EPAC

Business Context and Reporting Period

This Form 8-K, dated July 5, 2000, is filed by Applied Power Inc. (soon to be renamed Actuant Corporation) regarding the ongoing spin-off of its Electronics Business into a separate entity, APW Ltd. The report details the commencement of a tender offer on June 30, 2000, to repurchase $200 million of senior subordinated debt and a concurrent consent solicitation to remove operational restrictions. The filing provides unaudited pro forma financial data reflecting the spin-off, recent divestitures of Air Cargo Equipment Corporation and Barry Wright Corporation, and internal restructuring.

Key Financial Metrics

The following metrics reflect historical results for the six months ended February 29, 2000, and pro forma results adjusted for the spin-off and divestitures.

Recent Quarter Performance (Three Months Ended May 31, 2000): Adjusted net sales were $137.5 million, and Adjusted EBITDA was $28.4 million, an increase of $1.8 million compared to the prior year period.

Material Changes vs. Prior Period

• Debt Restructuring: The company is executing a debt realignment where the Industrial Business (Actuant) will assume $452.7 million in debt, consisting of a new $250 million credit facility and $200 million in notes, replacing the historical $510.3 million balance.
• Equity Reduction: Pro forma shareholders' equity is projected to turn negative ($-134.9 million) due to the distribution of net assets to APW exceeding the liabilities distributed, a standard accounting treatment for this type of spin-off.
• Divestitures: Financial data excludes the "Non-continuing Businesses" (Air Cargo, Barry Controls, Samuel Groves, etc.), which were sold or are being spun off, significantly reducing the reported revenue base compared to historical consolidated figures.
• Operating Expenses: Historical operating expenses for the six months ended February 29, 2000, included a $3.5 million charge for transaction fees related to the Distribution. Pro forma data excludes these one-time costs.

Guidance, Outlook, and Risks

Management Commentary: Management expects general corporate expenses to decrease following the Distribution due to a smaller organization. The tender offer for the $200 million debt is scheduled to expire on July 28, 2000. The pro forma capitalization assumes 100% of the notes are tendered; if less are tendered, borrowings under the credit facility will be lower.

Risks and Contingencies:

• Financing Costs: Pro forma net financing costs are sensitive to interest rate fluctuations. A 0.25% change in LIBOR could alter annual costs by approximately $0.6 million.
• Interim Results: The filing explicitly states that operating results for interim periods are not necessarily indicative of full-year results.
• EBITDA Limitations: The company notes that EBITDA does not represent cash flow from operations and does not account for working capital or debt service requirements.

Investor Verification Checklist

• Verify the final acceptance rate of the $200 million tender offer for senior subordinated debt, as this impacts the final debt structure.
• Confirm the exact date of the Distribution and the subsequent name change to Actuant Corporation.
• Review the final allocation of debt between Actuant and APW to ensure it aligns with the pro forma assumptions (approx. 4x EBITDA).
• Monitor the impact of the $40 million estimated tax liability adjustment related to the corporate restructuring on future cash flows.
• Check for the filing of the Form 10-Q for the quarter ended May 31, 2000, which was noted as not yet filed at the time of this report.