Company Quick10K Filing
Quick10K
Actuant
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.56 61 $1,510
10-Q 2019-05-31 Quarter: 2019-05-31
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 2019-07-30 Officers, Other Events, Exhibits
8-K 2019-07-30 Other Events
8-K 2019-07-18 Regulation FD
8-K 2019-07-17 Officers, Exhibits
8-K 2019-07-08 Enter Agreement, Impairments, Regulation FD, Exhibits
8-K 2019-06-26 Earnings, Exhibits
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 Shareholder Vote
8-K 2019-01-22 Exit Costs
8-K 2019-01-22 Shareholder Vote
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
TTEK Tetra Tech 3,700
AMCX AMC Networks 3,160
KRNY Kearny Financial 1,270
MTL Mechel Pao 500
NK Nantkwest 112
GULF Crimson Exploration 21
MCOA Marijuana Co of America 0
REN Resolute Energy 0
ALQA Alliqua Biomedical 0
COBZ Cobiz Financial 0
ATU 2019-05-31
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. Earnings per Share and Shareholders' Equity
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-10.2 atu-2019531exhibit102.htm
EX-31.1 atu-2019531exhibit311.htm
EX-31.2 atu-2019531exhibit312.htm
EX-32.1 atu-2019531exhibit321.htm
EX-32.2 atu-2019531exhibit322.htm

Actuant Earnings 2019-05-31

ATU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 atu-20190531x10q.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 May 31, 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)
  ————————————
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $0.20 par value per share
ATU
NYSE
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 June 24, 2019 was 61,457,831.
 
 
 
 
 



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, such as the industrial, oil & gas, energy and on and off highway 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 EARNINGS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
295,266

 
$
317,096

 
$
859,704

 
$
881,216

Cost of products sold
183,365

 
200,587

 
545,309

 
574,100

Gross profit
111,901

 
116,509

 
314,395

 
307,116

Selling, administrative and engineering expenses
69,612

 
77,463

 
213,548

 
220,228

Amortization of intangible assets
4,411

 
5,184

 
12,131

 
15,483

Restructuring charges
1,115

 
1,170

 
1,578

 
11,249

Impairment & divestiture charges (benefit)
(10,597
)
 

 
32,741

 
2,987

Operating profit
47,360

 
32,692

 
54,397

 
57,169

Financing costs, net
7,255

 
7,756

 
21,703

 
22,874

Other expense (income), net
378

 
(81
)
 
1,946

 
830

Earnings before income tax expense (benefit)
39,727

 
25,017

 
30,748

 
33,465

Income tax expense (benefit)
7,309

 
(3,995
)
 
13,029

 
17,448

Net earnings
$
32,418

 
$
29,012

 
$
17,719

 
$
16,017

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic
$
0.53

 
$
0.48

 
$
0.29

 
$
0.27

Diluted
$
0.52

 
$
0.48

 
$
0.29

 
$
0.26

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
61,422

 
60,683

 
61,232

 
60,291

Diluted
61,840

 
61,064

 
61,701

 
60,850

 
 
 
 
 
 
 
 
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 May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Net earnings
$
32,418

 
$
29,012

 
$
17,719

 
$
16,017

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(14,000
)
 
(21,295
)
 
(14,744
)
 
(5,160
)
Foreign currency translation due to divested business

 

 
34,910

 
67,645

Pension and other postretirement benefit plans
200

 
342

 
527

 
596

Total other comprehensive (loss) income, net of tax
(13,800
)
 
(20,953
)
 
20,693

 
63,081

Comprehensive income
$
18,618

 
$
8,059

 
$
38,412

 
$
79,098

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)
 
 
May 31, 2019
 
August 31, 2018
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
201,334

 
$
250,490

Accounts receivable, net
 
202,808

 
187,749

Inventories, net
 
167,592

 
156,356

Assets held for sale
 

 
23,573

Other current assets
 
44,475

 
42,732

Total current assets
 
616,209

 
660,900

Property, plant and equipment, net
 
89,973

 
90,220

Goodwill
 
491,499

 
512,412

Other intangibles, net
 
158,182

 
181,037

Other long-term assets
 
37,293

 
36,769

Total assets
 
$
1,393,156

 
$
1,481,338

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
126,145

 
$
130,838

Accrued compensation and benefits
 
39,929

 
54,508

Current maturities of debt
 
6,250

 
30,000

Income taxes payable
 
8,762

 
4,091

Liabilities held for sale
 

 
44,225

Other current liabilities
 
52,477

 
67,299

Total current liabilities
 
233,563

 
330,961

Long-term debt, net
 
468,984

 
502,695

Deferred income taxes
 
21,101

 
21,933

Pension and postretirement benefit liabilities
 
14,275

 
14,869

Other long-term liabilities
 
47,809

 
52,168

Total liabilities
 
785,732

 
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 81,879,004 and 81,423,584 shares, respectively
 
16,374

 
16,285

Additional paid-in capital
 
177,584

 
167,448

Treasury stock, at cost, 20,439,434 shares
 
(617,731
)
 
(617,731
)
Retained earnings
 
1,184,749

 
1,166,955

Accumulated other comprehensive loss
 
(153,552
)
 
(174,245
)
Stock held in trust
 
(3,075
)
 
(2,450
)
Deferred compensation liability
 
3,075

 
2,450

Total shareholders’ equity
 
607,424

 
558,712

Total liabilities and shareholders’ equity
 
$
1,393,156

 
$
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)
 
Nine Months Ended May 31,
 
2019
 
2018
Operating Activities
 
 
 
Net earnings
$
17,719

 
$
16,017

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Impairment & divestiture charges, net of tax effect
29,362

 
12,385

Depreciation and amortization
25,604

 
30,800

Stock-based compensation expense
10,253

 
11,951

Benefit for deferred income taxes
(2,129
)
 
(10,579
)
Amortization of debt issuance costs
884

 
1,239

Other non-cash adjustments
262

 
347

Changes in components of working capital and other, excluding acquisitions and divestitures
 
 
 
Accounts receivable
(25,043
)
 
(21,456
)
Inventories
(22,662
)
 
(22,590
)
Trade accounts payable
(1,367
)
 
5,162

Prepaid expenses and other assets
(4,029
)
 
(13,692
)
Income tax accounts
4,412

 
25,989

Accrued compensation and benefits
(13,817
)
 
(2,181
)
Other accrued liabilities
(18,258
)
 
2,197

Cash provided by operating activities
1,191

 
35,589

Investing Activities
 
 
 
Capital expenditures
(23,719
)
 
(18,716
)
Proceeds from sale of property, plant and equipment
1,349

 
148

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

 
(22,326
)
Cash provided by (used in) investing activities
13,789

 
(59,832
)
Financing Activities
 
 
 
Principal repayments on term loan
(57,500
)
 
(22,500
)
Payment for redemption of term loan
(200,000
)
 

Proceeds from issuance of term loan
200,000

 

Payment of debt issuance costs
(2,125
)
 

Stock option exercises and other
1,352

 
10,435

Taxes paid related to the net share settlement of equity awards
(1,811
)
 
(1,279
)
Cash dividend
(2,439
)
 
(2,390
)
Cash used in financing activities
(62,523
)
 
(15,734
)
Effect of exchange rate changes on cash
(1,613
)
 
(104
)
Net decrease in cash and cash equivalents
(49,156
)
 
(40,081
)
Cash and cash equivalents - beginning of period
250,490

 
229,571

Cash and cash equivalents - end of period
$
201,334

 
$
189,490

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 nine months ended May 31, 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 beginning September 1, 2019 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 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. Currently, the Company's implementation team is analyzing and uploading lease data into the selected third party lease software solution and performing configuration testing within the test environment. The software will be a central repository for active leases and provide the necessary information in order to comply with the standard. The team is also re-assessing and amending current processes and controls in order to comply with the standard, and finalizing our selection of practical expedients associated with the standard. In line with its implementation plan, the Company expects all configuration and testing of the lease software and the majority of the lease data entry to be finalized shortly allowing for a "go-live" of the software in July 2019.

7


In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for 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):
 
 
May 31, 2019
 
August 31, 2018
Foreign currency translation adjustments
 
$
138,331

 
$
158,497

Pension and other postretirement benefit plans, net of tax
 
15,221

 
15,748

Accumulated other comprehensive loss
 
$
153,552

 
$
174,245

Property Plant and Equipment
The following is a summary of the Company's components of property, plant and equipment (in thousands):
 
 
May 31, 2019
 
August 31, 2018
Land, buildings and improvements
 
$
42,772

 
$
47,468

Machinery and equipment
 
235,993

 
229,445

Gross property, plant and equipment
 
278,765

 
276,913

Less: Accumulated depreciation
 
(188,792
)
 
(186,693
)
Property, plant and equipment, net
 
$
89,973

 
$
90,220

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 Earnings 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). 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.

8


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.
The following table presents information regarding our revenue disaggregation by reportable segment and product line (in thousands):
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
Net Sales by Reportable Product Line & Segment:
 
2019
 
2019
Industrial Tools & Services
 
 
 
 
Product
 
$
115,067

 
$
323,420

Service & Rental
 
51,665

 
141,488

 
 
166,732

 
464,908

 
 
 
 
 
Engineered Components & Systems (1)
 
 
 
 
On-Highway
 
$
59,378

 
$
174,982

Agriculture, Off-Highway and Other
 
57,793

 
164,125

Rope & Cable Solutions
 
11,363

 
38,915

Concrete Tensioning
 

 
16,774

 
 
128,534

 
394,796

Total
 
$
295,266

 
$
859,704

(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 May 31,
 
Nine Months Ended May 31,
 
 
2019
 
2019
Revenues recognized at point in time
 
$
234,346

 
$
696,347

Revenues recognized over time
 
60,920

 
163,357

Total
 
$
295,266

 
$
859,704

Contract Balances
The Company's contract assets and liabilities are as follows (in thousands):
 
 
May 31, 2019
 
August 31, 2018
Receivables, which are included in accounts receivable, net
 
$
202,808

 
$
187,749

Contract assets, which are included in other current assets
 
6,134

 
6,367

Contract liabilities, which are included in other current liabilities
 
8,227

 
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.

9


Contract Assets: Contract assets 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 has contract assets on contracts that are generally long-term and have revenues that are recognized over time.
Contract Liabilities: As of May 31, 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 relate to long-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that $8.1 million will be recognized from satisfying those performance obligations within the next twelve months with an immaterial amount recognized in periods 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 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. Liabilities for severance will generally be paid within twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms. During the three months ended May 31, 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. Total restructuring charges associated with this new restructuring plan were $1.1 million in the three months ended May 31, 2019, with no additional charges associated with the previously announced restructuring initiatives. Total restructuring charges associated with previously announced restructuring initiatives were $1.2 million in the three months ended May 31, 2018. Restructuring charges totaled $1.6 million and $12.1 million for the nine months ended May 31, 2019 and 2018, respectively, with approximately $0.9 million of the restructuring charges recognized in the nine months ended May 31, 2018 being reported in the Condensed Consolidated Statements of Earnings in "Cost of products sold," with the balance of the charges reported in "Restructuring charges."
The following rollforwards summarize restructuring reserve activity by segment (in thousands):
 
 
Nine Months Ended May 31, 2019
 
 
Industrial Tools & Services
 
Engineered Components & Systems
 
Corporate
 
Total
Balance as of August 31, 2018
 
$
1,687

 
$
1,592

 
$
415

 
$
3,694

Restructuring charges
 
1,136

 
442

 

 
1,578

Cash payments
 
(1,379
)
 
(1,140
)
 
(46
)
 
(2,565
)
Other non-cash uses/reclasses of reserve
 
(7
)
 
368

 
(369
)
 
(8
)
Impact of changes in foreign currency rates
 
(28
)
 
(58
)
 

 
(86
)
Balance as of May 31, 2019
 
$
1,409

 
$
1,204

 
$

 
$
2,613


10


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

 
$
4,108

 
$
30

 
$
5,637

Restructuring charges
 
3,480

 
3,783

 
4,836

 
12,099

Cash payments
 
(2,578
)
 
(3,799
)
 
(2,160
)
 
(8,537
)
Other non-cash uses of reserve
 
(616
)
 
(1,382
)
 
(2,093
)
(1) 
(4,091
)
Impact of changes in foreign currency rates
 
(79
)
 
(95
)
 

 
(174
)
Balance as of May 31, 2018
 
$
1,706

 
$
2,615

 
$
613

 
$
4,934

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

In June 2019, the Company announced a new restructuring plan focused on reducing costs and driving efficiencies within the EC&S segment. We expect to incur $2.0 million of costs in the fourth quarter associated with these actions and achieve approximately $3.0 million of annual savings.

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 IT&S 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 IT&S segment tuck-in acquisition is a provider of industrial and energy maintenance tools, expanding our pipe and flange alignment offerings. The final 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 $0.3 million and $0.7 million in the three and nine months ended May 31, 2018, respectively, (included in "Selling, administrative and engineering expenses" in the Condensed Consolidated Statements of Earnings) related to these acquisitions.
The acquired businesses generated combined net sales of $3.4 million and $10.3 million for the three and nine months ended May 31, 2019, respectively. Combined net sales for the three and nine months ended May 31, 2018 were $3.1 million and $5.1 million, respectively. Because the net sales and earnings impact of both acquired businesses are not material to the three and nine months ended May 31, 2019 and 2018, the Company has not included the pro forma operating result disclosures otherwise required for acquisitions.

11


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 following is a summary of the assets and liabilities held for sale for the Cortland Fibron business (in thousands):
    
 
 
August 31, 2018
Accounts receivable, net
 
$
2,924

Inventories, net
 
2,597

Other current assets
 
3,267

Property, plant & equipment, net
 
2,186

Goodwill and other intangible assets, net
 
12,464

Other long-term assets
 
135

Assets held for sale
 
$
23,573

 
 
 
Trade accounts payable
 
$
3,915

Accrued compensation and benefits
 
1,414

Reserve for cumulative translation adjustment
 
35,346

Other current liabilities
 
1,269

Deferred income taxes
 
2,281

Other long-term liabilities
 

Liabilities held for sale
 
$
44,225

During the first quarter of fiscal 2019, the Company determined that the Precision Hayes business (EC&S segment) was a non-core asset, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell this business. 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, retention bonuses and other adjustments which were recognized in the second quarter of fiscal 2019.
The historical results of the Precision Hayes and Cortland Fibron businesses are not material to the condensed consolidated financial results of the Company and are included in continuing operations. The Precision Hayes and Cortland Fibron businesses had combined net sales of $21.7 million in the three months ended May 31, 2018 and $24.2 million and $55.1 million in the nine months ended May 31, 2019 and 2018, respectively. We could incur immaterial additional divestiture charges relative to the final settlement of net asset disposal groups for the Precision Hayes divestiture.
In addition to the above, in the first quarter of fiscal 2019 we identified the Cortland U.S business (EC&S segment as a non-core asset and concluded it met the criteria to be recorded as held for sale. We engaged a third party mergers and acquisitions adviser to assist with valuation and marketing efforts in order to identify potential buyers of the Cortland U.S. business. However, after a robust marketing campaign to divest the business, the Company has decided to retain the business and continue to execute its strategy to provide industrial rope to a wider variety of customers through the Company's other channels and to invest and grow in Cortland's medical component business, thereby maximizing shareholder value. Therefore, as of May 31, 2019, we no longer consider the Cortland U.S. business to meet the criteria to be classified as held for sale. All depreciation and amortization that was not recorded while the business was classified as held for sale was subsequently recorded in the three months ended May 31, 2019, and the assets and liabilities have now been restored to their original condensed consolidated balance sheet classifications at their historical net book values as of May 31, 2019. As a result of the restoration of assets and liabilities to their net book value, we recorded a benefit of $13.0 million in the three months ended May 31, 2019 related to the restoration of the cumulative effect of foreign currency rate changes since acquisition that had been recorded as impairment & divestiture charges in previous periods in fiscal 2019.
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 (exclusive of the Cortland U.S. businesses). The divestiture process continues, but the Company concluded that the remaining EC&S segment did not meet the criteria to be classified as held for sale as of May 31, 2019. The Company performed various impairment assessments as of May 31, 2019 contemplating the current status to divest the remaining EC&S segment and also considering results of operations and estimated future cash flows of the business as held for future use. Based on those assessments, no impairment charges were recorded in the three months ended May 31, 2019. Material non-cash impairment charges reflecting a write down of the remaining EC&S segment net assets to their net realizable value could be recorded in future periods. 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.
In the three months ended May 31, 2019, the Company recognized an impairment & divestiture benefit of $10.6 million, comprised of: (i) a $13.0 million benefit related to the Cortland U.S. business representing the restoration of the cumulative effect of

12


foreign currency rate changes since acquisition that had been recorded as impairment & divestiture charges in previous periods in fiscal 2019 and (ii) $2.4 million of other divestiture charges (of which $0.8 million related to retention bonuses) related to the divestiture of the remaining EC&S segment. These charges generated an income tax benefit of $0.6 million in the three months ended May 31, 2019. For the nine months ended May 31, 2019, the Company has recognized $32.7 million of impairment & divestiture charges, comprised of: (i) a $24.6 million charge representing the excess of the net book value of assets held for sale to the proceeds; (ii) a non-cash impairment charge of $0.6 million related to the recognition in earnings of the cumulative effect of foreign currency rate changes since acquisition and (iii) $7.5 million of other divestiture charges. These charges generated an income tax benefit of $3.4 million for the nine months ended May 31, 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 historical results of the Viking business (which had net sales of $2.7 million in the nine months ended May 31, 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.
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 nine months ended May 31, 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 charges

 
(13,678
)
 
(13,678
)
Impact of changes in foreign currency rates
(3,239
)
 
(4,249
)
 
(7,488
)
Balance as of May 31, 2019
$
245,719

 
$
245,780

 
$
491,499

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
May 31, 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
 
$
217,539

 
$
149,742

 
$
67,797

 
$
230,601

 
$
147,451

 
$
83,150

Patents
11
 
25,097

 
23,371

 
1,726

 
30,355

 
25,327

 
5,028

Trademarks and tradenames
14
 
7,254

 
5,284

 
1,970

 
20,823

 
15,347

 
5,476

Other intangibles
3
 
5,571

 
5,571

 

 
5,946

 
5,816

 
130

Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tradenames
N/A
 
86,689

 

 
86,689

 
87,253

 

 
87,253

 
 
 
$
342,150

 
$
183,968

 
$
158,182

 
$
374,978

 
$
193,941

 
$
181,037

The Company estimates that amortization expense will be $3.8 million for the remaining three months of fiscal 2019. Amortization expense for future years is estimated to be: $14.9 million in fiscal 2020, $14.1 million in fiscal 2021, $12.5 million in fiscal 2022, $9.6 million in fiscal 2023, $6.9 million in fiscal 2024 and $9.6 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 Charges

13


During the nine month period ended May 31, 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 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 $24.6 million of impairment charges for the nine months ended May 31, 2019. The Company did not record any impairment charges associated with goodwill, intangible assets, and long-lived assets during the three month period ended May 31, 2019. See Note 5, “Divestiture Activities,” for further discussion of impairment & divestiture charges.
A summary of impairment charges by reporting unit for the nine months ended May 31, 2019 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 the Cortland U.S. business 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.
Note 7. Product Warranty Costs
The Company generally offers its customers an assurance 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 nine months ended May 31, 2019 and 2018, respectively (in thousands):
 
Nine Months Ended May 31,
 
2019
 
2018
Beginning balance
$
4,417

 
$
6,616

Provision for warranties
3,427

 
4,213

Warranty payments and costs incurred
(3,630
)
 
(5,604
)
Warranty activity for divested businesses
(34
)
 

Impact of changes in foreign currency rates
(54
)

95

Ending balance
$
4,126

 
$
5,320


14


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

 
$

Term Loan

 
247,500

Total Previous Senior Credit Facility

 
247,500

New Senior Credit Facility
 
 
 
Revolver

 

Term Loan
190,000

 

Total New Senior Credit Facility
190,000

 

5.625% Senior Notes
287,559

 
287,559

Total Senior Indebtedness
477,559

 
535,059

Less: Current maturities of long-term debt
(6,250
)
 
(30,000
)
Debt issuance costs
(2,325
)
 
(2,364
)
Total long-term debt, less current maturities
$
468,984

 
$
502,695

Senior Credit Facility
Prior to the refinancing of the Company's Senior Credit Facility on March 29, 2019, the Company’s previous Senior Credit Facility matured on May 8, 2020 and provided a $300 million revolver, a $300 million term loan and a $450 million expansion option, subject to certain conditions. Borrowings were subject to a pricing grid, which could 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. In addition, a non-use fee was payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.35% per annum.
On March 29, 2019, the Company refinanced its Senior 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 matures in March 2024, includes a reduction in pricing, bears an initial interest rate of LIBOR + 1.62%, and expands the revolving credit facility from $300 million to $400 million. Quarterly term loan principal payments of $1.25 million begin on August 31, 2019, escalating to $5.0 million by May 31, 2022, with the remaining principal due at maturity. During the three months ended May 31, 2019 and in line with its capital allocation strategy, the Company electively prepaid $10 million against the remaining principal balance of the term loan.
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. The two financial covenants included are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. For each covenant, certain transactions lead to adjustments to the underlying ratio, including a reduction of the minimum interest coverage ratio from 3.5 to 3.0 for any fiscal quarter ending within twelve months after the sale of the remaining EC&S business and an increase to the leverage ratio from 3.75 to 4.25 during the four fiscal quarters after a significant acquisition.
The Company was in compliance with all financial covenants at May 31, 2019. 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.
As of May 31, 2019, the variable borrowing rate on the outstanding term loan balance was 4.07% and the unused credit line and amount available for borrowing under the revolver was $398.8 million.
Senior Notes
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 May 31, 2019.

15


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 unadjusted 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 May 31, 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 May 31, 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 $290.1 million and $293.5 million at May 31, 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.
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 Statements 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 $21.5 million and $17.0 million at May 31, 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 May 31, 2019 and August 31, 2018, respectively. Net foreign currency gain (loss) related to these derivative instruments were as follows (in thousands):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Foreign currency (loss) gain, net
$
(90
)
 
$
524

 
$
577

 
$
664

Note 11. Earnings per Share and Shareholders' Equity
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 May 31, 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 nine months ended May 31, 2019.

16


The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net earnings
$
32,418

 
$
29,012

 
$
17,719

 
$
16,017

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
61,422

 
60,683

 
61,232

 
60,291

Net effect of dilutive securities - stock based compensation plans
418

 
381

 
469

 
559

Weighted average common shares outstanding - diluted
61,840

 
61,064

 
61,701

 
60,850

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.53

 
$
0.48

 
$
0.29

 
$
0.27

Diluted earnings per share
$
0.52

 
$
0.48

 
$
0.29

 
$
0.26

 
 
 
 
 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)
987

 
1,788

 
1,164

 
2,338


17



The following table illustrates the changes in the balances of each component of shareholders' equity for the three months ended May 31, 2019 (in thousands):
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Stock
Held in
Trust
 
Deferred
Compensation
Liability
 
Total
Shareholders’
Equity
 
Issued
Shares
 
Amount
 
Balance at February 28, 2019
81,832

 
$
16,364

 
$
174,418

 
$
(617,731
)
 
$
1,152,331

 
$
(139,752
)
 
$
(2,989
)
 
$
2,989

 
$
585,630

Net earnings

 

 

 

 
32,418

 

 

 

 
32,418

Other comprehensive loss, net of tax

 

 

 

 

 
(13,800
)
 

 

 
(13,800
)
Stock contribution to employee benefit plans and other
5

 
1

 
114

 

 

 

 

 

 
115

Restricted stock awards
28

 
6

 
(6
)
 

 

 

 

 

 

Cash dividend ($0.04 per share)

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 
3,091

 

 

 

 

 

 
3,091

Stock option exercises
10

 
2

 
204

 

 

 

 

 

 
206

Tax effect of stock option exercises and restricted stock vesting

 

 
(322
)
 

 

 

 

 

 
(322
)
Stock issued to, acquired for and distributed from rabbi trust
5

 
1

 
85

 

 

 

 
(86
)
 
86

 
86

Balance at May 31, 2019
81,880

 
$
16,374

 
$
177,584

 
$
(617,731
)
 
$
1,184,749

 
$
(153,552
)
 
$
(3,075
)
 
$
3,075

 
$
607,424


The following table illustrates the changes in the balances of each component of shareholders' equity for the three months ended May 31, 2018 (in thousands):
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Stock
Held in
Trust
 
Deferred
Compensation
Liability
 
Total
Shareholders’
Equity
 
Issued
Shares
 
Amount
 
Balance at February 28, 2018
81,088

 
$
16,218

 
$
155,974

 
$
(617,731
)
 
$
1,178,047

 
$
(143,227
)
 
$
(2,848
)
 
$
2,848

 
$
589,281

Net earnings

 

 

 

 
29,012

 

 

 

 
29,012

Other comprehensive loss, net of tax

 

 

 

 

 
(20,953
)
 
254

 
(254
)
 
(20,953
)
Stock contribution to employee benefit plans and other
5

 
1

 
129

 

 

 

 

 

 
130

Restricted stock awards
43

 
8

 
(8
)
 

 

 

 

 

 

Cash dividend ($0.04 per share)

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 
3,659

 

 

 

 

 

 
3,659

Stock option exercises

 

 

 

 

 

 

 

 

Tax effect of stock option exercises and restricted stock vesting

 

 
(171
)
 

 

 

 

 

 
(171
)
Stock issued to, acquired for and distributed from rabbi trust

 

 
70

 

 

 

 

 

 
70

Balance at May 31, 2018
81,136

 
$
16,227

 
$
159,653

 
$
(617,731
)
 
$
1,207,059

 
$
(164,180
)
 
$
(2,594
)
 
$
2,594

 
$
601,028












18


The following table illustrates the changes in the balances of each component of shareholders' equity for the nine months ended May 31, 2019 (in thousands):
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Stock
Held in
Trust
 
Deferred
Compensation
Liability
 
Total
Shareholders’
Equity
 
Issued
Shares
 
Amount
 
Balance at August 31, 2018
81,424

 
$
16,285

 
$
167,448

 
$
(617,731
)
 
$
1,166,955

 
$
(174,245
)
 
$
(2,450
)
 
$
2,450

 
$
558,712

Net earnings

 

 

 

 
17,719

 

 

 

 
17,719

Other comprehensive income, net of tax

 

 

 

 

 
20,693

 

 

 
20,693

Stock contribution to employee benefit plans and other
15

 
3

 
356

 

 

 

 

 

 
359

Restricted stock awards
366

 
71

 
(71
)
 

 

 

 

 

 

Cash dividend ($0.04 per share)

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 
10,253

 

 

 

 

 

 
10,253

Stock option exercises
45

 
9

 
984

 

 

 

 

 

 
993

Tax effect related to net share settlement of equity awards

 

 
(1,811
)
 

 

 

 

 

 
(1,811
)
Stock issued to, acquired for and distributed from rabbi trust
30

 
6

 
425

 

 

 

 
(625
)
 
625

 
431

Adoption of accounting standard

 

 

 

 
75

 

 

 

 
75

Balance at May 31, 2019
81,880

 
$
16,374

 
$
177,584

 
$
(617,731
)
 
$
1,184,749

 
$
(153,552
)
 
$
(3,075
)
 
$
3,075

 
$
607,424


The following table illustrates the changes in the balances of each component of shareholders' equity for the nine months ended May 31, 2018 (in thousands):
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Stock
Held in
Trust
 
Deferred
Compensation
Liability
 
Total
Shareholders’
Equity
 
Issued
Shares
 
Amount
 
Balance at August 31, 2017
80,200

 
$
16,040

 
$
138,449

 
$
(617,731
)
 
$
1,191,042

 
$
(227,261
)
 
$
(2,696
)
 
$
2,696

 
$
500,539

Net earnings

 

 

 

 
16,017

 

 

 

 
16,017

Other comprehensive income, net of tax

 

 

 

 

 
63,081

 
254

 
(254
)
 
63,081

Stock contribution to employee benefit plans and other
15

 
3

 
393

 

 

 

 

 

 
396

Restricted stock awards
395

 
79

 
(79
)
 

 

 

 

 

 

Cash dividend ($0.04 per share)

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 
11,951

 

 

 

 

 

 
11,951

Stock option exercises
506

 
101

 
9,938

 

 

 

 

 

 
10,039

Tax effect related to net share settlement of equity awards

 

 
(1,279
)
 

 

 

 

 

 
(1,279
)
Stock issued to, acquired for and distributed from rabbi trust
20

 
4

 
280

 

 

 

 
(152
)
 
152

 
284

Adoption of accounting standard

 

 

 

 
 
 

 

 

 

Balance at May 31, 2018
81,136

 
$
16,227

 
$
159,653

 
$
(617,731
)
 
$
1,207,059

 
$
(164,180
)
 
$
(2,594
)
 
$
2,594

 
$
601,028



19


Note 12. Income Taxes
The Company's income tax expense (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 before income taxes, income tax expense (benefit) and effective income tax rates are as follows (in thousands):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Earnings before income taxes
$
39,727

 
$
25,017

 
$
30,748

 
$
33,465

Income tax expense (benefit)
7,309

 
(3,995
)
 
13,029

 
17,448

Effective income tax rate
18.4
%
 
(16.0
)%
 
42.4
%
 
52.1
%
The Company’s income tax expense and effective tax rate for the three and nine months ended May 31, 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 reduces 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.
The comparability of earnings before income taxes, 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 impairment & divestiture (benefit) charges of $(10.6) million and $32.7 million ($(11.2) million and $29.4 million after tax, respectively) for the three and nine months ended May 31, 2019 and impairment & divestiture charges of $3.0 million ($12.4 million after tax) for the nine months ended May 31, 2018. Excluding the impairment & divestiture charges, the effective tax rate for the three and nine months ended May 31, 2019 was 10.9% and 25.8%, respectively. Excluding the impairment & divestiture charges, the effective tax rate for the three and nine months ended May 31, 2018 was (16.0)% and 22.1%, respectively. The income tax benefit without impairment & divestiture charges for the three months ended May 31, 2018 is significantly impacted by $13.0 million of provisional benefits associated with Act recorded in the third quarter which was partially offset with adjustments in the prior quarters of fiscal 2018, due in part, to changes to the Act during the year which results in a rate for the nine months ended May 31, 2019 and 2018 that is comparable. 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 estimated full-year fiscal 2019 and 2018 earnings before income taxes include approximately 70% of earnings from foreign jurisdictions which resulted in an effective tax rate of 3.0% to 4.0% higher than the current U.S. statutory rate of 21%.

Note 13. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems. The IT&S 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 EC&S 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.

20


The following tables summarize financial information by reportable segment and product line (in thousands):    
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2019
 
2018
 
2019
 
2018
Net Sales by Reportable Product Line & Segment
 
 
 
 
 
 
 
Industrial Tools & Services
 
 
 
 
 
 
 
Product
$
115,067

 
$
115,722

 
$
323,420

 
$
322,143

Service & Rental
51,665

 
43,013

 
141,488

 
115,570

 
166,732

 
158,735

 
464,908

 
437,713

Engineered Components & Systems
 
 
 
 
 
 
 
On-Highway
59,378

 
66,556

 
174,982

 
190,735

Agriculture, Off-Highway and Other
57,793

 
58,386

 
164,125

 
160,497

Rope & Cable Solutions
11,363

 
20,436

 
38,915

 
53,924

Concrete Tensioning

 
12,983

 
16,774

 
35,601

Off Shore Mooring

 

 

 
2,746

 
128,534

 
158,361

 
394,796

 
443,503

 
$
295,266

 
$
317,096

 
$
859,704

 
$
881,216

 
 
 
 
 
 
 
 
Operating Profit (Loss)
 
 
 
 
 
 
 
Industrial Tools & Services
$
34,877

 
$
31,658

 
$
87,797

 
$
71,458

Engineered Components & Systems (1)
19,556

 
9,641

 
(10,147
)
 
9,228

General Corporate
(7,073
)
 
(8,607
)
 
(23,253
)
 
(23,517
)
 
$
47,360

 
$
32,692

 
$
54,397