ENERPAC TOOL GROUP CORP - Quarter Report: 2012 May (Form 10-Q)

ENERPAC TOOL GROUP CORP - Quarter Report: 2012 May (Form 10-Q)

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11288

ACTUANT CORPORATION

(Exact name of registrant as specified in its charter)

Wisconsin

39-0168610

(State of

incorporation)

(I.R.S. Employer

Id. No.)

N86 W12500 WESTBROOK CROSSING

MENOMONEE FALLS, WISCONSIN 53051

Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201

(Address of principal executive offices)

(262) 293-1500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

The number of shares outstanding of the registrant’s Class A Common Stock as of June 30, 2012 was 72,850,365.

TABLE OF CONTENTS


	Page No.
Part I—Financial Information

Item 1—Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Earnings		4

Condensed Consolidated Balance Sheets		5

Condensed Consolidated Statements of Cash Flows		6

Notes to Condensed Consolidated Financial Statements		7

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3—Quantitative and Qualitative Disclosures about Market Risk		25

Item 4—Controls and Procedures		26

Part II—Other Information

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 6 – Exhibits		26

FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS

This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, and capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:

•

the timing or strength of a worldwide economic recovery;

•

the realization of anticipated cost savings from restructuring activities and cost reduction efforts;

•

market conditions in the truck, automotive, specialty vehicle, agriculture, industrial, oil & gas, energy, power generation, marine, solar, infrastructure, residential and commercial construction and retail Do-It Yourself (“DIY”) industries;

•

increased competition in the markets we serve and market acceptance of existing and new products;

•

our ability to successfully identify and integrate acquisitions and realize anticipated benefits/results from acquired companies;

•

operating margin risk due to competitive product pricing, operating efficiencies and material, labor and overhead cost increases;

•

foreign currency, interest rate and commodity risk;

•

supply chain and industry trends, including changes in purchasing and other business practices by customers;

•

regulatory and legal developments including changes to United States taxation rules, health care reform and governmental climate change initiatives;

•

our level of indebtedness, ability to comply with the financial and other covenants in our debt agreements and current credit market conditions.

Our Form 10-K for the fiscal year ended August 31, 2011 contains an expanded description of these and other risks that may affect our business, financial position and results of operations under the section entitled “Risk Factors.”

When used herein, the terms “Actuant,” “we,” “us,” “our” and the “Company” refer to Actuant Corporation and its subsidiaries.

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

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended May 31,					Nine Months Ended May 31,
	2012		2011			2012		2011
Net sales	$	429,215	$	392,777		$	1,200,038	$	1,041,887
Cost of products sold		263,095		238,739			740,018		640,969

Gross profit		166,120		154,038			460,020		400,918
Selling, administrative and engineering expenses		91,063		89,166			263,935		244,453
Amortization of intangible assets		7,393		6,871			21,684		19,846

Operating profit		67,664		58,001			174,401		136,619
Financing costs, net		7,236		7,850			23,279		23,640
Debt refinancing charges		16,830		—			16,830		—
Other expense, net		2,604		331			3,090		1,276

Earnings from continuing operations before income taxes		40,994		49,820			131,202		111,703
Income tax expense		6,593		11,460			27,452		24,540

Earnings from continuing operations		34,401		38,360			103,750		87,163
Loss from discontinued operations, net of income taxes		—		(2,002	)		—		(16,986	)

Net earnings	$	34,401	$	36,358		$	103,750	$	70,177

Earnings from continuing operations per share:
Basic	$	0.48	$	0.56		$	1.50	$	1.28
Diluted	$	0.45	$	0.51		$	1.39	$	1.17

Earnings per share:
Basic	$	0.48	$	0.53		$	1.50	$	1.03
Diluted	$	0.45	$	0.49		$	1.39	$	0.95

Weighted average common shares outstanding:
Basic		71,083		68,354			69,184		68,208
Diluted		75,371		75,571			75,201		75,314

See accompanying Notes to Condensed Consolidated Financial Statements

ACTUANT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(unaudited)


	May 31,			August 31,
	2012			2011
ASSETS
Current assets
Cash and cash equivalents	$	80,149		$	44,221
Accounts receivable, net		237,438			223,760
Inventories, net		206,389			223,235
Deferred income taxes		32,206			32,461
Other current assets		19,109			22,807

Total current assets		575,291			546,484
Property, plant and equipment
Land, buildings and improvements		50,873			51,901
Machinery and equipment		254,083			263,250

Gross property, plant and equipment		304,956			315,151
Less: Accumulated depreciation		(188,991	)		(186,502	)

Property, plant and equipment, net		115,965			128,649
Goodwill		873,682			888,466
Other intangibles, net		454,360			479,406
Other long-term assets		14,811			13,676

Total assets	$	2,034,109		$	2,056,681

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	167,632		$	170,084
Accrued compensation and benefits		53,008			71,639
Short-term borrowings and current maturities of debt		6,250			2,690
Income taxes payable		30,289			19,342
Other current liabilities		68,583			66,548

Total current liabilities		325,762			330,303
Long-term debt		392,500			522,727
Deferred income taxes		133,619			165,945
Pension and postretirement benefit liabilities		18,171			18,864
Other long-term liabilities		86,772			99,829
Shareholders’ equity
Class A common stock, $0.20 par value per share, authorized 168,000,000, issued 75,274,829 and 68,657,234 shares, respectively		15,054			13,731
Additional paid-in capital		382			(154,231	)
Treasury stock, at cost, 1,732,245 shares		(39,282	)		—
Retained earnings		1,180,942			1,077,192
Accumulated other comprehensive loss		(79,811	)		(17,679	)
Stock held in trust		(2,661	)		(2,137	)
Deferred compensation liability		2,661			2,137

Total shareholders’ equity		1,077,285			919,013

Total liabilities and shareholders’ equity	$	2,034,109		$	2,056,681

See accompanying Notes to Condensed Consolidated Financial Statements

ACTUANT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended May 31,
	2012			2011
Operating Activities
Net earnings	$	103,750		$	70,177
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		40,192			38,143
Net loss on disposal of business		—			15,744
Stock-based compensation expense		10,002			8,093
Benefit for deferred income taxes		(2,137	)		(2,298	)
Amortization of debt discount and debt issuance costs		1,492			2,409
Non-cash debt refinancing charge		2,254			—
Other non-cash adjustments		(138	)		(18	)
Changes in components of working capital and other:
Accounts receivable		(21,692	)		(27,752	)
Inventories		9,171			(39,533	)
Prepaid expenses and other assets		1,071			5,989
Trade accounts payable		2,779			18,400
Income taxes payable		(2,056	)		6,904
Accrued compensation and benefits		(8,766	)		646
Other liabilities		(6,608	)		(1,806	)

Net cash provided by operating activities		129,314			95,098

Investing Activities
Proceeds from sale of property, plant and equipment		8,486			359
Proceeds from sale of business, net of transaction costs		—			3,463
Capital expenditures		(17,491	)		(14,843	)
Business acquisitions, net of cash acquired		(29,734	)		(160,047	)

Net cash used in investing activities		(38,739	)		(171,068	)

Financing Activities
Net (repayments) borrowings on revolving credit facilities		(58,167	)		14
Issuance of term loan		—			100,000
Principal repayments on term loan		(1,250	)		—
Repurchases of 2% Convertible Notes		(102	)		(34	)
Proceeds from 5.625% Senior Note issuance		300,000			—
Redemption of 6.875% Senior Notes		(250,000	)		—
Debt issuance costs		(5,340	)		(5,197	)
Purchase of treasury shares		(39,282	)		—
Stock option exercises and related tax benefits		6,392			7,285
Cash dividend		(2,748	)		(2,716	)

Net cash provided by (used in) financing activities		(50,497	)		99,352
Effect of exchange rate changes on cash		(4,150	)		4,695

Net increase in cash and cash equivalents		35,928			28,077
Cash and cash equivalents—beginning of period		44,221			40,222

Cash and cash equivalents—end of period	$	80,149		$	68,299

See accompanying Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 1. Basis of Presentation

Consolidation and Presentation

The accompanying unaudited condensed consolidated financial statements of Actuant Corporation (“Actuant,” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2011 was derived from the Company’s audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2011 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and nine months ended May 31, 2012 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2012.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) updated the disclosure requirements for comprehensive income. The updated guidance requires companies to disclose the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The amended guidance, which must be applied retroactively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted.

In September 2011, the FASB issued an amendment to existing guidance on the testing of goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with earlier adoption permitted.

Note 2. Acquisitions

The Company continually evaluates potential acquisitions that are a strategic fit with the Company’s existing businesses or expand the Company’s portfolio into new and attractive end markets. These acquisitions result in the recognition of goodwill in the Company’s financial statements because the purchase prices reflect the future earnings and cash flow potential of the acquired companies, as well as the complementary strategic fit and resulting synergies these businesses bring to existing operations.

On March 28, 2012 the Company acquired the stock of Turotest Medidores Ltda (“Turotest”) for $8.1 million of cash and deferred consideration of $5.3 million. Turotest, an Engineered Solutions segment acquisition, headquartered in San Paulo, Brazil designs and manufactures instrument panels and gauges serving the Brazilian agriculture and industrial markets. The acquisition resulted in the recognition of $5.5 million of goodwill (which is not deductible for tax purposes) and $7.0 million of intangible assets (customer relationships, tradename and non-compete).

On February 10, 2012 the Company completed the acquisition of the stock of Jeyco Pty Ltd (“Jeyco”) for $20.7 million of cash. Jeyco, an Energy segment acquisition, headquartered near Perth, Australia, designs and provides specialized mooring, rigging and towing systems and services to the offshore oil & gas industry in Australia and other international markets. Additionally, Jeyco’s products are used in a variety of applications for other markets including cyclone mooring and marine, defense and mining tow systems. The purchase price allocation resulted in the recognition of $14.1 million of goodwill (which is not deductible for tax purposes) and $5.5 million of intangible assets (tradename, non-compete and customer relationships).

The Company completed two business acquisitions during fiscal 2011. On June 2, 2011, the Company completed the acquisition of Weasler Engineering, Inc. (“Weasler”) for $153.2 million of cash. Weasler, which is headquartered in Wisconsin, is a global designer and manufacturer of highly engineered drive train components and systems for agriculture, lawn & turf and industrial equipment. Weasler also supplies a variety of torque limiters, high-end gear boxes, clutches and torsional dampers which expand the product offering of the Engineered Solutions segment. On December 10, 2010, the Company completed the acquisition of Mastervolt International Holding B.V. (“Mastervolt”) for $158.2 million of cash. Mastervolt, headquartered in The Netherlands, is a designer, developer and global supplier of highly innovative, branded power electronics, primarily for the European solar and marine markets. Mastervolt expands the Electrical segment’s geographic presence and product offerings to include additional technologies associated with the efficient conversion, control, storage and conditioning of electrical power. The purchase price allocations for these fiscal 2011 acquisitions resulted in the recognition of $152.4 million of goodwill (which is not deductible for tax purposes) and $157.5 million of intangible assets, including $81.5 million of customer relationships, $69.9 million of tradenames, $5.5 million of patents and technologies and $0.6 million of non-compete agreements.

The Company makes an initial allocation of the purchase price, at the date of acquisition, based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired business, the Company will refine its estimates of fair value. During the nine months ended May 31, 2012 goodwill was reduced by $3.3 million, the net result of purchase accounting adjustments to the fair value of acquired assets and assumed liabilities, including a $7.7 million reduction to Mastervolt’s initial estimated warranty reserve.

The following unaudited pro forma results of operations of the Company for the three and nine months ended May 31, 2012 and May 31, 2011, give effect to these acquisitions as though the transactions and related financing activities had occurred on September 1, 2010 (in thousands, except per share amounts):


	Three Months Ended May 31,				Nine Months Ended May 31,
	2012		2011		2012		2011
Net sales
As reported	$	429,215	$	392,777	$	1,200,038	$	1,041,887
Pro forma		430,356		427,159		1,219,104		1,178,722

Earnings from continuing operations
As reported	$	34,401	$	38,360	$	103,750	$	87,163
Pro forma		34,668		42,037		107,485		98,927

Basic earnings per share from continuing operations
As reported	$	0.48	$	0.56	$	1.50	$	1.28
Pro forma		0.49		0.61		1.55		1.45

Diluted earnings per share from continuing operations
As reported	$	0.45	$	0.51	$	1.39	$	1.17
Pro forma		0.45		0.56		1.43		1.33

During the nine months ended May 31, 2012, the Company paid $0.9 million of deferred consideration for acquisitions completed in previous periods. Transaction costs related to various business acquisition activities were $1.0 million for the nine months ended May 31, 2012 and $0.9 million in the comparable prior year period.

Note 3. Discontinued Operations

In the second quarter of fiscal 2011, the Company completed the sale of the European Electrical business for total cash proceeds of $3.5 million, net of transaction costs. As a result of the sale transaction, the Company recognized a pre-tax loss on disposal of $15.8 million. The following table summarizes the results of the European Electrical business, which has been reported as discontinued operations (in thousands):


	Three Months Ended May 31, 2011			Nine Months Ended May 31, 2011
Net sales	$	—		$	49,305

Loss on disposal of business		(2,086	)		(15,829	)
Loss from operations of divested business		—			(1,157	)
Income tax benefit		84			—

Loss from discontinued operations, net of income taxes	$	(2,002	)	$	(16,986	)

Note 4. Restructuring

In fiscal 2009, in response to the dramatic downturn in the worldwide economy, the Company committed to various restructuring initiatives including workforce reductions, plant consolidations, the transfer of production and product sourcing to lower cost plants or regions and the centralization of certain selling and administrative functions. These major actions were substantially completed by August 31, 2010, with limited restructuring activity in subsequent periods. Subsequent restructuring costs were $0.5 million and $2.0 million for the three and nine months ended May 31, 2012, respectively and $0.9 million and $1.7 million for the three and nine months ended May 31, 2011, respectively.

The restructuring reserve at May 31, 2012 and August 31, 2011 was $3.5 million and $3.6 million, respectively. The remaining restructuring related to severance will be paid during the next twelve months, while facility consolidation costs (primarily reserves for future lease payments for vacated facilities) will be paid over the underlying lease terms.

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill for the nine months ended May 31, 2012 are as follows (in thousands):


	Industrial			Energy			Electrical			Engineered Solutions			Total
Balance as of August 31, 2011	$	85,409		$	252,285		$	260,777		$	289,995		$	888,466
Businesses acquired		—			14,101			—			5,462			19,563
Purchase accounting adjustments		—			—			(3,995	)		715			(3,280	)
Impact of changes in foreign currency rates		(4,708	)		(12,195	)		(7,144	)		(7,020	)		(31,067	)

Balance as of May 31, 2012	$	80,701		$	254,191		$	249,638		$	289,152		$	873,682

The gross carrying value and accumulated amortization of the Company’s intangible assets are as follows (in thousands):


	Weighted	May 31, 2012						August 31, 2011
	Average	Gross				Net		Gross				Net
	Amortization	Carrying		Accumulated		Book		Carrying		Accumulated		Book
	Period (Years)	Value		Amortization		Value		Value		Amortization		Value
Amortizable intangible assets:
Customer relationships	15	$	328,127	$	87,345	$	240,782	$	331,171	$	73,215	$	257,956
Patents	13		50,259		33,802		16,457		51,169		31,221		19,948
Trademarks and tradenames	20		41,178		7,966		33,212		38,917		6,571		32,346
Non-compete agreements and other	4		7,489		6,023		1,466		7,362		5,671		1,691
Indefinite lived intangible assets:
Tradenames	N/A		162,443		—		162,443		167,465		—		167,465

		$	589,496	$	135,136	$	454,360	$	596,084	$	116,678	$	479,406

Amortization expense recorded on the intangible assets listed above was $7.4 million and $21.7 million for the three and nine months ended May 31, 2012, respectively, and $6.9 million and $19.8 million for the three and nine months ended May 31, 2011, respectively. The Company estimates that amortization expense will approximate $7.4 million for the remainder of fiscal 2012. Amortization expense for future years is estimated to be as follows: $27.8 million in fiscal 2013, $26.2 million in fiscal 2014, $26.1 million in fiscal 2015, $25.9 million in fiscal 2016 and $178.6 million thereafter. These future amortization expense amounts represent estimates, which may change based on future acquisitions or changes in foreign currency exchange rates.

Note 6. Product Warranty Costs

The Company generally offers its customers a warranty on products sold, although warranty periods vary by product type and application. The acquisition of Mastervolt during fiscal 2011 has increased the required warranty reserve, as this business has a longer base warranty period. The reserve for future warranty claims is based on historical claim rates and current warranty cost experience. The following is a rollforward of the accrued product warranty reserve (in thousands):


	Nine Months Ended May 31,
	2012			2011
Beginning balance	$	23,707		$	7,868
Purchase accounting adjustments		(7,726	)		—
Warranty reserves of acquired business		237			10,870
Provision for warranties		8,444			7,416
Warranty payments and costs incurred		(8,567	)		(3,664	)
Impact of changes in foreign currency rates		(2,043	)		1,366

Ending balance	$	14,052		$	23,856

Note 7. Debt

The following is a summary of the Company’s long-term indebtedness (in thousands):


	May 31, 2012			August 31, 2011
Senior Credit Facility
Revolver	$	—		$	58,000
Term Loan		98,750			100,000

		98,750			158,000
5.625% Senior Notes		300,000			—
6.875% Senior Notes		—			249,432

Total Senior Indebtedness		398,750			407,432
Convertible subordinated debentures (“2% Convertible Notes”)		—			117,795

Total Debt		398,750			525,227
Less: current maturities of long-term debt		(6,250	)		(2,500	)

Total long-term debt, less current maturities	$	392,500		$	522,727

The Company’s Senior Credit Facility, which matures on February 23, 2016, provides a $600.0 million revolving credit facility, a $100.0 million term loan and a $300.0 million expansion option, subject to certain conditions. Borrowings are subject to a pricing grid, which can result in increases or decreases to the borrowing spread, depending on the Company’s leverage ratio, ranging from 1.25% to 2.50% in the case of loans bearing interest at LIBOR and from 0.25% to 1.25% in the case of loans bearing interest at the base rate. At May 31, 2012, the borrowing spread on LIBOR based borrowings was 1.75% (aggregating to 2.25% and 2.0% on outstanding term loan and revolver borrowings, respectively). In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.2% to 0.4% per annum. At May 31, 2012 the available and unused credit line under the revolver was $598.3 million. Quarterly principal payments of $1.25 million began on the $100.0 million term loan on March 31, 2012, increasing to $2.5 million per quarter beginning on March 31, 2013, with the remaining principal due at maturity. The Senior Credit Facility, which is secured by substantially all of the Company’s domestic personal property assets, also contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the Senior Credit Facility agreement are a maximum leverage ratio of 3.75:1 and a minimum fixed charge coverage ratio of 1.50:1. The Company was in compliance with all debt covenants at May 31, 2012.

On April 16, 2012, the Company issued $300.0 million of 5.625% Senior Notes due 2022 (the “Senior Notes”) in a private offering. The Senior Notes require no principal installments prior to their June 15, 2022 maturity, require semiannual interest payments in December and June of each year and contain certain financial and non-financial covenants. The Company utilized the net proceeds from this issuance to fund the repurchase of all the Company’s then outstanding $250.0 million 6.875% Senior Notes due 2017 at a cost of 104%, or a total of $260.4 million.

In November 2003, the Company issued $150.0 million of Senior Subordinated Convertible Debentures due November 15, 2023 (the “2% Convertible Notes”). Prior to fiscal 2012, the Company repurchased (for cash) $32.2 million of 2% Convertible Notes at an average price of 99.3% of par value. In addition, $0.2 million of 2% Convertible Notes were converted into shares of the Company’s Class A common stock in the first quarter of fiscal 2012. In March 2012, the Company called all of the remaining $117.6 million of 2% Convertible Notes outstanding for cash at par. As a result of the call notice, a majority of the holders of the 2% Convertible Notes converted them into shares of the Company’s Class A common stock, at a conversion rate of 50.6554 shares per $1,000 of principal amount (resulting in the issuance of 5,951,440 shares of common stock) while the remaining $0.1 million of 2% Convertible Notes were repurchased for cash. The impact of the additional share issuance was already included in the diluted earnings per share calculation (See Note 9, “Earnings per Share”) on an if-converted method. As a result of the 2% Convertible Notes being redeemed for the Company’s common stock, approximately $15.6 million of related prior income tax will be recaptured.

In fiscal 2011, the Company entered into interest rate swap contracts that had a total notional value of $100.0 million and maturity dates of March 23, 2016. The interest rate swap contracts pay the Company variable interest at the three month LIBOR rate, and the Company pays the counterparties a fixed interest rate of approximately 2.06%. These interest rate swap contracts were entered into to synthetically convert $100.0 million of the Senior Credit Facility variable rate borrowings into fixed rate debt. In connection with the debt refinancing transactions discussed above, the Company terminated the interest rate swap contracts on April 3, 2012, which resulted in a cash payment to the counterparty of $4.1 million, in full settlement of the fair value of the contracts.

In connection with the debt refinancing activities, during the three months ended May 31, 2012, the Company recognized a $16.8 million pre-tax debt refinancing charge, which included $10.4 million of tender premium paid to holders of existing 6.875% Senior Notes, a $2.3 million write-off of deferred financing fees and debt discount and a $4.1 million charge related to the termination of the interest rate swap agreements. The related tax benefit on the debt refinancing charge was $6.3 million.

Note 8. Fair Value Measurement

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The Company has no financial assets or liabilities that are recorded at fair value using significant unobservable inputs (Level 3). The fair value of financial assets and liabilities included in the condensed consolidated balance sheet are as follows (in thousands):


	May 31, 2012			August 31, 2011
Level 1 Valuation:
Cash equivalents	$	681		$	1,958
Investments		1,514			1,464
Level 2 Valuation:
Foreign currency forward contracts	$	(1,790	)	$	(81	)
Interest rate swap contracts		—			(4,552	)

The fair value of the Company’s accounts receivable, accounts payable and variable rate debt approximated book value as of May 31, 2012 and August 31, 2011 due to their short-term nature and the fact that the applicable interest rates approximated market rates of interest. The fair value of the Company’s outstanding $117.8 million 2% Convertible Notes at August 31, 2011 was $127.9 million, while the fair value of the Company’s outstanding $250.0 million of 6.875% Senior Notes was $252.5 million. The fair value of the Company’s outstanding $300.0 million of 5.625% Senior Notes at May 31, 2012 was $306.8 million. These fair values were based on quoted market prices and are therefore classified as Level 2 within the valuation hierarchy.

Note 9. Earnings Per Share

The reconciliations between basic and diluted earnings per share are as follows (in thousands, except per share amounts):


	Three Months Ended May 31,					Nine Months Ended May 31,
	2012			2011		2012		2011
Numerator:
Net earnings from continuing operations	$	34,401		$	38,360	$	103,750	$	87,163
Plus: 2% Convertible Notes financings costs, net of taxes		(468	)		383		425		1,222

Net earnings for diluted earnings per share	$	33,933		$	38,743	$	104,175	$	88,385

Denominator:
Weighted average common shares outstanding for basic earnings per share		71,083			68,354		69,184		68,208
Net effect of dilutive securities—equity based compensation plans		1,310			1,250		1,053		1,145
Net effect of 2% Convertible Notes based on the if-converted method		2,978			5,967		4,964		5,961

Weighted average common and equivalent shares outstanding for diluted earnings per share		75,371			75,571		75,201		75,314

Basic Earnings Per Share:	$	0.48		$	0.56	$	1.50	$	1.28
Diluted Earnings Per Share:	$	0.45		$	0.51	$	1.39	$	1.17

Anti-dilutive securities—equity based compensation plans (excluded from earnings per share calculation)		2,173			1,863		2,735		2,295

Note 10. Income Taxes

The Company’s income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are higher or lower than the U.S. federal statutory rate, permanent items, state tax rates and our ability to utilize various tax credits and net operating loss carryforwards. The Company adjusts the quarterly provision for income taxes based on the estimated annual effective income tax rate and facts and circumstances known at each interim reporting period.

The effective income tax rate was 16.1% and 20.9% for the three and nine months ended May 31, 2012, respectively, and 23.0% and 22.0% for the comparable prior year periods. The decrease in the effective tax rate for the three and nine months ended May 31, 2012, relative to the prior year, reflects the benefit of foreign tax credits, favorable tax reserve adjustments as a result of the lapsing of various tax statutes of limitations, the utilization of net operating losses and the tax benefit on the debt refinancing charges (Note 7, “Debt”) being recognized at the U.S. statutory rates (which are higher than the Company’s consolidated global effective tax rate).

The gross liability for unrecognized tax benefits, excluding interest and penalties, decreased from $26.2 million at August 31, 2011 to $24.2 million at May 31, 2012. Substantially all of these unrecognized tax benefits, if recognized, would reduce the effective income tax rate. In addition, as of August 31, 2011 and May 31, 2012, the Company had liabilities totaling $5.1 million and $4.4 million, respectively, for estimated interest and penalties related to its unrecognized tax benefits.

Note 11. Other Comprehensive Income (Loss)

The Company’s comprehensive income is significantly impacted by the movement of the U.S. dollar versus other global currencies, most notably the Euro and British Pound. The following table sets forth the reconciliation of net earnings to comprehensive income (in thousands):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net earnings	$	34,401		$	36,358		$	103,750		$	70,177
Foreign currency translation adjustment		(36,448	)		20,114			(65,043	)		47,924
Changes in net unrealized gains and losses, net of tax		2,940			(787	)		2,911			2,052

Comprehensive income	$	893		$	55,685		$	41,618		$	120,153

Note 12. Segment Information

The Company is a global manufacturer of a broad range of industrial products and systems and is organized into four reportable segments: Industrial, Energy, Electrical, and Engineered Solutions. The Industrial segment is primarily involved in the design, manufacture and distribution of branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other energy markets. The Electrical segment designs, manufactures and distributes a broad range of electrical products to the retail DIY, wholesale, original equipment manufacturer (“OEM”), solar, utility, marine and harsh environment 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 agricultural markets.

The following tables summarize financial information by reportable segment and product line (in thousands):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net Sales by Segment:
Industrial	$	110,102		$	107,759		$	308,696		$	284,086
Energy		96,399			78,002			255,758			210,333
Electrical		85,947			80,329			245,885			205,901
Engineered Solutions		136,767			126,687			389,699			341,567

	$	429,215		$	392,777		$	1,200,038		$	1,041,887

Net Sales by Reportable Product Line:
Industrial	$	110,102		$	107,759		$	308,696		$	284,086
Energy		96,399			78,002			255,758			210,333
Electrical		85,947			80,329			245,885			205,901
Vehicle Systems		75,417			94,423			220,696			250,926
Other		61,350			32,264			169,003			90,641

	$	429,215		$	392,777		$	1,200,038		$	1,041,887

Operating Profit:
Industrial	$	30,682		$	29,517		$	85,307		$	69,853
Energy		18,515			13,545			43,364			32,194
Electrical		8,814			5,462			19,592			14,168
Engineered Solutions		18,467			19,977			50,747			47,203
General Corporate		(8,814	)		(10,500	)		(24,609	)		(26,799	)

	$	67,664		$	58,001		$	174,401		$	136,619

							May 31, 2012			August 31, 2011

Assets:
Industrial							$	277,918		$	263,680
Energy								532,871			517,428
Electrical								506,248			547,556
Engineered Solutions								621,197			632,242
General Corporate								95,875			95,775

							$	2,034,109		$	2,056,681

In addition to the impact of changes in foreign currency exchange rates, the comparability of segment and product line information is impacted by acquisitions. Corporate assets, which are not allocated, principally represent capitalized debt issuance costs, deferred income taxes and the fair value of derivative instruments.

Note 13. Contingencies and Litigation

The Company had outstanding letters of credit of $8.5 million and $9.5 million at May 31, 2012 and August 31, 2011, respectively, the majority of which secure self-insured workers compensation liabilities.

The Company is a party to various legal proceedings that have arisen in the normal course of its business. These legal proceedings typically include product liability, environmental, labor, patent claims and divestiture disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date, can be reasonably estimated and is not covered by insurance. In the opinion of management, the resolution of these contingencies will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company, in the normal course of business, enters into certain real estate and equipment leases or guarantees such leases on behalf of its subsidiaries. In conjunction with the spin-off of a former subsidiary in fiscal 2000, the Company assigned its rights in the leases used by the former subsidiary, but was not released as a responsible party from all such leases by the lessors. All of these businesses were subsequently sold. The Company remains contingently liable for those leases if any of these businesses are unable to fulfill their obligations thereunder. The discounted present value of future minimum lease payments for these leases was $3.7 million at May 31, 2012.

The Company has facilities in numerous geographic locations that are subject to a range of environmental laws and regulations. Environmental expenditures over the past three years have not been material. Management believes that such costs will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Note 14. Guarantor Subsidiaries

On April 16, 2012, Actuant Corporation (the “Parent”) issued $300.0 million of 5.625% Senior Notes due 2022. All of the Company’s material domestic wholly owned subsidiaries (the “Guarantors”) fully and unconditionally guarantee (except for certain customary limitations) the 5.625% Senior Notes on a joint and several basis. The Company plans to file a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) with respect to its offer to exchange new 5.625% Senior Secured Notes due 2022 that have been registered under the Securities Act of 1933 for any and all of its outstanding 5.625% Senior Secured Notes due 2022 that have not been so registered. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent. The following tables present the results of operations, financial position and cash flows of Actuant Corporation and its subsidiaries, the Guarantor and non-Guarantor entities, and the eliminations necessary to arrive at the information for the Company on a consolidated basis.

Certain assets, liabilities and expenses have not been allocated to the Guarantors and non-Guarantors and therefore are included in the Parent column in the accompanying consolidating financial statements. These items are of a corporate or consolidated nature and include, but are not limited to, tax provisions and related assets and liabilities, certain employee benefit obligations, prepaid and accrued insurance and corporate indebtedness. Intercompany activity in the consolidating financial statements primarily includes loan activity, purchases and sales of goods or services and dividends. Intercompany balances also reflect certain non-cash transactions including transfers of assets and liabilities between the Parent, Guarantor and non-Guarantor, allocation of non-cash expenses from the Parent to the Guarantors and non-Guarantors, the impact of foreign currency rate changes and non-cash intercompany dividends.

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS

(In thousands)


	Three Months Ended May 31, 2012
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	53,206		$	153,967		$	222,042		$	—		$	429,215
Cost of products sold		17,112			105,368			140,615			—			263,095

Gross profit		36,094			48,599			81,427			—			166,120
Selling, administrative and engineering expenses		21,609			26,264			43,190			—			91,063
Amortization of intangible assets		335			3,412			3,646			—			7,393

Operating profit		14,150			18,923			34,591			—			67,664
Financing costs, net		7,255			(22	)		3			—			7,236
Intercompany expense (income), net		(8,412	)		1,432			6,980			—			—
Debt refinancing charges		16,830			—			—			—			16,830
Other expense (income), net		(111	)		907			1,808			—			2,604

Earnings (loss) before income tax expense (benefit)		(1,412	)		16,606			25,800			—			40,994
Income tax expense (benefit)		(2,898	)		3,716			5,775			—			6,593

Net earnings before equity in earnings of subsidiaries		1,486			12,890			20,025			—			34,401
Equity in earnings (loss) of subsidiaries		32,915			16,521			(450	)		(48,986	)		—

Net earnings	$	34,401		$	29,411		$	19,575		$	(48,986	)	$	34,401


	Three Months Ended May 31, 2011
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	45,301		$	142,145		$	205,331		$	—		$	392,777
Cost of products sold		11,904			97,584			129,251			—			238,739

Gross profit		33,397			44,561			76,080			—			154,038
Selling, administrative and engineering expenses		24,840			24,568			39,758			—			89,166
Amortization of intangible assets		—			3,893			2,978			—			6,871

Operating profit		8,557			16,100			33,344			—			58,001
Financing costs, net		7,850			—			—			—			7,850
Intercompany expense (income), net		(984	)		4,453			(3,469	)		—			—
Other expense (income), net		(3,628	)		194			3,765			—			331

Earnings from continuing operations before income tax expense		5,319			11,453			33,048			—			49,820
Income tax expense		1,224			2,635			7,601			—			11,460

Net earnings from continuing operations before equity in earnings of subsidiaries		4,095			8,818			25,447			—			38,360
Equity in earnings of subsidiaries		33,136			22,368			1,232			(56,736	)		—

Earnings from continuing operations		37,231			31,186			26,679			(56,736	)		38,360
Loss from discontinued operations, net of income taxes		(873	)		—			(1,129	)		—			(2,002	)

Net earnings	$	36,358		$	31,186		$	25,550		$	(56,736	)	$	36,358

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS

(In thousands)


	Nine Months Ended May 31, 2012
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	151,240		$	427,839		$	620,959		$	—		$	1,200,038
Cost of products sold		49,505			297,651			392,862			—			740,018

Gross profit		101,735			130,188			228,097			—			460,020
Selling, administrative and engineering expenses		61,935			79,138			122,862			—			263,935
Amortization of intangible assets		1,005			10,243			10,436			—			21,684

Operating profit		38,795			40,807			94,799			—			174,401
Financing costs, net		23,527			(14	)		(234	)		—			23,279
Intercompany expense (income), net		(24,585	)		3,731			20,854			—			—
Debt refinancing charges		16,830			—			—			—			16,830
Other expense (income), net		904			2,581			(395	)		—			3,090

Earnings before income tax expense		22,119			34,509			74,574			—			131,202
Income tax expense		2,542			7,858			17,052			—			27,452

Net earnings before equity in earnings of subsidiaries		19,577			26,651			57,522			—			103,750
Equity in earnings of subsidiaries		84,173			51,134			988			(136,295	)		—

Net earnings	$	103,750		$	77,785		$	58,510		$	(136,295	)	$	103,750


	Nine Months Ended May 31, 2011
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	119,206		$	388,059		$	534,622		$	—		$	1,041,887
Cost of products sold		33,838			270,580			336,551			—			640,969

Gross profit		85,368			117,479			198,071			—			400,918
Selling, administrative and engineering expenses		64,024			72,765			107,664			—			244,453
Amortization of intangible assets		—			11,401			8,445			—			19,846

Operating profit		21,344			33,313			81,962			—			136,619
Financing costs, net		23,640			—			—			—			23,640
Intercompany expense (income), net		(8,412	)		12,479			(4,067	)		—			—
Other expense (income), net		(4,324	)		162			5,438			—			1,276

Earnings from continuing operations before income tax expense		10,440			20,672			80,591			—			111,703
Income tax expense		2,374			4,608			17,558			—			24,540

Net earnings from continuing operations before equity in earnings of subsidiaries		8,066			16,064			63,033			—			87,163
Equity in earnings of subsidiaries		76,864			51,780			3,429			(132,073	)		—

Earnings from continuing operations		84,930			67,844			66,462			(132,073	)		87,163
Loss from discontinued operations, net of income taxes		(14,753	)		—			(2,233	)		—			(16,986	)

Net earnings	$	70,177		$	67,844		$	64,229		$	(132,073	)	$	70,177

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	May 31, 2012
	Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current assets	$	83,779	$	159,031	$	332,481	$	—		$	575,291
Property, plant & equipment, net		6,684		33,251		76,030		—			115,965
Goodwill		62,543		433,193		377,946		—			873,682
Other intangibles, net		14,857		206,925		232,578		—			454,360
Intercompany receivable		—		399,007		281,587		(680,594	)		—
Investment in subsidiaries		1,884,934		440,620		120,266		(2,445,820	)		—
Other long-term assets		12,490		22		2,299		—			14,811

Total assets	$	2,065,287	$	1,672,049	$	1,423,187	$	(3,126,414	)	$	2,034,109

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities	$	90,009	$	63,592	$	172,161	$	—		$	325,762
Long-term debt		392,500		—		—		—			392,500
Deferred income taxes		92,126		—		41,493		—			133,619
Pension and post-retirement benefit liabilities		16,119		—		2,052		—			18,171
Other long-term liabilities		59,234		660		26,878		—			86,772
Intercompany payable		338,014		—		342,580		(680,594	)		—
Shareholders’ equity		1,077,285		1,607,797		838,023		(2,445,820	)		1,077,285

Total liabilities and shareholders’ equity	$	2,065,287	$	1,672,049	$	1,423,187	$	(3,126,414	)	$	2,034,109

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	August 31, 2011
	Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current assets	$	87,982	$	155,067	$	303,435	$	—		$	546,484
Property, plant & equipment, net		4,327		37,133		87,189		—			128,649
Goodwill		62,543		432,184		393,739		—			888,466
Other intangibles, net		15,861		216,277		247,268		—			479,406
Intercompany receivable		—		277,157		288,701		(565,858	)		—
Investment in subsidiaries		1,859,779		379,170		67,794		(2,306,743	)		—
Other long-term assets		10,862		51		2,763		—			13,676

Total assets	$	2,041,354	$	1,497,039	$	1,390,889	$	(2,872,601	)	$	2,056,681

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities	$	76,300	$	70,126	$	183,877	$	—		$	330,303
Long-term debt		522,727		—		—		—			522,727
Deferred income taxes		124,469		—		41,476		—			165,945
Pension and post-retirement benefit liabilities		16,452		—		2,412		—			18,864
Other long-term liabilities		59,466		779		39,584		—			99,829
Intercompany payable		322,927		—		242,931		(565,858	)		—
Shareholders’ equity		919,013		1,426,134		880,609		(2,306,743	)		919,013

Total liabilities and shareholders’ equity	$	2,041,354	$	1,497,039	$	1,390,889	$	(2,872,601	)	$	2,056,681

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended May 31, 2012
	Parent			Guarantors			Non- Guarantors			Eliminations		Consolidated
Operating Activities
Net cash provided by operating activities	$	56,851		$	13,659		$	58,804		$	—	$	129,314
Investing Activities
Proceeds from sale of property, plant and equipment		2,100			137			6,249			—		8,486
Capital expenditures		(4,367	)		(2,797	)		(10,327	)		—		(17,491	)
Business acquisitions, net of cash acquired		(290	)		—			(29,444	)		—		(29,734	)

Cash used in investing activities		(2,557	)		(2,660	)		(33,522	)		—		(38,739	)
Financing Activities
Net repayments on revolving credit facilities		(57,990	)		—			(177	)		—		(58,167	)
Intercompany loan activity		(2,947	)		(10,999	)		13,946			—		—
Principal repayments on term loan		(1,250	)		—			—			—		(1,250	)
Repurchases of 2% Convertible Notes		(102	)		—			—			—		(102	)
Proceeds on 5.625% Senior Note issuance		300,000			—			—			—		300,000
Redemption of 6.875% Senior Notes		(250,000	)		—			—			—		(250,000	)
Debt issuance costs		(5,340	)		—			—			—		(5,340	)
Purchase of treasury shares		(39,282	)		—			—			—		(39,282	)
Stock option exercises and related tax benefits		6,392			—			—			—		6,392
Cash dividends		(2,748	)		—			—			—		(2,748	)

Cash (used in) provided by financing activities		(53,267	)		(10,999	)		13,769			—		(50,497	)
Effect of exchange rate changes on cash		—			—			(4,150	)		—		(4,150	)

Net increase in cash and cash equivalents		1,027			—			34,901			—		35,928
Cash and cash equivalents—beginning of period		872			—			43,349			—		44,221

Cash and cash equivalents—end of period	$	1,899		$	—		$	78,250		$	—	$	80,149

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended May 31, 2011
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Operating Activities
Net cash provided by (used in) operating activities	$	15,423		$	(2,123	)	$	83,331		$	(1,533	)	$	95,098
Investing Activities
Proceeds from sale of property, plant and equipment		—			191			168			—			359
Proceeds from sale of businesses, net of transaction costs		—			—			3,463			—			3,463
Capital expenditures		(3,354	)		(3,537	)		(7,952	)		—			(14,843	)
Business acquisitions, net of cash acquired		—			(350	)		(159,697	)		—			(160,047	)

Cash used in investing activities		(3,354	)		(3,696	)		(164,018	)		—			(171,068	)
Financing Activities
Net borrowings on revolving credit facilities		—			—			14			—			14
Issuance of term loans		100,000			—			—			—			100,000
Intercompany loan activity		(95,141	)		5,819			89,322			—			—
Repurchases of 2% Convertible Notes		(34	)		—			—			—			(34	)
Debt issuance costs		(5,197	)		—			—			—			(5,197	)
Stock option exercises and related tax benefits		7,285			—			—			—			7,285
Cash dividends		(2,716	)		—			(1,533	)		1,533			(2,716	)

Cash provided by financing activities		4,197			5,819			87,803			1,533			99,352
Effect of exchange rate changes on cash		—			—			4,695			—			4,695

Net increase in cash and cash equivalents		16,266			—			11,811			—			28,077
Cash and cash equivalents—beginning of period		5,055			—			35,167			—			40,222

Cash and cash equivalents—end of period	$	21,321		$	—		$	46,978		$	—		$	68,299

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Actuant Corporation, headquartered in Menomonee Falls, Wisconsin, is a Wisconsin corporation 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. We are organized into four operating and reportable segments: Industrial, Energy, Electrical and Engineered Solutions.

Our long-term goal is to grow annual diluted earnings per share (“EPS”), excluding unusual or non-recurring items, faster than most multi-industry peers. We intend to leverage our leading market positions to generate annual internal sales growth that exceeds the annual growth rates of the gross domestic product in the geographic regions in which we operate. In addition to internal sales growth, we are focused on acquiring complementary businesses. Following an acquisition, we seek to drive cost reductions, develop additional cross-selling opportunities and deepen customer relationships. We also focus on profit margin expansion and cash flow generation to achieve our financial and EPS growth goals. Our LEAD (“Lean Enterprise Across Disciplines”) process utilizes various continuous improvement techniques to drive out costs and improve efficiencies across all locations and functions worldwide, thereby expanding profit margins. Strong cash flow generation is achieved by maximizing returns on net assets and minimizing primary working capital needs. Our LEAD efforts also support our Growth + Innovation initiative, a process focused on improving core sales growth. The cash flow that results from efficient asset management and improved profitability is used to reduce debt and fund additional acquisitions and internal growth opportunities.

The comparability of the operating results for the three months and nine months ended May 31, 2012 to the comparable prior year periods has been impacted by acquisitions, changes in foreign currency translation rates and the economic conditions that exist in the end markets we serve. Listed below are the significant acquisitions completed since September 1, 2010.


Business	Segment	Acquisition Date
Turotest Medidores Ltda	Engineered Solutions	March 2012
Jeyco Pty Ltd.	Energy	February 2012
Weasler Engineering, Inc.	Engineered Solutions	June 2011
Mastervolt Intl. Holding B.V.	Electrical	December 2010

In addition to acquisitions, changes in foreign currency exchange rates also influence our financial results as approximately one-half of our sales are denominated in currencies other than the U.S. dollar. The year-over-year strengthening of the U.S. dollar during the first nine months of fiscal 2012 has negatively impacted our operating results due to the translation of non-U.S. dollar denominated results.

Our businesses provide a vast array of products and services across multiple customers, end markets and geographies which results in significant diversification. Since the global recession in 2009, the majority of our end markets have improved, the result of economic expansion, increased worldwide demand for energy, elevated industrial manufacturing activities and increased production of vehicles for the heavy-duty truck, construction, military and agricultural markets.

Our long-term growth will depend not only on changes in end markets and the overall economic environment, but also on our ability to identify, consummate and integrate strategic acquisitions, develop innovative new products, expand our business activity geographically (developing countries) and continuously improve operational excellence. We remain focused on maintaining our financial strength by adjusting our cost structure to reflect any reduction in market demand and by proactively managing working capital and cash flow generation.

Results of Operations

Core sales growth in the Industrial segment has recently moderated from previous quarters, primarily due to tougher prior year comparables. Overall we continue to experience strong industrial demand across most end markets and robust activity for customized high force hydraulic systems (integrated solutions). During fiscal 2012, the Energy segment has consistently delivered double digit core sales growth as certain oil & gas end markets continue to show strength. This improved end market demand and emerging market opportunities are expected to continue to drive core sales growth and operating profit margin expansion during the remainder of the fiscal year. While end market demand in our Electrical segment has not fully recovered from the depressed levels during the global economic recession, the segment generated solid core sales growth in the first nine months of fiscal 2012 – the result of price increases and recent improved demand for electrical products in the utility, OEM, solar and retail DIY channels. Finally, we expect continued core sales declines in the Engineered Solutions segment during the balance of the fiscal year, as a result of more difficult prior year comparables and weaker European auto and global truck OEM production schedules. On a consolidated basis, our Growth + Innovation initiatives and recent acquisitions are expected to provide significant growth opportunities, diversify our product offerings and expand our geographic presence.

The following table sets forth our results of operations (in millions):


	Three Months Ended May 31,								Nine Months Ended May 31,
	2012				2011				2012				2011
Net sales	$	429	100	%	$	393	100	%	$	1,200	100	%	$	1,042	100	%
Cost of products sold		263	61	%		239	61	%		740	62	%		641	62	%

Gross profit		166	39	%		154	39	%		460	38	%		401	38	%
Selling, administrative and engineering expenses		91	21	%		89	23	%		264	22	%		244	23	%
Amortization of intangible assets		7	2	%		7	2	%		22	2	%		20	2	%

Operating profit		68	16	%		58	15	%		174	15	%		137	13	%
Financing costs, net		7	2	%		8	2	%		23	2	%		24	2	%
Debt refinancing charges		17	4	%		—	0	%		17	1	%		—	0	%
Other expense, net		3	1	%		1	0	%		3	0	%		1	0	%

Earnings before income tax expense		41	10	%		49	12	%		131	11	%		112	11	%
Income tax expense		7	2	%		11	3	%		27	2	%		25	2	%

Earnings from continuing operations	$	34	8	%	$	38	10	%	$	104	9	%	$	87	8	%

Net sales increased 9% to $429 million for the third quarter and 15% to $1,200 million for the nine months ended May 31, 2012 compared to $393 million and $1,042 million for the comparable three and nine month periods in the prior year. Changes in foreign currency exchange rates (most notably the Euro) had a $12 million and $8 million unfavorable impact on third quarter and year-to-date sales comparisons, respectively. Sales generated by businesses acquired since September 1, 2010, were $32 million and $139 million, respectively, for the three and nine months ended May 31, 2012. Consolidated core sales growth (growth excluding the effects of foreign exchange and acquisitions) was 4% and 6% on a quarterly and year-to-date basis, respectively, the result of broad based improvement in most of the Company’s served markets. Consolidated operating profit margins expanded in both the third quarter and year-to-date, the result of an improved cost structure, favorable product mix, selective price increases, reduced incentive compensation costs and improved operating leverage on the higher sales volumes. The changes in sales and operating profit at the segment level are discussed in further detail below.

Segment Results (in millions)

Industrial Segment

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. During the third quarter of fiscal 2012, the segment generated core sales growth as certain end markets (mining, industrial, infrastructure) continued to show strength. The Industrial segment focuses on providing customers with innovative integrated solutions, commercializing new products and expanding in faster growing regions and vertical markets. The following table sets forth the results of operations for the Industrial segment (in millions):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net sales	$	110		$	108		$	309		$	284
Operating profit		31			30			85			70
Operating profit %		28	%		27	%		28	%		25	%

Fiscal 2012 third quarter net sales increased $2 million (2%) to $110 million compared to the prior year period, while year-to-date net sales increased $25 million (9%) to $309 million. Changes in foreign currency exchange rates negatively impacted sales comparisons by $3 million and $2 million for the three and nine month periods, respectively. Core sales growth was 5% for the third quarter and 9% year-to-date, driven by strong demand across our served end markets and geographies. These increased sales volumes, favorable product mix and lower incentive compensation costs resulted in operating profit margin expansion during both the third quarter and on a year-to-date basis. Industrial segment operating profit increased for the three and nine months ended May 31, 2012 by $1 million (4%) and $15 million (22%), respectively.

Energy Segment

The Energy segment provides joint integrity products and services, as well as rope and cable solutions to the global oil & gas, power generation and other energy markets. Being a later cycle business, our Energy segment was the last of our four segments to recover from the global recession. Worldwide requirements for energy and supportive oil prices have encouraged customers and asset owners to invest in capital projects or complete previously deferred maintenance activities. As a result, we are seeing broad-based strength across this segment, which has delivered five consecutive quarters of double digit core sales growth. The following table sets forth the results of operations for the Energy segment (in millions):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net sales	$	96		$	78		$	256		$	210
Operating profit		19			14			43			32
Operating profit %		19	%		17	%		17	%		15	%

Energy segment net sales for the three and nine months ended May 31, 2012 increased $18 million (24%) and $46 million (22%), respectively, compared to the prior year periods. Excluding sales from the recently completed Jeyco acquisition and the impact of foreign currency exchange rates (which unfavorably impacted sales comparisons by $2 million and $1 million in the current quarter and year-to-date periods, respectively), core sales grew 23% and 21%, respectively in the three and nine months ended May 31, 2012. Core sales growth reflects higher activity levels across the segment’s diverse end markets, including maintenance spending in oil & gas, strong sales to the North American power generation (nuclear) market and capital project activity in offshore energy. Energy segment operating profit increased by $5 million (37%) to $19 million for the third quarter compared to a year-to-date increase of $11 million (35%) to $43 million. Improved year-to-date operating profit margins were driven by continued productivity improvements, increased operating leverage (driven by higher sales volumes) as well as a favorable adjustment to an acquisition earn-out provision.

Electrical Segment

The Electrical segment is 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 harsh environment markets. During the third quarter of fiscal 2012, the Electrical segment delivered double digit core sales growth, as North American end markets (utility, DIY, wholesale and OEM) continued to recover from recessionary lows and activity levels in European solar markets improved. Future results of the Electrical segment will continue to be impacted by fluctuations in commodity costs, the realization of price increases, changes in European solar feed-in tariffs and end market demand in North America. The following table sets forth the results of operations for the Electrical segment (in millions):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net sales	$	86		$	80		$	246		$	206
Operating profit		9			5			20			14
Operating profit %		10	%		7	%		8	%		7	%

Fiscal 2012 third quarter Electrical segment net sales increased $6 million (7%) to $86 million. Excluding the $2 million unfavorable impact of changes in foreign currency exchange rates, core sales growth was 10%, the result of price increases and higher sales volumes in the retail, industrial, utility and solar markets. Electrical segment net sales for the nine months ended May 31, 2012 were $246 million, a $40 million (19%) improvement over the prior year period. Excluding sales from the Mastervolt acquisition and changes in foreign currency exchange rates, core sales growth for the nine months ended May 31, 2012 was 8%. Electrical segment operating profit for the three and nine months ended May 31, 2012 was $9 million and $20 million, respectively. Despite unfavorable acquisition mix, higher incentive compensation costs and $0.5 million of restructuring costs associated with plant closures, quarterly operating profit increased due to higher sales volumes and favorable product mix.

Engineered Solutions Segment

The Engineered Solutions segment provides highly engineered position and motion control systems to OEMs in a variety of markets. As expected, this segment experienced a core sales decline in the third quarter, reflecting lower production rates by European and China truck OEMs, as well as automotive OEMs. However, most other end markets are seeing increased sales levels, including strong demand from the global agriculture and North American truck and construction equipment end markets. The recent Weasler and Turotest acquisitions have provided sales and earnings growth opportunities for the segment, by expanding into new markets (primarily in the North American, European and Brazilian agricultural markets). The following table sets forth the results of operations for the Engineered Solutions segment (in millions):


	Three Months Ended May 31,						Nine Months Ended May 31,
	2012			2011			2012			2011
Net sales	$	137		$	127		$	390		$	342
Operating profit		19			20			51			47
Operating profit %		14	%		16	%		13	%		14	%

Engineered Solutions segment third quarter net sales increased $10 million (8%) from $127 million in the prior year to $137 million in fiscal 2012. During the nine months ended May 31, 2012, year-over-year net sales increased $48 million (14%) to $390 million. Excluding foreign currency rate changes and sales from acquired businesses, core sales declined 11%, and 7% respectively, for the third quarter and first nine months of fiscal 2012. The impact of sales from acquired businesses was $29 million and $77 million in the three and nine months ended May 31, 2012, respectively. The decline in core sales was due to a reduction in OEM production schedules for convertible auto as well as China and European heavy-duty trucks. Segment operating profit declined from the prior year periods as the impact of the reduced volume and related under-absorption of operating costs was only partially offset by lower incentive compensation costs and favorable segment mix.

General Corporate

General corporate expenses for the three and nine months ended May 31, 2012 were $9 million and $25 million compared to $11 million and $27 million in the comparable prior year periods. Corporate expenses declined due to reduced incentive compensation costs and lower idle facility holding costs, offset by increased Growth + Innovation expenditures.

Financing Costs, net

All debt is considered to be for general corporate purposes and therefore financing costs have not been allocated to our segments. Financing costs, net declined modestly year-over-year due to lower interest rates and amounts outstanding under the Company’s credit facility.

Debt Refinancing Charges

During the three months ended May 31, 2012, the Company recognized a $17 million debt refinancing charge, which included $10 million of tender premium paid to holders of existing 6.875% Senior Notes, a $2 million write-off of deferred financing fees and debt discount and a $4 million charge related to the termination of the interest rate swap agreements.

Income Tax Expense

Our effective income tax rate was 16.1% and 20.9% for the three and nine months ended May 31, 2012, respectively, and 23.0% and 22.0% for the comparable prior year periods. The year-over-year decline resulted from increased utilization of foreign tax credits, favorable tax reserve adjustments as a result of the lapsing of various tax statutes of limitations, the utilization of net operating losses and the tax benefit on the debt refinancing charges (Note 7, “Debt”) being recognized at the U.S. statutory rates (which are higher than the Company’s consolidated global effective tax rate).

Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities (in millions):


	Nine Months Ended May 31,
	2012			2011
Net cash provided by operating activities	$	129		$	95
Net cash used in investing activities		(39	)		(171	)
Net cash (used in) provided by financing activities		(50	)		99
Effect of exchange rates on cash		(4	)		5

Net increase in cash and cash equivalents	$	36		$	28

Cash flows from operating activities during the nine months ended May 31, 2012 were $129 million, the result of net earnings offset by the $28 million payment of fiscal 2011 incentive compensation costs, $15 million use of cash related to the debt refinancing transactions and increased working capital requirements. This operating cash flow and the proceeds from the third quarter debt refinancing funded $39 million of treasury stock purchases, $30 million of capital deployed for acquisitions and the repayment of revolving credit facility borrowings. Proceeds from the sale of property, plant and equipment (which included the sale-leaseback of certain equipment and the sale of a vacant facility) were $8 million, while related capital expenditures were $17 million.

As described in Note 7, “Debt” we refinanced a portion of our long-term debt at lower interest rates and reduced overall indebtedness with the conversion of our $117 million of 2% Convertible Notes into shares of common stock. These actions will reduce our future financing costs and improve our capital structure.

In the first nine months of fiscal 2011 we utilized the cash provided from operating activities and new borrowings under our Senior Credit Facility to fund the $158 million acquisition of Mastervolt.

Primary Working Capital Management

We use primary working capital as a percentage of sales (PWC %) as a key indicator of working capital management efficiency. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows the components of the metric (in millions):


	May 31, 2012			PWC%			May 31, 2011			PWC%
Accounts receivable, net	$	238			14	%	$	234			15	%
Inventory, net		206			12	%		213			14	%
Accounts payable		(168	)		-10	%		(172	)		-11	%

Net primary working capital	$	276			16	%	$	275			18	%

Improved working capital management drove a reduction in our PWC % despite a growth in sales and contributed to favorable current year cash flow from operating activities.

Liquidity

Our Senior Credit Facility includes a $600 million revolving credit facility, a $100 million term loan and a $300 million expansion option. Quarterly principal payments of $1.25 million began on the $100 million term loan on March 31, 2012, increasing to $2.5 million per quarter beginning on March 31, 2013, with the remaining principal due at maturity. At May 31, 2012, we had $80 million of cash and cash equivalents and $598 million of available liquidity under our Senior Credit Facility. Our scheduled debt repayments over the next three years aggregated approximate $30 million, providing substantial flexibility. We believe that the availability under the Senior Credit Facility, combined with our existing cash and funds generated from operations will be adequate to meet operating, debt service, stock buyback, acquisition funding and capital expenditure requirements for the foreseeable future.

Commitments and Contingencies

We lease certain facilities, computers, equipment and vehicles under various operating lease agreements, generally over periods 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.

In the normal course of business we have entered into certain real estate and equipment leases or have guaranteed such leases on behalf of our subsidiaries. In conjunction with the spin-off of a former subsidiary in fiscal 2000, we assigned our rights in the leases used by the former subsidiary, but were not released as a responsible party from all such leases by the lessors. All of these businesses were subsequently sold. We remain contingently liable for those leases if any of these businesses are unable to fulfill their obligations thereunder. The discounted present value of future minimum lease payments for these leases was $3.7 million at May 31, 2012.

We had outstanding letters of credit of approximately $8 million and $9 million at May 31, 2012 and August 31, 2011, respectively, the majority of which secure self-insured workers compensation liabilities.

Contractual Obligations

Our contractual obligations are discussed in Part 1, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in our Annual Report on Form 10-K for the year ended August 31, 2011. Our contractual obligations have not materially changed since that report was filed, except with respect to debt maturities. As discussed in Note 7, “Debt” in the notes to the condensed consolidated financial statements, during the third quarter of fiscal 2012, we refinanced our 6.875% Senior Notes (due 2017) with new 5.625% Senior Notes (due 2022) and substantially all of the outstanding 2% Convertible Notes were converted into common stock.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

There has been no significant change in our exposure to market risk during the nine months ended May 31, 2012. For a discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2011.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

Items 1, 1A, 3, 4 and 5 are not applicable and have been omitted.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

In September 2011, the Company’s Board of Directors authorized a stock repurchase program to acquire up to 7 million shares of the Company’s outstanding Class A Common Stock. The following table presents information regarding the repurchase of common stock by the Company during the three months ended May 31, 2012. All of the shares were repurchased as part of the publicly announced program.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Maximum Number of Shares That May Yet Be Purchased Under the Program
March 1 to March 31, 2012		—		—		6,000,720
April 1 to April 30, 2012		—		—		6,000,720
May 1 to May 31, 2012		732,965	$	25.71		5,267,755

Total		732,965	$	25.71

Item 6 – Exhibits

(a) Exhibits

See “Index to Exhibits” on page 28, which is incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ACTUANT CORPORATION
	(Registrant)

Date: July 9, 2012	By:	/s/ Andrew G. Lampereur
		Andrew G. Lampereur
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

ACTUANT CORPORATION

(the “Registrant”)

(Commission File No. 1-11288)

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED May 31, 2012

INDEX TO EXHIBITS


Exhibit	Description	Incorporated Herein By Reference To	Filed Herewith

4.1	Indenture dated April 16, 2012, with respect to the Company’s 5.625% Senior Notes due 2022, among Actuant Corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee.	Form 8-K filed with the SEC on April 18, 2012

4.2	Supplemental Indenture dated April 16, 2012, with respect to the Company’s 6.875% Senior Notes due 2017, among Actuant Corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee.	Form 8-K filed with the SEC on April 18, 2012

10.1	Purchase Agreement dated as of April 2, 2011, by and among Actuant Corporation and certain of its subsidiaries named therein, and Wells Fargo Securities, LLC, as representative of the several Initial Purchasers named therein.	Form 8-K filed with the SEC on April 6, 2012

10.2	Registration Rights Agreement dated April 16, 2012, among Actuant Corporation and the initial purchasers of the Company’s 5.625% Senior Notes due 2022.	Form 8-K filed with the SEC on April 18, 2012

10.3	Form of Actuant Corporation Change in Control Agreement for Messrs. Arzbaecher, Blackmore, Goldstein, Kobylinski, Lampereur, Scheer, Wozniak and Ms. Grissom.	Form 8-K filed with the SEC on May 2, 2012

10.4	Form of Actuant Corporation Change in Control Agreement for Messrs. Axline and Boel.	Form 8-K filed with the SEC on May 2, 2012

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

101*	The following materials from the Actuant Corporation Form 10-Q for the quarter ended May 31, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements.

*	Furnished herewith

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company