Enerpac Tool Group Corp (EPAC) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Actuant Third Quarter Earnings Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time, if you have a question please press the "1" followed by the "4" on your telephone. Also, we are conducting an e-meeting to coincide with the audio conference. If you would like to view the presentation online, please log on to www.themeetingson.com and go to Join as a Participant and enter meeting number 242077139. Once again, go to www.themeetingson.com and enter meeting number 242077139.

Certain of the following comments represent forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Management cautions that these statements are based on current estimates of future performance and are highly dependent upon a variety of factors, which could cause actual results to differ from these estimates. Actuant’s ' results are also subject to general economic conditions, variation in demand from customers, the impact on the economy of terrorist attacks and other geopolitical activity. The length of the current recession in the company's markets, continued market acceptance of the company's new product introductions.

The successful integration of business unit acquisitions and related restructuring, operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, foreign currency fluctuation and interest rate risk. See the company's registration statements filed with the Securities and Exchange Commission for further information regarding risk factors. Also as a reminder, this conference is being recorded today, Wednesday, June 18, 2003. I would like now to turn the conference over to Robert Arzbaecher, President and Chief Executive Officer. Please proceed sir.

Thank you and good morning. We were pleased with our results for the third quarter and what was very difficult period of economic uncertainty. From the highlights we are going to review with you today are that we delivered 82 cents a share of EPS and sales of $147m. Both records for ctuant’s 's since the spin-off in fiscal 2000. With strong cash flow and now we have our debt down below $190m, just slightly over two times trailing EBITDA a benchmark ratio we have been striving for couple of years. We continue to win new convertible top programs both our new cars and on replacement models and we've completed a small acquisition in China. We will discuss each of these highlights with you in detail. Now, I will turn the call over to Andy to review the financials for the quarter and then I will come back and update you on a number of initiatives that are going on out at Actuant along with our guidance for the fourth quarter and fiscal 2004. Andy.

Thanks Bob, good morning everyone. As Bob mentioned, our third quarter sales were about $147m or 23% better than last year. This reflects both the acquisition of Kopp back in September and favorable currency translation, in particular the strengthening Euro against the dollar. Excluding the Kopp acquisition, sales were up about 3%. Currency benefited sales 6%, so our core sales were down about 3%. In addition to the weak U.S. economy's impact on the sales, the other factor impacting this quarter sales were lower sales on RV, which we had expected when we provided guidance on last quarter's conference call. Our EBITDA for the quarter was $24.3m or 16.5% of sales. This is our highest margin of the year. Included in this figure was $800,000 non-recurring gain on the favorable settlement of the litigation matter that we have taken charge for back in the first quarter. So excluding this gain, our EBITDA was $23.5m or 16% of sales. As was the case in the first two quarters most of the margin reduction year-over-year is due to the impact of adding Kopp to the mix. And I will address that in more detail later in my press comments.

Our diluted EPS for the quarter was 82 cents a share excluding the litigation gain of 4 cents a share, it was 78 cents. This compares to 68 cents last year, excluding the two special items included in the last year's results that are laid out in our press release. EBITDA operating profit and EPS were also impacted by downsizing cost that we have announced on last quarters' call. We incurred about $1.2m such cost this quarter which equates to 6 cents per share.

Overall, we are satisfied with the quarter's results. We grew our EPS excluding one-time items from 68 cents last year to 78 cents this year or 15% improvement. This improvement for the quarter continues the favorable EPS growth trend that Actuant has achieved over the last three years, even in the quarter when we had to incur the downsizing cost. Year-to-date EPS improvement excluding the special charges is 18%. Our cash flow for the quarter was also stronger than we anticipated. We didn't get a lot of help from the top line from the economy this quarter given the war in Iraq. We did benefit from currency and we also received a benefit of cost reductions that resulted in improved margins in our businesses. This is consistent with our view from last quarter's call that our second half earnings growth would be more dependent on achieving cost reductions than top line growth. We continue to believe this will be the case again in the fourth quarter as we are not expecting an economic bounce.

Now, I'll provide a little bit of color on our third quarter results by segments, first starting out with sales. Our tools and supplies sales in this quarter were up 39%, all driven by currency and the impact of last September's Kopp acquisition. Excluding both of these, sales were down 2%. This is a sequential reduction from the 1% improvement last quarter, but is in line with the first quarter. Enerpac sales within tools and supplies, similar to the last two quarters were up in low single digits due to the growth in Asia and Europe including growth due to some of our initiatives in the construction and infrastructure projects. On the picture on the screen you see our Millau Viaduct project site. This is the tallest columnar bridge in the world which is being built in southern France with the use of an Enerpac synchronous lift system. Elsewhere within Enerpac, North America was weaker sequentially than the second quarter, we believe, reflecting the poor industrial economy. Our Gardner Bender sales excluding Kopp were down in mid single digits. Retail is slightly negative, while the wholesale and OEM sales channels were down more due to the continued softness in the commercial construction.

Turning to retail sales in Europe, our Kopp sales for the quarter in Euros were about even with last year despite a weak German economy. The third quarter sales of Kopp were lower than either the first or second quarter due to the seasonality that we have been talking about. In particular, if we look at constant dollar sales for the first, second and third quarter, our third quarter sales were down 21% relative to the first quarter, and we expect a further reduction in the fourth quarter in line with Kopp's seasonal trends.

Turning to our engineered solutions segment, sales in this quarter were up 3% over last year, but down 5% excluding the benefit of currency. The main driver was the forecasted reduction in RV sales. If you recall on last quarter's call, we forecasted a 15-20% reduction in RV sales and we ended up with a 17% decline. This was due to the combination of the loss of the Keystone and Forest River business last year as well as the reduced OEM bill rate this quarter due to the build up of inventory dealers. Excluding these two lost customers, our volume in RV in third quarter was down 8% from last year. Retail sales were essentially flat with the prior year at the end of the quarter, which means that the underlying RV demand is still pretty strong given the second half surge that we saw last year in the RV market.

Turning to the truck sector of the engineered solutions, global truck and off-highway sales were up 6% excluding currency from the third quarter of last year. This is the fourth consecutive quarter now we had top line growth in truck which is primarily due to the strength of our truck OEMs.

On the convertible top standpoint, sales were up 7% excluding currency, but up over 50% in units, reflecting a high concentration of low price point VW Beatles in this quarter sales. We had a number of other new platforms rolled out this quarter that impacted our efficiencies [inaudible] normal production levels including the Peugeot 307, the Reno Megan and the new Mercedes [CLK].

Operating profit for the quarter was $19.4m compared to $19.7m last year. While on the surface, it looks like our operating profit went the wrong way, I want to remind you that this year's operating profit or this quarter's operating profit includes a $1.2m of downsizing cost as well as automotive startup cost that we didn't see last year. Overall, our operating profit and EBITDA margins increased sequentially in the third quarter and we are generally in line with the expectations we had after factoring out the downsizing cost. Our operating profit increased from 11.3% in the second quarter to 13.2% this quarter. Excluding downsizing cost, our margins would have been about 80 basis points higher than the 13.2% operating profit margin we reported or 14%. Kopp's lower margins adversely impacted margins versus last year by about 200 basis points similar to the last few quarters. Lastly, the start-up of our automotive latching JV in Europe, as well as automotive startup here in the US negatively impacted our engineered solutions margins by an additional 80 basis points on a year-to-date basis.

A few other comments on margins looking at it by segment, our tools and supplies operating profit margins were in line with last year excluding Kopp and the downsizing cost. We said last quarter, the inclusion of Kopp brings down our margins by 200 basis points, but this quarter there was even more impact despite the plant closure benefit as a result of the seasonality that I mentioned earlier. Absorption in profit margins in Kopp were down given the 20% reduction in volume from the first quarter. This had an overall profit impact on Actuant's margins by 50 basis points just compared to the last quarter.

Turning to the engineered solution segment, margins were down from last year but improved sequentially and were the highest that we have seen this year. We are happy with the progress made in RV and margins this quarter. Despite the sales decline, we saw improved operating profit margins this quarter in RV by over a 100 basis points from last year and over 300 basis points sequentially. This improvement was in line with our expectations and results from material cost down reductions, as well as improved manufacturing efficiencies in our Mishawaka plant.

Elsewhere in engineered solutions, our automotive margins improved from last quarter, but we are still little bit short of what we had hoped for. Part of this shortfall was due to the number of the new auto platforms going into production. There were learning curves associated with each of these. We have additional opportunity to improve our margins in this segment with material cost downs that will be worked on currently especially in automotive.

Shifting gears away from the income statement on to our cash flow; as Bob commented, we are pretty happy with cash flow for the quarter. Despite having a $7m high-yield bond interest payment in the beginning of May, completing a small acquisition in April, and having some headwind in the form of foreign currency impact on euro-denominated debt, we still lowered our debt below $190m which is the first time that's happened. We had $3.8m capital expenditures for the quarter which is a little bit higher than last year again impacted by currency and the automotive ramp-up activity. Depreciation and amortization in the quarter was $3.6m. Our debt-to-EBITDA leverage was 2.1 times at the end of May, and the company's other credit metrics continued to improve. Availability continues to be strong, we have $85m of availability under our existing revolver and that provides good liquidity for future [ball time] of the type that Bob is going to discuss later on this call. Cash flow remains strong, a strong focus at Actuant despite the tough economy. We are continuing to make payments against our debt as this slide shows. On a trailing 12-month basis, after factoring out the onetime benefit of the tax reform last year, as well as the cash used in acquisition, the company has made debt repayments of $50m over the last 12 months or about $4 a share which is well in excess of our trailing earnings. With that, I am going to turn it back over to Bob.

Thank you, Andy. It has been a little over a year since we completed our secondary equity offering indeed and began to discuss the second gear for Actuant namely how do we grow over the top-line in addition to generating all the free cash flow on the bottom-line. We have been active on a number of fronts in Actuant to grow the business internally. If you look at the Enerpac business, this has been in oil and gas and also in construction like the Millau Viaduct that Andy referred to earlier. In GB, we have a lot of new products that are going into the market, the [Ergo] strippers which won an award last year, color-coated staples both of these are being launched by Lowe's right now, and our good incremental sales force. In Power Gear, we have a new lightweight leveling system that's going on at Monaco. At Power-Packer, we were selling more cab-tilt systems and medical actuation beds in China. It is a brand new business initiative for us.

As you might expect, our best internal growth initiative continues to be convertible tops where during the quarter we were awarded two new models and one replacement model for 2005 and 2006 model years. The one I can describe is called as the Lamborghini, it’s a very small program but obviously very visible program in Europe. Due to confidentiality, I can't discuss the names and details of the other two programs that we won other than tell you one of them is a Japanese model and the other is in Europe. This Japanese model is our first Japanese model. It will probably be made in the United States but it's a Japanese company. So we feel very good about finally breaking into the Japanese car companies.

While none of these are high volume models, they support our view that we are going to double revenue from 2002 to 2006 on the tripling of volume. In addition to these new programs, we had a lot of progress on the rollout of convertible top production in our Glendale, Wisconsin facility. We are presently in production on the Chevy SSR and expect to hit full production on it later this summer. Production on the PT Cruiser starts this fall. So these are the two major programs that we will be going through the Glendale facility in the next year. We had been investing a lot of capital and human resources into these two -- into this new facility and it's exciting to finally see the production starting.

Another area of growth that I want to talk about is acquisitions. We acquired Kopp in September of last year and this has resulted in significant top-line growth for Actuant during the 2003. More recently we completed the acquisition of a small Shanghai-based hydraulics company called Shenzhen this quarter. This business will primarily support Enerpac China but also increases our sourcing capabilities for metal-fabricated products and will export these products to other Actuant businesses worldwide. We acquired this business for about $1.7m consisting of a combination of cash and assumed liabilities. It's about a 50-50 split between those two. We have a fairly full acquisition pipeline right now and a few small built-on acquisitions have the potential of closing in the fourth quarter. To give you a little color on this, the largest deal is about $30m, the smallest deal is about $7m; these are purchase price ranges. The criteria for built-on acquisitions remain the same. We wanted to be complementary to our existing business platforms, accretive to earnings, and modest in size in order to keep our Actuant's debt leverage ratio between 2-3 times EBITDA; obviously, we are at the low end of this as I discussed at the beginning of the call.

Another important part of our business model, both for existing businesses and acquisitions is our LEAD Process. LEAD stands for lean enterprise across disciplines. We want to become more efficient and cost competitive in all areas of the business, and we use a variety of tools from our LEAD tool box to accomplish this. We'd conducted over 200 Kaizen events in the first nine months of this year. We viewed the lot of 8020 [Pareto] analysis to focus on the real value drivers in the business. We viewed the MBF cost down and global-sourcing programs; these are accelerating right now. A good example of our LEAD process and action is with Kopp, where we made significant progress to improve the cost structure of this business. During the quarter, we closed the single stock plant and consolidated the manufacturing to several other sites. Our cost reduction program for Kopp is multi-faceted. First, use the LEAD process to make the business more productive. Second, downsize the infrastructure to support the current level of business we really feel the facility was overcapitalized and over-capacitized when we bought it and then to relocate manual assembly work to other Kopp facilities in low cost countries. We continue to be very pleased with the progress we're making at Kopp and the crew is doing a great job over there. While there is a lot of work that still remains to be done, we are on track to achieve double digit EBITDA margins by 2005 as the guidance we have given you and we are sticking with it.

The last area to discuss is RV, while it only represents 13% of our year-to-date sales, it does tend to generate the most questions from investors and I am sure today's call will be no exception. In an effort to head off some of the RV questions dominating the conference call, I thought I would try to give you some color. We have significantly improved our RV business over the last nine months. Our delivery performance is back on track in the mid to upper 90s, our cost reduction efforts are starting to stick, and importantly we had significantly upgraded the management team at Mishawaka. Our position in the marketplace has stabilized. While we have lost some small projects this year, these losses have been more than offset by addition business with Monaco, Damon, and Coachman. These new wins were due to a refocused effort on new product development and this has lead to some very interesting projects both in terms of slide-out and the leveling product families.

A lot of these new development really relate to [inaudible] and that is a big issue and we've been reducing the weight of these systems considerably. RV demand was light in the first half of the third quarter as many of the OEM's have been running four-day work week. Most of returned to five-day work weeks in late April and early May, most of the recent data that we have is that retail sales are running even with last year and last year was a pretty robust year. So, we are feeling much better about the RV sales and the pull-through to the end user. While we are still experiencing negative comparisons and expect to in the fourth quarter in the 15-20% range, it's really due to loss of Keystone and Forest River last year. As we go into 2004, we are more confident that we will again demonstrate top-line growth.

All of this leads to our guidance for the fourth quarter. For that -- we will have the remainder of the downsizing cut cost that we discussed in last quarter's call as well as the $1m currency gain as we liquidate the Mexican entity. However, we are getting some more help from currency given the Euro relative to the U.S. dollar. With regard to an economic rebound we are not anticipating any in the fourth quarter. On a seasonal basis, our fourth quarter is pretty similar to our third, maybe a bit lower due to the European holidays and vacations. This might be exasperated a little more this year due to addition of Kopp into the seasonality. As of the third quarter our ability to execute our cost on activities is going to be key to the fourth quarter. That being said we are expecting fourth quarter diluted EPS to be in the 75-80 cent range and sales of 140-145m. This compares favorably to the recurring EPS last year of 69 cents a share on sales of 121m.

This would result in full year of fiscal 2003 sales of $577m-$582m, an EPS of 275-280 excluding the litigation cost under vested businesses and the early extinguishment of debt that we previously charged. ATU expects our year-end debt to be in the $170m range including the benefit of the facility sale lease back at Kopp which we are working on.

Moving in the fiscal 2004 guidance, we expect diluted EPS in the $3.10-$3.40 range and sales of $610m-$630m. Some assumptions that go into this guidance are as follows. First, no acquisitions and no divestitures, we expect to purchase the remaining 20% of Kopp for $3m. We have a right to do that, so we are going to exercise that right. Interest rate environment continues to be low, specific given the three-month LIBOR being below 2%, based on $40m-$50m of free cash flow for next year. We expect our interest expense to be in the $20m range which is a mix of our 13% bonds and our LIBOR-based senior facility.

Income tax rate should be in the 35%-35.5% range for next year and the whole year assumes a modest economic improvement from today's level. We will have to overcome negative sales comps that we are presently seeing overall. So it is fair to assume some of this growth would be backend loaded. EBITDA and operating margin should increase about 50 basis points from this year's level partly due to cost-downs, volume leverage, and the Kopp restructuring. All this leads to a $3.10-$3.40 EPS guidance that we gave in our press release. We are driving hard to deliver the EPS growth that we endorsed for this year and we've positioned Actuant for another good year in 2004. Actuant's employees, and Directors, and Officers own 13% of the stock at our company and we are motivated as you are to continue the trend of annual double digit EPS growth for the last three consecutive -- for three consecutive years in a very difficult environment.

Operator, now we will turn it over to hear your lines for questions.

Yes sir, thank you. Ladies and gentlemen if you would like to register a question please press the "1" followed by the "4" on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration please press the "1" followed by the "3". If you are using a speakerphone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Wendy Caplan from Wachovia Security; please proceed with your questions.

Thank you. Good morning.

Hey Wendy.

Good morning Wendy.

Now we used to say, so goes Enerpac, so goes applied power. And no one ever asked about Enerpac. So we'll take the opportunity to do so. Can you talk about some of the strategic initiative; you have alluded to them but some of the specifics that we should anticipate and what kind of margin improvement could be in the work you see at Enerpac?

Okay. The -- I think you are correct. We used to be -- found of saying when Enerpac catches a cold applied power catches pneumonia. I think we've passed that day though -- that was prior to the RV business which is a big chunk of Actuant now. Convertibles have obviously come from nowhere to a $50m running rate. So I think the company has got a little more diversity than it used to. When I look at Enerpac, you know, I look at something that we think is a underutilized asset. It has very good EBIDTA margin, very good return on invested capital, one of the strongest brand names in industrial space and, you know, we really feel like we can extend its served market beyond just high-force hydraulic tools. We can do that through attachments, things like pullers and torque [ranches] and post-tensioning systems. We can do that in some non-hydraulic products that our distributors already sell. And that's really our goal for Enerpac is to make it utilize that the global powerhouse brand name and one of the reasons we added George Bauman (ph.) to the group is just that reason. I think Todd has done a nice job to get in its current level, but I really am looking for to be a much bigger in global powerhouse brand name. I think acquisition activity is going to be pretty brisk in Enerpac as you get into 2004 and 2005. Lot of small fulltime things branded Enerpac sell through our global distribution system.

Thanks that was a good update. And just a brief comp question. Cash flow would [cost] in the quarter? Continues to be positive or--?

Slightly positive overall Wendy. Obviously has to absorb certain amount of restructuring cost in it, but they continue to be positive.

And one more question, I will let someone else have a chance. The cost cutting initiative that went through the P&L, 6 cents per share this quarter. Should it be roughly that amount next quarter and what are you looking at for next year in terms of what assumptions you are making relative to your numbers -- your views?

With respect to restructuring in the fourth quarter -- the downsizing cost I expect them to be a little bit higher than what we saw in the -- this quarter. Probably that -- I put this -- may be a $1.2m-$1.6m which would be 6-8 cents or so a share. That would be somewhat mitigated by the currency again that we were talking about coming through in the fourth quarter as well. In terms of next year obviously we will get cost reduction baked into the underlying forecast that are in there. I don’t have them specifically broken out, but we are looking at modest margin improvements in each of our businesses across the border. The one exception for that would be cost and the exceptions if not modest are pretty significant increase due to the cost savings on [inaudible] breakdown.

You know, I think Wendy I mean you've talked about it -- that, you know, last quarter I think people largely misunderstood what we called restructuring. This is downsizing efforts. Whenever we can find an ability to downsize the cost structure, we aggressively go after that and I think that’s very true in the economy that we are all treading in now and we are going to be doing, you know, other cost down and restructuring for cost dumping initiatives next year. I can't tell you what they are because there was nothing that were visible and obviously we would already be pulling the trigger on them, but I am fairly confident that the guys who report to me the leadership team, you know, are actively looking for ways to improve their profitability. And at least -- I didn’t want to call it downsizing. Because it's just going to something that normally goes through our [inaudible].

Thanks so much.

The next question comes from the line of Deane Dray from Goldman Sachs please proceed with the question.

Good morning Bob and Andy.

Hi Deane.

[inaudible].

I'm doing well. Thank you. First question is on convertible tops just to get clarification, you said your expectations is that you will triple volume with double revenue. So, is this all because of the product mix and the lower price point of the platforms and is anything going on in pricing?

It's all related to the lower prices of both the Beatle and the PT Cruiser which are going to be very high volumes. The Beatle already is -- is a two-cylinder application. No valves needed because it's just doing a single application. Our price point on that is significantly less when you start adding multiple cylinders, latching electronics that [work] windows, all kinds of other things that go into a high-end system like a Mercedes CLK, so that's what drives us. Our margins on each one are pretty similar. It's just the content per vehicle issue.

And is there anything going on just in terms of pricing with the Big Three?

Usual stuff. They are looking for annual cost downs. They do all kinds of value engineering. It's nothing we haven’t dealt with before. It's nothing that doesn’t exist in other channels like DIY, so no -- nothing outside of the ordinary.

Okay, good. And then regarding FX, could you help us understand what sort of earnings impact if we see a 6 percentage point boost on the top line, how much is actually coming in through the earnings?

The way I look at it, the answer maybe a little bit differently is, if the Euro moves against the dollar whether Euro strength is against the dollar buy, a movement from say 90-91 that is one point move is worth $2.5m on the top line on an annual basis -- on an annual basis. When we look at Europe, the operating profit margin there is lower than the rest of the businesses, overall because the Kopp mix in there is about 10%, so in that case if we had a one point move, it will be about $250,000 that would flow through its operating profit of about 1 cent a share in that case.

But if you just look at the quarter we completed because a lot of -- lot of that growth was related to Kopp, it is not as meaningful at the profit line as it was at the top line.

Excluding Kopp, the impact for the quarter was about $7m of sales. I can tell you our operating profit margin was lower than the 10% in Europe given where Kopp was from the seasonality standpoint this quarter, though if you --- you know it's that kind of ratio.

Okay. And then just last quick question. When you talk about your criteria for acquisitions, you said accretive to earnings, what kind of timeframe do you give yourself before it turns into the black?

I think I have walked most people through our system, but I'll do it here too. The way our bonuses and our compensation works in actual, and as we charge [200] it's called combined management measure. It's a 20% charge to the assets that are deployed, and that includes acquisitions and there is no holiday, meaning you don’t get your first year free or your first half year free, it charges on day one. Because of that 20% charge and our interest that we are borrowing on is much less 3%. It tends to be accretive on day one. I would be shocked if a deal -- it would have to be a very unique deal with no assets deployed, no -- to be somehow accretive on a CMM versus an EPS. So I think, its day one Deane and it tends to be without synergies.

Yes, that's what we saw in Kopp in each of the three quarters that we've had Kopp thus far. It has been slightly positive from an EPS standpoint.

Great. Thank you.

The next question comes from the line of Peter Lisnic from R.W. Baird. Please proceed with your question.

Good morning, gentlemen.

Good morning.

Couple of quick numbers type questions. First, Andy, you mentioned restructuring $1.2m-$1.6m for the fourth quarter that does not include the FX number, right?

That is correct. That's gross. The FX, it was a roughly a million [inaudible].

Okay, so 200-600 is kind of a nonrecurring -- net nonrecurring number, I guess?

Yes.

Okay. You also added some disclosure to the back of your release and you're including an other income line by segment and I am just wondering what the big swing factor is in that Tools & Supplies line because it was negative briefly for the past six quarters and $1m positive in the third quarter. What -- is that currency related or what's going on there?

Currency.

Okay.

And primarily because [they are in a pact] with the global major [inaudible].

Okay. Thanks. Next question, in terms of the sale lease back that you're planning on executing in the fourth quarter, can you talk about what the cash flow dynamics are?

We had -- the net proceeds that we received from that thing would be somewhere in the range of 10-12m that we would use to reduce debt going forward.

Okay. I want to caution you guys, you know, we are working on it. Sale lease backs in Europe are little more tricky than in the U.S., just because it tends -- it’s really a different kind of sales lease back market. I just want to caution you that if that fell out of the fourth quarter into the first quarter next year, we don’t view that as a big disaster. It’s just a question [of getting] timing and making sure you’ve got a good competitive sales lease back, so, I just caution, you don’t spend a lot of time worrying whether that falls in August or [falls] in the September or October.

Okay, fair enough. Last question over to [inaudible]. In terms of Kopp profitability there and you talked about getting to double-digit EBITDA margins by '05. Can you comment on where we are, how much progress you’ve made and some of the things that you are looking to do outside of the sale lease back, and just what kind of progress we are making?

Yes, we are making a lot of progress. The problem in Germany is it just takes a long time. There is a fair amount of legislation that you work through. You work through with worker’s council. The worker’s councils are getting advised by other unions and other worker’s councils, and the process takes a long time. And everything so far has been on track and has been handled as we expected. Again, we did close Ingolstadt(ph) facility. That was a nice early win but the stuffs that's going on now is on track. It relates to the [Kahl] facility. We have improved our EBITDA margins in each of the quarters that we have own Kopp if you adjust to the fact that there is volume absorption going on. I guess what I am saying is -- is that, you know, we are taking small bites of the apple and Kopp is gradually improving from the day we bought it. There haven’t been any surprises to the negatives. There haven’t been any things that have come out that have, you know, been big surprises to us, I think the top line has held in there probably better than we expected on the day we did that deal. And we are just marching down that road. It is possible that we could get to a double-digit EBITDA margin in some quarter next year. We want to caution you is because of the seasonality, you know, the third and fourth quarter are weaker and that’s when you would had more of the full benefit of some of the restructuring initiatives and downsizing initiatives that we are doing.

Okay, but it sounds like you’ll get the big bulk or bite of that apple next year from these things that you are doing right now?

Yes, but you know, the timing of these things is highly dependant on when you start the notification period in [Kahl], and that has not started yet. And that have a [lee time] to it and then at the back-end of that you can start, you know, downsizing the organizational infrastructure.

Okay, great. Thanks for your time.

Ladies and gentlemen as a reminder to register your question press the "1" "4." Our next question comes from the line of Scott Graham from Bear Stearns. Please proceed with your question.

Good morning, Scott.

Good morning guys. Three questions for you. If you could, Bob, summarize for us over the last 12 months the number of convertible top programs that have been awarded and the number that you have won of that Award.

The numbers are getting a little blurred because some are replacement models both new to -- I think the number right now is that we have won 14 out of 18 programs. To take it down to the last quarter, we were in and that would -- that might not include some of the replacement models -- 14 out of 19 Andy is telling me. We did not get awarded one program this quarter. So we think, we are kind of 3 for 4 this quarter. That was the Mini -- the Cooper Mini; it’s a small program in Europe, and it went to our competition. Couple of big ones are on the tee right now that we discussed with you guys at the January meeting. The fairly large BMW one, there is a Chrysler one, there is a Volkswagen one, and these are probably in the next 90 days going to be awarded.

Great, that’s awesome. The next question is, you guys because of the way your quarter fell, really saw the beginnings of weakness when the Iraq war was imminent in March and then sustained the period of war in April. So my question is have you seen sales trends improve since the beginning of the quarter to kind of get back to just general sluggishness or was there nothing discernible?

I think we are back to where we were in the January, February timeframe on a year-over-year comparison. We didn't really, you know, I think the Wall Street crowd reacted more negatively to the Iraq thing. From our industrial point of view it was over so quickly that I don’t think it really is that noticeable in any area other than RV, and I am not sure RV was that sort of related to Iraq as much as inventory build that happened in the fourth quarter of last year and these units had to get out into the fields. So, you know, I guess I would say we saw maybe a very small noticeable dip going into that conflict and a small recovery of that dip coming out of that conflict, but still a pretty choppy market, still a pretty tough place to show a year-over-year over growth in industrial businesses.

Okay.

Almost half of our business is outside of North America, very close of half, and that business particularly saw no moment up or down as the result of Iraq.

Okay. Last question is on Gardner Bender, where I am sure that its been frustrating to watch a really good housing market and then just a very lackluster weaker sales environment, and I am wondering if we are at the point right now where given the amount of housing turnover that has been out there over the last year which is typically a company by a 12-18 month period of in-home fixing and things along those lines that really feature right into Gardner Bender's real house. If you start to see some buyers of these larger retailers, particularly the big two, I know that you have gained some business elsewhere, but so even -- please include them. If you are beginning to see a little bit more excitement out there about the second half of the year in the do-it-yourself channel?

No noticeable trend one way or the other.

That's amazing. Okay, alright. Well that's good enough; I appreciate nice quarter and evening later today.

Thanks.

Thanks.

The next question comes from the line of Jeffery Brown from Credit Suisse First Boston. Please proceed with your question.

Hi, just a couple of quick questions. First on the RV you kind of answered the question actually a couple of seconds ago, but is it more of -- was there an inventory built-up at the dealers and then a subsequent falloff of demand or the demand kind of always okay versus last year, but dealers just kind of go over [inaudible] and bought too much inventory.

It's the latter of the two. I mean, retail sales this year have been within a few percent of last year and overall. It's just there was a fill in the dealer inventory last fall and they were eating into that this quarter.

That's fairly normal, they come out with these new models at the [Louie Will] show and you get this [inaudible] and then they start thinking about taking the next years model and its not -- it has happened several times over the last five years where the ordering activity in the January to March quarter is little bit inconsistent. There was also a number of mixes within the customers, I think the number that you saw that went to [inaudible] announcement last week, that's not a customer loss, but they were announcing things -- you got some market share moves going I think [inaudible] has been winning a little bit of market share, others have been losing a little bit of market share and these mixes have affected us also. I think net to the good but, you know, you got puts and takes.

Right. In Europe, how was RV demand over there as far as I know that was something that you want to grow. Has that been growing the way you thought it would?

No it has been a little late, I mean, we didn't expect that much this year. We expected about a $1m in RV with Harvey. That program has gone slower due to some technical issues related to the RV, not really related to our product and we have supplemented a second customer called robust.

West (inaudible).

[inaudible], thank you Andy. That is a slight up product, its kind of like the old [inaudible] slide-up product and that application seems to be taking a little bit of a lead with over Harvey but, you know, I think we are very positive about the market, it just, you know getting the lead horses to start adopting slide ups in the Europe market, taken a little longer than we had expected.

Thanks and two quick, I guess -- technical questions. What's the draw on the areas like $25m turnaround?

$24m at the end of the quarter.

$24m. The units in thousand and reverse way you took as that -- that is probably below the operating profit?

That's below -- it is below the operating -- it is broken out as charge with relating some litigation and divested units.

Okay. It's written -- sorry about that. Okay thank you very much.

Thank you.

And I am not showing any further questions, I will turn the call back to you.

Well. Thank you very much for attending our call and your support of Actuant. We view that third quarter is a very positive quarter. We delivered sizeable EPS growth in a very poor economic environment. The quarter started early and suddenly the war and moved into the war then out of war and our short-cycle business, specifically the Enerpac and GPU were impacted most. Actuant's EPS growth 18% through three quarters excluding special charges was well within our goal for the year and what has been a much tougher economy than anyone expected a year ago when we set those ranges. We are on track for another good year next year. I am very proud of the year we are putting together. I want to thank all my fellow employees for making this happen. If you have additional questions Andy and I are here all day today and tomorrow to answer any of your follow-up questions. Thank you and good bye.

Ladies and gentlemen, this concludes the conference call for today. We thank you all for your participation and ask you to please disconnect your line.