UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————— 
FORM 10-Q
 ————————————
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2018
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, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth 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
 
¨
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      Yes   ¨     No   ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes   ¨     No   x
The number of shares outstanding of the registrant’s Class A Common Stock as of June 30, 2018 was 60,895,118 .
 
 
 
 
 

Table of Contents

TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Item 6—Exhibits
FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges 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;
•
end market conditions in the industrial, oil & gas, energy, power generation, infrastructure, commercial construction, truck, automotive, specialty vehicle, mining and agriculture industries;
•
competition in the markets we serve and market acceptance of existing and new products;
•
a material disruption at a significant manufacturing facility;
•
our ability to successfully identify and integrate acquisitions and realize anticipated benefits/results from acquired companies;
•
divestitures and/or discontinued operations including retained liabilities from businesses that we sell;
•
operating margin risk due to competitive pricing, operating inefficiencies, production levels and material, labor, overhead cost and tariff 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, conflict mineral supply chain compliance, environmental laws and governmental climate change initiatives;
•
the potential for a non-cash asset impairment charge, if operating performance or the outlook for one or more of our businesses were to fall significantly below current levels;
•
our ability to execute restructuring actions and the realization of anticipated cost savings from those restructuring actions and cost reduction efforts;

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•
a significant failure in information technology (IT) infrastructure and systems, unauthorized access to financial and other sensitive data or cybersecurity threats;
•
due to the assembly nature of our operations we purchase a significant amount of components from suppliers and our reliance on suppliers involves certain risks;
•
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 26, 2017.
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
Table of Contents

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 May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net sales
$
317,096

 
$
295,427

 
$
881,216

 
$
820,089

Cost of products sold
200,587

 
192,623

 
574,100

 
536,892

Gross profit
116,509

 
102,804

 
307,116

 
283,197

Selling, administrative and engineering expenses
77,570

 
70,051

 
220,550

 
205,609

Amortization of intangible assets
5,184

 
5,037

 
15,483

 
15,368

Director & officer transition charges
—

 
—

 
—

 
7,784

Restructuring charges
1,170

 
384

 
11,249

 
5,433

Impairment & divestiture charges
—

 
—

 
2,987

 
—

Operating profit
32,585

 
27,332

 
56,847

 
49,003

Financing costs, net
7,756

 
7,553

 
22,874

 
22,019

Other (income) expense, net
(188
)
 
1,297

 
508

 
1,260

Earnings before income tax (benefit) expense
25,017

 
18,482

 
33,465

 
25,724

Income tax (benefit) expense
(3,995
)
 
(4,029
)
 
17,448

 
(6,827
)
Net earnings
$
29,012

 
$
22,511

 
$
16,017

 
$
32,551

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic
$
0.48

 
$
0.38

 
$
0.27

 
$
0.55

Diluted
$
0.48

 
$
0.37

 
$
0.26

 
$
0.54

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
60,683

 
59,675

 
60,291

 
59,339

Diluted
61,064

 
60,402

 
60,850

 
60,055

 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements


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Table of Contents

ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net earnings
$
29,012

 
$
22,511

 
$
16,017

 
$
32,551

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(21,295
)
 
20,385

 
(5,160
)
 
(3,363
)
Foreign currency translation due to divested business
—

 
—

 
67,645

 
—

Pension and other postretirement benefit plans
342

 
(61
)
 
596

 
676

Total other comprehensive (loss) income, net of tax
(20,953
)
 
20,324

 
63,081

 
(2,687
)
Comprehensive income
$
8,059

 
$
42,835

 
$
79,098


$
29,864

See accompanying Notes to Condensed Consolidated Financial Statements

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ACTUANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
May 31, 2018
 
August 31, 2017
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
189,490

 
$
229,571

Accounts receivable, net
 
212,284

 
190,206

Inventories, net
 
167,317

 
143,651

Assets held for sale
 
—

 
21,835

Other current assets
 
58,732

 
61,663

Total current assets
 
627,823

 
646,926

Property, plant and equipment
 
 
 
 
Land, buildings and improvements
 
48,749

 
43,737

Machinery and equipment
 
239,519

 
227,535

Gross property, plant and equipment
 
288,268

 
271,272

Less: Accumulated depreciation
 
(187,503
)
 
(176,751
)
Property, plant and equipment, net
 
100,765

 
94,521

Goodwill
 
538,792

 
530,081

Other intangibles, net
 
210,160

 
220,489

Other long-term assets
 
27,245

 
24,938

Total assets
 
$
1,504,785

 
$
1,516,955

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
142,199

 
$
133,387

Accrued compensation and benefits
 
48,093

 
50,939

Current maturities of debt
 
30,000

 
30,000

Income taxes payable
 
17,605

 
6,080

Liabilities held for sale
 
—

 
101,083

Other current liabilities
 
63,437

 
57,445

Total current liabilities
 
301,334

 
378,934

Long-term debt, net
 
510,007

 
531,940

Deferred income taxes
 
19,491

 
29,859

Pension and postretirement benefit liabilities
 
18,692

 
19,862

Other long-term liabilities
 
54,233

 
55,821

Total liabilities
 
903,757

 
1,016,416

Commitments and contingencies (Note 14)
 
 
 
 
Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 81,136,242 and 80,200,110 shares, respectively
 
16,227

 
16,040

Additional paid-in capital
 
159,653

 
138,449

Treasury stock, at cost, 20,439,434 shares
 
(617,731
)
 
(617,731
)
Retained earnings
 
1,207,059

 
1,191,042

Accumulated other comprehensive loss
 
(164,180
)
 
(227,261
)
Stock held in trust
 
(2,594
)
 
(2,696
)
Deferred compensation liability
 
2,594

 
2,696

Total shareholders’ equity
 
601,028

 
500,539

Total liabilities and shareholders’ equity
 
$
1,504,785

 
$
1,516,955


See accompanying Notes to Condensed Consolidated Financial Statements

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Table of Contents

ACTUANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended May 31,
 
2018
 
2017
Operating Activities
 
 
 
Net earnings
$
16,017

 
$
32,551

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Impairment & divestiture charges, including tax expense
12,385

 
—

Depreciation and amortization
30,800

 
32,262

Stock based compensation expense
11,951

 
14,852

(Benefit) expense for deferred income taxes
(10,579
)
 
1,364

Amortization of debt issuance costs
1,239

 
1,244

Other non-cash adjustments
347

 
1,023

Changes in components of working capital and other, excluding acquisitions and divestitures:
 
 
 
Accounts receivable
(21,456
)
 
(22,618
)
Inventories
(22,590
)
 
(319
)
Trade accounts payable
5,162

 
13,457

Prepaid expenses and other assets
(13,692
)
 
(7,112
)
Income taxes payable/receivable
25,989

 
(19,273
)
Accrued compensation and benefits
(2,181
)
 
3,769

Other accrued liabilities
2,197

 
862

Cash provided by operating activities
35,589

 
52,062

Investing Activities
 
 
 
Capital expenditures
(18,716
)
 
(22,919
)
Proceeds from sale of property, plant and equipment
148

 
244

Rental asset buyout for Viking divestiture
(27,718
)
 
—

Proceeds from sale of business, net of transaction costs
8,780

 
—

Cash paid for business acquisitions, net of cash acquired
(22,326
)
 
—

Cash used in investing activities
(59,832
)
 
(22,675
)
Financing Activities
 
 
 
Principal repayments on term loan
(22,500
)
 
(11,250
)
Redemption of 5.62% Senior Notes
—

 
(500
)
Stock option exercises and other
10,435

 
7,314

Taxes paid related to the net share settlement of equity awards
(1,279
)
 
(999
)
Payment of deferred acquisition consideration
—

 
(742
)
Cash dividend
(2,390
)
 
(2,358
)
Cash used in financing activities
(15,734
)
 
(8,535
)
Effect of exchange rate changes on cash
(104
)
 
(1,502
)
Net (decrease) increase in cash and cash equivalents
(40,081
)
 
19,350

Cash and cash equivalents - beginning of period
229,571

 
179,604

Cash and cash equivalents - end of period
$
189,490

 
$
198,954

See accompanying Notes to Condensed Consolidated Financial Statements

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Table of Contents

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, 2017 was derived from the Company’s audited financial statements, but does not include all disclosures required by 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 2017 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and nine months ended May 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2018 .
New Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of accounting for share-based payment transactions. Under the guidance it is required, among other items, that all excess tax deficiencies or benefits be recorded as income tax expense or benefit in the statement of earnings and not in additional paid-in capital (shareholder's equity). This guidance was adopted on September 1, 2017 and the impact of adopting this guidance had the following effects:
•
for the three and nine months ended May 31, 2018, we recorded $0.1 million and $1.6 million , respectively, in excess tax deficiency as an increase to our income tax expense. This requirement was applied prospectively;
•
excess tax benefits are now presented as operating activities in the statement of cash flows, rather than as financing activities. The Company chose to apply this requirement retrospectively, and as a result, reclassified approximately $0.6 million of excess tax benefits recognized during the nine months ended May 31, 2017 from financing activities to operating activities in the condensed consolidated statement of cash flows;
•
our computation of diluted earnings per share now excludes the excess tax benefits or deficiencies from the assumed proceeds available to repurchase shares. This requirement was applied prospectively.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09 and subsequent updates included in ASU 2016-10, ASU 2016-12, ASU 2017-13 and ASU 2017-14, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects to receive 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 fiscal years beginning on or after December 15, 2017 (fiscal 2019 for the Company). The Company continues to assess its various revenue streams to identify performance obligations under these ASUs and the key aspects of the standard that will impact the Company's revenue recognition process. Based upon our preliminary assessments, these standards may impact our allocation of contract revenue between various products and services and the timing of when those revenues are recognized, but the Company does not expect a material or significant impact to amounts recognized. The Company expects to finalize its assessment process in the fourth quarter of fiscal 2018.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be stated separately from service cost and outside of operating income. This guidance is effective for fiscal years beginning after December 15, 2017 (fiscal 2019 for the Company) and interim periods within those annual periods. The amendment is to be applied retrospectively. Due to a majority of the Company's defined benefit pension or other postretirement benefit plans being frozen and the net periodic benefit pension cost not being significant, the Company does not believe that adoption of this guidance will have a significant impact on the financial statements of the Company.
In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments , to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for fiscal years beginning after December 15, 2017 (fiscal 2019 for the Company), including interim

7

periods within those fiscal years. This update will require adoption on a retrospective basis unless it is impracticable to apply. The Company does not believe that this guidance will have a significant impact on its presentation of the statement of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (and subsequently ASU 2018-01) , 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 (fiscal 2020 for the Company), including interim periods within those fiscal years. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented under a modified retrospective approach using a cumulative effect adjustment in the year of adoption. The Company is currently gathering, documenting and analyzing lease agreements subject to this ASU and anticipates material additions to the balance sheet (upon adoption) of right-of-use assets, offset by the associated liabilities, due to our routine use of operating leases over time.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for Company), including interim periods within those fiscal years. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.
Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands):
 
 
May 31, 2018
August 31, 2017
Foreign currency translation adjustments
 
$
145,319

$
207,804

Pension and other postretirement benefit plans, net of tax
 
18,861

19,457

Accumulated other comprehensive loss
 
$
164,180

$
227,261

Note 2. Director & Officer Transition Charges
During the nine months ended May 31, 2017 , the Company recorded separation and transition charges of $7.8 million in connection with the retirement of one director of the Company's Board of Directors and the transition of the Executive Vice President/Chief Financial Officer. The charges were mainly comprised of compensation expense for accelerated equity vesting, severance, outplacement, legal, signing bonus and relocation costs.
Note 3. Restructuring Charges
The Company has undertaken or committed to various restructuring initiatives including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low cost alternatives and the centralization and standardization of certain administrative functions. Total restructuring charges for these activities were $1.2 million and $0.4 million in the three months ended May 31, 2018 and 2017 , respectively. Year-to-date restructuring charges totaled $12.1 million and $5.4 million for fiscal 2018 and 2017. Approximately $0.9 million of the restructuring charges recognized in the nine months ended May 31, 2018 were reported in the Consolidated Statements of Earnings in “Cost of products sold,” with the balance of the charges reported in “Restructuring charges.” Liabilities for severance will generally be paid during the next twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms.
The following rollforwards summarize restructuring reserve activity by segment (in thousands):
 
 
Nine Months Ended May 31, 2018
 
 
Industrial
 
Energy
 
Engineered Solutions
 
Corporate
 
Total
Balance as of August 31, 2017
 
$
202

 
$
3,613

 
$
1,792

 
$
30

 
$
5,637

Restructuring charges
 
2,797

 
3,969

 
497

 
4,836

 
12,099

Cash payments
 
(1,411
)
 
(3,305
)
 
(1,661
)
 
(2,160
)
 
(8,537
)
Other non-cash uses of reserve
 
(849
)
(1  
)  
(858
)
(1  
)  
(291
)
 
(2,093
)
(1)  
(4,091
)
Impact of changes in foreign currency rates
 
(49
)
 
(120
)
 
(5
)
 
—

 
(174
)
Balance as of May 31, 2018
 
$
690

 
$
3,299

 
$
332

 
$
613

 
$
4,934

(1) Majority of non-cash uses of reserve represents accelerated equity vesting in connection with employee severance agreements.

8



 
 
Nine Months Ended May 31, 2017
 
 
Industrial
 
Energy
 
Engineered Solutions
 
Corporate
 
Total
Balance as of August 31, 2016
 
$
1,343

 
$
3,021

 
$
1,863

 
$
46

 
$
6,273

Restructuring charges
 
1,686

 
39

 
3,627

 
81

 
5,433

Cash payments
 
(2,060
)
 
(1,123
)
 
(3,128
)
 
(83
)
 
(6,394
)
Other non-cash uses of reserve
 
(437
)
 
(7
)
 
(13
)
 
(44
)
 
(501
)
Impact of changes in foreign currency rates
 
(19
)
 
(2
)
 
(10
)
 
—

 
(31
)
Balance as of May 31, 2017
 
$
513

 
$
1,928

 
$
2,339

 
$
—

 
$
4,780

Note 4. Acquisitions
During fiscal 2018, the Company completed two acquisitions which resulted in the recognition of goodwill in the Company’s consolidated financial statements because their purchase prices reflected the future earnings and cash flow potential of the acquired companies, as well as the complementary strategic fit and resulting synergies. The Company makes an initial allocation of the purchase price, at the date of acquisition, based upon the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), the Company will refine its estimates of fair value and adjust the purchase price allocation accordingly.
The Company acquired the stock and certain assets of Mirage Machines, Ltd. ("Mirage") on December 1, 2017 for a purchase price of $17.5 million , net of cash acquired. This Energy segment tuck-in acquisition is a provider of industrial and energy maintenance tools. The purchase price allocation resulted in $9.8 million of goodwill (which is not deductible for tax purposes) and $4.1 million of intangible assets, including $2.3 million of indefinite lived tradenames and $1.8 million of amortizable customer relationships. During the three months ended May 31, 2018, goodwill related to this acquisition increased by $1.0 million as a result of final working capital and earnout adjustments that will be settled in cash in the fourth quarter of fiscal 2018.
The Company acquired the stock and certain assets of Equalizer International, Limited ("Equalizer") on May 11, 2018 for a purchase price of $5.8 million , net of cash acquired and subject to closing working capital adjustments. This Industrial segment tuck-in is a provider of industrial and energy maintenance tools. The preliminary purchase price allocation resulted in $2.3 million of goodwill and $1.9 million of intangible assets, including $0.8 million of indefinite lived tradenames and $1.1 million of amortizable customer relationships.
The Company incurred acquisition transaction costs of $0.3 million and $0.7 million in the three and nine months ended May 31, 2018 (included in selling, administrative and engineering expenses in the condensed consolidated statement of earnings) related to these two acquisitions.

9

The two acquisitions generated combined net sales of $3.1 million and $5.1 million for the three and nine months ended May 31, 2018 , respectively. Because the net sales and earnings impact of both acquisitions are not material to the three and nine months ended May 31, 2018 and 2017 , respectively, the Company has not included the pro forma operating result disclosures otherwise required for acquisitions. The following table summarizes the combined estimated fair value of the assets acquired and the liabilities assumed for Mirage and Equalizer (in thousands):
 
Total
Accounts receivable, net
$
2,301

Inventories, net
4,196

Other current assets
341

Property, plant & equipment
2,055

Goodwill
12,085

Other intangibles
6,049

Trade accounts payable
(2,091
)
Accrued compensation and benefits
(92
)
Income taxes payable
(753
)
Other current liabilities
(117
)
Deferred income taxes
(703
)
Total consideration, net of cash acquired
23,271

Remaining consideration to be paid
(945
)
Cash paid for business acquisitions, net of cash acquired
$
22,326

Note 5. Divestiture Activities
On December 1, 2017, the Company completed the sale of the Viking business for net cash proceeds of $8.8 million , net of transaction costs of $1.6 million . In the second quarter of fiscal 2018, we recognized an after-tax impairment and divestiture charge of $12.4 million comprised of real estate lease exit charges related to retained facilities that became vacant as a result of the Viking divestiture ( $3.0 million ) and approximately $9.4 million of associated discrete income tax expense. The divestiture resulted in the Company's exit from the offshore mooring market and significantly limited our exposure to the upstream, offshore oil & gas market.
The historic results of the Viking business are not material to the consolidated financial results of the Company and are included in continuing operations. The Viking business had net sales of $4.1 million and $15.6 million in the three and nine months ended May 31, 2017 , respectively. In addition, net sales were $2.7 million for the nine months ended May 31, 2018.
Note 6. Goodwill, Intangible Assets and Long-Lived Assets
Changes in the gross carrying value of goodwill and intangible assets can result from changes in foreign currency exchange rates, business acquisitions, divestitures or impairment charges. The changes in the carrying amount of goodwill for the nine months ended May 31, 2018 are as follows (in thousands):
 
Industrial
 
Energy
 
Engineered Solutions
 
Total
Balance as of August 31, 2017
$
103,875

 
$
188,830

 
$
237,376

 
$
530,081

Business acquisitions
2,277

 
9,808

 
—

 
12,085

Impact of changes in foreign currency rates
(593
)
 
148

 
(2,929
)
 
(3,374
)
Balance as of May 31, 2018
$
105,559

 
$
198,786

 
$
234,447

 
$
538,792


10

The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
 
 
 
May 31, 2018
 
August 31, 2017
 
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
 
$
265,149

 
$
165,781

 
$
99,368

 
$
263,498

 
$
153,003

 
$
110,495

Patents
10
 
30,293

 
25,121

 
5,172

 
30,401

 
24,027

 
6,374

Trademarks and tradenames
18
 
21,034

 
10,122

 
10,912

 
21,498

 
9,396

 
12,102

Other intangibles
3
 
6,656

 
6,416

 
240

 
6,672

 
6,234

 
438

Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tradenames
N/A
 
94,468

 
—

 
94,468

 
91,080

 
—

 
91,080

 
 
 
$
417,600

 
$
207,440

 
$
210,160

 
$
413,149

 
$
192,660

 
$
220,489

The Company estimates that amortization expense will be $5.1 million for the remaining three months of fiscal 2018 . Amortization expense for future years is estimated to be: $20.0 million in fiscal 2019 , $19.3 million in 2020 , $18.4 million in fiscal 2021 , $16.4 million in fiscal 2022 , $13.4 million in fiscal 2023 and $23.1 million thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates, among other causes.
Note 7. Product Warranty Costs
The Company generally offers its customers a warranty on products sold, 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 reserves for the nine months ended May 31, 2018 and 2017 (in thousands):
 
Nine Months Ended May 31,
 
2018
 
2017
Beginning balance
$
6,616

 
$
5,592

Provision for warranties
4,213

 
2,569

Warranty payments and costs incurred
(5,604
)
 
(3,993
)
Impact of changes in foreign currency rates
95


(13
)
Ending balance
$
5,320

 
$
4,155

Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
 
May 31, 2018
 
August 31, 2017
Senior Credit Facility
 
 
 
Revolver
$
—

 
$
—

Term Loan
255,000

 
277,500

Total Senior Credit Facility
255,000

 
277,500

5.625% Senior Notes
287,559

 
287,559

Total Senior Indebtedness
542,559

 
565,059

Less: Current maturities of long-term debt
(30,000
)
 
(30,000
)
Debt issuance costs
(2,552
)
 
(3,119
)
Total long-term debt, net
$
510,007

 
$
531,940

The Company’s Senior Credit Facility matures on May 8, 2020 and provides a $600 million revolver, an amortizing term loan and a $450 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 May 31, 2018 ,

11

the borrowing spread on LIBOR based borrowings was 2.00% (aggregating to a 4.00% variable rate borrowing cost on the outstanding term loan balance). 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 May 31, 2018 , the unused credit line under the revolver was $598.3 million , of which $146.1 million was available for borrowing. Quarterly term loan principal payments of $3.8 million began on June 30, 2016 , increased to $7.5 million starting on June 30, 2017 and extend through March 31, 2020 , 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 May 31, 2018 .
Subsequent to quarter-end (June 22, 2018) and pursuant to the provisions of the Senior Credit Facility, the Company reduced the borrowing capacity on the revolver from $600 million to $300 million . The amount available for borrowing under the revolver was not impacted by the June 2018 reduction in borrowing capacity. This reduction in borrowing capacity is expected to reduce the non-use fee on the average unused credit line under the revolver. The Company estimates a charge of $1.0 million in the fourth quarter of fiscal 2018 for the write-off of deferred financing costs associated with the reduced borrowing capacity.
On April 16, 2012 , the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $287.6 million remains outstanding. 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. The Company repurchased $0.5 million of Senior Notes at a redemption price of 103% in the three months ended May 31, 2017 . The Company was in compliance with all the terms of the Senior Notes at May 31, 2018 .
Note 9. 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 an asset or liability.
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both May 31, 2018 and August 31, 2017 due to their short-term nature and the fact that the interest rates approximated market rates. Foreign currency exchange contracts are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net asset of $0.2 million at May 31, 2018 and a net liability of $0.2 million at August 31, 2017 . The fair value of the foreign currency exchange contracts was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy. The fair value of the Company’s outstanding Senior Notes was $291.5 million and $295.8 million at May 31, 2018 and August 31, 2017 , 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 10. Derivatives
All derivatives are recognized in the balance sheet at their estimated fair value. On the date the Company enters into a derivative contract, it 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 Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk the Company has historically hedged portions of its forecasted inventory purchases and other cash flows that are denominated in non-functional currencies (cash flow hedges). However, there were no cash flow hedges outstanding at May 31, 2018 and August 31, 2017 .

12

The Company also utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. 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) expense in the condensed consolidated statement of earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $24.4 million and $22.0 million at May 31, 2018 and August 31, 2017 , respectively. The fair value of outstanding foreign currency exchange contracts was a net asset of $0.2 million at May 31, 2018 and a net liability of $0.2 million at August 31, 2017 . Net foreign currency gain (loss) related to these derivative instruments were as follows (in thousands):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Foreign currency gain (loss), net
$
524

 
$
(484
)
 
$
664

 
$
(2,450
)
Note 11. Capital Stock and Share Repurchases
The Company's Board of Directors 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 20,439,434 shares of common stock for $617.7 million . As of May 31, 2018 , the maximum number of shares that may yet be purchased under the programs is 7,560,566 shares. There were no share repurchases in the three and nine months ended May 31, 2018 .
The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net earnings
$
29,012

 
$
22,511

 
$
16,017

 
$
32,551

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
60,683

 
59,675

 
60,291

 
59,339

Net effect of dilutive securities - stock based compensation plans
381

 
727

 
559

 
716

Weighted average common shares outstanding - diluted
61,064

 
60,402

 
$
60,850

 
$
60,055

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.48

 
$
0.38

 
$
0.27

 
$
0.55

Diluted earnings per share
$
0.48

 
$
0.37

 
$
0.26

 
$
0.54

 
 
 
 
 
 
 
 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)
1,788

 
1,969

 
2,338

 
1,981


13

Note 12. Income Taxes
The Company's income tax expense or benefit is impacted by a number of factors, including the amount of taxable earnings generated in foreign jurisdictions with tax rates that are lower than the U.S. federal statutory rate, permanent items, state tax rates, changes in tax laws, acquisitions and divestitures 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 maximize tax credits and deductions. Both fiscal 2018 and 2017 include the benefits of tax planning initiatives. Comparative earnings before income taxes, income tax expense or benefit and effective income tax rates are as follows (amounts in thousands):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Earnings before income taxes
$
25,017

 
$
18,482

 
$
33,465

 
$
25,724

Income tax (benefit) expense
(3,995
)
 
(4,029
)
 
17,448

 
(6,827
)
Effective income tax rate
(16.0
)%
 
(21.8
)%
 
52.1
%
 
(26.5
)%
The Company’s income tax expense and effective tax rate for the three and nine months ended May 31, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. The Act includes significant changes to the U.S. corporate income tax system which reduces the U.S. federal corporate income tax rate from 35% to 21% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax; and creates new taxes on certain foreign-sourced earnings. The decrease in the U.S. federal corporate income tax rate from 35% to 21% results in a blended statutory tax rate of 25.7% for the Company's fiscal year ending August 31, 2018 . The new taxes for certain foreign-sourced earnings under the Act are effective for the Company in fiscal 2019.
Income tax effects resulting from changes in tax laws are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of income tax expense or benefit. However, pursuant to SEC Staff Accounting Bulletin No. 118, provisional amounts resulting from the Act were recorded in the second quarter of fiscal 2018 and those amounts continue to be revised as new and better information becomes available. During the third quarter of fiscal 2018, the IRS published Notice 2018-26 which required modifications to the tax planning and provisional Act-related amounts recorded by the Company in its second quarter. As a result, the Company recorded provisional income tax benefits resulting from the Act totaling $12.9 million during the three months ended May 31, 2018 and $4.5 million during the nine months ended May 31, 2018 . The year-to-date income tax benefit includes (i) a transition tax of $6.1 million on the Company’s total post-1986 earnings and profits (“E&P”) which, prior to the Act, were previously deferred from U.S. income tax, (ii) a $13.2 million decrease in income tax expense as a result of the re-measurement of the Company’s deferred tax assets and liabilities to the new corporate tax rate of 21% and (iii) $2.6 million in valuation allowances recorded against foreign tax credits as future utilization is now uncertain.
The amounts recorded are provisional and represent the Company’s best estimate of the tax effects of the Act as of May 31, 2018 . Amounts recorded are based in part on a reasonable estimate of the effects on the transition tax and existing deferred tax balances which are subject to change and modification. Provisional amounts recorded may further change as a result of the following:
•
The amount recorded for the transition tax liability is a provisional amount based on current estimates of total post-1986 foreign E&P and the income tax pools for all foreign subsidiaries which will continue to be refined over the coming periods. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. The transition tax liability may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets as of August 31, 2018 . Further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional tax liability or the accounting treatment of the provisional tax liability. It is anticipated that the amounts resulting from the transition tax will be fully offset by available foreign tax credits and will not result in significant future cash tax payments. In addition, there is a foreign tax credit carryforward on the balance sheet after the calculation of the transition tax liability. The Company is continuing to analyze the new provisions in order to determine future utilization of the credits and is anticipating further interpretive guidance in connection with the utilization of foreign tax credits going forward. As such, we are not yet able to reasonably estimate the future utilization of the foreign tax credits and have recorded the aforementioned valuation allowance.
•
The Company is still analyzing certain aspects of the Act and refining the estimate of the expected revaluation of its deferred tax balances. This can potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In addition, the Act provides for accelerated first year expensing of certain capital expenditures for

14

which an estimate has been included in the estimated deferred balances for the year but will continue to be refined as the year progresses. The Act also provides changes related to the limits of deduction for employee compensation. The Company is treating any future non-deductible compensation as impacting deductible compensation expenses in the period incurred until further guidance is provided.
•
The Act also includes a provision designed to tax global intangible low taxed income (GILTI) which will be effective in fiscal 2019. Under the provision, a U.S. shareholder is required to include in gross income the amount of its GILTI, which is generally the net income of its controlled foreign corporations in excess of a 10% return on depreciable tangible assets after identification of other income subject to non-deferral rules. Due to the complexity of the new GILTI tax rules and uncertainty of the application of the foreign tax credit rules in relation to GILTI, we are continuing to evaluate this provision of the Act, the application of ASC 740, and are considering available accounting policy alternatives to either record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect a tax liability resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes. Whether we intend to recognize deferred tax liabilities related to the GILTI provisions is dependent, in part, on our assessment of the Company's future operating structure. In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act. Therefore, we have not made any adjustments relating to potential GILTI tax in our consolidated financial statements and have not made a policy decision regarding our accounting for GILTI.
•
Prior to the Act, our practice and intention was to reinvest the earnings in our non-U.S. subsidiaries outside of the U.S., and no U.S. deferred income taxes or foreign withholding taxes were recorded. The transition tax noted above will result in the previously untaxed foreign earnings being included in the federal and state fiscal 2018 taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which may include withholding taxes, local country taxes and potential U.S. state taxation. Furthermore, the transition tax will reduce the outside basis differences in our foreign corporations and any remaining temporary difference will potentially have some interaction with the GILTI tax noted above. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act and have not recorded any withholding or state tax liabilities, any deferred taxes attributable to GILTI (as noted above) or any deferred taxes attributable to our investment in our foreign subsidiaries.
•
We are also currently analyzing certain additional provisions of the Act that come into effect in fiscal 2019 and will determine if and how these items would impact the effective tax rate in the year the income or expense occurs. These provisions include the Base Erosion Anti-Abuse Tax (BEAT), eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.
The Company's effective tax rate for the nine months ended May 31, 2018 was 52.1% compared to (26.5)% for the comparable prior year period. The effective tax rate for the current year results in significantly greater tax expense than the comparable prior year period due to the non-recurrence of the fiscal 2017 recognition of income tax planning benefits resulting from certain losses from prior years for which no benefit was previously recognized and the fiscal 2018 tax planning impact of Notice 2018-26, offset by the provisional year-to-date tax benefits of the Act as described above. Additionally, the nine months ended May 31, 2018 also include discrete income tax expense of $9.4 million related to the Viking divestiture, $1.6 million related to excess deferred tax deficiencies on deductible equity compensation and the expiration of unexercised stock options, and tax expense related to the net increase in valuation allowances that is offset by a reduction in tax reserves primarily associated with the lapsing of income tax statutes of limitations. Both the current and prior year income tax rates were impacted by the proportion of earnings in foreign jurisdictions (with income tax rates lower than the U.S. federal income tax rate) and tax benefits derived from tax planning initiatives. In addition, the Company may release a material valuation allowance in a foreign jurisdiction in late fiscal 2018 or in fiscal 2019, if the Company determines that it is more likely than not the deferred tax assets will be realized.

15


Note 13. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems and is organized into three reportable segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other markets. Divestiture of the Viking business during the second quarter of fiscal 2018 resulted in the elimination of the sale and rental of customized off-shore vessel mooring solutions. 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 May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net Sales by Reportable Product Line & Segment:
 
 
 
 
 
 
 
Industrial Segment:
 
 
 
 
 
 
 
Industrial Tools
$
98,970

 
$
87,404

 
$
270,919

 
$
245,122

Heavy Lifting Technology
9,327

 
13,099

 
33,375

 
34,319

 
108,297

 
100,503

 
304,294

 
279,441

Energy Segment:
 
 
 
 
 
 
 
Energy Maintenance & Integrity
63,421

 
59,905

 
169,020

 
176,316

Other Energy Solutions
20,436

 
23,575

 
56,670

 
64,694

 
83,857

 
83,480

 
225,690

 
241,010

Engineered Solutions Segment:
 
 
 
 
 
 
 
On-Highway
66,556

 
57,710

 
190,735

 
159,952

Agriculture, Off-Highway and Other
58,386

 
53,734

 
160,497

 
139,686

 
124,942

 
111,444

 
351,232

 
299,638

 
$
317,096

 
$
295,427

 
$
881,216

 
$
820,089

Operating Profit:
 
 
 
 
 
 
 
Industrial
$
25,999

 
$
23,705

 
$
61,023

 
$
60,860

Energy (1)
6,269

 
905

 
2,050

 
3,537

Engineered Solutions
9,027

 
8,105

 
17,570

 
10,676

General Corporate
(8,710
)
 
(5,383
)
 
(23,796
)
 
(26,070
)
 
$
32,585

 
$
27,332

 
$
56,847

 
$
49,003

(1) Energy segment operating profit includes impairment and divestiture charges of $3.0 million for the nine months ended May 31, 2018.
 
May 31, 2018
 
August 31, 2017
Assets by Segment:
 
 
 
Industrial
$
325,291

 
$
329,134

Energy
463,026

 
482,963

Engineered Solutions
543,760

 
531,068

General Corporate
172,708

 
173,790

 
$
1,504,785

 
$
1,516,955

In addition to the impact of foreign currency exchange rate changes, the comparability of segment and product line information is impacted by acquisition/divestiture activities, impairment charges, director & officer transition charges, restructuring costs and related benefits.  Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.

16


Note 14. Commitments and Contingencies
The Company had outstanding letters of credit of $21.9 million and $22.1 million at May 31, 2018 and August 31, 2017 , 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 and can be reasonably estimated. In the opinion of management, resolution of these contingencies is not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company remains contingently liable for lease payments under leases of businesses that it previously divested or spun-off, in the event that such businesses are unable to fulfill their future lease payment obligations. The discounted present value of future minimum lease payments for these leases was $11.5 million using a weighted average discount rate of 3.16% at May 31, 2018 .
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.
Note 15. Guarantor Subsidiaries
As discussed in Note 8, “Debt” on April 16, 2012 , Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes, of which $287.6 million remains outstanding as of May 31, 2018 . 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.
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. 
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.



17

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
Three Months Ended May 31, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
41,851

 
$
101,780

 
$
173,465

 
$
—

 
$
317,096

Cost of products sold
6,394

 
73,266

 
120,927

 
—

 
200,587

Gross profit
35,457

 
28,514

 
52,538

 
—

 
116,509

Selling, administrative and engineering expenses
22,480

 
18,439

 
36,651

 
—

 
77,570

Amortization of intangible assets
318

 
2,861

 
2,005

 
—

 
5,184

Restructuring charges
661

 
253

 
256

 
—

 
1,170

Operating profit
11,998

 
6,961

 
13,626

 
—

 
32,585

Financing costs (income), net
7,847

 
22

 
(113
)
 
—

 
7,756

Intercompany (income) expense, net
(2,023
)
 
7,120

 
(5,097
)
 
—

 
—

Other (income) expense, net
(251
)
 
(8
)
 
71

 
—

 
(188
)
Earnings (loss) before income tax (benefit) expense
6,425

 
(173
)
 
18,765

 
—

 
25,017

Income tax (benefit) expense
(11,354
)
 
(86
)
 
7,445

 
—

 
(3,995
)
Net earnings (loss) before equity in earnings of subsidiaries
17,779

 
(87
)
 
11,320

 
—

 
29,012

Equity in earnings of subsidiaries
11,233

 
13,406

 
1,157

 
(25,796
)
 
—

Net earnings
$
29,012

 
$
13,319

 
$
12,477

 
$
(25,796
)
 
$
29,012

Comprehensive income (loss)
$
8,059

 
$
13,319

 
$
(9,092
)
 
$
(4,227
)
 
$
8,059


18

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands)
 
Three Months Ended May 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
39,753

 
$
98,391

 
$
157,283

 
$
—

 
$
295,427

Cost of products sold
9,944

 
71,565

 
111,114

 
—

 
192,623

Gross profit
29,809

 
26,826

 
46,169

 
—

 
102,804

Selling, administrative and engineering expenses
18,113

 
18,060

 
33,878

 
—

 
70,051

Amortization of intangible assets
318

 
2,865

 
1,854

 
—

 
5,037

Restructuring charges
99

 
153

 
132

 
—

 
384

Operating profit
11,279

 
5,748

 
10,305

 
—

 
27,332

Financing costs (income), net
7,558

 
—

 
(5
)
 
—

 
7,553

Intercompany (income) expense, net
(3,941
)
 
3,958

 
(17
)
 
—

 
—

Intercompany dividends
5,353

 
—

 
(5,353
)
 
—

 
—

Other (income) expense, net
(159
)
 
98

 
1,358

 
—

 
1,297

Earnings before income tax benefit
2,468

 
1,692

 
14,322

 
—

 
18,482

Income tax benefit
(3,521
)
 
(168
)
 
(340
)
 
—

 
(4,029
)
Net earnings before equity in earnings of subsidiaries
5,989

 
1,860

 
14,662

 
—

 
22,511

Equity in earnings of subsidiaries
16,523

 
15,475

 
1,754

 
(33,752
)
 
—

Net earnings
$
22,511

 
$
17,335

 
$
16,416

 
$
(33,752
)
 
$
22,511

Comprehensive income
$
42,835

 
$
24,376

 
$
28,358

 
$
(52,734
)
 
$
42,835


19

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

 
Nine Months Ended May 31, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
113,780

 
$
272,686

 
$
494,750

 
$
—

 
$
881,216

Cost of products sold
19,205

 
201,819

 
353,076

 
—

 
574,100

Gross profit
94,575

 
70,867

 
141,674

 
—

 
307,116

Selling, administrative and engineering expenses
60,385

 
54,119

 
106,046

 
—

 
220,550

Amortization of intangible assets
954

 
8,583

 
5,946

 
—

 
15,483

Restructuring charges
6,211

 
1,331

 
3,707

 
—

 
11,249

Impairment & divestiture charges (income)
4,217

 
—

 
(1,230
)
 
—

 
2,987

Operating profit
22,808

 
6,834

 
27,205

 
—

 
56,847

Financing costs (income), net
23,247

 
65

 
(438
)
 
—

 
22,874

Intercompany (income) expense, net
(11,942
)
 
18,023

 
(6,081
)
 
—

 
—

Other (income) expense, net
(211
)
 
86

 
633

 
—

 
508

Earnings (loss) before income tax (benefit) expense
11,714

 
(11,340
)
 
33,091

 
—

 
33,465

Income tax (benefit) expense
(1,027
)
 
(1,883
)
 
20,358

 
—

 
17,448

Net earnings (loss) before equity in earnings (loss) of subsidiaries
12,741

 
(9,457
)
 
12,733

 
—

 
16,017

Equity in earnings (loss) of subsidiaries
3,276

 
12,745

 
(348
)
 
(15,673
)
 
—

Net earnings
$
16,017

 
$
3,288

 
$
12,385

 
$
(15,673
)
 
$
16,017

Comprehensive income
$
79,098

 
$
3,288

 
$
77,294

 
$
(80,582
)
 
$
79,098


20

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

 
Nine Months Ended May 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
106,435

 
$
263,640

 
$
450,014

 
$
—

 
$
820,089

Cost of products sold
27,087

 
194,802

 
315,003

 
—

 
536,892

Gross profit
79,348

 
68,838

 
135,011

 
—

 
283,197

Selling, administrative and engineering expenses
54,633

 
51,245

 
99,731

 
—

 
205,609

Amortization of intangible assets
954

 
8,859

 
5,555

 
—

 
15,368

Restructuring charges
826

 
1,317

 
3,290

 
—

 
5,433

Director & officer transition charges
7,784

 
—

 
—

 
—

 
7,784

Operating profit
15,151

 
7,417

 
26,435

 
—

 
49,003

Financing costs (income), net
22,314

 
—

 
(295
)
 
—

 
22,019

Intercompany (income) expense, net
(16,891
)
 
14,114

 
2,777

 
—

 
—

Intercompany dividends
5,353

 
(59,401
)
 
(5,353
)
 
59,401

 
—

Other expense (income), net
1,878

 
24

 
(642
)
 
—

 
1,260

Earnings before income tax (benefit) expense
2,497

 
52,680

 
29,948

 
(59,401
)
 
25,724

Income tax (benefit) expense
(6,084
)
 
(865
)
 
122

 
—

 
(6,827
)
Net earnings before equity in earnings of subsidiaries
8,581

 
53,545

 
29,826

 
(59,401
)
 
32,551

Equity in earnings of subsidiaries
23,970

 
29,157

 
4,616

 
(57,743
)
 
—

Net earnings
$
32,551

 
$
82,702

 
$
34,442

 
$
(117,144
)
 
$
32,551

Comprehensive income
$
29,864

 
$
71,992

 
$
41,817

 
$
(113,809
)
 
$
29,864





21

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
May 31, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
36,411

 
$
—

 
$
153,079

 
$
—

 
$
189,490

Accounts receivable, net
18,176

 
55,856

 
138,252

 
—

 
212,284

Inventories, net
26,590

 
62,274

 
78,453

 
—

 
167,317

Other current assets
9,763

 
4,045

 
44,924

 
—

 
58,732

Total current assets
90,940

 
122,175

 
414,708

 
—

 
627,823

Property, plant & equipment, net
8,073

 
31,872

 
60,820

 
—

 
100,765

Goodwill
38,847

 
201,578

 
298,367

 
—

 
538,792

Other intangibles, net
7,202

 
129,460

 
73,498

 
—

 
210,160

Investment in subsidiaries
1,890,023

 
1,264,257

 
802,395

 
(3,956,675
)
 
—

Intercompany receivable
—

 
564,943

 
214,895

 
(779,838
)
 
—

Other long-term assets
10,391

 
31

 
16,823

 
—

 
27,245

Total assets
$
2,045,476

 
$
2,314,316

 
$
1,881,506

 
$
(4,736,513
)
 
$
1,504,785

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
14,511

 
$
30,284

 
$
97,404

 
$
—

 
$
142,199

Accrued compensation and benefits
14,112

 
8,962

 
25,019

 
—

 
48,093

Current maturities of debt
30,000

 
—

 
—

 
—

 
30,000

Income taxes payable
6,069

 
—

 
11,536

 
—

 
17,605

Other current liabilities
18,931

 
6,521

 
37,985

 
—

 
63,437

Total current liabilities
83,623

 
45,767

 
171,944

 
—

 
301,334

Long-term debt
510,007

 
—

 
—

 
—

 
510,007

Deferred income taxes
13,659

 
—

 
5,832

 
—

 
19,491

Pension and post-retirement benefit liabilities
11,587

 
—

 
7,105

 
—

 
18,692

Other long-term liabilities
46,651

 
374

 
7,208

 
—

 
54,233

Intercompany payable
778,921

 
—

 
917

 
(779,838
)
 
—

Shareholders’ equity
601,028

 
2,268,175

 
1,688,500

 
(3,956,675
)
 
601,028

Total liabilities and shareholders’ equity
$
2,045,476

 
$
2,314,316

 
$
1,881,506

 
$
(4,736,513
)
 
$
1,504,785


22

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
August 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
34,715

 
$
—

 
$
194,856

 
$
—

 
$
229,571

Accounts receivable, net
17,498

 
50,749

 
121,959

 
—

 
190,206

Inventories, net
23,308

 
48,492

 
71,851

 
—

 
143,651

Assets held for sale
—

 
—

 
21,835

 
—

 
21,835

Other current assets
23,576

 
3,619

 
34,468

 
—

 
61,663

Total current assets
99,097

 
102,860

 
444,969

 
—

 
646,926

Property, plant & equipment, net
7,049

 
26,130

 
61,342

 
—

 
94,521

Goodwill
38,847

 
200,499

 
290,735

 
—

 
530,081

Other intangibles, net
8,156

 
138,042

 
74,291

 
—

 
220,489

Investment in subsidiaries
1,832,472

 
1,186,715

 
805,016

 
(3,824,203
)
 
—

Intercompany receivable
—

 
589,193

 
205,183

 
(794,376
)
 
—

Other long-term assets
8,377

 
812

 
15,749

 
—

 
24,938

Total assets
$
1,993,998

 
$
2,244,251

 
$
1,897,285

 
$
(4,618,579
)
 
$
1,516,955

LIABILITIES & SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
15,412

 
$
27,168

 
$
90,807

 
$
—

 
$
133,387

Accrued compensation and benefits
19,082

 
7,672

 
24,185

 
—

 
50,939

Current maturities of debt
30,000

 
—

 
—

 
—

 
30,000

Income taxes payable
153

 
—

 
5,927

 
—

 
6,080

Liabilities held for sale
—

 
—

 
101,083

 
—

 
101,083

Other current liabilities
18,512

 
7,169

 
31,764

 
—

 
57,445

Total current liabilities
83,159

 
42,009

 
253,766

 
—

 
378,934

Long-term debt
531,940

 
—

 
—

 
—

 
531,940

Deferred income taxes
24,164

 
—

 
5,695

 
—

 
29,859

Pension and post-retirement benefit liabilities
12,540

 
—

 
7,322

 
—

 
19,862

Other long-term liabilities
48,692

 
352

 
6,777

 
—

 
55,821

Intercompany payable
792,964

 
—

 
1,412

 
(794,376
)
 
—

Shareholders’ equity
500,539

 
2,201,890

 
1,622,313

 
(3,824,203
)
 
500,539

Total liabilities and shareholders’ equity
$
1,993,998

 
$
2,244,251

 
$
1,897,285

 
$
(4,618,579
)
 
$
1,516,955


23

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
Nine Months Ended May 31, 2018
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
25,741

 
$
9,439

 
$
409

 
$
—

 
$
35,589

Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(2,455
)
 
(7,806
)
 
(8,455
)
 
—

 
(18,716
)
Proceeds from sale of property, plant and equipment
—

 
99

 
49

 
—

 
148

Rental asset buyout for Viking divestiture
—

 
—

 
(27,718
)
 
—

 
(27,718
)
Proceeds from sale of business, net of transition costs
198

 
—

 
8,582

 
—

 
8,780

Cash paid for business acquisitions, net of cash acquired
—

 
(1,732
)
 
(20,594
)
 
—

 
(22,326
)
Intercompany investment
(100
)
 
—

 
—

 
100

 
—

Cash used in investing activities
(2,357
)
 
(9,439
)
 
(48,136
)
 
100

 
(59,832
)
Financing Activities
 
 
 
 
 
 
 
 
 
Principal repayments on term loan
(22,500
)
 
—

 
—

 
—

 
(22,500
)
Stock option exercises and other
10,435

 
—

 
—

 
—

 
10,435

Taxes paid related to the net share settlement of equity awards
(1,279
)
 
—

 
—

 
—

 
(1,279
)
Cash dividend
(2,390
)
 
—

 
—

 
—

 
(2,390
)
Intercompany loan activity
(5,954
)
 
—

 
5,954

 
—

 
—

Intercompany capital contribution
—

 
—

 
100

 
(100
)
 
—

Cash (used in) provided by financing activities
(21,688
)
 
—

 
6,054

 
(100
)
 
(15,734
)
Effect of exchange rate changes on cash
—

 
—

 
(104
)
 
—

 
(104
)
Net increase (decrease) in cash and cash equivalents
1,696

 
—

 
(41,777
)
 
—

 
(40,081
)
Cash and cash equivalents—beginning of period
34,715

 
—

 
194,856

 
—

 
229,571

Cash and cash equivalents—end of period
$
36,411

 
$
—

 
$
153,079

 
$
—

 
$
189,490


24

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
Nine Months Ended May 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net provided by operating activities
$
82,834

 
$
13,184

 
$
20,798

 
$
(64,754
)
 
$
52,062

Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(2,706
)
 
(8,037
)
 
(12,176
)
 
—

 
(22,919
)
Proceeds from sale of property, plant and equipment
—

 
135

 
109

 
—

 
244

Cash used in investing activities
(2,706
)
 
(7,902
)
 
(12,067
)
 
—

 
(22,675
)
Financing Activities
 
 
 
 
 
 
 
 
 
Principal repayments on term loan
(11,250
)
 
—

 
—

 
—

 
(11,250
)
Redemption of 5.625% Senior Notes
(500
)
 
—

 
—

 
—

 
(500
)
Stock option exercises and other
7,314

 
—

 
—

 
—

 
7,314

Taxes paid related to the net share settlement of equity awards
(999
)
 
—

 
—

 
—

 
(999
)
Payment of deferred acquisition consideration
—

 
—

 
(742
)
 
—

 
(742
)
Cash dividend
(2,358
)
 
(5,353
)
 
(59,401
)
 
64,754

 
(2,358
)
Intercompany loan activity
(53,734
)
 
—

 
53,734

 
—

 
—

Cash used in financing activities
(61,527
)
 
(5,353
)
 
(6,409
)
 
64,754

 
(8,535
)
Effect of exchange rate changes on cash
—

 
—

 
(1,502
)
 
—

 
(1,502
)
Net increase (decrease) in cash and cash equivalents
18,601

 
(71
)
 
820

 
—

 
19,350

Cash and cash equivalents—beginning of period
7,953

 
71

 
171,580

 
—

 
179,604

Cash and cash equivalents—end of period
$
26,554

 
$
—

 
$
172,400

 
$
—

 
$
198,954



25

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, 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 13, "Segment Information" in the notes to the condensed consolidated financial statements.
Our businesses provide an array of products and services across multiple markets and geographies which results in significant diversification. Our Industrial and Engineered Solutions segments continue to benefit from improvement within the broad industrial, mining, infrastructure and agriculture markets, which began in the second half of fiscal 2017 and continued through the first three quarters of fiscal 2018. We anticipate a continuing moderate growth rate in these markets in the fourth quarter of fiscal 2018, while we expect the on-highway vehicle markets to slow on weaker demand and more difficult comparisons. Reduced capital and maintenance spending in the oil & gas markets in the form of project cancellations, deferrals and scope reductions were a headwind to our Energy segment throughout the first half of fiscal 2018. We experienced stabilization in energy maintenance activity in the third quarter of fiscal 2018 and we expect sales growth in the Energy segment in the fourth quarter. As a result, we expect consolidated fiscal 2018 core sales growth (sales excluding the impact of acquisitions, divestitures and changes in foreign currency exchange rates) of 4% to 6%, compared to a 4% core sales decline in fiscal 2017.
We continue to pursue both organic and inorganic growth opportunities aligned with our strategic objectives. This includes the advancement of our commercial effectiveness initiatives along with new product development efforts associated with our offerings of mission critical solutions to customers. We are also revitalizing lean efforts across our manufacturing, assembly and service operations. The Industrial segment is focused on accelerating global sales growth through geographic expansion, continuing emphasis on sales and marketing efforts, new product introductions and regional growth via second tier brands. During the third quarter of fiscal 2018, we completed the acquisition of Equalizer, a niche provider of industrial and energy maintenance tools. Within the Energy segment, we continue to geographically diversify and expand capabilities within the maintenance tools and services offerings while also redirecting sales, marketing and engineering resources to various non-oil & gas vertical markets. During the second quarter of fiscal 2018, we completed the divestiture of our Viking business, thus exiting the offshore mooring business and significantly limiting our exposure to the upstream, offshore oil & gas market. Also during the second quarter of fiscal 2018, we completed the acquisition of Mirage, a provider of energy and industrial maintenance tools. The Engineered Solutions segment is capitalizing on their served end market demand recovery, while also expanding content and engineering capabilities across customers and geographies. We continue to analyze our businesses in line with our strategic objectives and are taking portfolio management and segment consolidation actions that are anticipated to simplify and improve the operational performance of our Company.
We remain focused on improving 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. Across the Company, we are continuing the cost reduction programs initiated at the beginning of fiscal 2016. Restructuring charges related to these initiatives totaled approximately $34 million in fiscal 2016, fiscal 2017 and the first nine months of fiscal 2018, combined. Total restructuring charges were $1.2 million and $12.1 million in the three and nine months ended May 31, 2018, respectively. These restructuring costs related primarily to executive leadership changes, facility consolidation, headcount reductions and operational improvement. Due to recent challenging market conditions and operating results within our Energy segment, we continue to examine our cost structure, restructuring initiatives and service strategy to align our business with current market expectations and maximize available opportunities in the interim. Similarly, we continue to examine other areas of our business that may require structural cost changes to improve performance and profitability. As such, the Company anticipates restructuring initiatives and related pre-tax charges continuing for the remainder of fiscal 2018, including approximately $2 million to $3 million of additional restructuring charges.
Pre-tax cost savings realized from executing these restructuring initiatives totaled approximately $22 million in fiscal 2016, fiscal 2017 and the first nine months of fiscal 2018, combined. Realized cost savings were comprised of $6 million within the Industrial segment, $8 million within the Energy segment, $6 million within the Engineered Solutions segment and $2 million within Corporate expenses. The Company anticipates realizing an incremental $7 million to $10 million in pre-tax cost savings for the remainder of fiscal 2018 and in fiscal 2019 for all restructuring initiatives implemented in fiscal years 2016, 2017 and 2018 and to be implemented in the the fourth quarter of fiscal 2018. Forty percent of the anticipated future cost savings are expected to benefit the Industrial segment, another 40% are expected to benefit the Energy segment, another 5% are expected to benefit the Engineered Solutions segment and the remaining 15% are expected to benefit Corporate expenses. The annual benefit of these gross cost savings may be impacted by factors including sales and production volume variances, annual bonus expense differential and corresponding re-investment of savings into other initiatives.

26
Table of Contents

Given our global geographic footprint, changes in foreign currency exchange rates could have a significant impact on our financial results, financial position and cash flow. Changes in foreign currency exchange rates will continue to add volatility as over one-half of our sales are generated outside of the United States in currencies other than the U.S. dollar. The weakening of the U.S. dollar favorably impacts our sales, cash flow and earnings given the translation of our international results into U.S. dollars. This also results in lower costs for certain international operations, which incur costs or purchase components in U.S. dollars, and increases the dollar value of assets (including cash) and liabilities of our international operations. A strengthening of the U.S. dollar has the opposite effect on our sales, cash flow, earnings and financial position.
Results of Operations
The following table sets forth our results of operations (in millions, except per share amounts):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
 
 
2017
 
 
 
2018
 
 
 
2017
 
 
Net sales
$
317

 
100
 %
 
$
295

 
100
 %
 
$
881

 
100
%
 
$
820

 
100
 %
Cost of products sold
200

 
63
 %
 
193

 
65
 %
 
574

 
65
%
 
537

 
65
 %
Gross profit
117

 
37
 %
 
102

 
35
 %
 
307

 
35
%
 
283

 
35
 %
Selling, administrative and engineering expenses
78

 
25
 %
 
70

 
24
 %
 
221

 
25
%
 
206

 
25
 %
Amortization of intangible assets
5

 
2
 %
 
5

 
2
 %
 
15

 
2
%
 
15

 
2
 %
Director & officer transition costs
—

 
—
 %
 
—

 
—
 %
 
—

 
—
%
 
8

 
1
 %
Restructuring charges
1

 
—
 %
 
—

 
—
 %
 
11

 
1
%
 
5

 
1
 %
Impairment & divestiture charges
—

 
—
 %
 
—

 
—
 %
 
3

 
1
%
 
—

 
—
 %
Operating profit
33

 
10
 %
 
27

 
9
 %
 
57

 
6
%
 
49

 
6
 %
Financing costs, net
8

 
3
 %
 
8

 
3
 %
 
23

 
3
%
 
22

 
3
 %
Other expense, net
—

 
—
 %
 
1

 
—
 %
 
1

 
—
%
 
1

 
—
 %
Earnings before income tax (benefit) expense
25

 
8
 %
 
18

 
6
 %
 
33

 
4
%
 
26

 
3
 %
Income tax (benefit) expense
(4
)
 
(1
)%
 
(4
)
 
(1
)%
 
17

 
2
%
 
(7
)
 
(1
)%
Net earnings
$
29

 
9
 %
 
$
22

 
7
 %
 
$
16

 
2
%
 
$
33

 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.48

 
 
 
$
0.37

 
 
 
$
0.26

 
 
 
$
0.54

 
 
Consolidated sales for the third quarter of fiscal 2018 were $317 million , an increase of $22 million ( 7% ) from the prior year, while year-to-date sales were $881 million , an increase of $61 million ( 7% ), from the prior year. For the three and nine months ended May 31, 2018, foreign currency exchange rates favorably impacted sales by 4% and 3%, respectively. However, the net acquisition and divestiture activity reduced sales by 1% for both the three and nine months ended May 31, 2018, respectively. As a result, core sales were up 4% for the third quarter and 5% year-to-date compared to prior year. The consolidated core sales increase was the result of strong volumes in both the Industrial and Engineered Solutions segments, which more than offset the year-to-date decline in Energy segment net sales. Operating profit margins were relatively consistent year-over-year for both the three and nine months ended May 31, 2018. Non-recurring director & officer transition charges of $8 million were included in the nine months ended May 31, 2017, while the nine months ended May 31, 2018 included increased restructuring charges of $6 million year-over-year and $3 million of pre-tax charges related to the Viking divestiture. Additionally, the nine months ended May 31, 2018 included an increased effective income tax rate compared to prior year due to provisional tax charges for U.S. Tax Reform, the non-recurrence of the fiscal 2017 recognition of income tax planning benefits and $9 million of tax expense resulting from the Viking divestiture (see Note 12, "Income Taxes" for further discussion).

27
Table of Contents

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, production automation solutions and concrete stressing components and systems (collectively "Industrial Tools") and highly engineered heavy lifting solutions ("Heavy Lifting Technology"). The following table sets forth the results of operations for the Industrial segment (in millions):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net sales
$
108

 
$
101

 
$
304

 
$
279

Operating profit
26

 
24

 
61

 
61

Operating profit %
24.0
%
 
23.6
%
 
20.1
%
 
21.8
%
Industrial segment third quarter sales were $108 million , an increase of 8% from the prior year, while year-to-date sales increased 9% from the prior year to $304 million . Third quarter core sales were up 4% , excluding a 4% benefit from foreign currency exchange rates, while year-to-date core sales were up 5% , excluding a 4% benefit from foreign currency exchange rates. Sales from the Industrial Tools product line remained strong globally, with broad demand across the diverse set of end markets and contributions from our commercial effectiveness and new product development efforts. Core sales within the Industrial Tools product line increased $9 million ( 10% ) and $19 million ( 7% ) compared to prior year for the three and nine months ended May 31, 2018, respectively. The segment's overall core sales growth percentage was lowered by the core sales decline in the Heavy Lifting Technology product line of $5 million ( -34% ) and $3 million ( -9% ) for the three and nine months ended May 31, 2018, respectively. The increase in operating profit for the three months ended May 31, 2018 was the result of incremental profits on higher volumes within the Industrial Tool product line, partially offset by production inefficiencies and lower volumes in Heavy Lifting Technology and concrete tensioning, although less severe than prior quarters. Restructuring charges totaled $3 million and $2 million for the nine months ended May 31, 2018 and 2017, respectively.
Energy Segment
The Energy segment provides products and maintenance 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 joint integrity tools under rental arrangements, as well as technical manpower solutions. The following table sets forth comparative results of operations for the Energy segment (in millions):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net sales
$
84

 
$
83

 
$
226

 
$
241

Operating profit (1)
6

 
1

 
2

 
4

Operating profit %
7.5
%
 
1.1
%
 
0.9
%
 
1.5
%
(1) Operating profit includes impairment and divestiture charges of $3 million for the nine months ended May 31, 2018.
Energy segment third quarter sales were approximately level with the prior year at $84 million , while year-to-date sales decreased 6% . Changes in foreign currency exchange rates favorably impacted sales comparisons by 3% for both the three and nine month periods. In addition, the net impact on sales from the Viking divestiture and Mirage acquisition resulted in a $1 million ( -2% ) and $8 million ( -3% ) headwind for the three and nine months ended May 31, 2018, respectively. As a result, Energy segment core sales declined 1% for the third quarter and 6% year-to-date. Core sales from our Energy Maintenance & Integrity product line decreased $1 million ( -1% ) and $17 million ( -9% ) for the three and nine months ended May 31, 2018, respectively. In the third quarter, global maintenance activity levels stabilized with improvements in the Middle East and North Sea regions. Core sales in our Other Energy Solutions product line, consisting of umbilical & rope solutions, were flat and increased by $3 million ( 5% ) for the three and nine month periods, respectively, due to higher medical demand and improving offshore oil & gas seismic and cable activity. Operating profit for the nine months ended May 31, 2018 included impairment and divestiture charges of $3 million related to the Viking divestiture. Excluding the impairment and divestiture charge, Energy segment operating profit was $5 million for the nine months ended May 31, 2018. Adjusted operating profit improvement for the three and nine months ended May 31, 2018 were the result of benefits of prior restructuring and service excellence actions, stabilization in net sales and the absence of prior year

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Table of Contents

Viking operating losses. Restructuring costs to consolidate facilities and reduce headcount were $4 million for the nine months ended May 31, 2018 and insignificant for the nine months ended May 31, 2017.
Engineered Solutions Segment
The Engineered Solutions segment is a global designer, manufacturer and assembler of system critical position and motion control systems and other customized 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 to OEM customers. The following table sets forth comparative results of operations for the Engineered Solutions segment (in millions):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Net sales
$
125

 
$
111

 
$
351

 
$
300

Operating profit
9

 
8

 
18

 
11

Operating profit %
7.2
%
 
7.3
%
 
5.0
%
 
3.6
%
Engineered Solutions segment sales increased $14 million ( 12% ) to $125 million in the third quarter, while year-to-date sales increased $51 million ( 17% ) to $351 million . Excluding the 5% favorable impact of changes in foreign currency exchange rates for both the three and nine months ended May 31, 2018, core sales increased 7% for the third quarter and 12% year-to-date. Strong sales and growth continued globally across our Agricultural, Off-Highway and Other product line with core sales increasing $4 million ( 7% ) and $18 million ( 13% ) for the three and nine months ended May 31, 2018, respectively. On-Highway product line core sales increased $4 million ( 7% ) for the third quarter and $19 million ( 11% ) year-to-date due to modestly higher growth in Europe, partially offset by anticipated lower China volumes. Operating profit was $9 million and $8 million for the three month periods ending May 31, 2018 and 2017, respectively, due to higher volumes offset by higher engineering expenses to support growth, material cost increases and labor inflation. Year-to-date operating profit improved $7 million year-over-year, primarily the result of higher volumes and the benefits of prior period restructuring initiatives offset by increased engineering, material and labor costs. Restructuring charges were not significant for the nine months ended May 31, 2018 and $4 million for the nine months ended May 31, 2017.
Corporate
Corporate expenses increased by $3 million to $9 million in the third quarter, while year-to-date expenses decreased by $2 million to $24 million . The third quarter increase primarily relates to higher incentive compensation and outside services costs. The year-to-date decrease in corporate expenses was due to the non-recurring director & officer transition charges of $8 million recognized in the comparable prior year period, offset by higher incentive compensation and restructuring charges of $5 million related to executive leadership changes in fiscal 2018.
Financing Costs, net
Net financing costs were $8 million fo r both the three months ended May 31, 2018 and 2017. For the nine months ended May 31, 2018 and 2017, net financing costs were $23 million and $22 million , respectively.

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Table of Contents

Income Tax Expense
The Company's income tax expense or benefit is impacted by a number of factors, including the amount of taxable earnings generated in foreign jurisdictions with tax rates that are lower than the U.S. federal statutory rate, permanent items, state tax rates, changes in tax laws, acquisitions and divestitures 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 maximize tax credits and deductions. Both fiscal 2018 and 2017 include the benefits of tax planning initiatives. Comparative earnings before income taxes, income tax expense or benefit and effective income tax rates are as follows (amounts in millions):
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2018
 
2017
 
2018
 
2017
Earnings before income taxes
$
25

 
$
18

 
$
33

 
$
26

Income tax (benefit) expense
(4
)
 
(4
)
 
17

 
(7
)
Effective income tax rate
(16.0
)%
 
(21.8
)%
 
52.1
%
 
(26.5
)%
The Company’s income tax expense and effective tax rates during the three and nine months ended May 31, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. See further discussion of the effects of the Act under Note 12, “Income Taxes.”
The Company's effective tax rate for the nine months ended May 31, 2018 was 52.1% compared to (26.5)% for the comparable prior year period. The effective tax rate for the current year results in significantly greater tax expense than the comparable prior year period due to to the non-recurrence of the fiscal 2017 recognition of income tax planning benefits resulting from certain losses from prior years for which no benefit was previously recognized and the fiscal 2018 tax planning impact of Notice 2018-26, offset by the provisional year-to-date tax benefits of the Act as described in Note 12, “Income Taxes.” Additionally, the nine months ended May 31, 2018 also include discrete income tax expense of $9 million related to the Viking divestiture, $2 million related to excess deferred tax deficiencies on deductible equity compensation and the expiration of unexercised stock options, and tax expense related to the net increase in valuation allowances that is offset by a reduction in tax reserves primarily associated with the lapsing of income tax statutes of limitations. Both the current and prior year income tax rates were impacted by the proportion of earnings in foreign jurisdictions (with income tax rates lower than the U.S. federal income tax rate). In addition, the Company may release a material valuation allowance in a foreign jurisdiction in late fiscal 2018 or in fiscal 2019, if the Company determines that it is more likely than not the deferred tax assets will be realized.
Cash Flows and Liquidity
At May 31, 2018 , cash and cash equivalents included $ 153 million of cash held by our foreign subsidiaries and $36 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. At May 31, 2018 , we did not have any temporary intercompany advances, compared to the $5 million we had outstanding at August 31, 2017 . The following table summarizes our cash flows from operating, investing and financing activities (in millions):
 
Nine Months Ended May 31,
 
2018
 
2017
Net cash provided by operating activities
$
36

 
$
52

Net cash used in investing activities
(60
)
 
(23
)
Net cash used in financing activities
(16
)
 
(9
)
Effect of exchange rates on cash
—

 
(1
)
Net (decrease) increase in cash and cash equivalents
$
(40
)
 
$
19

Cash flows provided by operating activities were $36 million for the nine months ended May 31, 2018 , a decrease of $16 million from the prior year, primarily due to lower cash earnings and cash used for inventories, partially offset by reduced net cash tax payments/refunds. Existing cash balances, along with $10 million from stock options exercises and $9 million from the sale of Viking, funded the $28 million rental asset lease buyout for the Viking divestiture, $22 million of business acquisitions, $19 million of capital expenditures and $23 million of principal loan repayments.
Our Senior Credit Facility, which matures on May 8, 2020 , includes a $600 million revolving credit facility, an amortizing term loan and a $450 million expansion option, subject to certain conditions. Quarterly principal payments of $4 million on the term loan commenced on June 30, 2016 , increased to $8 million per quarter on June 30, 2017 and extend through March 31, 2020 , with the

30
Table of Contents

remaining principal due at maturity. At May 31, 2018 , we had $189 million of cash and cash equivalents. Unused revolver capacity was $598 million at May 31, 2018 , of which $146 million was available for borrowing.
Subsequent to quarter-end (June 22, 2018) and pursuant to the provisions of the Senior Credit Facility, the Company reduced the borrowing capacity on the revolver from $600 million to $300 million. The amount available for borrowing under the revolver was not impacted by the June 2018 reduction in borrowing capacity. This reduction in borrowing capacity is expected to reduce the non-use fee on the average unused credit line under the revolver. The Company estimates a charge of $1.0 million in the fourth quarter of fiscal 2018 for the write-off of deferred financing costs associated with the reduced borrowing capacity.
We believe that the reduced revolver, combined with our existing cash on hand and anticipated operating cash flow, will be adequate to meet operating, debt service, acquisition and capital expenditure funding 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 third quarter working capital increase compared to August 31, 2017 is the result of core sales growth and seasonal inventory build. The following table shows a comparison of primary working capital (in millions):
 
May 31, 2018
 
PWC%
 
August 31, 2017
 
PWC%
Accounts receivable, net
$
212

 
17
 %
 
$
190

 
17
 %
Inventory, net
167

 
13
 %
 
144

 
13
 %
Accounts payable
(142
)
 
(11
)%
 
(133
)
 
(12
)%
Net primary working capital
$
237

 
19
 %
 
$
201

 
18
 %
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 of businesses that we 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 $11 million using a weighted average discount rate of 3.16% at May 31, 2018 .
We had letters of credit outstanding of approximately $22 million at both May 31, 2018 and August 31, 2017 , the majority of which relate to commercial contracts and self-insured workers' compensation programs.
Contractual Obligations
Our contractual obligations have not materially changed in fiscal 2018 and 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, 2017 .
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, 2017 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.
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 would result in a corresponding $0.3 million and $0.9 million increase in financing costs for the three and nine months ended May 31, 2018 , respectively.


31
Table of Contents

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, United Arab Emirates 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 foreign currency exchange contracts) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 10, “Derivatives” for further information). We do not engage in trading or other speculative activities with these transactions, as established policies require that these hedging transactions relate to specific currency exposures.
The strengthening of the U.S. dollar against most currencies 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 $15 million and operating profit would have been lower by $5 million , respectively, for the three months ended May 31, 2018 . 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 versus the U.S. dollar would result in a $63 million reduction to equity (accumulated other comprehensive loss) as of May 31, 2018 , as a result of non U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
C ommodity 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.
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 May 31, 2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

32
Table of Contents

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 20,439,434 shares of common stock for $618 million . As of May 31, 2018 , the maximum number of shares that may yet be purchased under the programs is 7,560,566 shares. There were no share repurchases in the three and nine months ended May 31, 2018 .

Item 6 – Exhibits
(a) Exhibits
See “Index to Exhibits” on page 35, which is incorporated herein by reference.

33
Table of Contents

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
ACTUANT CORPORATION
 
 
(Registrant)
Date: July 9, 2018
 
By:
/S/ RICK T. DILLON
 
 
 
Rick T. Dillon
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)


34
Table of Contents

ACTUANT CORPORATION
(the “Registrant”)
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2018
INDEX TO EXHIBITS
 
Exhibit
 
Description
 
Filed
Herewith
 
Furnished Herewith
 
Offer letter by and between Actuant Corporation and Fabrizio R. Rasetti dated April 12, 2018.
 
X
 
 
 
 
 
 
 
 
 
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
X
 
 
 
 
 
 
 
 
 
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
X
 
 
 
 
 
 
 
 
The following materials from the Actuant Corporation Form 10-Q for the quarter ended May 31, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income (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
 
 
 
 
 
 
 
 
 


35


Exhibit 10.1

March 28, 2018

Fabrizio Rasetti
2231 Walker Lane
Holladay, UT 84117

Dear Fabrizio,

Offer and Position
We are very pleased to extend an offer of employment to you for the position of Executive Vice President General Counsel and Secretary of Actuant Corporation, a Wisconsin corporation (the "Company" ). This offer of employment is conditioned on your satisfactory completion of certain requirements, as more fully explained in this letter. Your employment is subject to the terms and conditions set forth in this letter.

Duties
In your capacity as an EVP General Counsel and Secretary, you will perform duties and responsibilities that are commensurate with your position and such other duties as may be assigned to you from time to time. You will report directly to Randy Baker, the Company’s Chief Executive Officer and President. You agree to devote your full business time, attention and best efforts to the performance of your duties and to the furtherance of the Company's interests. Notwithstanding the foregoing, nothing in this letter shall preclude you from devoting reasonable periods of time to charitable and community activities and managing personal investment assets.

Start Date
Subject to satisfaction of all of the conditions described in this letter, your anticipated start date is May 7, 2018 ( "Start Date" ).

Base Salary
In consideration of your services, you will be paid an initial base salary of $375,000 per year, subject to review annually, payable in accordance with the standard payroll practices of the Company and subject to all withholdings and deductions as required by law.

Annual Bonus
You will have an opportunity to earn an annual cash bonus based on the achievement of the same performance objectives for fiscal 2018 currently in place for our executive team members. For Fiscal 2018, your annual target cash bonus will be 60% of your base salary ($225,000) and the earned pay-out will be prorated based on your date of hire for fiscal year 2018. The Compensation Committee will establish your target bonus and performance objectives on an annual basis going forward.

Equity Grants (LTI)
On the first day of your employment, you will be granted restricted stock units valued at $300,000, collectively referred to as the Equity Award (“ Equity Award ”). The restricted stock units will be priced based on, the closing market price of the Company’s stock on the grant date and will vest ratably over three years. The Equity Award will be subject to the terms and conditions of the Actuant Corporation 2017 Omnibus Incentive Plan, as amended, and the specific award agreements.
For each full fiscal year of employment, you will be eligible to receive an annual equity award determined by the Board in its discretion. You will be eligible for an equity award in January 2019 and will receive $400,000 of equity, awarded as 50% Performance Shares and 50% RSUs.

Benefits and Perquisites
You will be eligible to participate in the employee benefit plans and programs generally available to the Company's senior executives, including group medical, dental, vision and life insurance, Supplemental Executive Retirement Program, 401K, automobile allowance, financial planning services, annual executive physical, disability benefits and personal use of the company plane, subject to the terms and conditions of such plans and programs. You will be entitled to four (4) weeks of paid vacation per year. The Company reserves the right to amend, modify or terminate any of its benefit plans or programs at any time and for any reason.

Withholding
All forms of compensation paid to you as an employee of the Company shall be less all applicable withholdings.







Stock Ownership Requirements
As an EVP of the Company, you will be required to comply with the Company's Stock Ownership Requirements applicable to executive officers, which requires the EVPs to maintain stock ownership equal in value to at least three times base salary within five years of the Start Date.

At-will Employment
Your employment with the Company will be for no specific period of time. Rather, your employment will be at-will, meaning that you or the Company may terminate the employment relationship at any time, with or without cause, and with or without notice and for any reason or no particular reason. Although your compensation and benefits may change from time to time, the at-will nature of your employment may only be changed by an express written agreement signed by an authorized officer of the Company.

Clawback
Any amounts payable hereunder are subject to any policy (whether currently in existence or later adopted) established by the Company providing for clawback or recovery of amounts that were paid to you. The Company will make any determination for clawback or recovery in its sole discretion and in accordance with any applicable law or regulation.

Governing Law
This offer letter shall be governed by the laws of Wisconsin, without regard to any state’s conflict of law principles.

Contingent Offer
This offer is contingent upon:
(a) Verification of your right to work in the United States, as demonstrated by your completion of an I-9 form upon hire and your submission of acceptable documentation (as noted on the I-9 form) verifying your identity and work authorization within three days of your Start Date;
(b) Completion of your background check and drug screening with results satisfactory to the Company; and

c) Approval by the Board of your election as an Executive Vice President.

Representations
By accepting this offer, you represent that you are able to accept this job and carry out the work that it would involve without breaching any legal restrictions on your activities, such as non-competition, non-solicitation or other work-related restrictions imposed by a current or former employer. You also represent that you will inform the Company about any such restrictions and provide the Company with as much information about them as possible, including any agreements between you and your current or former employer describing such restrictions on your activities. You further confirm that you will not remove or take any documents or proprietary data or materials of any kind, electronic or otherwise, with you from your current or former employer to the Company without written authorization from your current or former employer, nor will you use or disclose any such confidential information during the course and scope of your employment with the Company. If you have any questions about the ownership of particular documents or other information, you should discuss such questions with your former employer before removing or copying the documents or information.

If you have any questions about the above details, please call me. If the foregoing is acceptable, please sign below and return this letter to me. This offer is open for you to accept until 8:00 a.m. on Monday, April 16, 2018, at which time it will be deemed to be withdrawn.



Yours sincerely,

ACTUANT CORPORATION

By:
/s/ Andre L. Williams
 
Its:
EVP - Human Resources
 

 




Acceptance of Offer

I have read, understood and accept all the terms of the offer of employment as set forth in the foregoing letter. I have not relied on any agreements or representations, express or implied, that are not set forth expressly in the foregoing letter, and this letter supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter of this letter.
Fabrizio Rasetti
 
Signed:
/s/ Fabrizio R. Rasetti
 
Date:
April 12, 2018
 
                





Exhibit 31.1
CERTIFICATION
I, Randal W. Baker, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Actuant Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: July 9, 2018
 
 
/s/ Randal W. Baker
 
Randal W. Baker Chief Executive Officer and President




Exhibit 31.2
CERTIFICATION
I, Rick T. Dillon, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Actuant Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting
Date: July 9, 2018
 
 
/s/ Rick T. Dillon
 
Rick T. Dillon
 
Executive Vice President and Chief Financial Officer




Exhibit 32.1
WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. ss.1350, I, the undersigned Chief Executive Officer and President of Actuant Corporation (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarterly period ended May 31, 2018 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
Date: July 9, 2018
 
 
/s/ Randal W. Baker
 
Randal W. Baker
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Actuant Corporation and will be retained by Actuant Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.




Exhibit 32.2
WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. ss.1350, I, the undersigned Executive Vice President and Chief Financial Officer of Actuant Corporation (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarterly period ended May 31, 2018 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
Date: July 9, 2018
 
 
/s/ Rick T. Dillon
 
Rick T. Dillon
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Actuant Corporation and will be retained by Actuant Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.