Attached files
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EX-32.1 - EXHIBIT 32.1 - ENERPAC TOOL GROUP CORP | atu-20160229exhibit321.htm |
EX-31.2 - EXHIBIT 31.2 - ENERPAC TOOL GROUP CORP | atu-20160229exhibit312.htm |
EX-31.1 - EXHIBIT 31.1 - ENERPAC TOOL GROUP CORP | atu-20160229exhibit311.htm |
EX-32.2 - EXHIBIT 32.2 - ENERPAC TOOL GROUP CORP | atu-20160229exhibit322.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 February 29, 2016
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 March 31, 2016 was 58,880,671.
TABLE OF CONTENTS
Page No. | |
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 OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||
Net sales | $ | 263,289 | $ | 301,005 | $ | 568,300 | $ | 628,770 | |||||||
Cost of products sold | 172,259 | 191,244 | 368,709 | 392,033 | |||||||||||
Gross profit | 91,030 | 109,761 | 199,591 | 236,737 | |||||||||||
Selling, administrative and engineering expenses | 67,172 | 75,768 | 140,083 | 158,240 | |||||||||||
Amortization of intangible assets | 5,880 | 6,087 | 11,779 | 12,373 | |||||||||||
Restructuring charges | 3,582 | — | 7,962 | — | |||||||||||
Impairment charges | 186,511 | 84,353 | 186,511 | 84,353 | |||||||||||
Operating loss | (172,115 | ) | (56,447 | ) | (146,744 | ) | (18,229 | ) | |||||||
Financing costs, net | 6,866 | 7,030 | 13,982 | 13,221 | |||||||||||
Other expense (income), net | 235 | (619 | ) | 855 | (1,058 | ) | |||||||||
Loss before income taxes | (179,216 | ) | (62,858 | ) | (161,581 | ) | (30,392 | ) | |||||||
Income tax expense (benefit) | (20,026 | ) | 1,980 | (17,839 | ) | 9,772 | |||||||||
Net loss | $ | (159,190 | ) | $ | (64,838 | ) | $ | (143,742 | ) | $ | (40,164 | ) | |||
Loss per share: | |||||||||||||||
Basic | $ | (2.70 | ) | $ | (1.05 | ) | $ | (2.43 | ) | $ | (0.64 | ) | |||
Diluted | $ | (2.70 | ) | $ | (1.05 | ) | $ | (2.43 | ) | $ | (0.64 | ) | |||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 58,991 | 61,759 | 59,089 | 63,045 | |||||||||||
Diluted | 58,991 | 61,759 | 59,089 | 63,045 | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
3
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||
Net loss | $ | (159,190 | ) | $ | (64,838 | ) | $ | (143,742 | ) | $ | (40,164 | ) | |||
Other comprehensive income (loss), net of tax | |||||||||||||||
Foreign currency translation adjustments | (14,322 | ) | (57,091 | ) | (35,496 | ) | (120,367 | ) | |||||||
Pension and other postretirement benefit plans | 158 | 390 | 375 | 752 | |||||||||||
Cash flow hedges | 13 | (47 | ) | 36 | (96 | ) | |||||||||
Total other comprehensive loss, net of tax | (14,151 | ) | (56,748 | ) | (35,085 | ) | (119,711 | ) | |||||||
Comprehensive loss | $ | (173,341 | ) | $ | (121,586 | ) | $ | (178,827 | ) | $ | (159,875 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
4
ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
See accompanying Notes to Condensed Consolidated Financial Statements
February 29, 2016 | August 31, 2015 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 154,671 | $ | 168,846 | ||||
Accounts receivable, net | 181,335 | 193,081 | ||||||
Inventories, net | 147,371 | 142,752 | ||||||
Deferred income taxes | — | 12,922 | ||||||
Other current assets | 54,906 | 42,788 | ||||||
Total current assets | 538,283 | 560,389 | ||||||
Property, plant and equipment | ||||||||
Land, buildings and improvements | 47,879 | 48,515 | ||||||
Machinery and equipment | 266,455 | 269,983 | ||||||
Gross property, plant and equipment | 314,334 | 318,498 | ||||||
Less: Accumulated depreciation | (203,467 | ) | (176,040 | ) | ||||
Property, plant and equipment, net | 110,867 | 142,458 | ||||||
Goodwill | 486,353 | 608,256 | ||||||
Other intangibles, net | 250,535 | 308,762 | ||||||
Other long-term assets | 24,966 | 17,052 | ||||||
Total assets | $ | 1,411,004 | $ | 1,636,917 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Trade accounts payable | $ | 111,550 | $ | 118,115 | ||||
Accrued compensation and benefits | 40,907 | 43,707 | ||||||
Current maturities of debt and short-term borrowings | 11,250 | 3,969 | ||||||
Income taxes payable | 5,136 | 14,805 | ||||||
Other current liabilities | 52,767 | 54,460 | ||||||
Total current liabilities | 221,610 | 235,056 | ||||||
Long-term debt, less current maturities | 576,809 | 584,309 | ||||||
Deferred income taxes | 52,614 | 72,941 | ||||||
Pension and postretirement benefit liabilities | 16,316 | 17,828 | ||||||
Other long-term liabilities | 56,123 | 53,782 | ||||||
Total liabilities | 923,472 | 963,916 | ||||||
Shareholders’ equity | ||||||||
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 79,185,404 and 78,932,533 shares, respectively | 15,837 | 15,787 | ||||||
Additional paid-in capital | 106,966 | 104,308 | ||||||
Treasury stock, at cost, 20,126,479 and 19,726,479 shares, respectively | (609,982 | ) | (600,630 | ) | ||||
Retained earnings | 1,223,436 | 1,367,176 | ||||||
Accumulated other comprehensive loss | (248,725 | ) | (213,640 | ) | ||||
Stock held in trust | (2,954 | ) | (4,292 | ) | ||||
Deferred compensation liability | 2,954 | 4,292 | ||||||
Total shareholders’ equity | 487,532 | 673,001 | ||||||
Total liabilities and shareholders’ equity | $ | 1,411,004 | $ | 1,636,917 |
5
ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended | |||||||
February 29, 2016 | February 28, 2015 | ||||||
Operating Activities | |||||||
Net loss | $ | (143,742 | ) | $ | (40,164 | ) | |
Adjustments to reconcile net loss to cash provided by operating activities: | |||||||
Depreciation and amortization | 24,858 | 26,940 | |||||
Stock-based compensation expense | 5,778 | 5,873 | |||||
Benefit (provision) for deferred income taxes | 420 | (175 | ) | ||||
Impairment charges, net of deferred tax benefits | 169,056 | 82,635 | |||||
Amortization of debt discount and debt issuance costs | 826 | 846 | |||||
Other non-cash adjustments | (619 | ) | 457 | ||||
Sources (uses) of cash from changes in components of working capital and other: | |||||||
Accounts receivable | 8,437 | 5,904 | |||||
Inventories | (5,399 | ) | (11,162 | ) | |||
Other assets | (8,404 | ) | (13,353 | ) | |||
Trade accounts payable | (4,926 | ) | (12,407 | ) | |||
Income taxes payable/refundable | (17,437 | ) | (38,033 | ) | |||
Accrued compensation and benefits | (2,281 | ) | (10,438 | ) | |||
Other accrued liabilities | 2,296 | 6,228 | |||||
Cash provided by operating activities | 28,863 | 3,151 | |||||
Investing Activities | |||||||
Proceeds from sale of property, plant and equipment | 4,636 | 707 | |||||
Capital expenditures | (11,004 | ) | (12,877 | ) | |||
Business acquisitions, net of cash acquired | (15,026 | ) | — | ||||
Cash used in investing activities | (21,394 | ) | (12,170 | ) | |||
Financing Activities | |||||||
Net (repayments) borrowings on revolver and other debt | (210 | ) | 199,000 | ||||
Principal repayments on term loan | — | (2,250 | ) | ||||
Purchase of treasury shares | (9,352 | ) | (180,512 | ) | |||
Taxes paid related to the net share settlement of equity awards | (1,332 | ) | (2,325 | ) | |||
Stock option exercises, related tax benefits and other | 2,245 | 4,753 | |||||
Cash dividend | (2,376 | ) | (2,598 | ) | |||
Cash (used in) provided by financing activities | (11,025 | ) | 16,068 | ||||
Effect of exchange rate changes on cash | (10,619 | ) | (28,564 | ) | |||
Net decrease in cash and cash equivalents | (14,175 | ) | (21,515 | ) | |||
Cash and cash equivalents – beginning of period | 168,846 | 109,012 | |||||
Cash and cash equivalents – end of period | $ | 154,671 | $ | 87,497 |
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 six months ended February 28, 2015 includes an adjustment to properly state the foreign currency impact on cash. The impact of this adjustment is a $10.4 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 and six months ended February 29, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2016.
New Accounting Pronouncements
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.
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 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 February 2016, the FASB issued ASU 2016-02, Leases to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the impact of adopting this standard.
Significant Accounting Policies
Financing Costs: Financing costs represent interest expense, financing fees and amortization of debt issuance costs, net of $0.4 million and $0.8 million of interest income for the three and six months ended February 29, 2016, respectively.
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 administrative functions. Total restructuring charges for these activities were $3.6 million and $8.0 million, for the three and six months ended February 29, 2016, respectively. 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.
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The following rollforward summarizes current year restructuring activities, by segment, for the six months ended February 29, 2016 (in thousands):
Industrial | Energy | Engineered Solutions | Corporate | Total | ||||||||||||||||
Balance as of August 31, 2015 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Restructuring charges | 984 | 3,308 | 3,412 | 258 | 7,962 | |||||||||||||||
Cash payments | (361 | ) | (256 | ) | (1,120 | ) | (157 | ) | (1,894 | ) | ||||||||||
Other non-cash uses of reserve | — | (29 | ) | (136 | ) | (1 | ) | (166 | ) | |||||||||||
Impact of changes in foreign currency rates | — | (39 | ) | 11 | — | (28 | ) | |||||||||||||
Balance as of February 29, 2016 | $ | 623 | $ | 2,984 | $ | 2,167 | $ | 100 | $ | 5,874 |
Goodwill and Long-Lived Assets: The Company's goodwill is tested for impairment annually, in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company generally utilizes a discounted cash flow model to estimate the fair value of reporting units, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the goodwill is potentially impaired and the Company then determines the implied fair value of goodwill, which is compared to the carrying value to determine if an impairment charge is required.
Indefinite lived intangible assets (tradenames) are also subject to an impairment review. On an annual basis, or more frequently if events or changes in circumstances indicate that indefinite lived intangible assets might not be recoverable, the fair value of the indefinite lived intangible assets, using a relief of royalty valuation approach, are compared to the carrying value to determine if an impairment charge is required.
Intangible assets with definite lives consist primarily of customer relationships, patents, trademarks and non-compete agreements while fixed assets include building improvements, rental assets (Energy segment) and machinery & equipment. The Company reviews these long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If such indicators are present, the Company prepares an undiscounted operating cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is recorded based on fair value.
A considerable amount of management judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit, intangible asset or fixed asset. While management believes the judgments and assumptions utilized in the fair value models are reasonable, different assumptions or adverse market developments could change the estimated fair values and ultimately result in future impairment charges.
As discussed in Note 3, "Goodwill and Other Intangible Assets," the Company recognized a $186.5 million and $84.4 million impairment charge in the second quarter of fiscal 2016 and 2015, respectively.
Note 2. Acquisitions
The Company completed a business acquisition during fiscal 2016, which resulted in the recognition of goodwill in the condensed consolidated financial statements because its purchase price reflected the future earnings and cash flow potential of the acquired company, as well as the complementary strategic fit and resulting synergies the acquisition is expected to bring to existing operations.
The Company makes an initial allocation of the purchase price at the date of acquisition, based upon its understanding of the fair value of the acquired assets and assumed liabilities. 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 other sources, the Company will refine its estimates of fair value and adjust the initial purchase price allocation.
The Company acquired the stock of Larzep, S.A. ("Larzep") on February 17, 2016 for a purchase price of $14.6 million net of cash acquired and $1.5 million of deferred purchase price. This Industrial segment tuck-in acquisition is headquartered in Mallabia, Spain and is a supplier of hydraulic tools and solutions. The preliminary purchase price allocation resulted in $7.2 million of goodwill (which is deductible for tax purposes) and $5.3 million of intangible assets, including $3.4 million of customer relationships and $1.9 million of tradenames.
Subsequent to February 29, 2016, the Company acquired the Middle East, Caspian and the North African business of FourQuest Energy Inc. ("FourQuest") for $64.3 million. This tuck-in acquisition was funded with existing cash and expands the geographic presence and product offerings of the Energy segment, including a full range of industrial services and equipment (engineering, chemical cleaning and leak testing services) and pipeline pre-commissioning services.
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Note 3. Goodwill and Other Intangible Assets
The Energy segment provides products and services to the global energy markets where safety, reliability, up-time and productivity are key value drivers. The dramatic decline in oil prices in 2015 caused a slowdown in upstream oil & gas activity as asset owners hesitated on starting new oil & gas exploration drilling and development projects, while certain existing projects were deferred or canceled and capital spending was reduced. As a result of these unfavorable market conditions, in the second quarter of fiscal 2015 the Company recognized a $84.4 million impairment charge related to the write-down of goodwill and indefinite lived intangible assets of the Cortland and Viking businesses. The impairment charge, as a result of lower projected near-term sales and profits, consisted of a $78.0 million impairment of goodwill and $6.4 million impairment of indefinite lived intangible assets (tradenames).
The prolonged unfavorable conditions in the global oil & gas markets, including additional cuts in projected capital spending by energy customers, reduced exploration, drilling and commissioning activities and excess capacity in the industry (given continued low oil & gas prices) are expected to have an adverse impact on the future financial results of the Cortland and Viking businesses. Accordingly, during the second quarter of fiscal 2016, the Company recognized a $140.8 million impairment charge (as a result of lower projected future sales and profits) related to the Cortland and Viking businesses.
The maximatecc business (Engineered Solutions segment), including the legacy North American business and the CrossControl (Europe) and Turotest (South America) acquisitions, manufactures severe-duty electronic instrumentation including displays and clusters, machine controls and sensors. Weakness in off-highway vehicle and agricultural markets, coupled with challenging overall industrial fundamentals, recent reductions in OEM customer build rates and production schedules (in order to reduce inventory levels) and delays in the start of production by certain European OEMs for new or updated design models have resulted in reduced sales and profitability of the maximatecc business. As a result of lower projected sales and profits, during the second quarter of fiscal 2016, the Company recognized a $45.7 million impairment charge related to the goodwill and intangible assets of the maximatecc business.
A summary of the second quarter fiscal 2016 impairment charge by reporting unit is as follows (in thousands):
Cortland | Viking | maximatecc | Total | ||||||||||||
Goodwill | $ | 34,502 | $ | 39,099 | $ | 44,521 | $ | 118,122 | |||||||
Indefinite lived intangible assets | 2,211 | 13,289 | 1,153 | 16,653 | |||||||||||
Amortizable intangible assets | — | 27,952 | — | 27,952 | |||||||||||
Fixed assets | — | 23,784 | — | 23,784 | |||||||||||
$ | 36,713 | $ | 104,124 | $ | 45,674 | $ | 186,511 |
Following the second quarter fiscal 2016 impairment charge, there was $18.0 million and $37.1 million of goodwill remaining at the maximatecc and Cortland reporting units, respectively. There was no Viking goodwill remaining at February 29, 2016. The changes in the carrying value of goodwill for the six months ended February 29, 2016 are as follows (in thousands):
Industrial | Energy | Engineered Solutions | Total | ||||||||||||
Balance as of August 31, 2015 | $ | 92,107 | $ | 236,450 | $ | 279,699 | $ | 608,256 | |||||||
Business acquisition | 7,210 | — | — | 7,210 | |||||||||||
Impairment charge | — | (73,919 | ) | (44,543 | ) | (118,462 | ) | ||||||||
Impact of changes in foreign currency rates | (885 | ) | (7,884 | ) | (1,882 | ) | (10,651 | ) | |||||||
Balance as of February 29, 2016 | $ | 98,432 | $ | 154,647 | $ | 233,274 | $ | 486,353 |
9
The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
February 29, 2016 | 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 | $ | 298,079 | $ | 165,990 | $ | 132,089 | $ | 302,518 | $ | 132,007 | $ | 170,511 | ||||||||||||
Patents | 10 | 30,493 | 21,020 | 9,473 | 30,899 | 19,928 | 10,971 | ||||||||||||||||||
Trademarks and tradenames | 18 | 21,344 | 7,584 | 13,760 | 21,604 | 7,055 | 14,549 | ||||||||||||||||||
Other intangibles | 3 | 6,172 | 5,985 | 187 | 6,790 | 6,496 | 294 | ||||||||||||||||||
Indefinite lived intangible assets: | |||||||||||||||||||||||||
Tradenames | N/A | 95,026 | — | 95,026 | 112,437 | — | 112,437 | ||||||||||||||||||
$ | 451,114 | $ | 200,579 | $ | 250,535 | $ | 474,248 | $ | 165,486 | $ | 308,762 |
The Company estimates that amortization expense will be $10.5 million for the remaining six months of fiscal 2016. Amortization expense for future years is estimated to be: $19.9 million in fiscal 2017, $19.6 million in 2018, $19.4 million in fiscal 2019, $18.8 million in fiscal 2020, $17.7 million in fiscal 2021 and $49.6 million thereafter. The future amortization expense amounts represent estimates and may be impacted by potential future acquisitions, divestitures, impairment charges, changes in foreign currency exchange rates and other factors.
Note 4. 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):
Six Months Ended | |||||||
February 29, 2016 | February 28, 2015 | ||||||
Beginning balance | $ | 3,718 | $ | 4,056 | |||
Provision for warranties | 2,096 | 2,837 | |||||
Warranty payments and costs incurred | (2,297 | ) | (2,418 | ) | |||
Impact of changes in foreign currency rates | (66 | ) | (231 | ) | |||
Ending balance | $ | 3,451 | $ | 4,244 |
Note 5. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
February 29, 2016 | 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 | (11,250 | ) | (3,750 | ) | |||
Total long-term debt, less current maturities | $ | 576,809 | $ | 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 February 29,
10
2016, the borrowing spread on LIBOR based borrowings was 1.75% (aggregating to a 2.19% 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 February 29, 2016, the unused credit line under the revolver was $588.6 million, of which $217.6 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 February 29, 2016.
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 at February 29, 2016 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 6. 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 February 29, 2016 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 Notes was $291.7 million and $287.3 million at February 29, 2016 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.
At February 29, 2016, goodwill in the Cortland, Viking and maximatecc reporting units, as well as the indefinite lived intangible assets (tradenames) and Viking amortizable intangible assets and fixed assets were adjusted to estimated fair value, resulting in a non-cash impairment charge (as discussed in Note 3, "Goodwill and Other Intangible Assets"). In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. The indefinite lived intangible assets were valued using the relief of royalty income approach. Fixed assets and amortizable intangible assets were also tested for recoverability using an undiscounted cash flow analysis based upon current sales projections and profitability for each asset group. Management measured the impairment loss of the Viking fixed assets and amortizable intangible assets as the amount by which the carrying amount of the assets exceeded their fair value. These represent Level 3 assets measured at fair value on a nonrecurring basis.
Note 7. 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.
11
The U.S. dollar equivalent notional value of short duration foreign currency forward contracts (fair value hedges or non-designated hedges) was $104.6 million and $170.7 million, at February 29, 2016 and August 31, 2015, respectively. Net foreign currency gains (losses) related to these derivative instruments are as follows (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||
Foreign currency gain (loss) | $ | 1,062 | $ | 55 | $ | (634 | ) | $ | (2,006 | ) |
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 8. Capital Stock and Share Repurchases
The Company's Board of Directors approved 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 February 29, 2016, shares repurchased under these authorizations totaled 20,126,479, leaving 7,873,521 shares available for repurchase under the existing share repurchase programs.
The reconciliation between basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):
Three Months Ended | Six Months Ended | ||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||
Numerator: | |||||||||||||||
Net loss | $ | (159,190 | ) | $ | (64,838 | ) | $ | (143,742 | ) | $ | (40,164 | ) | |||
Denominator: | |||||||||||||||
Weighted average common shares outstanding - basic and diluted (1) | 58,991 | 61,759 | 59,089 | 63,045 | |||||||||||
Basic and Diluted loss per share | $ | (2.70 | ) | $ | (1.05 | ) | $ | (2.43 | ) | $ | (0.64 | ) | |||
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation) | 5,146 | 4,761 | 5,146 | 4,761 |
(1) As a result of the impairment charges which caused a net loss in both the current and prior year, shares from stock based compensation plans are excluded from the calculation of diluted earnings (loss) per share, as the result would be anti-dilutive.
12
Note 9. 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's global operations, acquisition activity and specific tax attributes provide opportunities for continuous global tax planning initiatives to generate tax credits and deductions. Both the current and prior periods include the benefits of tax planning initiatives. Comparative pre-tax earnings (loss), income tax expense (benefit) and effective income tax rates are as follows (amounts in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | |||||||||||||
Loss before income taxes | $ | (179,216 | ) | $ | (62,858 | ) | $ | (161,581 | ) | $ | (30,392 | ) | ||||
Income tax (benefit) expense | (20,026 | ) | 1,980 | (17,839 | ) | 9,772 | ||||||||||
Effective income tax rate | 11.2 | % | (3.1 | )% | 11.0 | % | (32.2 | )% | ||||||||
Adjusted effective income tax rate(1) | (35.6 | )% | 17.2 | % | (1.6 | )% | 21.3 | % |
(1) Adjusted effective income tax rate excludes the impairment charge of $186.5 million ($169.1 million after tax) and $84.4 million ($82.6 million after tax) in fiscal 2016 and fiscal 2015, respectively.
The comparability of pre-tax income (loss), income tax expense (benefit) and the related effective income tax rate is impacted by the current year and prior year impairment charges. Excluding the impairment charges, income tax expense for the three and six months ended February 29, 2016 was lower than the comparable prior year periods primarily due to lower earnings, a favorable mix of taxable earnings and the result of tax benefits from global tax planning initiatives.
The (35.6%) adjusted effective income tax rate in the second quarter of fiscal 2016 is the result of a favorable year-to-date adjustment to the quarterly income tax provision due to a reduction in estimated annual pre-tax profits. Reduced pre-tax profits, coupled with an increased proportion of taxable earnings generated in foreign jurisdictions with tax rates lower than the U.S also benefited income tax expense in the quarter. The fiscal 2016 income tax provision included approximately 85% of earnings from foreign jurisdictions with tax rates lower than the U.S. federal income tax rate compared to approximately 65% in the prior year. Both the current and prior year second quarter tax provision included a similar benefit from global tax planning initiatives; however the impact on the effective tax rate was substantially larger in the current year, as quarterly pre-tax earnings (excluding the impairment charge) were down $14.2 million year-over-year. Current year tax planning initiatives relate to the deductibility of foreign currency losses for tax purposes.
The (1.6%) adjusted effective income tax rate for the first half of fiscal 2016 is due to the benefit of tax planning initiatives, which generate foreign tax credits that exceed the amount of taxes due on current year earnings, which are primarily in lower tax rate jurisdictions.
13
Note 10. 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 maintenance 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):
Three Months Ended | Six Months Ended | ||||||||||||||
February 29, 2016 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||
Net Sales by Reportable Product Line & Segment: | |||||||||||||||
Industrial Segment: | |||||||||||||||
Industrial Tools | $ | 72,095 | $ | 86,698 | $ | 151,828 | $ | 178,716 | |||||||
Integrated Solutions | 9,093 | 9,790 | 18,231 | 20,185 | |||||||||||
81,188 | 96,488 | 170,059 | 198,901 | ||||||||||||
Energy Segment: | |||||||||||||||
Energy Maintenance & Integrity | 58,551 | 55,364 | 137,385 | 120,342 | |||||||||||
Other Energy Services | 27,674 | 44,847 | 62,602 | 91,391 | |||||||||||
86,225 | 100,211 | 199,987 | 211,733 | ||||||||||||
Engineered Solutions Segment: | |||||||||||||||
On-Highway | 49,434 | 51,981 | 103,510 | 110,449 | |||||||||||
Agriculture, Off-Highway and Other | 46,442 | 52,325 | 94,744 | 107,687 | |||||||||||
95,876 | 104,306 | 198,254 | 218,136 | ||||||||||||
$ | 263,289 | $ | 301,005 | $ | 568,300 | $ | 628,770 | ||||||||
Operating Profit (Loss): | |||||||||||||||
Industrial | $ | 16,728 | $ | 23,517 | $ | 37,283 | $ | 50,221 | |||||||
Energy | (136,766 | ) | (75,673 | ) | (126,673 | ) | (63,231 | ) | |||||||
Engineered Solutions | (45,116 | ) | 2,010 | (41,594 | ) | 8,288 | |||||||||
General Corporate | (6,961 | ) | (6,301 | ) | (15,760 | ) | (13,507 | ) | |||||||
$ | (172,115 | ) | $ | (56,447 | ) | $ | (146,744 | ) | $ | (18,229 | ) | ||||
Adjusted Operating Profit (Loss): | |||||||||||||||
Industrial | $ | 16,728 | $ | 23,517 | $ | 37,283 | $ | 50,221 | |||||||
Energy (1) | 4,071 | 8,680 | 14,164 | 21,122 | |||||||||||
Engineered Solutions (2) | 558 | 2,010 | 4,080 | 8,288 | |||||||||||
General Corporate | (6,961 | ) | (6,301 | ) | (15,760 | ) | (13,507 | ) | |||||||
$ | 14,396 | $ | 27,906 | $ | 39,767 | $ | 66,124 |
February 29, 2016 | August 31, 2015 | ||||||
Assets by Segment: | |||||||
Industrial | $ | 298,831 | $ | 293,738 | |||
Energy | 435,260 | 601,521 | |||||
Engineered Solutions | 535,212 | 588,200 | |||||
General Corporate | 141,701 | 153,458 | |||||
$ | 1,411,004 | $ | 1,636,917 |
(1) The Energy segment adjusted operating profit (loss) excludes impairment charges of $140.8 million and $84.4 million for the three and six months ended February 29, 2016 and February 28, 2015, respectively.
(2) The Engineered Solution segment adjusted operating profit (loss) excludes impairment charges of $45.7 million for the three and six months ended February 29, 2016.
14
In addition to the impact of foreign currency exchange rate changes, the comparability of segment and product line information is also impacted by acquisitions and the fiscal 2015 and 2016 impairment charges (Energy and Engineered Solutions segments). Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.
Note 11. Contingencies and Litigation
The Company had outstanding letters of credit of $17.9 million and $18.1 million at February 29, 2016 and August 31, 2015, respectively, the majority of which relate to commercial contracts and self-insured workers compensation programs.
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 $16.7 million at February 29, 2016.
Note 12. Guarantor Subsidiaries
As discussed in Note 5, “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 February 29, 2016. 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.
15
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
Three Months Ended February 29, 2016 | |||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 32,399 | $ | 55,783 | $ | 175,107 | $ | — | $ | 263,289 | |||||||||
Cost of products sold | 12,077 | 39,688 | 120,494 | — | 172,259 | ||||||||||||||
Gross profit | 20,322 | 16,095 | 54,613 | — | 91,030 | ||||||||||||||
Selling, administrative and engineering expenses | 17,117 | 13,121 | 36,934 | — | 67,172 | ||||||||||||||
Amortization of intangible assets | 318 | 2,644 | 2,918 | — | 5,880 | ||||||||||||||
Restructuring charges | 79 | 2,374 | 1,129 | — | 3,582 | ||||||||||||||
Impairment charges | — | 49,012 | 137,499 | — | 186,511 | ||||||||||||||
Operating profit (loss) | 2,808 | (51,056 | ) | (123,867 | ) | — | (172,115 | ) | |||||||||||
Financing costs, net | 7,308 | — | (442 | ) | — | 6,866 | |||||||||||||
Intercompany (income) expense, net | (5,465 | ) | 1,025 | 4,440 | — | — | |||||||||||||
Other expense (income), net | 200 | (31 | ) | 66 | — | 235 | |||||||||||||
Earnings (loss) before income taxes | 765 | (52,050 | ) | (127,931 | ) | — | (179,216 | ) | |||||||||||
Income tax benefit | (1,648 | ) | (744 | ) | (17,634 | ) | — | (20,026 | ) | ||||||||||
Net earnings (loss) before equity in earnings (loss) of subsidiaries | 2,413 | (51,306 | ) | (110,297 | ) | — | (159,190 | ) | |||||||||||
Equity in earnings (loss) of subsidiaries | (161,603 | ) | (95,088 | ) | 111 | 256,580 | — | ||||||||||||
Net loss | $ | (159,190 | ) | $ | (146,394 | ) | $ | (110,186 | ) | $ | 256,580 | $ | (159,190 | ) | |||||
Comprehensive loss | $ | (173,341 | ) | $ | (163,017 | ) | $ | (108,215 | ) | $ | 271,232 | $ | (173,341 | ) |
16
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
Three Months Ended February 28, 2015 | |||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 39,335 | $ | 70,675 | $ | 190,995 | $ | — | $ | 301,005 | |||||||||
Cost of products sold | 12,076 | 52,182 | 126,986 | — | 191,244 | ||||||||||||||
Gross profit | 27,259 | 18,493 | 64,009 | — | 109,761 | ||||||||||||||
Selling, administrative and engineering expenses | 16,430 | 16,367 | 42,971 | — | 75,768 | ||||||||||||||
Amortization of intangible assets | 318 | 2,785 | 2,984 | — | 6,087 | ||||||||||||||
Impairment charges | — | 20,249 | 64,104 | — | 84,353 | ||||||||||||||
Operating profit (loss) | 10,511 | (20,908 | ) | (46,050 | ) | — | (56,447 | ) | |||||||||||
Financing costs, net | 7,267 | — | (237 | ) | — | 7,030 | |||||||||||||
Intercompany (income) expense, net | (5,098 | ) | 849 | 4,249 | — | — | |||||||||||||
Intercompany dividend income | (212 | ) | (243 | ) | (31 | ) | 486 | — | |||||||||||
Other income, net | (246 | ) | (64 | ) | (309 | ) | — | (619 | ) | ||||||||||
Earnings (loss) before income taxes | 8,800 | (21,450 | ) | (49,722 | ) | (486 | ) | (62,858 | ) | ||||||||||
Income tax expense (benefit) | 1,514 | (207 | ) | 757 | (84 | ) | 1,980 | ||||||||||||
Net earnings (loss) before equity in earnings (loss) of subsidiaries | 7,286 | (21,243 | ) | (50,479 | ) | (402 | ) | (64,838 | ) | ||||||||||
Equity in earnings (loss) of subsidiaries | (72,124 | ) | (28,577 | ) | 323 | 100,378 | — | ||||||||||||
Net loss | $ | (64,838 | ) | $ | (49,820 | ) | $ | (50,156 | ) | $ | 99,976 | $ | (64,838 | ) | |||||
Comprehensive loss | $ | (121,586 | ) | $ | (65,247 | ) | $ | (65,507 | ) | $ | 130,754 | $ | (121,586 | ) |
17
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
Six Months Ended February 29, 2016 | |||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 67,089 | $ | 125,799 | $ | 375,412 | $ | — | $ | 568,300 | |||||||||
Cost of products sold | 19,248 | 89,330 | 260,131 | — | 368,709 | ||||||||||||||
Gross profit | 47,841 | 36,469 | 115,281 | — | 199,591 | ||||||||||||||
Selling, administrative and engineering expenses | 36,877 | 27,507 | 75,699 | — | 140,083 | ||||||||||||||
Amortization of intangible assets | 636 | 5,260 | 5,883 | — | 11,779 | ||||||||||||||
Restructuring charges | 957 | 2,495 | 4,510 | — | 7,962 | ||||||||||||||
Impairment charges | — | 49,012 | 137,499 | — | 186,511 | ||||||||||||||
Operating profit (loss) | 9,371 | (47,805 | ) | (108,310 | ) | — | (146,744 | ) | |||||||||||
Financing costs, net | 14,763 | — | (781 | ) | — | 13,982 | |||||||||||||
Intercompany (income) expense, net | (11,294 | ) | (2,732 | ) | 14,026 | — | — | ||||||||||||
Other expense, net | 603 | 31 | 221 | — | 855 | ||||||||||||||
Earnings (loss) before income taxes | 5,299 | (45,104 | ) | (121,776 | ) | — | (161,581 | ) | |||||||||||
Income tax expense (benefit) | (1,057 | ) | 305 | (17,087 | ) | — | (17,839 | ) | |||||||||||
Net earnings (loss) before equity in loss of subsidiaries | 6,356 | (45,409 | ) | (104,689 | ) | — | (143,742 | ) | |||||||||||
Equity in loss of subsidiaries | (150,098 | ) | (89,755 | ) | (3 | ) | 239,856 | — | |||||||||||
Net loss | $ | (143,742 | ) | $ | (135,164 | ) | $ | (104,692 | ) | $ | 239,856 | $ | (143,742 | ) | |||||
Comprehensive loss | $ | (178,827 | ) | $ | (164,011 | ) | $ | (111,313 | ) | $ | 275,324 | $ | (178,827 | ) |
18
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
Six Months Ended February 28, 2015 | |||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 79,601 | $ | 148,266 | $ | 400,903 | $ | — | $ | 628,770 | |||||||||
Cost of products sold | 22,043 | 105,440 | 264,550 | — | 392,033 | ||||||||||||||
Gross profit | 57,558 | 42,826 | 136,353 | — | 236,737 | ||||||||||||||
Selling, administrative and engineering expenses | 35,502 | 33,834 | 88,904 | — | 158,240 | ||||||||||||||
Amortization of intangible assets | 636 | 5,570 | 6,167 | — | 12,373 | ||||||||||||||
Impairment charges | — | 20,249 | 64,104 | — | 84,353 | ||||||||||||||
Operating profit (loss) | 21,420 | (16,827 | ) | (22,822 | ) | — | (18,229 | ) | |||||||||||
Financing costs, net | 13,814 | — | (593 | ) | — | 13,221 | |||||||||||||
Intercompany expense (income), net | (10,830 | ) | 2,083 | 8,747 | — | — | |||||||||||||
Intercompany dividend income | (212 | ) | (243 | ) | (31 | ) | 486 | — | |||||||||||
Other expense (income), net | 219 | (160 | ) | (1,117 | ) | — | (1,058 | ) | |||||||||||
Earnings before income taxes | 18,429 | (18,507 | ) | (29,828 | ) | (486 | ) | (30,392 | ) | ||||||||||
Income tax expense | 3,824 | 499 | 5,533 | (84 | ) | 9,772 | |||||||||||||
Net earnings (loss) before equity in earnings (loss) of subsidiaries | 14,605 | (19,006 | ) | (35,361 | ) | (402 | ) | (40,164 | ) | ||||||||||
Equity in earnings (loss) of subsidiaries | (54,769 | ) | (14,430 | ) | 517 | 68,682 | — | ||||||||||||
Net loss | $ | (40,164 | ) | $ | (33,436 | ) | $ | (34,844 | ) | $ | 68,280 | $ | (40,164 | ) | |||||
Comprehensive loss | $ | (159,875 | ) | $ | (71,847 | ) | $ | (88,657 | ) | $ | 160,504 | $ | (159,875 | ) |
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CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
February 29, 2016 | |||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 6,553 | $ | — | $ | 148,118 | $ | — | $ | 154,671 | |||||||||
Accounts receivable, net | 13,081 | 32,039 | 136,215 | — | 181,335 | ||||||||||||||
Inventories, net | 24,689 | 31,557 | 91,125 | — | 147,371 | ||||||||||||||
Other current assets | 14,389 | 2,683 | 37,834 | — | 54,906 | ||||||||||||||
Total current assets | 58,712 | 66,279 | 413,292 | — | 538,283 | ||||||||||||||
Property, plant and equipment, net | 5,363 | 19,647 | 85,857 | — | 110,867 | ||||||||||||||
Goodwill | 38,847 | 143,690 | 303,816 | — | 486,353 | ||||||||||||||
Other intangibles, net | 10,065 | 101,041 | 139,429 | — | 250,535 | ||||||||||||||
Investment in subsidiaries | 1,886,769 | 900,034 | 24,363 | (2,811,166 | ) | — | |||||||||||||
Intercompany receivable | — | 604,822 | 571,847 | (1,176,669 | ) | — | |||||||||||||
Other long-term assets | 9,968 | — | 14,998 | — | 24,966 | ||||||||||||||
Total assets | $ | 2,009,724 | $ | 1,835,513 | $ | 1,553,602 | $ | (3,987,835 | ) | $ | 1,411,004 | ||||||||
LIABILITIES & SHAREHOLDERS' EQUITY | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Trade accounts payable | $ | 13,585 | $ | 15,371 | $ | 82,594 | $ | — | $ | 111,550 | |||||||||
Accrued compensation and benefits | 13,513 | 3,665 | 23,729 | — | 40,907 | ||||||||||||||
Current maturities of debt and short-term borrowings | 11,250 | — | — | — | 11,250 | ||||||||||||||
Income taxes payable | — | — | 5,136 | — | 5,136 | ||||||||||||||
Other current liabilities | 18,955 | 5,213 | 28,599 | — | 52,767 | ||||||||||||||
Total current liabilities | 57,303 | 24,249 | 140,058 | — | 221,610 | ||||||||||||||
Long-term debt, less current maturities | 576,809 | — | — | — | 576,809 | ||||||||||||||
Deferred income taxes | 35,157 | — | 17,457 | — | 52,614 | ||||||||||||||
Pension and postretirement benefit liabilities | 11,016 | — | 5,300 | — | 16,316 | ||||||||||||||
Other long-term liabilities | 47,004 | 1,028 | 8,091 | — | 56,123 | ||||||||||||||
Intercompany payable | 794,903 | — | 381,766 | (1,176,669 | ) | — | |||||||||||||
Shareholders’ equity | 487,532 | 1,810,236 | 1,000,930 | (2,811,166 | ) | 487,532 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 2,009,724 | $ | 1,835,513 | $ | 1,553,602 | $ | (3,987,835 | ) | $ | 1,411,004 |
20
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 | $ |