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EXCEL - IDEA: XBRL DOCUMENT - ENERPAC TOOL GROUP CORPFinancial_Report.xls
EX-10.2 - EXHIBIT - 10.2 - ENERPAC TOOL GROUP CORPatu-20141130exhibit102.htm
EX-32.2 - EXHIBIT - 32.2 - ENERPAC TOOL GROUP CORPatu-20141130exhibit322.htm
EX-32.1 - EXHIBIT - 32.1 - ENERPAC TOOL GROUP CORPatu-20141130exhibit321.htm
EX-10.1 - EXHIBIT -10.1 - ENERPAC TOOL GROUP CORPatu-20141130exhibit101.htm
EX-31.2 - EXHIBIT - 31.2 - ENERPAC TOOL GROUP CORPatu-20141130exhibit312.htm
EX-31.1 - EXHIBIT - 31.1 - ENERPAC TOOL GROUP CORPatu-20141130exhibit311.htm
EX-10.3 - EXHIBIT - 10.3 - ENERPAC TOOL GROUP CORPatu-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
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 December 31, 2014 was 61,678,585.
 
 
 
 
 



TABLE OF CONTENTS
 
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, 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;

2


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.


3


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


4


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

5


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

6


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

7


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.

8


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





9


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-

10


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).



11


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.

12


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).

13


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.

14


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
)

15


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


 
 
 
 
 
 
 
 
 
 
 



 
 
 
 
 
 
 
 
 
 
 


16


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


17


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



18


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


19


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



20


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.

21


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