UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
| | | | | |
☒ | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2017February 29, 2024
OR
| | | | | |
☐ | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-11288
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ACTUANT CORPORATIONENERPAC TOOL GROUP CORP.
(Exact name of registrant as specified in its charter)
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| | | | | | | | |
Wisconsin | | 39-0168610 |
| | |
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)
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Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Ticker Symbol(s) | Name of each exchange on which registered |
Class A common stock, $0.20 par value per share | EPAC | NYSE |
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“large accelerated filer,” “large accelerated“accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
Non-accelerated Filer | | ☐ | | | | | |
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 December 31, 2017March 18, 2024 was 60,007,521.
TABLE OF CONTENTS
FORWARD LOOKING
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 anticipated capital expenditures. Words such asThe terms “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “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•supply chain issues, including shortages of adequate component supply that increase our costs or a prolonged economic downturn;cause delays in our ability to fulfill orders;
end market conditions•failure to estimate customer demand properly may result or could have an adverse impact on our business and operating results and our relationship with customers;
•the deterioration of, or instability in, the industrial,domestic and international economy and/or in our various end markets, including as a result of geopolitical activity, including the invasion of Ukraine by Russia and international sanctions imposed in response thereto, the armed conflict involving Hamas and Israel, and the attacks on commercial ships in the Red Sea;
•decreased demand from customers in the oil & gas energy, power generation, infrastructure, commercial construction, truck, automotive, specialty vehicle, mining and agriculture industries;
competitionindustry, including as a result of significant volatility in oil prices resulting from disruptions in the markets we serve and market acceptance of existing and new products;oil markets;
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 and overhead cost increases;
our international operations present special risks, primarily from currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions and controls on repatriation of cash;
regulatory and legal developments including changes to United States taxation rules, conflict mineral supply chain compliance, environmental laws and governmental climate change initiatives;
the potential for a non-cash asset impairment charge, if operating performance•uncertainty over global tariffs or the outlook for one or morefinancial impact of our businesses were to fall significantly below current levels;tariffs;
•our ability to execute on restructuring actions and on the realizationobjectives related to the ASCEND transformation program in order to achieve anticipated incremental operating profit;
•logistics challenges, including global freight capacity shortages, significant increases in freight costs or other delays in our ability to fulfill orders and the previously mentioned attacks on commercial ships in the Red Sea;
•failure to collect on accounts receivable, including in certain foreign jurisdictions where sales are concentrated to a limited number of anticipated cost savings from those restructuring actionsdistributors or agents;
•risks related to our reliance on independent agents and cost reduction efforts;distributors for the distribution and service of products;
•a significant failure in our information technology (IT) infrastructure, and systems,such as unauthorized access to financial and other sensitive data or cybersecurity threats;
due to the assembly nature of our operations we purchase•a material disruption at a significant amount of components from suppliersmanufacturing facility;
•competition in the markets we serve;
•currency exchange rate fluctuations, export and import restrictions, transportation disruptions or shortages, and other risks inherent in our reliance on suppliers involves certain risks;international operations;
•regulatory and legal developments, including litigation, includingsuch as product liability and warranty claims;
inadequate intellectual property protection •failure to develop new products and the extent of market acceptance of new products and price increases
•our ability to execute on our growth strategy;
•our ability to successfully identify, consummate and integrate acquisitions and realize anticipated benefits/results from acquired companies as part of our portfolio management process;
•the effects of divestitures and/or discontinued operations, including retained liabilities from, or indemnification obligations with respect to, disposed businesses;
•if the operating performance of our products are deemedbusinesses were to infringe onfall significantly below normalized levels, the intellectual propertypotential for a non-cash impairment charge of others;goodwill and/or other intangible assets, as they represent a substantial amount of our total assets;
our level•a global economic recession;
•the impact of indebtedness,rapidly rising interest rates and material, labor, or overhead cost increases;
•our ability to comply with the financial and other covenants in our debt agreements and fluctuations in interest rates;
•our ability to attract, develop, and retain qualified employees;
numerous •inadequate intellectual property protection or infringement of the intellectual property of others;
•our ability to access capital markets; and
•other matters, including those of a political, economic, business, competitive and regulatory nature contained from time to time in our 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 theour Form 10-K for the fiscal year ended August 31, 2023 filed with the SEC on October 26, 2017.20, 2023.
When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant CorporationEnerpac Tool Group Corp. and its subsidiaries. Actuant CorporationReference to fiscal years, such as "fiscal 2024," are to the fiscal year ending on August 31 of the specified year. Enerpac Tool Group Corp. 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,www.enerpactoolgroup.com, as soon as reasonably practicalpracticable after such reports are electronically filed with the SEC.
PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ACTUANT CORPORATIONENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Net sales | $ | 138,437 | | | $ | 141,960 | | | $ | 280,406 | | | $ | 281,342 | |
Cost of products sold | 66,962 | | | 71,593 | | | 134,681 | | | 143,069 | |
Gross profit | 71,475 | | | 70,367 | | | 145,725 | | | 138,273 | |
| | | | | | | |
Selling, general and administrative expenses | 40,723 | | | 52,059 | | | 82,938 | | | 105,306 | |
Amortization of intangible assets | 833 | | | 1,349 | | | 1,657 | | | 2,717 | |
Restructuring charges | 398 | | | 2,987 | | | 2,799 | | | 3,969 | |
Impairment & divestiture charges | — | | | — | | | 147 | | | — | |
Operating profit | 29,521 | | | 13,972 | | | 58,184 | | | 26,281 | |
Financing costs, net | 3,711 | | | 3,105 | | | 7,408 | | | 5,920 | |
Other expense, net | 543 | | | 721 | | | 1,535 | | | 1,423 | |
Earnings before income tax expense | 25,267 | | | 10,146 | | | 49,241 | | | 18,938 | |
Income tax expense | 7,396 | | | 2,988 | | | 13,064 | | | 5,370 | |
Net earnings from continuing operations | 17,871 | | | 7,158 | | | 36,177 | | | 13,568 | |
Loss from discontinued operations, net of income taxes | (54) | | | (2,661) | | | (622) | | | (1,618) | |
Net earnings | $ | 17,817 | | | $ | 4,497 | | | $ | 35,555 | | | $ | 11,950 | |
| | | | | | | |
Earnings per share from continuing operations | | | | | | | |
Basic | $ | 0.33 | | | $ | 0.13 | | | $ | 0.67 | | | $ | 0.24 | |
Diluted | $ | 0.33 | | | $ | 0.12 | | | $ | 0.66 | | | $ | 0.24 | |
| | | | | | | |
Loss per share from discontinued operations | | | | | | | |
Basic | $ | (0.00) | | | $ | (0.05) | | | $ | (0.01) | | | $ | (0.03) | |
Diluted | $ | (0.00) | | | $ | (0.05) | | | $ | (0.01) | | | $ | (0.03) | |
| | | | | | | |
Earnings per share* | | | | | | | |
Basic | $ | 0.33 | | | $ | 0.08 | | | $ | 0.65 | | | $ | 0.21 | |
Diluted | $ | 0.33 | | | $ | 0.08 | | | $ | 0.65 | | | $ | 0.21 | |
| | | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | 54,213 | | | 57,042 | | | 54,370 | | | 56,964 | |
Diluted | 54,685 | | | 57,500 | | | 54,846 | | | 57,409 | |
| | | | | | | |
*The total of Earnings per share from continuing operations and Loss per share from discontinued operations may not equal Earnings per share due to rounding. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
| | | | | | | |
| Three Months Ended November 30, |
| 2017 | | 2016 |
Net sales | $ | 288,955 |
| | $ | 265,793 |
|
Cost of products sold | 188,044 |
| | 172,726 |
|
Gross profit | 100,911 |
| | 93,067 |
|
Selling, administrative and engineering expenses | 74,478 |
| | 68,602 |
|
Amortization of intangible assets | 5,131 |
| | 5,262 |
|
Director & officer transition charges | — |
| | 7,784 |
|
Restructuring charges | 6,629 |
| | 2,948 |
|
Operating profit | 14,673 |
| | 8,471 |
|
Financing costs, net | 7,514 |
| | 7,132 |
|
Other expense (income), net | 329 |
| | (628 | ) |
Earnings before income tax expense (benefit) | 6,830 |
| | 1,967 |
|
Income tax expense (benefit) | 1,604 |
| | (2,998 | ) |
Net earnings | $ | 5,226 |
| | $ | 4,965 |
|
| | | |
Earnings per share | | | |
Basic | $ | 0.09 |
| | $ | 0.08 |
|
Diluted | $ | 0.09 |
| | $ | 0.08 |
|
| | | |
Weighted average common shares outstanding: | | | |
Basic | 59,871 |
| | 58,972 |
|
Diluted | 60,609 |
| | 59,616 |
|
| | | |
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATIONENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Net earnings | $ | 17,817 | | | $ | 4,497 | | | $ | 35,555 | | | $ | 11,950 | |
Other comprehensive income, net of tax | | | | | | | |
Foreign currency translation adjustments | (2,921) | | | 877 | | | (2,883) | | | 6,818 | |
Pension and other postretirement benefit plans | 1,965 | | | 139 | | | 1,060 | | | 222 | |
Cash flow hedges | (251) | | | 227 | | | 986 | | | 227 | |
Total other comprehensive (loss) income, net of tax | (1,207) | | | 1,243 | | | (837) | | | 7,267 | |
Comprehensive income | $ | 16,610 | | | $ | 5,740 | | | $ | 34,718 | | | $ | 19,217 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
| | | | | | | |
| Three Months Ended November 30, |
| 2017 | | 2016 |
Net earnings | $ | 5,226 |
| | $ | 4,965 |
|
Other comprehensive income (loss), net of tax | | | |
Foreign currency translation adjustments | 2,898 |
| | (26,658 | ) |
Pension and other postretirement benefit plans | 127 |
| | 536 |
|
Total other comprehensive income (loss), net of tax | 3,025 |
| | (26,122 | ) |
Comprehensive income (loss) | $ | 8,251 |
| | $ | (21,157 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATIONENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited) | | | | | | | | | | | |
| (Unaudited) | | |
| February 29, 2024 | | August 31, 2023 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 153,693 | | | $ | 154,415 | |
Accounts receivable, net | 97,590 | | | 97,649 | |
Inventories, net | 82,872 | | | 74,765 | |
Other current assets | 33,150 | | | 28,811 | |
Total current assets | 367,305 | | | 355,640 | |
Property, plant and equipment, net | 36,963 | | | 38,968 | |
Goodwill | 266,113 | | | 266,494 | |
Other intangible assets, net | 36,856 | | | 37,338 | |
Other long-term assets | 62,049 | | | 64,157 | |
Total assets | $ | 769,286 | | | $ | 762,597 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities | | | |
Trade accounts payable | $ | 44,016 | | | $ | 50,483 | |
Accrued compensation and benefits | 20,452 | | | 33,194 | |
Current maturities of debt | 5,000 | | | 3,750 | |
| | | |
Income taxes payable | 4,060 | | | 3,771 | |
Other current liabilities | 44,621 | | | 56,922 | |
Total current liabilities | 118,149 | | | 148,120 | |
Long-term debt, net | 239,920 | | | 210,337 | |
Deferred income taxes | 6,644 | | | 5,667 | |
Pension and postretirement benefit liabilities | 10,066 | | | 10,247 | |
Other long-term liabilities | 57,581 | | | 61,606 | |
Total liabilities | 432,360 | | | 435,977 | |
| | | |
Shareholders’ equity | | | |
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 54,252,752 and 83,760,798 shares, respectively | 10,851 | | | 16,752 | |
Additional paid-in capital | 226,075 | | | 220,472 | |
Treasury stock, at cost, 0 and 28,772,715 shares, respectively | — | | | (800,506) | |
Retained earnings | 222,047 | | | 1,011,112 | |
Accumulated other comprehensive loss | (122,047) | | | (121,210) | |
Stock held in trust | (3,777) | | | (3,484) | |
Deferred compensation liability | 3,777 | | | 3,484 | |
Total shareholders' equity | 336,926 | | | 326,620 | |
Total liabilities and shareholders’ equity | $ | 769,286 | | | $ | 762,597 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
| | | | | | | | |
| | November 30, 2017 | | August 31, 2017 |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 165,050 |
| | $ | 229,571 |
|
Accounts receivable, net | | 201,317 |
| | 190,206 |
|
Inventories, net | | 154,246 |
| | 143,651 |
|
Assets held for sale | | 21,393 |
| | 21,835 |
|
Other current assets | | 76,330 |
| | 61,663 |
|
Total current assets | | 618,336 |
| | 646,926 |
|
Property, plant and equipment | | | | |
Land, buildings and improvements | | 46,690 |
| | 43,737 |
|
Machinery and equipment | | 233,375 |
| | 227,535 |
|
Gross property, plant and equipment | | 280,065 |
| | 271,272 |
|
Less: Accumulated depreciation | | (181,077 | ) | | (176,751 | ) |
Property, plant and equipment, net | | 98,988 |
| | 94,521 |
|
Goodwill | | 531,454 |
| | 530,081 |
|
Other intangibles, net | | 216,032 |
| | 220,489 |
|
Other long-term assets | | 25,431 |
| | 24,938 |
|
Total assets | | $ | 1,490,241 |
| | $ | 1,516,955 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current liabilities | | | | |
Trade accounts payable | | $ | 141,745 |
| | $ | 133,387 |
|
Accrued compensation and benefits | | 37,770 |
| | 50,939 |
|
Current maturities of debt and short-term borrowings | | 30,000 |
| | 30,000 |
|
Income taxes payable | | 6,642 |
| | 6,080 |
|
Liabilities held for sale | | 70,787 |
| | 101,083 |
|
Other current liabilities | | 56,975 |
| | 57,445 |
|
Total current liabilities | | 343,919 |
| | 378,934 |
|
Long-term debt, net | | 524,629 |
| | 531,940 |
|
Deferred income taxes | | 29,567 |
| | 29,859 |
|
Pension and postretirement benefit liabilities | | 19,539 |
| | 19,862 |
|
Other long-term liabilities | | 56,269 |
| | 55,821 |
|
Total liabilities | | 973,923 |
| | 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 80,396,432 and 80,200,110 shares, respectively | | 16,079 |
| | 16,040 |
|
Additional paid-in capital | | 145,938 |
| | 138,449 |
|
Treasury stock, at cost, 20,439,434 shares | | (617,731 | ) | | (617,731 | ) |
Retained earnings | | 1,196,268 |
| | 1,191,042 |
|
Accumulated other comprehensive loss | | (224,236 | ) | | (227,261 | ) |
Stock held in trust | | (2,722 | ) | | (2,696 | ) |
Deferred compensation liability | | 2,722 |
| | 2,696 |
|
Total shareholders’ equity | | 516,318 |
| | 500,539 |
|
Total liabilities and shareholders’ equity | | $ | 1,490,241 |
| | $ | 1,516,955 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
ACTUANT CORPORATIONENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| February 29, 2024 | | February 28, 2023 |
Operating Activities | | | |
Net earnings | $ | 35,555 | | | $ | 11,950 | |
Less: Loss from discontinued operations, net of income taxes | (622) | | | (1,618) | |
Net earnings from continuing operations | 36,177 | | | 13,568 | |
Adjustments to reconcile net earnings to net cash provided by operating activities - continuing operations: | | | |
Impairment & divestiture charges | 147 | | | — | |
Depreciation and amortization | 6,754 | | | 8,419 | |
Stock-based compensation expense | 5,527 | | | 4,275 | |
Benefit for deferred income taxes | 418 | | | 440 | |
Amortization of debt issuance costs | 292 | | | 610 | |
Other non-cash expenses | 1,954 | | | 33 | |
Changes in components of working capital and other, excluding acquisitions and divestitures: | | | |
Accounts receivable | (375) | | | 7,436 | |
Inventories | (7,818) | | | (8,714) | |
Trade accounts payable | (6,514) | | | (19,040) | |
Prepaid expenses and other assets | (5,806) | | | (2,452) | |
Income tax accounts | 1,345 | | | 3,440 | |
Accrued compensation and benefits | (12,625) | | | 2,193 | |
Other accrued liabilities | (7,411) | | | (2,249) | |
Cash provided by operating activities - continuing operations | 12,065 | | | 7,959 | |
Cash (used in) provided by operating activities - discontinued operations | (5,413) | | | 1,818 | |
Cash provided by operating activities | 6,652 | | | 9,777 | |
| | | |
Investing Activities | | | |
Capital expenditures | (3,152) | | | (5,465) | |
Working capital adjustment from the sale of business assets | (1,133) | | | — | |
Purchase of assets | (1,402) | | | 584 | |
Cash used in investing activities - continuing operations | (5,687) | | | (4,881) | |
Cash used in investing activities | (5,687) | | | (4,881) | |
| | | |
Financing Activities | | | |
Borrowings on revolving credit facility | 48,000 | | | 41,000 | |
Principal repayments on revolving credit facility | (16,000) | | | (31,000) | |
Principal repayments on term loan | (1,250) | | | — | |
Proceeds from issuance of term loan | — | | | 200,000 | |
Payment for redemption of revolver | — | | | (200,000) | |
Swingline borrowings/repayments, net | — | | | (4,000) | |
Payment of debt issuance costs | — | | | (2,486) | |
Purchase of treasury shares | (30,108) | | | — | |
Taxes paid related to the net share settlement of equity awards | (3,076) | | | (2,474) | |
Stock option exercises & other | 2,871 | | | 1,021 | |
Payment of cash dividend | (2,178) | | | (2,274) | |
Cash used in financing activities - continuing operations | (1,741) | | | (213) | |
Cash used in financing activities | (1,741) | | | (213) | |
| | | |
Effect of exchange rate changes on cash | 54 | | | (719) | |
Net (decrease) increase in cash and cash equivalents | (722) | | | 3,964 | |
Cash and cash equivalents - beginning of period | 154,415 | | | 120,699 | |
Cash and cash equivalents - end of period | $ | 153,693 | | | $ | 124,663 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
| | | | | | | |
| Three Months Ended November 30, |
| 2017 | | 2016 |
Operating Activities | | | |
Net earnings | $ | 5,226 |
| | $ | 4,965 |
|
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 10,090 |
| | 10,896 |
|
Stock based compensation expense | 5,420 |
| | 9,554 |
|
Benefit for deferred income taxes | (307 | ) | | (2,865 | ) |
Amortization of debt issuance costs | 413 |
| | 413 |
|
Other non-cash adjustments | 113 |
| | 464 |
|
Changes in components of working capital and other: | | | |
Accounts receivable | (11,478 | ) | | (8,252 | ) |
Inventories | (11,628 | ) | | (8,142 | ) |
Trade accounts payable | 6,204 |
| | 6,768 |
|
Prepaid expenses and other assets | (12,043 | ) | | (5,485 | ) |
Income taxes payable/receivable | (1,714 | ) | | (1,946 | ) |
Accrued compensation and benefits | (12,588 | ) | | (2,757 | ) |
Other accrued liabilities | 1,834 |
| | 8,850 |
|
Cash (used in) provided by operating activities | (20,458 | ) | | 12,463 |
|
Investing Activities | | | |
Capital expenditures | (7,904 | ) | | (5,139 | ) |
Proceeds from sale of property, plant and equipment | 32 |
| | 130 |
|
Rental asset lease buyout for Viking divestiture | (27,718 | ) | | — |
|
Cash used in investing activities | (35,590 | ) | | (5,009 | ) |
Financing Activities | | | |
Principal repayments on term loan | (7,500 | ) | | (3,750 | ) |
Stock option exercises and other | 2,231 |
| | 964 |
|
Taxes paid related to the net share settlement of equity awards | (282 | ) | | (223 | ) |
Cash dividend | (2,390 | ) | | (2,358 | ) |
Cash used in financing activities | (7,941 | ) | | (5,367 | ) |
Effect of exchange rate changes on cash | (532 | ) | | (4,820 | ) |
Net decrease in cash and cash equivalents | (64,521 | ) | | (2,733 | ) |
Cash and cash equivalents - beginning of period | 229,571 |
| | 179,604 |
|
Cash and cash equivalents - end of period | $ | 165,050 |
| | $ | 176,871 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
General
Enerpac Tool Group Corp. (the "Company") is a premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers in more than 100 countries. The Company has one reportable segment, Industrial Tools & Services ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment.
The accompanying unaudited condensed consolidated financial statements of Actuant Corporation (“Actuant,” or the “Company”)Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") 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 principlesGAAP for complete financial statements. The condensed consolidated balance sheet data as of August 31, 20172023 was derived from the Company’s audited financial statements but does not include all disclosures required by United States generally accepted accounting principles.GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 20172023 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 six months ended November 30, 2017February 29, 2024 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 new 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 quarter ended November 30, 2017, we recorded $0.2 million in excess tax deficiency as an increase to our income tax expense for the quarter. This requirement was applied prospectively;
excess tax benefits are now presented as operating activities in the statement of cash flows, rather than financing activities. The Company chose to apply this requirement retrospectively, and as a result, reclassified approximately $0.4 million of excess tax benefits recognized during the three months ended November 30, 2016 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 has begun assessing 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 do not expect a material or significant impact to amounts recognized. Given the diversity of its commercial arrangements, the Company is continuing to assess the impact these standards may have on its consolidated results of operations, financial position, cash flows and related financial statement disclosures.
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
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, 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.2024.
Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands):
| | | | | | | | | | | |
| February 29, 2024 | | August 31, 2023 |
Foreign currency translation adjustments | $ | 105,151 | | | $ | 102,268 | |
Pension and other postretirement benefit plans | 17,334 | | | 18,394 | |
Cash flow hedges | (438) | | | 548 | |
Accumulated other comprehensive loss | $ | 122,047 | | | $ | 121,210 | |
Property Plant and Equipment
The following is a summary of the Company's components of property, plant and equipment (in thousands):
| | | | | | | | | | | |
| February 29, 2024 | | August 31, 2023 |
Land, buildings and improvements | $ | 14,157 | | | $ | 14,070 | |
Machinery and equipment | 138,684 | | | 136,566 | |
Gross property, plant and equipment | 152,841 | | | 150,636 | |
Less: Accumulated depreciation | (115,878) | | | (111,668) | |
Property, plant and equipment, net | $ | 36,963 | | | $ | 38,968 | |
Product Warranty Costs
The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line in the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following summarizes the changes in product warranty reserves for the six months ended February 29, 2024 and the six months ended February 28, 2023, respectively (in thousands):
| | | | | | | | | | | |
| Six Months Ended |
| February 29, 2024 | | February 28, 2023 |
Beginning balance | $ | 856 | | | $ | 1,140 | |
Provision for warranties | 132 | | | 389 | |
Warranty payments and costs incurred | (318) | | | (416) | |
Impact of changes in foreign currency rates | (1) | | | 20 | |
Ending balance | $ | 669 | | | $ | 1,133 | |
|
| | | | | | | |
| | November 30, 2017 | August 31, 2017 |
Foreign currency translation adjustments | | $ | 204,906 |
| $ | 207,804 |
|
Pension and other postretirement benefit plans, net of tax | | 19,330 |
| 19,457 |
|
Accumulated other comprehensive loss | | $ | 224,236 |
| $ | 227,261 |
|
Note 2. Director & Officer Transition ChargesRevenue from Contracts with Customers
DuringNature of Goods and Services
The Company generates its revenue under two principal activities, which are discussed below:
Product Sales: Sales of tools, heavy-lifting solutions, and biomedical textiles are recorded when control is transferred to the three months ended November 30, 2016,customer (i.e., performance obligation has been satisfied). For the majority of the Company’s product sales, revenue is recognized at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company to the customer. For certain other products that are highly customized and have a limited alternative use, and for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.
Service & Rental Sales: Service contracts consist of providing highly trained technicians to perform bolting, technical services, machining and joint-integrity work for our customers. These revenues are recognized over time as our customers simultaneously receive and consume the benefits provided by the Company. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with service contracts. For a majority of the Company’s service contracts, labor hours (efforts-expended measurement) is used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred. Revenue from rental contracts (less than a year and non-customized products) is generally recognized ratably over the contract term, depicting the customer’s consumption of the benefit related to the rental equipment.
Disaggregated Revenue and Performance Obligations
The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred. See Note 12, "Segment Information" for information regarding our revenue disaggregation by reportable segment and product line. The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Revenues recognized at point in time | $ | 108,385 | | | $ | 113,875 | | | $ | 214,526 | | | $ | 223,778 | |
Revenues recognized over time | 30,052 | | | 28,085 | | | 65,880 | | | 57,564 | |
Total | $ | 138,437 | | | $ | 141,960 | | | $ | 280,406 | | | $ | 281,342 | |
Contract Balances
The Company's contract assets and liabilities are as follows (in thousands):
| | | | | | | | | | | | | | |
| | February 29, 2024 | | August 31, 2023 |
Receivables, which are included in accounts receivable, net | | $ | 97,590 | | | $ | 97,649 | |
Contract assets, which are included in other current assets | | 4,492 | | | 3,989 | |
Contract liabilities, which are included in other current liabilities | | 3,652 | | | 2,927 | |
Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. Accounts receivable, net is recorded separationat face amount of customer receivables less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and transition chargesthe time outstanding of $7.8specific balances to estimate the amount of receivables that may be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $15.7 million and $16.8 million at February 29, 2024 and August 31, 2023, respectively.
As indicated in connectionthe "Concentration of Credit Risk" section below, as of February 29, 2024 and February 28, 2023, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency. As of February 29, 2024 and February 28, 2023, the Company had a total bad debt reserve of $13.2 million related to this agent. The allowance for doubtful accounts for this particular agent as of February 29, 2024 represents management's best estimate of the amount probable of collection and considers various factors with the retirementrespect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of
our services and products and the known markup on those sales from agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment. Actual collections from the agent may differ from the Company's estimate.
Concentration of Credit Risk: The Company sells products and services through distributors and agents. In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country, which can pose a concentration of credit risk if these larger distributors or agents are not timely in their payments. As of February 29, 2024, the Company was exposed to a concentration of credit risk as a result of the payment delinquency of one directorof our agents whose accounts receivable represent 11.5% of the Company's Boardoutstanding accounts receivable. As of DirectorsFebruary 29, 2024, the Company has fully reserved for the amounts due from this agent.
Contract Assets: Contract assets relate to the Company’s rights to consideration for work completed but not billed as of the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. The Company has contract assets on contracts that are generally long-term and have revenues that are recognized over time.
Contract Liabilities: As of February 29, 2024, the Company had certain contracts where there were unsatisfied performance obligations and the transitionCompany had received cash consideration from customers before the performance obligations were satisfied. The majority of these contracts relate to long-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that substantially all of the Executive Vice President/Chief Financial Officer.$3.7 million will be recognized in net sales from satisfying those performance obligations within the next twelve months.
Timing of Performance Obligations Satisfied at a Point in Time: The chargesCompany evaluates when the customer obtains control of the product based on shipping terms, as control will transfer, depending upon such terms, at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because (i) the Company has a present right to payment at that time; (ii) the legal title has been transferred to the customer; (iii) the Company has transferred physical possession of the product to the customer; and (iv) the customer has significant risks and rewards of ownership of the product.
Variable Consideration: The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, incentives and discounts, among others, which are recorded as a reduction to net sales at the time when control of a performance obligation is transferred to the customer.
Practical Expedients & Exemptions: The Company elected to expense the incremental cost to obtaining a contract when the amortization period for such contracts would be one year or less. The Company does not disclose the value of unperformed obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
Note 3. ASCEND Transformation Program
In March 2022, the Company announced the launch of ASCEND, a transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering an estimated incremental $40 to $50 million of annual operating profit once fully implemented. In March 2023, the Company announced this estimate had been revised to an incremental $50 to $60 million of annual operating profit as a result of additional ASCEND initiatives and high success rate. As part of ASCEND, the Company is focusing on the following key initiatives: (i) accelerating organic growth go-to-market strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in SG&A expenses by better leveraging resources to create a more efficient and agile organization.
The Company is implementing the program and originally anticipated investing approximately $60 to $65 million and in March 2023 anticipated that this investment would increase to $70 to $75 million (as disclosed in Note 4, "Restructuring Charges," approximately $10 to $15 million of these investments will be in the form of restructuring charges) over the life of the program, which is expected to be finalized as we exit fiscal 2024. Elements of these investments could include such cash costs as capital expenditures, restructuring costs, third-party support, and incentive costs, which are not available for the senior management team. Total program expenses were mainly comprisedapproximately $2.0 million and $5.6 million in the three and six months ended February 29, 2024, respectively, and $14.2 million and $24.7 million in the three and six months ended February 28, 2023, respectively. Of the total ASCEND program expenses, $1.4 million and $2.5 million for the three and six months ended February 29, 2024, respectively and $11.2 million and $20.6 million for the three and six months ended February 28, 2023, respectively, were recorded within SG&A expenses. Further, ASCEND program expenses recorded within cost of compensation expensegoods sold were approximately $0.2 million and $0.4 million for accelerated equity vesting, severance, outplacement, legal, signing bonusthe three and relocationsix months ended February 29, 2024 and $0.2 million for both the three and six months ended February 28, 2023. Additionally, for the three and six months ended February 29, 2024, respectively, $0.4 million and $2.8 million were recorded within restructuring expenses with $2.9 million and $3.9 million for the three and six months ended February 28, 2023, respectively (see Note 4, "Restructuring Charges" below). For fiscal 2024, we expect to incur $10 to $15 million of ASCEND transformation program costs; this range is inclusive of $3 to $5 million of restructuring costs.
Note 3.4. 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 costlow-cost alternatives, and the centralization and standardization of certain administrative functions. Total restructuring charges for these activities were $6.6 million and $2.9 million in the three months ended November 30, 2017 and 2016, respectively. Liabilities for severance willare generally to be paid during the nextwithin twelve months, while future lease payments related to facilities vacated as a result of restructuring willare to be paid over the underlying remaining lease terms.
The following rollforwards summarizeOn June 27, 2022, the Company approved a new restructuring reserve activity by segment (in thousands): |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2017 |
| | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total |
Balance as of August 31, 2017 | | $ | 202 |
| | $ | 3,613 |
| | $ | 1,792 |
| | $ | 30 |
| | $ | 5,637 |
|
Restructuring charges | | 1,239 |
| | 931 |
| | 285 |
| | 4,174 |
| | 6,629 |
|
Cash payments | | (259 | ) | | (1,398 | ) | | (762 | ) | | (345 | ) | | (2,764 | ) |
Other non-cash uses of reserve | | (492 | ) | | 207 |
| | (193 | ) | | (2,019 | ) | (1) | (2,497 | ) |
Impact of changes in foreign currency rates | | — |
| | (161 | ) | | (2 | ) | | — |
| | (163 | ) |
Balance as of November 30, 2017 | | $ | 690 |
| | $ | 3,192 |
| | $ | 1,120 |
| | $ | 1,840 |
| | $ | 6,842 |
|
(1) Majority of non-cash uses of reserve represents accelerated equity vestingplan in connection with employeethe initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program”) to drive greater efficiency and productivity in global selling, general and administrative resources. The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance agreements.
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2016 |
| | Industrial | | Energy | | Engineered Solutions | | Corporate | | Total |
Balance as of August 31, 2016 | | $ | 1,343 |
| | $ | 3,021 |
| | $ | 1,863 |
| | $ | 46 |
| | $ | 6,273 |
|
Restructuring charges | | 715 |
| | 117 |
| | 2,080 |
| | 36 |
| | 2,948 |
|
Cash payments | | (333 | ) | | (558 | ) | | (1,802 | ) | | (36 | ) | | (2,729 | ) |
Other non-cash uses of reserve | | (166 | ) | | (6 | ) | | (3 | ) | | (13 | ) | | (188 | ) |
Impact of changes in foreign currency rates | | (25 | ) | | 10 |
| | (8 | ) | | — |
| | (22 | ) |
Balance as of November 30, 2016 | | $ | 1,534 |
| | $ | 2,584 |
| | $ | 2,130 |
| | $ | 33 |
| | $ | 6,282 |
|
Note 4. Acquisitions
Duringand other employee-related costs to be incurred as cash expenditures impacting both IT&S and Corporate. On September 23, 2022, the Company approved an updated restructuring plan. The restructuring costs of this updated plan (which includes the amounts for the plan approved in June 2022) are estimated at $10 to $15 million. These costs are expected to be incurred over the expected duration of the transformation program, ending in the fourth quarter of fiscal 2017, the Company signed a definitive agreement to purchase Mirage Machines, Ltd. ("Mirage"), a provider of industrial and energy maintenance tools. Subsequent to November 30, 2017, we completed the acquisition of Mirage for a purchase price of $17.3 million net of cash acquired, plus potential future performance-based consideration.year 2024. The Company incurred acquisition transaction costs of $0.2recorded $0.4 million and $2.8 million in the three and six months ended November 30, 2017 (included in selling, administrationFebruary 29, 2024, respectively, and engineering expenses$2.9 million and $3.9 million in the condensed consolidated statementthree and six months ended February 28, 2023, respectively, of earnings), related to this acquisition.restructuring charges associated with the ASCEND transformation program.
The following summarizes restructuring reserve activity for the IT&S segment and Corporate for the six months ended February 29, 2024 (in thousands): | | | | | | | | | | | |
| Six Months Ended February 29, 2024 |
| IT&S | | Corporate |
Balance as of August 31, 2023 | $ | 2,238 | | | $ | 74 | |
Restructuring charges | 2,588 | | | 211 | |
Cash payments | (2,227) | | | (285) | |
Impact of changes in foreign currency rates | (5) | | | — | |
Balance as of February 29, 2024 | $ | 2,594 | | | $ | — | |
| | | | | | | | | | | |
| Six Months Ended February 28, 2023 |
| IT&S | | Corporate |
Balance as of August 31, 2022 | $ | 2,008 | | | $ | 797 | |
Restructuring charges | 3,441 | | | 472 | |
Cash payments | (2,410) | | | (1,005) | |
Impact of changes in foreign currency rates | 62 | | | — | |
Balance as of February 28, 2023 | $ | 3,101 | | | $ | 264 | |
Total restructuring charges (inclusive of the Other operating segment) were $0.4 million and $2.8 million in the three and six months ended February 29, 2024, respectively, and $3.0 million and $4.0 million in the three and six months ended February 28, 2023, respectively, being reported in "Restructuring charges."
Note 5. Discontinued Operations and Other Divestiture Activities
During the fourth quarterOn October 31, 2019, as part of fiscal 2017, the Company signedour overall strategy to become a definitive agreement to sell the Viking business (Energy segment). Subsequent to quarter-end, on December 1, 2017,pure-play industrial tools and services company, the Company completed the sale of the Viking businessbusinesses comprising its former Engineered Components & Systems ("EC&S") segment. This divestiture was considered part of our strategic shift to become a pure-play industrial tools and services company, and therefore, the results of operations are recorded as a component of "Loss from discontinued operations, net of income taxes" in the Condensed Consolidated Statements of Earnings for $12.0 million, which was paid in cash atall periods presented. All discontinued operations activity included within the closingCondensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Cash Flows for the periods presented relate to impacts from certain retained liabilities.
The following represents the detail of "Loss from discontinued operations, net of income taxes" within the Condensed Consolidated Statements of Earnings (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Selling, general and administrative expenses | $ | 45 | | | $ | 3,435 | | | $ | 168 | | | $ | 3,441 | |
Impairment & divestiture benefit | — | | | — | | | — | | | (1,329) | |
Operating loss | (45) | | | (3,435) | | | (168) | | | (2,112) | |
Other loss, net | — | | | — | | | — | | | — | |
Loss before income tax expense | (45) | | | (3,435) | | | (168) | | | (2,112) | |
Income tax expense (benefit) | 9 | | | (774) | | | 454 | | | (494) | |
Loss from discontinued operations, net of income taxes | $ | (54) | | | $ | (2,661) | | | $ | (622) | | | $ | (1,618) | |
Other Divestiture Activities
On July 11, 2023, the Company completed the sale of the transaction, subject to closingCortland Industrial business, which had been included in the Other operating segment, for net cash proceeds of $20.1 million. In connection with the completion of the sale, the Company recorded a net gain of $6.0 million, inclusive of $0.1 million of purchase price from the customary finalization of working capital adjustments, cash and indebtedness and other adjustments. We anticipate recognizing an additional $15.0 million to $20.0 million in after tax divestiture chargesnegotiations in the secondfirst quarter of fiscal 2018.
Due to the divestiture of the Viking business not closing until subsequent to quarter-end, the associated assets and liabilities are classified as held for sale in the condensed consolidated balance sheet.2024. The divestiture will result in the Company's exit from the offshore mooring market and will significantly limit our exposure to the upstream, offshore oil & gas market.
The following is a summary of the assets and liabilities held for sale of the Viking business (in thousands):
|
| | | | | | | | |
| | November 30, 2017 | | August 31, 2017 |
Accounts receivable, net | | $ | 2,116 |
| | $ | 2,426 |
|
Inventories, net | | 185 |
| | 190 |
|
Property, plant & equipment, net | | 7,434 |
| | 7,534 |
|
Prepaid expenses and other current assets | | 1,996 |
| | 1,927 |
|
Other long-term assets | | 9,662 |
| | 9,758 |
|
Assets held for sale | | $ | 21,393 |
| | $ | 21,835 |
|
| | | | |
Trade accounts payable | | $ | 1,804 |
| | $ | 1,883 |
|
Other current liabilities (including divestiture accruals) | | 1,338 |
| | 1,637 |
|
Rental asset lease buyout liability | | — |
| | 28,644 |
|
Reserve for cumulative translation adjustment | | 67,645 |
| | 68,919 |
|
Liabilities held for sale | | $ | 70,787 |
| | $ | 101,083 |
|
Thehistorical results of the VikingCortland Industrial business (which had net sales of $6.2 million and $13.3 million, for three and six months ended February 28, 2023) are not material to the consolidated financial results of the Company and are included in continuing operations. The Viking business had net sales of $2.7 million and $5.5 million in the three months ended November 30, 2017 and 2016, respectively.results.
Note 6. Goodwill, Intangible Assets and Long-Lived Assets
Changes in the gross carrying value of goodwill and intangible assets and goodwill can result from changes in foreign currency exchange rates, business acquisitions, divestitures orand impairment charges. The changes in the carrying amount of goodwill for the threesix months ended November 30, 2017February 29, 2024 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Industrial | | Energy | | Engineered Solutions | | Total |
Balance as of August 31, 2017 | $ | 103,875 |
| | $ | 188,830 |
| | $ | 237,376 |
| | $ | 530,081 |
|
Impact of changes in foreign currency rates | 65 |
| | 1,925 |
| | (617 | ) | | 1,373 |
|
Balance as of November 30, 2017 | $ | 103,940 |
| | $ | 190,755 |
| | $ | 236,759 |
| | $ | 531,454 |
|
| | | | | | | | | | | | | | | | | |
| IT&S | | Other | | Total |
Balance as of August 31, 2023 | $ | 255,285 | | | $ | 11,209 | | | $ | 266,494 | |
Impact of changes in foreign currency rates | (381) | | | — | | | (381) | |
Balance as of February 29, 2024 | $ | 254,904 | | | $ | 11,209 | | | $ | 266,113 | |
The gross carrying value and accumulated amortization of the Company’s other intangible assets are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | February 29, 2024 | | August 31, 2023 |
| | November 30, 2017 | | August 31, 2017 |
| Weighted Average Amortization Period (Years) | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
| Weighted Average Amortization Period (Years) | | | 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 | |
Customer relationships | |
Customer relationships | 15 | | $ | 264,409 |
| | $ | 158,245 |
| | $ | 106,164 |
| | $ | 263,498 |
| | $ | 153,003 |
| | $ | 110,495 |
|
Patents | 10 | | 30,448 |
| | 24,476 |
| | 5,972 |
| | 30,401 |
| | 24,027 |
| | 6,374 |
|
Trademarks and tradenames | 18 | | 21,324 |
| | 9,637 |
| | 11,687 |
| | 21,498 |
| | 9,396 |
| | 12,102 |
|
Other intangibles | 3 | | 6,712 |
| | 6,328 |
| | 384 |
| | 6,672 |
| | 6,234 |
| | 438 |
|
Indefinite lived intangible assets: | | | | | | | | | | | | |
Tradenames | N/A | | 91,825 |
| | — |
| | 91,825 |
| | 91,080 |
| | — |
| | 91,080 |
|
| | $ | 414,718 |
| | $ | 198,686 |
| | $ | 216,032 |
| | $ | 413,149 |
| | $ | 192,660 |
| | $ | 220,489 |
|
Tradenames | |
Tradenames | |
| | | $ | |
The Company estimates that amortization expense will be $15.3$1.6 million for the remaining ninesix months of fiscal 2018.2024. Amortization expense for future years is estimated to be: $19.9$2.8 million in fiscal 2019, $19.2 million in 2020, $18.32025, $1.9 million in fiscal 2021, $16.32026, $1.8 million in fiscal 2022, $13.32027, $1.6 million in fiscal 20232028, $1.5 million in fiscal 2029 and $21.9$1.0 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures, or changes in foreign currency exchange rates.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 three months ended November 30, 2017 and 2016 (in thousands):
|
| | | | | | | |
| Three Months Ended November 30, |
| 2017 | | 2016 |
Beginning balance | $ | 6,616 |
| | $ | 5,592 |
|
Provision for warranties | 1,531 |
| | 777 |
|
Warranty payments and costs incurred | (1,145 | ) | | (2,309 | ) |
Impact of changes in foreign currency rates | (8 | ) |
| (105 | ) |
Ending balance | $ | 6,994 |
| | $ | 3,955 |
|
Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
| | | | | | | | | | | |
| February 29, 2024 | | August 31, 2023 |
Senior Credit Facility | | | |
Revolver | 48,000 | | | 16,000 | |
Term Loan | 197,500 | | | 198,750 | |
Total Senior Indebtedness | 245,500 | | | 214,750 | |
Less: Current maturities of long-term debt | (5,000) | | | (3,750) | |
Debt issuance costs | (580) | | | (663) | |
Total long-term debt, less current maturities | $ | 239,920 | | | $ | 210,337 | |
|
| | | | | | | |
| November 30, 2017 | | August 31, 2017 |
Senior Credit Facility | | | |
Revolver | $ | — |
| | $ | — |
|
Term Loan | 270,000 |
| | 277,500 |
|
Total Senior Credit Facility | 270,000 |
| | 277,500 |
|
5.625% Senior Notes | 287,559 |
| | 287,559 |
|
Total Senior Indebtedness | 557,559 |
| | 565,059 |
|
Less: Current maturities of long-term debt | (30,000 | ) | | (30,000 | ) |
Debt issuance costs | (2,930 | ) | | (3,119 | ) |
Total long-term debt, net | $ | 524,629 |
| | $ | 531,940 |
|
The Company’s Senior Credit Facility matures on May 8, 2020
On September 9, 2022, the Company refinanced its previous senior credit facility with a new $600 million senior credit facility, comprised of a $400 million revolving line of credit and a $200 million term loan, which will mature in September 2027. The Company has the option to request up to $300 million of additional revolving commitments and/or term loans under the new facility, subject to customary conditions, including the commitment of the participating lenders. This facility replaces LIBOR with adjusted term SOFR as the interest rate benchmark and provides a $600 million revolver, an amortizingfor interest rate margins above adjusted term loan and a $450 million expansion option, subjectSOFR ranging from 1.125% to certain conditions. Borrowings are subject to a pricing grid, which can result in increases or decreases to the borrowing spread,1.875% per annum depending on the Company’s net leverage ratio, ranging from 1.00% to 2.25% in the case of loans bearing interest at LIBOR and from 0.00% to 1.25% in the case of loans bearing interest at the base rate. As of November 30, 2017, the borrowing spread on LIBOR based borrowings was 2.00% (aggregating to a 3.38% variable rate borrowing cost on the outstanding term loan balance).ratio. In addition, a non-use fee is payable quarterly on the average unused creditamount of the revolving line under the revolverof credit ranging from 0.15% to 0.35%0.3% per annum. As of November 30, 2017,annum, based on the unused credit lineCompany's net leverage. Borrowings under the revolver was $597.1 million,new facility initially bear interest at adjusted term SOFR plus 1.125% per annum.
The facility contains financial covenants requiring the Company to not permit (i) the net leverage ratio, determined as of the end of each of its fiscal quarters, to exceed 3.75 to 1.00 (or, at the Company’s election and subject to certain conditions, 4.25 to 1.00 for the covenants period during which $93.1 million was available for borrowing. Quarterly term loan principal paymentscertain material acquisitions occur and the next succeeding four testing periods) or (ii) the interest coverage ratio, determined as of $3.8 million began on June 30, 2016, increasedthe end of each of its fiscal quarters, to $7.5 million starting on June 30, 2017 and extend through March 31, 2020, withbe less than 3.00 to 1.00. Borrowings under the remaining principal due at maturity. The Senior Credit Facility, which isfacility are secured by substantially all of the Company’s domestic personal property assets also contains customary limitsof the Company and restrictions concerning investments, salesits domestic subsidiary guarantors (other than certain specified excluded assets) and certain of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratioequity interests of 3.75:1 and a minimum interest coverage ratiocertain subsidiaries of 3.5:1.the Company. The Company was in compliance with all financial covenants under the credit facility at November 30, 2017.February 29, 2024.
On April 16, 2012,At February 29, 2024, there were $197.5 million in borrowings outstanding under the Company issued $300term loans, $48.0 million in borrowings outstanding under the revolving line of credit and $350.8 million available for borrowing under the revolving line of credit facility after reduction for $1.2 million of 5.625% Senior Notes due 2022 (the “Senior Notes”),outstanding letters 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 allowscredit issued under 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.facility.
Note 9.8. Fair Value MeasurementMeasurements
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 unadjusted 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 participationparticipants 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 November 30, 2017February 29, 2024 and August 31, 20172023 due to their short-term nature andand/or the fact that the interest rates approximated market rates. Foreign currency exchange contracts and interest rate swaps are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net assetliability of $0.1 million at November 30, 2017 and a net liability of $0.2less than $0.1 million at February 29, 2024 and August 31, 2017.2023, respectively. The fair value of the foreign currency exchangeCompany's interest rate swap (see Note 9, “Derivatives”, for further information on the Company's interest rate swap) was an asset of $0.6 million and $0.7 million at February 29, 2024 and August 31, 2023, respectively. The fair value of the Company's net investment hedge (see Note 9, “Derivatives” for further information on the Company's net investment hedge) was a liability of $0.9 million and $1.2 millionat February 29, 2024 and August 31, 2023, respectively. The fair value of all derivative contracts waswere 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 $295.1 million and $295.8 million at November 30, 2017 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 10.9. 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 fair value of fair value hedges and non-designated hedgesderivatives (not designated as hedges) are recorded in earnings along with the gain or loss on the hedged asset or liability, while changes in the valueliability.
of cash flow hedges are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows. However, there were no cash flow hedges outstanding at November 30, 2017 and August 31, 2017.
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).
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"Other expense, net" in the condensed consolidated statementCondensed Consolidated Statements of earnings)Earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts (fair value hedges or non-designated hedges) was $22.5was $19.3 million and $22.0$13.8 million at November 30, 2017February 29, 2024 and August 31, 2017,2023, respectively. The fair value of outstanding foreign currency exchangeexchange contracts was a net assetliability of $0.1 million at November 30, 2017 and a net liability of $0.2less than $0.1 million at February 29, 2024 and August 31, 2017.2023, respectively. Net foreign currency gain (loss)loss (gain) (included in "Other expense" in the Condensed Consolidated Statements of Earnings) related to these derivative instruments wereare as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Foreign currency loss (gain), net | $ | 106 | | | $ | (16) | | | $ | 398 | | | $ | 620 | |
|
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Foreign currency gain (loss), net | $ | 214 |
| | $ | (1,491 | ) | |
During December 2022, the Company entered into an interest rate swap for the notional amount of $60.0 million at a fixed interest rate of 4.022% to hedge the floating interest rate of the Company's term loan with a maturity date of November 30, 2025. The interest rate swap was designated and qualified as a cash flow hedge. The Company uses the interest rate swap for the management of interest rate risk exposure, as an interest rate swap effectively converts a portion of the Company's debt from a floating rate to a fixed rate.The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The change in the fair value of the interest rate swap, a net gain of less than $0.1 million and a net loss of $0.1 million for the three and six months ended February 29, 2024, respectively, and a net gain of $0.5 millionfor both the three and six months ended February 28, 2023, is recorded in other comprehensive (loss) income. The Company also uses interest-rate derivatives to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedge) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For derivatives that are designated and qualify as a net investment hedge in a foreign operation, the net gains or losses attributable to the hedge changes are recorded in other comprehensive (loss) income where they offset gains and losses recorded on our net investments where the entity has non-U.S. dollar functional currency. As of February 29, 2024, the notional amount of cross-currency swaps designated as net investment hedges was $30.5 million. The change in the fair value of the net investment hedge, a net gain of $0.2 million for both the three and six months ended February 29, 2024, and a net loss of $0.3 millionfor both the three and six months ended February 28, 2023, is recorded in other comprehensive (loss) income.
Note 11. Capital Stock10. Earnings per Share and Share RepurchasesShareholders' Equity
The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicypublicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 20,439,43429,866,946 shares of common stock for $617.7 million.$830.6 million. The Company suspended the initial share repurchase program in response to the COVID-19 pandemic in the third quarter of fiscal 2020. In March 2022, the Company's Board of Directors rescinded its prior share repurchase authorization and approved a new share repurchase program authorizing the repurchase of a total of 10,000,000 shares of the Company's outstanding common stock. The Company repurchased 1,094,231 shares for $30.1 million in the six months ended February 29, 2024 and did not repurchase shares in the six months ended February 28, 2023. As of November 30, 2017,February 29, 2024, the maximum number of shares that may yet be purchased under the programsprogram is 7,560,5662,932,284 shares. There
In December 2023, the Company's Board of Directors authorized the retirement of the Company's repurchased shares, and the Company retired 29,841,209 treasury shares, which included 113,587 shares purchased by the Company in December 2023. Shares repurchased after December 18, 2023 were noretired upon repurchase. The Company repurchased and retired an additional 25,737 shares in the quarter, for a total share repurchases inrepurchase of 139,324 shares during the three months ended November 30, 2017.February 29, 2024. The share retirement resulted in reductions of $6.0 million in Class A Common Stock and $824.6 million in Retained Earnings reflected in the Condensed Consolidated Balance Sheets at February 29, 2024.
The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Numerator: | | | | | | | |
Net earnings from continuing operations | $ | 17,871 | | | $ | 7,158 | | | $ | 36,177 | | | $ | 13,568 | |
Loss from discontinued operations, net of income taxes | (54) | | | (2,661) | | | (622) | | | (1,618) | |
Net earnings | $ | 17,817 | | | $ | 4,497 | | | $ | 35,555 | | | $ | 11,950 | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 54,213 | | | 57,042 | | | 54,370 | | | 56,964 | |
Net effect of dilutive securities - stock based compensation plans | 472 | | | 458 | | | 476 | | | 445 | |
Weighted average common shares outstanding - diluted | 54,685 | | | 57,500 | | | 54,846 | | | 57,409 | |
| | | | | | | |
Earnings per share from continuing operations: | | | | | | | |
Basic | $ | 0.33 | | | $ | 0.13 | | | $ | 0.67 | | | $ | 0.24 | |
Diluted | $ | 0.33 | | | $ | 0.12 | | | $ | 0.66 | | | $ | 0.24 | |
| | | | | | | |
Loss per share from discontinued operations: | | | | | | | |
Basic | $ | (0.00) | | | $ | (0.05) | | | $ | (0.01) | | | $ | (0.03) | |
Diluted | $ | (0.00) | | | $ | (0.05) | | | $ | (0.01) | | | $ | (0.03) | |
| | | | | | | |
Earnings per share:* | | | | | | | |
Basic | $ | 0.33 | | | $ | 0.08 | | | $ | 0.65 | | | $ | 0.21 | |
Diluted | $ | 0.33 | | | $ | 0.08 | | | $ | 0.65 | | | $ | 0.21 | |
| | | | | | | |
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation) | 71 | | | 1,986 | | | 191 | | | 1,402 | |
| | | | | | | |
*The total of Earnings per share from continuing operations and Loss per share from discontinued operations may not equal Earnings per share due to rounding. |
|
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Numerator: | | | | |
Net earnings | $ | 5,226 |
| | $ | 4,965 |
| |
Denominator: | | | | |
Weighted average common shares outstanding - basic | 59,871 |
| | 58,972 |
| |
Net effect of dilutive securities - stock based compensation plans | 738 |
| | 644 |
| |
Weighted average common shares outstanding - diluted | 60,609 |
| | 59,616 |
| |
| | | | |
Basic earnings per share | $ | 0.09 |
| | $ | 0.08 |
| |
Diluted earnings per share | 0.09 |
| | 0.08 |
| |
| | | | |
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation) | 1,829 |
| | 1,963 |
| |
The following table illustrates the changes in the balances of each component of shareholders' equity for the six months ended February 29, 2024 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stock Held in Trust | | Deferred Compensation Liability | | Total Shareholders’ Equity |
| Issued Shares | | Amount | |
Balance at August 31, 2023 | 83,761 | | | $ | 16,752 | | | $ | 220,472 | | | $ | (800,506) | | | $ | 1,011,112 | | | $ | (121,210) | | | $ | (3,484) | | | $ | 3,484 | | | $ | 326,620 | |
Net earnings | — | | | — | | | — | | | — | | | 17,738 | | | — | | | — | | | — | | | 17,738 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 370 | | | — | | | — | | | 370 | |
Stock contribution to employee benefit plans and other | 2 | | | — | | | 51 | | | — | | | — | | | — | | | — | | | — | | | 51 | |
Vesting of equity awards | 118 | | | 23 | | | (23) | | | — | | | — | | | — | | | — | | | — | | | — | |
Cash dividend ($0.04 per share) true-up | — | | | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | 21 | |
Treasury stock repurchases | — | | | — | | | — | | | (26,116) | | | — | | | — | | | — | | | — | | | (26,116) | |
Stock based compensation expense | — | | | — | | | 2,717 | | | — | | | — | | | — | | | — | | | — | | | 2,717 | |
Stock option exercises | 83 | | | 17 | | | 2,193 | | | — | | | — | | | — | | | — | | | — | | | 2,210 | |
Tax effect related to net share settlement of equity awards | — | | | — | | | (2,025) | | | — | | | — | | | — | | | — | | | — | | | (2,025) | |
Stock issued to, acquired for and distributed from rabbi trust | 3 | | | 1 | | | 89 | | | — | | | — | | | — | | | (92) | | | 92 | | | 90 | |
Balance at November 30, 2023 | 83,967 | | | $ | 16,793 | | | $ | 223,474 | | | $ | (826,622) | | | $ | 1,028,871 | | | $ | (120,840) | | | $ | (3,576) | | | $ | 3,576 | | | $ | 321,676 | |
Net earnings | — | | | — | | | — | | | — | | | 17,817 | | | — | | | — | | | — | | | 17,817 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (1,207) | | | — | | | — | | | (1,207) | |
Stock contribution to employee benefit plans and other | 1 | | | — | | | 35 | | | — | | | — | | | — | | | — | | | — | | | 35 | |
Vesting of equity awards | 105 | | | 21 | | | (21) | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock based compensation expense | — | | | — | | | 2,810 | | | — | | | — | | | — | | | — | | | — | | | 2,810 | |
Stock option exercises | 21 | | | 5 | | | 472 | | | — | | | — | | | — | | | — | | | — | | | 477 | |
Tax effect related to net share settlement of equity awards | — | | | — | | | (953) | | | — | | | — | | | — | | | — | | | — | | | (953) | |
Stock issued to, acquired for and distributed from rabbi trust | 26 | | | 5 | | | 258 | | | — | | | — | | | — | | | (201) | | | 201 | | | 263 | |
Treasury stock repurchases | — | | | — | | | — | | | (3,992) | | | — | | | — | | | — | | | — | | | (3,992) | |
Treasury stock retired | (29,867) | | | (5,973) | | | — | | | 830,614 | | | (824,641) | | | — | | | — | | | — | | | — | |
Balance at February 29, 2024 | 54,253 | | | $ | 10,851 | | | $ | 226,075 | | | $ | — | | | $ | 222,047�� | | | $ | (122,047) | | | $ | (3,777) | | | $ | 3,777 | | | $ | 336,926 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The following table illustrates the changes in the balances of each component of shareholders' equity for the six months ended February 28, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stock Held in Trust | | Deferred Compensation Liability | | Total Shareholders’ Equity |
| Issued Shares | | Amount | |
Balance at August 31, 2022 | 83,397 | | | $ | 16,679 | | | $ | 212,986 | | | $ | (742,844) | | | $ | 966,751 | | | $ | (134,961) | | | $ | (3,209) | | | $ | 3,209 | | | $ | 318,611 | |
Net earnings | — | | | — | | | — | | | — | | | 7,453 | | | — | | | — | | | — | | | 7,453 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 6,024 | | | — | | | — | | | 6,024 | |
Stock contribution to employee benefit plans and other | 3 | | | 1 | | | 41 | | | — | | | — | | | — | | | — | | | — | | | 42 | |
Vesting of equity awards | 84 | | | 17 | | | (17) | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock based compensation expense | — | | | — | | | 2,155 | | | — | | | — | | | — | | | — | | | — | | | 2,155 | |
Stock option exercises | 42 | | | 8 | | | 922 | | | — | | | — | | | — | | | — | | | — | | | 930 | |
Tax effect related to net share settlement of equity awards | — | | | — | | | (969) | | | — | | | — | | | — | | | — | | | — | | | (969) | |
Stock issued to, acquired for and distributed from rabbi trust | 3 | | | 1 | | | 76 | | | — | | | — | | | — | | | (30) | | | 30 | | | 77 | |
Balance at November 30, 2022 | 83,529 | | | $ | 16,706 | | | $ | 215,194 | | | $ | (742,844) | | | $ | 974,204 | | | $ | (128,937) | | | $ | (3,239) | | | $ | 3,239 | | | $ | 334,323 | |
Net earnings | — | | | — | | | — | | | — | | | 4,497 | | | — | | | — | | | — | | | 4,497 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 1,243 | | | — | | | — | | | 1,243 | |
Stock contribution to employee benefit plans and other | 2 | | | — | | | 49 | | | — | | | — | | | — | | | — | | | — | | | 49 | |
Vesting of equity awards | 173 | | | 34 | | | (34) | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock based compensation expense | — | | | — | | | 2,120 | | | — | | | — | | | — | | | — | | | — | | | 2,120 | |
Tax effect related to net share settlement of equity awards | — | | | — | | | (1,505) | | | — | | | — | | | — | | | — | | | — | | | (1,505) | |
Stock issued to, acquired for and distributed from rabbi trust | 28 | | | 6 | | | 55 | | | — | | | — | | | — | | | (81) | | | 81 | | | 61 | |
Balance at February 28, 2023 | 83,732 | | | $ | 16,746 | | | $ | 215,879 | | | $ | (742,844) | | | $ | 978,701 | | | $ | (127,694) | | | $ | (3,320) | | | $ | 3,320 | | | $ | 340,788 | |
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| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Note 12.11. 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 and the ability to utilize various tax credits and net operating loss carryforwards. The Company's globalglobal operations, acquisition activity (as applicable) 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 (benefit) and effective income tax rates from continuing operations are as follows (amounts(dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Earnings from continuing operations before income tax expense | $ | 25,267 | | | $ | 10,146 | | | $ | 49,241 | | | $ | 18,938 | |
Income tax expense | 7,396 | | | 2,988 | | | 13,064 | | | 5,370 | |
Effective income tax rate | 29.3 | % | | 29.5 | % | | 26.5 | % | | 28.4 | % |
|
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Earnings before income taxes | $ | 6,830 |
| | $ | 1,967 |
| |
Income tax expense (benefit) | 1,604 |
| | (2,998 | ) | |
Effective income tax rate | 23.5 | % | | (152.4 | )% | |
Both the currentThe Company’s earnings from continuing operations before income taxes include earnings from both U.S. and prior year effective incomeforeign jurisdictions. As several foreign tax rates were impacted by the proportion of earnings in foreign jurisdictions with income tax rates lowerare higher than the U.S. federal income tax rate andof 21%, the amount of income tax benefits from tax planning initiatives. The Company's earnings before income taxes included approximately 80% of earnings from foreign jurisdictions for both the estimated full-year fiscal 2018 and fiscal 2017. This foreign incomeannual effective tax rate differential hadis impacted by foreign rate differentials, withholding taxes, losses in jurisdictions where no benefit can be realized, and various aspects of the effect of reducingU.S. Tax Cuts and Jobs Act, such as the 35% U.S. statutoryGlobal Intangible Low-Taxed Income and Foreign-Derived Intangible Income provisions.
The effective tax rate by 12.2% and 22.4%, for the three months ended November 30, 2017 and 2016, respectively. In additionFebruary 29, 2024 was 29.3%, compared to tax planning initiatives (which yield an29.5% for the comparable prior-year period. The effective income tax rate lower than the federal income tax rate) in each year, the incometime period was impacted by year-to-date losses and deductions in jurisdictions where no tax benefit can be realized. The effective tax rate for the three months ended November 30, 2016 included a $2.9 million benefit relatedFebruary 29, 2024 was comparable to the discrete directorprior period and officer transition costs. These factors, combined with year-to-date activity, yielded angenerally higher than the effective tax rate for the six months ended February 29, 2024 due to the unfavorable impact of stock compensation that is concentrated in the second quarter. Both the current and prior-year effective income tax expense (benefit)rates include the impact of 23.5% and (152.4)% for the three months ended November 30, 2017 and 2016, respectively. The tax benefits related to tax planning initiatives are not expected to repeat in future periods due to certain tax attributes that are no longer available and subsequent changes in relevant tax laws. The Company may release a material valuation allowance in a foreign jurisdiction in late fiscal 2018 or in fiscal 2019, if the jurisdiction demonstrates sustained profitability and the Company determines that it is more likely than not the deferred tax assets will be realized.non-recurring items.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed. The Act significantly changes the income tax environment for US multinational corporations. The Company is actively evaluating the corporate income tax provisions of the Act including the reduction in the US corporate income tax rate, limitation on deductibility of interest, repatriation of foreign earnings, the move to a territorial tax system, and other provisions. Due to the complexity of the Act, the Company will continue to assess the provisions as well as any prospectively released regulations and disclose the anticipated impact to income tax expense resulting from the Act in future filings.
Note 13.12. Segment Information
The Company is a global manufacturer of a broad range of industrial products and systems and is organized into threesolutions. The IT&S reportable segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involvedengaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the maintenance,infrastructure; industrial infrastructuremaintenance; repair and production automation markets. The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions to the globaloperations; oil & gas, power generationgas; mining; alternative and renewable energy; civil construction and other markets. The Engineered SolutionsOther 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 varietyis included for purposes of other productsreconciliation of the respective balances below to the industrial and agricultural markets.condensed consolidated financial statements.
The following tables summarize financial information by reportable segment and product line (in thousands): |
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Net Sales by Reportable Product Line & Segment: | | | | |
Industrial Segment: | | | | |
Industrial Tools | $ | 84,510 |
| | $ | 79,039 |
| |
Heavy Lifting Technology | 12,406 |
| | 8,251 |
| |
| 96,916 |
| | 87,290 |
| |
Energy Segment: | | | | |
Energy Maintenance & Integrity | 56,710 |
| | 64,821 |
| |
Other Energy Solutions | 19,131 |
| | 19,825 |
| |
| 75,841 |
| | 84,646 |
| |
Engineered Solutions Segment: | | | | |
On-Highway | 64,882 |
| | 51,630 |
| |
Agriculture, Off-Highway and Other | 51,316 |
| | 42,227 |
| |
| 116,198 |
| | 93,857 |
| |
| $ | 288,955 |
| | $ | 265,793 |
| |
Operating Profit (Loss): | | | | |
Industrial | $ | 18,243 |
| | $ | 18,776 |
| |
Energy | 293 |
| | 3,210 |
| |
Engineered Solutions | 6,334 |
| | 755 |
| |
General Corporate | (10,197 | ) | | (14,270 | ) | |
| $ | 14,673 |
| | $ | 8,471 |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Net Sales by Reportable Segment & Product Line | | | | | | | |
IT&S Segment | | | | | | | |
Product | $ | 107,942 | | | $ | 104,195 | | | $ | 212,862 | | | $ | 203,113 | |
Service & Rental | 26,880 | | | 26,709 | | | 58,994 | | | 55,088 | |
| 134,822 | | | 130,904 | | | 271,856 | | | 258,201 | |
| | | | | | | |
Other Segment | 3,615 | | | 11,056 | | | 8,550 | | | 23,141 | |
| $ | 138,437 | | | $ | 141,960 | | | $ | 280,406 | | | $ | 281,342 | |
| | | | | | | |
Operating Profit (Loss) | | | | | | | |
IT&S Segment | $ | 37,415 | | | $ | 30,437 | | | $ | 72,980 | | | $ | 57,077 | |
Other Segment | (79) | | | 1,156 | | | 1,892 | | | 2,580 | |
General Corporate | (7,815) | | | (17,621) | | | (16,688) | | | (33,376) | |
| $ | 29,521 | | | $ | 13,972 | | | $ | 58,184 | | | $ | 26,281 | |
| | | | | | | | | | | |
| February 29, 2024 | | August 31, 2023 |
Assets | | | |
IT&S Segment | $ | 627,455 | | | $ | 632,113 | |
Other Segment | 27,690 | | | 28,127 | |
General Corporate | 114,141 | | | 102,357 | |
| $ | 769,286 | | | $ | 762,597 | |
|
| | | | | | | |
| November 30, 2017 | | August 31, 2017 |
Assets by Segment: | | | |
Industrial | $ | 314,215 |
| | $ | 329,134 |
|
Energy | 480,402 |
| | 482,963 |
|
Engineered Solutions | 539,978 |
| | 531,068 |
|
General Corporate | 155,646 |
| | 173,790 |
|
| $ | 1,490,241 |
| | $ | 1,516,955 |
|
In addition to the impact of changes in foreign currency exchange rate changes,rates, the comparability of segment and product line information is impacted by acquisition/divestiture activities, impairment charges, director and officer transitiondivestiture charges, restructuring costs and related benefits. Corporate assets, which are not allocated, principally represent cash and cash equivalents, property, plant and equipment, Right of Use ("ROU") assets, capitalized debt issuance costs and deferred income taxes.
Note 14.13. Commitments and Contingencies
The CompanyCompany had outstanding letters of credit of $14.3$7.2 million and $14.5$8.6 million at November 30, 2017February 29, 2024 and August 31, 2017,2023, respectively, the majority of which relate to commercial contracts and self-insured workersworkers' compensation programs.
As part of the Company's global sourcing strategy, we have entered into agreements with certain suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer orders. We have the ability to notify the supplier that they no longer need maintain the minimum level of inventory should we discontinue manufacturing of a product during the contract period; however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time.
The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include regulatory matters, product liability, environmental, labor, patent claimsbreaches of contract, employment, personal injury 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. The Company maintains a policy to exclude from such reserves an estimate of legal defense costs. In the opinion of management, resolution of these contingencies areis 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 $12.8 million using a weighted average discount rate of 2.62% at November 30, 2017.
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 discussedAdditionally, in Note 8, “Debt” on April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 millionfiscal 2019, the Company provided voluntary self-disclosures to both Dutch and U.S. authorities related to sales of 5.625% Senior Notes,products and services linked to the Crimea region of Ukraine, which $287.6 million remains outstandingsales potentially violated European Union and U.S. sanctions provisions. Although the U.S. investigation closed without further implication, the Dutch investigation continued. The Dutch Investigator concluded his investigation in March 2022 and provided the results to the Public Prosecutor's office for review. Specifically, the Investigator concluded that the sales transactions violated EU sanctions. The conclusion in the Investigator's report was consistent with the Company's understanding of what could be stated in the report and supported the Company to record an expense in the fiscal year-ended August 31, 2021, representing the low end of a reasonable range of financial penalties the Company may incur as no other point within the range was deemed more probable. The Company has not adjusted its estimate of November 30, 2017. Allfinancial penalties as a result of ourthe completion of the investigation in the six months ended February 29, 2024. While there can be no assurance of the ultimate outcome of the matter, the Company currently believes that there will be no 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 restrictionsadverse effect 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 consolidatingCompany's 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 theposition, results of operations financial position andor cash flows from this matter.
Note 14. Leases
The Company has operating leases for real estate, vehicles, manufacturing equipment, IT equipment and office equipment (the Company does not have any significant financing leases). Our leases typically range in term from 3 to 15 years and may contain renewal options for periods up to 5 years at our discretion. Operating leases are recorded as operating lease ROU assets in “Other long-term assets” and operating lease liabilities in “Other current liabilities” and “Other long-term liabilities” of Actuant Corporationthe Condensed Consolidated Balance Sheets. There have been no material changes to our operating lease ROU assets and its subsidiaries,operating lease liabilities during the Guarantorsix months ended February 29, 2024.
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Lease Cost: | | | | | | | |
Operating lease cost | $ | 3,209 | | | $ | 3,346 | | | $ | 6,185 | | | $ | 6,619 | |
Short-term lease cost | 524 | | | 590 | | | 1,109 | | | 1,084 | |
Variable lease cost | 731 | | | 1,108 | | | 1,650 | | | 2,222 | |
Supplemental cash flow and non-Guarantor entities, and the eliminations necessaryother information related to arrive at the information for the Company on a consolidated basis.leases were as follows (in thousands):
| | | | | | | | | | | |
| Six Months Ended |
| February 29, 2024 | | February 28, 2023 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 6,081 | | | $ | 6,547 | |
| | | |
Right-of-use assets obtained in exchange for new lease liabilities: | | | |
Operating leases | 2,197 | | | 805 | |
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 30, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 35,710 |
| | $ | 87,834 |
| | $ | 165,411 |
| | $ | — |
| | $ | 288,955 |
|
Cost of products sold | 6,963 |
| | 64,574 |
| | 116,507 |
| | — |
| | 188,044 |
|
Gross profit | 28,747 |
| | 23,260 |
| | 48,904 |
| | — |
| | 100,911 |
|
Selling, administrative and engineering expenses | 19,715 |
| | 18,448 |
| | 36,315 |
| | — |
| | 74,478 |
|
Amortization of intangible assets | 318 |
| | 2,861 |
| | 1,952 |
| | — |
| | 5,131 |
|
Restructuring charges | 5,356 |
| | 169 |
| | 1,104 |
| | — |
| | 6,629 |
|
Operating profit | 3,358 |
| | 1,782 |
| | 9,533 |
| | — |
| | 14,673 |
|
Financing costs, net | 7,623 |
| | 21 |
| | (130 | ) | | — |
| | 7,514 |
|
Intercompany (income) expense, net | (4,877 | ) | | 5,484 |
| | (607 | ) | | — |
| | — |
|
Other (income) expense, net | (50 | ) | | 45 |
| | 334 |
| | — |
| | 329 |
|
Earnings (loss) before income tax (benefit) expense | 662 |
| | (3,768 | ) | | 9,936 |
| | — |
| | 6,830 |
|
Income tax (benefit) expense | (285 | ) | | 437 |
| | 1,452 |
| | — |
| | 1,604 |
|
Net earnings (loss) before equity in earnings (loss) of subsidiaries | 947 |
| | (4,205 | ) | | 8,484 |
| | — |
| | 5,226 |
|
Equity in earnings (loss) of subsidiaries | 4,279 |
| | 8,793 |
| | (46 | ) | | (13,026 | ) | | — |
|
Net earnings | 5,226 |
| | 4,588 |
| | 8,438 |
| | (13,026 | ) | | 5,226 |
|
Comprehensive income | $ | 8,251 |
| | $ | 4,588 |
| | $ | 11,566 |
| | $ | (16,154 | ) | | $ | 8,251 |
|
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 30, 2016 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Net sales | $ | 31,729 |
| | $ | 84,276 |
| | $ | 149,788 |
| | $ | — |
| | $ | 265,793 |
|
Cost of products sold | 7,094 |
| | 61,416 |
| | 104,216 |
| | — |
| | 172,726 |
|
Gross profit | 24,635 |
| | 22,860 |
| | 45,572 |
| | — |
| | 93,067 |
|
Selling, administrative and engineering expenses | 17,967 |
| | 16,636 |
| | 33,999 |
| | — |
| | 68,602 |
|
Amortization of intangible assets | 318 |
| | 3,076 |
| | 1,868 |
| | — |
| | 5,262 |
|
Restructuring charges | 355 |
| | 723 |
| | 1,870 |
| | — |
| | 2,948 |
|
Director & officer transition charges | 7,784 |
| | — |
| | — |
| | — |
| | 7,784 |
|
Operating (loss) profit | (1,789 | ) | | 2,425 |
| | 7,835 |
| | — |
| | 8,471 |
|
Financing costs (income), net | 7,326 |
| | — |
| | (194 | ) | | — |
| | 7,132 |
|
Intercompany (income) expense, net | (5,068 | ) | | (1,086 | ) | | 6,154 |
| | — |
| | — |
|
Intercompany dividends | — |
| | (55,143 | ) | | — |
| | 55,143 |
| | — |
|
Other expense (income), net | 2,085 |
| | (70 | ) | | (2,643 | ) | | — |
| | (628 | ) |
(Loss) earnings before income tax benefit | (6,132 | ) | | 58,724 |
| | 4,518 |
| | (55,143 | ) | | 1,967 |
|
Income tax benefit | (2,714 | ) | | (30 | ) | | (254 | ) | | — |
| | (2,998 | ) |
Net (loss) earnings before equity in earnings of subsidiaries | (3,418 | ) | | 58,754 |
| | 4,772 |
| | (55,143 | ) | | 4,965 |
|
Equity in earnings of subsidiaries | 8,383 |
| | 5,625 |
| | 3,130 |
| | (17,138 | ) | | — |
|
Net earnings | 4,965 |
| | 64,379 |
| | 7,902 |
| | (72,281 | ) | | 4,965 |
|
Comprehensive (loss) income | $ | (21,157 | ) | | $ | 46,292 |
| | $ | 631 |
| | $ | (46,923 | ) | | $ | (21,157 | ) |
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| November 30, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | $ | 9,504 |
| | $ | — |
| | $ | 155,546 |
| | $ | — |
| | $ | 165,050 |
|
Accounts receivable, net | 16,577 |
| | 52,010 |
| | 132,730 |
| | — |
| | 201,317 |
|
Inventories, net | 24,490 |
| | 54,521 |
| | 75,235 |
| | — |
| | 154,246 |
|
Assets held for sale | — |
| | — |
| | 21,393 |
| | — |
| | 21,393 |
|
Other current assets | 29,359 |
| | 2,997 |
| | 43,974 |
| | — |
| | 76,330 |
|
Total current assets | 79,930 |
| | 109,528 |
| | 428,878 |
| | — |
| | 618,336 |
|
Property, plant and equipment, net | 8,051 |
| | 30,461 |
| | 60,476 |
| | — |
| | 98,988 |
|
Goodwill | 38,847 |
| | 200,499 |
| | 292,108 |
| | — |
| | 531,454 |
|
Other intangibles, net | 7,839 |
| | 135,181 |
| | 73,012 |
| | — |
| | 216,032 |
|
Investment in subsidiaries | 1,839,467 |
| | 1,196,261 |
| | 804,946 |
| | (3,840,674 | ) | | — |
|
Intercompany receivable | — |
| | 577,424 |
| | 206,969 |
| | (784,393 | ) | | — |
|
Other long-term assets | 8,147 |
| | 1,869 |
| | 15,415 |
| | — |
| | 25,431 |
|
Total assets | $ | 1,982,281 |
| | $ | 2,251,223 |
| | $ | 1,881,804 |
| | $ | (4,625,067 | ) | | $ | 1,490,241 |
|
LIABILITIES & SHAREHOLDERS' EQUITY | | | | | | | | |
Current liabilities | | | | | | | | | |
Trade accounts payable | $ | 15,804 |
| | $ | 28,772 |
| | $ | 97,169 |
| | $ | — |
| | $ | 141,745 |
|
Accrued compensation and benefits | 7,634 |
| | 6,325 |
| | 23,811 |
| | — |
| | 37,770 |
|
Current maturities of debt and short-term borrowings | 30,000 |
| | — |
| | — |
| | — |
| | 30,000 |
|
Income taxes payable | 307 |
| | — |
| | 6,335 |
| | — |
| | 6,642 |
|
Liabilities held for sale | — |
| | — |
| | 70,787 |
| | — |
| | 70,787 |
|
Other current liabilities | 20,521 |
| | 8,140 |
| | 28,314 |
| | — |
| | 56,975 |
|
Total current liabilities | 74,266 |
| | 43,237 |
| | 226,416 |
| | — |
| | 343,919 |
|
Long-term debt, net | 524,629 |
| | — |
| | — |
| | — |
| | 524,629 |
|
Deferred income taxes | 23,789 |
| | — |
| | 5,778 |
| | — |
| | 29,567 |
|
Pension and postretirement benefit liabilities | 12,209 |
| | — |
| | 7,330 |
| | — |
| | 19,539 |
|
Other long-term liabilities | 49,646 |
| | 305 |
| | 6,318 |
| | — |
| | 56,269 |
|
Intercompany payable | 781,424 |
| | — |
| | 2,969 |
| | (784,393 | ) | | — |
|
Shareholders’ equity | 516,318 |
| | 2,207,681 |
| | 1,632,993 |
| | (3,840,674 | ) | | 516,318 |
|
Total liabilities and shareholders’ equity | $ | 1,982,281 |
| | $ | 2,251,223 |
| | $ | 1,881,804 |
| | $ | (4,625,067 | ) | | $ | 1,490,241 |
|
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 and short-term borrowings | 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 |
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 30, 2017 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | (9,838 | ) | | $ | 3,580 |
| | $ | (14,200 | ) | | $ | — |
| | $ | (20,458 | ) |
Investing Activities | | | | | | | | | |
Capital expenditures | (1,478 | ) | | (3,589 | ) | | (2,837 | ) | | — |
| | (7,904 | ) |
Proceeds from sale of property, plant and equipment | — |
| | 9 |
| | 23 |
| | — |
| | 32 |
|
Rental asset lease buyout for Viking divestiture | — |
| | — |
| | (27,718 | ) | | — |
| | (27,718 | ) |
Cash used in investing activities | (1,478 | ) | | (3,580 | ) | | (30,532 | ) | | — |
| | (35,590 | ) |
Financing Activities | | | | | | | | | |
Repayments on term loan | (7,500 | ) | | — |
| | — |
| | — |
| | (7,500 | ) |
Stock option exercises and other | 2,231 |
| | — |
| | — |
| | — |
| | 2,231 |
|
Taxes paid related to the net share settlement of equity awards | (282 | ) | | — |
| | — |
| | — |
| | (282 | ) |
Cash dividend | (2,390 | ) | | — |
| | — |
| | — |
| | (2,390 | ) |
Intercompany loan activity | (5,954 | ) | | — |
| | 5,954 |
| | — |
| | — |
|
Cash (used in) provided by financing activities | (13,895 | ) | | — |
| | 5,954 |
| | — |
| | (7,941 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (532 | ) | | — |
| | (532 | ) |
Net decrease in cash and cash equivalents | (25,211 | ) | | — |
| | (39,310 | ) | | — |
| | (64,521 | ) |
Cash and cash equivalents—beginning of period | 34,715 |
| | — |
| | 194,856 |
| | — |
| | 229,571 |
|
Cash and cash equivalents—end of period | $ | 9,504 |
| | $ | — |
| | $ | 155,546 |
| | $ | — |
| | $ | 165,050 |
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 30, 2016 |
| Parent | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | |
Net provided by operating activities | $ | 61,380 |
| | $ | 2,491 |
| | $ | 3,736 |
| | $ | (55,143 | ) | | $ | 12,463 |
|
Investing Activities | | | | | | | | | |
Capital expenditures | (861 | ) | | (2,607 | ) | | (1,671 | ) | | — |
| | (5,139 | ) |
Proceeds from sale of property, plant and equipment | — |
| | 46 |
| | 84 |
| | — |
| | 130 |
|
Cash used in investing activities | (861 | ) | | (2,561 | ) | | (1,587 | ) | | — |
| | (5,009 | ) |
Financing Activities | | | | | | | | | |
Principal repayments on term loan | (3,750 | ) | | — |
| | — |
| | — |
| | (3,750 | ) |
Taxes paid related to the net share settlement of equity awards | (223 | ) | | — |
| | — |
| | — |
| | (223 | ) |
Stock option exercises and other | 964 |
| | — |
| | — |
| | — |
| | 964 |
|
Cash dividend | (2,358 | ) | | — |
| | (55,143 | ) | | 55,143 |
| | (2,358 | ) |
Intercompany loan activity | (53,734 | ) | | — |
| | 53,734 |
| | — |
| | — |
|
Cash used in financing activities | (59,101 | ) | | — |
| | (1,409 | ) | | 55,143 |
| | (5,367 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (4,820 | ) | | — |
| | (4,820 | ) |
Net increase (decrease) in cash and cash equivalents | 1,418 |
| | (71 | ) | | (4,080 | ) | | — |
| | (2,733 | ) |
Cash and cash equivalents—beginning of period | 7,953 |
| | 71 |
| | 171,580 |
| | — |
| | 179,604 |
|
Cash and cash equivalents—end of period | $ | 9,371 |
| | $ | — |
| | $ | 167,500 |
| | $ | — |
| | $ | 176,871 |
|
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Actuant Corporation,Enerpac Tool Group Corp. is a premier industrial tools, services, technology, and solutions company serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries. The Company makes complex, often hazardous jobs possible safely and efficiently. The Company's businesses are global leaders of high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is 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.Wisconsin. The Company is organized into three operating segments:has one reportable segment, the Industrial Energy and Engineered Solutions.Tools & Services Segment ("IT&S"). The IndustrialIT&S segment is primarily involvedengaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental 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,gas/petrochemical; general industrial; industrial maintenance, repair and operations (“MRO”), machining & manufacturing; power generation, infrastructure, mining and other energy markets. Divestiture of the Viking business subsequent to quarter-end, 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. Financial information related to the Company's segmentsreportable segment is included in Note 13,12, "Segment Information" in the notes to the condensed consolidated financial statements. The Company has an Other operating segment, which does not meet the criteria to be considered a reportable segment.Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification. The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, clear focus on the core tools and services business and disciplined capital deployment.
Our IndustrialBusiness Model
Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and Engineered Solutions segments continuebeing disciplined in the deployment of our capital. We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific. In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement withinand 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital. We intend to allocate the broad industrial landscape, mining, infrastructure, commercialcash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A and off-highway vehicleopportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and agriculture markets,profitable returns.
General Business Update
In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”). ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization. In support of the ASCEND initiatives, the Company anticipates investing
approximately $70 to $75 million over the life of the program, which began inis expected to be fully implemented by the second halfend of fiscal 2017 and continued through the firstfourth quarter of fiscal 2018. We expect continued growth in these markets in fiscal 2018, however, we anticipate2024, with an expected annual operating profit improvement from the rate of growth to moderate as the fiscal year progresses. Reduced capital and maintenance spendingprogram in the oil & gas marketsrange of $50 to $60 million. Through the end of fiscal 2023, the Company had realized approximately $54 million of annual operating profit and had invested approximately $60 million as part of the program.
In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program” in the formnotes to the consolidated financial statements) to drive greater efficiency and productivity in global selling, general and administrative resources. The total costs of project cancellations, deferralsthis plan were then estimated at $6 to $10 million, constituting predominately severance and scope reductionsother employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate. On September 23, 2022, the Company approved an updated restructuring plan. The restructuring costs of this updated plan (which includes the amounts for the plan approved in June 2022) are estimated at $10 to $15 million. These costs are expected to be a continuing headwind throughout muchincurred over the expected duration of fiscal 2018, though quarterly core sales declines should moderate as fiscal 2018 progresses. As a result, we expect consolidated fiscal 2018 core sales growth (sales excluding the impact of acquisitions, divestitures and changestransformation program, ending in foreign currency exchange rates) of 1% to 3%, 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 primarily 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. 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. Subsequent to quarter-end, 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 subsequent to quarter-end, we completed the acquisition of Mirage Machines, Ltd. (“Mirage”), a provider of industrial and energy maintenance tools. The Engineered Solutions segment is capitalizing on their served end market demand recovery while also expanding content and engineering broad system capabilities across customers and geographies.
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 $28 million in fiscal 2016, fiscal 2017 and the firstfourth quarter of fiscal 2018, combined. During the three months ended November 30, 2017 and 2016,2024. For fiscal 2024, we incurred $7 andexpect to incur $10 to $15 million of ASCEND transformation program costs, which is inclusive of $3 to $5 million of restructuring costs, respectively. These restructuring costs related to executive leadership changes, facility consolidation, headcount reductions and operational improvement. Due to continuing challenging market conditions and operating results within our Energy segment, we are examining 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 throughout the balance of fiscal 2018, including approximately $6 million to $8 million of additional restructuring charges during that time.costs.
Pre-tax cost savings realized from executing these restructuring initiatives totaled approximately $17 million in fiscal 2016, fiscal 2017 and the first quarter of fiscal 2018, combined. Realized cost savings were comprised of $4 million within the Industrial segment, $7 million within the Energy segment, $5 million within the Engineered Solutions segment and $1 million within Corporate expenses. The Company anticipates realizing an incremental $12 million to $14 million in pre-tax cost savings for the balance of fiscal 2018 and in fiscal 2019 for all restructuring initiatives implemented in fiscals 2016, 2017 and 2018 and to be implemented in the remainder of fiscal 2018. Twenty-five percent of the anticipated future cost savings are expected to benefit the Industrial segment, another 45% are expected to benefit the Energy segment, another 10% are expected to benefit the Engineered Solutions segment and the remaining 20% are expected to benefit Corporate expenses. These gross cost savings are routinely offset by variations between years including sales and production volume variances, annual bonus expense differential and corresponding re-investment of savings into other initiatives.
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.
Results of Operations
The following table sets forth our results of continuing operations (in(dollars in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Results from Continuing Operations (1) | February 29, 2024 | | | | February 28, 2023 | | | | February 29, 2024 | | | | February 28, 2023 | | |
Net sales | $ | 138 | | | 100 | % | | $ | 142 | | | 100 | % | | $ | 280 | | | 100 | % | | $ | 281 | | | 100 | % |
Cost of products sold | 67 | | | 48 | % | | 72 | | | 50 | % | | 135 | | | 48 | % | | 143 | | | 51 | % |
Gross profit | 71 | | | 52 | % | | 70 | | | 50 | % | | 146 | | | 52 | % | | 138 | | | 49 | % |
Selling, general and administrative expenses | 41 | | | 29 | % | | 52 | | | 37 | % | | 83 | | | 30 | % | | 105 | | | 37 | % |
Amortization of intangible assets | 1 | | | 1 | % | | 1 | | | 1 | % | | 2 | | | 1 | % | | 3 | | | 1 | % |
Restructuring charges | — | | | — | % | | 3 | | | 2 | % | | 3 | | | 1 | % | | 4 | | | 1 | % |
Impairment & divestiture charges | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
Operating profit | 30 | | | 21 | % | | 14 | | | 10 | % | | 58 | | | 21 | % | | 26 | | | 9 | % |
Financing costs, net | 4 | | | 3 | % | | 3 | | | 2 | % | | 7 | | | 3 | % | | 6 | | | 2 | % |
Other expense, net | 1 | | | 0 | % | | 1 | | | 1 | % | | 2 | | | 1 | % | | 1 | | | 1 | % |
Earnings before income tax expense | 25 | | | 18 | % | | 10 | | | 7 | % | | 49 | | | 18 | % | | 19 | | | 7 | % |
Income tax expense | 7 | | | 5 | % | | 3 | | | 2 | % | | 13 | | | 5 | % | | 5 | | | 2 | % |
Net earnings | 18 | | | 13 | % | | 7 | | | 5 | % | | 36 | | | 13 | % | | 14 | | | 5 | % |
| | | | | | | | | | | | | | | |
Diluted earnings per share from continuing operations | $ | 0.33 | | | | | $ | 0.12 | | | | | $ | 0.66 | | | | | $ | 0.24 | | | |
|
| | | | | | | | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | | | 2016 | | | |
Net sales | $ | 289 |
| | 100 | % | | $ | 266 |
| | 100 | % | |
Cost of products sold | 188 |
| | 65 | % | | 173 |
| | 65 | % | |
Gross profit | 101 |
| | 35 | % | | 93 |
| | 35 | % | |
Selling, administrative and engineering expenses | 74 |
| | 26 | % | | 69 |
| | 26 | % | |
Amortization of intangible assets | 5 |
| | 2 | % | | 5 |
| | 2 | % | |
Director & officer transition charges | — |
| | — | % | | 8 |
| | 3 | % | |
Restructuring charges | 7 |
| | 2 | % | | 3 |
| | 1 | % | |
Operating profit | 15 |
| | 5 | % | | 8 |
| | 3 | % | |
Financing costs, net | 8 |
| | 3 | % | | 7 |
| | 3 | % | |
Other expense (income), net | — |
| | — | % | | (1 | ) | | — | % | |
Earnings before income taxes | 7 |
| | 2 | % | | 2 |
| | 1 | % | |
Income tax expense (benefit) | 2 |
| | 1 | % | | (3 | ) | | (1 | )% | |
Net earnings | $ | 5 |
| | 2 | % | | $ | 5 |
| | 2 | % | |
| | | | | | | | |
Diluted earnings per share | $ | 0.09 |
| | | | $ | 0.08 |
| | | |
(1) Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations. The summation of the individual components may not equal the total due to rounding.Consolidated net sales for the second quarter of fiscal 2024 were $138 million, a decrease of $4 million or 2% compared to the prior-year comparable period. The effect of the weakening U.S. dollar on foreign currency rates compared to the second quarter of fiscal 2023 was immaterial and the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted sales by $6 million or 4%, resulting in organic sales growth of 2% year-over-year. Management refers to sales adjusted to exclude the impact of these items (foreign currency changes and recent acquisitions and divestitures) as "organic sales" (which we formerly referred to as "core sales"). In the second quarter of fiscal 2024, product sales declined 3%, with an immaterial impact from foreign currency, and the divestiture of Cortland Industrial unfavorably impacting sales by $6 million, or 6%, resulting in product organic sales growth of 2%. The product organic sales growth is attributed to the impact of pricing actions and mix in IT&S products. Service sales increased 1% compared to the prior-year period, favorably impacted by foreign currency rates of approximately $0.4 million, or 1%, resulting in 1% organic sales decline year-over-year. Gross profit as a percentage of sales was approximately 52% for the second quarter fiscal 2024 compared to 50% in the second quarter of fiscal 2023. The increase in gross profit as a percentage of sales was driven by operational improvements related to ASCEND, favorable sales mix, the impact of pricing actions, and the disposition of the Cortland Industrial business. Operating profit for the second quarter of fiscal year 2024 was $30 million, an increase of $16 million compared to the second quarter fiscal 2023. The increase in operating profit was driven by the aforementioned benefits in gross profit, as well as the decrease in Selling, general & administrative expense ("SG&A") by approximately $14 million year-over-year. The SG&A decreases were a result of $10 million in lower ASCEND transformation program charges, $3 million of lower restructuring charges, and decreases in personnel cost and indirect spend as the Company continues to responsibly manage its discretionary spending.
Consolidated net sales for the first quarterhalf of fiscal 20182024 were $289$280 million, an increasea decrease of $23$1 million compared to the first half of fiscal 2023. The effect of the weakening U.S. dollar on foreign currency rates compared to the first half of fiscal 2023 favorably impacted net sales by $3 million, or 9% from1%, and the prior year. Fordivestiture of Cortland Industrial unfavorably impacted sales by $13 million, or 5%, resulting in organic sales growth of 4%. Compared to the three months ended November 30, 2017,prior-year period, in the first half of fiscal 2024, product sales declined 2%, with the effect of foreign currency exchange rates increasedunfavorably impacting sales by 3% with no impact from acquisitions$1 million, or divestitures,1%, and the divestiture of Cortland Industrial unfavorably impacting product sales by $13 million, or 6%, resulting in product organic sales growth of 3%. Service sales increased 7% compared to the prior-year period, favorably impacted by foreign currency rates of approximately $1 million, or 1%, resulting in 5% organic sales decline year-over-year. Year-to-date gross profit as a corepercentage of sales of 52% was approximately 300 basis points higher in fiscal 2024 compared to approximately 49% in the first half of fiscal 2023. The gross profit percent increase is driven by operational improvement, favorable sales mix and the disposition of 6% year-over-year. The consolidated core sales increase was the Cortland Industrial business in the fourth quarter or fiscal 2023. SG&A has decreased $22 million year-over-year as a result of strong end market demand$18 million of lower ASCEND transformation program charges, restructuring charges, bad debt benefit and volume in both the Industrial and Engineered Solutions segments, which more than offset the declinepersonnel costs from actions taken in the Energy segment. As expected, Energy segment sales declined due to continued maintenance deferrals and scope reductions. Operating profit margins increased due to net sales increases and non-recurring director and officer transition charges of $8 million in the three months ended November 30, 2016. This operating profit margin improvement was partially offset by an increase in restructuring charges of $4 million and an increase of $5 million in selling, administrative and engineering expenses (due to continued investment in commercial and engineering activities that support our sales growth) for the three months ended November 30, 2017. Additionally, the first quarter of fiscal 2018 included an increased effective income tax rate compared to prior year.ASCEND transformation program.
Segment Results
IndustrialIT&S Segment
The IndustrialIT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including general maintenance and repair, industrial,including oil & gas,gas/petrochemical; general industrial; industrial MRO, machining & manufacturing; power generation, infrastructure, mining infrastructure and production automation.other markets. Its primary products include high-forcebranded tools, cylinders, pumps, hydraulic tools, production automation solutions and concrete stressing components and systems (collectively "Industrial Tools") andtorque wrenches, highly engineered heavy lifting technology solutions ("Heavy Lifting Technology")and other tools (Product product line). The segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line). The following table sets forth the results of operations for the IndustrialIT&S segment (in(dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Net sales | $ | 135 | | | $ | 131 | | | $ | 272 | | | $ | 258 | |
Operating profit | 37,415 | | | 30,437 | | | 72,980 | | | 57,077 | |
Operating profit % | 27.8 | % | | 23.3 | % | | 26.8 | % | | 22.1 | % |
|
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Net sales | $ | 97 |
| | $ | 87 |
| |
Operating profit | 18 |
| | 19 |
| |
Operating profit % | 18.8 | % | | 21.5 | % | |
IndustrialIT&S segment first quarter net sales were $97for the second quarter of fiscal 2024 increased by $4 million, or 11% higher than3%, compared to the prior year. Excludingsecond quarter of fiscal 2023. The weakening of the 2% favorable impact due to changesU.S. dollar immaterially impacted sales, resulting in foreign currency exchange rates, first quarter core3% organic sales growth. Organic sales growth was 9% . Overall demand fordriven by the Industrial Tools product line remained strong globallyimpact of pricing actions and across our diverse set of end markets, representing both market strength and market out-performance associated with our commercial effectiveness efforts. Core sales within the Industrial Tools product line increased $4favorable mix. Operating profit was $37 million (5%) compared to prior year, while$30 million in the Heavy Lifting Technology product line experienced a $4 millionsecond quarter of fiscal 2023. This increase (43%)was due to completion of several large projectspricing actions, mix and reduction in the first quarter of fiscal 2018 and an unusually weak first quarter of fiscal 2017. The decrease in operating profit was the result of unfavorable sales mix, continued investment in our commercial and engineering activities and discrete charges associated with heavy lifting projects. Restructuring charges totaled $1 million for both three month periods presented.SG&A.
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 mooring systems and 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 November 30, | |
| 2017 | | 2016 | |
Net sales | $ | 76 |
| | $ | 85 |
| |
Operating profit | — |
| | 3 |
| |
Operating profit % | 0.4 | % | | 3.8 | % | |
EnergyIT&S segment net sales decreased 10% year-over-yearfor the first half of fiscal 2024 increased by $14 million, or 5%, compared to $76the first half of fiscal 2023. The weakening of the U.S. dollar favorably impacted sales by approximately $3 million or 1%, resulting in 4% organic sales growth. Organic sales growth was driven by the impact of pricing actions and favorable mix. Operating profit was $73 million compared to $57 million in the first half of fiscal 2023. The increase was due to pricing actions and mix and reduction in SG&A.
Corporate
Corporate expenses were $8 million and $18 million for the second quarter of fiscal 2024 and 2023, respectively, and $17 million compared to $33 million for the first half of fiscal 2024 and 2023, respectively. The decrease in expenses for both the second quarter and first half of the fiscal year were consistent with expectations. Changes in foreign currency exchange rates favorably impacted sales comparisonsdriven by 2% resulting in an Energy segment core sales decline of 12% compared to the prior year. Core sales from our Energy Maintenance & Integrity product line decreased $9 million (14%) in the first quarter, due to the continuation of maintenance deferrals and scope reductions, most notably in the Asia Pacific region. Core sales in our Other Energy Solutions product line, consisting of umbilical & rope solutions and offshore mooring, also declined by $1 million (5%) in the first quarter due to the continued impact of reduced customer spending on exploration, drilling and commissioning activities. Energy segment operating profit was $0.3lower ASCEND transformation program charges.
Financing Costs, net
Net financing costs were $4 million and $3 million for the three months ended November 30, 2017February 29, 2024 and 2016,February 28, 2023, respectively. The decrease in operating profit was a result of lower volumes and restructuring costs. RestructuringFinancing costs to consolidate facilities and reduce headcount were $1 million for the three months ended November 30, 2017 and insignificant for the three months ended November 30, 2016.
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 November 30, | |
| 2017 | | 2016 | |
Net sales | $ | 116 |
| | $ | 94 |
| |
Operating profit | 6 |
| | 1 |
| |
Operating profit % | 5.5 | % | | 0.8 | % | |
Engineered Solutions segment net sales increased $22 million (24%) to $116 million in the first quarter. Excluding the 4% increase from changes in foreign currency, core sales increased 20% for the three months ended November 30, 2017. The robust increase in core sales was seen across virtually every end market in both product lines with On-Highway core sales increasing $11 million (20%) and Agricultural, Off-Highway and Other core sales increasing $8 million (19%) for the three months ended November 30, 2017 compared to the prior comparable period. Operating profit margins also increased to 5.5% for the three months ended November 30, 2017 as a result of higher volumes and cost reduction efforts, including the benefits realized from previously executed restructuring activities. Restructuring charges were insignificant for the three months ended November 30, 2017 and $2 million for the three months ended November 30, 2016.
Corporate
Corporate expenses decreased $4 million to $10 million for the three months ended November 30, 2017. Corporate expenses decreased due to the non-recurrence of director & officer transition charges of $8 million recognized in the three months ended November 30, 2016, offset by restructuring costs of $4 million related to executive leadership changes in the three months ended November 30, 2017.higher debt balances and higher interest rates.
Financing Costs, net
Net financing costs were $8 million and $7 million for the three months ended November 30, 2017 and 2016, respectively.
Income TaxesTax Expense
The Company's global operations, acquisition activity (as applicable) and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Both the current and prior year include the benefits of tax planning initiatives. Comparative earnings before income taxes, income tax expense (benefit) and effective income tax rates from continuing operations are as follows (in(dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| February 29, 2024 | | February 28, 2023 | | February 29, 2024 | | February 28, 2023 |
Earnings from continuing operations before income tax expense | $ | 25 | | | $ | 10 | | | $ | 49 | | | $ | 19 | |
Income tax expense | 7 | | | 3 | | | 13 | | | 5 | |
Effective income tax rate | 29.3 | % | | 29.5 | % | | 26.5 | % | | 28.4 | % |
|
| | | | | | | | |
| Three Months Ended November 30, | |
| 2017 | | 2016 | |
Earnings before income taxes | $ | 7 |
| | $ | 2 |
| |
Income tax expense (benefit) | 2 |
| | (3 | ) | |
Effective income tax rate | 23.5 | % | | (152.4 | )% | |
Both the currentThe Company’s earnings from continuing operations before income taxes include earnings from both U.S. and prior year effective incomeforeign jurisdictions. As several foreign tax rates were impacted by the proportion of earnings in foreign jurisdictions with income tax rates lowerare higher than the U.S. federal income tax rate andof 21%, the amount of income tax benefits from tax planning initiatives. The Company's earnings before income taxes included approximately 80% of earnings from foreign jurisdictions for both the estimated full-year fiscal 2018 and fiscal 2017. This foreign incomeannual effective tax rate differential hadis impacted by foreign rate differentials, withholding taxes, losses in jurisdictions where no benefit can be realized, and various aspects of the effect of reducingU.S. Tax Cuts and Jobs Act, such as the 35% U.S. statutoryGlobal Intangible Low-Taxed Income and Foreign-Derived Intangible Income provisions.
The effective tax rate by 12.2% and 22.4%, for the three months ended November 30, 2017 and 2016, respectively. In additionFebruary 29, 2024 was 29.3%, compared to tax planning initiatives (which yield an29.5% for the comparable prior-year period. The effective income tax rate lower than the federal income tax rate) in each year, the incometime period was impacted by year-to-date losses and deductions in jurisdictions where no tax benefit can be realized. The effective tax rate for the three months ended November 30, 2016 included a $2.9 million benefit relatedFebruary 29, 2024 was comparable to the discrete directorprior period and officer transition costs. These factors, combined with year-to-date activity, yielded angenerally higher than the effective tax rate for the six months ended February 29, 2024, due to the unfavorable impact of stock compensation that is concentrated in the second quarter. Both the current and prior-year effective income tax expense (benefit)rates include the impact of 23.5% and (152.4)% for the three months ended November 30, 2017 and 2016, respectively. The tax benefits related to tax planning initiatives are not expected to repeat in future periods due to certain tax attributes that are no longer available and subsequent changes in relevant tax laws.non-recurring items.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed. The Act significantly changes the income tax environment for US multinational corporations. The Company is actively evaluating the corporate income tax provisions of the Act including the reduction in the US corporate income tax rate, limitation on deductibility of interest, repatriation of foreign earnings, the move to a territorial tax system, and other provisions. Due to the complexity of the Act, the Company will continue to assess the provisions as well as any prospectively released regulations and disclose the anticipated impact to income tax expense resulting from the Act in future filings.
Cash Flows and Liquidity
At November 30, 2017,February 29, 2024, we had $154 million of cash and cash equivalents, included $155of which $143 million of cashwas held by our foreign subsidiaries and $10$11 million was 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 November 30, 2017, 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 fromprovided by operating, investing and financing activities (in(dollars in millions):
| | | | | | | | | | | |
| Six Months Ended |
| February 29, 2024 | | February 28, 2023 |
Cash provided by operating activities | $ | 7 | | | $ | 10 | |
Cash used in investing activities | (6) | | | (5) | |
Cash used in financing activities | (2) | | | — | |
Effect of exchange rate changes on cash | — | | | (1) | |
Net (decrease) increase in cash and cash equivalents | $ | (1) | | | $ | 4 | |
|
| | | | | | | |
| Three Months Ended November 30, |
| 2017 | | 2016 |
Net cash (used in) provided by operating activities | $ | (20 | ) | | $ | 12 |
|
Net cash used in investing activities | (36 | ) | | (5 | ) |
Net cash used in financing activities | (8 | ) | | (5 | ) |
Effect of exchange rates on cash | (1 | ) | | (5 | ) |
Net decrease in cash and cash equivalents | $ | (65 | ) | | $ | (3 | ) |
Net cash provided by operating activities was $7 million for the six months ended February 29, 2024 and $10 million February 28, 2023, respectively. Cash flow from operations was lower than the prior year driven by higher accounts receivable balances, higher incentive compensation payments partially offset by lower ASCEND transformation program.
CashNet cash used in investing activities was $6 million for the six months ended February 29, 2024 and $5 million for the six months ended February 28, 2023. The first half of fiscal year 2024 investing activities included capital expenditures, purchase of business assets and final payments received from the sale of the Cortland Industrial business in July 2023. The prior year first half cash flows used in operatinginvesting were for capital expenditures.
Net cash used in financing activities was $20$2 million for the threesix months ended November 30, 2017,February 29, 2024 compared to less than $1 million of net cash used in financing activities for the six months ended February 28, 2023. The net cash used in financing activities for the six months ended February 29, 2024 included a decrease of $32 million fromnet increase in total borrowings, offset by $30 million of payments to acquire treasury shares, annual cash dividend payments of $2 million and $1 million principal repayments on the prior year due primarily to increasesterm loan. Net cash used in prepaid expenses and other assets and a decrease in accrued compensation and benefits in the current year. Existing cash balances funded the $28 million rental asset lease buyoutfinancing activities for the Viking divestiture, $8six months ended February 28, 2023 consisted of $6 million increase in total borrowings offset by $2 million in debt issuance costs, $2 million payment of the annual cash dividend and net $1 million of capital expenditures, $8 million of principal loan repaymentsstock options and taxes paid on equity awards.
On September 9, 2022, the $2 million annual cash dividend.
Our Senior Credit Facility matures on May 8, 2020, includesCompany refinanced its previous senior credit facility with a $600 million
revolvingsenior credit facility,
an amortizingcomprised of a $400 million revolving line of credit and a $200 million term loan,
and a $450which is scheduled to mature in September 2027. The Company has the option to request up to $300 million
expansion option,of additional revolving commitments and/or term loans under the new facility, subject to
certain conditions. Quarterly principal paymentscustomary conditions, including the commitment of
$4 million on the
term loan commenced on June 30, 2016, increasedparticipating lenders. The senior credit facility contains restrictive covenants and financial covenants.See Note 7, "Debt" in the notes to $8 million per quarter on June 30, 2017 and extend through March 31, 2020, with the remaining principal due at maturity. condensed consolidated financial statements for further details regarding the senior credit facility.At November 30, 2017, we had $165February 29, 2024, there were $48 million of cashborrowings and cash equivalents. Unused revolver capacity$351 million available under the revolving line of credit facility after reduction for $1 million of outstanding letters of credit issued under the senior credit facility. The Company was $597 millionin compliance with all covenants under the senior credit facility at November 30, 2017, of which $93 million was available for borrowing. February 29, 2024.
We believe that the revolver,revolving credit line, combined with our existing cash on hand and anticipated operating cash flowflows, 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. There were no significant changes in primary working capital as a percentage of sales between periods. The following table shows a comparison of primary working capital (in(dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| February 29, 2024 | | PWC% | | August 31, 2023 | | PWC% |
Accounts receivable, net | $ | 98 | | | 18 | % | | $ | 98 | | | 15 | % |
Inventory, net | 83 | | | 15 | % | | 75 | | | 12 | % |
Accounts payable | (44) | | | (8) | % | | (51) | | | (8) | % |
Net primary working capital | $ | 137 | | | 25 | % | | $ | 122 | | | 19 | % |
|
| | | | | | | | | | | | | |
| November 30, 2017 | | PWC% | | August 31, 2017 | | PWC% |
Accounts receivable, net | $ | 201 |
| | 17 | % | | $ | 190 |
| | 17 | % |
Inventory, net | 154 |
| | 13 | % | | 144 |
| | 13 | % |
Accounts payable | (142 | ) | | (12 | )% | | (133 | ) | | (12 | )% |
Net primary working capital | $ | 213 |
| | 18 | % | | $ | 201 |
| | 18 | % |
Commitments and Contingencies
Given our desire to allocate cash flow and revolver availability to fund growth initiatives, we have historically leased most of our facilities and some operating equipment. We have operations in numerous geographic locationslease certain facilities, computers, equipment and vehicles under various operating lease agreements, generally over periods ranging from one to twenty years. Under most arrangements, we pay the property taxes, insurance, maintenance and expenses related to the leased property. Many of our leases include provisions that are subjectenable us to a rangerenew the
leases at contractually agreed rates or, less commonly, based upon market rental rates on the date of environmental laws and regulations. Environmental expenditures overexpiration of 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.initial leases.
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 $13 million using a weighted average discount rate of 2.62% at November 30, 2017.
We had outstanding letters of credit outstanding of approximately $14totaling $7 million and $9 million at both November 30, 2017February 29, 2024 and August 31, 2017,2023, respectively, the majority of which relate to commercial contracts and self-insured workersworkers' compensation programs.
We are also subject to certain contingencies with respect to legal proceedings and regulatory matters which are described in Note 13, "Commitments and Contingencies" in the notes to the condensed consolidated financial statements. While there can be no assurance of the ultimate outcome of these matters, the Company believes that there will be no material adverse effect on the Company's results of operations, financial position or cash flows. Contractual Obligations
Our contractual obligations have not materially changed in fiscal 2018 and are discussedat February 29, 2024 from what was previously disclosed in Part 1,II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in our fiscal 2023 Annual Report on Form 10-K for the year ended August 31, 2017.10-K.
Critical Accounting PoliciesEstimates
Refer toManagement has evaluated the Critical Accounting Policies in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” includedaccounting estimates used in the Annual Report on Form 10-K forpreparation of the year ended August 31, 2017 forCompany's condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates are considered by management to be the most critical in understanding judgments involved in the preparation of our condensed consolidated financial statements and uncertainties that could impact our results of operations, financial position and cash flow. For information about more of the Company’s policies, methodology and assumptions related to critical accounting policies.policies refer to the Critical Accounting Policies in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our fiscal 2023 Annual Report on Form 10-K.
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 As of February 29, 2024, long-term debt consisted of $48 million of borrowing under the revolving line of credit (variable rate debt) and $198 million of term loan debt bearing interest expense using a mixturebased on SOFR (variable rate). An interest-rate swap effectively converts the SOFR-based rate of fixed-rate and variable-rate debt. A change in interest rates impacts the fair value$60 million 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.credit facility to a fixed rate. A ten percent increase in the average costcosts of our variable rate debt would resulthave resulted in a corresponding $0.3less than $1 million of an increase in financing costs for the three months ended November 30, 2017.February 29, 2024.
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 we 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 10,9, “Derivatives” in the notes to the consolidated financial statements 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 remeasuredre-measured 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$6 million and operating profit would have been lower by approximately $1 million, respectively, for the three months ended November 30, 2017.February 29, 2024. 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 $59$38 million reduction to equity (accumulated other comprehensive loss) as of November 30, 2017,February 29, 2024, as a result of non U.S.non-U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
Commodity Cost Risk: We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin, are subject to price
fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion.
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 chiefinterim principal 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 chiefinterim principal 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 chiefinterim principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2017February 29, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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’sCompany'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 20,439,43429,866,946 shares of common stock for $618 million.$831 million. The Company suspended the initial share repurchase program in response to the COVID-19 pandemic in the third quarter of fiscal 2020. In March 2022, the Company's Board of Directors rescinded its prior share repurchase authorization and approved a new share repurchase program authorizing the repurchase of a total of 10,000,000 shares of the Company's outstanding common stock. The Company repurchased 1,094,231 shares for $30 million in the six months ended February 29, 2024 and did not repurchase shares in the six months ended February 28, 2023. As of November 30, 2017,February 29, 2024, the maximum number of shares that may yet be purchased under the programsprogram is 7,560,5662,932,284 shares. There
In December 2023, the Company's Board of Directors authorized the retirement of the Company's repurchased shares, and the Company retired 29,841,209 treasury shares, which included 113,587 shares purchased by the Company in December 2023. Shares repurchased after December 18, 2023 were noretired upon repurchase. As a result, the Company repurchased and retired an additional 25,737 shares in the quarter for a total share repurchases inrepurchase of 139,324 shares during the three months ended November 30, 2017.February 29, 2024.
| | | | | | | | | | | | | | | | | | | | |
Period | | Shares Repurchased | | Average Price Paid per Share | | Maximum Number of Shares That May Yet Be Purchased Under the Program |
December 1 to December 31, 2023 | | 113,587 | | | $ | 28.21 | | | 2,958,021 |
January 1 to January 31, 2024 | | 5,545 | | | 28.72 | | | 2,952,476 |
February 1 to February 29, 2024 | | 20,192 | | 31.16 | | | 2,932,284 |
| | 139,324 | | $ | 27.52 | | | |
Item 5 – Other Information
During the three months ended February 29, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K).
Item 6 – Exhibits
(a) Exhibits
See “Index to Exhibits” on page 30, which is incorporated herein by reference.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit | | Description | | Incorporated Herein By Reference To | |
Filed Herewith | | ACTUANT CORPORATION |
| | (Registrant) |
Date: January 8, 2018 | | By: | /S/ RICK T. DILLON |
| | | Rick T. Dillon |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
ACTUANT CORPORATION
(the “Registrant”)
(Commission File No. 1-11288)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2017
INDEX TO EXHIBITS
|
| | | | | | |
| | | | | | |
Exhibit | | Description | | Filed
Herewith
| | Furnished Herewith |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | X | | X | |
| | | | | | | | |
| | Certification of ChiefInterim Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | X | | X | |
| | | | | | | | |
| | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | X |
| | | | | | | | |
| | Certification of ChiefInterim Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | X |
| | | | | | | | |
| | The following materials from the Actuant CorporationEnerpac Tool Group Corp. Form 10-Q for the quarterthree and six months ended November 30, 2017February 29, 2024 and February 28, 2023 formatted in Inline Extensible Business Reporting Language (XBRL)(Inline 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 the Condensed Consolidated Financial Statements. | | | | X | | X |
| | | | | | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101) | | | | | | |
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.
| | | | | | | | | | | |
| | ENERPAC TOOL GROUP CORP. |
| | (Registrant) |
Date: March 22, 2024 | | By: | /S/ P. SHANNON BURNS |
| | | P. Shannon Burns |
| | | Head of Financial Planning, Operations and Decision Support (Interim Principal Financial Officer) |