ATU-2014.5.31-10Q

 
 
 
 
 
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, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288 
 ————————————
ACTUANT CORPORATION
(Exact name of registrant as specified in its charter)
 ————————————
Wisconsin
 
39-0168610
(State of incorporation)
 
(I.R.S. Employer Id. No.)
N86 W12500 WESTBROOK CROSSING
MENOMONEE FALLS, WISCONSIN 53051
Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(262) 293-1500
(Registrant’s telephone number, including area code)
  ————————————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x
The number of shares outstanding of the registrant’s Class A Common Stock as of June 30, 2014 was 68,729,699.
 
 
 
 
 


Table of Contents

TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Item 6—Exhibits
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, and capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:
economic uncertainty or a prolonged economic downturn;
the realization of anticipated cost savings from restructuring activities and cost reduction efforts;
market conditions in the truck, automotive, agricultural, industrial, production automation, oil & gas, energy, maintenance, power generation and infrastructure industries;
increased competition in the markets we serve and market acceptance of existing and new products;
our ability to successfully identify and integrate acquisitions and realize anticipated benefits/results from acquired companies;
operating margin risk due to competitive product pricing, operating efficiencies, reduced production levels and material, labor and overhead cost increases;
foreign currency, interest rate and commodity risk;
supply chain and industry trends, including changes in purchasing and other business practices by customers;
regulatory and legal developments including changes to United States taxation rules, health care reform and governmental climate change initiatives;
the potential for a non-cash asset impairment charge, if operating performance at one or more of our businesses were to fall significantly below current levels;

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our level of indebtedness and ability to comply with the financial and other covenants in our debt agreements.
When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries. Our Form 10-K for the fiscal year ended August 31, 2013 contains an expanded description of these and other risks that may affect our business, financial position and results of operations under the section entitled “Risk Factors.”
Actuant Corporation provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.actuant.com, as soon as reasonably practical after such reports are electronically filed with the Securities and Exchange Commission.


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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 May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Net sales
$
378,187

 
$
344,205

 
$
1,045,513

 
$
952,482

Cost of products sold
229,637

 
207,301

 
640,737

 
575,032

Gross profit
148,550

 
136,904

 
404,776

 
377,450

Selling, administrative and engineering expenses
83,498

 
74,323

 
244,655

 
222,521

Amortization of intangible assets
6,272

 
5,539

 
18,713

 
17,542

Operating profit
58,780

 
57,042

 
141,408

 
137,387

Financing costs, net
5,932

 
6,229

 
18,944

 
18,811

Other expense, net
620

 
911

 
3,087

 
1,518

Earnings from continuing operations before income tax expense
52,228

 
49,902

 
119,377

 
117,058

Income tax expense
1,671

 
3,825

 
13,511

 
14,596

Earnings from continuing operations
50,557

 
46,077

 
105,866

 
102,462

Earnings (loss) from discontinued operations, net of income taxes

 
(139,060
)
 
22,120

 
(130,667
)
Net earnings (loss)
$
50,557

 
$
(92,983
)
 
$
127,986

 
$
(28,205
)
 
 
 
 
 
 
 
 
Earnings from continuing operations per share:
 
 
 
 
 
 
 
Basic
$
0.72

 
$
0.63

 
$
1.47

 
$
1.40

Diluted
$
0.70

 
$
0.62

 
$
1.44

 
$
1.38

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.72

 
$
(1.27
)
 
$
1.78

 
$
(0.39
)
Diluted
$
0.70

 
$
(1.24
)
 
$
1.74

 
$
(0.38
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
70,432

 
73,133

 
71,915

 
72,957

Diluted
71,770

 
74,787

 
73,518

 
74,491

 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements


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ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Net earnings (loss)
$
50,557

 
$
(92,983
)
 
$
127,986

 
$
(28,205
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
25

 
(5,570
)
 
21,342

 
(5,426
)
Pension and other postretirement benefit plans
51

 
431

 
151

 
736

Cash flow hedges
96

 
171

 
79

 
(74
)
Total other comprehensive income (loss), net of tax
172

 
(4,968
)
 
21,572

 
(4,764
)
Comprehensive income (loss)
$
50,729

 
$
(97,951
)
 
$
149,558


$
(32,969
)
See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
May 31, 2014
 
August 31, 2013
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
129,625

 
$
103,986

Accounts receivable, net
 
259,289

 
219,075

Inventories, net
 
171,558

 
142,549

Deferred income taxes
 
14,855

 
18,796

Other current assets
 
30,003

 
28,228

Assets of discontinued operations
 

 
272,606

Total current assets
 
605,330

 
785,240

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
52,440

 
52,669

Machinery and equipment
 
285,702

 
305,200

Gross property, plant and equipment
 
338,142

 
357,869

Less: Accumulated depreciation
 
(167,689
)
 
(156,373
)
Property, plant and equipment, net
 
170,453

 
201,496

Goodwill
 
765,988

 
734,952

Other intangibles, net
 
376,249

 
376,692

Other long-term assets
 
29,685

 
20,952

Total assets
 
$
1,947,705

 
$
2,119,332

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
168,997

 
$
154,049

Accrued compensation and benefits
 
50,589

 
43,800

Current maturities of long-term debt
 
3,375

 

Income taxes payable
 
9,403

 
14,014

Other current liabilities
 
62,187

 
56,899

Liabilities of discontinued operations
 

 
53,080

Total current liabilities
 
294,551

 
321,842

Long-term debt, less current maturities
 
386,625

 
515,000

Deferred income taxes
 
94,860

 
115,865

Pension and postretirement benefit liabilities
 
11,285

 
20,698

Other long-term liabilities
 
75,231

 
65,660

Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 78,361,905 and 77,001,144 shares, respectively
 
15,671

 
15,399

Additional paid-in capital
 
87,964

 
49,758

Treasury stock, at cost, 9,179,987 and 3,983,513 shares, respectively
 
(288,067
)
 
(104,915
)
Retained earnings
 
1,316,673

 
1,188,685

Accumulated other comprehensive loss
 
(47,088
)
 
(68,660
)
Stock held in trust
 
(4,111
)
 
(3,124
)
Deferred compensation liability
 
4,111

 
3,124

Total shareholders’ equity
 
1,085,153

 
1,080,267

Total liabilities and shareholders’ equity
 
$
1,947,705

 
$
2,119,332

See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Nine Months Ended May 31,
 
 
2014
 
2013
Operating Activities
 
 
 
 
Net earnings (loss)
 
$
127,986

 
$
(28,205
)
Adjustments to reconcile net earnings to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
46,934

 
42,790

Impairment charge
 

 
170,052

Net gain on disposal of business
 
(26,339
)
 

Deferred income tax benefit
 
(11,545
)
 
(30,549
)
Stock-based compensation expense
 
14,006

 
10,507

Amortization of debt discount and debt issuance costs
 
1,406

 
1,488

Other non-cash adjustments
 
(346
)
 
171

Sources (uses) of cash from changes in components of working capital and other:
 
 
 
 
Accounts receivable
 
(26,271
)
 
(25,033
)
Inventories
 
(25,676
)
 
7,326

Prepaid expenses and other assets
 
(1,342
)
 
(4,613
)
Trade accounts payable
 
1,464

 
(7,529
)
Income taxes payable
 
(25,939
)
 
(5,538
)
Accrued compensation and benefits
 
8,553

 
(12,829
)
Other accrued liabilities
 
(9,705
)
 
(1,768
)
Net cash provided by operating activities
 
73,186

 
116,270

Investing Activities
 
 
 
 
Capital expenditures
 
(33,839
)
 
(18,895
)
Proceeds from sale of property, plant and equipment
 
44,036

 
1,317

Proceeds from sale of business, net of transaction costs
 
252,773

 
4,854

Business acquisitions, net of cash acquired
 
(30,500
)
 
(83
)
Net cash provided by (used in) investing activities
 
232,470

 
(12,807
)
Financing Activities
 
 
 
 
Net repayments on revolver
 
(125,000
)
 

Principal repayments on term loan
 

 
(5,000
)
Purchase of treasury shares
 
(183,152
)
 
(13,670
)
Stock option exercises and related tax benefits
 
29,849

 
18,705

Payment of contingent acquisition consideration
 
(1,585
)
 
(3,552
)
Cash dividend
 
(2,919
)
 
(2,911
)
Net cash used in financing activities
 
(282,807
)
 
(6,428
)
Effect of exchange rate changes on cash
 
2,790

 
(3,801
)
Net increase in cash and cash equivalents
 
25,639

 
93,234

Cash and cash equivalents – beginning of period
 
103,986

 
68,184

Cash and cash equivalents – end of period
 
$
129,625

 
$
161,418

See accompanying Notes to Condensed Consolidated Financial Statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements of Actuant Corporation (“Actuant,” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2013 was derived from the Company’s audited financial statements, but does not include all disclosures required by the United States generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2013 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, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2014. Certain prior year amounts have been reclassified to conform to current year presentation.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which includes amendments that change the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. The guidance is effective for annual periods beginning on or after December 15, 2014. The adoption of this standard is not expected to have a material impact on the financial statements of the Company.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual periods beginning on or after December 15, 2016. The adoption of this standard is not expected to have a material impact on the financial statements of the Company.
Note 2. Acquisitions
Acquisitions result in the recognition of goodwill in the Company’s consolidated financial statements because their purchase price reflects the future earnings and cash flow potential of these companies, as well as the complementary strategic fit and resulting synergies these businesses are expected to bring to existing operations. The Company makes an initial allocation of the purchase price at the date of a business acquisition, based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired business, the Company will refine its estimates of fair value.
Fiscal 2014
The Company acquired Hayes Industries Ltd. ("Hayes") on May 23, 2014 for $30.5 million plus up to $4.0 million of potential contingent consideration. This Industrial segment acquisition is headquartered in Sugarland, Texas and maintains a leading position in the concrete pre- and post-tensioning products market. Its products include patented encapsulated anchor systems, wedges and customized extruded cables. The purchase price allocation resulted in the recognition of $15.0 million of goodwill (which is deductible for tax purposes) and $10.6 million of intangible assets, including $5.0 million of patents, $3.3 million of customer relationships, $2.0 million of tradenames and $0.3 million for non-compete agreements.
Fiscal 2013
The Company acquired Viking SeaTech ("Viking") for $235.4 million on August 27, 2013. This Energy segment acquisition expanded the segment's geographic presence, technologies and services provided to the global offshore oil & gas industry. Headquartered in Aberdeen, Scotland, Viking is a support specialist providing a comprehensive range of equipment and services. Viking serves customers globally with primary markets in the North Sea (U.K. and Norway) and Australia. The majority of Viking's revenue is derived from offshore vessel mooring solutions which include design, rental, installation and inspection. Viking also provides survey and other marine services to offshore operators, drillers and energy asset owners. The purchase price allocation of the

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Viking acquisition resulted in the recognition of $87.7 million of goodwill (which is not deductible for tax purposes) and $65.4 million of intangible assets, including $40.5 million of customer relationships and $24.9 million of tradenames.
The following unaudited pro forma results of operations of the Company for the three and nine months ended May 31, 2014 and 2013, give effect to the Viking and Hayes acquisitions as though the transaction and related financing activities had occurred on September 1, 2012 (in thousands, except per share amounts):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Net sales

 

 

 

As reported
$
378,187

 
$
344,205

 
$
1,045,513

 
$
952,482

Pro forma
384,835

 
368,944

 
1,065,566

 
1,034,779

Earnings from continuing operations

 

 

 

As reported
$
50,557

 
$
46,077

 
$
105,866

 
$
102,462

Pro forma
50,931

 
46,184

 
106,647

 
105,929

Basic earnings per share from continuing operations

 

 

 

As reported
$
0.72

 
$
0.63

 
$
1.47

 
$
1.40

Pro forma
0.72

 
0.63

 
1.48

 
1.45

Diluted earnings per share from continuing operations

 

 

 

As reported
$
0.70

 
$
0.62

 
$
1.44

 
$
1.38

Pro forma
0.71

 
0.62

 
1.45

 
1.42


Note 3. Discontinued Operations and Divestiture Activities
The Electrical segment was primarily involved in the design, manufacture and distribution of a broad range of electrical products to the retail DIY, wholesale, OEM, solar, utility, marine and other harsh environment markets. On December 13, 2013, the Company completed the sale of the Electrical segment, which resulted in a pre-tax gain on disposal of $34.5 million. Remaining transaction costs and income taxes payable on the divestiture gain will result in cash outflows of approximately $6.0 million in future quarters, such that net cash proceeds on the sale will be approximately $225.0 million.

The following table summarizes the results of discontinued operations (in thousands):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Net sales
$

 
$
74,834

 
$
72,139

 
$
214,175

 

 
 
 

 

Operating income (loss) (1)

 
11,903

 
(4,873
)
 
25,084

Impairment charge

 
(170,339
)
 

 
(170,339
)
Gain on disposal

 

 
34,459

 

Income tax expense (benefit)

 
19,376

 
(7,466
)
 
14,588

Income from discontinued operations, net of income taxes
$

 
$
(139,060
)
 
$
22,120

 
$
(130,667
)

(1) The operating loss for the nine months ended May 31, 2014 includes the operating results of the business through the sale date of December 13, 2013, certain divestiture costs and a non-cash charge for the accelerated vesting of equity compensation.

As part of its portfolio management process, the Company divested a minor manpower consulting product line of Viking in the third quarter of fiscal 2014 for cash proceeds of $0.4 million. Subsequent to May 31, 2014, the Company also completed the sale of the recreational vehicle (RV) product line (Engineered Solutions segment) for $35.5 million and expects to recognize a gain on this sale during the fourth quarter of fiscal 2014.



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Note 4. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for the nine months ended May 31, 2014 are as follows (in thousands):
 
 
Industrial
 
Energy
 
Engineered
Solutions
 
Total
Balance as of August 31, 2013
 
$
82,611

 
$
341,903

 
$
310,438

 
$
734,952

Business acquired
 
14,987

 

 

 
14,987

Purchase accounting adjustments
 

 
206

 

 
206

Impact of changes in foreign currency rates
 
1,122

 
13,002

 
1,719

 
15,843

Balance as of May 31, 2014
 
$
98,720

 
$
355,111

 
$
312,157

 
$
765,988


The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
 
May 31, 2014
 
August 31, 2013
 
 
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
 
$
328,496

 
$
113,228

 
$
215,268

 
$
318,143

 
$
95,215

 
$
222,928

Patents
 
11
 
35,878

 
20,688

 
15,190

 
30,564

 
18,747

 
11,817

Trademarks and tradenames
 
18
 
26,304

 
8,492

 
17,812

 
24,088

 
7,356

 
16,732

Non-compete agreements and other
 
4
 
7,435

 
6,772

 
663

 
7,034

 
6,458

 
576

Indefinite lived intangible assets:
 

 

 

 

 

 

 

Tradenames
 
N/A
 
127,316

 

 
127,316

 
124,639

 

 
124,639

 
 
 
 
$
525,429

 
$
149,180

 
$
376,249

 
$
504,468

 
$
127,776

 
$
376,692

Amortization expense recorded on the intangible assets listed above was $6.3 million and $18.7 million for three and nine months ended May 31, 2014, respectively and $5.5 million and $17.5 million for three and nine months ended May 31, 2013, respectively. The Company estimates that amortization expense will be approximately $6.5 million for the remainder of fiscal 2014. Amortization expense for future years is estimated to be as follows: $25.8 million in fiscal 2015, $25.8 million in 2016, $25.1 million in fiscal 2017, $24.3 million in fiscal 2018, $24.1 million in fiscal 2019 and $117.3 million thereafter. These future amortization expense amounts represent estimates, which may change based on future acquisitions and divestitures, changes in foreign currency exchange rates or other factors.
Note 5. Product Warranty Costs
The Company generally offers its customers a warranty on products they purchase, although warranty periods vary by product type and application. The reserve for future warranty claims is based on historical claim rates and current warranty cost experience. The following is a rollforward of the accrued product warranty reserve from continuing operations (in thousands):
 
 
Nine Months Ended May 31,
 
 
2014
 
2013
Beginning balance
 
$
7,413

 
$
5,121

Provision for warranties
 
2,923

 
5,093

Warranty reserve of acquired business
 
50

 

Warranty payments and costs incurred
 
(5,311
)
 
(4,931
)
Impact of changes in foreign currency rates
 
30

 
32

Ending balance
 
$
5,105

 
$
5,315







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Note 6. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
 
May 31,
2014
 
August 31,
2013
Senior Credit Facility
 
 
 
 
Revolver
 
$

 
$
125,000

Term Loan
 
90,000

 
90,000

Total Senior Credit Facility
 
90,000

 
215,000

5.625% Senior Notes
 
300,000

 
300,000

Total Senior Indebtedness
 
390,000

 
515,000

Less: current maturities of long-term debt
 
(3,375
)
 

Total long-term debt, less current maturities
 
$
386,625

 
$
515,000

The Company’s Senior Credit Facility, which matures on July 18, 2018, includes a $600 million revolving credit facility, a $90 million term loan and a $350 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 above LIBOR, depending on the Company’s leverage ratio, ranging from 1.00% to 2.50% in the case of loans bearing interest at LIBOR and from 0.00% to 1.50% in the case of loans bearing interest at the base rate. At May 31, 2014, the borrowing spread on LIBOR based borrowings was 1.25% (aggregating to approximately 1.45%). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.40% per annum. At May 31, 2014, the available and unused credit line under the revolver was $592.8 million. Quarterly principal payments of $1.1 million will begin on the term loan on September 30, 2014, increasing to $2.3 million per quarter beginning on September 30, 2015, with the remaining principal due at maturity. The Senior Credit Facility, which is secured by substantially all of the Company’s domestic personal property assets, also contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.50:1. The Company was in compliance with all financial covenants at May 31, 2014.
On April 16, 2012, the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”). 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.
Note 7. Fair Value Measurement
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The following financial assets, measured at fair value, are included in the condensed consolidated balance sheet (in thousands):
 
 
May 31,
2014
 
August 31,
2013
Level 1 Valuation:
 
 
 
 
Cash equivalents
 
$
109

 
$
1,092

Investments
 
2,061

 
1,793

Level 2 Valuation:
 

 

Foreign currency derivatives
 
$
(234
)
 
$
143

The fair value of the Company’s cash, accounts receivable, accounts payable, short-term borrowings and its variable rate long-term debt approximated book value at both May 31, 2014 and August 31, 2013 due to their short-term nature and the fact that the interest rates approximated market rates. The fair value of the Company’s outstanding $300 million of 5.625% Senior Notes was $315.0 million and $300.8 million May 31, 2014 and August 31, 2013, respectively. The fair value of the Senior Notes was based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.


11

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Note 8. Derivatives
    
All derivatives are recognized in the balance sheet at their estimated fair value. On the date it enters into a derivative contract, the Company designates the derivative as a hedge of a recognized asset or liability ("fair value hedge") or a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"). The Company does not enter into derivatives for speculative purposes. Changes in the value of fair value hedges and non-designated hedges are recorded in earnings along with the gain or loss on the hedged asset or liability, while changes in the value of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows. The fair value of outstanding foreign currency derivatives was a liability of $0.2 million at May 31, 2014 and an asset of $0.1 million at August 31, 2013.

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk the Company has hedged portions of its forecasted inventory purchases that are denominated in non-functional currencies through cash flow hedges. The U.S. dollar equivalent notional value of these foreign currency forward contracts was $2.4 million and $9.7 million, at May 31, 2014 and August 31, 2013, respectively. At May 31, 2014, unrealized gains of less than $0.1 million were included in accumulated other comprehensive loss and are expected to be reclassified to earnings during the next twelve months.

The Company also utilizes forward foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. The U.S. dollar equivalent notional value of these short duration foreign currency forward contracts was $219.2 million and $383.6 million, at May 31, 2014 and August 31, 2013, respectively. Net foreign currency losses related to these derivative instruments were $2.1 million and $13.5 million for the three and nine months ended May 31, 2014, respectively; and a net foreign currency gain of $0.3 million and less than $0.1 million for the three and nine months ended May 31, 2013, respectively. These derivative losses offset foreign currency gains from the related revaluation on non-functional currency assets and liabilities (amounts included in other income and expense in the condensed consolidated statement of earnings).
Note 9. Earnings Per Share
The reconciliations between basic and diluted earnings per share from continuing operations are as follows (in thousands, except per share amounts):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
50,557

 
$
46,077

 
$
105,866

 
$
102,462

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
70,432

 
73,133

 
71,915

 
72,957

Net effect of dilutive securities—stock based compensation plans
1,338

 
1,654

 
1,603

 
1,534

Weighted average common shares outstanding - diluted
71,770

 
74,787

 
73,518

 
74,491

 
 
 
 
 
 
 
 
Earnings per common share from continuing operations:
 
 
 
 
 
 
 
        Basic
$
0.72

 
$
0.63

 
$
1.47

 
$
1.40

        Diluted
$
0.70

 
$
0.62

 
$
1.44

 
$
1.38

 
 
 
 
 
 
 
 
Anti-dilutive securities-stock based compensation plans (excluded from earnings per share calculation)
463

 
656

 
558

 
735





12

Table of Contents

Note 10. Income Taxes
The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are higher or lower than the U.S. Federal statutory rate, permanent items, state tax rates and the ability to utilize various tax credits and net operating loss carryforwards. The Company adjusts the quarterly provision for income taxes based on the estimated annual effective income tax rate and facts and circumstances known at each interim reporting period. The effective income tax rate from continuing operations is as follows:
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Effective income tax rate
3.2
%
 
7.7
%
 
11.3
%
 
12.5
%
Income tax expense for the three months ended May 31, 2014 includes a $10.5 million benefit from a discrete income tax adjustment (tax minimization planning that was completed in the quarter) and a $6.8 million net reduction in the reserve for uncertain tax positions (as a result of the lapsing of non-U.S. income tax statues of limitations). Similarly the prior year third quarter income tax expense included a $9.3 million benefit due to a net reduction in reserves for uncertain tax positions. Effective income tax rates for the nine months ended May 31, 2014 and 2013 reflect the benefits of tax minimization planning, increased foreign tax credits, the generation of net operating losses (from the liquidation of foreign legal entities) and discrete tax items.
The gross liability for unrecognized tax benefits, excluding interest and penalties, increased from $18.0 million at August 31, 2013 to $31.6 million at May 31, 2014. Substantially all of these unrecognized tax benefits, if recognized, would reduce the effective income tax rate. In addition, as of May 31, 2014 and August 31, 2013, the Company had liabilities totaling $1.7 million and $2.9 million, respectively, for the payment of interest and penalties related to its unrecognized income tax benefits.

Note 11. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems and is organized in three reportable segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions to the global oil & gas, power generation and energy markets. The Engineered Solutions segment provides highly engineered position and motion control systems to OEMs in various vehicle markets, as well as a variety of other products to the industrial and agricultural markets.
The following tables summarize financial information by reportable segment and product line (in thousands):

13

Table of Contents

 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
 
2014
 
2013
 
2014
 
2013
Net Sales by Segment:
 
 
 
 
 
 
 
 
Industrial
 
$
109,809

 
$
111,308

 
$
302,022

 
$
311,429

Energy
 
125,231

 
99,158

 
339,187

 
270,721

Engineered Solutions
 
143,147

 
133,739

 
404,304

 
370,332

 
 
$
378,187

 
$
344,205

 
$
1,045,513

 
$
952,482

Net Sales by Reportable Product Line:
 
 
 
 
 
 
 
 
Industrial
 
$
109,809

 
$
111,308

 
$
302,022

 
$
311,429

Energy
 
125,231

 
99,158

 
339,187

 
270,721

Vehicle Systems
 
75,442

 
68,202

 
214,369

 
189,064

Other
 
67,705

 
65,537

 
189,935

 
181,268

 
 
$
378,187

 
$
344,205

 
$
1,045,513

 
$
952,482

Operating Profit:
 
 
 
 
 
 
 
 
Industrial
 
$
34,123

 
$
32,426

 
$
87,496

 
$
85,782

Energy
 
19,936

 
19,736

 
38,363

 
44,800

Engineered Solutions
 
13,560

 
12,754

 
36,297

 
28,654

General Corporate
 
(8,839
)
 
(7,874
)
 
(20,748
)
 
(21,849
)
 
 
$
58,780

 
$
57,042

 
$
141,408

 
$
137,387

 
 
May 31, 2014
 
August 31, 2013
Assets:
 
 
 
 
Industrial
 
$
322,609

 
$
280,110

Energy
 
805,056

 
817,547

Engineered Solutions
 
688,474

 
652,581

General Corporate
 
131,566

 
96,488

Assets of Discontinued Operations
 

 
272,606

 
 
$
1,947,705

 
$
2,119,332

In addition to the impact of changes in foreign currency exchange rates, the comparability of segment and product line information is also impacted by acquisition/divestiture activities and restructuring costs and the related benefits. Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.
Note 12. Contingencies and Litigation
The Company had outstanding letters of credit of $14.4 million and $10.7 million at May 31, 2014 and August 31, 2013, respectively, the majority of which secure self-insured workers compensation liabilities.
The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, environmental, labor, patent claims and other disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. In the opinion of management, the resolution of these contingencies, individually and in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company has facilities in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past two years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
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

14

Table of Contents

minimum lease payments for these leases was $25.2 million at May 31, 2014 (including $14.6 million related to the divested Electrical segment).
Note 13. Guarantor Subsidiaries
As discussed in Note 6, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes. All material domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee (except for certain customary limitations) such debt on a joint and several basis. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent. The following tables present the results of operations, financial position and cash flows of Actuant Corporation and its subsidiaries, the Guarantor and non-Guarantor entities, and the eliminations necessary to arrive at the information for the Company on a consolidated basis.
Certain assets, liabilities and expenses have not been allocated to the Guarantors and non-Guarantors and therefore are included in the Parent column in the accompanying condensed consolidating financial statements. These items are of a corporate or consolidated nature and include, but are not limited to, tax provisions and related assets and liabilities, certain employee benefit obligations, prepaid and accrued insurance and corporate indebtedness. Intercompany activity primarily includes loan activity, purchases and sales of goods or services, investments and dividends. Intercompany balances also reflect certain non-cash transactions including transfers of assets and liabilities between the Parent, Guarantor and non-Guarantor, allocation of non-cash expenses from the Parent to the Guarantors and non-Guarantors and the impact of foreign currency rate changes.

15

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)
 
 
Three Months Ended May 31, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
 
$
54,219

 
$
84,870

 
$
239,098

 
$

 
$
378,187

Cost of products sold
 
14,841

 
58,152

 
156,644

 

 
229,637

Gross profit
 
39,378

 
26,718

 
82,454

 

 
148,550

Selling, administrative and engineering expenses
 
21,554

 
16,128

 
45,816

 

 
83,498

Amortization of intangible assets
 
318

 
2,575

 
3,379

 

 
6,272

Operating profit
 
17,506

 
8,015

 
33,259

 

 
58,780

Financing costs, net
 
6,122

 

 
(190
)
 

 
5,932

Intercompany expense (income), net
 
(5,620
)
 
560

 
5,060

 

 

Other expense (income), net
 
1,597

 
23

 
(1,000
)
 

 
620

Earnings before income tax expense
 
15,407

 
7,432

 
29,389

 

 
52,228

Income tax expense (benefit)
 
(9,755
)
 
2,306

 
9,120

 

 
1,671

Net earnings before equity in earnings of subsidiaries
 
25,162

 
5,126

 
20,269

 

 
50,557

Equity in earnings of subsidiaries
 
25,395

 
20,151

 
683

 
(46,229
)
 

Net earnings
 
$
50,557

 
$
25,277

 
$
20,952

 
$
(46,229
)
 
$
50,557

Comprehensive income
 
$
50,729

 
$
25,621

 
$
20,970

 
$
(46,591
)
 
$
50,729


16

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
 
Three Months Ended May 31, 2013
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
 
$
52,126

 
$
83,279

 
$
208,800

 
$

 
$
344,205

Cost of products sold
 
14,938

 
55,610

 
136,753

 

 
207,301

Gross profit
 
37,188

 
27,669

 
72,047

 

 
136,904

Selling, administrative and engineering expenses
 
18,389

 
14,622

 
41,312

 

 
74,323

Amortization of intangible assets
 
318

 
2,592

 
2,629

 

 
5,539

Operating profit
 
18,481

 
10,455

 
28,106

 

 
57,042

Financing costs, net
 
6,279

 
3

 
(53
)
 

 
6,229

Intercompany expense (income), net
 
(6,487
)
 
637

 
5,850

 

 

Other expense (income), net
 
267

 
(115
)
 
759

 

 
911

Earnings from continuing operations before income tax expense
 
18,422

 
9,930

 
21,550

 

 
49,902

Income tax expense
 
1,412

 
761

 
1,652

 

 
3,825

Net earnings before equity in loss of subsidiaries
 
17,010

 
9,169

 
19,898

 

 
46,077

Equity in loss of subsidiaries
 
(109,558
)
 
(38,891
)
 
(1,827
)
 
150,276

 

Earnings (loss) from continuing operations
 
(92,548
)
 
(29,722
)
 
18,071

 
150,276

 
46,077

Loss from discontinued operations, net of income taxes
 
(435
)
 
(94,888
)
 
(43,737
)
 

 
(139,060
)
Net loss
 
$
(92,983
)
 
$
(124,610
)
 
$
(25,666
)
 
$
150,276

 
$
(92,983
)
Comprehensive loss
 
$
(97,951
)
 
$
(124,714
)
 
$
(30,396
)
 
$
155,110

 
$
(97,951
)

17

Table of Contents

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

 
 
Nine months ended May 31, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
 
$
142,905

 
$
239,709

 
$
662,899

 
$

 
$
1,045,513

Cost of products sold
 
38,905

 
165,416

 
436,416

 

 
640,737

Gross profit
 
104,000

 
74,293

 
226,483

 

 
404,776

Selling, administrative and engineering expenses
 
57,811

 
45,833

 
141,011

 

 
244,655

Amortization of intangible assets
 
954

 
7,726

 
10,033

 

 
18,713

Operating profit
 
45,235

 
20,734

 
75,439

 

 
141,408

Financing costs, net
 
19,400

 
3

 
(459
)
 

 
18,944

Intercompany expense (income), net
 
(22,770
)
 
5,555

 
17,215

 

 

Other expense (income), net
 
12,683

 
(395
)
 
(9,201
)
 

 
3,087

Earnings from continuing operations before income tax expense
 
35,922

 
15,571

 
67,884

 

 
119,377

Income tax expense (benefit)
 
(3,862
)
 
4,580

 
12,793

 

 
13,511

Net earnings before equity in earnings of subsidiaries
 
39,784

 
10,991

 
55,091

 

 
105,866

Equity in earnings of subsidiaries
 
109,714

 
9,488

 
4,750

 
(123,952
)
 

Earnings from continuing operations
 
149,498

 
20,479

 
59,841

 
(123,952
)
 
105,866

Earnings (loss) from discontinued operations, net of income taxes
 
(21,512
)
 
56,494

 
(12,862
)
 

 
22,120

Net earnings
 
$
127,986

 
$
76,973

 
$
46,979

 
$
(123,952
)
 
$
127,986

Comprehensive income
 
$
149,558

 
$
99,361

 
$
42,837

 
$
(142,198
)
 
$
149,558

















18

Table of Contents

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

 
 
Nine Months Ended May 31, 2013
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
 
$
145,371

 
$
220,178

 
$
586,933

 
$

 
$
952,482

Cost of products sold
 
42,285

 
151,308

 
381,439

 

 
575,032

Gross profit
 
103,086

 
68,870

 
205,494

 

 
377,450

Selling, administrative and engineering expenses
 
53,347

 
44,348

 
124,826

 

 
222,521

Amortization of intangible assets
 
958

 
7,906

 
8,678

 

 
17,542

Operating profit
 
48,781

 
16,616

 
71,990

 

 
137,387

Financing costs, net
 
19,046

 
9

 
(244
)
 

 
18,811

Intercompany expense (income), net
 
(18,408
)
 
1,716

 
16,692

 

 

Other expense (income), net
 
(480
)
 
(579
)
 
2,577

 

 
1,518

Earnings from continuing operations before income tax expense
 
48,623

 
15,470

 
52,965

 

 
117,058

Income tax expense
 
7,420

 
435

 
6,741

 

 
14,596

Net earnings before equity in loss of subsidiaries
 
41,203

 
15,035

 
46,224

 

 
102,462

Equity in loss of subsidiaries
 
(68,323
)
 
(10,227
)
 
(1,392
)
 
79,942

 

Earnings (loss) from continuing operations
 
(27,120
)
 
4,808

 
44,832

 
79,942

 
102,462

Loss from discontinued operations, net of income taxes
 
(1,085
)
 
(89,510
)
 
(40,072
)
 

 
(130,667
)
Net earnings (loss)
 
$
(28,205
)
 
$
(84,702
)
 
$
4,760

 
$
79,942

 
$
(28,205
)
Comprehensive income (loss)
 
$
(32,969
)
 
$
(91,016
)
 
$
7,632

 
$
83,384

 
$
(32,969
)


19

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
 
May 31, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
42,912

 
$
3,391

 
$
83,322

 
$

 
$
129,625

Accounts receivable, net
 
25,810

 
45,335

 
188,144

 

 
259,289

Inventories, net
 
30,729

 
46,009

 
94,820

 

 
171,558

Deferred income taxes
 
9,187

 

 
5,668

 

 
14,855

Other current assets
 
7,498

 
1,130

 
21,375

 

 
30,003

Total current assets
 
116,136

 
95,865

 
393,329

 

 
605,330

Property, plant and equipment, net
 
9,059

 
23,463

 
137,931

 

 
170,453

Goodwill
 
62,543

 
278,144

 
425,301

 

 
765,988

Other intangibles, net
 
12,292

 
144,081

 
219,876

 

 
376,249

Investment in subsidiaries
 
2,245,305

 
811,391

 
223,423

 
(3,280,119
)
 

Intercompany receivable
 

 
661,143

 
579,314

 
(1,240,457
)
 

Other long-term assets
 
14,176

 
22

 
15,487

 

 
29,685

Total assets
 
$
2,459,511

 
$
2,014,109

 
$
1,994,661

 
$
(4,520,576
)
 
$
1,947,705

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
20,173

 
$
31,621

 
$
117,203

 
$

 
$
168,997

Accrued compensation and benefits
 
12,252

 
3,372

 
34,965

 

 
50,589

Current maturities of long-term debt
 
3,375

 

 

 

 
3,375

Income taxes payable
 
12,469

 

 
(3,066
)
 

 
9,403

Other current liabilities
 
23,059

 
6,451

 
32,677

 

 
62,187

Total current liabilities
 
71,328

 
41,444

 
181,779

 

 
294,551

Long-term debt, less current maturities
 
386,625

 

 

 

 
386,625

Deferred income taxes
 
42,575

 

 
52,285

 

 
94,860

Pension and postretirement benefit liabilities
 
6,942

 

 
4,343

 

 
11,285

Other long-term liabilities
 
61,903

 
1,592

 
11,736

 

 
75,231

Intercompany payable
 
804,985

 

 
435,475

 
(1,240,460
)
 

Shareholders’ equity
 
1,085,153

 
1,971,073

 
1,309,043

 
(3,280,116
)
 
1,085,153

Total liabilities and shareholders’ equity
 
$
2,459,511

 
$
2,014,109

 
$
1,994,661

 
$
(4,520,576
)
 
$
1,947,705


20

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
 
August 31, 2013
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
16,122

 
$

 
$
87,864

 
$

 
$
103,986

Accounts receivable, net
 
20,471

 
40,343

 
158,261

 

 
219,075

Inventories, net
 
27,343

 
38,948

 
76,258

 

 
142,549

Deferred income taxes
 
13,002

 

 
5,794

 

 
18,796

Other current assets
 
7,454

 
963

 
19,811

 

 
28,228

Assets of discontinued operations
 

 
192,129

 
80,477

 

 
272,606

Total current assets
 
84,392

 
272,383

 
428,465

 

 
785,240

Property, plant and equipment, net
 
7,050

 
22,801

 
171,645

 

 
201,496

Goodwill
 
62,543

 
264,502

 
407,907

 

 
734,952

Other intangibles, net
 
13,247

 
141,258

 
222,187

 

 
376,692

Investment in subsidiaries
 
2,086,534

 
201,779

 
96,333

 
(2,384,646
)
 

Intercompany receivable
 

 
480,633

 
360,620

 
(841,253
)
 

Other long-term assets
 
12,654

 
22

 
8,276

 

 
20,952

Total assets
 
$
2,266,420

 
$
1,383,378

 
$
1,695,433

 
$
(3,225,899
)
 
$
2,119,332

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
22,194

 
$
30,637

 
$
101,218

 
$

 
$
154,049

Accrued compensation and benefits
 
13,835

 
2,716

 
27,249

 

 
43,800

Income taxes payable
 
8,135

 

 
5,879

 

 
14,014

Other current liabilities
 
21,268

 
4,630

 
31,001

 

 
56,899

Liabilities of discontinued operations
 

 
23,466

 
29,614

 

 
53,080

Total current liabilities
 
65,432

 
61,449

 
194,961

 

 
321,842

Long-term debt
 
515,000

 

 

 

 
515,000

Deferred income taxes
 
64,358

 

 
51,507

 

 
115,865

Pension and postretirement benefit liabilities
 
16,267

 

 
4,431

 

 
20,698

Other long-term liabilities
 
51,479

 
390

 
13,791

 

 
65,660

Intercompany payable
 
473,617

 

 
367,636

 
(841,253
)
 

Shareholders’ equity
 
1,080,267

 
1,321,539

 
1,063,107

 
(2,384,646
)
 
1,080,267

Total liabilities and shareholders’ equity
 
$
2,266,420

 
$
1,383,378

 
$
1,695,433

 
$
(3,225,899
)
 
$
2,119,332



21

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Nine Months Ended May 31, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 

 

 

 

 

Net cash provided by operating activities
 
$
33,121

 
$
10,376

 
$
44,405

 
$
(14,716
)
 
$
73,186

Investing Activities
 

 

 

 

 

Capital expenditures
 
(3,823
)
 
(3,558
)
 
(26,458
)
 

 
(33,839
)
Proceeds from sale of property, plant and equipment
 
52

 
484

 
43,500

 

 
44,036

Proceeds from sale of businesses, net of transaction costs
 
(4,586
)
 
214,268

 
43,091

 

 
252,773

Intercompany investment
 

 
(99,963
)
 

 
99,963

 

Business acquisitions, net of cash acquired
 
(30,500
)
 

 

 

 
(30,500
)
Net cash provided by (used in) investing activities
 
(38,857
)
 
111,231

 
60,133

 
99,963

 
232,470

Financing Activities
 

 

 

 

 

Intercompany loan activity
 
313,748

 
(118,216
)
 
(195,532
)
 

 

Net repayments on revolver
 
(125,000
)
 

 

 

 
(125,000
)
Intercompany capital contribution
 

 

 
99,963

 
(99,963
)
 

Purchase of treasury shares
 
(183,152
)
 

 

 

 
(183,152
)
Payment of contingent acquisition consideration
 

 

 
(1,585
)
 

 
(1,585
)
Stock option exercises and related tax benefits
 
29,849

 

 

 

 
29,849

Cash dividend
 
(2,919
)
 

 
(14,716
)
 
14,716

 
(2,919
)
Net cash provided by (used in) financing activities
 
32,526

 
(118,216
)
 
(111,870
)
 
(85,247
)
 
(282,807
)
Effect of exchange rate changes on cash
 

 

 
2,790

 

 
2,790

Net increase (decrease) in cash and cash equivalents
 
26,790

 
3,391

 
(4,542
)
 

 
25,639

Cash and cash equivalents—beginning of period
 
16,122

 

 
87,864

 

 
103,986

Cash and cash equivalents—end of period
 
$
42,912

 
$
3,391

 
$
83,322

 
$

 
$
129,625


22

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Nine Months Ended May 31, 2013
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 

 

 

 

 

Net cash provided by operating activities
 
$
61,900

 
$
28,192

 
$
26,178

 
$

 
$
116,270

Investing Activities
 

 

 

 

 

Proceeds from sale of property, plant and equipment
 
554

 
75

 
688

 

 
1,317

Capital expenditures
 
(1,387
)
 
(3,461
)
 
(14,047
)
 

 
(18,895
)
Proceeds from sale of business
 

 

 
4,854

 

 
4,854

Business acquisitions, net of cash acquired
 

 

 
(83
)
 

 
(83
)
Cash used in investing activities
 
(833
)
 
(3,386
)
 
(8,588
)
 

 
(12,807
)
Financing Activities
 

 

 

 

 

Principal repayments of term loans
 
(5,000
)
 

 

 

 
(5,000
)
Intercompany loan activity
 
(42,904
)
 
(24,897
)
 
67,801

 

 

Purchase of treasury shares
 
(13,670
)
 

 

 

 
(13,670
)
Payment of contingent acquisition consideration
 
(1,350
)
 

 
(2,202
)
 

 
(3,552
)
Stock option exercises and related tax benefits
 
18,705

 

 

 

 
18,705

Cash dividend
 
(2,911
)
 

 

 

 
(2,911
)
Cash provided by (used in) financing activities
 
(47,130
)
 
(24,897
)
 
65,599

 

 
(6,428
)
Effect of exchange rate changes on cash
 

 

 
(3,801
)
 

 
(3,801
)
Net increase (decrease) in cash and cash equivalents
 
13,937

 
(91
)
 
79,388

 

 
93,234

Cash and cash equivalents—beginning of period
 
12,401

 
91

 
55,692

 

 
68,184

Cash and cash equivalents—end of period
 
$
26,338

 
$

 
$
135,080

 
$

 
$
161,418



23

Table of Contents

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Actuant Corporation, headquartered in Menomonee Falls, Wisconsin, is a Wisconsin corporation incorporated in 1910. We are a global diversified company that designs, manufactures and distributes a broad range of industrial products and systems to various end markets. We are organized in three operating and reportable segments: Industrial, Energy and Engineered Solutions.
Our long-term goal is to grow annual diluted earnings per share (“EPS”), excluding unusual or non-recurring items, faster than most multi-industry peers. We intend to leverage our leading market positions to generate annual internal sales growth that exceeds the annual growth rates of the gross domestic product in the geographic regions in which we operate. In addition to internal sales growth, we are focused on acquiring complementary businesses. Following an acquisition, we seek to develop additional cross-selling opportunities, deepen customer relationships and leverage costs. We also focus on profit margin expansion and cash flow generation to achieve our financial and EPS growth goals. Our LEAD (“Lean Enterprise Across Disciplines”) process utilizes various continuous improvement techniques to drive out costs and improve efficiencies, thereby expanding profit margins. Strong cash flow generation is achieved by maximizing returns on net assets and managing primary working capital levels. Our LEAD efforts also support our Growth + Innovation (“G+I”) initiative, a process focused on improving core sales growth. The cash flow that results from efficient asset management and improved profitability is primarily used to fund strategic acquisitions, common stock repurchases and internal growth opportunities.
We believe that our targeted energy, infrastructure, food/farm productivity and natural resources/sustainability strategies provide attractive opportunities for sustainable growth, including acquisitions, geographic expansion, market share gains and new product development.  Over the past year we have taken several portfolio and capital deployment actions to better position the Company for improved future growth, including the following:
acquisition of Viking Seatech (“Viking”) which expanded the global presence and capabilities of the Energy segment,
divestiture of the Electrical segment in December 2013 for net proceeds of $225 million,
acquisition of Hayes Industrial Ltd, an Industrial segment tuck-in acquisition,
divested a manpower consulting product line of Viking, and
divested the recreational vehicle (RV) product line of the Engineered Solutions segment in June 2014 for proceeds of $36 million
Our businesses provide a vast array of products and services across multiple customers and geographies which results in significant diversification. The long-term sales growth and profitability of our segments will depend not only on increased demand in end markets and the overall economic environment, but also on our ability to identify, consummate and integrate strategic acquisitions, develop and market innovative new products, expand our business activity geographically and improve operational excellence. We remain focused on maintaining our financial strength by adjusting our cost structure to reflect changes in demand levels and by proactively managing working capital and cash flow generation.


24

Table of Contents

Results of Operations
The following table sets forth our results of operations (in millions, except per share amounts):
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
 
2014
 
 
 
2013
 
 
 
2014
 
 
 
2013
 
 
Net sales
 
$
378

 
100
%
 
$
344

 
100
 %
 
$
1,046

 
100
%
 
$
952

 
100
 %
Cost of products sold
 
230

 
61
%
 
207

 
60
 %
 
641

 
61
%
 
575

 
60
 %
Gross profit
 
148

 
39
%
 
137

 
40
 %
 
405

 
39
%
 
377

 
40
 %
Selling, administrative and engineering expenses
 
83

 
22
%
 
74

 
22
 %
 
245

 
23
%
 
223

 
23
 %
Amortization of intangible assets
 
6

 
2
%
 
6

 
2
 %
 
19

 
2
%
 
17

 
2
 %
Operating profit
 
59

 
15
%
 
57

 
16
 %
 
141

 
14
%
 
137

 
15
 %
Financing costs, net
 
6

 
2
%
 
6

 
2
 %
 
19

 
2
%
 
19

 
2
 %
Other expense, net
 
1

 
0
%
 
1

 
0
 %
 
3

 
0
%
 
1

 
0
 %
Earnings from continuing operations before income tax expense
 
52

 
13
%
 
50

 
14
 %
 
119

 
12
%
 
117

 
13
 %
Income tax expense
 
1

 
%
 
4

 
1
 %
 
13

 
1
%
 
15

 
2
 %
Earnings from continuing operations
 
51

 
13
%
 
46

 
13
 %
 
106

 
11
%
 
102

 
11
 %
Earnings (loss) from discontinued operations, net of income taxes
 

 
%
 
(139
)
 
(40
)%
 
22

 
2
%
 
(130
)
 
(14
)%
Net earnings (loss)
 
$
51

 
13
%
 
$
(93
)
 
(27
)%
 
$
128

 
13
%
 
$
(28
)
 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings from continuing operations per share
 
$
0.70

 
 
 
$
0.62

 
 
 
$
1.44

 
 
 
$
1.38

 
 
Diluted earnings (loss) per share
 
$
0.70

 
 
 
$
(1.24
)
 
 
 
$
1.74

 
 
 
$
(0.38
)
 
 
The comparability of operating results to the prior year has been impacted by changes in foreign currency exchange rates (as approximately one-half of our sales are denominated in currencies other than the U.S. dollar), acquisitions, divestitures and the economic conditions in the end markets we serve. Consolidated core sales (sales excluding acquisitions, divestitures and changes in foreign currency exchange rates) increased 3% for the three months ended May 31, 2014 and 4% for the nine months ended May 31, 2014, the result of solid growth in the Engineered Solutions and Energy segments, which was partially offset by a modest decline in demand in the Industrial segment. Operating profit for the three and nine months ended May 31, 2014 was $59 million and $141 million, respectively, compared to $57 million and $137 million in the prior year.  Unfavorable segment and product mix, restructuring costs and the inclusion of the Viking acquisition resulted in the decline in consolidated operating profit margin. Fiscal 2014 third quarter earnings from continuing operations were $51 million ($0.70 per diluted share), compared to $46 million ($0.62 per diluted share) in the prior year.
Segment Results
Industrial Segment
The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools that are used in maintenance and other applications in a variety of industrial, energy, infrastructure and production automation markets. Despite tepid economic conditions globally and cautious spending by customers in infrastructure and heavy-lift markets (Integrated Solutions) we believe the Industrial segment will generate core sales growth during the fourth quarter, driven by our vertical market initiatives and slightly improved end market conditions. The following table sets forth the results of operations for the Industrial segment (in millions):
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
110

 
$
111

 
$
302

 
$
311

Operating profit
 
34

 
32

 
87

 
86

Operating profit %
 
31.1
%
 
29.1
%
 
29.0
%
 
27.5
%
Fiscal 2014 third quarter Industrial segment net sales decreased $1 million (1%) to $110 million compared to the prior year period, while year-to-date net sales decreased $9 million (3%) to $302 million. Excluding the impact of foreign currency rate

25

Table of Contents

changes (which favorably impacted sales comparisons by $1 million in the quarter), core sales decreased 2% in the third quarter and 3% year-to-date, the result of lower global Integrated Solutions activity. Despite lower sales levels, operating profit margins improved due to productivity improvements, effective cost management and favorable sales mix.

Energy Segment
The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions primarily used in maintenance activities in the global energy market. The Energy segment continues to focus on expanding its presence in the global energy markets and successfully integrating the Viking acquisition. Favorable market conditions including increased worldwide demand for energy, solid maintenance and oil & gas activity and improved demand in non-energy markets (defense, marine and aerospace) are expected to continue for the next several quarters. The following table sets forth the results of operations for the Energy segment (in millions):
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
125

 
$
99

 
$
339

 
$
271

Operating profit
 
20

 
20

 
38

 
45

Operating profit %
 
15.9
%
 
19.9
%
 
11.3
%
 
16.5
%
Third quarter net sales increased $26 million (26%) to $125 million from the comparable prior year period, while year-to-date net sales increased $68 million (25%) from the prior year. The majority of this sales growth reflects the addition of the Viking acquisition in late fiscal 2013. Excluding the impact of changes in foreign currency exchange rates (which favorably impacted sales comparison by $2 million in the quarter) and the Viking acquisition, core sales increased 5% in both the third quarter and year-to-date periods. This growth was driven by increased activity in the oil & gas (maintenance spending), seismic and defense markets. Despite increased quoting and sales activity in the Asia Pacific region, Viking revenues have been impacted by delays in mooring equipment mobilization on new projects and reduced activity in the North Sea region. The third quarter and year-to-date operating profit margin declined due to unfavorable acquisition mix (given the fixed cost nature of Viking's rental business) and unfavorable sales mix. Excluding the unfavorable acquisition mix, margins were approximately in line with the prior year.
Engineered Solutions Segment
The Engineered Solutions segment provides highly engineered position and motion control, power transmission and instrumentation and display systems to OEMs in a variety of markets. The segment continues to focus on the commercialization of new products and the completion of restructuring initiatives aimed at simplifying the business and improving future profit margins. The following table sets forth the results of operations for the Engineered Solutions segment (in millions):
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
143

 
$
134

 
$
404

 
$
370

Operating profit
 
14

 
13

 
36

 
29

Operating profit %
 
9.5
%
 
9.5
%
 
9.0
%
 
7.7
%
Fiscal 2014 third quarter Engineered Solutions net sales increased $9 million (7%) to $143 million versus the comparable prior year period, while year-to-date net sales grew $34 million (9%) to $404 million. Excluding foreign currency rate changes (which favorably impacted sales by $2 million during the quarter and $4 million year-to-date), core sales increased 5% in the third quarter and 9% year-to-date. This growth resulted from strong European and China heavy-duty truck sales, along with increased agricultural sales, which offset continued weak demand from off highway equipment, defense and construction equipment OEM's. Despite higher sales levels, operating profit margins for the quarter were flat compared to the prior year as a result of inefficiencies and costs associated with facility consolidations and related restructuring activities.
General Corporate
General corporate expenses were $9 million and $21 million for the three and nine months ended May 31, 2014, respectively, compared to $8 million and $22 million three and nine months ended May 31, 2013, respectively.


26

Table of Contents

Financing Costs, net
All debt is considered to be for general corporate purposes and therefore financing costs have not been allocated to our segments. Net financing costs were relatively unchanged for all comparable periods.
Income Taxes Expense
The effective income tax rate from continuing operations is as follows:
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Effective income tax rate
3.2
%
 
7.7
%
 
11.3
%
 
12.5
%
Income tax expense for the three months ended May 31, 2014 includes a $11 million benefit from a discrete income tax adjustment (tax minimization planning that was completed in the quarter) and a $7 million net reduction in the reserve for uncertain tax positions (as a result of the lapsing of non-U.S. income tax statues of limitations). Similarly the prior year third quarter income tax expense included a $9 million benefit due to a net reduction in reserves for uncertain tax positions. Effective income tax rates for the nine months ended May 31, 2014 and 2013 reflect the benefits of tax minimization planning, increased foreign tax credits, the generation of net operating losses (from the liquidation of foreign legal entities) and discrete tax items.
Discontinued Operations
On December 13, 2013, the Company completed the sale of its former Electrical segment, which resulted in a pre-tax gain on disposal of $34 million. The results of operations for the Electrical segment have been reported as discontinued operations for all periods and are summarized as follows (in millions):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2014
 
2013
 
2014
 
2013
Net sales
$

 
$
75

 
$
72

 
$
214

 
 
 
 
 
 
 
 
Operating income (loss) (1)

 
12

 
(5
)
 
25

Impairment charge

 
(170
)
 

 
(170
)
Gain on disposal

 

 
34

 

Income tax expense

 
19

 
(7
)
 
15

Income from discontinued operations, net of taxes
$

 
$
(139
)
 
$
22

 
$
(131
)
(1) The operating loss for the nine months ended May 31, 2014 includes the operating results of the business through the sale date of December 13, 2013, certain divestiture costs and a non-cash charge for the accelerated vesting of equity compensation.
Cash Flows and Liquidity
We believe that the successful execution of our business model will result in continued strong cash flow generation, which will allow us to reinvest in the business, fund future growth opportunities and opportunistic stock repurchases, ultimately increasing long-term shareholder value.  While we generate earnings and cash flow in all geographic regions, the vast majority of our cash is maintained in locations outside of the United States, primarily for income tax planning reasons. We expect to generate significant  cash flow during our seasonally strong fourth quarter, which combined with existing cash and availability under our revolving credit facility, will be adequate to fund our operating needs for the foreseeable future. We anticipate on-going capital deployment in business acquisitions and opportunistic stock buybacks,with surplus cash flow added to the balance sheet.
The following table summarizes our cash flows from operating, investing and financing activities (in millions):

27

Table of Contents

 
 
Nine Months Ended May 31,
 
 
2014
 
2013
Net cash provided by operating activities
 
$
73

 
$
116

Net cash provided by (used in) investing activities
 
232

 
(13
)
Net cash used in financing activities
 
(283
)
 
(6
)
Effect of exchange rates on cash
 
3

 
(4
)
Net increase in cash and cash equivalents
 
$
25

 
$
93

Cash flows from operating activities during the nine months ended May 31, 2014 were lower than the prior year, primarily the result of a $43 million increase in working capital accounts and higher income tax payments. Operating cash flows, $253 million of net proceeds from the sale of the Electrical segment and a $41 million sale leaseback of Viking rental assets funded the repurchase of approximately 5 million shares ($183 million) of the Company’s common stock and the repayment of $125 million of revolver borrowings. Capital expenditures during the first nine months of fiscal 2014 were $34 million, including rental assets purchased for the Energy segment and machinery and equipment associated with various new facilities.
Cash flows from operating activities during the nine months ended May 31, 2013 were $116 million, primarily consisting of net earnings, offset by the payment of $17 million of fiscal 2012 incentive compensation costs and an increase in working capital accounts. Investing activities during fiscal 2013 included $19 million of net capital expenditures and the receipt of $5 million in proceeds related to a product line divestiture. Existing cash, coupled with operating cash flows and proceeds and benefits of share based compensation, funded the repurchase of approximately 0.5 million shares of the Company’s common stock ($14 million), the annual dividend and $5 million of scheduled payments on the term loan.
Our Senior Credit Facility, which matures on July 18, 2018, includes a $600 million revolving credit line, a $90 million term loan and a $350 million expansion option, subject to certain conditions. Quarterly principal payments of $1 million begin on the term loan on September 30, 2014, increasing to $2 million per quarter beginning on September 30, 2015, with the remaining principal due at maturity.

Primary Working Capital Management from Continuing Operations
We use primary working capital as a percentage of sales (PWC %) as a key indicator of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital from continuing operations (in millions):
 
 
May 31,
2014
 
PWC%
 
May 31,
2013
 
PWC%
Accounts receivable, net
 
$
259

 
17
 %
 
$
215

 
16
 %
Inventory, net
 
172

 
11
 %
 
145

 
11
 %
Accounts payable
 
(169
)
 
(11
)%
 
(148
)
 
(11
)%
Net primary working capital
 
$
262

 
17
 %
 
$
212

 
16
 %

Increased primary working capital amounts are due to higher sales levels (generating increased accounts receivable balances) and increased inventory levels to support long-term customer contracts and higher safety stock levels in advance of plant consolidations.
Commitments and Contingencies
The Company has operations in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past two years have not been material. Management believes that such costs will not 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 was $25 million at May 31, 2014 (including $15 million related to the divested Electrical segment).
We had outstanding letters of credit of approximately $14 million and $11 million at May 31, 2014 and August 31, 2013, respectively, the majority of which secure self-insured workers compensation liabilities.


28

Table of Contents

Contractual Obligations
Our contractual obligations are discussed in Part 1, Item 7 , “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in our Annual Report on Form 10-K for the year ended August 31, 2013, and, as of May 31, 2014, have not materially changed.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk

The diverse nature of our business activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity costs.

Interest Rate Risk: We manage interest expense using a mixture of fixed-rate and variable-rate debt. A change in interest rates impacts the fair value of our 5.625% Senior Notes, but not our earnings or cash flow because the interest on such debt is fixed. Our variable-rate debt obligations consist primarily of revolver and term loan borrowings under our Senior Credit Facility (see Note 6, “Debt” for further details). A ten percent increase in the average cost of our variable rate debt (which is based on LIBOR interest rates) would result in an increase in interest expense (pre-tax) of approximately $0.1 million for the three months ended May 31, 2014. From time to time, we may enter into interest rate swap agreements to manage our exposure to interest rate changes. At May 31, 2014, we were not a party to any interest rate swap derivatives.

Foreign Currency Risk: We maintain operations in the U.S. and various foreign countries. Our more significant non-U.S. operations are located in Australia, the Netherlands, United Kingdom, Mexico and China, and have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions (primarily forward foreign currency swaps) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 8, “Derivatives” for further information). We do not engage in trading or other speculative activities with these transactions, as established policies require that these hedging transactions relate to specific currency exposures.

The strengthening of the U.S. dollar could also result in unfavorable translation effects on our results of operations and financial position as the result of foreign denominated operating results being translated into U.S. dollars. To illustrate the potential impact of changes in foreign currency exchange rates on the translation of our results of operations, quarterly sales and operating profit were remeasured assuming a ten percent decrease in foreign exchange rates compared with the U.S. dollar. Using this assumption, quarterly sales and operating profit would have been $21 million and $3 million lower, respectively, for the three months ended May 31, 2014. This sensitivity analysis assumes that each exchange rate would change in the same direction relative to the U.S. dollar and excludes the potential effects that changes in foreign currency exchange rates may have on sales levels or local currency prices. Similarly, a ten percent decline in foreign currency exchange rates on our May 31, 2014 financial position would result in a $82 million decrease in equity (accumulated other comprehensive loss), as a result of non U.S dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.

Commodity Cost Risk: We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin, are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion and utilize LEAD initiatives to further mitigate the impact of commodity raw material price fluctuations as improved efficiencies across all locations are achieved.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.


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Changes in Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
In March 2014, our Board of Directors authorized a stock repurchase program to acquire up to 7,000,000 shares of the Company’s outstanding Class A common stock. The following table presents information regarding the repurchase of common stock during the three months ended May 31, 2014. All of the shares were repurchased as part of the publicly announced program.
 
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
March 1 to March 31, 2014
 
225,000

 
$
33.47

 
6,775,000

April 1 to April 30, 2014
 
955,301

 
33.99

 
5,819,699

May 1 to May 31, 2014
 
999,686

 
34.00

 
4,820,013

 
 
2,179,987

 
$
33.94

 
 

Item 6 – Exhibits
(a) Exhibits
See “Index to Exhibits” on page 33, which is incorporated herein by reference.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
ACTUANT CORPORATION
 
 
(Registrant)
Date: July 9, 2014
 
By:
/S/ ANDREW G. LAMPEREUR
 
 
 
Andrew G. Lampereur
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)


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ACTUANT CORPORATION
(the “Registrant”)
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2014
INDEX TO EXHIBITS
 
 
 
 
 
 
 
 
Exhibit
 
Description
 
Filed
Herewith
 
Furnished Herewith
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
101
 
The following materials from the Actuant Corporation Form 10-Q for the quarter ended May 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.
 
X
 
 


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