UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

——————————— 
FORM 10-Q

 ————————————
(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2012

February 28, 2013

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11288

 ————————————
ACTUANT CORPORATION

(Exact name of registrant as specified in its charter)

 ————————————
Wisconsin 39-0168610

(State of

incorporation)

 

(I.R.S. Employer

Id. No.)

N86 W12500 WESTBROOK CROSSING

MENOMONEE FALLS, WISCONSIN 53051

Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201

(Address of principal executive offices)

(262) 293-1500

(Registrant’s telephone number, including area code)

  ————————————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website,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. See definition of “accelerated filer”,filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨
Non-accelerated filer 
¨  (Do(Do not check if a smaller reporting company)
 Smaller reporting company ¨

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 June 30, 2012March 31, 2013 was 72,850,365.73,185,832.


TABLE OF CONTENTS

  Page No. 


Table of Contents

TABLE OF CONTENTS

Part I—Financial Information

Page No.
 

 4 

 5 

 6 

 7 

 21 

 25 

 26 

 

 26 

26

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, 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:

the timingeconomic uncertainty or strength of a worldwideprolonged economic recovery;

downturn;

the realization of anticipated cost savings from restructuring activities and cost reduction efforts;

market conditions in the truck, automotive, specialty vehicle, agriculture,agricultural, industrial, production automation, oil & gas, energy, maintenance, power generation, marine, solar, infrastructure, residential and commercial construction and retail Do-It Yourself (“DIY”) industries;

increased competition in the markets we serve and market acceptance of existing and new products;

our ability to successfully identify and integrate acquisitions and realize anticipated benefits/results from acquired companies;

operating margin risk due to competitive product pricing, operating efficiencies, reduced production levels and material, labor and overhead cost increases;

foreign currency, interest rate and commodity risk;

supply chain and industry trends, including changes in purchasing and other business practices by customers;

regulatory and legal developments including changes to United States taxation rules, health care reform and governmental climate change initiatives;


2

Table of Contents

the potential for a non-cash asset impairment charge, if operating performance at one or more of our reporting units were to fall significantly below current levels (given the amount of goodwill and intangible assets recorded in previously completed acquisitions);
our level of indebtedness, ability to comply with the financial and other covenants in our debt agreements and current credit market conditions.

When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries. Our Form 10-K for the fiscal year ended August 31, 20112012 contains an expanded description of these and other risks that may affect our business, financial position and results of operations under the section entitled “Risk Factors.”

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 Securities and Exchange Commission.



3


PART I – I—FINANCIAL INFORMATION

Item 1 – 1—Financial Statements

ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012   2011  2012   2011 

Net sales

  $429,215    $392,777   $1,200,038    $1,041,887  

Cost of products sold

   263,095     238,739    740,018     640,969  
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   166,120     154,038    460,020     400,918  

Selling, administrative and engineering expenses

   91,063     89,166    263,935     244,453  

Amortization of intangible assets

   7,393     6,871    21,684     19,846  
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating profit

   67,664     58,001    174,401     136,619  

Financing costs, net

   7,236     7,850    23,279     23,640  

Debt refinancing charges

   16,830     —      16,830     —    

Other expense, net

   2,604     331    3,090     1,276  
  

 

 

   

 

 

  

 

 

   

 

 

 

Earnings from continuing operations before income taxes

   40,994     49,820    131,202     111,703  

Income tax expense

   6,593     11,460    27,452     24,540  
  

 

 

   

 

 

  

 

 

   

 

 

 

Earnings from continuing operations

   34,401     38,360    103,750     87,163  

Loss from discontinued operations, net of income taxes

   —       (2,002  —       (16,986
  

 

 

   

 

 

  

 

 

   

 

 

 

Net earnings

  $34,401    $36,358   $103,750    $70,177  
  

 

 

   

 

 

  

 

 

   

 

 

 

Earnings from continuing operations per share:

       

Basic

  $0.48    $0.56   $1.50    $1.28  

Diluted

  $0.45    $0.51   $1.39    $1.17  

Earnings per share:

       

Basic

  $0.48    $0.53   $1.50    $1.03  

Diluted

  $0.45    $0.49   $1.39    $0.95  

Weighted average common shares outstanding:

       

Basic

   71,083     68,354    69,184     68,208  

Diluted

   75,371     75,571    75,201     75,314  

  Three Months Ended Six Months Ended
  February 28,
2013
 February 29,
2012
 February 28,
2013
 February 29,
2012
Net sales $370,370
 $378,024
 $747,618
 $770,823
Cost of products sold 230,811
 236,732
 461,073
 476,923
Gross profit 139,559
 141,292
 286,545
 293,900
Selling, administrative and engineering expenses 89,977
 84,763
 177,807
 172,872
Amortization of intangible assets 7,638
 7,073
 15,492
 14,291
Operating profit 41,944
 49,456
 93,246
 106,737
Financing costs, net 6,260
 7,821
 12,582
 16,043
Other (income) expense, net (36) (171) 328
 486
Earnings before income tax expense 35,720
 41,806
 80,336
 90,208
Income tax expense 7,285
 9,631
 15,558
 20,859
Net earnings $28,435
 $32,175
 $64,778
 $69,349
         
Earnings per share:        
Basic $0.39
 $0.47
 $0.89
 $1.02
Diluted $0.38
 $0.43
 $0.87
 $0.94
         
Weighted average common shares outstanding:        
Basic 72,946
 68,064
 72,869
 68,242
Diluted 74,416
 75,105
 74,343
 75,124
See accompanying Notes to Condensed Consolidated Financial Statements



4


ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
  Three Months Ended Six Months Ended
  February 28,
2013
 February 29,
2012
 February 28,
2013
 February 29,
2012
Net earnings $28,435
 $32,175
 $64,778
 $69,349
Other comprehensive income (loss), net of tax        
Foreign currency translation adjustments (11,945) 3,979
 144
 (28,588)
         
Pension and other postretirement benefit plans        
Actuarial loss arising during period 
 
 125
 
Amortization of actuarial losses included in net periodic pension cost 90
 50
 180
 83
                 Total pension and other postretirement benefit plans 90
 50
 305
 83
         
Cash flow hedges        
Unrealized net losses arising during period (116) (267) (114) (119)
Net gain reclassified into earnings 
 
 (131) 
                 Total cash flow hedges (116) (267) (245) (119)
Total other comprehensive income (loss), net of tax (11,971) 3,762
 204
 (28,624)
Comprehensive income $16,464
 $35,937
 $64,982
 $40,725
See accompanying Notes to Condensed Consolidated Financial Statements

5


ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)
(Unaudited)

  February 28,
2013
 August 31,
2012
ASSETS    
Current assets    
Cash and cash equivalents $90,823
 $68,184
Accounts receivable, net 238,601
 234,756
Inventories, net 217,540
 211,690
Deferred income taxes 23,604
 22,583
Other current assets 24,862
 24,068
Total current assets 595,430
 561,281
Property, plant and equipment    
Land, buildings and improvements 51,744
 49,866
Machinery and equipment 246,542
 242,718
Gross property, plant and equipment 298,286
 292,584
Less: Accumulated depreciation (184,162) (176,700)
Property, plant and equipment, net 114,124
 115,884
Goodwill 866,685
 866,412
Other intangibles, net 430,827
 445,884
Other long-term assets 16,765
 17,658
Total assets $2,023,831
 $2,007,119
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities    
Trade accounts payable $153,814
 $174,746
Accrued compensation and benefits 45,297
 58,817
Current maturities of long-term debt 10,000
 7,500
Income taxes payable 2,852
 5,778
Other current liabilities 58,566
 72,165
Total current liabilities 270,529
 319,006
Long-term debt 385,000
 390,000
Deferred income taxes 129,080
 132,653
Pension and postretirement benefit liabilities 26,137
 26,442
Other long-term liabilities 88,817
 87,182
Shareholders’ equity    
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 76,111,414 and 75,519,079 shares, respectively 15,221
 15,102
Additional paid-in capital 23,873
 7,725
Treasury stock, at cost, 2,978,994 and 2,658,751 shares, respectively (71,904) (63,083)
Retained earnings 1,226,346
 1,161,564
Accumulated other comprehensive loss (69,268) (69,472)
Stock held in trust (3,076) (2,689)
Deferred compensation liability 3,076
 2,689
Total shareholders’ equity 1,124,268
 1,051,836
Total liabilities and shareholders’ equity $2,023,831
 $2,007,119
(unaudited)

   May 31,  August 31, 
   2012  2011 

ASSETS

   

Current assets

   

Cash and cash equivalents

  $80,149   $44,221  

Accounts receivable, net

   237,438    223,760  

Inventories, net

   206,389    223,235  

Deferred income taxes

   32,206    32,461  

Other current assets

   19,109    22,807  
  

 

 

  

 

 

 

Total current assets

   575,291    546,484  

Property, plant and equipment

   

Land, buildings and improvements

   50,873    51,901  

Machinery and equipment

   254,083    263,250  
  

 

 

  

 

 

 

Gross property, plant and equipment

   304,956    315,151  

Less: Accumulated depreciation

   (188,991  (186,502
  

 

 

  

 

 

 

Property, plant and equipment, net

   115,965    128,649  

Goodwill

   873,682    888,466  

Other intangibles, net

   454,360    479,406  

Other long-term assets

   14,811    13,676  
  

 

 

  

 

 

 

Total assets

  $2,034,109   $2,056,681  
  

 

 

  

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities

   

Trade accounts payable

  $167,632   $170,084  

Accrued compensation and benefits

   53,008    71,639  

Short-term borrowings and current maturities of debt

   6,250    2,690  

Income taxes payable

   30,289    19,342  

Other current liabilities

   68,583    66,548  
  

 

 

  

 

 

 

Total current liabilities

   325,762    330,303  

Long-term debt

   392,500    522,727  

Deferred income taxes

   133,619    165,945  

Pension and postretirement benefit liabilities

   18,171    18,864  

Other long-term liabilities

   86,772    99,829  

Shareholders’ equity

   

Class A common stock, $0.20 par value per share, authorized 168,000,000, issued 75,274,829 and 68,657,234 shares, respectively

   15,054    13,731  

Additional paid-in capital

   382    (154,231

Treasury stock, at cost, 1,732,245 shares

   (39,282  —    

Retained earnings

   1,180,942    1,077,192  

Accumulated other comprehensive loss

   (79,811  (17,679

Stock held in trust

   (2,661  (2,137

Deferred compensation liability

   2,661    2,137  
  

 

 

  

 

 

 

Total shareholders’ equity

   1,077,285    919,013  
  

 

 

  

 

 

 

Total liabilities and shareholders’ equity

  $2,034,109   $2,056,681  
  

 

 

  

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements


6


ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

   Nine Months Ended May 31, 
   2012  2011 

Operating Activities

   

Net earnings

  $103,750   $70,177  

Adjustments to reconcile net earnings to cash provided by operating activities:

   

Depreciation and amortization

   40,192    38,143  

Net loss on disposal of business

   —      15,744  

Stock-based compensation expense

   10,002    8,093  

Benefit for deferred income taxes

   (2,137  (2,298

Amortization of debt discount and debt issuance costs

   1,492    2,409  

Non-cash debt refinancing charge

   2,254    —    

Other non-cash adjustments

   (138  (18

Changes in components of working capital and other:

   

Accounts receivable

   (21,692  (27,752

Inventories

   9,171    (39,533

Prepaid expenses and other assets

   1,071    5,989  

Trade accounts payable

   2,779    18,400  

Income taxes payable

   (2,056  6,904  

Accrued compensation and benefits

   (8,766  646  

Other liabilities

   (6,608  (1,806
  

 

 

  

 

 

 

Net cash provided by operating activities

   129,314    95,098  

Investing Activities

   

Proceeds from sale of property, plant and equipment

   8,486    359  

Proceeds from sale of business, net of transaction costs

   —      3,463  

Capital expenditures

   (17,491  (14,843

Business acquisitions, net of cash acquired

   (29,734  (160,047
  

 

 

  

 

 

 

Net cash used in investing activities

   (38,739  (171,068

Financing Activities

   

Net (repayments) borrowings on revolving credit facilities

   (58,167  14  

Issuance of term loan

   —      100,000  

Principal repayments on term loan

   (1,250  —    

Repurchases of 2% Convertible Notes

   (102  (34

Proceeds from 5.625% Senior Note issuance

   300,000    —    

Redemption of 6.875% Senior Notes

   (250,000  —    

Debt issuance costs

   (5,340  (5,197

Purchase of treasury shares

   (39,282  —    

Stock option exercises and related tax benefits

   6,392    7,285  

Cash dividend

   (2,748  (2,716
  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   (50,497  99,352  

Effect of exchange rate changes on cash

   (4,150  4,695  
  

 

 

  

 

 

 

Net increase in cash and cash equivalents

   35,928    28,077  

Cash and cash equivalents—beginning of period

   44,221    40,222  
  

 

 

  

 

 

 

Cash and cash equivalents—end of period

  $80,149   $68,299  
  

 

 

  

 

 

 

  Six Months Ended
  February 28,
2013
 February 29,
2012
Operating Activities    
Net earnings $64,778
 $69,349
Adjustments to reconcile net earnings to cash provided by operating activities:    
Depreciation and amortization 28,898
 26,610
Amortization of debt discount and debt issuance costs 992
 997
Stock-based compensation expense 7,128
 6,962
Benefit for deferred income taxes (6,018) (2,254)
Other non-cash adjustments (172) (346)
Changes in components of working capital and other    
Accounts receivable (3,721) (17,107)
Inventories (4,152) (1,060)
Prepaid expenses and other assets (1,204) (2,137)
Trade accounts payable (22,281) (8,128)
Income taxes payable (2,722) 36
Accrued compensation and benefits (12,427) (14,098)
Other accrued liabilities (8,776) (6,823)
Net cash provided by operating activities 40,323
 52,001
Investing Activities    
Proceeds from sale of property, plant and equipment 1,177
 7,775
Capital expenditures (11,726) (10,452)
Business acquisitions, net of cash acquired (1,433) (18,907)
Net cash used in investing activities (11,982) (21,584)
Financing Activities    
Net borrowings on revolver and other debt 
 (167)
Principal repayments on term loan (2,500) 
Purchase of treasury shares (8,821) (20,410)
Stock option exercises and related tax benefits 10,772
 5,507
Cash dividend (2,911) (2,748)
Net cash used in financing activities (3,460) (17,818)
Effect of exchange rate changes on cash (2,242) 1,625
Net increase in cash and cash equivalents 22,639
 14,224
Cash and cash equivalents – beginning of period 68,184
 44,221
Cash and cash equivalents – end of period $90,823
 $58,445
See accompanying Notes to Condensed Consolidated Financial Statements



7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 1. Basis of Presentation

Consolidation and Presentation

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, 20112012 was derived from the Company’s audited financial statements, but does not include all disclosures required by 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 20112012 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair presentationstatement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and ninesix months ended May 31, 2012February 28, 2013 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2012.

2013New Accounting Pronouncements.

In June 2011, the Financial Accounting Standards Board (FASB) updated the disclosure requirements for comprehensive income. The updated guidance requires companies to disclose the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The amended guidance, which must be applied retroactively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted.

In September 2011, the FASB issued an amendment to existing guidance on the testing of goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with earlier adoption permitted.

Note 2. Acquisitions

The Company continually evaluates potentialincurred acquisition transaction costs of $0.1 million and $0.7 million for the six months ended February 28, 2013 and February 29, 2012, respectively, related to various business acquisition activities. During the second quarter of fiscal 2013, the Company also paid $1.3 million of deferred purchase price consideration for acquisitions that are a strategic fit withcompleted in previous periods. The Company completed three business acquisitions during fiscal 2012. All of the Company’s existing businesses or expand the Company’s portfolio into new and attractive end markets. These acquisitions resultresulted in the recognition of goodwill in the Company’s consolidated financial statements because the purchase prices reflect the future earnings and cash flow potential of the acquiredthese companies, as well as the complementary strategic fit and resulting synergies these businesses are expected to bring to existing operations.

On March 28, 2012 the Company acquired the stock of Turotest Medidores Ltda (“Turotest”) for $8.1 million of cash and deferred consideration of $5.3 million. Turotest, an Engineered Solutions segment acquisition, headquartered in San Paulo, Brazil designs and manufactures instrument panels and gauges serving the Brazilian agriculture and industrial markets. The acquisition resulted in the recognition of $5.5 million of goodwill (which is not deductible for tax purposes) and $7.0 million of intangible assets (customer relationships, tradename and non-compete).

On February 10, 2012 the Company completed the acquisition of the stock of Jeyco Pty Ltd (“Jeyco”) for $20.7 million of cash. Jeyco, an Energy segment acquisition, headquartered near Perth, Australia, designs and provides specialized mooring, rigging and towing systems and services to the offshore oil & gas industry in Australia and other international markets. Additionally, Jeyco’s products are used in a variety of applications for other markets including cyclone mooring and marine, defense and mining tow systems. The purchase price allocation resulted in the recognition of $14.1 million of goodwill (which is not deductible for tax purposes) and $5.5 million of intangible assets (tradename, non-compete and customer relationships).

The Company completed two business acquisitions during fiscal 2011. On June 2, 2011, the Company completed the acquisition of Weasler Engineering, Inc. (“Weasler”) for $153.2 million of cash. Weasler, which is headquartered in Wisconsin, is a global designer and manufacturer of highly engineered drive train components and systems for agriculture, lawn & turf and industrial equipment. Weasler also supplies a variety of torque limiters, high-end gear boxes, clutches and torsional dampers which expand the product offering of the Engineered Solutions segment. On December 10, 2010, the Company completed the acquisition of Mastervolt International Holding B.V. (“Mastervolt”) for $158.2 million of cash. Mastervolt, headquartered in The Netherlands, is a designer, developer and global supplier of highly innovative, branded power electronics, primarily for the European solar and marine markets. Mastervolt expands the Electrical segment’s geographic presence and product offerings to include additional technologies associated with the efficient conversion, control, storage and conditioning of electrical power. The purchase price allocations for these fiscal 2011 acquisitions resulted in the recognition of $152.4 million of goodwill (which is not deductible for tax purposes) and $157.5 million of intangible assets, including $81.5 million of customer relationships, $69.9 million of tradenames, $5.5 million of patents and technologies and $0.6 million of non-compete agreements.

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), including through asset appraisals and learning more about the newly acquired business, the Company will refine its estimates of fair value.
During fiscal 2012, the nine months ended May 31,Company completed two Maxima Technologies tuck-in acquisitions that further expand the geographic presence, product offerings and technologies of the Engineered Solutions segment. On July 20, 2012 goodwill was reduced by $3.3 the Company completed the acquisition of the stock of CrossControl AB (“CrossControl”) for $40.6 million of cash, plus potential contingent consideration. CrossControl, headquartered in Sweden, provides advanced electronic solutions for user-machine interaction, vehicle control and mobile connectivity in critical environments. On March 28, 2012 the net resultCompany acquired the stock of Turotest Medidores Ltda (“Turotest”) for $8.1 million of cash and $5.3 million of deferred purchase accounting adjustmentsprice. Turotest, headquartered in Brazil, designs and manufactures instrument panels and gauges for the Brazilian agriculture and industrial markets.
In addition, on February 10, 2012 the Company completed the acquisition of the stock of Jeyco Pty Ltd (“Jeyco”) for $20.7 million of cash. This Cortland (Energy segment) tuck-in acquisition, designs and provides specialized mooring, rigging and towing systems and services to the fair valueoffshore oil & gas industry in Australia and other international markets. Additionally, Jeyco’s products are used in a variety of acquiredapplications for other markets including cyclone mooring and marine, defense and mining tow systems.
The purchase price allocation for fiscal 2012 acquisitions resulted in the recognition of $40.7 million of goodwill (which is not deductible for tax purposes) and $32.8 million of intangible assets, including $24.2 million of customer relationships, $5.7 million of tradenames, $2.2 million of technologies and assumed liabilities, including a $7.7$0.7 million reduction to Mastervolt’s initial estimated warranty reserve.

of non-compete agreements.

The following unaudited pro forma results of operations of the Company for the three and ninesix months ended May 31,February 28, 2013 and February 29, 2012 and May 31, 2011,, give effect to these acquisitions as though the transactions and related financing activities had occurred on September 1, 20102011 (in thousands, except per share amounts):

   Three Months Ended May 31,   Nine Months Ended May 31, 
   2012   2011   2012   2011 

Net sales

        

As reported

  $429,215    $392,777    $1,200,038    $1,041,887  

Pro forma

   430,356     427,159     1,219,104     1,178,722  

Earnings from continuing operations

        

As reported

  $34,401    $38,360    $103,750    $87,163  

Pro forma

   34,668     42,037     107,485     98,927  

Basic earnings per share from continuing operations

        

As reported

  $0.48    $0.56    $1.50    $1.28  

Pro forma

   0.49     0.61     1.55     1.45  

Diluted earnings per share from continuing operations

        

As reported

  $0.45    $0.51    $1.39    $1.17  

Pro forma

   0.45     0.56     1.43     1.33  

During the nine months ended May 31, 2012, the


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Table of Contents

  Three Months Ended Six Months Ended
  February 28,
2013
 February 29,
2012
 February 28,
2013
 February 29,
2012
Net sales 
 
 
 
As reported $370,370
 $378,024
 $747,618
 $770,823
Pro forma 370,370
 395,154
 747,618
 810,941
Net earnings 
 
 
 
As reported $28,435
 $32,175
 $64,778
 $69,349
Pro forma 28,508
 32,695
 65,010
 72,785
Basic earnings per share 
 
 
 
As reported $0.39
 $0.47
 $0.89
 $1.02
Pro forma 0.39
 0.48
 0.89
 1.07
Diluted earnings per share 
 
 
 
As reported $0.38
 $0.43
 $0.87
 $0.94
Pro forma 0.38
 0.44
 0.87
 0.98
Note 3. Restructuring
The Company paid $0.9 millioncontinuously reviews its cost structure to be responsive to changes in end market demand, identify opportunities for cost synergies from recent acquisitions and in light of deferred consideration for acquisitions completed in previous periods. Transaction costs related to various business acquisition activities were $1.0 million for the nine months ended May 31, 2012 and $0.9 millionchanges in the comparable prior year period.

Note 3. Discontinued Operations

In the second quarter of fiscal 2011, the Company completed the sale of the European Electrical business for total cash proceeds of $3.5 million, net of transaction costs.worldwide economy. As a result of the sale transaction,increased uncertainty and reduced demand, the Company recognized a pre-tax loss on disposal of $15.8 million. The following table summarizes the results of the European Electrical business, which has been reported as discontinued operations (in thousands):

   Three Months Ended
May 31, 2011
  Nine Months Ended
May 31, 2011
 

Net sales

  $—     $49,305  

Loss on disposal of business

   (2,086  (15,829

Loss from operations of divested business

   —      (1,157

Income tax benefit

   84    —    
  

 

 

  

 

 

 

Loss from discontinued operations, net of income taxes

  $(2,002 $(16,986
  

 

 

  

 

 

 

Note 4. Restructuring

In fiscal 2009, in response to the dramatic downturn in the worldwide economy, the Company committed toimplemented various restructuring initiatives includingto reduce costs through workforce reductions, plant consolidations, the transfercontinued movement of production and product sourcing to lowerlow cost plants or regionscountries and the centralization of certain selling and administrative functions. These major actions were substantially completed by August 31, 2010, with limited restructuring activity in subsequent periods. Subsequent restructuringRestructuring costs were $0.5$1.0 million and $2.0$1.7 million for the three and ninesix months ended May 31, 2012,February 28, 2013, respectively and $0.9$0.9 million and $1.7$1.4 million for the three and ninesix months ended May 31, 2011,February 29, 2012, respectively.

The restructuring reserve at MayFebruary 28, 2013 and August 31, 2012 was $1.7 million and August 31, 2011 was $3.5$2.9 million and $3.6 million,, respectively. The remaining restructuring related to severance will be paid during the next twelve months, while facility consolidation costs (primarily reserves for future lease payments for vacated facilities) will be paid over the underlying lease terms.

Note 5.4. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill for the ninesix months ended May 31, 2012February 28, 2013 are as follows (in thousands):

   Industrial  Energy  Electrical  Engineered
Solutions
  Total 

Balance as of August 31, 2011

  $85,409   $252,285   $260,777   $289,995   $888,466  

Businesses acquired

   —      14,101    —      5,462    19,563  

Purchase accounting adjustments

   —      —      (3,995  715    (3,280

Impact of changes in foreign currency rates

   (4,708  (12,195  (7,144  (7,020  (31,067
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of May 31, 2012

  $80,701   $254,191   $249,638   $289,152   $873,682  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Industrial Energy Electrical 
Engineered
Solutions
 Total
Balance as of August 31, 2012 $81,404
 $259,521
 $213,870
 $311,617
 $866,412
Purchase accounting adjustments 
 117
 
 522
 639
Impact of changes in foreign currency rates 1,020
 (4,645) 918
 2,341
 (366)
Balance as of February 28, 2013 $82,424
 $254,993
 $214,788
 $314,480
 $866,685

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):

  Weighted May 31, 2012  August 31, 2011 
  Average Gross     Net  Gross     Net 
  Amortization Carrying  Accumulated  Book  Carrying  Accumulated  Book 
  Period (Years) Value  Amortization  Value  Value  Amortization  Value 

Amortizable intangible assets:

       

Customer relationships

 15 $328,127   $87,345   $240,782   $331,171   $73,215   $257,956  

Patents

 13  50,259    33,802    16,457    51,169    31,221    19,948  

Trademarks and tradenames

 20  41,178    7,966    33,212    38,917    6,571    32,346  

Non-compete agreements and other

   4  7,489    6,023    1,466    7,362    5,671    1,691  

Indefinite lived intangible assets:

       

Tradenames

 N/A  162,443    —      162,443    167,465    —      167,465  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  $589,496   $135,136   $454,360   $596,084   $116,678   $479,406  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


9

Table of Contents

  
 February 28, 2013 August 31, 2012
  
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 $347,474
 $104,772
 $242,702
 $347,739
 $93,768
 $253,971
Patents 13 52,655
 36,292
 16,363
 52,851
 34,842
 18,009
Trademarks and tradenames 19 43,853
 9,959
 33,894
 43,820
 8,670
 35,150
Non-compete agreements and other 4 7,600
 6,678
 922
 7,677
 6,316
 1,361
Indefinite lived intangible assets: 
 
 
 
 
 
 
Tradenames N/A 136,946
 
 136,946
 137,393
 
 137,393
    $588,528
 $157,701
 $430,827
 $589,480
 $143,596
 $445,884
Amortization expense recorded on the intangible assets listed above was $7.4$7.6 million and $21.7$15.5 million for the three and ninesix months ended May 31, 2012,February 28, 2013, respectively and $6.9$7.1 million and $19.8$14.3 million for the three and ninesix months ended May 31, 2011,February 29, 2012, respectively. The Company estimates that amortization expense will approximate $7.4be approximately $14.3 million for the remainder of fiscal 2012.2013. Amortization expense for future years is estimated to be as follows: $27.8$28.1 million in fiscal 2013, $26.22014, $28.0 million in 2015, $27.8 million in fiscal 2014, $26.12016, $26.6 million in fiscal 2015, $25.92017, $26.2 million in fiscal 20162018 and $178.6$142.9 million thereafter. These future amortization expense amounts represent estimates, which may change based on future acquisitions, or changes in foreign currency exchange rates.

rates or other factors.

Note 6.5. Product Warranty Costs

The Company generally offers its customers a warranty on products sold,they purchase, although warranty periods vary by product type and application. The acquisition of Mastervolt during fiscal 2011 has increasedDuring the requiredsix months ended February 29, 2012, the warranty reserve as this business haswas reduced by $7.7 million, the result of a longer basepurchase accounting adjustment to Mastervolt’s initial estimated warranty period.reserve. The reserve for future warranty claims is based on historical claim rates and current warranty cost experience. The following is a rollforward of the accrued product warranty reserve (in thousands):

   Nine Months Ended May 31, 
   2012  2011 

Beginning balance

  $23,707   $7,868  

Purchase accounting adjustments

   (7,726  —    

Warranty reserves of acquired business

   237    10,870  

Provision for warranties

   8,444    7,416  

Warranty payments and costs incurred

   (8,567  (3,664

Impact of changes in foreign currency rates

   (2,043  1,366  
  

 

 

  

 

 

 

Ending balance

  $14,052   $23,856  
  

 

 

  

 

 

 

  Six Months Ended
  February 28,
2013
 February 29,
2012
Beginning balances $12,869
 $23,707
Purchase accounting adjustments 
 (7,726)
Warranty reserves of acquired businesses 
 43
Provision for warranties 4,220
 5,393
Warranty payments and costs incurred (5,659) (5,640)
Impact of changes in foreign currency rates 320
 (1,109)
Ending balances $11,750
 $14,668


10


Note 7.6. Debt

The following is a summary of the Company’s long-term indebtedness (in thousands):

  May 31, 2012  August 31, 2011 

Senior Credit Facility

  

Revolver

 $—     $58,000  

Term Loan

  98,750    100,000  
 

 

 

  

 

 

 
  98,750    158,000  

5.625% Senior Notes

  300,000    —    

6.875% Senior Notes

  —      249,432  
 

 

 

  

 

 

 

Total Senior Indebtedness

  398,750    407,432  

Convertible subordinated debentures (“2% Convertible Notes”)

  —      117,795  
 

 

 

  

 

 

 

Total Debt

  398,750    525,227  

Less: current maturities of long-term debt

  (6,250  (2,500
 

 

 

  

 

 

 

Total long-term debt, less current maturities

 $392,500   $522,727  
 

 

 

  

 

 

 

  February 28,
2013
 August 31,
2012
Senior Credit Facility    
Revolver $
 $
Term Loan 95,000
 97,500
  95,000
 97,500
5.625% Senior Notes 300,000
 300,000
Total Senior Indebtedness 395,000
 397,500
Less: current maturities of long-term debt (10,000) (7,500)
Total long-term debt $385,000
 $390,000
The Company’s Senior Credit Facility, which matures on February 23, 2016 provides a $600.0$600 million revolving credit facility, a $100.0$100 million term loan and a $300.0$300 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 1.25% to 2.50% in the case of loans bearing interest at LIBOR and from 0.25% to 1.25%1.50% in the case of loans bearing interest at the base rate. At May 31, 2012,February 28, 2013, the borrowing spread on LIBOR based borrowings was 1.75%1.25% (aggregating to 2.25% and 2.0%1.50% on the outstanding term loan and revolver borrowings, respectively)loan). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.2% to 0.4% per annum. At May 31, 2012February 28, 2013 the available and unused credit line under the revolver was $598.3 million.$596.4 million. Quarterly principal payments of $1.25$1.25 million began on the $100.0$100 million term loan on March 31, 2012, increasing to $2.5$2.5 million per quarter beginning on March 31, 2013, 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 3.75:3.75:1 and a minimum fixed charge coverage ratio of 1.50:1.50:1. The Company was in compliance with all debt covenants at May 31, 2012.

February 28, 2013.

On April 16, 2012, the Company issued $300.0$300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”) in a private offering.. 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 Company utilized the net proceeds from this issuance to fund the repurchase of all the Company’sits then outstanding $250.0$250 million of 6.875% Senior Notes due 2017 at a cost of 104%, or a total of $260.4 million.

$260.4 million.

In November 2003, the Company issued $150.0 million of Senior Subordinated Convertible Debentures due November 15, 2023 (the “2% Convertible Notes”). Prior to fiscal 2012, the Company repurchased (for cash) $32.2 million of 2% Convertible Notes at an average price of 99.3% of par value. In addition, $0.2 million of 2% Convertible Notes were converted into shares of the Company’s Class A common stock in the first quarter of fiscal 2012. In March 2012, the Company called all of the remaining $117.6its then outstanding $117.6 million of 2% Convertible Notes outstanding for cash at par. As a result of the call notice, a majoritysubstantially all of the holders of the 2% Convertible Notes converted them into newly issued shares of the Company’s Class A common stock, at a conversion rate of 50.6554 shares per $1,000 of principal amount (resulting in the issuance of 5,951,440 shares of common stock) while the remaining $0.1$0.1 million of 2% Convertible Notes were repurchased for cash. The impact of the additional share issuance was already included in the diluted earnings per share calculation (See Note 9, “Earnings per Share”) on an if-converted method. As a result of the 2% Convertible Notes being redeemed for the Company’s common stock, approximately $15.6 million of related prior income tax will be recaptured.

In fiscal 2011, the Company entered into interest rate swap contracts that had a total notional value of $100.0 million and maturity dates of March 23, 2016. The interest rate swap contracts pay the Company variable interest at the three month LIBOR rate, and the Company pays the counterparties a fixed interest rate of approximately 2.06%. These interest rate swap contracts were entered into to synthetically convert $100.0 million of the Senior Credit Facility variable rate borrowings into fixed rate debt. In connection with the debt refinancing transactions discussed above, the Company terminated the interest rate swap contracts on April 3, 2012, which resulted in a cash payment to the counterparty of $4.1 million, in full settlement of the fair value of the contracts.

In connection with the debt refinancing activities, during the three months ended May 31, 2012, the Company recognized a $16.8 million pre-tax debt refinancing charge, which included $10.4 million of tender premium paid to holders of existing 6.875% Senior Notes, a $2.3 million write-off of deferred financing fees and debt discount and a $4.1 million charge related to the termination of the interest rate swap agreements. The related tax benefit on the debt refinancing charge was $6.3 million.

Note 8.7. 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 participants would use in pricing the asset or liability. The Company has nofollowing financial assets orand liabilities, that are recordedmeasured at fair value, using significant unobservable inputs (Level 3). The fair value of financial assets and liabilitiesare included in the condensed consolidated balance sheet are as follows (in thousands):

   May 31, 2012  August 31, 2011 

Level 1 Valuation:

   

Cash equivalents

  $681   $1,958  

Investments

   1,514    1,464  

Level 2 Valuation:

   

Foreign currency forward contracts

  $(1,790 $(81

Interest rate swap contracts

   —      (4,552

  February 28,
2013
 August 31,
2012
Level 1 Valuation:    
Cash equivalents $1,132
 $5,154
Investments 1,714
 1,602
Level 2 Valuation: 
 
Foreign currency derivatives $(517) $945


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Table of Contents

At August 31, 2012, Mastervolt’s goodwill ($40.0 million) and tradename ($13.6 million) were written down to estimated fair value, resulting in a non-cash impairment charge of $62.5 million. In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. The tradename was valued using the relief of royalty income approach. These represent Level 3 assets measured at fair value on a nonrecurring basis.
The fair value of the Company’s cash, accounts receivable, accounts payable, short-term borrowings and its variable rate long-term debt approximated book value as of Mayat February 28, 2013 and August 31, 2012 and August 31, 2011 due to their short-term nature and the fact that the applicable interest rates approximated market rates of interest.rates. The fair value of the Company’s outstanding $117.8$300 million 2% Convertible Notes at August 31, 2011 was $127.9 million, while the fair value of the Company’s outstanding $250.0 million of 6.875%5.625% Senior Notes was $252.5 million.$308.3 million and $309.8 million at February 28, 2013 and August 31, 2012, respectively. The fair value of the Company’s outstanding $300.0 million of 5.625% Senior Notes at May 31, 2012 was $306.8 million. These fair values were based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.


Note 8. Derivatives
All derivatives are recognized on the balance sheet at their estimated fair value. On the date it enters into a derivative contract, the Company designates the derivative as a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The Company does not enter into derivatives for speculative purposes. Changes in the value of fair value hedges and non-designated hedges are recorded in earnings along with the gain or loss on the hedged asset or liability, while changes in the value of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows. The fair value of outstanding foreign currency derivatives was a $0.5 million liability at February 28, 2013 compared to a $0.9 million asset at August 31, 2012.

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk the Company has hedged portions of its forecasted inventory purchases that are denominated in non-functional currencies (cash flow hedges). The U.S. dollar equivalent notional value of these foreign currency forward contracts was $12.7 million and $2.8 million, at February 28, 2013 and August 31, 2012, respectively. At February 28, 2013, unrealized losses of $0.1 million have been included in accumulated other comprehensive income and are expected to be reclassified to earnings during the next twelve months.

The Company also utilizes forward foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. The U.S. dollar equivalent notional value of these short duration foreign currency forward contracts was $133.7 million and $197.5 million, at February 28, 2013 and August 31, 2012, respectively. Net foreign currency losses related to these derivative instruments were $0.9 million and $0.3 million for the three and six months ended February 28, 2013, respectively, which offset foreign currency gains from the related revaluation on non-functional currency assets and liabilities (amounts included in other income and expense in the condensed consolidated statement of earnings).


12

Table of Contents

Note 9. Earnings Per Share

The reconciliations between basic and diluted earnings per share are as follows (in thousands, except per share amounts):

   Three Months Ended May 31,   Nine Months Ended May 31, 
   2012  2011   2012   2011 

Numerator:

       

Net earnings from continuing operations

  $34,401   $38,360    $103,750    $87,163  

Plus: 2% Convertible Notes financings costs, net of taxes

   (468  383     425     1,222  
  

 

 

  

 

 

   

 

 

   

 

 

 

Net earnings for diluted earnings per share

  $33,933   $38,743    $104,175    $88,385  
  

 

 

  

 

 

   

 

 

   

 

 

 

Denominator:

       

Weighted average common shares outstanding for basic earnings per share

   71,083    68,354     69,184     68,208  

Net effect of dilutive securities—equity based compensation plans

   1,310    1,250     1,053     1,145  

Net effect of 2% Convertible Notes based on the if-converted method

   2,978    5,967     4,964     5,961  
  

 

 

  

 

 

   

 

 

   

 

 

 

Weighted average common and equivalent shares outstanding for diluted earnings per share

   75,371    75,571     75,201     75,314  
  

 

 

  

 

 

   

 

 

   

 

 

 

Basic Earnings Per Share:

  $0.48   $0.56    $1.50    $1.28  

Diluted Earnings Per Share:

  $0.45   $0.51    $1.39    $1.17  

Anti-dilutive securities—equity based compensation plans
(excluded from earnings per share calculation)

   2,173    1,863     2,735     2,295  

  Three Months Ended Six Months Ended
  February 28,
2013
 February 29,
2012
 February 28,
2013
 February 29,
2012
Numerator:        
Net earnings $28,435
 $32,175
 $64,778
 $69,349
Plus: 2% Convertible Notes financing costs, net of taxes 
 383
 
 893
Net earnings for diluted earnings per share $28,435
 $32,558
 $64,778
 $70,242
Denominator:        
Weighted average common shares outstanding for basic earnings per share 72,946
 68,064
 72,869
 68,242
Net effect of dilutive securities—equity based compensation plans 1,470
 1,084
 1,474
 925
Net effect of 2% Convertible Notes based on the if-converted method 
 5,957
 
 5,957
Weighted average common and equivalent shares outstanding for diluted earnings per share 74,416
 75,105
 74,343
 75,124
         
Basic Earnings Per Share: $0.39
 $0.47
 $0.89
 $1.02
Diluted Earnings Per Share: $0.38
 $0.43
 $0.87
 $0.94
         
Anti-dilutive securities-equity based compensation plans (excluded from earnings per share calculation) 759
 2,175
 774
 3,016
As discussed in Note 6, “Debt” the Company issued 5,951,440 shares of common stock in the third quarter of fiscal 2012, in conjunction with the conversion of its 2% Convertible Notes, resulting in an increase in the weighted average common shares outstanding for basic earnings per share. However, the impact of the additional share issuance was already included in the diluted earnings per share calculation, on an if-converted method. The Company has also repurchased common shares on the open market in the last year, as well as issued new shares pursuant to equity compensation plans.
Note 10. Income Taxes

The Company’sCompany's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are higher or lower than the U.S. federal statutory rate, permanent items, state tax rates and ourthe ability to utilize various tax credits and net operating loss carryforwards. 
The Company adjusts the quarterly provision for income taxes based on the estimated annual effective income tax rate and facts and circumstances known at each interim reporting period.

The effective income tax rate was 16.1%20.4% and 20.9%19.4% for the three and ninesix months ended May 31, 2012,February 28, 2013, respectively, and 23.0% and 22.0%23.1% for the comparable prior year periods. The decrease in the effective tax rate for the three and nine months ended May 31, 2012, relative to the prior year, reflects the benefitbenefits of tax minimization planning, increased foreign tax credits, favorable tax reserve adjustments as a result of the lapsing of various tax statutes of limitations, the utilization of net operating losses and discrete items. Income tax expense for the second quarter of fiscal 2013 included discrete period income tax benefit onbenefits related to changes in tax laws and the debt refinancing charges (Note 7, “Debt”) being recognized atreinstatement of the U.S. statutory rates (which are higher thanfederal research and development tax credit (collectively $1.2 million) and a $2.4 million reversal of tax reserves established in prior years (as a result of favorable tax audits and the Company’s consolidated global effectivelapsing of various tax rate)statues of limitations).

The gross liability for unrecognized tax benefits, excluding interest and penalties, decreasedincreased from $26.2$24.6 million at August 31, 20112012 to $24.2$24.7 million at May 31, 2012.February 28, 2013. Substantially all of these unrecognized tax benefits, if recognized, would reduce the effective income tax rate. In addition, as of February 28, 2013 and August 31, 2011 and May 31, 2012, the Company had liabilities totaling $5.1$4.7 million and $4.4$4.5 million, respectively, for estimatedthe payment of interest and penalties related to its unrecognized tax benefits.

Note 11. Other Comprehensive Income (Loss)

The Company’s comprehensive income is significantly impacted by the movement


13


Note 12.11. Segment Information

The Company is a global manufacturer of a broad range of industrial products and systems and is organized into four reportable segments: Industrial, Energy, Electrical, and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other energy markets. The Electrical segment designs, manufactures and distributes a broad range of electrical products to the retail DIY, wholesale, original equipment manufacturer (“OEM”), solar, utility, marine and other harsh environment markets. The Engineered Solutions segment provides highly engineered position and motion control systems to OEMs 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 May 31,  Nine Months Ended May 31, 
   2012  2011  2012  2011 

Net Sales by Segment:

     

Industrial

  $110,102   $107,759   $308,696   $284,086  

Energy

   96,399    78,002    255,758    210,333  

Electrical

   85,947    80,329    245,885    205,901  

Engineered Solutions

   136,767    126,687    389,699    341,567  
  

 

 

  

 

 

  

 

 

  

 

 

 
  $429,215   $392,777   $1,200,038   $1,041,887  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net Sales by Reportable Product Line:

     

Industrial

  $110,102   $107,759   $308,696   $284,086  

Energy

   96,399    78,002    255,758    210,333  

Electrical

   85,947    80,329    245,885   ��205,901  

Vehicle Systems

   75,417    94,423    220,696    250,926  

Other

   61,350    32,264    169,003    90,641  
  

 

 

  

 

 

  

 

 

  

 

 

 
  $429,215   $392,777   $1,200,038   $1,041,887  
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating Profit:

     

Industrial

  $30,682   $29,517   $85,307   $69,853  

Energy

   18,515    13,545    43,364    32,194  

Electrical

   8,814    5,462    19,592    14,168  

Engineered Solutions

   18,467    19,977    50,747    47,203  

General Corporate

   (8,814  (10,500  (24,609  (26,799
  

 

 

  

 

 

  

 

 

  

 

 

 
  $67,664   $58,001   $174,401   $136,619  
  

 

 

  

 

 

  

 

 

  

 

 

 
         May 31, 2012  

August 31,

2011

 
    

 

 

  

 

 

 

Assets:

     

Industrial

    $277,918   $263,680  

Energy

     532,871    517,428  

Electrical

     506,248    547,556  

Engineered Solutions

     621,197    632,242  

General Corporate

     95,875    95,775  
    

 

 

  

 

 

 
    $2,034,109   $2,056,681  
    

 

 

  

 

 

 

  Three Months Ended Six Months Ended
  February 28,
2013

February 29,
2012
 February 28,
2013
 February 29,
2012
Net Sales by Segment:        
Industrial $98,999
 $98,342
 $200,121
 $198,595
Energy 80,794
 78,937
 171,563
 159,358
Electrical 69,902
 77,105
 139,341
 159,938
Engineered Solutions 120,675
 123,640
 236,593
 252,932
  $370,370
 $378,024
 $747,618
 $770,823
Net Sales by Reportable Product Line:        
Industrial $98,999
 $98,342
 $200,121
 $198,595
Energy 80,794
 78,937
 171,563
 159,358
Electrical 69,902
 77,105
 139,341
 159,938
Vehicle Systems 59,675
 68,916
 120,862
 145,280
Other 61,000
 54,724
 115,731
 107,652
  $370,370
 $378,024
 $747,618
 $770,823
Operating Profit:        
Industrial $26,350
 $26,691
 $53,356
 $54,624
Energy 9,677
 11,632
 25,064
 24,849
Electrical 5,072
 5,801
 12,900
 10,778
Engineered Solutions 8,275
 13,281
 15,900
 32,280
General Corporate (7,430) (7,949) (13,974) (15,794)
  $41,944
 $49,456
 $93,246
 $106,737
  February 28,
2013
 August 31,
2012
Assets:    
Industrial $272,791
 $268,735
Energy 534,279
 540,409
Electrical 443,474
 437,914
Engineered Solutions 672,836
 667,550
General Corporate 100,451
 92,511
  $2,023,831
 $2,007,119
In addition to the impact of changes in foreign currency exchange rates, the comparability of segment and product line information is also impacted by acquisitions.acquisition/divestiture activities and restructuring costs and the related benefits. Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes and the fair valuetaxes.

14


Note 13.12. Contingencies and Litigation

The Company had outstanding letters of credit of $8.5$10.8 million and $9.5$8.5 million at MayFebruary 28, 2013 and August 31, 2012 and August 31, 2011,, respectively, the majority of which secure self-insured workers compensation liabilities.

The Company is a party to various legal proceedings that have arisen in the normal course of its business. These legal proceedings typically include product liability, environmental, labor, patent claims and divestitureother 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 as of the balance sheet date and can be reasonably estimated and is not covered by insurance.estimated. In the opinion of management, the resolution of these contingencies, individually and in the aggregate, will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company, in the normal course of business, enters into certain real estate and equipment leases or guarantees such leases on behalf of its subsidiaries. In conjunction with the spin-off of a former subsidiary in fiscal 2000, the Company assigned its rights in the leases used by the former subsidiary, but was not released as a responsible party from all such leases by the lessors. All of these businesses were subsequently sold. The Company remains contingently liable for those leases if any of these businesses are unable to fulfill their obligations thereunder. The discounted present value of future minimum lease payments for these leases was $3.7 million at May 31, 2012.

The Company has facilities in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past threetwo years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial condition,position, 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 obligations. The discounted present value of future minimum lease payments for these leases was $12.2 million at February 28, 2013.

Note 14.13. Guarantor Subsidiaries
As discussed in Note 6, “Debt” on

On April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0$300.0 million of 5.625% Senior Notes due 2022.Notes. All of the Company’s material domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee (except for certain customary limitations) the 5.625% Senior Notessuch debt on a joint and several basis. The Company plans to file a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) with respect to its offer to exchange new 5.625% Senior Secured Notes due 2022 that have been registered under the Securities Act of 1933 for any and all of its outstanding 5.625% Senior Secured Notes due 2022 that have not been so registered. 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 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 in the consolidating financial statements primarily includes loan activity, purchases and sales of goods or services 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, the impact of foreign currency rate changes and non-cash intercompany dividends.


15


CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(In thousands)

  Three Months Ended May 31, 2012 
  Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Net sales

 $53,206   $153,967   $222,042   $—     $429,215  

Cost of products sold

  17,112    105,368    140,615    —      263,095  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

  36,094    48,599    81,427    —      166,120  

Selling, administrative and engineering expenses

  21,609    26,264    43,190    —      91,063  

Amortization of intangible assets

  335    3,412    3,646    —      7,393  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating profit

  14,150    18,923    34,591    —      67,664  

Financing costs, net

  7,255    (22  3    —      7,236  

Intercompany expense (income), net

  (8,412  1,432    6,980    —      —    

Debt refinancing charges

  16,830    —      —      —      16,830  

Other expense (income), net

  (111  907    1,808    —      2,604  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings (loss) before income tax expense (benefit)

  (1,412  16,606    25,800    —      40,994  

Income tax expense (benefit)

  (2,898  3,716    5,775    —      6,593  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings before equity in earnings of subsidiaries

  1,486    12,890    20,025    —      34,401  

Equity in earnings (loss) of subsidiaries

  32,915    16,521    (450  (48,986  —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings

 $34,401   $29,411   $19,575   $(48,986 $34,401  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Three Months Ended May 31, 2011 
  Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Net sales

 $45,301   $142,145   $205,331   $—     $392,777  

Cost of products sold

  11,904    97,584    129,251    —      238,739  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

  33,397    44,561    76,080    —      154,038  

Selling, administrative and engineering expenses

  24,840    24,568    39,758    —      89,166  

Amortization of intangible assets

  —      3,893    2,978    —      6,871  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating profit

  8,557    16,100    33,344    —      58,001  

Financing costs, net

  7,850    —      —      —      7,850  

Intercompany expense (income), net

  (984  4,453    (3,469  —      —    

Other expense (income), net

  (3,628  194    3,765    —      331  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings from continuing operations before income tax expense

  5,319    11,453    33,048    —      49,820  

Income tax expense

  1,224    2,635    7,601    —      11,460  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings from continuing operations before equity in earnings of subsidiaries

  4,095    8,818    25,447    —      38,360  

Equity in earnings of subsidiaries

  33,136    22,368    1,232    (56,736  —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings from continuing operations

  37,231    31,186    26,679    (56,736  38,360  

Loss from discontinued operations, net of income taxes

  (873  —      (1,129  —      (2,002
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings

 $36,358   $31,186   $25,550   $(56,736 $36,358  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Three Months Ended February 28, 2013
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $47,407
 $121,600
 $201,363
 $
 $370,370
Cost of products sold 14,938
 87,004
 128,869
 
 230,811
Gross profit 32,469
 34,596
 72,494
 
 139,559
Selling, administrative and engineering expenses 18,527
 24,376
 47,074
 
 89,977
Amortization of intangible assets 318
 3,282
 4,038
 
 7,638
Operating profit 13,624
 6,938
 21,382
 
 41,944
Financing costs, net 6,409
 1
 (150) 
 6,260
Intercompany expense (income), net (4,651) (876) 5,527
 
 
Other expense (income), net (383) (53) 400
 
 (36)
Earnings before income tax expense 12,249
 7,866
 15,605
 
 35,720
Income tax expense 2,498
 1,604
 3,183
 
 7,285
Net earnings before equity in earnings of subsidiaries 9,751
 6,262
 12,422
 
 28,435
Equity in earnings of subsidiaries 18,684
 10,765
 (589) (28,860) 
Net earnings $28,435
 $17,027
 $11,833
 $(28,860) $28,435
Comprehensive income $16,464
 $4,840
 $12,009
 $(16,849) $16,464
  Three Months Ended February 29, 2012
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $49,514
 $137,431
 $191,079
 $
 $378,024
Cost of products sold 17,114
 97,651
 121,967
 
 236,732
Gross profit 32,400
 39,780
 69,112
 
 141,292
Selling, administrative and engineering expenses 19,660
 26,612
 38,491
 
 84,763
Amortization of intangible assets 335
 3,411
 3,327
 
 7,073
Operating profit 12,405
 9,757
 27,294
 
 49,456
Financing costs, net 8,035
 5
 (219) 
 7,821
Intercompany expense (income), net (8,682) 1,733
 6,949
 
 
Other expense (income), net 822
 1,330
 (2,323) 
 (171)
Earnings before income tax expense 12,230
 6,689
 22,887
 
 41,806
Income tax expense 2,818
 1,541
 5,272
 
 9,631
Net earnings before equity in earnings of subsidiaries 9,412
 5,148
 17,615
 
 32,175
Equity in earnings of subsidiaries 22,763
 17,819
 1,926
 (42,508) 
Net earnings $32,175
 $22,967
 $19,541
 $(42,508) $32,175
Comprehensive income $35,937
 $24,589
 $22,041
 $(46,630) $35,937

16


CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(In thousands)

   Nine Months Ended May 31, 2012 
   Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Net sales

  $151,240   $427,839   $620,959   $—     $1,200,038  

Cost of products sold

   49,505    297,651    392,862    —      740,018  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   101,735    130,188    228,097    —      460,020  

Selling, administrative and engineering expenses

   61,935    79,138    122,862    —      263,935  

Amortization of intangible assets

   1,005    10,243    10,436    —      21,684  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating profit

   38,795    40,807    94,799    —      174,401  

Financing costs, net

   23,527    (14  (234  —      23,279  

Intercompany expense (income), net

   (24,585  3,731    20,854    —      —    

Debt refinancing charges

   16,830    —      —      —      16,830  

Other expense (income), net

   904    2,581    (395  —      3,090  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings before income tax expense

   22,119    34,509    74,574    —      131,202  

Income tax expense

   2,542    7,858    17,052    —      27,452  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings before equity in earnings of subsidiaries

   19,577    26,651    57,522    —      103,750  

Equity in earnings of subsidiaries

   84,173    51,134    988    (136,295  —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings

  $103,750   $77,785   $58,510   $(136,295 $103,750  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Nine Months Ended May 31, 2011 
   Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Net sales

  $119,206   $388,059   $534,622   $—     $1,041,887  

Cost of products sold

   33,838    270,580    336,551    —      640,969  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   85,368    117,479    198,071    —      400,918  

Selling, administrative and engineering expenses

   64,024    72,765    107,664    —      244,453  

Amortization of intangible assets

   —      11,401    8,445    —      19,846  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating profit

   21,344    33,313    81,962    —      136,619  

Financing costs, net

   23,640    —      —      —      23,640  

Intercompany expense (income), net

   (8,412  12,479    (4,067  —      —    

Other expense (income), net

   (4,324  162    5,438    —      1,276  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings from continuing operations before income tax expense

   10,440    20,672    80,591    —      111,703  

Income tax expense

   2,374    4,608    17,558    —      24,540  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings from continuing operations before equity in earnings of subsidiaries

   8,066    16,064    63,033    —      87,163  

Equity in earnings of subsidiaries

   76,864    51,780    3,429    (132,073  —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings from continuing operations

   84,930    67,844    66,462    (132,073  87,163  

Loss from discontinued operations, net of income taxes

   (14,753  —      (2,233  —      (16,986
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net earnings

  $70,177   $67,844   $64,229   $(132,073 $70,177  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Six Months Ended February 28, 2013
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $93,245
 $245,717
 $408,656
 $
 $747,618
Cost of products sold 27,346
 174,872
 258,855
 
 461,073
Gross profit 65,899
 70,845
 149,801
 
 286,545
Selling, administrative and engineering expenses 35,980
 49,416
 92,411
 
 177,807
Amortization of intangible assets 639
 6,731
 8,122
 
 15,492
Operating profit 29,280
 14,698
 49,268
 
 93,246
Financing costs, net 12,767
 6
 (191) 
 12,582
Intercompany expense (income), net (11,921) 1,079
 10,842
 
 
Other expense, net (747) (369) 1,444
 
 328
Earnings before income tax expense 29,181
 13,982
 37,173
 
 80,336
Income tax expense 5,638
 2,738
 7,182
 
 15,558
Net earnings before equity in earnings of subsidiaries 23,543
 11,244
 29,991
 
 64,778
Equity in earnings of subsidiaries 41,235
 28,664
 435
 (70,334) 
Net earnings $64,778
 $39,908
 $30,426
 $(70,334) $64,778
Comprehensive income $64,982
 $33,698
 $38,028
 $(71,726) $64,982

  Six Months Ended February 29, 2012
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $98,034
 $273,872
 $398,917
 $
 $770,823
Cost of products sold 32,393
 192,283
 252,247
 
 476,923
Gross profit 65,641
 81,589
 146,670
 
 293,900
Selling, administrative and engineering expenses 40,326
 52,874
 79,672
 
 172,872
Amortization of intangible assets 670
 6,831
 6,790
 
 14,291
Operating profit 24,645
 21,884
 60,208
 
 106,737
Financing costs, net 16,272
 8
 (237) 
 16,043
Intercompany expense (income), net (16,173) 2,299
 13,874
 
 
Other expense (income), net 1,015
 1,674
 (2,203) 
 486
Earnings before income tax expense 23,531
 17,903
 48,774
 
 90,208
Income tax expense 5,440
 4,142
 11,277
 
 20,859
Net earnings before equity in earnings of subsidiaries 18,091
 13,761
 37,497
 
 69,349
Equity in earnings of subsidiaries 51,258
 34,613
 1,438
 (87,309) 
Net earnings $69,349
 $48,374
 $38,935
 $(87,309) $69,349
Comprehensive income $40,725
 $32,928
 $33,362
 $(66,290) $40,725



17


CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

   May 31, 2012 
   Parent   Guarantors   Non-
Guarantors
   Eliminations  Consolidated 

ASSETS

         

Current assets

  $83,779    $159,031    $332,481    $—     $575,291  

Property, plant & equipment, net

   6,684     33,251     76,030     —      115,965  

Goodwill

   62,543     433,193     377,946     —      873,682  

Other intangibles, net

   14,857     206,925     232,578     —      454,360  

Intercompany receivable

   —       399,007     281,587     (680,594  —    

Investment in subsidiaries

   1,884,934     440,620     120,266     (2,445,820  —    

Other long-term assets

   12,490     22     2,299     —      14,811  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total assets

  $2,065,287    $1,672,049    $1,423,187    $(3,126,414 $2,034,109  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

         

Current liabilities

  $90,009    $63,592    $172,161    $—     $325,762  

Long-term debt

   392,500     —       —       —      392,500  

Deferred income taxes

   92,126     —       41,493     —      133,619  

Pension and post-retirement benefit liabilities

   16,119     —       2,052     —      18,171  

Other long-term liabilities

   59,234     660     26,878     —      86,772  

Intercompany payable

   338,014     —       342,580     (680,594  —    

Shareholders’ equity

   1,077,285     1,607,797     838,023     (2,445,820  1,077,285  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities and shareholders’ equity

  $2,065,287    $1,672,049    $1,423,187    $(3,126,414 $2,034,109  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

  February 28, 2013
  Parent Guarantors Non-Guarantors Eliminations Consolidated
ASSETS          
Current assets          
Cash and cash equivalents $5,721
 $
 $85,102
 $
 $90,823
Accounts receivable, net 19,233
 71,033
 148,335
 
 238,601
Inventories, net 29,981
 78,581
 108,978
 
 217,540
Deferred income taxes 18,827
 
 4,777
 
 23,604
Other current assets 7,616
 1,585
 15,661
 
 24,862
Total current assets 81,378
 151,199
 362,853
 
 595,430
Property, plant & equipment, net 6,659
 29,709
 77,756
 
 114,124
Goodwill 62,543
 432,751
 371,391
 
 866,685
Other intangibles, net 13,883
 199,463
 217,481
 
 430,827
Investment in subsidiaries 1,927,053
 268,708
 91,270
 (2,287,031) 
Intercompany receivable 
 425,574
 295,365
 (720,939) 
Other long-term assets 11,460
 22
 5,283
 
 16,765
Total assets $2,102,976
 $1,507,426
 $1,421,399
 $(3,007,970) $2,023,831
LIABILITIES & SHAREHOLDERS' EQUITY          
Current liabilities          
Trade accounts payable $16,738
 $37,731
 $99,345
 $
 $153,814
Accrued compensation and benefits 13,161
 5,288
 26,848
 
 45,297
Current maturities of debt 10,000
 
 
 
 10,000
Income taxes payable 3,688
 
 (836) 
 2,852
Other current liabilities 13,910
 10,325
 34,331
 
 58,566
Total current liabilities 57,497
 53,344
 159,688
 
 270,529
Long-term debt 385,000
 
 
 
 385,000
Deferred income taxes 88,773
 
 40,307
 
 129,080
Pension and postretirement benefit liabilities 22,195
 
 3,942
 
 26,137
Other long-term liabilities 61,590
 475
 26,752
 
 88,817
Intercompany payable 363,653
 
 357,286
 (720,939) 
Shareholders’ equity 1,124,268
 1,453,607
 833,424
 (2,287,031) 1,124,268
Total liabilities and shareholders’ equity $2,102,976
 $1,507,426
 $1,421,399
 $(3,007,970) $2,023,831

18


CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

   August 31, 2011 
   Parent   Guarantors   Non-
Guarantors
   Eliminations  Consolidated 

ASSETS

         

Current assets

  $87,982    $155,067    $303,435    $—     $546,484  

Property, plant & equipment, net

   4,327     37,133     87,189     —      128,649  

Goodwill

   62,543     432,184     393,739     —      888,466  

Other intangibles, net

   15,861     216,277     247,268     —      479,406  

Intercompany receivable

   —       277,157     288,701     (565,858  —    

Investment in subsidiaries

   1,859,779     379,170     67,794     (2,306,743  —    

Other long-term assets

   10,862     51     2,763     —      13,676  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total assets

  $2,041,354    $1,497,039    $1,390,889    $(2,872,601 $2,056,681  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

         

Current liabilities

  $76,300    $70,126    $183,877    $—     $330,303  

Long-term debt

   522,727     —       —       —      522,727  

Deferred income taxes

   124,469     —       41,476     —      165,945  

Pension and post-retirement benefit liabilities

   16,452     —       2,412     —      18,864  

Other long-term liabilities

   59,466     779     39,584     —      99,829  

Intercompany payable

   322,927     —       242,931     (565,858  —    

Shareholders’ equity

   919,013     1,426,134     880,609     (2,306,743  919,013  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities and shareholders’ equity

  $2,041,354    $1,497,039    $1,390,889    $(2,872,601 $2,056,681  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

  August 31, 2012
  Parent Guarantors Non-Guarantors Eliminations Consolidated
ASSETS          
Current assets          
Cash and cash equivalents $12,401
 $91
 $55,692
 $
 $68,184
Accounts receivable, net 20,401
 74,006
 140,349
 
 234,756
Inventories, net 29,658
 75,905
 106,127
 
 211,690
Deferred income taxes 17,942
 
 4,641
 
 22,583
Other current assets 8,157
 1,166
 14,745
 
 24,068
Total current assets 88,559
 151,168
 321,554
 
 561,281
Property, plant & equipment, net 6,944
 31,818
 77,122
 
 115,884
Goodwill 62,543
 433,193
 370,676
 
 866,412
Other intangibles, net 14,522
 206,194
 225,168
 
 445,884
Investment in subsidiaries 1,886,478
 250,738
 90,770
 (2,227,986) 
Intercompany receivable 
 418,253
 307,282
 (725,535) 
Other long-term assets 12,297
 22
 5,339
 
 17,658
Total assets $2,071,343
 $1,491,386
 $1,397,911
 $(2,953,521) $2,007,119
LIABILITIES & SHAREHOLDERS' EQUITY          
Current liabilities          
Trade accounts payable $21,722
 $44,893
 $108,131
 $
 $174,746
Accrued compensation and benefits 23,459
 6,646
 28,712
 
 58,817
Current maturities of debt 7,500
 
 
 
 7,500
Income taxes payable 3,129
 
 2,649
 
 5,778
Other current liabilities 20,876
 11,566
 39,723
 
 72,165
Total current liabilities 76,686
 63,105
 179,215
 
 319,006
Long-term debt 390,000
 
 
 
 390,000
Deferred income taxes 91,604
 
 41,049
 
 132,653
Pension and postretirement benefit liabilities 22,500
 
 3,942
 
 26,442
Other long-term liabilities 59,929
 620
 26,633
 
 87,182
Intercompany payable 378,788
 
 346,747
 (725,535) 
Shareholders’ equity 1,051,836
 1,427,661
 800,325
 (2,227,986) 1,051,836
Total liabilities and shareholders’ equity $2,071,343
 $1,491,386
 $1,397,911
 $(2,953,521) $2,007,119


19


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)

  Nine Months Ended May 31, 2012 
  Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Operating Activities

     

Net cash provided by operating activities

 $56,851   $13,659   $58,804   $—     $129,314  

Investing Activities

     

Proceeds from sale of property, plant and equipment

  2,100    137    6,249    —      8,486  

Capital expenditures

  (4,367  (2,797  (10,327  —      (17,491

Business acquisitions, net of cash acquired

  (290  —      (29,444  —      (29,734
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash used in investing activities

  (2,557  (2,660  (33,522  —      (38,739

Financing Activities

     

Net repayments on revolving credit facilities

  (57,990  —      (177  —      (58,167

Intercompany loan activity

  (2,947  (10,999  13,946    —      —    

Principal repayments on term loan

  (1,250  —      —      —      (1,250

Repurchases of 2% Convertible Notes

  (102  —      —      —      (102

Proceeds on 5.625% Senior Note issuance

  300,000    —      —      —      300,000  

Redemption of 6.875% Senior Notes

  (250,000  —      —      —      (250,000

Debt issuance costs

  (5,340  —      —      —      (5,340

Purchase of treasury shares

  (39,282  —      —      —      (39,282

Stock option exercises and related tax benefits

  6,392    —      —      —      6,392  

Cash dividends

  (2,748  —      —      —      (2,748
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash (used in) provided by financing activities

  (53,267  (10,999  13,769    —      (50,497

Effect of exchange rate changes on cash

  —      —      (4,150  —      (4,150
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase in cash and cash equivalents

  1,027    —      34,901    —      35,928  

Cash and cash equivalents—beginning of period

  872    —      43,349    —      44,221  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents—end of period

 $1,899   $—     $78,250   $—     $80,149  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Six Months Ended February 28, 2013
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Operating Activities 
 
 
 
 
Net cash provided by operating activities $5,606
 $8,913
 $25,804
 $
 $40,323
Investing Activities 
 
 
 
 
Proceeds from sale of property, plant and equipment 562
 74
 541
 
 1,177
Capital expenditures (668) (2,014) (9,044) 
 (11,726)
Business acquisitions, net of cash acquired (1,350) 
 (83) 
 (1,433)
Cash used in investing activities (1,456) (1,940) (8,586) 
 (11,982)
Financing Activities 
 
 
 
 
Principal repayments on term loan (2,500) 
 
 
 (2,500)
Intercompany loan activity (7,370) (7,064) 14,434
 
 
Purchase of treasury shares (8,821) 
 
 
 (8,821)
Stock option exercises, related tax benefits and other 10,772
 
 
 
 10,772
Cash dividend (2,911) 
 
 
 (2,911)
Cash provided by (used in) financing activities (10,830) (7,064) 14,434
 
 (3,460)
Effect of exchange rate changes on cash 
 
 (2,242) 
 (2,242)
Net increase (decrease) in cash and cash equivalents (6,680) (91) 29,410
 
 22,639
Cash and cash equivalents—beginning of period 12,401
 91
 55,692
 
 68,184
Cash and cash equivalents—end of period $5,721
 $
 $85,102
 $
 $90,823


20


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)

  Nine Months Ended May 31, 2011 
  Parent  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

Operating Activities

     

Net cash provided by (used in) operating activities

 $15,423   $(2,123 $83,331   $(1,533 $95,098  

Investing Activities

     

Proceeds from sale of property, plant and equipment

  —      191    168    —      359  

Proceeds from sale of businesses, net of transaction costs

  —      —      3,463    —      3,463  

Capital expenditures

  (3,354  (3,537  (7,952  —      (14,843

Business acquisitions, net of cash acquired

  —      (350  (159,697  —      (160,047
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash used in investing activities

  (3,354  (3,696  (164,018  —      (171,068

Financing Activities

     

Net borrowings on revolving credit facilities

  —      —      14    —      14  

Issuance of term loans

  100,000    —      —      —      100,000  

Intercompany loan activity

  (95,141  5,819    89,322    —      —    

Repurchases of 2% Convertible Notes

  (34  —      —      —      (34

Debt issuance costs

  (5,197  —      —      —      (5,197

Stock option exercises and related tax benefits

  7,285    —      —      —      7,285  

Cash dividends

  (2,716  —      (1,533  1,533    (2,716
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash provided by financing activities

  4,197    5,819    87,803    1,533    99,352  

Effect of exchange rate changes on cash

  —      —      4,695    —      4,695  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase in cash and cash equivalents

  16,266    —      11,811    —      28,077  

Cash and cash equivalents—beginning of period

  5,055    —      35,167    —      40,222  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents—end of period

 $21,321   $—     $46,978   $—     $68,299  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Six Months Ended February 29, 2012
  Parent Guarantors Non-Guarantors Eliminations Consolidated
Operating Activities          
Net cash provided by (used in) operating activities $(495) $12,656
 $39,840
 $
 $52,001
Investing Activities 
 
 
 
 
Proceeds from sale of property, plant and equipment 1,541
 113
 6,121
 
 7,775
Capital expenditures (3,142) (1,699) (5,611) 
 (10,452)
Business acquisitions, net of cash acquired (290) 
 (18,617) 
 (18,907)
Cash (used in) provided by investing activities (1,891) (1,586) (18,107) 
 (21,584)
Financing Activities 
 
 
 
 
Net borrowings on revolving credit facilities 10
 
 (177) 
 (167)
Intercompany loan activity 24,565
 (11,070) (13,495) 
 
Purchase of treasury shares (20,410) 
 
 
 (20,410)
Stock option exercises and related tax benefits 5,507
 
 
 
 5,507
Cash dividend (2,748) 
 
 
 (2,748)
Cash (used in) provided by financing activities 6,924
 (11,070) (13,672) 
 (17,818)
Effect of exchange rate changes on cash 
 
 1,625
 
 1,625
Net (decrease) increase in cash and cash equivalents 4,538
 
 9,686
 
 14,224
Cash and cash equivalents—beginning of period 872
 
 43,349
 
 44,221
Cash and cash equivalents—end of period $5,410
 $
 $53,035
 $
 $58,445


21


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 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. We are organized into four operating and reportable segments: Industrial, Energy, Electrical and Engineered Solutions.

Our long-term goal is to grow annual diluted earnings per share (“EPS”), excluding unusual or non-recurring items, faster than most multi-industry peers. We intend to leverage our leading market positions to generate annual internal sales growth that exceeds the annual growth rates of the gross domestic product in the geographic regions in which we operate. In addition to internal sales growth, we are focused on acquiring complementary businesses. Following an acquisition, we seek to drive cost reductions, develop additional cross-selling opportunities, and deepen customer relationships.relationships and leverage costs. We also focus on profit margin expansion and cash flow generation to achieve our financial and EPS growth goals. Our LEAD (“Lean Enterprise Across Disciplines”) process utilizes various continuous improvement techniques to drive out costs and improve efficiencies across all locations and functions worldwide, thereby expanding profit margins. Strong cash flow generation is achieved by maximizing returns on net assets and minimizing primary working capital needs. Our LEAD efforts also support our Growth + Innovation (“G+I”) initiative, a process focused on improving core sales growth. The cash flow that results from efficient asset management and improved profitability is primarily used to reduce debt and fund additionalstrategic acquisitions, common stock repurchases and internal growth opportunities.

Our businesses provide a vast array of products and services across multiple customers and geographies which results in significant diversification. The long-term sales growth and profitability of our segments will depend not only on increased demand in end markets and the overall economic environment, but also on our ability to identify, consummate and integrate strategic acquisitions, develop and market innovative new products, expand our business activity geographically and continuously improve operational excellence.
The comparability of the operating results for the three months and nine months ended May 31, 2012 to the comparable prior year periods has been impacted by acquisitions changes in foreign currency translation rates and the generally weaker economic conditions that existhave persisted in the end markets we serve. Listed below are the significant acquisitions completed since September 1, 2010.

2011.

Business

  

Segment

  

Acquisition Date

CrossControl AB

Engineered SolutionsJuly 2012
Turotest Medidores Ltda

  Engineered Solutions  March 2012

Jeyco Pty Ltd.

Ltd
  Energy  February 2012

Weasler Engineering, Inc.

Engineered SolutionsJune 2011

Mastervolt Intl. Holding B.V.

ElectricalDecember 2010

In addition to acquisitions, changes in foreign currency exchange rates also influence our financial results as approximately one-half of our sales are denominated in currencies other than the U.S. dollar. The year-over-year strengtheningweakening of the U.S. dollarEuro during the first nine monthshalf of fiscal 2012 has negatively2013, coupled with the recent weakening of the British Pound, have unfavorably impacted our operating results due to the translation of non-U.S. dollar denominated results.

Our businesses provide a vast array


Results of products and services across multiple customers, end markets and geographies which resultsOperations
The continued uncertainty experienced in significant diversification. Since the global recession in 2009, the majorityeconomy has created a challenging business environment which has impacted our businesses.  Most of our businesses have experienced softening end markets have improved,market demand over the past several quarters.  Our results of operations for the first half of fiscal 2013 reflect lower sales excluding the impact of acquisitions and changes in foreign exchange rates ("core sales"), the result of the European recession, a weaker solar market, inventory destocking by original equipment manufacturers ("OEM"), construction equipment and off-highway customers and general economic expansion, increased worldwide demand for energy, elevated industrial manufacturing activities and increased production of vehicles forweakness.  We continue to focus on taking the heavy-duty truck, construction, military and agricultural markets.

Our long-term growth will depend not only on changes in end markets and the overall economic environment, but also on our abilityappropriate actions to identify, consummate and integrate strategic acquisitions, develop innovative new products, expand our business activity geographically (developing countries) and continuously improve operational excellence. We remain focused on maintaining our financial strength by adjustingbest align our cost structure to reflect any reduction in market demand and by proactively managing working capital and cash flow generation.

Results of Operations

Core sales growth in the Industrial segment has recently moderated from previous quarters, primarily due to tougher prior year comparables. Overall we continue to experience strong industrial demand across most end markets and robust activity for customized high force hydraulic systems (integrated solutions). During fiscal 2012, the Energy segment has consistently delivered double digit core sales growth as certain oil & gas end markets continue to show strength. This improvedwith end market demand including headcount reductions and emerging market opportunities are expected to continue to drive core sales growththe consolidation of facilities and operating profit margin expansion during the remaindermanagement.


22


The following table sets forth our results of operations (in millions)millions, except per share amounts):

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012      2011      2012      2011     

Net sales

  $429     100 $393     100 $1,200     100 $1,042     100

Cost of products sold

   263     61  239     61  740     62  641     62
  

 

 

    

 

 

    

 

 

    

 

 

   

Gross profit

   166     39  154     39  460     38  401     38

Selling, administrative and engineering expenses

   91     21  89     23  264     22  244     23

Amortization of intangible assets

   7     2  7     2  22     2  20     2
  

 

 

    

 

 

    

 

 

    

 

 

   

Operating profit

   68     16  58     15  174     15  137     13

Financing costs, net

   7     2  8     2  23     2  24     2

Debt refinancing charges

   17     4  —       0  17     1  —       0

Other expense, net

   3     1  1     0  3     0  1     0
  

 

 

    

 

 

    

 

 

    

 

 

   

Earnings before income tax expense

   41     10  49     12  131     11  112     11

Income tax expense

   7     2  11     3  27     2  25     2
  

 

 

    

 

 

    

 

 

    

 

 

   

Earnings from continuing operations

  $34     8 $38     10 $104     9 $87     8
  

 

 

    

 

 

    

 

 

    

 

 

   

  Three Months Ended Six Months Ended
  February 28,
2013
   February 29,
2012
   February 28,
2013
   February 29,
2012
  
Net sales $370
 100 % $378
 100 % $748
 100% $771
 100%
Cost of products sold 231
 62 % 237
 63 % 461
 62% 477
 62%
Gross profit 139
 38 % 141
 37 % 287
 38% 294
 38%
Selling, administrative and engineering 90
 24 % 85
 22 % 178
 24% 173
 22%
Amortization of intangible assets 8
 2 % 7
 2 % 15
 2% 14
 2%
Operating profit 41
 12 % 49
 13 % 94
 12% 107
 14%
Financing costs, net 6
 2 % 8
 2 % 13
 2% 16
 2%
Other expense, net 
 0 % (1) 0 % 
 0% 1
 0%
Earnings before income tax expense 35
 10 % 42
 11 % 81
 10% 90
 12%
Income tax expense 7
 2 % 10
 3 % 16
 2% 21
 3%
Net earnings $28
 8 % $32
 8 % $65
 8% $69
 9%
                 
Diluted earnings per share $0.38
   $0.43
   $0.87
   $0.94
  
Net sales increased 9% to $429were $370 million and $748 million for the third quarterthree and 15% to $1,200 million for the ninesix months ended May 31, 2012 compared to $393 million and $1,042 millionFebruary 28, 2013, which represents a 2-3% decrease over the results for the comparable three and nine month periods in the prior year.year period. Changes in foreign currency exchange rates (most notably the Euro) had a $12$1 million and $8 million unfavorable favorable impact on thirdsecond quarter andsales, but negatively impacted year-to-date sales comparisons respectively.by $5 million. Sales generated by businesses acquired since September 1, 2010,2011, were $32$15 million and $139$34 million, respectively, for the three and nine monthssix month periods ended May 31, 2012.February 28, 2013. Consolidated core sales declined 6% in the second quarter and 7% year-to-date.  Operating profit for the three and six month periods ended February 28, 2013 was $42 million, and $93 million, respectively, compared to $49 million and $107 million, in the comparable prior year periods.  Reduced sales volumes, unfavorable product mix, a favorable adjustment to an acquisition earn-out provision in the prior year and investments in growth (growth excludinginitiatives drove this year-over-year decline in operating profit. We were able to somewhat offset the effects of foreign exchange and acquisitions) was 4% and 6% on a quarterly and year-to-date basis, respectively, the result of broad based improvementdecline in most of the Company’s served markets. Consolidated operating profit margins expanded in both the third quarter and year-to-date, the result of an improved cost structure, favorable product mix, selective price increases, reduced incentive compensationwith lower borrowing costs and improved operating leverage onincome taxes, resulting in net income and diluted earnings per share down only modestly from the higher sales volumes.prior year. The changes in sales and operating profit at the segment level are discussed in further detail below.

Segment Results (in millions)

Industrial Segment

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 the third quarter of fiscal 2012, the segment generated core sales growth as certain end markets (mining, industrial, infrastructure) continued to show strength. The Industrial segment focuses on providing customers with innovative integratedlifting solutions, commercializing new products and expanding in faster growing regions and vertical markets. Core sales growth in the second quarter moderated due to tougher prior year comparables, overall economic weakness and reduced demand in Europe. Improved end market demand for industrial tools and existing order backlog in our Integrated Solutions business are expected to drive modest growth during the remainder of the fiscal year. The following table sets forth the results of operations for the Industrial segment (in millions):

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012  2011  2012  2011 

Net sales

  $110   $108   $309   $284  

Operating profit

   31    30    85    70  

Operating profit %

   28  27  28  25

  Three Months Ended
Six Months Ended
  February 28,
2013

February 29,
2012

February 28,
2013

February 29,
2012
Net sales $99

$98

$200

$199
Operating profit 26

27

53

55
Operating profit % 27%
27%
27%
28%
Fiscal 2012 third2013 second quarter net sales increased $2$1 million (2% (1%) to $110$99 million compared to the prior year period, while year-to-dateyear to date net sales increased $25$2 million (9% (1%) to $309 million. Changes$200 million. Excluding the minor impact of changes in foreign currency exchange

23


rates, negatively impactedcore sales comparisons by $3 million and $2 million forgrew 1% in the three and nine month periods, respectively. Core sales growth was 5% for the thirdsecond quarter and 9%2% year-to-date, driven by strongthe result of industrial tool demand across our served end marketsin the Americas and geographies. TheseAsia Pacific regions, as well as increased sales volumes, favorableglobal Integrated Solutions sales. Unfavorable product mix and lower incentive compensation costsalong with incremental G+I investments resulted in slightly lower operating profit margin expansion during both the third quarter and on a year-to-date basis. Industrial segment operating profit increased for the three and nine months ended May 31, 2012 by $1 million (4%) and $15 million (22%), respectively.

margins.


Energy Segment

The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other energy markets. Being a later cycle business, our Energy segment was the last of our four segments to recover from the global recession. Worldwide requirements for energy and supportive oil prices have encouragedcontinue to drive customers and asset owners to maintain production at existing installations, as well as invest in capital projects or complete previously deferred maintenance activities. As a result, we are seeing broad-based strength acrossexploration and new production facilities. The non-energy markets served by this segment (including defense, marine and aerospace) have recently seen softening demand, which has delivered five consecutive quartersis expected to continue in the second half of double digit core sales growth.the fiscal year. The following table sets forth the results of operations for the Energy segment (in millions):

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012  2011  2012  2011 

Net sales

  $96   $78   $256   $210  

Operating profit

   19    14    43    32  

Operating profit %

   19  17  17  15

  Three Months Ended
Six Months Ended
  February 28,
2013

February 29,
2012

February 28,
2013

February 29,
2012
Net sales $81

$79
 $172

$159
Operating profit 10

12
 25

25
Operating profit % 12%
15% 15%
16%
Compared to the prior year, Energy segment net sales for the threesecond quarter of fiscal 2013 increased $2 million (2%) to $81 million and nine months ended May 31, 2012 increased $18$12 million (24% (8%) and $46to $172 million (22%), respectively, compared to the prior year periods. on a fiscal year-to-date basis. Excluding sales from the recently completed Jeyco acquisition and the impact of changes in foreign currency exchange rates, (which unfavorably impactedcore sales comparisons by $2 million and $1 milliondeclined 1% in the currentsecond quarter and year-to-date periods, respectively),versus a 1% increase for the first half of fiscal 2013. The decline in core sales grew 23% and 21%, respectively in the three and nine months ended May 31, 2012. Core sales growth reflects higher activity levels acrosssecond quarter was the segment’s diverse end markets, including maintenance spending in oil & gas, strong sales to theresult of difficult comparisons (strong North American power generation (nuclear) market and capital projectnuclear maintenance activity in offshore energy. Energy segment operating profit increased by $5the prior year) and weakness in non-energy markets. Excluding a $2.5 million (37%) to $19 million for the third quarter compared to a year-to-date increase of $11 million (35%) to $43 million. Improved year-to-date operating profit margins were driven by continued productivity improvements, increased operating leverage (driven by higher sales volumes) as well as a favorable adjustment to an acquisition earn-out provision.

earn out provision in the prior year, second quarter operating profit margin improved as a result of slightly higher sales, favorable product mix and lower incentive compensation costs.

Electrical Segment

The Electrical segment is primarily involved in the design, manufacture and distribution of a broad range of electrical products to the retail DIY, wholesale, OEM, solar, utility, marine and other harsh environment markets. During the third quarter of fiscal 2012, the Electrical segment delivered double digit core sales growth, as North American end markets (utility, DIY, wholesale and OEM) continued to recover from recessionary lows and activity levels in European solar markets improved. Future results of the Electrical segment will continue to be impacted by fluctuations in commodity costs, the realization of price increases, changes in European solar feed-in tariffs andWeak end market demand in North America.European solar (difficult prior year comparable sales levels and reductions in government installation subsidies) was the primary reason for the core sales decline in the three and six months ended February 28, 2013. In the second half of the fiscal year we expect improvements in demand for electrical products in the U.S. market due to increased housing activity, which will be partially offset by the loss of certain low margin retail DIY business. Solar sales will likely remain weak during the remainder of the fiscal year due to the current economic challenges in Europe, while the global marine market is expected to generate growth. The Electrical segment continues to focus on balancing spending with market demand. The following table sets forth the results of operations for the Electrical segment (in millions):

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012  2011  2012  2011 

Net sales

  $86   $80   $246   $206  

Operating profit

   9    5    20    14  

Operating profit %

   10  7  8  7

Fiscal 2012 third quarter

  Three Months Ended
Six Months Ended
  February 28,
2013

February 29,
2012

February 28,
2013

February 29,
2012
Net sales $70

$77

$139

$160
Operating profit 5

6

13

11
Operating profit % 7%
8% 9%
7%
Electrical segment net sales increased $6for the three and six months ended February 28, 2013 decreased by $7 million (7% (9%) and $21 million (13%), respectively, compared to $86 million.the prior year periods. Excluding the $2 million unfavorableminor impact of changes in foreign currency exchange rates, core sales growth was 10%, the result of price increases and higher sales volumesdeclined 9% in the retail,second quarter and 13% year-to-date. This decline was primarily attributable to lower solar inverter shipments and reduced industrial utility and solar markets. Electrical segment net sales for the nine months ended May 31, 2012 were $246 million, a $40 million (19%) improvement over the prior year period. Excluding sales from the Mastervolt acquisition and changes in foreign currency exchange rates, core sales growth for the nine months ended May 31, 2012 was 8%.transformer demand. Electrical segment operating profit for the three and ninesix months ended May 31, 2012February 28, 2013 was $9$5 million and $20$13 million, respectively. DespiteLower sales volumes, unfavorable acquisitionproduct mix higher incentive compensation costs and $0.5$1 million of restructuring costs associated with plant closures, quarterlyduring the second quarter resulted in reduced operating profit increased due to higher sales volumes and favorable product mix.

margins. The benefit of prior year restructuring actions, as well as a fire related insurance recovery at the Mastervolt business drove improvement in operating profit during the first half of fiscal 2013.




24


Engineered Solutions Segment

The Engineered Solutions segment provides highly engineered position and motion control systems to OEMs in a variety of markets. As expected, this segment experienced acontinued to experience core sales declinedeclines in the thirdsecond quarter reflecting lower production ratesas a result of challenging end market conditions and inventory destocking by European and China truck OEMs, as well as automotive OEMs. However, most other end markets are seeing increased sales levels, including strong demand from the global agriculture and North American truck and construction equipment end markets. The recent Weasler and Turotest acquisitions have provided sales and earnings growth opportunities for the segment, by expanding into new markets (primarilyOEM's in the North American, Europeanheavy-duty truck, off-highway equipment and Brazilian agricultural markets).automotive markets. We expect these inventory destocking activities to be substantially complete by the end of the first quarter of calendar 2013, which should result in improved demand in the second half of fiscal 2013. This segment continues to focus on the integration of recent acquisitions and reducing its cost structure to be aligned with market demand. The following table sets forth the results of operations for the Engineered Solutions segment (in millions):

   Three Months Ended May 31,  Nine Months Ended May 31, 
   2012  2011  2012  2011 

Net sales

  $137   $127   $390   $342  

Operating profit

   19    20    51    47  

Operating profit %

   14  16  13  14

  Three Months Ended Six Months Ended
  February 28,
2013
 February 29,
2012
 February 28,
2013
 February 29,
2012
Net sales $121
 $124
 $237
 $253
Operating profit 8
 13
 16
 32
Operating profit % 7% 11% 7% 13%
Compared to the prior year, Engineered Solutions segment third quarter net sales increased $10decreased $3 million (8% (2%) from $127to $121 million and $16 million (6%) to $237 million in the prior year to $137 million in fiscal 2012. During the ninethree and six months ended May 31, 2012, year-over-year net sales increased $48 million (14%) to $390 million.February 28, 2013, respectively. Excluding foreign currency rate changes and sales from acquired businesses ($12 million and $23 million, respectively for the three and six months ended February 28, 2013), core sales declined 11%,12% and 7%15% respectively, for the thirdsecond quarter and first nine monthshalf of fiscal 2012.2013. The impact of sales from acquired businesses was $29 million and $77 million in the three and nine months ended May 31, 2012, respectively. The decline in core sales decline was due to a reduction inbroad based across most served end markets and geographies, and primarily reflected OEM production schedules for convertible auto as well as Chinacustomer destocking and European heavy-duty trucks.challenging economic conditions. Segment operating profit declined from the prior year periods as the impact of therestructuring costs and reduced sales volume and related under-absorption of operating costs was only partially offset by lower incentive compensation costs and favorable segment mix.

costs.

General Corporate

General corporate expenses were $7 million and $14 million for the three and ninesix months ended May 31,February 28, 2013, respectively and $8 million and $16 million for the three and six months ended February 29, 2012 were $9 million and $25 million compared to $11 million and $27 million, respectively. Despite continued investments in the comparable prior year periods. Corporategrowth initiatives, lower corporate expenses declinedare primarily due to reduced provisions for incentive compensation costs and lower idle facility holding costs, offset by increased Growth + Innovation expenditures.

compensation.

Financing Costs, net

All debt is considered to be for general corporate purposes and therefore financing costs have not been allocated to our segments. FinancingNet financing costs net declined modestly year-over-year due to lower interest rateswere $6 million and amounts outstanding under the Company’s credit facility.

Debt Refinancing Charges$13 million

During the three months ended May 31, 2012, the Company recognized a $17 million debt refinancing charge, which included $10 million of tender premium paid to holders of existing 6.875% Senior Notes, a $2 million write-off of deferred financing fees and debt discount and a $4 million charge related to the termination of the interest rate swap agreements.

Income Tax Expense

Our effective income tax rate was 16.1% and 20.9% for the three and ninesix months ended May 31, 2012,February 28, 2013, respectively and 23.0%$8 million and 22.0%$16 million, respectively, for the comparable prior year periods. The year-over-year decline resultedreduction in interest expense in fiscal 2013 reflects the conversion of our 2% Convertible Notes into common stock, as well as the benefit of lower borrowing costs from the refinancing of our Senior Notes (both completed in the third quarter of fiscal 2012).

Income Taxes Expense
The effective income tax rate was 20.4% and 19.4% for the three and six months ended February 28, 2013, respectively, and 23.0% and 23.1% for the comparable prior year periods. The decrease in the effective tax rate relative to the prior year, reflects the benefits of tax minimization planning, increased utilization of foreign tax credits favorable tax reserve adjustments as a result of the lapsing of various tax statutes of limitations,and the utilization of net operating losses and the tax benefit on the debt refinancing charges (Note 7, “Debt”) being recognized at the U.S. statutory rates (which are higher than the Company’s consolidated global effective tax rate).

losses. See Note 10, "Income Taxes" for further information.

Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities (in millions):

   Nine Months Ended May 31, 
   2012  2011 

Net cash provided by operating activities

  $129   $95  

Net cash used in investing activities

   (39  (171

Net cash (used in) provided by financing activities

   (50  99  

Effect of exchange rates on cash

   (4  5  
  

 

 

  

 

 

 

Net increase in cash and cash equivalents

  $36   $28  
  

 

 

  

 

 

 

  Six Months Ended
  February 28,
2013
 February 29,
2012
Net cash provided by operating activities $40
 $52
Net cash used in investing activities (12) (22)
Net cash used in financing activities (3) (18)
Effect of exchange rates on cash (2) 2
Net increase in cash and cash equivalents $23
 $14

25


Cash flows from operating activities during the ninesix months ended May 31, 2012February 28, 2013 were $129$40 million, the result of net earnings, offset by the $28payment of $17 million of fiscal 2012 incentive compensation costs and an $12 million increase in working capital accounts. These operating cash flows funded the repurchase of approximately 0.3 million shares of the Company’s common stock ($9 million) under the stock buyback program, our $3 million annual dividend and $12 million of capital expenditures.
Cash flows from operating activities during the six months ended February 29, 2012 were $52 million, the result of net earnings, offset by the payment of $28 million of fiscal 2011 incentive compensation costs $15 million use of cash related to the debt refinancing transactions and increased working capital requirements. This operatingOperating cash flowflows and borrowings under the Senior Credit Facility funded the repurchase of approximately 1 million shares of the Company’s common stock ($20 million) under the stock buyback program and the proceeds from$19 million purchase price for the third quarter debt refinancing funded $39 million of treasury stock purchases, $30 million of capital deployed for acquisitions and the repayment of revolving credit facility borrowings.Jeyco acquisition. Proceeds from the sale of property, plant and equipment (which included the sale-leaseback of certain equipment and the sale of a vacant facility) were $8$8 million, while related capital expenditures were $17 million.

As described in Note 7, “Debt” we refinanced a portion of our long-term debt at lower interest rates and reduced overall indebtedness with the conversion of our $117$10 million of 2% Convertible Notes into shares of common stock. These actions will reduce our future financing costs and improve our capital structure.

In the first nine months of fiscal 2011 we utilized the cash provided from operating activities and new borrowings under our Senior Credit Facility to fund the $158 million acquisition of Mastervolt.

.

Primary Working Capital Management

We use primary working capital as a percentage of sales (PWC %) as a key indicator of working capital management efficiency.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 following table shows the components of the metric at (in millions):

   May 31, 2012  PWC%  May 31, 2011  PWC% 

Accounts receivable, net

  $238    14 $234    15

Inventory, net

   206    12  213    14

Accounts payable

   (168  -10  (172  -11
  

 

 

  

 

 

  

 

 

  

 

 

 

Net primary working capital

  $276    16 $275    18
  

 

 

  

 

 

  

 

 

  

 

 

 

Improved working capital management drove a reduction in our PWC % despite a growth in sales and contributed to favorable current year cash flow from operating activities.

  February 28,
2013
 PWC% February 29,
2012
 PWC%
Accounts receivable, net $239
 16 % $239
 16 %
Inventory, net 218
 15 % 219
 14 %
Accounts payable (154) (10)% (159) (10)%
Net primary working capital $303
 21 % $299
 20 %

Liquidity
Liquidity

Our Senior Credit Facility, which matures on February 23, 2016, includes a $600$600 million revolving credit facility,line, a $100$100 million term loan and a $300$300 million expansion option.option, subject to certain conditions. Quarterly principal payments of $1.25$1.25 million began on the $100 million term loan on March 31, 2012, increasing to $2.5$2.5 million per quarter beginning on March 31, 2013, with the remaining principal due at maturity. At May 31, 2012,February 28, 2013, we had $80$91 million of cash and cash equivalents and $598$596 million of available liquidity under our Senior Credit Facility. Our scheduled debt repayments overSee Note 6, “Debt” for further discussion on the next three years aggregated approximate $30 million, providing substantial flexibility.Senior Credit Facility. We believe that the availability under the Senior Credit Facility, combined with our existing cash on hand and funds generated from operations will be adequate to meet operating, debt service, stock buyback, acquisition funding and capital expenditure requirements for the foreseeable future.

Commitments and Contingencies

We lease certain

The Company has facilities computers, equipmentin numerous geographic locations that are subject to a range of environmental laws and vehicles under various operating lease agreements, generallyregulations. Environmental expenditures over periods from one to twenty years. Under most arrangements, we pay the property taxes, insurance, maintenance and expenses related to the leased property. Many of the leases include provisionspast two years have not been material. Management believes that enable us to renew the lease based upon fair value rental ratessuch costs will not have a material adverse effect on the dateCompany’s financial position, results of expiration of the initial lease.

In the normal course of business we have entered into certain real estate and equipment leasesoperations or have guaranteed such leases on behalf of our subsidiaries. In conjunction with the spin-off of a former subsidiary in fiscal 2000, we assigned our rights in the leases used by the former subsidiary, but were not released as a responsible party from all such leases by the lessors. All of these businesses were subsequently sold. We remaincash flows.

The Company remains contingently liable for thoselease payments under leases if any of thesebusinesses that it previously divested or spun-off, in the event that such businesses are unable to fulfill their obligations thereunder.obligations. The discounted present value of future minimum lease payments for these leases was $3.7$12 million at May 31, 2012.

February 28, 2013.

We had outstanding letters of credit of approximately $8$11 million and $9$9 million at MayFebruary 28, 2013 and August 31, 2012 and August 31, 2011,, respectively, the majority of which secure self-insured workers compensation liabilities.

Contractual Obligations

Our contractual obligations 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, 2011. Our contractual obligations2012, and, as of February 28, 2013, have not materially changed since that report was filed, except with respect to debt maturities. As discussed in Note 7, “Debt” in the notes to the condensed consolidated financial statements, during the third quarter of fiscal 2012, we refinanced our 6.875% Senior Notes (due 2017) with new 5.625% Senior Notes (due 2022) and substantially all of the outstanding 2% Convertible Notes were converted into common stock.

changed.

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.


26




Interest Rate Risk:

There has been no significant We manage interest costs using a mixture of fixed-rate and variable-rate debt. A change in interest rates on our 5.625% Senior Notes impacts the fair value of the notes, but not our earnings or cash flow because the interest on such debt is fixed. Our variable-rate debt obligations consist primarily of revolver and term loan borrowings under our Senior Credit Facility (see Note 6, “Debt” for further details). A 10% increase in the average cost of our variable rate debt (which is based on LIBOR interest rates) would result in an increase in interest expense (pre-tax) of approximately $0.1 million for the three months ended February 28, 2013. From time to time, we may enter into interest rate swap agreements to manage our exposure to marketinterest rate changes. At February 28, 2013, we were not a party to any interest rate swap derivatives.


Foreign Currency Risk: We maintain operations in the U.S. and various foreign countries. Our non-U.S. operations, located primarily in the Netherlands, United Kingdom, Mexico and China, have foreign currency risk duringrelating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions, primarily forward foreign currency swaps, that enable us to mitigate the ninepotential adverse impact of foreign currency exchange rate risk (see Note 8, “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 could also result in unfavorable translation effects on our results of operations and financial position as the results of foreign operations 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, sales and operating profit were remeasured assuming a ten percent decrease in foreign exchange rates compared with the U.S. dollar. Using this method, sales and operating profit would have been $18 million and $2 million lower, respectively, for the three months ended May 31, 2012. ForFebruary 28, 2013. This sensitivity analysis assumed 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 discussionten percent decline in foreign currency exchange rates on our February 28, 2013 financial position would result in a $67 million decrease to equity (accumulated other comprehensive loss), as a result of non U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our exposurereporting 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, plastic resin and copper, are subject to market risk, referprice fluctuations, which could have a negative impact on our results. We strive to Item 7A, Quantitativepass along such commodity price increases to customers to avoid profit margin erosion and Qualitative Disclosures about Market Risk, contained in our Annual Report on Form 10-K forutilize LEAD initiatives to further mitigate the fiscal year ended August 31, 2011.

impact of commodity raw material price fluctuations as improved efficiencies across all locations are achieved.

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 May 31, 2012February 28, 2013 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


27


PART II – II—OTHER INFORMATION

Items 1, 1A, 3, 4 and 5 are not applicable and have been omitted.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

In September 2011, the Company’sour Board of Directors authorized a stock repurchase program to acquire up to 7 million7,000,000 shares of the Company’s outstanding Class A Common Stock.common stock. The following table presents information regarding the repurchase of common stock by the Company during the three months ended May 31, 2012.February 28, 2013. All of the shares were repurchased as part of the publicly announced program.

Period

  

Total Number of
Shares Purchased

   

Average Price
Paid per Share

   

Maximum Number of Shares
That May Yet Be Purchased
Under the Program

 

March 1 to March 31, 2012

   —       —       6,000,720  

April 1 to April 30, 2012

   —       —       6,000,720  

May 1 to May 31, 2012

   732,965    $25.71     5,267,755  
  

 

 

   

 

 

   

Total

   732,965    $25.71    
  

 

 

   

 

 

   
  
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
December 1 to December 31, 2012 25,000
 27.50
 4,057,049
January 1 to January 31, 2013 36,043
 27.46
 4,021,006
February 1 to February 28, 2013 
 
 4,021,006
Total 61,043
 27.48
  

Item 6 – Exhibits

(a) Exhibits

See “Index to Exhibits” on page 28,30, which is incorporated herein by reference.


28


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: July 9, 2012 ACTUANT CORPORATION
(Registrant)
Date: April 8, 2013 By:

/s/ AndrewS/ ANDREW G. Lampereur

L
AMPEREUR
  Andrew G. Lampereur
  Executive Vice President and Chief Financial Officer
  (Principal Financial Officer)



29


ACTUANT CORPORATION

(the “Registrant”)

(Commission File No. 1-11288)

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED May 31, 2012

February 28, 2013

INDEX TO EXHIBITS

Exhibit

 

Description

 Incorporated Herein
By Reference To
 Filed
Herewith
 

4.1

Exhibit
 Indenture dated April 16, 2012, with respect to the Company’s 5.625% Senior Notes due 2022, among Actuant Corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee.Description Form 8-K filed with the
SEC on April 18, 2012
Incorporated
Herein
By Reference
To
 
Filed
Herewith

4.2

 Supplemental Indenture dated April 16, 2012, with respect to the Company’s 6.875% Senior Notes due 2017, among Actuant Corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee. Form 8-K filed with the
SEC on April 18, 2012
 

10.1

Purchase Agreement dated as of April 2, 2011, by and among Actuant Corporation and certain of its subsidiaries named therein, and Wells Fargo Securities, LLC, as representative of the several Initial Purchasers named therein.Form 8-K filed with the
SEC on April 6, 2012

10.2

Registration Rights Agreement dated April 16, 2012, among Actuant Corporation and the initial purchasers of the Company’s 5.625% Senior Notes due 2022.Form 8-K filed with the
SEC on April 18, 2012

10.3

Form of Actuant Corporation Change in Control Agreement for Messrs. Arzbaecher, Blackmore, Goldstein, Kobylinski, Lampereur, Scheer, Wozniak and Ms. Grissom.Form 8-K filed with the
SEC on May 2, 2012

10.4

Form of Actuant Corporation Change in Control Agreement for Messrs. Axline and Boel.Form 8-K filed with the
SEC on May 2, 2012

31.1

 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleySarbanes- Oxley Act of 2002 X
  X 

31.2

 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X
  X 

32.1

 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-OxleySarbanes- Oxley Act of 2002 X
  X 

32.2

 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X
  X 

101*

101
 The following materials from the Actuant Corporation Form 10-Q for the quarter ended May 31, 2012February 28, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iii)(iv) the Condensed Consolidated Statements of Cash Flows and (iv)(v) the Notes to Condensed Consolidated Financial Statements.  X

*
Furnished herewith

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