UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-15851
APW Ltd.
(Exact name of registrant as specified in its charter)
Bermuda 04-2576375
------- ----------
(State or other jurisdiction of (I.R.S. Employer Id. No.)
incorporation or organization)
Clarendon House
2 Church Street
Hamilton HM DX, Bermuda
N22 W23685 Ridgeview Parkway West
Waukesha, Wisconsin 53188-1013
(Address of principal executive offices) (Zip code)
(262) 523-7600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes___ No X
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No ___
---
The number of shares outstanding of the registrant's Common Stock (including
related Preferred Stock purchase rights) as of August 13, 2002 was 40,811,224.
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
INDEX
This amendment on Form 10-Q/A #1 amends Items 1 and 2 of the Quarterly Report of
APW Ltd. (the "Company") on Form 10-Q previously filed for the three months and
nine months ended May 31, 2002 and 2001. This Quarterly Report on Form 10-Q/A #1
is filed in connection with the Company's restatement of its financial
statements as of August 31, 2001 and 2000 and for the years ended August 31,
2001, 2000 and 1999 and for the quarters ended May 31, 2002, February 28, 2002,
November 30, 2001, May 31, 2001, February 29, 2001 and November 30, 2000.
Financial statement information and related disclosures included in this amended
filing reflect, where appropriate, changes as a result of the restatements as
described in Notes 1 and 17. All other information contained in this Quarterly
Report on Form 10-Q/A #1 is as of the date referenced for such information in
the original filing or, if no date is referenced for information in the original
filing, as of the date of such filing.
Page No.
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 - Financial Statements
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended May 31, 2002 and 2001 ................... 3
Condensed Consolidated Balance Sheets -
May 31, 2002 and August 31, 2001 ................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 2002 and 2001 ............................. 5
Notes to Condensed Consolidated Financial Statements ................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 24
Item 3 - Quantitative and Qualitative Disclosures About Market Risk ..................... 37
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings .............................................................. 38
Item 2 - Changes in Securities and Use of Proceeds ...................................... 38
Item 3 - Defaults Upon Senior Securities ................................................ 38
Item 4 - Submissions of Matters to a Vote of Security Holders ........................... 39
Item 6 - Exhibits and Reports on Form 8-K ............................................... 39
SIGNATURE ............................................................................... 40
- ---------
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------------- -------------------------------
As Restated As Restated
------------------------------- -------------------------------
2002 2001 2002 2001
--------------- --------------- -------------- ---------------
Net sales $ 221,940 $ 300,208 $ 642,624 $ 977,494
Cost of products sold 210,354 270,080 595,518 796,590
-------------- --------------- -------------- ---------------
Gross profit 11,586 30,128 47,106 180,904
Engineering, selling and administrative expenses 43,693 67,181 134,747 180,434
Amortization and impairment of intangible assets 3,841 7,581 407,515 20,022
Restructuring charges 4,741 12,484 22,217 12,484
(Gain) loss on sale of subsidiary - - (8,210) 2,667
-------------- --------------- -------------- ---------------
Operating loss (40,689) (57,118) (509,163) (34,703)
Reorganization items 21,675 - 21,675 -
Financing costs 13,996 15,368 44,935 29,141
Other expense (income), net (1,830) 980 (2,324) 2,038
-------------- --------------- -------------- ---------------
Loss before income tax expense (benefit) (74,530) (73,466) (573,449) (65,882)
Income tax expense (benefit) - (17,642) 31,792 (14,774)
-------------- --------------- -------------- ---------------
Net loss $ (74,530) $ (55,824) $ (605,241) $ (51,108)
============== =============== ============== ===============
Basic and diluted loss per share:
Loss per share $ (1.86) $ (1.39) $ (15.11) $ (1.29)
============== =============== ============== ===============
Weighted average common and potential dilutive
common shares outstanding 40,056 40,038 40,052 39,551
============== =============== ============== ===============
See accompanying Notes to Condensed Consolidated Financial Statements
3
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As Restated
-------------------------------------
May 31, August 31,
2002 2001
----------------- ----------------
(Unaudited)
ASSETS
------
Current assets
Cash and cash equivalents $ 22,201 $ 6,190
Accounts receivable, net 132,430 112,948
Inventories 90,534 130,937
Prepaid expenses 16,435 14,213
Deferred income taxes 546 16,650
----------------- ----------------
Total current assets 262,146 280,938
Property, plant and equipment 390,774 477,915
Less: Accumulated depreciation (185,990) (222,886)
----------------- ----------------
Net property, plant and equipment 204,784 255,029
Goodwill, net 299,167 679,225
Other intangible assets, net 3,637 27,616
Other assets 52,599 58,524
----------------- ----------------
Total assets $ 822,333 $ 1,301,332
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities
Short-term borrowings $ - $ 603,353
Trade accounts payable 83,018 119,904
Debtor-in-possession financing 60,000 -
Accrued compensation and benefits 26,598 30,126
Income taxes payable 41,142 33,859
Other current liabilities 47,204 40,701
----------------- ----------------
Total current liabilities 257,962 827,943
Long-term debt 1,339 18,096
Other long-term liabilities 33,995 45,375
Liabilities subject to compromise 689,685 -
Debtor-in-possession warrants 25,451 -
Shareholders' equity (deficit)
Common Stock--$0.01 par value per share; authorized 250,000,000 shares;
issued and outstanding, less contingent shares, 40,056,507
and 40,042,207 shares, respectively 400 400
Share premium 679,429 669,772
Accumulated deficit (839,050) (233,765)
Accumulated other comprehensive loss (26,878) (26,489)
----------------- ----------------
Total shareholders' equity (deficit) (186,099) 409,918
----------------- ----------------
Total liabilities and shareholders' equity (deficit) $ 822,333 $ 1,301,332
================= ================
See accompanying Notes to Condensed Consolidated Financial Statements
4
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
May 31,
-----------------------------
As Restated
-----------------------------
2002 2001
----------- -----------
Operating activities
- --------------------
Net loss $ (605,241) $ (51,108)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 460,817 65,814
Amortization of financing fees 9,206 782
Gain from sale of assets (1,747) (311)
(Gain) loss on sale of subsidiary (8,210) 2,667
Deferred income taxes 27,565 (10,478)
Restructuring charges 22,217 12,484
Reorganization items 21,675 -
Changes in operating assets and liabilities:
Accounts receivable 38,886 30,684
Inventories 37,129 15,277
Prepaid expenses and other assets (3,448) (2,500)
Trade accounts payable (37,307) (27,381)
Income taxes 7,891 (42,252)
Other liabilities (1,621) (30,284)
----------- -----------
Net cash used in operating activities before reorganization items (32,188) (36,606)
Reorganization items (296) -
----------- -----------
Net cash used in operating activities (32,484) (36,606)
Investing activities
- --------------------
Proceeds on the sale of property, plant and equipment 8,481 2,466
Additions to property, plant and equipment (16,137) (80,926)
Net proceeds on sale of subsidiary, net of cash sold 19,241 1,782
Business acquisitions, net of cash acquired - (241,546)
Other investing activities (448) (4,028)
----------- -----------
Net cash provided by (used in) investing activities 11,137 (322,252)
Financing activities
- --------------------
Net short term borrowings (repayments) (5,632) 4,644
Principal repayments on pre-petition debt (183,224) (96,650)
Principal borrowings on pre-petition debt 230,065 516,305
Borrowings on DIP facility 60,000 -
DIP facility financing costs (3,734) -
Net repayments of commercial paper - (33,896)
Net receivables financed (repayments) (58,019) (18,912)
Debt financing costs (2,100) (7,700)
Stock option exercises - 1,405
Other financing activities (42) (748)
----------- -----------
Net cash provided by financing activities 37,314 364,448
Effect of exchange rate changes on cash 44 543
----------- -----------
Net increase in cash and cash equivalents 16,011 6,133
Cash and cash equivalents - beginning of period 6,190 712
----------- -----------
Cash and cash equivalents - end of period $ 22,201 $ 6,845
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
5
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Restatements:
APW Ltd. (hereinafter referred to as "APW Ltd.", "APW" or "the Company")
has determined that accounting improprieties occurred in fiscal 2002, 2001, 2000
and 1999 at one U.S. subsidiary and in fiscal 2001 at one U.K. subsidiary. These
accounting improprieties resulted in the overstatement of assets (primarily cash
and inventory) and income and the understatement of liabilities (primarily trade
accounts payable and accrued compensation and benefits) and expense. As a
result, the consolidated financial statements as of August 31, 2001 and 2000 and
for the years ended August 31, 2001, 2000 and 1999 as well as the interim
results for these periods and the results for the interim periods ended November
30, 2001, February 28, 2002 and May 31, 2002 have been restated. The restated
consolidated financial statements as of August 31, 2001 and 2000 and for the
years ended August 31, 2001, 2000 and 1999 have been included in a Form 10-K/A.
Restated condensed financial statement information for the interim periods in
the years ended August 31, 2001 and 2000 have been included in Item 8 of the
Form 10-K/A. Restated condensed financial statement information for the interim
periods ended May 31, 2002 and 2001 are included herein.
A summary of the effects of the restatements are set forth in Note 17.
As a result of the restatement for the year ended August 31, 2001, the Company
believes that it would have been in default of certain debt covenants as of
August 31, 2001, unless the Company had obtained waivers or the Company's
lenders had amended the debt covenants. Accordingly, the Company has classified
borrowings under the Revolving Multi-Currency Credit Agreement and the U.K.
Facility Agreement as a current liability as of August 31, 2001 in the
restated consolidated financial statements.
Note 2 - Reorganization Under Chapter 11
On May 16, 2002, APW Ltd. (in provisional liquidation), a Bermuda company,
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court for
the Southern District of New York ("Bankruptcy Court") (Case No. 02-12335). The
proceeding involved only APW Ltd., the Bermuda company, and Vero Electronics,
Inc., a non-operating entity and subsidiary of APW Ltd. (Case No. 02-12334). All
other subsidiaries of the Company were excluded from the proceeding and continue
to conduct business with customers and suppliers in the ordinary course. The
Company will continue to operate its business as a debtor-in-possession under
the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code. The bankruptcy proceedings are being jointly
administered under Case No. 02-12334 (PCB).
On May 30, 2002, a proceeding (the "Bermuda Proceeding") was commenced
pursuant to the Companies Act 1981 with respect to APW Ltd. in the Bermuda
Supreme Court in connection with a winding-up petition. One of the purposes of
the filing was the imposition of a statutory stay preventing third parties from
continuing or taking actions against APW in Bermuda. On May 30, 2002, the
Bermuda court appointed Malcolm L. Butterfield of KPMG Bermuda and Philip W.
Wallace of KPMG London, England as joint provisional liquidators of APW Ltd.
(or, as referred to herein, the JPLs) with limited supervisory powers. The
appointment of the JPL's and statutory stay enabled the JPL's to perform
supervisory and oversight of the management of APW while reviewing the Plan of
reorganization with a view to its treatment of creditors. On July 22, 2002, the
JPLs were granted various powers, including the power to authorize the sale of
any business, operation, subsidiary, division or other significant asset of APW
Ltd.
APW Ltd. decided to pursue reorganization under Chapter 11 of the
Bankruptcy Code based upon the certainty of the elimination of pre-petition
indebtedness and as a consequence the ability of the Company to emerge from
bankruptcy significantly deleveraged. As a debtor-in-possession, APW Ltd. is
authorized to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without the approval of the
Bankruptcy Court, after notice and an opportunity for a hearing.
Confirmation of Plan of Reorganization
On July 24, 2002, the Bankruptcy Court entered an order confirming APW
Ltd.'s and Vero's Amended and Restated Plan of Reorganization dated June 19,
2002 (as modified, amended or supplemented, the "Plan"). APW Ltd. emerged on
July 31, 2002. A copy of the Plan is attached hereto as Exhibit
2.1(b).
Pursuant to the terms of the Plan, subject to the approval of the joint
provisional liquidators (the "JPLs") appointed in the Bermuda Proceeding and, if
required, the approval of the Bermuda Supreme Court, all of the assets and
liabilities which were to be retained by APW Ltd. under the original Plan will
be transferred to AWP Ltd. ("AWP"), a newly formed Bermuda company, including
the right to use the name "APW Ltd.," which will be become the
successor-in-interest to APW Ltd. After the consummation of the Plan, APW Ltd.
will change its name to BQX Ltd. and AWP Ltd. will change its name to APW Ltd.
The above name changes became effective on July 31, 2002.
In addition, as of July 31, 2002, the effective date of the Plan, AWP (the
successor in interest to APW Ltd.) issued under the Plan the following:
. New Secured Notes in the aggregate principal amount of $100 million
issued to its senior secured lenders,
. 1,000,000 common shares of AWP (the successor in interest to APW Ltd.)
(the "APW Common Shares") issued to its senior secured lenders which
represents 100% of the outstanding common shares of AWP after the
consummation of the Plan,
6
. Warrants to purchase up to 60,606 APW Common Shares at an exercise price
of $448.95 per share issued to the current equity holders of APW Ltd.,
and
. Warrants to purchase up to 303,030 APW Common Shares at an exercise
price of $0.02 per share issued to lenders under the Credit Facility
(defined below).
As of July 31, 2002, there were approximately 40.8 million common shares of
APW Ltd. outstanding. Under the Plan, holders of APW Ltd. common shares as of
the July 31, 2002 record date received (a) warrants representing the right
to purchase 60,606 APW Common Shares as stated above and (b) retain existing
common shares in APW Ltd. (which as a practical matter will be liquidated and no
distribution is expected to shareholders). Subsequent to the effective date of
the Plan, APW Ltd. will be dissolved, liquidated or wound-up by joint
provisional liquidators in connection with a proceeding in Bermuda or otherwise
pursuant to applicable Bermuda law, and no assets are expected to be distributed
to current shareholders.
After the consummation of the Plan, AWP Ltd. (as successor to APW Ltd.) is
expected to have approximately 1.8 million authorized common shares, par value
$0.02 per share, of which 1,000,000 common shares will be outstanding. All such
1,000,000 shares will be issued as of the consummation of the Plan.
The board of directors of AWP Ltd. (as successor to APW Ltd.) after
consummation of the Plan are to consist of: Richard G. Sim, W. Peter Douglas,
Christopher S. Brothers, Stephen A. Kaplan, Michael P. Harmon, J. Richard Budd
and Toni J. Smith.
In addition, the Plan provides for a new management incentive plan for
issuance of options to purchase to key employees or the opportunity for such key
employees to purchase 10% of the APW Common Shares on a fully diluted basis (or
151,515 shares).
As of May 31, 2002, APW Ltd., the Bermuda company, and Vero Electronics,
Inc., a non-operating entity and subsidiary of APW Ltd., had assets and
liabilities of $1.5 billion and $0.8 billion, respectively.
The Credit Facility
Concurrent with the Chapter 11 filing, the Company entered into a new
$110.0 million debtor-in-possession credit facility ("Credit Facility") to
provide for the payment of permitted pre-petition claims, working capital needs,
letters of credit and other general corporate purposes. The Credit Facility
requires that we maintain certain financial covenants and restrict liens,
indebtedness, capital expenditures, dividend payments and sale of assets. Upon
emergence from the Chapter 11 proceeding, the Credit Facility was extended until
November 15, 2003 with respect to $90.0 million of the Credit Facility and
May 15, 2004 with respect to $20.0 million of the Credit Facility.
Fresh Start Accounting
As a result of the bankruptcy, the Company will adopt fresh start
accounting pursuant to guidance provided by the American Institute of Certified
Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code", as of July 31, 2002. In accordance
with the principles of fresh start accounting, the Company will adjust the
carrying values of its assets and liabilities to their fair values as of July
31, 2002. The application of fresh start accounting will result in material
changes to the carrying values of the Company's assets and liabilities.
Going Concern
Following its emergence from the Chapter 11 proceeding, the ability of APW
Ltd., the successor company, to continue as a going concern is predicated upon,
among other things, compliance with the provisions of the Credit Facility and
the term loan agreement related to the $100 million in new secured notes issued
under the Plan and the ability to generate cash flows from operations and obtain
financing sources sufficient to satisfy future obligations.
Note 3 - Description of Business
APW Ltd. is a leading global provider of Technically Enabled Manufacturing
Services ("TEMS"), focused on designing and integrating large electronic
products. APW has the capabilities to design and manufacture various subsystems
for electronic products, including enclosures, thermal management systems,
backplanes, power supplies, printed circuit board assemblies, and cabling,
either as integrated custom systems or as individual subsystems. In addition,
APW provides a wide range of integration services to its customers, including
product design, supply chain management, manufacturing, assembly, testing and
drop-ship services. APW's focus is on large infrastructure solutions, such as
wireless base stations and switches, enterprise hardware and Internet server
enclosures. APW is not targeting high volume markets, such as personal computers
or cell phone handsets. These products provide APW's customers with accelerated
time-to-market scheduling and decreased time-to-volume production, while
reducing their production costs and allowing them to focus on the design and
marketing of their products. APW
7
believes the Company's emphasis on technical innovation and vertically
integrated engineering and manufacturing expertise, coupled with its total
solution approach, which can be delivered on a worldwide basis, differentiates
the Company in the marketplace.
Note 4 - Holding Company Structure
APW Ltd. operates as a holding company that has no significant assets other
than investments in the stock of its wholly owned subsidiaries, intellectual
property and intercompany receivables. APW Ltd. has significant indebtedness,
primarily incurred through its Multi-Currency Credit facilities, which is
collateralized by substantially all of the assets, including the stock, of its
subsidiaries. APW Ltd. relies on dividends and distributions from its
subsidiaries as its primary source of cash, primarily to service its
indebtedness.
Note 5 - Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements of APW Ltd. and its subsidiaries have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial reporting and with the instructions of Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, the financial statements include all adjustments which
are normal and recurring in nature necessary to present fairly the financial
position of the Company at May 31, 2002, the results of operations for the three
and nine months ended May 31, 2002 and 2001 and cash flows for the nine months
ended May 31, 2002 and 2001. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
in the Company's fiscal 2001 Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements of
APW Ltd. have also been prepared in accordance with the AICPA's Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). SOP 90-7 provides for segregating pre-petition
liabilities that are subject to compromise, identifying all transactions and
events that are directly associated with the reorganization of the Company and
discontinuing the accrual of interest on unsecured debt.
Loss Per Share: Basic earnings per share is calculated by dividing net
earnings (loss) by the weighted average common shares outstanding during the
period. Diluted earnings per share is calculated by using the weighted average
common shares outstanding adjusted to include the potentially dilutive effect of
outstanding stock options and warrants.
Earnings (loss) per share for the three and nine months ended May 31, 2002
and 2001 is based on the following (in thousands, except earnings per share
amounts):
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------- -------------------------
As Restated As Restated
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Numerator:
Net loss for basic and diluted earnings per share $ (74,530) $ (55,824) $ (605,241) $ (51,108)
=========== =========== =========== ===========
Denominator:
Weighted average common and potential common shares
outstanding for basic and diluted earnings (loss) per
share 40,056 40,038 40,052 39,551
=========== ============ =========== ===========
Basic and diluted earnings (loss) per share $ (1.86) $ (1.39) $ (15.11) $ (1.29)
=========== =========== =========== ===========
When the Company reports positive net earnings, the diluted earnings per
share calculation will include the impact of dilutive securities issued under
the existing stock option plans and any warrants then outstanding. Due to the
net losses in all periods presented, the effect of options and warrants to
purchase shares have been excluded because they would be anti-dilutive.
8
New Accounting Pronouncements: In June 2001, Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. SFAS No. 141 was effective for APW Ltd. as
of July 31, 2001. SFAS No. 142 will be effective for the Company for existing
goodwill and intangible assets on September 1, 2002 or upon emergence from the
Chapter 11 reorganization, expected on or around August 1, 2002, whichever is
earlier. The Company is currently evaluating the impact of SFAS No. 142.
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS No. 143 sets forth the financial accounting and reporting to be
followed for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 requires entities
to record the fair value of a liability for an asset retirement obligation in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are to be capitalized as part of the
carrying amount of the long-lived asset. Subsequently, the recorded liability
will be accreted to its present value and the capitalized costs will be
depreciated. The Company is required to adopt SFAS No. 143 on September 1, 2002
or upon emergence from the Chapter 11 reorganization, expected on or around
August 1, 2002, whichever is earlier. The Company is currently evaluating the
impact of SFAS No. 143.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. SFAS No. 144 modifies and expands the financial
accounting and reporting for the impairment or disposal of long-lived assets
other than goodwill, which is specifically addressed by SFAS No. 142. SFAS No.
144 maintains the requirement that an impairment loss be recognized for a
long-lived asset to be held and used if its carrying value is not recoverable
from its undiscounted cash flows, with the recognized impairment being the
difference between the carrying amount and fair value of the asset. With respect
to long-lived assets to be disposed of other than by sale, SFAS No. 144 requires
that the asset be considered held and used until it is actually disposed of but
requires that its depreciable life be revised in accordance with APB Opinion No.
20, "Accounting Changes". SFAS No. 144 also requires that an impairment loss be
recognized at the date a long-lived asset is exchanged for a similar productive
asset. The Company will be required to adopt SFAS No. 144 on September 1, 2002
or upon emergence from the Chapter 11 reorganization, expected on or around
August 1, 2002, whichever is earlier. The Company is currently evaluating the
impact of SFAS No. 144.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was issued.
SFAS No. 145 rescinds the indicated statements and amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The Company
will be required to adopt SFAS No. 145 on September 1, 2002 or upon emergence
from the Chapter 11 reorganization, expected on or around August 1, 2002,
whichever is earlier. The Company is currently evaluating the impact of SFAS No.
145.
In June 2002, the FASB voted in favor of issuing SFAS No. 146, "Accounting
for Exit or Disposal Activities". SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". The scope of
SFAS No. 146 also includes (1) costs related to terminating a contract that is
not a capital lease and (2) termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. The Company will be required to adopt SFAS No,
146 for exit or disposal activities initiated after December 31, 2002, or for
exit or disposal activities initiated after emergence from the Chapter 11
reorganization, expected on or around August 1, 2002, whichever is earlier. The
Company is currently evaluating the impact of SFAS No. 146.
Reclassifications: Certain prior period amounts have been reclassified to
conform with the fiscal 2002 presentation. Such reclassifications had no impact
on previously reported net earnings (loss).
9
Note 6 - Intangible Asset Impairment, Restructuring and Other Charges
Goodwill and other intangible asset impairment charge
During the second quarter of fiscal 2002, the Company performed an
impairment assessment of long-lived assets, which include property, plant and
equipment, goodwill and other intangible assets. The assessment was performed
primarily due to the reduced financial performance of the Company's operating
results during the first six months of fiscal 2002 as compared with previously
developed estimates. As a result of the assessment, the Company recorded a
$391.6 million impairment charge to further reduce the carrying value of
goodwill and other intangible assets. The impairment charge is recorded as a
component of amortization and impairment of intangible assets in the Condensed
Consolidated Statement of Operations for the nine months ended May 31, 2002. The
Company updated the impairment assessment at May 31, 2002 and as a result no
further impairment charge was recorded for the three months ended May 31, 2002.
In determining whether an impairment of long-lived assets has occurred, the
Company compares estimated undiscounted cash flows to the related asset book
value. The charge was measured in accordance with the provisions of SFAS No.
121, based upon the Company's estimated future discounted cash flows using a
discount rate determined by management to be commensurate with the risk inherent
in the Company's current business model.
The remaining long-lived assets are supported by management's current best
estimates of future undiscounted cash flows and will continue to be depreciated
and amortized over their remaining useful lives, which management considers
appropriate. However, there can be no assurances that the Company's (including
its successor) revised forecast will be achieved and accordingly future
impairment charges may be necessary. Additionally, the carrying value of
remaining long-lived assets is supported by estimates of future undiscounted
cash flows as of May 31, 2002, and such amounts could be stated at amounts in
excess of their fair values.
Restructuring
Beginning in fiscal 2001 and continuing in fiscal 2002, management
developed formal plans to exit certain facilities and involuntarily terminate
employees. Management's plans to exit certain facilities included the
identification of manufacturing and sales facilities for closure and the
transfer of the related operations to other facilities. Management currently
anticipates that the facility closures and all related activities will be
substantially complete within one year of the commitment dates of the respective
exit plans.
During the three and nine months ended May 31, 2002, the Company
recognized pre-tax restructuring and other charges of $14.0 million and $50.5
million, respectively. The components of the charges recorded are as follows (in
millions):
Three Months Nine months
Ended May 31, Ended May 31,
2002 2002
------------------------------
Facility closure costs:
Severance $ 1.8 $ 9.3
Lease exit costs 2.9 12.9
Equipment impairment 5.0 20.5
Other costs 4.3 7.8
------------------------------
Total facility closure costs $ 14.0 $ 50.5
==============================
Facility closure costs relate to the rationalization of seven facilities
in the first quarter of fiscal 2002, three facilities in the second quarter of
fiscal 2002 and two facilities in the third quarter of fiscal 2002. The
severance charges impact both salaried and hourly employees. The costs are
recorded in the Condensed Consolidated Statement of Operations for the three and
nine months ended May 31, 2002, respectively, as follows: (i) severance and
lease exit costs totaling $4.7 million and $22.2 million are recorded as
restructuring charges; (ii) equipment impairment charges, resulting from
facility closures, of $5.0 million (recorded as cost of products) and $20.5
million ($18.4 million recorded as cost of products sold and $2.1 million
recorded as engineering, selling and administrative expenses); and (iii) other
facility closure costs totaling $4.3 million ($3.2 million recorded as cost of
products sold, $0.1 million recorded as engineering, selling and administrative
expenses and $1.0 million recorded as amortization and impairment of intangible
assets) and $7.8 million ($6.4 million recorded as cost of products sold, $0.4
million recorded as engineering, selling and administrative expenses and $1.0
million recorded as amortization and impairment of intangible assets).
10
The following table summarizes the activity with respect to fiscal 2002
restructuring charges (in millions, except employee data):
Number
of Severance Facilities
Employees Reserve Reserve Total Reserve
--------------- ------------- ------------- ---------------
Total reserve balance at August 31, 2001 287 $ 2.1 $ 5.2 $ 7.3
Add: Fiscal 2002 nine month charges 933 9.3 12.9 22.2
Less: Fiscal 2002 nine month utilization (982) (9.2) (6.0) (15.2)
--------------- ------------- ------------- ---------------
Total reserve balance at May 31, 2002 238 $ 2.2 $ 12.1 $ 14.3
=============== ============= ============= ===============
Note 7 - Reorganization Items
Net costs resulting from reorganization of the business have been reported
in the Condensed Consolidated Statements of Operations separately as
reorganization items. For the three and nine months ended May 31, 2002, the
following have been recorded (in thousands):
Three and Nine
Months Ended
May 31, 2002
------------------
Loss on deferred financing costs related to liabilities subject to $ 17,818
compromise (non-cash)
Professional and other fees directly related to Chapter 11 filing 1,547
Loss on discontinuance of derivative instruments (non-cash) (see Note 7) 2,310
------------------
Total $ 21,675
==================
Note 8 - Comprehensive Income (Loss)
The components of comprehensive loss are as follows (in thousands):
Three Months Ended Nine Months Ended
May 31, May 31,
--------------------------- -----------------------------
As Restated As Restated
--------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------ -------------- ------------
Net loss $ (74,530) $ (55,824) $ (605,241) $ (51,108)
Cumulative effect of change in accounting
principle for derivatives and hedging
activities, net of tax - - - 168
Derivative instrument fair market value adjustment (124) 49 (1,503) (1,023)
Reclassification of loss on discontinuance of
derivative instruments to earnings as a
reorganization item 2,310 - 2,310 -
Reclassification of derivative losses to earnings 377 26 916 107
Foreign currency translation adjustments (416) (4,622) (2,112) (4,783)
------------- ------------ -------------- ------------
Comprehensive (loss) income $ (72,383) $ (60,371) $ (605,630) $ (56,639)
============= ============ ============== ============
11
Note 9 - Inventories
Inventories consisted of (in thousands):
As Restated
-------------------------------------
May 31, August 31,
2002 2001
---------------- ----------------
Raw material $ 60,629 $ 73,427
Work-in-progress 26,322 31,945
Finished goods 21,394 39,591
---------------- ----------------
Total inventories, gross 108,345 144,963
Less: inventory reserves (17,811) (14,026)
---------------- ----------------
Total inventories, net $ 90,534 $ 130,937
================ ================
Due to continued weakness in the computing, telecommunication, and
semi-conductor markets served by APW Ltd., the Company recorded a charge of $4.6
million in the fiscal 2002 third quarter to increase inventory reserves.
Note 10 - Divestitures
On February 13, 2002, APW Ltd. completed the sale of its Zero Cases
division. Total consideration from the transaction was a net $19.2 million,
which resulted in a net book gain of $8.2 million.
Note 11 - Accounts Receivable Facility
On May 17, 2002, the Company's Accounts Receivable Facility terminated. On
that date, $34.5 million of accounts receivable previously sold under the
Accounts Receivable Facility were repurchased by the Company using proceeds from
the debtor-in-possession financing facility (see Note 12 below). At August 31,
2001, accounts receivable were reduced by $58.0 million, representing receivable
interests sold under the Accounts Receivable Facility.
Note 12 - Contingencies and Litigation
APW Ltd. is a party to various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include product
liability, environmental, labor, patent and contract claims, and commission
disputes.
APW Ltd. has recorded reserves for loss contingencies based on the
specific circumstances of each case. Such reserves are recorded when it is
probable that a loss has been incurred as of the balance sheet date and such
loss can be reasonably estimated. In the opinion of management, the resolution
of these contingencies will not have a material adverse effect on APW Ltd.'s
financial condition, results of operations or cash flows.
APW Ltd. has facilities at numerous geographic locations, which are
subject to a range of environmental laws and regulations. Compliance with these
laws has and will require expenditures on a continuing basis. Predecessors to
APW Ltd. have been identified by the United States Environmental Protection
Agency ("EPA") as "Potentially Responsible Parties" regarding various
multi-party Superfund sites. Potentially Responsible Parties are jointly and
severally liable with respect to Superfund remediation liabilities. Any
liability in connection with these sites has been assumed by APW Ltd. Based on
the Company's investigations, management believes that the Company is a de
minimis participant in certain of these sites. As to one other site, the Company
is a minor participant, and the Company's share of estimated cleanup costs is
not likely to exceed $1.1 million. As to another EPA site where the Company is
not a de minimis participant, the state has required additional ground water
testing at a former APW Ltd. manufacturing facility, and the Company cannot
reasonably estimate the amount of the Company's liability, if any. In addition,
the Company is also involved in other state cleanup actions for which management
believes the aggregate costs of remediation are adequately reserved for.
APW Ltd. anticipates that environmental costs will be expensed or
capitalized depending on their future economic benefits. Expenditures that have
no future economic value are expensed. Liabilities will be recorded when
environmental remediation is probable and the costs can be reasonably estimated.
Although the level of future expenditures for environmental remediation is
impossible to determine with any degree of certainty, management does not
believe these costs are likely to have a material adverse effect on APW Ltd.'s
financial position, results of operations or cash flows.
In December 2001, a subsidiary of the Company received notification from
the lessor of two of its aircraft that the lease contracts ("contracts") for the
two aircraft would be terminated effective March 4, 2002. In conjunction
12
with the termination, the terms of the contracts would require the Company to
pay the lessor approximately $12.3 million for the two aircraft and, in
exchange, the lessor would convey all of its rights, title and interest in the
two aircraft to the Company. The Company is actively working with the lessor to
identify a third party which would purchase and/or lease the two aircraft,
thereby eliminating the Company's $12.3 million payment obligation. The lessor
has informed the Company that it is willing to continue to work with the Company
to find third party alternatives to eliminate the cost of terminating this
contract, provided the Company continues to make scheduled lease payments. As
such, the Company recorded a charge of $2.0 million during the second quarter
related to its decision to discontinue use of the related aircraft. This charge
reflects management's current estimates relating to the cost of the ultimate
disposition of the two aircraft.
The Company, as well as one current and one former executive, have been
sued in three actions which are pending in the United States District Court for
the Eastern District of Wisconsin in connection with alleged violations of
Federal securities laws which preceded a drop in the price of its common stock
ending on March 20, 2001. The first of these suits which is captioned Stewart
Norman Hicks v. APW Ltd., et al., was filed on December 10, 2001. The
subsequently filed suits are captioned Robert Betz v. APW Ltd, et al., and
Market Street Securities v. APW Ltd., et al. The complaints for all three suits
allege violations of the Federal securities laws and seek certification of a
plaintiff class consisting of all purchasers of the Company's common stock
between September 26, 2000 and March 20, 2001, inclusive. The complaint does not
quantify the damages. The Company has not yet been served with the complaints
but understands that the respective plaintiffs intend to seek consolidation of
the suits. At this time, the Company is evaluating the merits of these claims.
As a result of the Company's Chapter 11 filing, the above shareholder
lawsuits against APW Ltd., the Bermuda holding company, have been stayed
automatically by the Bankruptcy Code and, absent further order of the Bankruptcy
Court, no party may take any action in the United States to recover on
pre-petition claims against APW Ltd.
Note 13 - Debtor-In-Possession Facility
On May 16, 2002, the Bankruptcy Court approved and, the Company entered
into a $110 million debtor-in-possession financing ("DIP financing facility")
agreement with certain members of its lender group. The DIP financing facility
is comprised of the following three tranches: (i) tranche A ($70 million) is
collateralized by US receivables and inventory at an interest rate of LIBOR plus
3.50%; (ii) tranche B ($20 million) is collateralized by UK and Ireland
property, plant and equipment, receivables and inventory at an interest rate of
LIBOR plus 4.25%; and (iii) tranche C ($20 million) is collateralized by all
other Company assets at an interest rate of LIBOR plus 5.00%. The DIP financing
facility has a stated termination date of 180 days from May 16, 2002. Under the
terms of the DIP financing facility, upon emergence from bankruptcy, the
termination date for tranches A and B will be automatically extended to November
15, 2003, and the termination date for tranche C will be automatically extended
to May 15, 2004, if the Company is unable to obtain and close refinancing in an
amount that is sufficient to refinance and pay in full all of the obligations.
Initial proceeds from the DIP financing facility were used to repurchase
accounts receivable that had been sold under a previous facility. The DIP
financing facility will convert into an exit facility upon APW Ltd.'s emergence
from Chapter 11. At May 31, 2002, all outstanding borrowings under the DIP
financing facility were from tranche A. The LIBOR rate at May 31, 2002 was
1.84%.
The DIP financing facility also grants warrants to the lenders for 20% of
the common stock outstanding of the newly reorganized Company upon its emergence
from Chapter 11 bankruptcy. The exercise price of the warrants is $0.02 per
share. The warrants were valued at $25.5 million and are recorded as a liability
at May 31, 2002, which will be adjusted for changes in fair value over the
period the warrants are outstanding. The same amount was recorded as a deferred
financing cost asset, which is being amortized over the term of the DIP
financing facility of 180 days.
13
Note 14 - Liabilities Subject to Compromise
Liabilities subject to compromise consisted of the following:
May 31,
2002
--------------
Unsecured debt $ 664,935
Accrued interest 22,440
Interest rate swap liabilities 2,310
--------------
Total liabilities subject to compromise $ 689,685
==============
Note 15 - Income Taxes
Due to the size of APW Ltd.'s net operating loss carry-forwards in relation
to the Company's recent history of unprofitable operations and to the continuing
uncertainties surrounding recoverability of these losses and other net deferred
tax assets, in the second quarter of fiscal 2002 a valuation allowance of $178.4
million was established to reduce the Company's net deferred tax assets to $0.4
million. APW Ltd. currently provides for income taxes only to the extent that
the Company expects to pay taxes for current income, as well as for deferred
taxes for those tax jurisdictions in which the Company continues to be
profitable.
Note 16 - Condensed Combined Financial Statements
The following condensed combined financial statements are presented in
accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", as restated:
Condensed Combined Consolidating Statement of Operations
(In millions)
Nine Months Ended May 31, 2002 (Unaudited)
---------------------------------------------------------------
As Restated
---------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
--------------- --------------- -------------- --------------
Net sales $ - $ 642.6 $ - $ 642.6
Cost of products sold - 595.5 - 595.5
--------------- --------------- -------------- --------------
Gross profit - 47.1 - 47.1
Engineering, selling and administrative expenses 7.7 127.0 - 134.7
Amortization and impairment of intangible assets - 407.5 - 407.5
Restructuring charges - 22.2 - 22.2
(Gain) loss on sale of subsidiary - (8.2) - (8.2)
--------------- --------------- ------------- --------------
Operating earnings (loss) (7.7) (501.4) - (509.1)
Reorganization items 21.7 - - 21.7
Financing costs 43.0 1.9 - 44.9
Other expense (income), net - (2.3) - (2.3)
--------------- --------------- ------------- --------------
Earnings (loss) before income tax expense (benefit) (72.4) (501.0) - (573.4)
Income tax expense (benefit) - 31.8 - 31.8
--------------- --------------- ------------- --------------
Net earnings (loss) $ (72.4) $ (532.8) $ - $ (605.2)
=============== =============== ============= ==============
14
Condensed Combined Consolidating Balance Sheet
(In millions)
As of May 31, 2002 (Unaudited)
---------------------------------------------------------------
As Restated
---------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
--------------- --------------- -------------- --------------
ASSETS
------
Current assets
Cash and cash equivalents $ 0.1 $ 22.1 $ - $ 22.2
Accounts receivable, net 45.4 87.0 - 132.4
Intercompany accounts receivable 240.2 - (240.2) -
Inventories - 90.6 - 90.6
Prepaid expenses 4.2 12.2 - 16.4
Deferred income taxes - .5 - .5
--------------- -------------- -------------- --------------
Total current assets 289.9 212.4 (240.2) 262.1
Net property, plant and equipment - 204.8 - 204.8
Goodwill, net - 299.2 - 299.2
Other intangible assets, net - 3.6 - 3.6
Investments in subsidiaries 749.2 868.9 (1,618.1) -
Intercompany loans receivable 384.2 - (384.2) -
Other assets 26.8 25.8 - 52.6
--------------- -------------- -------------- --------------
Total assets $ 1,450.1 $ 1,614.7 $ (2,242.5) $ 822.3
=============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities
Trade accounts payable $ 1.3 $ 81.7 $ - $ 83.0
Debtor-in-possession financing 60.0 - - 60.0
Intercompany accounts payable 8.8 231.4 (240.2) -
Accrued compensation and benefits - 26.6 - 26.6
Income taxes payable 10.0 31.1 - 41.1
Other current liabilities 2.0 45.3 - 47.3
--------------- -------------- -------------- --------------
Total current liabilities 82.1 416.1 (240.2) 258.0
Long-term debt - 1.3 - 1.3
Intercompany loans payable 23.6 360.6 (384.2) -
Other long-term liabilities - 34.0 - 34.0
Liabilities subject to compromise 689.7 - - 689.7
Debtor-in-possession warrants 25.5 - - 25.5
Shareholders'equity (deficit)
Common stock 1.8 23.5 (24.9) 0.4
Share premium 679.4 1,592.1 (1,592.1) 679.4
Accumulated deficit (51.0) (787.0) (1.1) (839.1)
Accumulated other comprehensive loss (1.0) (25.9) - (26.9)
--------------- -------------- --------------- --------------
Total shareholders' equity (deficit) 629.2 802.7 (1,618.1) (186.2)
Total liabilities and shareholders' equity
(deficit) $ 1,450.1 $ 1,614.7 $ (2,242.5) $ 822.3
=============== ============== =============== ==============
15
Condensed Combined Consolidating Statement of Cash Flow
(In millions)
As Restated Nine months ended May 31, 2002 (Unaudited)
------------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
--------------- ---------------- --------------- ---------------
Net cash used in operating activities $ (66.0) $ 33.5 $ - $ (32.5)
Investing Activities:
Proceeds on sale of property, plant and equipment - 8.5 - 8.5
Additions to property, plant and equipment - (16.1) - (16.1)
Net proceeds on sale of subsidiary, net of cash -
acquired 19.2 - 19.2
Other investing activities (0.5) - - (0.5)
--------------- --------------- --------------- ---------------
Net cash provided by investing activities (0.5) 11.6 - 11.1
Financing Activities:
Net short term repayments - (5.6) - (5.6)
Principal repayments on pre-petition debt (183.3) - - (183.3)
Principal borrowings on pre-petition debt 230.0 - - 230.0
Borrowings on DIP facility 60.0 - - 60.0
DIP facility financing costs (3.7) - - (3.7)
Net receivables financed (repayments) (34.3) (23.7) - (58.0)
Debt financing costs (2.1) - - (2.1)
--------------- --------------- --------------- ---------------
Net cash provided by financing activities 66.6 (29.3) 37.3
Effect of exchange rate changes on cash - 0.1 - 0.1
--------------- --------------- --------------- ---------------
Net increase in cash and cash equivalents 0.1 15.9 - 16.0
Cash and cash equivalents - beginning of period - 6.2 - 6.2
--------------- --------------- --------------- ---------------
Cash and cash equivalents - end of period $ 0.1 $ 22.1 $ - $ 22.2
=============== =============== =============== ===============
16
Note 17--Restated Financials
- ----------------------------
As described in Note 1, the consolidated financial statements as of May
31, 2002 and 2001 and for the three months and nine months ended May 31, 2002
and 2001 have been restated. These statements are unaudited. A review of the
consolidated financial statements for the three and nine month periods ended
May 31, 2001 has not been performed by the Company's independent accountants.
A summary of the effects of the restatements follows:
APW Ltd.
Consolidated Statement of Operations
(Dollars in millions, except per share data)
For the 3 Months Ended May 31, 2002 (Unaudited)
-----------------------------------------------
Previously
Reported Adjustments As Restated
---------- ----------- -----------
Net sales $ 221.9 $ -- $ 221.9
Costs of products sold 209.3 1.0 210.3
------- ------- -------
Gross profit 12.6 (1.0) 11.6
Engineering, selling and administrative expenses 44.0 (.3) 43.7
Amortization of intangible assets 3.8 -- 3.8
Restructuring charges 4.7 -- 4.7
------- ------- -------
Operating loss (39.9) (.7) (40.6)
Reorganization expenses 21.7 -- 21.7
Net financing costs 14.0 -- 14.0
Other income, net (1.8) -- (1.8)
------- ------- -------
Loss before income tax expense (73.8) (.7) (74.5)
Income tax expense -- -- --
------- ------- -------
Net loss $ (73.8) $ (.7) $ (74.5)
======= ======= =======
Basic and diluted loss per share:
Loss per share $ (1.84) $ (.02) $ (1.86)
Weighted average common shares outstanding 40,056 40,056
17
APW Ltd.
Consolidated Statement of Operations
(Dollars in millions, except per share data)
For the 9 Months Ended May 31, 2002 (Unaudited)
-----------------------------------------------
Previously
Reported Adjustments As Restated
---------- ----------- -----------
Net sales $ 642.6 $ -- $ 642.6
Costs of products sold 592.5 3.0 595.5
------- ------ -------
Gross profit 50.1 (3.0) 47.1
Engineering, selling and administrative expenses 135.5 (.8) 134.7
Amortization of intangible assets 407.5 -- 407.5
Restructuring charges 22.2 -- 22.2
Gain on sale of subsidiary (8.2) -- (8.2)
------- ------ -------
Operating loss (506.9) (2.2) (509.1)
Reorganization expenses 21.7 -- 21.7
Net financing costs 44.9 -- 44.9
Other income, net (2.3) -- (2.3)
------- ------ -------
Loss before income tax expense (571.2) (2.2) (573.4)
Income tax expense 28.1 (3.7) 31.8
------- ------ -------
Net loss $(599.3) $ (5.9) $(605.2)
======= ====== =======
Basic and diluted loss per share:
Loss per share $(14.96) $ (.15) $(15.11)
Weighted average common shares outstanding 40,052 -- 40,052
18
APW Ltd.
Consolidated Balance Sheet
(Dollars in millions)
May 31, 2002 (Unaudited)
------------------------------------
Previously
Reported Adjustments As Restated
---------- ----------- -----------
ASSETS
- ------
Current assets
Cash and cash equivalents $ 24.2 $ (2.0) $ 22.2
Accounts receivable, net 132.5 (.1) 132.4
Inventories 97.9 (7.3) 90.6
Prepaid expenses 16.7 (.3) 16.4
Deferred income taxes .5 -- .5
------ ------ -------
Total current assets 271.8 (9.7) 262.1
Property, plant and equipment 390.8 -- 390.8
Less: Accumulated depreciation (186.0) -- (186.0)
------- ------ -------
Net property, plant and equipment 204.8 -- 204.8
Goodwill, net 299.2 -- 299.2
Other intangibles, net 3.6 -- 3.6
Other assets 52.4 .2 52.6
------- ------ -------
Total assets $ 831.8 $ (9.5) $ 822.3
======= ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Short-term borrowings $ -- $ -- $ --
Trade accounts payable 81.8 1.2 83.0
Debtor-in-possession financing 60.0 -- 60.0
Accrued compensation and benefits 25.9 .7 26.6
Income taxes payable 41.1 -- 41.1
Other current liabilities 46.8 .5 47.3
------- ------ -------
Total current liabilities 255.6 2.4 258.0
Long-term debt 1.3 -- 1.3
Other long-term liabilities 34.0 -- 34.0
Liabilities subject to compromise 689.7 -- 689.7
Debtor-in-possession warrants 25.5 -- 25.5
Shareholders' equity
Common stock .4 -- .4
Share premium 679.4 -- 679.4
Accumulated deficit (827.2) (11.9) (839.1)
Accumulated other comprehensive loss (26.9) -- (26.9)
------- ------ -------
Total shareholders' equity (174.3) (11.9) (186.2)
------- ------ -------
Total liabilities and shareholders' equity $ 831.8 $ (9.5) $ 822.3
======= ====== =======
19
APW Ltd.
Consolidated Condensed Statement of Cash Flows
(Dollars in millions)
For the 9 Months Ended May 31, 2002 (Unaudited)
-----------------------------------------------
Previously
Reported Adjustments As Restated
Net loss $ (599.3) $(5.9) $ (605.2)
Net cash used in operating activities (32.8) .3 (32.5)
Net cash provided by investing activities 11.1 -- 11.1
Net cash provided by financing activities 37.3 -- 37.3
Effect of exchange rate changes on cash .1 -- .1
Net increase in cash and cash equivalents 15.7 .3 16.0
Cash and cash equivalents-beginning of year 8.5 (2.3) 6.2
Cash and cash equivalents-end of year $ 24.2 $(2.0) $ 22.2
20
APW Ltd.
Consolidated Statement of Operations
(Dollars in millions, except per share data)
For the 3 Months Ended May 31, 2001 (Unaudited)
-----------------------------------------------
Previously
Reported Adjustments As Restated
---------- ----------- -----------
Net sales $300.2 $ -- $300.2
Costs of products sold 268.4 1.7 270.1
------ ------ ------
Gross profit 31.8 (1.7) 30.1
Engineering, selling and administrative expenses 67.2 -- 67.2
Amortization of intangible assets 7.6 -- 7.6
Restructuring charges 12.5 -- 12.5
------ ------ ------
Operating loss (55.5) (1.7) (57.2)
Net financing costs 15.3 -- 15.3
Other expense, net 1.0 -- 1.0
------ ------ ------
Loss before income tax benefit (71.8) (1.7) (73.5)
Income tax benefit (17.1) (.6) (17.7)
------ ------ ------
Net loss $(54.7) $(1.1) $(55.8)
====== ====== ======
Basic and diluted loss per share:
Loss per share $(1.37) $(.02) $(1.39)
Weighted average common shares outstanding 40,038 -- 40,038
21
APW Ltd.
Consolidated Statement of Operations
(Dollars in millions, except per share data)
For the 9 Months Ended May 31, 2001 (Unaudited)
-----------------------------------------------
Previously
Reported Adjustments As Restated
---------- ----------- -----------
Net sales $ 977.5 $ -- $ 977.5
Costs of products sold 791.6 5.0 796.6
------- ------- -------
Gross profit 185.9 (5.0) 180.9
Engineering, selling and administrative expenses 180.4 -- 180.4
Amortization of intangible assets 20.0 -- 20.0
Restructuring charges 12.5 -- 12.5
Loss on sale of subsidiary 2.7 -- 2.7
------- ------- -------
Operating loss (29.7) (5.0) (34.7)
Net financing costs 29.2 -- 29.2
Other expense, net 2.0 -- 2.0
------- ------- -------
Loss before income tax benefit (60.9) (5.0) (65.9)
Income tax benefit (13.0) (1.8) (14.8)
------- ------- -------
Net loss $ (47.9) $ (3.2) $ (51.1)
======= ======= =======
Basic and diluted loss per share:
Loss per share $ (1.21) $ (.08) $ (1.29)
Weighted average common shares outstanding 39,551 -- 39,551
22
APW Ltd.
Consolidated Condensed Statement of Cash Flows
(Dollars in millions)
For the 9 Months Ended May 31, 2001 (Unaudited)
-----------------------------------------------
Previously Adjustments As Restated
Reported
Net loss $ (47.9) $(3.2) $(51.1)
Net cash used in operating activities (34.7) (1.9) (36.6)
Net cash used in investing activities (322.2) -- (322.2)
Net cash provided by financing activities 364.4 -- 364.4
Effect of exchange rate changes on cash .5 -- .5
Net increase in cash and cash equivalents 8.0 (1.9) 6.1
Cash and cash equivalents-beginning of year .6 .1 .7
Cash and cash equivalents-end of year $ 8.6 $(1.8) $ 6.8
23
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
This amendment on Form 10-Q/A #1 amends Items 1 and 2 of the Quarterly Report of
APW Ltd. (the "Company") on Form 10-Q previously filed for the three months and
nine months ended May 31, 2002 and 2001. This Quarterly Report on Form 10-Q/A #1
is filed in connection with the Company's restatement of its financial
statements as of August 31, 2001 and 2000 and for the years ended August 31,
2001, 2000 and 1999 and for the quarters ended May 31, 2002, February 28, 2002,
November 30, 2001, May 31, 2001, February 29, 2001 and November 30, 2000.
Financial statement information and related disclosures included in this amended
filing reflect, where appropriate, changes as a result of the restatements. All
other information contained in this Quarterly Report on Form 10-Q/A #1 is as of
the date referenced for such information in the original filing or, if no date
is referenced for information in the original filing, as of the date of such
filing.
The following discussion of our financial condition and our results of
operations should be read in conjunction with our accompanying unaudited
condensed consolidated financial statements and related notes thereto.
Overview
APW Ltd. is a leading global technically enabled manufacturing services
provider, focused on designing and integrating large electronic enclosure
products. We have the capabilities to design and manufacture various subsystems
for electronic products, including enclosures, power supplies, thermal
management systems, printed circuit board assemblies, and cabling, either as
individual subsystems or as integrated custom systems. We provide a wide range
of integrated design, manufacturing and logistics services to customers,
including product design, supply chain management, manufacturing, assembly,
testing and drop-ship services. Operating in over 30 locations throughout North
America, South America, Europe and Asia, we provide our solutions and services
to original equipment manufacturers, primarily in the communications (datacom
and telecom), computing (enterprise hardware - large servers, large data
storage, networking) and Internet (application service providers, Internet
service providers and web hosting) markets. Our customers include industry
leaders such as Applied Materials, Cisco, Compaq, Cymer, EMC, Ericsson, Fujitsu,
Hewlett-Packard, IBM, Lucent, Marconi, Motorola, NCR, Nortel Networks and Sun
Microsystems.
Reorganization Under Chapter 11
On May 16, 2002, APW Ltd., (in provisional liquidation) (herinafter
referred to as "APW Ltd.", "APW" or "the Company"), a Bermuda company, filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York ("Bankruptcy Court") (Case No. 02-12335). The proceeding
involved only APW Ltd., the Bermuda company, and Vero Electronics, Inc., a
non-operating entity and subsidiary of APW Ltd. (Case No. 02-12334). All other
subsidiaries of the Company were excluded from the proceeding and continue to
conduct business with customers and suppliers in the ordinary course. The
Company will continue to operate its business as a debtor-in-possession under
the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code. The bankruptcy proceedings are being jointly
administered under Case No. 02-12334 (PCB).
On May 30, 2002, a proceeding (the "Bermuda Proceeding") was commenced
pursuant to the Companies Act 1981 with respect to APW Ltd. in the Bermuda
Supreme Court in connection with a winding-up petition. One of the purposes of
the filing was the imposition of a statutory stay preventing third parties from
continuing or taking actions against APW in Bermuda. On May 30, 2002, the
Bermuda court appointed Malcolm L. Butterfield of KPMG Bermuda and Philip W.
Wallace of KPMG, London, England as joint provisional liquidators of APW Ltd.
(or, as referred to herein, the JPLs) with limited supervisory powers. The
appointment of the JPL's and statutory stay enabled the JPL's to perform
supervisory and oversight of the management of APW while reviewing the Plan of
reorganization with a view to its treatment of creditors. On July 22, 2002, the
JPLs were granted various powers, including the power to authorize the sale of
any business, operation, subsidiary, division or other significant asset of APW
Ltd.
We decided to pursue reorganization under Chapter 11 of the Bankruptcy
Code based upon the certainty of the elimination of pre-petition indebtedness
and as a consequence the ability of the Company to emerge from bankruptcy
significantly deleveraged. As a debtor-in-possession, APW Ltd. is authorized to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the approval of the Bankruptcy
Court, after notice and an opportunity for a hearing.
Confirmation of Plan of Reorganization
On July 24, 2002 the Bankruptcy Court entered an order confirming APW
Ltd.'s and Vero's Amended and Restated Plan of Reorganization dated June 19,
2002 (as modified, amended or supplemented, the "Plan"). APW Ltd. emerged on
July 31, 2002. A copy of the Plan is attached hereto as Exhibit 2.1(b).
24
Pursuant to the terms of the Plan, subject to the approval of the joint
provisional liquidators (the "JPLs") appointed in the Bermuda Proceeding and, if
required, the approval of the Bermuda Supreme Court, all of the assets and
liabilities which were to be retained by APW Ltd. under the original Plan will
be transferred to AWP Ltd. ("AWP"), a newly formed Bermuda company, including
the right to use the name "APW Ltd.," which will be become the
successor-in-interest to APW Ltd. After the consummation of the Plan, APW Ltd.
will change its name to BQX Ltd. and AWP Ltd. will change its name to APW Ltd.
The above name changes became effective on July 31, 2002.
In addition, as of July 31, 2002 the effective date of the Plan, AWP (the
successor in interest to APW Ltd.) issued under the Plan the following:
. New Secured Notes in the aggregate principal amount of $100 million
issued to its senior secured lenders,
. 1,000,000 common shares of AWP (the successor in interest to APW Ltd.)
(the "APW Common Shares") issued to its senior secured lenders which
represents 100% of the outstanding common shares of AWP after the
consummation of the Plan,
. Warrants to purchase up to 60,606 APW Common Shares at an exercise
price of $448.95 per share issued to the current equity holders of APW
Ltd., and
. Warrants to purchase up to 303,030 APW Common Shares at an exercise
price of $0.02 per share issued to lenders under the Credit Facility
(defined below).
As of July 31, 2002, there were approximately 40.8 million common shares
of APW Ltd. outstanding. Under the Plan, holders of APW Ltd. common shares
received (a) warrants representing the right to purchase 60,606 APW Common
Shares as stated above and (b) retain existing common shares in APW Ltd. (which
as a practical matter will be liquidated and no distribution is expected to
shareholders). Subsequent to the effective date of the Plan, APW Ltd. will be
dissolved, liquidated or wound-up by joint provisional liquidators in connection
with a proceeding in Bermuda or otherwise pursuant to applicable Bermuda law,
and no assets are expected to be distributed to current shareholders.
After the consummation of the Plan, AWP Ltd. (as successor to APW Ltd.)
is expected to have approximately 1.8 million authorized common shares, par
value $0.02 per share, of which 1,000,000 common shares will be outstanding. All
such 1,000,000 shares will be issued as of the consummation of the Plan.
The board of directors of AWP Ltd. (as successor to APW Ltd.) after
consummation of the Plan are to consist of: Richard G. Sim, W. Peter Douglas,
Christopher S. Brothers, Stephen A. Kaplan, Michael P. Harmon, J. Richard Budd
and Toni J. Smith.
In addition, the Plan provides for a new management incentive plan for
issuance of options to purchase to key employees or the opportunity for such key
employees to purchase 10% of the APW Common Shares on a fully diluted basis (or
151,515 shares)
As of May 31, 2002, APW Ltd., the Bermuda company, and Vero Electronics,
Inc., a non-operating entity and subsidiary of APW Ltd., had assets and
liabilities of $1.5 billion and $0.8 billion, respectively.
The Credit Facility
Concurrent with the Chapter 11 filing, the Company entered into a new $110
million debtor-in-possession credit facility ("Credit Facility") to provide for
the payment of permitted pre-petition claims, working capital needs, letters of
credit and other general corporate purposes. The Credit Facility requires that
we maintain certain financial covenants and restrict liens, indebtedness,
capital expenditures, dividend payments and sale of assets. Upon emergence from
the Chapter 11 proceeding, the Credit Facility will be extended until November
15, 2003 with respect to $90.0 million of the Credit Facility and May 15, 2004
with respect to $20.0 million of the Credit Facility.
Fresh Start Accounting
As a result of the bankruptcy, the Company will adopt fresh start
accounting pursuant to guidance provided by the American Institute of Certified
Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code", as of July 31, 2002. In accordance
with the principles of fresh start accounting, the Company will adjust the
carrying values of its assets and liabilities to their fair values as of July
31, 2002. The application of fresh start accounting will result in material
changes to the carrying values of the Company's assets and liabilities.
Going Concern
Following its emergence from the Chapter 11 proceeding, the ability of APW
Ltd., the successor company, to continue as a going concern is predicated upon,
among other things, compliance with the provisions of the Credit Facility and
the term loan agreement related to the $100 million in new secured notes issued
under the Plan and the ability to generate cash flows from operations and obtain
25
financing sources sufficient to satisfy our future obligations.
Significant Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. These policies and methods are the most important to the
portrayal of the Company's financial condition and results, and require
management's most difficult, subjective and complex judgments. The following is
a brief discussion of the more significant accounting policies and methods used
by APW Ltd.
General
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The most significant estimates and assumptions relate to the
recoverability of long-lived assets including goodwill and other intangibles,
the realization of deferred income taxes and the adequacy of restructuring
reserves. Actual amounts could differ significantly from these estimates.
Recoverability of long-lived assets, goodwill and other intangible assets
We periodically assess the impairment of long-lived assets, goodwill and
other identifiable intangible assets under SFAS No. 121 and Accounting
Principles Board Opinion No. 17 whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:
.. significant underperformance relative to expected historical or forecasted
future operating results;
.. significant changes in the manner of our use of the acquired assets or the
strategy for our overall business;
.. commitments by management to close certain facilities that are made as part of
a company-wide restructuring initiative;
.. significant negative industry or economic trends;
.. significant decline in our stock price for a sustained period; and
.. our market capitalization relative to net book value.
Upon the existence of one or more of the above indicators of impairment,
we estimate the future undiscounted cash flows and compare such estimates to the
related asset book value. If it is determined that these estimated future
undiscounted cash flows will not be sufficient to enable the recovery of the
related asset book value, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model.
Prospectively, we must continue to assess the recoverability of the
Company's long-lived assets, goodwill and other intangibles. In so doing, we
will be required to make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. While we
believe our estimates are reasonable, if our estimates or their related
assumptions change in the future, we may be required to record additional
impairment charges. Assumptions we make regarding estimated future cash flow
include: (i) future revenue growth (and mix); (ii) future composition of cost of
products sold and operating expenses; and (iii) future capital expenditure
requirements.
Accounting for income taxes
As part of the process of preparing our consolidated financial statements,
we are required to estimate our income taxes in each of the tax jurisdictions in
which we operate. This process involves us estimating our current tax liability
together with assessing temporary differences resulting from differing treatment
of items for tax and book purposes. These differences result in deferred tax
assets and liabilities, which are included within our consolidated balance
sheet.
26
Significant management judgment is required in determining our provision
for income taxes, deferred tax assets and liabilities and any related valuation
allowance recorded against our net deferred tax assets. Generally accepted
accounting principles require that we record a valuation allowance against our
deferred tax assets if it is "more likely than not" that we will not be able to
utilize them to offset future taxes.
Restructuring Reserves
Restructuring charges as presented in our Condensed Consolidated Statement
of Operations are comprised of severance and lease exit costs. These charges are
recognized in accordance with Emerging Issues Task Force ("EITF") 94-3 and Staff
Accounting Bulleting ("SAB") 100. Our accruals for lease exit obligations
stemming from closed facilities are based on management's best estimate of the
total future cash flows required to exit such facilities. Actual costs could
differ materially due to factors such as our ability to secure subleases, the
creditworthiness of sub-lessees and our success at negotiating early termination
agreements with our lessors. These factors are significantly dependent on the
general health of the economy and the resultant demand for commercial property.
Unaudited Results of Operations (As Restated)
As a Percentage As a Percentage
of Net Sales of Net Sales
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
May 31, May 31, May 31, May 31,
-------------------------------------- -------------------------------------
2002 2001 2002 2001 2002 2001 2002 2001
-------------------------------------- -------------------------------------
(in millions) (in millions)
Net sales $221.9 $300.2 100.0% 100.0% $ 642.6 $ 977.5 100.0% 100.0%
Gross profit 11.6 30.1 5.2% 10.0% 47.1 180.9 7.3% 18.5%
Engineering, selling and
administrative expenses 43.7 67.2 19.7% 22.4% 134.7 180.4 21.0% 18.5%
Amortization of intangibles 3.8 7.6 1.7% 2.5% 407.5 20.0 63.4% 2.0%
Restructuring charges 4.7 12.5 2.1% 4.2% 22.2 12.5 3.5% 1.3%
(Gain) loss on sale of
subsidiary - - - - (8.2) 2.6 (1.3%) 0.3%
Operating (loss) earnings (40.7) (57.1) (18.3%) (19.0%) (509.2) (34.7) (79.2%) (3.5%)
Reorganization items 21.7 - 9.8% - 21.7 - 3.4% -
Net financing costs 14.0 15.4 6.3% 5.1% 44.9 29.1 7.0% 3.0%
Other (income) expense, net (1.9) 1.0 (0.9%) 0.4% (2.3) 2.0 (0.4%) 0.2%
Earnings (loss) before
income taxes (74.5) (73.5) (33.6%) (24.5%) (573.4) (65.9) (89.2%) (6.7%)
27
Three Months Ended May 31, 2002 Compared to Three Months Ended May 31, 2001
Net Sales
Net sales for the fiscal 2002 third quarter were $221.9 million compared to
$300.2 million in the fiscal 2001 third quarter, a decrease of 26.1%.
Sequentially from the second quarter and excluding the effect of the divesture
completed in the second quarter, net sales increased 13.6% in the fiscal 2002
third quarter. Net sales in the fiscal 2002 third quarter versus the prior year
period were negatively impacted by the continued broad based slow down in the
technology sector which has resulted in reduced demand for some of our customers
products and in turn has negatively impacted the demand those customers have for
our products and services.
Our fiscal 2002 third quarter sales were influenced by the exclusion of a
divestiture completed in the second quarter of fiscal 2002. Excluding the effect
of this disposition, net sales decreased 23.7% in the fiscal 2002 third quarter
when compared to sales in the fiscal 2001 third quarter.
Geographic Sales
Three Months Ended
May 31,
--------------------------
2002 2001 Change
-----------------------------------
(In millions)
Americas $ 113.5 $ 180.5 (37.1%)
Europe and Asia 108.4 119.7 ( 9.4%)
-----------------------------------
Total $ 221.9 $ 300.2 (26.1%)
===================================
Net sales in the Americas for the fiscal 2002 third quarter were $113.5
million compared to $180.5 million in the fiscal 2001 third quarter, a decrease
of 37.1%. Our fiscal 2002 third quarter sales were influenced by the disposition
of a subsidiary that was completed in the second quarter of fiscal 2002.
Excluding this disposition, net sales decreased 33.6% in the fiscal 2002 third
quarter when compared to net sales in the fiscal 2001 third quarter. Net sales
in Europe and Asia for the fiscal 2002 third quarter were $108.4 million
compared to $119.7 million in the fiscal 2001 third quarter, a decrease of 9.4%.
Gross Profit
Gross profit for the fiscal 2002 third quarter was $11.6 million compared
to $30.1 million in the fiscal 2001 third quarter, a decrease of 61.5% As a
percentage of net sales, the fiscal 2002 third quarter gross profit was 5.2%
compared to 10.0% in the fiscal 2001 third quarter. The decrease in gross profit
as a percentage of net sales is primarily a result of a combination of factors:
(i) under-absorption of costs resulting from the broad based slow down in the
technology sector which significantly reduced sales volumes; (ii) a shift in
sales mix to programs with increased levels of systems integration, which
typically have lower margins; and (iii) a charge of $4.6 million in the fiscal
2002 third quarter to increase our inventory reserves due to continued weakness
in the computing, telecommunication and semi-conductor markets.
28
Operating Expenses
Operating expenses in the fiscal 2002 third quarter were $43.7 million
compared to $67.2 million in the fiscal 2001 third quarter. As a percentage of
net sales, operating expenses were 19.7% for the fiscal 2002 third quarter,
compared to 22.4% for the fiscal 2001 third quarter. Our operating expenses
consist primarily of engineering, selling, marketing, finance, information
technology and general administrative expenses. Operating expenses have been
reduced by $23.5 million from the fiscal 2001 third quarter. The reduction in
operating expenses is primarily due to the restructuring and cost reduction
efforts we have made. In addition, fewer charges associated with the
restructuring have been recorded in the fiscal 2002 third quarter as compared to
the fiscal 2001 third quarter.
Amortization of Intangible Assets
In the fiscal 2002 third quarter, we performed an impairment assessment of
our long-lived assets due to continuing deterioration of our operating results
as compared with previously developed forecasts. As a result of the assessment,
no additional impairment charge to reduce the carrying value of goodwill and
other intangible assets was recorded in the third quarter. Total amortization
expense in the fiscal 2002 third quarter was $3.8 million compared to $7.6
million in the fiscal 2001 third quarter.
Restructuring and Other Charges
Beginning in fiscal 2001 and continuing through the fiscal 2002 third
quarter, management has developed formal plans to exit certain facilities and
involuntarily terminate employees. Management's plans to exit certain facilities
included the identification of manufacturing and sales facilities for closure
and the transfer of the related operations to other facilities. Management
currently anticipates that the facility closures and all related activities will
be substantially complete within one year of the commitment dates of the
respective exit plans.
A restructuring charge totaling $4.7 million was recorded during the fiscal
2002 third quarter. The restructuring charge primarily relates to the
rationalization of two facilities and the involuntary termination of both
salaried and hourly employees. Severance costs associated with the involuntary
termination of employees totaled $1.8 million. Lease exit costs resulting from
facility closures totaled $2.9 million. In addition to the restructuring charge
totaling $4.7 million, we incurred $9.3 million of other costs related to
facility closures (primarily equipment impairment charges). Of the $14.0 million
in rationalization charges, $6.5 million are cash costs and $7.5 million are
non-cash costs. Of the $6.5 million in cash costs, only $1.7 million are
incremental cash costs that would not have been incurred in the next 12 months
without undertaking these restructuring actions.
Since commencing our restructuring plans in the third quarter of fiscal
2001, we have recorded restructuring and restructuring related charges totaling
$107.0 million. Our restructuring program was implemented to reduce our
aggregate fixed cost structure to mitigate the revenue decline we began to
experience as a result of a weak economic environment in the computing,
telecommunication, and semi-conductor markets we serve. We have rationalized 20
facilities through consolidating the operations of closed locations into
existing larger locations, thus eliminating fixed facility costs and redundant
headcount and better leveraging our existing infrastructure. Through May 31,
2002, we have spent approximately $30.2 million on cash restructuring, with only
approximately $5.7 million of the total being incremental cash costs that would
not have been incurred in the next 12 months without undertaking these
restructuring actions.
29
Operating Loss
We incurred an operating loss of $40.7 million in the fiscal 2002 third
quarter compared to an operating loss of $57.1 million in the fiscal 2001 third
quarter. The operating loss was primarily due to: (i) a $4.7 million
restructuring charge; (ii) $9.3 million of costs related to facility closures
(primarily equipment impairment charges); and (iii) reduced sales volumes,
driven by the broad based slow down in the technology sector, which resulted in
the under-absorption of costs during the fiscal 2002 third quarter.
Financing Costs
Financing costs in the fiscal 2002 third quarter were $14.0 million
compared to $15.4 million in the fiscal 2001 third quarter. Included in the
fiscal 2002 and fiscal 2001 third quarter financing costs is $4.5 million and
$0.5 million, respectively, of non-cash amortization of capitalized costs and
the value of warrants issued as a result of amending our credit facilities
during fiscal 2001 and through the first nine months of fiscal 2002. Also
included in the fiscal 2001 third quarter financing costs is $0.9 million to
write-off deferred financing costs. As a result of the Chapter 11 filing, we
have not accrued any interest expense on pre-petition debt since the filing
date.
Income Tax Expense
We did not record additional net tax benefit in the fiscal 2002 third
quarter compared to a $17.6 million income tax benefit in the fiscal 2001 third
quarter. Included in our fiscal 2002 third quarter tax expense is a charge of
$39.9 million to increase our valuation allowance to $178.4 million at May 31,
2002. As a result of this charge, our net deferred tax asset balance was reduced
to $0.4 million at May 31, 2002. We will continue to record a valuation
allowance to offset any future income tax benefits until it is more likely than
not that we will be able to realize such benefits.
Nine Months Ended May 31, 2002 Compared to Nine Months Ended May 31, 2001
Net Sales
Net sales for the fiscal 2002 nine months were $642.6 million compared to
$977.5 million in the fiscal 2001 nine months, a decrease of 34.3%. Net sales in
the fiscal 2002 nine months were negatively impacted by the broad based slow
down in the technology sector which has resulted in reduced demand for some of
our customers products and in turn has negatively impacted the demand those
customers have for our products and services. In addition to the broad based
slow down in the technology sector, the terrorist attacks that took place on
September 11, 2001 have had an adverse impact on our business.
Our fiscal 2002 nine month sales were influenced by the inclusion of
acquisitions completed in the second quarter of fiscal 2001 and the exclusion of
a disposition completed in the second quarter of fiscal 2002. Excluding these
acquisitions and the disposition, net sales decreased 37.2% in the fiscal 2002
nine months when compared to sales in the fiscal 2001 nine months.
30
Geographic Sales
Nine Months Ended
May 31,
-----------------------
2002 2001 Change
----------------------------------
(In millions)
Americas $ 360.6 $ 599.6 (39.9%)
Europe and Asia 282.0 377.9 (25.4%)
--------------------------------
Total $ 642.6 $ 977.5 (34.3%)
==================================
Net sales in the Americas for the fiscal 2002 nine months were $360.6
million compared to $599.6 million in the fiscal 2001 nine months, a decrease of
39.9%. Our fiscal 2002 ninth month sales were influenced by the inclusion of
acquisitions completed in the second quarter of fiscal 2001 and the exclusion of
a disposition completed in the second quarter of fiscal 2002. Excluding these
acquisitions and the disposition, net sales decreased 45.1% in the fiscal 2002
nine months when compared to net sales in the fiscal 2001 nine months. Net sales
in Europe and Asia for the fiscal 2002 nine months were $282.0 million compared
to $377.9 million in the fiscal 2001 nine months, a decrease of 25.4%.
Gross Profit
Gross profit for the fiscal 2002 nine months was $47.1 million compared to
$180.9 million in the fiscal 2001 nine months, a decrease of 74.0%. As a
percentage of net sales, the fiscal 2002 nine months gross profit was 7.3%
compared to 18.5% in the fiscal 2001 nine months. The decrease in gross profit
as a percentage of net sales is primarily a result of a combination of factors:
(i) $24.8 million of costs related to facility closures (primarily equipment
write-offs) incurred in the fiscal 2002 nine months versus $19.1 million of
similar costs incurred in the fiscal 2001 nine months; (ii) under-absorption of
costs resulting from the broad based slow down in the technology sector which
significantly reduced sales volumes; and (iii) a shift in sales mix to programs
with increased levels of systems integration, which typically have lower
margins.
Operating Expenses
Operating expenses in the fiscal 2002 nine months were $134.7 million
compared to $180.4 million in the fiscal 2001 nine months. As a percentage of
net sales, operating expenses were 21.0% for the fiscal 2002 nine months,
compared to 18.5% for the fiscal 2001 nine months. Our operating expenses
consist primarily of engineering, selling, marketing, finance, information
technology and general administrative expenses. Operating expenses have been
reduced by $45.7 million from the fiscal 2001 nine months. The reduction in
operating expenses is primarily due to the restructuring and cost reduction
efforts we have made. Although operating expenses have been reduced from the
fiscal 2001 nine months, operating expenses as a percentage of net sales
increased due to the under-absorption of costs resulting from the broad based
slow down in the technology sector which significantly reduced sales volumes.
31
Amortization of Intangible Assets
During the third quarter of fiscal 2002, we performed an impairment
assessment of long-lived assets, which include property, plant and equipment,
goodwill and other intangible assets. The assessment was performed primarily due
to the reduced financial performance of the Company's operating results during
the third quarter of fiscal 2002 as compared with previously developed
estimates. As a result of the most recent assessment, we did not record any
additional impairment during the third quarter. During the second quarter, we
recorded a $391.6 million impairment charge to further reduce the carrying value
of goodwill and other intangible assets based on the impairment assessment
performed at that time. Total amortization expense, including the impairment
charge, in the fiscal 2002 nine months was $407.5 million compared to $20.0
million in the fiscal 2001 nine months. Excluding the impairment charge,
amortization for the fiscal 2002 nine months was $14.9 million compared to $20.0
million in the fiscal 2001 nine months.
Restructuring and Other Charges
Beginning in fiscal 2001 and continuing through the fiscal 2002 third
quarter, management has developed formal plans to exit certain facilities and
involuntarily terminate employees. Management's plans to exit certain facilities
included the identification of duplicate manufacturing and sales facilities for
closure and the transfer of the related operations to other facilities.
Management currently anticipates that the facility closures and all related
activities will be substantially complete within one year of the commitment
dates of the respective exit plans.
A restructuring charge totaling $22.2 million was recorded during the
fiscal 2002 nine months. The restructuring charge relates to the rationalization
of twelve facilities and the involuntary termination of both salaried and hourly
employees. Severance costs associated with the involuntary termination of
employees totaled $9.3 million. Lease exit costs resulting from facility
closures totaled $12.9 million. In addition to the restructuring charge totaling
$22.2 million, we incurred $28.3 million of other costs related to facility
closures (primarily equipment impairment charges). Of the $50.5 million in
rationalization charges, $26.3 million are cash costs and $24.2 million are
non-cash costs. Of the $26.3 million in cash costs, only $4.1 million are
incremental cash costs that would not have been incurred in the next 12 months
without undertaking these restructuring actions.
Since commencing our restructuring plans in the third quarter of fiscal
2001, we have recorded restructuring and restructuring related charges totaling
$107.0 million. Our restructuring program was implemented to reduce our
aggregate fixed cost structure to mitigate the revenue decline we began to
experience as a result of a weak economic environment in the computing,
telecommunication, and semi-conductor markets we serve. We have rationalized 20
facilities through consolidating the operations of closed locations into
existing larger locations, thus eliminating fixed facility costs and redundant
headcount and better leveraging our existing infrastructure. Through May 31,
2002 we have spent approximately $30.2 million on cash restructuring, with only
approximately $5.7 million of the total being incremental cash costs that would
not have been incurred in the next 12 months without undertaking these
restructuring actions.
32
Divestiture
On February 13, 2002, APW Ltd. completed the sale of its Zero Cases
division. Total consideration from the transaction was a net $19.2 million,
which resulted in a net book gain of $8.2 million.
Operating Loss
We incurred an operating loss of $509.2 million in the fiscal 2002 nine
months compared to an operating loss of $34.7 million in the fiscal 2001 nine
months. The operating loss was primarily due to: (i) a $391.6 million impairment
of goodwill and other intangible assets; (ii) a $22.2 million restructuring
charge; (iii) $28.3 million of costs related to facility closures (primarily
equipment impairment charges); and (iv) reduced sales volumes, driven by the
broad based slow down in the technology sector, which resulted in the
under-absorption of costs during the fiscal 2002 nine months.
Financing Costs
Financing costs in the fiscal 2002 nine months were $44.9 million compared
to $29.1 million in the fiscal 2001 nine months. Included in the fiscal 2002
nine months financing costs is $9.2 million of non-cash amortization of
capitalized fees and warrants issued as a result of amending our credit
facilities during fiscal 2001 and through the first nine months of fiscal 2002.
The increase in our net financing costs, excluding the $9.2 million of non-cash
amortization, is a result of the increase in our outstanding indebtedness to
fund acquisitions made in the second quarter of fiscal 2001, capital
expenditures, restructuring activities and operations.
Income Tax Expense
We recorded income tax expense in the fiscal 2002 nine months of $31.8
million compared to $14.8 million income tax benefit in the fiscal 2001 nine
months. Included in our fiscal 2002 nine months tax expense is a charge of
$168.6 million to increase our valuation allowance to $178.4 million at May 31,
2002. As a result of this charge, our net deferred tax asset balance was reduced
to $0.4 million at May 31, 2002. We will continue to record a valuation
allowance to offset any future income tax benefits until it is more likely than
not that we will be able to realize such benefits.
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents totaled $22.2 million at May 31, 2002 and $6.2
million at August 31, 2001.
Net cash used in operating activities in the fiscal 2002 nine months was
$32.5 million compared to $36.6 million used in the fiscal 2001 nine months. The
net use of cash in the fiscal 2002 nine months was primarily due to
restructuring and related payments totaling $19.2 million. Other net uses of
cash included the funding of operating losses and payments to professional
advisors offset by a source of cash from primary working capital (receivables,
inventory, and payables).
33
Net cash provided by investing activities for the fiscal 2002 nine months
was $11.1 million compared to net cash used in investing activities of $322.3
million for the fiscal 2001 nine months. The net source of cash for the fiscal
2002 nine months was primarily due to $19.2 million of proceeds on the sale of a
subsidiary offset by capital expenditures of $16.1 million.
Net cash provided by financing activities for the fiscal 2002 nine months
was $37.3 million compared to $364.4 million provided in the fiscal 2001 nine
months. The net cash provided by financing activities for the fiscal 2002 nine
months primarily came from net borrowings on our long-term debt facility of
$46.8 million and borrowings on the DIP financing facility of $60.0 million,
which was offset by $5.6 million in payments on short-term borrowings, $5.8
million in debt financing costs and a reduction in sold receivables of $58.0
million.
Off-Balance Sheet Arrangements, Contractual Obligations and Commercial
Commitments
On January 22, 2002, the SEC issued FR-61, "Commission Statement about
Management's Discussion and Analysis of Financial Condition and Results of
Operations." FR-61 indicates that registrants should consider the need to
provide disclosures concerning transactions, arrangements and other
relationships with unconsolidated entities or other persons that are reasonably
likely to affect materially liquidity or the availability of, or requirements
for capital resources as well as disclosures concerning a registrant's
obligations and commitments to make future payments under contracts, such as
debt, leases, and contingent commitments. In response to this release, we have
outlined our off-balance sheet arrangement as well as our contractual
obligations and commercial commitments as they relate to the Company.
Accounts Receivable Facility
APW North America Inc., a wholly owned subsidiary of APW Ltd., and certain
domestic subsidiaries (collectively, "Originators") previously sold trade
accounts receivable to Applied Power Credit Corporation ("APCC"), a
wholly-owned, limited purpose, consolidated subsidiary of the Company. APCC is a
separate corporate entity that would sell participating interests in its pool of
accounts receivable to financial institutions ("Purchasers"). The Purchasers, in
turn, received an ownership and security interest in the pool of receivables.
Participation interests in new receivables generated by the Originators were
purchased by APCC and resold to the Purchasers on a revolving basis as
collections reduced previously sold participation interests. The accounts
receivable sold to Purchasers were reflected as a reduction of receivables in
the Condensed Consolidated Balance Sheets. APCC had no risk of credit loss on
such receivables as they were sold without recourse. APW North America Inc.
retained collection and administrative responsibilities on the participation
interests sold as servicer for APCC and the Purchasers. Further, APCC is a
bankruptcy remote corporation, and as such, the assets held by APCC were not
available to satisfy the claims of APW Ltd.'s creditors until all of the amounts
owed to the Purchasers had been paid in full.
The Accounts Receivable Facility described above represented "off-balance
sheet financing." This resulted in assets being removed from our balance sheet,
rather than incurring a liability similar to that of traditional financing. The
receivables were sold on a revolving basis where new eligible receivables
replaced collected receivables on a daily basis. On May 17, 2002, this facility
was terminated in conjunction with the Chapter 11 filing. On that date, $34.5
million of accounts receivable previously sold under the Facility were
repurchased by the Company and to the extent they were still outstanding at May
31, 2002, are included in the balance sheet at that date. At August 31, 2001,
$58.0 million of this facility was utilized and those receivables were excluded
from the balance sheet at that date.
Contractual Obligations and Commercial Commitments
We lease, through various subsidiaries, certain facilities and equipment
under various lease agreements generally over periods of one to twenty years.
Under most arrangements, we also pay the property taxes, insurance, maintenance
and expenses related to the leased properties. None of the leases have been
impaired as a result of the Chapter 11 filing. Future obligations on
non-cancelable operating leases in effect at May 31, 2002 are: $9.6 million for
the remainder of fiscal 2002, $25.5 million in fiscal 2003 and $164.2 million
thereafter. These amounts represent amounts that have previously been disclosed
in our Form 10-K for the twelve months ended August 31, 2001 as adjusted for the
current year's activity, primarily related to the rationalization of facilities
as part of the on-going restructuring program. Included in the May 31, 2002
Condensed Consolidated Balance Sheet are $12.1 million of lease exit reserves
that would
34
reduce the expense of our future obligations listed above. Total rental expense
under operating leases for the fiscal 2002 nine months was approximately $20.1
million.
Capitalization
Debt at May 31, 2002 totaled $726.3 million, of which $664.9 million is
included in Liabilities subject to compromise on the Condensed Consolidated
Balance Sheets, an increase of approximately $104.8 million from August 31,
2001. The increase in debt was primarily due to restructuring costs, capital
expenditures, the $58.0 million decrease in receivables sold under the accounts
receivable facility and the $60.0 million obtained from the DIP financing
facility, offset by $19.2 million of proceeds from the sale of a division.
Liquidity
On May 16, 2002, the Court approved and, the Company entered into a $110
million debtor-in-possession financing ("DIP financing facility") agreement with
certain members of its lender group. The DIP financing facility is comprised of
the following three tranches: (i) tranche A ($70 million) is collateralized by
US receivables and inventory at an interest rate of LIBOR plus 3.50%; (ii)
tranche B ($20 million) is collateralized by UK and Ireland property, plant and
equipment, receivables and inventory at an interest rate of LIBOR plus 4.25%;
and (iii) tranche C ($20 million) is collateralized by all other Company assets
at an interest rate of LIBOR plus 5.00%. The DIP financing facility has a stated
termination date of 180 days from May 16, 2002. Under the terms of the DIP
financing facility, upon emergence from bankruptcy, the termination date for
tranches A and B will be automatically extended to November 15, 2003, and the
termination date for tranche C will be automatically extended to May 15, 2004,
if the Company is unable to obtain and close refinancing in an amount that is
sufficient to refinance and pay in full all of the obligations. Initial proceeds
from the DIP financing facility were used to repurchase accounts receivable that
had been sold under a previous facility. The DIP financing facility converts
into an exit facility upon APW Ltd.'s emergence from Chapter 11. At May 31,
2002, all outstanding borrowings under the DIP financing facility were from
tranche A. The LIBOR rate at May 31, 2002 was 1.84%.
At May 31, 2002, we had $50.0 million of borrowings available under the DIP
financing facility and $22.2 million in cash.
In December 2001, a subsidiary of the Company received notification from
the lessor of two of its aircraft that the lease contracts ("contracts") for the
two aircraft would be terminated effective March 4, 2002. In conjunction with
the termination, the terms of the contracts would require the Company to pay the
lessor approximately $12.3 million for the two aircraft and, in exchange, the
lessor would convey all of its rights, title and interest in the two aircraft to
the Company. The Company is actively working with the lessor to identify a third
party which would purchase and/or lease the two aircraft, thereby eliminating
the Company's $12.3 million payment obligation. The lessor has informed the
Company that it is willing to continue to work with the Company to find third
party alternatives to eliminate the cost of terminating this contract, provided
the Company continues to make scheduled lease payments. As such, the Company has
recorded a charge of $2.0 million during the second quarter related to its
decision to discontinue use of the related aircraft. This charge reflects
management's current estimates of the cost of the ultimate disposition of the
two aircraft.
New Accounting Pronouncements
In June 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. SFAS No. 141 was effective for us as of
July 31, 2001. SFAS No. 142 will be effective for us for existing goodwill and
intangible assets on September 1, 2002 or upon emergence from the Chapter 11
reorganization, expected on or around August 1, 2002, whichever is earlier. We
are currently evaluating the impact of SFAS No. 142.
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS No. 143 sets forth the financial accounting and reporting to be
followed for obligations associated with the retirement of tangible
35
long-lived assets and the associated asset retirement costs. SFAS No. 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are to
be capitalized as part of the carrying amount of the long-lived asset.
Subsequently, the recorded liability will be accreted to its present value and
the capitalized costs will be depreciated. We are required to adopt SFAS No. 143
on September 1, 2002 or upon emergence from the Chapter 11 reorganization,
expected on or around August 1, 2002, whichever is earlier. We are currently
evaluating the impact of SFAS No. 143.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. SFAS No. 144 modifies and expands the financial
accounting and reporting for the impairment or disposal of long-lived assets
other than goodwill, which is specifically addressed by SFAS No. 142. SFAS No.
144 maintains the requirement that an impairment loss be recognized for a
long-lived asset to be held and used if its carrying value is not recoverable
from its undiscounted cash flows, with the recognized impairment being the
difference between the carrying amount and fair value of the asset. With respect
to long-lived assets to be disposed of other than by sale, SFAS No. 144 requires
that the asset be considered held and used until it is actually disposed of but
requires that its depreciable life be revised in accordance with APB Opinion No.
20, "Accounting Changes". SFAS No. 144 also requires that an impairment loss be
recognized at the date a long-lived asset is exchanged for a similar productive
asset. We will be required to adopt SFAS No. 144 on September 1, 2002 or upon
emergence from the Chapter 11 reorganization, expected on or around August 1,
2002, whichever is earlier. We are currently evaluating the impact of SFAS No.
144.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was issued.
SFAS No. 145 rescinds the indicated statements and amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The Company
will be required to adopt SFAS No. 145 on September 1, 2002 or upon emergence
from the Chapter 11 reorganization, expected on or around August 1, 2002,
whichever is earlier. The Company is currently evaluating the impact of SFAS No.
145.
In June 2002, the FASB voted in favor of issuing SFAS No. 146, "Accounting
for Exit or Disposal Activities". SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". The scope of
SFAS No. 146 also includes (1) costs related to terminating a contract that is
not a capital lease and (2) termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. The Company will be required to adopt SFAS No,
146 for exit or disposal activities initiated after December 31, 2002, or for
exit or disposal activities initiated after emergence from the Chapter 11
reorganization, expected on or around August 1, 2002, whichever is earlier. The
Company is currently evaluating the impact of SFAS No. 146.
Forward-looking Statements and Cautionary Factors
Certain statements contained in this document, as well as statements in
other Company communications, which are not historical facts, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. The terms
"anticipate", "believe", "estimate", "expect", "objective", "plan", "project"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements are subject to inherent risks and uncertainties
that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements. In addition to the assumptions
and other factors referred to specifically in connection with such statements,
factors that may cause actual results or events to differ materially from those
contemplated by such forward-looking statements include, without limitation,
general economic conditions, market conditions in the computer, semiconductor,
telecommunication, and electronic industries in North America, South America,
Europe and Asia, market acceptance of existing and new products, successful
integration of acquisitions, competitive product and pricing pressures, foreign
currency risk, interest rate risk, the Company's ability to emerge from the
Chapter 11 proceedings, the Company's ability to access capital markets,
extension of forbearance of interest obligations and other factors that may be
referred to in APW Ltd.'s
36
reports filed with the Securities and Exchange Commission from time to time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, we
selectively use financial instruments.
Currency Risk - We have significant international operations. In most
instances, our products are produced at manufacturing facilities located near
the customer. As a result, significant volumes of finished goods are
manufactured in countries for sale into those markets. For goods purchased from
our affiliates, we denominate the transaction in the functional currency of the
producing operation.
We have adopted the following guidelines to manage our foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of
the buyer;
(ii) minimize the cost of hedging through the use of naturally
offsetting positions (borrowing in local currency), netting,
pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
Our identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of intercompany loans with foreign subsidiaries denominated
in foreign currencies. We periodically identify naturally occurring offsetting
positions and then may purchase hedging instruments to protect against
anticipated exposures. The Company had no such foreign currency hedging
instruments at May 31, 2002. Based on our overall currency rate exposure,
including derivative financial instruments and nonfunctional currency
denominated receivables and payables, a near-term 10% appreciation or
depreciation of the U.S. dollar would not have a significant effect on our
financial position, results of operations and cash flows over the next fiscal
year.
Interest Rate Risk - We periodically enter into interest rate swaps to
stabilize financing costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, we contract with a counter party to exchange the difference
between a fixed rate and a floating rate applied to the notional amount of the
swap. The effective portion of any gain or loss due to a change in the fair
value is initially recorded as a component of other comprehensive income (loss)
and subsequently reclassified into earnings when the hedged exposure affects
earnings. The fair value of our interest rate swap agreements was a liability of
$2.3 million and $2.4 million at May 31, 2002 and August 31, 2001, respectively.
At May 31, 2002, the interest rate swap liability is included in liabilities
subject to compromise on the Condensed Consolidated Balance Sheets. As a result
of the Chapter 11 proceedings, the Company currently has no active interest rate
swaps.
Commodity Prices - We are exposed to fluctuation in market prices for
steel. Therefore, we have established a program for centralized negotiation of
steel prices. This program allows APW Ltd. to take advantage of economies of
scale as well as to cap pricing. All business units are able to purchase steel
under this arrangement. In general, the contracts lock steel pricing for 18
months and enable APW Ltd. to pay less if market prices fall.
37
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company, as well as one current and one former executive, have been
sued in three actions which are pending in the United States District Court for
the Eastern District of Wisconsin in connection with alleged violations of
Federal securities laws which preceded a drop in the price of its common stock
ending on March 20, 2001. The first of these suits which is captioned Stewart
Norman Hicks v. APW Ltd., et al., was filed on December 10, 2001. The
subsequently filed suits are captioned Robert Betz v. APW Ltd, et al., and
Market Street Securities v. APW Ltd., et al. The complaints for all three suits
allege violations of the Federal securities laws and seek certification of a
plaintiff class consisting of all purchasers of the Company's common stock
between September 26, 2000 and March 20, 2001, inclusive. The complaint does not
quantify the damages. The Company is evaluating the merits of these claims.
As a result of the Company's Chapter 11 filing, the above class action
lawsuits against APW Ltd., the Bermuda holding company, are stayed automatically
by the Bankruptcy Code and, absent further order of the Bankruptcy Court, no
party may take any action to recover on pre-petition claims against APW Ltd.,
the Bermuda holding company.
On May 16, 2002, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Cody ("Bankruptcy Code") in the
United States Bankruptcy Court for the Southern District of New York
("Bankruptcy Court"). The proceeding involves only APW Ltd., the Bermuda
company, and Vero Electronics, Inc., a non-operating entity and subsidiary of
APW Ltd. All other subsidiaries of the Company are excluded from the proceeding
and continue to conduct business with customers and suppliers in the ordinary
course. The Company has continued to operate its business as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code. The bankruptcy
proceedings are being jointly administered under Case No. 02-12334 (PCB).
On May 30, 2002, a proceeding (the "Bermuda Proceeding") was commenced
pursuant to the Companies Act 1981 with respect to APW Ltd. and a subsidiary
company creditor, Hoermann Electronics Ltd., in the Bermuda Supreme Court in
connection with a winding-up petition. The filing is intended to result in the
imposition of a statutory stay preventing third parties from continuing or
taking actions against APW in Bermuda. This stay against third parties will
allow the implementation of the Plan without interruption. On May 30, 2002, the
Bermuda court appointed Malcolm L. Butterfield of KPMG Bermuda and Philip W.
Wallace of KPMG, London, England as joint provisional liquidators of APW (or, as
referred to herein, the JPLs) with limited supervisory powers. On July 22, 2002,
the JPLs were granted various powers, including the power to: (1) oversee the
continuation of APW's business under the supervision of the Bermuda court; (2)
retain professionals to assist in the restructuring of the Company; (3) obtain
post-petition financing; and (4) authorize the sale of any business, operation,
subsidiary, division or other significant asset of APW Ltd.
See Note 1 to the Company's Condensed Consolidated Financial Statements
contained in Item 1 or Part I of this report, which information is incorporated
herein by reference.
Item 2. Changes in Securities and Use of Proceeds.
On May 1, 2002, APW Ltd. amended its Shareholder Rights Agreement dated
July 17, 2000, between the Company and Firstar Bank, N.A. (n/k/a U.S. Bank,
N.A.), as Rights Agent (the "First Amendment") to permit the contemplated plan
of reorganization without triggering the rights. The First Amendment provides
that certain lenders under the Company's Multi-Currency Credit Facility will not
be deemed acquiring persons under the Rights Agreement when they are issued
common stock in an Agreement being negotiated between the Company and the
lenders. The First Amendment further provides that the transactions contemplated
by the Company and the lenders in the Agreement will not constitute a Triggering
Event or a Separation Date (as those terms are defined in the Rights Agreement).
Item 3. Defaults Upon Senior Securities.
As a result of the commencement of the bankruptcy proceedings, we were in
default under the agreements governing our senior debt, including the
Multicurrency Credit Agreement and the UK Revolving Credit Agreement. However,
claims for amounts due under those agreements are stayed during the bankruptcy
proceedings.
The total amounts outstanding on the credit facilities as of the
initiation of the Chapter 11 filing, including accrued interest was $687.3
million.
38
Item 4. Submission of Matters to a Vote of Security Holders.
On May 3, 2002 ballots respecting the Plan under Chapter 11 of the
Bankruptcy Code were circulated to the Company's security holders entitled to
vote on the Plan. The majority of holders of the Class 3 and Class 4 claims
voted in favor of the restructuring set forth in the Plan, which was then
confirmed by the bankruptcy court on July 22, 2002. No vote was taken of the
holders of common shares as they were deemed to object. Holders of debt
securities and other liability claimants approved the plan.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index following the Signature page of this report, which
is incorporated herein by reference.
(b) Reports on Form 8-K
On April 3, 2002, the Company filed a Current Report on Form 8-K dated
April 2, 2002, reporting under Item 5 that the Company was seeking to have the
quotation of its Common Stock transferred to the OTC Bulletin Board under the
ticker symbol APWLF.
On May 10, 2002, the Company filed a Current Report on Form 8-K dated May
1, 2002, reporting under Item 5 the Company's amendment to its Shareholder
Rights Agreement dated July 17, 2000, the Board's approval of the proposed plan
of reorganization described in the Disclosure Statement (filed therein) and the
resignation of Gerald McGoey as a director of the Company.
On May 17, 2002, the Company filed a Current Report on Form 8-K dated May
16, 2002, reporting under Item 3 that APW Ltd., a Bermuda company, and Vero
Electronics, Inc., a non-operating entity and subsidiary of the Company, filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code.
On May 28, 2002, the Company filed a Current Report on Form 8-K dated May
16, 2002, reporting under Item 5 that the Company entered into a Debtor in
Possession financing agreement and the resignation of Joseph T. Lower, Vice
President - Business Development.
On June 5, 2002, the Company filed Amendment No. 1 to Current Report on
Form 8-K dated May 1, 2002, reporting under Item 9 updated and amended matters
related to the Company's Disclosure Statement.
On July 9, 2002 the Company filed a Current Report on Form 8-K dated June
19, 2002 reporting under Item 5 that the Company filed an Amended and Restated
Joint Plan of Reorganization of Vero Electronics and the Company and a
Supplement to the Disclosure Statement.
39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused Amendment No. 1 to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
APW Ltd. (N/K/A BQX Ltd. (in provisional
liquidation))
(Registrant)
Date: November 6, 2002 By: /s/ Richard D. Carroll
--------------------------
Richard D. Carroll
Vice President and Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign on behalf of the
the Registrant)
40
CERTIFICATIONS
Chief Executive Officer
- -----------------------
I, Richard G. Sim Certify that:
1. I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of APW
Ltd. (n/k/a BQX Ltd.);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 6, 2002
/s/ Richard G. Sim
- -------------------------------------
Richard G. Sim
President and Chief Executive Officer
41
Chief Financial Officer
- -----------------------
I, Richard D. Carroll Certify that:
1. I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of APW
Ltd. (n/k/a BQX Ltd.);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 6, 2002
/s/ Richard D. Carroll
- ------------------------------------------
Richard D. Carroll
Vice President and Chief Financial Officer
42
APW Ltd. (in provisional liquidation)
Debtor-in-Possession
(the "Registrant")
(Commission File No. 1-15851)
EXHIBIT INDEX
to
FORM 10-Q/A QUARTERLY REPORT
For the period ended May 31, 2002
Exhibit Incorporated Herein Filed
Number Description by Reference to Herewith
- -----------------------------------------------------------------------------------------------------
2.1(a) Disclosure Schedule and Plan of Exhibit 99.2 to the Registrant's
Reorganization Form 8-K dated May 1, 2002
- -----------------------------------------------------------------------------------------------------
2.1(b) Amended and Restated Joint Plan of Exhibit 2.1 to the Registrant's
Reorganization of Vero Electronics, Form 8-K dated June 19, 2002
Inc. and APW Ltd.
- -----------------------------------------------------------------------------------------------------
2.1(c) Order of the Supreme Court of
Bermuda, inter alia, appointing Joint
Provisional Liquidators dated May 30,
2002*
- -----------------------------------------------------------------------------------------------------
2.2(d) Order of the Supreme Court of
Bermuda, extending the powers of the
Joint Provisional Liquidators dated
July 22, 2002*
- -----------------------------------------------------------------------------------------------------
2.1(e) U.S. Bankruptcy Court Exhibit 99.2 to the Registrant's
Order, entered July 24, 2002 Form 8-K dated July 23, 2002
- -----------------------------------------------------------------------------------------------------
2.1(f) Bermuda Supreme Court Exhibit 99.3 to the Registrant's
Order entered July 30,2002 Form 8-K dated July 23, 2002
- -----------------------------------------------------------------------------------------------------
4.1 Sixth Amendment to Amended and Exhibit 99 to the Registrant's
Restated Multicurrency Credit Form 10-Q dated 2/28/02
Agreement
- -----------------------------------------------------------------------------------------------------
4.2 Amendment No. 1 to the Shareholder Exhibit 99.1 to the Registrant's
Rights Agreement dated July 17, 2000 Form 8-K dated May 1, 2002
- -----------------------------------------------------------------------------------------------------
99.1 Certificaton Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act
of 2002. X
- -----------------------------------------------------------------------------------------------------
99.2 Certificaton Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act
of 2002. X
- -----------------------------------------------------------------------------------------------------
* Previously filed on form 10-Q for the period ended May 31, 2002.
43