UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28, 20172018
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-11288
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ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
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| | |
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)
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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, or a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | |
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 March 31, 20172018 was 59,682,865.60,686,435.
TABLE OF CONTENTS
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 atfor one or more of our businesses were to fall significantly below current levels;
our ability to execute our share repurchase program, which depends in part, on our free cash flow, liquidity and changes in the trading price of our common stock;
our ability to execute restructuring actions and the realization of anticipated cost savingsavings from those restructuring actions and cost reductionsreduction efforts;
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 28, 2016.26, 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.
PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net sales | $ | 258,869 |
| | $ | 263,289 |
| | $ | 524,662 |
| | $ | 568,300 |
| $ | 275,165 |
| | $ | 258,869 |
| | $ | 564,120 |
| | $ | 524,662 |
|
Cost of products sold | 171,543 |
| | 172,259 |
| | 344,269 |
| | 368,709 |
| 185,469 |
| | 171,543 |
| | 373,513 |
| | 344,269 |
|
Gross profit | 87,326 |
| | 91,030 |
| | 180,393 |
| | 199,591 |
| 89,696 |
| | 87,326 |
| | 190,607 |
| | 180,393 |
|
Selling, administrative and engineering expenses | 66,957 |
| | 67,172 |
| | 135,561 |
| | 140,083 |
| 68,502 |
| | 66,957 |
| | 142,980 |
| | 135,561 |
|
Amortization of intangible assets | 5,069 |
| | 5,880 |
| | 10,330 |
| | 11,779 |
| 5,168 |
| | 5,069 |
| | 10,299 |
| | 10,330 |
|
Director & officer transition charges | — |
| | — |
| | 7,784 |
| | — |
| — |
| | — |
| | — |
| | 7,784 |
|
Restructuring charges | 2,101 |
| | 3,582 |
| | 5,048 |
| | 7,962 |
| 3,450 |
| | 2,101 |
| | 10,079 |
| | 5,048 |
|
Impairment charges | — |
| | 186,511 |
| | — |
| | 186,511 |
| |
Operating profit (loss) | 13,199 |
| | (172,115 | ) | | 21,670 |
| | (146,744 | ) | |
Impairment & divestiture charges | | 2,987 |
| | — |
| | 2,987 |
| | — |
|
Operating profit | | 9,589 |
| | 13,199 |
| | 24,262 |
| | 21,670 |
|
Financing costs, net | 7,334 |
| | 6,866 |
| | 14,467 |
| | 13,982 |
| 7,604 |
| | 7,334 |
| | 15,118 |
| | 14,467 |
|
Other expense (income), net | 591 |
| | 235 |
| | (38 | ) | | 855 |
| 367 |
| | 591 |
| | 696 |
| | (38 | ) |
Earnings (loss) before income taxes | 5,274 |
| | (179,216 | ) | | 7,241 |
| | (161,581 | ) | |
Earnings before income tax expense (benefit) | | 1,618 |
| | 5,274 |
| | 8,448 |
| | 7,241 |
|
Income tax expense (benefit) | 200 |
| | (20,026 | ) | | (2,798 | ) | | (17,839 | ) | 19,839 |
| | 200 |
| | 21,443 |
| | (2,798 | ) |
Net earnings (loss) | $ | 5,074 |
| | $ | (159,190 | ) | | $ | 10,039 |
| | $ | (143,742 | ) | |
Net (loss) earnings | | $ | (18,221 | ) | | $ | 5,074 |
| | $ | (12,995 | ) | | $ | 10,039 |
|
| | | | | | | | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
(Loss) earnings per share | | | | | | | | |
Basic | $ | 0.09 |
| | $ | (2.70 | ) | | $ | 0.17 |
| | $ | (2.43 | ) | $ | (0.30 | ) | | $ | 0.09 |
| | $ | (0.22 | ) | | $ | 0.17 |
|
Diluted | $ | 0.08 |
| | $ | (2.70 | ) | | $ | 0.17 |
| | $ | (2.43 | ) | $ | (0.30 | ) | | $ | 0.08 |
| | $ | (0.22 | ) | | $ | 0.17 |
|
| | | | | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | |
Basic | 59,368 |
| | 58,991 |
| | 59,170 |
| | 59,089 |
| 60,318 |
| | 59,368 |
| | 60,095 |
| | 59,170 |
|
Diluted | 60,146 |
| | 58,991 |
| | 59,881 |
| | 59,089 |
| 60,318 |
| | 60,146 |
| | 60,095 |
| | 59,881 |
|
| | | | | | | | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 |
Net earnings (loss) | $ | 5,074 |
| | $ | (159,190 | ) | | $ | 10,039 |
| | $ | (143,742 | ) |
Other comprehensive income (loss) | | | | | | | |
Foreign currency translation adjustments | 2,909 |
| | (14,322 | ) | | (23,749 | ) | | (35,496 | ) |
Pension and other postretirement benefit plans, net of tax | 202 |
| | 158 |
| | 738 |
| | 375 |
|
Cash flow hedges, net of tax | — |
| | 13 |
| | — |
| | 36 |
|
Total other comprehensive income (loss), net of tax | 3,111 |
| | (14,151 | ) | | (23,011 | ) | | (35,085 | ) |
Comprehensive income (loss) | $ | 8,185 |
| | $ | (173,341 | ) | | $ | (12,972 | ) |
| $ | (178,827 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended February 28, | | Six Months Ended February 28, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net (loss) earnings | $ | (18,221 | ) | | $ | 5,074 |
| | $ | (12,995 | ) | | $ | 10,039 |
|
Other comprehensive income (loss), net of tax | | | | | | | |
Foreign currency translation adjustments | 13,237 |
| | 2,909 |
| | 16,135 |
| | (23,749 | ) |
Foreign currency translation due to divested business | 67,645 |
| | — |
| | 67,645 |
| | — |
|
Pension and other postretirement benefit plans | 127 |
| | 202 |
| | 254 |
| | 738 |
|
Total other comprehensive income (loss), net of tax | 81,009 |
| | 3,111 |
| | 84,034 |
| | (23,011 | ) |
Comprehensive income (loss) | $ | 62,788 |
| | $ | 8,185 |
| | $ | 71,039 |
|
| $ | (12,972 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | February 28, 2017 | | August 31, 2016 | | February 28, 2018 | | August 31, 2017 |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 171,890 |
| | $ | 179,604 |
| | $ | 153,595 |
| | $ | 229,571 |
|
Accounts receivable, net | | 201,914 |
| | 186,829 |
| | 210,650 |
| | 190,206 |
|
Inventories, net | | 127,573 |
| | 130,756 |
| | 166,227 |
| | 143,651 |
|
Assets held for sale | | | — |
| | 21,835 |
|
Other current assets | | 53,984 |
| | 45,463 |
| | 60,569 |
| | 61,663 |
|
Total current assets | | 555,361 |
| | 542,652 |
| | 591,041 |
| | 646,926 |
|
Property, plant and equipment | | | | | | | | |
Land, buildings and improvements | | 41,147 |
| | 41,504 |
| | 48,457 |
| | 43,737 |
|
Machinery and equipment | | 275,745 |
| | 268,362 |
| | 241,393 |
| | 227,535 |
|
Gross property, plant and equipment | | 316,892 |
| | 309,866 |
| | 289,850 |
| | 271,272 |
|
Less: Accumulated depreciation | | (201,700 | ) | | (195,851 | ) | | (187,439 | ) | | (176,751 | ) |
Property, plant and equipment, net | | 115,192 |
| | 114,015 |
| | 102,411 |
| | 94,521 |
|
Goodwill | | 509,078 |
| | 519,276 |
| | 546,135 |
| | 530,081 |
|
Other intangibles, net | | 225,559 |
| | 239,475 |
| | 216,370 |
| | 220,489 |
|
Other long-term assets | | 21,844 |
| | 23,242 |
| | 24,348 |
| | 24,938 |
|
Total assets | | $ | 1,427,034 |
| | $ | 1,438,660 |
| | $ | 1,480,305 |
| | $ | 1,516,955 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Trade accounts payable | | $ | 124,949 |
| | $ | 115,051 |
| | $ | 136,941 |
| | $ | 133,387 |
|
Accrued compensation and benefits | | 42,363 |
| | 46,901 |
| | 41,518 |
| | 50,939 |
|
Current maturities of debt and short-term borrowings | | 26,250 |
| | 18,750 |
| | 30,000 |
| | 30,000 |
|
Income taxes payable | | 1,113 |
| | 9,254 |
| | 7,687 |
| | 6,080 |
|
Liabilities held for sale | | | — |
| | 101,083 |
|
Other current liabilities | | 49,229 |
| | 51,956 |
| | 58,368 |
| | 57,445 |
|
Total current liabilities | | 243,904 |
| | 241,912 |
| | 274,514 |
| | 378,934 |
|
Long-term debt, net | | 547,058 |
| | 561,681 |
| | 517,318 |
| | 531,940 |
|
Deferred income taxes | | 31,037 |
| | 31,356 |
| | 23,262 |
| | 29,859 |
|
Pension and postretirement benefit liabilities | | 24,142 |
| | 25,667 |
| | 19,338 |
| | 19,862 |
|
Other long-term liabilities | | 55,884 |
| | 57,094 |
| | 56,592 |
| | 55,821 |
|
Total liabilities | | 902,025 |
| | 917,710 |
| | 891,024 |
| | 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 80,063,210 and 79,393,393 shares, respectively | | 16,013 |
| | 15,879 |
| |
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 81,087,904 and 80,200,110 shares, respectively | | | 16,218 |
| | 16,040 |
|
Additional paid-in capital | | 131,877 |
| | 114,980 |
| | 155,974 |
| | 138,449 |
|
Treasury stock, at cost, 20,439,434 shares | | (617,731 | ) | | (617,731 | ) | | (617,731 | ) | | (617,731 | ) |
Retained earnings | | 1,269,684 |
| | 1,259,645 |
| | 1,178,047 |
| | 1,191,042 |
|
Accumulated other comprehensive loss | | (274,834 | ) | | (251,823 | ) | | (143,227 | ) | | (227,261 | ) |
Stock held in trust | | (2,354 | ) | | (2,646 | ) | | (2,848 | ) | | (2,696 | ) |
Deferred compensation liability | | 2,354 |
| | 2,646 |
| | 2,848 |
| | 2,696 |
|
Total shareholders’ equity | | 525,009 |
| | 520,950 |
| | 589,281 |
| | 500,539 |
|
Total liabilities and shareholders’ equity | | $ | 1,427,034 |
| | $ | 1,438,660 |
| | $ | 1,480,305 |
| | $ | 1,516,955 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | Six Months Ended | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | 2018 | | 2017 |
Operating Activities | | | | | | |
Net earnings (loss) | $ | 10,039 |
| | $ | (143,742 | ) | |
Adjustments to reconcile net earnings (loss) to cash provided by operating activities: | | | | |
Net (loss) earnings | | $ | (12,995 | ) | | $ | 10,039 |
|
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities: | | | | |
Impairment & divestiture charges, including tax expense | | 12,385 |
| | — |
|
Depreciation and amortization | 21,625 |
| | 24,858 |
| 20,385 |
| | 21,625 |
|
Stock-based compensation expense | 12,177 |
| | 5,778 |
| |
Benefit for deferred income taxes | 551 |
| | 420 |
| |
Impairment charges, net of deferred tax benefits | — |
| | 169,056 |
| |
Stock based compensation expense | | 8,292 |
| | 12,177 |
|
(Benefit) expense for deferred income taxes | | (7,124 | ) | | 551 |
|
Amortization of debt issuance costs | 826 |
| | 826 |
| 826 |
| | 826 |
|
Other non-cash adjustments | 715 |
| | (619 | ) | 200 |
| | 715 |
|
Changes in components of working capital and other: | | | | |
Changes in components of working capital and other, excluding acquisitions and divestitures: | | | | |
Accounts receivable | (20,897 | ) | | 8,437 |
| (16,872 | ) | | (20,897 | ) |
Inventories | (394 | ) | | (5,399 | ) | (18,433 | ) | | (394 | ) |
Trade accounts payable | 12,276 |
| | (4,926 | ) | (1,753 | ) | | 12,276 |
|
Prepaid expenses and other assets | (10,819 | ) | | (8,404 | ) | (9,168 | ) | | (10,819 | ) |
Income taxes payable/receivable | (7,567 | ) | | (17,437 | ) | 17,505 |
| | (6,918 | ) |
Accrued compensation and benefits | (3,704 | ) | | (2,281 | ) | (9,959 | ) | | (3,704 | ) |
Other accrued liabilities | (795 | ) | | 2,296 |
| (5,395 | ) | | (795 | ) |
Cash provided by operating activities | 14,033 |
| | 28,863 |
| |
Cash (used in) provided by operating activities | | (22,106 | ) | | 14,682 |
|
Investing Activities | | | | | | |
Capital expenditures | (14,695 | ) | | (11,004 | ) | (12,547 | ) | | (14,695 | ) |
Proceeds from sale of property, plant and equipment | 244 |
| | 4,636 |
| 113 |
| | 244 |
|
Business acquisitions, net of cash acquired | — |
| | (15,026 | ) | |
Rental asset buyout for Viking divestiture | | (27,718 | ) | | — |
|
Proceeds from sale of business, net of transaction costs | | 8,780 |
| | — |
|
Cash paid for business acquisitions, net of cash acquired | | (16,517 | ) | | — |
|
Cash used in investing activities | (14,451 | ) | | (21,394 | ) | (47,889 | ) | | (14,451 | ) |
Financing Activities | | | | | | |
Net repayments on revolving credit facilities and other debt | — |
| | (210 | ) | |
Principal repayments on term loan | (7,500 | ) | | — |
| (15,000 | ) | | (7,500 | ) |
Purchase of treasury shares | — |
| | (9,352 | ) | |
Stock option exercises and other | | 10,305 |
| | 5,949 |
|
Taxes paid related to the net share settlement of equity awards | (920 | ) | | (1,332 | ) | (1,107 | ) | | (920 | ) |
Stock option exercises, related tax benefits and other | 6,598 |
| | 2,245 |
| |
Cash dividend | (2,358 | ) | | (2,376 | ) | (2,390 | ) | | (2,358 | ) |
Cash used in financing activities | (4,180 | ) | | (11,025 | ) | (8,192 | ) | | (4,829 | ) |
Effect of exchange rate changes on cash | (3,116 | ) | | (10,619 | ) | 2,211 |
| | (3,116 | ) |
Net decrease in cash and cash equivalents | (7,714 | ) | | (14,175 | ) | (75,976 | ) | | (7,714 | ) |
Cash and cash equivalents – beginning of period | 179,604 |
| | 168,846 |
| |
Cash and cash equivalents – end of period | $ | 171,890 |
| | $ | 154,671 |
| |
Cash and cash equivalents - beginning of period | | 229,571 |
| | 179,604 |
|
Cash and cash equivalents - end of period | | $ | 153,595 |
| | $ | 171,890 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
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, 20162017 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 20162017 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 and six months ended February 28, 20172018 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2017.2018.
New Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which includes amendments that require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the new guidance, the recognition and measurement of debt issuance costs is not affected. This guidance was adopted on September 1, 2016. As a result of adoption, debt issuance costs of $3.9 million were reclassified from other long-term assets to long-term debt, net (contra liability) on the balance sheet as of August 31, 2016. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, further clarifying that ASU 2015-03 relates only to the presentation of debt issuance costs related to term loans and does not relate to lines-of-credit or revolvers. As such, the debt issuance costs related to the Company's revolver remain classified in other long-term assets.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to retrospectively account for changes to provisional amounts initially recorded in a business acquisition opening balance sheet. This guidance was adopted on September 1, 2016. The adoption did not have a material impact on the financial statements of the Company.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends the existing guidance to prohibit immediate recognition of the current and deferred income tax impacts of intra-entity asset transfers. The ASU eliminates this prohibition for all intra-entity asset transfers, except inventory. This guidance was adopted, on a modified retrospective basis, at September 1, 2016. The adoption did not have a material impact on the cumulative retained earnings or on the current condensed consolidated financial statements of the Company.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which willto simplify several aspects of accounting for share-based payment transactions. TheUnder the new guidance will require,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,operations and not in additional paid-in capital (shareholder's equity). This guidance is effective for fiscal years beginning after December 15, 2016 (fiscal 2018 for the Company),was adopted on September 1, 2017 and interim periods within those annual periods. The Company is continuing to evaluate the impact of adopting this standard.guidance had the following effects:
for the three and six months ended February 28, 2018, we recorded $1.3 million and $1.5 million, respectively, in excess tax deficiency as an increase to our income tax expense. This requirement was applied prospectively;
excess tax benefits are now presented as operating activities in the statement of cash flows, rather than as financing activities. The Company chose to apply this requirement retrospectively, and as a result, reclassified approximately $0.6 million of excess tax benefits recognized during the six months ended February 28, 2017 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 2016-12,2017-14, 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, and the treatment of certain costsbut do not expect a material or significant impact to obtain a contract.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 operation,operations, financial position, cash flows and related financial statement disclosures.disclosures upon adoption.
In February 2016,March 2017, the FASB issued ASU 2016-02,2017-07, LeasesCompensation-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 increase transparencybe 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 comparability among organizations by recognizing all lease transactions (with terms in excessoutside of 12 months) on the balance sheet as a lease liability and a right-of-use asset.operating income. This guidance is effective for fiscal years beginning after December 15, 20182017 (fiscal 2020 of2019 for the Company), including and interim periods within those fiscal years. Upon adoption,annual periods. The amendment is to be applied retrospectively. Due to a majority of the lessee will applyCompany's defined benefit pension or other postretirement benefit plans being frozen and the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment innet periodic benefit pension cost not being significant, the year of adoption. The Company is currently gathering, documenting and analyzing lease agreements related this ASU and anticipates material additions to the balance sheet upondoes not believe that adoption of right-of-use assets, offset bythis guidance will have a significant impact on the associated liabilities, due to our routine usefinancial statements of operating leases over time.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 offor the Company), including interim
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 (and subsequent ASU 2018-01), 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.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for Company), including interim periods within those fiscal years. We are currently evaluating the impact of this new standard on our consolidated financial statements.
Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands): |
| | | | | | | |
| | February 28, 2018 | August 31, 2017 |
Foreign currency translation adjustments | | $ | 124,024 |
| $ | 207,804 |
|
Pension and other postretirement benefit plans, net of tax | | 19,203 |
| 19,457 |
|
Accumulated other comprehensive loss | | $ | 143,227 |
| $ | 227,261 |
|
Note 2. Director & Officer Transition Charges
During the six months ended February 28, 2017, 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 $2.1$4.3 million and $3.6$2.1 million in the second quarter of fiscalthree months ended February 28, 2018 and 2017, and 2016, respectively. Year-to-date restructuring charges totaled $5.0$10.9 million and $8.0$5.0 million for fiscal 20172018 and 2016, respectively,2017. Approximately $0.8 million of the restructuring charges recognized in the three and impacted all segments.six months ended February 28, 2018 were reported in the Consolidated Statements of Operations in “Cost of products sold,” with the balance of the charges reported in “Restructuring charges.” 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): | | | | Six Months Ended February 28, 2017 | | Six Months Ended February 28, 2018 |
| | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total | | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total |
Balance as of August 31, 2016 | | $ | 1,343 |
| | $ | 3,021 |
| | $ | 1,863 |
| | $ | 46 |
| | $ | 6,273 |
| |
Balance as of August 31, 2017 | | | $ | 202 |
| | $ | 3,613 |
| | $ | 1,792 |
| | $ | 30 |
| | $ | 5,637 |
|
Restructuring charges | | 1,372 |
| | 48 |
| | 3,546 |
| | 82 |
| | 5,048 |
| | 2,951 |
| | 3,205 |
| | 486 |
| | 4,271 |
| | 10,913 |
|
Cash payments | | (1,394 | ) | | (973 | ) | | (2,312 | ) | | (83 | ) | | (4,762 | ) | | (868 | ) | | (2,666 | ) | | (1,517 | ) | | (1,648 | ) | | (6,699 | ) |
Other non-cash uses of reserve | | (438 | ) | | (14 | ) | | (16 | ) | | (36 | ) | | (504 | ) | | (490 | ) | (1 | ) | (473 | ) | | (192 | ) | | (2,007 | ) | (1) | (3,162 | ) |
Impact of changes in foreign currency rates | | (21 | ) | | 44 |
| | (8 | ) | | — |
| | 15 |
| | (10 | ) | | (83 | ) | | 21 |
| | — |
| | (72 | ) |
Balance as of February 28, 2017 | | $ | 862 |
| | $ | 2,126 |
| | $ | 3,073 |
| | $ | 9 |
| | $ | 6,070 |
| |
Balance as of February 28, 2018 | | | $ | 1,785 |
| | $ | 3,596 |
| | $ | 590 |
| | $ | 646 |
| | $ | 6,617 |
|
(1) Majority of non-cash uses of reserve represents accelerated equity vesting in connection with employee severance agreements.
| | | | Six Months Ended February 29, 2016 | | Six Months Ended February 28, 2017 |
| | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total | | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total |
Balance as of August 31, 2015 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Balance as of August 31, 2016 | | | $ | 1,343 |
| | $ | 3,021 |
| | $ | 1,863 |
| | $ | 46 |
| | $ | 6,273 |
|
Restructuring charges | | 984 |
| | 3,308 |
| | 3,412 |
| | 258 |
| | 7,962 |
| | 1,372 |
| | 48 |
| | 3,546 |
| | 82 |
| | 5,048 |
|
Cash payments | | (361 | ) | | (256 | ) | | (1,120 | ) | | (157 | ) | | (1,894 | ) | | (1,394 | ) | | (973 | ) | | (2,312 | ) | | (83 | ) | | (4,762 | ) |
Other non-cash uses of reserve | | — |
| | (29 | ) | | (136 | ) | | (1 | ) | | (166 | ) | | (438 | ) | | (14 | ) | | (16 | ) | | (36 | ) | | (504 | ) |
Impact of changes in foreign currency rates | | — |
| | (39 | ) | | 11 |
| | — |
| | (28 | ) | | (21 | ) | | 44 |
| | (8 | ) | | — |
| | 15 |
|
Balance as of February 29, 2016 | | $ | 623 |
| | $ | 2,984 |
| | $ | 2,167 |
| | $ | 100 |
| | $ | 5,874 |
| |
Balance as of February 28, 2017 | | | $ | 862 |
| | $ | 2,126 |
| | $ | 3,073 |
| | $ | 9 |
| | $ | 6,070 |
|
Note 4. Acquisitions
During fiscal 2016,The Company acquired the Company completed two acquisitions whichstock and certain assets of Mirage Machines, Ltd. ("Mirage") on December 1, 2017 for a purchase price of $16.5 million, net of cash acquired and subject to closing working capital adjustments plus potential future performance-based consideration. This Energy segment tuck-in acquisition is a provider of industrial and energy maintenance tools. This acquisition resulted in the recognition of goodwill in the condensedCompany’s consolidated financial statements because theirthe purchase price reflected the future earnings and cash flow potential of the acquired companies,Mirage, as well as the complementary strategic fit and resulting synergiessynergies. The Company incurred acquisition transaction costs of $0.3 million in the acquisitions were expectedsix months ended February 28, 2018 (included in selling, administrative and engineering expenses in the condensed consolidated statement of operations) related to bring to existing operations. this acquisition.
The Company makes an initial allocation of the purchase price, at the date of acquisition, based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), through asset appraisals and other sources, the Company will refine its estimates of fair value and adjust the initial purchase price allocation.allocation accordingly.
The Company acquired the stock of Larzep, S.A. ("Larzep") on February 17, 2016 for a purchase price of $15.9 million net of cash acquired. This Industrial segment tuck-in acquisition is headquartered in Mallabia, Spain and is a supplier of hydraulic tools and solutions. Thepreliminary purchase price allocation resulted in $9.7$8.9 million of goodwill (which is not deductible for tax purposes) and $4.8$4.1 million of intangible assets, including $3.6$2.3 million of customer relationshipsindefinite lived tradenames and $1.2$1.8 million of tradenames.amortizable customer relationships.
The Company also acquired the assets of the Middle East, Caspian and the North African business of FourQuest Energy Inc. ("Pipeline and Process Services") for $65.5 million on March 30, 2016. This Hydratight tuck-in acquisition was funded with existing cash and expanded the geographic presence and service offerings of the Energy segment, including pipeline pre-commissioning, engineering, chemical cleaning and leak testing. The preliminary purchase price allocation resulted in $38.6 million of goodwill (which is not deductible for tax purposes) and $8.7 million of intangible assets, including $8.0 million of customer relationships and $0.7 million of non-compete agreements. During fiscal 2017, goodwill related to this acquisition increased by $2.3 million, as a result of adjustments to reflect the fair value of acquired accounts receivables.
The two acquisitions generated combinedNet sales of $8.4$1.9 million and $17.7 millionare included in our consolidated financial results for both the three and six months ended February 28, 2017, respectively. The Company incurred2018 related to Mirage. Because the net sales and earnings impact of the Mirage acquisition transaction costs of $0.7 million and $1.3 million forare not material to the three and six monthsmonth periods ended February 29, 2016, respectively.
The following unaudited28, 2018 and 2017, respectively, the Company has not included the pro forma operating resultsresult disclosures otherwise required for acquisitions. The following table summarizes the preliminary estimated fair value of the Company give effect to these acquisitions as thoughassets acquired and the transactions and related financing activities occurred on September 1, 2015liabilities assumed, at the date of acquisition, for Mirage (in thousands, expect per share amounts)thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 |
Net sales | | | | | | | |
As reported | $ | 258,869 |
| | $ | 263,289 |
| | $ | 524,662 |
| | $ | 568,300 |
|
Pro forma | 258,869 |
| | 275,115 |
| | 524,662 |
| | 591,009 |
|
| | | | | | | |
Net earnings (loss) | | | | | | | |
As reported | $ | 5,074 |
| | $ | (159,190 | ) | | $ | 10,039 |
| | $ | (143,742 | ) |
Pro forma | 5,074 |
| | (157,038 | ) | | 10,039 |
| | (140,198 | ) |
| | | | | | | |
Basic earnings (loss) per share | | | | | | | |
As reported | $ | 0.09 |
| | $ | (2.70 | ) | | $ | 0.17 |
| | $ | (2.43 | ) |
Pro forma | 0.09 |
| | (2.66 | ) | | 0.17 |
| | (2.37 | ) |
| | | | | | | |
Diluted earnings (loss) per share | | | | | | | |
As reported | $ | 0.08 |
| | $ | (2.70 | ) | | $ | 0.17 |
| | $ | (2.43 | ) |
Pro forma | 0.08 |
| | (2.66 | ) | | 0.17 |
| | (2.37 | ) |
|
| | | |
| Total |
Accounts receivable, net | $ | 1,090 |
|
Inventories, net | 3,004 |
|
Other current assets | 90 |
|
Property, plant & equipment | 2,014 |
|
Goodwill | 8,856 |
|
Other intangible assets, net | 4,126 |
|
Trade accounts payable | (1,299 | ) |
Accrued compensation and benefits | (97 | ) |
Income taxes payable | (586 | ) |
Deferred income taxes | (681 | ) |
Cash paid, net of cash acquired | $ | 16,517 |
|
Note 5. Divestiture Activities
On August 25, 2016,December 1, 2017, the Company completed the divestituresale of its Sanlothe Viking business (Engineered Solutions segment) for $9.7net cash proceeds of $8.8 million, in cash, net of transaction costs. This divestiture resulted in a $5.1 million pre-tax loss, but acosts of $1.6 million, gain net of tax, insubject to closing working capital adjustments. In the fourthsecond quarter of fiscal 2016. 2018, we recognized an after-tax impairment and divestiture charge of $12.4 million comprised of real estate lease exit charges related to retained facilities that became vacant as a result of the Viking divestiture ($3.0 million) and approximately $9.4 million of associated discrete income
tax expense. The divestiture results in the Company's exit from the offshore mooring market and will significantly limit our exposure to the upstream, offshore oil & gas market.
The results of the SanloViking business (which had net sales of $2.5 million and $5.5 million for the three and six months ended February 29, 2016) are not material to the consolidated financial results of the Company and are included in continuing operations. The Viking business had net sales of $6.0 million and $11.5 million in the results from continuing operations in fiscal 2016.three and six months ended February 28, 2017, respectively. In addition, net sales were $2.7 million for the six months ended February 28, 2018.
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 valueamount of goodwill for the six months ended February 28, 20172018 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Industrial | | Energy | | Engineered Solutions | | Total |
Balance as of August 31, 2016 | $ | 101,739 |
| | $ | 187,321 |
| | $ | 230,216 |
| | $ | 519,276 |
|
Purchase accounting adjustments | (59 | ) | | 2,320 |
| | — |
| | 2,261 |
|
Impact of changes in foreign currency rates | (1,812 | ) | | (4,947 | ) | | (5,700 | ) | | (12,459 | ) |
Balance as of February 28, 2017 | $ | 99,868 |
| | $ | 184,694 |
| | $ | 224,516 |
| | $ | 509,078 |
|
|
| | | | | | | | | | | | | | | |
| Industrial | | Energy | | Engineered Solutions | | Total |
Balance as of August 31, 2017 | $ | 103,875 |
| | $ | 188,830 |
| | $ | 237,376 |
| | $ | 530,081 |
|
Business acquisitions | — |
| | 8,856 |
| | — |
| | 8,856 |
|
Impact of changes in foreign currency rates | 968 |
| | 4,180 |
| | 2,050 |
| | 7,198 |
|
Balance as of February 28, 2018 | $ | 104,843 |
| | $ | 201,866 |
| | $ | 239,426 |
| | $ | 546,135 |
|
The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
| | | | February 28, 2017 | | August 31, 2016 | | February 28, 2018 | | August 31, 2017 |
| Weighted Average Amortization Period (Years) | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value | 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 | | $ | 287,584 |
| | $ | 171,853 |
| | $ | 115,731 |
| | $ | 292,671 |
| | $ | 166,252 |
| | $ | 126,419 |
| 15 | | $ | 268,105 |
| | $ | 163,676 |
| | $ | 104,429 |
| | $ | 263,498 |
| | $ | 153,003 |
| | $ | 110,495 |
|
Patents | 11 | | 29,992 |
| | 23,047 |
| | 6,945 |
| | 30,296 |
| | 22,233 |
| | 8,063 |
| 10 | | 30,538 |
| | 24,918 |
| | 5,620 |
| | 30,401 |
| | 24,027 |
| | 6,374 |
|
Trademarks and tradenames | 18 | | 21,200 |
| | 8,503 |
| | 12,697 |
| | 21,283 |
| | 7,936 |
| | 13,347 |
| 18 | | 21,396 |
| | 10,015 |
| | 11,381 |
| | 21,498 |
| | 9,396 |
| | 12,102 |
|
Other intangibles | 3 | | 6,506 |
| | 5,950 |
| | 556 |
| | 6,627 |
| | 5,890 |
| | 737 |
| 3 | | 6,777 |
| | 6,458 |
| | 319 |
| | 6,672 |
| | 6,234 |
| | 438 |
|
Indefinite lived intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Tradenames | N/A | | 89,630 |
| | — |
| | 89,630 |
| | 90,909 |
| | — |
| | 90,909 |
| N/A | | 94,621 |
| | — |
| | 94,621 |
| | 91,080 |
| | — |
| | 91,080 |
|
| | $ | 434,912 |
| | $ | 209,353 |
| | $ | 225,559 |
| | $ | 441,786 |
| | $ | 202,311 |
| | $ | 239,475 |
| | $ | 421,437 |
| | $ | 205,067 |
| | $ | 216,370 |
| | $ | 413,149 |
| | $ | 192,660 |
| | $ | 220,489 |
|
The Company estimates that amortization expense will be $10.0$10.4 million for the remaining six months of fiscal 2017.2018. Amortization expense for future years is estimated to be: $19.9$20.2 million in fiscal 2018, $19.32019, $19.5 million in 2019, $18.7 million in fiscal 2020, $17.8$18.6 million in fiscal 2021, $15.8$16.6 million in fiscal 2022, $13.6 million in fiscal 2023 and $34.4$22.9 million thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates.
Fiscal 2016 Interim Impairment ChargeThe prolonged unfavorable conditions in the global oil & gas markets, including additional cuts in projected capital spending by energy customers, reduced exploration, drilling and commissioning activities and excess capacity in the industry were expected to have an adverse impact on the future financial results of the Cortland and Viking businesses. Accordingly, during the second quarter of fiscal 2016, the Company recognized a $140.9 million impairment charge (as a result of lower projected future sales and profits) related to the Cortland and Viking businesses.
Additionally, weakness in off-highway vehicle and agricultural markets, coupled with challenging overall industrial fundamentals, reductions in OEM customer build rates and production schedules and delays in the start of production by certain European OEMs for new or updated design models resulted in reduced sales and profitability of the maximatecc business. As a result of lower projected sales and profits, during the second quarter of fiscal 2016, the Company recognized a $45.7 million impairment charge related to the maximatecc business.
A summary of the second quarter fiscal 2016 impairment charge by reporting unit is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Cortland | | Viking | | maximatecc | | Total |
Goodwill | $ | 34,502 |
| | $ | 39,099 |
| | $ | 44,521 |
| | $ | 118,122 |
|
Indefinite lived intangible assets | 2,211 |
| | 13,289 |
| | 1,153 |
| | 16,653 |
|
Amortizable intangible assets | — |
| | 27,952 |
| | — |
| | 27,952 |
|
Fixed assets | — |
| | 23,784 |
| | — |
| | 23,784 |
|
| $ | 36,713 |
| | $ | 104,124 |
| | $ | 45,674 |
| | $ | 186,511 |
|
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 reservereserves for the six months ended February 28, 2018 and 2017 (in thousands):
| | | Six Months Ended | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | 2018 | | 2017 |
Beginning balance | $ | 5,592 |
| | $ | 3,718 |
| $ | 6,616 |
| | $ | 5,592 |
|
Provision for warranties | 1,482 |
| | 2,096 |
| 3,403 |
| | 1,482 |
|
Warranty payments and costs incurred | (3,096 | ) | | (2,297 | ) | (3,582 | ) | | (3,096 | ) |
Impact of changes in foreign currency rates | (101 | ) |
| (66 | ) | 213 |
|
| (101 | ) |
Ending balance | $ | 3,877 |
| | $ | 3,451 |
| $ | 6,650 |
| | $ | 3,877 |
|
Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
| | | February 28, 2017 | | August 31, 2016 | February 28, 2018 | | August 31, 2017 |
Senior Credit Facility | | | | | | |
Revolver ($600 million) | $ | — |
| | $ | — |
| |
Revolver | | $ | — |
| | $ | — |
|
Term Loan | 288,750 |
| | 296,250 |
| 262,500 |
| | 277,500 |
|
Total Senior Credit Facility | 288,750 |
| | 296,250 |
| 262,500 |
| | 277,500 |
|
5.625% Senior Notes | 288,059 |
| | 288,059 |
| 287,559 |
| | 287,559 |
|
Total Senior Indebtedness | 576,809 |
| | 584,309 |
| 550,059 |
| | 565,059 |
|
Less: Current maturities of long-term debt | (26,250 | ) | | (18,750 | ) | (30,000 | ) | | (30,000 | ) |
Debt issuance costs | (3,501 | ) | | (3,878 | ) | (2,741 | ) | | (3,119 | ) |
Total long-term debt, net | $ | 547,058 |
| | $ | 561,681 |
| $ | 517,318 |
| | $ | 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 February 28, 2017,2018, the borrowing spread on LIBOR based borrowings was 2.00% (aggregating to a 2.75%3.69% variable rate borrowing cost)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 February 28, 2017,2018, the unused credit line under the revolver was $595.6$597.1 million, of which $96.7$83.7 million was available for borrowing. The amount immediately available for borrowing represents the maximum additional borrowings that could be utilized by the Company (based upon current earnings and net debt) without violating compliance with the associated financial covenants described below. Quarterly term loan principal payments of $3.8 million began on June 30, 2016, and increaseincreased 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 February 28, 2017.2018.
On April 16, 2012, the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $288.1$287.6 million remains outstanding at February 28, 2017 and August 31, 2016.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, foreign currency derivatives, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both February 28, 20172018 and August 31, 20162017 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 liability of $0.1 million and $0.2 million at February 28, 2018 and August 31, 2017, respectively. 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 $296.7$293.3 million and $299.6$295.8 million at February 28, 20172018 and August 31, 2016,2017, 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
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 hedges certain portions of its recognized balances and forecasted cash flows that are denominated in non-functional currencies. All derivatives are recognized in the balance sheet at their estimated fair value. On the date itthe Company enters into a derivative contract, the Companyit designates the derivative as a hedge of a recognized asset or liability ("fair(fair value hedge")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(cash flow hedge")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
of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows.
The U.S. dollar equivalent notionalCompany 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). However, there were no cash flow hedges outstanding at February 28, 2018 and August 31, 2017.
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 short durationthe foreign currency forwardexchange contracts (fair value hedgesand the related non-functional currency asset or non-designated hedges) was $38.7 million and $143.4 million, at February 28, 2017 and August 31, 2016, respectively. Net foreign currency gains (losses) related to these derivative instruments are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 |
Foreign currency (loss) gain | $ | (474 | ) | | $ | 1,062 |
| | $ | (1,966 | ) | | $ | (634 | ) |
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 (income), net in the condensed consolidated statement of operations). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $26.5 million and $22.0 million at February 28, 2018 and August 31, 2017, respectively. The fair value of outstanding foreign currency exchange contracts was a net liability of $0.1 million and $0.2 million at February 28, 2018 and August 31, 2017, respectively. Net foreign currency gain (loss) related to these derivative instruments were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended February 28, | | Six Months Ended February 28, |
| 2018 | | 2017 | | 2018 | | 2017 |
Foreign currency (loss) gain, net | $ | (74 | ) | | $ | (474 | ) | | $ | 140 |
| | $ | (1,966 | ) |
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 publicypublicly 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 $618$617.7 million. As of February 28, 2017,2018, 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 and six months ended February 28, 2017, respectively.
2018.
The reconciliation between basic and diluted (loss) earnings per share is as follows (in thousands, except per share amounts): | | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Numerator: | | | | | | | | | | | | | | |
Net earnings (loss) | $ | 5,074 |
| | $ | (159,190 | ) | | $ | 10,039 |
| | $ | (143,742 | ) | |
Net (loss) earnings | | $ | (18,221 | ) | | $ | 5,074 |
| | $ | (12,995 | ) | | $ | 10,039 |
|
Denominator: | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | 59,368 |
| | 58,991 |
| | 59,170 |
| | 59,089 |
| 60,318 |
| | 59,368 |
| | 60,095 |
| | 59,170 |
|
Net effect of dilutive securities - stock based compensation plans(1) | 778 |
| | — |
| | 711 |
| | — |
| — |
| | 778 |
| | — |
| | 711 |
|
Weighted average common shares outstanding - diluted | 60,146 |
| | 58,991 |
| | $ | 59,881 |
| | $ | 59,089 |
| 60,318 |
| | 60,146 |
| | $ | 60,095 |
| | $ | 59,881 |
|
| | | | | | | | | | | | | | |
Basic earnings (loss) per share | $ | 0.09 |
| | $ | (2.70 | ) | | $ | 0.17 |
| | $ | (2.43 | ) | |
Diluted earnings (loss) per share | 0.08 |
| | (2.70 | ) | | 0.17 |
| | (2.43 | ) | |
Basic (loss) earnings per share | | $ | (0.30 | ) | | $ | 0.09 |
| | $ | (0.22 | ) | | $ | 0.17 |
|
Diluted (loss) earnings per share | | (0.30 | ) | | 0.08 |
| | (0.22 | ) | | 0.17 |
|
| | | | | | | | | | | | | | |
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation) | 2,011 |
| | 5,146 |
| | 1,987 |
| | 5,146 |
| 3,397 |
| | 2,011 |
| | 2,613 |
| | 1,987 |
|
(1)As a result of the net loss for the three and six months ended February 28, 2018, shares from stock based compensation plans are excluded from the calculation of diluted (loss) earnings per share, as the result would be anti-dilutive.
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, changes in tax laws, acquisitions and divestitures 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 the currentfiscal 2018 and prior year2017 include the benefits of tax planning initiatives. Comparative earnings (loss) before income taxes, income tax expense (benefit)or benefit and effective income tax rates are as follows (amounts in thousands):
| | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Earnings (loss) before income taxes | $ | 5,274 |
| | $ | (179,216 | ) | | $ | 7,241 |
| | $ | (161,581 | ) | $ | 1,618 |
| | $ | 5,274 |
| | $ | 8,448 |
| | $ | 7,241 |
|
Income tax expense (benefit) | 200 |
| | (20,026 | ) | | (2,798 | ) | | (17,839 | ) | 19,839 |
| | 200 |
| | 21,443 |
| | (2,798 | ) |
Effective income tax rate | 3.8 | % | | 11.2 | % | | (38.6 | )% | | 11.0 | % | 1,226.1 | % | | 3.8 | % | | 253.8 | % | | (38.6 | )% |
Adjusted effective income tax rate (1) | 3.8 | % | | (35.6 | )% | | (38.6 | )% | | (1.6 | )% | |
(1)AdjustedThe Company’s income tax expense and effective tax rates during the three and six months ended February 28, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. The Act includes significant changes to the U.S. corporate income tax system which reduce the U.S. federal corporate income tax rate excludesfrom 35.0% to 21.0% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax; and creates new taxes on certain foreign-sourced earnings. The decrease in the impairment chargeU.S. federal corporate income tax rate from 35.0% to 21.0% results in a blended statutory tax rate of $186.5 million ($169.1 million after tax)25.7% for the fiscal year ending August 31, 2018. The new taxes for certain foreign-sourced earnings under the Act are effective for the Company in fiscal 2016.2019.
Income tax effects resulting from changes in tax laws are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of income tax expense or benefit. As a result, the Company recorded provisional income tax expense resulting from the Act totaling $8.4 million during the three and six months ended February 28, 2018, which includes (i) a transition tax of $16.2 million on the Company’s total post-1986 earnings and profits (“E&P”) which, prior to the Act, were previously deferred from U.S. income tax, (ii) a $16.7 million decrease in income tax expense as a result of the re-measurement of the Company’s deferred tax assets and liabilities to the new corporate tax rate of 21% and (iii) $8.9 million in valuation allowances recorded against foreign tax credits as future utilization is now uncertain.
The amounts recorded are provisional and represent the Company’s best estimate of the tax effects of the Act as of February 28, 2018. Amounts recorded are based in part on a reasonable estimate of the effects on its transition tax and existing deferred tax balances which are subject to change and modification. Provisional amounts recorded may change as a result of the following:
The amount recorded for the transition tax liability is a provisional amount based on current estimates of total post-1986 foreign E&P and the income tax pools for all foreign subsidiaries which will continue to be refined over the coming periods. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets as of August 31, 2018. Further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional tax liability or the accounting treatment of the provisional tax liability. It is anticipated that the amounts resulting from the transition tax will be fully offset by available foreign tax credits and will not result in future cash tax payments. In addition, there is a foreign tax credit carryforward on the balance sheet after the calculation of the transition tax liability. The Company is continuing to analyze the new provisions in order to determine future utilization of the credits and is anticipating further interpretive guidance in connection with the utilization of foreign tax credits going forward. As such, we are not yet able to reasonably estimate the future utilization of the foreign tax credits and have recorded the aforementioned valuation allowance.
The Company is still analyzing certain aspects of the Act and refining the estimate of the expected revaluation of its deferred tax balances. This can potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In addition, the Act provides for accelerated first year expensing of certain capital expenditures for which an estimate has been included in the estimated deferred balances for the year but will continue to be refined as the year progresses. The Act also provides changes related to the limits of deduction for employee compensation. The Company is treating any future non-deductible compensation as impacting deductible compensation expenses in the period incurred until further guidance is provided.
The Act also includes a provision designed to tax global intangible low taxed income (GILTI) which will be effective in fiscal 2019. Under the provision, a U.S. shareholder is required to include in gross income the amount of its GILTI, which
is generally the net income of its controlled foreign corporations in excess of a 10% return on depreciable tangible assets after identification of other income subject to non-deferral rules. Due to the complexity of the new GILTI tax rules and uncertainty of the application of the foreign tax credit rules in relation to GILTI, we are continuing to evaluate this provision of the Act, the application of ASC 740, and are considering available accounting policy alternatives to either record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect a tax liability resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes. Whether we intend to recognize deferred tax liabilities related to the GILTI provisions is dependent, in part, on our assessment of the Company's future operating structure. In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act. Therefore, we have not made any adjustments relating to potential GILTI tax in our consolidated financial statements and have not made a policy decision regarding our accounting for GILTI.
Prior to the Act, our practice and intention was to reinvest the earnings in our non-U.S. subsidiaries outside of the U.S., and no U.S. deferred income taxes or foreign withholding taxes were recorded. The transition tax noted above will result in the previously untaxed foreign earnings being included in the federal and state fiscal 2018 taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which may include withholding taxes, local country taxes and potential U.S. state taxation. Furthermore, the transition tax will reduce the outside basis differences in our foreign corporations and any remaining temporary difference will potentially have some interaction with the GILTI tax noted above. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act and have not recorded any withholding or state tax liabilities, any deferred taxes attributable to GILTI (as noted above) or any deferred taxes attributable to our investment in our foreign subsidiaries.
We are also currently analyzing certain additional provisions of the Act that come into effect in fiscal 2019 and will determine if and how these items would impact the effective tax rate in the year the income or expense occurs. These provisions include the Base Erosion Anti-Abuse Tax (BEAT), eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.
The effective tax rate for the six months ended February 28, 2018 was 253.8% compared to (38.6)% for the comparable prior year period. The effective tax rate for the current year results in significantly greater tax expense than the comparable prior year period due to recording the effects of the Act as described above. Additionally, the six months ended February 28, 2018 also include discrete income tax expense of $9.4 million related to the Viking divestiture and $1.5 million related to the shortfall of tax benefits on deductible equity compensation and expiration of unexercised stock options. Both the current and prior year effective income tax rates were impacted by the proportion of earnings in foreign jurisdictions with(with income tax rates lower than the U.S. federal income tax raterate) and the amount of income tax benefits derived from tax planning initiatives. The Company's earnings (loss) before income taxes, excluding impairment charges,initiatives which were made up of 85% of earnings from foreign jurisdictions in both fiscal 2017 and 2016. This foreign income tax rate differential had the effect of reducing the effective income tax rate from the 35% U.S. statutory tax rate by 21.2% and by 19.6%, in fiscal 2017 and 2016, respectively, excluding the second quarter fiscal 2016 impairment charge.comparable between years. In addition, the recognition of income tax planning benefits resulting from certain losses from prior years for which no benefit was previously recognized resultedCompany may release a material valuation allowance in a 19.4% reduction fromforeign jurisdiction in late fiscal 2018 or in fiscal 2019, if the 35% U.S. statutoryCompany determines that it is more likely than not the deferred tax rate for fiscal 2017. Income tax planning benefits related to certain foreign currency gains and losses recognized for tax purposes resulted in a 10.1% reduction from the 35% U.S. statutory tax rate for fiscal 2016, excluding the impairment charge. The tax benefits related to these 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.assets will be realized.
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. During 2017, the Company rebranded its Integrated Solutions product line to Heavy Lifting
Technology to align the brand with the solutions offered. 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. Divestiture of the Viking business during the quarter 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.
The following tables summarize financial information by reportable segment and product line (in thousands): | | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net Sales by Reportable Product Line & Segment: | | | | | | | | | | | | | | |
Industrial Segment: | | | | | | | | | | | | | | |
Industrial Tools | $ | 78,679 |
| | $ | 72,095 |
| | $ | 157,718 |
| | $ | 151,828 |
| $ | 87,438 |
| | $ | 78,679 |
| | $ | 171,949 |
| | $ | 157,718 |
|
Heavy Lifting Technology | 12,969 |
| | 9,093 |
| | 21,220 |
| | 18,231 |
| 11,643 |
| | 12,969 |
| | 24,048 |
| | 21,220 |
|
| 91,648 |
| | 81,188 |
| | 178,938 |
| | 170,059 |
| 99,081 |
| | 91,648 |
| | 195,997 |
| | 178,938 |
|
Energy Segment: | | | | | | | | | | | | | | |
Energy Maintenance & Integrity | 51,590 |
| | 58,551 |
| | 116,411 |
| | 137,385 |
| 48,889 |
| | 51,590 |
| | 105,598 |
| | 116,411 |
|
Other Energy Solutions | 21,294 |
| | 27,674 |
| | 41,119 |
| | 62,602 |
| 17,103 |
| | 21,294 |
| | 36,235 |
| | 41,119 |
|
| 72,884 |
| | 86,225 |
| | 157,530 |
| | 199,987 |
| 65,992 |
| | 72,884 |
| | 141,833 |
| | 157,530 |
|
Engineered Solutions Segment: | | | | | | | | | | | | | | |
On-Highway | 50,611 |
| | 49,434 |
| | 102,242 |
| | 103,510 |
| 59,297 |
| | 50,611 |
| | 124,179 |
| | 102,242 |
|
Agriculture, Off-Highway and Other | 43,726 |
| | 46,442 |
| | 85,952 |
| | 94,744 |
| 50,795 |
| | 43,726 |
| | 102,111 |
| | 85,952 |
|
| 94,337 |
| | 95,876 |
| | 188,194 |
| | 198,254 |
| 110,092 |
| | 94,337 |
| | 226,290 |
| | 188,194 |
|
| $ | 258,869 |
| | $ | 263,289 |
| | $ | 524,662 |
| | $ | 568,300 |
| $ | 275,165 |
| | $ | 258,869 |
| | $ | 564,120 |
| | $ | 524,662 |
|
Operating Profit (Loss): | | | | | | | | | | | | | | |
Industrial | $ | 18,380 |
| | $ | 16,728 |
| | $ | 37,155 |
| | $ | 37,283 |
| $ | 16,781 |
| | $ | 18,380 |
| | $ | 35,024 |
| | $ | 37,155 |
|
Energy (1) | (579 | ) | | (136,766 | ) | | 2,632 |
| | (126,673 | ) | (4,513 | ) | | (579 | ) | | (4,220 | ) | | 2,632 |
|
Engineered Solutions (2) | 1,816 |
| | (45,116 | ) | | 2,571 |
| | (41,594 | ) | 2,209 |
| | 1,816 |
| | 8,543 |
| | 2,571 |
|
General Corporate | (6,418 | ) | | (6,961 | ) | | (20,688 | ) | | (15,760 | ) | (4,888 | ) | | (6,418 | ) | | (15,085 | ) | | (20,688 | ) |
| $ | 13,199 |
| | $ | (172,115 | ) | | $ | 21,670 |
| | $ | (146,744 | ) | $ | 9,589 |
| | $ | 13,199 |
| | $ | 24,262 |
| | $ | 21,670 |
|
(1)Energy segment operating (loss) profit (loss) includes an impairment chargeand divestiture charges of $140.9$3.0 million for both the three and six months ended February 29, 2016.
(2) Engineered Solutions segment operating profit (loss) includes an impairment charge of $45.7 million for the three and six months ended February 29, 2016.28, 2018.
| | | February 28, 2017 | | August 31, 2016 | February 28, 2018 | | August 31, 2017 |
Assets by Segment: | | | | | | |
Industrial | $ | 310,197 |
| | $ | 308,222 |
| $ | 324,477 |
| | $ | 329,134 |
|
Energy | 501,824 |
| | 479,169 |
| 464,018 |
| | 482,963 |
|
Engineered Solutions | 490,814 |
| | 493,840 |
| 548,547 |
| | 531,068 |
|
General Corporate | 124,199 |
| | 157,429 |
| 143,263 |
| | 173,790 |
|
| $ | 1,427,034 |
| | $ | 1,438,660 |
| $ | 1,480,305 |
| | $ | 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.
Note 14. ContingenciesCommitments and LitigationContingencies
The Company had outstanding letters of credit of $16.623.4 million and $17.822.1 million at February 28, 20172018 and August 31, 20162017, 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 $14.1$12.1 million using a weighted average discount rate of 3.15% at February 28, 20172018 (including $11.3 million related to the former Electrical segment).
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$300.0 million of 5.625% Senior Notes, of which $288.1$287.6 million remains outstanding as of February 28, 2017.2018. 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. 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.
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.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 28, 2018 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 36,219 |
| | $ | 83,072 |
| | $ | 155,874 |
| | $ | — |
| | $ | 275,165 |
|
Cost of products sold | 5,848 |
| | 63,979 |
| | 115,642 |
| | — |
| | 185,469 |
|
Gross profit | 30,371 |
| | 19,093 |
| | 40,232 |
| | — |
| | 89,696 |
|
Selling, administrative and engineering expenses | 18,190 |
| | 17,232 |
| | 33,080 |
| | — |
| | 68,502 |
|
Amortization of intangible assets | 318 |
| | 2,861 |
| | 1,989 |
| | — |
| | 5,168 |
|
Restructuring charges | 194 |
| | 909 |
| | 2,347 |
| | — |
| | 3,450 |
|
Impairment & divestiture charges | 4,217 |
| | — |
| | (1,230 | ) | | — |
| | 2,987 |
|
Operating profit (loss) | 7,452 |
| | (1,909 | ) | | 4,046 |
| | — |
| | 9,589 |
|
Financing costs (income), net | 7,777 |
| | 22 |
| | (195 | ) | | — |
| | 7,604 |
|
Intercompany (income) expense, net | (5,042 | ) | | 5,419 |
| | (377 | ) | | — |
| | — |
|
Other expense, net | 90 |
| | 49 |
| | 228 |
| | — |
| | 367 |
|
Earnings (loss) before income taxes | 4,627 |
| | (7,399 | ) | | 4,390 |
| | — |
| | 1,618 |
|
Income tax expense (benefit) | 10,612 |
| | (2,234 | ) | | 11,461 |
| | — |
| | 19,839 |
|
Net loss before equity in loss of subsidiaries | (5,985 | ) | | (5,165 | ) | | (7,071 | ) | | — |
| | (18,221 | ) |
Equity in loss of subsidiaries | (12,236 | ) | | (9,454 | ) | | (1,459 | ) | | 23,149 |
| | — |
|
Net loss | $ | (18,221 | ) | | $ | (14,619 | ) | | $ | (8,530 | ) | | $ | 23,149 |
| | $ | (18,221 | ) |
Comprehensive income (loss) | $ | 62,788 |
| | $ | (14,619 | ) | | $ | 74,820 |
| | $ | (60,201 | ) | | $ | 62,788 |
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 28, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 34,953 |
| | $ | 80,973 |
| | $ | 142,943 |
| | $ | — |
| | $ | 258,869 |
|
Cost of products sold | 10,049 |
| | 61,821 |
| | 99,673 |
| | — |
| | 171,543 |
|
Gross profit | 24,904 |
| | 19,152 |
| | 43,270 |
| | — |
| | 87,326 |
|
Selling, administrative and engineering expenses | 18,553 |
| | 16,549 |
| | 31,855 |
| | — |
| | 66,957 |
|
Amortization of intangible assets | 318 |
| | 2,918 |
| | 1,833 |
| | — |
| | 5,069 |
|
Restructuring charges | 372 |
| | 441 |
| | 1,288 |
| | — |
| | 2,101 |
|
Operating profit (loss) | 5,661 |
| | (756 | ) | | 8,294 |
| | — |
| | 13,199 |
|
Financing costs (income), net | 7,430 |
| | — |
| | (96 | ) | | — |
| | 7,334 |
|
Intercompany (income) expense, net | (7,882 | ) | | 11,242 |
| | (3,360 | ) | | — |
| | — |
|
Intercompany dividends | — |
| | (4,258 | ) | | — |
| | 4,258 |
| | — |
|
Other (income) expense, net | (48 | ) | | (4 | ) | | 643 |
| | — |
| | 591 |
|
Earnings (loss) before income taxes | 6,161 |
| | (7,736 | ) | | 11,107 |
| | (4,258 | ) | | 5,274 |
|
Income tax expense (benefit) | 151 |
| | (667 | ) | | 716 |
| | — |
| | 200 |
|
Net earnings (loss) before equity in (loss) earnings of subsidiaries | 6,010 |
| | (7,069 | ) | | 10,391 |
| | (4,258 | ) | | 5,074 |
|
Equity in earnings (loss) of subsidiaries | (936 | ) | | 8,057 |
| | (268 | ) | | (6,853 | ) | | — |
|
Net earnings | $ | 5,074 |
| | $ | 988 |
| | $ | 10,123 |
| | $ | (11,111 | ) | | $ | 5,074 |
|
Comprehensive income | $ | 8,185 |
| | $ | 1,324 |
| | $ | 12,828 |
| | $ | (14,152 | ) | | $ | 8,185 |
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | Three Months Ended February 29, 2016 | Six Months Ended February 28, 2018 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 32,399 |
| | $ | 84,099 |
| | $ | 146,791 |
| | $ | — |
| | $ | 263,289 |
| $ | 71,929 |
| | $ | 170,906 |
| | $ | 321,285 |
| | $ | — |
| | $ | 564,120 |
|
Cost of products sold | 12,077 |
| | 61,815 |
| | 98,367 |
| | — |
| | 172,259 |
| 12,811 |
| | 128,553 |
| | 232,149 |
| | — |
| | 373,513 |
|
Gross profit | 20,322 |
| | 22,284 |
| | 48,424 |
| | — |
| | 91,030 |
| 59,118 |
| | 42,353 |
| | 89,136 |
| | — |
| | 190,607 |
|
Selling, administrative and engineering expenses | 17,117 |
| | 17,309 |
| | 32,746 |
| | — |
| | 67,172 |
| 37,905 |
| | 35,680 |
| | 69,395 |
| | — |
| | 142,980 |
|
Amortization of intangible assets | 318 |
| | 3,336 |
| | 2,226 |
| | — |
| | 5,880 |
| 636 |
| | 5,722 |
| | 3,941 |
| | — |
| | 10,299 |
|
Restructuring charges | 79 |
| | 2,446 |
| | 1,057 |
| | — |
| | 3,582 |
| 5,550 |
| | 1,078 |
| | 3,451 |
| | — |
| | 10,079 |
|
Impairment charges | — |
| | 49,012 |
| | 137,499 |
| | — |
| | 186,511 |
| |
Impairment & divestiture charges | | 4,217 |
| | — |
| | (1,230 | ) | | — |
| | 2,987 |
|
Operating profit (loss) | 2,808 |
| | (49,819 | ) | | (125,104 | ) | | — |
| | (172,115 | ) | 10,810 |
| | (127 | ) | | 13,579 |
| | — |
| | 24,262 |
|
Financing costs (income), net | 7,308 |
| | — |
| | (442 | ) | | — |
| | 6,866 |
| 15,400 |
| | 43 |
| | (325 | ) | | — |
| | 15,118 |
|
Intercompany (income) expense, net | (5,465 | ) | | (1,072 | ) | | 6,537 |
| | — |
| | — |
| (9,919 | ) | | 10,903 |
| | (984 | ) | | — |
| | — |
|
Intercompany dividends | — |
| | — |
| | (5,338 | ) | | 5,338 |
| | — |
| |
Other expense (income), net | 200 |
| | (28 | ) | | 63 |
| | — |
| | 235 |
| |
Other expense, net | | 40 |
| | 94 |
| | 562 |
| | — |
| | 696 |
|
Earnings (loss) before income taxes | 765 |
| | (48,719 | ) | | (125,924 | ) | | (5,338 | ) | | (179,216 | ) | 5,289 |
| | (11,167 | ) | | 14,326 |
| | — |
| | 8,448 |
|
Income tax benefit | (1,648 | ) | | (1,000 | ) | | (17,378 | ) | | — |
| | (20,026 | ) | |
Net earnings (loss) before equity in (loss) earnings of subsidiaries | 2,413 |
| | (47,719 | ) | | (108,546 | ) | | (5,338 | ) | | (159,190 | ) | |
Equity in (loss) earnings of subsidiaries | (161,603 | ) | | (97,943 | ) | | 229 |
| | 259,317 |
| | — |
| |
Income tax expense (benefit) | | 10,327 |
| | (1,797 | ) | | 12,913 |
| | — |
| | 21,443 |
|
Net (loss) earnings before equity in loss of subsidiaries | | (5,038 | ) | | (9,370 | ) | | 1,413 |
| | — |
| | (12,995 | ) |
Loss in earnings of subsidiaries | | (7,957 | ) | | (661 | ) | | (1,505 | ) | | 10,123 |
| | — |
|
Net loss | $ | (159,190 | ) | | $ | (145,662 | ) | | $ | (108,317 | ) | | $ | 253,979 |
| | $ | (159,190 | ) | $ | (12,995 | ) | | $ | (10,031 | ) | | $ | (92 | ) | | $ | 10,123 |
| | $ | (12,995 | ) |
Comprehensive loss | $ | (173,341 | ) | | $ | (162,285 | ) | | $ | (106,174 | ) | | $ | 268,459 |
| | $ | (173,341 | ) | |
Comprehensive income (loss) | | $ | 71,039 |
| | $ | (10,031 | ) | | $ | 86,386 |
| | $ | (76,355 | ) | | $ | 71,039 |
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended February 28, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 66,682 |
| | $ | 165,249 |
| | $ | 292,731 |
| | $ | — |
| | $ | 524,662 |
|
Cost of products sold | 17,143 |
| | 123,237 |
| | 203,889 |
| | — |
| | 344,269 |
|
Gross profit | 49,539 |
| | 42,012 |
| | 88,842 |
| | — |
| | 180,393 |
|
Selling, administrative and engineering expenses | 36,520 |
| | 33,185 |
| | 65,856 |
| | — |
| | 135,561 |
|
Amortization of intangible assets | 636 |
| | 5,994 |
| | 3,700 |
| | — |
| | 10,330 |
|
Restructuring charges | 727 |
| | 1,164 |
| | 3,157 |
| | — |
| | 5,048 |
|
Director & officer transition charges | 7,784 |
| | — |
| | — |
| | — |
| | 7,784 |
|
Operating profit | 3,872 |
| | 1,669 |
| | 16,129 |
| | — |
| | 21,670 |
|
Financing costs (income), net | 14,756 |
| | — |
| | (289 | ) | | — |
| | 14,467 |
|
Intercompany (income) expense, net | (12,950 | ) | | 10,156 |
| | 2,794 |
| | — |
| | — |
|
Intercompany dividends | — |
| | (59,401 | ) | | — |
| | 59,401 |
| | — |
|
Other expense (income), net | 2,037 |
| | (74 | ) | | (2,001 | ) | | — |
| | (38 | ) |
Earnings before income taxes | 29 |
| | 50,988 |
| | 15,625 |
| | (59,401 | ) | | 7,241 |
|
Income tax (benefit) expense | (2,563 | ) | | (697 | ) | | 462 |
| | — |
| | (2,798 | ) |
Net earnings before equity in earnings of subsidiaries | 2,592 |
| | 51,685 |
| | 15,163 |
| | (59,401 | ) | | 10,039 |
|
Equity in earnings of subsidiaries | 7,447 |
| | 13,682 |
| | 2,862 |
| | (23,991 | ) | | — |
|
Net earnings | $ | 10,039 |
| | $ | 65,367 |
| | $ | 18,025 |
| | $ | (83,392 | ) | | $ | 10,039 |
|
Comprehensive (loss) income | $ | (12,972 | ) | | $ | 47,616 |
| | $ | 13,459 |
| | $ | (61,075 | ) | | $ | (12,972 | ) |
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended February 29, 2016 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 67,089 |
| | $ | 185,040 |
| | $ | 316,171 |
| | $ | — |
| | $ | 568,300 |
|
Cost of products sold | 19,248 |
| | 134,153 |
| | 215,308 |
| | — |
| | 368,709 |
|
Gross profit | 47,841 |
| | 50,887 |
| | 100,863 |
| | — |
| | 199,591 |
|
Selling, administrative and engineering expenses | 36,877 |
| | 35,839 |
| | 67,367 |
| | — |
| | 140,083 |
|
Amortization of intangible assets | 636 |
| | 6,644 |
| | 4,499 |
| | — |
| | 11,779 |
|
Restructuring charges | 957 |
| | 2,568 |
| | 4,437 |
| | — |
| | 7,962 |
|
Impairment charges | — |
| | 49,012 |
| | 137,499 |
| | — |
| | 186,511 |
|
Operating profit (loss) | 9,371 |
| | (43,176 | ) | | (112,939 | ) | | — |
| | (146,744 | ) |
Financing costs (income), net | 14,763 |
| | — |
| | (781 | ) | | — |
| | 13,982 |
|
Intercompany (income) expense, net | (11,294 | ) | | (6,897 | ) | | 18,191 |
| | — |
| | — |
|
Intercompany dividends | — |
| | — |
| | (5,338 | ) | | 5,338 |
| | — |
|
Other expense, net | 603 |
| | 31 |
| | 221 |
| | — |
| | 855 |
|
Earnings (loss) before income taxes | 5,299 |
| | (36,310 | ) | | (125,232 | ) | | (5,338 | ) | | (161,581 | ) |
Income tax (benefit) expense | (1,057 | ) | | 657 |
| | (17,439 | ) | | — |
| | (17,839 | ) |
Net earnings (loss) before equity in earnings (loss) of subsidiaries | 6,356 |
| | (36,967 | ) | | (107,793 | ) | | (5,338 | ) | | (143,742 | ) |
Equity in (loss) earnings of subsidiaries | (150,098 | ) | | (95,069 | ) | | 2,087 |
| | 243,080 |
| | — |
|
Net loss | $ | (143,742 | ) | | $ | (132,036 | ) | | $ | (105,706 | ) | | $ | 237,742 |
| | $ | (143,742 | ) |
Comprehensive loss | $ | (178,827 | ) | | $ | (160,882 | ) | | $ | (112,155 | ) | | $ | 273,037 |
| | $ | (178,827 | ) |
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
| | | February 28, 2017 | February 28, 2018 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 6,509 |
| | $ | — |
| | $ | 165,381 |
| | $ | — |
| | $ | 171,890 |
| $ | 4,276 |
| | $ | — |
| | $ | 149,319 |
| | $ | — |
| | $ | 153,595 |
|
Accounts receivable, net | 16,364 |
| | 48,848 |
| | 136,702 |
| | — |
| | 201,914 |
| 19,641 |
| | 52,171 |
| | 138,838 |
| | — |
| | 210,650 |
|
Inventories, net | 20,486 |
| | 43,861 |
| | 63,226 |
| | — |
| | 127,573 |
| 26,915 |
| | 61,363 |
| | 77,949 |
| | — |
| | 166,227 |
|
Other current assets | 8,666 |
| | 3,540 |
| | 41,778 |
| | — |
| | 53,984 |
| 14,186 |
| | 3,263 |
| | 43,120 |
| | — |
| | 60,569 |
|
Total current assets | 52,025 |
| | 96,249 |
| | 407,087 |
| | — |
| | 555,361 |
| 65,018 |
| | 116,797 |
| | 409,226 |
| | — |
| | 591,041 |
|
Property, plant and equipment, net | 6,801 |
| | 26,357 |
| | 82,034 |
| | — |
| | 115,192 |
| 8,076 |
| | 31,661 |
| | 62,674 |
| | — |
| | 102,411 |
|
Goodwill | 38,847 |
| | 200,498 |
| | 269,733 |
| | — |
| | 509,078 |
| 38,846 |
| | 201,578 |
| | 305,711 |
| | — |
| | 546,135 |
|
Other intangibles, net | 8,793 |
| | 143,763 |
| | 73,003 |
| | — |
| | 225,559 |
| 7,521 |
| | 132,320 |
| | 76,529 |
| | — |
| | 216,370 |
|
Investment in subsidiaries | 1,893,280 |
| | 1,402,022 |
| | 531,353 |
| | (3,826,655 | ) | | — |
| 1,902,303 |
| | 1,274,274 |
| | 806,292 |
| | (3,982,869 | ) | | — |
|
Intercompany receivable | — |
| | 700,169 |
| | 191,146 |
| | (891,315 | ) | | — |
| — |
| | 564,517 |
| | 208,983 |
| | (773,500 | ) | | — |
|
Other long-term assets | 5,430 |
| | 10 |
| | 16,404 |
| | — |
| | 21,844 |
| 7,407 |
| | 1,864 |
| | 15,077 |
| | — |
| | 24,348 |
|
Total assets | $ | 2,005,176 |
| | $ | 2,569,068 |
| | $ | 1,570,760 |
| | $ | (4,717,970 | ) | | $ | 1,427,034 |
| $ | 2,029,171 |
| | $ | 2,323,011 |
| | $ | 1,884,492 |
| | $ | (4,756,369 | ) | | $ | 1,480,305 |
|
LIABILITIES & SHAREHOLDERS' EQUITY | | | | | | | | | | LIABILITIES & SHAREHOLDERS' EQUITY | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | |
Trade accounts payable | $ | 12,838 |
| | $ | 22,627 |
| | $ | 89,484 |
| | $ | — |
| | $ | 124,949 |
| $ | 15,469 |
| | $ | 31,079 |
| | $ | 90,393 |
| | $ | — |
| | $ | 136,941 |
|
Accrued compensation and benefits | 15,032 |
| | 4,886 |
| | 22,445 |
| | — |
| | 42,363 |
| 13,376 |
| | 5,239 |
| | 22,903 |
| | — |
| | 41,518 |
|
Current maturities of debt and short-term borrowings | 26,250 |
| | — |
| | — |
| | — |
| | 26,250 |
| 30,000 |
| | — |
| | — |
| | — |
| | 30,000 |
|
Income taxes payable | 1,113 |
| | — |
| | — |
| | — |
| | 1,113 |
| 152 |
| | — |
| | 7,535 |
| | — |
| | 7,687 |
|
Other current liabilities | 16,710 |
| | 5,038 |
| | 27,481 |
| | — |
| | 49,229 |
| 13,683 |
| | 7,951 |
| | 36,734 |
| | — |
| | 58,368 |
|
Total current liabilities | 71,943 |
| | 32,551 |
| | 139,410 |
| | — |
| | 243,904 |
| 72,680 |
| | 44,269 |
| | 157,565 |
| | — |
| | 274,514 |
|
Long-term debt, net | 547,058 |
| | — |
| | — |
| | — |
| | 547,058 |
| 517,318 |
| | — |
| | — |
| | — |
| | 517,318 |
|
Deferred income taxes | 21,503 |
| | — |
| | 9,534 |
| | — |
| | 31,037 |
| 17,631 |
| | — |
| | 5,631 |
| | — |
| | 23,262 |
|
Pension and postretirement benefit liabilities | 15,863 |
| | — |
| | 8,279 |
| | — |
| | 24,142 |
| 11,942 |
| | — |
| | 7,396 |
| | — |
| | 19,338 |
|
Other long-term liabilities | 47,024 |
| | 417 |
| | 8,443 |
| | — |
| | 55,884 |
| 48,651 |
| | 383 |
| | 7,558 |
| | — |
| | 56,592 |
|
Intercompany payable | 776,776 |
| | — |
| | 114,539 |
| | (891,315 | ) | | — |
| 771,668 |
| | — |
| | 1,832 |
| | (773,500 | ) | | — |
|
Shareholders’ equity | 525,009 |
| | 2,536,100 |
| | 1,290,555 |
| | (3,826,655 | ) | | 525,009 |
| 589,281 |
| | 2,278,359 |
| | 1,704,510 |
| | (3,982,869 | ) | | 589,281 |
|
Total liabilities and shareholders’ equity | $ | 2,005,176 |
| | $ | 2,569,068 |
| | $ | 1,570,760 |
| | $ | (4,717,970 | ) | | $ | 1,427,034 |
| $ | 2,029,171 |
| | $ | 2,323,011 |
| | $ | 1,884,492 |
| | $ | (4,756,369 | ) | | $ | 1,480,305 |
|
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
| | | August 31, 2016 | August 31, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 7,953 |
| | $ | 71 |
| | $ | 171,580 |
| | $ | — |
| | $ | 179,604 |
| $ | 34,715 |
| | $ | — |
| | $ | 194,856 |
| | $ | — |
| | $ | 229,571 |
|
Accounts receivable, net | 13,692 |
| | 41,715 |
| | 131,422 |
| | — |
| | 186,829 |
| 17,498 |
| | 50,749 |
| | 121,959 |
| | — |
| | 190,206 |
|
Inventories, net | 19,897 |
| | 44,283 |
| | 66,576 |
| | — |
| | 130,756 |
| 23,308 |
| | 48,492 |
| | 71,851 |
| | — |
| | 143,651 |
|
Assets held for sale | | — |
| | — |
| | 21,835 |
| | — |
| | 21,835 |
|
Other current assets | 7,754 |
| | 3,858 |
| | 33,851 |
| | — |
| | 45,463 |
| 23,576 |
| | 3,619 |
| | 34,468 |
| | — |
| | 61,663 |
|
Total current assets | 49,296 |
| | 89,927 |
| | 403,429 |
| | — |
| | 542,652 |
| 99,097 |
| | 102,860 |
| | 444,969 |
| | — |
| | 646,926 |
|
Property, plant and equipment, net | 5,927 |
| | 23,511 |
| | 84,577 |
| | — |
| | 114,015 |
| |
Property, plant & equipment, net | | 7,049 |
| | 26,130 |
| | 61,342 |
| | — |
| | 94,521 |
|
Goodwill | 38,847 |
| | 200,499 |
| | 279,930 |
| | — |
| | 519,276 |
| 38,847 |
| | 200,499 |
| | 290,735 |
| | — |
| | 530,081 |
|
Other intangibles, net | 9,429 |
| | 149,757 |
| | 80,289 |
| | — |
| | 239,475 |
| 8,156 |
| | 138,042 |
| | 74,291 |
| | — |
| | 220,489 |
|
Investment in subsidiaries | 1,915,367 |
| | 578,423 |
| | 465,736 |
| | (2,959,526 | ) | | — |
| 1,832,472 |
| | 1,186,715 |
| | 805,016 |
| | (3,824,203 | ) | | — |
|
Intercompany receivable | — |
| | 1,159,672 |
| | — |
| | (1,159,672 | ) | | — |
| — |
| | 589,193 |
| | 205,183 |
| | (794,376 | ) | | — |
|
Other long-term assets | 5,702 |
| | 10 |
| | 17,530 |
| | — |
| | 23,242 |
| 8,377 |
| | 812 |
| | 15,749 |
| | — |
| | 24,938 |
|
Total assets | $ | 2,024,568 |
| | $ | 2,201,799 |
| | $ | 1,331,491 |
| | $ | (4,119,198 | ) | | $ | 1,438,660 |
| $ | 1,993,998 |
| | $ | 2,244,251 |
| | $ | 1,897,285 |
| | $ | (4,618,579 | ) | | $ | 1,516,955 |
|
LIABILITIES & SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | |
Trade accounts payable | $ | 11,529 |
| | $ | 20,669 |
| | $ | 82,853 |
| | $ | — |
| | $ | 115,051 |
| $ | 15,412 |
| | $ | 27,168 |
| | $ | 90,807 |
| | $ | — |
| | $ | 133,387 |
|
Accrued compensation and benefits | 17,506 |
| | 5,754 |
| | 23,641 |
| | — |
| | 46,901 |
| 19,082 |
| | 7,672 |
| | 24,185 |
| | — |
| | 50,939 |
|
Current maturities of debt and short-term borrowings | 18,750 |
| | — |
| | — |
| | — |
| | 18,750 |
| 30,000 |
| | — |
| | — |
| | — |
| | 30,000 |
|
Income taxes payable | 1,886 |
| | — |
| | 7,368 |
| | — |
| | 9,254 |
| 153 |
| | — |
| | 5,927 |
| | — |
| | 6,080 |
|
Liabilities held for sale | | — |
| | — |
| | 101,083 |
| | — |
| | 101,083 |
|
Other current liabilities | 20,459 |
| | 6,989 |
| | 24,508 |
| | — |
| | 51,956 |
| 18,512 |
| | 7,169 |
| | 31,764 |
| | — |
| | 57,445 |
|
Total current liabilities | 70,130 |
| | 33,412 |
| | 138,370 |
| | — |
| | 241,912 |
| 83,159 |
| | 42,009 |
| | 253,766 |
| | — |
| | 378,934 |
|
Long-term debt, net | 561,681 |
| | — |
| | — |
| | — |
| | 561,681 |
| |
Long-term debt | | 531,940 |
| | — |
| | — |
| | — |
| | 531,940 |
|
Deferred income taxes | 30,666 |
| | — |
| | 690 |
| | — |
| | 31,356 |
| 24,164 |
| | — |
| | 5,695 |
| | — |
| | 29,859 |
|
Pension and postretirement benefit liabilities | 16,803 |
| | — |
| | 8,864 |
| | — |
| | 25,667 |
| |
Pension and post-retirement benefit liabilities | | 12,540 |
| | — |
| | 7,322 |
| | — |
| | 19,862 |
|
Other long-term liabilities | 47,739 |
| | 588 |
| | 8,767 |
| | — |
| | 57,094 |
| 48,692 |
| | 352 |
| | 6,777 |
| | — |
| | 55,821 |
|
Intercompany payable | 776,599 |
| | — |
| | 383,073 |
| | (1,159,672 | ) | | — |
| 792,964 |
| | — |
| | 1,412 |
| | (794,376 | ) | | — |
|
Shareholders’ equity | 520,950 |
| | 2,167,799 |
| | 791,727 |
| | (2,959,526 | ) | | 520,950 |
| 500,539 |
| | 2,201,890 |
| | 1,622,313 |
| | (3,824,203 | ) | | 500,539 |
|
Total liabilities and shareholders’ equity | $ | 2,024,568 |
| | $ | 2,201,799 |
| | $ | 1,331,491 |
| | $ | (4,119,198 | ) | | $ | 1,438,660 |
| $ | 1,993,998 |
| | $ | 2,244,251 |
| | $ | 1,897,285 |
| | $ | (4,618,579 | ) | | $ | 1,516,955 |
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
| | | Six Months Ended February 28, 2017 | Six Months Ended February 28, 2018 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | $ | 58,626 |
| | $ | 5,902 |
| | $ | 8,906 |
| | $ | (59,401 | ) | | $ | 14,033 |
| |
Net cash (used in) provided by operating activities | | $ | (14,509 | ) | | $ | 6,923 |
| | $ | (14,520 | ) | | $ | — |
| | $ | (22,106 | ) |
Investing Activities | | | | | | | | | | | | | | | | | | |
Capital expenditures | (2,156 | ) | | (6,108 | ) | | (6,431 | ) | | — |
| | (14,695 | ) | (1,982 | ) | | (5,274 | ) | | (5,291 | ) | | — |
| | (12,547 | ) |
Proceeds from sale of property, plant and equipment | — |
| | 135 |
| | 109 |
| | — |
| | 244 |
| — |
| | 83 |
| | 30 |
| | — |
| | 113 |
|
Rental asset buyout for Viking divestiture | | — |
| | — |
| | (27,718 | ) | | — |
| | (27,718 | ) |
Proceeds from sale of business, net of transactions costs | | 198 |
| | — |
| | 8,582 |
| | — |
| | 8,780 |
|
Cash paid for business acquisitions, net of cash acquired | | — |
| | (1,732 | ) | | (14,785 | ) | | — |
| | (16,517 | ) |
Cash used in investing activities | (2,156 | ) | | (5,973 | ) | | (6,322 | ) | | — |
| | (14,451 | ) | (1,784 | ) | | (6,923 | ) | | (39,182 | ) | | — |
| | (47,889 | ) |
Financing Activities | | | | | | | | | | | | | | | | | | |
Principal repayments on term loan | (7,500 | ) | | — |
| | — |
| | — |
| | (7,500 | ) | (15,000 | ) | | — |
| | — |
| | — |
| | (15,000 | ) |
Stock option exercises and other | | 10,305 |
| | — |
| | — |
| | — |
| | 10,305 |
|
Taxes paid related to the net share settlement of equity awards | (920 | ) | | — |
| | — |
| | — |
| | (920 | ) | (1,107 | ) | | — |
| | — |
| | — |
| | (1,107 | ) |
Stock option exercises, related tax benefits and other | 6,598 |
| | — |
| | — |
| | — |
| | 6,598 |
| |
Cash dividend | (2,358 | ) | | — |
| | (59,401 | ) | | 59,401 |
| | (2,358 | ) | (2,390 | ) | | — |
| | — |
| | — |
| | (2,390 | ) |
Intercompany loan activity | (53,734 | ) | | — |
| | 53,734 |
| | — |
| | — |
| (5,954 | ) | | — |
| | 5,954 |
| | — |
| | — |
|
Cash used in financing activities | (57,914 | ) | | — |
| | (5,667 | ) | | 59,401 |
| | (4,180 | ) | |
Cash (used in) provided by financing activities | | (14,146 | ) | | — |
| | 5,954 |
| | — |
| | (8,192 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (3,116 | ) | | — |
| | (3,116 | ) | — |
| | — |
| | 2,211 |
| | — |
| | 2,211 |
|
Net decrease in cash and cash equivalents | (1,444 | ) | | (71 | ) | | (6,199 | ) | | — |
| | (7,714 | ) | (30,439 | ) | | — |
| | (45,537 | ) | | — |
| | (75,976 | ) |
Cash and cash equivalents—beginning of period | 7,953 |
| | 71 |
| | 171,580 |
| | — |
| | 179,604 |
| 34,715 |
| | — |
| | 194,856 |
| | — |
| | 229,571 |
|
Cash and cash equivalents—end of period | $ | 6,509 |
| | $ | — |
| | $ | 165,381 |
| | $ | — |
| | $ | 171,890 |
| $ | 4,276 |
| | $ | — |
| | $ | 149,319 |
| | $ | — |
| | $ | 153,595 |
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
| | | Six Months Ended February 29, 2016 | Six Months Ended February 28, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | (1,531 | ) | | $ | 5,293 |
| | $ | 30,439 |
| | $ | (5,338 | ) | | $ | 28,863 |
| |
Net provided by operating activities | | $ | 59,275 |
| | $ | 5,902 |
| | $ | 8,906 |
| | $ | (59,401 | ) | | $ | 14,682 |
|
Investing Activities | | | | | | | | | | | | | | | | | | |
Capital expenditures | (339 | ) | | (3,194 | ) | | (7,471 | ) | | — |
| | (11,004 | ) | (2,156 | ) | | (6,108 | ) | | (6,431 | ) | | — |
| | (14,695 | ) |
Proceeds from sale of property, plant and equipment | 13 |
| | 2,672 |
| | 1,951 |
| | — |
| | 4,636 |
| — |
| | 135 |
| | 109 |
| | — |
| | 244 |
|
Business acquisitions, net of cash acquired | — |
| | — |
| | (15,026 | ) | | — |
| | (15,026 | ) | |
Cash used in investing activities | (326 | ) | | (522 | ) | | (20,546 | ) | | — |
| | (21,394 | ) | (2,156 | ) | | (5,973 | ) | | (6,322 | ) | | — |
| | (14,451 | ) |
Financing Activities | | | | | | | | | | | | | | | | | | |
Net repayments on revolver and other debt | — |
| | — |
| | (210 | ) | | — |
| | (210 | ) | |
Purchase of treasury shares | (9,352 | ) | | — |
| | — |
| | — |
| | (9,352 | ) | |
Principal repayments on term loan | | (7,500 | ) | | — |
| | — |
| | — |
| | (7,500 | ) |
Taxes paid related to the net share settlement of equity awards | (1,332 | ) | | — |
| | — |
| | — |
| | (1,332 | ) | (920 | ) | | — |
| | — |
| | — |
| | (920 | ) |
Stock option exercises, related tax benefits and other | 2,245 |
| | — |
| | — |
| | — |
| | 2,245 |
| |
Stock option exercises and other | | 5,949 |
| | — |
| | — |
| | — |
| | 5,949 |
|
Cash dividend | (2,376 | ) | | (5,338 | ) | | — |
| | 5,338 |
| | (2,376 | ) | (2,358 | ) | | — |
| | (59,401 | ) | | 59,401 |
| | (2,358 | ) |
Intercompany loan activity | 464 |
| | — |
| | (464 | ) | | — |
| | — |
| (53,734 | ) | | — |
| | 53,734 |
| | — |
| | — |
|
Cash used in financing activities | (10,351 | ) | | (5,338 | ) | | (674 | ) | | 5,338 |
| | (11,025 | ) | (58,563 | ) | | — |
| | (5,667 | ) | | 59,401 |
| | (4,829 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (10,619 | ) | | — |
| | (10,619 | ) | — |
| | — |
| | (3,116 | ) | | — |
| | (3,116 | ) |
Net decrease in cash and cash equivalents | (12,208 | ) | | (567 | ) | | (1,400 | ) | | — |
| | (14,175 | ) | (1,444 | ) | | (71 | ) | | (6,199 | ) | | — |
| | (7,714 | ) |
Cash and cash equivalents—beginning of period | 18,688 |
| | 567 |
| | 149,591 |
| | — |
| | 168,846 |
| 7,953 |
| | 71 |
| | 171,580 |
| | — |
| | 179,604 |
|
Cash and cash equivalents—end of period | $ | 6,480 |
| | $ | — |
| | $ | 148,191 |
| | $ | — |
| | $ | 154,671 |
| $ | 6,509 |
| | $ | — |
| | $ | 165,381 |
| | $ | — |
| | $ | 171,890 |
|
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, customized offshore vessel mooring solutions, as well as rope and cable solutions to the global oil & gas, power generation and other energy 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. 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. While we have begunOur Industrial and Engineered Solutions segments continue to see indications ofbenefit from improvement within the broad industrial landscape, mining, infrastructure and agriculture markets, which began in the second half of fiscal 2017 and continued through the first half of fiscal 2018. We anticipate a moderate growth rate in these markets during the second half of fiscal 2018, while we expect full year fiscal 2017 salesthe on-highway vehicle markets to decline modestly as a result of the overall challengingslow on weaker demand and inconsistent demand we have experienced in mining, infrastructure, oil & gas, commercialmore difficult comparisons. Reduced capital and off-highway vehicles and agriculture markets. Tepid global industrial demand, reduced capitalmaintenance spending in the oil & gas markets (exploration, drillingin the form of project cancellations, deferrals and commissioning activities) and inventory destocking by OEMs in vehicle and agriculture markets have been and will continuescope reductions are expected to be headwindsa continuing headwind throughout much of fiscal 2017, with sequential easing of these challenges2018, though quarterly core sales declines should moderate as the yearfiscal 2018 progresses.
As a result, we expect consolidated fiscal 2018 core sales growth (sales excluding the impact of theseacquisitions, divestitures and other factors,changes in foreign currency exchange rates) of 2% to 4%, 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. During the quarter, 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 during the quarter, we completed the acquisition of 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 capabilities across customers and geographies. We continue to analyze our businesses in line with our strategic objectives and are taking portfolio management actions that are anticipated to simplify and improve the operational performance of our Company.
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. DuringRestructuring charges related to these initiatives totaled approximately $33 million in fiscal 2016, we incurred $15fiscal 2017 and the first half of fiscal 2018, combined. Total restructuring charges were $4.3 million ofand $10.9 million in the three and six months ended February 28, 2018, respectively. These restructuring costs related to executive leadership changes, facility consolidation, headcount reductions and operational improvement. FinancialDue to continuing challenging market conditions and operating results forwithin 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 six months ended February 28, 2017 included $5 millioninterim. Similarly, we continue to examine other areas of additional restructuring costs. Theour 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 forthroughout the balancesecond half of fiscal 2017,2018, including approximately $2 million to $3$4 million of additional restructuring charges. The Company does not anticipate significant restructuring charges to continue into fiscal 2018, though plant consolidations and production movements between plants will remain a focus for the Company.during that time.
Pre-tax cost savings realized from executing these restructuring initiatives totaled approximately $10$19 million in fiscal 2016, fiscal 2017 and the first six monthshalf of 2017fiscal 2018, combined. Realized cost savings were comprised of $3$5 million within the Industrial segment, $4$7 million within the Energy segment, and $3$6 million within the Engineered Solutions segment.segment and $1 million within Corporate expenses. The Company anticipates realizing an incremental $5$10 million to $10$15 million in pre-tax cost savings for the balancesecond half of fiscal 20172018 and in fiscal 20182019 for all restructuring initiatives implemented in fiscals 2016, 2017 and 2017. Twenty-five2018 and to be implemented in the second half of fiscal 2018. Thirty percent of the anticipated future cost savings are expected to benefit the Industrial segment, another 25%50% are expected to benefit the Energy segment, and the remaining 50%another 5% are expected to benefit the Engineered Solutions segment.segment and the remaining 15% 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.
Our priorities continue to include focused efforts to drive additional sales growth, investment in growth initiatives including strategic acquisitions, execution of restructuring actions and cash flow generation. The Industrial segment is focused on accelerating global sales growth through increased sales effectiveness, geographic expansion (especially Asia Pacific), new product introductions and development of second tier brands. The Energy segment remains focused on the integration of the Pipeline and Process Services acquisition, redirecting sales, marketing and engineering resources to non-oil & gas vertical markets and providing new and existing customers with critical products, services and solutions in a dynamic energy environment. The Engineered Solutions segment is focused on the execution of restructuring projects and lean manufacturing initiatives while improving sales (expansion of served markets and additional content with existing OEMs).
We remain focused on maintaining 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. At the same time, we remain laser-focused on developing and advancing our commercial effectiveness and offering of mission critical solutions to customers.
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 strengtheningweakening of the U.S. dollar unfavorablyfavorably impacts our sales, cash flow and earnings given the translation of our international results into U.S. dollars. This also results in higherlower costs for certain international operations, which incur costs or purchase components in U.S. dollars, and reducesincreases 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 | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | | | February 29, 2016 | | | | February 28, 2017 | | | | February 29, 2016 | | | 2018 | | | | 2017 | | | | 2018 | | | | 2017 | | |
Net sales | $ | 259 |
| | 100 | % | | $ | 263 |
| | 100 | % | | $ | 525 |
| | 100 | % | | $ | 568 |
| | 100 | % | $ | 275 |
| | 100 | % | | $ | 259 |
| | 100 | % | | $ | 564 |
| | 100 | % | | $ | 525 |
| | 100 | % |
Cost of products sold | 172 |
| | 66 | % | | 172 |
| | 65 | % | | 344 |
| | 66 | % | | 369 |
| | 65 | % | 185 |
| | 67 | % | | 172 |
| | 66 | % | | 374 |
| | 66 | % | | 344 |
| | 66 | % |
Gross profit | 87 |
| | 34 | % | | 91 |
| | 35 | % | | 181 |
| | 34 | % | | 199 |
| | 35 | % | 90 |
| | 33 | % | | 87 |
| | 34 | % | | 190 |
| | 34 | % | | 181 |
| | 34 | % |
Selling, administrative and engineering expenses | 67 |
| | 26 | % | | 67 |
| | 25 | % | | 136 |
| | 26 | % | | 140 |
| | 25 | % | 69 |
| | 25 | % | | 67 |
| | 26 | % | | 143 |
| | 25 | % | | 136 |
| | 26 | % |
Amortization of intangible assets | 5 |
| | 2 | % | | 6 |
| | 2 | % | | 10 |
| | 2 | % | | 12 |
| | 2 | % | 5 |
| | 2 | % | | 5 |
| | 2 | % | | 10 |
| | 2 | % | | 10 |
| | 2 | % |
Director & officer transition charges | — |
| | — | % | | — |
| | — | % | | 8 |
| | 2 | % | | — |
| | — | % | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | | 8 |
| | 2 | % |
Restructuring charges | 2 |
| | 1 | % | | 4 |
| | 2 | % | | 5 |
| | 1 | % | | 8 |
| | 1 | % | 3 |
| | 1 | % | | 2 |
| | 1 | % | | 10 |
| | 2 | % | | 5 |
| | 1 | % |
Impairment charges | — |
| | — | % | | 187 |
| | 71 | % | | — |
| | — | % | | 187 |
| | 33 | % | |
Operating profit (loss) | 13 |
| | 5 | % | | (173 | ) | | (66 | )% | | 22 |
| | 4 | % | | (148 | ) | | (26 | )% | |
Impairment & divestiture charges | | 3 |
| | 2 | % | | — |
| | — | % | | 3 |
| | 1 | % | | — |
| | — | % |
Operating profit | | 10 |
| 0.03636363636 |
| 4 | % | | 13 |
| | 5 | % | | 24 |
| | 4 | % | | 22 |
| | 4 | % |
Financing costs, net | 7 |
| | 3 | % | | 7 |
| | 3 | % | | 15 |
| | 3 | % | | 14 |
| | 2 | % | 8 |
| | 3 | % | | 7 |
| | 3 | % | | 15 |
| | 3 | % | | 14 |
| | 3 | % |
Other expense, net | 1 |
| | — | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | — |
| 0.02909090909 |
| — | % | | 1 |
| | — | % | | 1 |
| | — | % | | — |
| | — | % |
Earnings (loss) before income taxes | 5 |
| | 2 | % | | (179 | ) | | (68 | )% | | 7 |
| | 1 | % | | (162 | ) | | (29 | )% | |
Income tax (benefit) expense | — |
| | — | % | | (20 | ) | | (7 | )% | | (3 | ) | | (1 | )% | | (18 | ) | | (4 | )% | |
Net earnings (loss) | $ | 5 |
| | 2 | % | | $ | (159 | ) | | (60 | )% | | $ | 11 |
| | 2 | % | | $ | (144 | ) | | (25 | )% | |
Earnings before income tax expense (benefit) | | 2 |
| — |
| 1 | % | | 5 |
| | 2 | % | | 8 |
| | 1 | % | | 7 |
| | 1 | % |
Income tax expense (benefit) | | 20 |
| 0.007272727273 |
| 7 | % | | — |
| | — | % | | 21 |
| | 4 | % | | (3 | ) | | (1 | )% |
Net (loss) earnings | | $ | (18 | ) | 0.03636363636 |
| (7 | )% | | $ | 5 |
| | 2 | % | | $ | (13 | ) | | (2 | )% | | $ | 11 |
| | 2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | $ | 0.08 |
| | | | $ | (2.70 | ) | | | | $ | 0.17 |
| | | | $ | (2.43 | ) | | | |
Diluted (loss) earnings per share | | $ | (0.30 | ) | | | $ | 0.08 |
| | | | $ | (0.22 | ) | | | | $ | 0.17 |
| | |
Consolidated sales for the second quarter of fiscal 20172018 were $259$275 million, a decreasean increase of $4$16 million from the prior year, while year-to-date sales were $525$564 million, a decreasean increase of $43$39 million from the prior year. For both the three and six months ended February 28, 2017,2018, foreign currency exchange rates favorably impacted sales by 5% and 4%, respectively. However, the net acquisition and divestiture activity reduced sales by 1%2% and net acquisition/divestitures generated a 2% sales benefit. As a result, year-to-date core sales (sales excluding the impact of acquisitions, divestitures and changes in foreign currency exchange rates) were down 9% compared to the prior year but down only 3% in the second quarter. The consolidated core sales decline was the result of challenging comparisons in the Energy segment due to a large non-recurring Middle East maintenance job totaling approximately $20 million in fiscal 2016. The Industrial and Engineered Solutions segments experienced core sales growth in the quarter for the first time in approximately two years, as we are starting to see modest improvement in certain markets. Lower production levels and absorption of manufacturing costs and unfavorable sales mix resulted in reduced gross profit margins year over year. The increase in selling, administrative and engineering expenses as a percentage of sales is the result of the Company continuing to invest in the front-end of our businesses and new products. Results for the six months ended February 28, 2017 included $8 million of director and officer transition charges (as described in Note 2, "Director & Officer Transition Charges"), while results1% for the three and six months ended February 29, 201628, 2018, respectively. As a result, core sales were up 3% for the second quarter and 5% year-to-date compared to prior year. The consolidated core sales increase was the result of a strong end market demand and volume in both the Industrial and Engineered Solutions segments, which more than offset the expected decline in the Energy segment. Operating profit margins stayed relatively consistent year-over-year. Non-recurring director & officer transition charges of $8 million were included impairmentin the six months ended February 28, 2017, while the six months ended February 28, 2018 included increased restructuring charges of $7 million year-over-year and $3 million of charges related to the write-downViking divestiture. Additionally, the second quarter of acquired goodwill, intangible assetsfiscal 2018 included an increased effective income tax rate compared to prior year due to a one-time provisional tax charge for U.S. Tax Reform (see Note 12, "Income Taxes" for further discussion) and long-lived assets$9 million of certain of our businesses.tax expense associated with the Viking divestiture.
Segment Results
Industrial Segment
The Industrial segment is a global supplier of branded hydraulic and mechanical tools to a broad array of end markets, including general maintenance and repair, industrial, oil & gas, mining, infrastructure and production automation. Its primary products include high-force hydraulic tools, production automation solutions and concrete stressing components and systems (collectively "Industrial Tools") and highly engineered heavy lifting solutions ("Heavy Lifting Technology"). During 2017, to better align the product line with the solutions offered, the the Company rebranded its Integrated Solutions product line to Heavy Lifting Technology. The following table sets forth the results of operations for the Industrial segment (in millions):
| | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net sales | $ | 92 |
| | $ | 81 |
| | $ | 179 |
| | $ | 170 |
| $ | 99 |
| | $ | 92 |
| | $ | 196 |
| | $ | 179 |
|
Operating profit | 18 |
| | 17 |
| | 37 |
| | 37 |
| 17 |
| | 18 |
| | 35 |
| | 37 |
|
Operating profit % | 20.1 | % | | 20.6 | % | | 20.8 | % | | 21.9 | % | 17.0 | % | | 20.1 | % | | 17.9 | % | | 20.8 | % |
Industrial segment second quarter sales were $92$99 million, or 13% higher thanan increase of 8% from the prior year, while first halfyear-to-date sales were $179$196 million, an increase of 5%10% from the prior year. Second quarter core sales were up 11% and exclude a 2% benefit from the recent Larzep acquisition ($2 million of sales) and currency remaining neutral. The strong second quarter contributed to first half core sales of 3%4%, excluding a 2%4% benefit from the Larzep acquisition ($3 million of sales).foreign currency exchange rates, while year-to-date core sales were up 6%, excluding a 4% benefit from foreign currency exchange rates. Overall second quarter demand improvement was broad based, with growth across all geographies and product lines. During the second quarter, core sales for the Industrial Tools product line remained strong globally and across our diverse set of end markets, with particular strength in the bolting and OEM service tool categories and weakness within concrete tensioning product sales. Core sales within the Industrial Tools product line increased $5$6 million (7%) and $10 million (6%) compared to the prior year withfor the strongestthree and six months ended February 28, 2018 and 2017, respectively. The Industrial segment core sales growth inrepresents both broad market strength and the construction-related concrete tensioning, whileimpact of new product and commercial coverage activities. The segment's overall core sales growth percentage was slightly diminished by the core sales decline in the Heavy Lifting Technology product line experienced 44% core sales growth. Operatingof $2 million (-16%) for the three months ended February 28, 2018 and an increase of $1 million (7%) for the six months ended February 28, 2018. The decrease in operating profit margins remained relatively stable (within expectations) at 20.1%for the three and six months ended February 28, 2018 were the result of approximately $2 million in long-term specialty heavy lifting project cost overruns and production inefficiencies and lower volumes in concrete tensioning. Incremental commercial and engineering investments to support growth of $2 million for the second quarter of fiscal 2017 comparedthree months ended February 28, 2018 further contributed to 20.6% in the prior year period as incremental volume was offset by unfavorable sales mix and modest investments in commercial effectiveness.lower comparative operating profit. Restructuring charges totaled $3 million and $1 million for boththe six month periods presented.months ended February 28, 2018 and 2017, respectively.
Energy Segment
The Energy segment provides products and maintenance services to the global energy markets, where safety, reliability, up-time and productivity are key value drivers. Products include joint integrity tools and connectors for oil & gas and power generation installations and high performance ropes, cables and umbilicals. In addition to these products, the Energy segment also provides mooring systems and joint integrity tools under rental arrangements, as well as technical manpower solutions. The following table sets forth comparative results of operations for the Energy segment (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 |
Net sales | $ | 73 |
| | $ | 86 |
| | $ | 158 |
| | $ | 200 |
|
Operating profit (loss) (1) | (1 | ) | | (137 | ) | | 3 |
| | (127 | ) |
Operating profit % | (0.8 | )% | | (158.6 | )% | | 1.7 | % | | (63.3 | )% |
|
| | | | | | | | | | | | | | | |
| Three Months Ended February 28, | | Six Months Ended February 28, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net sales | $ | 66 |
| | $ | 73 |
| | $ | 142 |
| | $ | 158 |
|
Operating (loss) profit (1) | (5 | ) | | (1 | ) | | (4 | ) | | 3 |
|
Operating (loss) profit % | (6.8 | )% | | (0.8 | )% | | (3.0 | )% | | 1.7 | % |
(1)Operating (loss) profit (loss) includes an impairment chargeand divestiture charges of $141$3 million for both the three and six months ended February 29, 2016.28, 2018.
Energy segment second quarter sales decreased 21% in9% from the first half of theprior year, and declined 15% for the second quarter.while year-to-date sales decreased 10%. Changes in foreign currency exchange rates unfavorablyfavorably impacted sales comparisons by $2 million4% and $5 million3% for the three and six month periods. SalesIn addition, the net impact on sales from the PipelineViking divestiture and Process Services (PPS)Mirage acquisition benefited sales by $7resulted in a $6 million (-5%) and $15$11 million (-4%) headwind for the three and six months ended February 28, 2017,2018, respectively. As a result, Energy segment core sales declined 27% in the first half of the year and 21%8% for the second quarter.quarter and 9% year-to-date. Core sales from our Energy Maintenance & Integrity product line decreased $12$7 million (22%(12%) and $16 million (13%) for the three and six months ended February 28, 2018, respectively. The decrease in the second quarterboth periods was due to non-recurrencethe continuation of a prior year project ($5 million) and tight customer spending controls on maintenance activities which resulted in deferrals and scope reductions.reductions, most notably in the Asia Pacific region with modestly improving activity levels limited to the Middle East region. Core sales in our Other Energy Solutions product line, consisting of umbilical & rope solutions, increased by $1 million (7%) and offshore mooring, declined $6$3 million (21%(10%) in the second quarterthree and six month periods, due to higher medical demand along with improving offshore oil & gas rope and cable activity. Energy segment operating loss was $5 million and $1 million for the continued impact of reduced customer spending on exploration, drillingthree months ended February 28, 2018 and commissioning activities2017, respectively. Year-to-date operating loss was $4
million and competitive pricing pressures.operating profit was $3 million for fiscal 2018 and 2017, respectively. Operating losses in fiscal 2016 were largely the result ofthree and six month periods included impairment and divestiture charges of $141$3 million inrelated to the Viking divestiture. Excluding the impairment and divestiture charge, Energy segment results were an operating loss of $2 million and $1 million for the three and six months ended February 29, 2016. Excluding the impairment charges, Energy segment results for the quarter were an28, 2018. The adjusted operating loss of $1 million and operating profit of $4 millionlosses for fiscal 20172018 were the result of lower volumes and 2016, respectively. Year-to-date operating profit was $3 millionincreased restructuring charges, partially offset by the absence of prior year Viking losses and $14 million for fiscal 2017 and 2016, respectively, excluding the impairment charges. The operating loss for the second quarter was adversely impacted by unfavorable product mix (which reduced margin by approximately 500 basis points) and lower sales volumes.benefit of prior cost reduction actions. Restructuring costs to consolidate facilities and reduce headcount were $1 million and $3 million for the six months ended February 28, 20172018 and insignificant for the six months ended February 29, 2016, respectively.
28, 2017.
Engineered Solutions Segment
The Engineered Solutions segment is a global designer, manufacturer and assembler of customizedsystem critical position and motion control systems and other customized industrial products to various vehicle and other niche markets. The segment focuses on providing technical and highly engineered products, including actuation systems, mechanical power transmission products, engine air flow management systems, human to machine interface solutions and other rugged electronic instrumentation.instrumentation to OEM customers. The following table sets forth comparative results of operations for the Engineered Solutions segment (in millions):
| | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net sales | $ | 94 |
| | $ | 96 |
| | $ | 188 |
| | $ | 198 |
| $ | 110 |
| | $ | 94 |
| | $ | 226 |
| | $ | 188 |
|
Operating profit (loss) (1) | 2 |
| | (45 | ) | | 3 |
| | (42 | ) | |
Operating profit | | 2 |
| | 2 |
| | 9 |
| | 3 |
|
Operating profit % | 1.9 | % | | (47.1 | )% | | 1.4 | % | | (21.0 | )% | 2.0 | % | | 1.9 | % | | 3.8 | % | | 1.4 | % |
(1) Operating profit (loss) includes an impairment chargeEngineered Solutions segment sales increased $16 million (17%) to $110 million in the second quarter, while year-to-date sales increased $38 million (20%) to $226 million. Excluding the 7% and 5% favorable impact of $46 millionchanges in foreign currency exchange rates for the three and six months ended February 29, 2016.
Fiscal 201728, 2018, respectively, core sales increased 10% for the second quarter Engineered Solutions segment netand 15% year-to-date. Strong sales decreased $2and growth continued globally across our Agricultural, Off-Highway and Other product line with core sales increasing $6 million (2%(13%) year over year to $94and $14 million while first half sales decreased $10 million (5%(16%) year-over-year to $188 million. Excluding $3 million and $5 million of prior year revenue from the divested Sanlo product line for the three and six months ended February 29, 2016, respectively,28, 2018. On-Highway product line core sales increased 2%$4 million (7%) for the quarter, but were down 2% the first half of the fiscal year. The second quarter core sales growth represents the first quarter ofand $15 million (14%) year-to-date due to high growth in the past nine quarters and reflects robust production ratesEurope, partially offset by China's heavy-duty truck OEMs. While tepid end market demand continued across most of the segment's other markets such as agriculture and off-highway equipment, our results benefited from easier comparisons, moderating destocking activity by OEM customers and savings resulting from ongoing restructuring activities. The operating loss in fiscal 2016 included a $46 million impairment charge related to the maximatecc business.anticipated lower China volumes. Operating profit (excludingwas $9 million and $3 million for the 2016 impairment charge) was $3 millionsix months ended February 28, 2018 and 2017, respectively, which is primarily the result of higher volumes. Restructuring charges were insignificant for the six months ended February 28, 2018 and $4 million for the six months ended February 28, 2017 and February 29, 2016, respectively; the result of restructuring charges increasing from $3 million to $4 million year-over-year.2017.
Corporate
Corporate expenses decreased $1$2 million and $6 million from the prior year for the three and six months ended February 28, 2018. The year-to-date decrease in the second quarter and increased $5 million year-to-date comparedcorporate expenses was primarily due to the prior year. On a year-to-date basis, corporate expenses increased due to thebenefit of executive cost reduction actions, lower incentive compensation and non-recurring director & officer transition charges of $8 million recognized in the first quarter of fiscal 2017 (comprised of compensation expense for accelerated equity vesting, severance, outplacement, legal, signing bonus and relocation costs), partiallyprior year, offset by lower year-over-year professional fees tiedrestructuring charges of $4 million, primarily related to acquisition related costs and executive search expenses incurredleadership changes in the prior year.six months ended February 28, 2018.
Financing Costs, net
Net financing costs were $8 million and $7 million for the three months ended February 28, 2018 and $14 million for each of2017, respectively. For the comparative three and six months ended February 28, 2018 and 2017, net financing costs were $15 million and February 29, 2016,$14 million, respectively.
Income TaxesTax Expense
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, changes in tax laws, acquisitions and divestitures 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 the currentfiscal 2018 and prior year2017 include the benefits of tax planning initiatives. Comparative earnings (loss) before income taxes, income tax expense (benefit)or benefit and effective income tax rates are as follows (in(amounts in millions):
| | | Three Months Ended | | Six Months Ended | Three Months Ended February 28, | | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | | February 28, 2017 | | February 29, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Earnings (loss) before income taxes | $ | 5 |
| | $ | (179 | ) | | $ | 7 |
| | $ | (162 | ) | |
Earnings before income taxes | | $ | 2 |
| | $ | 5 |
| | $ | 8 |
| | $ | 7 |
|
Income tax expense (benefit) | — |
| | (20 | ) | | (3 | ) | | (18 | ) | 20 |
| | — |
| | 21 |
| | (3 | ) |
Effective income tax rate | 3.8 | % | | 11.2 | % | | (38.6 | )% | | 11.0 | % | 1,226.1 | % | | 3.8 | % | | 253.8 | % | | (38.6 | )% |
Adjusted effective income tax rate | 3.8 | % | | (35.6 | )% | | (38.6 | )% | | (1.6 | )% | |
The Company’s income tax expense and effective tax rates during the three and six months ended February 28, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. See further discussion of the effects of the Act under “Note 12. Income Taxes.”
The effective tax rate for the six months ended February 28, 2018 was 253.8% compared to (38.6)% for the comparable prior year period. The effective tax rate for the current year results in significantly greater tax expense than the comparable prior year period due to recording the effects of the Act as described in "Note 12. Income Taxes." Additionally, the six months ended February 28, 2018 also include discrete income tax expense of $9 million related to the Viking divestiture and $2 million related to the shortfall of tax benefits on deductible equity compensation and expiration of unexercised stock options. Both the current and prior year effective income tax rates were impacted by the proportion of earnings in foreign jurisdictions with(with income tax rates lower than the U.S. federal income tax raterate) and the amount of income tax benefits derived from tax planning initiatives. The Company's earnings (loss) before income taxes, excluding impairment charges,initiatives which were made up of 85% of earnings from foreign
jurisdictions in both fiscal 2017 and 2016. This foreign income tax rate differential had the effect of reducing the effective income tax rate from the 35% U.S. statutory tax rate by 21.2% and by 19.6%, in fiscal 2017 and 2016, respectively, excluding the second quarter fiscal 2016 impairment charge.comparable between years. In addition, the recognition of income tax planning benefits resulting from certain losses from prior years for which no benefit was previously recognized resultedCompany may release a material valuation allowance in a 19.4% reduction fromforeign jurisdiction in late fiscal 2018 or in fiscal 2019, if the 35% U.S. statutoryCompany determines that it is more likely than not the deferred tax rate for fiscal 2017. Income tax planning benefits related to certain foreign currency gains and losses recognized for tax purposes resulted in a 10.1% reduction from the 35% U.S. statutory tax rate for fiscal 2016, excluding the impairment charge. The tax benefits related to these 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.assets will be realized.
Cash Flows and Liquidity
At February 28, 2017,2018, cash and cash equivalents included $165$149 million of cash held by our foreign subsidiaries and $7$4 million held domestically. We periodically utilize income tax safe harbor provisions to make temporary short-term intercompany advances from our foreign subsidiaries to our U.S. parent to reduce outstanding debt balances.parent. At February 28, 2017,2018, we did not have any temporary intercompany advances, compared to the $54$5 million we had outstanding at August 31, 2016.2017. The following table summarizes our cash flows from operating, investing and financing activities (in millions):
| | | Six Months Ended | Six Months Ended February 28, |
| February 28, 2017 | | February 29, 2016 | 2018 | | 2017 |
Net cash provided by operating activities | $ | 14 |
| | $ | 29 |
| |
Net cash (used in) provided by operating activities | | $ | (22 | ) | | $ | 15 |
|
Net cash used in investing activities | (14 | ) | | (21 | ) | (48 | ) | | (15 | ) |
Net cash used in financing activities | (4 | ) | | (11 | ) | (8 | ) | | (5 | ) |
Effect of exchange rates on cash | (3 | ) | | (11 | ) | 2 |
| | (3 | ) |
Net decrease in cash and cash equivalents | $ | (8 | ) | | $ | (14 | ) | $ | (76 | ) | | $ | (8 | ) |
Cash flows fromused in operating activities were $14$22 million for the six months ended February 28, 2017,2018, a decrease of $15$37 million from the prior year, primarily due primarily to lower netcash earnings and an increase ofcash used for inventories and accounts receivable in the current year. Operatingpayable, partially offset by reduced cash flows and existingtax payments. Existing cash balances, along with $10 million from stock options exercises and $9 million from the sale of business, funded the $8$28 million principal repayments onrental asset lease buyout for the term loan, $15Viking divestiture, $17 million of business acquisitions, $13 million of capital expenditures and the $2$15 million annual cash dividend.of principal loan repayments.
Our Senior Credit Facility which matures on May 8, 2020, includes a $600 million revolver,revolving credit facility, an amortizing term loan and a $450 million expansion option.option, subject to certain conditions. Quarterly term loan principal payments of $4 million on the term loan commenced on June 30, 2016, and increaseincreased to $8 million per quarter beginning on June 30, 2017 and extend through March 31, 2020, with the remaining principal due at maturity. At February 28, 2017, the unused credit line under the revolver was $596 million, $972018, we had $154 million of cash and cash equivalents. Unused revolver capacity was $597 million at February 28, 2018, of which $84 million was available for borrowing. We believe that the $172 million ofrevolver,
combined with our existing cash on hand revolver availability and futureanticipated operating cash flow will be adequate to meet operating, debt service, stock buyback, acquisition funding and capital expenditure funding requirements for the foreseeable future.
Primary Working Capital Management
We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The second quarter working capital increase compared to August 31, 2017 is the result of core sales growth and seasonal inventory build most notable within the Industrial and Engineered Solutions segments. The following table shows a comparison of primary working capital (in millions):
| | | February 28, 2017 | | PWC% | | August 31, 2016 | | PWC% | February 28, 2018 | | PWC% | | August 31, 2017 | | PWC% |
Accounts receivable, net | $ | 202 |
| | 20 | % | | $ | 187 |
| | 17 | % | $ | 211 |
| | 19 | % | | $ | 190 |
| | 17 | % |
Inventory, net | 128 |
| | 12 | % | | 131 |
| | 12 | % | 166 |
| | 15 | % | | 144 |
| | 13 | % |
Accounts payable | (125 | ) | | (12 | )% | | (115 | ) | | (10 | )% | (137 | ) | | (12 | )% | | (133 | ) | | (12 | )% |
Net primary working capital | $ | 205 |
| | 20 | % | | $ | 203 |
| | 18 | % | $ | 240 |
| | 22 | % | | $ | 201 |
| | 18 | % |
Commitments and Contingencies
We have operations 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 and we believe that such costs will not have a material adverse effect on our financial position, results of operations or cash flows.
We remain contingently liable for lease payments of businesses that we 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 $14$12 million using a weighted average discount rate of 3.15% at February 28, 2017.
2018.
We had letters of credit outstanding of approximately $17$23 million and $18$22 million at February 28, 20172018 and August 31, 2016,2017, respectively, the majority of which relate to commercial contracts and self-insured workers compensation programs.
Contractual Obligations
Our contractual obligations have not materially changed in fiscal 20172018 and are discussed in Part 1, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in our Annual Report on Form 10-K for the year ended August 31, 2016.2017.
Critical Accounting Policies
Refer to the Critical Accounting Policies in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year ended August 31, 20162017 for information about the Company’s policies, methodology and assumptions related to critical accounting policies.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
The diverse nature of our business activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity costs.
Interest Rate Risk: We manage interest expense using a mixture of fixed-rate and variable-rate debt. A change in interest rates impacts the fair value of our 5.625% Senior Notes, but not our earnings or cash flow because the interest rate on such debt is fixed. Our variable-rate debt obligations consist primarily of revolver and term loan borrowings under our Senior Credit Facility. A ten percent increase in the average cost of our variable rate debt would result in a corresponding $0.3 million and $0.5$0.6 million increase in financing costs for the three and six months ended February 28, 2017.2018, respectively.
Foreign Currency Risk: We maintain operations in the U.S. and various foreign countries. Our more significant non-U.S. operations are located in Australia, the Netherlands, the United Kingdom, Mexico, United Arab Emirates and China, and have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions (primarily foreign currency forwardexchange contracts) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 10, “Derivatives” for further information). We do not engage in trading or other speculative activities with these transactions, as established policies require that these hedging transactions relate to specific currency exposures.
The strengthening of the U.S. dollar against most currencies can have an unfavorable impact on our results of operations and financial position as foreign denominated operating results are translated into U.S. dollars. To illustrate the potential impact of changes in foreign currency exchange rates on the translation of our results of operations, quarterly sales and operating profit were remeasured assuming a ten percent decrease in all foreign exchange rates compared with the U.S. dollar. Using this assumption, quarterly sales would have been lower by $12$14 million and operating profit would have been lower by $1$4 million, respectively, for the three months ended February 28, 2017.2018. This sensitivity analysis assumes that each exchange rate would change in the same direction relative to the U.S. dollar and excludes the potential effects that changes in foreign currency exchange rates may have on sales levels or local currency prices. Similarly, a ten percent decline in foreign currency exchange rates versus the U.S. dollar would result in a $62$65 million reduction to equity (accumulated other comprehensive loss) as of February 28, 2017,2018, as a result of non U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
Commodity Cost Risk: We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin, are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 20172018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
The Company's Board of Directors has authorized the repurchase of shares of the Company’s common stock under publicly 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 $618 million. As of February 28, 2017,2018, 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 orand six months ended February 28, 2017.2018.
Item 6 – Exhibits
(a) Exhibits
See “Index to Exhibits” on page 32,34, which is incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | |
| | ACTUANT CORPORATION |
| | (Registrant) |
Date: April 7, 20179, 2018 | | By: | /S/ RICK T. DILLON |
| | | Rick T. Dillon |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
ACTUANT CORPORATION
(the “Registrant”)
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 20172018
INDEX TO EXHIBITS
|
| | | | | | | | |
| | | | | | | | |
Exhibit | | Description | | Incorporated Herein By Reference To | | Filed Herewith | | Furnished Herewith |
| | First Amendment to the Actuant Corporation 2017 Omnibus Incentive Plan | | Exhibit A to the Definitive Proxy statement dated December 5, 2016 relatingStatement related to the Company's annual meeting2018 Annual Meeting of Shareholders, heldwhich was filed with the SEC on January 17,December 4, 2017 | | | | |
| | | | | | | | |
| | Agreement by and between Actuant Corporation and Southeastern Capital Management dated March 20, 2018 | | Exhibit 10.1 of Registrant's Form 8-K filed on March 21, 2018 | | | | |
| | | | | | | | |
| | Offer letter by and between Actuant Corporation and John Jeffery Schmaling dated January 18, 2018. | | | | X | | |
| | | | | | | | |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | X | | |
| | | | | | | | |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | X | | |
| | | | | | | | |
| | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | X |
| | | | | | | | |
| | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | X |
| | | | | | | | |
| | The following materials from the Actuant Corporation Form 10-Q for the quarter ended February 28, 20172018 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements. | | | | X | | |