-----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, A4Lr7PhoxDhtwLHXMembmLPckqcWDpi50eojq5EM3J3dwRlzjj4X5yXI+mhfg16x nYL0i4CoLzEif9hooJMgxg== 0000950131-98-004759.txt : 19980813 0000950131-98-004759.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950131-98-004759 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980731 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED POWER INC CENTRAL INDEX KEY: 0000006955 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 390168610 STATE OF INCORPORATION: WI FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11288 FILM NUMBER: 98683779 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 1 FORM 8-K 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
17 EX-2.2 2 CERTIFICATE OF MERGER Exhibit 2.2 State of Delaware Office of the Secretary of State I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER, WHICH MERGES: "STB ACQUISITION CORPORATION", A DELAWARE CORPORATION, WITH AND INTO "ZERO CORPORATION" UNDER THE NAME OF "ZERO CORPORATION", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF JULY, A.D. 1998, AT 2:30 O'CLOCK P.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 18 CERTIFICATE OF MERGER OF STB ACQUISITION CORPORATION, a Delaware corporation, WITH AND INTO ZERO CORPORATION, a Delaware corporation The undersigned corporation, pursuant to Section 251 of the Delaware General Corporation Law, for the purpose of merging STB Acquisition Corporation ("Acquisition"), a Delaware corporation, with and into ZERO Corporation ("ZERO"), a Delaware corporation, which is the surviving corporation in such merger (the "Surviving Corporation") (Acquisition and ZERO are together referred to herein as the "Constituent Corporations") hereby certifies the following: 1. An Agreement and Plan of Merger (the "Merger Agreement") by and among Applied Power Inc., ZERO and Acquisition has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with Section 251 of the Delaware General Corporation Law. 2. The name of the surviving corporation is ZERO Corporation, and it shall be governed by the laws of the State of Delaware. The Restated Certificate of Incorporation of ZERO, as in effect immediately prior to the effective time of the merger, shall be the Certificate of Incorporation of the Surviving Corporation, until amended in accordance with law. 3. The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation, 444 South Flower Street, Los Angeles, California 90071-2922. 4. A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of either of the Constituent Corporations. 5. The effective time of the merger shall be the date and time on which this Certificate of Merger is filed with the Office of the Delaware Secretary of State. IN WITNESS WHEREOF, the Surviving Corporation has caused this Certificate of Merger to be executed as of the 31st day of July, 1998. ZERO CORPORATION By: /s/ Wilford D. Godbold, Jr. ---------------------------- Wilford D. Godbold, Jr. President and Chief Executive Officer 19 EX-23 3 INDEPENDENT AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements of Applied Power Inc. on Form S-3 No. 333-47493 and on Forms S-8 No. 33-18140, No. 33-21250, No. 33-24197, No. 33-38719, No. 33-38720, No. 33-62658, No. 333-42353 and No. 333-46469 of our report dated May 11, 1998, appearing in the Annual Report on Form 10-K of ZERO Corporation for the year ended March 31, 1998. DELOITTE & TOUCHE LLP Los Angeles, California August 12, 1998 20 EX-99.1 4 INDEPENDENT AUDITORS' REPORT Exhibit 99.1 INDEPENDENT AUDITORS' REPORT - ---------------------------- To the Stockholders of ZERO Corporation: We have audited the accompanying consolidated balance sheets of ZERO Corporation and its 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. Our audits also included the financial statement schedule of the Company listed in Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ZERO Corporation and its subsidiaries at March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP Los Angeles, California May 11, 1998 21
Statements of Consolidated Income Years Ended March 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Net Sales $258,745,000 $225,442,000 $206,247,000 Cost of Sales 171,386,000 151,131,000 135,708,000 - ---------------------------------------------------------------------------------------------------------------- Gross Profit 87,359,000 74,311,000 70,539,000 Selling and Administrative Expenses 50,925,000 45,522,000 43,933,000 Special Items 7,024,000 - - Other Income 1,236,000 1,847,000 1,077,000 Interest Income 953,000 515,000 1,727,000 Interest Expense 4,747,000 4,670,000 1,163,000 - ---------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 40,900,000 26,481,000 28,247,000 Income Taxes 16,520,000 10,593,000 11,297,000 - ---------------------------------------------------------------------------------------------------------------- Net Income $ 24,380,000 $ 15,888,000 $ 16,950,000 - ---------------------------------------------------------------------------------------------------------------- Basic Earnings Per Share $ 1.98 $ 1.30 $ 1.08 Diluted Earnings Per Share $ 1.93 $ 1.28 $ 1.07 - ----------------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these statements. 22
Consolidated Balance Sheets March 31, 1998 1997 - --------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 30,979,000 $ 16,201,000 Short-term investments 9,990,000 - Receivables (less allowances for doubtful accounts of $818,000 in 1998 and $607,000 in 1997) 35,002,000 35,966,000 Inventories Raw materials and supplies 18,967,000 21,504,000 Work in process 7,673,000 7,821,000 Finished goods 4,769,000 5,685,000 Other (including deferred tax assets of $2,608,000 in 1998 and $1,864,000 in 1997) 8,365,000 4,172,000 - --------------------------------------------------------------------------------------------------- Total Current Assets 115,745,000 91,349,000 - --------------------------------------------------------------------------------------------------- Property, Plant and Equipment, Net 49,005,000 44,375,000 Goodwill (less accumulated amortization of $13,245,000 in 1998 and $11,844,000 in 1997) 36,505,000 30,602,000 Other Assets 15,743,000 19,630,000 - --------------------------------------------------------------------------------------------------- Total Assets $216,998,000 $185,956,000 - ---------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these statements. 23
Consolidated Balance Sheets March 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------- Liabilities Current Liabilities Current portion of long-term debt $ 2,000 $ 35,000 Accounts payable 8,174,000 8,901,000 Income taxes payable 4,371,000 - Accrued liabilities Wages and commissions 7,964,000 6,579,000 Workers' compensation 1,666,000 1,128,000 Other 6,017,000 4,365,000 - ------------------------------------------------------------------------------------------------------------- Total Current Liabilities 28,194,000 21,008,000 - ------------------------------------------------------------------------------------------------------------- Non-Current Liabilities (including deferred compensation of $10,787,000 in 1998 and $9,443,000 in 1997) 12,184,000 12,192,000 Long-term Debt 50,555,000 51,503,000 Commitments and Contingencies Stockholders' Equity Preferred stock - authorized 1,000,000 shares of $.01 par value; none issued Common stock -- authorized 30,000,000 shares of $.01 par value; issued shares, 16,611,749 in 1998 and 16,445,332 in 1997; outstanding shares, 12,416,827 in 1998 and 12,250,427 in 1997 166,000 164,000 Additional paid-in capital 40,236,000 37,021,000 Retained earnings 159,366,000 137,750,000 Foreign currency translation adjustment 113,000 132,000 Treasury stock (4,194,922 shares in 1998 and 4,194,905 shares in 1997), at cost (73,816,000) (73,814,000) - ------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 126,065,000 101,253,000 - ------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $216,998,000 $185,956,000 - -------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these statements. 24 Statements of Consolidated Stockholders' Equity
Foreign Additional Currency Issued Common Paid-in Retained Translation Treasury Shares* Stock Capital Earnings Adjustments Stock - ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1995 16,124,144 $161,000 $31,079,000 $115,754,000 $ 261,000 $(1,661,000) Net Income for the year - - - 16,950,000 - - Cash Dividends declared - $.44 per share - - - (7,059,000) - - Exercise of stock options and issuance of treasury stock 161,199 2,000 3,169,000 (1,461,000) - 11,000 Stock repurchase - - - - - (71,871,000) Foreign currency translation adjustments and other - - - - (504,000) - - ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 16,285,343 163,000 34,248,000 124,184,000 (243,000) (73,521,000) Net Income for the year - - - 15,888,000 - - Cash Dividends declared - $.12 (1,460,000) per share - - - - - Exercise of stock options and issuance of treasury stock 159,989 1,000 2,773,000 (862,000) - - Stock repurchase - - - - - (293,000) Foreign currency translation adjustments and other - - - - 375,000 - - ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 16,445,332 164,000 37,021,000 137,750,000 132,000 (73,814,000) Net Income for the year - - - 24,380,000 - - Cash Dividends declared - $.12 per share - - - (1,480,000) - - Exercise of stock options and issuance of treasury stock 166,417 2,000 3,215,000 (1,316,000) - - Stock repurchase - - - - - (2,000) Foreign currency translation adjustments and other - - - 32,000 (19,000) - - ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1998 16,611,749 $166,000 $40,236,000 $159,366,000 $ 113,000 $(73,816,000) ===============================================================================================================================
* Outstanding shares at March 31, 1998, 1997 and 1996 were 12,416,827, 12,250,427 and 12,105,840, respectively. The Notes to Consolidated Financial Statements are an integral part of these statements. 25 Statements of Consolidated Cash Flows
Years Ended March 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Cash Flow From Operating Activities Net income $ 24,380,000 $ 15,888,000 $ 16,950,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,024,000 6,249,000 5,069,000 Amortization of goodwill 1,401,000 1,200,000 1,086,000 Gain from sale of assets (9,899,000) (511,000) (46,000) Provision for loss from sale of subsidiary 4,500,000 - - Changes in operating assets and liabilities, net of effect of business acquisitions Receivables 277,000 (2,046,000) (4,833,000) Inventories 1,599,000 (2,711,000) (1,852,000) Other non-current assets 2,685,000 (2,239,000) (215,000) Accounts payable 372,000 603,000 (8,000) Accrued liabilities 7,737,000 49,000 118,000 Other non-current liabilities 948,000 1,417,000 2,639,000 Other (4,308,000) 1,305,000 (1,582,000) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 36,716,000 19,204,000 17,326,000 - -------------------------------------------------------------------------------------------------------------------- Cash Flow From Investing Activities (Purchases) sales of short-term investments, net (9,990,000) 965,000 18,937,000 Purchase of non-cash assets of acquired (9,022,000) (1,936,000) (11,748,000) businesses Expenditures for property, plant and equipment (14,585,000) (10,822,000) (8,657,000) Payment of note from sale of property 2,450,000 - - Proceeds from sale of assets 8,740,000 1,651,000 1,670,000 Other 75,000 (142,000) 324,000 - -------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (22,332,000) (10,284,000) 526,000 - -------------------------------------------------------------------------------------------------------------------- Cash Flow From Financing Activities Stock repurchases (2,000) (293,000) (71,871,000) Cash dividends paid (1,480,000) (1,460,000) (7,059,000) Proceeds from issuance of long-term debt - - 50,000,000 Payments of long-term debt (35,000) (273,000) (253,000) Exercise of stock options 1,901,000 1,912,000 1,710,000 Other (including effect of exchange rate 10,000 377,000 (493,000) changes) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 394,000 263,000 (27,966,000) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 14,778,000 9,183,000 (10,114,000) Cash and cash equivalents at beginning of period 16,201,000 7,018,000 17,132,000 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 30,979,000 $ 16,201,000 $ 7,018,000 =====================================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Cash Equivalents Cash equivalents include mutual funds, treasury bills and other highly liquid investments with maturities of three months or less. As of March 31, 1998 and 1997, the carrying values of cash equivalents approximated market values. Short-term Investments Short-term investments at March 31, 1998 consist primarily of government agency notes and bonds with maturities greater than three months that are classified as securities available-for-sale. Market prices, which approximated cost at the balance sheet date, are reasonable estimates of the portfolio's fair value. Inventories Inventories are stated at the lower of cost (first-in, first-out or average) or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Capital leases and leasehold improvements are amortized over the life of the related assets or the life of the lease, whichever is shorter. Intangible Assets Costs in excess of the fair value of net assets acquired in purchase transactions are recorded as goodwill and amortized over periods of up to 40 years. The Company reviews the recoverability of intangible assets to determine if there has been any impairment. Such review includes estimating future cash flows based on operating performance and future prospects of the business. Earnings Per Share During the third quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement requires the disclosure of basic and diluted earnings per share. All prior period earnings per share data in these financial statements have been restated in accordance with SFAS No. 128. 27 In accordance with SFAS No. 128, earnings per share were computed as follows: 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Numerator: Net income $24,380,000 $15,888,000 $16,950,000 Denominator: Weighted average common shares outstanding for 12,340,000 12,177,000 15,719,000 basic earnings per share Net effect of dilutive options based on the treasury stock method using average market price 282,000 238,000 147,000 - ------------------------------------------------------------------------------------------------------- Weighted average common and equivalent shares outstanding for diluted earnings per share 12,622,000 12,415,000 15,866,000 ======================================================================================================= Basic Earnings Per Share $ 1.98 $ 1.30 $ 1.08 Diluted Earnings Per Share $ 1.93 $ 1.28 $ 1.07 =======================================================================================================
Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the year-end exchange rate and gains and losses are being accumulated in stockholders' equity. The related income statement is translated at the average exchange rate for the year. Supplemental Cash Flow Information For the years ended March 31, 1998, 1997 and 1996, cash paid for income taxes, net of refunds, was $12,157,000, $11,696,000 and $12,065,000, respectively, and cash paid for interest on long-term debt was $3,555,000, $3,801,000 and $118,000, respectively. In connection with acquisitions during fiscal years 1998, 1997 and 1996, the following liabilities were assumed:
1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Estimated fair value of tangible assets acquired $ 1,216,000 $ 2,488,000 $ 9,696,000 Goodwill and identifiable intangible assets 7,806,000 1,331,000 3,899,000 Net cash paid (9,022,000) (1,936,000) (11,748,000) - ----------------------------------------------------------------------------------------------------------------- Liabilities assumed $ - $ 1,883,000 $ 1,847,000 =================================================================================================================
Concentration of Credit Risks Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash equivalents, short-term investments and receivables. The Company places its cash equivalents and short-term investments with high credit quality institutions and limits the amount of credit exposure with any one institution. Credit risk on trade receivables is minimized as a result of the diverse nature of the Company's customer base. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards During the third quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." This statement requires the disclosure of basic and diluted earnings per share and supersedes the Company's previous standards for computing earnings per share under Accounting Principles Board No. 15. All prior period earnings per share data have been restated in accordance with the new standard. 28 In June 1997, Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." Both statements are effective for fiscal years beginning after December 15, 1997. The Company is assessing the required disclosures and will adopt these statements in fiscal 1999. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, receivables, accounts payable and debt instruments. The carrying values of all financial instruments, other than debt instruments, are representative of their fair values due to their short maturities. The estimated fair value of the notes payable has been determined using quoted prices of debt instruments with similar terms and maturities and approximates carrying value. Impairment of Long-lived Assets During 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Under the provisions of this statement, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write down would be recorded to reduce the related asset to its estimated fair value. Report Presentation Certain amounts reported in prior years have been reclassified to conform to the 1998 presentation. NOTE 2 Property, Plant and Equipment Property, plant and equipment and accumulated depreciation and amortization at March 31, 1998 and 1997 consisted of:
Estimated Useful Lives 1998/1/ 1997 - ------------------------------------------------------------------------------------------------- Land $ 3,248,000 $ 2,866,000 Buildings/land improvements 10-40 years 20,593,000 20,835,000 Machinery/equipment 3-15 years 71,526,000 68,894,000 Leasehold improvements 5-9 years 4,525,000 4,646,000 - ------------------------------------------------------------------------------------------------- Total 99,892,000 97,241,000 Less accumulated depreciation and amortization 50,887,000 52,866,000 - ------------------------------------------------------------------------------------------------- Property, plant and equipment, net $49,005,000 $44,375,000 =================================================================================================
/1/Excludes amounts included in net assets held for sale (Note 12) NOTE 3 Employee Benefits The Company has a defined contribution pension plan and, as of January 1, 1995, a 401(k) plan which cover all employees who have completed at least one year of service and are employed by U.S. divisions that have elected to participate. The pension plan cost, which is fully funded on a current basis, is based upon percentages of eligible employees' compensation. The Company's contributions to the pension plan aggregated $1,758,000, $1,607,000 and $1,539,000 in 1998, 1997 and 1996, respectively, and to the 401(k) plan aggregated $513,000, $489,000 and $427,000 in 1998, 1997 and 1996, respectively. The Company has a nonqualified deferred compensation plan for key employees who can elect to have a portion of their compensation deferred. The amounts set aside earn interest at rates generally higher than the average prime interest rate. Interest expense accrued on the participants' accounts totaled $1,015,000, $862,000 and $714,000 in 1998, 1997 and 1996, respectively. Generally, payment of a participant's account balance will be deferred until death, disability, retirement or termination. 29 NOTE 4 Long-term Debt At March 31, 1998 and 1997, long-term debt consisted of:
1998 1997 - ----------------------------------------------------------------------------------------------- Senior promissory notes, due March 8, 2011 $50,000,000 $50,000,000 Other notes payable, due July 3, 2002 and March 31, 2005 1,525,000 1,538,000 - ----------------------------------------------------------------------------------------------- Total 51,525,000 51,538,000 Less: Amount included in net assets held for sale (Note 12) 968,000 - Current portion 2,000 35,000 - ----------------------------------------------------------------------------------------------- Total long-term debt $50,555,000 $51,503,000 ===============================================================================================
The senior promissory notes bear interest at 7.13%, and are payable in 11 annual payments of $4,545,000 beginning March 8, 2001. The proceeds from the notes were used solely for the repurchase of the Company's common stock in a Dutch Auction Tender Offer (refer to Note 7) and for payment of related expenses. Other notes payable have imputed interest rates ranging from 8.5% to 10%. In March 1998, the Company negotiated a $50,000,000 shelf facility for future acquisitions. The interest rate for the shelf facility would be based on U.S. Treasury rates at the time of borrowing. Aggregate maturities of long-term debt over the next five fiscal years are as follows: $57,000 in 1999, $239,000 in 2000, $4,826,000 in 2001, $4,870,000 in 2002, $4,915,000 in 2003 and $36,618,000 thereafter. NOTE 5 Acquisitions and Divestiture The Company acquired one company during fiscal 1998 and two companies in fiscal 1997, all of which complement existing operations. These acquisitions were accounted for using the purchase method of accounting. The operating results of the entities acquired, which were not material, were included in the consolidated financial statements from their respective acquisition dates. The purchase prices of these acquisitions were allocated to the net assets acquired, including intangible assets, based upon their estimated fair values at the dates of acquisition. Intangible assets, principally the excess of cost over the fair value of identifiable net assets of these purchased businesses, are being amortized using the straight-line method over a period of 15 to 20 years. During fiscal 1997, the Company completed the sale of Anvil Cases, Inc., a subsidiary of the Company, which manufactures riveted cases primarily for the music, packaging specialists and audio/video markets. The gain on the sale of Anvil Cases, Inc. was not material. The pro forma effect of these transactions on 1998 and 1997 was not material. 30 NOTE 6 Common Stock The Company has a stock option plan that provides for the granting of options to purchase shares of the Company's stock to directors, officers and other key employees at a price not less than the fair market value on the date of grant. Options are granted for terms of five to eight years and are exercisable in annual installments (generally one-third of the total grant) commencing one year from date of grant, on a cumulative basis. The Company's stock option plan provides for the granting of qualified and nonqualified options as well as stock appreciation rights ("SARs") in tandem with options. The SARs entitle a holder to receive an amount equal to the excess of the fair market value of the Company's common stock on the date of exercise over the option price. The exercise of SARs automatically cancels the option on the related shares. Compensation expense recognized in connection with SARs during the years ended March 31, 1998, 1997 and 1996 was not material. Changes in the number of shares subject to options during the three years ended March 31, 1998, are summarized as follows:
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Avg. Exercise Avg. Exercise Avg. Exercise Shares Price Shares Price Shares Price - ---------------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 810,228 $15.22 826,741 $13.60 866,048 $12.82 Granted 161,732 $26.98 216,900 $19.47 253,500 $15.39 Exercised (211,435) $13.18 (204,378) $13.17 (250,871) $12.74 Cancelled or expired (18,621) $18.96 (29,035) $15.13 (41,936) $13.45 - ---------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 741,904 $18.23 810,228 $15.22 826,741 $13.60 - ---------------------------------------------------------------------------------------------------------------------------------- Options exercisable at year-end 377,589 392,262 370,447 Weighted average fair value of options granted during the year $8.53 $6.10 $4.62 Options available for future grant 413,657 56,768 255,868 - ----------------------------------------------------------------------------------------------------------------------------------
In July 1997, the stockholders of the Company approved the increase in the number of shares available for grant of options by 500,000. The Company has recognized no compensation cost for its stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under this plan consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's pro forma net income and earnings per share would have been as follows:
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- Pro forma net income $23,777,000 $15,552,000 $16,853,000 Pro forma basic earnings per share $ 1.93 $ 1.28 $ 1.07 Pro forma diluted earnings per share $ 1.88 $ 1.25 $ 1.06
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for fiscal years 1998, 1997 and 1996, respectively: risk-free interest rate of 6.1%, 6.3% and 5.8%; expected volatility of 22.9%, 22.6% and 23.3%; dividend yield of .4%, .6% and .8%; and an expected life of five years. No adjustments have been made for non-transferability or risk of forfeiture. 31 The following table summarizes information about stock options outstanding at March 31, 1998:
Options Outstanding Options Exercisable - ----------------------------------------------------------------------- --------------------------------------------- Weighted Avg. Weighted Number Remaining Avg. Range of Outstanding at Contractual Exercise Number Exercisable at Weighted Avg. Exercise Prices March 31, 1998 Life Price March 31, 1998 Exercise Price - ----------------------------------------------------------------------- --------------------------------------------- $ 11.31 - $ 13.75 216,103 2.6 $13.14 216,103 $13.14 $ 15.38 - $ 15.63 176,416 4.6 $15.39 105,050 $15.39 $ 19.38 - $ 21.38 190,303 5.6 $19.48 56,436 $19.49 $ 25.75 - $ 27.69 159,082 6.6 $26.98
NOTE 7 Common Stock Repurchase In February 1996, the Company repurchased approximately 4,019,000 shares of its common stock at a cost of approximately $71,871,000 in a Dutch Auction Tender Offer. The source of the funds to repurchase the shares was provided by the issuance of promissory notes totaling $50,000,000 by the Company (refer to Note 4), together with available cash and cash derived from the sale of short-term investments. In November 1996, the Board of Directors authorized the repurchase of up to an additional 400,000 shares, as well as shares of "odd lot" stockholders. During fiscal 1998 and 1997, total shares repurchased were insignificant. NOTE 8 Income Taxes The Company uses the asset and liability method of accounting for income taxes. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. The provision for income taxes is summarized as follows:
1998 1997 1996 - ------------------------------------------------------------------------------------------------ Current Federal $15,246,000 $ 8,470,000 $10,031,000 State 3,085,000 1,432,000 2,145,000 Deferred Federal (1,502,000) 708,000 (740,000) State (309,000) (17,000) (139,000) - ------------------------------------------------------------------------------------------------ Total $16,520,000 $10,593,000 $11,297,000 - ------------------------------------------------------------------------------------------------
Deferred tax assets and liabilities comprised the following as of:
March 31, 1998 1997 - -------------------------------------------------------------------------------------------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------------------------------------------- Depreciation/amortization $ - $3,093,000 $ - $2,814,000 Provision for estimated expenses 2,689,000 444,000 Employee benefit plans 6,292,000 5,353,000 State and foreign taxes 135,000 235,000 Other 1,803,000 884,000 - -------------------------------------------------------------------------------------------------------------- Total $8,981,000 $5,031,000 $5,797,000 $3,933,000 - --------------------------------------------------------------------------------------------------------------
32 A reconciliation between the income taxes computed at the federal statutory rate and the provision for income taxes is as follows:
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Income taxes computed at the Federal statutory rate $14,315,000 $ 9,268,000 $ 9,886,000 State income taxes, net of Federal income tax benefit 1,803,000 909,000 1,304,000 Tax-exempt income (168,000) (97,000) (90,000) Other 570,000 513,000 197,000 - ---------------------------------------------------------------------------------------------------------------- Total provision $16,520,000 $10,593,000 $11,297,000 - ---------------------------------------------------------------------------------------------------------------- Effective income tax rate 40.4% 40.0% 40.0% - ----------------------------------------------------------------------------------------------------------------
NOTE 9 Commitments Future minimum lease payments under operating leases at March 31, 1998 are summarized as follows:
Year Ending March 31, 1999 $2,306,000 2000 1,809,000 2001 1,460,000 2002 1,382,000 2003 922,000 Thereafter 1,979,000 - ----------------------------------- Total $9,858,000 - -----------------------------------
Rental expense under operating leases was $2,346,000, $2,090,000, and $2,059,000 for 1998, 1997 and 1996, respectively. Obligations under capital leases at March 31, 1998 were not material. NOTE 10 Contingent Liabilities Environmental Matters In November 1996, the Company, along with 39 other potentially responsible parties ("PRPs"), received an Administrative Order for Remedial Action from the U.S. Environmental Protection Agency (the "EPA") with regard to implementation of the interim remedy for the Glendale North and Glendale South Operable Units of the San Fernando Valley Superfund Site near Los Angeles, California ("the Site"). An administrative order on consent relating to the design work for the interim remedies was entered into in March 1994 between the EPA and 24 PRPs, including the Company. The design work is complete. In addition, the Company, through the PRP Group, is responding to a unilateral order received on October 1, 1997 from the EPA for the construction, operation and maintenance of the interim remedy. An arbitrated award has resulted in the allocation of a 58.8% share of the total costs associated with the Site to certain Burbank Operable Unit PRPs. The remaining 41.2% share was allocated to the Glendale PRPs, including the Company. The Company has provided reserves of approximately $1,400,000 for its estimated share of the total costs of construction, operation and maintenance of the EPA selected remedy, as well as certain response and oversight costs of the EPA and the State of California in connection with the Site. The Company's liabilities for these costs are based on management's best estimate of undiscounted future costs, excluding possible insurance recoveries. The Company's ultimate liability related to environmental matters at the Site is dependent upon a variety of factors, including changes in the cost of the construction, operation and maintenance of the interim remedy and the final remedy, as well as any changes to the allocation of those costs among the PRPs including any additional participants. The Company has received favorable rulings from the U.S. District Court in response to its claim for reimbursement of defense costs related to the Site from its insurance carriers. These rulings are currently being appealed by the insurance carriers. The Company is also engaged in remediation and/or environmental monitoring at three other locations, and has been named by the State of California and/or the EPA as a de minimus potentially responsible party at two locations. The Company has provided reserves, which are not deemed to be material, for the cleanup costs associated with these sites to the extent they could be reasonably estimated at this time. 33 Other Matters The Company is subject to legal proceedings that arise in the ordinary course of its business activities. In the opinion of management, any liability that may result from the resolution of these matters will not have a material adverse effect on its financial statements. NOTE 11 Segment Information Business segment information as of and for the years ended March 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 - --------------------------------------------------------------------------------------------------- Net sales Enclosures and Accessories $205,845,000 $175,119,000 $152,378,000 Other 52,900,000 50,323,000 53,869,000 - --------------------------------------------------------------------------------------------------- Consolidated $258,745,000 $225,442,000 $206,247,000 - --------------------------------------------------------------------------------------------------- Operating income Enclosures and Accessories $ 38,240,000 $ 31,312,000 $ 30,547,000 Other 954,000/1/ 4,222,000 2,435,000 Corporate (7,260,000) (6,745,000) (6,376,000) - --------------------------------------------------------------------------------------------------- Consolidated $ 31,934,000 $ 28,789,000 $ 26,606,000 - --------------------------------------------------------------------------------------------------- Identifiable assets at year end Enclosures and Accessories $118,563,000 $102,194,000 $ 99,570,000 Other 36,366,000 46,519,000 47,264,000 Corporate 62,069,000 37,243,000 19,004,000 - --------------------------------------------------------------------------------------------------- Consolidated $216,998,000 $185,956,000 $165,838,000 - --------------------------------------------------------------------------------------------------- Depreciation and amortization Enclosures and Accessories $ 5,244,000 $ 4,283,000 $ 3,280,000 Other 1,780,000 1,966,000 1,789,000 - --------------------------------------------------------------------------------------------------- Consolidated $ 7,024,000 $ 6,249,000 $ 5,069,000 - --------------------------------------------------------------------------------------------------- Capital expenditures Enclosures and Accessories $ 13,181,000 $ 9,063,000 $ 6,573,000 Other 1,404,000 1,759,000 2,084,000 - --------------------------------------------------------------------------------------------------- Consolidated $ 14,585,000 $ 10,822,000 $ 8,657,000 - ---------------------------------------------------------------------------------------------------
/1/ Includes $4,500,000 provision for loss on sale of European subsidiary (Note 12) The Company's Enclosures and Accessories segment consists of products that serve the system packaging, thermal management and engineered case requirements of the telecommunications, instrumentation, data processing and government/military markets of the electronics industry. These products include card cages for printed circuit boards, backplanes, filter fan packages and microprocessor- controlled fan trays, blowers, motorized impellers, heat exchangers, air conditioners and computerized thermal management controls, electronic cabinets and consoles, cable management racks, deep drawn aluminum ZERO boxes and cases, fabricated cases, specialized case hardware and other specialized enclosures sold to the electronics industry. The Company also manufactures and sells air cargo enclosures and hardware, aluminum luggage, camera cases, industrial carrying cases, food service containers and other custom metal products. 34 The following presents a summary of operations by geographic area as of and for the years ended March 31, 1998, 1997 and 1996:
1998 1997 1996 - --------------------------------------------------------------------------------------------------- Net sales U.S. operations $ 228,827,000 $201,784,000 $183,662,000 European operations 29,918,000 23,658,000 22,585,000 - --------------------------------------------------------------------------------------------------- Consolidated $ 258,745,000 $225,442,000 $206,247,000 - --------------------------------------------------------------------------------------------------- Net sales between operations $ 3,158,000 $ 2,198,000 $ 3,230,000 - --------------------------------------------------------------------------------------------------- Operating income U.S. operations $ 34,436,000 $ 29,444,000 $ 25,163,000 European operations (2,502,000)/1/ (655,000) 1,443,000 - --------------------------------------------------------------------------------------------------- Consolidated $ 31,934,000 $ 28,789,000 $ 26,606,000 - --------------------------------------------------------------------------------------------------- Identifiable assets at year end U.S. operations $ 209,492,000 $168,242,000 $149,394,000 European operations 7,506,000 17,714,000 16,444,000 - --------------------------------------------------------------------------------------------------- Consolidated $ 216,998,000 $185,956,000 $165,838,000 - ---------------------------------------------------------------------------------------------------
/1/ Includes $4,500,000 provision for loss on sale of European subsidiary (Note 12) Total export sales from U.S. operations and net sales from European operations were $45,817,000, $36,276,000, and $34,323,000, or 18%, 16% and 17% of total net sales, for the fiscal years ended March 31, 1998, 1997 and 1996, respectively. Sales under U.S. government contracts and subcontracts were less than of 10% of total sales in fiscal 1998, 1997 and 1996. NOTE 12 Special Items During 1998, the Company recognized a $7,024,000 pre-tax net gain consisting of the following: - ---------------------------------------------------------------------------- Gain from life insurance $ 1,709,000 Gain from sale of property 9,815,000 Provision for estimated loss on sale of subsidiary (4,500,000) - ---------------------------------------------------------------------------- Special Items $ 7,024,000 - ----------------------------------------------------------------------------
The Company recognized a non-taxable gain of $1,709,000 in the second quarter of fiscal 1998 from insurance proceeds on the life of its former Vice President of Marketing and Sales. In March 1998, the Company completed the sale of its facility in Burbank, California. The sale price consisted of cash of $8,740,000 and a receivable of $4,000,000 included in Other Current Assets in the Consolidated Balance Sheet, resulting in a pre-tax gain of $9,815,000. During the fourth quarter of fiscal 1998, the Company completed its evaluation of a European subsidiary and approved a plan for its disposition. As of March 31, 1998, this subsidiary is classified as net assets held for sale and is included in noncurrent Other Assets in the Consolidated Balance Sheet. Based on the Company's evaluation of this subsidiary, a $4,500,000 nonrecurring charge was recorded in fiscal 1998. NOTE 13 Subsequent Events On April 6, 1998, the Company entered into a definitive merger agreement with Applied Power Inc. ("API") pursuant to which it would become a wholly owned subsidiary of API (the "Merger"). Stockholders of the Company would receive 0.85 share of API for each share of ZERO stock. The merger agreement has been approved by both companies' boards but is subject to stockholder approval and satisfaction of other conditions. The Merger is structured to be tax free to ZERO stockholders and will be accounted for as a pooling of interests. Completion of the Merger is expected in July 1998. 35 ================================================================================ Selected Quarterly Financial Data (Unaudited)
Income Basic Diluted Net Gross Before Net Earnings per Earnings per Quarter Ended: Sales Profit Income Taxes Income Share Share - -------------------------------------------------------------------------------------------------------------------------- March 31, 1998 $62,818,000 $22,137,000 $14,553,000 $7,871,000 $0.63 $0.62 December 31, 1997 66,910,000 22,118,000 8,619,000 5,189,000 0.42 0.41 September 30, 1997 64,465,000 21,526,000 9,723,000 6,517,000 0.53 0.52 June 30, 1997 64,552,000 21,578,000 8,005,000 4,803,000 0.39 0.38 March 31, 1997 $58,845,000 $18,975,000 $ 6,863,000 $4,167,000 $0.34 $0.33 December 31, 1996 58,546,000 19,210,000 6,878,000 4,199,000 0.34 0.34 September 30, 1996 53,387,000 17,372,000 6,310,000 3,722,000 0.31 0.30 June 30, 1996 54,664,000 18,754,000 6,430,000 3,800,000 0.31 0.31
36 SCHEDULE II ZERO CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
Doubtful Balance at Provision Accounts Balance at Beginning of Charged to Written Other End of Year Income Off/1/ Deductions/2/ Year - ------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: April 1, 1997 to March 31, 1998 $607,000 $387,000 $(135,000) $(41,000) $ 818,000 April 1, 1996 to March 31, 1997 $759,000 $101,000 $(253,000) $ 607,000 April 1, 1995 to March 31, 1996 $724,000 $236,000 $(201,000) $ 759,000
- ----------------- /1/ Net of recoveries /2/ Adjusted for net assets held for sale (see Note 12 of Notes to Consolidated Financial Statements) 37 EX-99.2 5 APPLIED POWER COMPLETES MERGER W/ ZERO CORP. Exhibit 99.2 APPLIED POWER COMPLETES MERGER WITH ZERO CORPORATION MILWAUKEE, July 31, 1998 -- Applied Power Inc. (APW - NYSE) and ZERO Corporation (ZRO - NYSE) announced today that at special meetings for both companies, shareholders voted to approve the merger of a newly created subsidiary of Applied Power into ZERO. The merger was completed after the shareholder meetings. Under the terms of the agreement, ZERO stockholders receive .850 shares of APW common stock for each share of ZERO common stock, or approximately 11.2 million shares. This equates to a purchase price of approximately $386 million based on the July 30, 1998 closing stock price for APW. Richard G. Sim, Chairman and CEO of APW stated, "We are very pleased to complete this transaction. APW and ZERO shared the vision of creating a worldwide company which supports customers with a broad spectrum of electronic packaging products on a global basis. Our electronic enclosure systems strategy operates with three basic principles: 1. To be the premier company in providing standard and customized electronic enclosures on a global basis. 2. To be able to offer our customers either a standalone or fully integrated product. Our enclosure business brings significant experience in thermal management, power supplies, multi-layer backplanes and to a limited extent, PC board capabilities. All of these can be provided as separate components or fully integrated in the enclosure. 3. We focus on a diverse end user industry, including telecommunication, semiconductor fabrication, computer networking, medical and various other computer and electronic applications." Sim continued, "Over the last two years and culminating with the ZERO transaction, APW has purchased 10 enclosure companies operating out of 28 facilities in North America, Europe and Asia. Our acquisition strategy is to continue to grow this segment, both in geographic coverage and component and integration services that can be added to the enclosure based on the customer's requirements." Applied Power Inc., headquartered in Butler, Wisconsin, is a global company comprised of three business segments. Technical Environments and Enclosures provides technical furniture and electrical and electronic enclosure systems. Engineered Solutions supplies components and systems using thermal management, actuation and vibration control technologies to a diverse group of OEM customers. Tools and Supplies provide industrial and electrical tools and accessories through various distributor and retail channels worldwide. 38 With headquarters in Los Angeles, ZERO's primary business is protecting electronics. ZERO's system packaging, thermal management and engineered cases serve the telecommunications, instrumentation and data- processing markets. ZERO also produces the famous line of ZERO Halliburton(R) cases for consumers worldwide and cargo containers and proprietary loading systems to the airline industry. For further information contact: Applied Power Inc. Robert C. Arzbaecher Vice President and Chief Financial Officer 414-781-6600 To receive a faxed copy of this or other recent Applied Power communications, please call the Company's "News on Demand" service at 1-800-549-0679. 39 Page 3 APPLIED POWER INC.-RESTATED TO INCLUDE ZERO FINANCIAL DATA PACKAGE (UNAUDITED) ($'s in 000's, except per share amounts)
FINANCIAL HIGHLIGHTS FISCAL 1997 --------------------------------------------------------- Q1 Q2 Q3 Q4 Year -- -- -- -- ---- - --------------------- INCOME DATA - --------------------- Sales $207,760 $210,557 $232,385 $247,057 $897,758 Percent Sales Growth Over Prior Year 11% 12% 17% 22% 15% Operating Profit $ 23,687 $ 23,684 $ 26,976 $ 27,325 $101,672 --------------------------------------------------------- Percent of Sales 11.4% 11.2% 11.6% 11.1% 11.3% EBITDA $ 32,062 $ 33,021 $ 35,976 $ 35,950 $137,010 --------------------------------------------------------- Percent of Sales 15.4% 15.7% 15.5% 14.6% 15.3% - --------------------- SHARE DATA - --------------------- Basic EPS $ 0.35 $ 0.35 $ 0.40 $ 0.42 $ 1.53 --------------------------------------------------------- Basic EPS Growth Over Prior Year 25% 17% 25% 20% 21% Diluted EPS $ 0.34 $ 0.34 $ 0.39 $ 0.41 $ 1.47 --------------------------------------------------------- Diluted EPS Growth Over Prior Year 26% 17% 26% 17% 20% EBITDA/Diluted Share $ 0.82 $ 0.84 $ 0.91 $ 0.91 $ 3.49 --------------------------------------------------------- EBITDA Per Share Growth Over Prior Year 30% 25% 32% 20% 26% Cash Dividend Per Share $ 0.045 $ 0.045 $ 0.045 $ 0.045 $ 0.180 --------------------------------------------------------- Average Shares Outstanding (in 000's): Basic 37,697 37,876 37,939 38,028 37,880 --------------------------------------------------------- Diluted 38,905 39,241 39,332 39,679 39,307 --------------------------------------------------------- - --------------------- BALANCE SHEET DATA - --------------------- Net Primary Working Capital (PWC) $209,604 $212,552 $217,558 $207,978 --------------------------------------------------------- Net PWC as a % of Annualized Sales 25% 25% 23% 21% Debt $188,258 $196,467 $191,119 $174,594 --------------------------------------------------------- Percent Market Capitalization 26.4% 26.7% 23.5% 16.3% Percent Debt-to-Total Capital 40.2% 40.0% 37.0% 35.3% EBITDA Interest Coverage 8.7x 7.9x 8.6x 8.7x - --------------------- CASH FLOW DATA - --------------------- Depreciation and Amortization $ 7,526 $ 8,128 $ 8,111 $ 7,347 $ 31,112 --------------------------------------------------------- Capital Expenditures $ 8,606 $ 8,231 $ 9,365 $ 7,261 $ 33,463 --------------------------------------------------------- Cash Flow from Operations $ 17,800 $ 6,170 $ 23,934 $ 36,130 $ 84,034 ---------------------------------------------------------
FISCAL 1998 -------------------------------------------- Q1 Q2 Q3 YTD -- -- -- --- - --------------------- INCOME DATA - --------------------- Sales $273,154 $284,055 $304,471 $861,680 Percent Sales Growth Over Prior Year 31% 35% 31% 32% Operating Profit $ 31,675 $ 32,761 $ 38,645 $103,082 -------------------------------------------- Percent of Sales 11.6% 11.5% 12.7% 12.0% EBITDA $ 41,825(1) $ 44,423 $ 51,624(2) $137,872 -------------------------------------------- Percent of Sales 15.3% 15.6% 17.0% 16.0% - --------------------- SHARE DATA - --------------------- Basic EPS $ 0.45(1) $ 0.45 $ 0.51(2) $ 1.40 -------------------------------------------- Basic EPS Growth Over Prior Year 29% 29% 28% 28% Diluted EPS $ 0.42(1) $ 0.43 $ 0.49(2) $ 1.34 -------------------------------------------- Diluted EPS Growth Over Prior Year 24% 26% 26% 26% EBITDA/Diluted Share $ 1.04(1) $ 1.10 $ 1.28(2) $ 3.43 -------------------------------------------- EBITDA Per Share Growth Over Prior Year 27% 31% 41% 36% Cash Dividend Per Share $ 0.045 $ 0.045 $ 0.045 $ 0.135 -------------------------------------------- Average Shares Outstanding (in 000's): Basic 38,149 38,292 38,459 38,300 -------------------------------------------- Diluted 40,034 40,210 40,297 40,200 -------------------------------------------- - --------------------- BALANCE SHEET DATA - --------------------- Net Primary Working Capital (PWC) $201,886 $208,610 $205,157 -------------------------------- Net PWC as a % of Annualized Sales 18% 18% 17% Debt $283,181 $339,420 $372,244 -------------------------------- Percent Market Capitalization 24.9% 25.9% 29.7% Percent Debt-to-Total Capital 45.2% 48.4% 49.0% EBITDA Interest Coverage 8.1 x 7.1 x 7.6 x - --------------------- CASH FLOW DATA - --------------------- Depreciation and Amortization $ 9,671 $ 10,907 $ 11,599 $ 32,178 -------------------------------------------- Capital Expenditures $ 10,013 $ 11,558 $ 14,537 $ 36,108 -------------------------------------------- Cash Flow from Operations $ 17,120 $ 31,819 $ 29,310 $ 78,249 -------------------------------------------- (1) Excludes $1.71 million gain on life insurance proceeds or $0.14 per diluted share recorded at Zero. (2) Excludes $9.815 million gain on sale of Burbank, CA facility and ($4.5) million charge due to the discontinuance of a European subsidiary, $0.25 per diluted share recorded at Zero.
40 Page 4 APPLIED POWER INC.-RESTATED TO INCLUDE ZERO FINANCIAL DATA PACKAGE (UNAUDITED) ($'s in 000's, except per share amounts) FINANCIAL HIGHLIGHTS - --------------------
FISCAL 1997 ------------------------------------------------------------------------------------- INCOME DATA APW ZERO Q1 APW ZERO Q2 - -------------------- --- ---- -- --- ---- -- Sales $153,096 $54,664 $207,760 $157,170 $53,387 $210,557 Percent Sales Growth Over Prior Year 10% 12% 11% 15% 4% 12% Operating Profit $ 16,905 $ 6,782 23,687 $ 16,823 $ 6,861 $ 23,684 ------------------------------------------------------------------------------------- Percent of Sales 11.0% 12.4% 11.4% 10.7% 12.9% 11.2% EBITDA $ 22,706 $ 9,356 $ 32,062 $ 23,687 $ 9,334 $ 33,021 ------------------------------------------------------------------------------------- Percent of Sales 14.8% 17.1% 15.4% 15.1% 17.5% 15.7% - -------------------- SHARE DATA - -------------------- Basic EPS $ 0.35 $ 0.35 $ 0.34 $ 0.35 ------------------------------------------------------------------------------------- Basic EPS Growth Over Prior Year 21% 25% 17% 17% Diluted EPS $ 0.34 $ 0.34 $ 0.33 $ 0.34 ------------------------------------------------------------------------------------- Diluted EPS Growth Over Prior Year 21% 26% 22% 17% EBITDA/Diluted Share $ 0.80 $ 0.82 $ 0.83 0.84 ------------------------------------------------------------------------------------- EBITDA Per Share Growth Over Prior Year 21% 30% 24% 25% ------------------------------------------------------------------------------------- Cash Dividend Per Share $ 0.015 $ 0.030 $ 0.045 $ 0.015 $ 0.030 $ 0.045 Average Shares Outstanding (in 000's): Basic $ 27,396 $ 37,697 27,536 $ 37,876 ------------------------------------------------------------------------------------- Diluted $ 28,372 38,905 28,692 $ 39,241 ------------------------------------------------------------------------------------- - -------------------- BALANCE SHEET DATA - -------------------- Net Primary Working Capital (PWC) $154,522 $55,082 $209,604 $155,064 $57,488 $212,552 ------------------------------------------------------------------------------------- Net PWC as a % of Annualized Sales 25% 25% 25% 25% 27% 25% ------------------------------------------------------------------------------------- Debt $136,732 $51,526 $188,258 $144,945 $51,522 $196,467 ------------------------------------------------------------------------------------- Percent Market Capitalization 27.5% 23.8% 26.4% 26.9% 26.2% 26.7% Percent Debt-to-Total Capital 41.6% 36.8% 40.2% 42.3% 35.8% 40.0% EBITDA Interest Coverage 8.6 8.9 8.7x 7.4 9.2 7.9x - -------------------- CASH FLOW DATA - -------------------- Depreciation and Amortization $ 5,735 $ 1,791 $ 7,526 $ 6,254 $ 1,874 $ 8,128 ------------------------------------------------------------------------------------- Capital Expenditures $ 4,927 $ 3,679 $ 8,606 $ 5,935 $ 2,296 $ 8,231 ------------------------------------------------------------------------------------- Cash Flow from Operations $ 9,066 $ 8,734 $ 17,800 $ 5,049 $ 1,121 $ 6,170 -------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - -------------------- FISCAL 1997 -------------------------------------------------------------------------------------- - -------------------- INCOME DATA APW ZERO Q3 APW ZERO Q4 Year - -------------------- --- ---- -- --- ---- -- ---- Sales $173,839 $58,546 $232,385 $186,212 $ 58,845 $247,057 $897,758 Percent Sales Growth Over Prior Year 18% 16% 17% 28% 5% 22% 15% Operating Profit $ 19,363 $ 7,613 $ 26,976 $ 19,792 $ 7,533 $ 27,325 $101,672 -------------------------------------------------------------------------------------- Percent of Sales 11.1% 13.0% 11.6% 10.5% 12.8% 11.1% 11.3% EBITDA $ 26,015 $ 9,961 $ 35,976 $ 26,001 $ 9,949 $ 35,950 $137,010 -------------------------------------------------------------------------------------- Percent of Sales 15.0% 17.0% 15.5% 13.8% 16.9% 14.6% 15.3% - -------------------- SHARE DATA - -------------------- Basic EPS $ 0.40 $ 0.40 $ 0.43 $ 0.42 $ 1.53 -------------------------------------------------------------------------------------- Basic EPS Growth Over Prior Year 18% 25% 26% 20% 21% Diluted EPS $ 0.39 $ 0.39 $ 0.41 $ 0.41 $ 1.47 -------------------------------------------------------------------------------------- Diluted EPS Growth Over Prior Year 18% 26% 24% 17% 20% EBITDA/Diluted Share $ 0.90 $ 0.91 $ 0.89 $ 0.91 $ 3.49 -------------------------------------------------------------------------------------- EBITDA Per Share Growth Over Prior Year 22% 32% 20% 20% 26% Cash Dividend Per Share $ 0.015 $ 0.030 $ 0.045 $ 0.015 $ 0.030 $ 0.045 $ 0.180 -------------------------------------------------------------------------------------- Average Shares Outstanding (in 000's): Basic 27,586 37,939 27,620 38,028 37,880 -------------------------------------------------------------------------------------- Diluted 28,808 39,332 29,076 39,679 39,307 -------------------------------------------------------------------------------------- - -------------------- BALANCE SHEET DATA - -------------------- Net Primary Working Capital (PWC) $156,555 $61,003 $217,558 $145,903 $ 62,075 $207,978 -------------------------------------------------------------------------------------- Net PWC as a % of Annualized Sales 23% 26% 23% 19% 26% 21% Debt $139,488 $51,631 $191,119 $123,091 $ 51,503 $174,594 -------------------------------------------------------------------------------------- Percent Market Capitalization 23.0% 24.9% 23.5% 14.0% 26.4% 16.3% Percent Debt-to-Total Capital 40.1% 34.8% 37.0% 36.0% 33.7% 35.3% EBITDA Interest Coverage 8.3 9.8 8.6x 8.6 9.2 8.7x - -------------------- CASH FLOW DATA - -------------------- Depreciation and Amortization $ 6,183 $ 1,928 $ 8,111 $ 5,491 $ 1,856 $ 7,347 $ 31,112 -------------------------------------------------------------------------------------- Capital Expenditures $ 7,346 $ 2,019 $ 9,365 $ 4,433 $ 2,828 $ 7,261 $ 33,463 -------------------------------------------------------------------------------------- Cash Flow from Operations $ 20,586 $ 3,348 $ 23,934 $ 30,129 $ 6,001 $ 36,130 $ 84,034 --------------------------------------------------------------------------------------
41 Page 5 APPLIED POWER INC.-RESTATED TO INCLUDE ZERO FINANCIAL DATA PACKAGE (UNAUDITED) ($'s in 000's, except per share amounts)
FINANCIAL HIGHLIGHTS - -------------------- FISCAL 1998 ------------------------------------------------------------ APW ZERO Q1 APW ZERO Q2 --- ---- -- --- ---- -- - -------------------- INCOME DATA - -------------------- Sales $208,689 $64,465 $273,154 $217,145 $66,910 $284,055 Percent Sales Growth Over Prior Year 36% 18% 31% 38% 25% 35% Operating Profit $ 23,009 $ 8,666 $ 31,675 $ 23,353 $ 9,408 $ 32,761 ------------------------------------------------------------ Percent of Sales 11.0% 13.4% 11.6% 10.8% 14.1% 11.5% EBITDA $ 30,557 $11,244 $ 41,825(1) $ 32,326 $12,076 $ 44,423 ------------------------------------------------------------ Percent of Sales 14.6% 17.4% 15.3% 14.9% 18.0% 15.6% - -------------------- SHARE DATA - -------------------- Basic EPS $ 0.44 $ 0.45(1) $ 0.43 $ 0.45 ------------------------------------------------------------ Basic EPS Growth Over Prior Year 26% 29% 26% 29% Diluted EPS $ 0.42 $ 0.42(1) $ 0.40 $ 0.43 ------------------------------------------------------------ Diluted EPS Growth Over Prior Year 24% 24% 21% 26% EBITDA/Diluted Share $ 1.04 $ 1.04(1) $ 1.10 $ 1.10 ------------------------------------------------------------ EBITDA Per Share Growth Over Prior Year 30% 27% 33% 31% Cash Dividend Per Share $ 0.015 $ 0.030 $ 0.045 $ 0.015 $ 0.030 $ 0.045 ------------------------------------------------------------ Average Shares Outstanding (in 000's): Basic 27,682 38,149 27,775 38,292 ------------------------------------------------------------ Diluted 29,302 40,034 29,439 40,210 ------------------------------------------------------------ - -------------------- BALANCE SHEET DATA - -------------------- Net Primary Working Capital (PWC) $138,379 $63,507 $201,886 $144,763 $63,847 $208,610 ------------------------------------------------------------ Net PWC as a % of Annualized Sales 17% 25% 18% 17% 24% 18% Debt $231,672 $51,509 $283,181 $287,847 $51,573 $339,420 ------------------------------------------------------------ Percent Market Capitalization 27.4% 17.5% 24.9% 28.8% 16.6% 25.9% Percent Debt-to-Total Capital 49.9% 31.5% 45.2% 54.1% 30.5% 48.4% EBITDA Interest Coverage 7.4 11.3 8.1x 6.1 12.5 7.1 - -------------------- CASH FLOW DATA - -------------------- Depreciation and Amortization $ 7,661 $ 2,010 $ 9,671 $ 8,664 $ 2,243 $ 10,907 ------------------------------------------------------------ Capital Expenditures $ 7,247 $ 2,766 $ 10,013 $ 6,910 $ 4,648 $ 11,558 ------------------------------------------------------------ Cash Flow from Operations $ 9,741 $ 7,379 $ 17,120 $ 17,699 $14,120 $ 31,819 ------------------------------------------------------------
--------------------------------------------------- APW ZERO Q3 Q4 YTD --- ---- -- -- --- - -------------------- INCOME DATA - -------------------- Sales $241,653 $62,818 $304,471 $861,680 Percent Sales Growth Over Prior Year 39% 7% 31% 32% Operating Profit $ 29,036 $ 9,609 $ 38,645 $103,082 --------------------------------------------------- Percent of Sales 12.0% 15.3% 12.7% 12.0% EBITDA $ 38,607 $12,992 $ 51,624(2) $137,872 --------------------------------------------------- Percent of Sales 16.0% 20.7% 17.0% 16.0% - -------------------- SHARE DATA - -------------------- Basic EPS $ 0.54 $ 0.51(2) $ 1.40 --------------------------------------------------- Basic EPS Growth Over Prior Year 35% 28% 28% Diluted EPS $ 0.51 $ 0.49(2) $ 1.34 --------------------------------------------------- Diluted EPS Growth Over Prior Year 31% 26% 26% EBITDA/Diluted Share $ 1.31 $ 1.28(2) $ 3.43 --------------------------------------------------- EBITDA Per Share Growth Over Prior Year 46% 41% 36% Cash Dividend Per Share $ 0.015 $ 0.030 $ 0.045 $ 0.135 --------------------------------------------------- Average Shares Outstanding (in 000's): Basic 27,911 38,459 38,300 --------------------------------------------------- Diluted 29,539 40,297 40,200 --------------------------------------------------- - -------------------- BALANCE SHEET DATA - -------------------- Net Primary Working Capital (PWC) $146,920 $58,237 $205,157 ----------------------------------------- Net PWC as a % of Annualized Sales 15% 23% 17% Debt $321,689 $50,555 $372,244 ----------------------------------------- Percent Market Capitalization 33.7% 17.0% 29.7% Percent Debt-to-Total Capital 55.1% 28.6% 49.0% EBITDA Interest Coverage 6.5 15.5 7.6x - -------------------- CASH FLOW DATA - -------------------- Depreciation and Amortization $ 9,421 $ 2,178 $ 11,599 $ 32,178 --------------------------------------------------- Capital Expenditures $ 10,027 $ 4,510 $ 14,537 $ 36,108 --------------------------------------------------- Cash Flow from Operations $ 22,305 $ 7,005 $ 29,310 $ 78,249 ---------------------------------------------------
(1) Excludes $1.71 million gain on life insurance proceeds or $0.14 per diluted share recorded at Zero. (2) Excludes $9.815 million gain on sale of Burbank, CA facility and ($4.5) million charge due to the discontinuance of a European subsidiary, $0.25 per diluted share recorded at Zero. 42 -----END PRIVACY-ENHANCED MESSAGE-----