated after charging: (Pounds)000 (unaudited) - - ---------------------------------------------------------------------------------------------------------- Auditors' remuneration - audit services - UK 50 38 - audit services - overseas 53 38 - non-audit services - UK 59 58 - non-audit services - overseas 43 58 Depreciation 3,290 2,956 Research and development expenditure 1,293 1,218 Operating lease rentals - land and buildings 2,189 1,959 - other 793 579
Year to 3. EMPLOYEE INFORMATION YEAR TO 31 December 31 DECEMBER 1996 The average monthly number of persons (including executive directors) 1997 number employed by the Group was: NUMBER (unaudited) - - ---------------------------------------------------------------------------------------------------------- Management and administration 147 133 Manufacturing, sales and distribution 1,520 1,431 ------------------------------------ 1,667 1,564 ------------------------------------ Aggregate staff costs (for the above persons) (Pounds)000 (Pounds)000 - - ---------------------------------------------------------------------------------------------------------- Wages and salaries 30,653 29,886 Social Security costs 4,107 4,177 Other pension costs 1,414 1,450 ------------------------------------ 36,174 35,513 ------------------------------------
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Year to YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 4. DIRECTORS' EMOLUMENTS (Pounds)000 (unaudited) - - ----------------------------------------------------------------------------------------------------------- Fees - paid to directors 48 39 - paid to third parties 18 18 Executive directors' emoluments (excluding pension contributions) 227 245 ---------------------------------- 293 302 ----------------------------------
Year to YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 5. NET INTEREST PAYABLE (Pounds)000 (unaudited) - - ------------------------------------------------------------------------------------------------------------ Interest receivable Bank interest receivable 233 194 Other interest receivable - 11 ----------------------------------- 233 205 ----------------------------------- Interest payable Bank loans and overdrafts (523) (767) Other loans (22) - ----------------------------------- (545) (767) ----------------------------------- Net interest payable (312) (562) -----------------------------------
Year to YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 6. TAXATION (Pounds)000 (unaudited) - - ------------------------------------------------------------------------------------------------------------ United Kingdom corporation tax 2,537 2,968 Deferred taxation (note 15) 340 603 Overseas taxation 562 1,291 Adjustments in respect of prior years - overseas taxation (6) 47 - current taxation - (149) - deferred taxation (11) 166 ----------------------------------- 3,422 4,926 -----------------------------------
Year to YEAR TO 31 December 31 DECEMBER 1996 1997 (Pounds)000 7. DIVIDENDS (Pounds)000 (unaudited) - - ----------------------------------------------------------------------------------------------------------- Equity dividends on ordinary shares Interim paid 2.0p (1996: 2.0p (unaudited)) 1,187 1,179 Final proposed 3.8p (1996: 3.8p (unaudited)) 2,267 2,255 --------------------------------- 3,454 3,434 ---------------------------------
In accordance with the trust deed dated 31 October 1995 between the Company and the trustee to the employee benefit trust, the trustee has elected to waive all but 0.001p per share of dividend on the 454,324 shares held by the trust. 11 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997 8. EARNINGS PER ORDINARY SHARE - - -------------------------------------------------------------------------------- The calculation of the basic earnings per ordinary share is based on earnings for the financial year of (Pounds)6,605,000 (1996: (Pounds)8,665,000 (unaudited)) and 59,340,410 shares (1996: 59,019,149 (unaudited)), being the weighted average number of shares in issue and ranking for dividend during the year after adjustment to exclude those shares held by the employee benefit trust. The fully diluted earnings per share is based on 60,980,561 (1996: 60,863,460 (unaudited)) ordinary shares, to show the effect on earnings per share of shares held by the employee benefit trust, of options granted over shares under the Company's savings related share option schemes and adjusted earnings of (Pounds)6,645,000 (1996: (Pounds)8,705,000 (unaudited)). Earnings have been adjusted, in connection with the share options (note 16), by adding interest deemed to be earned from 2 1/2 % Consolidated Stock on the proceeds of such share issue.
Assets in Plant Land and course of machinery & 9. TANGIBLE FIXED ASSETS buildings construction motor vehicles Total GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - ---------------------------------------------------------------------------------------------------------------- COST At 1 January 1997 3,504 1,369 14,346 19,219 Additions 76 584 4,828 5,488 Disposals (87) - (628) (715) Reclassifications 115 (1,022) 907 - Exchange adjustment (458) (89) (937) (1,484) -------------------------------------------------------------------------- At 31 December 1997 3,150 842 18,516 22,508 -------------------------------------------------------------------------- DEPRECIATION At 1 January 1997 504 - 3,248 3,752 Charge for the year 127 - 3,163 3,290 Disposals (85) - (598) (683) Reclassifications 1 - (1) - Exchange adjustment (195) - (777) (972) -------------------------------------------------------------------------- At 31 December 1997 352 - 5,035 5,387 -------------------------------------------------------------------------- NET BOOK VALUE At 31 December 1997 2,798 842 13,481 17,121 -------------------------------------------------------------------------- At 31 December 1996 (unaudited) 3,000 1,369 11,098 15,467 --------------------------------------------------------------------------
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Assets in Plant Land and course of machinery & 9. TANGIBLE FIXED ASSETS CONTINUED buildings construction motor vehicles Total COMPANY (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - ------------------------------------------------------------------------------------------------------------ COST At 1 January 1997 - - 158 158 Additions - - - - Disposals - - - - ------------------------------------------------------------------------- At 31 December 1997 - - 158 158 ------------------------------------------------------------------------ DEPRECIATION At 1 January 1997 - - 57 57 Charge for the year - - 29 29 Disposals - - - - ------------------------------------------------------------------------- At 31 December 1997 - - 86 86 ------------------------------------------------------------------------ NET BOOK VALUE At 31 December 1997 - - 72 72 ------------------------------------------------------------------------- At 31 December 1996 (unaudited) - - 101 101 ------------------------------------------------------------------------
GROUP Group 1997 1996 The net book value of land and building comprises: (Pounds)000 (Pounds)000 (unaudited) - - ----------------------------------------------------------------------------------------------------------- Freehold 2,109 2,487 Long leasehold - - Short leasehold 689 513 -------------------------------------- 2,798 3,000 --------------------------------------
Share of net 10. INVESTMENTS tangible assets Group - associated undertakings (Pounds)000 - - --------------------------------------------------------------------------------------------------------- At 1 January 1997 543 Exchange adjustment (25) Second call on shares in VERO President Systems Limited 262 Investment in VERO Austin Electronics (China) Limited 39 Share of profits retained by associated undertakings 4 -------------------- At 31 December 1997 823 -------------------
Income of (Pounds)7,000 and tax of (Pounds)3,000 have been dealt with in the profit and loss account for the year in respect of associated undertakings. During the year a second call was made on the shares issued by VERO President Systems Limited at the time of its flotation. The Group did not subscribe for any such shares and therefore is not required to make a further payment. The Group only recognizes its share of the increased net assets on a received basis. During the year, the Group's share of net tangible assets increased by (Pounds)262,000 with an appropriate adjustment to goodwill (note 17). The shares of the associated undertaking, VERO President Systems Limited, are listed on the Pune and Bangalore stock exchanges in India. As at 31 December 1997 the market value of those shares was (Pounds)1,300,000. 13 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997 10. INVESTMENTS CONTINUED - - ------------------------------------------------------------------------------ During the year the Group set up VERO Austin Electronics (China) Limited, a company registered in Hong Kong. VERO Austin Electronics (China) Limited is a distributor of networking products into the Hong Kong Chinese region. The Group's interest in the company is 50%.
Subsidiary Associated undertaking undertaking Total Company (Pounds)000 (Pounds)000 (Pounds)000 - - ------------------------------------------------------------------------------------------------------------ At 1 January and 31 December 1997 20,778 1,230 22,008
Details of the principal investments in which the Group or the Company holds more than 10% of the nominal value of any class of share capital are as follows:
Country of Registration (or incorporation) NAME OF SUBSIDIARY UNDERTAKINGS Holding and operation - - ----------------------------------------------------------------------------------------------------------- VERO Electronics Limited 100% England VERO Electronics Overseas Investments Limited 100% England *VERO Electronics SA 100% France *VERO Electronics GmbH 100% Germany *VERO Electronics SrL 100% Italy *VERO Electronics AB 100% Sweden *VERO Electronics Inc. 100% USA *VERO Electronics Pte Limited 60% Singapore
During the year the Group set up VERO Electronics Pte Limited, a company registered in Singapore. VERO Electronics Pte Limited is a distributor of electronic components into the ASEAN region. The Group's interest in the company is 60%.
Country of Registration (or incorporation) NAME OF ASSOCIATED UNDERTAKINGS Holding and operation - - ----------------------------------------------------------------------------------------------------------- VERO President Systems Limited 35% India *VERO Austin Electronics (China) Limited 50% Hong Kong
VERO Electronics Overseas Investments Limited acts as the intermediate holding company for overseas subsidiary undertakings. All other subsidiary and associated undertakings are principally engaged in the manufacture and sale of mechanical and electronic components for the electronics and telecommunications industries (*denotes that shares are held through an intermediate holding company). The issued share capital of VERO President Systems Limited is 5,040,000 ordinary shares of Rs 10 each. The issued share capital of VERO Austin Electronics (China) Limited is 1,010,000 ordinary shares of HK$1 each. 14
GROUP Group 1997 1996 11. STOCKS (Pounds)000 (Pounds)000 (unaudited) - - ---------------------------------------------------------------------------------------------------------- Raw materials 3,228 3,126 Work in progress 3,891 2,959 Finished goods and goods for resale 6,672 6,650 ------------------------------------------ 13,791 12,735 ------------------------------------------
The difference between purchase price or production cost of stock and their replacement cost is not significant.
GROUP COMPANY 1997 1996 1997 1996 12. DEBTORS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - -------------------------------------------------------------------------------------------------------------- Trade debtors 16,126 16,569 - - Amounts owed by subsidiary undertakings - - 11,603 11,234 Overseas tax 239 129 - - Advance corporation tax 130 346 567 564 Deferred tax (note 15) - - 29 26 Other debtors 377 214 70 103 Prepayments and accrued income 1,224 724 22 14 Dividends receivable - - 2,077 2,059 -------------------------------------------------------------------- 18,096 17,982 14,368 14,000 --------------------------------------------------------------------
GROUP COMPANY Amounts falling due after more than 1997 1996 1997 1996 one year included above are: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - -------------------------------------------------------------------------------------------------------------- Overseas tax 110 129 - - Advance corporation tax 130 346 864 564 Deferred taxation - - 29 26 Other debtors 4 - - - Prepayments and accrued income 62 - - - -------------------------------------------------------------------- 306 475 893 590 --------------------------------------------------------------------
GROUP COMPANY 13. CREDITORS: AMOUNTS FALLING DUE 1997 1996 1997 1996 WITHIN ONE YEAR (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - --------------------------------------------------------------------------------------------------------------- Current installments due on loans (note 14) 176 262 - - Bank overdraft (note 14) 334 231 3,074 - Trade creditors 9,083 7,152 - - Amounts owed to subsidiary undertakings - - 4,870 4,840 Current corporation tax 2,018 3,327 - 119 Overseas tax 146 471 - - Advance corporation tax 864 859 864 859 Other taxes and social security costs 1,609 1,885 24 27 Other creditors 2,984 3,525 208 115 Accruals 3,735 4,780 148 297 Dividend payable 2,267 2,255 2,267 2,255 -------------------------------------------------------------------- 23,216 24,747 11,455 8,512 --------------------------------------------------------------------
Included in other creditors is an amount of (Pounds)525,000 (1996: (Pounds)567,000 (unaudited)) in respect of the German pension scheme. 15 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997
GROUP COMPANY 1997 1996 1997 1996 14. BANK AND OTHER BORROWINGS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - -------------------------------------------------------------------------------------------------------------- Secured borrowings - - - - Unsecured borrowings 6,386 6,483 1,500 3,700 -------------------------------------------------------------------- Total loans 6,386 6,483 1,500 3,700 Bank overdrafts 334 231 3,074 - -------------------------------------------------------------------- 6,720 6,714 4,574 3,700 --------------------------------------------------------------------
Unsecured borrowings include certain borrowings on which rates of interest vary in accordance with market rates. As at 31 December 1997, these borrowings bear interest at rates of between 4.4375% and 8.5250%.
CURRENCY ANALYSIS GROUP COMPANY The outstanding loans are repayable in 1997 1996 1997 1996 the following currencies: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - ------------------------------------------------------------------------------------------------------------- Sterling 1,676 3,962 1,500 3,700 Deutsche Marks 1,689 889 - - French Francs 1,263 - - - US Dollars 1,758 1,632 - - ------------------------------------------------------------ 6,386 6,483 1,500 3,700 ------------------------------------------------------------ AMOUNTS FALLING DUE WITHIN ONE YEAR Repayable other than by installments 176 262 - - Repayable by installments - - - - ------------------------------------------------------------ 176 262 - - ------------------------------------------------------------ AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Repayable other than by installments Between one and two years - - - - Between two and five years 6,210 6,221 1,500 3,700 In five years or more - - - - ------------------------------------------------------------ 6,210 6,221 1,500 3,700 ------------------------------------------------------------
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15. PROVISION FOR LIABILITIES AND CHARGES GROUP COMPANY DEFERRED TAXATION (Pounds)000 (Pounds)000 - - ----------------------------------------------------------------------------------------------------------- At 1 January 1997 (142) 26 ACT movement 219 - Arising during the year (340) 3 Prior year adjustment 11 - --------------------------------------- At 31 December 1997 (252) 29 ---------------------------------------
GROUP COMPANY AMOUNT PROVIDED AMOUNT PROVIDED 1997 1996 1997 1996 DEFERRED TAX PROVIDED IN THE ACCOUNTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (unaudited) (unaudited) - - ----------------------------------------------------------------------------------------------------------------- Tax effect of timing differences: Excess of tax allowances over depreciation (684) (563) - - Other short term timing differences (5) 203 29 26 ------------------------------------------------------------------ (689) (360) 29 26 ------------------------------------------------------------------ Less: advance corporation tax recoverable 437 218 - - ------------------------------------------------------------------ (252) (142) 29 26 ------------------------------------------------------------------
No provision has been made in respect of the tax which might become payable if the retained profits of overseas subsidiary undertakings were fully distributed to the United Kingdom because there is no current intention that such profits be remitted. There is no unprovided deferred tax.
16. SHARE CAPITAL 1997 1996 1997 1996 AUTHORIZED NO. No. (Pounds) (Pounds) (unaudited) (unaudited) - - ----------------------------------------------------------------------------------------------------------------- Ordinary shares of 5p each 75,000,000 75,000,000 3,750,000 3,750,000 ------------------------------------------------------------------
1997 1996 1997 1996 ALLOTTED, CALLED UP AND FULLY PAID NO. No. (Pounds) (Pounds) (unaudited) (unaudited) - - ----------------------------------------------------------------------------------------------------------------- Ordinary shares of 5p each 60,131,827 60,131,827 3,006,591 3,006,591 ------------------------------------------------------------------
The Company operates a savings related share option scheme under which options to subscribe for the Company's shares have been granted to subscribing employees. At 1 January 1997 options under this scheme were outstanding over 731,633 shares at (Pounds)2.22 each, exercisable between February 2001 and August 2001. During the year options were granted over 558,116 shares at (Pounds)1.525 each, exercisable between June 2000 and June 2002. As at 31 December 1997 the total number of shares over which options were outstanding was 901,962 shares. 17 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997
Share Capital premium Goodwill redemption Profit and 17. RESERVES account reserve reserve loss account GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - --------------------------------------------------------------------------------------------------------------- At 1 January 1997 18,231 (11,301) 9 12,290 Retained profit for the year - - - 3,151 Exchange adjustment - - - (981) Arising on acquisition - (432) - - Adjustment to goodwill - 262 - - --------------------------------------------------------------------- At 31 December 1997 18,231 (11,471) 9 14,460 --------------------------------------------------------------------- COMPANY At 1 January 1997 18,321 - 9 2,703 Retained profit for the year - - - 243 --------------------------------------------------------------------- At 31 December 1997 18,321 - 9 2,946 ---------------------------------------------------------------------
The Company's profit for the financial year amounted to (Pounds)3,697,000 (1996: (Pounds)3,589,000 (unaudited)). On 10 January 1997 the Group acquired the assets and liabilities of a French company, Societe de Realisations Metallurgiques SA ("SRM"). Net assets at the date of acquisition were:
Book Fair value to value Group (Pounds)000 (Pounds)000 - - ---------------------------------------------------------------------------------------------------------- Tangible fixed assets 557 557 Stock 29 29 ------------------------------ Net assets 586 586 -------------- Goodwill arising on acquisition 432 ----------------- 1,018 ----------------- Discharged in cash 1,018 -----------------
The goodwill arising on acquisition of (Pounds)432,000 has been written off against reserves. The adjustment to goodwill in the year reflects the increase in the Group's share of the net assets of VERO President Systems Limited following a second call on the shares it issued at the time of its flotation (note 10). As at 31 December 1997 accumulated goodwill on acquisitions written off to reserves amounted to (Pounds)11,471,000 (1996: (Pounds)11,301,000 (unaudited)). Shareholders' funds are attributable to equity interests only. As at 31 December 1997 and 31 December 1996 there were no non-equity interests. 18
YEAR TO Year to 31 DECEMBER 31 December 18. CASHFLOW 1997 1996 (A) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS (Pounds)000 (Pounds)000 (unaudited) - - ------------------------------------------------------------------------------------------------------------ Operating profit 10,334 14,153 Depreciation charges 3,290 2,956 Profit on disposal of tangible fixed assets (50) (142) Share of profits of associated undertakings (7) (39) Increase in stock (1,456) (125) Increase in debtors (921) (278) Increase/(decrease) in creditors and provisions 767 (964) ------------------------------------- NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 11,957 15,561 -------------------------------------
YEAR TO Year to 31 DECEMBER 31 December 1997 1996 (B) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (Pounds)000 (Pounds)000 (unaudited) - - ------------------------------------------------------------------------------------------------------------ Interest received 230 200 Interest paid (540) (844) ------------------------------------- (310) (644) -------------------------------------
YEAR TO Year to 31 DECEMBER 31 December 1997 1996 (C) CAPITAL EXPENDITURE (Pounds)000 (Pounds)000 (unaudited) - - ------------------------------------------------------------------------------------------------------------ Purchase of tangible fixed assets (5,136) (6,065) Proceeds from sale of tangible fixed assets 82 711 ------------------------------------- (5,054) (5,354) -------------------------------------
YEAR TO Year to 31 DECEMBER 31 December 1997 1996 (D) ACQUISITIONS AND DISPOSALS (Pounds)000 (Pounds)000 (unaudited) - - ----------------------------------------------------------------------------------------------------------- Payment to acquire trade business (note 17) 1,018 - Investments in associated undertakings 39 1,230 ------------------------------------ 1,057 1,230 ------------------------------------
1 January Exchange 31 DECEMBER 1997 Cash flow movement 1997 (E) ANALYSIS OF DEBT (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - ----------------------------------------------------------------------------------------------------------------- Cash in hand and at bank 6,619 (2,596) 70 4,093 Overdrafts (231) (97) (6) (334) ------------------------------------------------------------------------------- 6,388 (2,693) 64 3,759 Debt due after 1 year (6,221) (101) 112 (6,210) Debt due within 1 year (262) 86 - (176) ------------------------------------------------------------------------------- (95) (2,708) 176 (2,627) -------------------------------------------------------------------------------
19 VERO GROUP PLC NOTES TO THE ACCOUNTS for the year ended 31 December 1997
GROUP COMPANY 1997 1996 1997 1996 19. FINANCIAL COMMITMENTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 CAPITAL COMMITMENTS (unaudited) (unaudited) - - ------------------------------------------------------------------------------------------------------------ Capital expenditure that has been contracted for but has not been provided for in the accounts 1,076 782 - - ------------------------------------------------------
1997 1996 (unaudited) LEASING COMMITMENTS LAND AND Land and At 31 December the Group had annual commitments BUILDINGS OTHER buildings Other under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - ------------------------------------------------------------------------------------------------------------ Expiring within one year 30 169 37 151 Expiring between two and five years 89 537 179 566 Expiring in over five years 2,073 - 1,947 - ------------------------------------------------------ 2,192 706 2,163 717 ------------------------------------------------------
1997 1996 (unaudited) LAND AND Land and At 31 December the Company had annual commitments BUILDINGS OTHER buildings Other under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 - - --------------------------------------------------------------------------------------------------------------- Expiring within one year - - - - Expiring between two and five years - 14 - 11 Expiring in over five years - - - - ------------------------------------------------------ - 14 - 11 ------------------------------------------------------
20. PENSION COMMITMENTS - - -------------------------------------------------------------------------------- The Group operates a number of pension schemes around the world. The pension cost in respect of the UK pension schemes for the year ended 31 December 1997 amounted to (Pounds)1,196,000 (1996: (Pounds)1,178,000 (unaudited)). Contributions are charged to the profit and loss account so as to spread the costs of pensions over employees' working lives within the Group. The major scheme (which is operated in the UK) covers the majority of the Group's UK employees and is a defined benefit scheme. The assets of the scheme are held in a separately administered trust and managed by independent professional investment managers. Contributions are determined by a professionally qualified actuary on the basis of triennial actuarial valuations using the projected unit credit funding method. The latest valuation was at 1 January 1995. The most significant actuarial assumptions made were that the rate of return on investments would be 10% per annum and the rate of increase in salaries would be 8% per annum. The actuarial valuation as at 1 January 1995 showed that the market value of the scheme's assets, ignoring any net current assets which were assumed to be negligible, was (Pounds)12,154,773 and that the actuarial value of those assets represented 102% of the benefits that had accrued to members, after allowing for expected increases in salaries. In accordance with the Actuary's recommendation the contributions of the Group are currently 9.1% of pensionable salaries per annum. Employees' contributions at the rate of 5% of pensionable salaries per annum are payable in addition. A valuation as at 1 January 1998 is due to be undertaken by the Actuary, the results of which will be available later this year, whereupon the Actuary's recommendations regarding the funding rate will be reviewed. The Group also operates a number of smaller pension schemes in the UK, Continental Europe and the United States. These are set up in accordance with local conditions and practices in the countries concerned. 20 21. CONTINGENT LIABILITIES - - -------------------------------------------------------------------------------- The Company has guaranteed bank loan facilities to certain Group undertakings. As at 31 December 1997 the maximum potential liability under these guarantees was (Pounds)4,710,000 (1996: (Pounds)2,521,000 (unaudited)). As at 31 December 1997, the Company has given guarantees and indemnities in the ordinary course of business in respect of certain Group undertakings. 22. RELATED PARTY TRANSACTIONS - - -------------------------------------------------------------------------------- The Group recharges the VERO Group pension schemes with the costs of administration and independent advisors borne by the Group. The total amount recharged during the year to 31 December 1997 was (Pounds)210,000 (1996: (Pounds)146,000 (unaudited)). During the year VERO Group plc made sales of (Pounds)3,000 (1996: (Pounds)40,000 (unaudited)) to VERO President Systems Limited and sales of (Pounds)68,000 to VERO Austin Electronics (China) Limited. The balances owing to the Group at 31 December 1997 were respectively (Pounds)13,000 (1996: (Pounds)40,000 (unaudited)) and (Pounds)68,000. 21 23. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - - -------------------------------------------------------------------------------- The Group's consolidated accounts are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP") which differ from United States generally accepted accounting principles ("U.S. GAAP"). The only significant difference applicable to the Group relates to the treatment of goodwill. In the consolidated accounts, goodwill arising on acquisition of subsidiaries is written off to shareholders' funds. Under US GAAP, such goodwill would be capitalised and amortised over its estimated useful life. For the purposes of the reconciliation below, the useful life is taken as 40 years. Under US GAAP, the recoverability of capitalised goodwill would be periodically evaluated based on undiscounted cash flows and if any impairment is identified the amount of such impairment would be calculated based on the estimated fair value of such goodwill. The following is a summary of the significant adjustment to profit for the year and shareholders' funds which would be required if US GAAP were to be applied instead of UK GAAP.
Year to 31 December 1997 (Pounds) 000 - - -------------------------------------------------------------------------------- Profit for the year as reported in the consolidated profit and loss account 6,605 Adjustment Goodwill amortisation (287) ------- Net income as adjusted to accord with US GAAP 6,318 ======= Shareholders' funds as reported in the consolidated balance sheet 24,236 Adjustment Goodwill at cost 11,471 Amortisation (1,148) ------- Net book amount 10,323 ------- Shareholders' funds as adjusted to accord with US GAAP 34,559 =======
22 Consolidated statement of cash flows The consolidated statement of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP but it differs, however, with regard to classification of items within the statements and as regards the definition of cash under UK GAAP and cash and cash equivalents under US GAAP. Under US GAAP, cash and cash equivalents include short-term highly liquid investments but do not include bank overdrafts. Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions, equity dividends and management of liquid resources and financing. US GAAP, however, requires only three categories of cash flow activity to be reported; operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under UK GAAP would be included as operating activities under US GAAP. The payment of dividends would be included in financing under US GAAP. Capital expenditure and financial investment and acquisitions would be reported under investing under US GAAP. The categories of cash flow activity under US GAAP can be summarised as follows: As at 31 December 1997 (Pounds)000 - - -------------------------------------------------------------------------------- Cash inflow from operating activities 6,845 Cash outflow on investing activities (6,111) Cash outflow from financing activities (3,330) ------ Decrease in cash and cash equivalents (2,596) Effect of foreign exchange rate changes 70 Cash and cash equivalents at 1 January 6,619 ------ Cash and cash equivalents at 31 December 4,093 ====== 23 -----END PRIVACY-ENHANCED MESSAGE-----