10-K 1 atu10-k08312016.htm 10-K Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2016
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to                             to                             
Commission File No. 1-11288
ACTUANT CORPORATION
(Exact name of Registrant as specified in its charter)
Wisconsin
 
39-0168610
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification 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)
Securities registered pursuant to Section 12(b) of the Act:
 
(Title of each class)        
  
(Name of each exchange on
which registered)
 
 
Class A Common Stock, par value $0.20 per share
  
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes   ☒           No    ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15d of the Act.        Yes    ☐          No    ☒
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, and (2) has been subject to such filing requirements for the past 90 days.        Yes    ☒          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    ☒          No    ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer

 
Accelerated filer

Non-accelerated filer

 
Smaller-reporting company

(do not check if a smaller reporting company)
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):        Yes             No   
There were 58,960,716 shares of the Registrant’s Class A Common Stock outstanding as of September 30, 2016. The aggregate market value of the shares of Common Stock (based upon the closing price on the New York Stock Exchange on February 29, 2016) held by non-affiliates of the Registrant was approximately $1.36 billion.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on January 17, 2017 are incorporated by reference into Part III hereof.
 




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
 
 
 
Item 15.













Actuant Corporation provides free-of-charge access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through our website, www.actuant.com, as soon as reasonably practical after such reports are electronically filed with the Securities and Exchange Commission.



FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS
This annual report on Form 10-K 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. The terms “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “plan,” “project” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that may cause actual results or events to differ materially from those contemplated by such forward-looking statements include, without limitation, general economic uncertainty, market conditions in the industrial, oil & gas, energy, power generation, infrastructure, commercial construction, truck, automotive, specialty vehicle and agriculture industries, market acceptance of existing and new products, successful integration of acquisitions and related restructuring, operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor, or overhead cost increases, foreign currency risk, interest rate risk, commodity risk, the impact of geopolitical activity, litigation matters, impairment of goodwill or other intangible assets, the Company’s ability to access capital markets and other factors that may be referred to or noted in the Company’s reports filed with the Securities and Exchange Commission from time to time, including those described under "Item 1A. Risk Factors" of this annual report on Form 10-K. 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.
When used herein, the terms “Actuant,” “we,” “us,” “our,” and the “Company” refer to Actuant Corporation and its subsidiaries.
PART I
Item  1.    Business
General
Actuant Corporation, headquartered in Menomonee Falls, Wisconsin, is a Wisconsin corporation incorporated in 1910. We are a global diversified company that designs, manufactures and distributes a broad range of industrial products and systems to various end markets. The Company is organized into three operating segments: Industrial, Energy and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions to the global oil & gas, power generation and other markets. The Engineered Solutions segment provides highly engineered position and motion control systems to original equipment manufacturers (“OEM”) in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agricultural markets. Financial information related to the Company's segments is included in Note 13, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.
Our business model, illustrated below, emphasizes cash flow generation. The model starts with core sales growth, (sales growth excluding the impact of acquisitions, divestitures and foreign currency rate changes) through customer intimacy, new products and emerging market penetration. We further increase sales and profits through capital deployment in business acquisitions and capital expenditures. The acquisitions add new capabilities, technologies, customers and geographic presence to make our businesses stronger. Operational excellence processes including effective product sourcing, lean manufacturing, acquisition integration and leadership development, along with other continuous improvement activities, are utilized to improve our businesses. When executed effectively, these actions generate strong earnings and cash flow, which we reinvest back into the business or return to shareholders via dividends and stock buybacks.

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actuantbusinessmodel92016a01.jpg
Our long-term goal is to grow diluted earnings per share faster than most multi-industry peers. We intend to leverage our strong market positions to generate core sales growth that exceeds end-market growth rates. Core sales growth is accomplished through a combination of share capture, product innovation and market expansion into emerging industries and geographic regions. In addition to core sales growth, we are focused on acquiring complementary businesses. Following an acquisition, we seek to drive growth opportunities (additional cross-selling opportunities and customer relationships) and cost reductions via operational excellence. We also focus on profit margin expansion and cash flow generation to achieve our financial objectives. Our LEAD (“Lean Enterprise Across Disciplines”) Business System utilizes various continuous improvement techniques to reduce costs, improve efficiencies and drive operational excellence across all locations and functions worldwide, thereby expanding profit margins. Strong cash flow generation is achieved by maximizing returns on assets and minimizing primary working capital needs. Our LEAD efforts also support our core sales growth. The cash flow that results from efficient asset management and improved profitability is used to fund strategic acquisitions, common stock repurchases and internal growth opportunities.
Our businesses provide an array of products and services across multiple end markets and geographies which results in significant diversification. The long-term sales growth and profitability of our business is dependent not only on increased demand in end markets and the overall economic environment, but also on our ability to identify, consummate and integrate strategic acquisitions, develop and market innovative new products, expand our business activity geographically and continuously improve operational excellence.  Despite current challenges from weak end market demand, we remain focused on maintaining our financial position and flexibility by adjusting our cost structure to reflect changes in demand levels and by proactively managing working capital and cash flow generation.
Description of Business Segments
Industrial
The Industrial segment is a leading global supplier of branded hydraulic and mechanical tools to a broad array of end markets, including the general maintenance and repair, industrial, energy, mining, infrastructure and production automation markets. Its primary products include high-force hydraulic tools, highly engineered heavy lifting solutions, workholding (production automation) solutions and concrete stressing components and systems. Our hydraulic and mechanical tools are marketed primarily through the Enerpac, Simplex, Precision-Hayes, Milwaukee Cylinder and Larzep brand names.
Our Industrial Tools product line includes high-force hydraulic and mechanical tools (cylinders, pumps, valves, specialty tools and presses), which are designed to allow users to apply controlled force and motion to increase productivity, reduce labor costs and make work safer and easier to perform. These hydraulic tools operate at very high pressures of approximately 5,000 to 12,000 pounds per square inch and are generally sold by a diverse group of industrial and specialty fluid power distributors to customers in the infrastructure, mining, steel mill, cement, rail, oil & gas, power generation and general maintenance industries. Examples of industrial distributors include W.W. Grainger, Applied Industrial Technologies, MSC, Blackwoods and Industrial Air Tool.
We have leveraged production and engineering capabilities to also offer a broad range of workholding products (work supports, swing cylinders and system components) that are marketed through distributors to the automotive, machine tool and fixture design markets. In addition, we design, manufacture and distribute concrete tensioning products (chucks and wedges,

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stressing jacks and anchors), which are used by concrete tensioning system designers, fabricators and installers for the residential and commercial construction, bridge, infrastructure and mining markets.
In addition to providing a comprehensive line of industrial tools, the segment also provides high-force hydraulic systems (Integrated Solutions) to meet customer-specific requirements for safe and precise control of heavy lifting solutions. These solutions, many of which are customized, combine hydraulics, fabricated structures and electronic controls with engineering and application knowledge, and are typically utilized in major industrial, infrastructure and power generation projects involving heavy lifting, launching and skidding or synchronous lifting applications. Our Integrated Solutions standard product offering includes hydraulic gantries, strand jacks and synchronous lift systems, among other products.
Energy
The Energy segment provides products and services to the global energy markets, where safety, reliability, up-time and productivity are key value drivers. Products include joint integrity tools, connectors for oil & gas and power generation installations, maintenance services and high performance ropes, cables and umbilicals. In addition to these products, the Energy segment also provides customized offshore vessel mooring solutions, joint integrity tools under rental arrangements, technical manpower solutions, as well as rope and cable solutions to the global oil & gas, power generation and energy markets. The products and services of the Energy segment are distributed and marketed under various brand names (principally Hydratight, Cortland and Viking) to OEMs, maintenance and service organizations and energy producers in emerging and developed countries.
Our Energy Maintenance & Integrity product line provides joint integrity products including hydraulic torque wrenches, bolt tensioners, portable machining equipment and subsea connectors, which are either sold or rented to asset owners, service providers and end users. These products are used in the maintenance of bolted joints on oil rigs and platforms, wind turbines, refineries and pipelines, petrochemical installations, as well as fossil fuel and nuclear power plants to reduce customer downtime and provide increased safety and reliability. Hydratight also provides manpower services where our highly trained technicians perform bolting, machining, pipeline precommissioning and joint integrity work for customers. Our joint integrity business operates to world class safety standards while delivering products and services through a localized infrastructure of rental and maintenance depots. Joint integrity sales consist of technical manpower services, product sales and rental revenue. This business maintains strong relationships with a variety of customers such as Bechtel, Chevron, Subsea 7 and British Petroleum (BP).
Our Other Energy Solutions product line, which includes our Cortland and Viking businesses, provides customized rope and cable solutions as well as marine mooring solutions. Cortland develops highly-engineered rope, umbilical and cable solutions that maximize performance, safety and efficiency for customers in various markets including oil & gas, heavy marine, diving and remote operating vehicle ("ROV"). With its global design and manufacturing capabilities, this business is able to provide customized synthetic ropes, heavy lift slings, specialized mooring, rigging and towing systems, electro-optical-mechanical cables and umbilicals to customers including Aker Solutions, FMC Technologies, Expro and Technip. These products are utilized in critical applications, often deployed in harsh operating conditions (including subsea oil & gas production, maintenance and exploration) and are required to meet robust safety standards. Additional custom designed products are also sold into a variety of other niche markets including mining, medical, security, aerospace and defense.
In addition, the Energy Segment also provides customers with a comprehensive range of marine mooring equipment and associated services (survey, inspection, design and installation) to meet the demands of offshore energy assets.  Our Viking business delivers efficient and safe mooring solutions in the harshest environments to customers involved in offshore oil & gas exploration, drilling and floating production storage and offloading (FPSO) projects, offshore construction and renewable energy projects.  These marine products (including chains, anchors, cables and fiber rope), innovative solutions and services increase customer uptime and ensure safe operations. Viking services customers globally, including Statoil, Chevron, Woodside Energy and BP.
Engineered Solutions
The Engineered Solutions segment is a leading global designer and assembler of customized position and motion control systems and other industrial products to various vehicle and other niche markets. The segment focuses on providing technical and highly engineered products, including actuation systems, mechanical power transmission products, engine air flow management systems, human to machine interface ("HMI") solutions and other rugged electronic instrumentation. Products in the Engineered Solutions segment are primarily marketed directly to OEMs through a technical sales organization. Within this segment, engineering capabilities, technical service, price, quality and established customer relationships are key competitive advantages.

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Approximately forty percent of this segment’s revenue comes from the On-Highway product line (Power-Packer and Gits brand names), with sales to the heavy duty truck, automotive and specialty vehicle markets. Products include hydraulic cab-tilt and latching systems which are sold to global heavy duty truck OEMs such as Volvo, Scania, Paccar-DAF, FAW and CNHTC, as well as automotive electro-hydraulic convertible top latching and actuation systems. The automotive convertible top actuation systems are utilized on both retractable soft and hard top vehicles manufactured by OEMs such as Daimler, General Motors, Volkswagen and BMW. Our diesel engine air flow solutions, such as exhaust gas recirculation (“EGR”) systems and air flow actuators, are used by diesel engine and turbocharger manufacturers to reduce emissions, improve fuel efficiency and increase horsepower. Primary end markets include heavy duty truck and equipment serving customers such as Caterpillar, Cummins, Honeywell and Borg Warner.
The broad range of products, technologies and engineered solutions offered by Weasler Engineering, maximatecc and Elliott Manufacturing comprise the Agriculture, Off-Highway and Other product line within the segment. Products include severe-duty electronic instrumentation (including displays and clusters, machine controls and sensors), HMI solutions and power transmission products (highly engineered power transmission components including drive shafts, torque limiters, gearboxes, torsional dampers and flexible shafts). These products are sold to a variety of niche markets including agricultural, lawn & turf, construction, forestry, industrial, aerospace, material handling and security. Representative customers include John Deere, Caterpillar, CNH, Stihl and MTD Products.
International Business
Our products and services are generally available globally, with our principal markets outside the United States being Europe and Asia. In fiscal 2016 we derived 42% of our net sales from the United States, 36% from Europe, 13% from Asia, 6% from the Middle East, and 3% from other geographic areas. We have operations around the world and this geographic diversity allows us to draw on the skills of a global workforce, provides flexibility to our operations, allows us to drive economies of scale, provides revenue streams that may help offset economic trends that are specific to individual countries and offers us an opportunity to access new markets. In addition, we believe that our future growth depends, in part, on our ability to develop products and sales opportunities that successfully target developing countries. Although international operations are subject to certain risks, we continue to believe that a global presence is key to maintaining strong relationships with many of our global customers. Financial information related to the Company's geographic areas is included in Note 10, "Income Taxes" and Note 13, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.
Product Development and Engineering
We conduct research and development activities to develop new products, enhance the functionality, effectiveness, ease of use and reliability of our existing products and expand the applications for our products. We believe that our engineering and research and development efforts have been key drivers of our success in the marketplace. Our advanced design and engineering capabilities contribute to the development of innovative and highly engineered products, maintain our technological leadership in each segment and enhance our ability to provide customers with unique and customized solutions and products. While much research and development activity involves improvements to existing products, our engineering staff engages in research for new products and product enhancements. We anticipate that we will continue to make significant expenditures for research and development as we seek to provide innovative products to maintain and improve our competitive position. Research and development costs are expensed as incurred, and were $18 million in both fiscal 2016 and 2015 and $20 million in fiscal 2014. We also incur significant costs in connection with fulfilling custom orders and developing unique solutions for unique customer needs, which are not included in these expense totals.
Through our advanced proprietary processes, with over 300 patents, we create products that satisfy specific customer needs and make tasks easier and more efficient for customers. No individual patent or trademark is believed to be of such importance that its termination would have a material adverse effect on our business.
Competition
The markets for all of our products are highly competitive. We provide a diverse and broad range of industrial products and systems to numerous global end markets, many of which are highly fragmented. Although we face larger competitors in several served markets, much of our competition is comprised of smaller companies that often lack the global footprint or financial resources to serve global customers. We compete for business principally on the basis of customer service, product quality and availability, engineering, research and development expertise, and price. In addition, we believe that our competitive cost structure, strategic global sourcing capabilities and global distribution support our competitive position.
Manufacturing and Operations
While we do have extensive manufacturing capabilities including machining, stamping, injection molding and fabrication, our manufacturing consists primarily of light assembly of components we source from a network of global

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suppliers. We have implemented single piece flow methodology in most of our manufacturing plants, which reduces inventory levels, lowers “re-work” costs and shortens lead times to customers. Components are built to our highly engineered specifications by a variety of suppliers, including those in low cost countries such as China, Turkey, India and Mexico. We have built strong relationships with our key suppliers and, while we single source certain of our components, in most cases there are several qualified alternative sources.
Raw Material Costs and Inflation
We source a wide variety of materials and components from a network of global suppliers. These items are typically available from numerous suppliers. Raw materials that go into the components we source, such as steel and plastic resin, are subject to price fluctuations, which could have a negative impact on our results. We strive to offset such cost inflation with price increases to customers and by driving operational cost reductions.
No meaningful measures of inflation are available because we have significant operations in countries with diverse rates of inflation and currency rate movements. However, we believe that the overall rate of inflation in recent years has been relatively low and has not had a significant effect on our results of operations, after factoring in offsetting price increases and other manufacturing cost reductions.
Order Backlogs and Seasonality
Our Industrial and Energy segments have relatively short order-to-ship cycles, while our OEM oriented Engineered Solutions segment has a longer cycle, and therefore typically has a larger backlog. We had order backlogs of $149 million and $193 million at August 31, 2016 and 2015, respectively. Substantially all orders are expected to be filled within twelve months. While we typically enjoy a stronger second half of our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations.

Sales Percentages by Fiscal Quarter
 
 
 
2016
 
2015
 
 
Quarter 1 (September-November)
 
26
%
 
26
%
 
 
Quarter 2 (December - February)
 
23
%
 
24
%
 
 
Quarter 3 (March - May)
 
27
%
 
26
%
 
 
Quarter 4 (June- August)
 
24
%
 
24
%
 
 
 
 
100
%
 
100
%
 
Employees
At August 31, 2016, we employed 5,200 individuals. Our employees are not subject to collective bargaining agreements, with the exception of 300 U.S. production employees, as well as certain international employees covered by government mandated collective labor agreements. We believe we have a good working relationship with our employees.
Environmental Matters
Our operations, like those of most industrial businesses, are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those regulating discharges of hazardous materials into the air and water, the storage and disposal of such materials and the clean-up of soil and groundwater contamination. We believe that we are in material compliance with applicable environmental regulations. Compliance with these laws has and will require expenditures on an ongoing basis. However, environmental expenditures over the last three years have not been material. Soil and groundwater contamination has been identified at certain facilities that we operate or formerly owned or operated. We are also a party to certain state and local environmental matters, have provided environmental indemnifications for certain divested businesses and retain responsibility for certain potential environmental liabilities. For further information, see Note 14, “Contingencies and Litigation” in the notes to consolidated financial statements.

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Executive Officers of the Registrant
The names, ages and positions of all of the executive officers of the Company as of October 15, 2016 are listed below.
 
Name
 
Age
 
Position
Randal W. Baker
 
53

 
President and Chief Executive Officer
Kenneth C. Bockhorst
 
43

 
Executive Vice President—Energy Segment
Andrew G. Lampereur
 
53

 
Executive Vice President and Chief Financial Officer
Roger A. Roundhouse
 
51

 
Executive Vice President—Engineered Solutions Segment
Stephen J. Rennie
 
58

 
Executive Vice President—Industrial Segment
Eugene E. Skogg
 
59

 
Executive Vice President—Global Human Resources
Theodore C. Wozniak
 
58

 
Executive Vice President—Business Development
Randal W. Baker, President, Chief Executive Officer. Mr. Baker was appointed President and Chief Executive Officer of the Company in March 2016. Prior to joining the Company, Mr. Baker held multiple roles during a six year tenure at Joy Global, including most recently as Chief Operating Officer. Prior to Joy Global, Mr. Baker was an executive with Case New Holland Inc., holding a variety of roles including President and CEO of its agricultural equipment business. Mr. Baker also held diverse leadership roles in marketing, sales, product development and engineering at Komatsu America Corporation, Ingersoll-Rand and Sandvik Corporation.
Kenneth C. Bockhorst, Executive Vice President—Energy Segment. Mr. Bockhorst joined the Company in 2011 as Global Operations Leader for our Enerpac business. He was promoted to the Business Leader of our global Hydratight business in October 2014 and was named Executive Vice President - Energy Segment in April 2016. Prior to joining the Company, Mr. Bockhorst held product management and operational leadership roles at IDEX Corporation and Eaton Corporation.
Andrew G. Lampereur, Executive Vice President and Chief Financial Officer. Mr. Lampereur joined the Company in 1993 as Corporate Controller, a position he held until 1996 when he was appointed Vice President of Finance for the Gardner Bender business (former Electrical segment). In 1998, Mr. Lampereur was appointed Vice President, General Manager for Gardner Bender. He was appointed to his present position in August 2000. Prior to joining the Company, Mr. Lampereur held a number of financial management positions at Terex Corporation. Mr. Lampereur is currently a director of Generac Holdings Inc and was a director of Robbins & Myers, Inc. from 2005 through 2013.
Roger A. Roundhouse, Executive Vice President—Engineered Solutions Segment. Mr. Roundhouse joined the Company in 2014, from General Cable, where he most recently held the position of Senior Vice President and General Manager Utility Products. Mr. Roundhouse brings extensive automotive, industrial and OEM knowledge, as well as over 20 years of experience with mergers & acquisitions and global operations.
Stephen J. Rennie, Executive Vice President - Industrial Segment. Mr. Rennie joined the Company in 2012 as the Business Leader for our Weasler Engineering business and was promoted to President of our global Enerpac business in 2014. In August 2016, he was named Executive Vice President - Industrial Segment. Prior to joining the Company, Mr. Rennie held various global leadership roles for the industrial technologies sector of Ingersoll Rand.
Eugene E. Skogg, Executive Vice President—Human Resources. Mr. Skogg joined the Company in 2015 from Terex Corporation. During his eight year tenure at Terex, Mr. Skogg held multiple human resources and leadership roles, including most recently Vice President Business Integration. Prior to joining Terex, Mr. Skogg held various human resources roles for The Stanley Works, Merck and General Electric.
Theodore C. Wozniak, Executive Vice President—Business Development. Mr. Wozniak joined the Company in 2006 in his current position. Prior to joining Actuant, Mr. Wozniak held senior investment banking positions at Wachovia Securities, most recently as Managing Director of the Industrial Growth Corporate Finance Group. Mr. Wozniak was employed by Wachovia Securities for ten years. Prior to that, Mr. Wozniak held various investment banking positions at First Chicago Capital Markets and Riggs National Corporation.
Item  1A.    Risk Factors
The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. If any of the events contemplated by the following risks actually occurs, then our business, financial condition, or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may adversely impact our business.

Deterioration of or instability in the global economy and overall challenging end market conditions could impact our ability to grow the business and adversely impact our financial condition, results of operations and cash flows.

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Our businesses and operating results have been, and will continue to be, affected by worldwide economic conditions. The level of demand for our products depends, in part, on the general economic conditions that exist in our served end markets. A substantial portion of our revenues are derived from customers in cyclical industries (vehicles, industrial, oil & gas, agriculture and mining) that typically are adversely affected by downward economic cycles. As global economic uncertainty continues, our customers may experience deterioration of their businesses, which may delay or lengthen sales cycles. In response to recent economic weakness, we have implemented various restructuring initiatives aimed at reducing our cost structure and improving operational performance. We expect to incur additional restructuring costs in future periods, including facility consolidations and workforce reductions in order to reduce costs in our business. Although we expect that the related cost savings and realization of efficiencies will offset the restructuring related costs over time, we may not achieve the desired net benefits.

Our business is dependent upon the level of activity in the energy sector, particularly the oil and gas industry. The level of activity in the energy sector is influenced by supply and demand, country-specific energy policies, regional reliance on fossil fuels and the availability, affordability and market support of alternative energy sources.
Energy markets historically have experienced significant volatility. We primarily serve these markets through our Energy and Industrial segments. Energy sector activity can fluctuate significantly in a short period of time, particularly in the United States, North Sea, the Middle East, Brazil and Australia, amongst other regions. Demand for our products and services depends on a number of factors, including the number of offshore oil & gas wells being drilled, the maintenance and condition of industry assets, the volume of exploration and production activities and the capital expenditures of asset owners and maintenance companies. The willingness of asset owners and operators to make capital expenditures to produce and explore for sources of energy will continue to be influenced by numerous factors over which we have no control, including:
the current and anticipated future prices for energy sources, including oil and natural gas, solar, wind and nuclear;
level of excess production capacity;
cost of exploring for and producing energy sources;
worldwide economic activity and associated demand for energy sources;
availability and access to potential hydrocarbon resources;
national government political requirements;
development of alternate energy sources; and
environmental regulations.

Our growth strategy includes strategic acquisitions. We may not be able to consummate future acquisitions or successfully integrate them.
A significant portion of our growth has come from strategic acquisitions of businesses. We plan to continue making acquisitions to enhance our global market position and broaden our product offerings. Our ability to successfully execute acquisitions will be impacted by a number of factors, including the availability of financing on terms acceptable to us, our ability to identify acquisition candidates that meet our valuation parameters and increased competition for acquisitions. The process of integrating acquired businesses into our existing operations may result in unforeseen operating difficulties and may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations. Failure to effectively execute our acquisition strategy or successfully integrate the acquired businesses could have an adverse effect on our financial condition, results of operations, cash flows and liquidity.

We may not be able to realize the anticipated benefits from acquired companies.
We may not be able to realize the anticipated benefits from acquired companies. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including integrating the acquired business into the Company. Factors that could affect our ability to achieve these benefits include:
difficulties in integrating and managing personnel, financial reporting and other systems used by the acquired businesses;
the failure of acquired businesses to perform in accordance with our expectations;
failure to achieve anticipated synergies between our business units and the business units of acquired businesses;
the loss of customers of acquired businesses; or
the loss of key managers of acquired businesses.

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If acquired businesses do not operate as we anticipate, it could materially impact our business, financial condition and results of operations. In addition, acquired businesses may operate in niche markets in which we have little or no experience. In such instances, we will be highly dependent on existing managers and employees to manage those businesses, and the loss of any key managers or employees of the acquired business could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.

The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpected liabilities.
Certain of the acquisition agreements from past acquisitions require the former owners to indemnify us against certain liabilities related to the operation of each of their companies before we acquired it. In most of these agreements, however, the liability of the former owners is limited in amount and duration and certain former owners may not be able to meet their indemnification responsibilities. These indemnification provisions may not fully protect us, and as a result we may face unexpected liabilities that adversely affect our profitability and financial position.

Our goodwill and other intangible assets represent a substantial amount of our total assets.
Our total assets reflect substantial intangible assets, primarily goodwill. At August 31, 2016, goodwill and other intangible assets totaled $759 million, or 53% of our total assets. The goodwill results from our acquisitions, representing the excess of cost over the fair value of the net tangible and other identifiable intangible assets we have acquired. We assess annually whether there has been impairment in the value of our goodwill or indefinite-lived intangible assets. If future operating performance at one or more of our reporting units were to fall below current levels, we could be required to recognize a non-cash charge to operating earnings for goodwill or other intangible asset impairment. We recognized a $187 million and $84 million non-cash impairment charge in fiscal 2016 and 2015, respectively, related to the goodwill, intangible assets and long-lived assets of several of our businesses (see Note 4, "Goodwill, Intangible Assets and Long-Lived Assets" and "Critical Accounting Policies" for further discussion on goodwill, intangible asset and long-lived asset impairments). Any future goodwill or intangible asset impairments could negatively affect our financial condition and results of operations.

Divestitures and discontinued operations could negatively impact our business, and retained liabilities from businesses that we sell could adversely affect our financial results.
As part of our portfolio management process, we review our operations for businesses which may no longer be aligned with our strategic initiatives and long-term objectives. Over the past three years we divested our former Electrical segment and several product lines. Divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities and costs, disputes with buyers or potential impairment charges. We may also dispose of a business at a price or on terms that are less than we had previously anticipated. After reaching an agreement with a buyer for the disposition of a business, we are also subject to satisfaction of pre-closing conditions, as well as necessary regulatory and governmental approvals on acceptable terms, which may prevent us from completing a transaction. Dispositions may also involve continued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against contingent liabilities related to a businesses sold, such as lawsuits, tax liabilities, lease payments, product liability claims or environmental matters. Under these types of arrangements, performance by the divested businesses or other conditions outside of our control could affect future financial results.

If we fail to develop new products or customers do not accept our new products, our business could be adversely affected.
Our ability to develop innovative new products can affect our competitive position and often requires the investment of significant resources. Difficulties or delays in research, development, production or commercialization of new products or failure to gain market acceptance of new products and technologies may reduce future sales and adversely affect our competitive position. We continue to invest in the development and marketing of new products through our G + I process. There can be no assurance that we will have sufficient resources to make such investments, that we will be able to make the technological advances necessary to maintain competitive advantages or that we can recover major research and development expenses. If we fail to make innovations, launch products with quality problems or the market does not accept our new products, then our financial condition, results of operations, cash flows and liquidity could be adversely affected. A lack of successful new product developments may also cause customers to buy from a competitor or may cause us to have to reduce prices to compete.

Our indebtedness could harm our operating flexibility and competitive position.

8


We have incurred, and may in the future incur, significant indebtedness in connection with acquisitions and share repurchases. We have, and will continue to have, a substantial amount of debt which requires interest and principal payments. Our level of debt and the limitations imposed on us by our debt agreements could adversely affect our operating flexibility and put us at a competitive disadvantage.
Our ability to make scheduled principal and interest payments, refinance our indebtedness and satisfy our other debt and lease obligations will depend upon our future operating performance and credit market conditions, which could be affected by factors beyond our control. In addition, there can be no assurance that future borrowings or equity financings will be available to us on favorable terms, or at all, for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, our business, financial condition and results of operations will be adversely affected.

Our failure to comply with the financial and other covenants in our debt agreements would adversely affect us.
Our senior credit agreement and our other debt agreement contain financial and other restrictive covenants. These covenants could adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions and to meet our capital needs. Our failure to comply with these covenants could result in events of default which, if not cured or waived, could result in us being required to repay indebtedness before its due date, and we may not have the financial resources or be able to arrange alternative financing to do so. Borrowings under our senior credit facility are secured by most domestic personal property assets and are guaranteed by most of our domestic subsidiaries and by a pledge of the stock of most of our domestic and certain foreign subsidiaries. If borrowings under our senior credit facility were declared or became due and payable immediately as the result of an event of default and we were unable to repay or refinance those borrowings, the lenders could foreclose on the pledged assets and stock. Any event that requires us to repay any of our debt before it is due could require us to borrow additional amounts at unfavorable borrowing terms, cause a significant reduction in our liquidity and impair our ability to pay amounts due on our indebtedness. Moreover, if we are required to repay any of our debt before it becomes due, we may be unable to borrow additional amounts or otherwise obtain the cash necessary to repay that debt, when due, which could seriously harm our business.

Our ability to execute our share repurchases depends, in part, on our results of operations, liquidity and changes in the trading price of our Class A common stock.
The stock markets in general have experienced substantial price and trading fluctuations, which have resulted in volatility in the market prices of securities that often are unrelated or disproportionate to changes in operating performance. These broad market fluctuations may adversely affect the trading price of our Class A common stock. Price volatility over a given period may also cause the average price at which we repurchase our own common stock to exceed the stock’s price at a given point in time. In addition, significant changes in the trading price of our Class A common stock and our ability to access capital on terms favorable to us could impact our ability to repurchase shares of our common stock. Despite significant share repurchases over the last several years, the timing and amount of future repurchases is dependent on cash flows from operations and available liquidity, the amount of capital deployed for acquisitions and the market price of our common stock.

Our businesses operate in highly competitive markets, so we may be forced to cut prices or incur additional costs.
Our businesses generally face substantial competition in each of their respective markets. We may lose market share in certain businesses or be forced to reduce prices or incur increased costs to maintain existing business. We compete on the basis of product design, quality, availability, performance, customer service and price. The entry of a large company into one of our markets, or its acquisition of an existing competitor, could adversely impact our competitiveness due to greater financial or other resources. Present or future competitors may have greater financial, technical or other resources which could put us at a competitive disadvantage.

Our international operations pose currency and other risks.
We continue to focus on penetrating global markets as part of our overall growth strategy and expect sales from and into foreign markets to continue to represent a significant portion of our revenue. Approximately 58% of our sales in fiscal 2016 were outside the United States. In addition, many of our manufacturing operations and suppliers are located outside the United States. Our international operations present special risks, primarily from currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions, controls on repatriation of cash and exposure to local political conditions. In particular, 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. In addition, there have been several proposals to reform international taxation rules in the United States. We earn a substantial portion of our income from international operations and therefore changes to United States international tax rules may have a material adverse effect on future results of operations or liquidity. To the extent that we expand our international presence, these risks may increase.


9


Geopolitical unrest and terrorist activities may cause the economic conditions in the U.S. or abroad to deteriorate, which could harm our business.
Terrorist attacks against targets in the U.S. or abroad, rumors or threats of war, other geopolitical activity or trade disruptions may impact our operations or cause general economic conditions in the U.S. and abroad to deteriorate. A prolonged economic slowdown or recession in the U.S. or in other areas of the world could reduce the demand for our products and, therefore, negatively affect our future sales. Any of these events could have a significant impact on our business, financial condition or results of operations.

The assembly nature of our operations means that we purchase a significant amount of components from suppliers for the manufacture, assembly and sale of our products and our reliance on suppliers involves certain risks.
We rely on suppliers to secure component products and finished goods required for the manufacture and assembly of our products. A disruption in deliveries to or from suppliers or decreased availability of components or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs.  Further, poor supplier quality or an insecure supply chain could adversely affect the reliability, performance, and reputation of our products. Additionally, if demand for our products is less than we expect, we may experience excess inventories and be forced to incur additional charges and our profitability may suffer. Our business, competitive position, results of operations or financial condition could be negatively impacted if supply is insufficient for our operations, if we experience excess inventories or if we are unable to adjust our production schedules or our purchases from suppliers to reflect changes in customer demand and market fluctuations on a timely basis.

Large or rapid increases in the costs of commodities and raw materials or substantial decreases in their availability could adversely affect our operations.
The primary raw materials that are used in our products include steel, plastic resin, brass, steel wire and rubber. Most of our suppliers are not currently parties to long-term contracts with us. Consequently, we are vulnerable to fluctuations in prices of such raw materials. If market prices for certain materials such as steel or plastic resin rise, it could have a negative effect on our operating results and our ability to manufacture products on a timely basis. Factors such as supply and demand, freight costs and transportation availability, inventory levels, the level of imports and general economic conditions may affect the prices of raw materials that we need. If we experience a significant increase in raw material prices, or if we are unable to pass along increases in raw material prices to our customers, our results of operations could be adversely affected. In addition, an increasing portion of our products are sourced from low cost regions. Changes in export laws, taxes and disruptions in transportation routes could adversely impact our results of operations.

Regulatory and legal developments including changes to United States taxation rules, health care reform, conflict mineral supply chain compliance, governmental climate change initiatives and failure to comply with anti-corruption laws could negatively affect our financial performance.
Our operations and the markets we compete in are subject to numerous federal, state, local and foreign governmental laws and regulations. Existing laws and regulations may be revised or reinterpreted and new laws and regulations, including with respect to taxation, health care reform, conflict minerals compliance and governmental climate change initiatives, may be adopted or become applicable to us or customers. These regulations are complex, change frequently and have become more stringent over time. We cannot predict the form any such new laws or regulations will take or the impact any of these laws and regulations will have on our business or operations. Any significant change in any of these regulations could reduce demand for our products or increase our cost of producing these products.
Due to our global operations, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, UK Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.

Environmental laws and regulations may result in additional costs.
We are subject to federal, state, local and foreign laws and regulations governing public and worker health and safety. Any violations of these laws by us could cause us to incur unanticipated liabilities that could harm our operating results. Pursuant to such laws, governmental authorities have required us to contribute to the cost of investigating or remediating certain matters at current or previously owned and operated sites. In addition, we provided environmental indemnities in connection with the sale of certain businesses and product lines. Liability as an owner or operator, or as an arranger for the treatment or disposal of hazardous substances, can be joint and several and can be imposed without regard to fault. There is a risk that costs relating to

10


these matters could be greater than what we currently expect or exceed our insurance coverage, or that additional remediation and compliance obligations could arise which require us to make material expenditures. In particular, more stringent environmental laws, unanticipated remediation requirements or the discovery of previously unknown conditions could materially harm our financial condition and operating results. We are also required to comply with various environmental laws and maintain permits, some of which are subject to discretionary renewal from time to time, for many of our businesses, and our business operations could be restricted if we are unable to renew existing permits or to obtain any additional permits that we may require.
Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.
We are dependent on the continued services of key executives such as our Chief Executive Officer, Chief Financial Officer, Executive Vice President - Business Development, Executive Vice President - Global Human Resources and executives in charge of our segments. We currently do not have employment agreements with most of these or other officers. The departure of key personnel without adequate replacement could severely disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience to operate our businesses successfully. From time to time there may be shortages of skilled labor which may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.

Our operations are highly dependent on information technology infrastructure and failures could significantly affect our business.
We depend heavily on our information technology ("IT") systems and infrastructure in order to achieve our business objectives. If we experience a significant problem that impairs this infrastructure, such as a computer virus, cyber-attack, a problem with the functioning of an important IT application or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner or otherwise carry on our business in the ordinary course. Our information systems could also be penetrated by outside parties intent on extracting information, corrupting information or disrupting business processes. Such unauthorized access could disrupt our business and could result in the loss of assets. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns.

We are subject to litigation, including product liability and warranty claims that may adversely affect our financial condition and results of operations.
We are, from time to time, a party to litigation that arises in the normal course of our business operations, including product warranty and liability claims, contract disputes and environmental, asbestos, employment and other litigation matters. We face an inherent business risk of exposure to product liability and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. While we currently maintain general liability and product liability insurance coverage in amounts that we believe are adequate, we may not be able to maintain this insurance on acceptable terms and the insurance may not provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management's resources and time and the potential adverse effect to our business reputation.

If our intellectual property protection is inadequate, others may be able to use our technologies and tradenames and thereby reduce our ability to compete, which could have a material adverse effect on us, our financial condition and results of operations.
We regard much of the technology underlying our services and products and the trademarks under which we market our products as proprietary. The steps we take to protect our proprietary technology may be inadequate to prevent misappropriation of our technology, or third parties may independently develop similar technology. We rely on a combination of patent, trademark, copyright and trade secret laws, employee and third-party non-disclosure agreements and other contracts to establish and protect our technology and other intellectual property rights. These agreements may be breached or terminated, and we may not have adequate remedies for any breach, and existing trade secrets, patent and copyright law may afford us limited protection. Policing unauthorized use of our intellectual property is difficult. A third party could copy or otherwise obtain and use our products or technology without authorization. Litigation may be necessary for us to defend against claims of infringement or to protect our intellectual property rights and could result in substantial cost to us and diversion of our efforts. Further, we might not prevail in such litigation which could harm our business.


11


We or our products could infringe on the intellectual property of others, which may cause us to engage in costly litigation and, if we are not successful, could cause us to pay substantial damages and prohibit us from selling our products.
Third parties may assert infringement or other intellectual property claims against us based on their patents or other intellectual property claims, and we may have to pay substantial damages, possibly including treble damages, if it is ultimately determined that our products infringe. We may have to obtain a license to sell our products if it is determined that our products infringe upon another party’s intellectual property. We might be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Even if infringement claims against us are without merit, defending these types of lawsuits takes significant time, may be expensive and may divert management attention from other business concerns.
Item  1B.    Unresolved Staff Comments
None.

Item  2.    Properties
As of August 31, 2016, we operated the following facilities (square footage in thousands):
 
 
Number of Locations
 
Square Footage
 
 
 
 
Distribution /
Sales /
Admin
 
 
 
 
 
 
Manufacturing
 
Total
 
Owned
 
Leased
 
Total
Industrial
 
12

 
8

 
20

 
199

 
630

 
829

Energy
 
8

 
28

 
36

 
81

 
1,038

 
1,119

Engineered Solutions
 
11

 
4

 
15

 
753

 
665

 
1,418

Corporate and other
 
1

 
4

 
5

 
353

 
164

 
517

 
 
32

 
44

 
76

 
1,386

 
2,497

 
3,883

We consider our facilities suitable and adequate for the purposes for which they are used and do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. Our largest facilities are located in the United States, the United Kingdom, the Netherlands, Mexico, Turkey and China. We also maintain a presence in Australia, Azerbaijan, Brazil, Finland, France, Germany, Hungary, India, Indonesia, Italy, Japan, Kazakhstan, Norway, Russia, Singapore, South Africa, South Korea, Spain, Sweden and the United Arab Emirates. See Note 8, “Leases” in the notes to the consolidated financial statements for information regarding our lease commitments.
Item  3.    Legal Proceedings
We are a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, environmental, labor, patent claims and other disputes.
We have recorded reserves for estimated losses based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date and the amount of the loss can be reasonably estimated. In our opinion, the resolution of these contingencies is not likely to have a material adverse effect on our financial condition, results of operations or cash flows. For further information refer to Note 14, “Contingencies and Litigation” in the notes to consolidated financial statements.
Item  4.    Mine Safety Disclosures
Not applicable.

12



PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
The Company’s Class A common stock is traded on the New York Stock Exchange under the symbol ATU. At September 30, 2016, there were 1,353 shareholders of record of Actuant Corporation Class A common stock. The high and low sales prices of the common stock were as follows for the previous two fiscal years:
Fiscal Year
 
Period
 
High
 
Low
2016
 
June 1, 2016 to August 31, 2016
 
$
27.26

 
$
21.70

 
 
March 1, 2016 to May 31, 2016
 
27.29

 
22.98

 
 
December 1, 2015 to February 29, 2016
 
24.80

 
21.12

 
 
September 1, 2015 to November 30, 2015
 
25.10

 
17.57

2015
 
June 1, 2015 to August 31, 2015
 
$
24.42

 
$
19.76

 
 
March 1, 2015 to May 31, 2015
 
25.57

 
23.50

 
 
December 1, 2014 to February 28, 2015
 
29.26

 
22.62

 
 
September 1, 2014 to November 30, 2014
 
33.64

 
28.54

Dividends
In fiscal 2016, the Company declared a dividend of $0.04 per common share payable on October 14, 2016 to shareholders of record on September 30, 2016. In fiscal 2015, the Company declared a dividend of $0.04 per common share payable on October 15, 2015 to shareholders of record on September 30, 2015.
Share Repurchases
The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 20,439,434 shares of common stock (approximately 25% of its outstanding shares) for $618 million. The following table summarizes share repurchases during the fourth quarter of fiscal 2016.
Period
 
Shares Repurchased
 
Average Price Paid per Share
 
Maximum Number of Shares That May Yet Be Purchased Under the Program
June 1 to June 30, 2016
 
112,955

 
$
26.33

 
7,560,566

July 1 to July 31, 2016
 

 

 
7,560,566

August 1 to August 31, 2016
 

 

 
7,560,566

 
 
112,955

 
$
26.33

 
 
Securities Authorized for Issuance under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K is provided under Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which is incorporated herein by reference.

Performance Graph:
The graph below compares the cumulative 5-year total return of Actuant Corporation’s common stock with the cumulative total returns of the S&P 500 index and the Dow Jones US Diversified Industrials index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from August 31, 2011 to August 31, 2016.

13


atu10-k083_chartx15944a01a04.jpg
Copyright(c) 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright(c) 2013 Dow Jones & Co. All rights reserved.



 
8/11
 
8/12
 
8/13
 
8/14
 
8/15
 
8/16
Actuant Corporation
 
$
100.00

 
$
140.32

 
$
178.48

 
$
168.71

 
$
107.38

 
$
119.62

S&P 500
 
100.00

 
118.00

 
140.07

 
175.43

 
176.27

 
198.40

Dow Jones US Diversified Industrials
 
100.00

 
126.79

 
154.07

 
183.92

 
183.70

 
232.48

The stock price performance included in this graph is not necessarily indicative of future stock price performance.


14



Item 6.    Selected Financial Data
The following selected historical financial data have been derived from the consolidated financial statements of the Company. The data should be read in conjunction with these financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(in millions, except per share data)
Statement of Earnings Data(1)(2):
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,149

 
$
1,249

 
$
1,400

 
$
1,280

 
$
1,277

Gross profit
 
403

 
462

 
547

 
507

 
512

Selling, administrative and engineering expenses
 
274

 
300

 
332

 
294

 
285

Amortization of intangible assets
 
23

 
24

 
25

 
23

 
22

Restructuring charges
 
15

 

 

 

 

Loss (gain) on product line divestiture
 
5

 

 
(13
)
 

 

Impairment charges
 
187

 
84

 

 

 

Operating profit (loss)
 
(100
)
 
54

 
203

 
190

 
205

Earnings (loss) from continuing operations
 
(105
)
 
20

 
141

 
148

 
125

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share from continuing operations
 
$
(1.78
)
 
$
0.32

 
$
1.95

 
$
1.98

 
$
1.68

Cash dividends per share declared
 
$
0.04

 
$
0.04

 
$
0.04

 
$
0.04

 
$
0.04

 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
59,010

 
62,055

 
72,486

 
74,580

 
74,940

 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of period)(2):
 


 


 


 


 


Cash
 
$
180

 
$
169

 
$
109

 
$
104

 
$
68

Assets
 
1,443
 
1,637
 
1,857
 
2,119
 
2,007
Debt
 
584
 
588
 
390
 
515
 
398
Net debt (debt less cash)
 
404
 
419
 
281
 
411
 
330
 _______________________
(1)
Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations (former Electrical segment).

(2)
We have completed various acquisitions that impact the comparability of the selected financial data. The results of operations for these acquisitions are included in our financial results for all periods subsequent to their acquisition date. The following table summarizes the significant acquisitions that were completed during the last five fiscal years (amounts in millions):
 
 
 
 
 
 
 
 
 
Acquisition
 
Segment
 
Date Completed
 
Sales (a)
 
Purchase Price
Pipeline and Process Services (b)
 
Energy
 
March 2016
 
$
32

 
$
66

Larzep, S.A.
 
Industrial
 
February 2016
 
8

 
16

Hayes Industries, Ltd.
 
Industrial
 
May 2014
 
25

 
31

Viking SeaTech
 
Energy
 
August 2013
 
90

 
235

CrossControl AB
 
Engineered Solutions
 
July 2012
 
40

 
41

Turotest Medidores Ltda
 
Engineered Solutions
 
March 2012
 
13

 
8

Jeyco Pty Ltd
 
Energy
 
February 2012
 
20

 
21

 _______________________
(a)Represents approximate annual sales at the time of the acquisition.
(b)Acquired the Middle East, Caspian and North Africa operations of Four Quest Energy Inc.

15




Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
Background
As discussed in Item 1, “Business,” we are a global diversified company that manufactures a broad range of industrial products and systems and are organized into three reportable segments, Industrial, Energy and Engineered Solutions. The Industrial segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, customized offshore vessel mooring solutions, as well as rope and cable solutions to the global oil & gas, power generation and energy markets. The Engineered Solutions segment provides highly engineered position and motion control systems to OEMs in various on and off-highway vehicle markets, as well as a variety of other products to the industrial and agriculture markets.
Business Update
Sales in most of our end markets are expected to remain sluggish during fiscal 2017 given the challenging and inconsistent demand we have experienced in industrial, mining, infrastructure, oil & gas, commercial and off-highway vehicles and agriculture markets. Tepid global industrial demand, reduced capital spending in oil & gas markets (exploration, drilling and commissioning activities) and inventory destocking by OEMs in vehicle and agriculture markets are expected to be headwinds in fiscal 2017.  As a result, we expect fiscal 2017 core sales (sales growth excluding the impact of acquisitions, divestitures and changes in foreign currency exchange rates) to decline 2-6%, compared to a 6% decline in fiscal 2016. 
Despite these unfavorable market conditions, our Industrial segment is focused on accelerating global sales growth through geographic expansion (especially Asia Pacific), new product introductions and regional growth via second tier brands. We expect the Industrial segment year-over-year core sales trend to improve in the second half of fiscal 2017 due to easier comparables and traction on new sales initiatives. After outperforming the general energy markets in fiscal 2016, our Energy segment is expected to deliver double digit core sales declines in fiscal 2017, the result of tough comparables, including a large subsea connector order and elevated manpower services (Middle East refinery maintenance) in the first half of fiscal 2016. The Energy segment remains focused on the integration of the recent Pipeline and Process Services acquisition, redirecting sales, marketing and engineering resources to non-oil & gas vertical markets and providing new and existing customers with critical products, services and solutions in a dynamic energy environment.  End user demand in our Engineered Solutions segment appears to have stabilized, but we are expecting first half fiscal 2017 headwinds due to inventory destocking by OEM's and dealers, before reaching equilibrium in the second half of the fiscal year. Overall for the Engineered Solutions segment, we are expecting flat core sales growth in fiscal 2017 as weakness in agriculture markets, coupled with high inventory levels in agriculture and other off-highway markets are expected to be partially offset by single digit sales growth in heavy duty truck demand. The Engineered Solutions segment is focused on execution of restructuring projects and lean manufacturing initiatives while improving sales (expansion of served markets and additional content with existing OEMs).  
As a result of these and other factors, we are continuing cost reduction programs across all three segments to reduce the impact of lower customer demand on our profitability. During fiscal 2016, we incurred $15 million of restructuring costs and anticipate restructuring actions (facility consolidation, headcount reductions and operational improvements) to continue at a similar level throughout fiscal 2017.  Despite these challenging end market conditions, we continue to generate substantial cash flow from operating activities, including $118 million in fiscal 2016.  Our priorities during fiscal 2017 include focused efforts to drive additional sales growth, investments in growth initiatives including strategic acquisitions, execution of restructuring actions and cash flow generation.



16


Historical Financial Data (in millions)
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Statements of Earnings Data:
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,149

 
100
 %
 
$
1,249

 
100
%
 
$
1,400

 
100
 %
Cost of products sold
 
746

 
65
 %
 
787

 
63
%
 
853

 
61
 %
Gross profit
 
403

 
35
 %
 
462

 
37
%
 
547

 
39
 %
Selling, administrative and engineering expenses
 
274

 
24
 %
 
300

 
24
%
 
332

 
24
 %
Restructuring charges
 
15

 
1
 %
 

 
0
%
 

 
0
 %
Loss (gain) on product line divestiture
 
5

 
0
 %
 

 
0
%
 
(13
)
 
(1
)%
Amortization of intangible assets
 
23

 
2
 %
 
24

 
2
%
 
25

 
2
 %
Impairment charges
 
187

 
16
 %
 
84

 
7
%
 

 
0
 %
Operating profit (loss)
 
(100
)
 
(9
)%
 
54

 
4
%
 
203

 
15
 %
Financing costs, net
 
29

 
3
 %
 
28

 
2
%
 
25

 
2
 %
Other expense, net
 
1

 
0
 %
 

 
0
%
 
4

 
0
 %
Earnings (loss) from continuing operations before income tax expense
 
(130
)
 
(11
)%
 
26

 
2
%
 
174

 
12
 %
Income tax (benefit) expense
 
(25
)
 
(2
)%
 
6

 
0
%
 
33

 
2
 %
Earnings (loss) from continuing operations
 
(105
)
 
(9
)%
 
20

 
2
%
 
141

 
10
 %
Earnings from discontinued operations, net of income taxes
 

 
0
 %
 

 
0
%
 
22

 
2
 %
Net earnings (loss)
 
$
(105
)
 
(9
)%
 
$
20

 
2
%
 
$
163

 
12
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
 
$
25

 
 
 
$
29

 
 
 
$
35

 
 
Capital expenditures
 
20

 
 
 
23

 
 
 
42

 
 

Fiscal 2016 compared to Fiscal 2015
Consolidated sales in fiscal 2016 were $1.15 billion, 8% lower than the prior year sales of $1.25 billion.  Core sales were down 6%, as a result of challenging end market conditions. Changes in foreign currency exchange rates also unfavorably impacted sales comparisons by $45 million, while fiscal 2016 acquisitions added $19 million of sales. In addition to the impact of changes in foreign currency exchange rates, acquisitions and economic conditions, the comparability of results between periods is impacted by sales levels, product mix and the timing and amount of restructuring costs and related benefits.  Lower production levels and absorption of manufacturing costs, as well as unfavorable sales mix and restructuring charges (as we adjust our cost structure by consolidating facilities and reducing headcount) resulted in reduced operating profit margins in fiscal 2016.  Additionally, fiscal 2016 and 2015 results both include impairment charges related to the write-down of acquired goodwill, intangible assets and long-lived assets, which reduced operating profit margins.

Fiscal 2015 compared to Fiscal 2014
Consolidated sales in fiscal 2015 were $1.25 billion, 11% lower than fiscal 2014 sales of $1.40 billion. The significant strengthening of the U.S. dollar against most currencies had a $91 million unfavorable impact to our sale comparison, as well as an approximate $0.15 earnings per share reduction. Most of our businesses faced cyclical headwinds and unfavorable market conditions, which resulted in a consolidated 5% core sales decline in fiscal 2015. Fiscal 2015 financial results also included an $84 million non-cash impairment charge related to our Energy businesses, a reduced tax expense (the result of lower pre-tax book earnings and several tax minimization projects and benefits from the favorable resolution of income tax audits) since fiscal 2015 has a higher ETR when compared to fiscal 2014.

Segment Results
Industrial Segment

The Industrial segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools that are used in maintenance and other applications in a variety of industrial, energy, infrastructure and

17


production automation markets. The following table sets forth comparative results of operations for the Industrial segment (in millions):

 
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Net Sales
 
$
360

 
$
402

 
$
414

Operating Profit
 
80

 
106

 
120

Operating Profit %
 
22.2
%
 
26.3
%
 
29.1
%
Fiscal 2016 compared to Fiscal 2015
Fiscal 2016 Industrial segment net sales decreased by $42 million (11%) from fiscal 2015 to $360 million. Excluding $4 million of additional sales from the recent Larzep acquisition and an $8 million unfavorable impact of changes in foreign currency exchange rates, fiscal 2016 core sales declined 10% on a year-over-year basis. Sales declined due to reduced global industrial activity (especially in energy related markets), challenging end market conditions and cautious spending patterns by customers for heavy lifting and large infrastructure projects. Operating profit margins were 22.2% in fiscal 2016 compared to 26.3% in fiscal 2015. Lower production levels (absorption of fixed costs), unfavorable sales mix (which reduced margins by 125 basis points), as well as $3 million of restructuring charges resulted in lower operating profit margins in fiscal 2016.
Fiscal 2015 compared to Fiscal 2014
Fiscal 2015 Industrial segment net sales declined by $12 million (3%) to $402 million from $414 million in fiscal 2014. Excluding $29 million of sales from the Hayes acquisition and a $21 million unfavorable foreign currency exchange impact, fiscal 2015 core sales declined 3%. This reduction reflected reduced general industrial activity, unfavorable market conditions in several served markets (including oil & gas and mining), as well as distributor inventory destocking. Operating profit margin was 26.3% in fiscal 2015 compared to 29.1% in the prior year. Unfavorable acquisition mix, due to a full year of sales from the Hayes acquisition in fiscal 2014 (which generates lower profit margins than the segment in aggregate) and reduced leverage on fixed manufacturing and selling, administrative and engineering expenses equally contributed to the 280 basis point reduction in operating profit margins.
Energy Segment
The Energy segment provides joint integrity products and services, customized offshore vessel mooring, as well as rope and cable solutions to the global energy market. The following table sets forth comparative operating results for the Energy segment (in millions):
 
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Net Sales
 
$
393

 
$
412

 
$
462

Operating Profit (Loss)
 
(108
)
 
(41
)
 
56

Operating Profit (Loss) %
 
(27.4
)%
 
(10.0
)%
 
12.2
%
Fiscal 2016 compared to Fiscal 2015
Fiscal 2016 Energy segment net sales decreased by $19 million from fiscal 2015 to $393 million, a 2% core sales decline (excluding $15 million of sales from the recent Pipeline and Process Services acquisition and the $25 million unfavorable impact of changes in foreign currency exchange rates). Core sales from our Energy Maintenance & Integrity product line (Hydratight) increased $30 million (12%) in fiscal 2016, the result of strong global demand for technical manpower services on maintenance projects and a large subsea connector order. However, core sales in the Other Energy Solutions product line, consisting of rope and cable solutions and off-shore marine mooring declined $39 million (26%) in fiscal 2016 due to reduced industry capital spending, lower oil & gas prices and increased price pressure. Energy segment operating losses are the result of impairment charges of $141 million and $84 million in fiscal 2016 and 2015, respectively. Excluding the impairment charges, Energy segment operating profit margin was 8.4% and 10.4% for fiscal 2016 and 2015, respectively. Unfavorable sales mix, which reduced margins by 375 basis points due to sharply higher service revenue and reduced mooring rental activity as well as $6 million of restructuring charges in fiscal 2016 were partially offset by restructuring savings.
Fiscal 2015 compared to Fiscal 2014
Fiscal 2015 Energy segment net sales declined $50 million from fiscal 2014 ($36 million of which was attributable to changes in foreign currency exchange rates) to $412 million. Energy segment core sales declined $14 million, or 3% in fiscal

18


2015. Revenue from our Energy Maintenance and Integrity product line declined $2 million, or 1% in fiscal 2015, primarily the result of customers deferring maintenance activities during the back half of the fiscal year. Sales in the Other Energy Solutions product line, consisting of umbilical & rope solutions and offshore mooring, declined $12 million (7%) due to reduced exploration, drilling and commissioning activities (in response to sharp declines in oil & gas prices). The operating loss in fiscal 2015 was driven by an $84 million impairment charge related to the write-down of goodwill and intangible assets. Excluding this item, fiscal 2015 operating profit and margins were $43 million and 10.4%, respectively. Fiscal 2015 operating profit margin, excluding the impairment charge, declined modestly from the prior year as downsizing costs and lower rental fleet and service technician utilization in 2015 were partially offset by reduced acquisition retention agreement expense at Viking, as well as favorable sales mix.
Engineered Solutions Segment
The Engineered Solutions segment provides highly engineered position and motion control systems to original equipment manufacturers in various on and off-highway vehicle markets, as well as, a variety of other products to the industrial and agricultural markets. The following table sets forth comparative results of operations for the Engineered Solutions segment (in millions):
 
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Net Sales
 
$
397

 
$
435

 
$
524

Operating Profit (Loss)
 
(43
)
 
20

 
55

Operating Profit (Loss) %
 
(10.8
)%
 
4.6
%
 
10.6
%
Fiscal 2016 compared to Fiscal 2015
Fiscal 2016 Engineered Solutions net sales decreased $38 million (9%) to $397 million versus the prior year. Excluding the $12 million unfavorable impact of foreign currency rate changes and sales from the Sanlo product line that we divested on August 25, 2016, core sales declined 6% in fiscal 2016 due to lower sales to OEMs that were reducing excess inventory levels, coupled with unfavorable market conditions in off-highway vehicles and agriculture markets. The operating loss in fiscal 2016 resulted from a $46 million impairment charge related to our maximatecc business and a $5 million loss on the Sanlo divestiture. Operating profit margins were also adversely impacted by unfavorable product mix and reduced absorption on lower production volumes and inventory reduction efforts. In addition, restructuring costs to consolidate facilities and reduce headcount totaled $5 million in fiscal 2016, and further reduced operating profit.
Fiscal 2015 compared to Fiscal 2014
Net sales in the Engineered Solutions segment decreased $89 million (17%) from fiscal 2014 to $435 million in fiscal 2015. Excluding the $35 million impact of unfavorable foreign currency rate changes and the $22 million of fiscal 2014 revenues from the divested RV product line, core sales declined 7% in fiscal 2015 due to reduced demand in auto and off-highway equipment markets. Operating profit declined in fiscal 2015 due to the inclusion of a $13 million RV divestiture gain in fiscal 2014, unfavorable product mix, restructuring costs, material cost inflation at international locations resulting from the stronger U.S. dollar and reduced absorption on lower production volumes.
Corporate
Since corporate expenses are considered to be for general corporate purposes, we do not allocate these expenses to our segments. Corporate expenses were relatively unchanged at $29 million, $31 million and $29 million in fiscal 2016, 2015 and 2014, respectively.
Financing Costs, Net
Net financing costs were $29 million in fiscal 2016, $28 million in fiscal 2015 and $25 million in fiscal 2014, with the increase since fiscal 2014 attributable to higher net debt balances.
Income Tax Expense
Our income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. federal statutory rate, state tax rates in the jurisdictions where we do business, tax minimization planning and our ability to utilize various tax credits and loss carryforwards to reduce income tax expense. Income tax expense also includes the impact of provision to tax return adjustments, changes in valuation allowances

19


and reserve requirements for unrecognized tax benefits. Pre-tax earnings (loss), income tax expense (benefit) and effective income tax rate from continuing operations for the past three years were as follows:

 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Earnings (loss) from continuing operations before income taxes
 
(130,344
)
 
25,391

 
174,026

Income tax expense (benefit)
 
(25,170
)
 
5,519

 
32,573

Effective income tax rate
 
19.3
%
 
21.7
%
 
18.7
%

The comparability of pre-tax earnings (loss), income tax expense (benefit) and the related effective income tax rates are impacted by impairment charges. Fiscal 2016 results include a $187 million ($169 million after tax) impairment charge, while fiscal 2015 included an $84 million ($83 million after tax) impairment charge.  Excluding the impairment charge, the fiscal 2016 effective tax rate was (13.7)%, which was lower than the prior year due to a favorable mix of taxable earnings, the benefits of tax planning initiatives and discrete tax adjustments.

Both the current and prior year income tax provisions included a materially similar income tax benefits from global tax planning initiatives (current year tax planning related to the deductibility of foreign currency losses for tax purposes); however, in the current year those initiatives as a percentage had an increased impact on the effective tax rate due to lower pre-tax book earnings in fiscal 2016 (excluding the impairment charge). In addition, the tax provision for fiscal 2016 included a $7 million income tax benefit on the Sanlo divestiture and 53% of earnings from foreign jurisdictions (with tax rates lower than the U.S. federal income tax rate) compared to 68% in fiscal 2015.

Income tax expense in fiscal 2015 included a net $10 million reduction in reserves for unrecognized tax benefits and a greater proportion of earnings from lower taxed foreign jurisdictions (compared to fiscal 2014), which were partially offset by a $2 million increase in valuation allowances. Fiscal 2014 income tax expense included a net $11 million income tax benefit from a change in income tax accounting method and a reduction in the reserve for unrecognized tax benefits (as a result of the lapsing of non-U.S. income tax statutes of limitation) which were somewhat offset by $11 million of incremental income taxes on the RV product line divestiture. 
Discontinued Operations
We divested our former Electrical segment in December 2013. The former Electrical segment was primarily involved in the design, manufacture and distribution of a broad range of electrical products to the retail DIY, wholesale, OEM, solar, utility, marine and other hard environment markets. The final divestiture resulted in a pre-tax gain on disposal of $34 million (see Note 3, "Discontinued Operations and Divestitures" in the notes to the consolidated financial statements for further discussion). The results of operations for the former Electrical segment have been reported in discontinued operations for all periods.

Liquidity and Capital Resources
At August 31, 2016, cash and cash equivalents is comprised of $172 million of cash held by foreign subsidiaries and $8 million held domestically. We periodically utilize income tax safe harbor provisions to make temporary short-term intercompany advances from our foreign subsidiaries to our U.S. parent. Temporary intercompany advances, which are utilized to reduce outstanding debt balances, were $54 million and $160 million at August 31, 2016 and 2015, respectively. The following table summarizes the cash flow attributable to operating, investing and financing activities (in millions):
 
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Net cash provided by operating activities
 
$
118

 
$
131

 
$
126

Net cash (used in) provided by investing activities
 
(83
)
 
(21
)
 
262

Net cash used in financing activities
 
(18
)
 
(15
)
 
(382
)
Effect of exchange rate changes on cash
 
(5
)
 
(35
)
 
(1
)
Net increase in cash and cash equivalents
 
$
11

 
$
60

 
$
5



20


Cash flow from operations were $118 million in fiscal 2016, a $13 million reduction from the prior year due to lower cash earnings, somewhat offset by improved working capital management, reduced cash tax payments and lower annual incentive compensation payments.  These cash flows from operations, $7 million of proceeds from the sale leaseback of several facilities and existing cash balances were utilized to repurchase 712,955 shares of common stock ($17 million) and fund $82 million of acquisitions and $20 million of capital expenditures.
Cash flow from operating activities in fiscal 2015 was $131 million, while cash used in investing activities for net capital expenditures was $21 million. Operating cash flows and borrowings under the Senior Credit Facility funded the $212 million repurchase of approximately 8 million shares of the Company's common stock. The translational impact of the significant strengthening of the U.S. dollar in fiscal 2015 reduced our cash balances by $35 million.
Cash flow from operating activities in fiscal 2014 were $126 million. Investing activities during fiscal 2014 included $42 million of net capital expenditures, $41 million of proceeds from the sale leaseback of Viking rental assets and the receipt of $290 million in proceeds from the divestitures of the former Electrical Segment and RV product line. Existing cash, operating and investing cash flows funded the $31 million Hayes acquisition and $284 million of stock buybacks, as well as the repayment of $125 million of revolver borrowings.
Primary Working Capital Management
We use primary working capital as a percentage of sales as a key metric for working capital efficiency. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three month's sales annualized. The following table shows the components of the primary working capital (amounts in millions):
 
 
 
August 31, 2016
 
August 31, 2015
 
 
$
 
PWC %
 
$
 
PWC %
Accounts receivable, net
 
$
187

 
17
 %
 
$
193

 
16
 %
Inventory, net
 
131

 
12
 %
 
143

 
12
 %
Accounts payable
 
(115
)
 
(10
)%
 
(118
)
 
(10
)%
Net primary working capital
 
$
203

 
18
 %
 
$
218

 
18
 %

Excluding the $2 million reduction in primary working capital due to changes in foreign currency exchange rates and the $11 million increase due to acquisition/divestiture activity, primary working capital decreased $24 million in the year, reflecting lower inventory levels and a reduction in accounts receivable, primarily as a result of lower sales levels.

Liquidity
Our Senior Credit Facility matures on May 8, 2020, and includes a $600 million revolving credit facility, a $300 million term loan and a $450 million expansion option. Quarterly principal payments of $4 million on the term loan commenced on June 30, 2016, and increase to $8 million per quarter beginning on June 30, 2017, with the remaining principal due at maturity. At August 31, 2016, we had $180 million of cash and cash equivalents. Unused revolver capacity was $592 million at August 31, 2016, of which $180 million was available for borrowing. We believe that the revolver, combined with our existing cash on hand and anticipated operating cash flows will be adequate to meet operating, debt service, stock buyback, acquisition and capital expenditure funding requirements for the foreseeable future.
Seasonality and Working Capital
Although there are modest seasonal factors within certain of our businesses, on a consolidated basis, we do not experience material changes in seasonal working capital or capital resource requirements. We meet working capital and capital expenditure requirements through a combination of operating cash flow and revolver availability under our Senior Credit Facility.
Our receivables are derived from a diverse customer base spread across a number of industries, with our largest single customer generating approximately 3% of fiscal 2016 net sales.
Capital Expenditures
The majority of our manufacturing activities consist of assembly operations. We believe that our capital expenditure requirements are not as extensive as other industrial companies given the nature of our operations. Capital expenditures were $20 million, $23 million and $42 million in fiscal 2016, 2015 and 2014, respectively. Capital expenditures in fiscal 2014 were higher than historical levels due to the purchase of mooring assets in the Energy segment required to support large project

21


growth in the Asia Pacific region. Capital expenditures for fiscal 2017 are expected to be $20 - $25 million, but could vary from that depending on business performance, growth opportunities and the amount of assets we lease instead of purchase.
Commitments and Contingencies
Given our desire to allocate cash flow and revolver availability to fund growth initiatives, we typically lease most of our operating equipment and facilities. We lease 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 the leases include provisions that enable us to renew the lease based upon fair value rental rates on the date of expiration of the initial lease.
We are contingently liable for certain lease payments under leases of businesses that we previously divested or spun-off. Some of these businesses were subsequently sold to third parties. If any of these businesses do not fulfill their future lease payment obligations under the leases, we could be liable for such leases. The present value of future minimum lease payments for these leases was $16 million at August 31, 2016 (including $12 million related to the former Electrical segment). As of August 31, 2016, future minimum lease payments on previously divested or spun-off businesses were as follows: $3 million in fiscal 2017; $3 million in fiscal 2018; $2 million in each fiscal 2019, 2020, and 2021 and $4 million in aggregate thereafter.
We had outstanding letters of credit totaling $18 million at both August 31, 2016 and 2015, the majority of which relate to commercial contracts and self-insured workers compensation programs.

Contractual Obligations
The timing of payments due under our contractual commitments is as follows (in millions): 
 
 
Payments Due
 
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Debt (short- and long-term)
 
$
19

 
$
30

 
$
30

 
$
217

 
$

 
$
288

 
$
584

Interest on long-term debt
 
23

 
23

 
22

 
21

 
16

 
13

 
118

Operating leases
 
33

 
27

 
24

 
20

 
14

 
45

 
163

Deferred acquisition purchase price
 
1

 
2

 

 

 

 

 
3

 
 
$
76

 
$
82

 
$
76

 
$
258

 
$
30

 
$
346

 
$
850

 
Interest on long-term debt assumes the current interest rate environment and revolver borrowings consistent with August 31, 2016 debt levels.
Our contractual obligations generally relate to amounts due under contracts with third party service providers. These contracts are primarily for real estate leases, information technology services and telecommunications services. Only those obligations that are not cancelable are included in the table.
We routinely issue purchase orders to numerous vendors for inventory and other supplies. These purchase orders are
generally cancelable with reasonable notice to the vendor, and are therefore excluded from this table.
We have long-term obligations related to our deferred compensation, pension and postretirement plans that are excluded from this table, summarized in Note 9, “Employee Benefit Plans” in the notes to consolidated financial statements.
Our liability for unrecognized tax benefits was $29 million at August 31, 2016, but is not included in the table of contractual obligations because the timing of the potential settlements of these uncertain tax positions cannot be reasonably estimated.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). This requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. The following policies are considered by management to be the most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows.
Revenue recognition: We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability of the sales price is reasonably assured. For product sales, delivery does not occur until the passage of title and risk of loss have transferred to the customer (generally when products are shipped). Revenue from service and rental contracts are recognized when the services are provided or ratably over the contract term. We record allowances for discounts, product returns and customer incentives at the time of sale as a reduction of revenue as such

22


allowances can be reliably estimated based on historical experience and known trends. We also offer warranty on our products and accrue for warranty claims at the time of sale based upon the length of the warranty period, historical warranty cost trends and any other related information.
Inventories:  Inventories are stated at the lower of cost or market. Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S. owned inventory (approximately 21% and 22% of total inventories at both August 31, 2016 and 2015, respectively). The first-in, first-out or average cost method is used for all other inventories. If the LIFO method were not used, the inventory balance would be higher than the amount in the consolidated balance sheet by $4 million at August 31, 2016 and $6 million at August 31, 2015. We perform an analysis of the historical sales usage of the individual inventory items on hand and a reserve is recorded to adjust inventory cost to market value. The inventory valuation assumptions used are based on historical experience. We believe that such estimates are made based on consistent and appropriate methods; however, actual results may differ from these estimates under different assumptions or conditions.
Goodwill and Long-Lived Assets:
Goodwill Impairment Review, Estimates and Sensitivity: The purchase price allocation for acquired businesses typically results in recording goodwill and other intangible assets, which are a significant portion of our total assets. On an annual basis, or more frequently if triggering events occur, we compare the estimated fair value of our reporting units to the carrying value to determine if a potential goodwill impairment exists. If the fair value of a reporting unit is less than its carrying value an impairment loss is recorded for the difference between the implied fair value and the carrying value of the reporting unit's goodwill. The estimated fair value represents the amount we believe a reporting unit could be bought or sold for in a current transaction between willing parties on an arms-length basis.
In estimating the fair value, we generally use a discounted cash flow model, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The expected future revenue growth rates and operating profit margins are determined after taking into consideration our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance. Under the discounted cash flow approach, the fair value is calculated as the sum of the projected discounted cash flows over a discrete seven year period plus an estimated terminal value. In certain circumstances we also review a market approach in which a trading multiple is applied to a forecasted EBITDA (earnings before interest, income taxes, depreciation and amortization) of the reporting unit to arrive at the estimated fair value.
Fiscal 2015 Impairment Charge: The dramatic decline in oil prices, reduced capital spending by asset owners and suspended drilling and exploration activities caused us to review the recoverability of goodwill, intangible assets and fixed assets of our Energy segment businesses during the second quarter of fiscal 2015. Similar to other energy industry suppliers, we revised our financial projections to reflect market conditions, including lower sales and profit levels. The uncertainty and volatility in the global oil & gas markets resulted in a second quarter fiscal 2015 goodwill impairment charge of $40 million in our Cortland reporting unit and $38 million in our Viking reporting unit.

Fiscal 2016 Interim Impairment Charge: During the second quarter of fiscal 2016, we determined that there were interim “triggering events” that required a review of the recoverability of the goodwill and long-lived assets of three reporting units (Cortland, Viking and maximatecc).

Cortland and Viking Reporting Units: Continued unfavorable market conditions, including continued cuts in oil & gas capital spending, reduced exploration, drilling and commissioning activities and excess capacity for mooring rental assets, resulted in a 33% core sales decline in the second quarter of fiscal 2016 at Viking and Cortland, which comprise our Other Energy Services product line. As a result of lower projected sales and profits, we recognized a goodwill impairment charge of $74 million. 

Maximatecc Reporting Unit:  The maximatecc reporting unit, including the legacy North American business and acquisitions of CrossControl (Europe) and Turotest (South America), manufactures severe-duty electronic instrumentation including displays and clusters, machine controls and sensors. These products are primarily marketed to industrial vehicle original equipment manufacturers (“OEMs”) and system suppliers in a number of industries, including industrial, material hauling, construction, agriculture, forestry, mining, utility, cargo, marine and rail. Weakness in off-highway vehicle and agricultural markets, coupled with challenging overall industrial fundamentals, recent reductions in OEM customer build rates and production schedules (in order to reduce inventory levels) and delays in the start of production by certain European OEMs for new or updated design models resulted in reduced sales and profitability of the maximatecc business. As a result of lower projected sales and profits, we recognized a $46 million impairment charge related to the goodwill of the maximatecc business.


23


Fiscal 2016 Year-End Impairment Test:  Our fourth quarter fiscal 2016 impairment review resulted in one reporting unit (Cortland) having an estimated fair value that exceeded the carrying value (expressed as a percentage of the carrying value) by less than 30%. While we believe that the Cortland business will generate positive cash flow and earnings in the long-term, the financial projections utilized in the impairment review considered both historical results and current challenging conditions in the global oil & gas markets.  Estimated future cash flows from the business assume low single digit sales growth in fiscal 2017 (after a greater than 10% sales decline in fiscal 2016) and slightly improved profitability, the result of previously completed restructuring actions and favorable sales mix. The future financial results of this reporting unit are dependent on the realization of savings from restructuring actions and material cost reductions, the timing and level of recovery in the global oil & gas markets and our ability to retain and win new business in other end markets. The assumptions that have the most significant impact on determination of the fair value of the Cortland reporting unit are the discount rate (10.5% at August 31, 2016) and sales growth rate, including 3.0% in the terminal year. A 100 basis point increase in the discount rate results in a reduction to the estimated fair value of the reporting unit by 13%, while a reduction in the terminal year sales growth rate assumption by 100 basis points would decrease the estimated fair value by 9%. The carrying value of the Cortland reporting unit was $91 million (including $36 million in goodwill) at August 31, 2016.

Indefinite-lived intangibles (tradenames): Indefinite lived intangible assets are also subject to annual impairment testing. On an annual basis or more frequently if a triggering event occurs, the fair value of indefinite lived assets, based on a relief of royalty valuation approach, are evaluated to determine if an impairment charge is required. We recognized interim impairment charges to write-down the value of tradenames by $17 million and $6 million in fiscal 2016 and 2015, respectively, as the result of reduced sales projections and royalty rates, which reflected current and future profitability estimates. Our fourth quarter fiscal 2016 impairment review resulted in one indefinite lived intangible asset for which the estimated fair value exceeded the carrying value of $17 million by 21%. A reduction in sales or operating profits, relative to our projections, could result in a future non-cash impairment charge related to this tradename.

Long-lived assets (fixed assets and amortizable intangible assets): We also review long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If such indicators are present, we prepare an undiscounted operating cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. In the second quarter of fiscal 2016, the undiscounted operating cash flows of our Viking business did not exceed the carrying value and therefore a $52 million long-lived asset impairment was recognized, including $28 million of amortizable intangible assets and $24 million of fixed assets (primarily mooring rental assets).

A considerable amount of management judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit and the indefinite lived intangible assets. While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, future additional impairment charges could be required. Weakening industry or economic trends, disruptions to our business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in the use of the assets or in entity structure and divestitures may adversely impact the assumptions used in the valuations and ultimately result in future impairment charges.
Business Combinations and Purchase Accounting: We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and tangible long-lived assets. Acquired intangible assets, excluding goodwill, are valued using a discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and assumptions, the most significant being projected revenue growth rates, profit margins and forecasted cash flows based on the discount rate and terminal growth rate.
Employee Benefit Plans: We provide a variety of benefits to employees and former employees, including in some cases, pensions and postretirement health care. Plan assets and obligations are recorded based on an August 31 measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return on plan assets and health care cost trend rates. We determine the discount rate assumptions by referencing high-quality, long-term bond rates that are matched to the duration of our benefit obligations, with appropriate consideration of local market factors, participant demographics and benefit payment forecasts. At August 31, 2016 and 2015, the discount rate on domestic benefit plans was 3.45% and 4.45%, respectively. In estimating the expected return on plan assets, we consider historical returns, forward-looking considerations, inflation assumptions and the asset allocation strategy in investing such assets. Domestic benefit plan assets consist primarily of

24


participating units in mutual funds, index funds and bond funds. The expected return on domestic benefit plan assets was 7.15% and 7.40% at August 31, 2016 and 2015, respectively. A 25 basis point change in the assumptions for the discount rate or expected return on plan assets would not materially change fiscal 2017 domestic benefit plan expense.
We review actuarial assumptions on an annual basis and make modifications based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of any modifications are recorded currently or amortized over future periods. Based on information provided by independent actuaries and other relevant sources, we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. See Note 9, “Employee Benefit Plans” in the notes to the consolidated financial statements for further discussion.
Income Taxes:   Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities, reserves for unrecognized tax benefits and any valuation allowances recorded against net deferred tax assets. Our effective income tax rate is based on annual income, statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and other adjustments. Our annual effective income tax rate includes the impact of discrete income tax matters including adjustments to reserves for uncertain tax positions and the benefits of various income tax planning activities.  Tax regulations require items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, the effective income tax rate in our financial statements differs from that reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax return, while others are temporary differences, such as amortization and depreciation expense.                            
Temporary differences create deferred tax assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not large enough to utilize the entire deduction or credit. Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes.    
Use of Estimates:   We record reserves, asset write-downs or allowances for customer rebates, returns and discounts, doubtful accounts, inventory, incurred but not reported medical claims, environmental matters, warranty claims, workers compensation claims, product and non-product litigation, acquisition earn out obligations and incentive compensation. These reserves require the use of estimates and judgment. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. We believe that such estimates are made on a consistent basis and with appropriate assumptions and methods. However, actual results may differ from these estimates.
Item  7A.    Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency exchange rates and interest rates and, to a lesser extent, commodities. To reduce such risks, we selectively use financial instruments and other proactive management techniques. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading or speculative purposes. A discussion of our accounting policies for derivative financial instruments is included within Note 7, “Derivatives” in the notes to the consolidated financial statements.
Foreign Currency Risk—We maintain operations in the U.S. and various foreign countries. Our non-U.S. operations, the largest of which are located in Australia, the Netherlands, the United Kingdom, Mexico, United Arab Emirates and China, have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions, primarily forward foreign currency swaps, that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 7, “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 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, annual sales and operating profit were remeasured assuming a ten percent reduction in foreign exchange rates compared with the U.S. dollar. Under this assumption, annual sales and operating profit would have been $58 million and $6 million lower, respectively, for the twelve months ended August 31, 2016. 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 actual sales or price levels. Similarly, a ten percent decline in foreign currency exchange rates relative to the U.S. dollar on our August 31, 2016 financial position would result in a $62 million reduction to equity (accumulated other comprehensive loss), as a result of non U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
Interest Rate Risk—We manage interest expense using a mixture of fixed-rate and variable-rate debt. A change in interest rates impacts the fair value of our 5.625% Senior Notes, but not our earnings or cash flow because the interest rate on such debt

25


is fixed. Our variable-rate debt obligations consist primarily of revolver and term loan borrowings under our Senior Credit Facility. A ten percent increase in the average cost of our variable rate debt would have resulted in an approximate $1 million increase in financing costs for the year ended August 31, 2016.
Commodity 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.

26


Item 8.        Financial Statements and Supplementary Data 
All other schedules are omitted because they are not applicable, not required or because the required information is included in the consolidated financial statements or notes thereto.

27


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Actuant Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Actuant Corporation and its subsidiaries at August 31, 2016 and August 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the accompanying consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2016.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in “Management’s Report on Internal Control Over Financial Reporting,” management has excluded Larzep and Pipeline and Process Services (collectively “the Acquired Businesses”) from its assessment of internal control over financial reporting as of August 31, 2016 because the businesses were acquired by the Company in a purchase business combination during fiscal 2016. We have also excluded the Acquired Businesses from our audit of internal control over financial reporting. The Acquired Businesses are wholly-owned subsidiaries of the Company whose total assets and revenues represent approximately 7% and less than 2% respectively, of the related consolidated financial statement amounts as of and for the year ended August 31, 2016.


/s/ PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
October 26, 2016


28


ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
 
 
Year Ended August 31,
 
 
2016

2015

2014
Net sales
 
$
1,149,410

 
$
1,249,254

 
$
1,399,862

Cost of products sold
 
746,013

 
787,413

 
852,990

Gross profit
 
403,397

 
461,841

 
546,872

Selling, administrative and engineering expenses
 
274,497

 
299,601

 
332,093

Amortization of intangible assets
 
22,943

 
24,333

 
25,166

(Gain) loss on product line divestitures
 
5,092

 

 
(13,495
)
Restructuring charges
 
14,571

 

 

Impairment charges
 
186,511

 
84,353

 

Operating profit (loss)
 
(100,217
)
 
53,554

 
203,108

Financing costs, net
 
28,768

 
28,057

 
25,045

Other expense, net
 
1,359

 
106

 
4,037

Earnings (loss) from continuing operations before income taxes
 
(130,344
)
 
25,391

 
174,026

Income tax (benefit) expense
 
(25,170
)
 
5,519

 
32,573

Earnings (loss) from continuing operations
 
(105,174
)
 
19,872

 
141,453

Earnings from discontinued operations, net of income taxes
 

 

 
22,120

Net earnings (loss)
 
$
(105,174
)
 
$
19,872

 
$
163,573

 
 
 
 
 
 
 
Earnings (loss) from continuing operations per share:
 
 
 
 
 
 
Basic
 
$
(1.78
)
 
$
0.32

 
$
1.99

Diluted
 
$
(1.78
)
 
$
0.32

 
$
1.95

 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
Basic
 
$
(1.78
)
 
$
0.32

 
$
2.31

Diluted
 
$
(1.78
)
 
$
0.32

 
$
2.26

 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
Basic
 
59,010

 
61,262

 
70,942

Diluted
 
59,010

 
62,055

 
72,486


The accompanying notes are an integral part of these consolidated financial statements.


29


ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Net earnings (loss)
 
$
(105,174
)
 
$
19,872

 
$
163,573

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
Foreign currency translation adjustments
 
(32,203
)
 
(143,703
)
 
3,344

Pension and other postretirement benefit plans
 
(6,003
)
 
(1,506
)
 
(3,159
)
Cash flow hedges
 
23

 
(23
)
 
67

Total other comprehensive income (loss), net of tax
 
(38,183
)
 
(145,232
)
 
252

Comprehensive income (loss)
 
$
(143,357
)
 
$
(125,360
)
 
$
163,825


The accompanying notes are an integral part of these consolidated financial statements.

30


ACTUANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
 
August 31,
 
 
2016
 
2015
A S S E T S
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
179,604

 
$
168,846

Accounts receivable, net
 
186,829

 
193,081

Inventories, net
 
130,756

 
142,752

Deferred income taxes
 

 
12,922

Other current assets
 
45,463

 
42,788

Total current assets
 
542,652

 
560,389

Property, plant and equipment
 
 
 
 
Land, buildings, and improvements
 
41,504

 
48,515

Machinery and equipment
 
268,362

 
269,983

Gross property, plant and equipment
 
309,866

 
318,498

Less: Accumulated depreciation
 
(195,851
)
 
(176,040
)
Property, plant and equipment, net
 
114,015

 
142,458

Goodwill
 
519,276

 
608,256

Other intangibles, net
 
239,475

 
308,762

Other long-term assets
 
27,120

 
17,052

Total assets
 
$
1,442,538

 
$
1,636,917

 
 
 
 
 
 
 
 
 
 
L I A B I L I T I E S  A N D  S H A R E H O L D E R S’  E Q U I T Y
 
 
 
 
Current liabilities
 
 
 
 
Trade accounts payable
 
$
115,051

 
$
118,115

Accrued compensation and benefits
 
46,901

 
43,707

Current maturities of debt and short-term borrowings
 
18,750

 
3,969

Income taxes payable
 
9,254

 
14,805

Other current liabilities
 
51,956

 
54,460

Total current liabilities
 
241,912

 
235,056

Long-term debt
 
565,559

 
584,309

Deferred income taxes
 
31,356

 
72,941

Pension and postretirement benefit liabilities
 
25,667

 
17,828

Other long-term liabilities
 
57,094

 
53,782

Total liabilities
 
921,588

 
963,916

Shareholders’ equity
 
 
 
 
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 79,393,393 and 78,932,533 shares, respectively
 
15,879

 
15,787

Additional paid-in capital
 
114,980

 
104,308

Treasury stock, at cost, 20,439,434 shares and 19,726,479 shares, respectively
 
(617,731
)
 
(600,630
)
Retained earnings
 
1,259,645

 
1,367,176

Accumulated other comprehensive loss
 
(251,823
)
 
(213,640
)
Stock held in trust
 
(2,646
)
 
(4,292
)
Deferred compensation liability
 
2,646

 
4,292

Total shareholders’ equity
 
520,950

 
673,001

Total liabilities and shareholders’ equity
 
$
1,442,538

 
$
1,636,917

The accompanying notes are an integral part of these consolidated financial statements.

31


ACTUANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Year Ended August 31,
 
 
2016
 
2015
 
2014
Operating Activities
 
 
 
 
 
 
Net earnings (loss)
 
$
(105,174
)
 
$
19,872

 
$
163,573

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
 
 
 
Non-cash items:
 
 
 
 
 
 
Impairment charges, net of tax benefits
 
169,056

 
82,635

 

Depreciation and amortization
 
47,777

 
53,239

 
60,635

Stock-based compensation expense
 
10,442

 
12,046

 
17,115

Gain on disposal of businesses, net of tax benefits
 
(1,557
)
 

 
(29,152
)
Provision (benefit) for deferred income taxes
 
(17,403
)
 
(12,221
)
 
40

Amortization of debt issuance costs
 
1,652

 
1,897

 
1,829

Other non-cash adjustments
 
(517
)
 
805

 
(168
)
Changes in components of working capital and other:
 


 


 


Accounts receivable
 
20,261

 
12,827

 
1,336

Inventories
 
10,202

 
6,608

 
(21,915
)
Trade accounts payable
 
(7,727
)
 
(19,801
)
 
(19,832
)
Prepaid expenses and other assets
 
(3,291
)
 
(8,761
)
 
4,276

Income taxes payable/receivable
 
(7,916
)
 
(11,629
)
 
(46,133
)
Accrued compensation and benefits
 
3,912

 
(6,478
)
 
12,725

Other accrued liabilities
 
(2,020
)
 
395

 
(18,149
)
Cash provided by operating activities
 
117,697

 
131,434

 
126,180

 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
Capital expenditures
 
(20,209
)
 
(22,516
)
 
(41,857
)
Proceeds from sale of property, plant and equipment
 
9,296

 
1,244

 
44,274

Business acquisitions, net of cash acquired
 
(81,916
)
 

 
(30,500
)
Proceeds from sale of businesses, net of transaction costs
 
9,695

 

 
289,590

Cash provided by (used in) investing activities
 
(83,134
)
 
(21,272
)
 
261,507

 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
Net borrowings (repayments) on revolving credit facility
 
(210
)
 
220

 
(125,000
)
Principal repayments on term loan
 
(3,750
)
 
(3,375
)
 

Proceeds from term loan
 

 
213,375

 

Redemption of 5.625% Senior Notes
 

 
(11,941
)
 

Purchase of treasury shares
 
(17,101
)
 
(212,003
)
 
(283,712
)
Payment of contingent acquisition consideration
 

 

 
(1,585
)
Debt issuance costs
 

 
(2,025
)
 

Taxes paid related to the net share settlement of equity awards
 
(1,409
)
 
(2,466
)
 
(946
)
Stock option exercises, related tax benefits and other
 
6,416

 
5,396

 
32,224

Cash dividend
 
(2,376
)
 
(2,598
)
 
(2,919
)
Cash used in financing activities
 
(18,430
)
 
(15,417
)
 
(381,938
)
Effect of exchange rate changes on cash
 
(5,375
)
 
(34,911
)
 
(723
)
Net increase in cash and cash equivalents
 
10,758

 
59,834

 
5,026

Cash and cash equivalents - beginning of period
 
168,846

 
109,012

 
103,986

Cash and cash equivalents - end of period
 
$
179,604

 
$
168,846

 
$
109,012

The accompanying notes are an integral part of these consolidated financial statements.

32




ACTUANT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(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, 2013
 
77,001

 
$
15,399

 
$
49,758

 
$
(104,915
)
 
$
1,188,685

 
$
(68,660
)
 
$
(3,124
)
 
$
3,124

 
$
1,080,267

Net earnings
 

 

 

 

 
163,573

 

 

 

 
163,573

Other comprehensive income, net of tax
 

 

 

 

 

 
252

 

 

 
252

Stock contribution to employee benefit plans and other
 
16

 
3

 
550

 

 

 

 

 

 
553

Restricted stock awards
 
389

 
78

 
(78
)
 

 

 

 

 

 

Cash dividend ($0.04 per share)
 

 

 

 

 
(2,656
)
 

 

 

 
(2,656
)
Treasury stock repurchases
 

 

 

 
(283,712
)
 

 

 

 

 
(283,712
)
Stock based compensation expense
 

 

 
17,115

 

 

 

 

 

 
17,115

Stock option exercises
 
1,065

 
213

 
22,210

 

 

 

 

 

 
22,423

Tax effect of stock option exercises and restricted stock vesting
 

 

 
3,509

 

 

 

 

 

 
3,509

Stock issued to, acquired for and distributed from rabbi trust
 
10

 
2

 
385

 

 

 

 
(959
)
 
959

 
387

Balance at August 31, 2014
 
78,481

 
15,695

 
93,449

 
(388,627
)
 
1,349,602

 
(68,408
)
 
(4,083
)
 
4,083

 
1,001,711

Net earnings
 

 

 

 

 
19,872

 

 

 

 
19,872

Other comprehensive loss, net of tax
 

 

 

 

 

 
(145,232
)
 

 

 
(145,232
)
Stock contribution to employee benefit plans and other
 
12

 
4

 
459

 

 

 

 

 

 
463

Restricted stock awards
 
365

 
73

 
(73
)