Company Quick10K Filing
Quick10K
Actuant
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.73 61 $1,510
10-Q 2018-11-30 Quarter: 2018-11-30
10-K 2018-08-31 Annual: 2018-08-31
10-Q 2018-05-31 Quarter: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-K 2017-08-31 Annual: 2017-08-31
10-Q 2017-05-31 Quarter: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-K 2016-08-31 Annual: 2016-08-31
10-Q 2016-05-31 Quarter: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
8-K 2019-01-22 Shareholder Vote
8-K 2019-01-22 Shareholder Vote
8-K 2019-01-22 Exit Costs
8-K 2019-01-22 Exit Costs
8-K 2018-12-20 Earnings, Exhibits
8-K 2018-10-04 Earnings
8-K 2018-09-26 Earnings, Exhibits
8-K 2018-07-27 Exhibits
8-K 2018-07-27 Enter Agreement, Exhibits
8-K 2018-07-10 Officers
8-K 2018-06-20 Earnings, Exhibits
8-K 2018-03-20 Enter Agreement, Officers, Exhibits
8-K 2018-01-23 Officers, Shareholder Vote, Exhibits
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ATU 2018-11-30
Part I-Financial Information
Item 1-Financial Statements
Note 1. Basis of Presentation
Note 2. Revenue Recognition
Note 3. Restructuring Charges
Note 4. Acquisitions
Note 5. Divestiture Activities
Note 6. Goodwill, Intangible Assets and Long-Lived Assets
Note 7. Product Warranty Costs
Note 8. Debt
Note 9. Fair Value Measurement
Note 10. Derivatives
Note 11. Capital Stock and Share Repurchases
Note 12. Income Taxes
Note 13. Segment Information
Note 14. Commitments and Contingencies
Note 15. Guarantor Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part Ii-Other Information
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 - Exhibits
EX-31.1 atu-20181130exhibit311.htm
EX-31.2 atu-20181130exhibit312.htm
EX-32.1 atu-20181130exhibit321.htm
EX-32.2 atu-20181130exhibit322.htm

Actuant Earnings 2018-11-30

ATU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 atu-20181130x10q.htm 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————— 
FORM 10-Q
 ————————————
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2018
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
        
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     Yes  ¨    No  ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x
The number of shares outstanding of the registrant’s Class A Common Stock as of December 31, 2018 was 61,124,834.
 
 
 
 
 



TABLE OF CONTENTS
 
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges and capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:
instability in the domestic and international economy;
challenging conditions in our various end markets, including the industrial, oil & gas, and energy markets;
integrating our historic three segment structure into two new operating segments;
competition in the markets we serve;
failure to develop new products and market acceptance of existing and new products;
a material disruption at a significant manufacturing facility;
operating margin risk due to competitive pricing, operating inefficiencies, production levels and increases in the costs of commodities and raw materials;
uncertainty over global tariffs, or the financial impact of tariffs;
our international operations present special risks, primarily from currency exchange rate fluctuations and export and import restrictions;
regulatory and legal developments including changes to United States taxation rules;
our ability to successfully identify, consummate and integrate acquisitions and realize anticipated benefits/results from acquired companies as part of our portfolio management process;
the effects of divestitures and/or discontinued operations including retained liabilities from, or indemnification obligations with respect to, businesses that we sell;

1


the potential for a non-cash asset impairment charge, if the operating performance for our businesses were to fall significantly below current levels or impairment of goodwill and other intangible assets as they represent a substantial amount of our total assets;
our ability to execute restructuring actions and the realization of anticipated cost savings;
a significant failure in information technology (IT) infrastructure, such as unauthorized access to financial and other sensitive data or cybersecurity threats;
heavy reliance on suppliers for components used in the manufacture and sale of our products;
litigation, including product liability and warranty claims;
our ability to attract, develop, and retain qualified employees;
inadequate intellectual property protection or if our products are deemed to infringe on the intellectual property of others;
our ability to comply with the covenants in our debt agreements and fluctuations in interest rates; and
numerous other matters including those of a political, economic, business, competitive and regulatory nature contained from time to time in U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of the Form 10-K filed with the SEC on October 29, 2018.
When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries. Actuant Corporation provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.actuant.com, as soon as reasonably practical after such reports are electronically filed with the SEC.


2


PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended November 30,
 
2018
 
2017
Net sales
$
292,531

 
$
288,955

Cost of products sold
187,523

 
188,044

Gross profit
105,008

 
100,911

Selling, administrative and engineering expenses
73,192

 
74,478

Amortization of intangible assets
4,278

 
5,131

Restructuring charges
403

 
6,629

Impairment & divestiture charges
36,453

 

Operating (loss) profit
(9,318
)
 
14,673

Financing costs, net
7,295

 
7,514

Other expense, net
911

 
329

(Loss) earnings before income tax (benefit) expense
(17,524
)
 
6,830

Income tax (benefit) expense
(72
)
 
1,604

Net (loss) earnings
$
(17,452
)
 
$
5,226

 
 
 
 
(Loss) earnings per share
 
 
 
Basic
$
(0.29
)
 
$
0.09

Diluted
$
(0.29
)
 
$
0.09

 
 
 
 
Weighted average common shares outstanding
 
 
 
Basic
61,031

 
59,871

Diluted
61,031

 
60,609

 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
 
Three Months Ended November 30,
 
2018
 
2017
Net (loss) earnings
$
(17,452
)
 
$
5,226

Other comprehensive (loss) income, net of tax
 
 
 
Foreign currency translation adjustments
(8,176
)
 
2,898

Pension and other postretirement benefit plans
232

 
127

Total other comprehensive (loss) income, net of tax
(7,944
)
 
3,025

Comprehensive (loss) income
$
(25,396
)
 
$
8,251

The accompanying notes are an integral part of these condensed consolidated financial statements.


4


ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
November 30, 2018
 
August 31, 2018
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
203,443

 
$
250,490

Accounts receivable, net
 
191,190

 
187,749

Inventories, net
 
154,764

 
156,356

Assets held for sale
 
106,193

 
23,573

Other current assets
 
51,745

 
42,732

Total current assets
 
707,335

 
660,900

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
41,177

 
47,468

Machinery and equipment
 
209,278

 
229,445

Gross property, plant and equipment
 
250,455

 
276,913

Less: Accumulated depreciation
 
(171,295
)
 
(186,693
)
Property, plant and equipment, net
 
79,160

 
90,220

Goodwill
 
477,360

 
512,412

Other intangibles, net
 
152,719

 
181,037

Other long-term assets
 
33,459

 
36,769

Total assets
 
$
1,450,033

 
$
1,481,338

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
124,067

 
$
130,838

Accrued compensation and benefits
 
36,343

 
54,508

Current maturities of debt
 
30,000

 
30,000

Income taxes payable
 
8,215

 
4,091

Liabilities held for sale
 
70,030

 
44,225

Other current liabilities
 
63,714

 
67,299

Total current liabilities
 
332,369

 
330,961

Long-term debt, net
 
495,384

 
502,695

Deferred income taxes
 
16,931

 
21,933

Pension and postretirement benefit liabilities
 
14,671

 
14,869

Other long-term liabilities
 
53,113

 
52,168

Total liabilities
 
912,468

 
922,626

Commitments and contingencies (Note 14)
 
 
 
 
Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 81,502,916 and 81,423,584 shares, respectively
 
16,301

 
16,285

Additional paid-in capital
 
171,606

 
167,448

Treasury stock, at cost, 20,439,434 shares
 
(617,731
)
 
(617,731
)
Retained earnings
 
1,149,578

 
1,166,955

Accumulated other comprehensive loss
 
(182,189
)
 
(174,245
)
Stock held in trust
 
(2,573
)
 
(2,450
)
Deferred compensation liability
 
2,573

 
2,450

Total shareholders’ equity
 
537,565

 
558,712

Total liabilities and shareholders’ equity
 
$
1,450,033

 
$
1,481,338


The accompanying notes are an integral part of these condensed consolidated financial statements.

5


ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended November 30,
 
2018
 
2017
Operating Activities
 
 
 
Net (loss) earnings
$
(17,452
)
 
$
5,226

Adjustments to reconcile net (loss) earnings to net cash used in operating activities
 
 
 
Impairment & divestiture charges, net of tax effect
33,836

 

Depreciation and amortization
8,890

 
10,090

Stock based compensation expense
3,594

 
5,420

Benefit for deferred income taxes
(1,143
)
 
(307
)
Amortization of debt issuance costs
301

 
413

Other non-cash adjustments
130

 
113

Changes in components of working capital and other, excluding acquisitions and divestitures
 
 
 
Accounts receivable
(17,676
)
 
(11,478
)
Inventories
(17,824
)
 
(11,628
)
Trade accounts payable
1,051

 
6,204

Prepaid expenses and other assets
(4,998
)
 
(12,043
)
Income tax accounts
1,064

 
(1,714
)
Accrued compensation and benefits
(16,544
)
 
(12,588
)
Other accrued liabilities
(2,339
)
 
1,834

Cash used in operating activities
(29,110
)
 
(20,458
)
Investing Activities
 
 
 
Capital expenditures
(7,666
)
 
(7,904
)
Proceeds from sale of property, plant and equipment
11

 
32

Rental asset buyout for Viking divestiture

 
(27,718
)
Cash used in investing activities
(7,655
)
 
(35,590
)
Financing Activities
 
 
 
Principal repayments on term loan
(7,500
)
 
(7,500
)
Stock option exercises and other
552

 
2,231

Taxes paid related to the net share settlement of equity awards
(201
)
 
(282
)
Cash dividend
(2,439
)
 
(2,390
)
Cash used in financing activities
(9,588
)
 
(7,941
)
Effect of exchange rate changes on cash
(694
)
 
(532
)
Net decrease in cash and cash equivalents
(47,047
)
 
(64,521
)
Cash and cash equivalents - beginning of period
250,490

 
229,571

Cash and cash equivalents - end of period
$
203,443

 
$
165,050

The accompanying notes are an integral part of these condensed consolidated financial statements.


6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements of Actuant Corporation (“Actuant,” or the “Company”) have been prepared in accordance with United States 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, 2018 was derived from the Company’s audited financial statements, but does not include all disclosures required by United States generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2018 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended November 30, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2019.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09 and subsequent updates included in ASU 2016-10, ASU 2016-12, ASU 2017-13 and ASU 2017-14 (collectively referred to as Accounting Standards Codification 606 “ASC 606”), an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance was adopted by the Company on September 1, 2018 using the modified retrospective method and was applied to contracts that were not completed or substantially complete as of September 1, 2018. Results for the reporting period beginning after September 1, 2018 are presented under ASC 606, while prior year amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting policy in accordance with ASC 605 Revenue Recognition. The Company reported a net increase to opening retained earnings of $0.1 million on September 1, 2018 as a result of the cumulative impact of adopting ASC 606. The impact to net sales due to the adoption of ASC 606 for the three months ended November 30, 2018 was a decrease of $0.4 million. See Note 2, “Revenue Recognition,” for further discussion of the adoption of ASC 606.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be stated separately from service cost and outside of operating income. This guidance was adopted by the Company on September 1, 2018. Due to a majority of the Company's defined benefit pension and other postretirement benefit plans being frozen and the net periodic benefit pension cost not being significant, the adoption of this guidance did not have a material impact on the financial statements of the Company.
In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance was adopted on September 1, 2018. The adoption did not have an impact on the financial statements of the Company.
In February 2016, the FASB issued ASU 2016-02, Leases (and subsequently ASU 2018-01), to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset. This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), including interim periods within those fiscal years. Upon adoption, certain qualitative and quantitative disclosures are required along with modified retrospective recognition and measurement of impacted leases. The Company is currently gathering, documenting and analyzing lease agreements subject to this guidance, as well as working through system implementation steps. The Company anticipates material additions to the balance sheet (upon adoption) of right-of-use assets, offset by the associated liabilities, due to our routine use of operating leases over time.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2018

7


(fiscal 2020 for the Company), including interim periods within those fiscal years. The Company is currently evaluating the impact of this new standard and whether we will elect to reclassify the stranded income taxes.
Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands):
 
 
November 30, 2018
August 31, 2018
Foreign currency translation adjustments
 
$
166,673

$
158,497

Pension and other postretirement benefit plans, net of tax
 
15,516

15,748

Accumulated other comprehensive loss
 
$
182,189

$
174,245

Note 2. Revenue Recognition
Significant Accounting Policies
The Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control of a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. When contracts include multiple products or services to be delivered to the customer, the consideration for each element is generally allocated on the standalone transaction prices of the separate performance obligations, using the adjusted market assessment approach.
    Under normal circumstances, the Company invoices the customer once transfer of control has occurred and has a right to payment. The typical payment terms vary based on the customer and the types of goods and services in the contract. The period of time between invoicing and when payment is due is not significant, as our standard payment terms are less than one year. Amounts billed and due from customers are classified as receivables on the balance sheet.
Taxes Collected: Taxes collected by the Company from a customer concurrent with revenue-producing activities are excluded from revenue.
Shipping and Handling Costs: The Company records costs associated with shipping its products after control over a product has transferred to a customer and are accounted for as fulfillment costs. These costs are included in cost of products sold.
Nature of Goods and Services
The Company generates its revenue under two principal activities which are discussed below:
Product Sales: Sales of tools, components and systems are recorded when control is transferred to the customer (i.e. performance obligation has been satisfied) in both segments. For the majority of the Company’s product sales, revenue is recognized at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company to the customer. Due to the highly custom nature and limited alternative use of certain products, for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.
Service & Rental Sales: Service contracts consist of providing highly trained technicians to perform bolting, technical services, machining and joint integrity work for our customers. These revenues are recognized over time as our customers simultaneously receive and consume the benefits provided by the Company. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over time revenue associated with service contracts. For a majority of the Company’s service contracts, labor hours (efforts-expended measurement) is used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred. Revenue from rental contracts (less than a year and non-customized products) is generally recognized ratably over the contract term, depicting the customer’s consumption of the benefit related to the rental equipment. The majority of the Company’s service and rental sales are generated by its Industrial Tools & Services (“IT&S”) segment, with a limited number of service sales that exist within the Engineered Components & Systems (“EC&S”) segment.
Disaggregated Revenue and Performance Obligations
The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred.

8


The following table presents information regarding our revenue disaggregation by reportable segment and product (in thousands):
 
 
Three Months Ended November 30,
Net Sales by Reportable Product Line & Segment:
 
2018
Industrial Tools & Services Segment
 
 
Product
 
$
102,768

Service & Rental
 
45,887

 
 
148,655

 
 
 
Engineered Components & Systems Segment (1)
 
 
On-Highway
 
$
60,591

Agriculture, Off-Highway and Other
 
53,884

Rope & Cable Solutions
 
16,166

Concrete Tensioning
 
13,235

 
 
143,876

Total
 
$
292,531

(1) The majority of the EC&S segment revenues are product sales, with an immaterial number of service sales.
The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
 
 
Three Months Ended November 30,
 
 
2018
Revenues recognized at point in time
 
$
240,622

Revenues recognized over time
 
51,909

Total
 
$
292,531

Contract Balances
The opening and closing balances of the Company's contract assets and liabilities are as follows:
 
 
November 30, 2018
 
August 31, 2018
Receivables, which are included in accounts receivable, net
 
$
191,190

 
$
187,749

Contract assets, which are included in other current assets
 
7,048

 
6,367

Contract liabilities, which are included in other current liabilities
 
14,978

 
16,484

Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services products in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established.
Contract Assets: Contract assets primarily relate to the Company’s rights to consideration for work completed, but not billed as of the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. The Company typically only has contract assets on contracts that are generally long-term and have revenues that are recognized over time.
Contract Liabilities: As of November 30, 2018, the Company had certain contracts where there were unsatisfied performance obligations and the Company had received cash consideration from customers before the performance obligations were satisfied. The majority of these contracts related to long-term customer contracts (project durations of greater than three months) and were recognized over time. The Company estimates that $14.8 million will be recognized from satisfying those performance obligations through the remainder of fiscal 2019 with an insignificant amount recognized in years thereafter.
Significant Judgments
Timing of Performance Obligations Satisfied at a Point in Time: The Company evaluates when the customer obtains control of the product based on shipping terms, as control will transfer, dependent upon such terms, at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment

9


or delivery because (i) the Company has a present right to payment at that time; (ii) the legal title has been transferred to the customer; (iii) the Company has transferred physical possession of the product to the customer; and (iv) the customer has significant risks and rewards of ownership of the product.
Variable Consideration: The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, incentives and discounts, among others, which are recorded as a reduction to net sales at the time when control of a performance obligation is transferred to the customer.
Practical Expedients & Exemptions: The Company elected to expense the incremental cost to obtaining a contract for when the amortization period for such contracts would be one year or less. The Company does not disclose the value of unperformed obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
Note 3. Restructuring Charges
The Company has undertaken or committed to various restructuring initiatives including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low cost alternatives and the centralization and standardization of certain administrative functions. Total restructuring charges for these activities were $0.4 million and $6.6 million in the three months ended November 30, 2018 and 2017, respectively. Liabilities for severance will generally be paid during the next twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms.
The following rollforwards summarize restructuring reserve activity by segment (in thousands):
 
 
Three Months Ended November 30, 2018
 
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Corporate
 
Total
Balance as of August 31, 2018
 
$
1,687

 
$
1,592

 
$
415

 
$
3,694

Restructuring charges
 
(29
)
(1) 
432

 

 
403

Cash payments
 
(922
)
 
(151
)
 
(46
)
 
(1,119
)
Other non-cash uses/reclasses of reserve
 
(79
)
 
209

 
(369
)
 
(239
)
Impact of changes in foreign currency rates
 
(21
)
 
(13
)
 

 
(34
)
Balance as of November 30, 2018
 
$
636

 
$
2,069

 
$

 
$
2,705

 
 
Three Months Ended November 30, 2017
 
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Corporate
 
Total
Balance as of August 31, 2017
 
$
1,499

 
$
4,108

 
$
30

 
$
5,637

Restructuring charges
 
1,405

 
1,050

 
4,174

 
6,629

Cash payments
 
(910
)
 
(1,509
)
 
(345
)
 
(2,764
)
Other non-cash uses of reserve
 
(427
)
 
(51
)
 
(2,019
)
(2) 
(2,497
)
Impact of changes in foreign currency rates
 

 
(163
)
 

 
(163
)
Balance as of November 30, 2017
 
$
1,567

 
$
3,435

 
$
1,840

 
$
6,842

(1) Credit balance in restructuring charges relates to reversal of restructuring accrual due to underspend of estimated expenses.
(2) Majority of non-cash uses of reserve represents accelerated equity vesting in connection with employee severance agreements.
Note 4. Acquisitions
During fiscal 2018, the Company completed two acquisitions which resulted in the recognition of goodwill in the Company’s consolidated financial statements because their purchase prices reflected the future earnings and cash flow potential of the acquired companies, as well as the complementary strategic fit and resulting synergies. The Company makes an initial allocation of the purchase price, at the date of acquisition, based upon 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), the Company will refine its estimates of fair value and adjust the purchase price allocation as appropriate.

10


The Company acquired the stock and certain assets of Mirage Machines, Ltd. ("Mirage") on December 1, 2017 for a purchase price of $17.4 million, net of cash acquired. This Industrial Tools & Services segment tuck-in acquisition is a provider of industrial and energy maintenance tools. The final purchase price allocation resulted in $10.3 million of goodwill (which is not deductible for tax purposes) and $4.1 million of intangible assets. The intangible assets were comprised of $2.3 million of indefinite lived tradenames and $1.8 million of amortizable customer relationships.
The Company acquired the stock and certain assets of Equalizer International, Limited ("Equalizer") on May 11, 2018 for a purchase price of $5.8 million, net of cash acquired. This Industrial Tools & Services segment tuck-in is a provider of industrial and energy maintenance tools, expanding our pipe and flange alignment offerings. The preliminary purchase price allocation resulted in $2.4 million of goodwill (a portion of which is not deductible for tax purposes) and $2.1 million of intangible assets. The intangible assets were comprised of $0.8 million of indefinite lived tradenames and $1.3 million of amortizable customer relationships and patents.
The Company incurred acquisition transaction costs of $0.2 million in the three months ended November 30, 2017 (included in "Selling, administrative and engineering expenses" in the Condensed Consolidated Statement of Earnings) related to the Mirage acquisition.
Net sales in the three months ended November 30, 2018 for these two acquisitions were $3.5 million. Because the net sales and earnings impact of both acquisitions are not material to the three months ended November 30, 2018 and 2017, the Company has not included the pro forma operating result disclosures otherwise required for acquisitions.
Note 5. Divestiture Activities
During the fourth quarter of fiscal 2018, the Cortland Fibron business (Engineered Components & Systems segment) met the criteria for assets held for sale treatment. The related assets and liabilities of the Cortland Fibron business to be sold are classified as assets/liabilities held for sale and approximate the estimated fair value, less cost to sell as of August 31, 2018. As a result, the Company recognized impairment & divestiture charges in fiscal 2018 of $46.3 million which generated an income tax benefit of $1.4 million.
During the first quarter of fiscal 2019, the Company determined that the Precision Hayes and Cortland U.S. businesses (Engineered Components & Systems segment) were non-core assets, did not align with the strategic objectives of the Company and as a result, the Company committed to a plan to sell these businesses. Since the Precision Hayes and Cortland U.S. businesses met the criteria for assets held for sale as of November 30, 2018, the related assets and liabilities of the businesses to be sold are classified as assets/liabilities held for sale in the condensed consolidated balance sheet as of November 30, 2018 and approximate the estimated fair value, less cost to sell. As a result of the held for sale treatments and fair value estimates, the Company recognized impairment & divestiture charges in the first quarter of fiscal 2019 of $36.5 million, comprised of: (i) a $21.1 million charge representing the excess of the net book value of assets held for sale to the anticipated proceeds; (ii) a non-cash impairment charge of $13.7 million related to the recognition in earnings of the cumulative effect of foreign currency rate changes since acquisition and (iii) $1.7 million of other divestiture charges. These charges generated an income tax benefit of $2.6 million in the first quarter of fiscal 2019.
The following is a summary of the assets and liabilities held for sale (in thousands):
 
 
November 30, 2018 (1)
 
August 31, 2018 (2)
Accounts receivable, net
 
$
15,957

 
$
2,924

Inventories, net
 
22,645

 
2,597

Prepaid expenses and other current assets
 
3,654

 
3,267

Property, plant & equipment, net
 
13,546

 
2,186

Goodwill and other intangible assets, net
 
46,246

 
12,464

Other long-term assets
 
4,145

 
135

Assets held for sale
 
$
106,193

 
$
23,573

 
 
 
 
 
Trade accounts payable
 
$
11,669

 
$
3,915

Accrued compensation and benefits
 
1,915

 
1,414

Reserve for cumulative translation adjustment
 
48,267

 
35,346

Other current liabilities
 
3,077

 
1,269

Deferred income taxes
 
5,010

 
2,281

Other long-term liabilities
 
92

 

Liabilities held for sale
 
$
70,030

 
$
44,225

(1) Represents the consolidated assets and liabilities for the Precision Hayes, Cortland U.S. and Cortland Fibron businesses held for sale at
November 30, 2018.
(2) Represents the Cortland Fibron business held for sale at August 31, 2018.

11


The historic results of the Precision Hayes and Cortland businesses are not material to the condensed consolidated financial results of the Company and are included in continuing operations. The Precision Hayes and Cortland businesses had combined net sales of $29.4 million and $28.0 million in the three months ended November 30, 2018 and 2017, respectively. Additional charges are anticipated upon the completion of a sale and include, but are not limited to, items such as liabilities triggered only upon sale completion, changes in the composition of the net asset disposal groups and changes to estimated sales proceeds.
The Company completed the sale of Cortland Fibron on December 19, 2018 for $12.5 million and the sale of Precision Hayes on December 31, 2018 for $23.6 million. Both transactions were paid in cash at the closing and are subject to closing working capital adjustments, indebtedness and other adjustments. We anticipate recognizing an additional $2 million to $4 million in divestiture charges (primarily working capital adjustments, accelerated vesting of equity compensation and completion bonuses) in the second quarter of fiscal 2019.
On December 1, 2017, the Company completed the sale of the Viking business for net cash proceeds of $8.8 million, which resulted in an after-tax impairment & divestiture charge of $12.4 million in the second quarter of fiscal 2018, comprised of real estate lease exit charges of $3.0 million related to retained facilities that became vacant as a result of the Viking divestiture and approximately $9.4 million of associated discrete income tax expense. The results of the Viking business (which had net sales of $2.7 million in the three months ended November 30, 2017) are not material to the consolidated financial results and are included in continuing operations.
As part of our portfolio management process, we routinely review our businesses with respect to our strategic initiatives and long-term objectives and are taking actions that are anticipated to improve the operational performance of the Company. The aforementioned divestitures and any potential future divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities and costs, disputes with buyers or potential impairment charges.
Note 6. Goodwill, Intangible Assets and Long-Lived Assets
Changes in the gross carrying value of goodwill and intangible assets can result from changes in foreign currency exchange rates, business acquisitions, divestitures or impairment charges. The changes in the carrying amount of goodwill for the three months ended November 30, 2018 are as follows (in thousands):
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Total
Balance as of August 31, 2018
$
248,705

 
$
263,707

 
$
512,412

Purchase accounting adjustments
253

 

 
253

Impairment charge

 
(10,166
)
 
(10,166
)
Reclassification of assets held for sale

 
(20,206
)
 
(20,206
)
Impact of changes in foreign currency rates
(2,093
)
 
(2,840
)
 
(4,933
)
Balance as of November 30, 2018
$
246,865

 
$
230,495

 
$
477,360

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
November 30, 2018
 
August 31, 2018
 
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
 
$
188,316

 
$
123,129

 
$
65,187

 
$
230,601

 
$
147,451

 
$
83,150

Patents
11
 
20,831

 
18,757

 
2,074

 
30,355

 
25,327

 
5,028

Trademarks and tradenames
15
 
6,862

 
5,008

 
1,854

 
20,823

 
15,347

 
5,476

Other intangibles
3
 
5,143

 
5,070

 
73

 
5,946

 
5,816

 
130

Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tradenames
N/A
 
83,531

 

 
83,531

 
87,253

 

 
87,253

 
 
 
$
304,683

 
$
151,964

 
$
152,719

 
$
374,978

 
$
193,941

 
$
181,037

The Company estimates that amortization expense will be $10.2 million for the remaining nine months of fiscal 2019. Amortization expense for future years is estimated to be: $12.9 million in fiscal 2020, $12.2 million in 2021, $10.5 million in fiscal

12


2022, $7.7 million in fiscal 2023, $6.5 million in fiscal 2024 and $9.2 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates, among other causes.
Fiscal 2019 Impairment Charge
During the first quarter of fiscal 2019, within the Engineered Components & Systems segment, the Company recognized impairment charges related to the Precision Hayes and Cortland U.S. businesses in conjunction with meeting the criteria for assets classified as held for sale. See Note 5, “Divestiture Activities,” for further discussion of impairment & divestiture charges. As a result of meeting the held for sale criteria, the Company reassessed the weighted-average holding period for the associated assets which resulted in a change in our current estimated fair value. Also, the Company recognized an additional impairment charge related to the Cortland Fibron business based on a change in the anticipated sales proceeds. Accordingly, we recognized a $21.1 million impairment charge, representing the excess of net book value of assets held for sale over anticipated proceeds.
A summary of the fiscal 2019 impairment charge by reporting unit is as follows (in thousands):
 
 
Cortland (1)
 
Precision Hayes
 
Total
Goodwill
 
$
10,166

 
$

 
$
10,166

Amortizable intangible assets
 

 
8,264

 
8,264

Assets held for sale
 
1,477

 

 
1,477

Fixed assets
 

 
1,230

 
1,230

 
 
$
11,643

 
$
9,494

 
$
21,137

(1) The Cortland reporting unit is representative of the Cortland U.S. and Cortland Fibron businesses. The goodwill impairment charge related to Cortland U.S. and the assets held for sale impairment charge related to Cortland Fibron.
To the extent actual proceeds on the divestiture are less than current projections, or there are changes in the composition of the asset disposal group, further write-downs of the carrying value of the Precision Hayes and Cortland reporting units may be required.
Note 7. Product Warranty Costs
The Company generally offers its customers a warranty on products sold, although warranty periods vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line on the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following is a rollforward of the product warranty reserves for the three months ended November 30, 2018 and 2017 (in thousands):
 
Three Months Ended November 30,
 
2018
 
2017
Beginning balance
$
4,417

 
$
6,616

Provision for warranties
1,626

 
1,531

Warranty payments and costs incurred
(944
)
 
(1,145
)
Reclass of liabilities held for sale
(38
)
 

Impact of changes in foreign currency rates
(64
)

(8
)
Ending balance
$
4,997

 
$
6,994


13


Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
November 30, 2018
 
August 31, 2018
Senior Credit Facility
 
 
 
Revolver
$

 
$

Term Loan
240,000

 
247,500

Total Senior Credit Facility
240,000

 
247,500

5.625% Senior Notes
287,559

 
287,559

Total Senior Indebtedness
527,559

 
535,059

Less: Current maturities of long-term debt
(30,000
)
 
(30,000
)
Debt issuance costs
(2,175
)
 
(2,364
)
Total long-term debt, less current maturities
$
495,384

 
$
502,695

The Company’s Senior Credit Facility matures on May 8, 2020 and provides a $300 million revolver, a $300 million term loan and a $450 million expansion option, subject to certain conditions. Borrowings are subject to a pricing grid, which can result in increases or decreases to the borrowing spread, depending on the Company’s leverage ratio, ranging from a spread of 1.00% to 2.25% in the case of loans bearing interest at LIBOR and from 0.00% to 1.25% in the case of loans bearing interest at the base rate. As of November 30, 2018, the borrowing spread on LIBOR based borrowings was 2.00% (aggregating to a 4.38% variable rate borrowing cost on the outstanding term loan balance). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.35% per annum. As of November 30, 2018, the unused credit line under the revolver was $298.8 million, of which $237.9 million was available for borrowing. Quarterly term loan principal payments of $3.8 million began on June 30, 2016, increased to $7.5 million starting on June 30, 2017 and extend through March 31, 2020, with the remaining principal due at maturity. The Senior Credit Facility, which is secured by substantially all of the Company’s domestic personal property assets, also contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. The Company was in compliance with all financial covenants at November 30, 2018.
On April 16, 2012, the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $287.6 million remains outstanding. The Senior Notes require no principal installments prior to their June 15, 2022 maturity, require semiannual interest payments in December and June of each year and contain certain financial and non-financial covenants. The Senior Notes include a call feature that allows the Company to repurchase them anytime on or after June 15, 2017 at stated redemption prices (currently ranging from 100.00% to 101.88%), plus accrued and unpaid interest. The Company was in compliance with all the terms of the Senior Notes at November 30, 2018.
Note 9. Fair Value Measurement
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participation would use in pricing an asset or liability.
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both November 30, 2018 and August 31, 2018 due to their short-term nature and the fact that the interest rates approximated market rates. Foreign currency exchange contracts are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net asset of $0.2 million and $0.4 million at November 30, 2018 and August 31, 2018, respectively. The fair value of the foreign currency exchange contracts was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy. The fair value of the Company’s outstanding Senior Notes was $289.4 million and $293.5 million at November 30, 2018 and August 31, 2018, respectively. The fair value of the Senior Notes was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
At November 30, 2018, the assets and liabilities of the Precision Hayes and Cortland businesses are classified as held for sale and therefore are valued at fair value, less costs to sell. In determining the fair value of the assets and liabilities the Company utilized generally accepted valuation techniques. Specifically for the Cortland U.S. business, a market approach valuation was utilized, in which a trading multiple was applied to the forecasted EBITDA (earnings before interest, income taxes, depreciation and amortization). For the Precision Hayes and Cortland Fibron businesses, the anticipated proceeds from the sale of these

14


businesses was used to arrive at the estimated fair value. These valuations represent Level 3 assets measured at fair value on a nonrecurring basis.
Note 10. Derivatives
All derivatives are recognized in the balance sheet at their estimated fair value. On the date the Company enters into a derivative contract, it designates the derivative as a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The Company does not enter into derivatives for speculative purposes. Changes in the value of fair value hedges and non-designated hedges are recorded in earnings along with the gain or loss on the hedged asset or liability, while changes in the value of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows.
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 utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in other (income) expense in the condensed consolidated statement of earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $22.0 million and $17.0 million at November 30, 2018 and August 31, 2018, respectively. The fair value of outstanding foreign currency exchange contracts was a net asset of $0.2 million and $0.4 million at November 30, 2018 and August 31, 2018, respectively. Net foreign currency gain related to these derivative instruments were as follows (in thousands):
 
Three Months Ended November 30,
 
2018
 
2017
Foreign currency gain, net
$
370

 
$
214

Note 11. Capital Stock and Share Repurchases
The Company's Board of Directors authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 20,439,434 shares of common stock for $617.7 million. As of November 30, 2018, the maximum number of shares that may yet be purchased under the programs is 7,560,566 shares. There were no share repurchases in the three months ended November 30, 2018.
The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 
Three Months Ended November 30,
 
2018
 
2017
Numerator:
 
 
 
Net (loss) earnings
$
(17,452
)
 
$
5,226

Denominator:
 
 
 
Weighted average common shares outstanding - basic
61,031

 
59,871

Net effect of dilutive securities - stock based compensation plans

 
738

Weighted average common shares outstanding - diluted
61,031

 
60,609

 
 
 
 
Basic (loss) earnings per share
$
(0.29
)
 
$
0.09

Diluted (loss) earnings per share
$
(0.29
)
 
$
0.09

 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation) (1)
2,973

 
1,829

(1) As a result of the impairment & divestiture charges, which caused a net loss for the three months ended November 30, 2018, shares from stock based compensation plans are excluded from the calculation of diluted loss per share, as the result would be anti-dilutive.

15


Note 12. Income Taxes
The Company's income tax expense or benefit is impacted by a number of factors, including the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different than the U.S. federal statutory rate, permanent items, state tax rates and the ability to utilize various tax credits and net operating loss carryforwards. The Company's global operations, acquisition activity and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Both fiscal 2019 and 2018 include the benefits of tax planning initiatives. Comparative (loss) earnings before income taxes, income tax benefit and effective income tax rates are as follows (amounts in thousands):
 
Three Months Ended November 30,
 
2018
 
2017
Earnings (loss) before income taxes
$
(17,524
)
 
$
6,830

Income tax expense (benefit)
(72
)
 
1,604

Effective income tax rate
0.4
%
 
23.5
%
The Company’s income tax expense and effective tax rate for the three months ended November 30, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. The Act includes significant changes to the U.S. corporate income tax system which reduce the U.S. federal corporate income tax rate from 35% to 21% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax; and creates new minimum taxes on certain foreign-sourced earnings that were previously deferred from U.S. federal tax. The new minimum taxes on certain foreign-sourced earnings under the Act are effective for the Company starting in the period ending November 30, 2018 and include the Global Intangible Low-Taxed Income (“GILTI”) provision, the Foreign-Derived Intangible Income (“FDII”) benefit, the Base Erosion Anti-Abuse Tax (“BEAT”), the limitation on interest expense deductions and certain executive compensation, and the elimination of dividends received from certain foreign subsidiaries.
Income tax effects resulting from changes in tax laws are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of income tax expense or benefit. The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance on accounting for various effects of the Act that may be at different stages of completion. To the extent that a company’s accounting for a certain income tax effect of the Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. In accordance with SAB 118, the financial reporting impact of the Act will be completed no later than one year from the Act’s enactment date of December 22, 2017. Prior to this date, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118.
As of the financial reporting date, we have recorded all known enactment-date income tax effects of the Act. These adjustments have been recorded as a component of income tax expense and include the one-time transition tax liability, the revaluation of deferred tax assets and liabilities, and the calculation of the accelerated first year expensing of certain capital expenditures. Included within tax expense for the November 30, 2018 reporting period is a measurement period adjustment for the Company’s transition tax. This adjustment was based upon the review of additional information that was not previously available and had an immaterial impact on the financial statements. The Company’s assertion related to the repatriation of undistributed earnings has not changed, which is to reinvest the earnings in our non-U.S. subsidiaries outside of the U.S., thereby resulting in no recorded U.S. deferred incomes taxes or foreign withholding taxes. Additionally, the Company has made the accounting policy election to record the income tax effects of GILTI in the period in which they arise.
The comparability of pre-tax earnings (loss), income tax expense (benefit) and the related effective income tax rates are impacted by the Act as described above, along with impairment & divestiture charges. Results included $36.5 million ($33.8 million after tax) of impairment & divestiture charges for the three months ended November 30, 2018. Excluding the impairment & divestiture charges, the effective tax rate for the three months ended November 30, 2018 was 13.4%. Both the current and prior year effective income tax rates were impacted by the proportion of earnings in foreign jurisdictions with income tax rates different than the U.S. federal income tax rate and the amount of income tax benefits from tax planning initiatives. The Company's earnings (loss) before income tax include approximately 70% and 80% of earnings from foreign jurisdictions for the estimated full-year fiscal 2019 and 2018, respectively. This foreign income tax rate differential had the effect of reducing the effective income tax rate from the 35% U.S. statutory tax rate by 12.2%, for the three months ended November 30, 2017; however, the impact of foreign rates as compared to the new U.S. statutory rate of 21% is minimal. In addition to the benefit of the foreign rate differential and tax planning initiatives (which yield an effective income tax rate lower than the federal income tax rate) in each year, the income tax benefit for the three months ended November 30, 2018 is significantly impacted by a $2.6 million benefit related to the impairment & divestiture charges and a $1.1 million benefit related to realization of foreign tax credit carryforwards. The tax benefits related to tax planning initiatives are not expected to repeat in future periods due to certain tax attributes that are no longer available and subsequent changes in relevant tax laws.

16



Note 13. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems. The Industrial Tools & Services segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, energy and other markets.  The Engineered Components & Systems segment provides highly engineered components for on-highway, off-highway agriculture, medical, concrete tensioning and other vertical markets. All of the aforementioned markets are supported through our various segment product lines outlined below.
The following tables summarize financial information by reportable segment and product line (in thousands):    
 
Three Months Ended November 30,
 
2018
 
2017
Net Sales by Reportable Product Line & Segment
 
 
 
Industrial Tools & Services Segment
 
 
 
Product
$
102,768

 
$
101,120

Service & Rental
45,887

 
40,871

 
148,655

 
141,991

Engineered Components & Systems Segment
 
 
 
On-Highway
60,591

 
64,883

Agriculture, Off-Highway and Other
53,884

 
51,316

Rope & Cable Solutions
16,166

 
16,386

Concrete Tensioning
13,235

 
11,634

Off Shore Mooring

 
2,745

 
143,876

 
146,964

 
$
292,531

 
$
288,955

 
 
 
 
Operating (Loss) Profit
 
 
 
Industrial Tools & Services
$
26,374

 
$
20,836

Engineered Components & Systems (1)
(28,292
)
 
4,035

General Corporate
(7,400
)
 
(10,197
)
 
$
(9,318
)
 
$
14,673

(1) Engineered Components & Systems segment operating loss includes impairment & divestiture charges of $36.5 million for the three months ended November 30, 2018.
 
November 30, 2018
 
August 31, 2018
Assets:
 
 
 
Industrial Tools & Services
$
588,003

 
$
589,932

Engineered Components & Systems
655,978

 
657,370

General Corporate
206,052

 
234,036

 
$
1,450,033

 
$
1,481,338

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

17



Note 14. Commitments and Contingencies
The Company had outstanding letters of credit of $15.7 million and $23.6 million at November 30, 2018 and August 31, 2018, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs.
The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, breaches of contract, employment, personal injury and other disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable a loss has been incurred and can be reasonably estimated. In the opinion of management, resolution of these contingencies is not expected to have a material adverse effect on the Company’s financial 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 future lease payment obligations. The discounted present value of future minimum lease payments for these leases at November 30, 2018 was $10.4 million using a weighted average discount rate of 3.35%.
The Company has facilities in numerous geographic locations that are subject to environmental laws and regulations. Environmental expenditures over the past two years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
As previously disclosed in the Annual Report on Form 10-K for the year ended August 31, 2018, in October 2018, the Company filed a voluntary self-disclosure ("VSD") with the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) regarding transactions related to otherwise authorized sales of tools and other products totaling approximately $0.5 million by certain of its foreign subsidiaries to two Iranian distributors. It is possible that certain limited transactions relating to the authorized sales fell outside the scope of General License H under the Iranian Transaction and Sanctions Regulations, 31 C.F.R. Part 560. The VSD also included information about additional transactions by certain of the Company's Dutch subsidiaries, with a counterparty in Estonia that may have been in violation of E.O. 13685, as certain sales of products and services may have been diverted to the Crimea region of Ukraine. OFAC is currently reviewing the Company’s disclosure to determine whether any violations of U.S. economic sanctions laws may have occurred and, if so, to determine the appropriate enforcement response. At this time, the Company cannot predict when OFAC will conclude its review of the VSD or the nature of its enforcement response.
Additionally, the Company has self-disclosed the sales to its Estonian customer to relevant authorities in the Netherlands as potentially violating applicable sanctions laws in that country and the European Union. The investigation by authorities in the Netherlands is ongoing and also may result in penalties. At this time, the Company cannot predict when the investigation will be completed or reasonably estimate what penalties, if any, will be assessed.
While there can be no assurance of the ultimate outcome of the above matters, the Company currently believes that there will be no material adverse effect on the Company's financial position, results of operations, or cash flows.
Note 15. Guarantor Subsidiaries
As discussed in Note 8, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes, of which $287.6 million remains outstanding as of November 30, 2018. All of our material, domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee the 5.625% Senior Notes on a joint and several basis. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent.
Certain assets, liabilities and expenses have not been allocated to the Guarantors and the subsidiaries that do not guarantee the 5.625% Senior Notes (the "non-Guarantors") and therefore are included in the Parent column in the accompanying condensed consolidating financial statements. These items are of a corporate or consolidated nature and include, but are not limited to, tax provisions and related assets and liabilities, certain employee benefit obligations, prepaid and accrued insurance and corporate indebtedness. Intercompany activity primarily includes loan activity, purchases and sales of goods or services, investments and dividends. Intercompany balances also reflect certain non-cash transactions including transfers of assets and liabilities between the Parent, Guarantor and non-Guarantor, allocation of non-cash expenses from the Parent to the Guarantors and non-Guarantors, non-cash intercompany dividends and the impact of foreign currency rate changes. 
The following tables present the results of operations, financial position and cash flows of the Parent, the Guarantors and the non-Guarantors and the eliminations necessary to arrive at the information for the Company on a consolidated basis.



18


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
 
Three Months Ended November 30, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
40,290

 
$
95,822

 
$
156,419

 
$

 
$
292,531

Cost of products sold
9,881

 
70,596

 
107,046

 

 
187,523

Gross profit
30,409

 
25,226

 
49,373

 

 
105,008

Selling, administrative and engineering expenses
20,966

 
18,314

 
33,912

 

 
73,192

Amortization of intangible assets
318

 
2,692

 
1,268

 

 
4,278

Restructuring charges

 
(93
)
 
496

 

 
403

Impairment & divestiture charges

 
10,220

 
26,233

 

 
36,453

Operating profit (loss)
9,125

 
(5,907
)
 
(12,536
)
 

 
(9,318
)
Financing costs (income), net
7,551

 

 
(256
)
 

 
7,295

Intercompany (income) expense, net
(4,053
)
 
6,491

 
(2,438
)
 

 

Other (income) expense, net
(216
)
 
7

 
1,120

 

 
911

Earnings (loss) before income tax (benefit) expense
5,843

 
(12,405
)
 
(10,962
)
 

 
(17,524
)
Income tax (benefit) expense
(2,706
)
 
(102
)
 
2,736

 


 
(72
)
Net earnings (loss) before equity in (loss) earnings of subsidiaries
8,549

 
(12,303
)
 
(13,698
)
 

 
(17,452
)
Equity in (loss) earnings of subsidiaries
(26,001
)
 
(13,132
)
 
1,255

 
37,878

 

Net loss
(17,452
)
 
(25,435
)
 
(12,443
)
 
37,878

 
(17,452
)
Comprehensive loss
$
(25,396
)
 
$
(25,434
)
 
$
(20,119
)
 
$
45,553

 
$
(25,396
)


19



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

 
$
87,834

 
$
165,411

 
$

 
$
288,955

Cost of products sold
6,963

 
64,574

 
116,507

 

 
188,044

Gross profit
28,747

 
23,260

 
48,904

 

 
100,911

Selling, administrative and engineering expenses
19,715

 
18,448

 
36,315

 

 
74,478

Amortization of intangible assets
318

 
2,861

 
1,952

 

 
5,131

Restructuring charges
5,356

 
169

 
1,104

 

 
6,629

Operating profit
3,358

 
1,782

 
9,533

 

 
14,673

Financing costs (income), net
7,623

 
21

 
(130
)
 

 
7,514

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

 
(607
)
 

 

Other (income) expense, net
(50
)
 
45

 
334

 

 
329

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

 
(3,768
)
 
9,936

 

 
6,830

Income tax (benefit) expense
(285
)
 
437

 
1,452

 

 
1,604

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

 
(4,205
)
 
8,484

 

 
5,226

Equity in earnings (loss) of subsidiaries
4,279

 
8,793

 
(46
)
 
(13,026
)
 

Net earnings
5,226

 
4,588

 
8,438

 
(13,026
)
 
5,226

Comprehensive income
$
8,251

 
$
4,588

 
$
11,566

 
$
(16,154
)
 
$
8,251



 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 




20


CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
November 30, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
41,371

 
$

 
$
162,072

 
$

 
$
203,443

Accounts receivable, net
18,511

 
40,803

 
131,876

 

 
191,190

Inventories, net
25,035

 
51,389

 
78,340

 

 
154,764

Assets held for sale

 
79,748

 
26,445

 

 
106,193

Other current assets
11,761

 
1,824

 
38,160

 

 
51,745

Total current assets
96,678

 
173,764

 
436,893

 

 
707,335

Property, plant & equipment, net
7,828

 
16,557

 
54,775

 

 
79,160

Goodwill
38,847

 
184,121

 
254,392

 

 
477,360

Other intangibles, net
6,566

 
97,932

 
48,221

 

 
152,719

Investment in subsidiaries
1,806,237

 
1,198,123

 
807,031

 
(3,811,391
)
 

Intercompany receivable

 
616,713

 
208,731

 
(825,444
)
 

Other long-term assets
12,745

 
339

 
20,375

 

 
33,459

Total assets
$
1,968,901

 
$
2,287,549

 
$
1,830,418

 
$
(4,636,835
)
 
$
1,450,033

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
13,915

 
$
20,468

 
$
89,684

 
$

 
$
124,067

Accrued compensation and benefits
10,509

 
2,938

 
22,896

 

 
36,343

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

 

 

 

 
30,000

Income taxes payable

 

 
8,215

 

 
8,215

Liabilities held for sale

 
12,951

 
57,079

 

 
70,030

Other current liabilities
18,207

 
6,481

 
39,026

 

 
63,714

Total current liabilities
72,631

 
42,838

 
216,900

 

 
332,369

Long-term debt
495,384

 

 

 

 
495,384

Deferred income taxes
15,426

 

 
1,505

 

 
16,931

Pension and post-retirement benefit liabilities
7,632

 

 
7,039

 

 
14,671

Other long-term liabilities
47,348

 
285

 
5,480

 

 
53,113

Intercompany payable
792,915

 
32,529

 

 
(825,444
)
 

Shareholders’ equity
537,565

 
2,211,897

 
1,599,494

 
(3,811,391
)
 
537,565

Total liabilities and shareholders’ equity
$
1,968,901

 
$
2,287,549

 
$
1,830,418

 
$
(4,636,835
)
 
$
1,450,033


21


CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
August 31, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
67,649

 
$

 
$
182,841

 
$

 
$
250,490

Accounts receivable, net
19,969

 
54,822

 
112,958

 

 
187,749

Inventories, net
22,570

 
59,391

 
74,395

 

 
156,356

Assets held for sale

 

 
23,573

 

 
23,573

Other current assets
7,358

 
4,759

 
30,615

 

 
42,732

Total current assets
117,546

 
118,972

 
424,382

 

 
660,900

Property, plant & equipment, net
7,937

 
26,408

 
55,875

 

 
90,220

Goodwill
38,847

 
203,543

 
270,022

 

 
512,412

Other intangible assets, net
6,884

 
121,793

 
52,360

 

 
181,037

Investment in subsidiaries
1,836,954

 
1,211,781

 
789,917

 
(3,838,652
)
 

Intercompany receivables

 
622,646

 
200,173

 
(822,819
)
 

Other long-term assets
12,955

 
366

 
23,448

 

 
36,769

Total assets
$
2,021,123

 
$
2,305,509

 
$
1,816,177

 
$
(4,661,471
)
 
$
1,481,338


 
 
 
 
 
 
 
 
 
LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
15,890

 
$
29,022

 
$
85,926

 
$

 
$
130,838

Accrued compensation and benefits
22,171

 
9,804

 
22,533

 

 
54,508

Current maturities of debt
30,000

 

 

 

 
30,000

Income taxes payable

 

 
4,091

 

 
4,091

Liabilities held for sale

 

 
44,225

 

 
44,225

Other current liabilities
17,379

 
11,078

 
38,842

 

 
67,299

Total current liabilities
85,440

 
49,904

 
195,617

 

 
330,961

Long-term debt
502,695

 

 

 

 
502,695

Deferred income taxes
17,467

 

 
4,466

 

 
21,933

Pension and post-retirement benefit liabilities
7,765

 

 
7,104

 

 
14,869

Other long-term liabilities
45,483

 
359

 
6,326

 

 
52,168

Intercompany payable
803,561

 
19,258

 

 
(822,819
)
 

Shareholders’ equity
558,712

 
2,235,988

 
1,602,664

 
(3,838,652
)
 
558,712

Total liabilities and shareholders’ equity
$
2,021,123

 
$
2,305,509

 
$
1,816,177

 
$
(4,661,471
)
 
$
1,481,338


22


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended November 30, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(16,275
)
 
$
4,337

 
$
(17,172
)
 
$

 
$
(29,110
)
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(423
)
 
(4,340
)
 
(2,903
)
 

 
(7,666
)
Proceeds from sale of property, plant and equipment
8

 
3

 

 

 
11

Cash used in investing activities
(415
)
 
(4,337
)
 
(2,903
)
 

 
(7,655
)
Financing Activities
 
 
 
 
 
 
 
 
 
Principal repayments on term loan
(7,500
)
 

 

 

 
(7,500
)
Stock option exercises, related tax benefits and other
552

 

 

 

 
552

Taxes paid related to the net share settlement of equity awards
(201
)
 

 

 

 
(201
)
Cash Dividends
(2,439
)
 

 

 

 
(2,439
)
Cash used in financing activities
(9,588
)
 

 

 

 
(9,588
)
Effect of exchange rate changes on cash

 

 
(694
)
 

 
(694
)
Net decrease in cash and cash equivalents
(26,278
)
 

 
(20,769
)
 

 
(47,047
)
Cash and cash equivalents—beginning of period
67,649

 

 
182,841

 

 
250,490

Cash and cash equivalents—end of period
$
41,371

 
$

 
$
162,072

 
$

 
$
203,443


23


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

 
$
(14,200
)
 
$

 
$
(20,458
)
Investing Activities