Company Quick10K Filing
Quick10K
Actuant
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.56 61 $1,510
10-Q 2019-02-28 Quarter: 2019-02-28
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
10-K 2015-08-31 Annual: 2015-08-31
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-K 2014-08-31 Annual: 2014-08-31
10-Q 2014-05-31 Quarter: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-04-12 Officers
8-K 2019-03-29 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-21 Earnings, Exhibits
8-K 2019-01-22 Exit Costs
8-K 2019-01-22 Exit Costs
8-K 2019-01-22 Shareholder Vote
8-K 2019-01-22 Shareholder Vote
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
MUFG Mitsubishi Ufj Financial Group 61,900
MMC Marsh & Mclennan Companies 47,650
EPAM Epam Systems 9,270
ASND Ascendis Pharma 5,690
TDS Telephone & Data Systems 3,660
POPE Pope Resources Partnership 292
VRML Vermillion 92
WRN Western Copper & Gold 51
JFKKU 8i Enterprises Acquisition Corp 50
ARST Arista Financial 0
ATU 2019-02-28
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-2019228exhibit311.htm
EX-31.2 atu-2019228exhibit312.htm
EX-32.1 atu-2019228exhibit321.htm
EX-32.2 atu-2019228exhibit322.htm

Actuant Earnings 2019-02-28

ATU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 atu-20190228x10q.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 February 28, 2019
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 March 31, 2019 was 61,418,202.
 
 
 
 
 



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:
deterioration of, or 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, including 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


uncertainty with respect to the consummation of announced divestiture plans, including the terms and timing of any such transactions;
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 February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Net sales
$
271,907

 
$
275,165

 
$
564,438

 
$
564,120

Cost of products sold
174,421

 
185,469

 
361,944

 
373,513

Gross profit
97,486

 
89,696

 
202,494

 
190,607

Selling, administrative and engineering expenses
70,745

 
68,287

 
143,936

 
142,765

Amortization of intangible assets
3,441

 
5,168

 
7,720

 
10,299

Restructuring charges
60

 
3,450

 
463

 
10,079

Impairment & divestiture charges
6,886

 
2,987

 
43,339

 
2,987

Operating profit
16,354

 
9,804

 
7,036

 
24,477

Financing costs, net
7,153

 
7,604

 
14,448

 
15,118

Other expense, net
656

 
582

 
1,568

 
911

Earnings (loss) before income tax expense
8,545

 
1,618

 
(8,980
)
 
8,448

Income tax expense
5,792

 
19,839

 
5,719

 
21,443

Net earnings (loss)
$
2,753

 
$
(18,221
)
 
$
(14,699
)
 
$
(12,995
)
 
 
 
 
 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
0.04

 
$
(0.30
)
 
$
(0.24
)
 
$
(0.22
)
Diluted
$
0.04

 
$
(0.30
)
 
$
(0.24
)
 
$
(0.22
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
61,243

 
60,318

 
61,137

 
60,095

Diluted
61,607

 
60,318

 
61,137

 
60,095

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


3


ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Net earnings (loss)
$
2,753

 
$
(18,221
)
 
$
(14,699
)
 
$
(12,995
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
7,433

 
13,237

 
(743
)
 
16,135

Foreign currency translation due to divested business
34,909

 
67,645

 
34,909

 
67,645

Pension and other postretirement benefit plans
95

 
127

 
327

 
254

Total other comprehensive income, net of tax
42,437

 
81,009

 
34,493

 
84,034

Comprehensive income
$
45,190

 
$
62,788

 
$
19,794

 
$
71,039

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)
 
 
February 28, 2019
 
August 31, 2018
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
170,388

 
$
250,490

Accounts receivable, net
 
210,174

 
187,749

Inventories, net
 
161,646

 
156,356

Assets held for sale
 
56,113

 
23,573

Other current assets
 
54,863

 
42,732

Total current assets
 
653,184

 
660,900

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
42,238

 
47,468

Machinery and equipment
 
217,134

 
229,445

Gross property, plant and equipment
 
259,372

 
276,913

Less: Accumulated depreciation
 
(176,240
)
 
(186,693
)
Property, plant and equipment, net
 
83,132

 
90,220

Goodwill
 
480,208

 
512,412

Other intangibles, net
 
150,035

 
181,037

Other long-term assets
 
36,498

 
36,769

Total assets
 
$
1,403,057

 
$
1,481,338

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
122,486

 
$
130,838

Accrued compensation and benefits
 
37,402

 
54,508

Current maturities of debt
 
30,000

 
30,000

Income taxes payable
 
8,548

 
4,091

Liabilities held for sale
 
20,820

 
44,225

Other current liabilities
 
58,871

 
67,299

Total current liabilities
 
278,127

 
330,961

Long-term debt, net
 
455,573

 
502,695

Deferred income taxes
 
18,973

 
21,933

Pension and postretirement benefit liabilities
 
14,371

 
14,869

Other long-term liabilities
 
50,383

 
52,168

Total liabilities
 
817,427

 
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 81,831,531 and 81,423,584 shares, respectively
 
16,364

 
16,285

Additional paid-in capital
 
174,418

 
167,448

Treasury stock, at cost, 20,439,434 shares
 
(617,731
)
 
(617,731
)
Retained earnings
 
1,152,331

 
1,166,955

Accumulated other comprehensive loss
 
(139,752
)
 
(174,245
)
Stock held in trust
 
(2,989
)
 
(2,450
)
Deferred compensation liability
 
2,989

 
2,450

Total shareholders’ equity
 
585,630

 
558,712

Total liabilities and shareholders’ equity
 
$
1,403,057

 
$
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)
 
Six Months Ended February 28,
 
2019
 
2018
Operating Activities
 
 
 
Net loss
$
(14,699
)
 
$
(12,995
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Impairment & divestiture charges, net of tax effect
40,524

 
12,385

Depreciation and amortization
16,341

 
20,385

Stock-based compensation expense
7,162

 
8,292

Benefit for deferred income taxes
(1,445
)
 
(7,124
)
Amortization of debt issuance costs
602

 
826

Other non-cash adjustments
63

 
200

Changes in components of working capital and other, excluding acquisitions and divestitures
 
 
 
Accounts receivable
(36,436
)
 
(16,872
)
Inventories
(24,797
)
 
(18,433
)
Trade accounts payable
(2,810
)
 
(1,753
)
Prepaid expenses and other assets
(9,421
)
 
(9,168
)
Income tax accounts
1,531

 
17,505

Accrued compensation and benefits
(16,440
)
 
(9,959
)
Other accrued liabilities
(11,489
)
 
(5,395
)
Cash used in operating activities
(51,314
)
 
(22,106
)
Investing Activities
 
 
 
Capital expenditures
(15,667
)
 
(12,547
)
Proceeds from sale of property, plant and equipment
52

 
113

Rental asset buyout for Viking divestiture

 
(27,718
)
Proceeds from sale of business, net of transaction costs
36,159

 
8,780

Cash paid for business acquisitions, net of cash acquired

 
(16,517
)
Cash provided by (used in) investing activities
20,544

 
(47,889
)
Financing Activities
 
 
 
Principal repayments on term loan
(47,500
)
 
(15,000
)
Stock option exercises and other
1,031

 
10,305

Taxes paid related to the net share settlement of equity awards
(1,489
)
 
(1,107
)
Cash dividend
(2,439
)
 
(2,390
)
Cash used in financing activities
(50,397
)
 
(8,192
)
Effect of exchange rate changes on cash
1,065

 
2,211

Net decrease in cash and cash equivalents
(80,102
)
 
(75,976
)
Cash and cash equivalents - beginning of period
250,490

 
229,571

Cash and cash equivalents - end of period
$
170,388

 
$
153,595

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


6


NOTES TO THE 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 ("GAAP") 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 GAAP 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 GAAP. 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 and six months ended February 28, 2019 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. 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. However, prior year amounts have been retrospectively adjusted to reflect this change in accounting principle.
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 and ASU 2019-01), 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.
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):
 
 
February 28, 2019
 
August 31, 2018
Foreign currency translation adjustments
 
$
124,331

 
$
158,497

Pension and other postretirement benefit plans, net of tax
 
15,421

 
15,748

Accumulated other comprehensive loss
 
$
139,752

 
$
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 reported in the Condensed Consolidated Statements of Operations 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 customized 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 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 line (in thousands):
 
 
Three Months Ended February 28,
 
Six Months Ended February 28,
Net Sales by Reportable Product Line & Segment:
 
2019
 
2019
Industrial Tools & Services
 
 
 
 
Product
 
$
105,584

 
$
208,352

Service & Rental
 
43,937

 
89,824

 
 
149,521

 
298,176

 
 
 
 
 
Engineered Components & Systems (1)
 
 
 
 
On-Highway
 
$
55,013

 
$
115,604

Agriculture, Off-Highway and Other
 
52,448

 
106,332

Rope & Cable Solutions
 
11,386

 
27,552

Concrete Tensioning
 
3,539

 
16,774

 
 
122,386

 
266,262

Total
 
$
271,907

 
$
564,438

(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 February 28,
 
Six Months Ended February 28,
 
 
2019
 
2019
Revenues recognized at point in time
 
$
221,377

 
$
462,000

Revenues recognized over time
 
50,530

 
102,438

Total
 
$
271,907

 
$
564,438

Contract Balances
The opening and closing balances of the Company's contract assets and liabilities are as follows:
 
 
February 28, 2019
 
August 31, 2018
Receivables, which are included in accounts receivable, net
 
$
210,174

 
$
187,749

Contract assets, which are included in other current assets
 
9,245

 
6,367

Contract liabilities, which are included in other current liabilities
 
13,395

 
16,484

Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services 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 February 28, 2019, 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 $13.2 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, depending 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 $0.1 million and $4.3 million in the three months ended February 28, 2019 and 2018, respectively. Year-to-date restructuring charges totaled $0.5 million and $10.9 million for fiscal 2019 and 2018, respectively. Approximately $0.8 million of the restructuring charges recognized in the three and six months ended February 28, 2018 were reported in the Consolidated Statements of Operations in "Cost of products sold," with the balance of the charges reported in "Restructuring charges." Liabilities for severance will generally be paid during the next twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms.
The following rollforwards summarize restructuring reserve activity by segment (in thousands):
 
 
Six Months Ended February 28, 2019
 
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Corporate
 
Total
Balance as of August 31, 2018
 
$
1,687

 
$
1,592

 
$
415

 
$
3,694

Restructuring charges
 
21

 
442

 

 
463

Cash payments
 
(1,052
)
 
(314
)
 
(97
)
 
(1,463
)
Other non-cash uses/reclasses of reserve
 
(79
)
 
53

 
(370
)
 
(396
)
Impact of changes in foreign currency rates
 
(18
)
 
(28
)
 

 
(46
)
Balance as of February 28, 2019
 
$
559

 
$
1,745

 
$
(52
)
 
$
2,252

 
 
Six Months Ended February 28, 2018
 
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Corporate
 
Total
Balance as of August 31, 2017
 
$
1,499

 
$
4,108

 
$
30

 
$
5,637

Restructuring charges
 
2,929

 
3,710

 
4,274

 
10,913

Cash payments
 
(1,750
)
 
(3,301
)
 
(1,648
)
 
(6,699
)
Other non-cash uses of reserve
 
(354
)
 
(801
)
 
(2,007
)
(1) 
(3,162
)
Impact of changes in foreign currency rates
 
(6
)
 
(66
)
 

 
(72
)
Balance as of February 28, 2018
 
$
2,318

 
$
3,650

 
$
649

 
$
6,617

(1) Majority of non-cash uses of reserve represents accelerated equity vesting in connection with employee severance agreements.
On March 21, 2019, the Company announced a new restructuring plan focused on the integration of the Enerpac and Hydratight businesses (IT&S segment) as well as driving efficiencies within the overall corporate structure. We expect to achieve $12-$15 million of annual savings with estimated restructuring costs of $15-$20 million and anticipate completing these actions within 18-24 months. The annual benefit of these gross cost savings may be impacted by a number of factors, including sales and production volume variances and annual bonus expense differentials.

10


Note 4. Acquisitions
During fiscal 2018, the Company completed two acquisitions which resulted in the recognition of goodwill in the Company’s condensed 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.
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 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 acquisition is a provider of industrial and energy maintenance tools, expanding our pipe and flange alignment offerings. The 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 $0.1 million and $0.4 million in the three and six months ended February 28, 2018, respectively, (included in "Selling, administrative and engineering expenses" in the Condensed Consolidated Statements of Operations) related to these acquisitions.
The acquired businesses generated combined net sales of $3.4 million and $6.9 million for the three and six months ended February 28, 2019, respectively. Net sales for both the three and six months ended February 28, 2018 for Mirage were $1.9 million. Because the net sales and earnings impact of both acquired businesses are not material to the three and six months ended February 28, 2019 and 2018, 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 (EC&S segment) met the criteria for assets held for sale treatment. The Company completed the sale of the Cortland Fibron business on December 19, 2018 for $12.5 million in cash. The transaction could be subject to additional divestiture charges consisting of closing working capital adjustments in the third quarter of fiscal 2019.
During the first quarter of fiscal 2019, the Company determined that the Precision Hayes and Cortland U.S. businesses (EC&S 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. The Company completed the sale of the Precision Hayes business on December 31, 2018 for $23.6 million cash net of final transaction costs, working capital adjustments, accelerated vesting of equity compensation, completion bonuses and other adjustments which were recognized in the second quarter of fiscal 2019. In addition, the related assets and liabilities of the Cortland U.S. business to be sold are classified as assets/liabilities held for sale in the condensed consolidated balance sheet as of February 28, 2019 and approximate the estimated fair value, less cost to sell.
On January 24, 2019, the Company announced its intention to focus solely on its IT&S segment, and as a result, initiated a process to potentially divest the remaining EC&S segment. However, the assets and liabilities of the remaining EC&S segment have not been classified as held for sale as there is no assurance that a transaction will result from the sale process. Material charges reflecting a write down of the EC&S net assets to their net realizable value could result in non-cash impairment charges in future periods. The Company is unable to estimate the total amount or range of amounts of the potential impairment charges in future periods in connection with this action, as no assurance can be given that a transaction will result from the EC&S sale process or as to its timing. As a result of the Company’s interim impairment analysis of the EC&S asset group, an indication of impairment was not present as of February 28, 2019 and, therefore, there were no non-cash impairment charges recorded during the second quarter of fiscal 2019. The Company intends to comment on, or provide updates regarding, these matters (including the status of the divestiture or size of impairment) only when it determines that further disclosure is appropriate or required. Year-to-date, the Company has incurred pre-tax divestiture charges of $2.3 million relating to the contemplated EC&S segment divestiture.
The Company recognized $6.9 million of impairment & divestiture charges in the second quarter of fiscal 2019, comprised of: (i) a $3.5 million charge representing the excess of the net book value of assets held for sale to the anticipated proceeds of the Cortland U.S. business, (ii) $2.5 million of other divestiture charges (primarily working capital adjustments, accelerated vesting of equity compensation and completion bonuses) related to the divestiture of the Precision Hayes and Cortland Fibron businesses and (iii) $0.9 million related to the divestiture of the remaining EC&S segment. These charges generated an income tax benefit of $0.2 million in the second quarter of fiscal 2019. Year-to-date, the Company has recognized $43.4 million of impairment & divestiture charges in fiscal 2019, comprised of: (i) a $24.6 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

11


of foreign currency rate changes since acquisition and (iii) $5.1 million of other divestiture charges. These charges generated a fiscal 2019 year-to-date income tax benefit of $2.8 million.

The following is a summary of the assets and liabilities held for sale (in thousands):
 
 
February 28, 2019 (1)
 
August 31, 2018 (2)
Accounts receivable, net
 
$
6,640

 
$
2,924

Inventories, net
 
10,756

 
2,597

Other current assets
 
938

 
3,267

Property, plant & equipment, net
 
7,110

 
2,186

Goodwill and other intangible assets, net
 
30,669

 
12,464

Other long-term assets
 

 
135

Assets held for sale
 
$
56,113

 
$
23,573

 
 
 
 
 
Trade accounts payable
 
$
3,795

 
$
3,915

Accrued compensation and benefits
 
662

 
1,414

Reserve for cumulative translation adjustment
 
13,182

 
35,346

Other current liabilities
 
394

 
1,269

Deferred income taxes
 
2,766

 
2,281

Other long-term liabilities
 
21

 

Liabilities held for sale
 
$
20,820

 
$
44,225

(1) Represents the consolidated assets and liabilities for the Cortland U.S. business held for sale at February 28, 2019.
(2) Represents the Cortland Fibron business held for sale at August 31, 2018.
The historical 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 $14.9 million and $28.1 million in the three months ended February 28, 2019 and 2018, respectively and $44.3 million and $56.1 million in the six months ended February 28, 2019 and 2018, respectively. Additional charges are anticipated upon the completion of the sale of the Cortland U.S. business 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 Precision Hayes and Cortland Fibron businesses could incur immaterial additional divestiture charges in the third quarter of fiscal 2019 relative to the final settlement of net asset disposal groups and other divestiture charges.
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 historical results of the Viking business (which had net sales of $2.7 million in the six months ended February 28, 2018) are not material to the condensed 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.

12


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 six months ended February 28, 2019 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

 
(13,678
)
 
(13,678
)
Reclassification of assets held for sale

 
(16,672
)
 
(16,672
)
Impact of changes in foreign currency rates
420

 
(2,526
)
 
(2,106
)
Balance as of February 28, 2019
$
249,378

 
$
230,830

 
$
480,208

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
February 28, 2019
 
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
 
$
188,974

 
$
126,738

 
$
62,236

 
$
230,601

 
$
147,451

 
$
83,150

Patents
11
 
20,946

 
19,041

 
1,905

 
30,355

 
25,327

 
5,028

Trademarks and tradenames
15
 
6,904

 
5,083

 
1,821

 
20,823

 
15,347

 
5,476

Other intangibles
3
 
5,191

 
5,172

 
19

 
5,946

 
5,816

 
130

Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tradenames
N/A
 
84,054

 

 
84,054

 
87,253

 

 
87,253

 
 
 
$
306,069

 
$
156,034

 
$
150,035

 
$
374,978

 
$
193,941

 
$
181,037

The Company estimates that amortization expense will be $6.7 million for the remaining six months of fiscal 2019. Amortization expense for future years is estimated to be: $12.9 million in fiscal 2020, $12.2 million in fiscal 2021, $10.5 million in fiscal 2022, $7.7 million in fiscal 2023, $6.6 million in fiscal 2024 and $9.3 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 EC&S 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. 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, for the quarter ended November 30, 2018, representing the excess of net book value of assets held for sale over anticipated proceeds.
During the second quarter of fiscal 2019, within the EC&S segment, the Company recognized impairment charges related to the Cortland U.S. business as a result of changes in the composition of the net asset disposal groups. Accordingly, we recognized a $3.5 million impairment charge during the quarter ended February 28, 2019, representing the excess of net book value of assets held for sale over anticipated proceeds. See Note 5, “Divestiture Activities,” for further discussion of impairment & divestiture charges.

13


A summary of the six months ended February 28, 2019, impairment charges by reporting unit is as follows (in thousands):
 
 
Cortland (1)
 
Precision Hayes
 
Total
Goodwill
 
$
13,709

 
$

 
$
13,709

Amortizable intangible assets
 

 
8,264

 
8,264

Assets held for sale
 
1,477

 

 
1,477

Fixed assets
 

 
1,230

 
1,230

Total
 
$
15,185

 
$
9,494

 
$
24,679

(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. for the six months ended February 28, 2019 and the assets held for sale impairment charge related to Cortland Fibron for the three months ended November 30, 2019.
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 Cortland U.S. reporting unit 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 six months ended February 28, 2019 and 2018, respectively (in thousands):
 
Six Months Ended February 28,
 
2019
 
2018
Beginning balance
$
4,417

 
$
6,616

Provision for warranties
3,059

 
3,403

Warranty payments and costs incurred
(2,960
)
 
(3,582
)
Warranty activity for divested businesses
(160
)
 

Reclass of liabilities held for sale
(33
)
 

Impact of changes in foreign currency rates
28


213

Ending Balance
$
4,351

 
$
6,650

Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
February 28, 2019
 
August 31, 2018
Senior Credit Facility
 
 
 
Revolver
$

 
$

Term Loan
200,000

 
247,500

Total Senior Credit Facility
200,000

 
247,500

5.625% Senior Notes
287,559

 
287,559

Total Senior Indebtedness
487,559

 
535,059

Less: Current maturities of long-term debt
(30,000
)
 
(30,000
)
Debt issuance costs
(1,986
)
 
(2,364
)
Total long-term debt, less current maturities
$
455,573

 
$
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 February 28, 2019, the borrowing spread on LIBOR based borrowings was 1.75% (aggregating to a 4.25% 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 February 28, 2019, the unused credit line and amount available for borrowing

14


under the revolver was $298.8 million. 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 substantially by all of the Company’s domestic personal property assets, also contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. The Company was in compliance with all financial covenants at February 28, 2019.
During the three months ended February 28, 2019, in addition to the quarterly term loan principal payment of $7.5 million, the Company prepaid $32.5 million against the remaining principal balance of the term loan.
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 February 28, 2019.
On March 29, 2019, the Company refinanced its credit facility resulting in a new $600 million senior credit facility, comprised of a $400 million revolving line of credit and a $200 million term loan. The new facility, which will mature in March 2024, includes a reduction in pricing, bears an initial interest rate of LIBOR + 1.625bps, and expands the revolving credit facility from $300 million to $400 million. In addition, the new credit facility contains financial covenants that are consistent with the prior facility, with enhancements that improve overall liquidity, and provides the option for future expansion through a $300 million accordion on the revolver. Borrowings under the credit agreement are secured by substantially all personal property assets of the Company and its domestic subsidiary guarantors and certain equity interests owned by the foreign law pledgors.
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 February 28, 2019 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 $0.1 million and $0.4 million at February 28, 2019 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 $290.6 million and $293.5 million at February 28, 2019 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 February 28, 2019, the assets and liabilities of the Cortland U.S. business 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). 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.

15


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 statements of operations). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $19.6 million and $17.0 million at February 28, 2019 and August 31, 2018, respectively. The fair value of outstanding foreign currency exchange contracts was a net asset of $0.1 million and $0.4 million at February 28, 2019 and August 31, 2018, respectively. Net foreign currency gain (loss) related to these derivative instruments were as follows (in thousands):
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Foreign currency gain (loss), net
$
297

 
$
(74
)
 
$
667

 
$
140

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 February 28, 2019, the maximum number of shares that may yet be purchased under the programs is 7,560,566 shares. There were no share repurchases in the three and six months ended February 28, 2019.
The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
2,753

 
$
(18,221
)
 
$
(14,699
)
 
$
(12,995
)
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
61,243

 
60,318

 
61,137

 
60,095

Net effect of dilutive securities - stock based compensation plans
364

 

 

 

Weighted average common shares outstanding - diluted
61,607

 
60,318

 
61,137

 
60,095

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.04

 
$
(0.30
)
 
$
(0.24
)
 
$
(0.22
)
Diluted earnings (loss) per share
$
0.04

 
$
(0.30
)
 
$
(0.24
)
 
$
(0.22
)
 
 
 
 
 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings (loss) per share calculation) (1)
1,503

 
1,829

 
2,986

 
1,981

(1) As a result of the impairment & divestiture and restructuring charges for the three month period ended February 28, 2018 and the six month periods ended February 28, 2019 and 2018, which caused net losses for these periods, shares from stock based compensation plans are excluded from the calculation of diluted loss per share, as the result would be anti-dilutive.

16


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. Comparative earnings (loss) before income taxes, income tax expense and effective income tax rates are as follows (amounts in thousands):
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Earnings (loss) before income taxes
$
8,545

 
$
1,618

 
$
(8,980
)
 
$
8,448

Income tax expense
5,792

 
19,839

 
5,719

 
21,443

Effective income tax rate
67.8
%
 
1,226.1
%
 
(63.7
)%
 
253.8
%
The Company’s income tax expense and effective tax rate for the three and six months ended February 28, 2019 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. New provisions under the Act are effective for the Company for fiscal 2019 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 U.S. tax on dividends received from certain foreign subsidiaries.
During the second quarter, final transition tax regulations were issued, which resulted in an adjusted transition tax liability of $3.0 million. The liability resulting from the transition tax will be fully offset by available foreign tax credits and will not result in future cash payments.
The comparability of earnings (loss) before income taxes, income tax expense and the related effective income tax rates are impacted by the Act as described above, along with impairment & divestiture charges. Results included $6.9 million and $43.3 million ($6.7 million and $40.5 million after tax, respectively) of impairment & divestiture charges for the three and six months ended February 28, 2019 and $3.0 million ($12.4 million after tax) impairment & divestiture charges for the three and six months ended February 28, 2018. Excluding the impairment & divestiture charges, the effective tax rate for the three and six months ended February 28, 2019 was 38.8% and 24.8%, respectively, as compared to 226.8% and 105.3% for the three and six months ended February 28, 2018. The income tax benefit without impairment & divestiture charges for the six months ended February 28, 2019 is significantly impacted by a $2.6 million benefit related to the Act, as compared to the six months ended February 28, 2018 which includes $1.5 million of tax expense related to the shortfall of tax benefits on deductible equity compensation and the expiration of unexercised stock options and $7.9 million of tax expense related to the Act. Additionally, 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. The Company's earnings (loss) before income taxes include approximately 70% and 75% of earnings from foreign jurisdictions for the estimated full-year fiscal 2019 and 2018, respectively. This foreign income tax rate differential had a minimal impact to the effective income tax rate as a result of the new U.S. statutory rate of 21% for the six months ended February 28, 2019; however, for the six months ended February 28, 2018, the foreign income tax rate differential had the effect of reducing the effective income tax rate from the 25.7% U.S. statutory tax rate by 5.2%.

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 (divested December 31, 2018) and other vertical markets. All of the aforementioned markets are supported through our various segment product lines outlined below.

17


The following tables summarize financial information by reportable segment and product line (in thousands):    
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2019
 
2018
 
2019
 
2018
Net Sales by Reportable Product Line & Segment
 
 
 
 
 
 
 
Industrial Tools & Services
 
 
 
 
 
 
 
Product
$
105,584

 
$
105,302

 
$
208,352

 
$
206,422

Service & Rental
43,937

 
31,685

 
89,824

 
72,556

 
149,521

 
136,987

 
298,176

 
278,978

Engineered Components & Systems
 
 
 
 
 
 
 
On-Highway
55,013

 
59,297

 
115,604

 
124,179

Agriculture, Off-Highway and Other
52,448

 
50,795

 
106,332

 
102,111

Rope & Cable Solutions
11,386

 
17,101

 
27,552

 
33,488

Concrete Tensioning
3,539

 
10,983

 
16,774

 
22,617

Off Shore Mooring

 
2

 

 
2,747

 
122,386

 
138,178

 
266,262

 
285,142

 
$
271,907

 
$
275,165

 
$
564,438

 
$
564,120

 
 
 
 
 
 
 
 
Operating Profit (Loss)
 
 
 
 
 
 
 
Industrial Tools & Services
$
26,546

 
$
18,963

 
$
52,920

 
$
39,800

Engineered Components & Systems (1)
(1,412
)
 
(4,448
)
 
(29,704
)
 
(413
)
General Corporate
(8,780
)
 
(4,711
)
 
(16,180
)
 
(14,910
)
 
$
16,354

 
$
9,804

 
$
7,036

 
$
24,477

(1) Engineered Components & Systems segment operating losses include impairment & divestiture charges of $6.9 million and $3.0 million for the three months ended February 28, 2019 and 2018, respectively. For the six months ended February 28, 2019 and 2018, impairment & divestiture charges were $43.3 million and $3.0 million, respectively.
 
February 28, 2019
 
August 31, 2018
Assets:
 
 
 
Industrial Tools & Services
$
622,346

 
$
589,932

Engineered Components & Systems
618,854

 
657,370

General Corporate
161,857

 
234,036

 
$
1,403,057

 
$
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.

18



Note 14. Commitments and Contingencies
The Company had outstanding letters of credit of $16.8 million and $23.6 million at February 28, 2019 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 February 28, 2019 was $10.0 million using a weighted average discount rate of 3.01%.
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 disclosures 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 February 28, 2019. 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.



19


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)
 
Three Months Ended February 28, 2019
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
41,091

 
$
80,230

 
$
150,586

 
$

 
$
271,907

Cost of products sold
9,979

 
59,701

 
104,741

 

 
174,421

Gross profit
31,112

 
20,529

 
45,845

 

 
97,486

Selling, administrative and engineering expenses
22,614

 
16,079

 
32,052

 

 
70,745

Amortization of intangible assets
318

 
1,867

 
1,256

 

 
3,441

Restructuring charges

 

 
60

 

 
60

Impairment & divestiture (income) charges
(904
)
 
3,187

 
4,603

 

 
6,886

Operating profit (loss)
9,084

 
(604
)
 
7,874

 

 
16,354

Financing costs (income), net
7,275

 

 
(122
)
 

 
7,153

Intercompany (income) expense, net
(6,117
)
 
8,866

 
(2,749
)
 

 

Intercompany dividends
(246,248
)
 

 

 
246,248

 

Other (income) expense, net
(166
)
 
1

 
821

 

 
656

Earnings (loss) before income tax expense (benefit)
254,340

 
(9,471
)
 
9,924

 
(246,248
)
 
8,545

Income tax expense (benefit)
420

 
(1,348
)
 
6,720

 

 
5,792

Net earnings (loss) before equity in (loss) earnings of subsidiaries
253,920

 
(8,123
)
 
3,204

 
(246,248
)
 
2,753

Equity in (loss) earnings of subsidiaries
(251,167
)
 
4,086

 
1,372

 
245,709

 

Net earnings (loss)
$
2,753

 
$
(4,037
)
 
$
4,576

 
$
(539
)
 
$
2,753

Comprehensive income (loss)
$
45,190

 
$
(3,966
)
 
$
46,755

 
$
(42,789
)
 
$
45,190



20



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)
 
Three Months Ended February 28, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
36,219

 
$
83,072

 
$
155,874

 
$

 
$
275,165

Cost of products sold
5,848

 
63,979

 
115,642

 

 
185,469

Gross profit
30,371

 
19,093

 
40,232

 

 
89,696

Selling, administrative and engineering expenses
17,975

 
17,232

 
33,080

 

 
68,287

Amortization of intangible assets
318

 
2,861

 
1,989

 

 
5,168

Restructuring charges
194

 
909

 
2,347

 

 
3,450

Impairment & divestiture charges (income)
4,217

 

 
(1,230
)
 

 
2,987

Operating profit (loss)
7,667

 
(1,909
)
 
4,046

 

 
9,804

Financing costs (income), net
7,777

 
22

 
(195
)
 

 
7,604

Intercompany (income) expense, net
(5,042
)
 
5,419

 
(377
)
 

 

Other expense, net
305

 
49

 
228

 

 
582

Earnings (loss) before income tax expense (benefit)
4,627

 
(7,399
)
 
4,390

 

 
1,618

Income tax expense (benefit)
10,612

 
(2,234
)
 
11,461

 

 
19,839

Net loss before equity in loss of subsidiaries
(5,985
)
 
(5,165
)
 
(7,071
)
 

 
(18,221
)
Equity in loss of subsidiaries
(12,236
)
 
(9,454
)
 
(1,459
)
 
23,149

 

Net loss
$
(18,221
)
 
$
(14,619
)
 
$
(8,530
)
 
$
23,149

 
$
(18,221
)
Comprehensive income (loss)
$
62,788

 
$
(14,619
)
 
$
74,820

 
$
(60,201
)
 
$
62,788



21


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)

 
Six Months Ended February 28, 2019
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
81,381

 
$
176,052

 
$
307,005

 
$

 
$
564,438

Cost of products sold
19,860

 
130,297

 
211,787

 

 
361,944

Gross profit
61,521

 
45,755

 
95,218

 

 
202,494

Selling, administrative and engineering expenses
43,579

 
34,393

 
65,964

 

 
143,936

Amortization of intangible assets
637

 
4,559

 
2,524

 

 
7,720

Restructuring (income) charges

 
(93
)
 
556

 

 
463

Impairment & divestiture (income) charges
(904
)
 
13,407

 
30,836

 

 
43,339

Operating profit (loss)
18,209

 
(6,511
)
 
(4,662
)
 

 
7,036

Financing costs (income), net
14,826

 

 
(378
)
 

 
14,448

Intercompany (income) expense, net
(10,170
)
 
15,357

 
(5,187
)
 

 

Intercompany dividends
(246,248
)
 

 

 
246,248

 

Other (income) expense, net
(381
)
 
8

 
1,941

 

 
1,568

Earnings (loss) before income tax (benefit) expense
260,182

 
(21,876
)
 
(1,038
)
 
(246,248
)
 
(8,980
)
Income tax (benefit) expense
(2,287
)
 
(1,450
)
 
9,456

 

 
5,719

Net earnings (loss) before equity in (loss) earnings of subsidiaries
262,469

 
(20,426
)
 
(10,494
)
 
(246,248
)
 
(14,699
)
Equity in (loss) earnings of subsidiaries
(277,168
)
 
(9,046
)
 
2,627

 
283,587

 

Net loss
$
(14,699
)
 
$
(29,472
)
 
$
(7,867
)
 
$
37,339

 
$
(14,699
)
Comprehensive income (loss)
$
19,794

 
$
(29,400
)
 
$
26,636

 
$
2,764

 
$
19,794



22


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)

 
Six Months Ended February 28, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
71,929

 
$
170,906

 
$
321,285

 
$

 
$
564,120

Cost of products sold
12,811

 
128,553

 
232,149

 

 
373,513

Gross profit
59,118

 
42,353

 
89,136

 

 
190,607

Selling, administrative and engineering expenses
37,690

 
35,680

 
69,395

 

 
142,765

Amortization of intangible assets
636

 
5,722

 
3,941

 

 
10,299

Restructuring charges
5,550

 
1,078

 
3,451

 


 
10,079

Impairment & divestiture charges (income)
4,217

 

 
(1,230
)
 

 
2,987

Operating profit (loss)
11,025

 
(127
)
 
13,579

 

 
24,477

Financing costs (income), net
15,400

 
43

 
(325
)
 

 
15,118

Intercompany (income) expense, net
(9,919
)
 
10,903

 
(984
)
 

 

Other expense, net
255

 
94

 
562

 

 
911

Earnings (loss) before income tax expense (benefit)
5,289

 
(11,167
)
 
14,326

 

 
8,448

Income tax expense (benefit)
10,327

 
(1,797
)
 
12,913

 

 
21,443

Net (loss) earnings before equity in loss of subsidiaries
(5,038
)
 
(9,370
)
 
1,413

 

 
(12,995
)
Equity in loss of subsidiaries
(7,957
)
 
(661
)
 
(1,505
)
 
10,123

 

Net loss
$
(12,995
)
 
$
(10,031
)
 
$
(92
)
 
$
10,123

 
$
(12,995
)
Comprehensive income (loss)
$
71,039

 
$
(10,031
)
 
$
86,386

 
$
(76,355
)
 
$
71,039





23


CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
February 28, 2019
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,426

 
$

 
$
160,962

 
$

 
$
170,388

Accounts receivable, net
22,057

 
44,345

 
143,772

 

 
210,174

Inventories, net
28,088