ENERPAC TOOL GROUP CORP - FORM 10-Q

ENERPAC TOOL GROUP CORP - FORM 10-Q - January 9, 2015

Attached files

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - ENERPAC TOOL GROUP CORP	Financial_Report.xls
EX-10.2 - EXHIBIT - 10.2 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit102.htm
EX-32.2 - EXHIBIT - 32.2 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit322.htm
EX-32.1 - EXHIBIT - 32.1 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit321.htm
EX-10.1 - EXHIBIT -10.1 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit101.htm
EX-31.2 - EXHIBIT - 31.2 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit312.htm
EX-31.1 - EXHIBIT - 31.1 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit311.htm
EX-10.3 - EXHIBIT - 10.3 - ENERPAC TOOL GROUP CORP	atu-20141130exhibit103.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————————

FORM 10-Q

————————————

(Mark One)



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

For the quarterly period ended November 30, 2014



¨	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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

The number of shares outstanding of the registrant’s Class A Common Stock as of December 31, 2014 was 61,678,585.

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TABLE OF CONTENTS



	Page No.

Part I—Financial Information

Item 1—Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Earnings	4

Condensed Consolidated Statements of Comprehensive Income (Loss)	5

Condensed Consolidated Balance Sheets	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3—Quantitative and Qualitative Disclosures about Market Risk	25

Item 4—Controls and Procedures	26

Part II—Other Information

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 6—Exhibits	27

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;


•	challenging end market conditions in the truck, automotive, agricultural, industrial, production automation, oil & gas, energy, maintenance, power generation and infrastructure industries;


•	failure to realize anticipated cost savings from restructuring activities and cost reduction efforts;


•	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 pricing, operating inefficiencies, reduced production levels and material, labor and overhead cost increases;


•	our international operations present special risks, primarily from currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions and controls on repatriation of cash;


•	regulatory and legal developments including changes to United States taxation rules, health care reform, conflict mineral supply chain compliance 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;


•	our ability to execute our share repurchase program, which depends in part, on our results of operations, liquidity and changes in the trading price of our common stock;

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•	a significant failure in information technology (IT) infrastructure and systems, unauthorized access to financial and other sensitive data or cybersecurity threats;


•	litigation, including product liability and warranty claims;


•	inadequate intellectual property protection or if our products are deemed to infringe on the intellectual property of others;


•	our level of indebtedness, ability to comply with the financial and other covenants in our debt agreements and fluctuations in interest rates;


•	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 27, 2014.

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.

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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 November 30,
	2014			2013
Net sales	$	327,765		$	339,556
Cost of products sold	200,789			207,776
Gross profit	126,976			131,780
Selling, administrative and engineering expenses	82,472			81,918
Amortization of intangible assets	6,286			6,215
Operating profit	38,218			43,647
Financing costs, net	6,191			6,750
Other (income) expense, net	(439		)	1,141
Earnings from continuing operations before income tax expense	32,466			35,756
Income tax expense	7,792			2,751
Earnings from continuing operations	24,674			33,005
Earnings from discontinued operations, net of income taxes	—			3,032
Net earnings	$	24,674		$	36,037

Earnings from continuing operations per share:
Basic	$	0.38		$	0.45
Diluted	$	0.38		$	0.44

Earnings per share:
Basic	$	0.38		$	0.49
Diluted	$	0.38		$	0.48

Weighted average common shares outstanding:
Basic	64,357			73,085
Diluted	65,599			75,011

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 November 30,
	2014			2013
Net earnings	$	24,674		$	36,037
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	(63,275		)	17,047
Pension and other postretirement benefit plans	362			50
Cash flow hedges	(50		)	(94		)
Total other comprehensive (loss) income, net of tax	(62,963		)	17,003
Comprehensive (loss) income	$	(38,289	)	$	53,040

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)



	November 30, 2014			August 31, 2014
ASSETS
Current assets
Cash and cash equivalents	$	87,275		$	109,012
Accounts receivable, net	221,719			227,008
Inventories, net	164,517			162,620
Deferred income taxes	10,384			11,050
Other current assets	40,453			33,300
Total current assets	524,348			542,990
Property, plant and equipment
Land, buildings and improvements	50,112			52,989
Machinery and equipment	280,361			281,763
Gross property, plant and equipment	330,473			334,752
Less: Accumulated depreciation	(166,558		)	(165,651		)
Property, plant and equipment, net	163,915			169,101
Goodwill	714,956			742,770
Other intangibles, net	346,214			365,177
Other long-term assets	38,031			36,841
Total assets	$	1,787,464		$	1,856,879
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	135,095		$	145,798
Accrued compensation and benefits	42,408			52,964
Current maturities of debt and short-term borrowings	7,619			4,500
Income taxes payable	9,664			38,347
Other current liabilities	58,594			57,512
Total current liabilities	253,380			299,121
Long-term debt, less current maturities	506,250			385,500
Deferred income taxes	92,699			96,970
Pension and postretirement benefit liabilities	14,558			15,699
Other long-term liabilities	58,843			57,878
Total liabilities	925,730			855,168
Shareholders’ equity
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 78,576,338 and 78,480,780 shares, respectively	15,715			15,695
Additional paid-in capital	96,099			93,449
Treasury stock, at cost, 15,511,517 and 12,195,359 shares, respectively	(493,042		)	(388,627		)
Retained earnings	1,374,333			1,349,602
Accumulated other comprehensive loss	(131,371		)	(68,408		)
Stock held in trust	(4,153		)	(4,083		)
Deferred compensation liability	4,153			4,083
Total shareholders’ equity	861,734			1,001,711
Total liabilities and shareholders’ equity	$	1,787,464		$	1,856,879

See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended November 30,
	2014			2013
Operating Activities
Net earnings	$	24,674		$	36,037
Adjustments to reconcile net earnings to cash (used in) provided by operating activities:
Depreciation and amortization	13,708			16,204
Benefit for deferred income taxes	(1,352		)	(8,408		)
Stock-based compensation expense	3,546			4,103
Amortization of debt discount and debt issuance costs	423			560
Other non-cash adjustments	146			(867		)
Sources (uses) of cash from changes in components of working capital and other:
Accounts receivable	(3,629		)	7,040
Inventories	(6,500		)	(11,634		)
Prepaid expenses and other assets	(10,698		)	(3,049		)
Trade accounts payable	(7,398		)	2,560
Income taxes payable	(28,007		)	(3,189		)
Accrued compensation and benefits	(9,963		)	(2,595		)
Other accrued liabilities	(68		)	(3,816		)
Cash (used in) provided by operating activities	(25,118		)	32,946
Investing Activities
Capital expenditures	(7,986		)	(11,257		)
Proceeds from sale of property, plant and equipment	225			1,913
Cash used in investing activities	(7,761		)	(9,344		)
Financing Activities
Net borrowings (repayments) on revolver	123,869			(12,000		)
Purchase of treasury shares	(104,415		)	(15,352		)
Stock option exercises, related tax benefits and other	2,287			10,562
Payment of contingent acquisition consideration	—			(414		)
Cash dividend	(2,598		)	(2,919		)
Cash provided by (used in) financing activities	19,143			(20,123		)
Effect of exchange rate changes on cash	(8,001		)	2,077
Net (decrease) increase in cash and cash equivalents	(21,737		)	5,556
Cash and cash equivalents – beginning of period	109,012			103,986
Cash and cash equivalents – end of period	$	87,275		$	109,542

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, 2014 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 2014 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended November 30, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2015.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (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 Company is currently evaluating the impact of adopting this standard.

Note 2. Acquisitions

The Company completed one business acquisition during fiscal 2014. The acquisition resulted in the recognition of goodwill in the Company’s consolidated financial statements because its purchase price reflects the future earnings and cash flow potential of this company, as well as the complementary strategic fit and resulting synergies this business is 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 and adjust the purchase price allocation.

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 Sugar Land, Texas and maintains a leading position in the concrete tensioning market. Its products include patented encapsulated anchor systems, wedges and customized extruded cables. The purchase price allocation resulted in the recognition of $14.4 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. During the first quarter of fiscal 2015, goodwill related to the Hayes acquisition decreased by $3.2 million, the result of purchase accounting adjustments to reflect the fair value of acquired fixed assets.

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The following unaudited pro forma results of operations of the Company for the three months ended November 30, 2014 and 2013, give effect to the Hayes acquisition as though the transaction and related financing had occurred on September 1, 2013 (in thousands, except per share amounts):



	Three Months Ended November 30,
	2014		2013
Net sales
As reported	$	327,765	$	339,556
Pro forma	327,765		346,146
Earnings from continuing operations
As reported	$	24,674	$	33,005
Pro forma	24,674		32,916
Basic earnings per share from continuing operations
As reported	$	0.38	$	0.45
Pro forma	0.38		0.45
Diluted earnings per share from continuing operations
As reported	$	0.38	$	0.44
Pro forma	0.38		0.44

Note 3. Discontinued Operations and Divestiture Activities

On June 13, 2014, the Company completed the divestiture of its Recreational Vehicle ("RV") business for $36.5 million in cash. This product line divestiture resulted in a $13.5 million pre-tax gain on sale ($2.8 million net of tax) during the fourth quarter of fiscal 2014. The results of the RV business (which had sales of $6.7 million in the first quarter of fiscal 2014) are not material to the consolidated financial results and are included in results from continuing operations.

The former 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 for net cash proceeds of $252.4 million, which resulted in a pre-tax gain on disposal of $34.5 million ($26.3 million net of tax). The following table summarizes the results of discontinued operations (in thousands):



	Three Months Ended November 30, 2013
Net sales	$	63,012

Operating income	5,229
Income tax expense	(2,197		)
Income from discontinued operations, net of income taxes	$	3,032

Note 4. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill for the three months ended November 30, 2014 are as follows (in thousands):



	Industrial			Energy			Engineered Solutions			Total
Balance as of August 31, 2014	$	100,266		$	350,627		$	291,877		$	742,770
Purchase accounting adjustments	(3,157		)	—			—			(3,157		)
Impact of changes in foreign currency rates	(1,827		)	(18,626		)	(4,204		)	(24,657		)
Balance as of November 30, 2014	$	95,282		$	332,001		$	287,673		$	714,956

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



		November 30, 2014						August 31, 2014
	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	$	314,131	$	119,923	$	194,208	$	325,164	$	117,706	$	207,458
Patents	11	31,265		17,995		13,270		31,678		17,494		14,184
Trademarks and tradenames	18	22,630		6,360		16,270		23,241		6,201		17,040
Non-compete agreements and other	4	7,134		6,644		490		7,373		6,783		590
Indefinite lived intangible assets:
Tradenames	N/A	121,976		—		121,976		125,905		—		125,905
		$	497,136	$	150,922	$	346,214	$	513,361	$	148,184	$	365,177

The Company estimates that amortization expense will be $18.4 million for the remainder of fiscal 2015. Amortization expense for future years is estimated to be as follows: $24.4 million in fiscal 2016, $23.4 million in 2017, $23.1 million in fiscal 2018, $22.9 million in fiscal 2019, $22.2 million in fiscal 2020 and $89.8 million thereafter. These future amortization expense amounts represent estimates, which may change based on future acquisitions and divestitures or changes in foreign currency exchange rates.

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 (in thousands):



	Three months ended November 30,
	2014			2013
Beginning balance	$	4,056		$	7,413
Provision for warranties	1,180			230
Warranty payments and costs incurred	(1,424		)	(1,232		)
Impact of changes in foreign currency rates	(84		)	53
Ending balance	$	3,728		$	6,464

Note 6. Debt

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



	November 30, 2014			August 31, 2014
Senior Credit Facility
Revolver	$	123,000		$	—
Term Loan	88,875			90,000
Total Senior Credit Facility	211,875			90,000
5.625% Senior Notes	300,000			300,000
Total Senior Indebtedness	511,875			390,000
Less: current maturities of long-term debt	(5,625		)	(4,500		)
Total long-term debt, less current maturities	$	506,250		$	385,500

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 November 30, 2014, the borrowing spread on LIBOR based borrowings was 1.25% (aggregating to 1.45%). In addition, a non-

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use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.40% per annum. At November 30, 2014, the unused credit line under the revolver was $474.4 million of which $466.4 million was available for borrowings. Quarterly principal payments of $1.1 million began 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 November 30, 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. 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 (ranging from 100.0% to 102.8%), plus accrued and unpaid interest.

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):



	November 30, 2014			August 31, 2014
Level 1 Valuation:
Cash equivalents	$	3,042		$	1,207
Investments	2,133			2,118
Level 2 Valuation:
Foreign currency derivatives	$	(2,109	)	$	(966	)

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 November 30, 2014 and August 31, 2014 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 $313.5 million and $315.8 million at November 30, 2014 and August 31, 2014, 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.

Note 8. Derivatives

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 recognized balances and certain forecasted cash flows that are denominated in non-functional currencies. 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 U.S. dollar equivalent notional value of short duration foreign currency forward contracts (fair value hedges or non-designated hedges) was $192.7 million and $219.9 million, at November 30, 2014 and August 31, 2014, respectively. Net foreign currency losses related to these derivative instruments were $2.1 million and $8.7 million, for the three months ended November 30, 2014 and 2013, respectively. These derivative losses offset foreign currency gains from the related revaluation of non-functional currency assets and liabilities (amounts included in other income and expense in the condensed consolidated statement of earnings).

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Note 9. Capital Stock and Share Repurchase

The Company's Board of Directors previously authorized three separate stock repurchase authorizations (September 2011, March 2014 and October 2014) to repurchase up to 7,000,000 shares each (21,000,000 shares in total) of the Company’s outstanding common stock. At November 30, 2014, total shares repurchased under these publicly announced programs were 15,511,517. During the first quarter of fiscal 2015, the Company repurchased 3,316,158 shares of common stock for $104.4 million ($31.46 per share).

The reconciliation between basic and diluted earnings per share from continuing operations is as follows (in thousands, except per share amounts):



	Three Months Ended November 30,
	2014		2013
Numerator:
Earnings from continuing operations	$	24,674	$	33,005
Denominator:
Weighted average common shares outstanding - basic	64,357		73,085
Net effect of dilutive securities—stock based compensation plans	1,242		1,926
Weighted average common shares outstanding - diluted	65,599		75,011

Earnings per common share from continuing operations:
Basic	$	0.38	$	0.45
Diluted	$	0.38	$	0.44

Anti-dilutive securities-stock based compensation plans (excluded from earnings per share calculation)	487		1

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 was 24.0% and 7.7% for the three months ended November 30, 2014 and 2013, respectively. Effective income tax rates for the three months ended November 30, 2014 and 2013 reflect the benefits of tax minimization planning, taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. Federal statutory rate, and foreign tax credits. Income tax expense for the three months ended November 30, 2013 included a $7.3 million discrete income tax benefit (net operating losses generated through the liquidation of a foreign entity).

The gross liability for unrecognized tax benefits, excluding interest and penalties, increased from $32.3 million at August 31, 2014 to $32.8 million at November 30, 2014. Substantially all of these unrecognized tax benefits, if recognized, would reduce the effective income tax rate. In addition, as of November 30, 2014 and August 31, 2014, the Company had liabilities totaling $2.2 million and $2.0 million, respectively, for the payment of interest and penalties related to 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.

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The following tables summarize financial information by reportable segment and product line (in thousands):



	Three Months Ended November 30,
	2014			2013
Net Sales by Segment:
Industrial	$	102,413		$	98,641
Energy	111,522			107,925
Engineered Solutions	113,830			132,990
	$	327,765		$	339,556
Net Sales by Reportable Product Line:
Industrial	$	102,413		$	98,641
Energy	111,522			107,925
Vehicle Systems	58,468			71,649
Other	55,362			61,341
	$	327,765		$	339,556
Operating Profit:
Industrial	$	26,705		$	26,897
Energy	12,442			8,923
Engineered Solutions	6,278			13,190
General Corporate	(7,207		)	(5,363		)
	$	38,218		$	43,647



	November 30, 2014		August 31, 2014
Assets:
Industrial	$	293,531	$	307,058
Energy	746,982		788,915
Engineered Solutions	643,239		643,323
General Corporate	103,712		117,583
	$	1,787,464	$	1,856,879

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. 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 $15.0 million and $14.0 million at November 30, 2014 and August 31, 2014, 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. Operating results for the three months ended November 30, 2014 include a $2.0 million charge for an adverse litigation matter. 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 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 $19.6 million at November 30, 2014 (including $13.4 million related to the divested Electrical segment).

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Note 13. Guarantor Subsidiaries

As discussed in Note 6, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300 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.

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)



	Three Months Ended November 30, 2014
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	40,266		$	77,591		$	209,908		$	—		$	327,765
Cost of products sold	9,967			53,258			137,564			—			200,789
Gross profit	30,299			24,333			72,344			—			126,976
Selling, administrative and engineering expenses	19,072			17,467			45,933			—			82,472
Amortization of intangible assets	318			2,785			3,183			—			6,286
Operating profit	10,909			4,081			23,228			—			38,218
Financing costs, net	6,547			—			(356		)	—			6,191
Intercompany expense (income), net	(5,732		)	1,234			4,498			—			—
Other expense (income), net	465			(96		)	(808		)	—			(439		)
Earnings before income tax expense	9,629			2,943			19,894			—			32,466
Income tax expense	2,310			706			4,776			—			7,792
Net earnings before equity in earnings of subsidiaries	7,319			2,237			15,118			—			24,674
Equity in earnings of subsidiaries	17,355			14,147			194			(31,696		)	—
Net earnings	$	24,674		$	16,384		$	15,312		$	(31,696	)	$	24,674
Comprehensive loss	$	(38,289	)	$	(6,600	)	$	(23,150	)	$	29,750		$	(38,289	)

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands)



	Three Months Ended November 30, 2013
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	45,091		$	79,636		$	214,829		$	—		$	339,556
Cost of products sold	12,072			55,255			140,449			—			207,776
Gross profit	33,019			24,381			74,380			—			131,780
Selling, administrative and engineering expenses	16,858			15,952			49,108			—			81,918
Amortization of intangible assets	318			2,575			3,322			—			6,215
Operating profit	15,843			5,854			21,950			—			43,647
Financing costs, net	6,779			3			(32		)	—			6,750
Intercompany expense (income), net	(4,997		)	(339		)	5,336			—			—
Other expense (income), net	10,417			(293		)	(8,983		)	—			1,141
Earnings from continuing operations before income tax expense (benefit)	3,644			6,483			25,629			—			35,756
Income tax expense (benefit)	1,008			1,795			(52		)	—			2,751
Net earnings before equity in earnings of subsidiaries	2,636			4,688			25,681			—			33,005
Equity in earnings of subsidiaries	34,222			13,333			3,200			(50,755		)	—
Earnings from continuing operations	36,858			18,021			28,881			(50,755		)	33,005
Earnings (loss) from discontinued operations	(821		)	3,338			515			—			3,032
Net earnings	$	36,037		$	21,359		$	29,396		$	(50,755	)	$	36,037
Comprehensive income	$	53,040		$	38,797		$	27,671		$	(66,468	)	$	53,040

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CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)



	November 30, 2014
	Parent		Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	2,686	$	1,134		$	83,455		$	—		$	87,275
Accounts receivable, net	18,436		42,765			160,518			—			221,719
Inventories, net	22,347		43,174			98,996			—			164,517
Deferred income taxes	4,960		—			5,424			—			10,384
Other current assets	13,970		1,454			25,029			—			40,453
Total current assets	62,399		88,527			373,422			—			524,348
Property, plant and equipment, net	7,577		26,273			130,065			—			163,915
Goodwill	15,354		306,882			392,720			—			714,956
Other intangibles, net	11,656		137,614			196,944			—			346,214
Investment in subsidiaries	2,179,271		1,106,103			31,067			(3,316,441		)	—
Intercompany receivable	—		637,903			505,132			(1,143,035		)	—
Other long-term assets	23,692		—			14,339			—			38,031
Total assets	$	2,299,949	$	2,303,302		$	1,643,689		$	(4,459,476	)	$	1,787,464
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable	$	16,025	$	25,736		$	93,334		$	—		$	135,095
Accrued compensation and benefits	9,656		2,799			29,953			—			42,408
Current maturities of debt and short-term borrowings	5,625		—			1,994			—			7,619
Income taxes payable	14,463		(548		)	(4,251		)	—			9,664
Other current liabilities	18,267		4,743			35,584			—			58,594
Total current liabilities	64,036		32,730			156,614			—			253,380
Long-term debt, less current maturities	506,250		—			—			—			506,250
Deferred income taxes	46,882		—			45,817			—			92,699
Pension and postretirement benefit liabilities	8,259		—			6,299			—			14,558
Other long-term liabilities	44,794		4,191			9,858			—			58,843
Intercompany payable	767,994		—			375,041			(1,143,035		)	—
Shareholders’ equity	861,734		2,266,381			1,050,060			(3,316,441		)	861,734
Total liabilities and shareholders’ equity	$	2,299,949	$	2,303,302		$	1,643,689		$	(4,459,476	)	$	1,787,464

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CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)



	August 31, 2014
	Parent		Guarantors		Non-Guarantors		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	27,931	$	3,325	$	77,756	$	—		$	109,012
Accounts receivable, net	22,811		38,511		165,686		—			227,008
Inventories, net	31,024		38,860		92,736		—			162,620
Deferred income taxes	7,503		—		3,547		—			11,050
Other current assets	3,871		1,057		28,372		—			33,300
Total current assets	93,140		81,753		368,097		—			542,990
Property, plant and equipment, net	9,096		22,879		137,126		—			169,101
Goodwill	44,700		280,693		417,377		—			742,770
Other intangibles, net	11,974		140,400		212,803		—			365,177
Investment in subsidiaries	2,286,068		806,414		237,207		(3,329,689		)	—
Intercompany receivable	—		678,073		622,818		(1,300,891		)	—
Other long-term assets	23,432		—		13,409		—			36,841
Total assets	$	2,468,410	$	2,010,212	$	2,008,837	$	(4,630,580	)	$	1,856,879
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable	$	20,014	$	25,673	$	100,111	$	—		$	145,798
Accrued compensation and benefits	15,135		3,293		34,536		—			52,964
Income taxes payable	31,582		—		6,765		—			38,347
Current maturities of debt	4,500		—		—		—			4,500
Other current liabilities	19,081		3,989		34,442		—			57,512
Total current liabilities	90,312		32,955		175,854		—			299,121
Long-term debt	385,500		—		—		—			385,500
Deferred income taxes	47,543		—		49,427		—			96,970
Pension and postretirement benefit liabilities	8,668		—		7,031		—			15,699
Other long-term liabilities	42,647		4,138		11,093		—			57,878
Intercompany payable	892,029		—		408,861		(1,300,890		)	—
Shareholders’ equity	1,001,711		1,973,119		1,356,571		(3,329,690		)	1,001,711
Total liabilities and shareholders’ equity	$	2,468,410	$	2,010,212	$	2,008,837	$	(4,630,580	)	$	1,856,879

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)



	Three Months Ended, November 30, 2014
	Parent			Guarantors			Non-Guarantors			Eliminations		Consolidated
Operating Activities
Cash provided by (used in) operating activities	$	5,024		$	(28,333	)	$	(1,809	)	$	—	$	(25,118	)
Investing Activities
Capital expenditures	(226		)	(1,140		)	(6,620		)	—		(7,986		)
Proceeds from sale of property, plant and equipment	—			1			224			—		225
Cash used in investing activities	(226		)	(1,139		)	(6,396		)	—		(7,761		)
Financing Activities
Net borrowings on revolver	121,875			—			1,994			—		123,869
Intercompany loan activity	(47,192		)	27,281			19,911			—		—
Purchase of treasury shares	(104,415		)	—			—			—		(104,415		)
Stock option exercises, related tax benefits and other	2,287			—			—			—		2,287
Cash dividend	(2,598		)	—			—			—		(2,598		)
Cash provided by (used in) financing activities	(30,043		)	27,281			21,905			—		19,143
Effect of exchange rate changes on cash	—			—			(8,001		)	—		(8,001		)
Net (decrease) increase in cash and cash equivalents	(25,245		)	(2,191		)	5,699			—		(21,737		)
Cash and cash equivalents—beginning of period	27,931			3,325			77,756			—		109,012
Cash and cash equivalents—end of period	$	2,686		$	1,134		$	83,455		$	—	$	87,275

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)



	Three Months Ended, November 30, 2013
	Parent			Guarantors			Non-Guarantors			Eliminations		Consolidated
Operating Activities
Cash provided by operating activities	$	17,415		$	3,461		$	12,070		$	—	$	32,946
Investing Activities
Proceeds from sale of property, plant and equipment	—			36			1,877			—		1,913
Capital expenditures	(1,208		)	(1,270		)	(8,779		)	—		(11,257		)
Cash used in investing activities	(1,208		)	(1,234		)	(6,902		)	—		(9,344		)
Financing Activities
Principal repayments of term loans	(12,000		)	—			—			—		(12,000		)
Intercompany loan activity	(9,951		)	(2,227		)	12,178			—		—
Purchase of treasury shares	(15,352		)	—			—			—		(15,352		)
Payment of contingent acquisition consideration	—			—			(414		)	—		(414		)
Stock option exercises, related tax benefits and other	10,562			—			—			—		10,562
Cash dividend	(2,919		)	—			—			—		(2,919		)
Cash provided by (used in) financing activities	(29,660		)	(2,227		)	11,764			—		(20,123		)
Effect of exchange rate changes on cash	—			—			2,077			—		2,077
Net increase (decrease) in cash and cash equivalents	(13,453		)	—			19,009			—		5,556
Cash and cash equivalents—beginning of period	16,122			—			87,864			—		103,986
Cash and cash equivalents—end of period	$	2,669		$	—		$	106,873		$	—	$	109,542

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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 that was 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. Our business model, which is intended to create shareholder value, emphasizes cash flow generation. The model starts with core sales growth - through customer intimacy, new products, emerging market penetration and other aspects of our Growth + Innovation ("G + I") process. We further increase sales and profits through acquisitions and reinvestment in our businesses, including capital expenditures. The acquisitions add new capabilities, technologies, customers and geographic presence to make our businesses stronger. Finally, operational excellence processes including effective product sourcing, acquisition integration and leadership development are utilized to improve profitability and drive cash flow. When executed successfully, these steps lead to strong earnings and cash flow generation that we reinvest back into the business.

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

Our businesses provide an 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 is dependent not only on increased demand in end markets and the overall economic environment, but also on our ability to identify, consummate and integrate strategic acquisitions, develop and market innovative new products, expand our business activity geographically and continuously improve operational excellence.

Given our worldwide operations, the strengthening of the U.S. Dollar had a significant negative impact on our first quarter results and change in foreign currency exchange rates will continue to add volatility going forward. Slightly over one half of our first quarter sales were generated outside of the United States in currencies other than the U.S. Dollar. We saw the Euro, British Pound, Australian Dollar, Norwegian Krone and Swedish Krona all devalue 5-10% during the first quarter. This devaluation unfavorably impacted our results of operations given the translation of our international results into U.S. Dollars, and resulted in higher costs for certain of our international operations which incur costs or purchase components in U.S. Dollars.

Demand in most of our end markets is expected to remain inconsistent during the remainder of the fiscal year given the uneven demand we have been experiencing in several markets, including oil & gas, mining, off-highway equipment and agriculture. In aggregate, we expect consolidated core sales (sales excluding acquisitions, divestitures and changes in foreign currency exchange rates) change to range from (1)% to growth of 2%. While Industrial segment core sales were down slightly in the first quarter we expect the segment to generate 3-4% core sales growth for the fiscal year, driven by easier second half prior year comparables and increased Integrated Solutions sales. Our Energy segment generated solid core sales growth in the first quarter as Viking secured additional offshore mooring rental contracts in the Asia Pacific region and maintenance demand was strong for our products, rental assets and technical manpower services. However, the recent dramatic decline in oil prices has lead to reduced rig counts and investments in new capital projects and lower exploration activity, which collectively will be headwinds for the Energy segment as the fiscal year progresses. Finally, reduced demand in vehicle markets (lower European truck and convertible auto build schedules) and a slowdown in the agriculture markets (given current crop prices) are contributing to unfavorable market trends for the Engineered Solutions segment and will likely result in core sales declines for the segment during the balance of the fiscal year.

Despite short-term challenges in several of our served markets, we continue to believe that our targeted energy, infrastructure, food/farm productivity and natural resources/sustainability strategies provide attractive long-term opportunities for sustainable growth, including acquisitions, geographic expansion, market share gains and new product development. 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. Our priorities during the remainder of fiscal 2015 include a continued focus on growth initiatives (new product development, market share gains, geographic expansion and strategic acquisitions), operational excellence and cash flow generation.

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Results of Operations

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



	Three Months Ended November 30,
	2014				2013
Net sales	$	328	100	%	$	340	100	%
Cost of products sold	201		61	%	208		61	%
Gross profit	127		39	%	132		39	%
Selling, administrative and engineering expenses	82		25	%	82		24	%
Amortization of intangible assets	6		2	%	6		2	%
Operating profit	39		12	%	44		13	%
Financing costs, net	6		2	%	7		2	%
Other expense, net	—		0	%	1		0	%
Earnings from continuing operations before income tax expense	33		10	%	36		11	%
Income tax expense	8		2	%	3		1	%
Earnings from continuing operations	25		8	%	33		10	%
Earnings from discontinued operations, net of income taxes	—		0	%	3		1	%
Net earnings	$	25	8	%	$	36	11	%

Diluted earnings per share from continuing operations	$	0.38			$	0.44
Diluted earnings per share	$	0.38			$	0.48

The comparability of operating results has been impacted by changes in foreign currency exchange rates, acquisitions, divestitures and the economic conditions in the end markets we serve. Consolidated sales for the first quarter of fiscal 2015 decreased 4% to $328 million from $340 million in the comparable prior year period. Consolidated core sales declined 1% in the quarter due to tepid market conditions in the Industria

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