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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————— 
FORM 10-Q
 ————————————
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288 
 ————————————
ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
 ————————————
Wisconsin
 
39-0168610
(State of incorporation)
 
(I.R.S. Employer Id. No.)
N86 W12500 WESTBROOK CROSSING
MENOMONEE FALLS, WISCONSIN 53051
Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(262) 293-1500
(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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     Yes  ¨    No  ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x
The number of shares outstanding of the registrant’s Class A Common Stock as of December 31, 2017 was 60,007,521.
 
 
 
 
 


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TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Item 6—Exhibits
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges and capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:
economic uncertainty or a prolonged economic downturn;
end market conditions in the industrial, oil & gas, energy, power generation, infrastructure, commercial construction, truck, automotive, specialty vehicle, mining and agriculture industries;
competition in the markets we serve and market acceptance of existing and new products;
a material disruption at a significant manufacturing facility;
our ability to successfully identify and integrate acquisitions and realize anticipated benefits/results from acquired companies;
divestitures and/or discontinued operations including retained liabilities from businesses that we sell;
operating margin risk due to competitive pricing, operating inefficiencies, production levels and material, labor and overhead cost increases;
our international operations present special risks, primarily from currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions and controls on repatriation of cash;
regulatory and legal developments including changes to United States taxation rules, conflict mineral supply chain compliance, environmental laws and governmental climate change initiatives;
the potential for a non-cash asset impairment charge, if operating performance or the outlook for one or more of our businesses were to fall significantly below current levels;
our ability to execute restructuring actions and the realization of anticipated cost savings from those restructuring actions and cost reduction efforts;

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a significant failure in information technology (IT) infrastructure and systems, unauthorized access to financial and other sensitive data or cybersecurity threats;
due to the assembly nature of our operations we purchase a significant amount of components from suppliers and our reliance on suppliers involves certain risks;
litigation, including product liability and warranty claims;
inadequate intellectual property protection or if our products are deemed to infringe on the intellectual property of others;
our level of indebtedness, ability to comply with the financial and other covenants in our debt agreements and fluctuations in interest rates; and
numerous other matters including those of a political, economic, business, competitive and regulatory nature contained from time to time in U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of the Form 10-K filed with the SEC on October 26, 2017.
When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries. Actuant Corporation provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.actuant.com, as soon as reasonably practical after such reports are electronically filed with the SEC.


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PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended November 30,
 
2017
 
2016
Net sales
$
288,955

 
$
265,793

Cost of products sold
188,044

 
172,726

Gross profit
100,911

 
93,067

Selling, administrative and engineering expenses
74,478

 
68,602

Amortization of intangible assets
5,131

 
5,262

Director & officer transition charges

 
7,784

Restructuring charges
6,629

 
2,948

Operating profit
14,673

 
8,471

Financing costs, net
7,514

 
7,132

Other expense (income), net
329

 
(628
)
Earnings before income tax expense (benefit)
6,830

 
1,967

Income tax expense (benefit)
1,604

 
(2,998
)
Net earnings
$
5,226

 
$
4,965

 
 
 
 
Earnings per share
 
 
 
Basic
$
0.09

 
$
0.08

Diluted
$
0.09

 
$
0.08

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
59,871

 
58,972

Diluted
60,609

 
59,616

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements


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ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended November 30,
 
2017
 
2016
Net earnings
$
5,226

 
$
4,965

Other comprehensive income (loss), net of tax
 
 
 
Foreign currency translation adjustments
2,898

 
(26,658
)
Pension and other postretirement benefit plans
127

 
536

Total other comprehensive income (loss), net of tax
3,025

 
(26,122
)
Comprehensive income (loss)
$
8,251

 
$
(21,157
)
See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
November 30, 2017
 
August 31, 2017
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
165,050

 
$
229,571

Accounts receivable, net
 
201,317

 
190,206

Inventories, net
 
154,246

 
143,651

Assets held for sale
 
21,393

 
21,835

Other current assets
 
76,330

 
61,663

Total current assets
 
618,336

 
646,926

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
46,690

 
43,737

Machinery and equipment
 
233,375

 
227,535

Gross property, plant and equipment
 
280,065

 
271,272

Less: Accumulated depreciation
 
(181,077
)
 
(176,751
)
Property, plant and equipment, net
 
98,988

 
94,521

Goodwill
 
531,454

 
530,081

Other intangibles, net
 
216,032

 
220,489

Other long-term assets
 
25,431

 
24,938

Total assets
 
$
1,490,241

 
$
1,516,955

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
141,745

 
$
133,387

Accrued compensation and benefits
 
37,770

 
50,939

Current maturities of debt and short-term borrowings
 
30,000

 
30,000

Income taxes payable
 
6,642

 
6,080

Liabilities held for sale
 
70,787

 
101,083

Other current liabilities
 
56,975

 
57,445

Total current liabilities
 
343,919

 
378,934

Long-term debt, net
 
524,629

 
531,940

Deferred income taxes
 
29,567

 
29,859

Pension and postretirement benefit liabilities
 
19,539

 
19,862

Other long-term liabilities
 
56,269

 
55,821

Total liabilities
 
973,923

 
1,016,416

Commitments and contingencies (Note 14)
 
 
 
 
Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 80,396,432 and 80,200,110 shares, respectively
 
16,079

 
16,040

Additional paid-in capital
 
145,938

 
138,449

Treasury stock, at cost, 20,439,434 shares
 
(617,731
)
 
(617,731
)
Retained earnings
 
1,196,268

 
1,191,042

Accumulated other comprehensive loss
 
(224,236
)
 
(227,261
)
Stock held in trust
 
(2,722
)
 
(2,696
)
Deferred compensation liability
 
2,722

 
2,696

Total shareholders’ equity
 
516,318

 
500,539

Total liabilities and shareholders’ equity
 
$
1,490,241

 
$
1,516,955


See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended November 30,
 
2017
 
2016
Operating Activities
 
 
 
Net earnings
$
5,226

 
$
4,965

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
10,090

 
10,896

Stock based compensation expense
5,420

 
9,554

Benefit for deferred income taxes
(307
)
 
(2,865
)
Amortization of debt issuance costs
413

 
413

Other non-cash adjustments
113

 
464

Changes in components of working capital and other:
 
 
 
Accounts receivable
(11,478
)
 
(8,252
)
Inventories
(11,628
)
 
(8,142
)
Trade accounts payable
6,204

 
6,768

Prepaid expenses and other assets
(12,043
)
 
(5,485
)
Income taxes payable/receivable
(1,714
)
 
(1,946
)
Accrued compensation and benefits
(12,588
)
 
(2,757
)
Other accrued liabilities
1,834

 
8,850

Cash (used in) provided by operating activities
(20,458
)
 
12,463

Investing Activities
 
 
 
Capital expenditures
(7,904
)
 
(5,139
)
Proceeds from sale of property, plant and equipment
32

 
130

Rental asset lease buyout for Viking divestiture
(27,718
)
 

Cash used in investing activities
(35,590
)
 
(5,009
)
Financing Activities
 
 
 
Principal repayments on term loan
(7,500
)
 
(3,750
)
Stock option exercises and other
2,231

 
964

Taxes paid related to the net share settlement of equity awards
(282
)
 
(223
)
Cash dividend
(2,390
)
 
(2,358
)
Cash used in financing activities
(7,941
)
 
(5,367
)
Effect of exchange rate changes on cash
(532
)
 
(4,820
)
Net decrease in cash and cash equivalents
(64,521
)
 
(2,733
)
Cash and cash equivalents - beginning of period
229,571

 
179,604

Cash and cash equivalents - end of period
$
165,050

 
$
176,871

See accompanying Notes to Condensed Consolidated Financial Statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements of Actuant Corporation (“Actuant,” or the “Company”) have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2017 was derived from the Company’s audited financial statements, but does not include all disclosures required by United States generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2017 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended November 30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2018.
New Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of accounting for share-based payment transactions. Under the new guidance it is required, among other items, that all excess tax deficiencies or benefits be recorded as income tax expense or benefit in the statement of earnings and not in additional paid-in capital (shareholder's equity). This guidance was adopted on September 1, 2017 and the impact of adopting this guidance had the following effects:
for the quarter ended November 30, 2017, we recorded $0.2 million in excess tax deficiency as an increase to our income tax expense for the quarter. This requirement was applied prospectively;
excess tax benefits are now presented as operating activities in the statement of cash flows, rather than financing activities. The Company chose to apply this requirement retrospectively, and as a result, reclassified approximately $0.4 million of excess tax benefits recognized during the three months ended November 30, 2016 from financing activities to operating activities in the condensed consolidated statement of cash flows;
our computation of diluted earnings per share now excludes the excess tax benefits or deficiencies from the assumed proceeds available to repurchase shares. This requirement was applied prospectively.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09 and subsequent updates included in ASU 2016-10, ASU 2016-12, ASU 2017-13 and ASU 2017-14, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for fiscal years beginning on or after December 15, 2017 (fiscal 2019 for the Company). The Company has begun assessing its various revenue streams to identify performance obligations under these ASUs and the key aspects of the standard that will impact the Company's revenue recognition process. Based upon our preliminary assessments, these standards may impact our allocation of contract revenue between various products and services and the timing of when those revenues are recognized, but do not expect a material or significant impact to amounts recognized. Given the diversity of its commercial arrangements, the Company is continuing to assess the impact these standards may have on its consolidated results of operations, financial position, cash flows and related financial statement disclosures.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be stated separately from service cost and outside of operating income. This guidance is effective for fiscal years beginning after December 15, 2017 (fiscal 2019 for the Company) and interim periods within those annual periods. The amendment is to be applied retrospectively. Due to a majority of the Company's defined benefit pension or other postretirement benefit plans being frozen and the net periodic benefit pension cost not being significant, the Company does not believe that adoption of this guidance will have a significant impact on the financial statements of the Company.
In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for fiscal years beginning after December 15, 2017 (fiscal 2019 for the Company), including interim

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periods within those fiscal years. This update will require adoption on a retrospective basis unless it is impracticable to apply. The Company does not believe that this guidance will have a significant impact on its presentation of the statement of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset. This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), including interim periods within those fiscal years. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented under a modified retrospective approach using a cumulative effect adjustment in the year of adoption. The Company is currently gathering, documenting and analyzing lease agreements subject to this ASU and anticipates material additions to the balance sheet (upon adoption) of right-of-use assets, offset by the associated liabilities, due to our routine use of operating leases over time.
Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands):
 
 
November 30, 2017
August 31, 2017
Foreign currency translation adjustments
 
$
204,906

$
207,804

Pension and other postretirement benefit plans, net of tax
 
19,330

19,457

Accumulated other comprehensive loss
 
$
224,236

$
227,261

Note 2. Director & Officer Transition Charges
During the three months ended November 30, 2016, the Company recorded separation and transition charges of $7.8 million in connection with the retirement of one director of the Company's Board of Directors and the transition of the Executive Vice President/Chief Financial Officer. The charges were mainly comprised of compensation expense for accelerated equity vesting, severance, outplacement, legal, signing bonus and relocation costs.
Note 3. Restructuring Charges
The Company has committed to various restructuring initiatives including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low cost alternatives and the centralization and standardization of certain administrative functions. Total restructuring charges for these activities were $6.6 million and $2.9 million in the three months ended November 30, 2017 and 2016, respectively. Liabilities for severance will generally be paid during the next twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms.
The following rollforwards summarize restructuring reserve activity by segment (in thousands):
 
 
Three Months Ended November 30, 2017
 
 
Industrial
 
Energy
 
Engineered Solutions
 
Corporate
 
Total
Balance as of August 31, 2017
 
$
202

 
$
3,613

 
$
1,792

 
$
30

 
$
5,637

Restructuring charges
 
1,239

 
931

 
285

 
4,174

 
6,629

Cash payments
 
(259
)
 
(1,398
)
 
(762
)
 
(345
)
 
(2,764
)
Other non-cash uses of reserve
 
(492
)
 
207

 
(193
)
 
(2,019
)
(1) 
(2,497
)
Impact of changes in foreign currency rates
 

 
(161
)
 
(2
)
 

 
(163
)
Balance as of November 30, 2017
 
$
690

 
$
3,192

 
$
1,120

 
$
1,840

 
$
6,842

(1) Majority of non-cash uses of reserve represents accelerated equity vesting in connection with employee severance agreements.

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Three Months Ended November 30, 2016
 
 
Industrial
 
Energy
 
Engineered Solutions
 
Corporate
 
Total
Balance as of August 31, 2016
 
$
1,343

 
$
3,021

 
$
1,863

 
$
46

 
$
6,273

Restructuring charges
 
715

 
117

 
2,080

 
36

 
2,948

Cash payments
 
(333
)
 
(558
)
 
(1,802
)
 
(36
)
 
(2,729
)
Other non-cash uses of reserve
 
(166
)
 
(6
)
 
(3
)
 
(13
)
 
(188
)
Impact of changes in foreign currency rates
 
(25
)
 
10

 
(8
)
 

 
(22
)
Balance as of November 30, 2016
 
$
1,534

 
$
2,584

 
$
2,130

 
$
33

 
$
6,282

Note 4. Acquisitions
During the fourth quarter of fiscal 2017, the Company signed a definitive agreement to purchase Mirage Machines, Ltd. ("Mirage"), a provider of industrial and energy maintenance tools. Subsequent to November 30, 2017, we completed the acquisition of Mirage for a purchase price of $17.3 million net of cash acquired, plus potential future performance-based consideration. The Company incurred acquisition transaction costs of $0.2 million in the three months ended November 30, 2017 (included in selling, administration and engineering expenses in the condensed consolidated statement of earnings), related to this acquisition.
Note 5. Divestiture Activities
During the fourth quarter of fiscal 2017, the Company signed a definitive agreement to sell the Viking business (Energy segment). Subsequent to quarter-end, on December 1, 2017, the Company completed the sale of the Viking business for $12.0 million, which was paid in cash at the closing of the transaction, subject to closing working capital adjustments, cash and indebtedness and other adjustments. We anticipate recognizing an additional $15.0 million to $20.0 million in after tax divestiture charges in the second quarter of fiscal 2018.
Due to the divestiture of the Viking business not closing until subsequent to quarter-end, the associated assets and liabilities are classified as held for sale in the condensed consolidated balance sheet. The divestiture will result in the Company's exit from the offshore mooring market and will significantly limit our exposure to the upstream, offshore oil & gas market.
The following is a summary of the assets and liabilities held for sale of the Viking business (in thousands):
 
 
November 30, 2017
 
August 31, 2017
Accounts receivable, net
 
$
2,116

 
$
2,426

Inventories, net
 
185

 
190

Property, plant & equipment, net
 
7,434

 
7,534

Prepaid expenses and other current assets
 
1,996

 
1,927

Other long-term assets
 
9,662

 
9,758

Assets held for sale
 
$
21,393

 
$
21,835

 
 
 
 
 
Trade accounts payable
 
$
1,804

 
$
1,883

Other current liabilities (including divestiture accruals)
 
1,338

 
1,637

Rental asset lease buyout liability
 

 
28,644

Reserve for cumulative translation adjustment
 
67,645

 
68,919

Liabilities held for sale
 
$
70,787

 
$
101,083

The results of the Viking business are not material to the consolidated financial results of the Company and are included in continuing operations. The Viking business had net sales of $2.7 million and $5.5 million in the three months ended November 30, 2017 and 2016, respectively.

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Note 6. Goodwill, Intangible Assets and Long-Lived Assets
Changes in the gross carrying value of intangible assets and goodwill can result from changes in foreign currency exchange rates, business acquisitions, divestitures or impairment charges. The changes in the carrying amount of goodwill for the three months ended November 30, 2017 are as follows (in thousands):
 
Industrial
 
Energy
 
Engineered Solutions
 
Total
Balance as of August 31, 2017
$
103,875

 
$
188,830

 
$
237,376

 
$
530,081

Impact of changes in foreign currency rates
65

 
1,925

 
(617
)
 
1,373

Balance as of November 30, 2017
$
103,940

 
$
190,755

 
$
236,759

 
$
531,454

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
November 30, 2017
 
August 31, 2017
 
Weighted Average
Amortization
Period (Years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Book
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Book
Value
Amortizable intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
15
 
$
264,409

 
$
158,245

 
$
106,164

 
$
263,498

 
$
153,003

 
$
110,495

Patents
10
 
30,448

 
24,476

 
5,972

 
30,401

 
24,027

 
6,374

Trademarks and tradenames
18
 
21,324

 
9,637

 
11,687

 
21,498

 
9,396

 
12,102

Other intangibles
3
 
6,712

 
6,328

 
384

 
6,672

 
6,234

 
438

Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tradenames
N/A
 
91,825

 

 
91,825

 
91,080

 

 
91,080

 
 
 
$
414,718

 
$
198,686

 
$
216,032

 
$
413,149

 
$
192,660

 
$
220,489

The Company estimates that amortization expense will be $15.3 million for the remaining nine months of fiscal 2018. Amortization expense for future years is estimated to be: $19.9 million in fiscal 2019, $19.2 million in 2020, $18.3 million in fiscal 2021, $16.3 million in fiscal 2022, $13.3 million in fiscal 2023 and $21.9 million thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates.
Note 7. Product Warranty Costs
The Company generally offers its customers a warranty on products sold, although warranty periods vary by product type and application. The reserve for future warranty claims is based on historical claim rates and current warranty cost experience. The following is a rollforward of the product warranty reserves for the three months ended November 30, 2017 and 2016 (in thousands):
 
Three Months Ended November 30,
 
2017
 
2016
Beginning balance
$
6,616

 
$
5,592

Provision for warranties
1,531

 
777

Warranty payments and costs incurred
(1,145
)
 
(2,309
)
Impact of changes in foreign currency rates
(8
)

(105
)
Ending balance
$
6,994

 
$
3,955


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Table of Contents

Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
November 30, 2017
 
August 31, 2017
Senior Credit Facility
 
 
 
Revolver
$

 
$

Term Loan
270,000

 
277,500

Total Senior Credit Facility
270,000

 
277,500

5.625% Senior Notes
287,559

 
287,559

Total Senior Indebtedness
557,559

 
565,059

Less: Current maturities of long-term debt
(30,000
)
 
(30,000
)
Debt issuance costs
(2,930
)
 
(3,119
)
Total long-term debt, net
$
524,629

 
$
531,940

The Company’s Senior Credit Facility matures on May 8, 2020 and provides a $600 million revolver, an amortizing term loan and a $450 million expansion option, subject to certain conditions. Borrowings are subject to a pricing grid, which can result in increases or decreases to the borrowing spread, depending on the Company’s leverage ratio, ranging from 1.00% to 2.25% in the case of loans bearing interest at LIBOR and from 0.00% to 1.25% in the case of loans bearing interest at the base rate. As of November 30, 2017, the borrowing spread on LIBOR based borrowings was 2.00% (aggregating to a 3.38% variable rate borrowing cost on the outstanding term loan balance). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.35% per annum. As of November 30, 2017, the unused credit line under the revolver was $597.1 million, of which $93.1 million was available for borrowing. Quarterly term loan principal payments of $3.8 million began on June 30, 2016, increased to $7.5 million starting on June 30, 2017 and extend through March 31, 2020, with the remaining principal due at maturity. The Senior Credit Facility, which is secured by substantially all of the Company’s domestic personal property assets, also contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. The Company was in compliance with all financial covenants at November 30, 2017.
On April 16, 2012, the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $287.6 million remains outstanding. The Senior Notes require no principal installments prior to their June 15, 2022 maturity, require semiannual interest payments in December and June of each year and contain certain financial and non-financial covenants. The Senior Notes include a call feature that allows the Company to repurchase them anytime on or after June 15, 2017 at stated redemption prices (ranging from 100.0% to 102.8%), plus accrued and unpaid interest.
Note 9. Fair Value Measurement
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participation would use in pricing an asset or liability.
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both November 30, 2017 and August 31, 2017 due to their short-term nature and the fact that the interest rates approximated market rates. Foreign currency exchange contracts are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net asset of $0.1 million at November 30, 2017 and a net liability of $0.2 million at August 31, 2017. The fair value of the foreign currency exchange contracts was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy. The fair value of the Company’s outstanding Senior Notes was $295.1 million and $295.8 million at November 30, 2017 and August 31, 2017, respectively. The fair value of the Senior Notes was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
Note 10. Derivatives
All derivatives are recognized in the balance sheet at their estimated fair value. On the date the Company enters into a derivative contract, it designates the derivative as a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The Company does not enter into derivatives for speculative purposes. Changes in the value of fair value hedges and non-designated hedges are recorded in earnings along with the gain or loss on the hedged asset or liability, while changes in the value

11

Table of Contents

of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows. However, there were no cash flow hedges outstanding at November 30, 2017 and August 31, 2017.
The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk the Company has historically hedged portions of its forecasted inventory purchases and other cash flows that are denominated in non-functional currencies (cash flow hedges).
The Company also utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in other expense in the condensed consolidated statement of earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $22.5 million and $22.0 million at November 30, 2017 and August 31, 2017, respectively. The fair value of outstanding foreign currency exchange contracts was a net asset of $0.1 million at November 30, 2017 and a net liability of $0.2 million at August 31, 2017. Net foreign currency gain (loss) related to these derivative instruments were as follows (in thousands):
 
Three Months Ended November 30,
 
 
2017
 
2016
 
Foreign currency gain (loss), net
$
214

 
$
(1,491
)
 
Note 11. Capital Stock and Share Repurchases
The Company's Board of Directors authorized the repurchase of shares of the Company's common stock under publicy announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 20,439,434 shares of common stock for $617.7 million. As of November 30, 2017, the maximum number of shares that may yet be purchased under the programs is 7,560,566 shares. There were no share repurchases in the three months ended November 30, 2017.
The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 
Three Months Ended November 30,
 
 
2017
 
2016
 
Numerator:
 
 
 
 
Net earnings
$
5,226

 
$
4,965

 
Denominator:
 
 
 
 
Weighted average common shares outstanding - basic
59,871

 
58,972

 
Net effect of dilutive securities - stock based compensation plans
738

 
644

 
Weighted average common shares outstanding - diluted
60,609

 
59,616

 
 
 
 
 
 
Basic earnings per share
$
0.09

 
$
0.08

 
Diluted earnings per share
0.09

 
0.08

 
 
 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)
1,829

 
1,963

 
Note 12. Income Taxes
The Company's income tax expense or benefit is impacted by a number of factors, including the amount of taxable earnings generated in foreign jurisdictions with tax rates that are lower than the U.S. federal statutory rate, permanent items, state tax rates and the ability to utilize various tax credits and net operating loss carryforwards. The Company's global operations, acquisition activity and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Both fiscal 2018 and 2017 include the benefits of tax planning initiatives. Comparative earnings before income taxes, income tax expense (benefit) and effective income tax rates are as follows (amounts in thousands):


12

Table of Contents

 
Three Months Ended November 30,
 
 
2017
 
2016
 
Earnings before income taxes
$
6,830

 
$
1,967

 
Income tax expense (benefit)
1,604

 
(2,998
)
 
Effective income tax rate
23.5
%
 
(152.4
)%
 
Both the current and prior year effective income tax rates were impacted by the proportion of earnings in foreign jurisdictions with income tax rates lower than the U.S. federal income tax rate and the amount of income tax benefits from tax planning initiatives. The Company's earnings before income taxes included approximately 80% of earnings from foreign jurisdictions for both the estimated full-year fiscal 2018 and fiscal 2017. This foreign income tax rate differential had the effect of reducing the 35% U.S. statutory tax rate by 12.2% and 22.4%, for the three months ended November 30, 2017 and 2016, respectively. In addition to tax planning initiatives (which yield an effective income tax rate lower than the federal income tax rate) in each year, the income tax benefit for the three months ended November 30, 2016 included a $2.9 million benefit related to the discrete director and officer transition costs. These factors, combined with year-to-date activity, yielded an income tax expense (benefit) of 23.5% and (152.4)% for the three months ended November 30, 2017 and 2016, respectively. The tax benefits related to tax planning initiatives are not expected to repeat in future periods due to certain tax attributes that are no longer available and subsequent changes in relevant tax laws. The Company may release a material valuation allowance in a foreign jurisdiction in late fiscal 2018 or in fiscal 2019, if the jurisdiction demonstrates sustained profitability and the Company determines that it is more likely than not the deferred tax assets will be realized.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed. The Act significantly changes the income tax environment for US multinational corporations. The Company is actively evaluating the corporate income tax provisions of the Act including the reduction in the US corporate income tax rate, limitation on deductibility of interest, repatriation of foreign earnings, the move to a territorial tax system, and other provisions. Due to the complexity of the Act, the Company will continue to assess the provisions as well as any prospectively released regulations and disclose the anticipated impact to income tax expense resulting from the Act in future filings.

13

Table of Contents

Note 13. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems and is organized into three reportable segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions to the global oil & gas, power generation and other markets. The Engineered Solutions segment provides highly engineered position and motion control systems to original equipment manufacturers ("OEM") in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agricultural markets.
The following tables summarize financial information by reportable segment and product line (in thousands):    
 
Three Months Ended November 30,
 
 
2017
 
2016
 
Net Sales by Reportable Product Line & Segment:
 
 
 
 
Industrial Segment:
 
 
 
 
Industrial Tools
$
84,510

 
$
79,039

 
Heavy Lifting Technology
12,406

 
8,251

 
 
96,916

 
87,290

 
Energy Segment:
 
 
 
 
Energy Maintenance & Integrity
56,710

 
64,821

 
Other Energy Solutions
19,131

 
19,825

 
 
75,841

 
84,646

 
Engineered Solutions Segment:
 
 
 
 
On-Highway
64,882

 
51,630

 
Agriculture, Off-Highway and Other
51,316

 
42,227

 
 
116,198

 
93,857

 
 
$
288,955

 
$
265,793

 
Operating Profit (Loss):
 
 
 
 
Industrial
$
18,243

 
$
18,776

 
Energy
293

 
3,210

 
Engineered Solutions
6,334

 
755

 
General Corporate
(10,197
)
 
(14,270
)
 
 
$
14,673

 
$
8,471

 
 
November 30, 2017
 
August 31, 2017
Assets by Segment:
 
 
 
Industrial
$
314,215

 
$
329,134

Energy
480,402

 
482,963

Engineered Solutions
539,978

 
531,068

General Corporate
155,646

 
173,790

 
$
1,490,241

 
$
1,516,955

In addition to the impact of foreign currency exchange rate changes, the comparability of segment and product line information is impacted by acquisition/divestiture activities, impairment charges, director and officer transition charges, restructuring costs and related benefits.  Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.

14

Table of Contents


Note 14. Commitments and Contingencies
The Company had outstanding letters of credit of $14.3 million and $14.5 million at November 30, 2017 and August 31, 2017, respectively, the majority of which relate to commercial contracts and self-insured workers compensation programs.
The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, environmental, labor, patent claims and other disputes. The Company 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 and can be reasonably estimated. In the opinion of management, resolution of these contingencies are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company remains contingently liable for lease payments under leases of businesses that it previously divested or spun-off, in the event that such businesses are unable to fulfill their future lease payment obligations. The discounted present value of future minimum lease payments for these leases was $12.8 million using a weighted average discount rate of 2.62% at November 30, 2017.
The Company has facilities in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past two years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Note 15. Guarantor Subsidiaries
As discussed in Note 8, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes, of which $287.6 million remains outstanding as of November 30, 2017. All of our material, domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee the 5.625% Senior Notes on a joint and several basis. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent.
Certain assets, liabilities and expenses have not been allocated to the Guarantors and non-Guarantors and therefore are included in the Parent column in the accompanying condensed consolidating financial statements. These items are of a corporate or consolidated nature and include, but are not limited to, tax provisions and related assets and liabilities, certain employee benefit obligations, prepaid and accrued insurance and corporate indebtedness. Intercompany activity primarily includes loan activity, purchases and sales of goods or services, investments and dividends. Intercompany balances also reflect certain non-cash transactions including transfers of assets and liabilities between the Parent, Guarantor and non-Guarantor, allocation of non-cash expenses from the Parent to the Guarantors and non-Guarantors, non-cash intercompany dividends and the impact of foreign currency rate changes. 
The following tables present the results of operations, financial position and cash flows of Actuant Corporation and its subsidiaries, the Guarantor and non-Guarantor entities, and the eliminations necessary to arrive at the information for the Company on a consolidated basis.



15

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands)
 
Three Months Ended November 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
35,710

 
$
87,834

 
$
165,411

 
$

 
$
288,955

Cost of products sold
6,963

 
64,574

 
116,507

 

 
188,044

Gross profit
28,747

 
23,260

 
48,904

 

 
100,911

Selling, administrative and engineering expenses
19,715

 
18,448

 
36,315

 

 
74,478

Amortization of intangible assets
318

 
2,861

 
1,952

 

 
5,131

Restructuring charges
5,356

 
169

 
1,104

 

 
6,629

Operating profit
3,358

 
1,782

 
9,533

 

 
14,673

Financing costs, net
7,623

 
21

 
(130
)
 

 
7,514

Intercompany (income) expense, net
(4,877
)
 
5,484

 
(607
)
 

 

Other (income) expense, net
(50
)
 
45

 
334

 

 
329

Earnings (loss) before income tax (benefit) expense
662

 
(3,768
)
 
9,936

 

 
6,830

Income tax (benefit) expense
(285
)
 
437

 
1,452

 

 
1,604

Net earnings (loss) before equity in earnings (loss) of subsidiaries
947

 
(4,205
)
 
8,484

 

 
5,226

Equity in earnings (loss) of subsidiaries
4,279

 
8,793

 
(46
)
 
(13,026
)
 

Net earnings
5,226

 
4,588

 
8,438

 
(13,026
)
 
5,226

Comprehensive income
$
8,251

 
$
4,588

 
$
11,566

 
$
(16,154
)
 
$
8,251


16

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
Three Months Ended November 30, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
31,729

 
$
84,276

 
$
149,788

 
$

 
$
265,793

Cost of products sold
7,094

 
61,416

 
104,216

 

 
172,726

Gross profit
24,635

 
22,860

 
45,572

 

 
93,067

Selling, administrative and engineering expenses
17,967

 
16,636

 
33,999

 

 
68,602

Amortization of intangible assets
318

 
3,076

 
1,868

 

 
5,262

Restructuring charges
355

 
723

 
1,870

 

 
2,948

Director & officer transition charges
7,784

 

 

 

 
7,784

Operating (loss) profit
(1,789
)
 
2,425

 
7,835

 

 
8,471

Financing costs (income), net
7,326

 

 
(194
)
 

 
7,132

Intercompany (income) expense, net
(5,068
)
 
(1,086
)
 
6,154

 

 

Intercompany dividends

 
(55,143
)
 

 
55,143

 

Other expense (income), net
2,085

 
(70
)
 
(2,643
)
 

 
(628
)
(Loss) earnings before income tax benefit
(6,132
)
 
58,724

 
4,518

 
(55,143
)
 
1,967

Income tax benefit
(2,714
)
 
(30
)
 
(254
)
 

 
(2,998
)
Net (loss) earnings before equity in earnings of subsidiaries
(3,418
)
 
58,754

 
4,772

 
(55,143
)
 
4,965

Equity in earnings of subsidiaries
8,383

 
5,625

 
3,130

 
(17,138
)
 

Net earnings
4,965

 
64,379

 
7,902

 
(72,281
)
 
4,965

Comprehensive (loss) income
$
(21,157
)
 
$
46,292

 
$
631

 
$
(46,923
)
 
$
(21,157
)




17

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
November 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,504

 
$

 
$
155,546

 
$

 
$
165,050

Accounts receivable, net
16,577

 
52,010

 
132,730

 

 
201,317

Inventories, net
24,490

 
54,521

 
75,235

 

 
154,246

Assets held for sale

 

 
21,393

 

 
21,393

Other current assets
29,359

 
2,997

 
43,974

 

 
76,330

Total current assets
79,930

 
109,528

 
428,878

 

 
618,336

Property, plant and equipment, net
8,051

 
30,461

 
60,476

 

 
98,988

Goodwill
38,847

 
200,499

 
292,108

 

 
531,454

Other intangibles, net
7,839

 
135,181

 
73,012

 

 
216,032

Investment in subsidiaries
1,839,467

 
1,196,261

 
804,946

 
(3,840,674
)
 

Intercompany receivable

 
577,424

 
206,969

 
(784,393
)
 

Other long-term assets
8,147

 
1,869

 
15,415

 

 
25,431

Total assets
$
1,982,281

 
$
2,251,223

 
$
1,881,804

 
$
(4,625,067
)
 
$
1,490,241

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
15,804

 
$
28,772

 
$
97,169

 
$

 
$
141,745

Accrued compensation and benefits
7,634

 
6,325

 
23,811

 

 
37,770

Current maturities of debt and short-term borrowings
30,000

 

 

 

 
30,000

Income taxes payable
307

 

 
6,335

 

 
6,642

Liabilities held for sale

 

 
70,787

 

 
70,787

Other current liabilities
20,521

 
8,140

 
28,314

 

 
56,975

Total current liabilities
74,266

 
43,237

 
226,416

 

 
343,919

Long-term debt, net
524,629

 

 

 

 
524,629

Deferred income taxes
23,789

 

 
5,778

 

 
29,567

Pension and postretirement benefit liabilities
12,209

 

 
7,330

 

 
19,539

Other long-term liabilities
49,646

 
305

 
6,318

 

 
56,269

Intercompany payable
781,424

 

 
2,969

 
(784,393
)
 

Shareholders’ equity
516,318

 
2,207,681

 
1,632,993

 
(3,840,674
)
 
516,318

Total liabilities and shareholders’ equity
$
1,982,281

 
$
2,251,223

 
$
1,881,804

 
$
(4,625,067
)
 
$
1,490,241


18

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
August 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
34,715

 
$

 
$
194,856

 
$

 
$
229,571

Accounts receivable, net
17,498

 
50,749

 
121,959

 

 
190,206

Inventories, net
23,308

 
48,492

 
71,851

 

 
143,651

Assets held for sale

 

 
21,835

 

 
21,835

Other current assets
23,576

 
3,619

 
34,468

 

 
61,663

Total current assets
99,097

 
102,860

 
444,969

 

 
646,926

Property, plant & equipment, net
7,049

 
26,130

 
61,342

 

 
94,521

Goodwill
38,847

 
200,499

 
290,735

 

 
530,081

Other intangibles, net
8,156

 
138,042

 
74,291

 

 
220,489

Investment in subsidiaries
1,832,472

 
1,186,715

 
805,016

 
(3,824,203
)
 

Intercompany receivable

 
589,193

 
205,183

 
(794,376
)
 

Other long-term assets
8,377

 
812

 
15,749

 

 
24,938

Total assets
$
1,993,998

 
$
2,244,251

 
$
1,897,285

 
$
(4,618,579
)
 
$
1,516,955

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
15,412

 
$
27,168

 
$
90,807

 
$

 
$
133,387

Accrued compensation and benefits
19,082

 
7,672

 
24,185

 

 
50,939

Current maturities of debt and short-term borrowings
30,000

 

 

 

 
30,000

Income taxes payable
153

 

 
5,927

 

 
6,080

Liabilities held for sale

 

 
101,083

 

 
101,083

Other current liabilities
18,512

 
7,169

 
31,764

 

 
57,445

Total current liabilities
83,159

 
42,009

 
253,766

 

 
378,934

Long-term debt
531,940

 

 

 

 
531,940

Deferred income taxes
24,164

 

 
5,695

 

 
29,859

Pension and post-retirement benefit liabilities
12,540

 

 
7,322

 

 
19,862

Other long-term liabilities
48,692

 
352

 
6,777

 

 
55,821

Intercompany payable
792,964

 

 
1,412

 
(794,376
)
 

Shareholders’ equity
500,539

 
2,201,890

 
1,622,313

 
(3,824,203
)
 
500,539

Total liabilities and shareholders’ equity
$
1,993,998

 
$
2,244,251

 
$
1,897,285

 
$
(4,618,579
)
 
$
1,516,955


19

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended November 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(9,838
)
 
$
3,580

 
$
(14,200
)
 
$

 
$
(20,458
)
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(1,478
)
 
(3,589
)
 
(2,837
)
 

 
(7,904
)
Proceeds from sale of property, plant and equipment

 
9

 
23

 

 
32

Rental asset lease buyout for Viking divestiture

 

 
(27,718
)
 

 
(27,718
)
Cash used in investing activities
(1,478
)
 
(3,580
)
 
(30,532
)
 

 
(35,590
)
Financing Activities
 
 
 
 
 
 
 
 
 
Repayments on term loan
(7,500
)
 

 

 

 
(7,500
)
Stock option exercises and other
2,231

 

 

 

 
2,231

Taxes paid related to the net share settlement of equity awards
(282
)
 

 

 

 
(282
)
Cash dividend
(2,390
)
 

 

 

 
(2,390
)
Intercompany loan activity
(5,954
)
 

 
5,954

 

 

Cash (used in) provided by financing activities
(13,895
)
 

 
5,954

 

 
(7,941
)
Effect of exchange rate changes on cash

 

 
(532
)
 

 
(532
)
Net decrease in cash and cash equivalents
(25,211
)
 

 
(39,310
)
 

 
(64,521
)
Cash and cash equivalents—beginning of period
34,715

 

 
194,856

 

 
229,571

Cash and cash equivalents—end of period
$
9,504

 
$

 
$
155,546

 
$

 
$
165,050


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Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended November 30, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net provided by operating activities
$
61,380

 
$
2,491

 
$
3,736

 
$
(55,143
)
 
$
12,463

Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(861
)
 
(2,607
)
 
(1,671
)
 

 
(5,139
)
Proceeds from sale of property, plant and equipment

 
46

 
84

 

 
130

Cash used in investing activities
(861
)
 
(2,561
)
 
(1,587
)
 

 
(5,009
)
Financing Activities
 
 
 
 
 
 
 
 
 
Principal repayments on term loan
(3,750
)
 

 

 

 
(3,750
)
Taxes paid related to the net share settlement of equity awards
(223
)
 

 

 

 
(223
)
Stock option exercises and other
964

 

 

 

 
964

Cash dividend
(2,358
)
 

 
(55,143
)
 
55,143

 
(2,358
)
Intercompany loan activity
(53,734
)
 

 
53,734

 

 

Cash used in financing activities
(59,101
)
 

 
(1,409
)
 
55,143

 
(5,367
)
Effect of exchange rate changes on cash

 

 
(4,820
)
 

 
(4,820
)
Net increase (decrease) in cash and cash equivalents
1,418

 
(71
)
 
(4,080
)
 

 
(2,733
)
Cash and cash equivalents—beginning of period
7,953

 
71

 
171,580

 

 
179,604

Cash and cash equivalents—end of period
$
9,371

 
$

 
$
167,500

 
$

 
$
176,871



21

Table of Contents

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Actuant Corporation, headquartered in Menomonee Falls, Wisconsin, is a Wisconsin corporation and was incorporated in 1910. We are a global diversified company that designs, manufactures and distributes a broad range of industrial products and systems to various end markets. The Company is organized into three operating segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other energy markets. Divestiture of the Viking business subsequent to quarter-end, resulted in the elimination of the sale and rental of customized off-shore vessel mooring solutions. The Engineered Solutions segment provides highly engineered position and motion control systems to original equipment manufacturers (“OEM”) in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agricultural markets. Financial information related to the Company's segments is included in Note 13, "Segment Information" in the notes to the condensed consolidated financial statements.
Our businesses provide an array of products and services across multiple markets and geographies which results in significant diversification. Our Industrial and Engineered Solutions segments continue to benefit from improvement within the broad industrial landscape, mining, infrastructure, commercial and off-highway vehicle and agriculture markets, which began in the second half of fiscal 2017 and continued through the first quarter of fiscal 2018. We expect continued growth in these markets in fiscal 2018, however, we anticipate the rate of growth to moderate as the fiscal year progresses. Reduced capital and maintenance spending in the oil & gas markets in the form of project cancellations, deferrals and scope reductions are expected to be a continuing headwind throughout much of fiscal 2018, though quarterly core sales declines should moderate as fiscal 2018 progresses. As a result, we expect consolidated fiscal 2018 core sales growth (sales excluding the impact of acquisitions, divestitures and changes in foreign currency exchange rates) of 1% to 3%, compared to a 4% core sales decline in fiscal 2017.
We continue to pursue both organic and inorganic growth opportunities aligned with our strategic objectives. This includes the advancement of our commercial effectiveness initiatives along with new product development efforts associated with our offerings of mission critical solutions to customers. We are also revitalizing lean efforts across our manufacturing, assembly and service operations. The Industrial segment is primarily focused on accelerating global sales growth through geographic expansion, continuing emphasis on sales and marketing efforts, new product introductions and regional growth via second tier brands. Within the Energy segment, we continue to geographically diversify and expand capabilities within the maintenance tools and services offerings while also redirecting sales, marketing and engineering resources to various non-oil & gas vertical markets. Subsequent to quarter-end, we completed the divestiture of our Viking business, thus exiting the offshore mooring business and significantly limiting our exposure to the upstream, offshore oil & gas market. Also subsequent to quarter-end, we completed the acquisition of Mirage Machines, Ltd. (“Mirage”), a provider of industrial and energy maintenance tools. The Engineered Solutions segment is capitalizing on their served end market demand recovery while also expanding content and engineering broad system capabilities across customers and geographies.
We remain focused on improving our financial position and flexibility by adjusting our cost structure to reflect changes in demand levels and by proactively managing working capital and cash flow generation. Across the Company, we are continuing the cost reduction programs initiated at the beginning of fiscal 2016. Restructuring charges related to these initiatives totaled approximately $28 million in fiscal 2016, fiscal 2017 and the first quarter of fiscal 2018, combined. During the three months ended November 30, 2017 and 2016, we incurred $7 and $3 million of restructuring costs, respectively. These restructuring costs related to executive leadership changes, facility consolidation, headcount reductions and operational improvement. Due to continuing challenging market conditions and operating results within our Energy segment, we are examining our cost structure, restructuring initiatives and service strategy to align our business with current market expectations and maximize available opportunities in the interim. Similarly we continue to examine other areas of our business that may require structural cost changes to improve performance and profitability. As such, the Company anticipates restructuring initiatives and related pre-tax charges continuing throughout the balance of fiscal 2018, including approximately $6 million to $8 million of additional restructuring charges during that time.
Pre-tax cost savings realized from executing these restructuring initiatives totaled approximately $17 million in fiscal 2016, fiscal 2017 and the first quarter of fiscal 2018, combined. Realized cost savings were comprised of $4 million within the Industrial segment, $7 million within the Energy segment, $5 million within the Engineered Solutions segment and $1 million within Corporate expenses. The Company anticipates realizing an incremental $12 million to $14 million in pre-tax cost savings for the balance of fiscal 2018 and in fiscal 2019 for all restructuring initiatives implemented in fiscals 2016, 2017 and 2018 and to be implemented in the remainder of fiscal 2018. Twenty-five percent of the anticipated future cost savings are expected to benefit the Industrial segment, another 45% are expected to benefit the Energy segment, another 10% are expected to benefit the Engineered Solutions segment and the remaining 20% are expected to benefit Corporate expenses. These gross cost savings are routinely offset by variations between years including sales and production volume variances, annual bonus expense differential and corresponding re-investment of savings into other initiatives.

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Table of Contents

Given our global geographic footprint, changes in foreign currency exchange rates could have a significant impact on our financial results, financial position and cash flow. Changes in foreign currency exchange rates will continue to add volatility as over one-half of our sales are generated outside of the United States in currencies other than the U.S. dollar. The weakening of the U.S. dollar favorably impacts our sales, cash flow and earnings given the translation of our international results into U.S. dollars. This also results in lower costs for certain international operations which incur costs or purchase components in U.S. dollars and increases the dollar value of assets (including cash) and liabilities of our international operations.
Results of Operations
The following table sets forth our results of operations (in millions, except per share amounts):
 
Three Months Ended November 30,
 
 
2017
 
 
 
2016
 
 
 
Net sales
$
289

 
100
%
 
$
266

 
100
 %
 
Cost of products sold
188

 
65
%
 
173

 
65
 %
 
Gross profit
101

 
35
%
 
93

 
35
 %
 
Selling, administrative and engineering expenses
74

 
26
%
 
69

 
26
 %
 
Amortization of intangible assets
5

 
2
%
 
5

 
2
 %
 
Director & officer transition charges

 
%
 
8

 
3
 %
 
Restructuring charges
7

 
2
%
 
3

 
1
 %
 
Operating profit
15

 
5
%
 
8

 
3
 %
 
Financing costs, net
8

 
3
%
 
7

 
3
 %
 
Other expense (income), net

 
%
 
(1
)
 
 %
 
Earnings before income taxes
7

 
2
%
 
2

 
1
 %
 
Income tax expense (benefit)
2

 
1
%
 
(3
)
 
(1
)%
 
Net earnings
$
5

 
2
%
 
$
5