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EX-32.1 - EXHIBIT 32.1 - ENERPAC TOOL GROUP CORPatu-20151130exhibit321.htm
EX-32.2 - EXHIBIT 32.2 - ENERPAC TOOL GROUP CORPatu-20151130exhibit322.htm
EX-31.1 - EXHIBIT 31.1 - ENERPAC TOOL GROUP CORPatu-20151130exhibit311.htm
EX-31.2 - EXHIBIT 31.2 - ENERPAC TOOL GROUP CORPatu-20151130exhibit312.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, 2015
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, 2015 was 58,905,451.
 
 
 
 
 



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 industrial, oil & gas, energy, power generation, infrastructure, commercial construction, truck, automotive, specialty vehicle, mining and agriculture 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, environmental laws 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 free cash flow, liquidity and changes in the trading price of our common stock;

1


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; and
numerous other matters including those of a political, economic, business, competitive and regulatory nature contained from time to time in U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of the Form 10-K filed with the SEC on October 28, 2015.
When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries. Actuant Corporation provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.actuant.com, as soon as reasonably practical after such reports are electronically filed with the SEC.


2


PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended November 30,
 
2015
 
2014
Net sales
$
305,011

 
$
327,765

Cost of products sold
196,449

 
200,789

Gross profit
108,562

 
126,976

Selling, administrative and engineering expenses
72,911

 
82,472

Amortization of intangible assets
5,900

 
6,286

Restructuring charges
4,380

 

Operating profit
25,371

 
38,218

Financing costs, net
7,117

 
6,191

Other expense (income), net
619

 
(439
)
Earnings before income taxes
17,635

 
32,466

Income tax expense
2,187

 
7,792

Net earnings
$
15,448

 
$
24,674

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.26

 
$
0.38

Diluted
$
0.26

 
$
0.38

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
59,187

 
64,357

Diluted
59,713

 
65,599

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements


3


ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
Three Months Ended November 30,
 
2015
 
2014
Net earnings
$
15,448

 
$
24,674

Other comprehensive income (loss), net of tax
 
 
 
Foreign currency translation adjustments
(21,174
)
 
(63,275
)
Pension and other postretirement benefit plans
217

 
362

Cash flow hedges
23

 
(50
)
Total other comprehensive loss, net of tax
(20,934
)
 
(62,963
)
Comprehensive loss
$
(5,486
)
 
$
(38,289
)
See accompanying Notes to Condensed Consolidated Financial Statements

4


ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
November 30, 2015
 
August 31, 2015
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
171,945

 
$
168,846

Accounts receivable, net
 
196,945

 
193,081

Inventories, net
 
143,728

 
142,752

Deferred income taxes
 

 
12,922

Other current assets
 
50,196

 
42,788

Total current assets
 
562,814

 
560,389

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
47,581

 
48,515

Machinery and equipment
 
268,268

 
269,983

Gross property, plant and equipment
 
315,849

 
318,498

Less: Accumulated depreciation
 
(177,286
)
 
(176,040
)
Property, plant and equipment, net
 
138,563

 
142,458

Goodwill
 
601,381

 
608,256

Other intangibles, net
 
299,392

 
308,762

Other long-term assets
 
21,385

 
17,052

Total assets
 
$
1,623,535

 
$
1,636,917

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
124,383

 
$
118,115

Accrued compensation and benefits
 
42,132

 
43,707

Current maturities of debt and short-term borrowings
 
7,491

 
3,969

Income taxes payable
 
11,556

 
14,805

Other current liabilities
 
56,943

 
54,460

Total current liabilities
 
242,505

 
235,056

Long-term debt, less current maturities
 
580,559

 
584,309

Deferred income taxes
 
63,994

 
72,941

Pension and postretirement benefit liabilities
 
16,438

 
17,828

Other long-term liabilities
 
55,587

 
53,782

Total liabilities
 
959,083

 
963,916

Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 79,015,476 and 78,932,533 shares, respectively
 
15,803

 
15,787

Additional paid-in capital
 
105,911

 
104,308

Treasury stock, at cost, 19,926,479 and 19,726,479 shares, respectively
 
(605,312
)
 
(600,630
)
Retained earnings
 
1,382,624

 
1,367,176

Accumulated other comprehensive loss
 
(234,574
)
 
(213,640
)
Stock held in trust
 
(2,615
)
 
(4,292
)
Deferred compensation liability
 
2,615

 
4,292

Total shareholders’ equity
 
664,452

 
673,001

Total liabilities and shareholders’ equity
 
$
1,623,535

 
$
1,636,917

See accompanying Notes to Condensed Consolidated Financial Statements

5


ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three months ended November 30,
 
2015
 
2014
Operating Activities
 
 
 
Net earnings
$
15,448

 
$
24,674

Adjustments to reconcile net earnings to cash provided by operating activities:
 
 
 
Depreciation and amortization
12,472

 
13,708

Stock-based compensation expense
2,961

 
3,546

Provision (benefit) for deferred income taxes
156

 
(1,352
)
Amortization of debt discount and debt issuance costs
413

 
423

Other non-cash adjustments
(930
)
 
146

Sources (uses) of cash from changes in components of working capital and other:
 
 
 
Accounts receivable
(7,397
)
 
(3,629
)
Inventories
(2,851
)
 
(6,500
)
Other assets
(9,211
)
 
(10,698
)
Trade accounts payable
7,735

 
(7,398
)
Income taxes payable/refundable
(4,294
)
 
(28,007
)
Accrued compensation and benefits
(572
)
 
(9,963
)
Other accrued liabilities
6,439

 
5,876

Cash provided by (used in) operating activities
20,369

 
(19,174
)
Investing Activities
 
 
 
Capital expenditures
(5,529
)
 
(7,986
)
Proceeds from sale of property, plant and equipment
1,437

 
225

Business acquisitions, net of cash acquired
(530
)
 

Cash used in investing activities
(4,622
)
 
(7,761
)
Financing Activities
 
 
 
Net borrowings on revolver and other debt
(218
)
 
124,994

Principal repayments on term loan

 
(1,125
)
Purchase of treasury shares
(4,682
)
 
(104,415
)
Stock option exercises, related tax benefits and other
1,090

 
2,287

Cash dividend
(2,376
)
 
(2,598
)
Cash (used in) provided by financing activities
(6,186
)
 
19,143

Effect of exchange rate changes on cash
(6,462
)
 
(13,945
)
Net increase (decrease) in cash and cash equivalents
3,099

 
(21,737
)
Cash and cash equivalents – beginning of period
168,846

 
109,012

Cash and cash equivalents – end of period
$
171,945

 
$
87,275

See accompanying Notes to Condensed Consolidated Financial Statements

6


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, 2015 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 2015 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. The condensed consolidated statement of cash flows for the three months ended November 30, 2014 includes an adjustment to properly state the foreign currency impact on cash. The impact of this adjustment is a $5.9 million increase in cash provided by operating activities and an offsetting amount in effect of exchange rate changes on cash.  This adjustment had no impact on the results of operations, financial position or cash balances. Operating results for the three months ended November 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2016.
New Accounting Pronouncements
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, 2017. The Company is currently evaluating the impact of adopting this standard.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which includes amendments that require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the new guidance, the recognition and measurement of debt issuance costs is not affected. This guidance is effective for annual periods beginning on or after December 15, 2015. The adoption of this standard in fiscal 2017 is not expected to have a material impact on the financial statements of the Company.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to retrospectively account for changes to provisional amounts initially recorded in a business acquisition opening balance sheet. This guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within fiscal years. The adoption of this standard in fiscal 2017 is not expected to have a material impact on the financial statements of the Company.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which amends the existing guidance to require presentation of deferred tax assets and liabilities as noncurrent within a classified statement of financial position. This guidance was adopted, on a prospective basis, at November 30, 2015. The adoption did not have a material impact on the financial statements of the Company.

Significant Accounting Policies (Restructuring)
The Company has committed to various restructuring initiatives including workforce reductions, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low cost countries and the centralization of certain selling and administrative functions. Total restructuring charges for these activities were $4.4 million in the first quarter of fiscal 2016 and impacted all three segments. Liabilities for severance will be paid during the next twelve months, while facility consolidation costs (primarily reserves for future lease payments related to vacated facilities) will be paid over the underlying remaining lease terms.

7


The following rollforward summarizes current year restructuring activities and the related reserve balance for the three months ended November 31, 2015 (in thousands):
 
 
Industrial
 
Energy
 
Engineered Solutions
 
Corporate
 
Total
Balance as of August 31, 2015
 
$

 
$

 
$

 
$

 
$

Restructuring charges
 
709

 
2,031

 
1,415

 
225

 
4,380

Cash payments
 
(10
)
 
(37
)
 
(225
)
 
(51
)
 
(323
)
Other non-cash uses of reserve
 

 

 

 

 

Impact of changes in foreign currency rates
 

 
(45
)
 

 

 
(45
)
Balance as of November 30, 2015
 
$
699

 
$
1,949

 
$
1,190

 
$
174

 
$
4,012


Note 2. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for the three months ended November 30, 2015 are as follows (in thousands):


Industrial
 
Energy
 
Engineered Solutions
 
Total
Balance as of August 31, 2015

$
92,107

 
$
236,450

 
$
279,699

 
$
608,256

Impact of changes in foreign currency rates

(1,390
)
 
(2,509
)
 
(2,976
)
 
(6,875
)
Balance as of November 30, 2015

$
90,717

 
$
233,941

 
$
276,723

 
$
601,381

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
 
November 30, 2015
 
August 31, 2015
 
 
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
 
$
298,790

 
$
135,452

 
$
163,338

 
$
302,518

 
$
132,007

 
$
170,511

Patents
 
10
 
30,757

 
20,535

 
10,222

 
30,899

 
19,928

 
10,971

Trademarks and tradenames
 
18
 
21,424

 
7,318

 
14,106

 
21,604

 
7,055

 
14,549

Other intangibles
 
3
 
6,236

 
5,974

 
262

 
6,790

 
6,496

 
294

Indefinite lived intangible assets:
 

 

 

 

 

 

 

Tradenames
 
N/A
 
111,464

 

 
111,464

 
112,437

 

 
112,437

 
 
 
 
$
468,671

 
$
169,279

 
$
299,392

 
$
474,248

 
$
165,486

 
$
308,762

The Company estimates that amortization expense will be $17.5 million for the remaining nine months of fiscal 2016. Amortization expense for future years is estimated to be: $22.3 million in fiscal 2017, $21.9 million in 2018, $21.7 million in fiscal 2019, $21.1 million in fiscal 2020, $20.0 million in fiscal 2021 and $63.5 million thereafter. The future amortization expense amounts represent estimates and may be impacted by potential future acquisitions, divestitures or changes in foreign currency exchange rates.

8


Note 3. 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 product warranty reserve (in thousands):
 
Three Months Ended November 30,
 
2015
 
2014
Beginning balance
$
3,719

 
$
4,056

Provision for warranties
1,308

 
1,180

Warranty payments and costs incurred
(1,246
)
 
(1,424
)
Impact of changes in foreign currency rates
(396
)

(84
)
Ending balance
$
3,385

 
$
3,728

Note 4. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
November 30, 2015
 
August 31, 2015
Senior Credit Facility
 
 
 
Revolver
$

 
$

Term Loan
300,000

 
300,000

Total Senior Credit Facility
300,000

 
300,000

5.625% Senior Notes
288,059

 
288,059

Total Senior Indebtedness
588,059

 
588,059

Less: current maturities of long-term debt
(7,500
)
 
(3,750
)
Total long-term debt, less current maturities
$
580,559

 
$
584,309

The Company’s Senior Credit Facility, which matures on May 8, 2020, includes a $600.0 million revolver, a $300.0 million term loan and a $450.0 million expansion option, subject to certain conditions. Borrowings are subject to a pricing grid, which can result in increases or decreases to the borrowing spread, depending on the Company’s leverage ratio, ranging from 1.00% to 2.25% in the case of loans bearing interest at LIBOR and from 0.00% to 1.25% in the case of loans bearing interest at the base rate. As of November 30, 2015, the borrowing spread on LIBOR based borrowings was 1.75% (aggregating to a 2.00% variable rate borrowing cost). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.15% to 0.35% per annum. As of November 30, 2015, the unused credit line under the revolver was $589.0 million, of which $138.2 million was available for borrowing. Quarterly term loan principal payments of $3.8 million begin on June 30, 2016, and increase to $7.5 million on June 30, 2017, 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 3.5:1. The Company was in compliance with all financial covenants at November 30, 2015.
On April 16, 2012, the Company issued $300.0 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $288.1 million remains outstanding as of November 30, 2015 and August 31, 2015. 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 5. Fair Value Measurement
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participation would use in pricing and asset or liability.
The fair value of the Company’s cash and cash equivalents, foreign currency derivatives, accounts receivable, accounts payable and its variable rate long-term debt approximated book value at both November 30, 2015 and August 31, 2015 due to their short-term nature and the fact that the interest rates approximated market rates. The fair value of the Company’s outstanding Senior

9


Notes was $288.8 million and $287.3 million at November 30, 2015 and August 31, 2015, respectively. The fair value of the Senior Notes was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.

Note 6. 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 hedges certain portions of its recognized balances and 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 $175.5 million and $170.7 million, at November 30, 2015 and August 31, 2015, respectively. Net foreign currency gains (losses) related to these derivative instruments are as follows (in thousands):
 
Three Months Ended November 30,
 
2015
 
2014
Foreign currency loss
$
(1,696
)
 
$
(2,061
)
These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in other income and expense in the condensed consolidated statement of earnings).
Note 7. Capital Stock and Share Repurchases
The Company's Board of Directors completed four separate authorizations (September 2011, March 2014, October 2014 and March 2015) to repurchase up to 7,000,000 shares each of the Company's outstanding common stock. At November 30, 2015, shares repurchased under these authorizations totaled 19,926,479 and an additional 8,073,521 shares remain available for repurchase under the existing share repurchase programs.
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,
 
2015
 
2014
Numerator:
 
 
 
Net earnings
$
15,448

 
$
24,674

Denominator:
 
 
 
Weighted average common shares outstanding - basic
59,187

 
64,357

Net effect of dilutive securities—stock based compensation plans
526

 
1,242

Weighted average common shares outstanding - diluted
59,713

 
65,599

 
 
 
 
Basic earnings per share
$
0.26

 
$
0.38

Diluted earnings per share
$
0.26

 
$
0.38

 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)
3,031

 
487


10


Note 8. 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. Comparative pre-tax income, income tax expense and effective income tax rates are as follows:
 
 
Three Months Ended November 30,
 
 
2015
 
2014
Earnings before income taxes
 
$
17,635

 
$
32,466

Income tax expense
 
2,187

 
7,792

Effective income tax rate
 
12.4
%
 
24.0
%
Income tax expense for the three months ended November 30, 2015 was lower than the comparable prior year period primarily due to lower earnings, favorable mix of taxable earnings (a greater proportion of earnings from lower tax rate jurisdictions) and the benefits of tax minimization planning.

Note 9. 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 engaged 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 original equipment manufacturers ("OEM") in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agricultural markets. The following tables summarize financial information by reportable segment and product line (in thousands):

11


 
Three Months Ended November 30,
 
2015
 
2014
Net Sales by Segment:
 
 
 
Industrial
$
88,870

 
$
102,413

Energy
113,764

 
111,522

Engineered Solutions
102,377

 
113,830

 
$
305,011

 
$
327,765

Net Sales by Reportable Product Line:
 
 
 
Industrial
$
88,870

 
$
102,413

Energy
113,764

 
111,522

Vehicle Systems
54,075

 
58,468

Other
48,302

 
55,362

 
$
305,011

 
$
327,765

Operating Profit (Loss):
 
 
 
Industrial
$
20,554

 
$
26,705

Energy
10,094

 
12,442

Engineered Solutions
3,522

 
6,278

General Corporate
(8,799
)
 
(7,207
)
 
$
25,371

 
$
38,218

 
November 30, 2015
 
August 31, 2015
Assets:
 
 
 
Industrial
$
288,032

 
$
293,738

Energy
609,928

 
601,521

Engineered Solutions
580,295

 
588,200

General Corporate
145,280

 
153,458

 
$
1,623,535

 
$
1,636,917

The impact of foreign currency exchange rate changes affects the comparability of segment and product line information. Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.
Note 10. Contingencies and Litigation
The Company had outstanding letters of credit of $18.1 million and $14.0 million at November 30, 2015 and August 31, 2015, respectively, the majority of which secure self-insured workers compensation liabilities.
The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, environmental, labor, patent claims and other disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. In the opinion of management, the resolution of these contingencies, individually and in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company has facilities in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past two years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company remains contingently liable for lease payments of businesses that it previously divested or spun-off, in the event that such businesses are unable to fulfill their lease payment obligations. The discounted present value of future minimum lease payments for these leases was $16.8 million at November 30, 2015.

12


Note 11. Guarantor Subsidiaries
As discussed in Note 4, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes, of which $288.1 million remains outstanding as of November 30, 2015. All of our material domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee the 5.625% Senior Notes on a joint and several basis. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent. 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, non-cash intercompany dividends and the impact of foreign currency rate changes.

13


CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE LOSS
(in thousands)
 
 
Three Months Ended November 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
 
$
34,690

 
$
70,016

 
$
200,305

 
$

 
$
305,011

Cost of products sold
 
7,171

 
49,642

 
139,636

 

 
196,449

Gross profit
 
27,519

 
20,374

 
60,669

 

 
108,562

Selling, administrative and engineering expenses
 
19,760

 
14,386

 
38,765

 

 
72,911

Amortization of intangible assets
 
318

 
2,616

 
2,966

 

 
5,900

Restructuring charges
 
878

 
121

 
3,381

 

 
4,380

Operating profit
 
6,563

 
3,251

 
15,557

 

 
25,371

Financing costs, net
 
7,455

 

 
(338
)
 

 
7,117

Intercompany expense (income), net
 
(5,829
)
 
(3,757
)
 
9,586

 

 

Other expense, net
 
403

 
62

 
154

 

 
619

Earnings before income taxes
 
4,534

 
6,946

 
6,155

 

 
17,635

Income tax expense
 
591

 
1,049

 
547

 

 
2,187

Net earnings before equity in earnings (loss) of subsidiaries
 
3,943

 
5,897

 
5,608

 

 
15,448

Equity in earnings (loss) of subsidiaries
 
11,505

 
5,333

 
(114
)
 
(16,724
)
 

Net earnings
 
$
15,448

 
$
11,230

 
$
5,494

 
$
(16,724
)
 
$
15,448

Comprehensive loss
 
$
(5,486
)
 
$
(994
)
 
$
(3,098
)
 
$
4,092

 
$
(5,486
)

14


CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS 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 taxes
 
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 BALANCE SHEETS
(in thousands)
 
 
November 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,575

 
$
121

 
$
159,249

 
$

 
$
171,945

Accounts receivable, net
 
15,069

 
41,028

 
140,848

 

 
196,945

Inventories, net
 
23,030

 
33,103

 
87,595

 

 
143,728

Other current assets
 
11,432

 
2,059

 
36,705

 

 
50,196

Total current assets
 
62,106

 
76,311

 
424,397

 

 
562,814

Property, plant and equipment, net
 
5,326

 
23,105

 
110,132

 

 
138,563

Goodwill
 
38,847

 
189,337

 
373,197

 

 
601,381

Other intangibles, net
 
10,385

 
107,049

 
181,958

 

 
299,392

Investment in subsidiaries
 
2,062,302

 
1,007,347

 
22,674

 
(3,092,323
)
 

Intercompany receivable
 

 
609,571

 
563,924

 
(1,173,495
)
 

Other long-term assets
 
11,141

 

 
10,244

 

 
21,385

Total assets
 
$
2,190,107

 
$
2,012,720

 
$
1,686,526

 
$
(4,265,818
)
 
$
1,623,535

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
14,480

 
$
17,586

 
$
92,317

 
$

 
$
124,383

Accrued compensation and benefits
 
12,319

 
3,543

 
26,270

 

 
42,132

Current maturities of debt and short-term borrowings
 
7,491

 

 

 

 
7,491

Income taxes payable
 
2,608

 

 
8,948

 

 
11,556

Other current liabilities
 
23,674

 
3,747

 
29,522

 

 
56,943

Total current liabilities
 
60,572

 
24,876

 
157,057

 

 
242,505

Long-term debt, less current maturities
 
580,559

 

 

 

 
580,559

Deferred income taxes
 
34,713

 

 
29,281

 

 
63,994

Pension and postretirement benefit liabilities
 
11,306

 

 
5,132

 

 
16,438

Other long-term liabilities
 
46,773

 
474

 
8,340

 

 
55,587

Intercompany payable
 
791,732

 

 
381,763

 
(1,173,495
)
 

Shareholders’ equity
 
664,452

 
1,987,370

 
1,104,953

 
(3,092,323
)
 
664,452

Total liabilities and shareholders’ equity
 
$
2,190,107

 
$
2,012,720

 
$
1,686,526

 
$
(4,265,818
)
 
$
1,623,535


16


CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
 
August 31, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
18,688

 
$
523

 
$
149,635

 
$

 
$
168,846

Accounts receivable, net
 
16,135

 
33,748

 
143,198

 

 
193,081

Inventories, net
 
23,074

 
33,480

 
86,198

 

 
142,752

Deferred income taxes
 
9,256

 

 
3,666

 

 
12,922

Other current assets
 
18,020

 
2,967

 
21,801

 

 
42,788

Total current assets
 
85,173

 
70,718

 
404,498

 

 
560,389

Property, plant and equipment, net
 
6,363

 
23,691

 
112,404

 

 
142,458

Goodwill
 
38,847

 
189,337

 
380,072

 

 
608,256

Other intangibles, net
 
10,702

 
109,665

 
188,395

 

 
308,762

Investment in subsidiaries
 
2,067,438

 
1,017,418

 
27,552

 
(3,112,408
)
 

Intercompany receivable
 

 
619,198

 
565,968

 
(1,185,166
)
 

Other long-term assets
 
10,694

 

 
6,358

 

 
17,052

Total assets
 
$
2,219,217

 
$
2,030,027

 
$
1,685,247

 
$
(4,297,574
)
 
$
1,636,917

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
14,700

 
$
19,213

 
$
84,202

 
$

 
$
118,115

Accrued compensation and benefits
 
16,479

 
2,952

 
24,276

 

 
43,707

Current maturities of debt and short-term borrowings
 
3,750

 

 
219

 

 
3,969

Income taxes payable
 
10,947

 

 
3,858

 

 
14,805

Other current liabilities
 
19,817

 
4,783

 
29,860

 

 
54,460

Total current liabilities
 
65,693

 
26,948

 
142,415

 

 
235,056

Long-term debt, less current maturities
 
584,309

 

 

 

 
584,309

Deferred income taxes
 
43,210

 

 
29,731

 

 
72,941

Pension and postretirement benefit liabilities
 
11,712

 

 
6,116

 

 
17,828

Other long-term liabilities
 
46,407

 
400

 
6,975

 

 
53,782

Intercompany payable
 
794,885

 

 
390,281

 
(1,185,166
)
 

Shareholders’ equity
 
673,001

 
2,002,679

 
1,109,729

 
(3,112,408
)
 
673,001

Total liabilities and shareholders’ equity
 
$
2,219,217

 
$
2,030,027

 
$
1,685,247

 
$
(4,297,574
)
 
$
1,636,917



17


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Three Months Ended November 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
 
Cash provided by (used in) operating activities
 
$
2,021

 
$
(8,725
)
 
$
27,073

 
$

 
$
20,369

Investing Activities
 

 

 

 

 

Capital expenditures
 
(195
)
 
(606
)
 
(4,728
)
 

 
(5,529
)
Proceeds from sale of property, plant and equipment
 
13

 

 
1,424

 

 
1,437

Business acquisitions, net of cash acquired
 

 

 
(530
)
 

 
(530
)
Cash used in investing activities
 
(182
)
 
(606
)
 
(3,834
)
 

 
(4,622
)
Financing Activities
 

 

 

 

 

Net repayments on revolver and other debt
 

 

 
(218
)
 

 
(218
)
Purchase of treasury shares
 
(4,682
)
 

 

 

 
(4,682
)
Stock option exercises, related tax benefits and other
 
1,090

 

 

 

 
1,090

Cash dividend
 
(2,376
)
 

 

 

 
(2,376
)
Intercompany loan activity
 
(1,984
)
 
8,929

 
(6,945
)
 

 

Cash provided by (used in) financing activities
 
(7,952
)
 
8,929

 
(7,163
)
 

 
(6,186
)
Effect of exchange rate changes on cash
 

 

 
(6,462
)
 

 
(6,462
)
Net (decrease) increase in cash and cash equivalents
 
(6,113
)
 
(402
)
 
9,614

 

 
3,099

Cash and cash equivalents—beginning of period
 
18,688

 
523

 
149,635

 

 
168,846

Cash and cash equivalents—end of period
 
$
12,575

 
$
121

 
$
159,249

 
$

 
$
171,945


18


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Three Months Ended November 30, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
5,024

 
$
(28,333
)
 
$
4,135

 
$

 
$
(19,174
)
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 borrowing on revolver and other debt
 
123,000

 

 
1,994

 

 
124,994

Principal repayments on term loan
 
(1,125
)
 

 

 

 
(1,125
)
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
)
Intercompany loan activity
 
(47,192
)
 
27,281

 
19,911

 

 

Cash (used in) provided by financing activities
 
(30,043
)
 
27,281

 
21,905

 

 
19,143

Effect of exchange rate changes on cash
 

 

 
(13,945
)
 

 
(13,945
)
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


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 and 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. The Company is organized into three operating 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 other energy markets. The Engineered Solutions segment provides highly engineered position and motion control systems to original equipment manufacturers (“OEM”) in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agricultural markets. Financial information related to the Company's segments is included in Note 9, "Segment Information" in the notes to the condensed consolidated financial statements.
Our businesses provide an array of products and services across multiple customer markets and geographies which results in significant diversification.  Sales in most of our end markets are expected to remain sluggish during the remainder of the fiscal year given the challenging and inconsistent demand we have experienced in several served markets including industrial, mining, infrastructure, oil & gas, commercial and off-highway vehicles and agriculture. Excluding the impact of acquisitions, divestitures and foreign currency rate changes ("core sales"), we expect fiscal 2016 consolidated core sales to decline 1-4% from the prior year. As a result of these and other factors, we have implemented various cost reduction programs across all three segments to reduce the impact of lower customer demand on our profitability. We expect to incur $25 million of restructuring charges in fiscal 2016 and 2017 to simplify our organizational structure and reduce our fixed costs. First quarter financial results include $4 million of restructuring costs to consolidate facilities in the Industrial and Energy segments and reduce global headcount. We remain focused on maintaining our financial position and flexibility by adjusting our cost structure to reflect changes in demand levels and by proactively managing working capital and cash flow generation. 
Given our worldwide operations, the strengthening of the U.S. dollar has continued to have a significant negative impact on our financial results, financial position and cash flow. Changes in foreign currency exchange rates will continue to add volatility going forward as slightly over one-half of our sales are generated outside of the United States in currencies other than the U.S. dollar. The strengthening of the U.S. dollar unfavorably impacts our cash flow and earnings given the translation of our international results into U.S. dollars. This also results in higher costs for certain international operations which incur costs or purchase material components in U.S. dollars and reduces the dollar value of assets (including cash) and liabilities of our international operations included in our consolidated balance sheet.
Despite short-term challenges from weak end market demand and foreign currency headwinds, 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. The long-term sales growth and profitability of our business is also dependent 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. Our priorities during the remainder of fiscal 2016 include continued restructuring activities, investments in growth initiatives, including strategic acquisitions and cash flow generation.
Results of Operations
The following table sets forth our results of operations (in millions, except per share amounts):
 
Three Months Ended November 30,
 
2015
 
 
 
2014
 
 
Net sales
$
305

 
100
%
 
$
328

 
100
%
Cost of products sold
196

 
64
%
 
201

 
61
%
Gross profit
109

 
36
%
 
127

 
40
%
Selling, administrative and engineering expenses
73

 
24
%
 
82

 
25
%
Amortization of intangible assets
6

 
2
%
 
6

 
2
%
Restructuring charges
4

 
1
%
 

 
%
Operating profit
26

 
9
%
 
39

 
12
%
Financing costs, net
7

 
2
%
 
6

 
2
%
Other expense, net
1

 
0
%
 

 
0
%
Earnings before income taxes
18

 
6
%
 
33

 
10
%
Income tax expense
2

 
1
%
 
8

 
2
%
Net earnings
$
16

 
5
%
 
$
25

 
8
%
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.26

 
 
 
$
0.38

 
 

20


First quarter consolidated sales decreased $23 million compared to the prior year, which was attributable to changes in foreign currency exchange rates.  First quarter core sales were virtually unchanged from the comparable prior year period, as robust maintenance activity in the Energy segment offset continued challenging end market conditions and inventory destocking in the Engineered Solutions and Industrial segments. The resulting lower production levels and absorption of manufacturing costs, as well as unfavorable sales mix, $4 million of restructuring charges, incremental incentive compensation costs and foreign currency pressure on material costs resulted in reduced operating profit margins. Fiscal 2016 first quarter financial results also include additional financing costs due to higher debt levels (reflecting stock buyback activity over the last twelve months), a reduced effective income tax rate, as well as lower shares outstanding.
Segment Results
Industrial Segment
The Industrial segment is a global supplier of branded hydraulic and mechanical tools to a broad array of end markets, including general maintenance and repair, industrial, oil & gas, mining, infrastructure and production automation. Its primary products include high-force hydraulic tools, highly engineered heavy lifting solutions, workholding (production automation) solutions and concrete stressing components and systems. The following table sets forth the results of operations for the Industrial segment (in millions):
 
Three Months Ended November 30,
 
2015
 
2014
Net sales
$
89

 
$
102

Operating profit
21

 
27

Operating profit %
23.1
%
 
26.1
%
Industrial segment first quarter sales were $89 million, or 13% lower than the prior year. Excluding changes in foreign currency exchange rates, which unfavorably impacted sales comparisons by $5 million, year-over-year core sales declined 9% in the first quarter of fiscal 2016, as industrial tool demand declined globally, reflecting reduced general industrial activity and unfavorable market conditions in several served markets including mining and oil & gas. Unfavorable sales mix, lower production levels and $1 million of restructuring charges resulted in a reduction of operating profit in the first quarter of fiscal 2016.
Energy Segment
The Energy segment provides products and services to the global energy markets, where safety, reliability, up-time and productivity are key value drivers. Products include joint integrity tools and connectors for oil & gas and power generation installations and high performance ropes, cables and umbilicals. In addition to these products, the Energy segment also provides mooring systems and joint integrity tools under rental arrangements, as well as technical manpower solutions. The following table sets forth the results of operations for the Energy segment (in millions):
 
Three Months Ended November 30,
 
2015
 
2014
Net sales
$
114

 
$
112

Operating profit
10

 
12

Operating profit %
8.9
%
 
11.2
%
Despite the weak oil & gas environment, first quarter Energy segment core sales grew $13 million (13%) compared to the prior year, while changes in foreign currency exchange rates unfavorable impacted sales comparisons by $11 million. The core sales growth was driven by significantly higher technical manpower services for refinery maintenance projects in the Middle East and North America, offset by weak offshore drilling and exploration activity. First quarter operating profit declined year-over-year due to unfavorable sales mix (service revenue increased sharply in the quarter), coupled with $2 million of restructuring charges.

21


Engineered Solutions Segment
The Engineered Solutions segment is a global designer and assembler of customized position and motion control systems and other industrial products to various vehicle and other niche markets. The segment focuses on providing technical and highly engineered products, including actuation systems, mechanical power transmission products, engine air flow management systems, human to machine interface solutions and other rugged electronic instrumentation. The following table sets forth the results of operations for the Engineered Solutions segment (in millions):
 
Three Months Ended November 30,
 
2015
 
2014
Net sales
$
102

 
$
114

Operating profit
4

 
6

Operating profit %
3.4
%
 
5.5
%
First quarter fiscal 2016 Engineered Solutions net sales decreased $12 million (10%) year-over-year for the three months ended November 30, 2015. Excluding foreign currency rate changes, which unfavorably impacted sales comparisons by $8 million, core sales declined 3% on weak end market conditions (agriculture, mining, off-highway equipment) and OEM inventory destocking. First quarter operating profit declined due to lower sales and significantly reduced absorption, combined with $1 million of restructuring charges.
Corporate
Corporate expenses increased by $2 million to $9 million for the three months ended November 30, 2015 on higher annual incentive compensation costs (prior year results included reduced provisions for annual bonuses) and additional consulting fees and recruiting expenses. This increase was partially offset by reduced litigation charges as prior year results included a $2 million litigation charge.
Financing Costs, net
Net financing costs were $7 million and $6 million for the three months ended November 30, 2015 and 2014, respectively. First quarter net financing costs increased slightly as a result of higher average borrowing levels compared to the prior year.
Income Taxes Expense
The effective income tax rate for the first quarter of fiscal 2016 was 12.4% compared to 24.0% in the prior year period. Income tax expense for the three months ended November 30, 2015 was lower than the comparable prior year period primarily due to lower earnings, favorable mix of taxable earnings (a greater proportion of earnings from lower tax rate jurisdictions) and the benefits of tax minimization planning. 
Cash Flows and Liquidity
At November 30, 2015, cash and cash equivalents is comprised of $159 million of cash held by our foreign locations and $13 million held domestically. We periodically utilize income tax safe harbor provisions to make temporary short-term intercompany advances from our foreign subsidiaries to our U.S. parent. Temporary intercompany advances, which were utilized to reduce outstanding debt balances, were $127 million and $160 million at November 30, 2015 and August 31, 2015, respectively. The following table summarizes our cash flows from operating, investing and financing activities (in millions):
 
 
Three Months Ended November 30,
 
 
2015
 
2014
Net cash provided by (used in) operating activities
 
$
20

 
$
(19
)
Net cash used in investing activities
 
(5
)
 
(8
)
Net cash (used in) provided by financing activities
 
(6
)
 
19

Effect of exchange rates on cash
 
(6
)
 
(14
)
Net increase (decrease) in cash and cash equivalents
 
$
3

 
$
(22
)
Cash flows from operating activities during the three months ended November 30, 2015 were $20 million, consisting of net earnings, offset by slightly higher working capital requirements and the payment of prior year annual incentive compensation costs.

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Operating cash flow funded the repurchase of 200,000 shares ($5 million) of the Company's common stock, $6 million of capital expenditures and the $2 million annual cash dividend.
For the three months ended November 30, 2014 cash flows used in operating activities were $19 million, primarily the result of increased working capital and $34 million of tax payments (mainly attributable to prior year divestiture transactions). Net revolver borrowings of $125 million were primarily used to fund the repurchase of approximately 3 million shares ($104 million) of the Company's common stock, as well as $8 million of capital expenditures and a $3 million annual dividend.
Our Senior Credit Facility, which matures on May 8, 2020, includes a $600 million revolver, a $300 million term loan and a $450 million expansion option. Quarterly term loan principal payments of $4 million begin on June 30, 2016, increasing to $8 million per quarter beginning on June 30, 2017, with the remaining principal due at maturity. At November 30, 2015, the unused credit line under the revolver was $589 million, of which $138 million was available for borrowing. We believe the existing cash on hand, revolver availability and anticipated operating cash flow will be adequate to meet operating, debt service, stock buyback, acquisition funding and capital expenditure requirements for the foreseeable future.
Primary Working Capital Management
We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (in millions):
 
 
November 30, 2015
 
PWC%
 
August 31, 2015
 
PWC%
Accounts receivable, net
 
$
197

 
16
 %
 
$
193

 
16
 %
Inventory, net
 
144

 
11
 %
 
143

 
12
 %
Accounts payable
 
(124
)
 
(10
)%
 
(118
)
 
(10
)%
Net primary working capital
 
$
217

 
17
 %
 
$
218

 
18
 %
Excluding the $3 million impact of changes in foreign currency exchange rates, primary working capital increased $2 million in the quarter, the result of a $7 million increase in accounts receivable (due to higher sales levels in the Energy segment), a $3 million increase in inventory and an $8 million increase in accounts payable.
Commitments and Contingencies
We have operations in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past two years have not been material and we believe that such costs will not have a material adverse effect on our financial position, results of operations or cash flows.
We remain contingently liable for lease payments under leases of businesses that were 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 $17 million at November 30, 2015.
We had outstanding letters of credit of approximately $18 million and $14 million at November 30, 2015 and August 31, 2015, respectively, the majority of which secure self-insured workers compensation liabilities.
Contractual Obligations
Our contractual obligations are discussed in Part 1, Item 7 , “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in our Annual Report on Form 10-K for the year ended August 31, 2015, and have not materially changed.
Critical Accounting Policies
Refer to the Critical Accounting Policies in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year-ended August 31, 2015 for information about the Company’s policies, methodology and assumptions related to critical accounting policies.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
The diverse nature of our business activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity costs.

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Interest Rate Risk: We manage interest expense using a mixture of fixed-rate and variable-rate debt. A change in interest rates impacts the fair value of our 5.625% Senior Notes, but not our earnings or cash flow because the interest rate on such debt is fixed. Our variable-rate debt obligations consist primarily of revolver and term loan borrowings under our Senior Credit Facility. A ten percent increase in the average cost of our variable rate debt (from 2.00% to 2.20%) would have resulted in a corresponding $0.3 million increase in financing costs for the three months ended November 30, 2015.

Foreign Currency Risk: We maintain operations in the U.S. and various foreign countries. Our more significant non-U.S. operations are located in Australia, the Netherlands, the United Kingdom, Mexico and China, and have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions (primarily forward foreign currency swaps) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 6, “Derivatives” for further information). We do not engage in trading or other speculative activities with these transactions, as established policies require that these hedging transactions relate to specific currency exposures.
Similar to what we experienced during the three months ended November 30, 2015, strengthening of the U.S. dollar can have an unfavorable impact on our results of operations and financial position as foreign denominated operating results are translated into U.S. dollars. To illustrate the potential impact of changes in foreign currency exchange rates on the translation of our results of operations, quarterly sales and operating profit were remeasured assuming a ten percent decrease in all foreign exchange rates compared with the U.S. dollar. Using this assumption, quarterly sales would have been lower by $14 million and operating profit would have been lower by $1 million, respectively, for the three months ended November 30, 2015. This sensitivity analysis assumes that each exchange rate would change in the same direction relative to the U.S. dollar and excludes the potential effects that changes in foreign currency exchange rates may have on sales levels or local currency prices. Similarly, a ten percent decline in foreign currency exchange rates on our November 30, 2015 financial position would have resulted in a $64 million reduction to equity (accumulated other comprehensive loss), as a result of non U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
Commodity Cost Risk: We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin, are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion and utilize LEAD initiatives to further mitigate the impact of commodity raw material price fluctuations with improved operation efficiencies.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds    
The Company's Board of Directors has authorized the repurchase of shares of the Company’s common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 19,926,479 shares of common stock (over 25% of its then outstanding shares) for $605 million. The following table summarizes share repurchases during the three months ended November 30, 2015:
 
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
September 1 to September 30, 2015
 

 
$

 
8,273,521

October 1 to October 31, 2015
 
20,800

 
21.45

 
8,252,721

November 1 to November 30, 2015
 
179,200

 
23.61

 
8,073,521

 
 
200,000

 
$
23.39

 
 
Item 6 – Exhibits
(a) Exhibits
See “Index to Exhibits” on page 27, which is incorporated herein by reference.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
ACTUANT CORPORATION
 
 
(Registrant)
Date: January 8, 2016
 
By:
/S/ ANDREW G. LAMPEREUR
 
 
 
Andrew G. Lampereur
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)


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ACTUANT CORPORATION
(the “Registrant”)
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2015
INDEX TO EXHIBITS
 
 
 
 
 
 
 
 
Exhibit
 
Description
 
Filed
Herewith
 
Furnished Herewith
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
101
 
The following materials from the Actuant Corporation Form 10-Q for the quarter ended November 30, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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