EPAC

Business Context and Reporting Period

This Form 8-K, dated July 25, 2000, is filed by Applied Power Inc. (soon to be renamed Actuant Corporation) to provide pro forma financial data following inquiries regarding its results after the spin-off of its Electronics Business. The report details the financial impact of the "Distribution" (spin-off of the Electronics Business to APW Ltd.), the divestiture of Air Cargo Equipment Corporation (completed May 26, 2000), and Barry Wright Corporation (completed June 30, 2000). The data reflects the "Industrial Business" which will comprise the post-spin-off entity.

Key Financial Metrics

The filing presents both historical results for the nine months ended May 31, 2000, and pro forma results adjusted for the transactions as if they occurred at the beginning of the period.

Pro Forma EBITDA: For the twelve months ended May 31, 2000, pro forma EBITDA is projected at $112.4 million.

Material Changes vs. Prior Period

• Divestitures and Spin-off: The pro forma data excludes the Electronics Business (discontinued operations), Air Cargo, and Barry Controls. This results in a significant reduction in reported Net Sales and Assets compared to historical figures.
• Debt Realignment: While total debt remains roughly similar ($456.9M historical vs. $450.0M pro forma), the composition changes. The pro forma capitalization includes a new $240 million term loan and $100 million revolving credit facility (Actuant Credit Facility) and $197.4 million in Notes, replacing existing long-term debt structures.
• Equity Reduction: Shareholders' equity turns negative in the pro forma view ($-146.8 million) due to the distribution of net assets exceeding the liabilities transferred to the spun-off entity, alongside transaction costs and debt reallocation.
• Operating Expenses: Historical operating expenses included a $4.4 million charge for transaction fees. Pro forma adjustments remove these one-time costs but add estimated ongoing financing costs.

Guidance, Outlook, and Risks

• Management Commentary: Management expects general corporate expenses to decrease following the Distribution due to a smaller organization. They believe pro forma EBITDA provides useful information regarding the ability to service indebtedness.
• Dividend Policy: Actuant does not intend to pay dividends following the Distribution.
• Financing Costs: Pro forma net financing costs are estimated to increase significantly due to higher interest rates on new debt instruments (e.g., Notes at 13.0%). A 0.25% change in LIBOR could alter annual pro forma net financing costs by approximately $0.6 million.
• Risks and Contingencies: The pro forma capitalization assumes 100% of the 1999 Notes are purchased in the Tender Offer; as of July 20, 2000, approximately 93.1% had been tendered. If less than 100% are tendered, borrowings under the Actuant Credit Facility will be lower. The filing explicitly states that pro forma results are not indicative of future results.

Investor Verification Checklist

• Tender Offer Status: Verify the final percentage of 1999 Notes tendered to confirm the final debt structure and borrowing levels under the Actuant Credit Facility.
• Debt Covenants: Review the specific covenants of the new Actuant Credit Facility and Notes to understand restrictions on future operations and capital expenditures.
• Transaction Costs: Confirm the final amount of transaction fees and the Tender Offer premium, as these impact the pro forma equity reduction.
• EBITDA Definition: Note that the company's EBITDA calculation excludes certain restructuring and non-recurring items; verify if this aligns with standard industry definitions for comparability.
• Discontinued Operations: Ensure historical comparisons exclude the Electronics Business, Air Cargo, and Barry Controls to accurately assess the performance of the remaining Industrial Business.